Judge: Arthur Andersen Settles WorldCom Fraud Suit

Arthur Andersen LLP (search) agreed to settle a class-action lawsuit brought by investors who claimed they were cheated in the collapse of WorldCom (search), according to court papers released on Monday.

The settlement between the former WorldCom investors and Anderson, its former auditor, brings to a close one of the largest securities fraud lawsuits in U.S. history. A dozen former WorldCom directors along with 17 banks have previously settled.

The class-action trial opened four weeks ago, following hard on the heels of the criminal trial of former WorldCom Chief Executive Bernard Ebbers (search), who was found guilty on charges that he orchestrated an $11 billion fraud at the company that eventually drove it into bankruptcy.

In Monday's court papers, U.S. District Judge Denise Cote said Andersen and the plaintiffs "have executed a settlement agreement that would resolve the issues currently being tried" before her. She ordered a preliminary approval hearing for Tuesday.

The class-action lawsuit was filed on behalf of hundreds of thousands of investors who bought WorldCom stock and bonds before the telecommunications company sought bankruptcy protection in July 2002.

Details of Arthur Andersen's settlement were not released in the court papers. To date, however, investors stand to recover more than $6 billion from the other settlements.

The plaintiffs, led by New York State Comptroller Alan Hevesi, accused the banks of helping WorldCom sell bonds when they should have known the company was lying about its finances.

In a statement, Hevesi said he would not comment on the proceedings until after Tuesday's hearing.

WorldCom's Chapter 11 filing remains by far the largest U.S. bankruptcy. The company emerged last year as MCI Inc. (MCIP), and is now based in Ashburn, Va.