A US federal judge has approved Citigroup’s $2.6 billion settlement with WorldCom Inc. investors who lost billions when an accounting scandal plunged the telecommunications company into Chapter 11. With the settlement approved, Citigroup has resolved one of the biggest class action lawsuits to result from the corporate scandals of the Dot Com era. Citigroup, which had set aside reserves for the settlement, admitted no wrongdoing.
The settlement initially called for Citigroup to pay $2.65 billion to WorldCom stockholders and bondholders, but the amount was later cut to $2.575 billion – a sum equal to less than half of Citigroup’s profit in third quarter. Investors, who were initially seeking tens of billions of dollars, will also receive $51 million in interest.
The settlement is the second-largest ever in a securities class action case. The lawsuit, which represented hundreds of thousands of investors, accused Citigroup and other investment banks that underwrote WorldCom bonds of failing to conduct due diligence before bringing the securities to market. The lawsuit also concentrated on the role played by Jack Grubman, once a star telecommunications analyst at Citigroup’s Salomon Smith Barney unit. Investors accused Grubman of touting WorldCom publicly while knowing his statements were inaccurate. Grubman, who has previously denied any wrongdoing, left Citigroup in 2002.
US District Judge Denise Cote hailed the Citigroup settlement as “historic,” but she noted that “this litigation is far from over.” Indeed, more than a dozen other banks involved in the litigation – including J.P. Morgan Chase & Co and Deutsche Bank AG – have not settled and are set to begin trial in February.