In a settlement that has sent shock waves through corporate boardrooms, 11 former WorldCom Inc. board members have agreed to pay $20.2 million of their own money to settle a lawsuit tied to the company's $11 billion accounting fraud.
The Wall Street Journal reported that the settlement, once sidelined by a legal technicality, was reached on Friday.
It is highly unusual for board members to have to tap into their own resources to pay settlements such as this, and the WorldCom settlement, first announced in January, shocked many corporate boards. The board members liability insurance companies must also pay $35 million, the Journal reported.
The agreement is the latest in a string of settlements tied to a class action lawsuit led by New York State Comptroller Alan Hevesi, the Journal reported, adding the suit is schedule for trial later this month.
It seeks compensation from underwriters, former board members and the telecom company's former auditor Arthur Andersen LLP, claiming they failed in their duties to oversee the company and scrutinize its books, the Journal reported.
Reaching settlements of a combined $6 billion-a record for securities class action-are more than a dozen banks that underwrote WorldCom bonds in 2000 and 2001, the Journal reported.
The banks include J.P. Morgan Chase & Co. and Citigroup, Inc. J.P. Morgan, which had been the final holdout among the banks, agreed to settle last week, the day after former WorldCom CEO Bernard Ebbers was convicted on numerous federal charges related to the fraud in U.S. District Court.
WorldCom, now known as MCI, emerged from bankruptcy protection last year following the largest corporate accounting fraud case in U.S. history. The company is now entertaining acquisition offers from Verizon and Qwest Communications.