Citigroup, JP Morgan Among Six Named in Global Crossing Suit

February 3, 2003

INVESTORS of Global Crossing Ltd sued six top Wall Street investment banks for using false financial data in material that helped the bankrupt telecommunications company issue securities.

The banks named in the suit, which consolidates more than 50 individual investor claims against the company are Citigroup Inc, JP Morgan, Bear Stearns, Morgan Stanley, Goldman Sachs Group Inc and Merrill Lynch & Co.

Naming the banks as co-defendants in the case is the latest instance in which investors added parties with large assets to suits against bankrupt companies accused of causing billions of dollars in losses by misstating finances.

'You got lawyers all over the country now seeing blood in the water,' said banking analyst Richard X Bove of Hoefer & Arnett Inc in Florida. 'The industry has prepared for it by setting aside resources in the billion-dollar range.'

Citigroup set aside US$1.3 billion in the fourth quarter to cover fines and liability related to regulatory investigations of its analysts and to securities-fraud lawsuits. Those suits include one filed against the bank and Enron for allegedly hiding billions in debt in off-the-books partnerships.

Investors who bought Global Crossing stocks or bonds need only prove that the company's underwriters should have known that the financial information used in documents used to issue securities were false, lawyers said.

'This is typically much easier for the plaintiff to prove than securities fraud,' said Michael A Perino, a securities law professor at St John's University School of Law in New York. 'The plaintiff's job is done once you prove it was a registered offering and there was a material misstatement of fact.'

The investment banks sued as Global Crossing underwriters have a defence if they prove they could not have known that the statements were false, Mr Perino said.

The lead investors in the consolidated suit, which accuses Global Crossing of inflating its revenue, are both from Ohio: the Public Employees Retirement System and the State Teachers Retirement System. They control trial strategy and any settlement negotiations.

The Ohio funds lost US$115 million in the collapse of Global Crossing, which filed for bankruptcy protection a year ago after losing more than US$50 billion in market value since May 1999. - Bloomberg

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