A group of ex-WorldCom Inc. directors agreed to settle claims that they participated in financial wrongdoing that led to the company’s collapse, the pension fund leading the investor suit said.

David Neustadt, a spokesman for the New York State Common Retirement Fund, which is leading the lawsuit on behalf of WorldCom bondholders and shareholders, said most of the directors agreed ``in principle’’ to settle. David Elbaum, a lawyer for the directors with New York’s Simpson Thacher & Bartlett, didn’t immediately return calls seeking comment.

The settlement, the terms of which Neustadt said might be announced this week, allows the plaintiffs to focus on preparing for a January 2005 trial against the dozen investment banks that underwrote WorldCom securities before it filed the biggest bankruptcy in U.S. history two years ago.

On July 20, U. S. District Judge Denise Cote gave preliminary approval to Citigroup Inc.’s $2.65 billion settlement for its role as an underwriter of the long-distance company’s securities. The other investment banks, including J. P. Morgan Chase & Co. and Bank of America Corp., declined to accept the offer of a matching settlement.

WorldCom, which filed for bankruptcy protection July 2002, restated $11 billion in earnings after disclosing misstatements of its finances. The company emerged from bankruptcy in April as MCI Inc.

WorldCom investors have until the end of the month to decide whether to participate in the class action.

Should Have Known

Lawyers for the investors, led by Sean Coffey of New York’s Bernstein Litowitz Berger & Grossman, said in court papers that the banks should have known that WorldCom was engaged in fraud before funding the second-largest bond issue in U.S. history in May 2001.

Investors cited WorldCom documents that show discrepancies between actual company expenses and reported expenses. The banks should have noticed the discrepancies before underwriting the $10.1 billion bond issue, investors argued in pre-trial papers and hearings.

Former Chief Executive Bernard Ebbers faces trial in New York federal court Nov. 9 for criminal securities fraud related to the company’s collapse. He is also named in the class-action suit.

WorldCom lost $200 billion in market value before filing its bankruptcy. The company is the second-largest U.S. long-distance phone-service provider after AT&T Corp.

Fraudulently Reduced

Investors say WorldCom fraudulently reduced its expenses in 2001 and 2002 by hiding line costs -- fees paid to other telephone companies for use of their transmission lines -- in the capital budget, rather than reporting them as operating expenses.

WorldCom’s investment banks, securities companies that have billions of dollars in reserve, are the primary targets of the litigation.

Jay Kasner, a lawyer for the investment banks with New York’s Skadden Arps Slate Meagher & Flom LLP, didn’t immediately return calls for comment.

The case is In Re WorldCom Litigation, 02-cv-3288, U. S. District Court for the Southern District of New York.