As previously reported in The 10b-5 Daily, Milberg Weiss and Bernstein Litowitz are in the midst of a dispute over the recruitment of individual bondholders to bring securities fraud claims against WorldCom and related parties. Bernstein Litowitz, who represents the lead plaintiff in the main investor action against WorldCom, has complained in a series of submissions to the court that Milberg Weiss provided “misleading solicitations” to WorldCom bondholders suggesting that they would not obtain a fair share of any settlement obtained in the main investor action and should bring their own individual actions.
Yesterday, District Judge Cote issued an opinion & order concerning this matter. The court found that Milberg Weiss has engaged in an “active campaign” to encourage pension funds to file individual actions and is running the individual actions as “a de facto class action.” Moreover, the firm’s communications have resulted in “some confusion and misunderstanding of the options available to putative class members.”
The court ordered that a separate notice (in addition to the normal class certification notice) be sent to each plaintiff who has filed an individual action, with the initial draft to be written by Bernstein Litowitz. The requests for relief made by Bernstein Litowitz in its November 4 submission to the court were denied, but leave was granted for the firm to bring a formal motion on the subject.
Category Archives: WorldCom
Court Rules On Solicitation Dispute In WorldCom Case
Filed under Lead Plaintiff/Lead Counsel, WorldCom
Dispute Between Plaintiffs’ Firms Goes Public
Two prominent plaintiffs’ firms, Milberg Weiss and Bernstein Litowitz, are in the midst of a dispute over the recruitment of individual bondholders to bring securities fraud claims against WorldCom and related parties. Bernstein Litowitz represents the lead plaintiff in the main investor action against WorldCom, which has been brought on behalf of both common shareholders and bondholders in the S.D.N.Y.
In an October 29 letter to the court, Bernstein Litowitz complains that Milberg Weiss provided “misleading solicitations” to WorldCom bondholders suggesting that they would not obtain a fair share of any settlement obtained in the main investor action and should bring their own individual actions. According to a Reuters article, Milberg Weiss “strongly denied the accusations, which will be aired at a hearing [today] in New York before U.S. District Judge Denise Cote.” (As posted in The 10b-5 Daily, class certification was recently granted in the WorldCom case.)
Filed under Lead Plaintiff/Lead Counsel, WorldCom
Court Grants Class Certification In WorldCom Case
Class certification in the WorldCom securities class action has been granted for all purchasers of the company’s stock from April 29, 1999 to June 25, 2002. In a 91-page ruling, District Judge Cote of the S.D.N.Y. rejected numerous arguments by the defendants against class certification, including an argument by Salomon Smith Barney (“SSB”) and its telecommunications analyst, Jack Grubman, that a Rule 10b-5 claim “cannot apply to expressions of opinion by a research analyst since it is not probable or likely that such opinions would affect the market price for WorldCom securities.”
The SSB defendants appear to have relied on Judge Pollack’s decision in the Merrill Lynch research analyst cases in making their reliance/loss causation arguments. In that decision (referred to as the Merrill Lynch III opinion by Judge Cote), Judge Pollack found that because there was no alleged connection between the Merrill Lynch analyst reports and the companies’ financial troubles or the collapse of the overall market, the plaintiffs failed to meet their pleading burden. (The 10b-5 Daily has previously discussed Judge Pollack’s ruling at length.)
According to Judge Cote, however, the SSB defendants “neglect to mention that . . . the Merrill Lynch III opinion distinguishes between the analyst report allegations in the WorldCom Securities Litigation and the inadequate allegations in the Merrill Lynch III complaint.” In particular, Judge Pollack had noted that the WorldCom plaintiffs “alleged that the analyst, among other things, was aware of and concealed the alleged accounting irregularities that directly led to the losses incurred by plaintiffs.” Under these circumstances, Judge Cote evidently did not find the SSB defendants’ reliance on the Merrill Lynch decision persuasive.
Quote of note: “Nothing in the defendants’ briefs addressed why Grubman was paid approximately $20 million a year in compensation by SSB to be its telecommunications analyst if his analyst reports were irrelevant to the market.”
Addition: According to a Reuters report, the lead plaintiff in the case, the New York State Common Retirement Fund, has asked the judge to set the case for trial in October 2004.
Filed under All The News That's Fit To Blog, WorldCom
Dismissal Of Suit Against Two WorldCom Executives Upheld
The Jackson Clarion Ledger reports that the U.S. Court of Appeals for the Fifth Circuit has upheld the dismissal of a securities class action against WorldCom former executives Bernie Ebbers and Scott Sullivan. The decision can be found here.
It is important to note, however, that this suit was not based on the accounting irregularties that led to WorldCom’s recent bankruptcy. Instead, it was based on the failure of WorldCom to write-off certain receivables in 2000.
Quote of note: “In the original complaint, shareholders claimed Ebbers and Sullivan withheld information about $685 million in write-offs of uncollectible receivables. The ruling said, ‘the plaintiffs simply ignore evidence that WorldCom frequently took large write-offs and that, indeed, a $768 million write-off had been taken in 1999.'”
Filed under Motion To Dismiss Monitor, WorldCom
WorldCom Settlement Update II
WorldCom’s proposed $750 million settlement (a combination of cash and stock) with the SEC has been approved by Judge Rakoff of the S.D.N.Y.
Quote of note: “Rakoff said killing the company ‘would unfairly penalize its 50,000 employees, remove a major competitor from a market that involves significant barriers to entry, and set at naught the company’s extraordinary efforts to become a model corporate citizen.'”
CorpLawBlog has posted a persuasive critique of the settlement. No word on how the settlement will effect the pending securities class actions.
Filed under Settlement, WorldCom
WorldCom Settlement Update
The Washington Post reports that WorldCom has sweetened its settlement with the SEC, offering $500 million in cash and $250 million in company stock. The 10b-5 Daily has commented on the proposed settlement.
Filed under Settlement, WorldCom
Class Action Against Arthur Anderson May Proceed
Reuters reports that the S.D.N.Y. has denied Arthur Anderson’s motion to dismiss a WorldCom-related securities class action pending against the defunct accounting firm. The suit “accuses Andersen of failing to properly review and investigate WorldCom’s adjustments and journal entries in its books and argues the firm should have discovered the $11 billion accounting fraud at the telephone company.”
Filed under Motion To Dismiss Monitor, WorldCom
ERISA Claims Against WorldCom Can Proceed
In case anyone thought that the issues noted by The 10b-5 Daily here were merely theoretical, along comes the motion to dismiss decision in In re WorldCom Inc. ERISA Litigation (S.D.N.Y.). As reported yesterday in the New York Law Journal (via law.com), the court made two rulings of note: 1) it dismissed the ERISA claims against directors and employees who it found were not fiduciaries under ERISA; and 2) it held that ERISA claims could be brought against WorldCom’s former CEO both for failing to disclose material facts about the company’s financial condition and for making affirmative missrepresentations concerning the prudence of investing in the company’s stock in SEC filings. The second ruling was made despite the former CEO’s argument that his duty to disclose arose under the securities laws and not ERISA. Benefitsblog has a full summary of the opinion.
Quote of note (from the opinion): “When a corporate insider puts on his ERISA hat, he is not assumed to have forgotten adverse information he may have acquired while acting in his corporate capacity.”
Quote of note (from the opinion): “Ebbers’ potential liability to employees who invested in WorldCom stock through the Plan for violations of the federal securities laws cannot shield him from suit over his alleged failure to perform his quite separate and independent ERISA obligations.”
Filed under ERISA Litigation, WorldCom
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