Lead Plaintiff's Memorandum of Law in Opposition to Defendants'

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PRELIMINARY STATEMENT With one notable exception, the motions to dismiss ask this Court to conclude, at this preliminary stage, that none of the gatekeepers on whom the investing public relied should be required to answer for their role in the largest corporate debacle in history. Rather than answer the detailed allegations of the NYSCRF’s Class Action Complaint (“Complaint”), the moving Defendants raise a host of legal and technical challenges intended to deny the victims of this multi-billion dollar fraud their day in court -- to deny those who invested in WorldCom, Inc. (“WorldCom” or the “Company”) the opportunity to fully illuminate in a public forum what occurred at WorldCom and why, and to show how those who participated in, knew of, or recklessly and/or negligently disregarded what took place at the Company should be made to answer to the victim investors. As described more fully below, these challenges to the Complaint are unavailing, and the motions to dismiss should be denied in their entirety. The exception referred to above is a substantial concession by the Director Defendants. They have not challenged Count I, and thereby concede that the Complaint adequately pleads that they violated Section 11 of the Securities Act of 1933 (“Securities Act”) in connection with WorldCom bond offerings in May 2000 and May 2001 (together, the “Offerings”). That claim -- and this litigation -- will therefore proceed to discovery, notwithstanding the five motions to dismiss. With regard to the other claims against them, the Director Defendants assert various legal arguments about why those claims should be extinguished at the pleading stage. None of those resolved. Despite being served on November 27, 2002, Defendant Buford Yates, Jr. has not yet filed an appearance in this action or responded to the Complaint. WorldCom is not a defendant in these proceedings because it filed for bankruptcy protection on July 21, 2002. -2-
arguments withstands scrutiny. They argue that Count VI, which alleges that certain of the directors violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), should be dismissed because the Complaint fails to comply with the pleading standards of the Private Securities Litigation Reform Act of 1995 (“PSLRA”) and Fed. R. Civ. P. 9(b). Specifically, they contend that the Complaint improperly engages in “group pleading” rather than trace any false statement to the directors named in Count VI, and also fails to allege that they acted with scienter. As demonstrated below (Point II.B.), their arguments are without merit. The “group pleading” argument has no application here because each of the directors personally signed the registration statements and other WorldCom filings at issue. As for scienter, the Complaint amply alleges that Defendants Allen, Areen, Bobbitt and Galesi -- members of the Audit Committee specifically responsible for safeguarding the integrity of the Company’s financial statements -- were, at the least, reckless, and that the conduct of Galesi and Kellett, the only other Director Defendant charged with violating Section 10(b), was tainted by “motive and opportunity” as well as recklessness. The Director Defendants also contend that WorldCom’s directors should be given a pass from any responsibility as “control persons” under Section 15 of the Securities Act (Count II, in connection with the Offerings) and Section 20(a) of the Exchange Act (Count VII, in connection with the fraud claims). As explained below (Point III), the notion that this board of directors (the “Board”) lacked either control or “culpable participation” in the meltdown at WorldCom is also without merit. The Underwriter Defendants, like the Director Defendants, do not dispute that the Complaint properly alleges a Section 11 claim against them in connection with the Offerings (Count IV). Nor do they challenge the viability of the Section 12(a)(2) claim brought against them in connection with those same Offerings (Count V). Rather, they contend that these Securities Act claims must be dismissed -3-
Page 1 and 2: UNITED STATES DISTRICT COURT SOUTHE
Page 3 and 4: TABLE OF CONTENTS TABLE OF AUTHORIT
Page 5 and 6: POINT III .........................
Page 7 and 8: Capri v. Murphy, 856 F.2d 473 (2d C
Page 9 and 10: Admin. Proc. File No. 3-4390, 1975
Page 11 and 12: 143 F. Supp. 2d 304 (S.D.N.Y. 2001)
Page 13 and 14: Milman v. Box Hill Sys. Corp., 192
Page 15 and 16: Taylor v. Vermont Dept. of Educ., 3
Page 17: Alan G. Hevesi, Comptroller of the
Page 21 and 22: Asset Management, Inc. (“HGK”)
Page 23 and 24: WorldCom’s stock and bonds. Moreo
Page 25 and 26: illion. 5. 6 The accounting fraud,
Page 27 and 28: method of committing financial frau
Page 29 and 30: ampant “internal chicanery and co
Page 31 and 32: would have seen billions of dollars
Page 33 and 34: esponsibilities to investors. By th
Page 35 and 36: even went so far as to ridicule inv
Page 37 and 38: million. 228. Salomon often alloca
Page 39 and 40: could of WorldCom, he never informe
Page 41 and 42: e-mail admitted that he maintained
Page 43 and 44: (Count IV). The Complaint also alle
Page 45 and 46: various of the Underwriter Defendan
Page 47 and 48: ought on behalf of other class memb
Page 49 and 50: Complaint filed by the NYSCRF -- as
Page 51 and 52: The Underwriter Defendants assert t
Page 53 and 54: The plain language of Section 11 es
Page 55 and 56: Retirement Income Security Act (“
Page 57 and 58: inconsistent with the overall purpo
Page 59 and 60: Pollack v. Laidlaw Hold., Inc., No.
Page 61 and 62: POINT II THE COMPLAINT STATES CLAIM
Page 63 and 64: omitted); see also Cromer Finance,
Page 65 and 66: his hand-picked CFO, then ordered t
Page 67 and 68: In addition, Ebbers contends that t
Page 69 and 70:
much in charge and knowledgeable ab
Page 71 and 72:
Ebbers’ motive to artificially in
Page 73 and 74:
they specifically made. For example
Page 75 and 76:
public statements, (b) failed to re
Page 77 and 78:
Exchange and the National Associati
Page 79 and 80:
Similarly, the Complaint alleges sc
Page 81 and 82:
Tex. 2002). Significantly, each of
Page 83 and 84:
For all these reasons, the fraud cl
Page 85 and 86:
Further, the Complaint provides gre
Page 87 and 88:
the other hand, when tidal waves of
Page 89 and 90:
See Complete Mgmt. Inc. Sec. Litig.
Page 91 and 92:
exerted” by U.S. senior finance m
Page 93 and 94:
discredited this hypothesis. The ra
Page 95 and 96:
statements for the Offerings or in
Page 97 and 98:
ecommended violated anti-fraud prov
Page 99 and 100:
y failing to disclose to his custom
Page 101 and 102:
at the time the reports were issued
Page 103 and 104:
2. Grubman’s Buy Recommendations
Page 105 and 106:
continue to pursue the acquisitions
Page 107 and 108:
allegations that establish that the
Page 109 and 110:
facts, if taken as true, are certai
Page 111 and 112:
4. The Complaint Adequately Alleges
Page 113 and 114:
the stock. To the extent that the d
Page 115 and 116:
conflicts of interest between Salom
Page 117 and 118:
allege loss causation. 2000 WL 6406
Page 119 and 120:
In Jacobs v. Coopers & Lybrand, L.L
Page 121 and 122:
issued in connection with the Offer
Page 123 and 124:
settled principle of law that direc
Page 125:
Named Plaintiffs’ Counsel: BERMAN
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Lead Plaintiff's Memorandum of Law in Opposition to Defendants'

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