The University of California was awarded $13.25 million in a settlement with Citigroup last Thursday after it alleged that the corporation was involved with the fraudulent inflation of WorldCom, Inc. stocks.
According to a UC press release, the lawsuit filed in the San Francisco Superior Court on Feb. 13, 2003, alleged that Citigroup and its former subsidiary Salomon Smith Barney, as well as Arthur Andersen LLP, damaged shareholders’ investments by engaging in accounting fraud that inflated the price of WorldCom stock.
The UC invested $10.2 million in WorldCom shares between 1998 and 2000 which were devalued on June 26, 2002 when WorldCom announced it had incorrectly booked $3.8 billion in expenses as capital expenditures, thus resulting in the corporation’s eventual bankruptcy.
In the press release, UC general counsel James E. Holst said the University filed a separate suit from that of the federal class action suit filed by other shareholders.
“The University of California determined that it would likely obtain a more favorable result by … asserting claims under California law,” Holst said. “The merits of the strategy were borne out by the results we were able to achieve, which obtained recovery for losses that were outside those included in the class action.”
Rather than partaking in a federal class lawsuit against WorldCom, UC Spokesman Trey Davis said in a phone interview that the University filed a separate claim in order to seek greater damages under state law. Also, unlike the organizations involved in the federal lawsuit, Davis said the University purchased stocks during a different filing period.
“The University filed a different lawsuit because the federal law only allows them to recover 15 percent of their losses,” Davis said.
Davis said the University lost $353 million as a result of the fraudulent stock reports.
Citigroup spokesperson Christina Pretto said in a press release that the company is “pleased to see the matter resolved.”