Citigroup Defendants To Pay $2.65 Billion In Settlement Of All Claims Against Them In Worldcom Securities Class Action

Largest Settlement Ever From A Third PartySuit To Continue Against Other Defendants

May 10, 2004

The Citigroup Defendants in the WorldCom securities class action have agreed to pay a total of $2.65 billion to settle all claims asserted against them in that action, Alan G. Hevesi, New York State Comptroller and sole rustee of the New York State Common Retirement Fund and Court-appointed Lead Plaintiff, announced today. This is the second largest settlement in securities class action history, and represents the largest amount ever recovered in a securities class action from a party other than the company that issued the subject securities.

"With this settlement, we have gained an extraordinary recovery for WorldCom bondholders and stockholders. This settlement, while historic, is only the first step. We will continue to pursue our claims against the others who bear responsibility for the debacle at WorldCom, including the remaining 17 underwriters, WorldCom's auditor, Arthur Andersen, and the former directors and senior officers of WorldCom," Hevesi said. He continued: "This settlement should serve as a wake-up call to those on whom the investing public depends to guard against corporate corruption such as occurred at Worldcom. Citigroup is a very important financial institution for the nation and New York. We are gratified that Citigroup has put this issue behind it. I would like to particularly thank Citigroup CEO Charles Prince for his leadership in bringing about this settlement and mediators Judge Robert Sweet and Magistrate Judge Michael Dolinger for their essential assistance."

Hevesi is the Court-appointed Lead Plaintiff in the consolidated securities class action, In re WorldCom, Inc. Securities Litigation, which is pending before Judge Denise Cote in federal court in Manhattan. Hevesi was joined at the press conference announcing the settlement by former New York State Comptroller H. Carl McCall, who initiated the suit. The defendants who have agreed to settle are Citigroup, Inc., Citigroup Global Markets, Inc. (formerly known as Salomon Smith Barney, Inc.), Salomon Brothers International Limited, and former securities analyst Jack Grubman. Together they are the "Citigroup Defendants."

The settlement resolves all claims asserted against the Citigroup Defendants in the WorldCom securities class action, which fall into two categories: claims arising from WorldCom's public bond offerings in 2000 and 2001, and claims arising out of the purchase of publicly-traded WorldCom securities in the open market between April 29, 1999 and June 25, 2002 (the "Class Period").

The Citigroup Defendants have agreed to pay $1.4575 billion to settle the claims of investors who purchased bonds that WorldCom issued in May 2000 and May 2001. Salomon served as underwriter for approximately one-third of the outstanding bonds issued in those offerings. The litigation continues against the 17 investment banks that underwrote the remaining two-thirds of those WorldCom bonds, including J.P. Morgan Securities, Bank of America Securities, and Deutsche Bank. Comptroller Hevesi noted that the settlement with the Citigroup Defendants offers the other banks the option to settle within 45 days at the same pro rata ratio as Salomon. If the banks accept that offer, another approximately $2.8 billion would be paid to bond purchasers.

In addition, the Citigroup Defendants have agreed to pay $1.1925 billion to investors who purchased WorldCom common stock and other publicly-traded securities of WorldCom during the Class Period.

This settlement was arrived at after extensive negotiation between the parties under the supervision of United States District Judge Robert W. Sweet and United States Magistrate Judge Michael H. Dolinger. The NYSCRF and investor class are represented by the law firms of Bernstein Litowitz Berger & Grossmann LLP and Barrack, Rodos & Bacine, who were appointed as Co-Lead Counsel by Judge Cote in August 2002. The attorneys fees and reimbursement of litigation expenses will be paid out of the settlement fund. Although subject to Court approval, the amount of attorneys fees for which the law firms may apply is subject to a predetermined agreement between the Common Retirement Fund and its counsel (which has been posted at since the summer of 2003). Unlike the 25 percent fee that is typical in securities cases, the fee grid negotiated by the NYSCRF provides for a maximum fee in connection with this settlement not to exceed 5 percent to 6 percent.


The first securities class action lawsuit against WorldCom was filed on April 30, 2002. On June 25, 2002, WorldCom, then the second largest telecommunications company in the world, admitted that it had improperly inflated its earnings for 2001 and the first quarter of 2002 by approximately $3.8 billion dollars. Subsequent disclosures revealed that WorldCom's publicly reported earnings for previous years had been overstated by more than $10 billion. WorldCom filed the largest bankruptcy in United States history in July 2002.

The WorldCom securities class action was consolidated before the Honorable Denise L. Cote in the United States District Court for the Southern District of New York on August 15, 2002. Judge Cote also appointed Comptroller Alan G. Hevesi, sole Trustee of the New York State Common Retirement Fund ("NYSCRF") as Lead Plaintiff to prosecute the litigation on behalf of all members of the class. On October 11, 2002, the NYSCRF filed a Consolidated Class Action Complaint. The Complaint alleged, for the first time, that Citigroup Inc., through its wholly owned subsidiary, Travelers Insurance Company, had made hundreds of millions of dollars in secret loans to WorldCom CEO Bernard J. Ebbers. The Complaint also alleged that Jack Grubman, the former telecommunications analyst at Salomon, had manipulated his research reports to lead the investing public to believe that WorldCom's financial condition and prospects were much better than they actually were.

The defendants named in the Complaint include Ebbers, WorldCom's CFO Scott Sullivan, its controller David Myers, and its Director of General Accounting, Buford Yates. Defendants Sullivan, Myers and Yates have since pleaded guilty to federal criminal charges and are cooperating in the government's ongoing criminal prosecution of Ebbers. In addition to the Citigroup Defendants, the Complaint also asserts claims against WorldCom's former board of directors, its former auditors, Arthur Andersen LLP, and the other 17 underwriters of WorldCom's two "jumbo" bond offerings in May 2000 and May 2001. The Court largely denied the defendants' motions to dismiss in the Spring of 2003. On October 24, 2003, the Court certified the case as a class action on behalf of all persons and entities who purchased or acquired publicly-traded securities of WorldCom between April 29, 1999 and June 25, 2002. In certifying the Class, the Court held that the lead plaintiff, NYSCRF, and three other class plaintiffs named in the Complaint, Fresno County Employees' Retirement Association, County of Fresno, California, and HGK Asset Management, Inc., each of which purchased bonds issued in connection with WorldCom's May 2000 and May 2001 offerings, were proper Class representatives.

Discovery in the class action has been proceeding since May 2003. The Court has set a trial date of January 10, 2005. The NYSCRF will continue to vigorously prosecute its claims against the remaining defendants who are responsible for the WorldCom debacle.

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