Citigroup settles Worldcom lawsuit for $2.65B
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Citigroup settles Worldcom lawsuit for $2.65B
Eric Durr
The Business Review
Citigroup has agreed to a $2.65 billion settlement with New York Comptroller Alan Hevesi's office to settle the Worldcom Class Action lawsuit.
Hevesi is the lead plaintiff in the lawsuit, and is the sole trustee of the New York State Common Retirement Fund which is valued at $118 billion.
Hevesi made the announcement May 10, the day the U.S. Court of Appeals for the Second Circuit was due to hear arguments in the case.
Hevesi and the Securities and Exchange Commission argued that analysts like Jack Grubman, who worked for Citigroup brokerage unit Salomon Smith Barney, promoted Worldcom securities even though they knew the company was in trouble in order to secure business for their company. Investors who relied on his reports lost money based on false claims, the lawsuit argued.
The defendants will pay $1.45 billion to settle claims of investors who purchased bonds that WorldCom issued in May 2000 and May 2001. Salomon was underwriter for approximately one-third of the outstanding bonds issued in those offerings.
The Citigroup defendants will also pay $1.19 billion to investors who bought WorldCom common stock and other publicly-traded securities of WorldCom.
The Citicorp settlement is the second largest in a securities class action, according to Hevesi. It is the largest amount ever recovered in a securities class action from a party that did not issue the securities at issue.
"With this settlement we have gained an extraordinary recovery for WorldCom bondholders and stockholders," Hevesi said in a written statement.
"This settlement, while historic, is only the first step. We will continue to pursue our claims against the others who bear responsibility for the debacle at WorldCom, including the remaining 17 underwriters, WorldCom's auditor, Arthur Andersen, and the former directors and senior officers of WorldCom," he said.
Hevesi praised Citigroup CEO Charles Prince for reaching the settlement agreement.
Former Comptroller H. Carl McCall, who initiated the class action lawsuit, joined Hevesi at the press conference.
The parties to the settlement are Citigroup Inc., Citigroup Global Markets Inc., formerly Salomon Smith Barney Inc., Salomon Brothers International Limited, and former securities analyst Jack Grubman.
The settlement resolves the claims asserted against the Citigroup defendants in the WorldCom securities class action. These claims fall into two categories: claims arising from WorldCom's public bond offerings in 2000 and 2001, and claims arising out of the purchase of publicly-traded WorldCom securities in the open market between April 29, 1999 and June 25, 2002.
Litigation will continue against 17 investment banks that underwrote the remaining two-thirds of those WorldCom bonds. These include J.P. Morgan Securities, Bank of America Securities, and Deutsche Bank.
These banks have 45 days to agree to the Citigroup settlement under the same terms. If they do so, Hevesi said, another $2.8 billion would be paid to bond purchasers.
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