July 14, 2005 in Business

WorldCom victims are still waiting

Michael Martinez Associated Press

NEW YORK – Bernard Ebbers is heading to prison, but investors victimized in WorldCom Inc.’s $11 billion accounting fraud and hoping for a share of the settlement money still have a wait ahead of them.

With WorldCom’s former executives sentenced and Enron Corp.’s chiefs awaiting trial in January, the lawyers litigating investor class-action suits against corporate America’s two biggest malefactors are still collecting settlement funds and working to come up with formulas on how to distribute the money received – a process that could take months.

The University of California’s Board of Regents, which recently won a $2.2 billion settlement from JPMorgan Chase & Co. and $2 billion from Citigroup over Enron, is serving as the lead plaintiff in a class-action suit against Wall Street firms for their alleged role in covering up Enron’s accounting issues. With suits against other investment banks, notably Merrill Lynch & Co. Inc. and Deutsche Bank AG, still outstanding, the money won’t be distributed until all defendants have settled or gone to trial, the university said.

A spokesman for New York State Comptroller Alan Hevesi’s office, which is managing some of the WorldCom-related settlements, said it too is still collecting funds – most notably from Ebbers himself, who recently agreed to surrender about $40 million in assets. Those funds will be retained in a trust for investors who lost money on WorldCom stock.

Judges in both cases must approve of a system to divide up the settlement funds in order to give claimants at least part of their money back. The settlements won’t come close to making investors whole – Enron’s collapse wiped out some $70 billion in shareholder value, while WorldCom’s market capitalization peaked at $180 billion before evaporating to nothing in bankruptcy.

Because of the outstanding issues involved and the need for court approval of any distribution plans, neither the university nor Hevesi’s office would give a time frame for when investors might see restitution.

In the various lawsuits filed against the bankrupt companies, Wall Street firms and individuals connected with the scandals, the cases have been anchored by large pension funds – from state and local government as well as private funds – who had the biggest stakes in the two companies and will likely receive the biggest share of any settlements.

The U.S. Securities and Exchange Commission has set up a “fair fund” for WorldCom investors as part of WorldCom’s settlement with the SEC on securities fraud charges. The fund holds $750 million for distribution to investors who held WorldCom stock or bonds from April 29, 1999, when the company’s fraud started, through its 2002 bankruptcy.

While the SEC has filed numerous actions against Enron executives, it has not filed against the company itself, and thus has no fair fund for Enron investors.

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