In a massive coup for aggrieved WorldCom investors, Citigroup said yesterday it would set aside $4.95 billion to settle class action lawsuits and pay for other disputes involving the once-bankrupt telecom giant and other big-name blowups.
Citi, the world’s largest financial company, agreed to take the charge in the second quarter. The amount includes $2.65 billion to settle WorldCom litigation and the rest for outstanding litigation related to Enron and other claims.
On a conference call yesterday morning, Citigroup CEO Chuck Prince said the firm faces claims seeking $54 billion and he was not willing to take the risk of losing in court.
“We have spent a quarter’s earnings to close this chapter in our company’s history,” he said.
Prince repeatedly emphasized the “challenging litigation environment” as part of what led the bank to settle.
Citigroup admitted no wrongdoing in the settlement and Prince said that he did not think the firm had participated in any fraud.
“I believe that we did not participate in any way in the fraud,” he said, repeating that he was not willing to gamble with stockholders’ money for the “big win.”
The settlement is a major win for the plaintiffs and their attorneys including the lead plaintiff, New York State Comptroller Alan Hevesi.
“It’s a bigger settlement than most of us expected,” Hevesi told The Post. “It increases the pressure on the other defendants to settle, and if they settle at the similar ratio, that will bring in another $2.8 billion for bondholders.”
He said the plaintiffs would continue to pursue claims against the other defendants.
Those include 17 other underwriters, such as J.P. Morgan, Bank of America and Deutsche Bank; WorldCom’s auditor, Arthur Andersen; and the former directors and senior officers of WorldCom.
The settlement, which is the second-largest in securities history, is the largest ever securities class-action settlement against a third party i.e., anyone but the company that issued the securities.
Prince Alwaleed bin Talal, Citigroup’s largest individual shareholder, supported the move.
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