Check Is Not In The Mail in WorldCom Settlement

Matt Krantz, May 12, 2004

Citigroup might have agreed to pay $2.7 billion to ex-WorldCom shareholders, but if you were one, don't go shopping for your beach house just yet.

Not only will it be a year or more before investors see a dime from one of the largest securities class-action settlements, but it doesn't cover investors who might have filed arbitration cases against Citigroup, Salomon Smith Barney and its former telecom analyst Jack Grubman for recommending the stock.

The class-action lawsuit is against Citigroup for its role as the biggest seller of WorldCom stocks and bonds. It has nothing to do with arbitration cases involving Salomon Smith Barney or rosy research reports issued on WorldCom.

''This (settlement) really stands by itself with connection to WorldCom,'' says Joseph Tabacco, attorney with Berman DeValerio Pease Tabacco Burt & Pucillo, a firm that represents the Fresno County Employees' Retirement Association in the class-action case.

That's not to belittle this settlement. It's the first major break for shareholders since the implosion of WorldCom, which became a giant telecom company through many acquisitions that Citigroup helped finance. Unlike many class-action settlements that are soaked up by 25% legal fees, the lawyers in this case will receive no more than 6%. The exact fee must still be determined by the court.

What if you were one of hundreds of thousands of investors who bought WorldCom shares between April 29, 1999, and June 25, 2002? You're eligible for a share of the settlement. Attorneys and experts urge you to take several steps: **[see below]

  • Watch your mailbox. Your brokerage firm should mail you a claim form, a document you must fill out to prove your eligibility. But relax -- it's going to take months. The court must still approve the settlement before the forms are mailed. The best thing to do is monitor developments at the class-action lawsuit's Web site (
  • Stay tuned. No checks will go out until all claims are in, and it could take months for all members of the class to file claims, says Brad Heffler, CEO of Claims Compensation Bureau. All claims must be verified, and the final settlement must be court approved. The pot could grow. There are 17 other investment banks that have a few more weeks to agree to the same settlement terms that Citigroup adopted.
  • Keep your expectations in check. Despite the amount of the settlement, it will be divvied up between stockholders and bond holders. The $2.7 billion is a small sliver of the $181.2 billion the company was worth at its peak, before the fraud was revealed.

The big question will be how this settlement will affect the unknown number of pending arbitration cases against Citigroup. Investors have won awards in at least nine cases -- one for $212,412 -- but many more have been thrown out.

Some investors, seeing the size of the class-action lawsuit, might drop their cases and join the class. However, Alan Bromberg, a law professor at Southern Methodist University, says the settlement might give other investors the encouragement to press their arbitration cases.

''The companies that had analysts out there touting stock are the ones most affected and most likely to settle,'' Bromberg says.

**In contrast to the USA Today story, Shepherd Smith Edwards & Kantas LTD LLP does not recommend investors wait for a resolution. Investors who sufferred large losses, in particular, can often do better by opting out of the class action. Contact us for details.

Click here for more on the WorldCom Settlement.

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