Stanford University Law School - Securities Class Action Clearinghouse
GOLDSTEIN LITE & DEPALMA
Allyn Z. Lite (AL-6774)
Joseph J. DePalma (JD-7697)
Robert J. Berg (RB-8542)
Two Gateway Center, 12th Floor
Newark, NJ 07102-5003
WOLF POPPER LLP
Marian P. Rosner
Wallace A. Showman
845 Third Avenue
New York, NY 10022
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
ALBERT ORAN, individually and on behalf
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
1. Plaintiff brings this action as a class action on behalf of himself and a class (the "Class") consisting of all persons or entities who purchased the common stock of American Home Products Corp. ("AHP" or the "Company") during the period between March 1, 1997 and September 16, 1997, inclusive (the "Class Period"), to recover damages caused to the Class by defendants' violations of the federal securities laws. Defendants engaged in a scheme and course of conduct to defraud or deceive purchasers of the common stock of American Home Products Corporation by omitting and/or misrepresenting material information concerning two of the company's weight-loss drugs, Redux (dexfenfluoramine hydrochloride) and Pondimin (fenfluoramine hydrochloride), while insiders were selling millions of dollars worth of their stock in the company.
2. This action arises under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and the rules and regulations promul- gated thereunder, including SEC Rule 10b-5, 17 C.F.R. § 240.10b-5.
3. This Court has jurisdiction of this action under Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1331.
4. Venue is proper in this District pursuant to Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1391(b). Many of the acts alleged herein, including the dissemination to the investing public of materially false and misleading statements, occurred in substantial part in this District. In addition, defendants' principal place of business and executive offices are located in this District.
5. In connection with the acts and conduct complained of, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including the mails, interstate telephone communications, and the facilities of a national securities exchange.
6. Plaintiff resides in Cliffside Park, New Jersey. He purchased common stock of American Home Products Corporation during the Class Period as defined herein, as set forth in the attached certification, and suffered damages thereby.
7. Defendant John R. Stafford is, and was at all relevant times, Chief Executive Officer and President of American Home Products Corporation ("AHP" or "the Company") and the Chairman of AHP's Board of Directors.
8. Defendant Robert G. Blount is, and was at all relevant times, Senior Executive Vice President and a director of AHP.
9. Defendant Joseph J. Carr is, and was at all relevant times, a Senior Vice President of AHP.
10. Defendant Louis L. Hoynes Jr. is, and was at all relevant times, General Counsel and a Senior Vice President of AHP.
11. Defendant William J. Murray is, and was at all relevant times, a Senior Vice President of AHP.
12. Defendant David M. Olivier is, and was at all relevant times, a Senior Vice President of AHP.
13. Defendant John R. Considine is, and was at all relevant times, Chief Executive Officer and President of AHP and the Chairman of AHP's Board of Directors.
14. Defendant Paul J. Jones is, and was at all relevant times, Comptroller and a Vice President of AHP.
15. Defendant Fred Hassan was at all relevant times until the end of May 1997, a senior executive and director of AHP.
16. Defendant AHP is a corporation organized and existing under the laws of the State of Delaware and maintains its principal corporate offices at 5 Giralda Farms, Madison, New Jersey 07940. AHP represents that it discovers, develops, manufactures and markets prescription drugs and over-the-counter medications, and that it is also involved with vaccines, biotechnology, agricultural products, animal health care and medical devices. During the Class Period, AHP common stock was actively traded on the New York Stock Exchange.
17. Defendants Stafford, Blount, Carr, Hoynes, Murray, Olivier, Considine, Jones, and Hassan are sometimes referred to herein collectively as the "Individual Defendants."
18. The Individual Defendants, because of their positions with the Company, had access to the material adverse non-public information about AHP's business, products, present and future business prospects, clinical drug trials, adverse drug reaction reports, and other non- public financial, medical and drug information through access to internal corporate documents, conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and reports and other information provided to them in connection therewith. Therefore, each of the Individual Defendants occupied positions that made them privy to non-public information concerning AHP. Each of the Individual Defendants knew or recklessly disregarded the material adverse facts specified herein and knew or recklessly disregarded that such facts were being concealed from, and/or misrepresented to, the public.
19. The Individual Defendants, by reason of their executive and/or directorial positions with AHP, were controlling persons of AHP and had the power and influence, and exercised the same, to cause AHP to engage in the conduct complained of herein.
20. As officers, directors and/or controlling persons of a publicly-held company whose common stock was traded in open, actively traded and efficient markets on the New York Stock Exchange, defendants had a duty to disseminate accurate and truthful information promptly with regard to AHP's operations, products, business, and future prospects, to correct any previously issued statements of fact that had become untrue and to disclose any adverse trends that would materially affect the present and future operating results of the Company, so that the market price of the Company's stock would be based upon truthful and accurate information. Under rules and regulations promulgated by the SEC, including Item 303 of Regulation S-K, the Individual Defendants also had a duty to report all known trends, demands or uncertainties that were likely to impact (i) AHP's revenues or income and (ii) previously reported financial information such that it would not be indicative of future operating results. The Individual Defendants did not fulfill these duties.
21. The Individual Defendants controlled and/or possessed the power and authority to control the contents of the Company's SEC filings, press releases and presentations to securities analysts and thereby the investing public. Each Individual Defendant participated in the drafting, reviewing and/or dissemination of the Company's filings, reports and press releases alleged herein to be misleading and had the ability and opportunity to prevent their issuance or cause them to be corrected. Each of the Individual Defendants were provided with copies of the public statements alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their positions and access to material non-public information available to them, each of these defendants knew or recklessly disregarded that the material adverse facts specified herein had not been disclosed to and were being concealed from the public and that the positive representations which were being made were materially false and misleading. As a result, each of the defendants is responsible for the accuracy of the public reports and releases and is liable for the representations contained therein.
22. 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 purchases of AHP common stock, including making materially false and misleading statements. The scheme deceived the investing public regarding AHP, artificially inflated the price of AHP common stock, and caused plaintiff and the Class members to purchase AHP common stock at artificially inflated prices.
23. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of a class consisting of all persons who purchased shares of AHP common stock on the open market during the period of March 1, 1997 through September 16, 1997 (the "Class Period"). Excluded from the Class are the defendants herein, members of their immediate families, any subsidiary, affiliate, or control person of any such person or entity, officers and directors of AHP and the legal representatives, heirs, successors or assigns of any such excluded party.
24. The members of the Class are so numerous that the 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 that there are, at a minimum, several thousand members of the Class. There are approximately 37 million shares of AHP common stock outstanding. The holders of these shares are believed to be geographically dispersed throughout the United States. AHP common stock is listed and actively traded on the New York Stock Exchange, an efficient market in which millions of shares of the Company's stock were traded. On the day following the last day of the Class Period, more than 29 million shares of AHP common stock were publicly traded. Record owners and other Class members may be identified from records maintained by AHP and/or its transfer agents and may be notified of the pendency of this action by mail, using a form of notice similar to that commonly used in securities class action litigation.
25. Plaintiff's claims are typical of the claims of the Class, as plaintiff purchased shares of AHP on the open market during the Class Period and sustained damages arising out of defendants' conduct in violation of federal law as complained of herein.
26. Plaintiff will fairly and adequately protect the interests of the members of the Class. Plaintiff has retained counsel competent and experienced in class action and securities litigation. Plaintiff has no interests that are contrary to or in conflict with those of the Class he seeks to represent.
27. Common questions of law and fact exist as to all members of the Class and predominate over any questions affecting only individual members of the Class. Among the questions of law and fact common to the Class which predominate over any questions affecting individual members of the Class are:
(a) whether defendants violated Sections 10(b) and 20(a) of the Exchange Act, and SEC Rule 10b-5 promulgated thereunder;
(b) whether defendants participated in and pursued the common course of conduct complained of herein;
(c) whether documents, filings, releases and statements disseminated to the investing public, during the Class Period, omitted and/or misrepresented material facts about the Company;
(d) whether the market price of AHP common stock during the Class Period was artificially inflated due to the nondisclosures and/or misrepresentations complained of herein;
(e) whether defendants acted knowingly, wilfully, or recklessly in omitting to state and/or misrepresenting material facts; and
(f) whether the members of the Class have sustained damages and, if so, what is the proper measure of such damages.
28. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. Since the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it virtually impossible for the Class members to seek redress for the wrongful conduct alleged. Plaintiff knows of no difficulty which will be encountered in the management of this litigation which would preclude its maintenance as a class action.
29. At all relevant times, the market for AHP common stock was an efficient market for the following reasons, among others:
(a) AHP common stock met the requirements for listing, and was listed and actively traded, on the New York Stock Exchange, an efficient and automated market;
(b) As a regulated issuer, the Company filed periodic public reports with the SEC and the National Association of Securities Dealers ("NASD");
(c) AHP 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.
30. As a result, the market for AHP common stock quickly digested current information regarding AHP from all publicly available sources and reflected such information in AHP's stock price. Under these circumstances, all purchasers of AHP common stock during the Class Period suffered similar injury through their purchase of shares at artificially inflated prices.
31. Redux (dexfenfluramine) and Pondimin (fenfluramine) are weight-loss drugs marketed by AHP. Redux, a newer version of Pondimin, was approved by the FDA in early 1996 for sale for the purpose of aiding weight loss. Pondimin had earlier been approved by the FDA for that same purpose. Neither Redux nor Pondimin were approved by the FDA for any other purpose, and neither were approved for use in conjunction with any other drug. Nevertheless, as was well known to defendants, Redux and Pondimin were being widely prescribed by doctors and weight-loss clinics for use together with phentermine, another drug, a combination popularly known as "fen-phen." Millions of people have used the fen-phen combination.
32. Before and during the Class Period, defendants knew that Redux had a record of adverse effects as to increased blood pressure in the lungs of patients (known technically as primary pulmonary hypertension). Indeed, in late 1996, AHP began inserting new warnings concerning such adverse effects in Redux package inserts. Nevertheless, defendants took no steps to warn the public at large or to correct the market's impression of the success of Redux created by defendants' public statements as set forth below.
33. In late 1996, defendants began putting warnings in its package inserts for Redux that the drug was approved only for short-term use and that results of using it in combination with other drugs, especially phentermine, had not been studied.
34. No later than the beginning of the Class Period in March, 1997, the Mayo Clinic began to inform defendants that patients taking Redux and Pondimin, particularly when in combination with phentermine, were experiencing abnormalities of the heart valve, which cause shortness of breath, abnormal heart rhythms, and other serious problems including death. Nevertheless, defendants did nothing to warn the public at large or to correct the market's impression of the success of Redux and Pondimin created by defendants' public statements as set forth below.
35. On July 8, 1997, the Mayo Clinic first made public its finding that 32%, or nearly one-third, of patients in a study using Redux or Pondimin had developed the heart-valve problem. Most of those patients were using fen-phen.
36. On September 15, 1997, AHP announced that it was withdrawing Redux and Pondimin from the market due to the heart-valve problems. On that date, AHP also filed a Form 8-K with the SEC which contained the press release announcing the withdrawal.
37. On September 16, 1997, it was first disclosed in The Wall Street Journal and The New York Times that AHP had known that Redux and Pondimin were demonstrating the adverse effects of heart valve abnormalities since at lease March 1997, when the Mayo Clinic so informed AHP. The Journal and Times also reported on AHP's enormous personal injury liability potential caused by Redux's and Pondimin's effects on heart valves.
38. On September 17, 1997, following the disclosures in the Journal and Times, AHP stock fell from an opening price of $74 3/16 per share to $69 15/16 per share.
39. During the Class Period, AHP stock reached a high of $84 7/8.
40. From the time an FDA advisory panel recommended approval of Redux in November 1995, through FDA approval of Redux was announced in April 1996, and until the beginning of the Class Period on February 13, 1997, the market was conditioned (by public statements from AHP and from other sources) to believe that Redux was a highly successful drug which had provided and could be expected to continue to provide extremely positive benefits for the company's revenues and profits.
41. On November 25, 1995, for example, it was announced by Interneuron, Inc., Redux's manufacturer (which licensed the drug to AHP for marketing and distribution), that an FDA advisory panel had voted to recommend the approval of Redux as a prescription treatment for obesity. Interneuron's press release quoted its president and CEO, Glenn L. Cooper, M.D., as stating that "The Advisory Committee's recommendation is a milestone not only in the FDA's review of Redux but also in the history of obesity therapy in the U.S. Redux is now positioned to become the first obesity drug approved for long-term use in this country."
42. On April 29, 1996, Interneuron announced that the FDA had approved Redux for obesity treatment. Among other optimistic statements, Interneuron vice president William Boni was quoted as stating that "approval granted by the FDA means it could be prescribed to as many as 47 million Americans."
43. The FDA's announcement on April 29, 1996, of the approval, stated, among other things, that "serious side-effects such as primary pulmonary hypertension are rare."
44. Closely following the approval announcement, analysts were quoted publicly as stating that yearly sales of Redux could reach $200 million in the next few years.
45. In September 1996, Time Magazine reported that several national weight-loss clinics, including Jenny Craig and Nutri/System, were "scrambling to work Redux into their programs" and that "Sheldon Levine, a New Jersey diet doctor, began a high-profile nationwide publicity campaign to flog his new book, The Redux Revolution, a 222-page paean to what is being promoted as 'the most important weight-loss discovery of the century.'" The article also reported that "Just three months after the introduction of Redux, doctors are writing 85,000 prescriptions a week" and quoted securities analyst David Crossen as stating that "What we have here is probably the fastest launch of any drug in the history of the pharmaceutical industry. Our projection is that this product will hit $1 billion in sales in five years." Although the article, and others like it, referred to findings of rare brain damage in animals and the rare risk of pulmonary hypertension, nowhere at any time was the possibility of heart valve deformation mentioned until the July 8, 1997 announcement referred to above.
46. These glowing testimonials from the general press were added to by AHP's own statements. From the first quarter that AHP derived revenues from Redux sales, AHP consistently told the public that sales gains were due primarily to introductory sales of Redux and one or two other new drugs. In a press release dated July 23, 1996, for example, AHP stated that "U.S. pharmaceutical sales increased 14 percent from a year earlier in the latest quarter and 7 percent for the first half. Sales gains in the U.S. were due primarily to introductory sales of Redux, for the treatment of obesity and Naprelan, an arthritis treatment."
47. An August 13, 1996 article in Investor's Busines Daily was titled "American Home Products Grows By Launching New Drugs" and stated, among other things, that "New products should continue to boost the company's earnings. Redux, a weight-loss drug, became available in June."
48. On October 22, 1996, AHP stated in a press release announcing third quarter results that "U.S. pharmaceutical sales increased 13% for the 1996 third quarter and 9% for the first nine months. U.S. sales gains for the 1996 third quarter and first nine months were due primarily to higher sales of Premarin products, the Company's anti-obesity products (Pondimin and Redux (which was introduced earlier this year), Genetics Institute's recombinant Factor VIII, Cordarone and Ziac offset, in part, by lower sales of other cardiovascular and pharmaceutical products."
49. On January 28, 1997, just prior to the beginning of the Class Period, the company again stated in a press release concerning year-end results that "U.S. pharmaceutical sales increased 15% for the 1996 fourth quarter and 11% for the full year. U.S. sales gains for the 1996 fourth quarter and full year were due primarily to higher sales of the Company's anti- obesity products Redux (which was introduced in 1996) and Pondimin, Premarin products (including Prempro single tablets which were introduced in 1996), recombinant Factor VIII and Naprelan (which was introduced in 1996) offset, in part, by lower sales of certain cardiovascular products."
50. During the Class Period, despite their knowledge about the adverse effects of Redux and Pondimin on heart valves, defendants misled the market and the investing public concerning the success of Redux and Pontimin by issuing highly positive statements about the marketing success of those drugs, and by failing to correct or restate its prior public statements about such marketing success, without disclosing the material facts known or recklessly ignored by defendants concerning the risks of the drugs to patients using such drugs and the consequent risk to the company's financial well-being (including the potential not only for lost sales but also for liability for personal injury to millions of people) caused by these undisclosed medical risks.
51. By the beginning of the Class Period on March 1, 1997, or shortly thereafter, when defendants learned of the heart-valve problems caused by Redux and Pondimin as reported to them by the Mayo Clinic, defendants had a duty to correct their previously-made statements concerning the success and future prospects of Redux and Pondimin. Defendants breached their duty by remaining silent. In addition, defendants issued the following materially false and misleading statements during the Class Period.
52. AHP's 1996 annual report dated March 27, 1997, contained a letter to shareholders from defendant Stafford which stated, among other things, that "Redux, the first prescription weight-loss drug to be cleared by the FDA in more than 20 years, was one of the most successful drug launches ever."
53. The same annual report contained the following statement:
IMPORTANT NEW OPTION FOR TREATING OBESITY
The introduction of Redux (dexfenfluramine HCl) was one of the most successful U.S. drug launches ever. Redux is the first prescription weight-loss product to be approved in more than 20 years and the only pharmaceutical indicated for maintenance of weight loss. The product answers a very serious medical need. Obesity is a disease that is reaching epidemic proportions in the United States, where it affects one in three adults and is the second leading preventable cause of death. Doctors are using this new product to help patients actively manage their weight as part of a plan that includes diet, exercise and behavior modification. ... Studies have shown that even modest weight loss of 5% to 10% of overall body weight can significantly improve a patient's health and well-being. Such weight loss has been associated with a reduction in blood pressure and high glucose levels and improvement in lipid profiles.
The above statements were materially false and misleading because it failed to disclose that AHP was informed of the heart valve problem by the Mayo Clinic and failed to disclose the possible effects on AHP's financial results which would be caused by lower or nonexistent sales of Redux and Pondimin and by the potential for losses from liability to some of the millions of users of the drugs.
54. On April 21, 1997, AHP and Interneuron jointly announced that they had identified a mistake that was the basis for recently published incorrect reports about Redux. According to the press release, the reports mistakenly attributed a death to Redux. In this announcement, the defendants issued the following materially false and misleading statement:
Initial post-marketing surveillance data reveals no evidence indicating a higher than expected occurrence of adverse events related to the central nervous system for Redux compared to other marketed serotonergic drugs, such as Paxil, Zoloft, and Prozac. Further, in the first nine months of Redux marketing, the percentage of serious reactions among all adverse events reported for Redux has been less than the average percentage of serious reactions among all adverse events reported for all drugs.
Scientific evidence has shown Redux to be safe and effective when used as indicated. Physicians have issued over three million prescriptions for the drug since it was launched in the U.S., and over ten million patients worldwide have taken dexfenfluramine, the compound that is the basis of Redux, in the ten years that it has been used internationally.
The most commonly reported side effects of Redux include diarrhea, dry mouth and somnolence. These side effects were usually mild and disappeared in a few weeks.
There is a small risk of developing a serious, potentially life-threatening condition caleld primary pulmonary hypertension (PPH). PPH is not the same as high blood pressure. This risk is estimated to be about 23 to 46 cases per 1,000,000 users per year, with a 5 year survival rate of 55%.
Redux should not be used in patients with hypersensitivity to dexfenfluramine or related compounds or in patients with diagnosed pulmonary hypertension, nor used concomitantly with a monoamine oxidase (MAP) inhibitor or within 14 days of discontinuation. Redux should not be taken in combination with other selective serotonin reuptake inhibitors, and is not recommended for pregnant or nursing women or pediatric patients.
In animals receiving high doses of dexfenfluramine for short periods of time that resulted in brain concentrations estimated to be more than 10 times those in humans, neurochemical changes were observed. These changes were generally reversed over time but persisted over a year in one study of three animals.
Nowhere in this list of risks did defendants mention the risk of heart-valve abnormalities known to them from the information given by the Mayo Clinic.
55. In a press release dated April 22, 1997 concerning first quarter 1997 results, defendants stated that "U.S. pharmaceutical sales rose 13 percent for the 1997 first quarter due to sales of Redux and Naprelan -- products introduced in the 1996 second quarter -- and on higher sales of Lodine, Ziac, Oruvail, Premarin products and recombinant Factor VIII."
56. On May 6, 1997, defendants reacted to an announcement by the U.S. Drug Enforcement Administration that it proposed to remove Redux and Pondimin from its list of controlled substances by issuing the following statement attributed to Marc Deitch, senior vice president of medical affairs for Wyeth-Ayerst, AHP's division which markets Redux and Pondimin: "We are pleased by the DEA's preliminary decision. By descheduling fenfluramine and its isomer dexfenfluramine, the DEA will be providing patients with appropriate access to pharamcotherapy as a weight management option."
57. On May 13, 1997, AHP filed its Form 10-Q for the first quarter 1997, which stated, among other things, "On an as-reported and pro forma basis, U.S. pharmaceutical sales increased 13% for the 1997 first quarter due primarily to sales of REDUX and NAPRELAN (both products were introduced in the 1996 second quarter) and higher sales of LODINE, ZIAC, ORUVAIL, PREMARIN products and recombinant Factor VIII offset, in part, by lower sales of oral contraceptives and other cardiovascular and pharmaceutical products."
58. In a press release dated July 22, 1997 concerning the Company's second quarter 1997 results, defendants stated: "Worldwide pharmaceutical results for the 1997 second quarter also reflect higher sales of oral contraceptives while results for the first half reflect higher sales of Redux (introduced in the 1996 second quarter) and Lodine."
59. On August 13, 1997, AHP filed its Form 10-Q for the second quarter 1997, which stated, among other things, "Worldwide pharmaceutical results for the 1997 second quarter also reflect higher sales of oral contraceptives while results for the first half reflect sales of oral contraceptives while results for the first half reflect higher sales of REDUX (introduced in the 1996 second quarter) and LODINE."
60. The statements in paragraphs 54 through 59 herein were materially false and misleading for the reason stated in paragraph 53 herein.
61. During the Class Period, the following defendants engaged in the following insider selling:
Defendant Date Shares Price Proceeds Profit --------- ---- ------ ----- -------- ------ Considine 05/6/97 25,000 $71.12 $ 1,778,000 $ 832,750 Murray 05/6/97 6,000 71.00 426,000 197,220 Hassan 05/6/97 232,000 70.58 18,189,600 10,207,684 Carr 6/12/97 20,600 78.00 1,606,800 821,322 Olivier 6/12/97 71,200 78.00 5,553,600 2,838,744 Blount 6/12/97 93,333 78.93 7,366,774 6,646,730 Considine 7/25/97 41,800 84.60 3,536,280 1,593,834 Hoynes 7/31/97 41,800 82.24 3,437,632 1,843,798
62. Shortly after his sales in May 1997, Hassan left the company.
63. The above insider sales very shortly preceded the adverse disclosures alleged above in paragraphs 35-37.
64. Defendants' scienter is demonstrated by the fact that, at lease as early as March 1997, defendants were informed by the Mayo Clinic, and therefore knew or recklessly disregarded, the facts concerning Redux's and Pondimin's effects on heart valves, as alleged above in paragraph 37, and further by some of the defendants' insider selling following receipt of such information and before such information was publicly disclosed, as alleged above in paragraphs 61-63.
65. The above insider sales very shortly preceded the adverse disclosures alleged above in paragraphs AHP made the announcements announced on July 15, 1997, that it was recalling Redux and Pondimin.
66. Plaintiff repeats and realleges each and every allegation contained in the above paragraphs, as if fully set forth herein. This claim is asserted against all defendants.
67. 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 plaintiff and other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of AHP common stock; and (iii) cause plaintiff and other members of the Class to purchase AHP common stock 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.
68. 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 (c) engaged in acts, practices and a course 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 AHP common stock in violation of Section 10(b) of the Exchange Act and Rule 10b-5. All defendants are sued either as primary participants in the wrongful and illegal conduct charged herein or as controlling persons as alleged below.
69. In addition to the duties of full disclosure imposed on defendants as a result of their making of affirmative statements and reports, or participation in the making of affirmative statements and reports to the investing public, the Individual Defendants had a duty to disseminate promptly 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. § 210.01 et seq.) and S-K (17 C.F.R. § 229.10 et seq.) and other SEC regulations, including accurate and truthful information with respect to the Company's operations and performance so that the market prices of the Company's publicly traded securities would be based on truthful, complete and accurate information.
70. AHP and the Individual Defendants, individually and in concert, directly and indirectly, by the use of means and 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 Company's business, operations, and future outlook as specified herein. AHP and the Individual Defendants employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information, and engaged in acts, practices, and a course of conduct as alleged herein, in an effort to assure investors of AHP's management, 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 the Company's operations in the light of the circumstances under which they were made, not misleading, as set forth more particularly herein, and engaged in transactions, practices and a course of business which operated as a fraud and deceit upon the purchasers of AHP common stock during the Class Period.
71. The Individual Defendants' primary liability and controlling person liability arise from the following facts: (i) the Individual Defendants were high-level executives and/or directors at the Company during the Class Period; (ii) the Individual Defendants, by virtue of their responsibilities and activities as senior officers of the Company, were privy to and participated in the drafting, reviewing and/or approving the misleading statements, releases, reports and other public representations of and about AHP, and/or signed the Company's public filings with the SEC, which public filings contained the allegedly materially misleading statements; (iii) the Individual Defendants knew or had access to the material adverse non-public information about AHP's business, operations, and future outlook, which were not disclosed; and (iv) the Individual Defendants were aware of the Company's dissemination of information to the investing public which they knew or recklessly disregarded was materially false and misleading.
72. 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 though 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 AHP's operations and business affairs from the investing public and supporting the artificially inflated price of its stock. As demonstrated by defendants' statements throughout the Class Period, if they did not have actual knowledge of the misrepresentations and omissions alleged, defendants 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.
73. 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 AHP common stock was artificially inflated during the Class Period. In ignorance of the fact that the market price of AHP's publicly-traded common stock 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 securities trade, and the truth of any representations made to appropriate agencies as to the investing public, at the times at which any statements were made, and/or on the absence of material adverse information that was known to or recklessly disregarded by defendants but not disclosed in public statements by defendants during the Class Period, plaintiff and the other members of the Class purchased AHP common stock during the Class Period at artificially high prices and were damaged thereby.
74. Had plaintiff and the other members of the Class and the marketplace known of the true nature of the operations of the Company and the noncompliance with federal law, which were not disclosed by defendants, plaintiff and the other members of the Class would not have purchased or otherwise acquired their AHP common stock during the Class Period, or, if they had acquired such common stock during the Class Period, they would not have done so at the artificially inflated prices which they paid.
75. By virtue of the foregoing, defendants have violated Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder.
76. As a direct and proximate result of defendants' wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with their purchases of the Company's common stock during the Class Period.
77. Plaintiff repeats and realleges each and every allegation contained in the above paragraphs, as if fully set forth herein. This claim is asserted against the Individual Defendants.
78. The Individual Defendants acted as controlling persons of AHP within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their executive positions, Board membership and stock ownership, as alleged above, 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 plaintiff contends are false and misleading. The Individual Defendants were provided with or had unlimited access to copies of the Company's internal 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 statements or cause the statements to be corrected. AHP controlled the Individual Defendants and all of its employees.
79. In particular, the Individual Defendants had direct involvement in the day-to-day operations of the Company and therefore, are 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.
80. As set forth above, AHP violated Section 10(b) and Rule 10b-5 by its acts and omissions as alleged in this Complaint. By virtue of their positions as controlling persons of AHP, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of defendants' wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with their purchases of the Company's common stock during the Class Period.
WHEREFORE, plaintiff prays for relief and judgment, as follows:
(a) Determining that this action is a proper Class action, designating plaintiff as Lead Plaintiff and certifying plaintiff as Class representative under Rule 23 of the Federal Rules of Civil Procedure and his counsel as Lead counsel;
(b) 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;
(c) Awarding plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and
(d) Such other and further relief as the Court may deem just and proper.
Plaintiff demands a trial by jury.
Dated: September 18, 1997
GOLDSTEIN LITE & DEPALMA
WOLF POPPER LLP
Attorneys for Plaintiff
Source: Diskette from Goldstein Lite & DePalma