State Sues to Recover $15 Million Lost Through WorldCom Bonds
HELENA – Attorney General Mike McGrath on Thursday filed suit to recover $15 million in losses incurred by the state’s Board of Investments as a result of its purchase of WorldCom bonds. The suit names a number of WorldCom executives and directors, along with several major financial institutions, including Arthur Andersen and CitiGroup. It was filed in District Court in Lewis and Clark County.
“Like thousands of other investors, the Montana Board of Investments was led to believe that WorldCom was a healthy company and a solid investment,” McGrath said, “and like thousands of other investors, through no fault of its own, the board lost millions of dollars.”
The suit alleges WorldCom, some of its directors and officers, its auditors and investment bankers violated the Securities Act of 1933. Sometimes called the “truth in securities act,” it requires that investors receive information about securities being offered for public sale and it prohibits deceit, misrepresentations and fraud in the sale of securities. To that end, most securities sold in the U.S. must be registered.
The lawsuit charges that the defendants filed “false and misleading registration statement(s).” It alleges that WorldCom used a variety of accounting tricks to appear more profitable than it really was. At the same time, the company also inflated its reported assets, net worth and operating cash flow.
In January 2002, the Board of Investments purchased $15-million worth of the WorldCom bonds, relying on research based on the false and misleading information prepared by the defendants. Those bonds are now essentially worthless.
“It was bogus information,” McGrath said. “There is no way the board could have known the degree of WorldCom’s deception.”
In June of this year, WorldCom announced $4 billion in financial misstatements. On Wednesday, The Associated Press reported that WorldCom raised that estimate to more than $9 billion. WorldCom, which owns MCI Communications, is the nation’s second-largest long distance carrier. It is operating under Chapter 11 bankruptcy protection.
Montana Board of Investments: www.investmentmt.com
WorldCom, Inc.: www.mci.com
Securities and Exchange Commission: www.sec.gov/about/laws.shtml