NEW YORK -- A group of state and local retirement funds and insurance companies recovered $651 million from WorldCom's investment banks, auditors and company officers in a settlement disclosed yesterday.
Citigroup and JPMorgan Chase & Co., two of the defendants in several suits filed by the funds, agreed to jointly petition the Securities and Exchange Commission for more stringent disclosures by banks underwriting stock and bond offerings. The two firms will be joined in the petition by the California Public Employees Retirement System and five other retirement funds.
''I don't think ever before have Wall Street banks and investors jointly petitioned the SEC to require more disclosure in public offerings," said William Lerach, lead attorney for the plaintiffs.
Lerach represented 68 retirement funds and insurance companies that had WorldCom stocks and bonds between 1998 and 2001, when company officials regularly altered WorldCom's financials to hide losses.
The plaintiffs did not join the class action by thousands of other investors in hopes of gaining a better deal. Last month, a federal judge approved a $6.1 billion settlement, to be paid to approximately 830,000 institutions and individual investors.
On top of the $651 million, Lerach expects to gain additional funds from the disgorgements paid by former WorldCom chief executive Bernard Ebbers and former chief financial officer Scott Sullivan, both of whom were sentenced to federal prison and heavily fined for their roles in the accounting scandal. Those recoveries are not expected to be large, Lerach said.
The $651 million recovery is up to 83 percent higher than what the funds and insurers would have received if they had remained part of the class action, according to figures provided by Lerach's firm, Lerach Coughlin Stoia Geller Rudman & Robbins LLP of San Diego. In addition, Lerach noted that while the class action lawsuit winds its way through the appeals process, delaying payments to investors, the plaintiffs in this settlement will receive their money promptly.
Sean Coffey, lead counsel in the billion-dollar class action against WorldCom's officers, directors, and underwriters, and New York State comptroller Alan Hevesi disputed Lerach's claims of bettering the class-action results by such a wide margin, saying the Lerach firm's figures were misleading, a charge Lerach denied.
Accounting firm Arthur Andersen paid $8 million as part of the settlement, while the insurance policies covering directors and officers of WorldCom paid $4 million.