Two of the most stunning business collapses of the last few years produced hefty settlements for some of the victims this week.
Citigroup, Inc. on Monday agreed to pay $2.65 billion to investors who claim the firm’s brokerage unit pumped up WorldCom despite their knowledge of massive losses at the company. The suit, which sought $54 billion, also alleged that Citigroup's brokerage arm, Salomon Smith Barney, offered big loans to WorldCom’s then-chief executive Bernard Ebbers in a swap for investment banking business.
Citigroup, the world's largest bank, denies wrongdoing. The payout will go to investors who bought WorldCom stock or bonds and lawyers in the class action, the Washington Post reported. According to some expert estimates, shareholders lost $2.6 billion in the WorldCom collapse. Bondholders got about 36 cents on the $1.
WorldCom's $104 billion bankruptcy in 2002 was the biggest in corporate history, and the $2.65 billion settlement is among the largest to result from the accounting scandals of the past five years. MCI, the second-largest U.S. long distance telephone company, emerged from bankruptcy last month.
In a separate settlement, current and former Enron employees got news of an $85 million partial settlement Wednesday in the would-be class action lawsuit. The settlement would benefit 12,000 to 20,000 current and former Enron employees.
If U.S. District Court Judge Melinda Harmon OKs the deal, it will be late summer or fall before any money is added to the retirement plans, the Houston Chronicle reported.
The Enron employees who lost millions of dollars in retirement money say the energy company’s officers failed to execute their duties in administering the pension plan, which had almost two-thirds of the employees’ assets in company stock. The stock plummeted from a high of almost $85 to less than $1 as the company spiraled toward bankruptcy.
The $85 million insurance policy that was handed over settles claims against human resource employees and company directors, but not those against former Enron chairman Kenneth Lay and former chief executive Jeffrey Skilling.
In a related matter, former company directors agreed to pay a total of $1.5 million to resolve a suit by the U.S. Department of Labor, which also sought to recover lost retirement money. The settlement also needs court approval.
Labor Secretary Elaine Chao has said that Lay "went so far as to tout the (Enron) stock as a good investment for his own employees — even after he had been warned that a wave of accounting scandals was about to engulf the corporation," the Associated Press reported.
Lynn Sarko, a Seattle-based lawyer for the employees, said much of the lawsuit will still proceed against Lay and Skilling. "This will be a small piece of the ultimate recovery," she said.