NEW YORK, March 18 -- A group of 11 former WorldCom Inc. directors on Friday night agreed to pay $55.25 million to settle with plaintiffs in a class-action shareholder suit, according to lawyers in the case.
The directors agreed to pay $20.25 million of their own money as part of the deal, said a statement from the office of New York State Comptroller Alan G. Hevesi, trustee of the state public pension fund and lead plaintiff in the case. That would be a rarity in such settlements and could set a precedent for future deals. Insurance companies will cover the rest.
The new agreement is similar in many ways to an earlier deal under which 10 former directors agreed to pay $54 million, including $18 million of their own money, to settle the case. The directors were charged with failing to protect investors by not stopping the $11 billion accounting fraud that sent WorldCom into bankruptcy court in 2002.
The new agreement comes on top of more than $6 billion in settlement money pledged by WorldCom's investment banks. Citigroup Inc. and J.P. Morgan Chase & Co., WorldCom's biggest underwriters, account for $4.6 billion of that amount. That makes the case by far the biggest recovery in the history of securities fraud class-action cases. The second-largest amount came in 1999, when Cendant Corp. and its auditors agreed to pay about $3.2 billion to settle accounting fraud claims.
The judge in the WorldCom shareholder case, Denise L. Cote, rejected the initial deal because of one technical provision. She must still approve the new agreement, but attorneys said it includes provisions intended to address her concerns.
Hevesi's statement said, "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." The trial is scheduled to begin next week.
Jeff Golan, an attorney for the shareholders, said, "This type of settlement furthers the goal of making directors accountable for their actions of the companies on whose boards they sit, while also empowering them to ask tough questions and demand management responsiveness."
The former WorldCom directors involved in the settlement are James C. Allen, Judith C. Areen, Carl J. Aycock, Max E. Bobbitt Jr., Clifford L. Alexander Jr., Francesco Galesi, Stiles A. Kellett Jr., Gordon S. Macklin, John A. Porter, Lawrence C. Tucker and the estate of John W. Sidgmore. Galesi was not part of the first settlement.
Roberts has so far declined to join the settlement. An attorney for Roberts could not be reached for comment on Friday.
Unlike most settlements, where investors receive pennies on the dollar, WorldCom investors are expected to get as much as half of the damages they are seeking, according to lawyers for the plaintiffs. About $5 billion in settlement money is expected to go to WorldCom bondholders, with the rest going to stockholders.
Hevesi demanded at the start of settlement talks that former WorldCom directors pay some of their own money as part of any deal. Typically, directors rely on insurance coverage to pay any legal settlements or judgments.
Shortly after the initial WorldCom director settlement deal was announced, a group of former Enron Corp. directors agreed to pay $168 million, including $13 million of their own money, to settle their part of a class-action securities lawsuit.
Some corporate governance experts and consultants have said the personal payments could start a trend in such cases and cause directors to keep much closer tabs on corporate management. Others, however, have warned that the payments could discourage otherwise qualified people from serving on corporate boards.