Contact Us

PW Case Review Form
*    Denotes required field.

   * First Name 

   * Last Name 

   * Email 

Phone 

   * Please describe your case:

What injury have you suffered?

For verification purposes, please answer the below question:
+
=

No Yes, I agree to the Parker Waichman LLP disclaimers. Click here to review.

Yes, I would like to receive the Parker Waichman LLP monthly newsletter, InjuryAlert.

please do not fill out the field below.


State Suing 4 Companies Over Pension Fund Losses

Nov 26, 2002 | The Record

The McGreevey administration will try to recoup about $150 million in losses for its battered pension stock fund by suing four companies for allegedly overstating their earnings through improper accounting maneuvers, state officials said Monday.

Tyco; Sears, Roebuck and Co.; Qwest Communications International; and Electronic Data Systems Inc. will be the first targets in an effort to shore up the state's $56.3 billion stock portfolio, which has lost nearly a third of its value since June 2000.

"We must hold these corporations accountable and protect the interests of New Jersey taxpayers and pension members," Governor McGreevey said at a State House news conference.

The portfolio's decline is significant because it is a critical source of cash for the pensions of about 600,000 teachers, police, and firefighters, and state and local government employees. The steep decline may force the state to spend $1 billion in tax revenues next year to keep the pension systems on a sound footing.

The state identified 26 target companies in August, saying they were responsible for $1 billion in investment losses.

"These are the first four cases we've analyzed," Attorney General David Samson said. "More will come, so stay tuned."

The state suffered some of its worst declines from January to June, as the Division of Investment began unloading shares in companies stung by the damaging revelations. It suffered its biggest loss with Qwest Communications, a Denver-based telecommunications company that has been battered by a Securities and Exchange Commission investigation into its swaps of fiber-optic equipment with Global Crossing, another cable company that crumbled as a result of alleged corporate misconduct.

The state has lost $101 million on Qwest stock since January, state records show.

New Jersey, the 10th-biggest U.S. pension manager, joins the California Public Employees' Retirement System, the biggest, and the California State Teachers' Retirement System, the third biggest, in suing companies blamed for investment losses.

Samson has established a pool of about a dozen private law firms that will be chosen to direct the litigation on a contingency basis, which means they will get paid a percentage of any award or settlement. Among the candidates are several firms that are closely allied to McGreevey, the Democratic Party, and Trenton's political establishment.

The firms include Lynch, Martin and Kroll, the firm of former state Sen. John Lynch, a political patron of McGreevey's, and Wilentz, Goldman and Spitzer, one of McGreevey's biggest contributors.

State officials said the candidate list was established through a careful screening process led by a special master, former Superior Court Judge C. Judson Hamlin from Middlesex County.

Douglas K. Wolfson, director of the state Division of Law, said the firms were chosen for their expertise in securities law and their knowledge of New Jersey's legal system. In some cases, they have paired up with out-of-state firms that have led similar lawsuits.

Wolfson dismissed suggestions that the firms were chosen as a political reward.

"My guess is that Judge Hamlin does not know who contributed to the Democratic Party,'' said Wolfson, whose office will be spearheading the effort.

"We are not interested in chasing claims in bankruptcy proceedings or class actions where we are not going to be playing a major role," Samson said. "This is not just filing claims - this is actively pursuing litigation."

The state filed suit against Dallas-based EDS in the federal District Court in Manhattan on Monday and was expected to file a companion suit in a Texas federal court, said Peter Aseltine, a spokesman for the Attorney General's Office. Suits against the other three companies are expected during the next few days, officials said.

EDS' stock is down 80 percent in the past year, in part because of the bankruptcy of two large clients, WorldCom and US Airways. It is also under investigation by the SEC for a recent $224 million deal involving its own stock.

A company spokesman defended EDS on Monday.

"We believe our actions were proper, and we intend to vigorously defend ourselves," said Jim Baptiste, an EDS spokesman.

EDS stock closed Monday at $17.63, up 93 cents.

The state alleges that the defendants violated securities laws by overstating revenue and income.

Sears, based near Chicago, will be sued in federal court in Illinois, officials said. Denver-based Qwest will be sued in a state Superior Court in Mercer County. No decision has been made about where Tyco will be sued, Wolfson said.

New Jersey bought 500,000 shares of Sears stock in 2002.

Sears spokesman Jan Drummond said his company also would fight the allegations.

"They haven't filed the lawsuit, but assuming their news release is accurate, these claims lack merit, and we will defend against them vigorously,'' Drummond said. "To say we violated securities laws is just not true.'' Sears said last month that it would set aside about $222 million to cover unpaid debt in the third quarter on its gold MasterCard credit cards, sending down its share price 32 percent the day of the announcement. Sears stock closed Monday at $27.01, up 26 cents.

Tyco's former chief executive, Dennis Kozlowski, resigned this year when he was charged with evading New York state sales tax on the purchase of millions of dollars' worth of artwork. Kozlowski and Mark Swartz, Tyco's former chief financial officer, also face charges of illegally taking $600 million from Tyco - allegations that they deny.

Tyco did not return a call seeking comment on New Jersey's planned lawsuit.

Tyco's stock closed Monday at $16.70, down 20 cents.

Qwest spokeswoman Carey Brandt declined to comment on the lawsuit. Qwest stock closed Monday at $4.99, up 37 cents.

No companies based in New Jersey were on the initial list of lawsuit targets. Lucent Technologies Inc., based in Murray Hill, and Bristol-Myers Squibb Co., which has offices in the state, had to restate earnings because of faulty accounting that boosted reported sales.

In a related matter, Samson said Monday that he has agreed to accept New York's $100 million settlement with Merrill Lynch & Co. for misleading investors.

New Jersey's share of the settlement is $1.4 million to resolve charges that Merrill Lynch's stock reports were tainted by investment banking ties.

The agreement requires all 50 U.S. states to agree to the New York deal before Merrill makes any payment.


Related articles
Parker Waichman Accolades And Reviews Best Lawyers Find Us On Avvo