Jury Is Chosen in Case Against WorldCom Auditor
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A jury chosen yesterday will hear WorldCom investors accuse the company’s former outside auditor, Arthur Andersen, of violating securities laws by failing to protect them from World-Com’s historic $11 billion accounting fraud.
The jury of 11 people was scheduled to hear opening statements today in the trial stemming from a class action lawsuit brought after WorldCom’s 2002 collapse, the largest bankruptcy in American history.
Before the trial, major investment banks agreed to pay more than $6 billion in settlements and a dozen former board members settled the case for $24.75 million, leaving Arthur Andersen as the sole defendant.
The lawsuit alleged that major investment banks, the board members and Arthur Andersen should have known about the fraud.
After the jury was chosen, U.S. District Judge Denise Cote in Manhattan told jurors that the investors had bought WorldCom stocks or bonds between April 29,1999, and June 25,2002. She said WorldCom itself was not a defendant because of its bankruptcy.
The plaintiffs contend that World-Com’s annual financial statements for 1999, 2000, and 2001 contained false statements and that Arthur Andersen issued its audit opinions with an “intent to deceive, manipulate or defraud.”
The judge told jurors that to find in favor of the plaintiffs, they must conclude that Arthur Andersen’s conduct was “highly unreasonable” and that WorldCom’s fraud was known to Arthur Andersen or was so obvious that the auditor must have been aware of it.
She said Arthur Andersen maintains that each of its audit opinions from 1999 through 2001 was generated in good faith and with no intent to deceive, manipulate, or defraud.
The suit is led by New York State’s comptroller, Alan Hevesi, acting as trustee of the state employees’ retirement system.
Earlier this month, the former WorldCom CEO, Bernard Ebbers, was convicted of fraud, conspiracy, and false regulatory filings in the accounting scandal. He could spend the rest of his life in prison.
WorldCom, which collapsed when the accounting fraud to inflate earnings and hide expenses was revealed, has re-emerged as MCI Inc., based in Ashburn, Va. The class action lawsuit began as many investor suits, eventually consolidated by the judge.
