NEW YORK, Jan. 5 -- Ten former outside directors of WorldCom Inc. have tentatively agreed to pay $54 million -- including $18 million out of their own pockets -- to settle part of a class-action securities lawsuit stemming from the company's accounting scandal.
The proposed deal would be the largest of its kind and requires the 10 directors to pay more than 20 percent of their combined net worth, according to lawyers on both sides of the negotiations. WorldCom's directors liability insurance carriers would pick up the remaining $36 million.
The agreement in principle has not been signed and must be approved by U.S. District Judge Denise L. Cote, said the lawyers, who spoke on the condition they not be identified because the deal is not final.
James D. Wareham, an attorney in the Washington office of Paul, Hastings, Janofsky & Walker LLP who represents former WorldCom director James C. Allen, confirmed that Cote was alerted Wednesday evening that a deal had been reached. Wareham declined to provide details about the settlement. The judge could receive the formal papers as soon as Thursday, sources said.
The agreement is significant given that none of the 10 settling directors -- Allen, Judith Areen, Carl J. Aycock, Max E. Bobbitt, Clifford L. Alexander Jr., Stiles A. Kellett Jr., Gordon S. Macklin, John A. Porter, Lawrence C. Tucker and the estate of the late John W. Sidgmore -- were alleged to have directly participated in the accounting fraud that led to WorldCom's collapse.
Bobbitt declined to comment. Other former directors either could not be reached or did not return calls placed Wednesday evening.
None of the former directors are currently on the board of the company, which emerged from bankruptcy protection as Ashburn-based MCI Inc.
"This is a watershed development by imposing personal liability on corporate directors beyond the scope of insurance coverage," said WorldCom's court-appointed corporate monitor, Richard C. Breeden, former chairman of the Securities and Exchange Commission. "It will send a shudder through boardrooms across America and has the potential to change the rules of the game."
The class-action suit had been filed by shareholders and bondholders who lost billions of dollars when the telecommunications giant filed for Chapter 11 bankruptcy protection in 2002 after revealing it had manipulated its books to appear profitable in three years when it was instead losing money.
The lawsuit is slated to go to trial before Cote in Manhattan. The remaining defendants include more than 15 investment banks that underwrote WorldCom's bond deals before the company collapsed. Two remaining outside directors, Bert C. Roberts Jr. and Francesco Galesi, continue to discuss a similar settlement, the sources said.