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IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
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WILLIAM HUGHES; MICHAEL WALSH and IRVING RAVENS, Plaintiffs, v. CAI WIRELESS SYSTEMS, INC.; JARED E.
Defendants.
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Civil Action No. 96-CV-1857 CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED |
Plaintiffs make the following allegations upon information and belief, except as to allegations specifically pertaining to plaintiffs and their counsel, based on the facts alleged below, predicated upon the investigation undertaken by and under the supervision of plaintiffs, counsel, and plaintiffs believe that further substantial evidentiary support will exist for the allegations set forth below after a reasonable opportunity for discovery.
2. This Court has jurisdiction of this action pursuant to Section 27 of the Exchange Act, as amended [15 U.S.C. § 78aa] and 28 U.S.C. §§ 1331 and 1337.
3. Venue is properly laid in this District pursuant to Section 27 of the Exchange Act and 28 U.S.C. § 1391(b) and (c). The acts and conduct complained of, including the preparation, issuance and dissemination of materially false and misleading information to the investing public, occurred in substantial part in the Northern District of New York. CAI Wireless Systems, Inc. ("CAI" or the "Company") maintained its executive offices in this District at all relevant times.
4. In connection with the acts and conduct alleged in this Complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including the mails and telephonic communications and the facilities of the NASDAQ National Market System, a national securities exchange.
6. Plaintiff Michael Walsh, as set forth in the accompanying certification, purchased CAI common stock at artificially inflated prices during the Class Period, and has been damaged thereby.
7. Plaintiff Irving Ravens, as set forth in the accompanying certification, purchased CAI common stock at artificially inflated prices during the Class Period, and has been damaged thereby.
8. CAI is a corporation with its principal executive offices located at 18 Corporate Woods Blvd., Third Floor, Albany, New York 12211. CAI directly and through its subsidiaries purports to be a developer, owner and operator of wireless cable television systems.
9. Defendant Jared E. Abbruzzese is, and at all relevant times was, Chairman of the Board of Directors and Chief Executive Officer of the Company.
10. Defendant Alan Sonnenberg is, and at all relevant times was, President of the Company and a member of the Company's Board of Directors.
11. Defendants Hope Carter, Joseph Abbruzzese and The Corotoman Company LLC ("Corotoman"), as well as defendant Jared Abbruzzese, are each individually and collectively controlling shareholders of the Company. Hope Carter is the Aunt of defendant Jared Abbruzzese and defendant Joseph Abbruzzese is the brother of defendant Jared Abbruzzese. Defendants Jared Abbruzzese, Hope Carter and Joseph Abbruzzese respectively own 46.5%, 46.5% and 4% of the membership interests in Corotoman, and they are the sole directors of Corotoman. As of September 18, 1996, Corotoman held 5,960,900 shares (or 14.8% of all outstanding shares) of CAI; Jared Abbruzzese held 6,863,200 shares (or 16.9% of all outstanding shares) of CAI; Hope Carter held 6,180,965 shares (or 15.3% of all outstanding shares) of CAI; and Joseph Abbruzzese held 6,007,200 shares (or 14.9% of all outstanding shares) of CAI. By reason of these relationships and the controlling interests held by each of Jared Abbruzzese, Hope Carter, Joseph Abbruzzese and Corotoman, each of these defendants was a controlling shareholder of CAI.
12. Defendants Jared Abbruzzese, Joseph Abbruzzese, Hope Carter, Alan Sonnenberg and Corotoman are sometimes referred to herein as the "Individual Defendants."
13. As officers, directors and/or controlling persons of a company which is registered with the SEC under the federal securities laws, whose common stock is registered with the SEC, traded on the NASDAQ National Market System, and governed by the provisions of the federal securities laws, the Individual Defendants have a duty to disseminate promptly accurate and truthful information with respect to the Company's operations, business, products, markets, management, earnings and present and future business prospects, to correct any previously issued statements from any source that have become materially misleading or untrue, and to disclose any trends that would materially affect earnings and the present and future operating results of CAI, so that the market price of the Company's publicly traded securities is based upon truthful and accurate information. The Defendants' representations during the Class Period violated these specific requirements and obligations.
14. The Individual Defendants all participated in the drafting, preparation, and/or approval of the various public and shareholder reports and other communications complained of herein and were aware of or recklessly disregarded the misstatements contained therein and omissions therefrom, and were aware of their materially misleading nature. Because of their Board membership and/or executive and managerial positions with CAI, each of the Defendants had access to the adverse non-public information about CAI's business prospects and financial condition as particularized herein and knew that those adverse facts rendered the positive statements made by and about CAI and its business and future sales, materially false and misleading.
15. The Individual Defendants, because of their positions of control and authority as officers and/or directors of the Company, were able to and did control the contents of the various quarterly and annual financial reports, prospectuses, SEC filings, press releases and presentations to securities analysts pertaining to the Company. Each Individual Defendant was provided with copies of CAI's stockholder reports, press releases and SEC filings alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. As a result, each of the Individual Defendants is responsible for the accuracy of the public reports and releases detailed herein and is therefore primarily liable for the representations contained therein.
16. By reason of their management positions and/or membership on CAI's Board of Directors, the Individual Defendants were "controlling persons" within the meaning of § 20(a) of the Exchange Act and had the power and influence to direct the management and activities of CAI and its employees, and to cause CAI to engage in the unlawful conduct complained of herein. Because of their executive or managerial positions within CAI, the Individual Defendants each had access to adverse non-public information about the business and finances of CAI and acted to conceal the same, or knowingly or recklessly authorized and approved the concealment of the same.
18. The members of the Class are so numerous that joinder of all members is impracticable. As of June 14, 1996, the Company reported that it had 40,311,472 shares of common stock outstanding, and throughout the Class Period, the common stock of CAI was actively traded on the NASDAQ National Market System, an efficient market. The precise number of class members is unknown to plaintiffs at this time but class members are believed to number in the thousands.
19. Plaintiffs will fairly and adequately represent and protect the interests of the members of the Class. Plaintiffs have retained competent counsel experienced in class action litigation under the federal securities laws to further ensure such protection and intend to prosecute this action vigorously.
20. Plaintiffs' claims are typical of the claims of the other members of the Class because plaintiffs and all the class members' damages arise from and were caused by the same false and misleading representations and omissions made by or chargeable to Defendants. Plaintiffs do not have interests antagonistic to, or in conflict with, the Class.
21. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. As the damages suffered by individual class members may be relatively small, the expense and burden of individual litigation make it virtually impossible for the class members to seek redress for the wrongful conduct alleged. Plaintiffs know of no difficulty which will be encountered in the management of this litigation which would preclude its maintenance as a class action.
22. Common questions of law and fact exist as to all members of the Class and predominate over any questions affecting solely individual members of the Class. Among the questions of law and fact common to the Class are:
(a) Whether the federal securities laws were violated by defendants' acts as alleged herein;
(b) Whether defendants participated directly or indirectly in the concerted action or common course of conduct complained of herein;
(c) Whether the documents, filings, releases and statements disseminated to the investing public omitted and/or misrepresented material facts about the business and financial condition of CAI;
(d) Whether defendants acted willfully, knowingly or recklessly in directly or indirectly omitting to state and/or misrepresenting material facts;
(e) Whether the market price of the Company's common stock during the Class Period was artificially inflated due to the non-disclosures and/or misrepresentations complained of herein; and
(f) The extent of injuries sustained by members of the Class and the appropriate measure of damages.
23. The names and addresses of the record owners of the shares of CAI's common stock purchased during the Class Period are available from the Company's transfer agent. Notice can be provided to such record owners by a combination of published notice and first-class mail using techniques and a form of notice similar to those customarily used in class actions arising under the federal securities laws.
(a) CAI common stock met the requirements for listing, and was listed, on the NASDAQ National Market System, a highly efficient and automated market;
(b) As a regulated issuer, the Company filed periodic public reports with the SEC;
(c) The trading volume of the Company's stock was substantial, reflecting numerous trades each day;
(d) CAI was followed by securities analysts employed by several major brokerage firms who wrote reports which were distributed to the sales force and certain customers of such firms and which were available to various automated data retrieval services;
(e) Defendants made public statements which failed to disclose material facts during the Class Period;
(f) The omissions and misrepresentations were material;
(g) The misrepresentations alleged would tend to induce a reasonable investor to misjudge the value of the Company's securities; and
(h) Plaintiffs and the other members of the Class purchased CAI common stock without knowledge of the omitted and misrepresented facts.
26. Based upon the foregoing, plaintiffs and the other members of the Class are entitled to a presumption of reliance upon the integrity of the market for the purpose of class certification as well as for ultimate proof of the claims on their merits. Plaintiff will also rely, in part, upon the presumption of reliance established by material omission and upon the actual reliance of the class members.
28. On April 25, 1996, before the Class Period herein, CAI made a purportedly major announcement concerning the advancement of its wireless multi-channel, multipoint distribution service (MMDS) networks, announcing that two such network facilities had been delivered for testing by the Company's strategic partners, Bell Atlantic Corp. and NYNEX Corp., and stating that these two companies had "previously announced plans to market their own digital programming to consumers ... beginning with selected markets during the fourth quarter of 1996."
29. This announcement, coupled with others during the Class Period, attracted significant attention in the marketplace and highlighted the purportedly advanced stage of the Company's MMDS technology and the purported ability of the Company to deliver digital signals in a variety of revenue generating applications. In particular, as set forth below, the Company and the other defendants sought to relate CAI's purportedly advanced MMDS wireless technology to the delivery of digital television and delivery of data over the Internet, in an effort, at least in part, to enjoy the enhanced market valuation ascribed to "Internet-related" stocks. By casting itself as an Internet company, the Company's stock price enjoyed an immediate and dramatic upsurge, which defendants promptly capitalized on by selling their own holdings of CAI stock. Moreover, by highlighting the seeming success of the Company's other technological applications, the Company and the other defendants were able to create and sustain throughout the Class Period an image of a technology company enjoying tremendous momentum and widespread acceptance of its products. This image, however, was materially false and misleading in several respects, as described below.
30. In addition, the Company's operating agreements and financial relationships with Bell Atlantic and NYNEX were repeatedly extolled by the Company, allowing CAI to achieve enhanced credibility on the basis of such purported relationships, when, in truth, at all relevant times, the ability of the Company to capitalize and achieve profitability based on these relationships was entirely dependent upon the Company's ability to deliver digital signals inexpensively, a remote prospect at best.
31. The wireless digital cable programming that CAI was developing required satellites for the delivery of signals. Because the amount of American satellite space available for this purpose was extremely limited, CAI partnered with certain companies who jointly pursued a strategy to access Canadian satellites orbiting over Canada. To deliver such signals into the United States, however, CAI required approval of the Federal Communications Commission (FCC). This was an unlikely prospect. Nonetheless, defendants failed to disclose or even warn of the possibility that regulatory approvals were not and would not be forthcoming, given the complicated regulatory environment applicable to use of the foreign satellite capacity in CAI's plan. Indeed, contrary to the truth, defendants actively suggested that "FCC policy ... supports" the Company's plans (7/18/96 Company press release).
32. (a) Thus, rather than a highly sophisticated, rapidly expanding high technology and Internet-related Company, worthy of a premium stock valuation commonly associated with these industries, CAI was at all relevant times a marginal Company with unproven technology and inherently unachievable strategies that likely could not receive requisite regulatory approvals. Recognizing these deficiencies, defendants seized the opportunity to sell massive amounts of Company stock at artificially inflated prices, reaping proceeds in excess of $10 million on these insider-sales, as the following chart of the Company's stock price dramatically illustrates:
(b) Moreover, as set forth herein, the Company suffered from a series of complications and set-backs which materially undermined defendants' optimistic statements about the Company's strategies and ability to generate revenues and achieve profitability.
Testing has begun in Washington on the first Internet-access product delivered by a wireless television company, CAI Wireless Systems, Inc. said today. The service uses high-speed wireless modems and is capable of rapidly downloading to customers' computers full-motion video, audio and data at speeds almost seven times faster than the fastest telephony-based modems at consumer costs that are competitive with other commercial Internet access providers. CAI plans to develop similar systems in its other markets throughout the Northeast. ... By year-end, CAI expects the data transfer rate to nearly triple, reaching 27 Mbps, as wireless modem technology advances.34. Thereafter, Company president John Prisco commented to the Reuters News Service that a "a fall roll-out of the service" could be expected.CAI's service utilizes multichannel multipoint distribution system (MMDS) technology, which transmits microwave signals over the 2 gigahertz (GHz) band of the radio spectrum. MMDS enables superior signal transmission with fewer disruptions than other wireless technologies transmitted at higher frequencies, which are more susceptible to obstructions such as foliage and environmental concerns such as rain and other precipitation. The MMDS technology also allows high-speed access to Internet web browsers with greater ease.
"Our Internet access service is lightning-fast," said John J. Prisco, president of CAI Wireless Systems. "Anyone frustrated with the agonizing delays associated with surfing the Internet using telephony-based providers will be amazed with our product. And because it is wireless, it has the potential to quickly reach a much larger customer base, particularly in outlying areas where traditional cable has yet to be installed, at much more affordable installation costs."
Wireless high-speed data transfer allows graphics-heavy Internet and World Wide Web sites to be accessed easily, without concerns about errors because of cable line noise. And although the system requires traditional telephony to send data to CAI's Internet service, speed is not hampered because heavy data transfer originates at web servers rather than at web explorers.
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CAI is deploying the system in Washington with National Digital Network (NDN), an Internet provider with MMDS channels in the top 25 markets.
35. (a) Also on May 23, 1996, the securities firm of Gerard Klauer Mattison & Co. issued a highly positive report on the Company recommending that investors "buy" CAI stock. This report, based on company guidance, also included several highlights concerning the Company, including:
CAWS has begun testing high-speed Internet access using wireless cable modems. We believe that this could eventually become a meaningful line of business and provide CAWS with a distinct competitive advantage. In addition, wireless operators will be able to demonstrate to RBOCs and other potential investors that they can provide services other than just video.(b) This report and the detailed information and estimates contained therein were based upon communications with the management of CAI and were of a nature that could only have been provided (or be based on specific information provided) by the Company and its management.Currently, the company is testing the system in Washington with National Digital Network (private), an Internet access provider. Hybrid Networks (private) is furnishing the high-speed modems used in the trial and has the first wireless modem in production for Internet networking via MMDS. A total of 15 locations are now participating in the trial, including several elementary schools, George Washington University and several businesses. Under the plan, 200 to 300 locations will be connected within 45 days.
The wireless Internet service can deliver information at a rate of 10 megabits per second, nearly seven times the rate of a T1 connection, using 6 megahertz (mHz) of spectrum. By year-end, Hybrid expects to offer modems which can operate at up to 27 megabits per second. If CAWS were to allocate four channels (24 mHz), it would have 108 Mbps to allocate among simultaneous users. Thus, the company could support approximately 850 simultaneous users at ISDN speed (128 Kbps). By reusing frequencies, either by cellularizing or sectorizing the system, the number of simultaneous users could be increased ten fold. Total customers could significantly exceed the number of simultaneous users since not all customers will likely be using the system at the same time. Thus, at $75 per month for Internet access and 10,000 customers, the company could potentially generate $9 million in additional revenue in each system.
While wireless operators would initially offer slower speeds than that promised by cable companies, we do not expect widespread deployment of cable modems until 1998. Thus, wireless companies could potentially introduce both digital compression and high-speed Internet access before the local cable company, gaining a significant competitive advantage.
36. (a) Similarly, on May 24, 1996, the securities firm of Smith Barney issued a report about the Company, highlighting:
CAI Wireless announced on May 23 that it had started testing in Washington D.C. the first Internet access product to be delivered by a wireless cable operator.(b) This report and the detailed information and estimates contained therein were based upon communications with the management of CAI and were of a nature that could only have been provided (or be based on specific information provided) by the Company and its management.The product delivers information to customer computers at 10 megabits per second (Mbps); by year-end CAI expects the speed to reach 27 Mbps, about 18x faster than today's T1 telephone lines. The return path in a wireless cable system obviously is via telephone. CAI's announcement stimulated a sharp upward move of about 15% in its shares.
The service employs high-speed wireless modems and it is expected to be available at a price in line with those of other commercial Internet access providers. The service will utilize MMDS technology.
CAI's system would be available both to customers of its wireless cable programming and to non video customers.
While we understand these wireless cable modems will work in both analog and digital wireless environments, practically speaking the product is much more geared for the forthcoming digital wireless environment than analog, since it would use up one or more of the maximum 33 analog channels per market, limiting such a system's capacity to carry video.
While it is too early to determine precisely how the planned service might affect revenues in the markets where the company is constructing networks for Bell Atlantic and NYNEX, a workable wireless cable modem in a digital wireless cable environment could create a business highly competitive with advanced hardwire cable featuring digital transmission and modems.
37. The foregoing announcements and reports of May 23 and 24, which had a dramatic effect on the price of CAI stock, were materially false and misleading in several respects. Among other things, the Company's highly bullish press release failed to disclose that there were numerous technical difficulties associated with its wireless Internet technology, including the following:
(a) CAI's wireless Internet technology is subject to capacity constraints which impair transmission speeds and data transfer rates, rendering the technology less competitive than conventional Internet access methods;
(b) CAI's purportedly wireless technology does not relieve users of the requirement to use ordinary, wired Internet access for purposes of data transmission;
(c) The Company's test was not as successful as represented and did not resolve several difficulties which precluded rapid commercialization of wireless Internet access, particularly problems with enhanced data transmission speeds, which purport to be the technology's most attractive feature;
(d) CAI's wireless technology experiences "line of sight" limitations, requiring large capital outlays for additional transmitters necessary to make the systems function properly;
(e) CAI's wireless modems malfunction or otherwise experience problems under certain weather and/or atmospheric conditions, and the technology is prone to breakage.
38. As a result of these undisclosed problems, CAI's wireless Internet technology is not and was not a feasible, cost-effective or attractive alternative to conventional Internet access methods, and was not and could not be characterized as a reasonable competitor with non-wireless Internet access methods.
39. On May 25, 1996, the Company's stock reached a 52-week high of $13.50 per share on extremely heavy volume, before closing at $13.00 per share (jumping up $4 1/8 per share for the day). Commenting on this stock price activity, Vince Hulbert, a Company spokesman, stated in the May 27, 1996 issue of Broadcasting & Cable, that:
I'd like to say it was because it [CAI's stock] was undervalued, which it was, but without a doubt it went up because of the [Internet] announcement.40. On May 29, 1996, the Company announced its financial performance results for the fourth quarter and full year of fiscal 1995. In connection with this earnings announcement, defendant Jared Abbruzzese stated:
Through an unprecedented series of mergers and acquisitions in the wireless cable industry, CAI's sales have increased nearly five-fold in the past year. ... [We] are beginning to see improved operating results in the most current quarter.41. (a) On June 2, 1996, The Albany Times Union ran an article on the Company, which noted, among other things, that "[u]ntil the Internet announcement the company's stock had languished." The article also reported that:
The Internet service provides customers with a scorching 10 megabits of data a second coming in. That's nearly 400 times as fast as the much slower phone lines they must use to send data out.(b) Similarly, with respect to the Company's cable technology, this article highlighted CAI's purported technological edge, based on Company guidance, stating pertinently that:* * *
CAI President John Prisco said the company will expand the technical test of its Internet service to another market in about a month. Later in the year, the company will begin its marketing test to see if customers will buy the service for the $30 to $50 price the company is considering.
Bell Atlantic and Nynex are working with CAI because wireless television does not require the time-consuming and costly investment that building a conventional cable system would, he said.42. In addition to being materially false and misleading with respect to the Company's Internet-related product capabilities, the foregoing statements were materially false and misleading because they materially overstated the Company's technological capability to profitably deliver wireless digital cable signals and because they failed to disclose that the Company's digital cable products were not as advanced as represented and were subject to numerous developmental and regulatory problems which undermined the ability of the Company to timely deliver such products to market, as set forth more fully herein."We afford them the opportunity to get to market more quickly," Abbruzzese said. The wireless signal usually can reach about 90 percent of homes in a market. The rest may not have a direct line of sight to the broadcast antenna.
But until this summer and fall when the company begins to roll out its digital service in Rochester and Norfolk, VA., CAI's value rests solely on its potential. Albany service will follow those initial test markets at a later date.
"There is still a lot of proving that has to go on," Wilson said. "It is a bit of a marketing and technical question right now."
CAI President John Prisco said the company will expand the technical test of its Internet service to another market in about a month. Later in the year, the company will begin its marketing to see if customers will buy the service for the $30 to $50 price the company is considering.
43. On June 18, 1996, Investors Business Daily ran an article discussing CAI, and including an interview with CAI's president, John Prisco, who used the opportunity to tout CAI's wireless Internet capabilities, without disclosing any of the above-described problems. Thus, the article included the following colloquy:
IBD: How fast will your modems run?44. On June 24, 1996, the Company announced that it would be conducting a major test of its digital and high-speed wireless Internet access technology in Rochester on June 27, 1996. Among other things, the Company's press release stated:Prisco: Ten megabits per second, or 350 times faster than 28.8 modems. We'll see 27-megabit wireless modems by the end of this year.
IBD: What will the modems and data service cost?
Prisco: We think the modems will cost under $300 by the end of the year, as more manufacturers begin competing in this area. The design is very similar to cable modems. We won't ask consumers to pay that price upfront. We'll lease the modem through subscriptions, which we expect to price about the same as what phone companies charge for ISDN service, which is $30 to $50 a month.
IBD: Will you package Internet access with your pay-TV service?
Prisco: In the markets under our control, what we'd like to do is offer it as a stand-alone Internet service. We won't force people to take the video service along with it. Our advantage here is the installation is the same for video or Internet service, with the same antenna and wiring.
IBD: Phone companies are looking at another high-speed modem technology called ADSL. Is that a threat?
Prisco: I'm skeptical about ADSL. It's an attempt to squeeze out the last bit of life from aging copper lines. I don't think it will be a mainstream device for connectivity to the Net. ADSL has distance limitations and is dependent on the condition of cooper wire.
IBD: What about high-speed cable modems?
Prisco: They're not an ace in the hole for the cable industry. They'll have to upgrade their networks, which is a huge capital equipment expense. They'll get their share and do a fine job, but anything other than wireless requires an expensive upgrade of plant and equipment.
Wireless cable is a low-cost infrastructure that allows for a quick entry into the mass market. All the Baby Bells are getting into the video delivery business this way.
IBD: Will ADSL have an advantage over wireless and cable modems because it will let users both get and send data at fast speed?
Prisco: I think the vast majority of Internet users will be satisfied with using a telephone line as the upstream path. They are primarily interested in browsing the Internet and not sending files. People who want to send large data files upstream are doing it with 28.8 modems, which is what we have, or ISDN lines.
As time goes on, more people will want that, and we'll be in a position to boost our upstream path.
IBD: Long term, though, won't everything be running through more advanced fiber networks?
Prisco: Some people think wireless cable is an interim strategy. But when you look at what it will cost the phone companies to build a switched digital video network, that won't happen for a long time. You won't see that kind of network across the U.S. in my lifetime, and I'm a young guy.
This technical demonstration of CAI's digital delivery network highlights the advantages of MMDS technology as a delivery platform for video and data.45. (a) That same date, June 24, 1996, the securities firm of Gerard Klauer Mattison & Co. issued another report concerning CAI, focusing on the Company's Rochester demonstration, and stating pertinently that:
This demonstration ushers in the era of digital wireless cable, and should provide a clear sign that digital wireless cable works and that commercial implementation should be forthcoming in the near-term.(b) This report and the detailed information and estimates contained therein were based upon communications with the management of CAI and were of a nature that could only have been provided (or be based on specific information provided) by the Company and its management.* * *
CAWS will also demonstrate wireless internet access. We believe that this could eventually become a meaningful line of business for CAWS and other wireless cable operators. The company had previously announced it is testing high-speed Internet access using wireless cable modems in Washington DC (see our 5/23/96 First Call comments). Hybrid Networks (private) is furnishing the high-speed modems used in the trial and has the first wireless cable modem in production for Internet connectivity via MMDS. A total of 15 locations are now participating in the trial, including several elementary schools, George Washington University and several businesses. The company plans to connect 200 to 300 locations by the end of the summer.
Wireless Internet service can deliver information at a rate of 10 megabits per second, nearly seven times the rate of a T1 connection, using 6 megahertz (mHz) of spectrum. By year-end, Hybrid expects to offer modems which can operate at up to 27 megabits per second. . If CAWS were to allocate four channels (24 mHz), it would have 108 Mbps to allocate among simultaneous users. Thus, the company could support approximately 850 simultaneous users at ISDN speed (128Kbps). By reusing frequencies, either by cellularizing or sectorizing the system, the number of simultaneous users could be increased by a factor of ten. Total customers could significantly exceed the number of simultaneous users since not all customers will likely be using the system at the same time. Thus, at $75 per month for Internet access and 10,000 customers, the company could potentially generate $9 million in additional revenue in each system. While wireless operators would initially offer slower speeds than that promised by cable companies, we do not expect widespread deployment of cable modems until 1998. Thus, wireless companies could potentially introduce both digital compression and high-speed Internet access before the local cable company, gaining a significant competitive advantage.
46. Thereafter, on June 28, 1996, the Company disseminated a press release declaring that "CAI WIRELESS SYSTEMS' ROCHESTER DEMONSTRATION PROVES VIABILITY OF DIGITAL WIRELESS CABLE TECHNOLOGY." In addition, the Company stated in the press release that:
CAI Wireless Systems, Inc. (NASDAQ-NNM: CAWS) successfully transmitted digital video, audio programming and data signals yesterday afternoon at a demonstration here for members of the financial community, the company announced. The demonstration included digitally encoded satellite and local broadcast television programming, as well as the company's high-speed Internet- receive service that transmits 10 megabits per second.47. (a) Several securities analysts also described the Company's Rochester demonstration in glowing terms. Thus, for instance, on June 27, 1996, Smith Barney disseminated a report stating that:"CAI successfully demonstrated its wireless cable transmission system using five-to-one digital compression," said Aryeh Bourkoff, high yield research analyst, Smith Barney Inc. "They achieved a perfect picture quality while integrating digital local and national programming. They also successfully demonstrated a wireless cable high-speed modem that permitted access to the Internet. The financial community has now seen, with its own eyes, the technical capabilities and competitive advantages of wireless cable television."
"I was very impressed with what I witnessed in Rochester yesterday," said Arthur Newman, vice president, Gerard Klauer Mattison & Co. "The technology CAI demonstrated shows me that the company's digital wireless cable television and wireless Internet access service are viable technologies with a long-term future."
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"Most emerging technologies require a period of time to prove their practicality in the marketplace," said John J. Prisco, president of CAI. "This demonstration dispels many of the myths about digital MMDS technology, including line-of-sight and foliage obstruction issues."
On June 27, CAI Wireless gave a first-of-its-kind digital MMDS demonstration to investors/analysts in Rochester NY. ...(b) Similarly, the firm of Gerard Klauer Mattison & Co. issued a report on June 28, 1996, stating pertinently that:CAI President John Prisco outlined the advantages of MMDS technology:
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CAI's goal in high speed data delivery is to consistently offer download speeds above 1.5 megabits (Mbps), significantly faster than today's telephone speeds, including ISDN.
CS Wireless System Use For Trial in Rochester(c) These reports and the detailed information and estimates contained therein were based upon communications with the management of CAI and were of a nature that could only have been provided (or be based on specific information provided) by the Company and its management.The Rochester, NY, wireless cable system belongs to CS Wireless, a joint venture among CAWS (54%) Heartland Wireless*+ (Hart - 22 3/4; BUY) (36%), and the BANX partnership between BEL and NYNEX (NYN - 46 5/8; Not Rated) (10%). CAWS has a separate partnership with BANX which involves CAWS' northeastern systems within BEL's and NYN's service areas. We expect BEL and NYN to begin to offer digital wireless cable service during the fourth quarter of 1996 through Tele-TV (for details on the business relationship agreement among CAWS, BEL and NYN see our report CAI Consummates Partnership With Bells dated September 29, 1995).
Concurrent Digital Demo by CS Wireless and HART in Texas.
CS Wireless and HART hosted a concurrent demonstration in Texas. The CS Wireless demonstration was held in Dallas. HART's Sherman, TX system received the CS Wireless programming from Dallas and retransmitted this programming in Sherman. Sherman is located about 60 miles from Dallas.
Growth For CAWS to Resume in late 1996.
Digital technology is a foundation of CAWS' business plan, both in its investment in CS Wireless and in its partnership with BEL and NYN. We expect that this demonstration will alleviate any concerns regarding the viability or availability of this technology.
With the introduction of digital compression, we anticipate that over the next six months CAWS will shift from its current no growth mode to a high growth mode. CAWS' roll-out plans for the Rochester system call for marketing trials of digital wireless video and Internet access during Q4'96, with full commercial deployment during Q1'97. We believe that this time frame is consistent with BEL's and PAC's roll-out plans (see our note Wireless Cable Industry-Digital Has Arrived!! dated 6/24/96 for a discussion of PAC's recent demonstration of digital wireless cable).
Wireless High-Speed Internet Access
CAWS also demonstrated wireless Internet access. We believe that this could eventually become a meaningful line of business for CAWS and other wireless cable operators. We do not expect widespread deployment of high-speed modems by the cable industry until 1998. Thus, wireless companies could potentially introduce both digital compression and high-speed Internet access before the local cable company, gaining a significant competitive advantage.
CAWS' high-speed modems delivered Internet data at blazing speeds when compared to either 28.8 modems or ISDN lines. The functionality was equivalent to demonstrations we have seen of cable modems. However, as CAWS demonstrated, we believe it is far easier to set up a wireless cable modem network than to upgrade an existing wired cable network to support high speed modems. While the demonstrated modems use a telephone return path, CAWS intends to test modems which are wireless both upstream and downstream.
CAWS had previously announced it is testing high-speed Internet access using wireless cable modems in Washington DC (see our 5/23/96 First Call comments). Hybrid Networks (private) is furnishing the high-speed modems used in the trial and has the first wireless cable modem in production for Internet connectivity via MMDS.
Wireless Internet service can deliver information at a rate of 10 megabits per second, nearly seven times the rate of a T1 connection, using 6 megahertz (MHz) of spectrum. By year-end, Hybrid expects to offer modems which can operate at up to 27 megabits per second. By using a combination of cellularizing and sectoring their systems, we believe that CAWS could support 50,000-100,000 customers at approximately T1 (1.54 megabits per second) speeds. The company expects to initially use cellularization, since the booster sites form the basis for new cells. This week PCTV and ATEL demonstrated how sectorization could increase capacity by 24x.
48. On July 2, 1996, the firm of DLJ Securities issued an investment analyst report on the Company, promoting CAI stock to investors, and stating pertinently that:
We are raising our rating on CAWS from underperform to market performance to reflect our revised valuation, which now includes wireless data service revenues ... .49. On July 12, 1996, the Company and its representatives again commented on its Internet-related technology, as reported by the Reuters Newswire service that date. According to the article:
CAI Wireless Systems Inc President John Prisco said on Friday that telephone companies that have teamed up with CAI would probably begin selling its Internet-access service using microwave television signals in early 1997.50. The July 15, 1996 edition of CableFAX also highlighted the Company, and thus summarized, "A CAI Wireless demonstration of its digitally transmitted programming and a 10MB/s Internet receive service apparently impressed some financial analysts."Prisco said testing of the service was going well in two markets. The technology is billed as providing personal computers with quicker and more reliable Internet access than telephone and cable connections.
"We'll begin marketing trials in the fall, and in the first quarter of next year, we'll be commercially offering it," Prisco told Reuters.
In May, CAI said it expected commercial rollout of the service in the fall of 1996.
51. On July 18, 1996, CAI issued a press release which stated and implied that the Company's activities were entirely consistent with FCC policy, and giving investors a highly positive impression of the Company's products and prospects. The Company's press release stated pertinently:
CAI Wireless Systems, Inc. (Nasdaq: CAWS) today transmitted digitally encoded programming to Thomson television set-top converters using CAI's wireless delivery system here. CAI's digital wireless cable system, the first of its kind in the United States, in the final stages of testing.52. On August 19, 1996, the Company announced its financial results for the first quarter of its fiscal year 1996. In connection with announcing these results, John Prisco was quoted as stating that:The programming transmission demonstrated the viability of digital wireless cable technology, which according to Reed D. Hundt, chairman of the Federal Communications Commission (FCC) in Washington, is "the first terrestrial video programming service to be authorized to go digital." Last week, at an industry conference, the FCC notified wireless cable operators that it had adopted its new Digital Declaratory Ruling policy, whereby the Commission will routinely grant non-interfering licenses to digital wireless cable operators.
"Both the new FCC policy and the successful demonstration of our digital delivery network using Thomson's set-top boxes supports our belief that digital wireless cable is a robust alternative to traditional cable services," said John Prisco, president and chief operating officer of CAI. "Wireless cable will provide a quick and cost-effective point of entry into the delivery of digital video programming."
We have substantially completed the Norfolk, VA and Boston, MA digital systems for Bell Atlantic and NYNEX, respectively, and await their commercial roll-out of digital wireless cable services in those markets.53. On September 16, 1996, the Company issued a press release again promoting its purported Internet technology, stating that:[D]uring the quarter, we successfully demonstrated CAI's digital wireless cable transmission capabilities in Rochester, NY. ... [W]e demonstrated our high-speed Internet access service that will currently transmit information to the user at a rate of 10 megabits per second.
The Rochester test and the demonstration we recently completed in Norfolk, VA, which included the Thomson set-top converter, shows that CAI's digital capabilities are here today.
CAI Wireless Systems, Inc. (Nasdaq: CAWS) announced today that it will conduct a market trial of its high-speed wireless Internet access service here beginning by the end of this month. CAI plans commercial rollout of the service as early as the first quarter of 1997, subject to final regulatory approval.54. On October 3, 1996 the securities firm of Gerard Klauer Mattison & Co. issued a report on the Company notice, stating for the first time that:* * *
CAI has ordered the GI modems and related network equipment for this market trial. The CAI system will be capable of serving thousands of customers from each of its transmitter locations in Rochester.
CAI's Internet-access service will be provided using the existing MMDS System here, which transmits video and data signals on the 2.5 to 2.7 gigahertz (GHz) portion of the electromagnetic radio spectrum. The system was originally designed by CAI to deliver television programming. The market trial participants will include residential and business users and is expected to last approximately three months.
"GI's entry into the wireless market is further evidence that MMDS technology is here to stay," said John Prisco, president and chief operating officer of CAI. "Consumer demand for fast Internet services and the advent of digital technology are combining to create a market for digital data transmission services like those CAI plans to provide its customers in addition to traditional video services."
A traditional telephony modem is required to send outbound signals from the customer's personal computer to CAI's server. Overall speed is not hampered because the heavy data transfer tends to originate at the web server, which transmits the data through the air via CAI's wireless frequencies to individual computer users. For most consumers, the data transmitted back to the web server is modest by comparison, and thus, overall speed of the exchange is not significantly diminished by the telephone return path.
In May 1996, CAI announced it was testing in Washington, D. C., a 10 Mbps multi-user/networking modem manufactured by Hybrid Networks, predicting the data transfer rate would reach 27 Mbps by year-end. CAI has previously used its MMDS frequencies to provide solely video services in its markets.
We are lowering our rating on CAWS to HOLD from BUY. We believe the combination of launch delays in Virginia Beach and Boston with growing internal uncertainty in BEL's video plans is likely to further delay CAWS' ability to generate meaningful revenue growth. Without near-term growth prospects, we do not believe that CAWS can continue to maintain a valuation premium over other urban wireless cable operators. As a result, we believe that there is 20%-25% downside risk in CAWS' share price to about $5.50.55. News that the Company's leading advocate had reduced its rating of the Company's stock immediately caused the Company's stock price to decline dramatically, declining $2.00 per share on October 3, 1996 on 4.7 million shares, closing at $5.25 per share that day. In response, the Company issued a press release designed to quell investor concern. This October 8, 1996, response press release stated in pertinent part:* * *
We believe Bell Atlantic . . . may be losing its enthusiasm for wireless cable due to the recent and unexpected loss of an internal champion and perceived uncertainty regarding line-of-sight (LOS) coverage. It is not clear whether LOS coverage is truly a major concern or simply a smoke screen used by supporters of a wired broadband strategy. While we continue to anticipate launches in Virginia Beach and Boston during early Q2'97, we believe that BEL and NYNEX (NYN - $45 1/2, NOT RATED) are unlikely to launch other systems until there are clear figures for LOS and customer penetration. We continue to anticipate an aggressive launch by Pacific Telesis (PAC - $33 3/4; HOLD) in Los Angeles during Q1'97.
CAI RESPONDS TO RECENT SHARE PRICE VOLATILITY56. Thereafter, in a further maneuver to bolster the Company's by-then languishing stock price, on October 16, 1996, the Company issued a press release which again emphasized the purportedly consistent goals of CAI and the FCC. This press release stated pertinently:Jared E. Abbruzzese, Chairman and Chief Executive Officer of CAI Wireless Systems, Inc. (Nasdaq: CAWS) made the following statement in light of the volatility in the company's common stock price over the last three trading days:
"CAI continues to be the only independent MMDS company with a significant continuing investment by regional Bell operating companies. CAI remains committed to a mutually beneficial relationship with their video services organizations," said Abbruzzese.
"CAI is also extremely confident in its MMDS spectrum and in the Company's ability to fully exploit its spectrum, notwithstanding the recent downturn in the Company's stock price.
"CAI is the national leader in LOS households and was the industry leader in obtaining awards of BTAs in the recently concluded FCC auction. With this valuable asset base, in addition to its existing video delivery strategy, CAI is exploring a variety of uses for MMDS technology to enhance the value of its substantial spectrum capacity," continued Abbruzzese. "The Company is particularly excited about the use of the spectrum for data transmission, including Internet capabilities, which the Company has been testing successfully in Rochester and Washington, D.C. Subject to regulatory approval, CAI expects to be able to offer enhanced services, such as data transmission services, coupled with video service, in its Rochester market. CAI anticipates that the integrated service will become available in selected markets in its CS Wireless Systems, Inc. affiliate, as well.
"It has been the Company's experience that the incremental cost of these additional uses of the spectrum is relatively small. Any limitations the Company may now have on its ability to access the public capital markets should not, in the Company's view, hinder the initial development of these uses or access to alternative sources of capital, including from sales of selected assets, although there can be no assurance that the Company would be successful with this or any other financing strategy."
Recently, CAI and others in the industry have sought and obtained FCC approval for market trials to test the technical and commercial viability of one-way digital transmission-based services. Today's filings seek permanent, unrestricted authority for commercial deployment of both one-way and two-way interactive services. CAI's filings are consistent with the FCC's stated goal of affording spectrum auction winners maximum flexibility to respond to market forces.John Prisco, President and Chief Operating officer, said, "These FCC filings represent a logical and important step in the evolution of the use of MMDS spectrum. CAI will create a digital platform from which reasonably-priced video, voice and data ("VV&D") services can be launched. But more importantly, just as hard-wire cable and telephone companies are entering each other's businesses, the wireless industry is rapidly approaching the point where it will be able to offer individuals and businesses a variety of consumer-friendly telecommunications services. What excites us at CAI is the anticipated ability, afforded by the combination of digital technology and wireless MMDS spectrum, to respond quickly to competitive forces and offer, in a cost-effective way, a wide array of consumer VV&D services."
a. During the Class Period, the Company's technology was not adequately developed and could not be rendered commercially feasible as a suitable method for Internet access, notwithstanding defendants' reliance upon the portrayal of its MMDS technology as free of technical problems;
(1) CAI's wireless Internet technology is subject to capacity constraints which impair transmission speeds and data transfer rates, rendering the technology less competitive than conventional Internet access methods;
(2) CAI's purportedly wireless technology does not relieve users of the requirement to use ordinary, wired Internet access for purposes of data transmission;
(3) The Company's test was not as successful as represented and did not resolve several difficulties which precluded rapid commercialization of wireless Internet access, particularly problems with enhanced data transmission speeds, which purport to be the technology's most attractive feature;
(4) CAI's wireless technology experiences "line of sight" limitations, requiring large capital outlays for additional transmitters necessary to make the systems function properly;
(5) CAI's wireless modems malfunction or otherwise experience problems under certain weather and/or atmospheric conditions, and the technology is prone to breakage.
b. Similarly, the Company's other MMDS applications were not as advanced as previously represented, undermining the representations to the marketplace that the Company would be able to timely deliver an Internet-related product for mass consumption, and that such an application of the Company's MMDS technology would follow a similarly short timetable to widespread marketing;
c. The Company's ability to deliver digital television signals profitably was entirely dependent upon regulatory approvals of certain relationships with satellite service providers for whom such regulatory approvals would not be forthcoming or were subject to undisclosed impediments which undermined any optimism relating to the purported receipt of such approvals; and
d. As a result of the foregoing, the Company's ability to achieve revenues and earnings was greatly diminished.
(a) Defendants are each sophisticated individuals holding executive, managerial or other relationships and positions with the Company which provided to each of them the access and ability to receive and obtain information concerning the numerous material problems outlined above which impacted the Company's operations at all relevant times.
(b) As detailed below, the exceptional amount of "well-timed" insider sales of Company stock gives rise to a strong inference of scienter.
60. The Individual Defendants engaged in such a scheme to inflate the price of CAI securities in order to: (I) protect and enhance their executive positions and the substantial compensation and prestige they obtained thereby; (ii) enhance the value of their personal CAI securities; and (iii) facilitate substantial and extremely profitable insider sales of CAI stock, as set forth below:
ABBRUZZESE, JARED E. DATE SHARES SOLD PRICE PROCEEDS 5/24/96 5,000 8.00 $ 40,000 5/31/96 10,000 10.75 $ 107,500 5/31/96 10,000 11.00 $ 110,000 6/3/96 54,000 10.00 $ 540,000 6/3/96 5,000 11.13 $ 55,650 6/3/96 23,000 11.25 $ 258,750 6/3/96 2,000 11.38 $ 22,760 6/7/96 10,500 10.00 $ 105,000 6/10/96 10,500 10.00 $ 105,000 6/11/96 19,100 10.00 $ 191,000 6/11/96 50,000 9.75 $ 487,500 6/11/96 13,400 10.00 $ 134,000 6/13/96 25,000 9.07 $ 226,750 7/19/96 15,000 8.44 $ 126,600 8/15/96 10,000 7.30 $ 73,000 8/15/96 16,000 7.30 $ 116,800 8/23/96 6,500 7.38 $ 47,970 8/23/96 6,500 7.50 $ 48,750 8/23/96 2,000 7.75 $ 15,500 8/28/96 7,000 8.00 $ 56,000 $2,868,530 ABBRUZZESE, JOSEPH E. DATE SHARES SOLD PRICE PROCEEDS 5/31/96 10,000 10.75 $ 107,500 5/31/96 10,000 11.00 $ 110,000 6/3/96 5,000 11.13 $ 55,650 6/3/96 23,000 11.25 $ 258,750 6/3/96 2,000 11.38 $ 22,760 6/6/96 54,000 10.00 $ 540,000 6/7/96 10,500 10.00 $ 105,000 6/10/96 10,500 10.00 $ 105,000 6/11/96 19,100 10.00 $ 191,000 8/15/96 10,000 7.30 $ 73,000 8/15/96 16,000 7.30 $ 116,800 $1,685,460 CARTER, HOPE DATE SHARES SOLD PRICE PROCEEDS 5/30/96 80,100 11.20 $ 897,120 5/31/96 10,000 10.75 $ 107,500 5/31/96 10,000 11.00 $ 110,000 6/3/96 5,000 11.13 $ 55,650 6/3/96 23,000 11.25 $ 258,750 6/3/96 2,000 11.38 $ 22,760 6/6/96; 54,000 10.00 $ 540,000 6/7/96 10,500 10.00 $ 105,000 6/10/96 10,500 10.00 $ 105,000 6/11/96 19,100 10.00 $ 191,000 8/15/96 10,000 7.30 $ 73,000 8/15/96 16,000 7.30 $ 116,800 $2,582,580 COROTOMAN COMPANY LLC DATE SHARES SOLD PRICE PROCEEDS 5/31/96 10,000 10.75 $ 107,500 5/31/96 10,000 11.00 $ 110,000 6/3/96 5,000 11.13 $ 55,650 6/3/96 23,000 11.25 $ 258,750 6/3/96 2,000 11.38 $ 22,760 6/6/96 54,000 10.00 $ 540,000 6/7/96 10,500 10.00 $ 105,000 6/10/96 10,500 10.00 $ 105,000 6/11/96 19,100 10.00 $ 191,000 8/15/96 32,000 7.30 $ 233,600 $1,729,260 SONNENBERG, ALAN DATE SHARES SOLD PRICE PROCEEDS 6/3/96 50,000 11.01 $ 550,500 6/4/96 50,000 10.09 $ 504,500 6/5/96 60,000 10.50 $ 630,000 $1,685,000 TOTAL FOR ALL INDIVIDUAL DEFENDANTS $10,550,83061. The market for CAI's common stock was open, well-developed and efficient at all relevant times. As a result of the above-described false and misleading statements and failures to disclose the full truth about CAI and its business and future prospects, the Company's common stock traded at artificially inflated prices during the entire Class Period until the time the adverse information described above was finally provided to and digested by the securities market. Plaintiffs and other members of the Class purchased or otherwise acquired CAI common stock relying upon the integrity of the market price of CAI stock and market information related to the Company, or in the alternative, upon Defendants' false and misleading statements, and in ignorance of the adverse, undisclosed information and false financial statements know to Defendants, and have been damaged thereby. Upon disclosure of the true facts regarding the Company, the market valuation of the Company's stock declined precipitously. Had plaintiffs and other members of the Class known of the materially adverse information not disclosed by Defendants, they would not have purchased or acquired CAI's common stock at the artificially inflated prices that they did.
62. At all relevant times, the misrepresentations and omissions particularized in this complaint directly or proximately caused or were a substantial contributing cause of the damages sustained by plaintiffs and other members of the Class. As described herein, during the Class Period, Defendants made or caused to be made a series of false statements about CAI's revenues and earnings. These misstatements and omissions had the cause and effect of creating in the market an unrealistically positive assessment of CAI, its profitability and its future business prospects, thus causing the Company's common stock to be overvalued and artificially inflated at all relevant times. Defendants' false portrayal of CAI, its business operations and future prospects during the Class Period resulted in plaintiffs and other members of the Class purchasing the Company's common shares at a disparity between their market price and their actual value, thus causing the damage complained of herein.
64. This claim is brought against the defendants with respect to the entire Class Period and on behalf of the Class.
65. The defendants individually and in concert, directly and indirectly, by the use of means or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a continuous course of conduct to conceal adverse material information about the business, operations and prospects of CAI as specified herein. The defendants employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information and engaged in acts, practices, and a course of conduct as alleged herein in an effort to assure investors of CAI's value and performance and continued substantial growth, which included the making of, or the participation in the making of, untrue statements of material facts and omitting to state material facts necessary in order to make the statements made about CAI and its business operations and prospects in the light of the circumstances under which they were made, not misleading, at least to the extent set forth more particularly herein, and engaged in transactions, practices and course of business which operated as a fraud and deceit upon the purchasers of CAI securities during Class Period.
66. The defendants had actual knowledge of the misrepresentations and omissions of material facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were available to them. Such defendants' material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing CAI's operating condition and business prospects from the investing public and supporting the artificially inflated price of its stock. As demonstrated by defendants' misstatements of the Company's business, operations and financial condition throughout the Class Period, defendants, if they did not have actual knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain such knowledge by deliberately refraining from taking those steps necessary to discover whether those statements were false or misleading.
67. As a result of the dissemination of the materially false and misleading information and failure to disclose material facts, as set forth above, the market prices of CAI securities were artificially inflated during the Class Period. In ignorance of the materially false and misleading nature of the reports and statements described above, plaintiffs and other members of the Class relied, to their damage, on the reports and statements described above and/or on the integrity of the market prices of CAI securities and the completeness and accuracy of the information disseminated to CAI investors in connection with their purchases of the Company's securities.
68. At the times of said misrepresentations and omissions, plaintiffs and other members of the Class were ignorant of their falsity, and believed them to be true. Plaintiffs and other class members could not in the exercise of reasonable diligence have known the actual facts. In reliance on said misrepresentations and in reliance upon the superior knowledge and expertise of defendants and on the integrity of the market, plaintiffs and other members of the Class were induced to and did purchase CAI securities at artificially inflated prices. Had plaintiffs and other members of the Class known the truth, they would not have taken such action.
69. By virtue of the foregoing, Defendants have violated Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder of the Exchange Act.
70. Plaintiffs and other members of the Class have been damaged by Defendants' violations as described in this Count and seek recovery for the damages caused thereby.
72. This Count is brought by plaintiffs against the Individual Defendants with respect to the entire Class Period and on behalf of the Class.
73. By reason of their control over the operations of CAI, the Individual Defendants are "controlling persons" of the Company within the meaning of § 20(a) of the Exchange Act and had the power and influence (which they exercised) to cause CAI to engage in the unlawful conduct complained of herein, and could have prevented such violations from taking-place but failed to do so.
74. By reason of these Individual Defendants each being a "controlling person," as that term is defined in Section 20(a) of the Exchange Act, of other persons primarily liable to plaintiffs and the Class pursuant to the claims arising under Section 10(b) of the Exchange Act alleged above, the Defendants named in this Count are secondarily liable for those primary violations pursuant to Section 20(a) of the Exchange Act.
| WHITEMAN OSTERMAN & HANNA
By: /s/
One Commerce Plaza
MILBERG WEISS BERSHAD
By: /s/
One Pennsylvania Plaza
Lawrence G. Soicher
- and -
Richard S. Schiffrin
Attorneys for Plaintiffs |
30 Sep 1997