In re Worldcom, Inc. Securities Litigation

Decision Date21 November 2003
Docket NumberNo. 02 Civ. 3288(DLC).,No. 03 Civ. 6592.,02 Civ. 3288(DLC).,03 Civ. 6592.
PartiesIn re WORLDCOM, INC. SECURITIES LITIGATION State of Alaska Dept. of Revenue and Alaska State Pension Investment Board, Plaintiffs, v. Bernard J. Ebbers, John W. Sidgmore, Scott D. Sullivan, Clifford Alexander, Jr., James C. Allen, Judith Areen, Carl H. Aycock, Max E. Bobbitt, Francesco Galesi, Stiles A. Kellett Jr., Gordon S. Macklin, John A. Porter, Bert C. Roberts Jr., Lawrence C. Tucker, Juan Villalonga, Citigroup, Inc., Salomon Smith Barney Inc., J.P. Morgan Securities Inc., J.P. Morgan Chase & Co., Bank of America Corp., Banc of America Securities LLC, ABN Amro Inc., Deutsche Bank AG, Deutsche Bank Alex. Brown Inc., Lehman Brothers Holdings Inc., Lehman Brothers Inc., Credit Suisse Group, Credit Suisse First Boston Corp., Goldman Sachs Group Inc., Goldman Sachs & Co., UBS Warburg LLC, Nationsbanc Montgomery Securities LLC, Utendahl Capital Partners L.P., Blaylock & Partners L.P., Tokyo-Mitsubishi International PLC, Westdeutsche Landesbank Girozentrale, BNP Paribas Securities Corp., Caboto Holding Sim S.p.A., Caboto-Gruppo Intesabei, Robertson Stephens International Limited, Mizuho International PLC, Fleet Securities Inc. and Arthur Andersen LLP, Defendants.
CourtU.S. District Court — Southern District of New York

Max W. Berger, John P. Coffey, Steven B. Singer, Beata Gocyk-Farber, John C. Browne, Jennifer L. Edlind, Bernstein Litowitz Berger & Grossman LLP, New York, NY, Leonard Barrack, Gerald J. Rodos, Jeffrey W. Golan, Mark R. Rosen, Jeffrey A. Barrack, Pearlette V. Toussant, Barrack Rodos Bacine, Philadelphia, PA, for Lead Plaintiff in the Securities Litigation.

William S. Lerach, Darren J. Robbins, Spencer Burkholz, Michael J. Dowd, Randall Baron, Thomas E. Egler, Milberg Weiss Bershad Hynes & Lerach LLP, San Diego, CA, Melvyn I. Weiss, Steven G. Schulman, Sol Schreiber, Milberg Weiss Bershad Hynes & Lerach LLP, New York, NY, Patrick J. Coughlin, Milberg Weiss Bershad Hynes & Lerach LLP, San Francisco, CA, Gregg D. Renkes, Attorney General, Michael A. Barnhill, Assistant Attorney General, Juneau, AK, for Plaintiffs State of Alaska Dept. of Revenue and Alaska State Pension Investment Board.

Neil L. Selinger, David C. Harrison, Todd S. Garber, Lowey Dannenberg Bemporad & Selinger P.C., White Plains, NY, Liaison Counsel for Individual Action Plaintiffs as amici curiae.

David Wertheimer, Lyndon Tretter, Hogan & Hartson, New York, NY, for Defendant Bernard J. Ebbers.

R. David Kaufman, M. Patrick McDowell, Brunini Grantham Grower & Hewes PLLC, Jackson, MS, for Defendant Bernard J. Ebbers, of counsel.

Paul Curnin, David Elbaum, Simpson Thacher & Bartlett LLP, New York, NY, for Director Defendants.

Jay B. Kasner, Susan L. Saltzstein, Steven J. Kolleeny, Skadden Arps Slate Meagher & Flom LLP, New York, NY, for Underwriter Defendants.

Martin London, Richard A. Rosen, Brad S. Karp, Eric S. Goldstein, Walter Rieman, Marc Falcone, Joyce S. Huang, Paul Weiss Rifkind Wharton & Garrison LLP, New York, NY, Robert McCaw, Peter K. Vigeland, Wilmer Cutler & Pickering, New York, NY, for Defendants Citigroup Global Markets, Inc. f/k/a Salomon Smith Barney, Inc., Citigroup Inc., and Jack Grubman.

OPINION & ORDER

COTE, District Judge.

On June 25, 2002, WorldCom, Inc. ("WorldCom") declared that it would undertake a massive restatement of its financial statements. Shortly thereafter, it filed the largest bankruptcy in United States history.

Even before WorldCom's June 25 announcement, the first class action alleging WorldCom claims was filed in the Southern District of New York on April 30, 2002 and assigned to this Court. Subsequent class actions were filed here and transferred to this Court by the Judicial Panel on Multi-District Litigation ("MDL Panel"). The class actions were consolidated for pre-trial purposes by Order dated August 15, 2002.

Numerous actions alleging individual, but not class, claims have also been filed in venues across the country, primarily in state courts ("Individual Actions"). The majority of those actions have been removed to federal court as "related to" the WorldCom bankruptcy and transferred to this Court. By Order dated December 23, 2003 ("December 23 Order"), the Court found that the Individual Actions and the securities class actions involved common questions of law and fact, and that consolidation of these actions for pretrial proceedings was necessary. See In re Worldcom, Inc. Sec. Litig., No. 02 Civ. 3288(DLC), 2002 WL 31867720, at *1 (S.D.N.Y. Dec.23, 2002). The Individual Actions were consolidated with the Class Action for pre-trial purposes by Opinion and Order dated May 28, 2003. See In re Worldcom, Inc. Sec. Litig., No. 02 Civ. 3288(DLC), 2003 WL 2003 WL 21242882 (S.D.N.Y. May 28, 2003).

Of the Individual Actions, approximately forty-seven have been filed in state courts beginning on July 5, 2002, and most recently on October 3, 2003, by the law firm Milberg Weiss Bershad Hynes & Lerach LLP ("Milberg Weiss") on behalf of over one hundred twenty private and public pension fund clients. ("Milberg Weiss Actions"). The Milberg Weiss Actions allege claims under the Securities Act of 1933 ("Securities Act"), but not under the Exchange Act of 1934 ("Exchange Act").1 The allegations in the complaints filed in each of the Milberg Weiss Actions are similar, but not identical. This Opinion addresses a motion to dismiss one of the Milberg Weiss Actions.2

The first motion to dismiss in this consolidated securities litigation was made against the Consolidated Class Action Complaint. By Opinion and Order dated May 19, 2003, defendants' motions to dismiss the Class Action Complaint were denied with limited exceptions.3 See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288(DLC), 2003 WL 21219049 (S.D.N.Y. May 19, 2003). By Opinion and Order dated October 24, 2003, the lead plaintiffs' motion to certify a class was granted.4 See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288(DLC), 2003 WL 22420467 (S.D.N.Y. Oct.24, 2003).

As noted, this Opinion addresses a motion to dismiss one of the Individual Actions. It is one of two motions that comprise the first tranche of motions to dismiss claims common to many Individual Actions.5 It is brought against the complaint filed by Milberg Weiss on behalf of two Alaska plaintiffs ("MW Alaska Action" and "Complaint"), and raises two issues: (1) the statute of limitations for claims under Sections 11 and 12(a)(2) of the Securities Act, and (2) whether the sale of WorldCom debt securities in December 2000 supports a Securities Act Section 12(a)(2) claim.

In addition to the plaintiffs in the MW Alaska Action, plaintiffs from all of the other Individual Actions before this Court ("Amici") have been permitted to oppose this motion through the submission of a single joint amicus brief. As described in an Order of September 22, the parties in each of the Individual Actions will be permitted to show why the Opinion issued today in the MW Alaska Action should not govern the same issues to the extent that the defendants move to dismiss claims in their Individual Actions based on this Opinion.

Complaint

The Alaska Plaintiffs filed their original complaint ("Initial Complaint") on April 21, 2003. On August 22, 2003, the MDL Panel transferred the action to this Court. Some five months after the filing of the Initial Complaint, the Alaska Plaintiffs filed an amended complaint dated September 24, 2003 ("Complaint").6 The principal changes in the Complaint relevant to this motion to dismiss were the inclusion of ten additional members of the underwriting syndicates for the bond offerings and the addition of fifteen individual defendants. With their opposition to this motion, they have submitted proposed insertions to further amend the Complaint.

The following summarizes the allegations in the Complaint relevant to this Opinion. The Complaint contains two claims alleging violations of the Securities Act arising out of the purchase of WorldCom debt securities sold during four bond offerings: the August 1998 ("1998 Offering"), May 2000 ("May 2000 Offering"), December 2000 ("December 2000 Offering"), and May 2001 ("2001 Offering") offerings (together, the "Offerings").

It alleges that in August 1998, WorldCom conducted an offering of debt securities worth over $6 billion pursuant to a registration statement with an effective date of August 7, 1998. On May 12, 2000, WorldCom conducted a public debt offering through which it sold $5 billion in bonds pursuant to a registration statement filed with the SEC. In December 2000, WorldCom and J.P. Morgan raised approximately $2 billion from a bond private placement. The December 2000 private placement was exempt from the registration requirements imposed by the SEC and was conducted pursuant to an Offering Memorandum dated December 14, 2000 ("Offering Memorandum"). Finally, on May 9, 2001, WorldCom conducted an $11.8 billion bond offering pursuant to a registration statement filed with the SEC.7

The Complaint explains that the "action involves solely strict liability and negligence claims." The first claim pleads a violation of Section 11 of the Securities Act against underwriters, individual defendants and WorldCom's auditor for misrepresentations in three of the four Offerings: the 1998, May 2000, and 2001 Offerings. The second claim pleads a violation of Section 12(a)(2) of the Securities Act against J.P. Morgan Chase & Co. ("J.P.Morgan") arising from misrepresentations in connection with the December 2000 Offering.

The Parties

The plaintiffs are the State of Alaska Department of Revenue, a state agency that collects and invests public funds, and the Alaska State Pension Investment Board, a state entity that manages and invests state pensions funds ("Alaska Plaintiffs"). Together, the Alaska Plaintiffs purchased bonds issued during each of the four Offerings.

The Complaint names the following WorldCom executives...

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