“Trial Lawyers Place Election Bets” was the headline that ran over the news article in The New York Sun on Tuesday morning, November 5,2002. It reported,”Law firms that specialize in suing corporations whose stock prices fall are pouring last-minute donations into the race for state comptroller, knowing that whoever wins will be in a position to hire them for lucrative class-action suits.”

Well, for at least two law firms, the investments paid off big-time yesterday, with the announcement that Citigroup, the big New York bank, had agreed to a $2.65 billion settlement with holders of stock and bonds in WorldCom. Two law firms — Barrack, Rodos & Bacine and Bernstein Litowitz Berger & Grossman LLP — stand to share a legal fee of up to $144.5 million for representing the lead plaintiff, the New York State comptroller, Alan Hevesi, in the case against Citigroup.

Here’s the money trail on this one, as documented in New York State campaign finance records. On October 8, 2002 — less than a month before an election for comptroller that Mr. Hevesi ultimately won by a razor-thin margin — four persons gave a total of $50,250 to a Washington political action committee with the nondescript name “Consumer Advocacy PAC.”They all listed as their address the Philadelphia office of the law firm Barrack, Rodos & Bacine. One of the donors was the law firm’s name partner, Leonard Barrack. The PAC turned around on October 8 and gave $20,400 to Mr. Hevesi’s campaign committee. Mr. Barrack gave another $2,000 directly to Mr. Hevesi’s campaign on October 10, 2002.

Bernstein Litowitz Berger & Grossman LLP didn’t even bother to use a cut-out. Its name partner, Max W. Berger, gave Mr. Hevesi’s campaign $5,000 on September 30, 2002, another $500 on October 24, 2002,and another $5,000 on February 25, 2003. Another Bernstein Litowitz lawyer, Daniel L. Berger, also gave Mr. Hevesi’s campaign $5,000 on September 30, 2002 and another $5,000 on February 25,2003.

A spokesman for Mr. Hevesi, David Neustadt, said the lawyers in the World-Com case were chosen during the tenure of Mr. Hevesi’s predecessor, H. Carl McCall. He also said that decisions on hiring lawyers are made by professional staff in the comptroller’s office who “have no idea” who makes contributions. The fee agreement, though, was dated July 30, 2003, and signed by a longtime Hevesi aide, Alan P. Lebowitz.”Contributors are neither penalized nor rewarded for their contributions,” Mr. Neustadt said.

Mr. McCall turns out to have had his own windfall from the lawyers who have been so generous to Mr. Hevesi. On October 8, 2002, the “Consumer Advocacy Pac” funded in part by the Philadelphia lawyers gave $30,700 to Mr. McCall’s campaign for governor. And Max Berger donated a total of $17,500 to Mr. McCall’s campaign. Another Bernstein Litowitz lawyer, Douglas McKeige, gave $16,000 to Mr. Hevesi’s Republican opponent in the comptroller’s race, John Faso.

So it was at least slightly amusing to see Mr. Hevesi’s press release yesterday in which the comptroller hailed the $2.65 billion settlement as “historic” and said it “should serve as a wake-up call to those on whom the investing public depends to guard against corporate corruption such as occurred at WorldCom.”

The stench of corruption around the “pay-to-play” practices of municipal bond firms in comptroller elections was such that in 1994 the Municipal Securities Rulemaking Board instituted a rule banning the practice so as “to ensure that the high standards and integrity of the municipal securities industry are maintained.”The politicians and the law firms they are hiring to sue the banks have lower standards, apparently. It leaves the banks without a level playing field, and the lawyers with an advantage.

Mr. Hevesi’s press release boasts that the legal fee is lower than what is typical for class-action lawyers in securities cases. Mr. Neustadt notes that the fee may come in below $144 million and that the lawyers have put their own capital at risk by pursuing the case on a contingency-fee basis. “They’re taking a chance, and if they lose, they get nothing,” he said. Still, there is a potential legal fee of $144.5 million for a case that didn’t even go to trial.

The legal fee, and the rest of the huge settlement, has to come from somewhere. Where it comes from is the pockets of Citigroup shareholders. Citigroup’s stock price fell yesterday. While not all of yesterday’s fall is necessarily attributable to the Hevesi-WorldCom settlement, surely a part of it was. As the accompanying graphic shows, various New York city and state employee pension funds own more than $1.6 billion worth of Citigroup stock, according to their most recent annual reports. That stock is worth about $45 million less now than it was before Mr. Hevesi’s heroics.

So there you have it. The class-action lawyers will end up with as much as $144.5 million. Mr. Hevesi makes off with $42,900 in campaign contributions. The city and state retirees, whose money Mr. Hevesi is supposed to be watchdogging, lose $45 million. Not to mention all the other Citigroup shareholders who are going to wind up paying for this settlement.

The state pension fund will see some of its Citigroup losses returned in the form of a settlement for the $306 million worth of WorldCom stock that it held before the company tanked. Mr. Neustadt said yesterday that it wasn’t clear how much of the $2.65 billion settlement

would go to the New York State Common Retirement Fund and how much would go to other class members. For all we know, the amount recovered may be less than the fund lost yesterday in the value of its Citigroup stake.

Mr. Hevesi’s press release trumpeted the settlement as “the largest amount ever recovered in a securities class action from a party other than the company that issued the subject securities.”This is a dubious distinction. The wrongdoers in this case were WorldCom chief financial officer Scott Sullivan, who earlier this year pleaded guilty to securities fraud, and WorldCom chief executive officer Bernard Ebbers, who has been indicted for securities fraud. By the logic of Mr. Hevesi and his $144.5 million lawyers, it’s Citigroup shareholders — including the state retirement fund Mr. Hevesi is supposed to oversee — who should be on the hook for the criminal behavior of Mr. Sullivan. This settlement may be, as Mr. Hevesi put it, “a wake-up call,” but perhaps not in precisely the way he intended it.