Thursday, November 7, 2013

In re WorldCom, Inc. Securities Litigation case brief

In re WorldCom, Inc. Securities Litigation case brief summary
346 F. Supp. 2d 628 (2004)

Plaintiffs filed a class action alleging, among other things, that defendant underwriters violated §§ 11 and 12(a)(2) of the Securities Act of 1933, 15 U.S.C.S. §§ 77k and 77l. Lead plaintiff sought a declaration that the issuing company's registration statements for two bond offerings contained material misstatements, and the underwriters contended they had no liability. Both parties filed summary judgment motions.

The company's executives engaged in a secretive scheme to manipulate the company's public filings concerning the company's financial condition and those public filings were incorporated into the registration statements for the two bond offerings.

  • The court granted each parties motion for summary judgment in part.
  • The court held, inter alia, that 
  • (1) there was no material issue in dispute regarding the falsity of one of the company's quarterly financial statement or the materiality of that false statement to investors; 
  • (2) the underwriters had not established the reliance defense under 15 U.S.C.S. § 77k(b)(3)(C) based on unqualified "clean" audit opinions; 
  • (3) lead plaintiff showed that there were issues of fact as to whether the underwriters had reasonable grounds to believe that a form, that reported the company's earnings to revenue ratio, was inaccurate; 
  • (4) the underwriters' receipt of comfort letters from the company's auditors was important evidence but insufficient by itself to establish a due diligence defense; and 
  • (5) the underwriters established that they were entitled to summary judgment with respect to certain alleged omissions from the registration statements.


The court granted lead plaintiff's motion as to one of the registration statements insofar as it reported line costs in the company's quarterly financial statement, and it granted the underwriters' motion with respect to several alleged omissions. The court otherwise denied the parties' motions.

Suggested Study Aids For Securities Regulation Law
Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials

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