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Risky business for corporate directors

Risky business for corporate directors

by Rick Turoczy on January 23, 2005

When lawyers for New York State Comptroller Alan Hevesi first sat down for settlement discussions with a group of former WorldCom directors 18 months ago, the lawyers made a shocking demand.

The directors, who presided over WorldCom as it headed toward the largest bankruptcy filing in U.S. history, would not be allowed to settle their part of a class-action suit unless they paid a significant percentage of their combined net worth.

Attorneys for the directors were stunned. Impossible, they said. Directors never pay. Insurance companies do, or sometimes, if they aren’t in bankruptcy proceedings, the companies at which the alleged fraud occurred provide money for settlements. To make board members dip into their own pockets would set a dangerous precedent. Who would serve on a board if their financial lives could be upended by other people’s fraud?

“To put in mildly, we did not receive the request warmly,” said one person close to the former WorldCom directors. Another person close to the talks was less restrained: “People were jumping out of windows.” Another said, “I’ve spent 45 years trying not to do this exact thing.”

Risky business for corporate directors

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