The Washington state attorney general on Monday filed suit against several of the nation’s most prestigious financial institutions, claiming they violated federal law by issuing false or misleading documents in order to sell WorldCom bonds.
The state’s pension funds lost approximately $100 million this past year when accounting scandals hit the telecommunications industry and the value of WorldCom bonds collapsed.
Attorney General Christine Gregoire filed suit in King County Superior Court on behalf of the state investment board seeking to recover pension funds lost as a result of plummeting bond prices.
In June, WorldCom, the nation’s second-largest telecommunications company, disclosed it reported nearly $4 billion in operating costs as capital expenditures, an action that made company profits appear higher than they really were. The company has since filed bankruptcy. WorldCom’s actual accounting errors may exceed $7 billion, federal investigators said Monday.
The state alleges that nearly two dozen banks and investment brokerages were negligent and offered bad advice. Some companies conducted multicity “road shows” to present favorable information to investors, the suit alleges.
“The state is saying these financial institutions either knew or should have known WorldCom’s true financial picture,” said Cheryl Reid, an attorney general’s office spokeswoman.
Defendants named in the suit include Citigroup Inc., Saloman Smith Barney Inc., J.P. Morgan Securities Inc., Bank of America Corp., Banc of America Securities LLC, AGN AMRO Inc., Deutsche Bank AG, and Deutsche Bank Alex Brown Inc.
Other defendants include Lehman Brothers Holdings Inc., Lehman Brothers Inc., Credit Suisse Group, Credit Suisse First Boston Corp., Nationsbanc Montgomery Securities LLC, and Arthur Anderson LLP.
The state’s lawsuit is similar to others filed in state courts across the country by public pension funds that lost money in the WorldCom bond collapse. The California Teachers Retirement system and the Los Angeles Employees Retirement Fund in California are among the few who have filed similar lawsuits, in addition to other suits pending in Illinois and West Virginia.
“It’s going to be hard for them (the banks) to escape the consequences,” said David Walsh, a deputy state attorney general. “They could and should have had access to information indicating there were problems.”
Asked if such a lawsuit were winnable, Walsh said: “We wouldn’t be going forward unless we felt there’s a reasonable chance of getting some recovery.”
The WorldCom suit is the second case in which Washington is seeking to recover millions in public pension funds lost due to alleged securities violations. Last December, Washington joined other public funds in a class-action suit involving Enron, claiming that the state pension fund lost $97.5 million due to misinformation concerning the company.