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Stanford University Law School - Securities Class Action Clearinghouse
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LENARD SCHWARTZER
HALE, LANE, PEEK, DENNIS & HOWARD
2300 West Sahara Avenue
Suite 800, Box 8
Las Vegas, NV 89102
(702) 362-5118
KEVIN J. YOURMAN
JORDAN L. LURIE
WEISS & YOURMAN
10940 Wilshire Blvd.
24th Floor
Los Angeles, CA 90024
(310) 208-2800
JULES BRODY
STULL STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
MICHAEL CEASAR and SAMUEL TOLWIN, ) CV-S-96-00708-PMP (RLH)
on behalf of themselves and )
all others similarly situated, ) CLASS ACTION COMPLAINT FOR
) VIOLATION OF FEDERAL SECURI-
Plaintiff, ) TIES LAWS
)
v. ) JURY TRIAL DEMANDED
)
STRATOSPHERE CORP., GRAND CASINOS,) DECLARATIONS OF PLAINTIFFS TO
INC., BOB STUPAK, DAVID R. ) SERVE AS CLASS REPRESENTATIVES
WIRSHING, LYLE A. BERMAN, THOMAS )
A. LETTERO, ANDREW S. BLUMEN, BOB )
STUPAK ENTERPRISES and THOMAS G. )
BELL, )
)
Defendants. )
_________________________________ )
JURISDICTION AND VENUE
1. This Court has jurisdiction over the subject matter of
this action pursuant to 28 U.S.C. §§1331 and 1337, and Section 27
of the Securities Exchange Act of 1934 (the "Exchange Act") (15
U.S.C. §78aa).
2. This action arises under Sections 10(b) and 20(a) of
the Exchange Act and Rule 10b-5 promulgated thereunder (17 C.F.R. §
240. 10b-5).
3. Venue is proper in this district pursuant to Section 27
of the Exchange Act and 28 U.S.C. §1391(b). Defendant Stratosphere
Corporation ("Stratosphere" or the "Company") has its corporate
headquarters and principal place of business in this district at
2000 Las Vegas Boulevard South, Las Vegas, Nevada 89104, and the
acts charged herein, including the dissemination of materially
false and misleading information, occurred in this district.
4. In connection with the acts alleged in this complaint,
the defendants, directly or indirectly, used the means and
instrumentalities of interstate commerce, including, but not
limited to, the mails, interstate telephone communications and the
facilities of the national securities markets.
PARTIES
5. Plaintiff Samuel Tolwin purchased 350 shares of
Stratosphere common stock on January 26, 1996 at a price of $10 7/8
per share and 650 shares of Stratosphere common stock on February
20, 1996 at a price of $11 3/4 per share and was damaged thereby.
6. Plaintiff Michael Ceasar purchased 400 shares of
Stratosphere common stock on May 31, 1996 at a price of $8-3/4 per
share and 200 shares of Stratosphere on June 28, 1996 at a price of
$6 per share and was damaged thereby.
7. Defendant Stratosphere at all relevant times was a
casino-hotel entertainment complex located at the north end of the
Las Vegas Strip. The complex is centered around the Stratosphere
Tower, the tallest free-standing observation tower in the United
States. Stratosphere's common stock is traded on the NASDAQ under
ticket symbol "TOWV."
8. Defendant Grand Casinos, Inc. ("Grand Casinos") at all
relevant times was a publicly traded owner and operator of casinos.
Grand Casinos owned over 40% of Stratosphere and was Stratosphere's
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largest shareholder. Grand Casino managed all facets of the
development of Stratosphere. Members of Grand Casino's management
team were involved in the planning and designing of Stratosphere
and participated in the management of Stratosphere.
9. Defendant Bob Stupak ("Stupak") at all relevant times
was the Chairman of the Board of Stratosphere. On or about July
22, 1996, Stupak resigned from the Company. Stupak or entities
controlled by him, including defendant Bob Stupak Enterprises, sold
948,000 shares of Stratosphere stock for a profit in excess of
$8.25 million, during the Class Period, as defined herein.
10. Defendant Lyle A. Berman ("Berman") at all relevant
times was the Chief Executive Officer and a Director of the Company
and the Chief Executive Officer and Chairman of the Board of Grand
Casinos.
11. Defendant David R. Wirshing ("Wirshing") at all
relevant times was the President, and a director of the Company.
On or about July 29, 1996, Wirshing resigned from the Company.
12. Defendant Thomas A. Lettero ("Lettero") at all relevant
times was the Chief Financial Officer of the Company.
13. Defendant Andrew S. Blumen ("Blumen") at all relevant
times was the Executive Vice-President, Secretary, and General
Counsel of the Company.
14. Defendant Thomas G. Bell ("Bell") at all relevant times
was a director of the Company. During the Class Period, Bell sold
10,000 shares of Stratosphere stock by the exercise of options for
a profit of over $87,000.
15. The individual defendants identified above may be
referred to herein as the "Individual Defendants."
16. It is appropriate to treat the Individual Defendants
(other than defendant Bell) as a group for pleading purposes and to
presume that the false and misleading information conveyed in the
Company's public filings, press releases and other publications as
alleged herein are the collective actions of the narrowly defined
group of defendants identified above. Each of the above officers
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or directors of Stratosphere by virtue of his or her high-level
position with the Company, directly participated in the management
of the Company, was directly involved in the day-to-day operations
of the Company at the highest levels and was privy to confidential
proprietary information concerning the Company, its operations,
finances, financial condition, products and present and future
business prospects as alleged herein. Said defendants were
involved in drafting, producing, reviewing and/or disseminating the
false and misleading statements alleged herein, were aware that the
false and misleading statements were being issued regarding the
Company and approved or ratified these statements, in violation of
the federal securities laws. Each of the Individual Defendants
signed the Company's 1995 10-K, as further described herein.
17. Defendant Bob Stupak Enterprises was an affiliate of,
and an entity controlled by defendant Stupak. Stupak was the sole
director, president, secretary, treasurer and stockholder of Bob
Stupak Enterprises.
PLAINTIFFS' CLASS ACTION ALLEGATIONS
18. Plaintiffs bring this action as a class action pursuant
to Federal Rules of Civil Procedure 23(a) and (b)(3) on behalf of a
Class, consisting of all persons who purchased or otherwise
acquired the securities of Stratosphere, including common stock,
from December 19, 1995 through July 22, 1996, inclusive (the "Class
Period"), and who were damaged thereby. Excluded from the Class
are the defendants, officers and directors of the Company, members
of their immediate families and their legal representatives, heirs,
successors or assigns and any entity in which defendants have or
had a controlling interest.
19. The members of the Class are so numerous that joinder
of all members is impracticable. While the exact number of Class
members is unknown to plaintiffs at this time and can only be
ascertained through appropriate discovery, plaintiffs believe that
there are thousands of members of the Class. As of July 31, 1996,
58,393,105 shares of Stratosphere common stock were outstanding and
actively traded on the NASDAQ, an efficient market in which
millions of shares of the Company's stock were traded during the
Class Period. At all times relevant to this complaint,
Stratosphere common stock and warrants traded in a well-developed
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and efficient market as that term is construed under the federal
securities laws. Record owners and other members of the Class many
be identified [sic] from records maintained by Stratosphere or its
transfer agent and may be notified of the pendency of this action
by mail, using the form of notice similar to that customarily used
in securities class actions.
20. Plaintiffs' claims are typical of the claims of the
members of the Class as all members of the Class are similarly
affected by defendants' wrongful conduct in violation of federal
law that is complained of herein.
21. Plaintiffs will fairly and adequately protect the
interests of the members of the Class and has retained counsel
competent and experienced in class and securities litigation.
22. Common questions of law and fact exist as to all
members of the Class and predominate over any questions affecting
solely individual members of the Class. Among the questions of law
and fact common to the Class are:
(a) Whether the federal securities laws were violated
by defendants' acts as alleged herein;
(b) Whether defendants participated in and pursued
the common course of conduct complained of herein;
(c) Whether documents, press releases and other
statements disseminated to the investing public and the Company's
shareholders during the Class Period misrepresented and/or omitted
material facts about the business, management, sales, markets,
financial condition, and future business prospects of Stratosphere;
(d) Whether statements made by defendants to the
investing public during the Class Period misrepresented and/or
omitted material facts about the business and finances of
Stratosphere;
(e) Whether the market price of Stratosphere's
securities during the class period was artificially inflated due to
the material misrepresentations and failure to correct the material
misrepresentations complained of herein; and
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(f) Whether the members of the Class have sustained
damages and, if so, the proper measure of damages.
23. A class action is superior to all other available
methods for the fair and efficient adjudication of this controversy
since joinder of all members is impracticable. Furthermore, as the
damages suffered by individual Class members may be relatively
small, the expense and burden of individual litigation make it
impossible for members of the Class to individually redress the
wrongs done to them. There will be no difficulty in the management
of this action as a class action.
OVERVIEW
24. The "Stratosphere" certainly does not describe where
the price of Stratosphere Corporation's stock ended up as a result
of defendants' fraud during the Class Period. But it does describe
the amount of profit defendant Stupak pocketed by selling his
shares before the truth regarding Stratosphere was disclosed: over
$8.25 million.
25. Not only did Stupak sell-off his shares based on
undisclosed material information before Stratosphere's stock price
plunged from as high as $14 per share to $3.00 per share, he did so
without timely informing Stratosphere's shareholders or the
Securities and Exchange Commission. This was a material omission
that affected plaintiffs' decisions to invest in the Company. As
The Wall Street Journal reported on July 30, 1996, one stock broker
encouraged investment in Stratosphere because when he checked
insider activity he saw nothing but purchases at the company. The
broker said, "Had I known the chairman of Stratosphere was such a
large seller, I would not have made such a recommendation to my
clients." SEC rules require insiders to publicly disclose their
sales or purchases by the tenth of the month following the
transactions. Stupak sold massive amounts of his Stratosphere
stock at suspicious times and in suspicious amounts during the
Class Period but did not disclose his sales until July 1, 1996.
Stupak doesn't apologize. "Shame on me if I sold stock cheap in
January, February and March," Stupak said, according to The Wall
Street Journal.
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26. Moreover, all of the defendants, including Stupak,
participated in a scheme to defraud Stratosphere shareholders,
beginning on December 19, 1996 with the Company's public offering
of 10 million shares, which raised nearly $80 million for the
Company.
27. In the Prospectus for the offering and thereafter,
defendants represented that, despite the risks associated with
developing new casinos in Las Vegas and the risks associated with
the development of Stratosphere in particular, defendants had a
strategy whereby Stratosphere could compete successfully with the
other major Las Vegas casinos by meshing entertainment and gaming
in one facility and by attracting sufficient gaming activity to
achieve the Company's necessary and projected cash flow. Even
analysts who were bearish and skeptical regarding Stratosphere
believed, based on what Stratosphere was telling the market, that
the Company was fairly valued in the $11 per share range.
28. In fact, defendants' supposed "strategy" was illusory.
Contrary to defendants' representations and the impression created
thereby, defendants made minimal, if any, substantial efforts to
implement a plan to market Stratosphere or to accomplish the
Company's supposed strategy, as defendants finally admitted
following the Company's abysmal and unexpected $11 million dollar
loss for the second quarter of 1996, which was far in excess of
analysts' expectations. Defendant Berman, the Chairman of
Stratosphere, admitted that "We subscribed to a build it and they
will come theory. We assumed that visitors to Las Vegas . . .
would see the Tower and be attracted to our resort. We had a
limited marketing campaign." These and other material facts were
contrary to defendants' stated intention to sufficiently market
the facility and were withheld from investors during the Class
Period.
FALSE AND MISLEADING STATEMENTS AND OMISSIONS
AND SCHEME TO DEFRAUD
29. On December 19, 1996, Stratosphere's public offering of
10 million shares at $8 per share was declared effective by the
SEC. The offering, with the overallotment, raised nearly $80
million in net proceeds for the Company. The proceeds were to be
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used to implement "Phase II" of Stratosphere's expansion to add
1,000 new rooms, pool and spa facilities, parking facilities and to
expand the facility's retail center.
30. The Prospectus for the offering purported to describe
defendants' "strategy" for Stratosphere. The Prospectus
represented that "the Company's business strategy seeks to combine
the best attributes of successful and proven retail, gaming and
marketing techniques to target various segments of the Las Vegas
market."
31. Defendants represented in the Prospectus that:
The Company's strategy is to: (i) attract a share of the
general Las Vegas visitor market by offering unique
attractions including the observation decks, the Thrill
Rides, the Gorilla Ride, the Aquarium, the revolving
restaurant and an outdoor laser and neon light show; (ii)
generate casino traffic from visitors to the Tower and guests
who stay in the Hotel; and (iii) encourage repeat visitors to
Stratosphere through its quality service, features and
customer development programs. The Company believes that, as
a result of Stratosphere's wide variety of gaming and non-
gaming amenities, Stratosphere will appeal to most segments
of the Las Vegas market, including independent travelers,
tour groups, conventioneers and local residents.
32. An entire section of the Prospectus described
Stratosphere's "Marketing Strategy." The Prospectus described
market awareness programs, strategic pricing of Stratosphere
features, multimedia advertising, cross marketing efforts with
local establishments, participation in tour and travel package
programs, informational flyers and booklets, orientation tours to
increase awareness of Stratosphere by local promoters, direct mail
and customer newsletters to current Grand Casino customers and in-
casino displays and brochures at Grand Casino properties. In the
"Business Development," section of the Prospectus, defendants
represented that the Company would market Stratosphere to
individuals and groups staying at other Las Vegas hotels and
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implement a customer development program and database. The
Prospectus also represented that as a result of these and other
efforts the Company could be successful. The Prospectus stated,
"following the commencement of operations of Stratosphere, the
Company expects to fund its operations and capital needs, as
currently contemplated, from operating cash flows" and that "the
Company believes that after commencement of operations, it will be
able to generate sufficient cash flows to meet its expenses. . . ."
33. The foregoing representations were false, made without
reasonable basis and /or created a false and misleading impression
that Stratosphere had a viable and substantive strategic plan and
the means to implement it, which it did not.
34. The false and misleading impression created by
defendants was reflected in representations contained in analyst
reports and by the performance of Stratosphere's stock price, and
described below. Further, the analyst reports referred to herein
also are attributable to defendants and were part of defendants'
scheme to defraud. The information contained in the analyst
reports was obtained from, or based on, information provided by the
Stratosphere defendants. Stratosphere officers, including
defendants, communicated with analysts, fund managers and other
investment professionals and reviewed drafts of analyst or market
reports before they were released and/or approved or ratified the
contents of the reports or the content of statements made by
investment professionals to the marketplace regarding Stratosphere.
Defendants knew that these analyst reports would be publicly issued
and would impact the trading price of Stratosphere stock.
Moreover, defendants may have distributed copies of the analyst
reports and/or provided a list of analyst coverage of Stratosphere
in the package the Company sent to potential investors. Thus,
Stratosphere endorsed the analyst reports or statements, adopted
them as its own and placed its imprimatur on them. There was no
reasonable basis for the projections and other representations in
the analyst reports based on the adverse facts set forth herein.
In order to inflate the price of Stratosphere stock, defendants
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communicated their foregoing positive information to market
analysts even though defendants did not genuinely believe the
earnings forecasts, which were false and misleading when made based
on the Company's own internal, undisclosed data.
35. On December 20, 1996, Montgomery Securities analyst Amy
de Rham initiated coverage of Stratosphere with a Buy rating.
Montgomery Securities was one of the underwriters of Stratosphere's
December 1995 offering. Rham's recommendation reflected
defendants' representations and was based on information provided
by defendants regarding Stratosphere's performance. Rham expected
Stratosphere to earn 43 cents per share in fiscal 1996 with a
target range from $11 to $16 per share or 39% to 94% above then
current levels.
36. Similarly, on February 23, 1996, Gerard Klauer Mattison
& Co. analyst W.R. Schmitt initiated coverage of Stratosphere with
a Buy rating. Schmitt's report emphasized Stratosphere's
management and the "strong vision and hands-on operations" of
defendant Berman, who was "largely responsible for the current
concept of the Tower and the development of the project since 1993"
and the skills of defendant Wirshing who "presides over the day to
day operations" and "is known as a hands-on manager who can quickly
raise a project to its full potential through marketing and cost
cutting."
37. By mid-February 1996, Stratosphere's stock price was
trading as high as $12 per share, based on defendants'
representations.
38. Defendant Stupak, however, knew better. Unbeknownst to
the market, in January 1996 and February 1996, Stupak and entities
affiliated with or controlled by him sold almost 200,00 shares of
Stratosphere stock at prices between $9.75 and $11.75 for profit in
excess of $2 million.
39. In March 1996, as Stratosphere approached completion
of the first phase of Stratosphere's construction, defendants
continued to hype Stratosphere without disclosing that the
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Company was not engaging in its stated plan to actively market
Stratosphere and without disclosing the other material facts
described herein.
40. On March 14, 1996, defendants announced that
Stratosphere would open on April 30, 1996. Defendant Wirshing
stated, "Stratosphere will be the next generation entertainment
superstore for Las Vegas and take its place among the premier
attractions not only in this city, but anywhere." Further,
Wirshing stated, "Stratosphere will be a growing and evolving
entertainment complex, but beginning April 30, we will be providing
a first class experience for all of our guests. We are dedicated
to guest service, and our guests will enjoy a complete destination
resort when we open."
41. Wirshing's March 14, 1996 representations created a
false impression that Stratosphere's marketing strategy and plan
were working. Wirshing's statements lacked a reasonable basis when
made and omitted to state the facts described herein.
42. On or about March 15, 1996, defendants filed
Stratosphere's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995. The 10-K reiterated the same misleading
representations regarding defendants' business and marketing
"strategy" contained in the Prospectus as alleged above and
incorporated here by reference, and were false and misleading.
43. Stupak knew that defendants' representations in the 10-
K were false. On March 21, 1996, defendant Stupak acted on this
inside information and sold 100,000 shares of Stratosphere stock
for a single day profit of over $2 million.
44. Stratosphere stock price shot up to the $14 range in
the days before the Tower's grand opening. Defendant Bell took
advantage of this price increase and his knowledge of the true
condition of Stratosphere to exercise options and sell 10,000
shares of Stratosphere stock he had acquired at $4.25 for $13 per
share, netting $87,500.
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45. On May 9, 1996, Stratosphere announced that "The
Stratosphere, the newest entertainment mega-resort in Las Vegas,
has quickly become the No. 1 paid attraction in Las Vegas, based on
first week results. Stratosphere Corporation officials announced
today that 127,000 visitors ascended to the top of the 1,149 foot
Stratosphere Tower during its first week of operation." Defendant
Berman stated, "Business has been very good and overall has
supported our expectations. The response to our multidimensional
product has been tremendous." Defendant Wirshing added, "based
upon the first week figures, the Tower is already the top-drawing
paid attraction in Las Vegas, measured in terms of number of
people." Wirshing also stated that "the other revenue centers
throughout the 1,500 room hotel and 100,000 square foot casino are
also doing well. The demand for reservations to the Top of the
World revolving restaurant has been phenomenal and our casino
action has met expectations. Our average room rate is higher than
projected and we are rapidly increasing occupancy levels."
46. The May 9, 1996 press release and defendants'
representations therein created a false impression and failed to
disclose the material facts set forth herein regarding
Stratosphere's ineffective and virtually non-existent marketing
efforts and plan.
47. On or about May 11, 1996, defendants filed a quarterly
report on form 10-Q for the first quarter ended March 31, 1996.
The 10-Q reported that the Company recorded net income of
$1,915,979 or 3 cents per share versus a loss for the same period
in 1995. The 10-Q furthered the misleading impression of
Stratosphere and omitted to disclose the material facts described
herein.
48. Throughout May 1995, Stupak took further advantage of
Stratosphere's inflated stock price and sold over 300,000 shares of
Stratosphere stock for $2.8 million in profit, including a sale of
a block of 100,000 shares at the end of May 1996, shortly before
the Company announced the results of its first few weeks of
operations, as described below, which Stupak knew would be below
expectation.
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49. On June 6, 1996, Stratosphere reported the results of
its first five weeks of operation. The Company reported casino
revenue of $7.7 million and total operating revenue of $19.1
million. Defendant Wirshing stated, "These results are below the
company's expectations principally due to the project not yet being
completed. With the addition of 1,000 hotel rooms and suites, the
opening of the retail shops and completion of other amenities,
scheduled to open in the first quarter of 1997, as well as
additional marketing programs, we believe visitation to the
facility should increase and overall operating results should
improve." Stratosphere also announced that Grand Casinos would
loan Stratosphere $48.5 million pursuant to a previously agreed
upon completion guaranty in connection with Stratosphere March 1995
first mortgage note offering. Grand Casinos committed to complete
Stratosphere so that it becomes operational and agreed to pay
project costs owing prior to completion, up to $50 million.
50. Wirshing's June 6, 1996 announcement was a false and
misleading partial disclosure. Wirshing attributed the poor
results to the project not being complete. In fact, defendants
failed to adequately disclose, among other things, that the Company
was not, and had not been, implementing its supposed business and
marketing strategy, which also was a principal cause of the
Company's poor results and which would continue to adversely affect
Stratosphere's cash flow and ability to attract the required gaming
activity to the facility.
51. On June 10, 1996, a Bankers Trust analyst cut earnings
estimates for Stratosphere from 40 cents per share in 1996 to 13
cents per share based on stratosphere's initial results, and
Montgomery Securities lowered its rating on Stratosphere from a Buy
to a Hold. These estimates would have been lower if defendants had
then revealed the truth regarding Stratosphere's marketing efforts
and other undisclosed material facts.
52. On or about July 1, 1996, defendant Stupak filed a
Form 13-D with the SEC indicating that Stupak and his affiliated
entities had sold 471,000 shares of Stratosphere between
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May 10, 1996 and June 24, 1996 at $6.75 to $8.71 per share and that
the Stupak group reduced their stake in Stratosphere to 13.7%.
53. The 13-D disclosed that Stupak had engaged in
discussions with Stratosphere and Grand Casinos whereby Grand
Casinos would acquire all of Stupak's shares in exchange for shares
in Grand Casino. The 13-D stated that "Mr. Stupak believes that
the interest of the Company can be best served through a merger or
other business combination since such unification could provide an
opportunity to consolidate debt, reduce costs and maximize
operating efficiencies while reducing competing time demands and
other potential conflict of interest situations, including
decisions as to the allocation or pursuit of expansion
opportunities." In the 13-D, Stupak also disclosed that he was
considering resigning as Chairman and as a member of Stratosphere's
Board of Directors. According to the 13-D filing, "because Grand
currently owns 42% of the common stock and is the controlling
stockholder, Mr. Stupak's ability to influence the Company's
operations is extremely limited.
54. On July 16, 1996, BT Securities, one of the firms that
underwrote Stratosphere's December 1995 offering, lowered its
rating on Stratosphere, cutting 1996 earnings to a loss of 3 cents
per share, based on information provided by the Company in advance
of the Company's release of second quarter 1996 results. The
information provided by defendants was incomplete and misleading
information in an attempt to convince the market that the loss
would be only 3 cents per share and thereby prop up the price of
Stratosphere stock.
55. On July 22, 1996, Stratosphere announced its second
quarter 1996 results, which were much lower than analysts'
expectations. For the three months ended June 30, 1996,
Stratosphere posted a net loss of $11.1 million or 19 cents per
share, compared to 3 cents per share anticipated by BT Securities
and others. Defendant Berman said, "While we still believe that
the Tower is an excellent marketing tool to motivate travel to our
facility, we clearly understand the need for increased marketing
efforts." The Company also announced that Berman was
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elected Chairman of the Board, replacing Stupak, who resigned after
the announcement of the second quarter loss.
56. On July 23, 1996, the Associated Press reported that
"low gambling and hotel revenues were blamed for the dramatic
losses at [Stratosphere], which officials attributed to inadequate
advertising, overpriced hotel rooms and lack of family
attractions." Defendant Berman said "we subscribed to the build it
and they will come theory. We assumed that visitors to Las Vegas .
. . would see the Tower and be attracted to our resort." Berman
admitted, "We had a limited marketing campaign.
57. By the close of the Class Period, the sky had fallen on
Stratosphere's stock price, which had plunged from $14 per share to
$3 per share.
58. On July 29, 1996, defendant Wirshing resigned as
president of Stratosphere and Richard Schuetz, a gaming industry
specializing in marketing, was named interim president to focus on
marketing Stratosphere.
ADDITIONAL SCIENTER ALLEGATIONS
59. As alleged herein, defendants acted with scienter in
that defendants knew that the public documents and statements
issued or disseminated in the name of the Company were materially
false and misleading, or recklessly disregarded that the statements
were materially false and misleading; knew or were reckless in not
knowing that such statements or documents would be issued or
disseminated to the investing public; and knowingly and
substantially participated or acquiesced in the issuance or
dissemination of such statements or documents. As set forth
elsewhere herein in detail, defendants, in particular the
Individual Defendants, by virtue of their receipt of information
reflecting the true facts regarding Stratosphere, their control
over, and/or receipt and/or modification of Stratosphere's
allegedly materially misleading misstatements and/or their
associations with the Company which made them privy to confidential
proprietary information concerning Stratosphere, participated in
the fraudulent scheme alleged herein. The Individual Defendants,
who were senior officers of Stratosphere, had knowledge of
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Stratosphere's financial and operating and condition and/or read or
had access to reports documenting the Company's troubles prior to
the times that the misrepresentations and omissions alleged herein
were made.
60. Stratosphere's motives for engaging in the fraudulent
conduct alleged herein included: to raise the market value of
Stratosphere securities; improve the Company's balance sheet;
maintain the Company's financing; and attract investor capital.
61. Defendants Berman and Grand Casino further were
motivated to commit the fraud described herein, in order to boost
and enhance the five year old Minnesota-based Grand Casino's
recognition as a major gaming player. Prior to Stratosphere, Grand
Casino's experience was based on operations outside of Las Vegas
and primarily Indian reservation gaming. As the Los Vegas Business
Press [sic] reported on March 18, 1996, Berman stated that "in
addition to underestimating the Stratosphere, Las Vegans haven't
recognized Minnesota-based Grand Casinos as the major gaming player
that it has become." Berman stated that "we're certainly not that
well known here. . . . But most off our properties, if put on the
Strip, would stand tall and do very well." Berman stated that
companies not in Las vegas or Atlantic City jurisdictions may be
overlooked, and that when Stratosphere opens "Grand will no longer
be considered one of the smaller casino operators." Indeed, Grand
Casinos and Berman had very large financial stakes in Stratosphere,
which they stood to lose if Stratosphere was not a success.
62. The Individual Defendants' motives for engaging in the
fraudulent conduct alleged herein included: to protect and enhance
their executive positions and the substantial compensation,
benefits and prestige they obtained thereby; preserve themselves in
management positions with the Company as long as possible; enhance
the value of their personal holdings and options; obtain larger
payments under Stratosphere's officer bonus compensation plan
and/or other discretionary individual performance bonuses; and
engage in insider trading while the market was receiving misleading
information.
63. The Individual Defendants' insider selling is
additional evidence probative of their bad faith and scienter. As
set forth above, while defendants were issuing false favorable
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statements about the Company's business prospects, certain
defendants, who had access to confidential information and were
aware of the truth about the Company and its products, were
benefiting from the illegal course of business or course of conduct
described in this complaint by selling large amounts of the
Company's stock at artificially inflated prices and/or exercising
options without disclosing the material adverse facts about the
Company to which they were privy. The following defendants sold
shares of Stratosphere common stock for total proceeds of over $8.6
million:
|=================================================================|
| Insider | Date | No. of | Price per | Total |
| | | Shares | share | Proceeds |
|=================================================================|
|Robert Stupak | 1/2/96 | 10,000 | 10.13 | 101,300.00|
|-----------------------------------------------------------------|
|Stupak Enterprises | 1/3/96 | 2,000 | 9.75 | 19,500.00|
|-----------------------------------------------------------------|
|Robert Stupak | 1/3/96 | 2,000 | 9.75 | 19,500.00|
|-----------------------------------------------------------------|
|Robert Stupak | 1/22/96 | 10,000 | 10.00 | 100,000.00|
|-----------------------------------------------------------------|
|Robert Stupak | 1/22/96 | 1,000 | 10.25 | 10,250.00|
|-----------------------------------------------------------------|
|Stupak Enterprises | 1/23/96 | 25,000.00 | 10.50 | 250,550.00|
|-----------------------------------------------------------------|
|Robert Stupak | 1/23/96 | 5,000 | 10.50 | 52,500.00|
|-----------------------------------------------------------------|
|Robert Stupak | 1/23/96 | 10,000 | 10.50 | 105,000.00|
|-----------------------------------------------------------------|
|Robert Stupak | 1/23/96 | 9,000 | 10.25 | 92,250.00|
|-----------------------------------------------------------------|
|Robert Stupak | 1/23/96 | 5,000 | 10.63 | 53,150.00|
|-----------------------------------------------------------------|
|Robert Stupak | 1/30/96 | 5,000 | 11.00 | 55,000.00|
|-----------------------------------------------------------------|
|Robert Stupak | 1/30/96 | 5,000 | 10.88 | 54,400.00|
|-----------------------------------------------------------------|
|Robert Stupak | 2/2/96 | 10,000 | 10.63 | 106,300.00|
|-----------------------------------------------------------------|
|Robert Stupak | 2/5/96 | 20,000 | 10.50 | 210,000.00|
|-----------------------------------------------------------------|
|Robert Stupak | 2/6/96 | 8500 | 10.38 | 88,230.00|
|-----------------------------------------------------------------|
|Robert Stupak | 2/6/96 | 1500 | 10.50 | 15,750.00|
|-----------------------------------------------------------------|
|Robert Stupak | 2/7/96 | 10,000 | 10.50 | 105,000.00|
|-----------------------------------------------------------------|
|Robert Stupak | 2/8/96 | 20,000 | 11.33 | 222,600.00|
|-----------------------------------------------------------------|
|Robert Stupak | 2/12/96 | 10,000 | 11.00 | 110,000.00|
|-----------------------------------------------------------------|
|Robert Stupak | 2/12/96 | 15,000 | 11.75 | 176,250.00|
|-----------------------------------------------------------------|
|Robert Stupak | 2/23/96 | 5,000 | 11.75 | 58,750.00|
|-----------------------------------------------------------------|
- 16 -
|-----------------------------------------------------------------|
|Robert Stupak | 2/26/96 | 10,000 | 11.38 | 113,800.00|
|-----------------------------------------------------------------|
|Stupak Enterprises | 2/29/96 | 6,000 | 11.38 | 68,280.00|
|-----------------------------------------------------------------|
|Robert Stupak | 2/29/96 | 6,000 | 11.38 | 68,280.00|
|-----------------------------------------------------------------|
|Robert Stupak | 2/29/96 | 5,000 | 11.25 | 56,250.00|
|-----------------------------------------------------------------|
|Robert Stupak | 2/29/96 | 17,000 | 11.38 | 193,460.00|
|-----------------------------------------------------------------|
|Robert Stupak | 3/21/96 | 100,000 | 10.75 1,075,000.00|
|-----------------------------------------------------------------|
|Stupak Enterprises | 5/10/96 | 10,000 | 8.72 | 87,200.00|
|-----------------------------------------------------------------|
|Robert Stupak | 5/10/96 | 10,000 | 8.72 | 87,200.00|
|-----------------------------------------------------------------|
|Robert Stupak | 5/28/96 | 6,900 | 7.88 | 54,372.00|
|-----------------------------------------------------------------|
|Robert Stupak | 5/28/96 | 5,000 | 7.97 | 39,850.00|
|-----------------------------------------------------------------|
|Robert Stupak | 5/28/96 | 5,000 | 7.75 | 38,750.00|
|-----------------------------------------------------------------|
|Robert Stupak | 5/28/96 | 15,000 | 7.75 | 116,250.00|
|-----------------------------------------------------------------|
|Robert Stupak | 5/28/96 | 47,550 | 7.88 | 374,694.00|
|-----------------------------------------------------------------|
|Robert Stupak | 5/28/96 | 20,550 | 8.00 | 164,400.00|
|-----------------------------------------------------------------|
|Stupak Enterprises | 5/31/96 | 100,000 | 8.59 | 859,000.00|
|-----------------------------------------------------------------|
|Stupak Enterprises | 5/31/96 | 13,000 | 8.09 | 105,170.00|
|-----------------------------------------------------------------|
|Robert Stupak | 5/31/96 | 100,000 | 8.59 | 859,000.00|
|-----------------------------------------------------------------|
|Robert Stupak | 5/31/96 | 13,000 | 8.09 | 105,170.00|
|-----------------------------------------------------------------|
|Stupak Enterprises | 6/3/96 | 13,000 | 8.22 | 106,860.00|
|-----------------------------------------------------------------|
|Robert Stupak | 6/3/96 | 13,000 | 8.22 | 106,860.00|
|-----------------------------------------------------------------|
|Stupak Enterprises | 6/11/96 | 5,000 | 7.25 | 36,250.00|
|-----------------------------------------------------------------|
|Robert Stupak | 5/11/96 | 5,000 | 7.25 | 36,250.00|
|-----------------------------------------------------------------|
|Robert Stupak | 6/11/96 | 5,000 | 8.00 | 40,000.00|
|-----------------------------------------------------------------|
|Stupak Enterprises | 6/13/96 | 20,000 | 7.00 | 140,000.00|
|-----------------------------------------------------------------|
|Robert Stupak | 6/13/96 | 40,000 | 7.00 | 280,000.00|
|-----------------------------------------------------------------|
|Robert Stupak | 6/13/96 | 13,000 | 7.13 | 92,690.00|
|-----------------------------------------------------------------|
|Stupak Enterprises | 6/14/96 | 5,000 | 7.25 | 36,250.00|
|-----------------------------------------------------------------|
|Robert Stupak | 6/14/96 | 5,000 | 7.25 | 36,250.00|
|-----------------------------------------------------------------|
|Stupak Enterprises | 6/18/96 | 10,000 | 7.00 | 70,000.00|
|-----------------------------------------------------------------|
|Stupak Enterprises | 6/18/96 | 5,000 | 7.19 | 35,950.00|
|-----------------------------------------------------------------|
- 17 -
|-----------------------------------------------------------------|
|Stupak Enterprises | 6/18/96 | 35,000 | 7.25 | 253,750.00|
|-----------------------------------------------------------------|
|Stupak Enterprises | 6/18/96 | 5,000 | 7.38 | 36,900.00|
|-----------------------------------------------------------------|
|Robert Stupak | 6/18/96 | 10,000 | 7.00 | 70,000.00|
|-----------------------------------------------------------------|
|Robert Stupak | 6/18/96 | 5,000 | 7.19 | 35,950.00|
|-----------------------------------------------------------------|
|Robert Stupak | 6/18/96 | 35,000 | 7.25 | 253,750.00|
|-----------------------------------------------------------------|
|Robert Stupak | 6/18/96 | 5,000 | 7.38 | 36,900.00|
|-----------------------------------------------------------------|
|Robert Stupak | 6/19/96 | 10,000 | 7.00 | 70,000.00|
|-----------------------------------------------------------------|
|Robert Stupak | 6/19/96 | 50,000 | 6.75 | 337,500.00|
|-----------------------------------------------------------------|
|Robert Stupak | 6/24/96 | 25,000 | 6.75 | 168,750.00|
|-----------------------------------------------------------------|
| TOTAL | 948,000 | 8,252,166.00|
|-----------------------------------------------------------------|
|Thomas Bell | 4/19/96 | 10,000 | 13.00 | 87,500.00*|
|-----------------------------------------------------------------|
| TOTAL | 10,000 | | 130,000.00|
|-----------------------------------------------------------------|
| GRAND TOTAL | 983,000 | $8,632,716.00|
|=================================================================|
* Bell had purchased these 10,000 shares earlier that day at $4.25
by exercise of options.
COUNT I
(Violations Of Section 10(b) Of The Exchange Act
and Rule 10b-5 Promulgated Thereunder)
64. Plaintiffs repeat and reallege the allegations set
forth above as though fully set forth herein.
65. During the class period, the defendants, and each of
them, carried out a plan, scheme and course of conduct which was
intended to and, throughout the class period, did: (i) deceive the
investing public, including plaintiffs and the other Class members,
as alleged herein; (ii) artificially inflate and maintain the
market price of Stratosphere securities; and (iii) cause plaintiffs
and other members of the Class to purchase Stratosphere securities
at inflated prices. In furtherance of this unlawful scheme, plan
and course of conduct, defendants, and each of them, took the
actions set forth herein.
66. Defendants (i) employed devices, schemes, and artifices
to defraud; (ii) made untrue statements of material fact and/or
omitted to state material facts necessary to make the statements
not misleading; and (iii) engaged in acts, practices, and a course
- 18 -
of business which operated as a fraud and deceit upon the
purchasers of the Company's stock in an effort to maintain
artificially high market prices for Stratosphere's securities in
violation of Section 10(b) of the Exchange Act and Rule 10b-5.
67. The statements made by defendants during the class
period were materially false and misleading because at the time
they were made, the Company and persons acting as corporate
officers knew or recklessly ignored, but failed to disclose, the
matters set forth herein.
68. In ignorance of the artificially high market prices of
Stratosphere's publicly traded securities, and relying directly on
defendants or indirectly on the false and misleading statements
made by defendants, on the integrity of the market in which the
securities trade, on the integrity of the regulatory process and
the truth of any representations made to appropriate agencies at
the time of the public offering and/or on the absence of material
adverse information that was known to defendants but not disclosed
in public statements by defendants during the class period,
plaintiffs and the other members of the Class acquired
Stratosphere's securities during the class period at artificially
high prices and were damaged thereby.
69. Had plaintiffs and the other members of the Class and
the marketplace known of the true financial condition and business
prospects of Stratosphere, which were not disclosed by defendants,
plaintiffs and other members of the Class would not have purchased
or otherwise acquired their Stratosphere securities during the
class period, or, if they had acquired such securities during the
class period, they would not have done so at the artificially
inflated prices which they paid. Hence, plaintiffs and the Class
were damaged by defendants' violations of Section 10(b) and Rule
10b-5.
COUNT II
(Violation of Section 20(a) of The Exchange Act
Against The Individual Defendants)
70. Plaintiffs incorporate by reference the paragraphs set
forth above as if set forth fully herein. This Count is asserted
against the Individual Defendants.
71. The Individual Defendants acted as controlling persons
of Stratosphere within the meaning of Section 20 of the Exchange
Act as alleged herein. By virtue of their high level positions,
- 19 -
participation in and/or awareness of the Company's operations and
knowledge of the Company's financial condition, the Individual
Defendants had the power to influence and control and did influence
and control, directly or indirectly, the decision making of the
Company, including the content and dissemination of the various
statements which plaintiffs contend are false and misleading. Each
of the Individual Defendants was provided with or had unlimited
access to copies of the Company's reports, press releases, public
filings and other statements alleged by plaintiffs to be misleading
prior to and/or shortly after these statements were issued and had
the ability to prevent the issuance of the statements or cause the
statements to be corrected.
72. In particular, defendant Stupak, as the Chairman of the
Board, defendant Wirshing, as the President of the Company;
defendant Berman as Chief Executive Officer; defendant Lettero, as
Chief Financial Officer; and defendant Blumen, as Executive Vice-
President, Secretary and General Counsel, had direct involvement in
the day-to-day operations of the Company and therefore are presumed
to have the power to control or influence the particular
transactions giving rise to the securities violations as alleged
herein.
73. The Individual Defendants had a duty to promptly
disseminate truthful information that would be material to
investors in compliance with the integrated disclosure provisions
of the SEC as embodied in SEC Regulation S-X (17 C.F.R. Sections
210.01 et seq.) and S-K (17 C.F.R. Sections 229.10 et seq.) and
other SEC regulations, including accurate and truthful information
with respect to the Company's operations, financial condition and
earnings so that the market price of the Company's common stock
would be based on truthful, complete and accurate information.
74. By reason of such wrongful conduct, defendants are
liable pursuant to Section 20 (a) of the Exchange Act. As a direct
and proximate result of defendants' wrongful conduct, plaintiffs
and the other members of the Class suffered damages in connection
with their purchases of the Company's securities during the Class
Period.
WHEREFORE, plaintiffs pray for relief and judgment, as
follows:
- 20 -
(i) Determining that this action is a proper class action,
certifying plaintiffs as class representatives under Rule 23 of the
Federal Rules of Civil Procedure and his counsel as class counsel;
(ii) Awarding compensatory damages in favor of plaintiffs
and the other Class members against all defendants, jointly and
severally, for all damages sustained as a result of the defendants'
wrongdoing, in an amount to be proven at trial, including interest
thereon;
(iii) Awarding plaintiffs and the Class their reasonable
costs and expenses incurred in this action, including counsel fees
and expert fees;
(iv) Such other and further relief as the Court may deem
just and proper.
DATED: August 5, 1996 LENARD SCHWARTZER
HALE, LANE, PEEK, DENNIS & HOWARD
2300 West Sahara Avenue
Suite 800, Box 8
Las Vegas, NV 89102
(702) 362-5118
KEVIN J. YOURMAN
JORDAN L. LURIE
WEISS & YOURMAN
/s/
By: _______________________
Jordan L. Lurie
10940 Wilshire Blvd.
24th Floor
Los Angeles, California 90024
(310) 208-2800
-and-
JOSEPH H. WEISS
WEISS & YOURMAN
319 Fifth Avenue
New York, New York 10016
(212) 532-4171
JULES BRODY
STULL STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230
Attorneys for Plaintiff
- 21 -
DEMAND FOR JURY TRIAL
Plaintiffs hereby demand a trial by jury pursuant to Rule
38(b) of the Federal Rules of Civil Procedure.
DATED: August 5, 1996
LENARD SCHWARTZER
HALE, LANE, PEEK, DENNIS & HOWARD
2300 West Sahara Avenue
Suite 800, Box 8
Las Vegas, NV 89102
(702) 362-5118
KEVIN J. YOURMAN
JORDAN L. LURIE
WEISS & YOURMAN
/s/
By: _______________________
Jordan L. Lurie
10940 Wilshire Blvd.
24th Floor
Los Angeles, California 90024
(310) 208-2800
-and-
JOSEPH H. WEISS
WEISS & YOURMAN
319 Fifth Avenue
New York, New York 10016
(212) 532-4171
JULES BRODY
STULL STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230
Attorneys for Plaintiff
- 22 -
DECLARATION OF PLAINTIFF TO SERVE AS CLASS REPRESENTATIVE
I, Samuel Tolwin, hereby certify as follows:
1. I have reviewed the complaint in this action against
Stratosphere Corporation, et al. and authorize its filing.
2. I did not purchase the security that is the subject of the
complaint at the direction of plaintiff's counsel or in order
to participate in any private action arising under the
federal securities laws.
3. I am willing to serve as a representative party on behalf of
a class as set forth in the Complaint, including providing
testimony at deposition and trial, if necessary.
4. To the best of my current knowledge, the following are all of
my transactions in the security that is the subject of the
complaint during the class period specified in the complaint:
350 shares of Stratosphere Corporation purchased on January
26, 1996 at a price of $10 7/8; 650 shares of Stratosphere
Corporation purchased on February 20, 1996 at a price of $11
3/4. I have not sold any Stratosphere stock to date.
5. During the three year period preceding the date on which this
certification is signed, I have not sought to serve as a
representative party on behalf of a class in any case brought
under the federal securities laws.
6. I agree not to accept any payment for serving as a
representative party on behalf of the class as set forth in
the complaint, beyond plaintiff's pro rata share of any
recovery, except as ordered or approved by the Court.
7. I make this declaration without waiver of any applicable
privileges and without waiver of any right to challenge the
necessity for, or the constitutionality of, this declaration
or to object to the filing of this declaration on any ground
whatsoever.
8. The matters stated in this declaration are true to the
best of my current knowledge, information and belief.
Executed under penalty of perjury under the laws of the
United States of America.
Date: August 4, 1996 /s/
____________________
Samuel Tolwin
CERTIFICATION FOR CLASS ACTION COMPLAINT
FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
MICHAEL CEASAR, under the penalties of perjury, hereby
certifies as follows:
1. I am the plaintiff in the within complaint, and I make
this certification pursuant to Section 101 of the Private
Securities Litigation Reform Act of 1995 and as required by Section
21D(a)(2) of Title I of the Securities Exchange Act of 1934.
2. I have read the foregoing securities class action
complaint (the "Complaint"), filed on my behalf and on behalf of
all others similarly situated, and I authorize its filing.
3. I did not purchase the security that is the subject of
the Complaint at the direction of plaintiff's counsel or in order
to participate in any private action arising under Title I of the
Securities Exchange Act of 1934.
4. I am willing to serve as a representative on behalf of
the class, including providing testimony at depositions and trial,
if necessary.
5. Following are all of my transactions that are the
subject of the Complaint during the class period specified in the
Complaint:
(a) On May 31, 1996, I purchased 400 shares of the
common stock of Stratosphere Corp. at $8-3/4 per
share; and
(b) On June 28, 1996, I purchased an additional 200
shares of Stratosphere Corp. common stock at
$6.00 per share.
6. During the three year period preceding the date on
which this certification was signed, I have neither sought to serve
nor have served as a representative party on behalf of a class in
any action under Title I of the Securities Exchange Act of 1934.
7. I agree not to accept any payment for serving as a
representative party on behalf of the class, beyond plaintiff's pro
rata share of any recovery, except as ordered or approved by the
Court.
8. I make this certification without waiver of any
applicable privileges and without waiver of any right to challenge
the necessity for, or the constitutionality of, this certification,
or to object to the filing of this certification on any ground
whatsoever.
9. The matters stated in this certification are true to
the best of my current knowledge, information and belief.
CERTIFIED, UNDER THE PENALTIES OF PERJURY, at ____________
New York, this _________ day of August, 1996.
/s/
___________________
MICHAEL CEASAR
|
Securities Class Action Clearinghouse |
U.S.D.C. N.D. Cal. |
Robert Crown Law Library |
Stanford Law School |