JPMorgan Chase & Co., the nation’s second largest financial institution, agreed on Wednesday to pay $2 billion to settle claims from investors who lost money in the collapse of WorldCom Inc.
It was the last major bank to reach a settlement in the class action suit, though other defendants remain.
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 JPMorgan 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.
New York Comptroller Alan Hevesi, representing thousands of WorldCom investors as the court-appointed lead plaintiff, said that the more than a dozen banks and investment banks that have reached settlements have agreed to pay more than $6 billion — a record in a securities class action case.
“I’m delighted that we are coming to closure,” he told reporters. “This is a huge securities case. I think we’ve made a substantial recovery for the people that we represent.”
In addition to JPMorgan Chase, two small investment banks also announced settlements Wednesday. Blaylock & Partners LP agreed to pay $573,000, and Utendahl Capital agreed to pay $234,000. Both are based in New York.
If the case goes to trial, jury selection will begin next week, the court said.
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 on Wednesday to a number of settlements reached earlier with 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 Inc.
“Let me give the court’s congratulations to the settling parties,” Cote said. “This case has been very hard-fought.”
The banks were involved in the underwriting or sale of billions of dollars worth of bonds that WorldCom issued in 2000 and 2001.
Investors who purchased the securities argued that the financial institutions should have been aware of ongoing fraud at the company.
The settlement by JPMorgan Chase was second in size only to the $2.58 billion that Citigroup, the nation’s largest financial institution, agreed to pay last May to settle its share of the case.
JPMorgan 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.”
JPMorgan 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,” JPMorgan Chase chairman and CEO William B. Harrison Jr. said in a statement.
Attorney Leonard Barrack, who was lead co-counsel for Hevesi in the case, told The Associated Press that it was “trailblazing litigation” in its effort to recover as much as possible as quickly as possible for investors who lost millions of dollars.
“It should be the pattern for other large fraud cases,” said Barrack, who practices with Barrack, Rodos & Bacine, which is headquartered in Philadelphia.
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 may have had in pressuring JPMorgan Chase to settle.
“There was a sense from the Ebbers verdict that there were serious issues with WorldCom,” he said.