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University of California, Bank Sue AOL

Lawsuit claims firm lied about finances, cost them

Apr 15, 2003 | Wall Street Journal The University of California has joined with Amalgamated Bank to file a lawsuit against AOL Time Warner Inc., claiming their stakes have lost more than $500 million in value because the media company allegedly lied about its financial condition.

The University of California, which dropped out of a federal class-action suit against AOL earlier this month, filed the complaint Monday in the Superior Court of California in Los Angeles. The university and co-plaintiff Amalgamated Bank, a New York institution that manages funds for several dozen union pension funds, are being represented by Milberg Weiss Bershad Hynes & Lerach.

The plaintiffs allege that AOL Time Warner materially misrepresented its revenue and subscriber growth after the merger of AOL and Time Warner in January 2001. In two separate restatements in October and March, AOL slashed nearly $600 million from previously reported revenue over the past two years.

The University of California and Amalgamated allege that AOL's admissions so far have been "too conservative," and that the company may have overstated results by almost $1 billion.

In a March 28 filing with the Securities and Exchange Commission, AOL Time Warner said it faces 30 shareholder lawsuits that have been centralized in the U.S. District Court for the Southern District of New York. The company said in the filing it intends to defend itself "vigorously." The lawsuit filed by the University of California and Amalgamated names several current and former AOL Time Warner executives, as well as financial-services giants Citigroup and Morgan Stanley.

Citigroup is the parent of Salomon Smith Barney, now called Smith Barney, which with Morgan Stanley allegedly reaped $135 million in advisory fees from the AOL and Time Warner merger.

Defendants include Stephen Case, who resigned as chairman in January; former Chief Executive Gerald Levin, who left the company in May; current Chairman and Chief Executive Richard Parsons; and Ted Turner, who recently stepped down as vice chairman.

The lawsuit claims they and more than two dozen other insiders sold off $779 million in stock just after the merger closed but before the accounting revelations that would cause the stock price to plummet. The suit also names AOL's auditor, Ernst & Young.

The University of California claims it lost $450 million in the value of its AOL Time Warner shares, which were converted from more than 11.3 million Time Warner shares in the merger. At the end of 2002, the value of the university's portfolio was at $49.9 billion.

Amalgamated, as the trustee for the LongView Collective Investment Fund, bought AOL Time Warner shares after the merger, and claims its stake has fallen by $55.9 million.

Both plaintiffs are also participating in class-action lawsuits against fallen energy company Enron Corp.

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