Arthur Andersen settles WorldCom lawsuit

U.S. judge gives initial approval to a $65M US settlement of suit brought by former WorldCom investors against Arthur Andersen LLP.

A U.S. judge has given initial approval to a $65-million US settlement of a lawsuit brought by former WorldCom investors against auditing firm Arthur Andersen LLP.

WorldCom investors sued the auditor, saying it had broken securities laws by failing to protect them after the telecom company collapsed in an $11-billion US fraud.

The plaintiffs in the lawsuit, which was led by New York state Comptroller Alan Hevesi, acting as trustee of the state employees' retirement system, contended that WorldCom's financial statements between 1999 and 2001 contained false information. 

The plaintiffs said Arthur Andersen issued its audit opinions on WorldCom's results with an "intent to deceive, manipulate or defraud."

Arthur Andersen countered that its audit opinions were generated in good faith with no intention to deceive, manipulate or defraud.

Prior to the Arthur Andersen settlement, a group of investment banks agreed to a $6-billion US settlement with investors, while 12 former members of WorldCom's board of directors settled for $24.75 million US.

WorldCom collapsed in bankruptcy after the fraud was uncovered. The company re-emerged as MCI Inc.

Bernie Ebbers, WorldCom's former CEO, was found guilty March 15 on one count of securities fraud, one of conspiracy and seven counts of making false filings to the U.S. Securities and Exchange Commission. His defence team has asked for a new trial on the grounds the judge in the case made errors.

Ebbers is scheduled to be sentenced June 13. He faces up to 85 years in prison.

Arthur Andersen was once one of the largest accounting firms in the world. But it is now a shadow of its former self after it was convicted of obstruction of justice for destroying documents relating to the collapse of energy-trading giant Enron Corp.