November 7, 2022


Case Studies

Our firm served as a lead counsel representing the lead plaintiff, our client, the New York State Common Retirement Fund, through its sole trustee, the Comptroller of the State of New York, and a class of investors in the securities of WorldCom, Inc. in an action brought in 2002 shortly after the collapse of the company. During the prosecution of the case, we worked closely with the New York State Comptroller to achieve an extraordinary result for investors injured by the massive fraud at WorldCom. And on September 21, 2005, District Judge Denise L. Cote granted final approval to the last round of settlements reached. The total recovery of more than $6.13 billion for WorldCom investors consists of:

  • The record-setting $2.575 billion settlement from Citigroup, Inc., Salomon Smith Barney, its star telecommunications analyst, Jack Grubman, and Salomon’s international affiliate. This settlement was reached on May 7, 2004, one day before the Second Circuit Court of Appeals was set to hear Citigroup’s appeal of Judge Cote’s decision certifying the class. Judge Cote granted final approval of this settlement on November 12, 2004.
  • Settlements with the remaining underwriter defendants totaling $3.427 billion that were reached in the three weeks leading up to the scheduled start date of the trial of the claims against these entities. The last settlement was reached with the J.P. Morgan defendants for $2.0 billion – $630 million more than had been demanded from J.P. Morgan at the time of the Citigroup settlement.
  • A historic settlement totaling $60.75 million with the former directors of WorldCom, also completed just days before the trial was to begin. These directors – who collectively lost approximately $250 million on their personal holdings of WorldCom stock – agreed to pay $24.75 million from their own pockets. In addition, the directors’ D&O insurers agreed to pay $36 million, while their motions to void the insurance policies covering these directors were still pending.
  • A settlement with Arthur Andersen LLP, WorldCom’s outside auditor, for $65 million after five weeks of trial. Arthur Andersen also agreed to various contingent additional payments and confidential protections for the class if it were to become involved in a bankruptcy proceeding.
  • Settlements with former WorldCom CEO Bernard Ebbers and CFO Scott Sullivan, totaling $43.49 million, entered into just before they were sentenced in their criminal cases. These settlements called for both Ebbers and Sullivan to liquidate nearly all of their assets for the benefit of the class.

The prosecution of the WorldCom securities litigation established a new paradigm for the prosecution of so-called “mega-fund” securities class actions. This new paradigm encompasses the strategies and tactics the firm used in the case:

  • Even before the New York State Comptroller was appointed as lead plaintiff in August 2002, we along with our co-counsel launched an intensive investigation that allowed us to plead new facts in the Consolidated Complaint concerning, among other things, the nefarious relationships between Citigroup and its securities analyst Jack Grubman, on the one hand, and WorldCom, Ebbers and Sullivan, on the other. Although Citigroup moved to sever certain of these “analyst claims” from the rest of the case, we were successful in opposing that motion, and thereby continued to prosecute all claims of the class together.
  • Although WorldCom’s bankruptcy made the case more difficult because we could not sue (or seek recovery from) the company itself, we nonetheless utilized the bankruptcy proceedings to our advantage. We asked the bankruptcy court to allow immediate discovery from the company – well before such discovery is generally permitted by the Private Securities Litigation Reform Act of 1995. Important rulings from both the bankruptcy court and the district court allowed us to obtain key documents from WorldCom near the outset of the case.
  • After defeating the overwhelming majority of the defendants’ motions to dismiss in May 2003, we successfully pushed for an aggressive discovery schedule so that we could take the case to trial as quickly as possible. We obtained a court ruling requiring defendants to produce substantially all of the documents responsive to our document requests by mid-October 2003. We then embarked on an intensive document review protocol to handle the millions of pages of documents produced in the case, which allowed us to begin fact-witness depositions by early February 2004.
  • Although defendants sought a discovery schedule that would have stretched for years (and would have awaited the completion of all criminal cases against the indicted former WorldCom executives), we proposed to the court that each side be limited to 60 deposition days (which could be split into half-day segments), and that all depositions be completed by the end of June 2004. The court adopted this aggressive schedule, which clearly set the stage first for the Citigroup settlement, and thereafter for setting a trial date in early 2005. We successfully resisted defendants’ many attempts to postpone the trial.

We developed a number of confidential sources, including former employees of WorldCom, Citigroup and certain others, and utilized information from interviews with these sources to great advantage during the discovery and pre-trial phases of the case.

In presenting our class certification motion, we submitted detailed affidavits from one of our expert consultants, showing that there were discernable market price movements stemming from the defendants’ statements that we alleged were materially false and misleading. Indeed, obtaining class certification for all claims against the Citigroup defendants was a key factor that allowed us to negotiate, on a class-wide basis, the extraordinary settlement with those defendants.

Finally, from the outset, we prepared this case to go to trial. We developed evidence that allowed us to defeat the defendants’ motions for summary judgment (and to obtain a ruling granting, in part, our own motion for partial summary judgment), as well as to defeat the vast majority of the defendants’ pre-trial motions, including significant motions that sought (a) to have the case tried in three different phases, (b) to preclude the plaintiffs from introducing as evidence WorldCom’s restatement of its financial reports, and (c) to preclude expert testimony on the damages suffered on a class-wide basis.

Once at trial, we utilized important portions of the depositions taken during the course of discovery and documents produced by defendants and others, such as WorldCom (which because of the bankruptcy could not be a defendant) and WorldCom’s restatement auditor. We also presented two former Andersen engagement partners, whom we questioned as on cross-examination in the plaintiffs’ case-in-chief. When the trial was delayed for one week making a key witness unavailable, we successfully sought the Court’s permission to take an additional deposition of that key witness to play to the jury as the plaintiffs’ opening witness. In all, we presented 14 witnesses and introduced over 600 exhibits in support of our case, and cross-examined all of Andersen’s fact witnesses before Andersen agreed to produce its own financial records for inspection and thereafter agreed to settle the investor claims. As the Judge noted to us in Chambers at the end of the case, “To be honest with you, I was not really looking forward to a long accounting trial because accounting issues a can be so boring. But I found as the trial was conducted that it was interesting and at times even exciting.”

Judge Cote assessed the quality of the representation provided by lead counsel at the time of the Citigroup settlement, and again at the end of the WorldCom case:

The quality of the representation given by Lead Counsel is unsurpassed in this Court’s experience with plaintiffs’ counsel in securities litigation. Lead Counsel has been energetic and creative. Its skill has matched that of able and well-funded defense counsel…. Its negotiations with the Citigroup Defendants have resulted in a settlement of historic proportions. In sum, the quality of representation that Lead Counsel has provided to the class has been superb.

* * *

I have praised the performance of lead counsel in the past, and I do so again now. Lead counsel kept its eye on the big picture throughout the case but was also a master of the details that underpin any successful litigation. It understood the importance of preparation, as its performance at trial amply demonstrated. Every litigator knows that not everyone who calls themselves a litigator can actually try a case. After all, there are many ways in the world of litigation to be outstanding in your work, but lead counsel has attorneys who know how to try a case, and that is intended as a high compliment. … Thus, lead plaintiff chose exceptionally wisely in this case. It chose counsel who could not only create an overarching strategy for the litigation, manage extraordinary burdens during the discovery period, participate in a constant stream of motion practice and forcefully negotiate settlements, but who could also take the case to trial and make that ability to try the case a realistic threat that defendants had to factor in their settlement negotiations.

* * *

At trial against Andersen, the quality of Lead Counsel’s representation remained first-rate. … The size of the recovery achieved for the class – which has been praised even by several objectors – could not have been achieved without the unwavering commitment of Lead Counsel to this litigation…. If the Lead Plaintiff had been represented by less tenacious and competent counsel, it is by no means clear that it would have achieved the success it did here on behalf of the Class. … It is…likely that less able plaintiffs’ counsel would have achieved far less.

The WorldCom case is a prime example of what we do at BR&B.