The University of California, already waging a legal battle against Enron, will file a suit against downfallen communications firm WorldCom this week in a California court.
Meeting in closed session last week in San Francisco, the UC Board of Regents decided to drop out of the class-action suit filed in federal court in New York and pursue a separate claim under California law.
The new case will most likely be filed in the San Francisco Superior Court either today or on Thursday, though precise plans have not yet been finalized, said UC press aide Trey Davis.
“Lawyers are going over the last little details,” he added.
Representatives from WorldCom, as well as other firms involved in the case – Arthur Andersen, LLP and Citigroup, parent of Salomon Smith Barney did not return phone calls for comment on Tuesday.
The university believes differences between federal and California law will speed up the case. In a federal court, discovery, the process whereby both sides obtain relevant information from each other, is limited until the judge rules on motions to dismiss. This rule does not apply to California litigation.
Still, the University expects a long trial.
“Almost all of these cases are multi-year,” Davis said.
The case against Enron has already proven to be a lengthy matter. The university filed its suit against Enron in December 2001 and the case is still in pre-trial proceedings.
Last June, WorldCom declared nearly $4 billion in expenses had been incorrectly counted as investments. Eventually, the firm restated over $7 billion in assets, and declared bankruptcy after the bottom fell out of its stock value.
Several investors, including the UC, were hit harder by WorldCom’s collapse than by Enron’s fall. The UC sold its Enron stock in November 2001.
The university lost $145 million from UC Retirement System investments after Enron’s alleged fraudulent dealings became public. Selling off WorldCom stock resulted in a $353 million-plus hit for the university.
As large as these amounts are, UC officials say they are not major blows to the UCRS portfolio. According to university figures, losses incurred from WorldCom stock were only 0.7 percent of UC-managed funds.
“The loss will not affect the retirement benefits provided to UC retirees nor the endowment’s support of the university’s academic mission,” said UC Treasurer David Russ in a statement.
Davis could not comment if UC lawyers have determined if the suit will include punitive claims, adding that the university will try to recover its losses.
“Obviously, we would like to get all the money back,” he said.