Ten former directors of WorldCom are preparing to pay $18m (£9.6m) out of their own pockets to settle a lawsuit brought by bondholders and shareholders who lost millions of dollars when shares in the telecommunications giant collapsed in the wake of an $11bn accounting scandal.
The group of non-executives no longer work for WorldCom, which was renamed MCI last year when it emerged from bankruptcy. They are accused of approving misleading statements about the company's financial situation which they allegedly should have known where false.
The move is unusual because lawsuits against directors do not usually result in hefty personal payments by the accused. But the settlement is unlikely to bankrupt those involved. The sum is thought to represent about 20 per cent of their combined personal wealth, excluding the value of their main homes, pensions and some assets owned jointly with spouses.
The bondholders and shareholders will receive a further $36m paid out of the directors' liability insurance.
The group of directors trying to settle claims against them include James Allen, a telecommunications executive, and Judith Areen, a former dean of Georgetown law school. John Porter, a former chairman of WorldCom, is also in the group. Some directors will pay more than others in the settlement, which has yet to be finalised, according to The Wall Street Journal.
None of the group is accused of participating directly in the accounting schemes which made WorldCom appear to hit more demanding sales targets than were achieved. The group personally suffered financially from WorldCom's collapse in 2002 in the largest bankruptcy in US history.
The emergence of the proposed settlement has alarmed some as it could make non-executives involved with other scandal-hit companies more vulnerable to having to hand over a substantial part of their wealth to settle claims.
Citigroup agreed last May to pay $2.6bn to resolve WorldCom investors' claims about the accounting fraud. The class action group is pursuing other financial institutions over claims they helped WorldCom raise money on the back of faulty financial statements.
The initiative to settle with WorldCom's non-executive directors comes less than two weeks before a jury selection begins in New York for the trial of Bernie Ebbers, its former chief executive. He is charged with securities fraud, conspiracy and causing the company to lodge false filings with regulators, and is expected to argue he was not an accounting expert and so was unaware of the illegal practices being carried out by others.Reuse content