UC Seeks Home Court Advantage in WorldCom Suit

January 20, 2003 (PLANSPONSOR.com) - The University of California is pulling out of a federal class-action lawsuit accusing WorldCom, Citigroup, and Arthur Andersen of fraud, hoping for a "more favorable result" in state court.

“Each securities case must be evaluated independently to determine whether class action or separate litigation is in the best interest of the university’s investment funds,” said James E. Holst, the university’s general counsel, in a statement. “While we believe that class action treatment is often preferable, in this case the University of California will likely obtain a more favorable result by withdrawing from the federal class action and filing a separate suit in California state court, asserting claims under California law. A key factor in this determination was the size of the university’s losses on WorldCom stock.”

Alleged Misleading

The university, which lost $353 million on WorldCom investments, claims that Citigroup and Andersen misled investors about the financial health of the No.2 U.S. long-distance telephone company, which filed for bankruptcy protection amid a massive accounting scandal.   The university, which sold off all of its WorldCom holdings in June-July 2002, had some $50 billion in total assets as of December 31.   While acknowledging that its losses were “substantial,” they represented only 0.7% of total funds under management, according to university treasurer David H. Russ.

Last September the state of Ohio withdrew its participation in a federal class action, also sensing a chance for larger monetary awards by pursuing its more than $500 million in claims against Enron and WorldCom in state court (see  Ohio Will Stay Close to Home With Enron, WorldCom Claims ).   Pension systems in California, Illinois, West Virginia, and Alabama also have dropped out of the federal lawsuits to pursue their own cases in state courts.

Public Fund Pursuits

Investors looking to recoup their losses filed several class-action lawsuits and the cases were eventually consolidated into one complaint in federal district court in New York City.   Last August a federal judge tapped the $112 billion New York State Common Retirement Fund, which reportedly lost an estimated $306 million from the collapse of WorldCom, as lead plaintiff in the suit (see  Big Apple Takes Lead in WorldCom Suits ).

Last month the $56 billion State of Wisconsin Investment Board and $3.4 billion City of Milwaukee Employees’ Retirement System filed a similar suit seeking recovery of a $38-million loss by the state fund and a $9.5-million loss by the city pension (see  Milwaukee and Wisconsin Public Pension Funds Sue WorldCom Bankers ).   A number of public funds have joined in the suit against WorldCom following the filing of the world’s largest bankruptcy (see  WorldCom Bombshell Hits Pension Stock, Bond Investments )