- The Washington Times - Saturday, January 8, 2005

NEW YORK (AP) — Ten former WorldCom directors will personally pay $18 million to compensate for investor losses from an accounting scandal that caused one of the largest bankruptcies in U.S. history.

The news yesterday came on the same day a preliminary settlement was announced requiring 10 former Enron Corp. board members to pay $13 million of their own money to resolve an investor lawsuit over the energy giant’s 2001 meltdown. It was the second time former Enron board members have used their own funds to resolve lawsuits.

The payments will mark one of the few times that executives who presided over corporate misdeeds have agreed to assume any personal financial liability for the resulting damage.

The WorldCom director payments, equal to slightly more than 20 percent of their combined net worth, will be supplemented by another $36 million from insurance policies taken out by WorldCom on behalf of the directors, according to the deal announced yesterday by lead plaintiff New York State Comptroller Alan Hevesi. As with nearly all securities settlements, the directors did not actually admit to any wrongdoing in the WorldCom fraud.

The deal, which does not resolve all damage claims in the scandal, comes nearly two months before the civil case goes to trial and about two weeks before the start of a federal criminal trial against former WorldCom Chief Executive Bernard Ebbers.

Still outstanding are claims against two other former WorldCom directors, 16 banks that handled a multibillion-dollar sale of WorldCom bonds, and the now-defunct auditing firm Arthur Andersen LLP. Investors lost billions of dollars when it was revealed in 2002 that WorldCom had inflated profits by at least $9 billion.

Arthur Andersen got a break from the U.S. Supreme Court yesterday as it seeks to overturn its conviction for obstructing the government’s Enron investigation.

The justices agreed to review an appeals court decision upholding the 2002 conviction, which forced Andersen to stop conducting public audits and led to the firm’s collapse.

A Supreme Court reversal of the conviction would boost Andersen’s former partners as they defend against more than 100 pending civil lawsuits that seek billions of dollars.

WorldCom’s 10 settling former directors must decide as a group how much of the $18 million each of them will pay individually, according to the lead attorneys for the plaintiffs, Jeffrey W. Golan of Barrack Rodos & Bacine and John P. Coffey of Bernstein Litowitz Berger & Grossmann.

At a minimum, the deal requires each of the former directors to pay at least as much as he or she received in salary as board members during the fraud, Mr. Hevesi and the lawyers said. However, because one of those former directors has declared personal bankruptcy, the minimum payment is being made on his behalf by another source. The plaintiffs declined to identify that former director or say who was going to make the payment.

The former directors’ settlement is dwarfed by the nearly $2.6 billion that Citigroup Inc. has already agreed to pay in claims over its role in the WorldCom bond sale.

But Mr. Hevesi and the lawyers stressed that the deal set a very strong precedent for improving corporate governance.

He said the $18 million actually exceeded what he originally expected to get, given that such payments are almost unprecedented.

“The fact that we did get a dime” is a real accomplishment, Mr. Hevesi said. “It says to directors, ‘You have liability. Do your jobs.’ The job is to demand documents and ask tough questions” of management and auditors. “We believe this settlement empowers directors to do that.”

Mr. Hevesi and the lawyers did not rule out reaching a settlement with the other defendants before the trial starts Feb. 28, but said they were confident they would prevail in court thanks to a recent ruling by the judge overseeing the case.

In February 2001, before the bonds were issued, some of the banks downgraded their own internal credit ratings for WorldCom, and some took steps to cut their exposure to the company.

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