MILBERG WEISS BERSHAD
  HYNES & LERACH LLP
WILLIAM S. LERACH (68581)
ALAN SCHULMAN (128661)
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JEFFREY W. LAWRENCE (166806)
DAVID R. STICKNEY (188574)
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LAW OFFICES OF JAMES V.
  BASHIAN, P.C.
JAMES V. BASHIAN
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Telephone: 212/921-4110

WOLF POPPER LLP
STEPHEN D. OESTREICH
PATRICIA I. AVERY
JEFFREY H. KONIS
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New York, NY 10022
Telephone: 212/759-4600

Co-Lead Counsel for Plaintiffs and the Class

Plaintiffs Albert J. Copperstone and Joseph Siciliano submit, without argument, the following recent decisions in opposition to defendants' motion to dismiss plaintiffs' Complaint. These decisions were all issued after plaintiffs submitted Plaintiffs' Consolidated Opposition to Defendants' Motions to Dismiss Plaintiffs' Complaint for Violation of the Securities Exchange Act of 1934 ("Plaintiffs' Consolidated Opposition"). The recent decisions, attached hereto in chronological order, address issues that defendants raised in their motion to dismiss and are presented under the relevant headings from Plaintiffs' Consolidated Opposition:

Exhibit A: Warman v. Overland Data, [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,167 (S.D. Cal. 1998).

Exhibit B: Carson v. Merrill Lynch, Pierce, Fenner & Smith, Civil No. 97-5147, 1998 U.S. Dist. LEXIS 6903 (W.D. Ark. Mar. 30, 1998).

Exhibit C: Zuckerman v. Foxmeyer Health Corp., 4 F. Supp. 2d 618 (N.D. Tex. 1998).

Exhibit D: Baffa v. Donaldson, Lufkin & Jenrette Sec. Corp., 999 F. Supp. 725 (S.D.N.Y. 1998).

Exhibit E: In re Stratosphere Corp. Sec. Litig., 1 F. Supp. 2d 1096 (D. Nev. 1998).

Exhibit F: Queen Uno Limited Partnership v. Coeur D'Alene Mines Corp., 2 F. Supp. 2d 1345 (D. Colo. 1998).

Exhibit G: Walther v. Maricopa International Investment Corp., [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,203 (S.D.N.Y. 1998).

Exhibit H: Adair v. Bristol Technology Systems, 179 F.R.D. 126 (S.D.N.Y. 1998).

Exhibit I: In re Digi International Inc. Sec. Litig., 6 F. Supp. 2d 1089 (D. Minn. 1998).

Exhibit J: Bell v. Fore Systems, [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,244 (W.D. Pa. 1998).

Exhibit K: In re Gaming Lottery Sec. Litig., [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,236 (S.D.N.Y. 1998).

Exhibit L: Berti, et al. v. VideoLan Technologies, et al., CIVIL ACTION NO. 3:97-CV-296-H, Memorandum Opinion and Order (W.D. Ky. June 10, 1998).

Exhibit M: Miller v. Material Sciences Corp., 9 F. Supp. 2d 925 (N.D. Ill. 1998).

Exhibit N: In re Summit Medical Systems, 10 F. Supp. 2d 1068, 1998 U.S. Dist. LEXIS 9988 (D. Minn. 1998).

Exhibit O: In re Ancor Communications, [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,251 (D. Minn. 1998).

Exhibit P: Bryant v. Apple South, [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,275 (M.D. Ga. 1998).

Exhibit Q: In re Boeing Sec. Litig., No. C97-1715Z, 1998 U.S. Dist. LEXIS 14803 (W.D. Wash. Sept. 8, 1998).

Exhibit R: In re Olympic Financial Limited Sec. Litig., Civil File No. 97-496 (MJD/AJB), 1998 U.S. Dist. LEXIS 14789 (D. Minn. Sept. 10, 1998).

I. PLAINTIFFS ALLEGED ACTIONABLE FALSE AND MISLEADING STATEMENTS WITH THE REQUIRED PARTICULARITY

In Bell v. Fore Systems, [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,244, at 91,066 (W.D. Pa. 1998), the court addressed liability under the securities laws for reporting fraudulent financial information:

[T]o properly plead accounting fraud as follows: "where plaintiffs allege that defendants distorted certain data disclosed to the public by using unreasonable accounting practices, we have required plaintiffs to state what the unreasonable practices were and how they distorted the disclosed data." 114 F.3d at 1417-18. Here, based on the plaintiffs' allegations recited above, and their averment that the defendants violated specific accounting concepts FASB No. 5, APB No. 10, and FASB No. 48, the consolidated amended complaint adequately states a claim of improper accounting practices.⁽¹⁾

(Exhibit J attached hereto.)

In Bryant v. Apple South, [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,275, at 91,249 (M.D. Ga. 1998), the court addressed the materiality of statements that the defendants characterized as vague statements and generalized prediction:

A fact is material if it is substantially likely that the fact would be viewed by a reasonable investor as significantly altering the "total mix" of information available. Defendants argue that the statements at issue here are merely vague and generalized predictions upon which no reasonable investors would rely. The statements are specific enough, however, to allow the case to move forward.

(Exhibit P attached hereto.)

In In re Olympic Financial Limited Sec. Litig., Civil File No. 97-496 (MJD/AJB), 1998 U.S. Dist. LEXIS 14789, at **6-8 (D. Minn. Sept. 10, 1998), the court addressed the pleading of false statements:

Under the pleading requirements of the PSLRA, the complaint must specify each statement alleged to have been misleading and the reasons why such statements are misleading. If an allegation regarding a misrepresentation is based upon information and belief, the PSLRA requires that the complaint state with particularity all facts on which that belief is formed. 15 U.S.C. §78u-4(1).

Defendants argue that Plaintiffs' complaint insufficiently pleads allegations of misrepresentation in that it fails to state facts to support the falsity of Defendants' representations. Defendants claim that Plaintiffs fail to provide any facts or documents at odds with the disclosures challenged. However, a review of the complaint shows that Plaintiffs assert specific facts that conflict with representations made by Defendants. Specifically, Plaintiffs assert internal actions taken by Olympic which suggest that Defendants may have known they were overstating Olympic's financial health. For instance, Plaintiffs claim that Defendants purchased non-prime loans outside of underwriting guidelines, they concealed increases in delinquencies through the extensive use of extensions, rewrites, and improper credit examinations, and they refinanced repossessed vehicles to high risk borrowers yet claimed recovery rates that were impracticable, (Amended Compl. P50, 65). Furthermore, Plaintiffs assert that Olympic's internal audits reflect a continuing deterioration in underwriting and credit quality compared to company standards. To reduce the number of questionable loans and overstate the quality of its loan portfolio, Plaintiffs assert that Defendants instructed its credit examiners to exclude loans on repossessed vehicles from the sampling process. (Amended Compl. P54). Based on such numerous assertions, the Court concludes that Plaintiffs adequately pled claims of misrepresentations.

(Exhibit R attached hereto.)

II. PLAINTIFFS' COMPLAINT COMPORTS WITH THE PSLRA'S PLEADING REQUIREMENTS INCLUDING PROVISIONS REGARDING PLEADING FACTS ON INFORMATION AND BELIEF

In Warman v. Overland Data, [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,167, at 90,529 (S.D. Cal. 1998), the court addressed, inter alia, whether the complaint was based on "information and belief":

First, the court finds that plaintiffs need not meet the heightened standards of particularity contained in the PSLRA. Specifically, as plaintiffs have pled their allegations based on investigation of the attorney and not upon information and belief, the complaint need not state with particularity all the facts on which the belief is formed.

(Exhibit A attached hereto.)

In Queen Uno Limited Partnership v. Coeur D'Alene Mines Corp., 2 F. Supp. 2d 1345, 1353-54 (D. Colo. 1998), the court addressed whether the complaint was based on "information and belief":

At least three other courts, however, have construed allegations virtually identical to those found in ¶129 as not pled on information and belief, but as setting forth detailed allegations of fraud based on, among other things, the investigation of counsel. For example, in Zeid the court observed that although "some of the facts appear to be peculiarly within Defendants' knowledge, Plaintiffs contend that they have, through investigation, acquired sufficient facts to state a claim for fraud without relying on allegations made on information and belief." 973 F. Supp. at 915. So it is here. Although Plaintiffs could have stated they were seeking to plead on information and belief, and consequently sought entitlement to an assumed relaxation of the Reform Act's particularity requirements, they have not done so. They must, therefore, state with particularity "each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading." 15 U.S.C. §78u-4(b)(1); see Zeid, 973 F. Supp. at 915; Howard Gunty Profit Sharing, 1997 WL 514993, at *3.

The Court finds Plaintiffs' allegations, as set forth above, sufficiently particular to satisfy Rule 9(b) and the Reform Act. . . .

(Exhibit F attached hereto.)

III. THE SAFE HARBOR AND "BESPEAKS CAUTION" DOCTRINE DO NOT IMMUNIZE DEFENDANTS' FALSE STATEMENTS

In Bryant v. Apple South, [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,275, at 91,252 (M.D. Ga. 1998), the court addressed defendants' arguments based on the safe harbor and bespeaks caution doctrine:

Defendants' contention that they are entitled to dismissal cannot be decided at this stage of the litigation because the cautionary statements regarding forward-looking information are in separate statements or documents from those listed in the Complaint. For example, in announcing its first quarter 1996 results, Mr. Dupree stated: "We plan to open 68 new restaurants during 1996." Compl. ¶83; Defendants' Brief Ex. F. The cautionary statement that Defendants contend relates to this statement is contained in a Form 10-Q, which was filed with the SEC. Defendants' Brief Ex. M. However, exhibit M is not referenced in the Complaint and, pursuant to this Court's ruling on Plaintiffs' motion to strike, it cannot be considered in ruling upon the motion to dismiss.

Similarly, Defendants' argument under the Bespeaks Caution Doctrine does not warrant dismissal. The Bespeaks Caution Doctrine was adopted by the Eleventh Circuit in Saltzberg v. TM Sterling/Austin Associates Ltd., 45 F.3d 399 (11th Cir. 1995). Under this doctrine, the context in which a statement is made is significant. "When . . . [a] document's projections are accompanied by meaningful cautionary statements and specific warnings of the risks involved, that language may be sufficient to render the alleged omissions or misrepresentations immaterial as a matter of law."

(Exhibit P attached hereto.)

In Olympic Financial Limited Sec. Litig., Civil File No. 97-496 (MJD/AJB), 1998 U.S. Dist. LEXIS 14789, at **12-14 (D. Minn. Sept. 10, 1998), the court addressed defendants' arguments based on the safe harbor and the bespeaks caution doctrine:

Dismissal is proper under the bespeaks caution doctrine only where "the documents containing defendants' challenged statements include enough cautionary language or risk disclosure that reasonable minds could not disagree that the challenged statements were not misleading." Id. at 548 (quoting Fecht v. Price Co., 70 F.3d 1078, 1082 (9th Cir. 1995)).

Defendants argue that they sufficiently disclosed the risk involved in Olympic's stock portfolio such that the bespeaks caution doctrine bars Plaintiffs' claims that Defendants misrepresented the risk involved. Although Defendants assert that Plaintiffs received documents containing some cautionary language, they do not specifically address the heart of Plaintiffs' claims. See Kline v. First Western Government Securities, Inc., 24 F.3d 480, 489 (3rd Cir. 1994) (application of the bespeaks caution doctrine requires more that the simple assertion by defendants that the alleged misrepresentation is based on represented facts). Plaintiffs make numerous other allegations for which there is not cautionary language that relates directly to Plaintiffs' claims of misrepresentation. Particularly, Defendants do not contend that they cautioned Plaintiffs in regards to their characterization of the Classic loans as "prime" loans. Therefore, the Court concludes that Plaintiffs' claims are not barred by the bespeaks caution doctrine.

Defendants argue that a bulk of the challenged statements were forward-looking in nature and that the PSLRA's safe harbor provision immunizes them because each of the statements are forward looking under 15 U.S.C. § 78u-5(1)(1). Specifically, Defendants contend that Plaintiffs' claims involve a "projection of revenues, income . . . or other financial items" within § 78u-5(1)(1)(A); a "statement of future economic performance" within § 78u-5(1)(1)(C); or a "statement of the assumption underlying or relating to "the foregoing," within § 78u-5(1)(1)(D).

The Court concludes that Plaintiffs' claims are not based on forward-looking statements as defined under the Securities and Exchange Act. Rather, the complaint sets forth numerous misrepresentations of past and current facts regarding the nature of loans, their riskiness, and their continuing decline throughout the class period, none of which constitute forward-looking statements.

(Exhibit R attached hereto.)

In Warman v. Overland Data, [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,167, at 90,530-31 (S.D. Cal. 1998), the court addressed the application of the "bespeaks caution" doctrine:

When a prospectus speaks to the particular risks associated with an investment in the company, the prospectus "bespeaks caution" as to those risks. Dismissal under the doctrine is appropriate only when the statements in question are forward looking and accompanied by enough disclosure of the risk that "reasonable minds could not disagree that the challenged statements were not misleading." Although defendants contend that the statements are indeed forward looking and that the prospectus clearly states that they cannot guarantee that the DLTs will be available, the court finds that the doctrine does not apply to this case. Plaintiffs allege that statements are not forward looking as they speak to the then present supply situation. Moreover, even if the statements were forward looking, the language used by the defendants appears to be merely a boilerplate disclaimer. Therefore, the court finds that dismissal under the bespeaks caution doctrine is inappropriate.

(Exhibit A attached hereto.)

In Carson v. Merrill Lynch, Pierce, Fenner & Smith, Civil No. 97-5147, 1998 U.S. Dist. LEXIS 6903, at *56 (W.D. Ark. Mar. 30, 1998), the court addressed the application of the bespeaks caution doctrine:

The Eighth Circuit also instructed that "[a] dismissal of a securities fraud complaint under Rule 12(b)(6) should be granted under the bespeaks caution doctrine only where the documents containing defendants' challenged statements include enough cautionary language or risk disclosure that reasonable minds could not disagree that the challenged statements were not misleading." Parnes, 122 F.3d at 548 (internal quotation marks and citation omitted).

(Exhibit B attached hereto.)

In In re Boeing Sec. Litig., No. C97-1715Z, 1998 U.S. Dist. LEXIS 14803, at **20-30 (W.D. Wash. Sept. 8, 1998), the court addressed defendants' arguments based on the safe harbor and the bespeaks caution defense:

In order to be meaningful, cautionary statements must identify "important factors that could cause actual results to differ materially from those in the forward looking statement." 78 U.S.C. §78u-5(c)(1)(A)(i). Thus, the cautionary statements must at least identify factors that could have a bearing on the matter addressed in the forward-looking statement. Here, the forward-looking statement is that the company was making progress in designing systems to improve efficiency and reduce cycle times. Many of the warnings identified by the defendants, particularly the boiler plate warning in the warnings section of the press release and the warnings in the annual report and first quarter 10-Q, do not speak to factors that could adversely affect the company's development of systems to improve efficiency. Rather, they speak to overall production problems and an expectation that margins would be lower as a result of the production problems. Boeing identified no factors that would caution investors that results might be materially different from those described in the forward-looking statement. . . .

The "bespeaks caution" doctrine provides a mechanism by which a court can rule as a matter of law that defendants' forward looking representations "contained enough cautionary language or risk disclosure to protect the defendant against claims of securities fraud." The bespeaks caution doctrine "applies only to precise cautionary language which addresses itself to future projections, estimates or forecasts . . . ." Thus, the doctrine does not apply to statements of present fact.

The "bespeaks caution" doctrine is applied narrowly because an overbroad interpretation would encourage management to conceal deliberate misrepresentations beneath the mantle of broad cautionary language. In addition, the Ninth Circuit has held that courts may dismiss claims based on the "bespeaks caution" doctrine only when the documents containing defendants' challenged statements include "'enough cautionary language or risk disclosure,' that reasonable minds could not disagree that the challenged statements were not misleading." The PSLRA's safe harbor provisions do not supplant the "bespeaks caution" doctrine.

Defendants argue that the forward-looking statements to analysts on August 13, and the press releases of August 27, September 15, and October 3 are protected by the "bespeaks caution" doctrine. Each of these statements will be addressed in turn.

On August 13, 1997, Paine Webber reported that Phil Condit stated that "the doubling of commercial aircraft production over an eighteen-month period has led to 'out of sequence' work but the problems have leveled out, and should be improving over the next six months." The Court concludes that this statement is not protected by the "bespeaks caution" doctrine. Under Ninth Circuit law, the Court must consider whether there was enough cautionary language or risk disclosure that reasonable minds could not disagree that the challenged statement was not misleading. That test is not satisfied.

Boeing argues that the Court must also consider disclosures and warnings made outside these statements in determining whether the Company "bespoke caution." Even if the Court considers all the warnings identified by the defendants, the Court still cannot rule as a matter of law that these warnings were sufficient so as not to make the other statements misleading, given the circumstances identified by the plaintiffs in their complaint.

(Exhibit Q attached hereto.)

In In re Stratosphere Corp. Sec. Litig., 1 F. Supp. 2d 1096, 1118 (D. Nev. 1998), the court addressed the application of the bespeaks caution doctrine:

[I]n light of Plaintiffs' allegations of specific cost overruns and construction delays, this Court cannot conclude that general warnings that "no assurances" could be made or that construction enterprises are inherently risky bespeaks caution as a matter of law. If, as Plaintiffs allege, Defendants knew of existing, specific cost overruns and construction delays which would necessarily affect operating revenues once Stratosphere opened, they cannot insulate these statements with general language about the risks inherent in every construction enterprise. Therefore, this Court cannot rule as a matter of law that the bespeaks caution doctrine insulates Defendants' statements.

(Exhibit E attached hereto.)

IV. THE COMPLAINT ADEQUATELY ALLEGES SCIENTER BY PLEADING FACTS RAISING A STRONG INFERENCE THAT DEFENDANTS ACTED INTENTIONALLY OR RECKLESSLY

In Bryant v. Apple South, [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,275, at 91,250-51 (M.D. Ga. 1998), the court addressed pleading scienter:

This Court concludes the standards of motive and opportunity and recklessness have not been erased. The Conference Committee, by stating in a footnote that it did not intend to codify the standard for motive, opportunity, or recklessness, failed to establish that Congress chose specifically to disapprove of these tests. When Congress wishes to supplant a well-established, judicially-created rule it knows how to do so explicitly, and in the body of the statute.

While the points made by the Silicon Graphics court are valid, the opinion devotes little attention to the language of the statute itself. The Supreme Court has held that the statutory language is the focal point for interpreting a law. In this case, the statute is clear on its face, and thus requires no additional support from the legislative history. To follow footnote 23 of the Conference Committee Report is to adopt a footnote in a report as statutory text -- something Congress could have easily done if the footnote was, in fact, supported by a majority of both the House and Senate. Because Congress did not explicitly disapprove of the well-established, judicially-created rule, the Court finds that a plaintiff may satisfy the pleading requirements of a Securities fraud action with evidence of motive, opportunity, and recklessness.

(Exhibit P attached hereto.)

In In re Olympic Financial Limited Sec. Litig., Civil File No. 97-496 (MJD/AJB), 1998 U.S. Dist. LEXIS 14789, at **10-11 (D. Minn. Sept. 10, 1998), the court addressed the pleading of scienter:

Furthermore, the PSLRA requires Plaintiffs to "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2).

A review of the complaint shows that contrary to Defendants' assertion, Plaintiffs did not merely plead conclusory allegations of fraudulent intent. Rather, as discussed above, Plaintiffs also pled facts that conflict with representations made by Defendants. Specifically, Plaintiffs make numerous assertions regarding internal actions taken by Olympic which suggest that Defendants may have known that they were overstating Olympic's financial health. The Court thus concludes that Plaintiffs' pleadings of scienter are sufficient to avoid dismissal at this time.

(Exhibit R attached hereto.)

In Queen Uno Limited Partnership v. Coeur D'Alene Mines Corp., 2 F. Supp. 2d 1345, 1356 (D. Colo. 1998), the court addressed liability for reckless conduct:

There is little indication that Congress intended via the Reform Act to alter securities fraud liability for this type of reckless conduct. Although in specific instances the Reform Act does alter the mental state requirement, those alterations generally are limited to forward-looking statements subject to the safe harbor provision. That Congress explicitly altered the scienter requirement to exclude reckless conduct in §78u-5(c) and did not explicitly do so in §78u-4(b) suggests, at the least, that Congress did not intend to abolish recklessness as a state of mind sufficient to satisfy 10b-5's scienter requirement. . . . Therefore, the Court finds that for non-forward-looking statements and forward-looking statements not insulated by the safe harbor provision, conscious recklessness, as defined above, continues to satisfy Rule 10b-5's scienter requirement.

(Exhibit F attached hereto.)

In Zuckerman v. Foxmeyer Health Corp., 4 F. Supp. 2d 618, 623, 627 (N.D. Tex. 1998), the court addressed the adequacy of pleading motive and opportunity and recklessness to establish scienter:

Plaintiffs may meet the heightened pleading requirements of rule 9 and section 10(b), as amended by the PSLRA, by alleging either motive and opportunity to commit fraud, or by pleading facts which identify circumstances indicating Defendants' conscious or reckless behavior, so long as the totality of the allegations raises a strong inference of fraudulent intent.

The incentive to complete the lucrative sale of a business, and the personal pecuniary benefits associated therewith, can create a strong motive to engage in fraud and, logically, can raise an inference of scienter sufficient to support allegations of fraud. . . .

(Exhibit C attached hereto.)

In Baffa v. Donaldson, Lufkin & Jenrette Sec. Corp., 999 F. Supp. 725, 728 (S.D.N.Y. 1998), the court addressed the adequacy of pleading recklessness to establish scienter:

In Order to meet the scienter requirement of the PSLRA, a complaint must allege that defendants engaged in conscious misbehavior or recklessness.

(Exhibit D attached hereto.)

In In re Stratosphere Corp. Sec. Litig., 1 F. Supp. 2d 1096, 1107-08 (D. Nev. 1998), the court addressed the adequacy of pleading recklessness to establish scienter and the inference that high-level management is privy to confidential information:

In reaching the conclusion that recklessness remains sufficient to prove scienter in the post-PSLRA world, this Court finds the Opinion in In re Baesa very persuasive and agrees that there is no indication in the statutory language of the PSLRA that recklessness no longer suffices for the scienter requirement of 10(b) claims.

This Court does not believe that Congress would abolish the well established use of recklessness as permissible scienter under the securities laws without expressly stating so in the language of the statute. See Marksman Partners, 927 F. Supp. at 1309, 1311. In fact, where Congress intended to establish knowing conduct as a prerequisite for liability, it did so explicitly within the PSLRA, such as providing a safe harbor for forward looking statements. 15 U.S.C. §77z-2(c)(1)(B); 15 U.S.C. §78u-5(c)(1)(B). These provisions, which require that the plaintiff must prove forward looking statements were made with actual knowledge of their falsity, would be entirely meaningless if actual knowledge were required for all allegedly misleading statements.

Therefore, recklessness is sufficient to prove scienter under the PSLRA, unless the statute specifically provides otherwise, as in the safe harbor provisions. . . .

Defendants contend that because the PSLRA requires that a plaintiff allege that the defendant made an untrue statement and that the defendant acted with scienter, group pleading is now abolished. However, even in In re Silicon Graphics, which established the most stringent of pleading standards under the PSLRA, the Court did not question whether group pleading was still viable post-PSLRA. Defendants offer no case authority for their proposition that group pleading has been sub silentio abolished by the PSLRA, and this Court declines to adopt such a proposition.

Plaintiffs have alleged that each of the individual Defendants, due to their high-level positions with Stratosphere, were directly involved in the day-to-day operations of the company at its highest levels, were privy to confidential information, directly participated in Stratosphere's management, and were involved in drafting, reviewing and/or disseminating the false and misleading statements. . . .

(Exhibit E attached hereto; emphasis in original.)

In Walther v. Maricopa International Investment Corp., [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,203, at 90,791 (S.D.N.Y. 1998), the court addressed the adequacy of pleading recklessness to establish scienter:

In order to state a claim for securities fraud that satisfies the heightened pleading requirements of the PSLRA, a plaintiff must allege facts giving rise to a strong inference of either reckless behavior or conscious misconduct. See Novak v. Kasaks, 1998 WL 107033, at *5 (S.D.N.Y. Mar. 10, 1998) ("join[ing] the emerging consensus in this district that either conscious recklessness or actual intent satisfy the PSLRA's scienter requirement"); In re Baesa Securities Litig., 969 F. Supp. 238, 241-42 (S.D.N.Y. 1997) (plaintiff must allege facts supporting strong inference of conscious or reckless behavior by the defendants in order to satisfy the reform act); see also Norwood Venture Corp. v. Converse Incorporated, 959 F. Supp. 205, 208 (S.D.N.Y. 1997) ("under the PSLRA a plaintiff in a private securities litigation action must now plead specific facts that create a strong inference of knowing misrepresentation on the part of the defendants"). . . .

(Exhibit G attached hereto.)

In Adair v. Bristol Technology Systems, 179 F.R.D. 126, 136 (S.D.N.Y. 1998), the court addressed the pleading of scienter:

Even under the higher standard, Plaintiffs have adequately pled scienter. Plaintiffs allege that Defendants violated the Securities Act by failing to disclose updated financial statements as required by Item 310(g) of Regulation S-B. Disclosing the third quarter results would have, according to Plaintiffs, shown increasing losses for the combined companies. The alleged rule violation, combined with the allegation that the missing information would have negatively impacted the offering price, alleges facts with sufficient particularity to show a strong inference of an intention to make misrepresentations. Therefore, Defendants' motion to dismiss the 10(b) claim for failure to plead scienter adequately is denied.

(Exhibit H attached hereto.)

In In re Digi International Inc. Sec. Litig., 6 F. Supp. 2d 1089, 1097-98 (D. Minn. 1998), the court addressed the adequacy of pleading motive and opportunity to establish scienter:

Specifically, the strong inference arises from defendants' failure to disclose the full nature and extent of Digi's investment and involvement in AetherWorks, their failure to disclose other facts regarding AetherWorks' business, their inappropriate use of the "note receivable" method for accounting for this investment, the individual defendants' positions of control in Digi and responsibility for various public disclosures, the individual defendants' incentive-based compensation, and the substantial impact on Digi's performance and stock price once Digi fully disclosed and correctly accounted for its AetherWorks investment. These allegations -- which in combination provide a clear motive for misleading the public and the particular disclosures that severely misled or misinformed the public regarding the AetherWorks investment and Digi's financial condition -- constitute strong circumstantial evidence of conscious behavior on the part of defendants.

The Court declines defendants' invitation to adopt a per se rule that executive compensation premised on performance can never form part of the basis supporting an inference of scienter. . . .

(Exhibit I attached hereto.)

In In re Gaming Lottery Sec. Litig., [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,236, at 91,028-29 (S.D.N.Y. 1998), the court addressed the adequacy of pleading recklessness to establish scienter:

These facts provide strong circumstantial evidence that defendants knowingly and recklessly made many material misrepresentations and/or omissions about the financial results and operations of GLC in the second half of 1995 and in 1996, as alleged in the Complaint. Thus, the pleading requirements of the Reform Act have been met and the motion to dismiss is denied as to Count 1.

(Exhibit K attached hereto.)

In Berti, et al. v. VideoLan Technologies, et al., CIVIL ACTION NO. 3:97-CV-296-H, Memorandum Opinion and Order at 10 (W.D. Ky. June 10, 1998), the court addressed the use of circumstantial evidence and motive and opportunity to plead scienter:

The Court need not resolve this issue, because Plaintiffs have pled the requisite state of mind with both types of evidence. First, Plaintiffs have pled circumstantial evidence. They have alleged that Defendants announced that the Samsung deal would generate $50-70 million in sales when the agreement did not actually guarantee any sales. They have also alleged that Defendants stated specific dates for the commencement of shipping and marketing the VL 2000 when in fact the company lacked the capacity to meet those deadlines. Finally, Plaintiffs have alleged that Defendants did not announce the termination of the Samsung deal until several months after it had fallen through.

Second, plaintiffs have supplemented these factual allegations with additional evidence of motive and opportunity. During the relevant time periods, VideoLan was a development-stage company with one product and one potentially lucrative distribution agreement. During this critical time in the growth of the company, Defendants would obviously have had a motive to overstate the strength of this single agreement and to conceal its demise. While Defendants are correct that any publicly-traded company would have similar incentives to boost the value of its stock through fraudulent means, the incentives here were potentially much greater. Viewed together, Plaintiffs' factual allegations are sufficient to create a strong inference of scienter.

(Exhibit L attached hereto.)

In Miller v. Material Sciences Corp., 9 F. Supp. 2d 925, 927 (N.D. Ill. 1998), the court addressed the adequacy of pleading recklessness to establish scienter:

The legislative history, however, is consistent with this court's conclusion that Congress left the determination of the appropriate scienter requirement to the courts, while strengthening the pleading standard applicable to that scienter requirement. This court's conclusion that recklessness is sufficient under §10(b) is also consistent with every other opinion addressing the issue in this district. . . .

(Exhibit M attached hereto.)

In In re Summit Medical Systems, 10 F. Supp. 1068, 1998 U.S. Dist. LEXIS 9988, at **10-11 (D. Minn. 1998), the court addressed the adequacy of pleading recklessness to establish scienter:

Congress, under the new Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 15 U.S.C. §78u-4 (the "PSLRA"), imposed a requirement for a Rule 10b claim that a plaintiff plead facts giving rise to a "strong inference of fraudulent intent." In re Health Mgmt., Inc., 970 F. Supp. 192, 201 (E.D.N.Y. 1997). The present Amended Complaint meets this standard. It alleges facts which, if proven, constitute both reckless and conscious behavior. It avers knowing violations and fraudulent business transactions, and names specific officers and directors who are claimed to have had knowledge of, or were directly involved in, violations. It specifies meeting dates at which the violations were discussed, and mentions names of defendants involved in those discussions. These comprise the specific facts needed to maintain a claim under both Fed. R. Civ. P. 9(b) and 12(b)(6). Accordingly, defendants' motion to dismiss Count I is denied.

(Exhibit N attached hereto.)

In In re Ancor Communications, [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,251, at 91,108 (D. Minn. 1998), the court addressed the inference that high-level management is privy to confidential information:

The $30 million contract with Sequent was undeniably the most significant contract in Ancor's history. The revenue expected pursuant to the Sequent contract would have been extraordinary for Ancor based on the revenue of its preceding fiscal years. As in Itron, knowledge of the potential incompatibility, within the context of this highly significant contract, may be imputed to Defendants and supports a strong inference of scienter. . . .

(Exhibit O attached hereto.)

V. ALL THE DEFENDANTS ARE LIABLE UNDER THE "GROUP-PUBLISHED-INFORMATION" AND THE "DISCLOSE-OR-ABSTAIN" DOCTRINES AND FOR PARTICIPATING IN A SCHEME TO DEFRAUD

In Zuckerman v. Foxmeyer Health Corp., 4 F. Supp. 2d 618, 624 n.4 (N.D. Tex. 1998), the court addressed the application of the "group pleading" doctrine:

To the extent that Plaintiffs rely on group pleading for general statements or press releases issued by the corporation, the Court finds the complaint sufficient to survive a motion to dismiss. That a few of the alleged statements may not be attributable to a particular defendant does not invalidate the Plaintiffs' claims against Defendants under the theory that high-level corporate officers, as Defendants all are, may be responsible for the statements issued by their company to the public. . . .

(Exhibit C attached hereto.)

In In re Digi International Inc. Sec. Litig., 6 F. Supp. 2d 1089, 1101 (D. Minn. 1998), the court addressed the group publication doctrine:

In addition, both the class plaintiffs' and LSERS's allegations regarding Kamm and Wall are adequate under the "group publication" doctrine. Because the individual defendants are inside and controlling persons of Digi and allegedly acted together with regard to the various disclosures, the complaints need not draw a specific connection between these defendants and every alleged omission and misrepresentation. Defendants cite no authority indicating the Reform Act mandates a different conclusion.

(Exhibit I attached hereto.)

TCSI\DRD02055.STM

1. Unless otherwise indicated citations and footnotes have been omitted throughout.

I, the undersigned, declare:

1. That declarant is and was, at all times herein mentioned, a citizen of the United States and a resident of the County of San Francisco, over the age of 18 years, and not a party to or interested in the within action; that declarant's business address is 222 Kearny Street, 10th Floor, San Francisco, California 94108.

2. That on October 13, 1998, declarant served the PLAINTIFFS' STATEMENT OF RECENT DECISIONS IN FURTHER SUPPORT OF PLAINTIFFS' OPPOSITION TO DEFENDANTS' MOTION TO DISMISS by depositing a true copy thereof in a United States mailbox at San Francisco, California in a sealed envelope with postage thereon fully prepaid and addressed to the parties listed on the attached Service List and that this document was forwarded to the following designated Internet site at:

3. That there is a regular communication by mail between the place of mailing and the places so addressed.

I declare under penalty of perjury that the foregoing is true and correct. Executed this 13th day of October, 1998, at San Francisco, California.

Source: http://securities.milberg.com