Alabama Supremes Rule Against RSA WorldCom Motion

July 14, 2003 (PLANSPONSOR.com) - The Alabama Supreme Court on Friday ruled that former WorldCom CEO Bernie Ebbers does not have to immediately answer questions in a $275 million securities fraud lawsuit filed by the Retirement Systems of Alabama.

In so doing, the high court overturned an earlier ruling by Montgomery County Circuit Judge Charles Price that RSA’s attorneys could begin interrogating Ebbers, who has not yet been indicted.   Price had ruled RSA’s case against Ebbers, who has not been indicted, could continue up to the point he is charged, if he ever is.

In Friday’s ruling, the Supreme Court ruled that Ebbers was entitled to a stay until any possible criminal proceedings were completed, according to a report in the (Jackson, Mississippi) Clarion-Ledger.  

However, the state Supreme Court did concur with Price’s decision that the lawsuit could immediately proceed against several prominent banking firms that RSA alleges were involved in the WorldCom scandal, including J.P. Morgan Chase, Citigroup, Salomon Smith Barney, Bank of America, Banc of America Securities, Bear Stearns & Co., and Arthur Anderson.

“Ebbers was one of the architects of the fraud,” said David Bronner, CEO of RSA, the $25 billion pension fund for state and public employees, according to the Clarion-Ledger. “He should end up in jail or broke. We’re really after the aiders and abettors anyway.”

Earlier this year, Price stayed RSA’s proceedings against Sullivan until after his criminal trial, which has been rescheduled for February in New York.

Fraud Claims

The suit claims that earnings reports from the company that were misstated by as much as $9 billion, misled the state pension fund into investing $275 million in WorldCom securities in 2001. Those securities became worthless when the former Clinton-based company collapsed last year and filed for Chapter 11 bankruptcy protection.   The RSA is seeking to recover that investment along with punitive damages.

If Ebbers provided information in the RSA lawsuit, it might be used against him in possible future criminal proceedings, his attorneys argued when seeking the stay.   And, if he invoked his Fifth Amendment right against self-incrimination and refused to answer RSA’s questions, a jury in a future civil trial might take it as an admission of guilt, the attorneys said.

Jackson attorney David Kaufman, who represents Ebbers in civil matters, said, “We are pleased the Alabama Supreme Court has agreed with a stay in the case against Mr. Ebbers until the Scott Sullivan trial can be concluded,” Kaufman told The Clarion-Ledger.

Sullivan, WorldCom’s former chief financial officer, was indicted on security fraud charges following revelations that WorldCom had overstated its earnings. Four people who reported to Sullivan have pleaded guilty to fraud charges, but Sullivan has maintained his innocence.

Similar suits have been filed in recent months by various state pension funds, including Maine (See  Maine Retirement System Files WorldCom Suit ), the Board of Trustees of the Tennessee Consolidated Retirement System (TCRS) (See  Tennessee Fund Files WorldCom Suit ), the University of California  (See UC Seeks Home Court Advantage in WorldCom Suit ), the state of Ohio (See  Ohio Will Stay Close to Home With Enron, WorldCom Claims ), the state of Alaska (See  Alaska Sues Finance Firms Over WorldCom Losses ) as well as pension systems in California, Illinois, and West Virginia.

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