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Now that it has won the right to be the lead plaintiff in the Enron Corp. shareholders’ class action, the University of California system is promising to roll up its sleeves and slug it out in court. Indeed, securities law experts say the university could wind up being a textbook example of what Congress meant by “lead plaintiff” when it created the concept with the passage of the Private Securities Litigation Reform Act of 1995. The law, which amended the Securities Act of 1933 and the Securities Exchange Act of 1934, is designed to eliminate, among other things, the abusive practice of plaintiffs’ lawyers, not clients, controlling class actions. “Enron should tremble,” said Richard H. Koppes, former general counsel to the California Public Employees Retirement System (CalPERS) and now with Jones, Day, Reavis & Pogue’s Los Angeles office. “This is one heck of a client. These are experienced, competent, highly qualified lawyers who are used to being in charge.” On Feb. 15, U.S. District Judge Melinda Harmon of the Southern District of Texas selected the University of California, which lost $145 million when Enron’s stock collapsed, as lead plaintiff. The university beat two other large pension fund groups vying for the lead plaintiff’s role. The State Retirement Systems Group was an amalgam that included pension funds from Georgia, Ohio and Washington, with Alabama as an adviser. Its losses totaled $331 million. The second group was a combination of the Florida State Board of Administration and New York City pension funds, which lost a combined $444 million. From the start, the university has been playing a proactive role in managing its case with lead counsel Milberg Weiss Bershad Hynes & Lerach in San Diego. James E. Holst, general counsel of the Regents of the University of California, was in Harmon’s Houston courtroom on Feb. 25 with other university lawyers, along with attorneys for New York-based Milberg Weiss, for a scheduling conference. The university asked that the trial be scheduled for November 2004. The defendants countered that this is not enough time to prepare. The judge said she would issue a decision later. Filing of the amended complaint, which will combine the 45 separate lawsuits, was also discussed at the hearing. It is expected to be filed by April 1 and should contain additional defendants, said university counsel Christopher M. Patti, who is overseeing the case in-house for the university. He declined to say who the defendants would be. All the complaints contain allegations that Enron defrauded investors by artificially inflating the stock price by issuing false and misleading financial statements. Enron executives, the company, the Arthur Andersen accounting firm and Arthur Andersen executives are among the defendants. FIVE IN-HOUSE LAWYERS To prosecute the class action, the university will have five of its 40-person law department working on the case in addition to Milberg Weiss. Patti, who will handle the bulk of the in-house work, said he plans to attend every hearing. Holst said the university would review drafts of all pleadings before they are filed and make changes when necessary. It will insist on regular meetings with counsel. The general counsel, in turn, has to report to the regents every other month. “But what is most important is the development of the litigation strategy,” said Holst. “It is our responsibility to make the choices for the direction the case will go.” Certainly, the case, which has been called “probably the largest and most complex of its kind in the history of this country” by Harmon, is being litigated in a fish bowl. This will put pressure on the university to show it is adequately representing and protecting the class. “When the University of California decided to get involved in a high-profile case like this, they knew they’re going to be judged,” said Peter C. Clapman, chief counsel of investments with TIAA-CREF, the giant pension system for colleges, universities and research institutions. “It becomes a reputation issue.” Part of the test is whether the university can keep a tight rein on its counsel, William C. Lerach of Milberg Weiss, said institutional investors and securities lawyers. Lerach is widely regarded as the most feared and one of the most successful plaintiffs’ lawyers in the country and he is notorious for being self-promotional. Milberg Weiss is a plaintiff in more than half of all securities class actions, according to the Securities Class Action Services. Harmon acknowledged in her order the “highly publicized criticisms of Bill Lerach,” which includes an investigation by a Los Angeles grand jury to determine whether the law firm paid people to become plaintiffs in class actions. She said the “unproven allegations of solicitation of clients by payment” is not applicable in the Enron case. “It’s more oversight that Lerach ever dreamed of,” said Tracy Nichols, a corporate defense lawyer and head of the securities litigation department with Holland & Knight. “It will be interesting to see how the emperor adjusts to his new clothes.” As for the university, Patti said: “We don’t have any information that suggests that our first choice of counsel is a problem.” Some securities lawyers and counsel for institutional investors say they are pleased with how the university is handling Milberg so far. For example, UC negotiated a legal fee below 10 percent of the recovery. What’s more, the institution is coordinating all the public relations functions. Calls to Lerach’s office were referred to a university spokesman. As a public institution, UC wants to have control over what is being said to the public, said Patti. “That gives me even greater confidence,” said Catherine E. LaMarr, general counsel for the Connecticut office of the treasurer. LaMarr said the treasurer’s office no longer uses the services of Milberg Weiss after Lerach attacked the office in the Waste Management Inc. securities litigation in Harmon’s court. The office was named lead plaintiff in the case, which involved allegations similar to those of the Enron shareholders’ lawsuits. At the same time, Milberg Weiss was representing the treasurer’s office in an advisory capacity in the Cendant Corp. securities fraud litigation. The court noted in the Waste Management case that Milberg Weiss made unsupported accusations against the office that it had to “correct” later on. “I really have every confidence the California Regents will do whatever they need to do to make this a plaintiff-driven case,” LaMarr said. The outside counsel to the Florida State Board of Administration, which is one of the largest employee pension funds in the world, said it is still participating in the case, including recent settlement discussions with Arthur Andersen. “Just because we were not appointed lead plaintiff doesn’t mean we’re not active,” said Vincent R. Cappucci, a senior partner with Entwistle & Cappucci in New York. “I have no doubt the University of California is vigorously litigating the case and is closely monitoring the Milberg firm.”

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