WorldCom settlement gets little insurance coverage

A group of investors into WorldCom Inc. that purchased the Company’s bonds and stock from 1998 to 2001, recently reached a US$651 million settlement with the telecommunications company and its investment bank but most of these monies will not be covered by insurance.
The federal securities regulators may, as a result, hear petitions from two of the investment bank defendants who are asking for more information regarding securities offerings. CitiGroup and J.P. Morgan are also planning to petition the U.S. Securities and Exchange Commission to issue rules that would require additional disclosures in securities offerings, which would mandate the disclosure of additional information about loans and the allocation of initial public offering shares to the issuers’ insiders.
The attorney William S. Lerach from Lerach Coughlin Stoia Geller Rudman & Robbins L.L.P. who represents the 69 plaintiffs, says they are receiving about 80% more in the settlement than they would have through damages recovered based on the original class action lawsuit they filed, according to plaintiffs’ attorney William S. Lerach,
The class action lawsuit was settled by defendants for US$6.1 billion, with Citigroup contributing US$2.6 billion and J.P. Morgan paying US$2 billion.
The latest settlement will see a contribution from the banks’ which is based on how much of the securities they underwrote, Lerach says.
“It is my best belief that the banks are not insured for these payments,” Lerach says.
He continues saying that only about $5 million of the settlement will be paid by WorldCom’s D&O insurers, which have contributed to other settlements.
The entire US$651 million settlement will be received by investors. Of this amount, defendants are covering US$94 million of plaintiffs’ attorneys fees and expenses.