By Pam Martens: August 6, 2012

When WorldCom filed for bankruptcy in July 2002 as a result of a massive accounting fraud, it led to over 12,000 WorldCom employees losing their jobs, their 401(k)s, their medical insurance, and much of the severance they were owed. Some of the employees set up a fund to help each other save their homes or pay critical bills. Even members of Congress were sympathetic to the plight of the workers and contributed to the fund the tens of thousands of dollars that WorldCom had given in political donations.

But billionaire Scrooge, Sanford (Sandy) Weill, who was Chairman and CEO of Citigroup – the firm that was charged with aiding and abetting the fraud and paid a total of $3.05 billion to settle with regulators and defrauded shareholders, has quietly raked in $2,048,226 between 2006 and 2010 from a fund meant for victims of the fraud. Given the role that Weill’s firm played in the fraud, that’s akin to the driver of the getaway car approaching the bank manager after the holdup and asking if he can get his parking comped.

Because the WorldCom settlement fund had $6 billion to disperse and $46.5 billion in claims, every dollar Weill took from the fund meant some actual needy person did without.

According to the tax returns filed by Weill’s Family Foundation, which is a conduit for Weill to give away money, get a tax deduction, and see his and his wife’s names chiseled on buildings from coast to coast, the nonprofit received the following sums from the WorldCom Settlement Fund: $1,560,122 in 2006; $361,080 in 2008; and $127,024 in 2010.

The extent of the WorldCom fraud began to emerge on June 25, 2002, when the company announced it was restating its financial statements for 2001 and the first quarter of 2002. The company said it had improperly capitalized expenses of $3 billion in 2001 and $797 million in the first quarter of 2002. The restatement meant that instead of profits for those periods, WorldCom had staggering losses. The company filed for bankruptcy within the month.

In August 2002, WorldCom announced that it had discovered an additional $3.3 billion in misstated earnings going all the way back to 1999. In the end, the accounting fraud grew to $11 billion. A company that had a market capitalization of $125 billion in 1999, had worthless shares when it emerged from bankruptcy in April 2004, hoping to shed its scandal plagued past by opting for the new name of MCI.

On April 28, 2003, the SEC settled its charges in the WorldCom matter against Citigroup and its disgraced research analyst, Jack Grubman, who pumped out buy ratings on stocks to the public while admitting in internal emails that the stocks were dogs. Citigroup paid $400 million to settle with the SEC and other regulators. Grubman paid $15 million and was banned from the securities industry for life. Grubman’s severance was a cool $32 million. Sandy Weill was mentioned by name in the SEC enforcement action:

“In late November 1999, Grubman upgraded AT&T Corporation from a Neutral (3) – his longtime rating on the stock – to a Buy (1). SSB and Grubman did not disclose in the report that Grubman had a conflict of interest relating to his evaluation of AT&T or that his objectivity had been compromised. Prior to the upgrade, Sanford I. Weill, the co-CEO and Chairman of Citigroup (and a member of the AT&T board of directors), had asked Grubman to take a ‘fresh look’ at AT&T. Thereafter, during the time that Grubman was conducting his ‘fresh look’ at the company, Grubman had asked Weill for assistance in gaining admission for his children to the selective 92nd Street Y preschool in New York City. After Grubman upgraded AT&T and his children had been admitted to the preschool, Grubman stated privately that he had upgraded AT&T to help his children get into the 92nd Street Y preschool.”

The Citigroup Foundation would subsequently donate $1 million to the 92nd Street Y, a status symbol for social climbers in New York City.

It is unknown if Weill had the guts to make a claim to the SEC’s WorldCom fund. The payments received by his Family Foundation, which are denoted as “WorldCom Settlement Fund,” correlate to the distribution payment dates of the separate $6 billion WorldCom Settlement Fund that resulted from a class action lawsuit filed by the New York State Common Retirement Fund, which lost over $300 million on WorldCom securities. Of the $6 billion collected by that lawsuit from various defendants, Citigroup paid $2.65 billion for its part in the swindle.

The WorldCom fraud occurred in the late 1990s through the first quarter of 2002. Sandy Weill was Chairman and CEO of Citigroup during that period. In 2003, he stepped down as CEO but remained on as Chairman until April 2006, the year the first payment was accepted by his fund. The audacity of Weill accepting $2 million from a fund to which his firm paid almost half to settle claims of aiding and abetting an historic fraud is another low mark in this era of Wall Street greed. Low marks, it should be noted, are now being set almost daily. (Citigroup is currently under investigation for the latest fraud of the century, Libor rigging.)

The lawsuit brought against Citigroup and its Salomon unit by the New York State Common Retirement Fund included the charge that Grubman, whose duty was to provide honest stock research to the public, actually scripted what WorldCom’s CEO Bernie Ebbers was to say to analysts on conference calls: “…Grubman scripted, caused and directed Ebbers to make untrue and/or misleading statements of material facts on February 7, 2002, in a conference call with analysts, in furtherance of WorldCom’s fraud…Grubman caused and directed Ebbers to state that WorldCom ‘stand[s] by our accounting’ and that the Company was viable and had no liquidity issues, and to omit mention of the true financial condition of WorldCom. Ebbers’ statements in that conference call followed the detailed script Grubman wrote for him in a series of e-mails sent in the days leading up to that call…Grubman issued two reports within the next twenty-four hours that were intended to and did buttress the false and misleading statements Grubman had caused Ebbers to make.”

The lawsuit depicted the culture at Citigroup as one of “commercial bribery”: “…underlying Salomon’s stunning success was a complex scheme of what the New York Attorney General described as ‘commercial bribery.’ To obtain the coveted investment banking services and fees, Salomon enticed top executives of telecommunications companies with a package of Wall Street’s hottest currencies: (1) a guarantee of favorable analyst reports and ratings to bolster the value of the potential client’s stocks; and (2) for the decision-makers at the potential clients, lucrative shares in ‘hot’ initial public offerings. This illicit, multi-faceted quid pro quo arrangement was never disclosed to WorldCom investors, who relied on the supposed integrity of Salomon’s underwriting process and the independence of Salomon’s research.”

The New York State Common Retirement Fund lawsuit further documented that Citigroup was making massive personal loans to WorldCom CEO Ebbers to win his investment banking business – from 1996 to 2002, Citigroup and its various units pocketed over $100 million in investment banking fees. The lawsuit stated: “Citigroup did not loan half a billion dollars to Ebbers simply for the marginal profit that might be earned from timber financing. Citigroup’s true motive was instead to buy its way into investment banking loyalties, not only with Ebbers and WorldCom, but with other parties to these transactions, including Kimberly-Clark, Strategic Timber and Regions Bank.”

Sandy Weill serves as Chairman and Treasurer of the Weill Family Foundation. Other Directors include Kenneth Bialkin, Of Counsel at the large Wall Street law firm, Skadden Arps, Slate, Meagher, and Flom LLP. Bialkin served on the Board of Citigroup and its predecessor firms for 16 years and was the attorney Weill used for most of his major acquisitions leading to the mega merger of Travelers and Citicorp to form Citigroup. Michael Masin is also on the Board. Masin previously served on the Citigroup Board and was tapped by Weill to become Chief Operating Officer in 2002 as scandal swirled around Weill, Grubman and WorldCom. Another member of the Board is Arthur Mahon, the former Chairman of the Cornell Medical College Board of Overseers, one of the primary recipients of the Weill Family Foundation’s largesse and now renamed the Weill Cornell Medical College. Weill’s wife, Joan, and their daughter, Jessica Bibliowicz, are also on the Board.

It is unclear if Sandy Weill ever actually followed the advice that Grubman was peddling to the public and bought WorldCom’s stock or bonds. If so, he would have been required to file a claim form seeking restitution funds. Within the Weill Family Foundation’s assets are numerous offshore funds which could have owned the WorldCom securities and provided a pro rata share of the settlement fund to Weill. But since the source of the income is clearly identified on the IRS 990 tax filing as “WorldCom Settlement Fund,” since Sandy Weill is Chairman and Treasurer and signed the tax filings, it would appear that he was well aware that he was receiving funds meant for the true victims of the fraud.

WorldCom’s CEO, Bernie Ebbers, is serving 25 years in prison. Its CFO, Scott Sullivan, served four years of a five year sentence. Jack Grubman was barred from the securities industry for life. Over 12,000 employees lost their jobs and shareholders received pennies on the dollar. And what is Sandy Weill doing? As usual, he’s financially benefiting from his reign of hubris as he lectures the country on CNBC about how to get its financial house in order.