A class action lawsuit filed against WorldCom and key executives yesterday in the U.S. District Court in Southern Mississippi claims that executives knowingly inflated the company's stock price and then sold shares for their own personal benefit based on fraudulent information.
The lawsuit claims that between April 13 and November 1, WorldCom falsely inflated the value of the company. The suit then points to the sales of large sums of WorldCom stock during this period by CEO and President Bernard Ebbers, Chief Operating Officer John Sidgmore and Chief Financial Officer Scott Sullivan.
WorldCom cannot comment about pending litigation, a WorldCom spokesman says.
On September 29, Ebbers sold 3,000,000 shares of WorldCom stock for over $70 million. On May 24, Sidgmore sold 314,239 shares for over $12 million. On August 1, Sullivan sold 475,000 shares for nearly $10 million
While executives do not violate any laws by simply selling their shares, they do violate federal laws if they make those sales based on inside information. An example is when an executive sells shares based on the fact that his company will post lower than expected quarterly earnings before that information is publicly announced. And that's what this lawsuit claims.
During the "class period" between April and November of this year, the lawsuit claims that "each of them carried out a plan, scheme and course of conduct which was intended to and throughout the class period did deceive the investing public...artificially inflate and maintain the market price of WorldCom stock and cause plaintiffs and other members of the class to purchase WorldCom stock at artificially inflated prices."
The lawsuit quotes many WorldCom press releases relating to the company's multiple acquisitions, including its purchase of MCI. For example, Ebbers is quoted as saying in a press release dated September 14, 1998, "MCI WorldCom is uniquely qualified to lead the industry in growth and to build on the tremendous value we have created for our shareholders." Quotes such as this one are pointed to in the suit as ongoing examples of WorldCom's plan to mislead the public.
The law firm of Milberg Weiss Bershad Hynes & Lerach filed the suit. While plaintiffs Harriet Goldstien and Vincent Pinto are the only two identified by name, thousands of WorldCom shareholders are represented, according to the lawsuit. But the suit says it's difficult to offer up a firm number at this time because there are more than 132 million shares of WorldCom outstanding.
This story, "WorldCom troubles worsen" was originally published by NetworkWorld.