WorldCom’s former bondholders weren’t the only winners yesterday when J.P. Morgan Chase finally settled a lawsuit over its role in underwriting the fraudulent telecom company’s bonds in 2000 and 2001. Smiles were deep and broad on the faces of the lawyers at the two modestly sized plaintiffs’ law firms that brought the case in June 2002 – Barrack, Rodos & Bacine and Bernstein Litowitz Berger & Grossmann – as they will eventually split more than $330 million in fees earned to date.

Jury selection for the case – which won’t go to court now that final holdout J.P. Morgan settled for $2 billion – was slated to begin today.

J.P. Morgan could have gotten out of its jam earlier and cheaper, but it rejected a $1.37 billion settlement offer from the law firms last May.

Yesterday’s settlement came after a ruling by District Court Judge Denise Cote on Monday denying the bank’s request to keep other bank defendants from settling. A footnote in the judge’s ruling suggested J.P. Morgan could be held liable at trial for more than the $5.1 billion in bonds it helped sell.

“Given recent developments, we made a decision to settle rather than risk the uncertainty of a trial,” said J.P. Morgan Chase CEO William B. Harrison Jr.

The lawyers’ fees are based on a sliding scale negotiated with the lead plaintiff in the case, the New York Common Retirement Fund, that allows for the payment of 5.5% of the total amount recovered over $1 billion.

So far this month, 12 investment banks have agreed to pay slightly more than $6 billion to the former investors in WorldCom stock and bonds.

A spokesman for Alan Hevesi, the New York State comptroller and the sole trustee of the CRF, David Neustadt, declined to comment on the lawyers’ fee structure.

“I am particularly pleased that the management of the bank has decided to put this issue from the past behind it so I can focus on growing and creating jobs,” said Mr. Hevesi in a prepared statement.

One of the two lawyers who co-directed the plaintiffs’ case on a daily basis, Philadelphia-based Barrack, Rodos & Bacine partner Jeffrey Golan, said that there was little chance the suit’s fee structure would elicit the outrage that has been seen over the legal fees paid in the tobacco and asbestos litigations.

“Alan Hevesi pretty early on made clear that there would be more clarity and transparency with this arrangement than other suits, since he had seen the anger that fees had generated,” he said. In the case of the numerous tobacco class actions, over $10 billion in legal fees had been generated by late 2004, according to a Cato Institute study.

Former New York Comptroller H. Carl McCall contacted the law firms on June 26, 2002, the day after the Securities and Exchange Commission’s civil lawsuit alleging massive financial fraud. “Basically, I think they wanted to go with smaller, lower-profile firms that focused on financial fraud,” said Mr. Golan. Documents filed with the U.S. District Court to recoup expenses like meals and air travel noted that as of June 30 last year, the two law firms had spent over 170,000 hours on the case.

Mr. Golan said there was still work to be done, pointing to suits pending against the former WorldCom board of directors and former accounting giant Arthur Andersen. A $54 million settlement with the board – $18 million of which would be paid by its 10 former members – collapsed several weeks ago. He said that talks should reopen quickly.

With regards to former accounting powerhouse Arthur Andersen, the accounting firm at the center of the Enron collapse as well: “Andersen might not be around, but their lawyers are fighting pretty hard, so it will be interesting to see what is recoverable.”