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JPMorgan Chase, the last major remaining underwriter in the WorldCom securities class action, settled Wednesday for $2 billion on the verge of trial, which was scheduled to begin today. The move brings the total amount settled in the case, which included 16 underwriters, to more than $6 billion. It is a record amount for a securities class action, topping the previous high of $3.5 billion from a 1999 case involving Cendant. The plaintiffs in the class action, who were primarily bondholders, were led by state Comptroller Alan Hevesi acting on behalf of the New York State Common Retirement Fund. Plaintiffs accused the underwriters of failing to conduct sufficient due diligence when underwriting nearly $17 billion in WorldCom bonds in 2000 and 2001. WorldCom fell into bankruptcy in 2002 after news of its $11 billion accounting fraud became public. It emerged from Chapter 11 reorganization last year as MCI. Five former WorldCom executives pleaded guilty to participating in the fraud and former CEO Bernard Ebbers was found guilty Tuesday of nine counts of securities fraud and related crimes. The settlement brings to an end nearly all WorldCom related litigation. JPMorgan and Salomon Smith Barney, a division of Citigroup, were lead underwriters in the bond offerings. The two banks took very different approaches to the litigation. Citigroup decided to settle last May for $2.57 billion for its role in underwriting bonds as well as allegations that its former telecommunications analyst, Jack Grubman, had conflicts of interest. At the time, Hevesi represented by Bernstein Litowitz Berger & Grossmann and Barrack, Rodos & Bacine of Philadelphia, offered to settle with the remaining underwriters, who did not face any claims against analysts, on the same schedule of liability and payout percentages in the Citigroup settlement. The banks all declined the offer and proceeded with the litigation. As the trial neared, the remaining underwriters began to settle. On March 3, Bank of America settled for $460.5 million. A day later, four more banks settled for a total of $100.3 million. The agreements were reached under the same terms as Citigroup. Another seven underwriters settled in the following days at payout percentages less favorable than those under the Citigroup agreement. That left three defendants in the case. On Monday, Southern District of New York Judge Denise Cote turned down JPMorgan’s request to reject the settlement agreements. The bank claimed those agreements would unfairly impose additional liability on JPMorgan should it go to trial by making it obligated to pay for liabilities attributed to other defendants. Had JPMorgan settled last year, under the same terms as Citigroup, it would have paid out about $1.3 billion. When two small underwriters also settled earlier this week, the defendants remaining in the case were WorldCom’s former directors and its former auditor, Arthur Andersen. Judge Cote in January rejected a proposed settlement with most of the directors on grounds made moot by the underwriters’ settlements. The class action settlement brings to an end practically all outstanding lawsuits arising from WorldCom’s collapse. No other former executives are facing criminal charges. WorldCom settled civil claims with the U.S. Securities and Exchange Commission for $750 million in 2003 and bankruptcy proceedings before Judge Arthur Gonzalez in the Southern District are winding down. Skadden, Arps, Slate, Meagher & Flom was liaison counsel for the underwriters.

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