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10 Ex-WorldCom Directors Agree to Settlement

The lead plaintiff is the New York State Common Retirement Fund. A spokesman for the fund's trustee, New York Comptroller Alan G. Hevesi, declined to comment on the proposed deal, which was reported Wednesday night on the Wall Street Journal's Web site. Sources said plaintiffs had insisted that the directors pay personally for their involvement in the scandal, above and beyond their insurance, as one of the conditions of the deal.

Several former company accounting officials have already pleaded guilty to fraud charges, including former chief financial officer Scott D. Sullivan. Former WorldCom chairman and chief executive Bernard J. Ebbers is scheduled to go on trial on charges of criminal securities fraud this month.

_____Post 200 Profile_____
MCI Inc.
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WorldCom Q&A
WorldCom History
_____MCI Coverage_____
Blame for Scandals Entering the Boardroom (The Washington Post, Jan 7, 2005)
Judge Says MCI Broke Pay Rule (The Washington Post, Nov 25, 2004)
Keeping Internet Phone Service Simple (The Washington Post, Nov 8, 2004)
Story Archive and Company Background

The amount to be personally paid by the former WorldCom board members would be unparalleled for outside directors not directly involved in alleged corporate wrongdoing.

In May of last year, 12 former Enron Corp. outside directors agreed to pay a combined total of $1.5 million from their own pockets to settle a civil suit filed by the Department of Labor on behalf of Enron employees who lost retirement savings when the Houston energy trader collapsed. As part of a separate settlement announced at the same time, insurance companies covering former outside Enron directors agreed to pay former Enron employees an additional $85 million.

Outside directors at scandal-ridden companies are generally well-protected from criminal prosecution and civil lawsuits. Prosecutors must prove that outside directors acted with criminal intent, a much higher bar than accusing board member of failing to pay attention at meetings or scrutinize the actions of corporate management. In civil cases, plaintiffs generally must prove that outside directors acted in bad faith and clearly violated their "duty of loyalty" to protect shareholders.

"Typically the complaint about outside directors is that they don't care or they don't know anything," said Henry T.C. Hu, professor of corporate and securities law at the University of Texas at Austin. "Typically that's not a violation of the duty of loyalty."

But legal experts have suggested that courts may be becoming more open to holding outside directors to a tougher standard. As an example, experts have pointed to the fact that a special business court in Delaware, where many public companies are incorporated, allowed a suit against Walt Disney Co. directors to go forward. Such cases have usually been thrown out before reaching the courtroom. The Disney case, over a large severance package paid to former Disney president Michael S. Ovitz, is expected to wrap up later this month.

Staff writers Carrie Johnson and Ben White contributed to this report.


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