SAN DIEGO- LAWFUEL – The Law News Network – Oct. 27, 2005–Lerach Coughlin Stoia Geller Rudman & Robbins LLP, the nation’s leading law firm representing institutional investors in securities litigation, earlier today announced it had recovered more than $651 million for institutional investors in individual non-class action lawsuits arising out of the financial collapse of WorldCom Inc. Following this announcement and subsequent conference call, the lead plaintiff in the class action lawsuit issued a press release attacking the firm’s analysis of its clients’ recovery.
“We were saddened to read the attacks on our analysis of the unprecedented recovery for our clients in the WorldCom matter by the class action lead plaintiff,” said William S. Lerach. “We went out of our way in the press conference this morning to compliment the class on their excellent recovery. However, when the numbers are properly understood, our clients’ recovery is substantially better than what they would have recovered in the class action. We have attempted to be as transparent and accurate in our analysis as possible.”
In a response to each of the issues raised in the New York State Retirement Fund’s press release, Lerach Coughlin notes the following:
1. The statement that we inflated the damage numbers for the class
action in order to make the class recovery look lower.
Our response: The damage numbers for the class action set forth in
Exhibit A to our press release (the comparison chart) were taken
directly from the expert report of the lead plaintiff’s damage expert
— Blaine Nye.
2. The statement that the damage number of $12.3 billion for the
May 2000 and May 2001 offerings in our chart for the class action was
inaccurate because it includes damages for our clients that opted out
of the class.
Our response: The purpose of the comparison chart in Exhibit A was
to simply show what our clients would have received if they had
remained in the class action versus their actual recovery. Our clients
are receiving a premium to their imputed class recovery by getting a
45-67% recovery net of fees and expenses on these two bonds.
3. The release attacks our assumption of a 90% claim rate in the
class action with the implication being that a lower claim rate will
yield the class a greater recovery.
Our response: That is true except for the fact that we have been
told by one of the defendants’ counsel that they expect the claim rate
to be 95%, which means we were being conservative in our calculations.
Since the claim date has passed and all claims have been filed, if we
were so far off in our assumption of a 90% claim rate you would expect
class counsel to provide that information to the State of New York to
include in its press release. The WorldCom bonds were held by
sophisticated institutions, it was a highly publicized fraud and
settlement, and it is not surprising that almost 95% of institutions
that bought the bonds would be claiming on the settlement fund.
4. The release attacks our prior statements about our clients’
Our response: The May 2003 letter referred to in the release which
discusses our clients having $1.4 billion in bond losses was accurate
at the time. Some of our clients had claims that were dismissed by
Judge Cote and they decided to dismiss their private actions and go
back into the class after May 2003. These clients had bond losses of
at least $150 million which were included in the $1.4 billion number.
Our bond losses for the August 1998, December 2000, May 2000, and May
2001 offerings now total $1.25 billion. Of that amount, approximately
$1 billion is for the May 2000, May 2001 and December 2000 bonds and
the remainder is for the August 1998 offering, which was treated like
the common stock by the class action. Our current overall total of $2
billion for bond and stock claims is accurate.
5. The release claims that our recovery of $620 million (it is
actually $644 million excluding interest per the comparison chart) is
a recovery of 43% based on bond claims of $1.4 billion which is the
same as the class recovery.
Our response: Our bond claims are $1 billion for the May 2000, May
2001 and December 2000 bonds. For these bonds we recovered a total of
$610 million ($482 million for the May 2001 bonds, $103 million for
the May 2000 bonds, and $24.5 million for the December 2000 bonds). A
recovery of $610 million based on total bond claims of $1 billion is
approximately 60%. As set forth on the comparison chart attached to
our press release, our clients’ recovery on the May 2000 and May 2001
bonds is 62-67% for most clients, and 45% for some clients on the May
2000 bonds. The August 1998 bonds were treated the same as common
stock by the class and we also treated them the same and included them
in the comparison chart as part of the common stock recovery. There is
no reason to lump those bonds in with the other bonds for the purposes
of this comparison.
6. The release claims we have manipulated the stock damages.
Our response: The market capitalization losses for the class were
$160 billion based on 2.97 billion shares outstanding and a stock
decline from the $50-$60 per share range to as low as $0.06 per share.
We used $100 billion in the comparison chart to give the class the
benefit that only approximately 62% of class members would file a
claim. Footnote 5 to the chart reflects this assumption and reduces
the market cap losses to $100 billion. Unlike the bond claimants who
are highly sophisticated and we expect will file a very high rate of
claims, the common stock holders are a more diverse lot and it is
possible the claim rate will be around 60%, which is the average for
stock claims in class actions. The class claims it has common stock
damages of $30 billion. We calculated our clients’ losses based on
market losses and for comparison purposes calculated the class losses
in the same manner. Had we reduced our clients’ losses in a fashion
similar to the class, our clients’ losses would be substantially lower
than the $720.9 million presented and the recovery percentage would
have been substantially higher than 2.97%.
7. The class action lead plaintiff claims our clients’ overall
recovery if they had stayed in the class is understated.
Our response: The points above addressed these issues. We have not
inflated the class loss numbers and have used a realistic claim rate
for the bonds for the class. The comparison chart lays out what our
clients would have obtained in the class assuming they remained in the
class versus what they are receiving in their private action.
8. The release attacks our presentation of our fees.
Our response: We presented the recovery net of fees because we
thought that was a fairer presentation than the gross number other
firms present. The net figure presented is the amount the clients will
receive, rather than a gross-up number as used by other individual
action settlements and even the class action.
9. The release claims we understated the class settlement and did
not include interest.
Our response: Exhibit A to the press release shows the class
recovery of $5.841 billion. We did not add interest to the class
recovery because its not added to the private recovery in Exhibit A,
which shows a $645 million recovery. For consistency purposes,
interest was not included in either amount.
10. The release claims we misstated the source of the recovery
from Ebbers and Sullivan.
Our response: Our understanding is that the government negotiated
as part of the Ebbers and Sullivan sentencing an agreement for those
individuals to forfeit most of their personal assets. The class had a
role in working with the government to set up the trust. Our clients
will get a portion of that fund.
Lerach Coughlin Stoia Geller Rudman & Robbins LLP, with over 160 lawyers in San Diego, Los Angeles, San Francisco, Seattle, Houston, Boca Raton, Philadelphia, Washington D.C. and New York City, is the nation’s leading law firm specializing in representing institutional investors in shareholder suits. The firm has recovered billions of dollars for its clients. Most recently, the firm has, to date, recovered $7.1 billion for damaged Enron investors, the largest securities class action recovery in history.