|
|
|||
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
________________________________
|
| No. [98-CV-1644]
JACOB J. SPINNER, on behalf of | [filed Mar. 18, 1998]
himself and all others |
similarly situated, | CLASS ACTION
|
Plaintiff, | COMPLAINT FOR
| VIOLATION OF THE
COMPUTER LEARNING CENTERS, | SECURITIES EXCHANGE
INC., HARRY H. GAINES, REID R. | ACT OF 1934
BECHTLE, and CHARLES L. |
COSGROVE | PLAINTIFF DEMANDS A
| TRIAL BY JURY
Defendants. |
|
________________________________|
Plaintiff, by and through his undersigned attorneys,
alleges as follows for his complaint. The allegations made in
this complaint are based on information and belief, except those
allegations which pertain to the named plaintiff and counsel,
which are based on personal knowledge, as the detailed facts and
information are in the custody and control of defendants.
Plaintiff's information and belief is based, inter alia, on the
investigation made by and through his attorneys, primarily from
public filings, statements, and releases made by defendants.
OVERVIEW OF ACTION
1. This is a class action on behalf of purchasers of
securities of Computer Learning Centers, Inc. ("CLC" or the
1
"Company") between June 9, 1997 and March 13, 1998(the "Class
Period").
2. CLC provides computer-related education and
training at 25 locations in 9 different states.
3. Immediately prior to and throughout the Class
Period, defendants falsely portrayed CLC as a leading producer of
high-quality computer education and training with a growing
business and a stellar reputation for placing graduates in
desirable computer-related positions.
4. This illusion began to unravel on March 10, 1998,
when the Illinois attorney general announced that, as the
cumulation of a six month investigation against CLC, it was
filing a lawsuit, accusing CLC of defrauding students. According
to reports, the attorney general's suit alleged that the Company
violated state laws, including consumer fraud statutes, by making
misrepresentations to students who enrolled in courses at CLC's
Schaumburg, Illinois campus. The attorney general accused CLC
school of making unrealistic promises of high-earning potential
and placement to entice students to sign up for courses.
According to the attorney general, "when students enroll they
often found over-crowded class rooms, unprepared instructors, few
computers, books, or other necessary materials.
5. News of the Illinois attorney general's action
2
sent shockwaves throughout the investment community. However,
just when investors thought that they had heard the worst about
CLC, Washington Post reported that, according to some securities
analysts, the problems alleged in Illinois were pervasive
throughout CLC's centers nationwide.
6. Thus, a March 13, 1998 Washington Post article
reported that securities analysts anticipated that other states
will follow Illinois' lead and examine CLC's performance. An
earlier Washington Post article quoted a person who sent
undercover agents with hidden tape recorders into CLC's centers
to secretly tape conversations with admissions officers.
According to this source, the results of ten separate visits to
eight CLC schools in six states confirmed that, in many
instances, the sole focus of CLC admissions' officers was
verifying an applicant's ability to qualify for government
guaranteed student loans, rather than assessing the potential
student's capabilities. Thus, according to one unnamed
shortseller quoted in the Washington Post, "even after potential
students deliberately bombed the admission's test to the point
of missing over 75% of the questions admission's counselors
congratulated them on how well they had done and encouraged them
to apply for loans."
7. In the wake of these announcements, CLC's stock
3
declined more than 49%, from a closing price of $36.875 per share
on March 9, 1998, to a close of $18.625 per share on March 13,
1998. Investor concern about the continued viability of CLC was
so great that on March 13, 1998 alone, CLC stock fell 14%,
despite the Company's announcement that day of a better than
expected fiscal fourth quarter profit.
8. While the investing public was stunned by the
revelations of March 10-13, the Company's insiders did not all
share this sense of shock. Many of them sold significant
portions of their own personal holdings in CLC's stock throughout
the Class Period at prices that significantly exceeded the end of
Class Period price.
9. By the acts, transactions, and courses of conduct
alleged herein, defendants, individually and acting with others
in a common plan and scheme, deceived the Plaintiff and the
Plaintiff Class and deprived them unfairly of the full value of
their investments in CLC in violation of the federal securities
laws.
JURISDICTION AND VENUE
10. The jurisdiction of this Court is founded upon
Section 27 of the Securities Exchange Act of 1934, 15 U.S.C.
§78aa (the "1934 Act"), and 28 U.S.C. §1331. The claims set
forth herein arise under Sections 10(b) and 20(a) of the 1934 Act
4
(15 U.S.C. §§ 78j(b) and 78t(a)), and Rule 10b-5 of the rules and
regulations of the SEC promulgated thereunder (17 C.F.R.
§ 240.10b-5).
11. Venue is proper in this district pursuant to 28
U.S.C. §1391(b) and 15 U.S.C. §78aa, because many of the acts and
transactions constituting the violations of law herein complained
of occurred in this district, and many of the misrepresentations
and omissions giving rise to this action emanated from this
district.
12. In connection with the acts, conduct, and other
wrongs complained of herein, the defendants, directly and
indirectly, used the means and instrumentalities of interstate
commerce, including the mails, interstate telephone
communications, and the facilities of a national securities
exchange.
FRAUD ON THE MARKET ALLEGATIONS
13. The Company's shares trade on the NASDAQ Exchange,
a highly efficient and developed securities market.
PARTIES
14. Plaintiff Jacob J. Spinner purchased shares of CLC
common stock during the Class Period, and has been damaged
thereby, as set forth in the accompanying certification.
5
15. Defendant CLC is organized under the laws of the
State of Delaware. It is headquartered in Fairfax, Virginia.
CLC is in the business of providing computer-related education
and training. CLC's common stock is traded on the NASDAQ
Exchange. As of January 1, 1998, CLC had 16,000,300 shares
outstanding.
16. (a) Defendant Harry Gaines ("Gaines") is Chairman
of CLC's Board of Directors. Because of defendant Gaines's
position with the Company, he knew the adverse non-public
information about CLC's inability to provide its graduates with
the claimed earnings potential and job placements and the poor
quality of professors and available courses, via access to
internal corporate documents, conversations and connections with
other corporate officers and employees, attendance at management
and Board of Directors' meetings and committees thereof, and via
reports and other information provided to him in connection
therewith. During the Class Period, Gaines sold 27,500 shares of
CLC common stock at inflated prices that exceeded the end of the
Class Period price.
(b) Defendant Reid Bechtle ("Bechtle") is the
President and Chief Executive Officer of CLC and a member of
CLC's Board. Because of defendant Bechtle's positions with the
Company, he knew the adverse non-public information about CLC's
6
inability to provide its graduates with the claimed earnings
potential and job placements and the poor quality of professors
and available courses, via access to internal corporate
documents, conversations and connections with other corporate
officers and employees, attendance at management and Board of
Directors' meetings and committees thereof, and via reports and
other information provided to him in connection therewith.
During the Class Period, Bechtle sold 63,000 shares of CLC common
stock at inflated prices that exceeded the end of the Class
Period price.
(c) Defendant Charles L. Cosgrove ("Cosgrove") was and
is Vice President, Chief Financial Officer, Secretary and a
member of CLC's Board. Because of defendant Cosgrove's positions
with the Company, he knew the adverse non-public information
about CLC's inability to provide its graduates with the claimed
earnings potential and job placements and the poor quality of
professors and available courses, via access to internal
corporate documents, conversations and connections with other
corporate offices and employees, attendance at management and
Board of Directors' meetings and committees thereof, and via
reporters and other information provided to him in connection
therewith. During the Class Period, Cosgrove sold 17,658 shares
of CLC common stock at inflated prices that exceeded the end of
7
the Class Period price.
(d) the individuals named as defendants in ¶ 13(a) -
(c) are referred to herein as the "Individual Defendants."
17. The Individual Defendants, as officers and/or
directors of CLC had a duty, because of the positions they held,
to disseminate complete, accurate and truthful information
regarding CLC's business operations. The defendants had a duty
to correct promptly any public statements issued by CLC which had
become false and misleading, as well as a duty to abstain from
trading their own CLC securities without first disclosing all
known material information concerning the Company. Because of
their positions, their ability to exercise power and influence
with respect to CLC's course of conduct, their substantial
holdings of CLC common stock and because of their access to
material non-public information about CLC, the Individual
Defendants were, at the time of the wrongs alleged herein,
controlling persons of CLC within the meaning of Section 20(a) of
the 1934 Act.
MOTIVE AND OPPORTUNITY
18. Each defendant had the opportunity to commit and
participate in the fraud. The Individual Defendants were the
directors and/or top officers of CLC and they controlled its
press releases, corporate reports, SEC filings and its
8
communications with the media and analysts. The Individual
Defendants controlled, and could falsify the dissemination of the
information about CLC's ability to provide its students with
placement into high paying careers and the poor quality of
classroom instruction, that reached the public and impacted the
price of its stock.
19. Each of the defendants had the motive to commit
and participate in the fraud. The Company was motivated to
conceal the truth concerning its computer programs in order to
keep enrollments strong at all of its various sites and to
justify the continued expansion of additional sites in new
locations. By keeping demand strong the company had an
opportunity to keep the stock price high and encourage investors
to continue pouring money into the company. For all these
reasons, CLC's high stock price was of the utmost importance to
CLC's directors and top executives.
20. Furthermore, the Individual Defendants, along with
other senior officers in the Company, held a significant equity
stake in CLC at all times during the Class Period. Thus, they
possessed a strong financial interest in seeing CLC's share price
rise. Their positions in the company mandated that they disclose
all materially relevant information regarding the company's
operations, or in the absence of such disclosure that they
9
refrain from trading based on such information. Nevertheless,
many of the company's executives, officers and directors sold,
during the class Period, their CLC shares in substantial
quantities, as the table below indicates.
Harry H. Gaines
Chairman
Date Shares Sold Price
---- ----------- ------
1997 Transactions 6/25/97 7,500 $39.50
6/26/97 20,000 $40.00
Reid R. Bechtle
President/Chief Executive Officer
Date Shares Sold Price
---- ----------- ------
1997 Transactions 12/22/97 8,000 $57.50
7/9/97 10,000 $45.00
6/25/97 10,000 $39.00
6/24/97 10,000 $38.00
6/20/97 25,000 $35.00
Charles Cosgrove
Vice President/Chief Financial Officer
Date Shares Sold Price
---- ----------- ------
1997 Transactions 6/25/97 7,658 $39.00
6/24/97 10,000 $37.75
PLAINTIFF'S CLASS ALLEGATIONS
21. Plaintiff brings this action as a class action
pursuant to Federal Rules of Civil Procedure 23(a) and (b)(3) on
behalf of a class (the "Class") consisting of all persons and
10
entities who purchased the Company's common stock from June 9,
1997 through March 13, 1998, inclusive. Excluded from the Class
are the defendants, members of the immediate families of the
Individual Defendants, any entity in which any defendant has a
controlling interest, and all of the subsidiaries, affiliates,
legal representatives, heirs, successors or assigns of any such
excluded party.
22. Because millions of shares of the Company's common
stock were purchased by the Class during the Class Period, the
members of the Class are so numerous that joinder of all members
is impracticable. While the exact number of class members can
only be determined by appropriate discovery, Plaintiff believes
that class members number in the thousands. They reside in
various places in this country and elsewhere.
23. Plaintiff's claims are typical of the claims of
the members of the Class. Plaintiff and all members of the Class
sustained damages as a result of defendants' wrongful conduct
complained of herein.
24. Plaintiff will fairly and adequately protect the
interests of the members of the Class, and has retained counsel
competent and experienced in class action and securities
litigation.
25. A class action is superior to other available
11
methods for the fair and efficient adjudication of this
controversy. The expenses and burdens of individual litigation
would make it unfeasible for the class members individually to
seek redress for the wrongful conduct alleged.
26. 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' conduct as alleged herein;
b. whether defendants participated in and
pursued the conduct complained of;
c. whether documents filed with the SEC and
other documents, press releases and statements disseminated to
the securities analysts, investing public, and the shareholders
omitted and/or misrepresented material facts about the financial
condition, business affairs, and prospects of the Company;
d. whether the defendants acted willfully or
recklessly in omitting to state and/or misrepresenting material
facts;
e. whether the market prices of CLC common stock
during the Class Period were artificially inflated due to the
nondisclosure and/or misrepresentations complained of herein;
12
f. whether the defendants perpetrated a fraud on
the integrity of the market; and
g. whether the members of the Class have
suffered damages and, if so, the proper measure of such damages.
27. Plaintiff knows of no difficulty which will be
encountered in the management of this litigation which would
preclude its maintenance as a class action.
SUBSTANTIVE ALLEGATIONS
28. CLC went public in May 1995. Since that time, it
has expanded operations by opening new educational centers and
acquiring additional centers.
29. The increase in schools operated by CLC (either
new schools or acquired ones) caused an increase in enrollment,
which, in turn, led to an increase in revenues. Thus, the
Company's 10Q for the period ending October 31, 1997 (filed with
the SEC on September 15, 1997) reported a 49.7% increase in
revenues for the first 9 months of fiscal 1998, primarily on the
strength of an enrollment increase of 39% during that period.
Similarly, the Company reported a 50% increase in earnings for
fiscal year ended January 31, 1998 ($9.6 million, compared with
$5.6 million for 1997). The Company announced that this increase
was primarily on the strength of increase enrollment. For the
period ending January 31, 1998, the Company reported a 56% in
13
enrollment over the prior fiscal year.
30. Throughout the Class Period, a significant portion
of the revenues that CLC realized it came from government
funding, either directly or in the form of government guaranteed
student loans. According to a March 9, 1998 Washington Post
report, federal aid provided almost three quarters of CLC's
revenue.
31. The Company's growth in enrollment and earnings
often led to increases in the Company's stock price. For
instance, the Company announced on December 9, 1997 that it would
acquire Delta College, a Canadian computer training institute in
a stock swap valued at $13 million. The market price rose $3.75
on the news of the acquisition. As reported in the December 9,
1997 Dow Jones News Service, Montgomery Securities analyst Keith
Gay stated "investors had expected the company to begin putting
together earnings-accretive deals and were encouraged to see
their expectations fulfilled."
32. Prior to and throughout the Class Period, the
Company touted its "business model" of growth through increased
enrollment and acquisitions. The Company also constantly
extolled the virtues of the centers themselves. Defendants
represented that the Company's growth and success was
attributable to its ability to provide its students with the
14
necessary training to achieve desirable job placement. For
example, in the 1997 10-K (filed in April 1997), defendants
touted the Company's 90% placement rate of Fiscal 1997 att ; Attributing increased student enrollment to the rise in
earnings, CLC announced revenues of $20,830,000, a 49% increase
from the same period the prior year. It also announced net
income for the first quarter of 1997 increased 86% to $2,243,000,
or $.27 per share. In the release defendant Bechtle stated:
Because of our singular-focus on information technology
education and training, all of CLC's students are
trained in technology which is in use today and for
which employers have the greatest current demand.
Through the continued implementation of CLC's
successful business model, we intend to open five new
Learning Centers this fiscal year which, if
15
accomplished, would double our base since 1995.
As a result of the June 9 press release, shares of CLC stock rose
as much as 16% by the close of trading.
35. In a September 4, 1997 Business Wire release, the
Company reported increased revenues that were driven "primarily
by increased student enrollment."
36. In that same release, defendant Bechtle was quoted
as saying:
"During the second quarter, we opened two new
Learning Centers in Cherry Hill, New Jersey
and Hurst (Forth Worth), Texas as well as our
third Advantec Institute. In August 1997,
classes commenced in our Northeast
Philadelphia Learning Centers. We now
operate 17 learning centers in seven states.
We intend to open two additional learning
centers during fiscal 1998, and two
additional Advantec Institute locations. We
will continue to tailor the curriculum for
our Learning Centers and Advantec Institute
to meet the demands of the nation's
employers."
37. In a press release issued on November 25, 1997 the
Company once again announced an increase in earnings. Revenues
for the three months ending October 31, 1997 increased 52% to
$25,682,000 from $16,888,000 for the same period in the prior
year while revenues for the nine months ended October 31, 1997
increased 50% to $68,650,000 from $45,817,000 the previous year.
Bechtle commented:
16
As the demand for experienced IT workers
continues to grow, CLC remains dedicated to
training technical novices in the skills
which are most in demand by the nation's
employers. Our success in this regard is
evidenced by the fact that historically
approximately 90% of our graduates have
obtained a well-paying, entry-level job in
their field of study.
By the closing bell on November 26, the day following the
announcement, CLC's stock price rose 14%
38. A February 8, 1998 Boston Globe article quoted
defendant Bechtle as saying that CLC "grads are gobbled up as
soon as they complete courses in programming and networking."
The article continued:
Within ten months, Bechtle says, his students
leave with a money-making skill that captures
starting salaries of $27,000 to $33,000 a
year. The ideal student he says comes to his
schools with a Bachelor's degree. "It
translates to a highly marketable candidate
with enormous potential," he says.
39. Similarly, in our February 25, 1997 Business Wire
article, Bechtle stated that CLC's success in training students
"is evidenced by the fact that historically approximately 90% of
our graduates have obtained a well-paying entry level job in
their field of study."
40. Throughout the Class Period, defendants failed to
disclose that: (a) the Company was facing serious operational
problems from its rapid expansion; (b) CLC's public claims
17
regarding the value of the education provided by its students
were false and/or grossly exaggerated; and (c) in many cases,
CLC's admissions focus was geared towards attracting federal aid,
which provides for almost three quarters of the Company's
revenue, even at the expense of knowingly recruiting unqualified
or under qualified students.
41. The illusion crafted by defendants began to
crumble on March 10, 1998, When the Illinois Attorney General's
office, announced that it filed suit against CLC for defrauding
students at CLC's Schaumburg, Illinois campus. As stated in a
release issued by the attorney General on that date:
[the Attorney General's] Consumer
Fraud Division began an
investigation following a referral
from the Illinois State Board of
Education, which had received
numerous complaints from students
enrolled at the school. The
investigation found that the school
made gross misrepresentations in
soliciting students to enroll in
its "Information Technology"
courses.
42. The March 10, 1998 release disclosed that CLC was
charged with, among other things, the following violations:
-- misrepresenting job placement
statistics;
-- misrepresenting class size and the nature of
18
classroom instruction;
-- failing to provide sufficient equipment such as
enough computer terminals;
-- failing to provide adequate facilities for
classroom instruction; and
-- failing to provide materials, books and equipment
necessary for promised curriculum.
43. The Illinois Attorney General's complaint was
supported by affidavits from CLC students, instructors and a
member of the Illinois State Board of Education which supported
that Attorney General's claims regarding CLC's inadequate staff,
facilities, systems and false claims made to students as to the
value of the education provided by CLC.
44. The Illinois Attorney General's investigation also
revealed that the Company had misrepresented and grossly
exaggerated the value of the education provided by the Company to
its students. As the Washington Post reported on March 11, 1998:
Illinois' attorney general sued
Computer Learning Centers Inc.
yesterday, alleging the Fairfax-
based chain of trade schools
defrauded students by promising
them that they could qualify for
high-paying computer jobs and then
failing to provide the training
those jobs require.
19
In the civil lawsuit, filed in
state court in Chicago, the
attorney general asked a judge to
shut down Computer Learning Centers
operations in Illinois.
45. Similarly, the Chicago Tribune reported on March
11, 1998 that:
After the Illinois State Board of
Education received numerous
complaints from angry students,
[Attorney General Jim] Ryan opened
an investigation of Computer
Learning Centers. He said Tuesday
[March 10, 1998] that his office
had determined that the school made
misrepresentations since 1996 to
prospective students in fliers and
admission forms, as well as during
seminars and admissions counseling
meetings.
"When students enrolled, they found
overcrowded classrooms, unprepared
instructors, few computers, books
or other necessary materials," Ryan
said.
46. The announcement of the lawsuit sent CLC's
plummeting, falling 30%, from $36.75 to $29.63 before Nasdaq
halted trading in its shares.
47. As devastating as the Illinois announcement seemed
at the time, it was only the tip of the iceberg with respect to
CLC.
In the days that followed, investors learned that the problems
20
facing the Company were not isolated to Illinois. As the
Washington Post reported on March 11, 1998:
The allegations in the Illinois
lawsuit paralleled complaints filed
with the Virginia Council of Higher
Education in December by 11
students at the company's
Alexandria campus. The students,
who are learning to be computer
technicians, said the latest
computers and software were not
used in their classes and some
faculty members didn't know the
subjects they were teaching.
48. On March 13, 1998, the Washington Post
repeated industry speculation that the problems that
gave rise to the Illinois lawsuit existed in CLC's
centers nationwide. Thus, the Washington Post reported
on an interview it had with Eric Appell, a market
analyst with Sydler Company in Los Angeles. According
to the article, Appell said:
"Analysts anticipate that other
states will follow Illinois' lead,
and examine CLC's performance,
forcing the Company to spend
significant amounts on additional
quality controls in marketing.
Anticipating these costs, his firm
this week lowered CLC's earnings
estimate for fiscal 1999 to $.49 a
share from its earlier $.64
estimate, he said.
"This will have a long term
negative implication for the
21
Company. Reputation is everything,
Appell said. This couldn't have
come at a worst time."
49. An earlier Washington Post article echoed the
sentiment that CLC's problems were hardly limited to its Illinois
facility. The article reported that:
"One [CLC] shortseller sent undercover agents
with hidden tape recorders into CLC's centers
to secretly tape conversations with
admission's officers.
"In ten separate visits to eight schools in
six states, we encountered admission's
counselors whose sole focus was not on
assessing potential student's needs and
capabilities, but rather on verifying the
student's ability to qualify for government
guaranteed student loans, said Michelle
McDonough, Senior Vice President of
Fahnestock & Co., in New York.
"Even after potential students deliberately
bombed the admission's test to the point of
missing over 75% of the questions
admission's counselors congratulated them on
how well they had done and encouraged them to
apply for loans."
50. The reports of this widespread fraud were so
devastating that CLC stock fell 14% on March 13, 1998, even
though the Company announced better than expected fourth quarter
earnings; earnings that one analyst described as "fantastic." As
analyst, Appell, said in the March 13, 1998 Washington Post
article, the positive earnings report is just "a picture of the
past. It won't help them in the future, unfortunately."
22
51. All told, in the six trading days, beginning on
March 10, 1998, when the truth concerning the Company's
operations first leaked into the marketplace, CLC's stock price
plunged more than 49% from $36.875 to $18.625 per share.
52. As a result of defendants' materially false and
misleading statements and omissions regarding the Company's
operational problems, the price of CLC stock was inflated
throughout the Class Period and plaintiff and the members of the
Class have been damaged.
COUNT I
(AGAINST ALL DEFENDANTS)
FOR VIOLATION OF SECTION 10(b) OF THE 1934 AC
53. Plaintiff repeats and incorporates the allegations
in the foregoing paragraphs as if fully set forth herein.
54. During the Class Period, CLC and the Individual
Defendants issued releases, statements and reports which
misrepresented CLC's business prospects and inflated the market
prices of CLC's common stock throughout the Class Period. These
reports contained untrue statements of material facts and omitted
to state material facts necessary in order to make the statements
made, in light of the circumstances under which they were made,
not misleading, in violation of Section 10(b) of the 1934 Act and
Rule 10b-5, promulgated thereunder.
23
55. It was the purpose and intent of CLC and the
Individual Defendants, in making the foregoing false statements,
misrepresentations and omissions, to deprive purchasers of CLC
common stock and the marketplace of the true facts concerning
CLC's performance.
56. CLC and the Individual Defendants engaged in acts,
practices and courses of business which operated as a fraud and
deceit upon the Plaintiff and the Plaintiff Class, and employed
devices, schemes, and artifices to defraud and engaged in acts,
practices, and a course of conduct in an effort to maintain
artificially high market prices for CLC's common stock in
violation of Section 10(b) of the 1934 Act and Rule 10b-5.
57. CLC and the Individual Defendants, by acting as
described above, did so knowingly and intentionally or in such a
reckless manner as to constitute a willful deceit and fraud upon
the Plaintiff and the Plaintiff Class. They acted with scienter.
With knowledge or reckless disregard of CLC's true prospects, CLC
and the Individual Defendants caused the reports, statements and
releases to contain misstatements and omissions of material fact
as alleged herein.
58. During the Class Period, CLC and the Individual
Defendants, individually and in concert, directly and indirectly,
by the use, means or instrumentalities of interstate commerce
24
and/or of the mails, engaged in and participated in a continuous
course of conduct and conspiracy to conceal adverse material
information regarding the performance of CLC's educational
facilities. CLC, and the Individual 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 CLC'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 CLC and its business operations in
the light of the circumstances under which they were made, not
misleading, as set forth more particularly herein, and engaged in
transactions, practices and a course of business which operated
as a fraud and deceit upon the purchasers of CLC stock during the
Class Period.
59. Each of the Individual Defendants' primary
liability, and controlling person liability, arises from the
following facts:
a. Each of the Individual Defendants was a high-
level officer of CLC during the Class Period and was a principal
member of CLC's management team;
25
b. Each of the Individual Defendants, by virtue
of his responsibilities and activities as a senior officer and/or
director of CLC, was privy to and participated in the creation,
development, and dissemination of CLC's public statements;
c. Each of the Individual Defendants enjoyed
significant personal contact and familiarity with the other
Individual Defendants and was advised of and had access to other
members of CLC's management team, internal reports and other data
and information about CLC's finances and financial performance at
all relevant times; and
60. Each of the Individual Defendants was aware of
and/or caused or controlled CLC's dissemination of information to
the investing public which he knew was or recklessly disregarded
the fact that it was materially false and misleading.
61. CLC and the Individual Defendants knew that the
marketplace would rely upon the financial information and
accounts of operations and performance they were disclosing about
CLC in establishing the price at which CLC's common stock would
trade, and that the Plaintiff and the Plaintiff Class would rely,
directly or indirectly, upon that information in deciding whether
to purchase shares of CLC common stock and in deciding what price
to pay for shares of CLC stock.
62. CLC and the Individual Defendants have engaged in
26
some or all of, and rendered substantial assistance to, the
unlawful acts, plans, schemes, transactions and activities to
defraud alleged herein. In the course of their participation in
the unlawful acts, plans, schemes, transactions and activities to
defraud, said defendants agreed to perform and did perform, or
substantially assisted the performance of, acts in furtherance of
the unlawful scheme to defraud the Plaintiff and the Plaintiff
Class. CLC and the Individual Defendants are sued as direct
participants, and also as co-conspirators, in the illegal
practices complained of herein, in that they prepared, approved
of or disseminated materially misleading statements or omissions,
or provided false or misleading information to the investing
public.
63. As a result of the materially false and misleading
information and failure to disclose material facts, as set forth
above, the market price of the Common Stock of CLC during the
Class Period were artificially inflated during the Class Period.
64. In ignorance of the fact that market prices of
CLC's publicly traded common stock were artificially inflated,
and relying directly or indirectly on the false and misleading
statements made by defendants, or upon the integrity of the
market in which the securities trade, and the truth of any
representations made to appropriate agencies and to the investing
27
public, at the times at which any statements were made, and/or on
the absence of material adverse information that was known to or
recklessly disregarded by defendants but not disclosed in public
statements by defendants during the Class Period, plaintiff and
the Plaintiff Class acquired CLC's common stock during the Class
Period at artificially high prices and were damaged thereby.
65. At the time of said misrepresentations and
omissions, plaintiff and other members of the Class were ignorant
of their falsity, and believed them to be true. Had Plaintiff
and the Plaintiff Class and the marketplace known of the true
performance of CLC's educational facilities, the Plaintiff and
the Plaintiff Class would not have purchased or otherwise
acquired their CLC common stock during the Class Period or, if
they had acquired CLC common stock during the Class Period they
would not have done so at the artificially inflated prices at
which they purchased their CLC stock during the Class Period.
66.&nb p; COUNT II
(AGAINST THE INDIVIDUAL DEFENDANTS)
FOR VIOLATION OF SECTION 20(a) OF THE 1934 AC
68. The Plaintiff repeats and incorporates the
allegations in the foregoing paragraphs as if fully set forth
herein.
69. Because of their executive, managerial and
directorial positions with CLC, the Individual Defendants had
access to the adverse confidential and material information about
CLC's financial performance and approved the misleading
statements and omissions as particularized herein and acted to
conceal them. The Individual Defendants because of their
respective positions of control and authority as principal
executive officers and directors of CLC, were able to and did,
directly or indirectly, control the content of the CLC's various
publicly disseminated reports, press releases and statements.
The Individual Defendants had and exercised the power and
influence to cause CLC to engage in the illegal practices
complained of herein. Any acts attributed to CLC were caused
and/or influenced by the Individual Defendants by reason of their
domination and control of CLC.
70. As officers and directors of a publicly held
29
Company and/or its subsidiaries, the Individual Defendants had a
duty to disseminate accurate and truthful information with
respect to CLC's business, operations and financial performance
so that the market price of CLC's securities would be based on
truthful, accurate and timely disclosure of all material
information.
71. The Individual Defendants participated in the
wrongdoing alleged in order to continue and prolong the illusion
of CLC's strong prospects and to conceal the adverse facts
concerning their operations and financial performance, and did
not act in good faith, so that they could:
a. artificially inflate and maintain the price
of CLC's stock;
b. protect their executive positions and the
substantial compensation and prestige they obtained thereby;
and/or
c. conceal and cover-up their own prior and
continuing misconduct.
d. sell their own shares of CLC stock at
artificially inflated prices.
72. The Individual Defendants were controlling persons
of CLC within the meaning of Section 20(a) of the 1934 Act and
pursuant to said Section 20(a) are jointly and severally liable
30
with CLC for CLC's violations of Section 10(b) of the 1934 Act
and Rule 10b-5 promulgated thereunder.
PRAYERS FOR RELIEF
WHEREFORE, the Plaintiff demands judgment against the
defendants, and each of them jointly and severally, as follows:
A. Determining that this suit is a proper Plaintiff
class action and certifying the Plaintiff as Plaintiff class
representative pursuant to Rule 23 of the Federal Rules of Civil
Procedure;
B. Declaring that the Defendants violated the federal
securities laws, as alleged herein;
C. Awarding the Plaintiff and the Class damages as a
result of the violations set forth in this Complaint with
interest thereon;
D. Awarding the Plaintiff and the Class the costs and
disbursements of this action, including reasonable attorneys'
fees as well as costs and fees paid to accountants and other
experts; and
E. Granting such other and further relief as the
Court may deem just and proper.
Dated: March __, 1998
Respectfully submitted,
31
FUTTERMAN & HOWARD, CHTD
By: _______________________________
Ronald L. Futterman
Michael I. Behn
122 South Michigan Ave.
Suite 1850
Chicago, Illinois 60603
(312) 427-3600
and
Jeffrey H. Squire, Esq.
Ira M. Press, Esq.
KAUFMAN MALCHMAN KIRBY & SQUIRE,
LLP
919 Third Avenue
11th Floor
New York, New York 10022
(212) 371-6600
Attorneys for Plaintiff
C:\Eudora\Attach\COMPLAIN.SPI/031798c
32
Source: File to epost from Kaufman Malchman Kirby & Squire, LLP