WorldCom banks claim directors' deal is 'prejudicial'

A group of banks being sued for millions of dollars by shareholders in WorldCom, the collapsed telecommunications company, has raised concerns about a proposed settlement the investors reached last week with 10 former WorldCom directors, which would exempt them from further legal action.

A group of banks being sued for millions of dollars by shareholders in WorldCom, the collapsed telecommunications company, has raised concerns about a proposed settlement the investors reached last week with 10 former WorldCom directors, which would exempt them from further legal action.

A letter sent by JP Morgan Chase, Deutsche bank and other defendants to the New York judge overseeing the upcoming WorldCom trial says the banks' case would be "severely prejudiced" if the directors no longer had to defend their own actions in the events leading to the collapse of WorldCom in 2002, in the biggest bankruptcy ever.

Denise Cote, the US district judge who is overseeing the sprawling class-action case, has yet to set a date to consider approval of the settlement, but an objection by the banks could potentially derail the agreement. That would mean the former company directors, who have agreed to pay $54m (£29m), including $18m from personal funds, to end their involvement in the lawsuit, would have to stand trial in the civil case set to begin next month.

The tussling comes ahead of a criminal trial later this month against Bernie Ebbers, WorldCom's larger-than-life former chief executive. Mr Ebbers is charged with trying to cover up WorldCom's fraud and faces a prison sentence if convicted.

The banks are being sued for allegedly knowing about WorldCom's false accounting when they worked on $17bn of bond issues in the company. Citigroup reached a $2.6bn settlement last year with the class-action investors, who claim they unfairly lost billions when an accounting scandal plunged the telecoms company into bankruptcy protection in 2002. It was renamed MCI when it emerged from bankruptcy last year.

The group of non-executive directors was set to stand trial in the same case on the basis that they should have seen signs of the irregularities. The suit named 12 former board members, the accounting firm Arthur Andersen and the banks involved with underwriting the company's bond offerings.

Two former outside directors, Bert Roberts and Francesco Galesi, have not yet joined the proposed settlement, though they could do so before the civil trial starts next month.