NEW YORK, March 3 -- Bank of America Corp. agreed Thursday to pay $460.5 million to settle its part of the massive WorldCom Inc. class-action shareholder lawsuit, putting additional pressure on the 14 remaining banking defendants to settle as well.
Plaintiffs in the case, led by the New York State Common Retirement Fund, allege that Bank of America and other banks helped sell billions in WorldCom stock and bonds to investors in 2000 and 2001 even though they knew the telecommunications firm was falsifying its books. The banks have generally argued that they could not have known about WorldCom's fraud.
Bank of America denied breaking any laws in agreeing to the settlement. The firm said in a statement, "Bank of America believes it is in the best interests of the company to resolve these claims and put this litigation behind it and focus efforts on creating greater value for the shareholder."
The Bank of America settlement comes after Citigroup Inc., WorldCom's top underwriter, agreed last year to pay $2.6 billion to settle its portion of the case. If a federal judge approves the Bank of America settlement, total recovery in the case will rise to over $3 billion, the second largest amount in history, according to the WorldCom plaintiffs.
Hotel franchiser Cendant Corp. and its auditors agreed to the largest shareholder settlement in 1999 when it said it would pay investors and their lawyers $3.2 billion to settle accounting fraud claims. Further settlements in the WorldCom case could push the number well beyond $3.2 billion.
New York State Comptroller Alan G. Hevesi, sole trustee of New York's $120 billion public pension fund and the court-appointed lead plaintiff in the case, said the amount Bank of America paid was significant because it was determined using the same formula applied to Citigroup even though some argued that Citigroup was paying far too much to settle the case.
"The fact that we have achieved a settlement of this magnitude, and at the same rate as Citigroup paid earlier, sends a strong message to investment banks that investors expect and will require them to conduct meaningful due diligence, and not merely rely on others to perform their obligations. The public is entitled to disclosure of all relevant information relating to a stock or bond issuance," Hevesi said in a statement.
The class-action suit was 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 falsified its books to appear profitable in three years when it was actually losing money. WorldCom emerged from bankruptcy and now operates as Ashburn-based MCI Inc. The firm is currently examining takeover offers from Verizon Communications Inc. and Qwest Communications International Inc.
Leonard Barrack, an attorney for the plaintiffs, said the Bank of America deal would put added pressure on the remaining banks because each time a defendant settles it increases the potential liability of those remaining in the case. Experts have said they expect all of the banks to settle before the case goes to trial, scheduled to begin March 17.
The Bank of America deal also follows the collapse of a settlement with 10 former WorldCom directors who had agreed to pay $54 million, including $18 million of their own money, to close their portion of the case. The settlement dissolved after the judge overseeing the case rejected a key portion of the deal. Sources close to the case say a new settlement with the directors is unlikely but not impossible.