Former WorldCom Inc. chief executive Bernard J. Ebbers joined 18 other executives and the company itself in agreeing to a lawsuit settlement that could pay the telecommunications giant's workers as much as $51 million.
The preliminary agreement, filed with a New York federal court yesterday, is designed to partly compensate approximately 50,000 employees who lost billions of dollars in their 401(k) retirement plans after the company filed for bankruptcy in 2002.
Under the deal, Ebbers would pay at least $400,000 and as much as $4 million. The company and its insurers would pay $46.75 million.
The settlement must still be approved by U.S. District Judge Denise L. Cote in New York.
Through their WorldCom 401(k), workers owned as much 46 million shares of company stock before it filed for bankruptcy in the wake of a massive accounting scandal. Ebbers was forced to step down just months before WorldCom's collapse, after it was revealed that he borrowed hundreds of millions of dollars from the company to cover his personal stock losses. He has been indicted on charges of conspiracy, securities fraud and making false filings to the Securities and Exchange Commission, and is scheduled to go on trial in November.
WorldCom, based in Ashburn, changed its name to MCI Inc. after emerging from bankruptcy this year.
Under the proposed deal, Ebbers must make an initial cash payment of $400,000. He would also sign a promissory note that calls on him to pay $450,000 to $4 million more, with the amount tied to how much he repays on the $400 million he borrowed from the company. The settlement calls on Ebbers to pay the 401(k) plan an amount equal to 1 percent of those future repayments.
Ebbers is one of 18 former WorldCom executives covered by the settlement. Payments by other executives would be covered by the company and its insurers. Ebbers's attorney, David Kaufman, declined yesterday to comment on the settlement.
"This settlement is a positive step toward putting our past behind us once and for all. With this civil litigation against the company now concluding, we can place even greater focus on future success," MCI spokesman Peter Lucht said in a prepared statement.
Gary Gotto, a lawyer who represented the workers in the settlement, said yesterday that the deal covers all employees who participated in the corporate 401(k) plan. If the settlement proposal is approved by Judge Cote, workers would be notified by mail. The settlement money is not expected to cover the entire loss suffered by each worker, Gotto said.
If the settlement is approved, money would be deposited directly back in the workers' 401(k) plan. If a worker has rolled the account over to a new employer, the money would automatically be deposited in the new account. If the account has been closed, the plan would set up a new account in the employee's name.
Former WorldCom chief financial officer Scott D. Sulllivan was also named in the class-action suit but was not included in the settlement. Gotto said an agreement with Sullivan will be negotiated after he is sentenced on WorldCom-related fraud charges in November. Merrill Lynch Trust Co. of America, which administered the plan, is also named in the class-action suit but is not part of the settlement. Negotiations with Merrill continue, Gotto said.