I had somewhat the same problem with the WorldCom settlement. Presumably you did claim a lower capital gain due the drop in stock price at the time you sold, so you have already deducted the loss and the settlement is new income.
I searched the internet and found one guy that added the settlement amount as a capital gain, which seems reasonable enough. However, everything else I could find about settlements in general said they were normal income, not capital gains. I was surprised to find almost nothing directly related to the WorldCom settlement. Surely many people had to deal with that.
I went ahead and claimed it as normal income just to be safe. You should probably get a professional opinion if that is not an easy option in your case. It's definitely taxable.