- The Washington Times - Monday, May 10, 2004

NEW YORK (AP) — Banking giant Citigroup will pay $2.65 billion to settle a lawsuit brought by WorldCom investors who lost billions when the company went bankrupt in an accounting scandal.

The deal announced yesterday — one of the largest securities-fraud settlements ever —is the first of what could be several large WorldCom settlements. New York state Comptroller Alan G. Hevesi, who is taking the lead in the class-action case, said he is pursuing similar agreements with 17 other banks that could result in another $2.8 billion for WorldCom investors.

Those banks have 45 days to agree to a settlement similar to Citis or face trial next January.

Citigroups brokerage division was a key backer of WorldCom securities before the telecommunications company filed for the biggest bankruptcy in history in July 2002 amid an $11 billion accounting fraud. Citigroup and the other investment banks underwrote some $17 billion in WorldCom bond issues in 2000 and 2001.

Lawyers declined to say what the investors total losses were or what percentage the Citigroup settlement represented of those losses. Lawyers fees will also come from the settlement amount.

The settlement covered accusations of misconduct by Citigroup and its Salomon Smith Barney investment divisions as well as former star analyst Jack B. Grubman, one of the most influential power brokers of the technology boom.

He left amid investigations into his purported conflicts of interest in touting the stocks of telecom companies like WorldCom. He was fined $15 million and permanently banned from the securities industry last year for what regulators called “fraudulent” research reports.

New York-based Citigroup denied violating any laws but said it was settling “solely to eliminate the uncertainties, burden and expense of further protracted litigation.”

CEO Charles Prince said the settlement was designed “to put an unfortunate chapter behind us so we can focus on our continuing prospects for growth.”

Citigroup still faces claims related to the Enron collapse and its involvement in preferential initial public stock offerings.

It was the second-biggest settlement of a securities class-action case, after a $3.2 billion settlement by services giant Cendant Corp. in 2000, Mr. Hevesi said.

The WorldCom case was brought on behalf of those who had purchased stock and other securities from April 29, 1999, through June 25, 2002. Mr. Hevesi said bondholders would receive $1.45 billion and shareholders would get $1.2 billion in the Citigroup settlement.

Investors also will be eligible for some funds from a $750 million WorldCom settlement with the Securities and Exchange Commission, but it will be pennies on the dollar.

The company now known only as MCI emerged from bankruptcy and shed more than $35 billion in debt.

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