Former WorldCom Inc. Chief Executive Officer Bernard Ebbers and 18 ex-WorldCom officials are involved in the settlement, which must be approved by US District Judge Denise Cote, Bloomberg reported. Besides Ebbers, among those settling are former WorldCom Chairman Bert Roberts and the estate of former Vice Chairman John Sidgmore, who died last year, as well as officials who administered the employee benefit plan.
The deal leaves 401(k) fund trustee Merrill Lynch Trust Co., a subsidiary of Merrill Lynch & Co. , as the only active defendant. A suit against ex-WorldCom Chief Financial Officer Scott Sullivan has been put on hold until after he is sentenced for his role in the company’s massive accounting fraud. The employees of WorldCom, which emerged from bankruptcy in April as MCI, are seeking about $100 million from Merrill, their lawyers said.
The settlement includes an immediate cash payment of $47.1 million when Cote approves the pact. In addition to the MCI payment, the fund’s primary insurer, American International Group Inc.-owned National Union Fire Insurance Co. of Pittsburgh, Pennsylvania, has agreed to pay $10 million, subtracting for its legal defense costs, said Lynn Sarko, a lawyer for the employees.
The fund’s excess insurers, who deny liability because their policies were allegedly invalidated by the fraud, will pay $18 million, Sarko said. The excess insurers include Twin City Fire Insurance Co., Continental Casualty Co. and Gulf Insurance Co.
For his part, Ebbers will pay as much as $4 million, depending on how much he eventually pays MCI for debts owed it, Sarko said. Beyond a $450,000 minimum payment to the employees, Ebbers will pay 1% of whatever he eventually pays to MCI, up to a combined total of $4 million to the employee plaintiffs, Sarko said.
The employees sued WorldCom as well as Ebbers and others to recover money their 401(k) accounts lost by investing in company stock. The suit claimed WorldCom caused employees to keep WorldCom stock in their 401(k) accounts while knowing the company was overstating income.
The case “will test the premise of whether Merrill had a right to stand by and do nothing as the WorldCom stock price plunged and eventually the company filed for bankruptcy,” said Sarko, according to Bloomberg. “Do they have the right to stand by and see the retirement plan’s assets crash and become worthless and claim it wasn’t their job?”
In May, WorldCom investors settled claims against Citigroup for $2.65 billion. The investors, who said Citigroup sold WorldCom securities at inflated prices, have claims against a dozen other WorldCom underwriters.
Former WorldCom officers and investment banks still face billions in potential liability in the investor class action pending in New York federal court. That case is scheduled for trial in January.
The criminal prosecution of Ebbers for securities fraud, also in New York federal court, is scheduled for November 9.
Ashburn, Virginia-based WorldCom filed the largest bankruptcy in U.S. history in July 2002 after an $11-billion accounting scandal left the company unable to pay its debts.