J.P. Morgan to Pay $2 Billion in Settlement
J.P. Morgan Chase & Co. agreed Wednesday to pay $2 billion to settle claims from investors who lost money in the collapse of WorldCom Inc., bringing total settlements in the case to more than $6 billion -- the largest securities fraud settlement in U.S. history.
The settlement by J.P. Morgan is the second-largest, following the $2.6 billion that Citigroup Inc. agreed to pay last year to resolve its WorldCom liability. The investors claimed that the 17 underwriters of WorldCom’s bonds should have known the company’s books were fraudulent when they helped sell the securities.
The federal court supervising the case was told Wednesday that 11 former directors of WorldCom were close to reviving a deal in which they would pay millions of dollars to settle their part in the investor suit.
The J.P. Morgan Chase settlement came a day after WorldCom’s former chief executive, Bernard Ebbers, was found guilty of fraud, conspiracy and false regulatory filings in the $11 billion accounting fraud at WorldCom. The company collapsed in 2002, but has since emerged from bankruptcy to operate under the name MCI Inc.
“I’m delighted that we are coming to closure,” said New York Comptroller Alan Hevesi, the court-appointed lead plaintiff. “This is a huge securities case. I think we’ve made a substantial recovery for the people that we represent.”
In addition to J.P. Morgan Chase, two small investment banks also announced settlements Wednesday. Blaylock & Partners agreed to pay $573,000, and Utendahl Capital agreed to pay $234,000. Both are based in New York.
The remaining defendants, in addition to the 11 former directors, are auditing firm Arthur Andersen and former WorldCom board member Bert Roberts.
Judge Denise Cote gave preliminary approval Wednesday to a number of settlements reached with other banks, including Bank of America Corp., which is headquartered in Charlotte, N.C.; Credit Suisse First Boston, a unit of the Zurich-based Credit Suisse Group, and Citigroup.
“Let me give the court’s congratulations to the settling parties,” Cote said. “This case has been very hard-fought.”
J.P. Morgan Chase last year rejected a settlement on the same terms as Citigroup, which would have required it to pay $1.37 billion. Hevesi said he considered the difference a “premium.”
J.P. Morgan Chase said it would take a charge of about $900 million before taxes in the first quarter for the settlement.
“Given recent developments, we made a decision to settle rather than risk the uncertainty of a trial,” J.P. Morgan Chase Chairman and CEO William B. Harrison Jr. said in a statement.
J.P. Morgan Chase shares closed unchanged at $36.25 on the New York Stock Exchange.
Ebbers, 63, was convicted after a six-week trial and could spend the rest of his life in prison. Hevesi said it was “hard to judge” what effect the verdict might have had in pressuring J.P. Morgan Chase to settle.
“There was a sense from the Ebbers verdict that there were serious issues with WorldCom,” he said.
Also Wednesday, Ebbers asked the U.S. Bankruptcy Court to throw out the company’s $408 million lawsuit against him, saying it lacked jurisdiction to hear the case.
MCI, which changed its name from WorldCom when it exited bankruptcy in April, is suing Ebbers to recover money it says Ebbers borrowed and never paid back.
Ebbers said the Bankruptcy Court in New York lacked jurisdiction because MCI was no longer bankrupt and creditors wouldn’t receive any of the lawsuit’s proceeds.
“Any money that MCI recovers from Mr. Ebbers, MCI keeps, it does not distribute that money to WorldCom creditors,” Ebbers lawyer David Green said in court papers. “This court’s jurisdiction does not extend to state law claims that do not affect the distribution to creditors.”
MCI spokesman Peter Lucht declined to comment.
Bloomberg News contributed to this report.
