The firm served as co-counsel representing the California State Teachers’ Retirement System (CalSTRS), the nation’s third-largest public pension fund, in an opt-out securities fraud lawsuit arising out of the financial collapse of Qwest Communications International Inc. The lawsuit alleged that CalSTRS lost approximately $150 million as a result of defendants’ violations of state and federal securities laws.
CalSTRS asserted that Qwest; several of its directors and officers, including founder Philip F. Anschutz and former chief executive officer Joseph Nacchio; and former auditors Arthur Andersen LLP engaged in a massive accounting fraud to create the illusion that Qwest was one of the highest revenue-producing telecommunications companies in the world. According to the complaint, Anschutz and Nacchio reaped nearly $2 billion in insider trading while Qwest’s share price was artificially inflated.
The lawsuit also asserted claims against several of Qwest’s investment banks, including Salomon Smith Barney, Lehman Brothers, Bank of America, JP Morgan Chase, and Merrill Lynch. CalSTRS alleged that, based on their due diligence, these financial firms knew that their statements made in registering Qwest’s debt securities were false and materially misleading. According to the complaint, the financial firms participated in the deceptive conduct in order to ensure that their loans to Qwest would be repaid and to continue to receive millions of dollars in investment and advisory fees.