Administration January 11, 2004

Garden State Fights Back With Pension Loss Lawsuits

November 25, 2002 (PLANSPONSOR.com) - Faced with more than $150 million in state pension fund losses, state of New Jersey officials are turning to the courts for relief against four companies they accuse of misdeeds.
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The pension losses occurred because of the misdeeds of the four corporations and their officers, New Jersey officials charged in an announcement issued Monday.

Officials said New Jersey is set to sue later this week:

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  • Qwest Communications Inc.
  • Electronic Data Systems Corp.
  • Sears Roebuck and Co.
  • Tyco International Ltd.

Attorney General David Samson said additional lawsuits relating to the state’s investment losses will be filed soon with help from outside legal representatives.

“We have lined up some of the best attorneys in this specialized and highly technical area of securities litigation practice to recoup these huge pension losses, which in many instances are directly attributable to corporate mismanagement, misconduct and greed,” Samson said in the statement.


Special Master Evaluates Potential Cases

According to the state announcement, Samson hired former Superior Court Judge C. Judson Hamlin to act as the Special Master and coordinator of the litigation on his behalf.

Hamlin has been assisting in the evaluation of the culpability of the various entities and individuals responsible for losses to the New Jersey pension funds and is making recommendations to Samson and Division of Law Director Douglas Wolfson as to the claims to be filed, the state announcement said.

The state said all of the cases will be handled on a contingent fee basis, and that the law firms will be responsible for all up-front costs.

All the litigation will allege that the corporations’ misdeeds led to a significant drop in the value of the shares the fund held in each corporation.

The first four corporate defendants will be charged with:

  • fraud, malicious misrepresentation, negligent misrepresentation, securities fraud and breach of fiduciary duty in Qwest’s case. More specifically, the complaint will allege that defendants failed to disclose billions of dollars of off-balance sheet debt generated by swap transactions, and that certain Qwest executives engaged in insider trading
  • improper revenue recognition practices in violation of generally accepted accounting practices against EDS
  • violating federal securities laws by issuing a series of materially false and misleading statements to the market between January 17, 2002 and October 17, 2002 against Sears.
  • widespread fraud and accounting improprieties against Tyco.

New Jersey’s $56.3 billion pension system, which is in the process of finding a chief investment officer while revamping out-of-date investment strategies, is one of the worst performing in the country. Officials recently named an interim director (See  New Garden State Pension Investment Chief Recommended ).

The existing CIO resigned under pressure because of the fund’s performance. (See  Jersey Pension Chief Quits, Gets New Assignment ).

The pension lost nearly $16 billion from June 2001 through September 30, 2002, mostly due to poor equity investment performance.

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