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Official Committee of Unsecured Creditors of WorldCom, Inc. v. Securities and Exchange Commission

United States Court of Appeals for the Second Circuit
467 F.3d 73 (2006)


Facts

The Securities and Exchange Commission (SEC) (plaintiff) brought a civil enforcement action against WorldCom, Inc. (WorldCom) (defendant). The SEC alleged that WorldCom had defrauded investors by overstating revenues. The parties reached a settlement that required WorldCom to pay a civil penalty of $750 million. The settlement also ordered disgorgement of $1, which opened the door to the return to the investors of the $750 million under the Fair Funds for Investors provision of the Sarbanes-Oxley Act of 2002 (Fair Funds provision). The SEC submitted to the United States District Court for the Southern District of New York a proposed plan for distribution of the funds. Because there was not sufficient money to cover all investors’ losses, the SEC excluded investors who had recovered at least 36 cents on the dollar through their sale of WorldCom securities or through WorldCom’s bankruptcy proceeding. This proportionate recovery amount was equal to the approximate amount that general creditors received. The district court approved the SEC’s distribution plan. The Official Committee of Unsecured Creditors of WorldCom, Inc. appealed.

Rule of Law

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Issue

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Holding and Reasoning (Sotomayor, J.)

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  • A "yes" or "no" answer to the question framed in the issue section;
  • A summary of the majority or plurality opinion, using the CREAC method; and
  • The procedural disposition (e.g. reversed and remanded, affirmed, etc.).

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