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Plaintiffs in the WorldCom securities class actions will be given relief from restrictions on discovery following a ruling Thursday by a judge in the Southern District of New York. Judge Denise Cote said the lead plaintiff in the cases, the New York State Common Retirement Fund, will have access to documents produced for congressional committees, federal prosecutors and an internal company committee investigating the multibillion-dollar meltdown of the telecommunications giant. The request for the documents came from lawyers for the Retirement Fund as they prepare for settlement talks and was granted by the judge because, if the Fund were forced to wait, “it faces the very real risk that it will be left to pursue its action against defendants who no longer have anything or at least as much to offer.” Cote is presiding over about 40 actions filed because of the collapse in the now-bankrupt company’s stock price and the revelation of billions of dollars in accounting irregularities. More than 20 of the cases, which are securities actions, are combined under In Re WorldCom Inc. Securities Litigation, Master File, 02 Civ. 3288. The remainder of the cases before Cote charge that former WorldCom Chief Executive Officer Bernie Ebbers and former Chief Financial Officer Scott Sullivan breached their fiduciary duty with respect to WorldCom’s ERISA plan. The Private Securities Litigation Reform Act, 15 U.S.C. � 87u-4(b)(3)(B), requires that all discovery be stayed pending a motion to dismiss, unless a court finds that discovery is necessary to preserve evidence or prevent “undue prejudice” to a party. Lawyers for the Retirement Fund claimed prejudice and asked Cote to lift the stay on discovery, saying it was unfair to deny them access to documents produced for Congress, for prosecutors, and for Wilmer, Cutler & Pickering, which is representing a Special Investigative Committee of WorldCom’s board of directors. While WorldCom directors, who are defendants in the action, as well as defendant Arthur Anderson, opposed the motion, Southern District of New York U.S. Attorney James B. Comey had no objections. On Oct. 29, Southern District Bankruptcy Judge Arthur J. Gonzalez granted a motion by the Retirement Fund for a proposed modification of a bankruptcy stay to allow the fund to obtain key documents. Comey and the Securities and Exchange Commission, which has a separate action against the company before Southern District Judge Jed Rakoff, said they would not oppose the modification of the bankruptcy stay after the Retirement Fund agreed to make some changes. And on Nov. 8, Gonzalez modified the automatic stay, allowing the fund to obtain documents on the condition that Cote lift the customary stay under the Private Securities Litigation Reform Act. In her opinion yesterday, Cote noted that Congress enacted the discovery stay “to minimize the incentives for plaintiffs to file frivolous securities class actions in the hope either that corporate defendants will settle those actions rather than bear the high cost of discovery” or “that the plaintiff will find during discovery some sustainable claim not alleged in the complaint.” But the judge said that those policy goals were not implicated by allowing the Retirement Fund discovery in these cases, and that the Fund faced the prospect of undue prejudice because “all of the investigations and proceedings concerning WorldCom are moving apace.” “Without access to documents already made available to the U.S. Attorney, the SEC, and in whole or in part to the WorldCom Creditors Committee,” the judge said, the fund “would be prejudiced by its inability to make informed decisions about its litigation strategy in a rapidly shifting landscape.” “It would essentially be the only major interested party in the criminal and civil proceedings against WorldCom without access to documents that currently form the core of those proceedings,” she said. “This is especially troubling given the likelihood that settlement discussions will begin in December and involve both the securities plaintiffs and the ERISA plaintiffs.” The New York State Common Retirement Fund is represented by Max Berger and Sean Coffey of New York-based Bernstein Litowitz Berger & Grossmann and Leonard Barrack and Jeffrey Golan of Philadelphia’s Barrack, Rodos & Bacine.

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