Citigroup said the payment, which totals $1.64 billion after taxes, will go to WorldCom shareholders who bought stock in the telecommunications company from April 29, 1999 to June 25, 2002, when the financial giant’s brokerage division was a key backer of WorldCom securities.
In July 2002, WorldCom filed for the biggest bankruptcy in history after admitting rampant accounting irregularities that inflated the company’s performance. Last month, the company now known as MCI emerged from bankruptcy and shed more than $35 billion in debt.
Charles Prince, chief executive of Citigroup, said the settlement was part of an effort “to put an unfortunate chapter behind us,” the Associated Press reported.
“I want to put the entire era behind us,” Prince later told a conference call with reporters. “We feel very comfortable in saying that, with our advisers helping us, we have established a reserve that will cover all of our meaningful exposures.”
The settlement lets Citigroup, which has admitted no wrongdoing, resolve one of the largest class-action lawsuits to emerge from the string of corporate fraud investigations in recent years.
According to some experts, shareholders lost an estimated $2.6 billion in the WorldCom collapse, while bondholders received some 36 cents on the dollar, according to the AP.
Citigroup also said it is increasing its legal reserves to $6.7 billion for other pending lawsuits, including potential claims against it related to the collapse of Enron Corp.
New York state Comptroller Alan Hevesi, who is taking the lead in the class-action case, said the settlement Citigroup announced Monday is the second biggest securities litigation deal after a $3.2 billion settlement by Cendant Corp. in 2000.
Other defendants in the class-action suits, including J.P. Morgan Securities, Bank of America Securities and Deutsche Bank, have 45 days to match the Citigroup settlement, said Hevesi. If they do, it would bring an additional $2.8 billion to what investors in WorldCom securities are entitled to get, he said, according to the AP.