Sprint Lawsuit

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Sprint Lawsuit

Meant to share this news about a major multi-billion dollar Sprint lawsuit this morning, but got caught up with some server issues.  Boy, is there any telecom company not tainted by scandal (MCI/WorldCom) or in the process of a mega-merger (AT&T/SBC)?
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A state court in Kansas has given the go-ahead to shareholders to wage a class action battle against Sprint, its CEO and its directors for breach of fiduciary duty. Potential liability in the suit could be as high as $10 billion. The central allegations relate to the conversion of two tracking stocks --FON and PCS --in a skewed manner that unfairly benefited certain directors, rather than the company's shareholders. The suit is brought by institutional investor Carlson Capital.
GRANT & EISENHOFER P.A.
 
From:  Allan Ripp 212-721-7468 and Carla Main 212-721-7421
Shareholders Get O.K. to Proceed with Class Action Against Sprint, its CEO & Directors for Breach of Fiduciary Duty Over Conversion of Company Stock
        
Potential liability against company estimated between $5 billion-$10 billion
Kansas judge rules against Sprint’s motion to dismiss suit brought by institutional investor Carlson Capital
 
Olathe, Kan. (Feb. 8, 2005) --  A state court judge in Kansas struck down Sprint Corp.’s effort to dismiss a class action suit brought by former Sprint PCS shareholders alleging breach of fiduciary duty against Sprint directors and management.
 
The lawsuit centers on the company’s handling of a complex conversion of stock in which two separate tracking stocks – PCS and FON – were “recombined” into a consolidated common stock, bringing substantial profit to directors and management at the expense of other shareholders left out of the transaction.  Law firm Grant & Eisenhofer P.A., which represents lead plaintiff institutional investor Carlson Capital, L.P., a private money management fund, estimates damages conservatively between $5-10 billion.  The case is expected to move into discovery without further delay and is scheduled for trial in early 2006.
The complaint, now sustained by the Kansas court, details a sorry tale of corporate intrigue in which a group of Sprint insiders illegally engineered a stock recombination by manipulating conversion ratios of the tracking stocks, grossly overvaluing Sprint’s declining land-line business.
The complaint alleges that the manipulation was directed by former Sprint CEO William Esrey and COO Ronald LeMay, both of whom were forced to resign in 2003 due to their alleged role in a tax shelter scandal.
Last fall, several months after the shareholder lawsuit was filed, Sprint took a $3.6 billion write-off on the FON operations, essentially admitting that the land-line business was highly overvalued at the time of the combination. 
“With that write-off, the company made a de facto admission that it grossly overpaid for the FON stock – we argue that it’s time to transfer that value rightly to PCS shareholders,” said attorney Jay Eisenhofer, name partner at Grant & Eisenhofer, who argued the motion for Carlson Capital.  While total liability has yet to be determined, Mr. Eisenhofer projected that it could be as high as $10 billion. 
The Kansas court – which has jurisdiction because Sprint is a Kansas corporation – found that shareholders pled with sufficient particularity in their 50- page complaint that the they “have alleged facts to support a claim for breach of the fiduciary duty of loyalty, breach of the fiduciary duty of good faith, and breach of the fiduciary duty of care by certain Defendants in their capacity as Sprint officers. Plaintiffs also seek equitable relief in the form of rescission, rescissory damages, and restitution. Accordingly, the Court finds Plaintiffs have stated a claim on which relief can be granted.”  The decision was issued by Judge Kevin P. Moriarity, district judge in Johnson City, KS.
“This is a huge victory for Sprint shareholders and we look forward to going to trial in this case,” Mr. Eisenhofer said.  He noted that the judge’s order actually shifted the burden of proof to the defendants on the question of whether or not their actions were protected by the business judgment rule.
“[Plaintiffs’] allegations…shift the burden to Defendants to show ‘entire fairness’ in further proceedings,” Judge Moriarity wrote in his decision against Sprint.  “Thus, the Court finds Plaintiffs have stated a claim on which relief can be granted and that the business judgment rule does not bar Plaintiffs’ claims as a matter of law.”
Wilmington-based Grant & Eisenhofer represents institutional investors in securities litigation.   The firm, which has recovered more than $2 billion for shareholders in the last five years, is currently lead counsel in securities actions against Global Crossing, Tyco, Parmalat and most recently, Marsh & McLennan.  For more on the firm, go to www.gelaw.com


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