The University of California Regents will file a securities-fraud lawsuit in state court against AOL Time Warner Inc. in an attempt to recover $450 million lost by investing in the world’s largest media company.
The university will withdraw from a class-action suit against AOL Time Warner in federal court to pursue its own case in California, spokesman Trey Davis said. The suit will claim that AOL and some senior executives violated California securities laws by misstating the New York-based company’s advertising revenue.
State securities laws make it easier and faster for investors to recover damages in California courts than under the federal law that AOL Time Warner shareholders are relying on in the class-action case. The University of California withdrew from a federal shareholder suit against WorldCom Inc. to file its own complaint in California.
“The thinking is that you’ll get a better view from a California jury,” Davis said. “It allows us to put more pressure on the defendants in terms of recovery.”
AOL Time Warner spokeswoman Tricia Primrose said company officials hadn’t seen the lawsuit and couldn’t comment.
AOL Time Warner shares rose 15 cents to $11.26 at 4:02 p.m. New York time in New York Stock Exchange composite trading.
The university’s suit will focus on AOL Time Warner’s reported revenue and number of subscribers prior to and immediately after America Online Inc.’s January 2001 acquisition of Time Warner Inc.
The university claims that AOL Time Warner’s misstatements about its financial condition inflated its share prices and caused investors who exchanged Time Warner shares for AOL Time Warner shares to lose money when the stock dropped after problems with the ad revenue were disclosed and the company restated earnings by $200 million.
The University of California owned more than 11.3 million shares of Time Warner stock worth $800 million and no America Online shares when the companies merged, the university said in a statement.
“We believe that AOL Time Warner and its investment advisers must be held responsible for the admitted misstatement of AOL’s financial condition,” said James Holst, the university’s general counsel, in the statement.
U.S. securities regulators are investigating whether AOL Time Warner misstated another $400 million in advertising revenue at its America Online unit, the company said in a filing last month.
The university’s lawsuit echoes claims made in a federal securities suit in New York led by the Minnesota State Board of Investment.
The university didn’t set a date for filing its complaint, which will name AOL Time Warner and its directors and officers, auditor Ernst & Young LLP, and the company’s bankers.
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