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An investment bank that helped sell securities tied to the stock priceof WorldCom Inc. has been dismissed from the class actions filed overthose securities following the collapse of the telecommunications giant.Southern District of New York Judge Denise Cote granted the motion to dismiss madeby lawyers for UBS AG, saying the bank’s accurate statements about thehistorical stock price could not support a claim under the securitieslaws. The plaintiffs had alleged that UBS was party to the fraud perpetratedon company investors because the historical stock price was artificiallyinflated by the largest accounting fraud in U.S. history: theoverstatement in financial reports of about $9 billion between 1999 and2002. UBS had been named as a defendant in some of the investor suits, whichhave been consolidated before Cote by the Judicial Panel onMulti-District Litigation, because the bank had issued securities calledGOALs. GOALs are notes that paid an annual interest rate of 12 percent over twoyears. The amount of the principal that was to be repaid as they maturedwas dependent on the performance of WorldCom stock. UBS was accused of violating � 11 of the Securities Act of 1933 forciting the stock prices for WorldCom beginning in 1998 in a prospectussupplement filed in January 2002. Cote noted that the supplement told investors that UBS did notknow whether WorldCom had disclosed all events that occurred before thedate of the supplement, and warned investors to undertake their ownindependent investigation of the company. UBS also said it had notparticipated in the preparation of any of WorldCom’s public filings, norperformed due diligence in connection with the offering of GOALs. In determining whether a statement is misleading under � 11, Cotesaid, the question is whether the defendants’ misrepresentations wouldhave misled a reasonable investor. “Since Section 11 is a strict liability statute, and since the stockprices were artificially inflated by fraud and therefore materiallyfalse and misleading, [the plaintiffs] argue that the reporting ofWorldCom’s stock prices was also false and misleading as amisrepresentation of the true value of WorldCom stock,” Cote said.However, she said, the plaintiffs had not stated a claim under � 11despite the statute’s “minimal” pleading requirements. “They do not allege that the stock prices listed in the ProspectusStatement were not correctly reported,” the judge said. “They do notpoint to any other statement by UBS in which UBS makes anyrepresentation about WorldCom, the reliability of its financialstatements, the accuracy of its public statements, or the utility of thehistorical stock prices as a predictor of future stock performance. Tothe contrary, the Prospectus Statement specifically disclaims that it ismaking any representations in this regard.” Section 11 requires, at a minimum, she said, “that the plaintiffidentify an ‘untrue statement of a material fact,’” and the plaintiffshad not done so with regards to UBS. Cote also denied a motion by the plaintiffs to amend theircomplaint, saying it would be futile. WorldCom, which is now called MCI, is in the process of emerging frombankruptcy in the wake of the approval of its reorganization plan byU.S. Bankruptcy Judge Arthur Gonzalez of the Southern District of NewYork. Gregory A. Markel and Ronit Setton of Cadwalader, Wickersham & Taftrepresented UBS AG. Arthur N. Abbey, Jill S. Abrams and Richard B.Margolies of Abbey Gardy represented lead plaintiffs.

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