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CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION
TABLE OF CONTENTS
NATURE OF THE CASE ............................................................................................................... 1
JURISDICTION AND VENUE....................................................................................................... 1
PARTIES.......................................................................................................................................... 1
CLASS ACTION ALLEGATIONS................................................................................................. 3
FACTUAL BACKGROUND........................................................................................................... 4
Global Crossing’s Bonds....................................................................................................... 5
Financial Overview................................................................................................................ 5
SUBSTANTIVE ALLEGATIONS................................................................................................... 7
Materially False and Misleading Statements Issued During the Class Period............................ 9
Scienter............................................................................................................................... 20
Applicability of Presumption of Reliance: Fraud-On-The-Market Doctrine.......................................................................................... 22
NO SAFE HARBOR...................................................................................................................... 23
FIRST CLAIM FOR RELIEF - Violation of Section 10(b) of the Exchange Act and Rule 10b-5......... 23
SECOND CLAIM FOR RELIEF - Violation of Section 20(a) of the Exchange Act............................. 26
PRAYER FOR RELIEF.................................................................................................................. 27
JURY DEMAND............................................................................................................................ 28
1. This is a securities fraud class action on behalf of senior note purchasers (sometimes referred to as “bondholders”) of Global Crossing Ltd. (“Global Crossing” or “the Company”) between January 2, 2001 and October 4, 2001, inclusive (the “Class Period”), seeking remedies under the Securities Exchange Act of 1934 (the “Exchange Act”). 2. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §§1331 and 1337, and §27 of the Exchange Act [15 U.S.C. §78aa]. 3. This action arises under §§10(b) and 20(a) of the Exchange Act [15 U.S.C. §§ 78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder [17 C.F.R. §240.10b‑5]. 4. Venue is proper in this District pursuant to §27 of the Exchange Act and 28 U.S.C. 1391(b) because the Company maintains an office in this District and many of the acts and practices complained of herein occurred in substantial part in this District. 5. In connection with the conduct complained of herein, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including the mails and interstate telephone communications, and the facilities of a national securities market. 6. Plaintiff Samuel Dawson purchased the senior notes (sometimes referred to as “bonds”) issued by Global Crossing Ltd. (“Global Crossing”) during the Class Period, as set forth in the accompanying certification, and was damaged thereby. Global Crossing has filed a bankruptcy petition, and is not named as a defendant herein. 7. Defendant Gary Winnick (“Winnick”) was at all relevant times, Chairman of Global Crossing’s Board of Directors. During the Class Period, Winnick sold 9,976,781 shares of Global Crossing stock, approximately 9% of his Global Crossing holdings, for proceeds of $123,512,549. 8. Defendant Dan J. Cohrs (“Cohrs”) was at all relevant times, Global Crossing’s Chief Financial Officer. During the Class Period, Cohrs sold 150,000 shares of Global Crossing stock for proceeds of $2,088,750. / / / 9. Defendant Thomas J. Casey (“Casey”) was at all relevant times, Vice Chairman of Global Crossing’s Board of Directors and was Global Crossing’s Chief Executive Officer until his removal from that position on October 4, 2001. 10. Defendant David A. Walsh (“Walsh”) was at all relevant times Global Crossing’s President and Chief Operating Officer. During the Class Period, Walsh sold 672,789 shares of Global Crossing stock for proceeds of $8,678,978. 11. Defendant Joseph P. Clayton (“Clayton”) was at all relevant times a director of Global Crossing and President and Chief Executive Officer of Global Crossing North America. During the Class Period, Clayton sold 49,482 shares of Global Crossing stock for proceeds of $778,264. 12. Because of Defendants’ positions with the Company, they had access to adverse undisclosed information about its business, operations, products, operational trends, financial statements, markets and present and future business prospects via access to internal corporate documents. 13. Each of the above officers of Global Crossing, because of their high-level positions 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 and its business, operations, products, growth, financial statements, and financial condition, as alleged herein. 14. As officers and controlling persons of a publicly held company whose bonds were, and are, registered with the SEC pursuant to the Exchange Act, and traded in the secondary market and governed by the provisions of the federal securities laws, the Defendants had a duty to disseminate promptly accurate and truthful information with respect to the Company’s financial condition and performance, growth, operations, financial statements, business, products, markets, management, earnings, and present and future business prospects, and to correct any previously issued statements that had become materially misleading or untrue, so that the market price of the Company’s bonds would be based upon truthful and accurate information. Defendants’ misrepresentations and omissions during the Class Period violated these specific requirements and obligations. 15. Defendants, because of their positions and control and authority as officers and/or directors of the Company, prepared, read, reviewed and were able to and did control the content of the various SEC filings, press releases and other public statements pertaining to the Company during the Class Period. Accordingly, each of the Defendants is responsible for the accuracy of the public records and releases detailed herein and is therefore primarily liable for the representations contained therein. 16. Each of the defendants is liable as a participant in a fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of Global Crossing bonds by disseminating materially false and misleading statements and/or concealing material adverse facts. The scheme: (a) deceived the investing public regarding Global Crossing’s business, operations, management and the intrinsic value of Global Crossing’s common stock and bonds; (b) enabled Global Crossing to sell more than $1 billion of bonds on favorable terms and allowed insiders to sell more than $149 million of their personally held Global Crossing common stock to the unsuspecting public; and (c) caused Plaintiff and other members of the Class to purchase Global Crossing bonds at artificially inflated prices. 17. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of a Class consisting of all persons and entities who, between January 2, 2001 through October 4, 2001, inclusive, purchased or otherwise acquired the following bonds of Global Crossing and were damaged thereby: (a) Senior notes issued by the company in 1998 for $800 million, with a coupon rate of 9.625%, maturing in 2008; (b) Senior notes issued by the company on November 12, 1999 for $900 million, with a coupon rate of 9.125% and maturing on November 15, 2006; (c) Senior notes issued by the company on November 12, 1999 for $1.1 billion, with a coupon rate of 9.5%, maturing on November 15, 2009; (d) Senior notes issued by the company on January 23, 2001 for $1.0 billion, with a coupon interest rate of 8.7%, maturing in August 2007. Excluded from the Class are 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. 18. 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 Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff believes there are hundreds or thousands of members in the proposed Class. Record holders and other members of the Class may be identified by records maintained by Global Crossing 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. 19. Plaintiff’s 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. 20. Plaintiff will fairly and adequately protect the interests of Class members and have retained counsel competent and experienced in class and securities litigation. Plaintiff has no interests that are adverse or antagonistic to those of the Class. 21. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. Because the damages suffered by many individual Class members may be relatively small, the expense and burden of individual litigation make it virtually impossible for the Class members to individually seek redress for the wrongful conduct alleged herein. 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 statements made by Defendants to the investing public during the Class Period misrepresented material facts about the business, operations, and management of Global Crossing;
(c) to what extent the members of the Class have sustained damages and the proper measure of damages.
23. Global Crossing is a Bermuda Corporation with executive offices located at 360 N. Crescent Drive, Beverly Hills, California. The Company provides telecommunications services over the world’s first integrated global Internet Protocol (“IP”)-based network, which reaches 27 countries and more than 200 cities. 24. The company has raised more than $20 billion since its inception in 1997. Of the $20 billion, $3.8 billion has been from bondholders. On May 15, 1998, the Company issued $800 million of senior notes with a coupon rate of 9.625%, maturing on May 15, 2008. On November 12, 1999, the Company issued two series of “senior notes” as follows: $900 million in senior notes, with a coupon rate of 9.125%, maturing on November 15, 2006 and $1.1 billion of senior notes, with a coupon rate of 9.5% maturing on November 15, 2009. In January of 2001, during the Class Period, the Company issued an additional $1.0 billion in senior notes, with a coupon rate of 8.7%, maturing in 2007. After the initial sales of the notes/bonds, they were traded by members of the public on the secondary market during the Class Period. 25. Although bonds are given superior status over stocks under bankruptcy laws, the value and volatility of bonds depends in large part upon the financial condition of the company and its ability to pay its debts going forward. Earnings and revenue projections and expectations have a dramatic impact on the underlying value of the bonds in both the primary and secondary markets. Bonds are subject to general interest rate market risk as well as company risk. 26. The Company’s financial condition and performance, growth, operations, financial statements, business, products, markets, management, earnings, and present and future business prospects impact the market value of bonds, and are factors in setting the coupon rate (interest payment) at the initial offering. Companies with less optimistic financial outlooks must pay a higher coupon rate to their bondholders. 27. Global Crossing generated a substantial portion of its revenues through sales of wholesale bandwidth capacity in the form of Indefeasible Rights of Use (“IRU’s”) which refers to contracts that grant a telecommunications carrier bandwidth capacity for a designated period of time. 28. The company would sell capacity on its network to telecommunications companies and offer to buy back capacity from their customers (“swaps”), recording the cost as a capital expense, but recording most of the revenue on its income statement. This practice is commonly referred to as “roundtripping.” 29. On October 4, 2001, the company announced that it had third quarter cash revenue of $1.2 billion, in contrast to projected cash revenue of $1.6 billion, and that third quarter adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) would be “significantly less than $100 million” in contracts to previous forecasts of $362 million. The Company also announced that it was taking a write-off of $2.9 billion in the third quarter 2001, including $294 million in restructuring charges, $545 million related to goodwill impairment of Global Marine, and a $2.1 billion writedown of its equity investment in Exodus Communications. The Company also disclosed that it had not decreased its usage of “swaps” with its customers and had used these deals to artificially inflate its financial results. As one analysts stated: “[W]e believe swap deals are done mostly as a means of enhancing financials.” Global Crossing’s new CEO, John Legere admitted that telecommunications companies such as Global Crossing failed to inform investors about the details of these swap deals. “The industry gave no information . . . we showed a huge cash number, but we didn’t answer questions about price, supply, capacity, or the number of units.” Legere admitted in a December 29, 2001 Fortune article that shareholders may have been confused about the robustness of revenues. One analyst stated: “It had the appearance of a ponzi scheme or shell game.” 30. On January 29, 2002, Global Crossing commenced Chapter 11 bankruptcy proceedings in the United States Bankruptcy Court for the Southern District of New York and coordinated proceedings in the Supreme Court of Bermuda. 31. On February 4, 2002, days after commencing bankruptcy proceedings, Global Crossing issued the following statement: In August 2001, the company received a letter from Roy Olofson, who was at that time a vice-president-finance of the company, raising concerns about certain accounting and financial reporting matters of Global Crossing and its subsidiary Asia Global Crossing. Mr. Olofson claimed that it was improper for the company to have reported pro forma values for cash revenues and adjusted EBITDA (earnings before interest tax depreciation and amortization) because the numbers are not measures of cash receipts or earnings and because the amounts were allegedly inflated by including amounts for which the cash was not received or where there had been non-monetary exchanges of capacity. / / / 32. An article in the February 4, 2002 edition of the Wall Street Journal stated: At issue at Global Crossing are 20-year contracts for telecommunications capacity, so called indefeasible rights of use, or IRU’s, which carriers frequently swap with one another.
Such swaps are attractive to carriers, because accounting rules allow them to book an incoming contract as a large chuck of revenue, and then book the outgoing contract as a capital expense, which they typically emphasize as separate from operating results. Since it went public in 1998, Global Crossing continued to emphasize metrics that removed capital and interest costs. And it was this practice that Mr. Olafson was concerned about, writing in his letter that investors and commercial bankers may have been “intentionally misled” about the company’s financial performance. 33. A February 6, 2002 Wall Street Journal article discussed Mr. Olafson’s accusations further: The statement issued by Mr. Olofson’s lawyer said Global Crossing executives were “roundtripping” revenues by recording a series of last minute deals with other carriers, in which the contracts were for nearly identical amounts, for routes that had yet to be specified, or in some cases, on routes that had not yet been built. * * * In the second quarter of 2001, the statement alleged, Global Crossing spent $355 million on contracts with customers who in turn “roundtripped” $345 million to Global Crossing.
34. At all relevant times, the Company’s operating performance (and compliance with its debt covenants) was measured in terms of recurring adjusted EBITDA. Recurring EBITDA is operating income before interest payments, taxes, depreciation, and amortization adjusted to include cash revenues paid up-front pursuant to long-term leases (e.g. sales pursuant to the IRUs) that under general accounting principles can only be recognized over the course of 15 to 25 years. Recurring adjusted EBITDA is commonly used as a measure of cash flow, which analysts consider particularly important for evaluating the operating performance of capital intensive, debt-laden telecommunications companies, such as Global Crossing. Throughout the Class Period the Company reported recurring adjusted EBITDA but never made any money, i.e. it never reported earnings as earnings are defined under the generally accepted accounting principles (“GAAP”). In addition, Defendants falsely portrayed the financial health of the Company by using improper accounting. 35. Global Crossing sold capacity on its networks to phone companies and offered to buy capacity back from its customers (“swaps”), recording the costs as a capital expense, but recording most of the revenue on its income statements. The Company booked large revenue increases with little or no operating expenses, which artificially inflated operating revenue, including the amounts in its reported cash revenues and EBITDA numbers. In addition, many of these swap transactions were mirror transactions for buying and selling capacity never used to carry paying traffic. Global Crossing and its customers were using these swap transactions to manufacture revenue and boost current earnings. 36. Unbeknownst to investors, the Company’s efforts to buy and sell the bandwidth carried over the network were not meeting with success and the Company was failing to generate sufficient revenue to repay the Company’s debt, including interest payments to bondholders. Adding to and exacerbating this adverse trend, the market for bandwidth was declining at a precipitous rate, thereby forcing the company to drastically lower its prices. 37. As the wholesale market for bandwidth began to soften, defendants claimed that the Company had long planned to shift its business emphasis from selling bandwidth capacity to competing against its own customers to provide higher margin, value added, customized services to global corporations, fund transfers, electronic trading, media content transfers and internet access. 38. In fact, the Company was unable to offset the declining wholesale carrier demand for bandwidth capacity with the sale of customized provider services because, unbeknownst to investors, it had no viable plan for establishing itself as a provider of data services, it had insufficient experience to compete with established services providers, and it therefore had few if any corporate clients. Consequently, the Company’s cash revenue and recurring adjusted EBITDA declined throughout the Class Period and fell well below the Company’s projections. 39. As now revealed, at all times during the Class Period, defendants issued false and misleading statements and press releases concerning the Company’s ability to offset declining wholesale demand for bandwidth capacity with higher-margin, customized data services and the Company’s ability to generate sufficient cash revenue to service its debt. During the Class Period, before the disclosure of the true facts, Defendants and certain Global Crossing insiders sold their personally held Global Crossing common stock generating more than $149 million in proceeds and the Company raised $1 billion in an offering of senior notes. Materially False and Misleading Statements Issued During the Class Period 40. On January 2, 2001, the Company issued a news release over the Business Wire stating: In addition to making its sale of transport services and bandwidth to business and carrier customers more efficient, Global Crossing is increasingly focused on providing sophisticated services and managed network solutions to global institutions and corporations.
41. Investors and analysts reacted positively to the announcement. Global Crossing shares, which closed at $14.1875 on January 2, 2001, increased by 24%, or $3.50, to close at $17.6875 on January 3, 2001. 42. In a company report dated January 2, 2001, which was based on information provided by defendant, Merrill Lynch Capital Markets described the management realignment as a sign the Company was successfully “leveraging” the Network, and stated that it considered Global Crossing’s share price low in relation to the Company’s projected 2001 earnings. In the report, Merrill Lynch Capital Markets reiterated its Buy recommendation. 43. The statements referenced above in ¶¶ 40 and 42 were each materially false and misleading when made as they misrepresented and/or omitted the following adverse facts which then existed and disclosure of which was necessary to make the statements made not false and/or misleading, including that: (a) Global Crossing was experiencing declining demand for bandwidth and the Company’s efforts to supplement this business with the provision of high margin, customized data services could not meet with success because the Company had insufficient expertise in this area;
(b) Defendants were artificially inflating Global Crossing’s operating performance through improper accounting of transactions with other telecommunication companies. Global Crossing sold capacity on its network to customers, who bought capacity back in a “swap” transaction. This practice had the effect of artificially inflating reported cash revenues and EBITDA and giving a false portrayal of the Company’s liquidity and funding situation; and
(c) As a result of the foregoing, defendants’ earnings projections and statements about the Company’s prospectus and outlook were lacking in a reasonable basis at all times.
/ / / 44. On January 8, 2001, Global Crossing issued a press release in which it reiterated its previously announced long-term growth targets for cash revenue and adjusted EBITDA of 30% and 35%-40% respectively, and annual cash revenue of $7.1 billion to $7.2 billion, and stated that the Company was continuing to diversify its revenue base. In this regard, the release stated: Sales of capacity in the form of IRUs should remain a strong cash generator, but we are relying on projected growth in IRU sales of less than 25% in order to meet our projections.
Mr. Casey continued, “We anticipate that 2001 performance will benefit from the initiation of commercial service on several new systems and in several new regions. . . . In addition, the data and IP services tailored to be attractive to the global enterprise market are now being rolled out and, as a result, for the first time we will be generating revenue from these services in these new markets in 2001.
. . . Revenue from commercial services is expected to be driven in large part by continued growth approximating 100% annually in data-services such as Frame Relay, ATM, IP and private line, joined in 2001 by data-services to financial institutions.
45. Following this announcement, on January 8, 2001, Lehman Brothers Inc. issued a company report on Global Crossing, which was based on information provided by defendants, in which it noted: “in a sea of telecom companies lowering numbers, Global Crossing’s guidance and expected growth should likely be viewed positively.” 46. On January 9, 2001, First Union issued a report on Global Crossing, which was based on information provided by defendants. The report stated: • Global Crossing announced positive guidance regarding its outlook for 2001.
• Global Crossing expects cash revenue of approximately $7.1-7.2 billion, which adjusted EBITDA of about $2.0-2.1 billion.
• The company continues to increase data revenue mix and diversify away from the competitive North Atlantic market for undersea traffic.
• CapEx is expected to be in the range of $4.5 billion to $4.7 billion, including Asia Global Crossing (AGCX) numbers.
• Reiterate our Strong Buy rating and out 12-month price target of $46 based on our DCF model.
47. The statements referenced above in ¶¶ 44-46 above were each materially false and misleading when made as they misrepresented and/or omitted the following adverse facts which then existed and disclosure of which was necessary to make the statements made not false and/or misleading, including that: (a) Global Crossing could not possibly meet its projections if IRU growth was only 25% because it was not positioned to generate sufficient additional revenue through its purportedly diversified network service offerings;
(b) Global Crossing was experiencing sharply declining demand for bandwidth;
(c) Defendants were artificially inflating Global Crossing’s operating performance through improper accounting of transactions with other telecommunication companies. Global Crossing sold capacity on its network to customers, who bought capacity back in a “swap” transaction. This practice had the effect of artificially inflating reported cash revenues and EBITDA and giving a false portrayal of the Company’s liquidity and funding situation; and
(d) As a result of the foregoing, defendants’ earnings projections and statements about the Company’s prospects and outlook were lacking in a reasonable basis at all times.
48. On January 22, 2001, Global Crossing announced that it was in the process of completing a private offering of $1 billion in aggregate principal amount of senior notes due August 2007. The net proceeds of the offering were to be used to reduce the cost of borrowing by refinancing existing indebtedness under the Company’s corporate credit facility. 49. On February 14, 2001, Global Crossing issued a release over the Business Wire in which it announced “record results” for the fourth quarter and full year ended December 31, 2001. The Company reported fourth quarter cash revenue of $1.54 billion, recurring adjusted EBITDA of $418 million and a recurring net loss of $617 million or $0.70 per share. For the full year 2000, the Company reported cash revenue of $5.16 billion, recurring adjusted EBITDA of $1.469 billion and recurring net loss of $1.779 billion, or $2.11 per share. With regard to the results, the press release stated in pertinent part as follows: With our global network virtually complete and fully funded, and with the IP/VPN capabilities that we’re implementing for new customers such as SWIFT, we have tremendous operating leverage as we add new customers to the network at very low incremental cost. We can reduce network costs for our customers as we increase our own margins.”
Additionally, the Company reiterated its previously announced projections of its financial performance for the fiscal year ending December 31, 2001. 50. Shares of the Company rose $1.70, or 9%, to $19.76 in early afternoon trading, after rising as high as $21.16. / / / 51. A number of analysts issued positive research reports based on information provided by defendants. On February 15, 2001, Prudential Securities issued a report on Global Crossing, which was based on information provided by defendants. The report stated: • The company reaffirmed 2001 financial guidance of approximately $7.1-7.2 billion of cash revenue and $2.0-2.1 billion of recurring adjusted EBITDA for 2001.
• The Global Crossing network is 85% complete, and a greater and greater portion of revenue should come from services rather than subsea IRUSs going forward.
• We are reiterating our Strong Buy and $50 price target.
52. On February 15, 2001, Deutsche Banc Alex. Brown issued a report on Global Crossing, which was based on information provided by defendants. The report stated: • The strength in the story is reflective of the fact that data revenue grew 72% from 4Q99 to 4Q00 and now represents approximately 60% of total telecom revenue vs. approximately 50% a year ago. Recall data growth is at the expense of lower margin/growth voice revenue - voice went down as a % of revenue as it didn’t grow.
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• We continue to believe GX is the premiere company to own in the sector. The company reaffirmed guidance for FY01 revenue of $7.1-7.3Bn and EBITDA of $2.0-2.1Bn and also provided 1Q01 guidance. We are reiterating our strong buy and $71 target based on our 10 year DCF.
53. The statements referenced above in ¶¶ 49, 51 - 52 were each materially false and misleading when made as they misrepresented and/or omitted the following adverse facts which then existed and disclosure of which was necessary to make the statements made not false and/or misleading, including that: (a) As demand for network capacity contracted, the Company was forced to reduce prices, thereby offsetting any purported operating leverage afforded by Global Crossing’s network ownership. This reduction in prices also materially decreased the Company’s margins;
(b) Global Crossing were experiencing declining demand for bandwidth and the Company’s efforts to supplement this business with the provision of high margin, customized data services could not meet with success because the Company had insufficient expertise in this area;
(c) Defendants were artificially inflating Global Crossing’s operating performance through improper accounting of transactions with other telecommunication companies. Global Crossing sold capacity on its network to customers, who bought capacity back in a “swap” transaction. This practice had the effect of artificially inflating reported cash revenues and EBITDA and giving a false portrayal of the Company’s liquidity and funding situation; and
(d) As a result of the foregoing, defendants’ earnings projections and statements about the Company’s prospectus and outlook were lacking in a reasonable basis at all times.
54. On March 1, 2001, Global Crossing held its first annual analyst meeting in New York. A number of analysts issued positive research reports based on information provided by defendants at the meeting. On March 2, 2001, Thomas Weisel Partners issued a report on Global Crossing, which was based on information provided by defendants. The report stated: Global Crossing reiterated its 2001 guidance for cash revenue of $7.1bn-$7.2bn and for adjusted cash EBITDA of $2.0bn-$2.1bn (in-line with our estimates of $7.17bn and $2.0bn, respectively). Global Crossing also reiterated its 2001 capex guidance of $4.9bn-$5.1bn.
Global Crossing emphasized that it is nearing completion of its global network build and that it is now successfully leveraging that asset in making the transition from a construction and IRU - type, sales-focused company to a data services company. Global Crossing’s end goal is to become the premier provider of managed broadband services to global enterprises.
Management presented its plan of focusing on the 7,500 global enterprises in carrier and nextgen markets (ISPs, ASPs etc.), financial services, media and entertainment, multi-national corporations, government and, lastly, bandwidth trading exchanges.
Management also expressed that it is not seeing any bandwidth “glut” and that, in fact, it is seeing a shortage of supply. The company cited its ability to continue to sell capacity on its Atlantic Crossing route at multiples of its incremental cost to build the capacity.
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Yesterday’s analysts meeting didn’t provide any new information. However, it did provide both better clarity into the number and increased confidence in Global Crossing’s focus on making the transition to a commercial data service provider from a construction or one-time, IRU-type of sales company.
55. On March 2, 2001, Gerard Klauer Mattison & Co. issued a report on Global Crossing, which was based on information provided by defendants. The report stated: We reiterate our BUY rating and $47 price target.
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• The company appears fully funded. We believe the company has enough available capital to fund its estimated $5.0 billion in capex for 2001. Global Crossing expects to be free cash flow positive in 2002, and should actually enter 2002 with approximately $1.0 billion in excess liquidity. In our opinion, this places the company in a relatively unique positions in the industry, as many of its competitors will have raise additional funds in order to finance their business plans.
* * * • The company reiterated 2002 financial guidance and gave further clarity into its revenue projections. Global Crossing still expects long-term cash revenue growth of 30%, fueling 35%-40% adjusted EBITDA growth. For 2001, we are expecting $7.1 billion in cash revenue and $2.1 billion in adjusted EBITDA.
56. On May 9, 2001, the Company issued a release over the Business Wire announcing its financial results for the first quarter ended march 31, 2001. The Company reported that its first quarter net loss widened to $615.9 million or $0.76 a share, compared to $474 million or $0.64 a share for the first quarter cash revenue of $1.613 billion and recurring adjusted EBITDA of $441 million and maintained its sales target of $7.1 billion to $7.2 billion for 2001. 57. On May 10, 2001, Global Crossing held a conference call to discuss first quarter 2001 results and fiscal 2001 guidance. Analysts on the call repeated the information to the market. On May 11, 2001, Credit Lyonnais issued a research report which was based on information provided by defendants. The report stated:
• Revenue and adjusted EBITDA were in line with our expectations.
• Results for 1Q01 reaffirmed Global Crossing’s continuing transition from a construction-based capacity wholesaler to a value-added services provider focusing on its commercial customers.
• Significant gross margin improvement in 1Q01 was the combined result of higher contributions from value-added bundled services and the company’s ability to leverage its constructed network.
• Management expressed confidence in the company’s ability to hit prior revenue and adjusted EBITDA guidance and reaffirmed the company’s liquidity position.
• We are maintaining our ADD rating and our 12-month price target of $25.
Global Crossing held a conference call yesterday to discuss its first quarter results. Revenue and adjusted EBITDA were in line with our expectations. However, gross margin for 1Q01 was better than our forecast, a significant improvement from 4Q00. The improvement was due largely to the increasing revenue contribution from higher-value-added services as well as the company’s ability to capitalize on its constructed network by increasing network utilization, and generating more revenue on the same base of fixed costs. During the conference call, management also expressed confidence in the company’s ability to hit prior revenue and adjusted EBITDA guidance and reaffirmed the company’s liquidity position.
• Management maintained its prior guidance metric for the full year:
Case revenue $7.1-$7.3 billion
GAAP revenue $5.05-$5.30 billion
Service revenue $5.0-$5.25 billion
Adjusted EBITDA $2.0-$2.1 billion
58. The statements referenced above in ¶¶ 54-57 above were each materially false and misleading when made as they misrepresented and/or omitted the following adverse facts which then existed and disclosure of which was necessary to make the statements made not false and/or misleading, including that: (a) As demand for network capacity contracted, the Company was forced to reduce prices, thereby offsetting any purported operating leverage afforded by Global Crossing’s network ownership. This reduction in prices also materially decreased the Company’s margins;
(b) Global Crossing was experiencing declining demand for bandwidth and the Company’s efforts to supplement this business with the provision of managed network outsourcing services could not meet with success because the Company had insufficient expertise in this area;
(c) Defendants were artificially inflating Global Crossing’s operating performance through improper accounting of transactions with other telecommunication companies. Global Crossing sold capacity on its network to customers, who bought capacity back in a “swap” transaction. This practice had the effect of artificially inflating reported cash revenues and EBITDA and giving a false portrayal of the Company’s liquidity and funding situation; and
(d) As a result of the foregoing, defendants’ earnings projections and statements about the Company’s prospects and outlook were lacking in a reasonable basis at all times.
59. On June 4, 2001, Gerard Klauer Mattison & Co. issued a research report on Global Crossing, which was based on information provided by defendants. The report stated: • Notes from management one-on-one. While we believe we understand the corporate direction, we earlier had concerns about the company’s ability to manage the transition from an IRU-based firm to the broader-based communications conglomerate envisioned in the roadmap. We were pleasantly surprised that the company already has a plan for many of the tactical issues, such as sales force integration, network management and customer care. We also believe the company’s business development team is actively engaged in a plan that will enhance growth in vertical markets. In all other financial matters, management held to its March 1, 2001 guidance provided at the analyst meeting in New York.
60. On June 12, 2001, Deutsche Bank Alex. Brown issued a research report on Global Crossing which was based on information provided by defendants. The report stated: • We believe the company is on-track, transitioning from builder to operator. In our opinion, the company is still the best MNO in a beleaguered sector - one of the only companies with the ability to mount a successful challenge to the Big Three. * * *
• It is our current view that the over cash revenue and EBITDA targets of $7.1Bn and $2.0BN are achievable, however the revenue mix may be a moving target. We believe this will occur simply due to the marco environment, which will dictate the ramp of commercial services. The company stood by its previous guidance.
61. On June 21, 2001, Deutsche Bank Alex. Brown issued a research report on Global Crossing, which was based on information provided by defendants. The report stated: • This morning GX announced completion of substantially all of its core network, excluding Asia, which we expect to be complete by 1H02.
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• GX is in effect telling the investment community that it has accomplished what it has set out to do - on time and on budget - unlike the competition. Additionally, it has also sent the message that it is ahead of its competition in the industry, who is most cases have yet to carry live traffic over their first segments, sign up real customers or who have curtailed/cancelled network plans due to funding or negative industry dynamics.
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• We continue to reiterate our Strong Buy and $30 12 month target based on our conservative DCF. We believe the company is fully funded under a wide range of scenarios.
62. The statements referenced above in ¶¶ 59-61 above were each materially false and misleading when made as they misrepresented and/or omitted the following adverse facts which then existed and disclosure of which was necessary to make the statements made not false and/or misleading, including that: (a) As demand for network capacity contracted, the Company was forced to reduce prices, thereby offsetting any purported operating leverage afforded by Global Crossing’s network ownership. This reduction in prices also materially decreased the Company’s margins;
(b) Global Crossing was experiencing declining demand for bandwidth and the Company’s efforts to supplement this business with the provision of managed network outsourcing services could not meet with success because the Company had insufficient expertise in this area;
(c) Defendants were artificially inflating Global Crossing’s operating performance through improper accounting of transactions with other telecommunication companies. Global Crossing sold capacity on its network to customers, who bought capacity back in a “swap” transaction. This practice had the effect of artificially inflating reported cash revenues and EBITDA and giving a false portrayal of the Company’s liquidity and funding situation; and
(d) As a result of the foregoing, defendants’ earnings projections and statements about the Company’s prospects and outlook were lacking in a reasonable basis at all times.
63. On June 22, 2001, The Wall Street Journal published an article about Global Crossing occasioned by the Company’s recent completion of its 100,000-mile network. The article was headlined “Global Crossing Finds That the Race Has Just Begun - As Company Completes World-Wide Network, It Faces a Market in Distress.” The article noted that the demand for bandwidth, which industry observers once assumed would grow at 40% to 50% per year - was instead growing at about 20%, that prices for the bandwidth were falling as much as 60% and that this was having a negative effect on Global Crossing’s cash flow. That same day, Global Crossing issued a statement over the Business Wire in which it purported to correct “factual inaccuracies” in The Wall Street Journal story. The Company stated, in pertinent part: “Regarding Global Crossing’s business plan, the following facts should be understood:
- Global Crossing is not headed in a ‘far different’ direction than its original vision. It has long planned to move beyond a wholesale “carrier’s carrier” model to exploit the power of its global network to serve commercial customers and create shareholder value.
- The Company always expected to have competition and thoroughly planned for it.
- The Company always expected rapid price reductions for bandwidth, and all of its projections have assumed such declines. Indeed, Global Crossing is the driver of lower prices, not the victim of them. Global Crossing is taking full advantage of its lower cost structure to continuously improve the cost/value equation for customers by providing sophisticated services over its seamless, wholly owned network.”
64. The statements referenced in Global Crossing’s purported factual correction, set forth above in ¶ 63 were each materially false and misleading when made as they misrepresented and/or omitted the following adverse facts which then existed and disclosure of which was necessary to make the statements made not false and/or misleading, including that: (a) In fact, Global Crossing was headed in a “far different” direction than its original vision. The Company had never planned to compete against its own carrier customers to provide retail data services to global enterprises, but rather, hastily turned to this strategy in a desperate attempt to offset the sharply declining demand for bandwidth;
(b) The Company was not continuously improving the cost/value equation for its customers by providing sophisticated services, but rather, could not meet the minimum standards for such services; and
(d) Defendants were artificially inflating Global Crossing’s operating performance through improper accounting of transactions with other telecommunication companies. Global Crossing sold capacity on its network to customers, who bought capacity back in a “swap” transaction. This practice had the effect of artificially inflating reported cash revenues and EBITDA and giving a false portrayal of the Company’s liquidity and funding situation.
/ / / 65. On August 1, 2001, after the close of the market, the Company issued a release over the Business Wire announcing its financial results for the second quarter ended June 30, 2001. The Company reported that its losses had widened to $629.6 million, or $0.78 per share, compared to $365.4 million or $0.62 cents per share in the second quarter ended June 30, 2000, and reduced its forecast for cash revenue in 2001, from $7.1 billion - $7.2 billion to $6.4 billion - $6.9 billion. The Company also announced that it planned to eliminate 2,000 jobs, approximately 15% of its workforce, to reduce expenses by $160 million to $170 million annually. However, instead of admitting that the widening losses resulted from an ongoing failure of the Company’s business strategy, the Company blamed its problems on an industry downturn. In this regard, the Company stated: “In an environment in which the capital markets are constrained, Global Crossing is fully funded and a stand-out by the measure in the telecommunications industry. We have emphasized in the past the unparalleled geographic reach of our global network. That asset - unique in all the world - takes on added competitive advantage as we now rapidly deploy our global network operating system.
66. On August 2, 2001, the Company’s share price declined $1.32, or 19%, to $5.68, a 52-week low. 67. In an attempt to shore up the Company’s share price, defendant Casey told reporters, “Our stock has been trading irrationally based on highly inaccurate rumors and groundless speculation.” 68. On August 2, 2001, Deutsche Bank Alex. Brown issued a report on Global Crossing which was based on information produced by defendants. The report stated: • As we indicated in our preview, GX lowered guidance for YE01 citing a weaker macro economy, extending sales cycle, a reluctance on the part of buyers and carrier weakness lowering the demand for wholesale services. Cash revenue guidance falls 8% at the midpoint to $6.4Bn-$6.9Bn from $7.1-7.3Bn, which is lower than our estimate of $7.1Bn. GAAP revenue falls 14% to $4.4-4/5Bn from $5.5.25Bn, lower than our estimate of $5.1Bn. Cash EBITDA falls 12% from $2-2.1Bn to $1.6-2Bn, in-line-with our estimate of $2Bn.
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• We believe a guidance revision has largely been priced into the stock at these levels and consensus was forming in the new revenue range. We believe the company made the prudent decision to moderate guidance rather than miss number at year end. In our view GX is not facing any structural issues, but is a victim of the economy - the company is not changing business plan in mid flight, not starting from scratch on a network build and is clearly focused on customer acquisition.
• We have revised ou[r] YE price target based on our newly revised forecasts to $15 at YE01 and $20 at YE02 based on your 10 year DCF. We continue to maintain our Strong Buy rating on the stock. We believe GX remains a survivor in the long run as other carriers struggle to prove out their viability or business plans.
69. The Company’s share dropped to a new low of $4.98 on August 17, 2001. 70. On August 24, 2002, Deutsche Bank Alex. Brown issued a report on Global Crossing which was based on information provided by defendants. The report stated: • GX’s business plan is NOT broken, unlike others in the sector. Salespeople have not left the company, in fact no other company has signed over $1Bn in deals this year. GX has marketing channels, unlike new wholesalers attempting sell services to end users, which are looking for viability and a track record.
• Liquidity remains high and flexibility on spending is much higher than most in the sector, yet GX is trading lower than the group. Even assuming modest EBITDA growth the company remains liquid. Except to see further CapEx saving and efficiencies.
71. The Statements referenced above in ¶¶ 65, 66, 68, 70 above, were each materially false and misleading when made as they misrepresented and/or omitted the following adverse f acts which then existed and disclosure of which was necessary to make the statements made not false and/or misleading, including that: (a) Global Crossing was experiencing declining demand for bandwidth and the Company’s efforts to supplement this business with the provision of managed network outsourcing services could not meet with success because the Company had insufficient expertise in this area;
(b) Defendants were artificially inflating Global Crossing’s operating performance through improper accounting of transactions with other telecommunication companies. Global Crossing sold capacity on its network to customers, who bought capacity back in a “swap” transaction. This practice had the effect of artificially inflating reported cash revenues and EBITDA and giving a false portrayal of the Company’s liquidity and funding situation;
(c) As a result of the foregoing, defendants’ earnings projections and statements about the Company’s prospects and outlook were lacking in a reasonable basis at all times; and
(d) The Company’s liquidity position was eroding and lower revenues would negatively impact liquidity and the ability to service the Company’s large debt. 72. The market for Global Crossing’s securities was open, well-developed and efficient at all relevant times. As a result of these materially false and misleading statements and failures to disclose, Global Crossing’s bonds traded at artificially inflated prices during the Class Period. Plaintiff and other members of the Class purchased Global Crossing bonds relying upon the integrity of the market price of Global Crossing bonds and marketing information relating to Global Crossing, and have been damaged thereby. 73. During the Class Period, defendants materially misled the investing public, thereby inflating the price of Global Crossing’s bonds, by publicly issuing false and misleading statements and omitting to disclose material facts necessary to make defendants’ statements, as set forth herein, not false and mislead. Said statements and omissions were materially false and misleading that they failed to disclose material adverse information and misrepresented the truth about the Company, its business and operations, as alleged herein. 74. At all relevant times, the material misrepresentations and omissions particularized in this Complaint directly or proximately caused or were a substantial contributing cause of the damages sustained by plaintiff and other members of the Class. As described herein, during the Class Period, defendants made or caused to be made a series of materially false or misleading statements about Global Crossing’s business, prospects and operations. These material misstatements and omissions had the cause and effect of creating in the market an unrealistically positive assessment of Global Crossing and its business, prospects and operations, thus causing the Company’s bonds to be overvalued and artificially inflated at all relevant times. Defendants’ materially false and misleading statements during the Class Period resulted in plaintiff and other members of the Class purchasing the Company’s bonds at artificially inflated prices, thus caused the damages complained of herein. 75. 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; knew 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 primary violations of the federal security laws. As set forth elsewhere herein in detail, defendants, by virtue of their receipt of information reflecting the true facts regarding Global Crossing, their control over, and/or receipt and/or modification of Global Crossing's allegedly materially misleading misstatements and/or their associations with the Company which made them privy to confidential proprietary information concerning Global Crossing, participated in the fraudulent scheme alleged herein. 76. Defendants’ scienter is further evidenced by the insider selling of certain of the defendants and other Global Crossing insiders: DEFENDANT DAVID WALSH PRESIDENT AND CHIEF OPERATING OFFICER
JOHN M. SCANLON DIRECTOR
DEFENDANT JOSEPH P. CLAYTON DIRECTOR
DEFENDANT DAN J. COHRS CHIEF FINANCIAL OFFICER
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/ / / DEFENDANT GARY WINNICK CHAIRMAN OF THE BOARD
LODWRICK M. COOK DIRECTOR AND CO-CHAIRMAN
JAMES C. GORTON EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL
77. In total, the insider selling by defendants Walsh, Winnick, Cohrs, and Clayton and the other Global insiders total more than $149 million. 78. In addition, defendants were motivated to conceal the adverse facts alleged herein in order to enable Global Crossing to raise more than $1 billion from the sale of notes on terms that were more favorable than Global Crossing would have otherwise received had the true facts been known, if it could have raised such funds at all. Applicability of Presumption of Reliance: Fraud-On-The-Market Doctrine
79. At all relevant times, the market for Global Crossing’s securities was an efficient market for the following reasons, among others: (a) Global Crossing’s securities met the requirements for listing, and were listed and actively traded on the NYSE, a highly efficient and automated market;
(b) As a regulated issuer, Global Crossing filed periodic public reports with the SEC and the NYSE;
(c) Global Crossing regularly communicated with public investors via established market communication mechanisms, including through regular disseminations of press releases on the national circuits of major newswire services and through other wide-ranging public disclosures, such as communications with the financial press and other similar reporting services; and
(d) Global Crossing was followed by several securities analysts employed by major brokerage firms who wrote reports which were distributed to the sales force and certain customers of their respective brokerage firms. Each of these reports was publicly available and entered the public marketplace.
80. As a result of the foregoing, the market for Global Crossing’s securities promptly digested current information regarding Global Crossing from all publicly available sources and reflected such information in Global Crossing’s stock and bond prices. Under these circumstances, all purchasers of Global Crossing bonds during the Class Period suffered similar injury through their purchase of Global Crossing bonds at artificially inflated prices and a presumption of reliance applies. 81. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false statement pleaded in this complaint. Many of the specific statements pleaded herein were not identified as “forward-looking statements” when made. To the extent there were any forward-looking statements, there were no meaningful cautionary statements identifying important facts that could cause actual results to differ materially from those in the purportedly forward statements. Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking statements pleaded here, defendants are liable for those false forward-looking statements because at the time each of those forward-looking statements was made, the particular speaker knew that the particular forward-looking statement was false, and/or the forward-looking statement was authorized and/or approved by an executive officer of Global Crossing who knew that those statements were false when made. Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder Against All Defendants
82. Plaintiff repeats and realleges each and every allegation contained above as if fully set forth herein. 83. During the Class Period, defendants 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 plaintiff and other Class members, as alleged herein; (ii) enable Global Crossing to sell $1 billion of senior notes and Global Crossing insiders to sell $149 million of their personally held common stock; and (iii) caused plaintiff and other members of the Class to purchase Global Crossing bonds at artificially inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them, took the action set forth herein. 84. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements made not misleading; and (b) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of the Company’s bonds in an effort to maintain artificially high market prices for Global Crossing bonds in violation of § 10(b) of the Exchange Act and Rule 10b-5. All defendants are sued as primary participants in the wrongful and illegal conduct charged herein or as controlling persons as alleged below. 85. Defendants, individually and in concert, directly and indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a continuous course of conduct to conceal adverse material information about the business, operations and future prospects of Global Crossing as specified herein. 86. These defendants employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information and engaged in acts, practices, and a course of conduct as alleged herein in an effort to assure investors and creditors of Global Crossing’s value and performance and continued substantial growth, which included the making of, or the participation in the making of, untrue statements of material facts and omitting to state material facts necessary in order to make the statements made about Global Crossing and its business operations and future prospects in the light of the circumstance under which they were made, not misleading, as set forth more particularly herein, and engaged in transactions, practices and a course of business which operated as a fraud and deceit upon the purchasers of Global Crossing bonds during the Class Period. 87. Each of the defendants’ primary liability, and controlling person liability, arise from the following facts: (i) the defendants were high-level executives and/or directors at the Company during the Class Period and members of the Company’s management team or had control thereof; (ii) each of these defendants, by virtue of his responsibilities and activities as a senior officer and/or director of the Company, was privy to and participated in the creation, development and reporting of the Company’s internal budgets, plans, projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and familiarity with the other defendants and was advised of and had access to other members of the Company’s management team, internal reports and other data and information about the Company’s finances, operations, and sales at all relevant time; and (iv) each of these defendants was aware of the Company’s dissemination of information to the investing public which they knew or reckless disregarded was materially false and misleading. 88. The defendants had actual knowledge of the misrepresentations and omissions of material facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even thought such facts were available to them. Such defendants’ material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing Global Crossing’s operating condition and future business prospects from the investing public and supporting the artificially inflated price of its stocks and bonds. As demonstrated by defendants’ overstatements and misstatements of the Company’s business, operations and earnings throughout the Class Period, defendants, if they did not have actual knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain such knowledge by deliberately refraining from taking those steps necessary to discover whether those statements were false or misleading. 89. As a result of the dissemination of the materially false and misleading information and failure to disclose material facts, as set forth above, the market price of Global Crossing bonds were artificially inflated during the Class Period. In ignorance of the fact that the market price of Global Crossing bonds was artificially inflated, and relying directly or indirectly on the false and misleading statements made by defendants, or upon the integrity of the market in which the bonds trade, and/or on the absence of material adverse information that was known to or recklessly disregarded by defendants but not disclosed in public statements by defendants during the Class Period, plaintiff and other members of the Class acquired Global Crossing bonds during the Class Period at artificially high prices and were damaged thereby. 90. At the time of said misrepresentations and omissions, plaintiff and other members of the Class were ignorant of their falsity, and believed them to be true. Had plaintiff and the other members of the Class and the marketplace known the truth regarding the problems that Global Crossing was experiencing, which were not disclosed by defendants, plaintiff and other members of the Class would not have purchased or otherwise acquired their Global Crossing bonds, or, if they had acquired such bonds during the Class Period, they would not have done so at the artificially inflated prices which they paid. 91. By virtue of the foregoing, defendants have violated § 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder. 92. As a direct and proximate result of defendants’ wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with their respective purchases and sales of the Company’s bonds during the Class Period.
Violation of Section 20(a) of the Exchange Act Against All Defendants 93. Plaintiff repeats and realleges each and every allegation contained above as if fully set forth herein. 94. The defendants acted as controlling persons of Global Crossing within the meaning of § 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions, and their ownership and contractual rights, participation in and/or awareness of the Company’s operations and/or intimate knowledge of the false financial statements filed by the Company with the SEC and disseminated to the investing public, the 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 plaintiff contends are false and misleading. The defendants were provided with or had unlimited access to copies of the Company’s reports, press releases, public filings and other statements alleged by plaintiff to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statement or cause the statements to be corrected. 95. In particular, each of these defendants had direct and supervisory involvement in the day-to-day operations of the Company and, therefore, is presumed to have had the power to control or influence the particular transactions giving rise to the securities violations as alleged herein, and exercised the same. 96. As set forth above, Global Crossing and the defendants each violated § 10(b) and Rule 10b-5 by their acts and omissions as alleged in the Complaint. By virtue of their positions as controlling persons, Global Crossing and the defendants are liable pursuant to § 20(a) of the Exchange Act. As a direct and proximate result of defendants’ wrongful conduct, plaintiff and other members of the Class suffered damages in connection with their purchasers of the Company’s bonds during the Class Period. WHEREFORE, plaintiff prays for relief and judgment, as follows: 1. Determining that this action is a proper class action, certifying plaintiff as class representative under Rule 23 of the Federal Rules of Civil Procedure and his counsel as class counsel; 2. Awarding compensatory damages in favor of plaintiff and the other class members against all defendants, jointly and severally, for all damages sustained as a result of defendants' wrongdoing, in an amount to be proven at trial, including interest thereon; 3. Awarding plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and 4. Such other and further relief as the Court may deem just and proper. / / / / / / / / / / / / / / / Plaintiff hereby demands a trial by jury. Dated: February 7, 2002 KRAUSE & KALFAYAN
By: _________________________ James C. Krause, Esq. Eric J. Benink, Esq. Vincent D. Slavens, Esq.
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