Defrauded WorldCom Investors Set to Receive Initial $150 Million Payout From SEC 'Fair Fund'

FOR IMMEDIATE RELEASE
2006-179

Washington, D.C., Oct. 20, 2006 - The Securities and Exchange Commission announced today 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 yesterday 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," said Chairman Cox. "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 — in 10 languages — 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.

"I am delighted that individual investors will soon begin receiving their checks," said Peter H. Bresnan, Deputy Director of Enforcement. "I would like to thank the Court, as well as the Distribution Agent, former SEC Chairman Richard Breeden, for the tremendous work that he and his team have done in implementing the distribution and assisting victims of WorldCom's massive fraud."

The 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. Pursuant to the Commission's request, this penalty was placed in a Fair Fund for the benefit of WorldCom's investor victims.

The "Fair Funds for Investors" provision in the Sarbanes-Oxley Act of 2002 made it possible for all fines obtained in SEC enforcement actions to be distributed to investor victims. By law prior to 2002, all civil penalties obtained by the SEC in securities enforcement actions were deposited in the general fund of the U.S. Treasury.

Questions regarding the WorldCom Fair Funds distribution may be directed to the Distribution Agent at the WorldCom Victim Trust, P.O. Box 6970, Syracuse, NY 13217, via telephone at (866) 894-8871 or on the web at www.worldcomvictimtrust.com.

 

http://www.sec.gov/news/press/2006/2006-179.htm

 

Utube Sues YouTube

Utube Sues YouTube

Posted by Peter Lattman

Looking for a YouTube legal angle other than another analysis of the inscrutable Digital Millenium Copyright Act of 1998? We’ve got one! A company that shuttered its Web site because it was inundated by millions of people looking for YouTube has sued the video-sharing site.

Universal Tube & Rollform Equipment Corp., a Toledo, Ohio, company that sells, well, tubes and rollform equipment, said its Web site — utube.com – has had to change its domain names five times to evade the YouTube masses. The small company, with just 17 employees, got 68 million hits on its site in August.

The lawsuit, filed in federal court in Toledo, didn’t specify damages but asked that YouTube to stop using the youtube.com or pay Universal Tube’s cost for creating a new domain. Here’s the nub of it: “Due to the confusion in the minds of consumers, the spillover of nuisance traffic to Plaintiff’s neighboring Web site at utube.com has destroyed the value of Plaintiff’s trademark and Internet property, repeatedly caused the shutdown of Plaintiff’s Web site, increased Plaintiff’s Internet costs by thousands of dollars a month, and damaged the Plaintiff’s good reputation.”

YouTube hasn’t commented on the suit.

Law Blog YouTube Video of the Day: In our fifth installment of the Law Blog YouTube Video of the Day, here’s a short clip of a young John McEnroe, the Law Blog’s favorite athlete ever, telling an umpire how he really feels. Click here and enjoy.