Administration April 12, 2002

Milwaukee and Wisconsin Public Pension Funds Sue WorldCom Bankers

December 4, 2002 (PLANSPONSOR.com) - As have hoards of shareholders and pension funds before them, public employee pension funds for the city of Milwaukee and the state of Wisconsin have charged that WorldCom's investment bankers lied when they sold WorldCom bonds to investors.

Reported by

Fred Schneyer

The $56-billion State of Wisconsin Investment Board and $3.4-billion City of Milwaukee Employees’ Retirement System filed the lawsuit in Dane County Circuit Court in Madison seeking recovery of a $38-million loss by the state fund and a $9.5-million loss by the city pension, the Milwaukee Journal Sentinel reported.

Pension funds in at least six other states have filed similar suits.

The lawsuit alleges WorldCom and its investment banks raised billions of dollars through public offerings of investment-grade bonds that were sold with prospectuses and registration statements containing false information, the newspaper reported.

The suit also contends some investment banks didn’t tell investors that they had preferentially allocated coveted initial public offering shares to WorldCom executives in exchange for being named the underwriters for WorldCom bond offerings, which netted them millions in underwriting fees, according to the Journal Sentinel.

WorldCom, which has admitted overstating its income by $9 billion and is currently in bankruptcy, is not named in the lawsuit.

Suit: Bankers Described Strong WorldCom Revenue, Profit

The suit says the investment banks violated the federal Securities Act of 1933 in describing strong revenue and profit growth for WorldCom when touting its bonds.

The lawsuit cites a May 2001 visit to Milwaukee in which WorldCom was presented as “committed to conservative finances and targeting an ‘A’ rating on its debt to protect bond holders.” Representatives of both the state and city pension funds attended that session, the suit says.

Named as defendants in the suit are Citigroup Inc. and its Salomon Smith Barney Inc. investment banking unit; J.P. Morgan Chase & Co.; Bank of America Corp.; ABN Amro Inc.; Deutsche Bank AG; Lehman Brothers Holdings Inc.; Credit Suisse Group; Goldman Sachs Group Inc.; Nationsbanc Montgomery Securities; UBS Warburg; and accounting firm Arthur Andersen.