Andersen pays $65 million to settle WorldCom claims

Monday, April 25th 2005, 10:41 am

By: News On 6

NEW YORK (AP) _ Decimated auditing firm Arthur Andersen LLP paid $65 million Tuesday to settle claims that it should have sniffed out the record-breaking fraud at the telecommunications company WorldCom.

The settlement brought to $6.13 billion the amount investment banks, auditors and former board members of WorldCom have paid to settle historic class-action claims by angry investors in the big telecom company.

The combined settlement figure was described by lawyers in the case that largest in a securities case. The deal halted a five-week-old trial, which was to go to the jury as early as next week.

New York state Comptroller Alan Hevesi, the lead plaintiff, said the settlements have helped to recoup part of the ``huge amount of damage'' done to the U.S. economy by the corporate scandals of the go-go 1990s.

``We will have zero tolerance for the kind of behavior that was exposed at trial here and elsewhere regarding misbehavior on the part of corporate leaders,'' Hevesi told reporters outside court.

Hevesi had charged that Andersen, eager to please WorldCom executives and line its pockets, failed investors by missing the enormous fraud at WorldCom in 2000 and 2001, when it served as independent auditor.

WorldCom's accounting fraud was estimated at $11 billion by investigators _ the largest in U.S. history. It entered bankruptcy but has since re-emerged as MCI Inc., based in Ashburn, Va.

Lawyers for Andersen had described the firm as full of hardworking auditors who were duped by an elaborately concealed fraud carried out entirely by corrupt WorldCom executives.

Indeed, in a statement Monday after the settlement was announced, Andersen said it was settling only to avoid the costs of litigation, ``and expressly denies any liability or wrongdoing.''

An irritated Hevesi told reporters Tuesday that anyone who believes the settlement exonerates Andersen ``should look in the mirror and say, `What a fool I am.'''

``Their statements are blatantly false,'' he said. He then ticked off a series of accounting scandals with which Andersen has been associated, including WorldCom, Enron Corp. and Global Crossing Ltd..

Both sides suggested as the settlement was announced that they believed they would have won had the case been decided by a jury.

Leonard Barrack, lead co-counsel for Hevesi, says the $6.13 billion in combined settlements is nearly double the previous record _ $3.2 billion in an accounting fraud case involving Cendant Corp. in 2000.

Andersen, based in Chicago, is a shell of its former self. The firm had 24,000 employees before the Enron scandal broke and now has only about 200.

Lawyers for Hevesi said the settlement was reached only after Andersen agreed to open its books for inspection. They said the settlement amount reflected what Andersen was able to pay.

Hevesi stressed that a jury verdict against Andersen could have bankrupted the firm, rendering it unable to pay much of anything, and said the $65 million recovery was the best outcome for former WorldCom investors.

U.S. District Judge Denise Cote granted preliminary approval for the settlement during a brief hearing Tuesday morning, then dismissed the jury. ``Congratulations are in order,'' she told lawyers in the case.

Lawyers for Hevesi at first asked the judge to hold the jury until Andersen actually wired the cash, then told the judge later in the morning that Andersen had done so.

Besides Andersen and major investment banks, 12 former directors of WorldCom had already agreed to pay more than $60 million, including nearly $25 million of their own money, to settle the investor lawsuit. Insurers are expected to pick up the rest.

Former WorldCom CEO Bernard Ebbers, 63, was convicted last month of nine criminal counts in the accounting fraud. He is to be sentenced in June and could spend the rest of his life in prison.

Four other former WorldCom executives who pleaded guilty to fraud are scheduled for sentencing in July and August.

Ebbers and three WorldCom executives face similar suits by shareholders, but the government takes priority because it is working to win restitution from the four, said Sean Coffey, a lawyer for Hevesi.