A judge gave her blessing Thursday to a deal under which former WorldCom finance chief Scott Sullivan will forfeit his ornate Florida mansion and his retirement account to settle with investors who lost billions when the telecom company was toppled by a fraud scandal.
U.S. District Judge Denise Cote granted preliminary approval to the settlement that will leave Sullivan almost penniless just two weeks before he is likely to be sentenced to prison time for his role in the $11 billion WorldCom fraud.
She also gave the OK to settlements with two other former WorldCom executives, the final defendants in a class-action suit that has netted more than $6 billion for investors.
The deal forces Sullivan to sell the Boca Raton mansion — an extravagant Mediterranean-style lakefront home with 10 bedrooms and seven fireplaces — and turn over the proceeds to WorldCom investors.
New York state Comptroller Alan Hevesi, the lead plaintiff in the investor suit, has said investors will get about $5 million from the home after broker fees and outstanding liens are settled.
Sullivan also must liquidate his WorldCom 401(k) retirement fund and turn over that money as well — about $200,000 in an account heavy with WorldCom stock that was once worth much more.
"We have taken substantially all of his assets," Sean Coffey, a lawyer for Hevesi, told the judge.
Coffey said Sullivan has signed a contract to sell the house, but noted the buyers could still back out. He did not disclose the sale price. Brokers listed the estate for $10.9 million.
Sullivan's wife, who is seriously ill, will be allowed to keep some money in a trust fund for her medical expenses and for the couple's 4-year-old daughter.
The investor lawsuit claimed WorldCom executives and board members, its auditing firm and major investment banks that underwrote WorldCom securities should have stopped or at least detected the fraud.
All of the defendants in the suit have now settled, agreeing to pay more than $6 billion, according to Hevesi's calculation.
That still pales next to the size of the WorldCom fraud — $11 billion — and the untold billions lost by investors when the company went under in the largest bankruptcy in U.S. history.
The judge also granted approval to settlements reached by two other former WorldCom executives, controller David Myers and accounting director Buford Yates. But those two have so little money left that lawyers for the plaintiffs did not seek any money from them. "They can't pay their lawyers," Coffey said.
Sullivan, Myers and Yates all face sentencings in the next two weeks after pleading guilty to criminal fraud charges and agreeing to help prosecutors in their case against former WorldCom CEO Bernard Ebbers.
Ebbers was sentenced earlier this month to 25 years in federal prison, the toughest sentence yet in the wave of corporate-fraud prosecutions that followed the 2001 collapse of Enron Corp.
In his own settlement with investors, Ebbers agreed to sell his mansion in Mississippi and various business holdings and turn over the proceeds, a total that could approach $40 million.
WorldCom, which went bankrupt in 2002 as the fraud came to light, has emerged under the name MCI and now operates out of Ashburn, Va. Verizon Communications Inc. has agreed to buy MCI for $8.5 billion in a deal expected to close by the end of the year.