Bank of America
became the second big bank to settle with shareholders of WorldCom, agreeing to pay $460 million in restitution in the massive securities fraud class action.
The nation's third-largest bank announced the settlement early Thursday. The Charlotte, N.C., based lender said it had previously set aside money in a legal reserve for the settlement.
The deal with BofA is much smaller than the $2.65 billion settlement agreed to last year by
. It comes just as the criminal trial of former WorldCom CEO Bernard Ebbers is wrapping up in a federal courtroom in Lower Manhattan. Ebbers is charged with securities fraud, conspiracy and making false statements.
In a press release, BofA said "it is in the best interests of the company to resolve these claims and put this litigation behind it.'' In settling the case, the bank denied violating any laws.
The lawsuit alleges that BofA, Citigroup and more than a dozen other financial institutions misled investors by underwriting WorldCom stock and bonds. The shareholders claimed the banks were either aware or should have been aware of the massive financial accounting fraud at the former telecom giant.
WorldCom declared bankruptcy on June 25, 2002, wiping out tens of thousands of shareholders, after discovering massive profit misstatements related to the way it expensed the cost of its phone lines. WorldCom emerged from bankruptcy last April as
, just one week after federal prosecutors charged Ebbers and former CFO Scott Sullivan with three counts each of securities fraud, conspiracy and making false statements. The indictment accused Sullivan of using bogus financials to seek some $4.25 billion in credit agreements from banks including BofA.
Sullivan pleaded guilty and agreed to cooperate with federal prosecutors. At Ebbers' trial, Sullivan was the key witness for the prosecution, testifying that Ebbers was fully aware of the accounting fraud. Ebbers, who took the stand in his own defense, denied Sullivan's charges and said he knew nothing about Sullivan's accounting shenanigans.
The BofA settlement does not mean an end to the class-action litigation. Shareholders continue to have pending claims against at least another dozen big financial institutions, including
J.P. Morgan Chase
Credit Suisse First Boston