Alan G. Hevesi, New York state comptroller and sole trustee of the $117 billion New York State Common Retirement Fund, Albany, pulled out of an $18 million settlement with 10 of 12 former outside directors of WorldCom Inc., according to John Chartier, a spokesman for Mr. Hevesi.
Jeffrey W. Golan, a partner at Barrack, Rodos & Bacine and one of Mr. Hevesi's attorneys in the case, said U.S. District Court Judge Denise Cote made a ruling today that would have effectively limited the potential damages that Mr. Hevesi and the other plaintiffs could have recovered in the trial, finding that an ability-to-pay provision in the settlement violated the Private Securities Litigation Reform Act of 1995.
"Under the law, the investment banks can be liable for the entirety of damages, and we couldn't afford, on behalf of the class, to allow a significant proportion of that to be lost," Mr. Golan said in an interview.
He said the plaintiffs will seek "billions of dollars" in damages.
In a statement, Mr. Hevesi, lead plaintiff in the federal lawsuit in New York, stressed that Ms. Cote did not invalidate the settlement itself. "To be clear, the judge did not rule against the personal payments by settling director defendants, and that is not the reason for the termination of the settlement," he said. "The settlement is being terminated solely because of the potential impact on the amount other defendants might pay if the suit is successful." The trial is scheduled to begin Feb. 28.
The original settlement was reached on Jan. 7. In November, Ms. Cote gave final approval to a $2.575 billion settlement for WorldCom investors, led by Mr. Hevesi as lead plaintiff, and Citigroup.