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Attorneys: John P. “Sean” Coffey and Max W. Berger Firm: Bernstein Litowitz Berger & Grossmann, New York Case: In re WorldCom Inc. Securities Litigation, No. 02 Civ 3288 (S.D.N.Y.) It was a good cop/bad cop strategy that won a record securities fraud recovery in 2004, a whopping $6.13 billion settlement of the WorldCom Inc. litigation. The bad cop was plaintiffs’ lawyer John P. “Sean” Coffey of Bernstein Litowitz Berger & Grossmann in New York, who litigated aggressively and relentlessly with the intent to push the defendants to a jury trial. Meanwhile, the good cop was Coffey’s partner, Max W. Berger, who maintained calm settlement discussions with the defendants while the litigation storm raged. “The way the dynamic worked for us is, Sean was the aggressive bulldog, the ‘Let’s get to trial, I really mean it’ person,” Berger said. “And I would step back and take a look at the big picture and see what we are going to do and think about settlement.” Berger is hardly the likely table-pounder of the duo. “Max is not the kind of guy who looks across the table and says, ‘We are going to kill you,’” said Coffey. “Max is the kind of guy who looks across the table and says, ‘We could lose, but so could you.’ I usually kind of bristle when Max says we could lose, but he’s right.” The two fell “naturally” into their roles, said Berger, noting that the firm shared the representation of lead plaintiff New York State Common Retirement Fund with Barrack, Rodos & Bacine of Philadelphia. EFFECTIVE PRESSURE POINT The key to the plaintiffs’ strategy was using advantages gained in aggressive litigation to pressure defendants into paying at the top of the settlement range, Berger said. Berger and Coffey were a “very formidable combination,” said an attorney for one of the defendants who agreed to comment only if unidentified. Their approach exploited the defendants’ vulnerabilities, the lawyer said. The push to trial was an effective pressure point, he said. A lot of plaintiffs’ lawyers don’t want to try a case, he said. Not Coffey, the defender said. “The fact of the matter is, when you are a plaintiff and seeking billions of dollars and you have defendants who are resisting paying you a penny, trial dates are good for plaintiffs and bad for defendants,” said Coffey. The WorldCom securities litigation defendants were third parties that plaintiffs alleged played a role in WorldCom’s collapse into bankruptcy, triggered by a massive, multibillion-dollar accounting fraud. The company has emerged from bankruptcy as MCI Inc.; former Chief Executive Officer Bernard Ebbers was convicted in March. KEY ISSUE: WHO PAID The securities litigation turned heads not only for the settlements’ size, but also for who paid. WorldCom’s 12-member board of directors paid a collective $24.75 million out of pocket, while their insurers paid an additional $36 million. The 17 investment banks that underwrote the sale of WorldCom bonds paid more than $6 billion. And Arthur Andersen, WorldCom’s former auditor, the only defendant that went to trial, agreed to pay $65 million four days before closings. When Berger and Coffey began strategizing, the case seemed pretty unappetizing, Coffey said. WorldCom was in bankruptcy. Arthur Andersen held little promise because of its own troubles, including a recent $217 million settlement of an Arizona case where Coffey was lead plaintiffs’ counsel. Moreover, WorldCom’s directors were insured and the investment banks had a strong defense that they relied on audited financial statements. The only hook in the beginning was Jack Grubman, a former analyst at Salomon Smith Barney who had written favorably about WorldCom’s stock outlook, said Coffey. A former federal prosecutor in the Southern District of New York, Coffey analogized their early strategy to the prosecution of a tough gang or mob case. (The judge in the WorldCom case, U.S. District Judge Denise Cote, was Coffey’s senior in the criminal division of the U.S. Attorney’s Office for the Southern District of New York.) All the defendants had separate counsel but worked together, he said. “To me the key was to pick off somebody.” That happened with Citigroup Inc., Salomon Smith Barney (now known as Citigroup Global Markets) and Grubman, which were the first to settle. They agreed to pay $2.75 billion, the big break in the case, Coffey said. The remaining defendants were faced with going to trial and, if found liable, they could have been on the hook for the entire amount of the verdict under joint and several liability, said Berger. It was an effective lever. After the judge approved the Citigroup settlement in November 2004, it took the remaining banks four months to settle. By April, all the defendants had conceded. LEVELING THE FIELD Key to the plaintiffs’ litigation strategy was to take away as many as possible of the defendants’ strategic advantages, such as size and their delay efforts, Coffey said. The defendants were represented by some of the largest firms, including Skadden, Arps, Slate, Meagher & Flom; Paul, Weiss, Rifkind, Wharton & Garrison; and Simpson Thacher & Bartlett, all of New York. Coffey — who once defended corporate clients at Paul Weiss and Latham & Watkins — sought to even things up. He proposed a limit on the number of deposition days and the judge agreed to cap it at 60 days per side. “The banks howled and said it was grossly unfair,” he said. Though they claimed they needed hundreds of days, the banks ended up using only about 30, he said. AN UNAPPETIZING PROSPECT Then Coffey convinced the judge to restrict trial time to 150 hours-per side, not per defendant. The banks would share time with directors, the judge said. Again they howled, but the judge held firm, he said. “I wanted to make the prospect of going to trial as unappetizing as possible,” Coffey said. “I said every day we need to give these guys something to worry about.” The good cop/bad cop strategy wasn’t new in WorldCom, said Berger. His firm used it to settle the Cendant Corp. securities litigation, a 2000 record payment of $3.2 billion, which included $335 million from Big Four accountant Ernst & Young. In that case, Berger was paired with a different litigator but also collaborated with Barrack, Rodos & Bacine. During a particularly tough time in that case before the defendants agreed to settle on the plaintiffs’ terms, Berger learned a lesson from a defense lawyer friend who confided: “The defense bar believes that there is no plaintiffs’ lawyer anywhere that’s going to turn down a boatload of money.” Berger rejects that assumption. “Your art is in convincing the other side that you mean business and that doesn’t mean business as usual,” he said. The WorldCom case stands out for the plaintiffs’ aggressive strategy against the company’s board of directors, not only to collect but also to send a message, said Berger. Collecting a pile of money is “not always the only answer,” he said. The $24 million in personal payments “sent shock waves through every boardroom in the country.” COFFERY AND BERGER’S TRIAL TIPS � Never promise too much. � Give openings without notes. You’ll remember 85 percent, but be twice as effective. � Discovery is a means not an end.

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