By A.C. Thompson

At this point in the post-Enron era, lawsuits charging corporate executives with defrauding stockholders hardly rate as news. However, case no. 415546, a civil suit filed with little fanfare last week in San Francisco Superior Court, is worthy of note because it's likely to be one of the bloodiest – and broadest – legal skirmishes between allegedly bilked investors and Wall Street.

And the lawsuit could reveal just how uninspired this state's top law enforcement officials have been.

Brought by the California State Teachers Retirement System (CalSTRS), the third-largest pension fund in America, the suit seeks more than $150 million from embattled fiber-optic giant Qwest, disgraced auditing firm Arthur Andersen, and an array of brokerages and investment banks, including Salomon Smith Barney and its parent, Citigroup; Bank of America and its spinoff, Banc of America Securities; Merrill Lynch; Lehman Brothers; and J.P. Morgan Chase.

From 1998 through 2001, CalSTRS, which represents 515,000 public school teachers, made a series of huge investments in Qwest stocks and bonds. When Qwest admitted this year that it had improperly accounted for roughly $1.6 billion in revenue during the telecom boom, CalSTRS's investments plummeted accordingly. The pension fund says it lost $100 million on stocks alone.

"We're not just doing this for the money," CalSTRS spokesperson Sherry Reser said. "Part of the reason we're doing this is because we're interested in corporate governance reforms."

Headquartered in Denver, Qwest is accused of inflating revenues from its phone directory division and engaging in revenue-boosting fake transactions with three other telecom firms: Global Crossing, KMC Telecom, and Calpoint. Andersen is charged with signing off on the fraudulent transactions reflected in the firms' financial statements. The banks and stock brokerages are accused of hiding unflattering financial information about Qwest from investors. According to the suit, the firms issued "false and misleading" research reports on Qwest "as part of their attempts to obtain substantial investment banking and advisory fees" from the company.

Qwest declined to comment, as did most of the other defendants contacted by the Bay Guardian. Citigroup spokesperson Christina Pretto told us, "We believe the suit is without merit. We are confident we complied with all applicable federal and state laws."

Others are less confident. The allegations regarding Qwest (current stock price: $4.42 a share) have been making headlines in the major daily papers for much of this year, while Andersen, of course, is already synonymous with the words paper shredder. And Merrill Lynch and Salomon have recently been sued by New York attorney general Eliot Spitzer for allegedly lying to investors.

So far, however, California attorney general Bill Lockyer is taking a hands-off approach. Lockyer, who could conceivably bring criminal charges against Qwest execs and the brokerages, has declined to get involved, leaving CalSTRS to hire its own lawyers and pursue the case as a purely civil matter. Demetrios A. Boutris, head of the state Department of Corporations, who has the power to take on the companies in civil court or revoke their licenses to do business in California, has also failed to intervene.

The pension fund has retained seven Bay Area attorneys, including Daniel Girard who referred all questions to Reser.

The attorney general's office had no comment at press time.

That doesn't cut it with legal affairs analyst Peter Keane. The dean of Golden University law school and a former public defender, Keane says Lockyer and Boutris are missing an opportunity to punish businesses that may have ripped off another state agency. "What you have here is an unfortunate situation where the public has to fall back on private lawyers rather than being able to look to their public leaders in law enforcement," he said. "California should be ashamed of itself. We should be out in front, going after these crooks."

E-mail A.C. Thompson at ac_thompson@sfbg.com.