The parties have reached a $51 million settlement in a class action filed against former WorldCom, Inc., Chief Executive Officer Bernard Ebbers and 18 ex-WorldCom officials on behalf of employees who lost hundreds of millions of dollars when the long-distance telephone company collapsed. The action alleged that the officials violated the federal Employee Retirement Income Security Act by obtaining and retaining WorldCom stock in the company's 401(k) plans even though they knew of WorldCom's financial problems. Persons eligible to take part in the settlement should contact the attorneys for the class for more information.

The settlement leaves 401(k) fund trustee Merrill Lynch Trust Company, a subsidiary of Merrill Lynch & Company, as the only active defendant. The action alleges that Merrill Lynch had a fiduciary duty to the employees to take some action as WorldCom stock prices plunged and eventually the company filed for bankruptcy. The employees of WorldCom (which emerged from bankruptcy in April 2004 as MCI) are still seeking about $100 million from Merrill Lynch. A separate suit against ex-WorldCom Chief Financial Officer Scott Sullivan is suspended until after he is sentenced on November 8, 2004, for his role in accounting fraud at the company.

Merrill Lynch and employees at WorldCom who were tasked with guiding the company's 401(k) fund investments left 46 million shares of WorldCom stock in the fund even as analysts issued two negative reports about WorldCom stock in the spring of 2002. Merrill Lynch analysts who were following the stock in the spring of 2002 downgraded it twice that year, once in March and April, but the fiduciary allegedly did nothing to protect the employees’ interests.

WorldCom shares dropped from $8.27 in March 2002 to 9 cents the day before it filed for bankruptcy court protection in July 2002.

The present agreement follows the $2.65 billion settlement in May 2004 of a fraud suit by WorldCom investors against Citigroup, Inc. The investors, who said Citigroup sold WorldCom securities at inflated prices, have made claims against a dozen other WorldCom underwriters.
MCI is slated to pay about $19.5 million as part of the present settlement, although its share of the settlement could vanish if the U.S. bankruptcy court that is supervising WorldCom's bankruptcy rules that employee shareholders occupy the same low priority for payment of debts or claims as other shareholders. The settlement includes an immediate cash payment of $47.1 upon finalization of the settlement. In addition to the MCI payment, the fund's primary insurer, American International Group, Inc.-owned National Union Fire Insurance Company of Pittsburgh, Pennsylvania, has agreed to pay $10 million.

The fund's excess insurers, who deny liability because their policies were allegedly invalidated by the fraud, will pay $18 million. The excess insurers include Twin City Fire Insurance Company, Continental Casualty Company and Gulf Insurance Company.

Beyond a $450,000 minimum payment to the employees, Bernard Ebbers will pay 1% of whatever sum he eventually pays to MCI, up to a combined total of $4 million to the employee class. Besides Ebbers, among those settling are former WorldCom Chairman Bert Roberts and the estate of former Vice Chairman John Sidgmore, who died last year, as well as officials who administered the employee benefit plan.

Trial for Merrill Lynch in the present suit is scheduled for March 2005.