updated 3/3/2005 3:49:28 PM ET 2005-03-03T20:49:28

Following the lead of Citigroup Inc., Bank of America Corp. on Thursday became the second large U.S. bank to settle claims stemming from a class-action lawsuit by former shareholders of WorldCom Inc.

The decision by Bank of America to pay $460.5 million to settle the case came as closing arguments were being heard in the criminal trial of former WorldCom chief executive, Bernard Ebbers, who is accused of fraud, conspiracy and other charges in what prosecutors allege was an $11 billion accounting fraud at the company.

Last year, Citigroup Inc., the nation’s largest financial institution, paid $2.58 billion to settle its share of the class action suit.

The suit was brought against more than a dozen Wall Street firms by individuals and institutions who invested in stocks and bonds before the 2002 collapse of the communications company in an accounting scandal.

The investors claimed the defendants should have been aware of ongoing fraud at WorldCom. WorldCom has since emerged from bankruptcy as MCI Inc.

In a news release, the Charlotte-based Bank of America, the nation’s third-largest bank, denied violating any laws, saying it decided to settle the claims “to eliminate the uncertainties, expense and distraction” of further litigation.

“Bank of America believes it is in the best interests of the company to resolve these claims and put this litigation behind it and focus efforts on creating greater value for the shareholder,” the bank said.

Bank spokeswoman Shirley Norton said the company would have no additional comment on the settlement.

In afternoon trading, Bank of America shares fell 22 cents to $46.35 on the New York Stock Exchange.

New York State Comptroller Alan G. Hevesi, who has taken the lead in the class action case against the banks and Wall Street firms, said in a statement that “this is an important settlement as the case heads to trial on March 17.”

He said that the amount Bank of America’s subsidiaries — Banc of America Securities LLC and Fleet Securities Inc. — will pay “is based on the same formula under which the Citigroup defendants settled the bond portions of the claims against them in May 2004.” He pointed out that while Citigroup was a lead underwriter, the Bank of America subsidiaries were not.

Bank of America acquired Fleet Securities Inc. as part of its acquisition of FleetBoston in April 2004.

Hevesi added: “We are also vigorously continuing to pursue our claims against the others who bear responsibility for the debacle at WorldCom, including the remaining 14 underwriters.”

The class action lawsuit names a number of defendants, including former officers and directors of WorldCom; the company’s accountant, Arthur Andersen LLP; and banks and brokerages that were underwriters of WorldCom bonds.

The financial institutions include JPMorgan Chase & Co., which is the nation’s second largest bank, as well as Deutsche Bank, Lehman Brothers Inc., Credit Suisse First Boston Corp., Goldman, Sachs & Co. and UBS Warburg LLC.

Under the terms of the settlement agreement announced Thursday, which is subject to court approval, Bank of America subsidiaries that are named as defendants in the litigation will pay a total of $460.5 million to the members of the settlement class.

Attorney’s fees for the plaintiffs will come out of the settlement, the bank said.

The bank said it already has set aside money to pay for the settlement.

A trial in the case had been scheduled to begin Feb. 28, but U.S. District Judge Denise Cote recently delayed the start to March 17. The delay was aimed at allowing lawyers to interview witnesses from the Ebbers’ trial.

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