CalPERS/CalSTRS Reach Settlement With WorldCom

October 27, 2005 (PLANSPONSOR.com) - California's public pension funds announced they will receive over $250 million in a settlement of a lawsuit against former WorldCom executives and several investment banks.

In a press release it was revealed that the California Public Employees Retirement System (CalPERS) is expected to recover more than $200 million, while the California State Teachers’ Retirement System (CalSTRS) will recover $38.7 million and the Los Angeles County Employees’ Retirement Association (LACERA) will recover $18.7 million.

According to a FOX News report this is just part of a $651 million settlement reached for a group of 68 state and local retirement funds for states including California and Illinois.   Like New York’s public pension funds, CalPERS, CalSTRS, and the others believed their own suit would get them a better deal than participating in the class-action suit against WorldCom and the banks (See  NYC Public Pension Funds Reach Settlement in WorldCom Suit ).   The class action suit was settled for $6.1 billion to be spread among 830,000 institutions and individual investors (See  Hevesi Settles with Last WorldCom Defendants ).   According to the office of William Lerach, lead attorney for the 68 plaintiffs in the CalPERS case, the $651 million represents an 83% premium above what the funds would have received in the class action settlement, FOX News said.

The lawsuit, filed in July 2002, among other allegations accused investment bankers of failing to do adequate due diligence before underwriting $12 billion worth of bonds for WorldCom issued in May 2001, the CalPERS press release noted.   The defendants included J.P. Morgan Chase & Co., Deutsche Bank, Salomon Smith Barney, and Bank of America, ABN Amro and four other foreign banks, lead underwriters in the 2001 bond sale, as well as WorldCom’s accounting firm, Arthur Andersen LLP.

Under the settlement, Citigroup and J.P. Morgan also agreed to support a proposed market reform initiative, CalPERS said in the release.   They, together with CalPERS, CalSTRS, LACERA, and other institutional plaintiffs, will jointly petition the US Securities and Exchange Commission to issue rules requiring more disclosure in future securities offers, including more information about loans to issuers and the issuers’ officers, increased information about allocation of IPO shares to the issuers’ insiders, and greater transparency about research coverage underwriters provide about issuers.

On top of the $651 million, FOX News reports that Lerach expects to gain additional funds from the disgorgements paid by former WorldCom Chief Executive Bernie Ebbers and former Chief Financial Officer Scott Sullivan, both of whom were sentenced to federal prison and heavily fined for their roles in the accounting scandal.

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