BANK of America yesterday agreed to pay $461 million (£240 million) to settle a lawsuit accusing it of hiding risks from WorldCom investors when it helped the phone company to sell billions of dollars of bonds.

The settlement is the second in a class-action lawsuit filed in 2002 on behalf of hundreds of thousands of people who bought WorldCom stock and bonds before the company sought bankruptcy protection. Citigroup, the world’s largest bank, last year paid $2.58 billion.

The announcement came as a New York jury heard closing arguments in the trial of Bernie Ebbers, WorldCom’s former chief executive, who is charged with masterminding the fraud at the company.

The court was told that witnesses who testified against Mr Ebbers were liars trying to avoid jail. Summing up his case, the defence lawyer, Reid Weingarten, attacked the statements made by the 14 prosecution witnesses.

He singled out David Myers, WorldCom’s former chief accountant, who pleaded guilty and assisted the prosecution. Mr Myers was described as a “henchman” of Scott Sullivan, the former finance chief who has also pleaded guilty to fraud and agreed to testify against his former boss. “He (Myers) was as obedient to Sullivan as a puppy dog,” Mr Weingarten said.

The lawyer then labelled Mr Myers as “the engine” of the fraud who had lied about the involvement of Mr Ebbers to avoid jail. Mr Weingarten also claimed that Mr Sullivan’s testimony consisted of a series of lies that were designed to reduce his jail sentence.

The prosecution alleges that Mr Ebbers masterminded a plan to hide costs and falsely inflate revenues, which led to WorldCom’s record $11 billion collapse. Mr Ebbers, 63, denies the charges.

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