A landmark agreement by former WorldCom directors to pay millions of dollars of their own money to settle with investors was revived on Friday, about six weeks after it was scuttled by objections from other defendants in the case.
Under the terms of the settlement reached on Friday evening, 11 former WorldCom directors will pay US$20 million out of their own pockets to settle with Alan Hevesi, comptroller of New York and trustee of the state's Common Retirement Fund.
Hevesi is lead plaintiff in the civil suit representing hundreds of thousands of investors who held WorldCom stock and bonds in the years immediately before its bankruptcy filing in 2002.
If the settlement is approved by the court, it will bring to US$6.057 billion the total amount recovered from defendants by Hevesi in the case.
The initial deal between the directors and Hevesi was announced in January and was viewed as a rare case of investors holding directors accountable for problems occurring on their watch. But the agreement fell apart in early February when the judge overseeing the case ruled that an aspect of the deal was illegal because it would have limited the directors' potential liability and exposed other defendants in the case to larger damages.
Because all the banks in the case have now settled with Hevesi, the impediment to the directors' settlement was removed. J.P. Morgan Chase, a lead banker to WorldCom, settled on Wednesday. It was the last major bank to settle.
"We are delighted that with the last of the bank settlements, we can now revive this historic settlement and proceed to trial against WorldCom's former auditor, Arthur Andersen, and its former chairman, Bert Roberts," Hevesi said in a statement.
The former directors who were a part of Friday's settlement are Clifford Alexander, secretary of the army under former US president Jimmy Carter and later chief executive of Dun & Bradstreet; James Allen, former chief executive of Brooks Fiber Properties, a telecommunications company acquired by WorldCom; and Judith Areen, a former Georgetown Law Center dean.
Also, Carl Aycock, an early investor in WorldCom; Max Bobbitt, a private investor who was also chief executive of Metromedia China; Francesco Galesi, a real-estate developer; Stiles Kellett, a private investor who led WorldCom's executive compensation committee; Gordon Macklin, a former president of the National Association of Securities Dealers; John Porter, a private investor who has filed for personal bankruptcy in Florida; and Lawrence Tucker, a partner at Brown Brothers Harriman.
The estate of John Sidgmore, a former WorldCom executive and director who died in 2003, also agreed to the settlement.
The directors who settled with the New York fund neither admitted nor denied wrongdoing, as is customary. All were WorldCom directors from 1999 to 2002.
Bert Roberts, WorldCom's former chairman, did not agree to the deal. He and Arthur Andersen, WorldCom's auditor, are the remaining defendants in the case. Jury selection is to begin on Thursday.
The settlement with directors came the same week that Bernard Ebbers, WorldCom's founder and chief executive, was found guilty of directing the US$11 billion accounting fraud that felled the company.
He was convicted of securities fraud, conspiracy and seven counts of filing false reports with regulators.
The directors' personal payments were a requirement of any deal from the early days of their negotiations with Hevesi's lawyers. Given the enormous size of the WorldCom debacle, Hevesi sought to make an example of the directors, lawyers involved in the settlement said.
The amounts being paid will differ for each director. The precise amounts were not disclosed, but the payments will amount to roughly 20 percent of the directors' aggregate net worth, not counting their primary residences and retirement accounts.
Insurance companies that provided directors' and officers' liability coverage to the WorldCom board members will also pay US$35 million under the settlement.
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