Two interesting articles related to the WorldCom securities litigation:
(1) The Wall Street Journal reports (subscription only) on Bear Stearns’ surprising decision to go to trial in Alabama state court over claims that it misled The Retirement Systems of Alabama (RSA) in connection with the sale of bonds from a WorldCom subsidiary. Citigroup, JPMorgan Chase, and Bank of America have already settled with RSA for $111 million.
Quote of note: “One reason Bear may be willing to have its day in court: The pension fund isn’t seeking punitive damages, which are intended to punish the defendant and to discourage repeat behavior, so its exposure is capped at $16.2 million. And unlike Citigroup, Bear Stearns isn’t named in the massive class-action suit that has been filed in New York by WorldCom stockholders and bondholders. So it doesn’t have to worry that an award against it in Alabama will negatively affect its position in that suit.”
(2) An article in the November 2004 SCAS Alert has more background on the story. The article discusses the recent decision by the U.S. Court of Appeals for the Second Circuit to overturn the district court injunction that blocked RSA from pursuing its state court lawsuit. Judge Cote presides over the federal securities class action pending against WorldCom and others in the S.D.N.Y. and had ordered the Alabama court to delay its trial until 60 days after a verdict in the federal case. The Second Circuit found that a federal court has no protectable interest in being “the first court to hold a trial on the merits.”
Quote of note (SCAS Alert article): “Traditionally, few institutional investors have litigated their claims in state court. The practice has become more common in the past two years. Last year, pension funds in Ohio and California opted out of a federal class action against AOL Time Warner to bring state court claims. Federal class counsel have argued that investor recoveries typically occur sooner and are more certain in federal court. Defense lawyers also have tried to discourage state litigation, preferring to negotiate a single federal class settlement that would cover all investors.”