In 2004, the Court approved a distribution plan (“the Distribution Plan”) proposed by
the SEC to govern eligibility to make claims on the assets of the WVT for losses arising
from transactions in eligible WorldCom securities. The Distribution Plan governs every
aspect of the distribution process.
On August 20, 2007 Judge Jed S. Rakoff of the U.S. District Court for the Southern
District of New York (the “Court”), authorized Richard C. Breeden, the Distribution
Agent for the WorldCom Victim Trust (“WVT”), to commence a third cash distribution.
Set forth below are certain questions and answers relating to the payment process
that has now begun.
- What did the Court approve?
The Court approved a motion by the Distribution Agent to pay a third distribution of up to $130 million to Approved Claims. When these distributions are completed all Approved Claims will have received a distribution of 5% of Eligible Loss Amount or the Minimum Payment.
- Who will get paid?
Checks will be distributed to claimants who have completed documentation of their claims and otherwise established their eligibility to receive a distribution under the terms of the Distribution Plan.
- How can I find out whether I will be receiving a check and the amount?
Call WVT’s hotline (866-894-8871) and our customer service department will be happy to help you.
- How much will I be paid?
This first two distributions totaled 4% of the “Eligible Fraud Loss” shown in your Claim Determination Notice or your Final Determination Notice (if you received one). The third distribution will bring your total distribution to 5% of your Eligible Loss Amount, or the Minimum Payment. Thus, if your Eligible Fraud Loss is $10,000, your third check will be for $100, making your total distribution $500 thus far. Some claimants who received a Minimum Payment as described below (in the response to Question 11) will not receive further distributions.
- Is that all I will get?
No, there will be a final distribution in 2008. Except for persons who have already received their full distribution through the Minimum Payment, recipients of this third distribution will receive a fourth and final check. Claimants that receive the Minimum Payment may also receive a check, as more fully explained in the response to Question 12
- How much will my final check be?
We don’t yet know, as this will depend on the final resolution of all disputed claims, among other things. We currently believe that the total payout to each eligible claimant will be approximately 5.5% - 6% of your Eligible Fraud Loss.
- Why are you making multiple distributions
Making multiple distributions enables WVT to expedite the payment of recoveries to eligible claimants who have completed the claim process, rather than waiting until all processing is completed and all appeals are finally resolved.
- A payment of only 5.5%-6% of my losses doesn’t seem like much of a recovery. Did legal or processing fees eat up money I could have received?
No, in fact, the opposite occurred. When WVT was formed, it had $690 million in assets. After paying all taxes, professional and distribution fees and all costs, the assets of the WVT have grown to just under $760 million during the period of time required to solicit and process all claims. So, you will receive more cash than you would have if the distribution had commenced at the time WVT was created.
- But why is the payout percentage so small?
Investor losses were substantially larger than the assets of the WVT available to pay claims. Shareholders lost more than $145 billion on WorldCom stock alone and tens of billions more on bonds and other securities. We currently have completed claims with total Eligible Fraud Losses of more than $12 billion. Since WVT only has approximately $750 million to pay claims, the amount we can pay out to fraud victims is only a fraction of the total eligible losses. The $750 million in funds won by the SEC is a very significant amount. However, investors lost money in WorldCom’s fraud on a vast and unprecedented scale.
- Why is the amount of my “Eligible Fraud Loss” less than the amount of money I really lost on my WorldCom investments?
The Distribution Plan is designed to enable investors to recover a portion of their losses directly attributable to the fraud itself, rather than all economic losses incurred on their WorldCom investments. The SEC’s Distribution Plan does this through use of “fraud inflation factors.” The Distribution Plan divides the overall Fraud Period (April 29, 1999 – June 25, 2002) into eight different time periods. Economists determined, for each Eligible Security covered by the Distribution Plan, the portion of the market price of the security during each period that was based on WorldCom’s true earnings and the portion that represented price inflation due to the cumulative effect of WorldCom’s earnings misstatements. The Distribution Plan provides that each claimant’s Eligible Loss Amount on each eligible transaction in eligible securities is determined by multiplying the purchase price by the fraud inflation factor applicable to the time period in which the purchase occurred. This approach results in larger proportional recoveries by investors who purchased later in the Fraud Period, when WorldCom’s fraudulently reported income was a predominant part of all reported earnings, and therefore the inflationary impact of the fraud on the stock price was at its greatest.
- What is the Minimum Payment?
The Court Order authorizing the first distribution provided that every claimant will receive a minimum payment equal to the lesser of $100 or 100% of a claimants’ total economic loss (not Eligible Fraud Loss). So, for example, a claim with an Eligible Fraud Loss of $1,000 will receive a Minimum Payment of $100 rather than the $40 for the combined first distribution and second distribution that would otherwise have been the claimant’s total eligible recovery.
- If I receive the Minimum Payment in the first distribution, will I receive additional check?
If your total distribution would be greater than $100 as a result of the additional distributions, you will receive additional payments. If your final aggregate payment would be less than the Minimum Payment you received, you will not receive any additional payment.
- When will the final payment be made?
The final payment will be distributed in 2008.
- How many claims did WVT receive?
WVT received approximately 500,000 claims covering approximately 9.4 million individual transactions in
eligible securities. Total claimed losses were more than several trillion dollars. The staff of WVT carefully
reviewed all claims to verify the amounts claimed and to prevent false claims from diluting everyone else.
Final approved Eligible Fraud Losses are expected to be approximately $13-$14 billion, though this work is not yet finished.
- When will I receive my check?
The third distribution checks have been mailed. Please call our customer service hotline at 866-894-8871 if you did not receive a check.
- I filed an appeal with the Court. What will happen to my claim?
As soon as the Court resolves your appeal you will receive the appropriate check without any further action required on your part.
- Can you wire money to my bank?
No.
- I will be traveling over the next several weeks. How long do I have to cash my check?
You must cash your check within 90 days of the date of the check. Please call us if this creates difficulty for you.
- My claim was filed electronically by my bank or other institution. When will those checks be issued?
We have completed our review of claims filed by custodian banks and other intermediaries, and payments on these claims were included in the second and third distribution.
- What should I do if I have any other questions about my check?
As always, you should feel free to call our customer service hotline at 866-894-8871.
