March 18, 2005 — -- Stephen Teel spent 23 years working for MCI, investing all of his 401(k) contributions in company stock. After the massive fraud that brought down WorldCom -- which took over MCI -- and led to the collapse of its stock, his $1 million retirement nest egg was worth less than $1,000.
Teel, 56, had planned for an early retirement. Now he wonders how he'll finance any retirement at all. Still, he takes little pleasure from former Chief Executive Officer Bernard Ebbers' conviction on nine counts, including fraud and conspiracy.
"I don't like to see anything bad happen to anybody, so I wouldn't say I was happy to hear the news. What I really wanted to see was Ebbers step forward and admit fault, because I'm convinced in my heart that he knew what was going on," Teel said from his home in Allen, Texas.
Ebbers, 63, claimed during the six-week trial that the fraud was orchestrated by the company's chief financial officer, who testified as the government's star witness. Ebbers was convicted Tuesday and could get up to 85 years in prison when he is sentenced June 13. He is free on bail until then.
The resolution of the criminal case will likely have little impact on Teel's finances.
"Economically, this litigation won't do anything to help me out at all," he said.
WorldCom's stock price hit a high of $61.98 in June 1999, but plunged to 8 cents in June 2002 after investors learned it had fabricated $11 billion in profits. It is the largest corporate bankruptcy in U.S. history.
John Mosley, 51, faced a different scenario than Teel's. The owner of a successful auto body shop in Clinton, Miss., Mosley invested $27,000 in WorldCom stock in 2001. It was the first investment he'd ever made outside of an IRA and a couple of mutual funds, and he said he chose WorldCom on the advice of stockbrokers and the belief that he'd be investing in a hometown company. WorldCom was based in Clinton.
"I invested some money that I felt like I could afford to do something with, so it's not my retirement money or a life-changing thing," he said. "I put faith in stockbrokers and WorldCom and Bernie Ebbers, and they all let me down."
Still, losing $27,000 stung, and Mosley said he'd be wary of making large investments in the future. He agreed it was tough to take joy in Ebbers' fate, preferring instead to compliment the legal system.
"I'm not going to be bitter and vengeful," he said. "I won't get any money back, but I get the satisfaction of knowing the judicial system did its job. That shows that no matter how much money he's got or who he is, he's still not above the law."
Many shareholders are still hoping for some form of monetary compensation. A massive class-action suit filed by several large state pension and retirement funds along with several hundred thousand individual investors has already recouped more than $6 billion in settlements from banks that were involved in the sales or underwriting of bonds issued by WorldCom.
The latest settlement came Wednesday, the day after the Ebbers' verdict, when JPMorgan Chase & Co. agreed to pay $2 billion. JPMorgan officials suggested the conviction was a factor.
"Given recent developments, we made a decision to settle rather than risk the uncertainty of a trial," Chase Chairman and CEO William B. Hairston Jr. said in a statement.
Jury selection for a trial in the class-action suit was scheduled to begin Monday, but a spokesman for New York State Comptroller Alan G. Hevesi, the trustee for the New York State Common Retirement Fund and the lead plaintiff in the case, said it was unclear if the JPMorgan settlement would delay the trial.
In addition to the JPMorgan agreement, the plaintiffs have already reached settlements with all of the major banks named in the suit, including Citigroup Inc. and Bank of America Corp., for more than $4 billion. The suit still seeks money from 11 former WorldCom directors and several others, and prosecutors hoped the Ebbers verdict will pressure more parties to settle.
"It's a very strong sign that jurors are very skeptical of a defense that says, 'I couldn't have known what was going on,'" plaintiffs' attorney Sean Coffey said after Ebbers' conviction.
But even if the plaintiffs reach a settlement or win a jury trial, not every investor will see compensation. The state pension and retirement funds are likely to see a large portion of any settlement money, and lawyers' fees will further limit the pot.
And there are many former investors who aren't even involved in the suit. Mosley has not opted into any of the class-action suits, chalking up his ill-fated investment as a lesson learned.
And Teel is not a member of the class in the securities fraud case so he won't benefit from any future settlements or court rulings. He joined a separate class-action suit with other 401(k) holders suing WorldCom's pension plan trustees for mismanaging their retirement savings. The pension participants sued under the Employee Retirement Income Security Act, claiming the trustee of WorldCom's 401(k), Merrill Lynch, was liable for their losses because Merrill Lynch failed to block employees from investing in WorldCom stock as the stock price began slipping.
In February, a court ruling dismissed Merrill Lynch from the claim, essentially ending the ERISA litigation. It's unlikely Teel will see any money from the suit.
"They should allow some of the individual shareholders who lost everything to go to the front of the line," Teel said. "I hope I get some of that money back, but I really don't expect it to happen."