Ethics Newsline®

NEW YORK
A federal judge last week gave final approval to a series of settlements that will return more than $6.1 billion to investors who lost their money when WorldCom went bankrupt after imploding under the strain of a massive accounting fraud.

About 830,000 people and institutions that held investments in the firm at the time of its collapse in 2002 will share in the settlement, according to the Associated Press.

In addition to attaching most of the assets of former WorldCom CEO Bernard Ebbers, who was convicted of fraud earlier this year and sentenced to 25 years behind bars, the final settlement calls for billions of dollars in payouts from banks and auditing firms, including Citigroup Inc., JPMorgan Chase & Co., and the Arthur Andersen accounting firm. Also contributing to the settlement are several WorldCom corporate directors, Bloomberg News reported.

In their lawsuits, investors claimed that banks, accounting firms, and the board of directors should have known about WorldCom’s shady accounting practice and taken active measures to prevent it.

WorldCom collapsed after it was disclosed that the company inflated revenue and hid expenses in order to pump up stock prices.

The massive payout, the second-largest ever in a securities-fraud lawsuit, will send a strong message about corporate ethics, particularly because it directly affects some corporate directors, according to corporate governance expert Nell Minow.

“This is a powerful reminder that the overall duties of care and loyalty that company executives and boards of directors have must be adhered to or there will be very serious penalties,” Minow told New York radio station WNYC.