WorldCom Wins Ruling by Federal Judge

In an unusual move, a federal judge ruled that a U.S. regulatory panel exceeded its authority in awarding WorldCom Inc. investors $448,000 in an arbitration against two former Citigroup Inc. brokers.

Judge Denise Cote of the U.S. District Court in Manhattan on Tuesday threw out the January 2005 award by an NASD arbitration panel against Philip Spartis and Amy Elias, who once worked in an Atlanta office of Citigroup’s Salomon Smith Barney unit.

Cote said the panel ignored evidence that the plaintiffs, Elizabeth and Donald Rich, had not opted out of an investor class suing WorldCom’s banks over the phone company’s 2002 bankruptcy.

That class would recover more than $6 billion.

The judge said there was no evidence that the panel intended the award to compensate the Riches for other investing losses they may have suffered.

“While an arbitration panel’s decision is entitled to great deference, (a) panel exceeds its power when it issues an award arising from claims concerning a security which is the subject of a class-action settlement, bar order, and releases,” Cote said in her nine-page opinion.

The NASD, formerly known as the National Assn. of Securities Dealers, had no comment.

WorldCom emerged from Chapter 11 protection as MCI Inc., which was later acquired by Verizon Communications Inc.