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| 2002 News and Press Releases |
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SETTLEMENT:
Sprint Securities Fraud Suit Survives Dismissal
By: Staff Writer
Class Actions Litigation Reporter, Vol. 9; No. 11; Pg. 14. December 2002
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EXCERPT: A federal judge in Kansas has permitted a securities fraud class action against Sprint Corp. to proceed based on one allegedly false statement regarding its merger with WorldCom. The plaintiffs, Sprint stockholders, assert that the company issued the misleadingly optimistic statement so management could benefit through the vesting of $1.7 billion in stock options. In re Sprint Corp. Securities Litigation, No. 01-4080-CM (D. Kan. Sept. 30 , 2002). The lawsuit arose out of four allegedly false statements made by Sprint in advance of its proposed merger, which was ultimately blocked by regulators as anti-competitive. At the time, the companies were the top two providers of Internet "backbone" services in the world and among the top three long-distance telecommunications providers in the United States. The complaint alleges that Sprint managers had "secretly" modified the "change-in-control" provision of the company's long-term stock option plan so that options would vest if Sprint's stockholders approved a merger in which Sprint was not the surviving entity. Thereafter, management allegedly issued optimistic statements to gain stockholder approval of the proposed merger with WorldCom, which they knew would be blocked by regulators, the shareholders assert….U.S. District Judge Carlos Murguia found that merely packaging an allegedly false or misleading statement as a belief or opinion does not automatically insulate the speaker from liability. However, such statements must be "material" to be actionable. The judge dismissed most of the company's optimistic statements as mere "puffery" but found materiality in four statements issued after corporate managers were told that the Justice Department was unlikely to approve the merger, that the Federal Communications Commission was suspending its investigation (a very negative development), and that European regulators had serious concerns about the merger. Optimistic statements issued after these developments omitted any mention of them.
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