Bernard J. Ebbers, the former WorldCom chief executive once worth more than $1.5 billion, will be left with just $50,000 in cash and a modest house for his wife in Jackson, Miss., under a settlement approved by a federal court judge Monday.
The proposed civil settlement would strip Ebbers of more than $40 million in assets and require him to pay $5.5 million in cash to a fund for WorldCom shareholders.
“Basically we left them with their furniture and the silverware,” said Sean Coffey, a lawyer for New York State Comptroller Alan Hevesi, the lead plaintiff in the investor suit and head of the state’s Common Retirement Fund.
U.S. District Judge Denise Cote’s preliminary approval of the class-action civil settlement comes two days before his scheduled sentencing on fraud and conspiracy charges–convictions expected to result in lengthy prison time.
Cote termed the settlement in the WorldCom securities suit “an excellent recovery for the class,” at a hearing in a lower Manhattan courtroom.
The one-time swashbuckling executive, 63, will lose everything: his 800-acre Mississippi farm and mansion, a timber company, a marina and an 18-hole golf course.
Roughly 75 percent of Ebbers’ non-cash assets will be added to the shareholder fund. The remaining 25 percent will go to MCI Inc., the successor to WorldCom, which filed claims against Ebbers for $338 million.
In addition, Ebbers must transfer $5.5 million in cash from his personal accounts to the shareholder fund.
Any shareholder who purchased WorldCom stock between April 29, 1999, and June 25, 2002, is eligible for the fund. As a result of the settlement, Cote reopened the claims filing period until August 26.
As a result of previous settlements with the investment banks, as well as WorldCom’s former auditor Andersen, the shareholder reimbursement fund already contains $6.1 billion.
As part of the civil settlement, an undisclosed amount of money was set aside for Ebbers to pay lawyers who have represented him for more than three years in civil and criminal proceedings. Final approval for the civil settlement is expected in the fall.
Sentencing set for Wednesday
On Wednesday, Ebbers is scheduled to be sentenced for his conviction on one count each of fraud and conspiracy and seven counts of filing false reports with regulators.
The conviction stemmed from the $11 billion accounting scandal at WorldCom that triggered the largest bankruptcy in U.S. history. Ebbers faces up to 85 years in prison.
Prosecutors have asked the judge sentencing Ebbers in his criminal trial to follow a U.S. probation report that calls for the former telecom tycoon to receive a life sentence.
Coffey applauded the U.S. attorney general’s office, which presided over extensive negotiations between Ebbers’ attorneys and Hevesi, for allowing the settlement money to go directly to former WorldCom shareholders rather than through a government-sponsored claim process.
Coffey’s law firm, Bernstein Litowitz Berger & Grossmann LLP of New York, plans to hire a trustee to administer the fund.
“We’re thrilled,” he said. “I’m thrilled not just from the extent that Ebbers must give up nearly all of which he has, but that the money will go directly to the class.”
In a statement, Hevesi said that, “As the man in charge at WorldCom, Bernie Ebbers was responsible for the loss of billions of dollars belonging to WorldCom investors, and it is entirely appropriate that he pay both financially and by going to jail.”
The New York State Common Retirement Fund holds $120 billion in assets and is the second-largest public pension fund in the country.
Ebbers’ attorney in the civil suit, R. David Kaufman of the Jackson, Miss., law firm Brunini, Grantham, Grower & Hewes, would not comment on the settlement.
Ebbers’ agreement in the civil suit follows settlements that Hevesi negotiated with Citigroup Inc. for $2.58 billion, as well as $2 billion from JPMorgan Chase & Co. and roughly $1.5 billion from a group of banks led by Bank of America.
Hevesi, the lead plaintiff in the case, also forced 12 former WorldCom directors to pay $60 million, including almost $25 million from their personal holdings, to the shareholder fund.
In April, Andersen agreed to terminate a nearly five-week-old trial in the case and settle for a $65 million cash payment to the fund.
Two settlements still pending
The only remaining defendants in the WorldCom class-action suit are Scott Sullivan, the former WorldCom finance chief, who testified against Ebbers in his criminal trial, and Buford Yates, the company’s former accounting director.
Coffey said he expected both to settle in the very near future.
At its 1999 peak, WorldCom had a market value of $144 billion; by July 2002, the company was bankrupt, shackled with $41 billion in debt. An MCI spokeswoman would not comment on the Ebbers’ civil settlement.