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

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ecause this Court appointed a lead plaintiff that did not purchase bonds on the Offerings. Unfortunately for the Underwriter Defendants (and the Salomon Defendants, Andersen, and Ebbers, who adopt this argument as well), this point rests on a fundamental misapprehension of the lead plaintiff provisions of the PSLRA, which was never intended to excise from a consolidated class action claims that the lead plaintiff does not itself possess -- particularly where, as here, the consolidated complaint specifically identifies named plaintiffs who do have those claims (Point I.B.). As the Underwriter Defendants are constrained to concede, the very argument they make here was emphatically rejected in this District just a few weeks ago, when Judge Scheindlin issued her ruling on the motions to dismiss in In re Initial Pub. Offerings Sec. Litig., No. 21 MC 92, 2002 U.S. Dist. LEXIS 23823 (S.D.N.Y. Dec. 12, 2002) (hereafter, “IPO Sec. Litig.”). After reviewing the history and construction of the pertinent PSLRA provisions, Judge Scheindlin observed, The fact that the lead plaintiff is to be selected in accordance with objective criteria that have nothing to do with the nature of the claims . . . strongly suggests the need for named plaintiffs in addition to any lead plaintiff. Courts are constrained to choose a lead plaintiff who has, among other things, the largest financial stake in the outcome of the case. It stands to reason that in many cases, the instant cases included, the plaintiff with the largest financial interest may not have standing to sue on all causes of action. There is nothing to suggest that, in those cases, Congress intended that plaintiffs must file an entirely separate class action lawsuit when, in any other context, a subclass would suffice. Id. at *14 (citing Newby v. Enron Corp. (In re Enron Corp., Securities Litigation), 206 F.R.D. 427, 451 (S.D. Tex. 2002) (hereafter, “Enron Sec. Litig.”). The standing arguments proffered by the Underwriter Defendants against the plaintiffs who did purchase bonds in the Offerings are also ill-founded. As explained below (Point I.C.), the County of Fresno (“Fresno”), the Fresno County Employees Retirement Association (“FCERA”), and HGK -4-
Asset Management, Inc. (“HGK”) (together, the “Named Plaintiffs”) do not suffer from any of the various incapacities alleged by these Defendants. Accordingly, Counts IV and V must be sustained. In the course of its investigation into the collapse of WorldCom, the NYSCRF concluded that one of the Underwriter Defendants, Salomon, was in position well before the Offerings to know that WorldCom’s registration statements did not reflect the Company’s actual condition. As recounted more fully below (Point II.D.), no one on Wall Street was better qualified to see through financial chicanery in a telecommunications company than Salomon’s superstar analyst, Jack Grubman -- and no one had his finger more firmly on the fiscal pulse of WorldCom. Former senior Salomon insiders -- including one source who had routine contact with Grubman and senior officers at WorldCom (including CFO Sullivan) -- confirmed that Grubman’s access to Sullivan and Ebbers (and vice versa) was extraordinary. More ominously, the NYSCRF learned that Grubman had abandoned the longtime analytical model he had used to value telecommunications companies at just the point in time when continued use of that model would have flagged WorldCom’s fading business for the investing public (and in particular, purchasers in the May 2000 Offering). Significantly, when Grubman changed models, he did it for one company only -- WorldCom -- yet continued to use his long-time model for the other companies he covered for another two years. Further, in addition to gathering additional evidence concerning two issues drawing widespread scrutiny as the WorldCom scandal broke -- Grubman’s incessant touting of the Company in his analyst reports and Salomon’s campaign to deliver lucrative shares in “hot” IPOs to senior WorldCom decision makers -- Lead Plaintiff also discovered the previously undisclosed fact that Salomon’s corporate sibling, The Travelers Insurance Company (“Travelers”), loaned several hundred million dollars to an -5-
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 and 18: Alan G. Hevesi, Comptroller of the
Page 19: arguments withstands scrutiny. They
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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