UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
ROBIN FERNHOFF, )
individually, and )
on behalf of all ) Case No. 96-200-CIV-T-21C
others similarly )
situated, ) CLASS ACTION COMPLAINT
Plaintiff, )
)
- against - ) JURY TRIAL DEMANDED
)
NUMED HOME HEALTH )
CARE, INC., JUGAL )
K. TANEJA, and )
A.T. BROD & CO., INC., )
)
Defendants. )
------------------------)
Plaintiff, for her Class Action Complaint, alleges upon
knowledge as to those allegations pertaining to herself and her
counsel, and upon information and belief with respect to all other
matters, based upon the investigation of plaintiff's counsel, which
included but was not limited to, counsel's review of public
records, including those filed with the Securities and Exchange
Commission (the "SEC"), and news articles, as follows:
SUMMARY OF CLAIMS
1. This is a class action brought on behalf of persons
who purchased units consisting of two shares of common stock of
NuMed Home Health Care, Inc. ("NuMed" or the "Company") and two
NuMed warrants pursuant to a prospectus dated February 8, 1995 (the
"Prospectus"). A total of 1,100,000 units at a price of $7.25 per
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unit were offered, with a 45-day over-allotment option granted to
the underwriter to purchase up to 165,000 additional units solely
to cover over-allotments, for a total of 1,265,000 units offered
and sold (the "Offering"). In violation of the federal securities
laws, defendants prepared and disseminated the Prospectus which
contained material misrepresentations and omissions regarding,
inter alia, existing facts as to the lead underwriter's
deteriorating financial condition and its inability to satisfy its
minimum net capital requirements just prior to the Offering. It
was reasonably foreseeable that Brod's insufficient capitalization
which was only temporarily "cured" by loans and advances from
affiliates so that Brod could serve as the lead underwriter for the
Offering, would, inter alia, prevent Brod from acting as the
primary market maker in NuMed securities and would render NuMed
securities illiquid.
2. This action arises under Sections 11 and 12(2) of the
Securities Act of 1933 (the "1933 Act"), 15 U.S.C. §§77k and 771,
respectively. This Court has jurisdiction over the action under 28
U.S.C. §1331, and by virtue of claims that arise under the laws of
the United States.
3. Venue is proper in this District pursuant to Section
22 of the 1933 Act, 15 U.S.C. §77v, and pursuant to 28 U.S.C.
§ 1391(b). The Company's principal executive offices are located in
this District, and the offer and sale of the subject securities
occurred in this District.
4. Defendants offered, sold, and solicited sales of the
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units directly and indirectly by using the means and
instrumentalities of interstate commerce, and the United States
mails, and by the indirect use of the Nasdaq SmallCap Market and
the Boston Stock Exchange.
THE PARTIES
5. Plaintiff Robin Fernhoff purchased 1000 units of
NuMed securities on February 8, 1995 pursuant to the Prospectus.
6. Defendant NuMed was formed in 1987 under the laws of
the State of Nevada. NuMed provides home health care services,
which includes intermittent care and private duty care, and
temporary staffing of nursing personnel, through six wholly-owned
operating subsidiaries in certain markets in Florida, Ohio, and
Pennsylvania. NuMed's principal executive offices are located at
5770 Roosevelt Boulevard, Suite 700, Clearwater, Florida 34620.
7. Defendant Jugal K. Taneja ("Taneja") was, at all
relevant times, the Chairman of the Board and Chief Executive
Officer of NuMed, and he has served continuously as a director of
NuMed since October 1991. Taneja was, at all relevant times, a
member of NuMed's Compensation Committee which established the
Company's executive compensation policy, and he was a member of the
Capital Committee which reviews and oversees the Company's
investment policy.
8. Taneja was also, at all relevant times, the Chairman,
Chief Executive Officer, director and controlling shareholder of
A.T. Brod & Co., Inc. ("Brod"), which served as the lead
underwriter of the Offering, and primary market maker for NuMed
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securities until its collapse in late March 1995. Defendant Taneja
also owns and controls Bancapital Corporation ("Bancapital"), and
is the President and Chief Executive Officer of Bancapital, as well
as the President of Bancapital Management Corporation.
9. Pursuant to a Professional Services Agreement with
Bancapital, Bancapital was to furnish certain professional services
to NuMed in return for fees of approximately $10,000 per month at
the time of the Offering, and other consideration. These
professional services included, but were not limited to, all
corporate record keeping, income tax filings, assistance in filings
with the Securities and Exchange Commission ("SEC"), as well as
financial statement preparation, financial planning, and other
administrative matters. For 1995 and 1994, NuMed incurred annual
expenses of $118,000 for these Bancapital services. The aforesaid
agreement was terminated on March 31, 1995.
10. Defendant Taneja received no direct compensation
from NuMed for the fiscal years ended March 31, 1992, 1993 and
1994. Pursuant to the above-described Professional Services
Agreement by and between NuMed and Bancapital, Taneja's services
were provided to NuMed at an agreed upon price. As stated above,
the Professional Services Agreement was terminated on March 31,
1995. For his services on behalf of NuMed, Taneja received a
salary of $60,000 in fiscal year 1995, with other annual
compensation of $2,900. In fiscal year 1994, Taneja received no
direct salary, but received $3,200 in other annual compensation,
and 160,000 NuMed stock options purportedly in recognition of
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certain personal guarantees of NuMed's debt. As of the date of the
Prospectus, a $70,000 term loan guaranteed by Taneja, was expected
to be paid in full from a portion of the net proceeds of the
Offering. As of January 25, 1996, Taneja beneficially owned
733,280 shares of NuMed, or 32.9% of its outstanding stock,
including beneficial ownership of 169,880 shares of common stock
owned by First Delhi Trust, a trust for Taneja's children over
which he exercises voting rights, and 160,000 shares issuable under
currently exercisable stock options. This figure excludes 209,820
shares beneficially owned by his wife, Manju Taneja, and 40,000
shares owned by Brod.
11. On November 11, 1993, NuMed entered into an
employment agreement with defendant Taneja; however, NuMed has no
liability or any obligation under Taneja's employment contract
until 50% of NuMed common stock is acquired by a party and/or
affiliate other than Taneja and the respective executive officers.
12. By reason of Taneja's positions as an officer and
director of NuMed at the time of the Offering, and his execution of
the Registration Statement, of which the Prospectus is a part,
Taneja is accountable to plaintiff and the Class for material
misrepresentations and omissions in connection with the Offering.
13. Defendant Brod was, at all relevant times, a New
York corporation formed for the purpose of conducting business as
a broker/dealer in securities and as an over-the-counter market
maker. Brod was, at all relevant times, a wholly-owned subsidiary
of Bancapital Financial Corporation, located in Cleveland, Ohio.
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Taneja is the Chief Executive officer and owner of approximately
90% of the issued and outstanding shares of capital stock of
Bancapital Financial Corporation. Brod was the lead underwriter of
the Offering, and was also the primary market maker for NuMed
securities, prior to its financial collapse.
CLASS ACTION ALLEGATIONS
14. Plaintiff brings this action as a class action
pursuant to Rules 23(a) and (b)(3) of the Federal Rules of Civil
Procedure on behalf of a class (the "Class") consisting of all
persons who purchased or otherwise acquired the units of NuMed
securities pursuant to the Prospectus dated February 8, 1995, and
who were damaged thereby. Excluded from the Class are the
defendants named herein, members of Taneja's immediate family, his
heirs, successors and assigns, and any subsidiary, affiliate,
officer, or employee of any of the defendants.
15. The members of the Class are so numerous that
joinder of all members is impracticable. As of February 7, 1995,
there were 684 record holders of NuMed common stock. As of June
19, 1995, the number of NuMed shares outstanding was 4,898,914.
The Class consists of hundreds of beneficial owners of NuMed stock.
16. Plaintiff's claims are typical of those of the
other members of the Class. Plaintiff and the other members of the
Class sustained injury as a result of defendants' acts as alleged
herein.
17. Plaintiff will fairly and adequately protect the
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interests of the other members of the Class and has retained
counsel competent and experienced in class and securities
litigation. Plaintiff's interests are not antagonistic to those of
any other class members, and they are not subject to any unique
defenses,
18. 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 common questions
of law and fact common to the Class are:
(a) whether defendants violated the federal
securities laws;
(b) whether the Prospectus and other statements and
information issued by or on behalf of NuMed and disseminated to the
investing public either materially misrepresented, or omitted to
state material facts about Brod, the primary underwriter of the
Offering, and the primary market maker for NuMed securities;
(c) whether plaintiff and the Class have been
damaged, and if so, what is the proper remedy and measure of
damages under the applicable law for the wrongs complained of
herein; and
(d) whether plaintiff and the Class are entitled to
rescind their purchases of NuMed units or, in the alternative,
recover rescissory damages.
19. A class action is superior to other available
methods for the fair and efficient adjudication of this controversy
since joinder of all members of the Class would be impracticable;
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damages to each individual member of the Class may be relatively
small; and, the expense and burden of individual litigation makes
it impossible for Class members to individually redress the wrongs
done to them. In addition, the bringing of individual actions
would put a substantial and unnecessary burden on the courts, while
a single class action can determine the rights of all class members
with judicial economy. There will be no difficulty in the
management of this action as a class action.
SUBSTANTIVE ALLEGATIONS
Brod's Net Capital Deficit
20. At all relevant times, Brod, a broker/dealer,
operated under the provisions of Paragraph (k)(2)(ii) of Rule 15c3-
3 of the SEC which provided that Brod clear all transactions on
behalf of its customers on a fully disclosed basis with a clearing
broker/dealer. Brod's clearing broker/dealer, Kemper Clearing
Corp. ("KCC"), carried all of the accounts of Brod's customers and
maintained and preserved all related books and records customarily
kept by the clearing broker/dealer.
21. Note 7 of Brod's Form X-17A-5 Annual Audited Report
for the period January 1, 1994 to December 31, 1994 filed on March
2, 1995 (the "1994 Annual Report") disclosed that Brod's minimum
net capital requirement under Rule 15c3-1 promulgated by the SEC
was $250,000, whereas Brod's net capital as computed was $104,786,
resulting in a net capital deficit of $145,214. Brod's capital
8
ratio was computed at 822%, as against an allowable maximum of
1500%.
22. In a purported effort to cure the deficiency in its
net capital, Brod entered into a Temporary Cash Subordination
Agreement ("Temporary Agreement") with an officer and preferred
stockholder of the Company in the amount of $1,000,000 on January
26, 1995, just 13 days before the Offering became effective. Upon
information and belief, the officer making this agreement was
Taneja. The Temporary Agreement provides for interest at a rate of
12% per annum and was to mature on March 12, 1995.
23. Note 11 to the financial statements included in
Brod's 1994 Annual Report states that on March 1, 1995, Brod
indicated its intention to convert $250,000 of the Temporary
Agreement to a secured demand note payable subordinated to claims
of general creditors. Note 11 states, in pertinent part, that:
The subordinated loan agreement with
this stockholder is expected to
mature in three years. The
agreement which will be
collateralized by marketable
securities, owned by the
stockholder, is expected to be
approved by the New York Stock
Exchange, Inc. and would thus be
available in computing net capital
under the Securities and Exchange
Commission's Uniform Net Capital
Rule. To the extent that such
borrowings are required for the
Company's continued compliance with
minimum net capital requirements, it
cannot be repaid.
24. Note 4 of Brod's financial statements and its
Statement of Financial Condition included in its 1994 Annual Report
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evidence subordinated liabilities of $200,000 pursuant to a secured
subordinated loan note agreement due April 23, 1996. That loan
agreement, like the proposed $250,000 secured demand note payable
described in paragraph 23, above, was apparently also used in
computing and complying with minimum net capital requirements.
Even with the additional funds, Brod was not in compliance with
minimum net capital requirements just prior to the effective date
of the Offering.
25. Accordingly, Brod's 1994 Annual Report which was
prepared during the Offering shows that Brod was unable to satisfy
its minimum net capital requirements to back its securities
transactions without the aid of another proposed loan from one of
its officers (believed to be Taneja).
26. Note 10 to Brod's financial statements included in
its 1994 Annual Report also indicates an approximate $118,000
noninterest bearing advance receivable being made to Brod from
Brod's parent, Bancapital Financial Corp., which further
underscores Brod's undercapitalized position at the time of the
Offering. As set forth in paragraph 13 above, defendant Taneja is
the Chief Executive Officer and owner of approximately 90% of the
issued and outstanding stock of Bancapital Financial Corp. As
further set forth in paragraph 9 above, NuMed is reported to have
paid Bancapital, another Taneja controlled affiliate, $118,000 in
fiscal 1994 pursuant to a purported Professional Services Agreement
between NuMed and Bancapital for certain services allegedly
rendered to NuMed by, inter alia, defendant Taneja and Bancapital.
10
Upon information and belief, the $118,000 paid by NuMed to
Bancapital, was then channeled to Bancapital Financial Corp., and
ultimately to Brod, so as to bolster Brod's capitalization in order
to satisfy its net capital requirements and proceed with the
Offering.
27. Note 8 to Brod's financial statements included in
its 1994 Annual Report discusses a condition that also could
adversely impact upon Brod's net capital, as follows:
In addition, the Company has sold
securities that it does not
currently own and will therefore be
obligated to purchase such
securities at a future date. The
Company has recorded these
obligations in the financial
statements at the December 31, 1994
market values of the related
securities and will incur a loss if
the market value of the securities
increases subsequent to December 31,
1994.
The Offering
28. Despite known facts in existence at the time of the
Offering as to Brod's ailing financial condition, Taneja caused
NuMed to select Brod as the lead underwriter of the Offering and
principal market maker in NuMed securities.
29. Brod was engaged as the lead underwriter by NuMed on
a firm commitment basis.
30. On February 7, 1995, the day before the Prospectus
became effective, the closing bid quote of NuMed common stock was
$3 3/8 per share. On January 18, 1995, just three weeks before the
effective date of the Prospectus, NuMed began being quoted on the
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Nasdaq SmallCap Market ("NSCM"). Prior thereto and since May 2,
1994, NuMed common stock was traded on the American Stock Exchange
Emerging Company Marketplace ("AMEX ECM"), where net capital
requirements to back broker/dealer securities transactions are
lower than the requirements for the NSCM.
31. NuMed received approximately $7,545,000 in net
proceeds from the Offering of 1,265,000 Units, in February 1995.
32. As disclosed on page 21 of NuMed's Form 10-KSB filed
on June 28, 1995 with the SEC, Brod received substantial benefits
for its underwriting services, including the following:
a. Approximately $1.3 million in various fees,
commissions and underwriting discounts;
b. The option to purchase an additional 110,000
NuMed units at an exercise price of 165% of the initial per unit
Offering price;
c. A warrant solicitation fee of 5% of the
exercise price of the warrants exercised beginning February 8,
1996;
d. A "non-accountable expense allowance" equal to
3% of the aggregate gross proceeds from the Offering, of which
$50,000 had been paid as of the date of the Prospectus (3% of the
aggregate offering price of $7,975,000 would have amounted to
$239,250);
e. For a period of five years after the date of
the Prospectus, Brod was granted the right to designate two persons
as nominees for election to NuMed's Board of Directors;
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f. NuMed also agreed to retain Brod, pursuant to
a financial consulting agreement, for a one-year period. Pursuant
to this agreement, Brod was to receive a fee of $79,750 (1% of the
gross proceeds raised in the Offering), to be paid upon the closing
of the Offering, as well as the reimbursement of certain expenses
incurred during the term of the agreement;
g. During fiscal year 1995, NuMed also paid
Bancapital an additional $20,000 for services related to the
Offering.
33. Thus, Brod received, in cash alone, over 20% of the
gross proceeds of the Offering in either direct commissions or a
"non-accountable expense allowance."
Brod's Financial Collapse
34. On March 27, 1995, Brod received an unusually high
number of sell orders in securities in which it served as a market
maker. In an effort to make a market for those securities, Brod
was required to commit its capital to purchase the subject
securities. As a result of excessive trading losses on those
purchases, Brod violated certain rules of the SEC and the NYSE
which require securities broker/dealers to maintain a minimum level
of net capital.
35. As reported in the financial media on March 27,
1995, less than two and one-half months after the effective date of
the Offering, Brod, the principal market maker of NuMed securities
was prohibited from trading on the NSCM for its failure to maintain
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minimum capital requirements. This suspension had an immediate
adverse impact upon the trading market for NuMed securities, as
confirmed in NuMed's Form 10-KSB filed with the SEC on June 28,
1995. In fact, as reported by the Bloomberg Business News on March
27, 1995, NuMed stock dropped 23.5% and closed on that date at
$1.375 per share. Other brokerage houses quickly stopped trading
in the securities for which Brod made a market, after Brod was shut
down, because as one trader, Steve Wien of The Wien Securities
Corp., stated
There's no use trading in the stocks
now, because A.T. Brod ran the
show...The stocks became illiquid
and there's no reason to drop a ton
of money trading them.
36. As reported in NuMed's Form 10-KSB filed June 28,
1995, NuMed does not believe Brod will resume its brokerage or
investment banking business.
37. Pursuant to a Schedule 13G filed by KCC on April 13,
1995, KCC was deemed the beneficial owner of 601,393 shares of
NuMed (approximately 14.1% of the outstanding shares) as of March
31, 1995. Pursuant to the clearing agreement between KCC and Brod,
dated December 10,1993, KCC made certain cash advances to Brod in
connection with Brod's activities as, inter alia, a market maker in
certain securities. Pursuant to this clearing agreement, KCC had
a possessory lien on securities in Brod's proprietary account
carried by KCC, and KCC could exercise dispositive power over those
securities in the event of default, including Brod's holdings of
NuMed stock.
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38. Accordingly, on April 13, 1995, pursuant to its
clearing agreement with Brod, KCC sold 588,000 shares or 13.77% of
all NuMed stock outstanding to M.S. Farrell & Co., Inc. ("MSF").
Upon information and belief, Taneja had caused Brod to buy such an
unusually large amount of NuMed stock, often using borrowed funds,
in order to artificially maintain the price of NuMed securities for
shares he and his family owned. This benefitted Brod in at least
two ways. First, since at least a portion of the NuMed securities
owned by Taneja and/or Brod were pledged, the value of the
collateral was artificially maintained, which avoided a margin
call. Also, the higher trading prices would reduce Brod's net
capital requirements which was of particular importance since Brod
had a huge net capital deficit just prior to the Offering.
Accordingly, when Brod collapsed, it could no longer support the
market price of NuMed stock which immediately fell.
39. As of June 16, 1995, the average bid and ask price
of NuMed's stock was $1.34 per share, down from $3.38 per share on
February 7, 1995.
Material Misstatements and Omissions in the Prospectus
40. One of the purported "Risk Factors" set forth in the
Prospectus entitled "Possible Restriction on Representative's
[Brod's] Ability to Make a Market in the Company's Securities,"
states, in part:
Additionally, the rules of the NASD
for initial and continued inclusion
on the Nasdaq SmallCap Market
require that there be at least two
market makers for the common stock
and Warrants. There can be no
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assurance that there will be two
market makers for the Common Stock
and Warrants in the event the
Representative ceases making a
market.
This statement is materially misleading in that it omits to state
facts in existence at the time of the Offering and the preparation
of the offering documents; i.e., that, but for a temporary loan
from one of its officers, Brod, at or about the time of the
Offering, had a net capital deficit of $145,214, and could not
satisfy its minimum net capital requirement of $250,000. It was a
foreseeable risk that Brod's substantial net capital deficit, which
was only marginally and temporarily cured by a short-term loan,
coupled with the speculative stocks Brod made a market in, would
make Brod a ripe target for short sellers. For example, as
reported in the Bloomberg News, short sellers began targeting
speculative Nasdaq stocks after Adler Coleman & Co. shut down when
its capital was depleted as a result of losses suffered from the
collapse of the brokerage house Hanover Sterling & Co. According
to Bloomberg News, "The plunge in shares sponsored by Hanover
Sterling also raised questions about the quality of companies
traded on the Nasdaq and the securities firms that make markets in
the stocks." Since it was the principal market maker for NuMed
securities, it was also foreseeable that if Brod could not satisfy
and maintain its minimum net capital requirements, it could not
continue to make a market in NuMed securities which would render
those securities illiquid, and cause the price of NuMed stock to
drop.
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41. Another Risk Factor entitled "Absence of Public
Market for Warrants; Limited Market for Common Stock" is also
materially misleading. This Risk Factor states, in pertinent part:
The Company has received approval
and intends to also have the
Warrants quoted on the Nasdaq
SmallCap Market upon the
consummation of this offering.
There can be no assurance that an
active trading market will develop
at the conclusion of this offering
or that such a market, if developed,
will be sustained. Purchasers of
the Units may, therefore, have
difficulty in selling their
securities should they desire to do
so.
The above statements are misleading because they omitted to state
existing factual information concerning Brod's inability to satisfy
its minimum net capital requirements without a temporary loan, as
more fully discussed above. Brod's tenuous financial condition
made it likely that Brod's ability to maintain its minimum net
capital requirements was in jeopardy from the outset of the
Offering, which would, in turn, impact upon Brod's ability to serve
as the primary market maker for NuMed securities, if Brod fell
below SEC and NYSE capital requirements.
42. Another Risk Factor, "Volatility of Stock Price,"
cautions, in part:
[F]actors which may be unrelated to
the operating performance of the
Company, may adversely affect the
price of Common Stock and Warrants,
and may result in the price of the
securities falling substantially
below the public offering price.
The above Risk Factor is materially misleading because it failed to
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disclose that Brod had to obtain a temporary loan in order to meet
its minimum net capital requirement of $250,000, and that factors
relating to Brod's ability to meet its net capital requirements
could adversely impact the price of NuMed stock and warrants if
Brod were required to cease its market making activities. In that
event, the price of NuMed stock would fall because the stock would
become illiquid.
43. The Prospectus further states at page 11 that:
Conflicts of Interest. Affiliates
of Jugal K. Taneja, the Company's
chairman and Chief Executive
Officer, have in the past and will
in the future perform management,
administrative, and financial
services for the
Company...Management believes the
furnishing of such services has been
and will continue to be on terms
which are reasonable, although such
terms are not and will not be the
result of actual arms length
negotiation. [emphasis added].
Defendants acknowledged the many conflicts of interest of Taneja
and his affiliates, and particularly his positions as Chairman and
Chief Executive Officer of the issuer, NuMed, and as Chairman,
Chief Executive Officer and a controlling shareholder of the
underwriter of the Offering, created a lack of independence.
Indeed, the Prospectus discloses that under Schedule E of the By-
Laws of the National Association of Securities Dealers, Inc.
("NASD"), when a member of the NASD, such as Brod (which is
indirectly owned and controlled by Taneja, who is an officer and
director of the issuer), participates in the public distribution of
securities of an affiliated company, "the public offering can be no
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higher than recommended by a qualified independent underwriter
meeting certain standards and who must also perform certain other
functions in connection with [the] offering." Prospectus at 47.
44. While retaining the investment banking firm of
Neidiger/Tucker/Bruner, Inc. purportedly to recommend a maximum
offering price for the Units had the appearance of lending some
degree of independent judgment to the pricing of the Offering, it
did not resolve the myriad of problems created by the lack of an
independent underwriter in this instance. Section 11 of the 1933
Act and case law thereunder imposes an obligation on the
underwriter to conduct a reasonable investigation into the accuracy
of the facts set forth in the Registration Statement. With respect
to facts relating to Brod, its finances, and its capital reserves,
and loans made to Brod by Taneja, Brod was in the untenable
position of conducting due diligence upon itself and Taneja.
45. The Prospectus also states at page 16 that on
January 18, 1995, NuMed's common stock was approved for quotation
on the NSCM, whose minimum net capital requirements were higher
than those for the previous market on which NuMed securities were
listed. This placed further undisclosed pressure on Brod's already
weak net capital position.
COUNT I
Against all defendants for violations
of Section 11 of the 1933 Act
46. Plaintiff repeats and realleges paragraphs 1 through
45 above as if fully set forth herein.
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47. NuMed offered and sold its securities to the
investing public pursuant to the terms of the Registration
Statement, filed with the SEC, which became effective on or about
February 8, 1995.
48. Pursuant to §ll of the 1933 Act, plaintiff and the
Class are entitled to recover damages jointly and severally from
all of the defendants herein.
49. The Registration Statement, of which the Prospectus
is a part, contained untrue statements of material facts and
omitted facts necessary in order to make the statements made, in
light of the circumstances under which they were made, not
misleading. Specifically, the Prospectus was materially misleading
because it did not disclose that just prior to the Offering, Brod
did not have sufficient net capital to satisfy even half of the
$250,000 minimum level required for securities transactions.
Additionally, it was not disclosed in the Prospectus that a loan to
Brod from one of Brod's officers was necessary just weeks before
the Prospectus became effective in order for Brod to satisfy even
the minimum net capital requirements. Defendants Taneja and NuMed
nevertheless selected Brod to serve as the lead underwriter of the
Offering and the primary market maker; however, if Brod could no
longer make a market in NuMed securities, the stock and warrants
purchased by plaintiff and the Class would become illiquid, and the
price would drop accordingly. By virtue of Taneja's admittedly
conflicted transactions, the retention of Brod's services was not
on terms that were reasonable to NuMed as a result of Brod's net
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capital deficit just prior to the Offering. These nondisclosures
were material, and the practices described herein ultimately caused
the collapse of the market price of NuMed securities.
50. By reason of his positions with NuMed, Brod,
Bancapital and Bancapital Financial Corp., Taneja clearly lacked
any reasonable grounds for the belief that the statements in the
Prospectus concerning the retention of Brod as the lead underwriter
were true and complete. As evidenced in Brod's public documents,
Brod was not sufficiently capitalized to serve as the underwriter
for the Offering.
51. All of the defendants were responsible for the
materially false and misleading contents of the Prospectus.
52. Plaintiff and the members of the Class purchased the
NuMed units pursuant to the Prospectus without knowledge of the
materially false statements and omissions alleged herein.
53. This action was commenced within one year from when
NuMed units were first sold to the public, and within one year
after the discovery of untrue statements and the omissions of
material fact or after such discovery could have been made with
reasonable diligence, and was thus brought within the time provided
by §13 of the 1933 Act.
54. As a direct and proximate result of defendants'
wrongful conduct, plaintiff and the Class have suffered substantial
damages.
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COUNT II
Against defendants NuMed and Taneja for
Violations of Section 12(2) of the 1933 Act
55. Plaintiff repeats and realleges paragraphs 1 through
54 as if fully set forth herein.
56. NuMed offered and sold units, consisting of common
stock and warrants of NuMed, by means of a Prospectus and by use of
the means and instrumentalities of transportation or communication
in interstate commerce or of the mails. Defendant Taneja, by
reason of his financial stake in the success of the Offering, both
as a controlling shareholder of NuMed and a controlling shareholder
of Brod, were sellers of units in the Offering within the meaning
of Section 12(2). Taneja authorized the actions of Brod,
controlled Brod, and assisted in the preparation of the offering
documents, including the Prospectus, and solicited and caused Brod
to solicit purchases of NuMed units, motivated by his own financial
interests and the interests of his affiliated entities, including
Brod, Bancapital, and Bancapital Financial Corp., which are
directly or indirectly owned and controlled by defendant Taneja.
57. As more fully particularized herein, the Prospectus
contained untrue statements of material fact and omitted to state
material facts necessary to make those statements therein not
misleading. By virtue of his positions as Chairman, Chief
Executive Officer, and a controlling shareholder of Brod, as well
as his positions as President and Chief Executive of NuMed, Taneja
knew, or in the exercise of reasonable care, should have known of
Brod's net capital deficit just prior to the Offering, and its
22
ailing financial condition.
58. Plaintiff and the other members of the Class
acquired NuMed units in the Offering without knowledge of the
untruths and omissions alleged herein.
59. This action is brought within one year after the
Offering and within one year of the of the discovery of the
material misstatements and omissions described herein.
60. Plaintiff and the Class hereby tender all right,
title and interest in their NuMed units to the defendants or, in
the alternative, seek rescissory damages based on the Offering
price of $7.25 per unit, together with interest thereon, as
provided by law.
WHEREFORE, plaintiff demands judgment individually and
on behalf of the Class, as follows:
(a) Determining that the instant action is a proper
class action maintainable under Rule 23 of the Federal Rules of
Civil Procedure, and certifying plaintiff as a proper
representative of the Class;
(b) Awarding damages against each defendant jointly
and severally and in favor of plaintiff and all other members of
the Class herein on Count I in an amount to be determined to have
been sustained by plaintiff and the other members of the Class;
(c) Awarding a judgment granting rescission, or, in
the alternative, rescissory damages against defendant Taneja and
NuMed and in favor of plaintiff and the Class on Count II;
(d) Awarding plaintiff and the other members of the
23
Class the costs of this suit, including reasonable attorneys' and
experts' fees and other disbursements; and
(d) Granting such other and further relief as may
be just and proper.
JURY DEMAND
Plaintiff demands a trial by jury.
Dated: January 31, 1996
Respectfully submitted,
MICHAEL C. ADDISON, ESQ.
/s/
________________________
Florida Bar No. 145579
P.O. Box 2175, Suite 2175
100 North Tampa Street
Tampa, Florida 33602-5145
Telephone: (813)223-2000
Telecopier: (813)228-6000
Local Counsel for Plaintiff
and the Class
Curtis V. Trinko
Timothy J. MacFall
Lori E. Colangelo
LAW OFFICES OF CURTIS V.
TRINKO, LLP
310 Madison Avenue, 14th Fl.
New York, New York 10017
Telephone: (212)490-9550
Telecopier: (212)986-0158
Trial Counsel for Plaintiff
and the Class
24
CERTIFICATION
STATE OF NEW YORK )
) ss:
COUNTY OF SUFFOLK )
ROBIN FERNHOFF, being duly sworn, deposes and says:
1. I am the proposed class representative in the above-
captioned action.
2. I have read the foregoing complaint and know the
contents thereof; and the same is true to my own knowledge and
belief except as to matters therein stated to be alleged upon
information and belief, and as to those matters, I believe them to
be true.
3. I have authorized the filing of the foregoing
Complaint by plaintiff's counsel.
4. I did not purchase NuMed securities at the direction
of plaintiff's counsel or in order to participate in any private
action arising under Title I of the Securities Act of 1933 ("Title
I").
5. I am willing to serve as a representative plaintiff
on behalf of the proposed Class set forth in the forgoing
Complaint, including providing testimony at deposition and trial,
if necessary.
6. During the Class Period defined in the Complaint, I
purchased 1000 units of NuMed securities at $7.25 per unit on
February 8, 1995 (which equaled 2000 shares of NuMed common stock
and 2000 NuMed warrants). Additionally, I purchased 1000 shares of
NuMed common stock on February 9, 1995 at $3 5/8 per share.
7. During the three years preceding the date of this
Certification, I have not sought leave to serve as a representative
party on behalf of a class in any other action under Title I.
8. I will not accept any payment for serving as a
representative party on behalf of the proposed Class herein beyond
my pro rata share of any recovery, except as ordered or approved by
the Court in accordance with paragraph (4) of Title I.
Sworn to before me
this 5th day of /s/
January, 1996 ___________________________________
/s/
__________________
Notary Public
Source: Scanned paper copy of court-stamped document