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The federal judge overseeing securities litigation over accounting fraud at the former WorldCom Inc. has followed up tough criticism of the tactics of Milberg, Weiss, Bershad, Hynes & Lerach by dismissing several claims the plaintiff’s firm has brought on behalf of groups that have opted out of the class action. Southern District of New York Judge Denise Cote ruled Nov. 21 that claims brought by the State of Alaska Department of Revenue and the Alaska State Pension Investment Board against WorldCom officers and the investment banks that underwrote certain WorldCom debt were time-barred and could not be re-filed. The rule handed down by the U.S. Supreme Court in American Pipe v. Utah, 414 U.S. 538 (1974), suspending tolling of applicable statutes of limitations for class members does not apply to plaintiffs who file individual actions before a class has been certified, the judge said. “[P]laintiffs who choose to file an independent action without waiting to consider the determination of class certification are not entitled to enjoy the benefits of the tolling rule,” Cote wrote in State of Alaska Dept. of Revenue v. Ebbers, 03 Civ. 6592. “Applying the tolling doctrine to separate actions filed prior to class certification would create the very inefficiency that American Pipe sought to prevent.” The decision seriously undercuts Milberg Weiss’ strategy in the WorldCom case. The firm, denied lead counsel status in the class action, has filed dozens of similar individual claims in state courts throughout the nation on behalf of pension funds holding WorldCom bonds issued in four offerings between 1998 and May 2001. Those individual actions were consolidated with the class action in New York for pretrial proceedings, and they will now have to show that Cote’s opinion on the Alaska claims will not apply to them. In a letter sent Nov. 24 to Cote and obtained by the New York Law Journal, Susan L. Saltzstein, a partner at Skadden Arps Slate Meagher & Flom, the lead firm for the underwriters, listed dozens of actions that she believed would be wholly or partially dismissed based on the judge’s Nov. 21 decision. The judge specifically barred claims arising from two bond offerings that are not also at issue in the national class action. The Alaska plaintiff’s claims based on an August 1998 bond offering were time-barred in August 2001, she wrote. The Sarbanes-Oxley Act’s extension of the tolling period does not apply to these claims, she decided, because the act was intended to extend the filing period only for fraud claims. The Alaska plaintiffs had alleged strict liability and negligence under � 11 of the Securities Act, not fraud under � 10(b) of the Exchanges Act. Cote threw out claims based on a December 2000 offering because it was a private placement open only to qualified institutional investors and not subject to � 12(a)(2) of the Securities Act. The judge also dismissed the Alaska plaintiffs’ claims against a group of additional underwriters, including BNP Paribas Securities and Fleet Securities Inc., because they were filed Sept. 24. Noting that press reporting of WorldCom accounting woes began in early 2002, the judge found that plaintiffs were on inquiry notice after WorldCom announced a major restatement on June 25, 2002, and their claims were barred a year thereafter. EARLIER RULING The judge had warned of the possibility that many of the individual claims could run afoul of statutes of limitation in a Nov. 17 ruling in which she criticized Milberg Weiss for trying to convince plaintiffs to file individual actions instead of joining the class action. The firm, she said, was running the individual state actions as a “de facto” class action. She cited letters sent by Milberg Weiss partner William Lerach to various municipal and union pension funds arguing that the class action would benefit stockholders over bondholders. She wrote in the Nov. 17 ruling that Milberg Weiss’ communications with plaintiffs had “resulted in some confusion and misunderstanding of the options available to the putative class members.” She ordered John P. Coffey of Bernstein Litowitz Berger & Grossman, lead counsel in the class action, to draft a curative notice to be submitted to the parties for comments before being sent to all the plaintiffs who have filed individual actions. Milberg Weiss lawyers declined to comment on Cote’s decision, but according to a transcript of a Monday conference call with the judge and lawyers for both the defendants and other plaintiffs, Lerach told the callers the decision had been circulated to clients and there would likely be “little, if any, significant dispute.” “Your rulings are clear,” Lerach said to the judge. “And the question simply is how do they apply to each of the cases.” Lerach went on to inquire if it would be possible that plaintiffs whose claims were dismissed with prejudice might still be able to join the class action. The judge said she would consider the issue. “It would certainly, I think, be important, if the law permits it, to allow all those injured to recover through the class action mechanism, whether they have successfully or unsuccessfully tried the individual action litigation option up to this point,” Cote said on the call. On Nov. 25, the judge amended her Nov. 17 order, asking the parties to also address in their comments on the curative notice what the notice should say about the impact of dismissal with prejudice on a plaintiff’s ability to join the certified class. She also asked for comments on what the curative notice might say regarding “whether Milberg Weiss, or any other law firm, has a conflict of interest in representing multiple clients whose cases have been impacted in different ways by the November 21 ruling, or in any case where a claim has or may be dismissed with prejudice as time-barred.”

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