Citigroup To Settle WorldCom Suit For $2.65bnMay 10, 2004 | www.ft.com
Citigroup, the world's biggest financial services firm, said on Monday it would pay $2.65bn to settle a class-action lawsuit filed by shareholders in WorldCom, the bankrupt telecoms company.
Owners of WorldCom stock and bonds sued Citigroup over its close relationship to the telecoms group, which went into bankruptcy two years ago after it emerged that it had engaged in a massive accounting fraud and misstated earnings.
Citigroup's Salomon Smith Barney brokerage unit came under fire from angry investors for its ties to WorldCom after shares in the group collapsed.
Citi was accused of allocating shares in "hot" initial public offerings to telecoms executives such as Bernie Ebbers, founder of WorldCom, in the hope of attracting investment banking business.
Jack Grubman, Salomon Smith Barney's former star telecom analyst who had enjoyed a particularly close relationship with Mr Ebbers, was accused of touting shares in WorldCom even as the telecom group tumbled toward bankruptcy.
The size of the WorldCom payout, which will cost $1.64bn after tax, has prompted Citigroup to increase its reserves to protect itself against other lawsuits. After the payout for WorldCom, the group will have $6.7bn in reserves.
Charles Prince, Citigroupâ€™s chief executive said: "As a result of this settlement, we now have a better understanding of our remaining exposure for Enron and other litigation related to the 2003 regulatory settlements and have adjusted our reserves accordingly."