Opinion ID: 32188
Heading Depth: 2
Heading Rank: 1

Heading: Substance of the Plaintiffs' Motion

Text: 82 In their motion, the plaintiffs asked the district court to reopen this matter and allow Plaintiffs to file a Second Amended Complaint due to crucial, newly discovered evidence that, if presented in this matter, would likely change the result of dismissing this case with prejudice. Although the complaint contained allegations of misstatements and omissions resulting from a wide variety of financial irregularities, the Rule 60(b)(2) motion focuses, as does this appeal, on the claim of fraud related to the uncollectible accounts. Regarding the specific newly discovered evidence, the plaintiffs cited to and attached as exhibits hundreds of pages of evidence, including: (1) WorldCom's report on Form 8-K, filed with the SEC on June 25, 2002, in which WorldCom states that it plans to restate its financial statements for 2001 and the first quarter of 2002, and WorldCom's report on Form 8-K, filed with the SEC on August 8, 2002, in which WorldCom reveals that its financial statements for fiscal year 2000 and, possibly, 1999 would require restatement and included over $3 billion in additional accounting errors; (2) the transcript from the September 26, 2002, guilty plea of David Myers, WorldCom's former Controller, in the Southern District of New York; (3) numerous internal memoranda and e-mails from WorldCom, in which certain employees identify Sullivan as the decision-maker regarding certain improper line cost accruals and prepaid capacity entries and in which (in the copy of the minutes from WorldCom's audit committee meeting on March 6, 2002) Sullivan is cited as indicating that Ebbers sought to cut WorldCom's internal audit budget by 50% during the period when an internal audit investigating WorldCom's accounting fraud was underway; (4) various court pleadings, including the government's indictment of Sullivan and the SEC's complaint against WorldCom, both filed in the Southern District of New York; (5) various congressional documents, including the complete transcript from a hearing of the House of Representatives' Financial Services Committee in which both Sullivan and Ebbers invoke their Fifth Amendment right against self-incrimination; and (6) three news releases discussing accounting irregularities and internal fraud plaguing WorldCom. 83 In their post-judgment briefing, the plaintiffs maintained that this material supports their contentions that the defendants intentionally made false statements during the class period. The plaintiffs generally stated that WorldCom's report on Form 8-K, filed with the SEC on August 8, 2002, is crucial in that it reveals that WorldCom's 1999 and 2000 financial statements would require restatement and included over $3 billion in additional accounting errors. However, other than this general statement, the only portion of the attached evidence specifically referenced by the plaintiffs in their post-judgment briefing is a portion of the transcript from the guilty plea of David Myers who, as alleged, reported directly to Ebbers and Sullivan as upper management. The cited portion of the transcript provides: 84 From at least October 2000 through June 2002, internal financial reports at WorldCom consistently reflected that WorldCom's expenses as a percentage of revenue were too high to meet analysts' expectations and management's guidance to professional securities analysts and the investing public. As a result, I was instructed on a quarterly basis by senior management to ensure that entries were made to falsify WorldCom's books to reduce WorldCom's reported actual costs and therefore to increase WorldCom's reported earnings. Along with others, who worked under my supervision and at the direction of WorldCom senior management, such accounting adjustments were made for which I knew that there was no justification or documentation and which I knew were not in accordance with Generally Accepted Accounting Principles.