Ten former outside directors for WorldCom (now MCI) are reportedly
finalizing a $54 million settlement with investors hurt by the company’s
accounting fraud during the telecom and dot-com stock frenzy of the late
The deal calls for the former board members to pay $18 million of their own
money, with the remainder covered by the company’s insurers, according to a
story in today’s Wall Street Journal.
Lawyers for the New York Common Retirement Fund, and other plaintiffs in the
case, accused directors of violating securities laws by giving false
statements about WorldCom’s financial picture.
By agreeing to the settlement, the former board members are raising the
level of accountability and potential liability for outside directors, the report noted.
A formal court filing of the agreement between plaintiffs and investors
could come as early as today, the Wall Street Journal reported.
Under the final pact, the directors are not expected to admit any
wrongdoing. Two other former directors are not part of the settlement.
Richard Breeden, a corporate monitor appointed by a bankruptcy court to put
WorldCom back on ethical footing after its accounting problems began to unravel into a historic bankruptcy filing, once said that
WorldCom chief Bernie Ebbers was “as incompetent and unqualified to be a CEO as anyone who has ever held that post.”
He also harshly criticized directors, saying they gradually ceded power to Ebbers and overlooked or ignored fraud of historic proportions.
Few could claim to be independent, Breeden said during a conference in Boston in 2003. One was apparently only inserted in
the post because he was Ebbers’ neighbor.
What were their priorities? Consider this, Breeden continued. In WorldCom’s final year,
directors met four times for an hour to 90 minutes each session, while the
compensation committee met 17 times, approving, among other things, a $238
million “sack of cash” that Ebbers could distribute to employees at will as
Ebbers is awaiting trial on securities fraud charges and could face 25 years in
jail if convicted.
A representative of MCI was not immediately available for comment.