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)
The SEC (plaintiff) settled its fraud enforcement action against WorldCom (defendant) for a $750 million civil penalty combined with nominal disgorgement, structured to allow distribution of the funds to defrauded investors under the Fair Funds for Investors provision of the Sarbanes-Oxley Act; because the fund could not cover all investor losses, the SEC's proposed distribution plan excluded investors who had already recovered at least 36 cents on the dollar through securities sales or WorldCom's bankruptcy, matching the approximate recovery rate of general creditors. The district court approved the plan, and the Official Committee of Unsecured Creditors of WorldCom appealed.
Whether a district court may approve an SEC distribution plan for civil penalty funds under the Fair Funds provision that excludes defrauded investors who have already recovered a proportionate amount comparable to general creditors, where the available funds cannot cover all investor losses.