The University of California filed suit Thursday against three large financial reporting institutions for allegedly engaging in accounting fraud.
The University has foregone entering any of the class action suits filed in New York against the companies, instead filing on its own behalf in the California Superior Court. UC has accused Salomon Smith Barney, Citigroup Inc. and Arthur Andersen LLP of aiding WorldCom in engaging in a massive accounting fraud that inflated the price of WorldCom’s stock, contributing to its financial collapse. The University lost over $350 million from its investments.
The case was independently evaluated and it was determined that a class action suit was not in the University’s best interest, General University Counsel James E. Holst said in a UC press release Thursday.
“While we believe that class action treatment is often preferable, in this case the University of California will likely obtain a more favorable result by filing a separate suit in California state court, asserting claims under California law,” Holst said in the statement.
The size of the University’s losses on WorldCom stock was a key factor in this decision, he said in the press release. The University lost over $353 million on 10.2 million shares of WorldCom and related securities purchased between 1998 and early 2000. WorldCom announced its incorrect booking of $3.8 billion in expenses as capital investments June 26, 2002. UC sold all its World Com holdings in June and July 2002. UC’s losses represent only 0.7 percent of UC’s total funds under management.
” [T]he loss will not affect the retirement benefits provided to UC retirees nor the endowment’s support of the University’s academic mission,” UC Treasurer David H. Russ said in the press release. “Nonetheless, we feel a strong obligation to recover funds that rightfully belong to the University and its employees.”
UC spokesman Trey Davis would not comment further.
Representatives of WorldCom, Citigroup Inc., Soloman Smith and Barney and Arthur Andersen LLP were unavailable for comment.