Three California Pension Funds Recover $257 Million in WorldCom Lawsuit

News release

 Sacramento, CA  – Three California public pension funds today announced they have recovered more than $257.4 million from a non-class action lawsuit filed against former WorldCom Inc. executives and investment banks after the financial collapse of WorldCom, Inc.

“California’s teachers can take pride in the achievement of our joint efforts with other public employees in the state. We’ve achieved a significant recovery of our losses,” said Jack Ehnes, Chief Executive Officer of CalSTRS.

“This is an extraordinary recovery for our pension fund,” said Peter Mixon, General Counsel for CalPERS. “We are very pleased with the result.”

CalSTRS will see a recovery of $38.7 million. CalPERS is expected to see a recovery of more than $200 million, while LACERA will take back $18.7 million.

LACERA Chief Executive Officer, Marsha Richter, said the retirement system was exceedingly pleased that its efforts achieved superior results for its more than 140,000 members, comprised of both current employees and retirees.

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 – one of the largest offerings in American history. 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. They, together with certain institutional plaintiffs including CalSTRS, CalPERS, and LACERA, will jointly petition the U.S. 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.

“We believe the proposed rules will provide greater transparency in the securities market,” said Mixon.

At $134 billion, CalSTRS is the third-largest public pension fund in the United States. It provides retirement, disability and survivor benefits to California’s educators from kindergarten through community college, serving more than 755,000 members and their families.

CalPERS provides retirement and health benefits to more than 1.4 million state and local public employees and their families and has assets of $196 billion.

LACERA is one of the largest county retirement systems in the U.S. with assets exceeding $32 billion.