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The federal judge in Manhattan overseeing the consolidated securities class action arising from accounting fraud at the former WorldCom Inc. has taken Milberg Weiss Bershad Hynes & Lerach to task for urging class members to opt out and pursue separate suits led by the firm. Southern District Judge Denise Cote said the firm engaged in “an active campaign to encourage pension funds not to participate in the class action and instead to file individual actions with Milberg Weiss as their counsel.” The judge said the firm was “running the coordinated individual actions much as a de facto class action.” Milberg Weiss’ efforts to enlist plaintiffs had “resulted in some confusion and misunderstanding of the options available to the putative class members,” Cote concluded in In Re WorldCom Securities Litigation, 02 Civ. 3288. She asked John P. Coffey of Bernstein Litowitz Berger & Grossman, lead plaintiff’s counsel in the consolidated class action, to draft a curative notice to be sent to all members of the class, as well as a separate notice to be sent to each plaintiff that had filed an individual action. Cote issued her ruling Monday after hearing arguments last week concerning four letters sent by Milberg Weiss or affiliated law firms to different municipal employee and union pension funds. In one of these letters, sent May 23 in response to an information request by lawyers for the Asbestos Workers Local 12 Annuity Fund, Milberg Weiss partner William S. Lerach described how the firm was bringing actions against WorldCom bond underwriters on behalf of investors holding bonds issued in four offerings between August 1998 and May 2001. Milberg Weiss, Lerach wrote, was assembling a coalition of pension funds with between $2 billion and $3 billion in losses to pursue coordinated litigation activity across the nation. In the letter, Lerach warned that the underwriting investment banks were moving to dismiss bond claims from the class action because the lead plaintiff, the New York State Common Retirement Fund, held no bonds, only stock. “[There] is no reason to dilute the value of [the bondholders'] claims by passively relying on the securities class action on behalf of all purchasers of all WorldCom securities in federal court in New York,” the letter concluded. The union fund subsequently retained Milberg Weiss to file an individual action. Judge Cote noted that Lerach’s letter, an almost identical version of which was sent in June to the chairman of the Anchorage Police and Fire Retirement System, failed to mention, among other details, that the motions to dismiss bond claims from the class action had already been denied. The judge allowed there may be “sound and good reasons” to file individual claims and noted that the funds contacted by Milberg Weiss undoubtedly had outside legal counsel able to provide alternative viewpoints. But she stated that every putative class member was entitled to all relevant information about their legal options and the consequences of each choice. Overall, the judge said Milberg Weiss did “not appear to have presented a forthright description of the advantages and disadvantages of both the individual action and class action options.” REQUEST FOR NO CONTACT It was unclear, the judge wrote, whether Milberg Weiss had advised plaintiffs of several procedural issues and potential difficulties arising from filing individual actions. Some claims may be barred by statute of limitations, she noted, and bondholders who also held stock may lose an opportunity to recover for stock losses. Cote also said it did not appear that Milberg Weiss had advised bondholders that they had representatives within the class who could object to an unfair distribution, or that the court needed to approve the fairness of any distribution. Coffey, who first notified the judge of the letters in an Oct. 29 letter, had asked that Milberg Weiss be ordered not to contact class members not already represented by the firm, and not to disseminate materials to the class without his consent. He also asked that Milberg Weiss produce information relating to its solicitation effort. Cote denied these requests, ordering that notices be sent to the plaintiffs. Milberg Weiss had argued that the letters did not constitute solicitations but were the firm’s responses to information requests. The firm contended the letters were not misleading but were merely its opinions of the litigation. The firm also argued the letters could be commercial speech protected under the First Amendment. Coffey declined to comment on the matter. Lawyers at Milberg Weiss could not be reached for comment. Cote has set a Jan. 10, 2005, trial date for the class action.

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