WorldCom Investors, Enron Employees Win Settlements

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.

You may like these other stories...

Here's a CPA who truly walks the walk. On March 15, Frank Ryan, CPA, departed San Diego, California, with plans to be in Ocean City, Maryland, by July 2 to teach a course at the Maryland Association of CPAs’ (MACPA...
When Theodore J. Flynn first joined the Massachusetts Society of CPAs (MSCPA) in 1970, it was a different world and a different profession.  The "Big Eight" were still headquartered in Boston. Vietnam War...
Accountant Rickey Charles Goodrich had it a little too good. Many bean counters would kill to serve as financial guru to the likes of Pearl Jam. Goodrich was hired in 2005, and the following year, he became the CFO of Curtis...

Already a member? log in here.

Upcoming CPE Webinars

Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.
Aug 26
This webcast will include discussions of recently issued, commonly-applicable Accounting Standards Updates for non-public, non-governmental entities.
Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.
Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.