In re WorldCom, Inc. Securities Litigation
United States District Court for the Southern District of New York
346 F. Supp. 2d 628 (2004)
During WorldCom's 2000-2001 deceptive accounting scheme, its auditor Arthur Andersen issued several comfort letters affirming the company's financial soundness even as WorldCom's reported results implausibly outpaced its competitors. WorldCom issued stock during this period through several prominent underwriters. After WorldCom's collapse, investors sued the underwriters alongside WorldCom for fraud; the underwriters moved for summary judgment based on the federal securities laws' due diligence defense, arguing they reasonably relied on Arthur Andersen's comfort letters.
Whether an underwriter may rely on an accountant's comfort letter, in addition to an accountant's audit, in asserting a due diligence defense.