Check is Not in The Mail in WorldCom Settlement

Matt Krantz

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  to 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.

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