case 9:98-cv-08520-dtkh document 30 entered on flsd...

Case 9:98-cv-08520-DTKH Document 30 Entered on FLSD Docket 12/30/1998 of 56

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA WEST PALM BEACH DIVISION

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Plaintiffs, by their undersigned attorneys, for their

Consolidated Class Action Complaint, make the following allegations

upon information and belief (except as to the allegations

specifically pertaining to the named plaintiffs and their counsel),

based upon the facts alleged below, which are predicated upon,

inter alia, a review of relevant filings made with the Securities

and Exchange Commission ("SEC") , press releases, news and analyst

reports, and an investigation undertaken by plaintiffs' counsel.

Plaintiffs believe that further substantial evidentiary support

will exist for the allegations set forth below after a reasonable

opportunity for discovery.

NATURE OF THE ACTION

1. This is a class action on behalf of a class (the

"Class") consisting of all persons other than defendants who

purchased the common stock of Golden Bear Golf, Inc. ("Golden Bear"

or the "Company") from April 30, 1997 through July 27, 1998,

inclusive (the "Class Period").

2. On or about July 27, 1998, the last day of the Class

Period, Golden Bear announced that it had completed an internal

review of its construction subsidiary, Paragon Construction

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IN RE GOLDEN BEAR SECURITIES

CONSOLIDATED CASE LITIGATION

98-8520-CIV-HURLEY

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PLAINTIFFS' FIRST CONSOLIDATED CLASS ACTION COMPLAINT

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International ("Paragon"). As a result of the internal

investigation, the Company disclosed that during fiscal 1997 and

1998, Paragon's management had "deliberately falsified records,

misrepresented the status of construction projects and made false

statements about Paragon's revenues, costs, and profits . . .

Golden Bear also disclosed that Paragon had deliberately underbid

for new construction projects, in order to obtain new projects and

revenues in an attempt to mask the losses on Paragon's existing

projects.

3. The Company was forced to restate its loss for the

year ended December 31, 1997 to $24.7 million, or $4.49 per share.

Previously, the Company had falsely represented that its loss was

only $2.9 million for fiscal 1997, or $0.53 per share. Golden

Bear's restatement resulted in a reduction of Paragon's revenues

from $39.75 million to $21.89 million, wiping out approximately 45%

of the construction unit's revenues for fiscal 1997. Moreover,

Golden Bear announced that it was restating its financial results

for the first quarter of fiscal 1998, recognizing a net loss $7.3

million. Previously, the Company had falsely represented that its

loss during the first quarter of 1998 was only $778,290.

4. Upon the announcement of the restatement, the

price of Golden Bear's stock fell to as low as $0.50 per share.

During the Class Period, Golden Bear common stock had traded as

high as $15.00 per share.

5. Ultimately, Golden Bear common stock was delisted

from the NASDAQ National Market System as the Company was no longer

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able to meet the net tangible asset requirements for listing. In

October of 1998, the Company disclosed that the SEC had commenced

a private investigation to determine whether the Company and

certain of its officers and/or directors had engaged in conduct in

violation of the Securities and Exchange Act of 1934. In November

of 1998, Golden Bear disclosed that its Board of Directors had

approved the discontinuance of Paragon as of October 26, 1998.

6. By the use of fraudulent accounting, defendants

materially overstated Golden Bear's revenues, results of

operations, and earnings per share and made materially false or

misleading statements concerning the Company's financial health and

activities. As a result of the defendants' material misstatements

and omissions, Golden Bear's common stock traded at artificially

inflated prices throughout the Class Period.

7. Plaintiffs and the other members of the Class each

purchased shares of Golden Bear common stock in the open market

without knowledge of defendants' materially false or misleading

statements and without knowledge that the price of Golden Bear

common stock was artificially inflated during the Class Period, and

have suffered damages as a result.

JURISDICTION AND VENUE

8. The claims asserted herein arise under and pursuant

to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934

(the "Exchange Act") [15 U.S.C. SS 78j(b) and 78t(a)] and Rule

10b-5 promulgated thereunder by the SEC [17 C.F.R. § 240.10b-5].


9. This Court has jurisdiction over the claims asserted

in this Complaint pursuant to § 27 of the Exchange Act as amended

[15 U.S.C. § 78aa], 28 U.S.C. SS 1331 and 1337.

10. Venue is properly laid in this judicial district

pursuant to § 27 of the Exchange Act. Certain acts and conduct

complained of herein, including the dissemination of materially

false and misleading information to the investing public, occurred

in the Southern District of Florida, where Golden Bear maintains

its corporate headquarters and principal place of business and did

so at all relevant times.

11. In connection with the acts and conduct alleged in

this Complaint, defendants, directly or indirectly, used the means

and instrumentalities of interstate commerce, including, but not

limited to, the mails, interstate telephone communications and the

facilities of the NASDAQ National Market System, a national

securities exchange.

PARTIES

Lead Plaintiffs

12. Plaintiffs Joseph Bazinet, John Dominick, Indeco,

Inc., Charles Leyman, Ronald Murphy, Joaquin Rionda, and David

Selby (collectively referred to herein as the "Lead Plaintiffs")

purchased Golden Bear common stock during the Class Period as set

forth in the schedules attached hereto as Exhibit 1, and were

damaged thereby. These individuals were each duly appointed to

serve as Lead Plaintiffs herein pursuant to an Order of this Court

dated November 9, 1998.

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Additional Plaintiffs

13. Plaintiffs Don Aggers, Nasir Albarim, Daniel S.

Allmacher, Beverly B. Andrews, Lynn Asquith, Todd Atwell, Barry P.

Baker, John Barnhart, Charles M. Barresi, Gary E. Battenberg,

Barbara L. Beal, Patrick Bodkin, Robert E. Bosland, James Brosious,

Marvin Browne, Brian Bury, Chris Butchikas, Bill Chadbourne,

Christopher B. Colby, Michael Colello, Les Crooks, Daryl Crow,

Thomas Cummings, Anthony Cutillo, William F. Davis, Jeraldine

Diamond, David Eichelberger and Sherri Eichelberger, Robert

Erskine, Dan Farley, Bodo Fickler, Jay Flanders, Janet N. Foley,

Joseph F. Freeman, Jr., Mark D. Frink, Bianca Gallo, Dale Ganser,

Joseph Gerlach, Louis Giglio, Christopher Gregory, Robert Hart,

Jody Hechtman, Michael W. Hill, Gary Horning, James Howard, Ronald

Hurst, Yvonne Hyatt, Joseph Joyce, Allan Kiser, Charles Kleman,

Doug Koht, William R. Kolb, Jr., Ralph R. Krepfle, Raymond J.

Krepfle, William Lan, Peter Lansbury, David M. LeMieux, Adam

Leonard, Neil McCarty, Patrick McGrew, David Mahfet, Walter Mello,

Larry Mitchell, Tyson Moeller, Brian Moore, Gregory Moore, Herbert

Moore, Kirk Neal, Lee Nelson, Todd Nims, Donna Oglesby, Richard

Olson, Teresa N. Owens, Stacey Parker, Larry Post, Mark Pottinger,

Mark E. Preston, Allen Prinstine, Sam Quinn, David Reiners, Ruth

Rich, James Rike, Bob Romzek, Jess Rosenberg, John Salaris and

Barbara Salaris, Robert Sarver, Philip and Doris Schwartz, Ronald

Schwartz, John Shaull, Gregory Shoemake, Peter Joseph Short and

Mary Jean Short, Wayne Sicz, Gerald Simpson, Mary Jane Sullivan

Smith, Susan Smithson, Richard G. Snell, Steven Soboksky, Lauri

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Bomstein Sokoloff, Sander Sokoloff, Richard Starbird, Robert

Stieha, Gregory L. Stoner, Jim Sullivan, Richard Thayne,

Christopher Tighe, Louis J. Tirreno, James D. Weeks, Barbara S.

Wise, Joe Wise, and George Yorks (collectively referred to herein

as the "Additional Plaintiffs") purchased Golden Bear common stock

during the Class Period and were damaged thereby. Certifications

reflecting the Additional Plaintiffs' transactions are available

upon request. Collectively, the Additional Plaintiffs and Lead

Plaintiffs will be referred to herein as "plaintiffs."

Defendants

14. Defendant Golden Bear purports to be a diversified,

international brand name golf products and services company engaged

in the development, marketing, and management of golf-related

businesses including the licensing, ownership, and operation of

golf practice and instruction facilities, the operation of golf

instructional schools, and the licensing, distribution and sale of

golf-related consumer products. Golden Bear maintains its

principal executive offices at 11780 U.S. Highway One, Palm Beach,

Florida. The Company began publicly trading its stock on or about

August 1, 1996, selling approximately 2.48 million shares in an

initial public offering (the "IPO").

a. At the start of the Class Period, Golden Bear

was comprised of three divisions: the Golf Division, the

Construction Division, and the Marketing Division. The Company's

Golf Division licensed, owned and operated golf practice and


instruction facilities under the Jack Nicklaus Golf Center, Jack

Nicklaus Academy of Golf, and Golden Bear Golf Center brand names.

b. The Company's Construction Division consisted

of its wholly-owned subsidiary Paragon. Paragon was incorporated

in 1992, but its predecessor had been in business since 1983 as

part of Jack Nicklaus's family of companies. Paragon was a full

service construction organization which provided comprehensive

project management and golf course construction services to resort,

residential and commercial golf developments around the world.

Paragon was discontinued as of October 1998.

C. Golden Bear's Marketing Division licensed

Nicklaus, Jack Nicklaus, and Golden Bear branded consumer products

and operated Nicklaus/Flick Golf Schools.

15. Defendant Jack W. Nicklaus ("Nicklaus") is and was

Chairman of the Board and an employee of Golden Bear at all

relevant times during the Class Period. Nicklaus founded Golden

Bear International, Inc., the predecessor of the Company, in 1970

and has served as the Chairman of the Board since its inception.

a. As of June 16, 1997, Nicklaus beneficially

owned approximately 240,000 shares of the Company's Class A common

stock and approximately 2,760,000 shares of the Company's Class B

common stock. Nicklaus' holdings constitute approximately 91% of

the total voting power of Golden Bear's outstanding common stock.

b. Nicklaus was a signatory to Golden Bear's 1997

Form 10-K filed with the SEC on or about March 31, 1998 (the "1997

Form 10-K").

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C. From the outset, the Company's strategy was to

capitalize on Nicklaus' reputation, image, and accomplishments.

The Nicklaus, Jack Nicklaus, and Golden Bear names and symbols and

the image and reputation of Nicklaus were utilized in order to

raise capital from investors and to distinguish the Company and its

activities from competitors. As such, Nicklaus owed investors a

high degree of care and loyalty with respect to the Company's

operations.

d. Throughout the Class Period, defendant Nicklaus

maintained a close relationship with Paragon. For example, at the

time of Golden Bear's IPO, Nicklaus was the primary guarantor of

Paragon's $1 million credit line. Moreover, Nicklaus has over 25

years experience as a golf course designer, having designed 138

courses in 23 countries. Since 1983, Paragon and its predecessor

provided construction services throughout the world in the

development of approximately 39 golf courses, most of which were

designed by Nicklaus. Thus, Nicklaus has special expertise with

regard to golf course construction and design.

16. Defendant Richard P. Bellinger ("Bellinger") was

President, Chief Executive Officer, and a director of Golden Bear

at all relevant times during the Class Period. Bellinger was a

signatory to Golden Bear's 1997 Form 10-K and all amendments

thereto. In addition, Bellinger was a signatory to all of Golden

Bear's Form 10-Qs filed with the SEC during the Class Period.

Throughout the Class Period, defendant John Boyd, President of

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Paragon, reported directly to Bellinger. On or about October 19,

1998, Bellinger resigned from his positions with the Company,

having served over 19 years with Nicklaus-related companies.

17. Defendant Jack P. Bates ("Bates") was Chief

Financial Officer, Secretary, and a Senior Vice President of Golden

Bear up until his resignation on or about October 22, 1997. As the

Company's principal financial and accounting officer, Bates was

responsible for Golden Bear's financial, treasury, and accounting

functions. In such capacity, Bates was a signatory to the

Company's Form 10-Qs filed with the SEC for the first two quarters

of fiscal 1997.

18. Defendant Stephen S. Winslett ("Winslett") is Chief

Financial Officer and a Senior Vice President of Golden Bear and

has held those positions since October 22, 1997. As the Company's

principal financial and accounting officer, Winslett was

responsible for Golden Bear's financial, treasury, and accounting

functions. Winslett was a signatory to the Company's 1997 Form 10-

K and all amendments thereto. In addition, Winslett was a

signatory to the Company's Form 10-Qs filed with the SEC for the

third quarter of fiscal 1997, and the first and second quarters of

fiscal 1998.

19. Defendant John Boyd ("Boyd") served as President of

Paragon from the beginning of 1997 through approximately April 27,

1998, when he was dismissed by defendant Bellinger. Throughout the

Class Period, Boyd reported directly to defendant Bellinger

concerning Paragon's financial performance and activities. At the


end of the Class Period, Golden Bear admitted that executives at

Paragon had "deliberately falsified records, misrepresented the

status of construction projects and made false statements about

Paragon's revenue, costs, and profits," during fiscal 1997 and

fiscal 1998.

20. Defendants Nicklaus, Bellinger, Bates, Winslett and

Boyd are herein collectively referred to as the "Individual

Defendants."

21. Each of the Individual Defendants, by virtue of

their management or directorship positions, had the duty to

exercise due care and diligence and the duty of full and candid

disclosure of all material facts related thereto. The Individual

Defendants were required to exercise reasonable care and prudent

supervision over the dissemination of information concerning the

business, operations and financial reporting of Golden Bear. By

virtue of such duties, these officers and directors were required

to supervise the preparation of Golden Bear's SEC filings and

approve any reports concerning the financial condition and results

of operations of Golden Bear.

22. All of the Individual Defendants were control

persons of Golden Bear within the meaning of Section 20(a) of the

Exchange Act by reason of their own involvement in the daily

business of Golden Bear and Paragon and by reason of their

positions as senior executives of Golden Bear and/or Paragon. The

Individual Defendants, at the time they held positions with the

Company, were able to, and did, exercise substantial control over

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the operations of Golden Bear, including control of the materially

false or misleading statements, omissions and course of conduct

complained of herein.

23. It is appropriate to treat the Individual Defendants

as a group for pleading purposes and to presume that the false or

misleading information conveyed in Golden Bear's public filings,

press releases and other publications as alleged herein are the

collective actions of the narrowly defined group of defendants

identified above.

24. As officers, directors and/or controlling persons of

a publicly held company and under the federal securities laws, the

Individual Defendants had a duty: (a) to disseminate promptly

complete, accurate and truthful information with respect to Golden

Bear; (b) to correct any previously issued statements from any

source that had become materially misleading or untrue; and (c) to

disclose any trends that would materially affect earnings and the

present and future operating results of Golden Bear, so that the

market price of Golden Bear's publicly traded securities would be

based upon truthful and accurate information.

25. Defendant Arthur Andersen ("Arthur Andersen") is an

international accounting firm with its headquarters located in

Chicago, Illinois. Before and throughout the Class Period, Arthur

Andersen was engaged by Golden Bear to provide independent

auditing, and accounting services. Arthur Andersen audited Golden

Bear's publicly filed year-end financial statements and reviewed

Golden Bear's publicly filed quarterly financial statements issued

11


during the Class Period. During the Class Period, Arthur Andersen

falsely opined that the Company's financial statements were issued

in accordance with generally accepted accounting principles

("GAAP").

26. The undisclosed adverse information concealed by

defendants during the Class Period is the type of information

which, because of SEC regulations, rules of the national stock

exchanges and customary business practice, is expected by investors

and securities analysts to be disclosed to the investing public.

This information is known by corporate officials and their legal

and financial advisors to be the type of information which is

expected to be and must be disclosed. For example:

a. Under Item 303 of Regulation S-K, promulgated

by the SEC under the Exchange Act, there is a duty to disclose in

periodic reports filed with the SEC "known trends or any known

demands, commitments, events or uncertainties" that are reasonably

likely to have a material impact on a company's sales revenues,

income or liquidity, or cause previously reported financial

information not to be indicative of future operating results. 17

C.F.R. § 229.303 (a) (l)-3(3) and Instruction 3. In addition to the

periodic reports required under the Exchange Act, management of a

public company has a duty "to make full and prompt announcements of

material facts regarding the company's financial condition." SEC

Release No. 34-8995, 3 Fed. Sec. L. Rep. (CCH) ¶ 23,120A, at

17,095, 17 C.F.R. § 241.8995 (October 15, 1970). The SEC regulates

companies "that can reasonably be expected to reach investors and

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the trading markets, whoever the intended primary audience." SEC

Release No. 33-6504, 3 Fed. Sec. L. Rep. (CCH) ¶ 23,120, at

17,095-3, 17 C.F.R. § 241.20560 (January 13, 1984). The SEC has

emphasized that "[i]nvestors have legitimate expectations that

public companies are making, and will continue to make, prompt

disclosure of significant corporate developments." SEC Release No.

18271, [1981-1982 Transfer Binder] Fed. Sec. L. Rep. (CCH)

¶ 83,049, at 84,618 (November 19, 1981).

27. The market for Golden Bear common stock was open,

well-developed and efficient at all relevant times. As a result of

the materially false and misleading statements and failures to

disclose the full truth about Golden Bear, its business and future

prospects, Golden Bear common stock traded at artificially inflated

prices throughout the Class Period. Plaintiffs and other members

of the Class purchased or otherwise acquired Golden Bear common

stock relying upon the integrity of the market price of Golden Bear

common stock and market information relating to Golden Bear or, in

the alternative, upon defendants' materially false and misleading

statements, and in ignorance of the adverse, material undisclosed

information and false financial statements known to defendants and

have been damaged thereby.

PLAINTIFFS' CLASS ACTION ALLEGATIONS

28. Plaintiffs bring this lawsuit pursuant to Rule 23(a)

and (b) (3) of the Federal Rules of Civil Procedure on behalf of all

persons who purchased Golden Bear common stock from April 30, 1997

through July 27, 1998, inclusive (the "Class"). Excluded from the

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Class are defendants herein, members of the immediate family of

each of the defendants, any person, firm, trust, corporation,

officer, director or other individual or entity in which any

defendant has a controlling interest or which is related to or

affiliated with any of the defendants, and the legal

representatives, agents, affiliates, heirs, successors-in-interest

or assigns of any such excluded party. This suit seeks, inter

alia, damages, and expressly does not seek any recovery for

personal injuries.

29. This action is properly maintainable as a class

action for the following reasons:

a. The Class is so numerous that joinder of all

Class members is impracticable. During the Class Period, over 2.7

million shares of Golden Bear Class A common stock were

outstanding. The members of the Class for whose benefit this

action is brought are dispersed throughout the United States. Upon

information and belief, there are hundreds, if not thousands, of

Class members.

b. There are questions of law and fact which are

common to members of the Class which predominate over any questions

affecting only individual members of the Class. The common

questions include, inter alia, the following:

(1) Whether defendants' acts as alleged herein

violated the federal securities laws;

(2) Whether defendants participated in and

pursued the common course of conduct complained of herein;

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(3) Whether documents, press releases and

other statements disseminated to the investing public and Golden

Bear's shareholders during the Class Period misrepresented material

facts about the business, management, revenues, transactions,

markets, financial condition, risk and business prospects of Golden

Bear;

(4) Whether statements made by defendants to

the investing public during the Class Period misrepresented

material facts about the business and finances of Golden Bear;

(5) Whether the market price of Golden Bear's

common stock during the Class Period was artificially inflated due

to the material misrepresentations and defendants' failure to

correct the material misrepresentations complained of herein;

(6) Whether Golden Bear's financial statements

filed with the SEC throughout the Class Period were prepared in

compliance with GAAP;

(7) Whether defendant Arthur Andersen's audit

of Golden Bear for fiscal year 1997 was performed in compliance

with Generally Accepted Auditing Standards ("GAAS"); and

(8) To what extent each member of the Class

has sustained damages and the proper measure of damages for each

member.

C. The claims of plaintiffs are typical of the

claims of other members of the Class and plaintiffs have no

interests that are adverse or antagonistic to the interests of the

Class.

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d. Plaintiffs are committed to the vigorous

prosecution of this action and have retained competent counsel

experienced in litigation of this nature. Plaintiffs' selection of

counsel was approved by Order of the Court dated November 9, 1998.

Accordingly, plaintiffs are adequate representatives and will

fairly and adequately protect the interests of the Class.

e. Plaintiffs do not anticipate any difficulty in

the management of this case as a class action.

30. For the reasons stated herein, a class action is

superior to other available methods for the fair and efficient

adjudication of this action and the claims asserted herein.

Because of the size of the claims of individual members of the

Class, few, if any, members of the Class could afford to seek legal

redress individually for the wrongs complained of herein.

APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE

31. At all relevant times, the market for Golden Bear

common stock was an efficient market for the following reasons,

among others:

a. Golden Bear common stock was listed and

actively traded on the NASDAQ National Market System, a highly

efficient and automated market;

b. As a regulated issuer, Golden Bear filed

periodic public reports with the SEC; and

C. Golden Bear regularly communicated with the

investing public through the dissemination of various reports,

participated in meetings and conferences with investors and

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securities analysts and engaged in other customary means of

communicating such as use of major newswire services for the

dissemination of press releases and providing information and

interviews about the Company to the business media.

32. As a result, the market for Golden Bear common stock

promptly reflected current information regarding the Company from

all publicly available sources and reflected such information in

Golden Bear's stock price. Under these circumstances, all

purchasers of Golden Bear shares during the Class Period suffered

similar injury through their purchase of shares at artificially

inflated prices and a presumption of reliance applies.

SUBSTANTIVE ALLEGATIONS

Background

33. On or about June 7, 1996, Golden Bear filed a

preliminary Form S-1 Registration Statement and Prospectus with the

SEC for the sale of 1.8 million shares of Golden Bear common stock.

The Registration Statement and Prospectus was amended several times

and became effective on or about July 31, 1996.

34. The effective Form S-i Registration Statement and

Prospectus (collectively the "IPO Prospectus") described Golden

Bear's business as follows:

Golden Bear, Inc. is a diversified, international brand name golf products and services company engaged in the development, marketing and management of golf-related businesses, including the licensing, ownership and operation of golf practice and instruction facilities, the construction and renovation of golf courses, the marketing of golf course design services and the licensing, distribution and sale of golf-related consumer

17


products. Through its three divisions, the Golf Division, the Construction Division, and the Marketing Division, the Company provides high quality products and services in over 40 countries .

(IPO Prospectus at 3).

35. The IPO Prospectus described Paragon, Golden Bear's

construction division, as follows:

The Company provides comprehensive golf course construction services. These services include project management, shaping, renovation and golf course construction.

(IPO Prospectus at 36).

36. On or about August 1, 1996, pursuant to the IPO

Prospectus, Golden Bear sold approximately 2.48 million shares of

common stock at $16.00 per share, generating over $34.5 million.

Golden Bear common stock began trading on the NASDAQ National

Market System, closing at $18.50 per share on August 1, 1996.

37. Beginning in the fourth quarter of 1996 and

continuing into the first quarter of 1997, Golden Bear

substantially restructured its Paragon subsidiary. Defendant Boyd

was appointed President of the construction unit and several other

members of senior management were replaced.

38. On or about February 28, 1997, Golden Bear issued a

press release announcing its financial results for the fourth

quarter of fiscal 1996. Defendant Bellinger commented:

Growth in all three divisions led to our strong revenue performance . . . . Paragon Golf Construction completed a successful restructuring, and is competing effectively on new project awards . . . . (Emphasis added)

39. On or about April 10, 1997, in an article reported

in Dow Jones Online News, Golden Bear reported that its first-

18


quarter results would be hurt by delays and senior management

changes. The Company stated that it would take a charge of

$570,000 in the first quarter to cover severance costs as a result

of personnel changes. Golden Bear announced that it had hired

defendant Boyd as the President of Paragon. The Company added that

Paragon had a lower volume of business in the first quarter, but

said it has "implemented improved processes and controls."

Defendants' Materially False And Misleading Statements During The Class Period

40. On or about April 30, 1997, Golden Bear issued a

press release announcing its results for the first quarter of

fiscal 1997 ended March 31, 1997. The Company reported revenues of

$6.8 million, a 58% increase over the $4.3 million in revenues

reported for the first quarter of 1996. Golden Bear, however,

reported a loss for the quarter of $1.6 million, or $0.29 per

share. The Company explained that the loss was due, in part, to

the previously announced severance charge and the restructuring at

Paragon which had now been completed. Golden Bear touted the

"improvements" at Paragon as follows:

The restructuring of Paragon, which began in the fourth quarter of 1996, continued into the first quarter of 1997. This decision led to a lower volume of active business in the first quarter, but has resulted in improved processes and controls. The company received prolect awards in excess of $35 million in the first quarter and work on these prolects is currently underway. (Emphasis added).

41. On or about May 15, 1997, Golden Bear filed with the

SEC a Form lO-Q for the first quarter of fiscal 1997 ended March

31, 1997. The quarterly report, signed by defendants Bellinger and

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Bates, reiterated Golden Bear's financial results announced in the

April 30, 1997 press release. Moreover, the quarterly report

represented:

The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with generally accepted accounting principles . . . . In the opinion of management, all adjustments considered necessary for a fair presentation have been included.

42. Golden Bear's press release and Form lO-Q for the

first quarter of fiscal 1997 were materially false and misleading

because of the following undisclosed material information, all of

which the Golden Bear defendants knew or recklessly disregarded:

a. contrary to the Company's assurances, Golden

Bear had not established "improved processes and controls" and

lacked sufficient internal controls to monitor the financial

performance and activities of Paragon;

b. Paragon was falsifying records and

misrepresenting the status of its construction projects;

C. Paragon was materially understating expenses,

including construction and shaping costs;

go Paragon was overstating revenues;

e. the growth at Paragon was materially overstated

because the Company was obtaining contracts based upon bids that

were unprofitable and would inevitably lead to increased losses in

net income and earnings per share; and

f. as a result of Paragon's fraudulent financial

reporting, Golden Bear's revenues, results of operations, and

earnings per share were materially overstated and the Company's

20


financial statements were not prepared in accordance with GAAP as

detailed below.

43. On or about June 18, 1997, in an article published

in the Daily Business Review (Miami, Florida), the Company stated,

"future profitability and growth is assured by the executive and

organizational changes that have already been implemented [at

Paragon]." (Emphasis added). This statement was materially false

and misleading because, as the Golden Bear defendants knew or

recklessly disregarded, the Company lacked adequate internal

controls to monitor the financial performance of Paragon.

Moreover, the Golden Bear defendants knew or recklessly disregarded

that, as a result of inaccurate financial reporting at Paragon,

Golden Bear's revenues, earnings per share, and results of

operations were materially overstated in direct violation of GAAP.

44. On or about July 24, 1997, Golden Bear announced

that Paragon had recently increased its services to include project

management and design/build services for all golf-related

developments. By expanding its services, Paragon was said to be

able to provide clients with turnkey solutions for an entire

project. Defendant Boyd stated:

Having built a strong reputation for constructing quality golf courses, we felt it was time to expand our level of expertise into new areas of development. We have assembled an exceptional team of professionals with a wide variety of planning and construction specializations. (Emphasis added).

45. Defendant Boyd's statements on July 24, 1997 were

materially false or misleading at the time they were made because,

as the Golden Bear defendants knew or recklessly disregarded on

21


July 24, 1997, the Company lacked sufficient internal controls to

monitor the financial performance and activities of Paragon, and

Paragon was misusing percentage-of-completion accounting to

artificially inflate its net income through improper revenue

recognition and the understatement of costs in violation of GAAP.

46. On or about July 31, 1997, Golden Bear issued a

press release announcing its financial results for the second

quarter of fiscal 1997 ended June 30, 1997. The Company reported

break-even net income on revenues of $22.3 million, representing a

164% increase over revenue reported for the same period in 1996.

The Company also reported that revenues for Paragon increased 153%

over revenues for the second quarter of 1996. The press release

further stated:

Paragon Construction continued to win substantial project awards, including letters of intent, as a result of its focus on expanded service offerings, bringing total awards through June 30, 1997 to more than $90 million. Paragon is currently developing more than 20 projects in the U.S., Mexico, Europe, and Asia, including a number of projects which reflect the division's expansion into project management and design/build services for golf-related developments.

47. On or about August 14, 1997, Golden Bear filed its

quarterly report on Form 10-Q for the second quarter of fiscal 1997

ended June 30 1 1997. The quarterly report, signed by defendants

Bellinger and Bates, reiterated the Company's financial results

announced in the July 31, 1997 press release. Moreover, the

quarterly report represented:

The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with generally accepted accounting principles . . . . In

22


the opinion of management, all adjustments considered necessary for a fair presentation have been included.

48. Golden Bear's press release and Form 10-Q announcing

its second quarter fiscal 1997 financial results were materially

false and misleading because of the following undisclosed material

information, all of which the Golden Bear defendants knew or

recklessly disregarded:

a. the Company lacked sufficient internal controls

to monitor the financial performance and activities of Paragon;


misrepresenting the status of construction projects;



d. Paragon was overstating revenues;









detailed below.

49. On or about September 29, 1997, in an article

published in the Engineering News-Record entitled "Golf Boom Puts

Paragon's Sales on a Sharp Upward Trajectory," Paragon projected

revenue of $65 million in 1997, a substantial improvement over the

23


$20.4 million reported for 1996. Defendant Boyd stated that

Paragon's backlog had bulged to $100 million and that Paragon had

taken advantage of the golf boom through aggressive marketing and

an expanded range of services.

50. Defendant Boyd's comments in the September 29, 1997

Engineering News-Record article were materially false and

misleading because of the following undisclosed material



a. Paragon was falsifying records and


b. Paragon was materially understating expenses,


C. Paragon was overstating revenues in direct

violation of GAAP; and

d. the growth at Paragon was materially overstated



net income and earnings per share.

51. On or about October 7, 1997, Golden Bear announced

the completion of a definitive credit agreement with SunTrust Bank

for a $10 million revolving credit facility. Defendants were

motivated, in part, to misrepresent the Company's financial

condition in an effort to secure this line of credit. Defendant

Bellinger was quoted as saying: "[W]e are pleased to have arranged

working capital financing, especially for our rapidly growing

24


Paragon Construction division, which through June of this year has

won contract awards in excess of $90 million . . . ."

52. Defendant Bellinger's comments in the October 7,

1997 press release were materially false and misleading at the time

they were made because of the following undisclosed material







C. Paragon was overstating revenues in direct

violation of GAAP; and

d. the growth at Paragon was materially overstated




53. On or about October 30, 1997, Golden Bear issued a

press release announcing its financial results for the third

quarter of 1997 ended September 30, 1997. The Company reported

revenues of $17.7 million, representing a 79% increase over

revenues of $9.9 million reported for the third quarter of 1996.

Net earnings for the quarter were $364,000, or $0.07 per share, up

from the $268,000 reportedly earned in the third quarter of 1996.

Golden Bear reported that Paragon's revenues increased 50% over

revenues from the third quarter of 1996. Defendant Bellinger

25


commented, "Paragon . . . continued to win substantial project

awards, and is currently developing nearly 30 projects around the

world. Total backlog . . . now exceeds $100 million."

54. On or about November 14, 1997, Golden Bear filed its

Form lO-Q for the third quarter of fiscal 1997 ended September 30,

1997. The quarterly report, signed by defendants Bellinger and

Winslett, reiterated the financial results announced by Golden Bear

in its October 30, 1997 press release. Moreover, the quarterly

report represented:


55. Golden Bear's October 30, 1997 press release and

third quarter fiscal 1997 Form 10-Q were materially false and

misleading because of the following undisclosed material



a. the Company lacked sufficient internal controls






d. Paragon was overstating revenues;



26








detailed below.

56. On or about January 15, 1998, Golden Bear issued a

press release announcing that it had again reorganized, this time

streamlining its organization into two operating units: Paragon

and a new Customer Products Division. Defendant Bellinger stated,

"We expect to see benefits from this streamlined and more balanced

organizational structure."

57. On or about February 27, 1998, Golden Bear issued a

press release announcing its financial results for the fourth

quarter and fiscal year ended December 31, 1997. Revenues for the

fourth quarter were reported as $21.0 million, representing a 93%

increase over revenues from the fourth quarter of 1996. Paragon's

revenues reportedly increased 133% from the corresponding quarter

in 1996.

58. For fiscal year 1997, the press release reported

consolidated revenues of $67.7 million, a 102% increase over 1996

revenues. The net loss for the year was reported as $2.9 million,

or $0.53 per share, an improvement over the net loss of $0.57 per

share recorded for fiscal 1996. Defendant Bellinger was quoted in

the press release:

27


Paragon . . . generated record revenues and profits this year. We are very pleased with the results of our restructuring of Paragon, which is poised for substantial growth in 1998 . .

59. Golden Bear's February 27, 1998 press release was

materially false and misleading because of the following

undisclosed material information, all of which defendants knew or


a. contrary to the Company's fraudulent

representations, Golden Bear had suffered a net loss of $24.7

million for fiscal 1997 on revenues of only $34.8 million, as the

Company admitted in its restatement at the end of the Class Period;

b. Golden Bear lacked sufficient internal controls


C. Paragon was falsifying records and


d. Paragon was materially understating expenses,


e. Paragon was overstating revenues;

f. the growth at Paragon was materially overstated




g. as a result of Paragon's fraudulent financial




detailed below.

28


60. On or about March 31, 1998, Golden Bear filed its

1997 Form 10-K. The annual report repeated the financial results

announced in the Company's February 27, 1998 press release. In

addition, the annual report stated:

The level of construction service [provided by Paragon] during the fourth quarter of 1996 and the first quarter of 1997 was limited based on management's decision to curtail such activities pending the implementation of new systems and the integration of new staff. The Company believes that the improved processes and controls that have been put into place will facilitate the future growth of its Construction Division. During 1997, the Company continued to receive significant new project awards, bringing Paragon's total backlog as of December 31, 1997 to over $170 million, compared to a backlog of less than $10 million at December 31, 1996. (Emphasis added).

61. Golden Bear's 1997 Form 10-K also contained the

following report by defendant Arthur Andersen:

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of Golden Bear Golf, Inc.: We have audited the accompanying consolidated balance sheets of Golden Bear Golf, Inc. and subsidiaries as of December 31, 1997, anc 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for ea Dh of the three years in the period ended December 31, 1997. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

29


We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Golden Bear Golf, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. (Emphasis added).

62. Golden Bear's 1997 Form 10-1< was materially false

and misleading at the time it was filed because of the following

undisclosed material information, all of which defendants knew or



representations, Golden Bear suffered a net loss of $24.7 million

for fiscal 1997 on revenues of only $34.8 million, as the Company

admitted in its restatement at the end of the Class Period;











net income and earnings per share;

30






detailed below;

h. Golden Bear's financial statements did not

fairly present the true financial position of the Company;

i. Golden Bear's financial statements were not

prepared in accordance with GAAP; and

j. Arthur Andersen's audit of the Company was not

performed in accordance with GAAS.

63. on or about April 23, 1998, Golden Bear issued a

press release announcing its financial results for the first

quarter of fiscal 1998 ended March 31, 1998. The Company reported

revenues of $22.5 million, "more than triple the $6.8 million in

revenues recorded for the first quarter of fiscal 1997." (Emphasis

added). Paragon's revenues were reported as $16.0 million,

compared to revenues of only $1.3 million in the year ago quarter.

For the quarter, Golden Bear reported a net loss of only $778,290.

64. Golden Bear's April 23, 1998 press release was

materially false and misleading because of the following

undisclosed material information, all of which the Golden Bear

defendants knew or recklessly disregarded:



for the first quarter of fiscal 1998 on revenues of only $11.3

31


million, as the Company admitted in its restatement at the end of

the Class Period;
















detailed below.

65. On or about April 29, 1998, without any prior

warning, Golden Bear issued a press release announcing that

defendant Boyd was "no longer with the Company." Golden Bear also

stated that Paragon management would now report directly to

defendant Bellinger.

66. On or about May 5, 1998, Golden Bear issued a press

release announcing that the Company had commenced an internal

review of the activities at Paragon. The Company stated:

32


The review will focus on the status of construction projects, cost requirements associated with the completion of the projects and the anticipated profitability of the projects. Specific attention will be given to contract requirements, including amendments and change orders, and the related estimated anticipated costs of fulfilling those requirements. From the information currently available to the Company, the Company believes it may be necessary to recognize losses associated with the projects.

*****

The Company is in the process of hiring a new President at Paragon and, in the interim, has hired Donald W. Dreusike . . . to serve as acting President of Paragon.

67. On or about May 8, 1998, in an article published in

The Palm Beach Post, Golden Bear announced that, in addition to

defendant Boyd, three other unnamed executives had also departed

from Paragon. In connection with the Company's commencement of the

internal review, defendant Bellinger commented, "We've been able to

identify the potential for potential losses . . . but we don't

know that to be fact."

68. Golden Bear's statements concerning defendant Boyd's

dismissal and the Company's commencement of an internal

investigation were materially misleading at the time they were made

because of the following undisclosed material information, all of

which the Golden Bear defendants knew or recklessly disregarded:





C. Paragon was overstating revenues; and

33


d. as a result of Paragon's fraudulent financial


earnings per share were materially overstated for fiscal 1997 and

the first quarter of fiscal 1998 and the Company's financial

statements were not prepared in accordance with GAAP as detailed

below.

69. On or about May 15, 1998, Golden Bear filed with the

SEC a Form lO-Q for the first quarter of fiscal 1998 ended March

31, 1998. The Form lO-Q, signed by defendants Bellinger and

Winslett, reiterated the Company's financial results announced in

the April 23, 1998 press release. Moreover, the quarterly report

represented:


70. The Company's Form 10-Q for the first quarter of

fiscal 1998 was materially false and misleading at the time it was

filed because of the following undisclosed material information,

all of which the Golden Bear defendants knew or recklessly

disregarded:



for the first quarter of fiscal 1998 on revenues of only $11.3

million, as the Company admitted in its restatement at the end of

the Class Period;

34

















detailed below.

71. On or about May 25, 1998, an article in The Columbus

Dispatch reported that Bellinger "expects the company to make a

profit this year, with revenue poised to increase 20%." It was

further reported that the golf construction business was "booming,

with $170 million worth of work on the boards at the beginning of

the year -- compared with $10 million a year ago." Discussing the

stock's recent decline in price, defendant Bellinger stated:

Are we disappointed our stock hasn't done well since the initial public offering? Absolutely. Are we panicking? Rubbing our hands? No. Because we understand why it has happened.

35


72. Defendant Bellinger's comments in the May 25, 1998

article were materially false and misleading because of the

following undisclosed material information, all of which the Golden

Bear defendants knew or recklessly disregarded:

a. Golden Bear lacked sufficient internal controls






d. Paragon was overstating revenues; and





73. In response to the Company's partial disclosure of

Paragon's problems, the price of Golden Bear common stock began to

decline as rumors concerning a restatement began to surface. From

May 5, 1998 to July 27, 1998, the common stock price of Golden Bear

fell from $8.625 per share to $4.00 per share.

74. On or about July 25, 1998, in an article published

by the Wall Street Journal, Donald Trump stated that he was

thrilled when Paragon had agreed to build a golf course at Trump

International Golf Club for $7 million, which was less than half

what he would have had to pay anyone else. Paragon was awarded the

bid in early 1998, but after Boyd's departure and Golden Bear's

36


announcement of its internal investigation, Donald Trump released

Paragon from its contract, as the Company would have lost millions

if it had to complete the job under the contract's terms. The fact

that Paragon's bid was less than one-half than that of other

bidders indicates that the defendants were well aware, or at least

recklessly disregarded, the fraudulent financial activities

occurring at Paragon.

75. On or about July 27, 1998, NASDAQ halted trading of

Golden Bear shares upon learning the Company was going to issue an

announcement regarding its internal investigation. Later that same

day, Golden Bear issued a press release announcing the completion

of its internal review of construction projects at Paragon. The

press release stated as follows:

Golden Bear Golf, Inc. announced today that it has completed its internal review of construction projects at its subsidiary, Paragon Construction International, for the year ended December 31, 1997, and, as a result, the Company will report a restated loss of $24.7 million or a loss of $4.49 per share for the year ended December 31, 1997, compared to a loss of $2.9 million or $.53 per share as originally reported.

The Company expects to complete its review for 1998 prior to August 15, 1998, and expects to recognize losses for the six months ended June 30, 1998, of up to $17 million attributable to ongoing Paragon construction projects and the operations of Golden Bear Golf Centers prior to their sale. Restated financial statements will be filed with the Securities & Exchange Commission. Accordingly, the previously filed financial statements for the periods ended December 31, 1997, and March 31, 1998, and the report of Arthur Andersen LLP on the December 31, 1997, financial statements should not be relied upon.

As previously announced, the Company has undertaken an extensive review of its construction projects at Paragon, focusing on the status of such projects, along with the costs required to fully complete the jobs and anticipated profitability. This review was conducted with the

37


assistance of its outside legal counsel Fleming, Haile & Shaw P.A., Arthur Andersen LLP, and PriceWaterhouse Coopers LLP.

As a result of this review, the Company has found clear and compelling evidence that former management of Paragon deliberately falsified records, misrepresented the status of construction projects and made false statements about Paragon's revenues, costs, and profits . . . (Emphasis added).

76. The following day, July 28, 1998, NASDAQ announced

that trading in Golden Bear common stock would remain halted until

the Company fully satisfied NASDAQ's request for additional

information.

Post Class Period News and Admissions

77. On or about August 14, 1998, Golden Bear issued a

press release announcing that the Company would be delisted from

the NASDAQ National Market on August 18, 1998 because it no longer

was able to meet the net tangible asset requirements for listing.

78. On or about August 21, 1998, Golden Bear began

trading over the counter on the OTC Bulletin Board at a price as

low as $0.50 per share. During the Class Period, as a result of

defendants' materially false or misleading statements, Golden Bear

common stock traded as high as $15.00 per share.

79. On or about October 19, 1998, Golden Bear issued a

press release announcing that it had filed an amended Form 10-K for

the year ended December 31, 1997, an amended Form 10-Q for the

first quarter ended March 31, 1998, and a Form 10-Q for the second

quarter ended June 30, 1998. The Company also announced that

defendant Bellinger had resigned as President and CEO.

38


80. In Golden Bear's amendment to its 1997 Form 10-K,

filed on or about October 19, 1998, the Company disclosed:

In connection with the departure of certain members of Paragon's senior management during 1998, the Company conducted comprehensive review of Paragon's construction projects, focusing on the status of the projects, the costs required to fully complete the jobs and the anticipated profitability or losses of such projects

In the review, the Company found evidence that former management of Paragon falsified records, underbid construction projects, and made false statements about Paragon's revenues, costs and profits .

The Securities and Exchange Commission is conducting a private investigation to determine whether the Company or certain of its current or former officers, directors and employees have engaged in conduct in violation of certain provisions of the Securities Exchange Act of 1934 and the rules and regulations thereunder. The Company believes that such investigation is focused principally on the recognition of additional costs and losses associated with the review of Paragon's construction projects and the Company's public statements and accounting systems with respect thereto. (Emphasis added).

81. On or about November 25, 1998, Golden Bear issued a

press release announcing its financial results for the third

quarter ended September 30, 1998. The Company disclosed that its

Board of Directors had approved the discontinuance of its Paragon

construction division as of October 26, 1998. Defendant Winslett

stated that the Company would, however, attempt to continue its

involvement in golf course construction through an alliance with

the Weitz Company, Inc.

DEFENDANTS' FAILURE TO COMPLY WITH GAAP

82. Under ARB 45, the accounting pronouncement governing

accounting for long term construction contracts, the percentage of

completion method may only be used when estimates of costs to


complete and extent of progress toward completion of long term

contracts are reasonably dependable. ARB 45.15. If the percentage

of completion method is used however "when the current estimate of

a total contract costs indicate a loss, in most circumstances

provisions should be made for the loss on the entire contract."

ARB 45.6. (Emphasis added).

83. With respect to percentage-of-completion accounting,

Golden Bear's financial statements were not prepared in accordance

with GAAP as the Company: (1) utilized the percentage of completion

method even though defendants knew or recklessly disregarded that

there were insufficient controls and systems to allow for the

calculation of reasonably dependable estimates of costs to complete

and extent of progress toward completion of the contracts; and (2)

failed to make timely provisions for losses on the construction

contracts even though there were indications of a loss.

84. The foregoing materially false and misleading Golden

Bear financial statements, which were filed with the SEC and

disseminated to the investing public throughout the Class Period,

also violated at least the following principles of GAAP:

(a) The principle that financial reporting should

provide information that is useful to present and potential

investors and creditors and other users in making rational

investment, credit and similar decisions (FASB Statement of

Concepts No. 1, ¶ 34);

(b) The principle that financial reporting should

provide information about the economic resources of an enterprise,

40


the claims to those resources, and the effects of transactions,

events and circumstances that change resources and claims to those

resources (FASB Statement of Concepts No. 1, ¶ 40);

(c) The principle that financial reporting should

provide information about an enterprise's financial performance

during a period. Investors and creditors often use information

about the past to help in assessing the prospects of an enterprise.

Thus, although investment and credit decisions reflect investors'

expectations about future enterprise performance, those

expectations are commonly based at least partly on evaluations of

past enterprise performance (FASB Statement of Concepts No. 1,

¶ 42);

(d) The principle that financial reporting should

be reliable in that it represents what it purports to represent.

That information should be reliable as well as relevant is a notion

that is central to accounting (FASB Statement of Concepts No. 2,

11 58-59) ;

(e) The principle of completeness, which means that

nothing is left out of the information that may be necessary to

ensure that it validly represents underlying events and conditions,

(FASB Statement of Concepts No. 2, ¶ 79); and

(f) The principle that conservatism be used as a

prudent reaction to uncertainty to try to ensure that uncertainties

and risks inherent in business situations are adequately

considered. The best way to avoid injury to investors is to try to

41


ensure that what is reported represents what it purports to

represent (FASB Statement of Concepts No. 2, ST 95, 97).

ARTHUR ANDERSEN'S FAILURE TO COMPLY WITH GAAS

85. Arthur Andersen's audit of Golden Bear and its

representation that Golden Bear's financial statements complied

with GAAP violated at least the following standards of GAAS adopted

by the American Institute of Certified Public Accountants and set

forth in the Professional Standards at § AU 150.02:

a. Due professional care is to be exercised in the

performance of the audit and the preparation of the report;

b. A sufficient understanding of internal control

is to be obtained to plan the audit and determine the nature,

timing, and extent of tests to be performed; and

C. Sufficient competent evidential matter is to be

obtained through inspection, observation, inquiries, and

confirmations to afford a reasonable basis for an opinion regarding

the financial statements under audit.

86. With respect to the aforementioned standards, Arthur

Andersen did not exercise due professional care in its audit of the

revenue cycle and its audit of the percentage-of-completion

accounting for Paragon. Arthur Andersen failed to obtain

sufficient competent evidential matter to corroborate management's

"estimates" of the status of individual construction projects,

which resulted in the Company reporting overstated revenues and

results of operations. Furthermore, Arthur Andersen knew or was

reckless in not knowing that Paragon's system of internal controls

42


relating to its percentage-of-completion accounting was inadequate.

Had Arthur Andersen done the aforementioned, it would have known

that the reported results of operation were materially overstated.

87. Arthur Andersen falsely opined that Golden Bear's

reported financial results for 1997 fairly presented the Company's

results of operations for the year in conformity with GAAP and that

their audit of the Company's financial statements was executed in

conformity with GAAS. As described in Paragraphs 82 through 84,

Golden Bear's financial statements were not prepared in accordance

with GAAP. Additionally, as described in the preceding paragraph,

Arthur Andersen's audit was not performed in accordance with GA-AS.

88. Arthur Andersen was obligated to perform a diligent

investigation and apply a heightened level of scrutiny into Golden

Bear's internal controls as Arthur Andersen's audit for 1997 was

its initial audit after Paragon had undergone substantial

restructuring in the early part of 1997.

ADDITIONAL SCIENTER ALLEGATIONS

89. As alleged herein defendants acted with scienter as

they knew or recklessly disregarded that the public documents and

statements issued or disseminated in the name of Golden Bear were

materially false and misleading; knew that such statements or

documents would be issued or disseminated to the investing public;

and knowingly or recklessly substantially participated or

acquiesced in the issuance or dissemination of such statements or

documents as primary violators of the federal securities laws. As

set forth elsewhere herein in detail, defendants, by virtue of

43


their receipt of information reflecting the true facts regarding

Golden Bear, their control over, and/or receipt and/or modification

of Golden Bear's allegedly materially misleading misstatements

and/or their associations with Golden Bear which made them privy to

confidential proprietary information concerning Golden Bear,

participated in the fraudulent scheme alleged herein. Defendants

knew and/or recklessly disregarded the falsity and misleading

nature of the information which they caused to be disseminated to

the investing public.

90. Defendants knew or recklessly disregarded the truth

concerning Paragon's financial activities and condition, as

evidenced by the following:

a. Paragon was obtaining its construction

contracts based upon bids that were substantially below the bids

submitted by its competitors. For example, Donald Trump stated

that Paragon's contract bid for a Trump International Golf Club

project was "less than half" of what was bid by Paragon's

competitors;

b. Paragon's revenues reportedly grew 156% in the

second quarter of fiscal 1997, 50% in the third quarter of fiscal

1997, and 133% for the fourth quarter of fiscal 1997. For the

first quarter of fiscal 1998, Paragon's reported revenues grew by

over 1100%. This alarming growth rate was clearly a red flag for

defendants to further monitor and investigate the growth and

financial activities of Paragon; and

44


C. Golden Bear's fiscal 1997 restatement resulted

in a reduction of Paragon's revenues from $39.75 million to $21.89

million, wiping out approximately 45% of the construction unit's

revenues. Such an outrageous overstatement of revenues and fraud

of this magnitude could hardly have gone unnoticed or undetected by

the Golden Bear defendants absent actual knowledge or recklessness

during the Class Period

NONAPPLICABILITY OF SAFE HARBOR

91. The statutory safe harbor provided for forward-

looking statements ("FLS") does not apply to the false FLS pleaded.

The safe harbor does not apply to Golden Bear's allegedly false

financial statements. The FLS pleaded herein were not specifically

identified as "forward-looking statements" when made nor did

meaningful cautionary statements identifying important factors that

could cause actual results to differ materially from those in the

FLS accompany those FLS.

COUNT I

[Violations of Section 10(b) of the Exchange Act and Rule lOb-5 Promulgated Thereunder Against

All Defendants I

92. Plaintiffs repeat and reallege the allegations set

forth above as though fully set forth herein.

93. This count is brought by plaintiffs pursuant to

Section 10(b) of the Exchange Act and Rule 10b-5 promulgated

thereunder by the SEC against all of the defendants.

94. Defendants knew, or were reckless in failing to

know, of the material omissions and misrepresentations contained in

45


the statements as set forth above. Because of their board

membership and/or their executive and managerial positions with

Golden Bear and Paragon, or other relationships with Golden Bear,

defendants: (a) knew or had access to information concerning the

adverse non-public information concerning Golden Bear's financial

outlook, which information was not disclosed; and (b) drafted,

reviewed, and/or approved the misleading statements, releases,

reports, and other public representations of and about Golden Bear.

95. Throughout the Class Period, defendants, with

knowledge or reckless disregard for the truth, disseminated or

approved releases, statements and reports, referred to above, which

were materially false and misleading in that they contained

misrepresentations and failed to disclose facts necessary in order

to make the statements made, in light of the circumstances under

which they were made, not misleading.

96. During the Class Period, defendants, individually

and in concert, directly and indirectly, engaged and participated

in a continuous course of conduct and conspiracy to conceal adverse

material information regarding the financial activities and

condition of Paragon as specified herein. Defendants employed

devices, schemes, and artifices to defraud and engaged in acts,

practices, and a course of conduct as alleged herein to commit a

fraud on the integrity of the market for the Company's stock and to

maintain artificially high market prices for the common stock of

Golden Bear. This included the formulation, making of and/or

participation in the making of, untrue statements of material facts

46


and the omission to state material facts necessary in order to make

the statements made, in light of the circumstances under which they

were made, not misleading, and engaging in acts, practices and a

course of conduct which operated as a fraud and deceit upon

plaintiffs and the Class, all of the above in connection with the

purchase of Golden Bear common stock by plaintiffs and members of

the Class.

97. By reason of the conduct alleged herein, defendants

knowingly or recklessly have violated § 10(b) of the Exchange Act

and Rule 10b-5 promulgated thereunder in that they: (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 not misleading; and (c) engaged in

acts, practices, and a course of business which operated as a fraud

and deceit upon the purchasers of Golden Bear's stock in connection

with their purchases of Golden Bear stock during the Class Period.

98. Plaintiffs and the Class have suffered substantial

damages in that, in reliance on the integrity of the market, they

paid artificially inflated prices for Golden Bear common stock as

a result of defendants' violations of §10(b) of the Exchange Act

and SEC Rule 10b-5. Plaintiffs and the Class would not have

purchased Golden Bear common stock at the prices they paid, or at

all, if they had been aware that the market prices had been

artificially and falsely inflated by defendants' materially false

and misleading statements and concealments. At the time of the

purchases by plaintiffs and the Class of Golden Bear common stock,

47


the fair market value of said common stock was substantially less

than the prices paid by them.

99. By virtue of the foregoing, all of the defendants

have violated Section 10(b) of the Exchange Act, and Rule 10b-5

promulgated thereunder.

COUNT II

[Violation of Section 20(a) of the Exchange Act Against the Individual Defendants]

100. Plaintiffs repeat and reallege the allegations set

forth above as if set forth fully herein. This claim is asserted

by plaintiffs against the Individual Defendants.

101. The Individual Defendants acted as controlling

persons of Golden Bear within the meaning of Section 20(a) of the

Exchange Act as alleged herein. By virtue of their high-level

positions, substantial stock holdings, participation in and/or

awareness of the Company's operations and/or intimate knowledge of

the Company's internal financial condition, business practices,

products and the actual progress of its development and marketing

efforts, these defendants had the power to influence and control

and did influence and control, directly or indirectly, the

decision-making of Golden Bear, including the content and

dissemination of the various statements which plaintiffs contend

are false and misleading. Each of the Individual Defendants was

provided with or had unlimited access to copies of Golden Bear's

internal reports, press releases, public filings and other

statements alleged by plaintiffs to be misleading prior to and/or

shortly after these statements were issued and had the ability to

48


prevent the issuance of the statements or cause the statements to

be corrected.

102. In particular, each of the Individual Defendants had

direct involvement in or intimate knowledge of the day-to-day

operations of Golden Bear 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.

103. As set forth above, the Individual Defendants each

violated Section 10(b) and Rule 10b-5 by their acts and omissions

as alleged in this Complaint. By virtue of their positions as

controlling persons, these defendants are liable pursuant to

Section 20(a) of the Exchange Act.

104. As a direct and proximate result of the wrongful

conduct of these defendants, plaintiffs and other members of the

Class suffered damages in connection with their purchases of the

Company's securities during the Class Period.

PRAYER FOR RELIEF

WHEREFORE, plaintiffs, on behalf of themselves and the

Class, pray for judgment as follows:

A. declaring this action to be a plaintiff class

action properly maintained pursuant to Rule 23

of the Federal Rules of Civil Procedure;

B. awarding plaintiffs and other members of the Class

damages together with interest thereon;

49


C. awarding plaintiffs and other members of the Class

their costs and expenses of this litigation,

including reasonable attorneys' fees, accountants'

fees and experts' fees and other costs and dis-

bursements; and

D. awarding plaintiffs and other members of the Class

such other and further relief as may be just and

proper under the circumstances.

50


JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

Dated: December 24, 1998

BURT & PUCILLO, LLP

BY: Michal J.

' ücillo

Florida Ballo. 261033 Wendy H. Zoberman Florida Bar. No. 434670 Esperanté 222 Lakeview Avenue Suite 300 East West Palm Beach, Florida 33401 Phone: (561) 835-9400 Fax: (561) 835-0322

Plaintiffs' Co-Lead Counsel and Liaison Counsel

SCHIFFRIN CRAIG & BARROWAY, LLP Andrew L. Barroway Marc A. Topaz Gregory M. Castaldo Three Bala Plaza East Suite 400 Bala Cynwyd, PA 19004 Phone: (610) 667-7706 Fax: (610) 667-7056

Plaintiffs' Co-Lead Counsel

ABBEY, GARDY & SQUITIERI, LLP Lee Squitieri, Esq. James S. Notis, Esq. 212 East 39th Street New York, NY 10016 (212) 889-3700

51


BERMAN, DEVALERIO & PEASE LLP Peter A. Pease, Esq. One Liberty Square Boston, MA 02109 (617) 542-8300

LAW OFFICE OF LEO W. DESMOND Leo W. Desmond, Esq. 2161 Palm Beach Lake Blvd. Suite 204 West Palm Beach, FL 33409 (561) 712-8000

ROBERT C. GILBERT, P.A. Robert C. Gilbert, Esq. 133 Sevilla Coral Gables, FL 33134 (305) 529-9100

LAW OFFICES OF DENNIS J. JOHNSON Dennis J. Johnson, Esq. Jacob B. Perkinson, Esq. 1690 Williston Road South Burlington, VT 05403 (802) 862-0030

LAW OFFICES OF RICHARD D. KRANICH Richard D. Kranich, Esq. 120 Broadway Suite 1016 New York, NY 10271 (212) 608-8965

LEESFIELD LEIGHTON RUBIO & MAHFOOD, P.A.

George G. Mahfood, Esq. 2350 South Dixie Highway Miami, FL 33133 (305) 854-4900

LEVY AND LEVY Stephen Levy, Esq. 445 Northern Blvd. Great Neck, NY 11021 (516) 829-4500

52


MILBERG WEISS BERSHAD HYNES & LERACH LLP

Steven G. Schulman, Esq. Samuel H. Rudman, Esq. Michael A. Swick, Esq. One Pennsylvania Plaza 49th Floor New York, NY 10119-0165 (212) 594-5300

RABIN & PECKEL LLP Marvin L. Frank, Esq. 275 Madison Avenue New York, NY 10016 (212) 682-1818

REINHARDT & ANDERSON Randall Steinmeyer, Esq. E-1000 First National Bank Building 332 Minnesota Street St. Paul, MN 55101 (651) 227-9990

STULL, STULL & BRODY Jules Brody, Esq. 6 East 45th Street New York, NY 10017 (212) 687-7230

WEISS & YOURNAN Joseph H. Weiss, Esq. 551 5th Avenue New York, NY 10176 (212) 682-3025

53


WOLF POPPER, LLP Marian P. Rosner, Esq. Paul 0, Paradis, Esq. Carl L. Stifle, Esq. 845 Third Avenue New York, NY 10022 (212) 759-4600

LAW OFFICES OF ALFRED C. YATES, JR. Alfred G. Yates, Jr., Esq. 519 Allegheny Building 429 Forbes Avenue Pittsburgh, PA 15219 (412) 391-5164

Attorneys for Plaintiffs

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and accurate copy of the

foregoing has been furnished via U.S. Mail this 24th day of

December, 1998, to all counsel on the attached Service List.

~-3 V L' U -~ ~\ 0, Mich el Jycillo

H: \Judy\28052\Amcomp. htm

54


Michael J. Pucillo Burt & Pucillo, LLP 222 Lakeview Avenue Suite 300 East West Palm Beach, FL 33401

Stephen Levy Levy and Levy 445 Northern Blvd. Great Neck, NY 11021

Dennis J. Johnson Jacob B. Perkinson Law Offices of Dennis J. Johnson 1690 Williston Road South Burlington, VT 05403

Robert C. Gilbert Robert C. Gilbert, P.A. 133 Sevilla Coral Gables, FL 33134

Peter A. Pease Berman DeValerio & Pease LLP One Liberty Square Boston, MA 02109

Marian P. Rosner Paul 0. Paradis Carl L. Stine Wolf Popper LLP 845 Third Avenue New York, NY 10022

Andrew L. Barroway Schiffrin Craig & Barroway, LLP Three Bala Plaza East Suite 400 Bala Cynwyd, PA 19004

Leo W. Desmond Law Offices of Leo W. Desmond 2161 Palm Beach Lakes Blvd. Suite 204 West Palm Beach, FL 33409

Marvin L. Frank

George Mah food Rabin & Peckel

Leesfield Leighton Rubio & Mahfood 275 Madison Avenue

2350 S. Dixie Hwy. New York, NY 10016

Miami, FL 33133


Alfred G. Yates, Jr. Law Offices of Alfred G. 519 Allegheny Building 429 Forbes Avenue Pittsburgh, PF 15219

Richard D. Kranich Yates, Jr. Law Offices of Richard D. Kranich

120 Broadway Suite 1016 New York, NY 10271

Lee Squitieri James S. Notis Abbey, Gardy & Squitieri, LLP 212 East 39th Street New York, NY 10016

Steven G. Schulman, Esq. Samuel H. Rudman, Esq. Michael A. Swick, Esq. Milberg Weiss Bershad

Hynes & Lerach LLP One Pennsylvania Plaza, 49th Floor New York, NY 10119-0165

Jules Brody, Esq. Joseph H. Weiss, Esq. Stull, Stull & Brody

Weiss & Yourman 6 East 45th Street

551 5th Avenue New York, NY 10017

New York, NY 10176

Randall Steinmeyer, Esq. Reinhardt & Anderson E-1000 First National Bank Building 332 Minnesota Street St. Paul, MN 55101

Gerald F. Richman, Esq. Gary S. Betensky, Esq. Joseph F. Hession, Esq. Richman Greer Weil Brumbaugh Mirabito &

Christensen, P.A. 777 S. Flagler Dr., Ste. 1100- East Tower West Palm Beach, FL 33401

Eugene E. Stearns, Esq. Richard Jackson, Esq. Stearns Weaver Miller Weissler

Alhadeff & Sitterson, P.A. 150 West Flagler Street Suite 2200, Museum Tower Miami, FL 33130

case 9:98-cv-08520-dtkh document 30 entered on flsd...

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