A number of miscalculations by J.P. Morgan Chase & Co. and the lawyer defending it in a class-action lawsuit against WorldCom Inc. investors resulted in the bank being made to pay extra $630 million to settle the suit, people familiar with the matter said.
The nation’s second-largest bank behind Citigroup Inc., J.P. Morgan, involved in the action against 17 financial firms concerning WorldCom’s accounting fraud, agreed to settle the case last week for $2 billion. The suit accused the firms of failing to provide a thorough examination of the telecommunication company’s financial health when they sold $17 billion of bonds. The breakdown of WorldCom, which has re-emerged as MCI Inc., caused investors massive losses; total settlements in the class-action case now cost a record $6 billion.
J.P. Morgan and the lead lawyer for the Wall Street bond syndicate -- Jay B. Kasner of Skadden Arps Slate Meagher & Flom – refused to settle the case for $1.37 billion offered by Morgan last year and underestimated the blame and financial expenditures the bank could face, according to the Wall Street Journal.
Mr. Kasner, 48 years old, stated that the only persons to blame in the case were WorldCom auditors – which turned to be a key error in opinion of John Coffee, a securities-law professor at Columbia University’s law school. Mr. Kasner persuaded his clients to reject the less-costly agreement for the underwriters. Representing his clients, he then argued over a “cheaper” settlement offer. And he openly subjected Citigroup, an original co-lead defendant with J.P. Morgan, to criticism for giving consent to a huge settlement in the case.
The result produced a negative effect on both Mr. Kasner and his financial clients. A year ago, he appeared in a court on behalf of all 17 bond underwriters in the case. By last week, Mr. Kasner lost any its former clients. Mr. Kasner’s advice cost J.P. Morgan and other underwriters additional $677 million than they would have paid, had they accepted the earlier settlement offer, people familiar with the case said.
Mr. Kasner refused to provide any comments.