U.S. Judge Approves Citigroup Settlement

Fri Nov 5, 2004
By Paul Thomasch

NEW YORK (Reuters) - A federal judge on Friday approved Citigroup Inc.'s $2.6 billion settlement with WorldCom Inc. investors who lost billions when an accounting scandal plunged the telecommunications company into bankruptcy protection.

With the settlement approved, Citigroup (C.N: Quote, Profile, Research) has resolved one of the biggest class action lawsuits resulting from a string of corporate scandals over recent years. The world's largest financial services company, which had set aside reserves for the settlement, admitted no wrongdoing.

The settlement initially called for Citigroup to pay $2.65 billion to WorldCom stockholders and bondholders, but the amount was later cut to $2.575 billion, or equal to just less than half of Citigroup's profit in third quarter.

Investors, who were initially seeking tens of billions of dollars, will also receive $51 million in interest.

The settlement is the second-largest ever in a securities class action case but litigation by WorldCom investors is far from over. WorldCom, which emerged from bankruptcy protection earlier this year, is now know as MCI (MCIP.O: Quote, Profile, Research) .

"It's an excellent settlement," said New York State Comptroller Alan Hevesi, the trustee for the New York State Common Retirement Fund, the lead plaintiff in the suit.

A Citigroup spokesperson was not immediately available for comment. In first announcing the deal last May, Citigroup Chief Executive Charles Prince called it "an insurance policy" and said he wanted "to put the entire era behind us."

Hevesi called it "a fair recompense to the class that was victim of the acts taken by WorldCom and the underwriters."

The class-action lawsuit, which represents hundreds of thousands of investors, accused Citigroup and other investment banks that underwrote WorldCom bonds of failing to conduct due diligence before bringing the securities to market.

The lawsuit also concentrated on the role played by Jack Grubman, once a star telecommunications analyst at Citigroup's Salomon Smith Barney unit.

Investors accused Grubman of touting WorldCom publicly while knowing his statements were inaccurate. Grubman, who has previously denied any wrongdoing, left Citigroup in 2002.

U.S. District Judge Denise Cote hailed the Citigroup settlement as "historic," but she noted that "this litigation is far from over."

Indeed, more than a dozen other banks involved in the litigation -- including J.P. Morgan Chase & Co (JPM.N: Quote, Profile, Research) and Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research) -- have not settled and are set to begin trial in February.

Hevesi said it was unlikely that a settlement would be reached before then. "It's likely to go to trial," he said. "We are prepared to go to trial."

Citigroup shares closed down 4 cents at $46.13 on the New York Stock Exchange.

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