CHARLOTTE, N.C. – Bank of America said today that it will pay $460.5 million to settle its part of a class-action lawsuit brought by investors who were sold WorldCom Inc. securities before the long-distance company’s collapse.
Several units within Bank of America helped sell $15.4 billion in WorldCom bonds at a time when the company, it later became known, was lying about its financial health. WorldCom went on to file for Chapter 11 protection in July 2002, the largest U.S. bankruptcy ever. The company reemerged last year as MCI Inc.
The lawsuit, in U.S. District Court for the Southern District of New York, is on behalf of hundreds of thousands of WorldCom shareholders and bondholders, and names as defendants 12 former WorldCom directors, auditing firm Arthur Andersen LLP and 16 major investment banks, including J.P. Morgan Chase & Co., Deutsche Bank AG and Bank of America.
The allegation against the banks is that they failed to conduct due diligence on WorldCom before bringing the company’s securities to market. Last May, Citigroup settled its part of the case for $2.6 billion.
Bank of America’s settlement will include payment of plaintiffs’ attorneys’ fees. The expense of the settlement was provided for in prior periods. The bank is not admitting any culpability.
“Bank of America believes it is in the best interests of the company to resolve these claims and put this litigation behind it and focus efforts on creating greater value for the shareholder,” the company said in a news release. “Under the settlement, Bank of America denied that it violated any law and explained that it settled the matter in order to eliminate the uncertainties, expense and distraction of further litigation.”
The Bank of America and Citigroup settlements combined are the second-largest securities-fraud settlement in U.S. history, according to data compiled by Bloomberg. The remaining defendants have not yet settled. The trial is slated to begin March 17, allowing time for the criminal trial of former WorldCom CEO Bernard Ebbers to be completed.
Ebbers is accused of presiding over an $11-million accounting fraud at his company. Closing arguments in that trial were going on Thursday in New York.
– PBN and wire reports
