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McGreevey, Samson, McCormac Announce Four Lawsuits Against Corporate Defendants

Defendants responsible for more than $150 million in state pension losses

 TRENTON - Governor James E. McGreevey, Attorney General David Samson and State Treasurer John McCormac today announced that they are filing four lawsuits against corporate defendants responsible for more than $150 million in State pension system losses: Qwest Communications Inc.; Electronic Data Systems Corporation (EDS); Sears Roebuck and Co.; and Tyco International Ltd.  

The lawsuits, which will be filed within the next two days, seek to recoup enormous losses that allegedly resulted from misconduct by the defendants and certain of their corporate officers. The State has retained outside counsel to handle these securities fraud cases.

"We must hold these corporations accountable and protect the interests of New Jersey taxpayers and pension members," said Governor McGreevey. "These lawsuits will send a powerful message to corporate leaders, on behalf of all investors, that those who commit securities fraud
will face the consequences. Our citizens work hard for their money. We will defend their financial interests, just as we are defending the integrity of the State's investment process."

Attorney General Samson said additional cases related to losses to the State's investment portfolio will be filed soon with the assistance of outside counsel.

"We have lined up some of the best attorneys in this specialized and highly technical area of securities litigation practice to recoup these huge pension losses, which in many instances are directly attributable to corporate mismanagement, misconduct and greed," said Attorney General Samson. "The selection of these legal teams followed an exhaustive review process that looked closely at comprehensive statements of qualifications submitted by interested law firms. These experts will enable us to pursue all legal avenues to make those responsible pay."

"We have a moral and fiduciary obligation to take every step necessary to safeguard the integrity of New Jersey's pension investment portfolio," said Treasurer John E. McCormac. "We look forward to taking aggressive actions against malfeasance on behalf of the hundreds of
thousands of present and future beneficiaries of the pension system and the taxpayers of New Jersey."

Attorney General Samson has retained former Superior Court Judge C. Judson Hamlin to act as the Special Master and coordinator of the litigation on his behalf. Judge Hamlin formerly served as Middlesex County Prosecutor, Chancery Judge for Middlesex County and Presiding Judge for the Middlesex County Civil Division. He has previously been selected by state and federal
judges to manage large cases, including national class action litigation.

Judge Hamlin has been assisting in the evaluation of the culpability of the various entities and individuals responsible for losses to the New Jersey pension funds and is making recommendations to Samson and Division of Law Director Douglas K. Wolfson as to the claims to be filed. In addition, as to those suits authorized to be filed by the Attorney General's Office, he has independently reviewed the statements of qualifications submitted by law firms and has made recommendations to the Attorney General's Office regarding what law firms should be selected for particular cases. His evaluation has included efforts to avoid conflicts of interest and to recommend contingent fee arrangements that have been customized for each case based on the type of case, its complexity, the prospect of recovery and the current standards in the region of the country in which the case is to be brought. All of the cases will be handled on a contingent fee basis, and the firms will be responsible for all up-front costs.

QWEST
The State will file a lawsuit against Qwest, certain of its principal officers, and its accountants, Arthur Andersen. The suit will allege that the defendants engaged in fraud, malicious misrepresentation, negligent misrepresentation, securities fraud in breach of New Jersey's Blue Sky laws and breach of fiduciary duty. More specifically, the complaint will allege that defendants failed to disclose billions of dollars of off-balance sheet debt generated by swap transactions, and that certain Qwest executives engaged in insider trading. A swap is a transaction in which Qwest sold capacity on its optical telecommunications network to another carrier, while at the same time buying a nearly identical amount from the other carrier. The complaint will allege that Qwest recognized the revenue from the sale but booked the corresponding purchase as capital expense rather than an operating cost. This accounting practice is alleged to have improperly inflated Qwest's reported revenues.


EDS

The State will file papers seeking to be named as lead plaintiff in two actions against EDS pending in federal courts in New York and Texas. The defendants are EDS, its chairman, its chief executive officer and its chief financial officer. New Jersey's action arises out of purchases of EDS stock by the New Jersey pension system between September 1999 and September 2000. In September 2002, EDS announced that its earnings would fall short of its prior projections by 80 percent. The action alleges that the earnings shortfall may have resulted from improper revenue recognition practices in violation of generally accepted accounting practices.

SEARS ROEBUCK & CO.

The State will file a securities class action against Sears Roebuck & Co. and certain of its officers and directors. The complaint will allege that the defendants violated federal securities laws by issuing a series of materially false and misleading statements to the market between January 17, 2002 and October 17, 2002. During that time, the New Jersey pension system acquired more than 500,000 shares of Sears stock. The State will seek to have this case consolidated with lawsuits currently pending in federal district court in Illinois alleging that Sears' materially false statements resulted in overstating revenues and income on its financial statements, thereby artificially inflating the value of its stock. New Jersey will apply for lead plaintiff status.

TYCO

The State will file suit against Tyco, certain of its current and former executives - including former CEO L. Dennis Kozlowski, former CFO Mark Swartz and former General Counsel Mark Belnick - and its accountants, KPMG LLP. Kozlowski, Swartz and Belnick have been charged by the U.S. Securities and Exchange Commission with securities fraud for failing to disclose millions of dollars of personal loan benefits received from Tyco and improper, lucrative insider trades of Tyco. The lawsuit will allege that the pension funds have sustained losses as a result of widespread fraud and accounting improprieties at Tyco.

 

 


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