Press Room
June 26, 2002
WorldCom Employees File Suit Against Morgan
Stanley
By Stephen Lee
Dow Jones Newswires
A lawsuit was filed against Morgan Stanley
alleging the brokerage firm failed to recommend
hedging strategies to participants in WorldCom
Inc.'s employee stock option plan.
WorldCom's stock closed Tuesday at 83 cents. The
stock traded as high as $ 64.50 in June 1999.
On Tuesday, WorldCom admitted it made a $3.8-billion
accounting error due to improperly booked capital
expenditures and said it would restate its financial
statements for 2001 and the first quarter of 2002
as a result of an internal audit of the company's
capital expenditure accounting.
In a press release Wednesday, the law firm Klayman & Toskes
P.A. said it has been hired by large groups of
WorldCom employee stock option plan participants
claiming damages that already exceed $50 million.
The law firm expects the number of WorldCom employees
who have sustained damages to increase substantially.
WorldCom has about 80,000 employees.
The lawsuit alleges unlawful conduct at Morgan
Stanley's West Lebanon, N.H., and Middletown, R.I.,
branch offices. A Morgan Stanley spokesman
wasn't immediately available for comment.
Arbitration claims have previously been brought
against Citigroup Inc.'s Salomon Smith Barney Inc.
and Merrill Lynch & Co. The suits allege
that the firms failed to recommend to participants
hedging strategies to protect their concentrated
position in WorldCom as a result of the exercise
of their stock options through the use of margin.
The claims focus on Salomon's, Merrill's and Morgan
Stanley's alleged mismanagement of their clients'
portfolios, saying that there were option strategies
available at the time of exercise that would have
protected the value of the margined, concentrated
portfolio, known as a "zero cost" collar.
Earlier Wednesday, WorldCom shareholders filed
a lawsuit accusing Salomon Smith Barney and its
telecommunications analyst, Jack Grubman, of issuing
bullish ratings to generate investment banking
business for the firm.
