Ebbers Tries to Settle Shareholder Lawsuit

By Carrie Johnson and Ben White
Washington Post Staff Writers
Thursday, June 9, 2005

Convicted former WorldCom Inc. chief executive Bernard J. Ebbers is negotiating to settle a class-action lawsuit filed by investors in the nation's second-biggest telecommunications firm for an undisclosed sum, according to lawyers involved in the case.

Former WorldCom finance chief Scott D. Sullivan and two other officials who pleaded guilty to participating in a widespread accounting fraud at the Ashburn company also are taking part in the settlement talks, lawyers said.

Word of the settlement talks came as federal prosecutors said they would not stand in the way of a resolution of the civil case. Assistant U.S. Attorney David B. Anders filed court papers in New York on Tuesday telling a judge that the government would not seek financial restitution from Ebbers or three other defendants.

Rather, prosecutors said, the men would make payments into a broad settlement fund to be distributed to victims of the fraud. Anders added that there are more than 3 million potential claimants and that the amount each person would receive would not be determined by plaintiff lawyers until next year.

Investors lost billions of dollars when WorldCom filed for protection from its creditors in July 2002. The company eventually reported $11 billion in phony accounting entries after the earnings manipulation unraveled. WorldCom emerged from Chapter 11 protection last year and now operates as MCI Inc.

A federal jury convicted Ebbers, 63, of nine counts of conspiracy, securities fraud and false filings in March. Ebbers is scheduled to receive on July 13 his criminal sentence, which could put the former corporate titan behind bars for decades. Reaching a settlement in the largest civil lawsuit against him could help him win some credit at sentencing from U.S. District Judge Barbara S. Jones, legal experts said.

"The government, Mr. Ebbers and the plaintiff class in the WorldCom civil class action are working in good faith to effect a settlement," David F. Wertheimer, a lawyer for Ebbers at Hogan & Hartson LLP in New York, said in a telephone interview.

Lawyers for Sullivan, former controller David F. Myers and onetime accounting director Buford T. Yates Jr. did not return calls yesterday seeking comment.

But the class-action lawsuit, led by New York State Comptroller Alan G. Hevesi, already has recovered billions of dollars for investors. A group of investment banks that advised WorldCom shelled out more than $6 billion, former board members agreed to pay more than $55 million, and accounting firm Arthur Andersen LLP paid $65 million.

A spokesman for Hevesi declined to comment yesterday.

U.S. District Judge Denise L. Cote, who is presiding over the civil lawsuits, must approve any settlement with Ebbers and the other defendants.

A source briefed on the possible settlement -- speaking on the condition of anonymity because he did not have authorization to comment -- said an agreement could be announced soon, perhaps within the next few days.

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