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In re WorldCom, Inc. Securities Litigation
United States District Court for the Southern District of New York
346 F. Supp. 2d 628 (2004)
Following the collapse of WorldCom, a class action suit was filed against WorldCom, as well as its underwriters. WorldCom engaged in deceptive accounting practices in 2000 and 2001. At this time, its auditor, Arthur Anderson, insisted that the company was financially sound through several comfort letters. WorldCom’s financial statements indicated that the company was performing much better than its competitors. Also at this time, WorldCom issued stock, which was distributed through its underwriters. These underwriters consisted of several prominent financial institutions. Upon WorldCom’s collapse, its investors alleged that its underwriters were engaged in fraud along with WorldCom. The underwriters then asserted that they were entitled to the protections of the due diligence defense provided by federal securities laws, because they relied on the statements provided by WorldCom’s auditor, Arthur Anderson. The underwriters then moved for summary judgment based on this defense.
Rule of Law
Holding and Reasoning (Cote, J.)
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