Three California Pension Funds Sue WorldCom and Investment Banks for Fraud; Seeking $318.5 Million in Recovery from Executives & Underwriting Banks

News release

SACRAMENTO AND LOS ANGELES-Three California public pension funds, representing $275 billion in assets, today announced a joint lawsuit to recover losses against WorldCom executives and the major underwriters of WorldCom bonds issued in May of 2001.

The lawsuit was filed in Los Angeles County Superior Court yesterday by the San Diego law firm of Milberg, Weiss, Bershad, Hynes & Lerach, on behalf of the California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System (CalSTRS), and the Los Angeles County Employees Retirement Association (LACERA). The suit calls for full recovery of the combined $318.5 million in losses from a May 2001 bond issue. Both WorldCom executives and the underwriting banks, including CitiGroup, Salomon Smith Barney, J.P. Morgan Securities, J.P. Morgan Chase, Banc America, Banc of America Securities, ABN/AMRO, Deutsche Bank, and Deutsche Bank Alex Brown are named. The suit also seeks a return of its losses from former WorldCom Chief Executive Officer Bernard Ebbers, former Chief Financial Officer Scott Sullivan and 13 other former executives.

“Our suit charges that the company clearly knew — and the banks clearly had reason to know — that the WorldCom books falsely portrayed the company’s true financial picture. These banks underwrote the bonds so that WorldCom could use the monies raised to avoid having to rely on these same banks’ outstanding credit line,” said James E. Burton, Chief Executive Officer of CalPERS. CalPERS seeks to recover $268 million in losses from the May 2001 bond issue.

“The lawsuit is not just an attempt to hold the company responsible. We want the investment banking community to know we will not stand for this breach of ethical conduct,” said Jack Ehnes, Chief Executive Officer of CalSTRS. “If we can’t rely on the independence of the underwriters’ due diligence, how can we purchase bonds of any type in the future? That is what this suit is about.” CalSTRS hopes to recover $24.5 million in losses incurred from the May 2001 sale.

“Pension fund trustees must be responsible as fiduciaries for the millions of members who depend on our investments for their retirement security, ” added Sandra Jones Anderson, Chair of LACERA’s Investment Board. “Through this action, we are leveraging the combined strengths of our three systems to push for meaningful reform and hopefully prevent the possibility of this type of fraud happening again.” LACERA hopes to cover $26 million in losses incurred from the May 2001 bond sale.

CalPERS provides retirement and health services to 1.3 million public servants and currently has assets of $149 billion. CalSTRS provides retirement, disability and survivor benefits to 687,000 public school educators and holds assets of $100 billion. LACERA administers pensions for 132,000 public sector members and beneficiaries in Los Angeles County and has assets of $26 billion.