YOU ARE HERE: LAT HomeCollections

Citigroup Suit OKd as Class Action

October 25, 2003|From Bloomberg News

Citigroup Inc. and its former telecommunications stock analyst Jack Grubman must defend class-action claims that they helped defraud WorldCom Inc. investors of $11 billion, a federal judge ruled Friday.

U.S. District Judge Denise Cote ruled that shareholders and bondholders could proceed as a group in fraud suits against former officers, directors and underwriters of the long-distance telephone company. The ruling gives investors greater leverage in the litigation.

Grubman, WorldCom founder Bernard Ebbers, Citigroup and other banks are accused of misrepresenting WorldCom's financial condition before the Ashburn, Va.-based company filed the largest bankruptcy case in U.S. history. Grubman, who left Citigroup in 2002, paid $15 million to settle charges that he tailored his stock ratings to win investment banking business for Citigroup.

"However deep the pockets of the defendants, the losses suffered through the WorldCom debacle are greater," Cote wrote in a 91-page opinion that certified the case as a class action.

New York Comptroller Alan Hevesi, who runs the state employees' retirement fund, is leading plaintiffs seeking billions of dollars in damages in the case.

"We are gratified that the judge ruled in our favor on this important motion," Hevesi said. "We look forward to continuing to prosecute this case aggressively on behalf of all victimized investors."

Cote rejected arguments by lawyers for Grubman and Citigroup, the world's largest financial services company, that Grubman's statements about WorldCom's stock price were unlikely to influence investors.

Defendants failed to address "why Grubman issued reports announcing that WorldCom was his favorite stock" if his opinions "were not likely to affect the decision made by WorldCom investors," the judge wrote.

Citigroup spokeswoman Leah Johnson and Grubman attorney Lee Richards didn't return calls seeking comment.

Los Angeles Times Articles