WorldCom Investors To Receive Payout

by Glen Shapiro, LawAndTax-News.com, New York

24 October 2006

The US Securities and Exchange Commission announced on Friday that thousands of individual investors who were victimized in the massive WorldCom financial fraud will soon receive up to $150 million from an SEC fund set up to help compensate investors for their losses.

"The distribution," according to SEC Chairman, Christopher Cox, "will begin immediately."

The SEC's ability to return penalty money directly to fraud victims is a new authority granted by the Sarbanes-Oxley Act of 2002. Under Section 308 of the Act, the entire $750 million penalty that the SEC obtained from WorldCom was paid into a "Fair Fund" when the reorganized company emerged from bankruptcy protection in April 2004.

All of that money is earmarked for return to injured investors. The United States District Court overseeing the SEC litigation against WorldCom on Thursday cleared the way for the first installment of distributions, now that a sufficient number of claims have been processed.

"This most recent success of the Fair Funds process will play an important role in encouraging investors to continue to place trust in America's capital markets," observed Chairman Cox, continuing:

"It shows that even when things go terribly wrong, there is a safety net for injured investors. Fair Funds are particularly useful when, as here, the investors who have lost money can be identified, and their financial losses can be calculated. And while tracking down WorldCom's investors in 110 countries isn't easy, the ultimate result will be that three quarters of a billion dollars will be returned to its rightful owners."

During the period covered by the fraud, WorldCom had 34 different publicly traded securities, and over 32 billion shares of its common stock were traded. Investors in 110 countries made nearly 450,000 claims to the Fair Fund related to approximately 9.4 million transactions in those securities.

The initial $150 million distribution approved by the court covers claims processed to date, including most of those filed by individual investors. Subsequent distributions will be made as the remaining claims are processed.

The Securities and Exchange Commission sued WorldCom on June 26, 2002, the day after the company disclosed it had made massive misstatements on its financial statements for the preceding five fiscal quarters. In July 2003, the District Court entered a final judgment ordering WorldCom to pay a civil penalty, which was placed in a Fair Fund for the benefit of WorldCom's investor victims.

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