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Lawyer Distorts
Results of Worldcom Class Action to Make Himself Look Better
The settlements in the WorldCom case have produced excellent returns
for investors, especially considering that the company was bankrupt.
The cases established that corporate executives and directors would
be held personally liable for gross misconduct and that underwriters
and accountants would be held accountable for failure to perform thorough
due diligence and sufficient audits.
The New York State Common Retirement Fund’s role as lead plaintiff
in the WorldCom class action suit and in spearheading efforts on behalf
of defrauded WorldCom investors has been well documented. Unfortunately,
one of the beneficiaries of the Fund’s success, attorney William
Lerach, was not satisfied with just announcing his own good settlement,
but chose in a conference call today to distort and disparage the Class’ achievements.
“We got a good return. Mr. Lerach got a good return. It’s
sad he has to distort what we accomplished to try to promote himself,” New
York State Comptroller Alan G. Hevesi said.
There were several major inaccuracies in Lerach’s presentation
in his conference call. In sum, he manipulated the amount of the Class’ damages
and the anticipated claims rate for the Class, and he presented figures
for his own group’s damages that are a fraction of what he has
previously claimed in court and in writing. Lerach also plays games
about where his fees come from. For instance:
- Lerach substantially inflated the damage numbers for the Class Action
in order to make the $6.15 billion class recovery look lower and his
look better.
- For the 2000 and 2001 bonds, Lerach says the Class Action damages
were $12.3 billion. This is false. That number includes the damages
for all WorldCom bond investors: those who opted out and those
who remained in the Class. The Class Action did not seek recovery
for investors not in the Class suit. The real 2000 and 2001 bond
damages for the Class are $10.6 billion.
- On that basis, the recovery for bond holders in the Class after costs
is about 43 percent—assuming every Class member files a claim.
Historically, not every Class member files a claim, meaning that
those who do file will recover more. While we expect that the claims
rate will be higher than usual, given the size of the Class recovery
and the publicity about it, we note that in order to draw his comparison,
Lerach makes the absurd assumption that virtually every Class member
filed a claim.
- Since Lerach distorts the Class damages, there is no reason to believe
what he says today about his own damages, especially since it is
so at odds with what he has said in the past. In a May 2003 letter
soliciting clients, for example, Lerach claimed that his group had
bond losses of $1.4 billion. Today, he claims only $1 billion in
bond damages. The lower the damages, the better his recovery looks.
In December 2002, Mr. Lerach told U.S. District Judge Denise Cote
in open court that his clients had $3 billion in claims, presumably
including bond and stock damages. Today, he claims his total bond
and stock damages are $2 billion. Claiming lower damages today inflates
his purported recovery rate.
- If the $1.4 billion for bond damages Lerach represented before today
is accurate, his recovery of $620 million for bond damages is about
43 percent, about the same as the Class recovery, assuming a 100
percent claim rate by all Class members.
- Lerach’s manipulation of the stock damages is even more egregious.
While he cited the Class’ expert report for the bond damages,
he ignored the same report for the stock damages. In the conference
call he claimed Class stock damages were $160 billion. In the table
attached to his press release, he says $100 billion. The expert report
and court testimony put the damages at $30 billion for all WorldCom
investors, including those who opted out of the Class. The stock
damages actually claimed by the Class are $24 billion. Correcting
this one distortion alone would result in a Class recovery on its
stock damages that is four times what Lerach falsely reports and
is then higher than his claimed stock recovery.
- Lerach’s claim that his group would only receive $352 million
if it were in the Class, compared to the $651 million it actually
received, is based on all these and other distortions. It uses a
low recovery percentage for the Class by assuming his inflated Class
damages and is based on his unreasonably high claims percentage and
his shrunken damage figure. In sum, the $352 million is a made-up
number designed to make Lerach look good.
- What Lerach is pulling is best demonstrated by the way he treats
his fees. He says his clients didn’t pay his fees, the banks did.
That is pure spin. The banks agreed to a total payout, in this case
$745 million. Lerach took his fee of $85 million and costs of $9 million
out of that total. It is simply not true that the banks added more
for Lerach. By the way, the Class paid its lawyers 5.5 percent, while
Lerach is getting twice that in attorney’s fees.
- Lerach was so obsessed with attacking the $6.15 billion Class Action
settlement that he claimed that it amounts to $5.6 billion after
costs. In fact, after costs and including $100 million interest to
date, it is $300 million more than $5.6 billion.
- It should be noted that the recovery Lerach will obtain from the
former WorldCom directors, comes solely from a small insurance fund
that the Class agreed to leave behind for other litigation when the
Class settled and obtained the bulk of the insurance. In addition,
the Class obtained almost $25 million in personal payments from the
former board. Lerach’s
settlement has no personal payment.
- It should also be noted that any recovery that Lerach obtains from
former executives Ebbers and Sullivan comes not from some “government
proceeding” as Lerach represented, but from the liquidation
trust set up by the Class when it settled with the two former executives.
The Class set up a 5 percent set-aside that other litigants, including
Lerach, were permitted to share. Lerach is apparently unable to credit
the Class with any of the accomplishments that helped him.
“Mr. Lerach’s use of numbers would not meet any standard
of accuracy, transparency or professional integrity. If this were an
audit, his facts and figures would be dismissed as lacking a sound
foundation,” Hevesi said.
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Albany Phone: (518) 474-4015 Fax:(518)
473-8940
NYC Phone: (212) 681-4825 Fax:(212) 681-4468
Internet: http://www.osc.state.ny.us
E-Mail:press@osc.state.ny.us |
