WorldCom is sued by 25 banks over loan

2 Ill. pension funds also file suit against company

July 13, 2002|By BLOOMBERG NEWS

NEW YORK -WorldCom Inc. was sued yesterday by 25 banks that said the second-largest U.S. long-distance phone company committed fraud when it borrowed $2.5 billion six weeks before announcing that it had misreported $3.85 billion in expenses.

The lenders filed the suit on the day a judge declined their request to order WorldCom to return the borrowed money immediately. State Judge Helen Freedman refused to grant the temporary restraining order after holding oral arguments, her law clerk said.

The suit, filed in state Supreme Court in New York, accuses WorldCom of making false promises when it said May 16 that it would draw the full amount from a revolving credit line. WorldCom announced the restatement of its finances June 25.

The banks involved in the lawsuit include Deutsche Bank AG, which put up more than $240 million of the syndicated loan, ABN Amro Holding NV, which lent more than $200 million, and Mizuho Holdings Inc., which lent $150 million.

Two other banks were involved in the loan but didn't join the lawsuit. They are Citicorp's Citibank NA, which lent $154 million, and J.P. Morgan Chase & Co., which lent $6 million.

WorldCom Inc. is also being sued, along with J.P. Morgan Chase & Co. and Citigroup Inc.'s Salomon Smith Barney unit, by two Illinois pension funds that lost a total of $15.3 million on WorldCom bonds.

The State Universities Retirement System of Illinois and the Board of Trustees of the Teachers' Retirement System filed separate suits in state court in Chicago. The teachers' suit was filed yesterday, and the universities' suit was filed last week.

The complaints also name units of Deutsche Bank AG, Bank of America Corp. and ABN Amro Holding NV, and WorldCom's former accountant, Arthur Andersen LLP, as co-defendants. The suits contend that the registration statement for bonds sold in May last year contained "materially false and misleading" information about the company's financial condition.

WorldCom bondholders lost $7.3 billion overnight June 25 when the company said it had misreported $3.85 billion in expenses, and inflated profit for five quarters.

The Securities and Exchange Commission has accused the company of fraud, and World- Com also is under Justice Department investigation.

WorldCom spokeswoman Julie Moore said yesterday that the company had no comment.

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