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american lawyer media news service New york-Almost one year after WorldCom Inc. Chairman Bernie Ebbers resigned, the course of one of the biggest stock fraud cases in history is being charted by Southern District of New York Judge Denise L. Cote. Cote is set to decide soon how the litigation stemming from the company’s multibillion-dollar accounting fraud and other maneuvers by its top executives will proceed and whether motions to dismiss have any merit. Cote is charged with handling hundreds of individual cases and class actions filed during the collapse and bankruptcy of the telecommunications giant. Her task has been complicated by the introduction of novel claims alleging that the collapse was abetted by Salomon Smith Barney (which is now officially known as Citigroup Inc.) and its star telecommunications analyst, Jack B. Grubman. In a series of rulings over the last three months, Cote has had to consider the interests and obligations of several categories of plaintiffs, as well as a host of others, including former WorldCom executives charged criminally in the accounting fraud, the U.S. attorney’s office, underwriters of the company’s securities, former WorldCom directors, the defunct accounting firm Arthur Andersen, Southern District of New York Bankruptcy Judge Arthur Gonzalez, the Securities and Exchange Commission, and a number of her colleagues who at one time or another have handled a set of cases called the “analyst actions.” The judge is weighing different proposals on how to proceed with the consolidated class action In Re WorldCom Securities Litigation, No. 02 Civ. 3288, and related cases charging fraud under Section 10(b) of the Securities Exchange Act of 1934 and negligence under the Securities Act of 1933. The actions are driven by the collapse of WorldCom’s stock price in light of false or misleading statements made by company officers in public filings. “The two big issues are going to be the organizational structure of the cases and the motions to dismiss,” said Neil L. Selinger of Lowey Dannenberg Bemporad & Selinger, plaintiffs’ lawyer for the New York City Employees Retirement System and eight other city pension funds. Different cases The first category of plaintiffs before Cote are those in the consolidated class action representing more than 40 class actions filed since last April, with lead plaintiff the New York State Common Retirement Fund. A second category of plaintiffs consists of the nine New York City pension funds. Third are individual actions brought throughout the country, and still being filed to this day, on behalf of private and out-of-state public pension funds. Fourth are the WorldCom bondholders who purchased their bonds through SunTrust Bank. Another group is the Ohio Retirement Systems, five funds that purchased WorldCom stocks and bonds. The list of individual actions also includes the Mississippi Telecom Group, representing dozens of individual actions filed in Mississippi state court and, like the New York City pension funds, removed to federal court. There is also a series of class actions alleging breach of fiduciary duty under the Employee Retirement Income Security Act of 1974. Those cases have also been consolidated before Cote under In re WorldCom Inc. ERISA Litigation, No. 02 Civ. 4816. On behalf of the lead plaintiffs in the consolidated class action, lawyers have submitted a proposal arguing that all of the individual actions should be stayed and the class action allowed to proceed. Several groups of plaintiffs, including the New York City pension funds and the bondholders, submitted a proposal calling for consolidation of all the cases for pretrial purposes only, with what one lawyer called a “dual-headed organizational structure.” Finally, another proposal for organizing the cases was submitted on March 28 by the defense team representing former WorldCom directors and 18 underwriters named in the suit. Paul C. Curnin of New York-based Simpson Thacher & Bartlett represents the WorldCom directors. Jay B. Kasner and John L. Gardiner of New York’s Skadden, Arps, Slate, Meagher & Flom represent the syndicate of underwriters, co-led by Salomon, who handled $19 billion in WorldCom bonds. They requested that the individual cases be consolidated for pretrial purposes, with discovery coordinated between a representative from the individual cases and the lead plaintiff in the consolidated class action. Once Cote selects a format for the pretrial phase, lawyers say the next step will be to decide the pending motions to dismiss. The resolution of those motions will clear the way for discovery to begin in earnest and, assuming that court-directed settlement talks do not bear fruit, for a trial some time next year. While motions to dismiss have been briefed, Cote has yet to indicate whether she will hear oral arguments. “You could accurately describe the WorldCom litigation as racing ahead,” one lawyer in the case said. “Cote is pushing it.”

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