WorldCom Directors Try Again to Settle

Eleven former WorldCom board members have reached another settlement with the plaintiffs in the securities fraud class action.  The first settlement was virtually identical to this one but U.S. District Judge Denise Cote did not approve it because of objections raised by the investment banks who were also defendants.  With the last of those firms (J.P. Morgan here) having reached a settlement, the way is clear for the judge to approve the settlement.  The amount of the settlement is small -- $55.25 million -- compared to the approximately $6 billion paid by the investment bankers.  The key though is that while $35 million comes from a D&O insurance policy, the other $20.25 million comes from the pockets of the individual directors.  This is one of the few cases in which individual directors who did not gain personally from the alleged fraud (aside from their fees) will contribute to the settlement from their personal assets.  This portion of the WorldCom settlements has sent a powerful message to corporate board members about their responsibilities, and the risks of ignoring the operation of the company or passively accepting information provided by management.

The remaining defendants in the case are former WorldCom board chairman Bert Roberts and former company accountant Arthur Andersen.  Any finding of liability against Andersen will trigger an interesting process of trying to collect from insurers and perhaps from the worldwide Andersen organization that was separate from the U.S. entity that was convicted of obstruction of justice and ceased to exist in 2003. See the AP store here about the settlement. (ph)