CalSTRS Sues Qwest for Loss
The California State Teachers’ Retirement System filed suit Tuesday against Qwest Communications International Inc., blaming the pension fund’s $150-million investment loss on the telecom- munications company’s alleged improper accounting practices.
Those practices are under investigation by the Securities and Exchange Commission and the Justice Department.
The scandal precipitated the ouster of longtime Qwest Chief Executive Joseph Nacchio, who was named as a defendant in the suit, along with Afshin Mohebbi, who recently resigned as president, and financier Philip F. Anschutz, Qwest’s chairman.
The suit alleges that the Denver-based company, along with several banks and the Arthur Andersen accounting firm, conspired to inflate Qwest’s financial reports by improperly recognizing revenue from multiyear contracts immediately and recognizing revenue from capacity-swap contracts whose only purpose was to boost revenue.
Qwest officials did not return calls seeking comment.
CalSTRS, the nation’s third-largest pension fund with $100 billion in assets, filed the suit in Superior Court in San Francisco on its own behalf, rather than as a class action.
The action is part of a trend in recent months among large institutional investors to file individual lawsuits, sometimes in state courts, in an effort to speed the recovery of investment losses and demand punitive damages.
Individual suits allow large investors to bypass limitations imposed on federal shareholder class-action suits by the 1995 Private Securities Litigation Reform Act.
Large investors that go it alone also may be able to squeeze bigger settlements out of defendant companies and negotiate better deals with their lawyers, said Jim Newman, executive director of Securities Class Action Services, a New York-based firm that tracks shareholder litigation for institutional investors.
“It’s a smart move,” Newman said. “It’s their fiduciary duty to maximize their recovery on assets or anything which grows out of those assets, which includes litigation.”
The CalSTRS suit is believed to be one of the first investor fraud suits to be filed in a California state court and could test the ability of individual investors to seek remedies under the state’s securities and unfair competition laws instead of the federal securities laws.
“This is a very unique case, and I think you’ll see California pension funds bringing more of these cases in California courts,” said Joseph W. Cotchett, a Burlingame, Calif., lawyer who is representing CalSTRS. “The citizens of California are entitled to justice in their own court system.”
