25 banks claim WorldCom defrauded them of $2.5bn

A group of 25 banks are claiming WorldCom defrauded them out of nearly $2.5bn (€2.5bn).

The banks lent the money six weeks before WorldCom publicly disclosed a $4bn (€4bn) accounting cover-up.

The banks' lawsuit was filed in Manhattan's State Supreme Court.

A request for an order to immediately freeze $2.65bn (€2.65bn) of WorldCom assets was denied. A hearing was scheduled for July 16.

WorldCom got the money by way of a credit agreement with 27 banks, including Citigroup.

That agreement allowed WorldCom to borrow, repay and reborrow up to $2.65bn (€2.65bn) within a year, and it was conditioned on certain terms and representations by WorldCom.

Two of the 27 banks are not part of the lawsuit. The other 25 gave $2.49bn (€2.49bn) in loans and make up 93% of the total.

They say in court papers that "on May 15, 2002, barely six weeks before disclosing a massive accounting fraud," WorldCom told the lenders by telephone "that it intended to draw down the entire $2.65bn (€2.65bn) in a single borrowing".

Court papers say that on May 20, 2002, WorldCom assured lenders that its quarterly financial statement for the first quarter of 2002 was prepared in accordance with generally accepted accounting principles, and that it presented a fair picture in all respects of WorldCom's financial condition.

WorldCom issued a press release on June 25 disclosing an accounting fraud of "staggering proportions," the banks' court papers say. They say that if they had known the company's true condition they would not have permitted the loans.