Judge: Andersen WorldCom Suit can Move Forward

January 19, 2005 (PLANSPONSOR.com) - A class-action securities lawsuit against Arthur Andersen has survived a legal challenge with a federal judge's ruling that a pension fund and other investors have "identified a host of audit failures" in connection with WorldCom.

US District Judge Denise Cote of the US District Court for the Southern District of New York refused to throw out the case, ruling that a trial “would permit a jury to find that there was an egregious refusal to see the obvious, repeated failures to investigate the doubtful, and a pattern of acquiescence in improper accounting practices,” the Wall Street Journal reported.

Cote said that the lead plaintiff, the New York State Common Retirement Fund, had presented evidence to support its argument “that Andersen acted in willful blindness to the realities at WorldCom and in abrogation of its duty as an auditor” (See  Big Apple Takes Lead in WorldCom Suits ).

Andersen was the auditor for WorldCom or its predecessor companies for about two decades. Following WorldCom’s disclosure in 2002 of incorrect accounting for billions of dollars of expenses and the telecommunication company’s filing for bankruptcy-court protection, among other things, Andersen withdrew its audit opinion on the company’s 2001 annual report.

The trial of the suit against Andersen, 17 banks and other defendants in the WorldCom case is scheduled to begin February 28.

Andersen may have lost in the latest ruling by Cote, but it did enjoy a recent victory. This month, the Supreme Court agreed to hear an appeal of its June 2002 criminal conviction for obstructing justice. The conviction stemmed from its massive shredding of documents in connection with the firm’s botched audits of energy company Enron Corp. The Supreme Court will hear the case in April.