The University of California, already waging a legal battle
against Enron, will file a suit against downfallen communications
firm WorldCom this week in a California court.
Meeting in closed session last week in San Francisco, the UC
Board of Regents decided to drop out of the class-action suit filed
in federal court in New York and pursue a separate claim under
California law.
The new case will most likely be filed in the San Francisco
Superior Court either today or on Thursday, though precise plans
have not yet been finalized, said UC press aide Trey Davis.
“Lawyers are going over the last little details,” he
added.
Representatives from WorldCom, as well as other firms involved
in the case ““ Arthur Andersen, LLP and Citigroup, parent of
Salomon Smith Barney ““ did not return phone calls for comment
on Tuesday.
The university believes differences between federal and
California law will speed up the case. In a federal court,
discovery, the process whereby both sides obtain relevant
information from each other, is limited until the judge rules on
motions to dismiss. This rule does not apply to California
litigation.
Still, the University expects a long trial.
“Almost all of these cases are multi-year,” Davis
said.
The case against Enron has already proven to be a lengthy
matter. The university filed its suit against Enron in December
2001 ““ and the case is still in pre-trial proceedings.
Last June, WorldCom declared nearly $4 billion in expenses had
been incorrectly counted as investments. Eventually, the firm
restated over $7 billion in assets, and declared bankruptcy after
the bottom fell out of its stock value.
Several investors, including the UC, were hit harder by
WorldCom’s collapse than by Enron’s fall. The UC sold
its Enron stock in November 2001.
The university lost $145 million from UC Retirement System
investments after Enron’s alleged fraudulent dealings became
public. Selling off WorldCom stock resulted in a $353 million-plus
hit for the university.
As large as these amounts are, UC officials say they are not
major blows to the UCRS portfolio. According to university figures,
losses incurred from WorldCom stock were only 0.7 percent of
UC-managed funds.
“The loss will not affect the retirement benefits provided
to UC retirees nor the endowment’s support of the
university’s academic mission,” said UC Treasurer David
Russ in a statement.
Davis could not comment if UC lawyers have determined if the
suit will include punitive claims, adding that the university will
try to recover its losses.
“Obviously, we would like to get all the money
back,” he said.