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Settlement with directors of WorldCom is scuttled

NEW YORK - A deal in which 10 former WorldCom directors would personally pay $18-million of a $54-million settlement to compensate investors over the company's plunge into bankruptcy will be withdrawn, plaintiffs said Wednesday.

New York State Comptroller Alan Hevesi, the lead plaintiff, said the plaintiffs were pulling out of the deal after U.S. District Judge Denise Cote on Wednesday struck down a key component of the agreement.

Hevesi said the settlement was scuttled because Cote ruled that any jury award resulting from a Feb. 28 trial could not be reduced using a formula that would have taken into account the limited finances of the directors who settled.

"I'm very disappointed," Hevesi said. "The settlement is being terminated solely because of the potential impact on the amount other defendants might pay if the suit is successful."

The unusual proposed settlement marked one of the few times that executives who presided over corporate misdeeds have agreed to assume any personal financial liability for the resulting damage.

Hevesi said the settlement had set a precedent that directors would be held accountable and represented a "red alert to directors to do the job they have to do."

A lawyer for the directors, Paul Curnin, did not immediately return a call for comment Wednesday.

The WorldCom director payments, which would have been equal to slightly more than 20 percent of their combined net worth, were to be supplemented by $36-million from insurance policies covering WorldCom.

Some investment banks that were defendants in the case had objected to the settlement, telling Cote they would be unfairly prejudiced unless all the defendants stood trial together.

[Last modified February 3, 2005, 01:07:17]