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Calif Pension Funds Sue WorldCom, Invest Banks, Seek $318M
By:
Yuka Hayashi
NEW YORK -- Three California pension funds, including the California Public Employees' Retirement System known as CalPers, said Tuesday they have filed a joint lawsuit to recover losses against WorldCom Inc. (WCOME) executives and the major underwriters of WorldCom bonds issued in May of 2001. The lawsuit was filed Monday in the Los Angeles County Superior Court on behalf of CalPers - the nation's largest public pension fund - the California State Teachers' Retirement System, or CalSTRS, and the Los Angeles County Employees Retirement Association. The suit calls for full recovery of the combined $318.5 million in losses from a May 2001 bond issue. The suit names WorldCom executives, as well as major financial institutions that underwrote the bond issue, including CitiGroup Inc. (c), J.P. Morgan Chase (JPM), Bank of America Corp. (BAC), ABN Amro Holding N.V. (ABN), Deutsche Bank AG (DB) and these banks' investment banking units. The suit by the California funds is latest in the series of litigations brought against WorldCom by public pension funds. These fiduciaries - both large and small from across the nation - are now under increasing pressure to respond to huge losses they have faced in major corporate accounting scandals, and reduce risks in their portfolios. New York's primary state pension fund sued WorldCom and its accounting firm Arthur Andersen LLP earlier this month for its $300 million loss in the troubled telecom giant's stock. Several smaller funds, including a police pension fund in Louisiana and a teachers' retirement system in Illinois have filed to seek recovery of their losses in the company's bonds. In particular, the bonds offered in May 2001 for a record $11.8 billion are held widely among large institutional investors like pension funds. The issue, underwritten by the group led by Citigroup's Salomon Smith Barney and J.P. Morgan Chase, have left investors with huge losses of some $10 billion in a little more than a year. CalPERS, which oversees $149 billion assets, seeks to recover $268 million in losses from the bond issue, while CalSTRS and LACERA are hoping to recover $24.5 million and $26 million in losses, respectively. "Our suit charges that the company clearly knew - and the banks clearly had reason to know - that the WorldCom books falsely portrayed the company's true financial picture," said CalPERS Chief Executive James Burton in a press release. "These banks underwrote the bonds so that WorldCom could use the monies raised to avoid having to rely on these same banks' outstanding credit line." CalSTRS CEO Jack Ehnes noted that the suit also carries a message to the investment banking community that the pension funds won't stand for the breach of ethical conduct. "If we can't rely on the independence of the underwriters' due diligence, how can we purchase bonds of any type in the future?" The suit also seeks a return of the losses from former WorldCom chief executive officer Bernard Ebbers, former chief financial officer Scott Sullivan and 13 other former executives. Milberg, Weiss, Bershad, Hynes & Lerach in San Diego, a firm known for its aggressive role in shareholder suits, is representing the three Californian funds. FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.
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