gordon, et al. v. sportsline.com inc., et al. 03-cv-61849...

Case 0:03-cv-61849-DMM Document 37 Entered on FLSD Docket 02/17/2004 of 63

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF FLORIDA

03 • C /fjCONSOLIDATED CASE NO. 03'-t+4&1-CIV-MIDDLEBROOKS

IN RE SPORTSLINE.COM SECURITIESLITIGATION

nc-

AMENDED CONSOLIDATED CLASS ACTION COMPLAINT`, v^7'Lead Plaintiffs, Anthony Phillips, Robert O. Wright, Robert V. Wright, Lor (^Wrijht,

•xand Rakesh Sekhm, hereby make the following allegations, except as to allegations specifically

pertaining to Plaintiffs and Plaintiffs' counsel, based upon the investigation undertaken by

Plaintiffs' counsel (which investigation included analysis of publicly-available news articles and

reports, public filings, securities analysts reports and advisories about the Company, press

releases and other public statements issued by the Company, and media reports about the

Company) and believe that substantial additional evidentiary support will exist for the allegations

set forth herein after a reasonable opportunity for discovery.

NATURE OF THE ACTION

I. This is a federal securities class action on behalf of a class (the "Class")

consisting of all persons other than Defendants who purchased the securities of Sportsline.com

Incorporated ("Sportsline" or the "Company") between April 18, 2001 and September 25, 2003

(the "Class Period") seeking to pursue remedies under the Securities Exchange Act of 1934 (the

"Exchange Act").

2. Sportsline is an Internet sports company and publisher of CBS Sportsline.com .

Throughout the Class Period, Defendants issued a series of false and misleading statements

regarding the Company's financial status. Specifically, the Company's financial filings with the

Securities and Exchange Commission (the "SEC") and press releases regarding its financial

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CONSOLIDATED CASE NO. 03-6198 1 -CIV-MIDDLEBROOKS

status were materially false and misleading because, in violation of Generally Accepted

Accounting Principles ("GAAP") and the securities laws, the Company fraudulently, or in a

severely reckless manner, failed to properly account for the value of the stock options granted to

Company employees; improperly recognized revenue; understated "cost of revenue" and "other

sales and marketing" expenses; and failed to maintain adequate internal accounting controls.

3. The Company's GAAP violations were perpetrated in order to allow the

Company to pay off its contractually obligated $20 million stock payment to CBS with less

shares of stock than it would have had the stock price been lower, and to enable the Company to

complete its planned purchase of Sandbox.com with less shares of stock than it would have had

the stock price been lower. Although the agreement with Sandbox was eventually terminated

due to Sandbox's breach of certain representations and covenants in the acquisition agreement,

the acquisition was to be paid for the Sportsline stock. Further, in a four day span between

August 14, 2003 and August 18, 2003, Defendants Levy and Sanders, as well as insider

executive Mark J. Mariam, sold $81,356, $28,677, and $26,874 worth of Company stock,

respectively.

4. Defendants' fraud continued until September 26, 2003 (the end of the Class

Period), when Sportsline shocked the market by restating its reported financial results for the

past two and a half years. Defendants' belated disclosure of the accounting improprieties, as

described in detail below, negatively impacted the Company's previously reported earnings,

revenues, and/or losses.

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5. In response to the Company's devastating news concerning the accounting errors,

Sportsline's stock price plummeted by more than 30%, or by $0.54 to $1.22, on trading volume

of about eight times the daily average.

6. As a result of the Company's misrepresentations, Sportsline investors have

sustained tremendous losses and stand to lose much more as the Company's financial condition

continues to decline.

JURISDICTION AND VENUE

7. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange

Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule IOb-5 promulgated thereunder (17 C.F.R.

§ 240.10b-5).

8. This Court has jurisdiction of this action pursuant to 28 U.S.C. §§ 1331, 1337 and

1367 and Section 27 of the Exchange Act (15 U.S.C. § 78aa).

9. Venue is properly laid in this District pursuant to Section 27 of the Exchange Act

(15 U.S.0 §§ 78j(b) and 78t(a)) and Rule lOb-5 promulgated thereunder (17 C.F.R. § 240. lOb-

5). The acts and conduct complained of herein, including the preparation, issuance and

dissemination of materially false and misleading information to the investing public, occurred in

substantial part in this District, and Sportsline maintains its principal place of business in this

District. In connection with the acts and conduct alleged in this Complaint, Defendants, directly

or indirectly, used the means and instrumentalities of interstate commerce, including the mails

and telephonic communications and the facilities of the NASDAQ National Market (the

"NASDAQ"), a national securities exchange.

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CONSOLIDATED CASE NO. 03-61981-CIV-MIDDLEBROOKS

PARTIES

10. Plaintiffs, Anthony Phillips, Robert O. Wright, Robert V. Wright, Lorraine

Wright, and Rakesh Sekhm, purchased Sportsline securities as set forth in their certifications

attached to Proposed Lead Plaintiffs' Motion for Consolidation, Appointment as Lead Plaintiffs

and Approval of Co-Lead Counsel, and are incorporated herein by reference.

11. Defendant Sportsline is a Florida corporation and maintains its principal executive

offices at 2200 West Cypress Creek Road, Fort Lauderdale, Florida, 33309. According to a

recent press release:

Sportsline is the number one online sports brand available forlicensing in the market today, providing Internet sports content,community and e-commerce. As the publisher of CBSSportsLine.com the official Web sites of the NFL, PGA Tour andNCAA Sports, as well as the exclusive (together with SportsIllustrated) provider of sports news, statistics, major eventcoverage and fantasy games to more than 35 million AOLmembers, Sportsline serves as one of the most comprehensivesports information sources, containing an unmatched breadth anddepth of multimedia sports news, information, entertainment andmerchandise.

The individuals named as Defendants herein (the "Individual Defendants") served in the

capacities listed below and received substantial compensation:

Name Position

Michael Levy President, CEO, and Chairman of the Board ofDirectors

Kenneth W. Sanders President of Finance and Administration and CFO

By reason of their management positions, and/or membership on Sportsline's Board of

Directors, and their ability to make public statements in the name of Sportsline, the Individual

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Defendants were and are controlling persons, and had the power and influence to cause (and did

cause) Sportsline to engage in the unlawful conduct complained of herein.

MOTIVE, OPPORTUNITY AND KNOWLEDGE

12. Because of their Board memberships and/or executive and managerial positions

with Sportsline, each of the Individual Defendants had access to the adverse non-public

information about the business, finances, and accounting issues particularized herein via access

to internal corporate documents, conversations or connections with corporate officers,

employees, attendance at management and/or Board of Directors' meetings and committees

thereof and/or via reports and other information provided to them in connection therewith.

13. Defendants had a duty to disseminate accurate and truthful information with

respect to Sportsline's operations and financial condition promptly, or to cause and direct that

such information be disseminated, and to correct promptly any previously disseminated

information that was misleading to the market. As a result of their failure to do so, the price of

Sportsline securities was artificially inflated during the Class Period, damaging Plaintiffs and the

Class.

14. The Individual Defendants, because of their positions with Sportsline, controlled

the contents of the quarterly and annual reports, press releases and presentations to securities

analysts. Each Individual Defendant was provided with copies of the reports and press releases

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 but not the public, each of these

Defendants knew that the adverse facts specified herein had not been disclosed to and were being

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concealed from the public and that the positive representations that were being made were then

false and misleading. As a result, each of the Individual Defendants is responsible for the

accuracy of Sportsline's corporate releases detailed herein as "group-published" information and

is therefore responsible and liable for the representations contained therein.

15. Each of the Defendants is liable as a primary violator in making false and

misleading statements, and/or for participating in a fraudulent scheme and course of business that

operated as a fraud or deceit on purchasers of Sportsline securities during the Class Period. All

of the Defendants had motives to pursue a fraudulent scheme in furtherance of their common

goal, i.e., inflating the profits of Sportsline and the trading price of Sportsline securities by

making false and misleading statements and concealing material adverse information. The

fraudulent scheme and course of business was designed to and did: (i) deceive the investing

public, including Plaintiffs and other Class members; (ii) artificially inflate the price of

Sportsline stock during the Class Period; (iii) cause Plaintiffs and other Class members to

purchase Sportsline stock at inflated prices; and (iv) conceal and cover up Sportsline's true

financial condition.

PLAINTIFFS' CLASS ACTION ALLEGATIONS

16. Plaintiffs bring this action as a class action pursuant to Federal Rules of Civil

Procedure 23(a) and 23(b)(3) on behalf of themselves and all purchasers of Sportsline securities

from April 18, 2001 through September 25, 2003. Excluded from the Class are Defendants

herein, members of each Defendant's immediate family, any person, firm, trust, corporation,

officer, director or other individual or entity in which any defendant has a controlling interest or

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which is related to or affiliated with any defendant, and the legal representatives, agents,

affiliates, heirs, successors-in-interest or assigns of any such excluded party.

17. The members of the Class are so numerous that joinder of all members is

impracticable. Sportsline had over 44.0 million shares outstanding as of September 26, 2003.

The precise number of Class members is unknown to Plaintiffs at this time, but is believed to be

in the thousands. In addition, the Class members' names and addresses can be ascertained from

Sportsline's books and records or its transfer agent. Notice can be provided to such record

owners by a combination of published notice and first-class mail, using techniques and a form of

notice similar to those customarily used in class actions arising under the federal securities laws.

18. Plaintiffs will fairly and adequately represent and protect the interests of the

Class. Plaintiffs have retained competent counsel experienced in class action litigation under the

federal securities laws to further ensure such protection and intend to prosecute this action

vigorously.

19. Plaintiffs' claims are typical of other Class members' claims, because Plaintiffs'

and all Class members' damages arise from and were caused by the same false and misleading

representations and omissions made by or chargeable to Defendants. Plaintiffs do not have any

interests antagonistic to, or in conflict with, the Class.

20. 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 makes it virtually impossible

for the class members to seek redress for the wrongful conduct alleged. Plaintiffs know of no

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difficulty that will be encountered in the management of this litigation that would preclude its

maintenance as a class action.

21. Common questions of law and fact exist as to all Class members and predominate

over any questions affecting individual Class members. Among the questions of law and fact

common to the Class are:

a. Whether the federal securities laws were violated by Defendants' acts as

alleged herein;

b. The extent of injuries sustained by Class members and the appropriate

measure of damages.

SUBSTANTIVE ALLEGATIONS

A. Background

22. According to its own description in its press release:

Sportsline is the leading edge of media companies providingInternet sports content, community and e-commerce. As thepublisher of CBS SportsLine.com and the official Web sites of theNFL and the PGA TOUR, the Company serves as one of the mostcomprehensive sports information sources available, containing anunmatched breadth and depth of multimedia sports news,information, entertainment and merchandise. Sportsline also hasstrategic relationships with Major League Baseball and the NBA,and serves as a primary sports content provider for AmericaOnline. In 1999, the Company commenced operations in Europethrough Sports.com Limited, Europe's leading Internet and mobiledata provider of sports content.

B. The False and Misleading Statements During the Class Period

23. The financial statements filed by Defendants, as set forth below, were materially

false and misleading because, as subsequently revealed on November 19, 2003, when the

Company filed an amended and restated Form 10-K for the year ended December 31, 2002 with

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the SEC ("the Amended 2002 Form 10-K"), and amended and restated Form 10-Q's for the

quarterly periods ended March 31, 2003 and June 30, 2003 with the SEC ("the Amended March

31, 2003 Form 10-Q" and "the Amended June 30, 2003 Form 10-Q," respectively), these

financial statements:

a. were not prepared in conformity with GAAP;

b. were pervasively and adversely influenced by materially false andmisleading disclosures;Zand

C. were pervasively and adversely influenced by material weaknesses("reportable conditions') 3 surrounding the Company's measurement andrecordation of non-cash compensation expense and other expenses.

24. The Amended 2002 Form 10-K describes the pervasiveness of the Company's

non-GAAP accounting and the necessity to restate these financial statements as follows:

Following the recommendation of management and theconcurrence of the Audit Committee of the Board of Directors, theCompany made a determination to restate its previously filedfinancial statements as of December 31, 2002 and 2001 and for theyears ended December 31, 2002 and 2001. The restatement isbeing made primarily to correct an error in the way theCompany had previously accounted for employee stock optiongrants and certain other grants of equity instruments and to makeother adjustments set forth below which were identified by theCompany's current auditors during the course of their re-audit ofthe Company's 2001 financial statements. The restated

' SEC Regulation S-X requires that financial statements filed with the SEC conform with GAAP. Financialstatements filed with the SEC which are not prepared in conformity with GAAP are presumed to be misleading. 17C.F.R. 210.4-01(a)(1).

z "Disclosure of accounting policies should identify and describe the accounting principles followed by thereporting entity and the methods of applying those principles that materially affect the determination of financialposition, changes in financial position, or results of operations. In general, the disclosure should encompassimportant judgments as to appropriateness of principles relating to recognition of revenue and allocation of assetcosts to current and future periods..." (APB Opinion No. 22)

3 Generally Accepted Auditing Standards ("AU") states that a reportable condition involves the existence of."significant deficiencies in the design or operation of internal control, which could adversely affect theorganization's ability to record, process, summarize, and report financial data consistent with the assertions ofmanagement in the financial statements.

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Case 0:03-cv-61849-DMM Document 37 Entered on FLSD Docket 02/17/2004 of 63 F1

CONSOLIDATED CASE NO. 03-61981-CI V-M IDDLEBROOKS

transactions which the Company believes are the more significantare described in detail below and have been grouped underheadings for convenience only:

Stock Compensation

The Company historically has accounted for employee stockoptions using the intrinsic value method of accounting as outlinedin Accounting Principles Board ("APB") Opinion No. 25,Accounting for Stock Issued to Employees. Accordingly, nocompensation expense was recorded for stock option grantspursuant to APB Opinion No. 25 because the Company believed ithad granted the stock options to its employees with an exerciseprice equal to the market price on the measurement date of eachgrant. The Company has since determined that it made an error indetermining the measurement dates of employee stock optiongrants, which had an effect on the intrinsic value of such grants.The Company has recorded expense related to those grants of$3,0774 and $6,067 in the restated financial statements for theyears ended December 31, 2002 and 2001, respectively. Theseamounts include $1,484 and $317 of expense for the years endedDecember 31, 2002 and 2001, respectively, for the intrinsic valueof employee stock options that were cancelled and replaced withrestricted stock in 2001.

Revenue

Revenue has been reduced by $770 in the 2001 restated financialstatements as a result of certain advertising clients having receivedcredits during 2002 relating to revenue recognized during 2001,certain revenue recognized during 2001 which should have beendeferred until 2002, and an amount having been recorded during2001 as bad debt expense which, due to the nature of thetransaction, should have been recorded instead as a reduction inrevenue. Revenue has been increased by $570 in the 2002 restatedfinancial statements and general and administrative expense hasbeen reduced by $200 in the 2001 restated financial statements as aresult of the foregoing adjustments.

° These numbers are presented in thousands.10



Expenses

The Company's Black-Scholes valuations of warrants issued toAmerica Online, Inc. ("AOL") and another third party serviceprovider originally were prepared using incorrect assumptionsregarding the life of the warrant and the value of the underlyingstock at the date of grant. The net effect of these adjustmentscaused an additional $3,410 of amortization expense to be recordedin the 2001 restated financial statements relating to the AOLwarrant and $174 and $77 of amortization expense to be recordedin the 2001 restated financial statements and the 2002 restatedfinancial statements, respectively, relating to the additionalwarrant.

During 2001, the Company over-accrued for certain tax, insurance,bad debt and cost of revenue expenses and under-accrued forcertain tax and other miscellaneous expenses. The net effect ofthese adjustments was $546, resulting in a decrease in general andadministrative expense of $501 and a decrease in cost of revenueof $45 in the 2001 restated financial statements. General andadministrative expense and cost of revenue were increased bycorresponding amounts in the 2002 restated financial statements.

Weighted Average Shares Outstanding

The number of weighted average shares outstanding for the yearsended December 31, 2002 and 2001 have been adjusted to excludeshares of restricted stock that had not yet vested and remain subjectto forfeiture.

25. The Amended 2002 Form 10-K also provides a caveat that: "The Company did

not amend its Annual Reports on Form 10-K or Quarterly Reports of Form 10-Q for periods

affected by the restatement that ended prior to December 31, 2002, and the financial statements

and related financial information contained in such reports should no longer be relied upon

and should be viewed in the context of this report." (Emphasis Added)

26. The Class Period began on April 18, 2001, when Defendants issued a press

release announcing the Company's financial results for the first fiscal quarter of 2001, ended

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March 31, 2001. As described in more detail below, certain of the Company's financial

disclosures contained in the press release caused the press release to be materially false and

misleading.

27. On May 15, 2001, the Company filed its Form 10-Q for the quarterly period

ended March 31, 2001 with the SEC ("the March 31, 2001 Form 10-Q").

28. As noted in the Amended 2002 Form 10-K, the following revisions were required

to cure the Company's March 31, 2001 non-GAAP financial statements:

Quarter Ended March 31, 2001($ in thousands)

Percent

Original Restated Difference ChangeRevenue 22,298 22,298 --- ---Cost of revenue 11,163 11,335 172 1.54Gross profit 11,135 10,963 172 1.54

Operating expenses:Product development 521 521 --- ---Sales and marketing:

Amortization of equityIssued to Viacom forpromotion --- 5,072 5,072 100.00Other 14,108 14,575 467 3.31

Gen'l & administrative 9,954 13,373 3,419 34.35Depn. And amortization 11,714 6,642 5,072 43.30Total operating expenses 36,297 40,183 3,886 10.71Loss from operations (25,162) (29,220) 4,058 16.13Interest expense (276) (276) --- ---Interest and other income,

net 1,617 1,617 --- ---Net income (loss) (23,821) (27,879) 4,058 17.4

29. The above specified elaboration in the Amended 2002 Form 10-K concerning the

reasons for these modifications to the Company's previously issued financial statements

describes how, in contravention of GAAP (APB Opinion No. 25 as discussed below), the

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Company failed to recognize compensation expense of $3,419,000 (as noted in the G&A column

of the chart) for the quarter ended March 31, 2001 in connection with stock options granted to

employees. In this manner, the Company materially understated its reported operating loss and

its net loss for the quarter. The non-recordation of other expenses further understated the

Company's reported operating loss and net loss for the quarter.

30. The Company's December 31, 2000 Form 10-K, which was incorporated into the

March 31, 2001 Form 10-Q by reference, described its method of accounting for stock-based

compensation as follows:

SFAS No. 123, "Accounting for Stock-Based Compensation"allows either adoption of a fair value based method of accountingfor employee stock options and similar equity instruments orcontinuation of the measurement of compensation cost relating tosuch plans using the intrinsic value based method of accountingprescribed by Accounting Principles Board Opinion No. 25,"Accounting for Stock Issued to Employees." The Company haselected to continue to use the intrinsic value based method.

31. The "intrinsic value" method of accounting for stock options, which the Company

purported to use, is described in FASB Statement No. 123 (paragraph 395) as follows:

The amount by which the market price of the underlying stockexceeds the exercise price of an option. For example, an optionwith an exercise price of $20 on a stock whose current marketprice is $25 has an intrinsic value of $5.

32. The "summary" which serves as a preface to FASB Statement No. 123 describes

the "intrinsic value" method as follows:

Under the intrinsic value based method, compensation cost is theexcess, if any, of the quoted market price of the stock at grant dateor other measurement date over the amount an employee must payto acquire the stock.

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33. The "intrinsic value" method is so termed because the computation of intrinsic

value (the extent to which the underlying stock has a market value that is greater than the

exercise price of the option, or the extent to which the option is "in the money") is (within the

arena of a publicly held company where there is an active market for the company's stock)

objective, verifiable, and not based on estimates or data subject to differing interpretations.

34. APB Opinion No. 25, which Defendants' SEC filings refer to as the applicable

GAAP, sets forth relevant rules as follows:

a. ...the unadjusted quoted market price of a share of stock of the same classthat trades freely in an established market should be used in measuringcompensation.

b. The measurement date for determining compensation cost in stock option,purchase, and award plans is the first date on which are known both (1)the number of shares that an individual employee is entitled to receive and(2) the option or purchase price, if any. That date for many or most plansis the date an option or purchase right is granted or stock is awarded to anindividual employee...

C. The measurement date is not changed from the grant or award date to alater date solely by provisions that termination of employment reduces thenumber of shares of stock that may be issued to an employee.

d. The measurement date of an award of stock for current service may be theend of the fiscal period, which is normally the effective date of the award,instead of the date that the award to an employee is determined if (1) theaward is provided for by the terms of an established formal plan, (2) theplan designates the factors that determine the total dollar amount ofawards to employees for the period (for example, a percent of income),although the total amount or the individual awards may not be known atthe end of the period, and (3) the award pertains to current service of theemployee for the period.

e. Renewing a stock option or purchase right or extending its periodestablishes a new measurement date as if the right were newly granted.

f. Transferring stock or assets to a trustee, agent, or other third party fordistribution of stock to employees under the terms of an option, purchase,

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or award plan does not change the measurement date from a later date tothe date of transfer unless the terms of the transfer provide that the stock(1) will not revert to the corporation, (2) will not be granted or awardedlater to the same employee on terms different from or for services otherthan those specified in the original grant or award, and (3) will not begranted or awarded later to another employee.

g. Compensation cost in stock option, purchase, and award plans should berecognized as an expense of one or more periods in which an employeeperforms services and also as part or all of the consideration received forstock issued to the employee through a plan. The grant or award mayspecify the period or periods during which the employee performsservices, or the period or periods may be inferred from the terms or fromthe past pattern of grants or awards...

h. An employee may perform services in several periods before an employercorporation issues stock to him for those services. The employercorporation should accrue compensation expense in each period in whichthe services are performed. If the measurement date is later than the dateof grant or award, an employer corporation should record thecompensation expense each period from date of grant or award to date ofmeasurement based on the quoted market price of the stock at the end ofeach period.

35. The fact that Defendants granted stock options to employees prior to 2001 and did

not restate the Company's financial statements for years prior to 2001 evidence the fact that they

had no difficulty understanding and applying these applicable accounting rules prior to the Class

Period.

36. The March 31, 2001 Form 10-Q states that there were 27,087,550 shares of

common stock outstanding as of April 30, 2001 and that there were 9,159,760 options and

warrants outstanding at March 31, 2001. It also indicates that other non-cash stock-based

transactions were central to the operations of the Company through disclosures such as the

following:

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a. During the first quarter of 2001, 828,376 shares of common stock wereissued in satisfaction of $6,000 of [a] liability. Th[E] remaining $6,000 ispayable in cash or common stock in December 2001.

b. In January 2001, in connection with the execution of a consultingagreement, the Company issued 50,000 shares of common stock to EldrickT. Woods in consideration of services rendered thereunder.

C. In March 2001, in connection with the December 1999 acquisition ofDaedalus Worldwide, the Company issued 828,376 shares of commonstock to the former holders of stock of that corporation as additionalconsideration for the acquisition.

37. In view of the fact that options, warrants and other non-cash stock-based

transactions were central to the Company's business operations, there is a strong inference that

Defendants focused on the above particularized GAAP (APB Opinion No. 25) and the financial

statement presentation of non-cash compensation in connection with their review of the March

31, 2001 Form 10-Q and the financial statements which were contained therein.

38. Additionally, on June 12, 2000, the Audit Committee of the Company's Board of

Directors adopted a Charter which also strongly supports the contention that Defendants

reviewed the March 31, 2001 Form 10-Q, including the financial statements which were

contained therein.

39. The Audit Committee's Charter (the "Charter'), as disclosed in Company's

FORM DEF 14A filed with the SEC on August 3, 2001 stated, in relevant part, that the

Company's Board of Directors was responsible for overseeing:

the financial reports and other financial information provided bythe Company to any governmental or regulatory body, the public,or any other user of such financial statements;

the Company's systems of internal accounting and financialcontrols;

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the independence and performance of the Company's outsideauditors;

compliance by the Company with any legal compliance and ethicsprograms as may be established by the Board and the Company'smanagement from time-to-time;

that at least one member of the Audit Committee was able to readand understand fundamental financial statements, including acompany's balance sheet, income statement, and cash flowstatement;

that at least one member of the Committee had past employmentexperience in finance or accounting, professional certification inaccounting, or other comparable experience or background thatresults in such individual's financial sophistication including, butnot limited to, being or having been a chief executive officer, chieffinancial officer, or other senior officer with financial oversightresponsibilities; and

the preparation of the Company's financial statements.

40. This "Charter" also served to falsely provide the investment community with

assurances that:

a. The Company had the requisite accounting controls to reliably measureand record non-cash compensation expense, stock options, stock warrants,stock valuations, revenue, and earnings per share.

b. Earnings were appropriately reflected in the Company's March 31, 2001(as well all subsequently disseminated) financial statements.

C. The March 31, 2001 financial statements (as well all subsequentlydisseminated financial statements) were prepared in conformity withGAAP.

d. The March 31, 2001 financial statements (as well all subsequentlydisseminated financial statements) were prepared pursuant to the rules andregulations of the Securities and Exchange Commission and reflected alladjustments which were necessary to present fairly the condensedconsolidated financial information required therein.

e. The March 31, 2001 Form 10-Q (as well as all subsequently filed Forms10-Q and 10-K) did not contain any untrue statement of a material fact.

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CONSOLIDATED CASE NO. 03-61981-CI V-MIDDLEBROOKS

f. Disclosures in the March 31, 2001 Form 10-Q (as well as all subsequentlyfiled Forms 10-Q and 10-K) were adequate to inform the investmentcommunity of significant matters and that they did not omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading.

41. Defendants were aware of applicable GAAP (APB Opinion No. 25) accounting

for "any arrangement to issue stock to officers and employees, as a group or individually" and

specified "the accounting for (a) plans in which either the number of shares of stock or the option

or purchase price depends on future events..." as evidenced by the following statement in the

Company's 2001 Form 10-K, and 2000 Form 10-K which was incorporated into the March 31,

2001 Form 10-Q by reference:

Stock-Based Compensation

SFAS No. 123, "Accounting for Stock-Based Compensation"allows either adoption of a fair value based method of accountingfor employee stock options and similar equity instruments orcontinuation of the measurement of compensation cost relating tosuch plans using the intrinsic value based method of accountingprescribed by Accounting Principles Board Opinion No. 25,"Accounting for Stock Issued to Employees." The Company haselected to continue to use the intrinsic value based method...

42. This statement evidences the fact that Defendants understood the difference

between the "fair value based method of accounting for employee stock options and similar

equity instruments" as set forth in FASB Statement No. 123 and the "intrinsic value based

method of accounting prescribed by Accounting Principles Board Opinion No. 25" and, after a

consideration of the two acceptable alternative methods, elected to use the latter.

43. Based upon the foregoing, there is a strong inference that Defendants either knew

of the Company's non-compliance with GAAP (APB Opinion No. 25) and turned a blind eye to

it, or recklessly failed to know of it.

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44. A comparison of the originally issued and the restated financial statements, as

noted in the above chart, also evidences the fact that the financial statements which were

contained within the March 31, 2001 Form 10-Q materially understated additional categories of

expense ("cost of revenue" and "other sales and marketing"), in aggregate, by $639,000.

45. Defendants falsely led the investment community to rely on the accuracy of the

"cost of revenue" and "other sales and marketing" figures which were presented in the

Company's March 31, 2001 financial statements by representing that a review of these expenses

had been undertaken. In this regard, the March 31, 2001 Form 10-Q falsely represented that:

Cost of revenue for the three months ended March 31, 2001 and2000 was $11,163,000 and $8,654,000, respectively. The increasein cost of revenue was primarily due to content and personnel costsfor Sports.com's Spain, Germany and Italy operations, whichcommenced in the second quarter of 2000, along with increasedexpenses associated with Sports.com's new on-line betting service.Sports.com accounted for 38% of cost of revenue in the quarterended March 31, 2001 and 26% of cost of revenue in the quarterended March 31, 2000. Cost of revenue also increased in 2001 to alesser extent due to increases in the costs of content fees andtelecommunications needed to support and deliver services such asstreaming video during the SuperBowl and the NCAA Men'sBasketball Championship. As a percentage of revenue, cost ofrevenue increased to 50% for the three months ended March 31,2001 from 38% for the three months ended March 31, 2000.

For the three months ended March 31, 2001 and 2000, sales andmarketing expense was $14,108,000 and $12,050,000,respectively. The increase in sales and marketing expense wasprimarily the result of increased advertising expense and increasedpersonnel costs due to the expansion of Sports.com in Europe.Sports.com accounted for 22% of sales and marketing expense in2001 compared to 21% in 2000. Barter transactions accounted forapproximately 38% and 27% of sales and marketing expense forthe three months ended March 31, 2001 and 2000, respectively. Asa percentage of revenue, sales and marketing expense increased to

19



63% for the three months ended March 31, 2001 from 53% for thethree months ended March 31, 2000.

46. On July 6, 2001, Defendants issued a press release updating the Company's

financial forecast for the second fiscal quarter 2001, ended June 30, 2001. In this press release

Defendant Levy stated:

[W]e have implemented cost-reduction initiatives designed toenable us to weather the economic downturn....

Levy knew this statement was false, or was severely reckless in not recognizing the falsity of the

statement, because as described in detail below, it was the accounting improprieties perpetrated

by Defendants that were "enabling" them to "weather the economic downturn," not legitimate

cost-reduction initiatives.

47. On July 24, 2001, Defendants issued a press release announcing the Company's

financial results for the second fiscal quarter of 2001, ended June 30, 2001. As described in

more detail below, certain of the Company's financial disclosures contained in the press release

caused the press release to be materially false and misleading.

48. On August 14, 2001, the Company filed its Form 10-Q for the quarterly period

ended June 30, 2001 with the SEC ("the June 30, 2001 Form 10-Q"). The June 30, 2001 Form

10-Q was signed by Defendants Levy and Sanders.


to cure the Company's June 30, 2001 non-GAAP financial statements:

Quarter Ended June 30, 2001($ in thousands)

PercentOriginal Restated Difference Change

Revenue 13,132 13,132 --- ---

20



Cost of revenue 8,172 8,206 34 .42Gross profit 4,960 4,926 34 .69


Amortization of equityissued to Viacom forpromotion --- 5,072 5,072 100.00

Other 10,871 10,962 91 .84Gen'l & administrative 8,834 9,501 667 7.55Depn. and amortization 11,838 6,766 5,072 42.85Restructuring charges 985 985 --- ---Total operating expenses 32,990 33,748 758 2.30Loss from operations (28,030) (28,822) 792 2.83Interest expense (268) (268) --- ---Interest and other income,

net 918 918 --- ---Net income (loss) (27,380) (28,172) 792 2.89

50. As evidenced by the above chart and as admitted through restatement, by failing

to prepare the Company's financial statements in compliance with GAAP (APB Opinion No. 25

as discussed above), the Company materially understated compensation expense, and thereby the

reported net loss for the quarter ended June 30, 2001, by $667,000. The non-recordation of other

expenses further understated the Company's reported operating loss and net loss for the quarter.

51. On October 23, 2001, Defendants issued a press release announcing the

Company's financial results for the third fiscal quarter of 2001, ended September 30, 2001. As

described in more detail below, certain of the Company's financial disclosures contained in the

press release caused the press release to be materially false and misleading.

52. On November 14, 2001, the Company filed its Form 10-Q for the quarterly period

ended September 30, 2001 with the SEC ("the September 30, 2001 Form 10-Q"). The

September 30, 2001 Form 10-Q was signed by Defendants Levy and Sanders.

21




to cure the Company's September 30, 2001 non-GAAP financial statements:

Quarter Ended September 30, 2001($ in thousands)

Percent

Original Restated Difference ChangeRevenue 13,601 13,601 --- ---Cost of revenue 7,255 7,281 26 .36Gross profit 6,346 6,320 26 .41


Amortization of equityissued to Viacom forpromotion --- 5,072 5,072 100.00Other 9,219 9,289 70 .76

Gen'1 & administrative 6,535 7,050 515 7.88Depn. and amortization 11,296 6,224 5,072 44.90Write-down of goodwill 17,000 17,000 --- ---Total operating expenses 44,518 45,103 585 1.31Loss from operations (38,172) (38,783) 611 1.60Interest expense (267) (267) --- ---Interest and other income,

net 584 584 --- ---Effect of deconsolidation of

Sports.com 41,739 41,739 --- ---Net income (loss) (3,884) (3,273) 601 15.47

54. As subsequently admitted in the Amended 2002 Form 10-K, by failing to prepare

the Company's financial statements in compliance with GAAP (APB Opinion No. 25 as

discussed above), the Company materially understated compensation expense and thereby

materially overstated reported net income for the quarter ended September 30, 2001 by

$515,000. In addition, the September 30, 2001 financial statements failed to recognize

22



$3,475,000 of deferred compensation in connection with transactions between the Company and

Defendants Levy and Sanders 5 as disclosed in the Amended 2002 Form 10-K as follows:

In August and September 2001, the Company issued an aggregateof 1,909,458 shares of restricted stock, at a weighted average fairvalue of $1.06 per share, to its executive officers and certain otherkey employees in exchange for the cancellation of certainoutstanding stock options to purchase in the aggregate 3,818,919shares of common stock. Deferred compensation has beenrecorded for the market value of the restricted shares as of theissuance date in the amount of $5,500, which includes $3,475 ofintrinsic value from the related cancelled stock options. Suchamount is being amortized to expense over the expected four-yearvesting period of the restricted stock...

55. On January 29, 2002, Defendants issued a press release announcing the

Company's financial results for the fourth fiscal quarter and year-end of 2001, ended December

31, 2001. As described in more detail below, certain of the Company's financial disclosures

contained in the press release caused the press release to be materially false and misleading.

56. On March 26, 2002, the Company filed its Form 10-K for the year ended

December 31, 2001 with the SEC ("the 2001 Form 10-K"). This document was signed by

Defendants Levy and Sanders.


to cure the Company's 2001 fourth quarter non-GAAP financial statements:

5 "In August 2001, SportsLine.com made offers to its executive officers and certain other key employees who heldstock options with an exercise price of more than $6.00 per share to exchange these stock options for restrictedshares of SportsLine's common stock at an exchange ratio of one share of restricted stock for each two sharessubject to options exchanged. Pursuant to such offer, Messrs. Levy, Leichtenschlag, Mariani, Sanders and Sturneragreed to the cancellation of options covering 1,105,000, 261,000, 365,000, 380,000 and 381,006 shares,respectively, in exchange for 552,500, 130,500, 182,500, 190,000 and 190,503 restricted shares, respectively ... Thecompensation committee felt that SportsLine.com's ability to retain these individuals would be significantlyimpaired, unless their out-of-the-money options were replaced with valuable equity incentives which they wouldforfeit were they to terminate their employment with SportsLine.com prior to vesting in their awards." (April 25,2002 Form DEF 14A).

23



Quarter Ended December 31, 2001($ in thousands)

Percent

Original Restated Difference ChangeRevenue 15,499 14,729 770 4.97Cost of revenue 6,082 6,062 20 .33Gross profit 9,417 8,667 750 7.96


Amortization of equityissued to Viacom forpromotion --- 5,072 5,072 100.00Other 7,057 7,124 67 .95

Gen'1 & administrative 6,036 5,849 187 3.10Depn. and amortization 9,675 8,187 1,488 15.38Write-down of goodwill 4,600 4,600 --- ---Restructuring charges --- --- --- --Total operating expenses 27,771 31,235 3,464 12.47Loss from operations (18,354) (22,568) 4,214 22.96Interest expense (267) (262) 5 1.87Interest and other income,

net 332 332 --- ---Gain on termination of

agreements 2,051 2,051 --- ---Gain on extinguishment of

debt 2,404 2,404 --- ---Net income (loss) (13,829) (18,043) 4,214 30.47


to cure the Company's 2001 annual non-GAAP financial statements:


Percent

Original Restated Difference ChangeRevenue 64,530 63,760 770 1.19Cost of revenue 32,672 32,883 211 .65Gross profit 31,858 30,877 981 3.08

24



Operating expenses:Product development 1,854 1,854 --- ---Sales and marketing:

Amortization of equityissued to Viacom forpromotion --- 20,288 20,288 100.00Other 41,255 41,950 695 1.68

Gen'l & administrative 31,359 35,774 4,415 14.08Depn. and amortization 44,523 27,819 16,704 37.52Write-down of goodwill 21,600 21,600 --- ---Restructuring charges 985 985 --- --Total operating expenses 141,576 150,270 8,694 6.14Loss from operations (109,718) (119,393) 9,675 8.82Interest expense (1,073) (1,073) --- ---Interest and other income,

net 3,479 3,479 --- ---Loss on equity investments (28) (28)Gain on termination of

agreements 2,051 2,051 --- ---Gain on extinguishment of

debt 2,404 2,404 --- ---Effect of deconsolidation of

Sports.com 41,739 41,739 --- ---Net income (loss) (61,146) (70,821) 9,675 15.83

59. Discussing the $770,000 fourth quarter 2001 revenue restatement, the Amended

2002 Form 10-K stated that: "Revenue has been reduced by $770 in the 2001 restated financial

statements as a result of certain advertising clients having received credits during 2002 relating

to revenue recognized during 2001, certain revenue recognized during 2001 which should have

been deferred until 2002, and an amount having been recorded during 2001 as bad debt expense

which, due to the nature of the transaction, should have been recorded instead as a reduction in

revenue." In other words, revenue was overstated by $770,000 in the initially disseminated 2001

fourth quarter and year end financial statements because the Company's financial statements:

a. failed to accrue for credits;

25


CONSOLIDATED CASE NO. 03-61981-CI V-M IDDLEBROOKS

b. recognized 2002 revenue in 2001;

C. failed to recognize a deduction to revenue;

d. "buried" a deduction to revenue in bad debt expense.

60. The internal control failures (control failures in the billing, credit, and collection

areas) which were required to explain these varied types of improper recordations (which all

served to increase reported revenue and earnings) is astonishing in a publicly held company,

particularly one that had an internal audit staff, represented management's "on-going" evaluation

of bad debts, b and touted vigilance over the Company's internal controls as follows in the August

3, 2001 Form DEF 14A:

a. The audit committee's role is to act on behalf of the board of directors inthe oversight of all material aspects of our corporate financial reportingand our external audit, including, among other things, our internal controlstructure...;

b. The purpose of the [Audit] Committee is to assist the Board in fulfillingthe Board's responsibilities to oversee ... the Company's systems ofinternal accounting and financial controls;

C. The [Audit] Committee shall discuss with management and theindependent auditors the overall scope and plans for the audit, includingthe adequacy of staffing and the compensation to be paid to theindependent auditors. The Committee also shall discuss with managementand the independent auditors the adequacy and effectiveness of theCompany's accounting and financial controls, including the Company'ssystem to monitor and manage business risk, as well as legal and ethicalcompliance programs.

61. The inclusion of $770,000 of improperly recognized revenue in the 2001 fourth

quarter and year end (annual) financial statements violated the following GAAP:

a. The concept that conservatism be used as a prudent reaction to uncertaintyto try to ensure that uncertainties and risks inherent in business situations

6 "On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts..."(2001 Form 10-K).

26



are adequately considered (FASB Statement of Financial AccountingConcepts No. 2).

b. The Principle that revenues should ordinarily be accounted for at the timea transaction is completed (Accounting Principles Board Opinion No. 10).

C. The concept that revenues and gains generally are not recognized untilrealized or realizable, and revenues are considered to have been earnedwhen the entity has substantially accomplished what it must do to beentitled to the benefits represented by the revenues (Statement OfFinancial Accounting Concepts No. 5).

d. The Principle that contingencies that might result in gains usually are notreflected in the accounts since to do so might recognize revenue prior toits realization (Statement of Financial Accounting Standards No. 5).

62. The doctrine that revenue is to be accounted for at the time that the earnings

process is complete and the billing is collectible is a well established principle of GAAP and it

has been reaffirmed by the SEC on numerous occasions. It was reaffirmed by the SEC in:

a. Accounting And Auditing Enforcement Release No. 817 (September 19,1996) which states: "Under APB Statement No. 4, which was rescinded inMarch 1993, revenue was generally recognized when (1) the earningsprocess was complete or virtually complete, and (2) an exchange hadtaken place. This revenue recognition concept has been carried forward inFASB Statement of Financial Accounting Concepts No. 5, para. 83-84,and in other authoritative literature and continues to provide the founda-tion for revenue recognition in accordance with GAAP;"

b. Accounting And Auditing Enforcement Release No. 812 (September 5,1996) which states: "Generally Accepted Accounting Principles("GAAP") provide that revenue should not be recognized until anexchange has occurred, the earnings process is complete, and the collec-tion of the sales price is reasonably assured. These conditions ordinarilyare met when products are exchanged for cash or claims to cash, and whenthe entity has substantially performed the obligations which entitle it to thebenefits represented by the revenue;"

C. Staff Accounting Bulletin No. 101 (December 3, 1999) which states: "Thestaff believes that revenue generally is realized or realizable and earnedwhen all of the following criteria are met:

* Persuasive evidence of an arrangement exists,

27



• Delivery has occurred or services have been rendered,

• The seller's price to the buyer is fixed or determinable, and

• Collectibility is reasonably assured."



as discussed above), the Company materially understated compensation expense and thereby the

reported net loss for the quarter and for the year ended December 31, 2001 by $187,000 and

$6,067,000, respectively. 7 The non-recordation of other expenses further understated the

Company's reported operating loss and net loss for the quarter and for the year ended December

31, 2001.

64. The 2001 Form 10-K contained the following representation which provided

continuing evidence of the fact (as discussed above) that Defendants were aware of the GAAP

(APB Opinion No. 25) which governed the appropriate accounting for "any arrangement to issue

stock to officers and employees, as a group or individually" and specified "the accounting for (a)

plans in which either the number of shares of stock or the option or purchase price depends on

future events":

Stock-Based Compensation

SFAS No. 123, Accounting for Stock-Based Compensation allowseither adoption of a fair value based method of accounting foremployee stock options and similar equity instruments orcontinuation of the measurement of compensation cost relating tosuch plans using the intrinsic value based method of accounting

7 The above chart indicates that there was a $4,415,000 addition to G&A expense for 2001. However, the narrativeexcerpted above states "The Company has since determined that it made an error in determining the measurementdates of employee stock option grants, which had an effect on the intrinsic value of such grants. "The Company hasrecorded expense related to those grants of $3,077 and $6,067 in the restated financial statements for the years endedDecember 31, 2002 and 2001, respectively."

28



prescribed by Accounting Principles Board ("APB") Opinion No.25, Accounting for Stock Issued to Employees. The Company haselected to continue to use the intrinsic value based method.

65. The 2001 Form 10-K also reaffirmed the continuing validity and the propriety of

the previously disseminated false and misleading financial statements for the quarters ended

March 31, 2001, June 30, 2001, and September 30, 2001 in a section (captioned "Quarterly

Results of Operations") which reproduced these financial statements together with the following

statement:

The tables below set forth the quarterly operating results for 2001...This information is unaudited, but in the opinion of the Companyreflects all adjustments (consisting only of normal recurringadjustments) that the Company considers necessary for a fairpresentation of such information in accordance with United Statesgenerally accepted accounting principles.

66. Additionally, the 2001 Form 10-K contained a representation by management

which stated that: "the Company's consolidated financial statements ... have been prepared in

accordance with accounting principles generally accepted in the United States...."

67. The 2001 Form 10-K also contained an MD&A section which evidenced a

management review of the Company's reported "cost of revenue" and "other sales and

marketing," as did the March 31, 2001 Form 10-Q, the June 30, 2001 Form 10-Q, and the

September 30, 2001 Form 10-Q. As with each of these interim filings with the SEC, the

representations in the MD&A section of the 2001 Form 10-K caused the investment community

to believe that the figures presented in the Company's December 31, 2001 fourth quarter and full

year financial statements were accurate and that these financial statements were in compliance

with GAAP when they were not, for the same reasons that the previously discussed financial

statements were inaccurate and not in compliance with GAAP as particularized above.

29



68. As with the MD&A which appeared in the Company's 2001 interim filings on

Form 10-Q, the MD&A in the 2001 Form 10-K was materially false and misleading because it

failed to comply with the spirit of the SEC's disclosure guidelines as set forth in SEC Securities

Act Release No. 6835 as particularized above. In this regard, the 2001 Form 10-K was

materially false and misleading because it failed to disclose the material weaknesses in the

Company's internal controls, and the resultant deficiencies in the Company's financial reporting

which rendered the Company's published financial statements inaccurate and unreliable at best.

69. On April 29, 2002, Defendants issued a press release announcing the Company's

financial results for the first fiscal quarter of 2002, ended March 31, 2002. As described in more

detail below, certain of the Company's financial disclosures contained in the press release caused

the press release to be materially false and misleading.


ended March 31, 2002 with the SEC ("the March 31, 2002 Form 10-Q"). This document was

signed by Defendants Levy and Sanders.


to cure the Company's March 31, 2002 non-GAAP financial statements:



Revenue 15,621 16,191 570 3.65Cost of revenue 4,889 4,956 67 1.37

Gross profit 10,732 11,235 503 4.69


Amortization of equity

30



issued to Viacom forpromotion 6,321 6,321 --- ---

Other 7,549 7,588 39 .52Gen'] & administrative 5,576 6,605 1,029 18.45Depn. and amortization 2,928 2,928 --- ---Total operating expenses 22,995 24,063 1,068 4.12Loss from operations (12,263) (12,828) 565 4.61Interest expense (228) (227) 1 .44Interest and other income,





reported net loss for the quarter ended March 31, 2002, by $1,029,000.

73. In a July 23, 2002 conference call with analysts, Defendant Sanders disclosed the

Company's financial results for the second quarter 2002. As described in more detail below,

certain of the financial disclosures made by Sanders caused his statements to be materially false

and misleading.






ended June 30, 2002 with the SEC ("the June 30, 2002 Form 10-Q"). This document was signed

by Defendants Levy and Sanders.

31




to cure the Company's June 30, 2002 non-GAAP financial statements:


Percent



Amortization of equityissued to Viacom forpromotion 6,322 6,322 --- ---Other 5,980 6,030 50 .84

Gen'1 & administrative 5,137 5,816 679 13.22Depn. and amortization 2,679 2,679 --- ---Restructuring charges 1,398 1,398 --- ---Total operating expenses 22,067 22,796 729 3.30Loss from operations (16,240) (16,997) 757 4.66Interest expense (227) (227) --- ---Interest and other income,





reported net loss for the quarter ended June 30, 2002, by $679,000. The non-recordation of other


78. As ultimately admitted through restatement, during the quarter ended June 30,

2002, Defendants did not have the requisite accounting controls to reliably measure and record

32



non-cash compensation expense, stock options, stock warrants, stock valuations, revenue, and

earnings per share.

79. Defendants knew and ignored, or recklessly failed to know, that during the quarter

ended June 30, 2002, the Company did not have the requisite accounting controls to reliably

measure and record non-cash compensation expense, stock options, stock warrants, stock

valuations, revenue, and earnings per share. Accordingly, during the quarter ended June 30,

2002, Defendants either knowingly or recklessly permitted the dissemination of materially

misstated financial statements.

80. Defendants Levy and Sanders, either knowingly or in reckless disregard of the

facts and circumstances known to them, issued the following statement (dated August 14, 2002)

in the June 30, 2002 Form 10-Q which provided false assurances to the investing public that

they:

[Certified], pursuant to Section 906 of the Sarbanes-Oxley Act of2002, 18 U.S.C. Section 1350, that:

(1) the Quarterly Report on Form 10-Q of the Company for thequarterly period ended June 30, 2002 (the "Report") fully complieswith the requirements of Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in allmaterial respects, the financial condition and results of operationsof the Company.

81. Defendants Levy's and Sanders' certification of the June 30, 2002 Form 10-Q

indicates that they focused their review of the June 30, 2002 Form 10-Q on the financial

statements contained therein (a review which entailed an assessment of the internal controls over

the measurement and recordation of revenues and expenses) and knew and ignored that they

33



were deficient and non-compliant with GAAP, or that they failed to perform an adequate review

and recklessly issued the above certification.

82. During an October 22, 2002 conference call with analysts, Defendant Sanders

disclosed the Company's financial results for the third quarter 2002, ended September 30, 2002.

As described in more detail below, certain of the financial disclosures made by Sanders caused

his statements to be materially false and misleading.

83. On October 22, 2002, Defendants issued a press release announcing the

Company's financial results for the third fiscal quarter of 2002, ended September 30, 2002. As

described in more detail below, certain of the Company's financial disclosures contained in the

press release caused the press release to be materially false and misleading.

84. On November 13, 2002, the Company filed its Form 10-Q for the quarterly period

ended September 30, 2002 with the SEC ("the September 30, 2002 Form 10-Q"). This document

was signed by Defendants Levy and Sanders.


to cure the Company's September 30, 2002 non-GAAP financial statements:

Quarter Ended September 30, 2002($ in thousands)


Revenue 15,526 15,526 --- ---Cost of revenue 6,635 6,669 34 .51

Gross profit 8,891 8,857 34 .38


Amortization of equityissued to Viacom forpromotion 5,821 5,821 --- ---

34



Other 5,414 5,474 60 1.11Gen'] & administrative 5,025 5,836 811 16.14Depn. and amortization 3,082 3,082 --- ---Restructuring charges 1,101 1,101 --- ---Total operating expenses 20,943 21,814 871 4.16Loss from operations (12,052) (12,957) 905 7.51Interest expense (228) (228) --- ---Interest and other income,

net 176 176 --- ---Loss before tax benefit (12,104) (13,009) 905 7.48Tax benefit 720 720 --- ---Net income (loss) (11,384) (12,289) 905 7.95




reported net loss for the quarter ended September 30, 2002, by $811,000. The non-recordation

of other expenses further understated the Company's reported operating loss and net loss for the

quarter.

87. As ultimately admitted through restatement, during the quarter ended September

30, 2002, Defendants did not have the requisite accounting controls to reliably measure and

record non-cash compensation expense, stock options, stock warrants, stock valuations, revenue,

and earnings per share.


ended September 30, 2002, the Company did not have the requisite accounting controls to

reliably measure and record non-cash compensation expense, stock options, stock warrants, stock

valuations, revenue, and earnings per share. Accordingly, during the quarter ended September

35


CONSOLIDATFD CASE NO. 03-61981-CIV-MIDDLEBROOKS

30, 2002, Defendants either knowingly or recklessly permitted the dissemination of materially


89. In a conference call with analysts on January 30, 2003, Defendant Sanders

disclosed the Company's financial results for the fourth quarter and year-end 2002, ended

December 31, 2002. As described in more detail below, certain of the financial disclosures made

by Sanders caused his statements to be materially false and misleading.

90. On January 30, 2003, Defendants issued a press release announcing the

Company's financial results for the fourth fiscal quarter and year-end of 2002, ended December

31, 2002. As described in more detail below, certain of the Company's financial disclosures

contained in the press release caused the press release to be materially false and misleading.

91. On March 28, 2003, the Company filed its Form 10-K for the year ended

December 31, 2002 with the SEC ("the 2002 Form 10-K"). This document was signed by

Defendants Levy and Sanders.


to cure the Company's 2002 fourth quarter non-GAAP financial statements:



Revenue 19,889 19,889 --- ---Cost of revenue 7,236 7,266 30 .41

Gross profit 12,653 12,623 30 .24


Amortization of equityissued to Viacom forpromotion 5,572 5,572 --- ---

36



Other 5,528 5,581 53 .96Gen'l & administrative 4,455 5,171 716 16.07Depn. and amortization 2,340 2,417 77 3.29Write-down of goodwill 2,650 2,650 --- ---Total operating expenses 21,005 21,851 846 4.03Loss from operations (8,352) (9,228) 876 10.49Interest expense (246) (246) --- ---Interest and other income,



to cure the Company's 2002 annual non-GAAP financial statements:



Revenue 62,065 62,635 570 .92Cost of revenue 23,962 24,120 158 .66Gross profit 38,103 38,515 412 1.08

Operating expenses:Product development 2,132 2,132 --- ---Sales and marketing:


Gen'l & administrative 20,193 23,428 3,235 16.02Depn. and amortization 11,029 11,106 77 .70Restructuring charge 2,499 2,499 --- ---Write-down of goodwill 2,650 2,650 --- ---Total operating expenses 87,010 90,525 3,515 4.04Loss from operations (48,907) (52,010) 3,103 6.34Interest expense (929) (929) --- ---Interest and other income,

net 891 891 --- ---Net loss before tax benefit (48,945) (48,945) --- ---Tax benefit 720 720 --- ---Net income (loss) (48,225) (51,328) 3,103 6.43

37






reported net loss for the quarter, by $716,000. The Company further admitted it materially

understated compensation expense, and thereby the reported net loss, for the year ended

December 31, 2002 by $3,077,000. 8 The non-recordation of other expenses further understated

the Company's reported operating loss and net loss for the quarter and for the year ended

December 31, 2002.

95. The 2002 Form 10-K contained the following representation which (i) provided

continuing evidence of the fact (as discussed above) that Defendants were aware of the GAAP

(APB Opinion No. 25) which governed the appropriate accounting for "any arrangement to issue

stock to officers and employees, as a group or individually" and specified "the accounting for (a)

plans in which either the number of shares of stock or the option or purchase price depends on

future events;" (ii) represented that the intrinsic value of the Company's stock options had been

reviewed; and based upon this review affirmatively stated that "The Company grants its

employees stock options with an exercise price equal to market price; therefore, no compensation

expense is recorded.":

SFAS No. 123, Accounting for Stock-Based Compensation allows either adoptionof a fair value based method of accounting for employee stock options and similarequity instruments or continuation of the measurement of compensation costrelating to such plans using the intrinsic value based method of accountingprescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting

a The above chart indicates that there was a $3,235,000 addition to G&A expense for 2001. However, the narrativeexcerpted above states "The Company has since determined that it made an error in determining the measurementdates of employee stock option grants, which had an effect on the intrinsic value of such grants. "The Company hasrecorded expense related to those grants of $3,077 and $6,067 in the restated financial statements for the years endedDecember 31, 2002 and 2001, respectively."

38



for Stock Issued to Employees. The Company has elected to use the intrinsicvalue based method. The Company grants its employees stock options with an exercise price equal to market price; therefore, no compensation expense isrecorded. (Emphasis Added)

96. The 2002 Form 10-K also reaffirmed the continuing validity and the propriety of

the previously disseminated false and misleading financial statements for the quarters ended

March 31, 2001, June 30, 2001, and September 30, 2001, December 31, 2001, March 31, 2002,

June 30, 2002, and September 30, 2002 in a section (captioned "Quarterly Results of

Operations") which reproduced these financial statements together with the following statement:

The tables below set forth the quarterly operating results for 2001and 2002. This information is unaudited, but in the opinion of theCompany reflects all adjustments (consisting only of normalrecurring adjustments) that the Company considers necessary for afair presentation of such information in accordance with UnitedStates generally accepted accounting principles.

97. Additionally, the 2002 Form 10-K contained a representation by management

which stated that: "the Company's consolidated financial statements ... have been prepared in

accordance with accounting principles generally accepted in the United States...."

98. In addition, the 2002 Form 10-K contained an MD&A section which evidenced a

management review of the Company's reported "cost of revenue" and "other sales and

marketing," as did the March 31, 2001 Form 10-Q, the June 30, 2001 Form 10-Q, and the

September 30, 2001 Form 10-Q, the 2001 Form 10-K, the March 31, 2002 Form 10-Q, the June

30, 2002 Form 10-Q, and the September 30, 2002 Form 10-Q. As with each of these filings with

the SEC, the representations in the MD&A section of the 2002 Form 10-K caused the investment

community to believe that the figures presented in the Company's December 31, 2002 fourth

39



quarter and full year financial statements were accurate and that these financial statements were

in compliance with GAAP when they were not for the reasons particularized above.

99. As ultimately admitted through the restatement, during the quarter ended

December 31, 2002, Defendants did not have the requisite accounting controls to reliably


valuations, revenue, and earnings per share.


ended December 31, 2002, the Company did not have the requisite accounting controls to

reliably measure and record non-cash compensation expense, stock options, stock warrants, stock

valuations, revenue, and earnings per share. Accordingly, during the quarter ended December

31, 2002, Defendants either knowingly or recklessly permitted the dissemination of materially


101. On April 24, 2003, Defendants issued a press release announcing the Company's

financial results for the first fiscal quarter of 2003, ended March 31, 2003. As described in more

detail below, certain of the Company's financial disclosures contained in the press release caused

the press release to be materially false and misleading.


ended March 31, 2003 with the SEC ("the March 31, 2003 Form 10-Q"). This document was

signed by Defendants Levy and Sanders.

103. As noted in the Amended March 31, 2003 Form 10-Q, the following revisions

were required to cure the Company's March 31, 2003 non-GAAP financial statements:

40




Percent


Operating expenses:Sales and marketing:


Gen'l & administrative 4,975 5,361 386 7.76Depn. and amortization 1,381 1,381 --- ---Total operating expenses 17,408 17,840 432 2.48Loss from continuingoperations (9,183) (9,643) 460 5.01Interest expense (246) (246) --- ---Interest and other income,

net 117 117 --- ---Loss before discontinued

operations (9,312) (9,772) 460 4.94Discontinued operations (46) (54) 8 17.39Net income (loss) (9,358) (9,826) 468 5.00




reported net loss for the quarter ended March 31, 2003, by $386,000. The non-recordation of

other expenses further understated the Company's reported operating loss and net loss for the

quarter.

105. As ultimately admitted through the restatement, during the quarter ended March

31, 2003, Defendants did not have the requisite accounting controls to reliably measure and

41



record non-cash compensation expense, stock options, stock warrants, stock valuations, revenue,

and earnings per share.


ended March 31, 2003, the Company did not have the requisite accounting controls to reliably


valuations, revenue, and earnings per share. Accordingly, during the quarter ended March 31,

2003, Defendants either knowingly or recklessly permitted the dissemination of materially







ended June 30, 2003 with the SEC ("the June 30, 2003 Form 10-Q"). This document was signed

by Defendants Levy and Sanders.

109. As noted in the Amended June 30, 2003 Form 10-Q, the following revisions were

required to cure the Company's June 30, 2003 non-GAAP financial statements:



Revenue 8,844 8,844 --- ---Cost of revenue 4,862 4,889 27 .56Gross profit 3,982 3,955 27 .68

Operating expenses:Sales and marketing:

42




Gen'l & administrative 4,715 5,090 375 7.95Depn. and amortization 1,186 1,186 --- ---Total operating expenses 16,286 16,706 420 2.58Loss from continuingoperations (12,304) (12,751) 447 3.63Interest expense (237) (237) --- ---Interest and other income,

net 135 135 --- ---Loss before discontinued

operations (12,406) (12,853) 447 3.60Discontinued operations (148) (156) 8 5.41Loss from sale of

discontinued operations (285) (285) --- ---Net income (loss) (12,839) (13,294) 455 3.54



as discussed above), the Company materially understated compensation expense and thereby the

reported net loss for the quarter ended June 30, 2003 by $375,000. The non-recordation of other


111. Defendants' review of the above SEC filings (which were signed by Defendants

Levy and Sanders) and the financial statements contained therein is evidenced by the following

statement which appeared in the March 31, 2001 Form 10-Q:

The accompanying unaudited condensed consolidated financialstatements have been prepared in accordance with accountingprinciples generally accepted in the United States for interimfinancial information and with the instructions to Form 10-Q andArticle 10 of Regulation S-X. Accordingly, they do not include allof the information and footnotes required by accounting principlesgenerally accepted in the United States for complete financialstatements. In the opinion of management, all adjustments,

43



consisting only of normal recurring accruals considered necessaryfor a fair presentation, have been included in the accompanyingunaudited financial statements. (Emphasis Added)

This same or substantially similar statement was included in the June 30, 2001 Form 10-Q,

September 30, 2001 Form 10-Q , March 31, 2002 Form 10-Q, June 30, 2002 Form 10-Q,

September 30, 2002 Form 10-Q and March 31, 2003 Form 10-Q.

112. The SEC filings incorporated, by reference, the same continuing representations

regarding GAAP (APB Opinion No. 25) as discussed above, and the foregoing also contained

management representations evidencing a review of the Company's reported "cost of revenue"

and "other sales and marketing." These representations caused the investment community to

believe that the figures presented in the Company's SEC filings and the financial statements

therein were accurate and that these financial statements were in compliance with GAAP when

they were not, for the same reasons that the previously discussed financial statements were

inaccurate and not in compliance with GAAP as particularized above.

113. The foregoing SEC filings and the financial statements which were contained

therein were also materially false and misleading because they failed to disclose the material

weaknesses in the Company's internal controls 9 and the resultant deficiencies in the Company's

financial reporting which rendered the Company's published financial statements inaccurate and

unreliable at best. In this regard, Management's Discussion And Analysis Of Financial

9 Sections 13(b)(2) - (7) of the Securities Exchange Act of 1934 (the "Exchange Act") requires each registrant withsecurities registered pursuant to Section 12 of the Exchange Act, or required to file reports pursuant to Section15(d), must make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflectthe transactions and dispositions of assets of the registrant and must maintain internal accounting controls that aresufficient to provide reasonable assurances that, among other things, transactions are recorded as necessary to permitthe preparation of financial statements in conformity with GAAP. Scienter is not required to prove a violation ofthis section. See SEC v. World-Wide Coin Inv., Ltd., 567 F. Supp. at 749, 751. The fact that defendants' violatedthe recordkeeping and internal controls provisions of the federal securities laws was a material fact that was notdisclosed.

44



Condition And Results Of Operations (the "MD&A") which appeared in the March 31, 2001

Form 10-Q, and the Company's other SEC filings described above, failed to comply with the

spirit of the SEC's disclosure guidelines as set forth in an interpretive release issued by the SEC

(Securities Act Release No. 6835), which stated in relevant part, that:

The MD&A requirements are intended to provide, in one sectionof a filing, material historical and prospective textual disclosureenabling investors and other users to assess the financial conditionand results of operations of the registrant, with particular emphasison the registrant's prospects for the future.

As the Concept Release states:

"The Commission has long recognized the need for a narrativeexplanation of the financial statements, because a numericalpresentation and brief accompanying footnotes alone may beinsufficient for an investor to judge the quality of earnings and thelikelihood that past performance is indicative of futureperformance. MD&A is intended to give the investor anopportunity to look at the company through the eyes ofmanagement by providing both a short and long-tern analysis ofthe business of the company. The Item asks management to discussthe dynamics of the business and to analyze the financials."

As the Commission has stated, "[i]t is the responsibility ofmanagement to identify and address those key variables and otherqualitative and quantitative factors which are peculiar to andnecessary for an understanding and evaluation of the individualcompany."

114. The egregiousness of these material weaknesses in the Company's internal

controls is highlighted by the fact that the above displayed misstatements were never detected by

employees in the normal course of performing their assigned functions and that it took a re-audit

of the Company's financial statements to learn of them.

115. As ultimately admitted through the restatement, at all times relevant hereto

Defendants did not have the requisite accounting controls to reliably measure and record non-

45



cash compensation expense, stock options, stock warrants, stock valuations, revenue, and

earnings per share.

116. Defendants knew and ignored, or recklessly failed to know, that at all times

relevant hereto, the Company did not have the requisite accounting controls to reliably measure

and record non-cash compensation expense, stock options, stock warrants, stock valuations,

revenue, and earnings per share. Accordingly, during the periods encompassed by the foregoing

SEC filings, Defendants either knowingly or recklessly permitted the dissemination of materially


117. Defendants Levy and Saunders either knowingly or in reckless disregard of the

facts and circumstances known to them issued the following statement and certification (dated

August 14, 2003) in the June 30, 2003 Form 10-Q which provided false assurances to the

investing public:

1. I have reviewed this ... report on Form [10-Q or 10-KJ of SportsLine.com,Inc.;

2. Based on my knowledge, this ... report does not contain any untruestatement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period coveredby this ... report;

3. Based on my knowledge, the financial statements, and other financialinformation included in this ... report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this ... report;

4. The registrant's other certifying officer(s) and I are responsible forestablishing and maintaining disclosure controls and procedures ... for theregistrant and we have:

a) Designed such disclosure controls and procedures, [or caused suchdisclosure controls and procedures to be designed under our

46



supervision,] 10 to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the periodin which this ... report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controlsand procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as ofthe end of the period covered by this report based on suchevaluation; and

C) Disclosed in this report any change in the registrant's internalcontrol over financial reporting that occurred during theregistrant's most recent fiscal quarter (the registrant's fourth fiscalquarter in the case of an annual report) that has materially affected,or is reasonably likely to materially affect, the registrant's internalcontrol over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based onour most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of registrant's board ofdirectors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the designor operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability torecord, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant'sinternal control over financial reporting. 11

118. Defendants Levy and Sanders issued substantially similar statements and

certifications in regard to its previous SEC filings, including specifically the Company's

September 30, 2002 Form 10-Q, 2002 Form 10-K, and the March 31, 2003 Form 10-Q.

10 The language in this parenthetical was added to the Defendants' certifications for the June 30, 2003 Form 10-Q.

' ^ Earlier certifications also included the following language: The registrant's other certifying officers and I haveindicated in this annual report whether or not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of our most recent evaluation, including anycorrective actions with regard to significant deficiencies and material weaknesses.

47



119. In addition, Defendants Levy and Saunders signed a certification (dated August

14, 2003) which stated:

In connection with the Quarterly Report on Form 10-Q ofSportsLine.com, Inc. (the "Company") for the quarter ended June30, 2003, as filed with the Securities and Exchange Commissionon the date hereof (the "Report"), we, Michael Levy and KennethW. Sanders, Chief Executive Officer and Chief Financial Officer,respectively, of the Company, certify, pursuant to 18 U.S.C. 1350,as adopted pursuant to 1906 of the Sarbanes-Oxley Act of 2002,that to our knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d)of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all materialrespects, the financial condition and results of operations of the Company.

120. The same or substantially similar certification was signed by Defendants Levy

and Sanders on March 28, 2003 with respect to the 2002 Form 10-K, and on May 15, 2003 with

respect to the Company's Form 10-Q for the period ended March 31, 2003.

121. Defendants Levy's and Saunders' certifications of the Company SEC filings and

financial statements therein indicate that they either focused their review of the above-described

SEC filings on the financial statements and disclosures contained therein and on an assessment

of the internal controls over the measurement and recordation of revenues and expenses and

knew and ignored that they were deficient, or that they failed to perform an adequate review and

recklessly issued the above certification.

122. The representations made by Defendants Levy and Sanders in the above-

described SEC filings, certifications, and financial statements contained therein were materially

misleading because they falsely represented that:

48



a. The Company had the requisite accounting controls to reliably measureand record non-cash compensation expense, stock options, stock warrants,stock valuations, revenue, and earnings per share;

b. Earnings were appropriately reflected in the above-described financialstatements;

C. The above-described financial statements were prepared in conformitywith GAAP;

d. The above-described financial statements were prepared pursuant to therules and regulations of the Securities and Exchange Commission andreflected all adjustments which were necessary to present fairly thecondensed consolidated financial information required therein;

e. The above-described financial statements did not contain any untruestatement of a material fact;

f. Disclosures in the above-described financial statements were adequate toinform the investment community of significant matters and that they didnot omit to state a material fact necessary to make the statements made, inlight of the circumstances under which such statements were made, notmisleading.

123. For the reasons set forth above, the financial statements of the Company which

were disseminated to the investing public during the Class Period did not fairly present (AICPA

Professional Standards Volume 1, U.S. Auditing Standards, Section 411) the Company's results

of operations and financial position in conformity with generally accepted accounting principles

because:

a. The accounting principles selected and applied did not have generalacceptance;

b. The accounting principles were not appropriate in the circumstances;

C. The financial statements, including the related notes, were not informativeof matters that affected their use, understanding, and interpretation;

d. The financial statements did not reflect the underlying events andtransactions in a manner that presented the financial position and the

49



results of operations within a range of acceptable limits that werereasonable and practicable to attain in financial statements.

124. The SEC has stated, in Securities Act Release No. 6349 (September 8, 1981),

that:

...it is the responsibility of management to identify and addressthose key variables and other qualitative and quantitative factorswhich are peculiar to and necessary for an understanding andevaluation of the individual company.

125. In addition, as noted by the SEC in Accounting Series Release 173:

...it is important that the overall impression created by thefinancial statements be consistent with the business realities ofthe company's financial position and operations.

126. The Company, in contravention of GAAP, failed to disclose the above discussed

facts concerning the Company's materially deficient internal controls and non-GAAP

accounting. Consequently, the overall impression created by the financial statements was not

consistent with the business realities of the Company's reported financial position and

operations.

127. Due to the pervasive mosaic of non-disclosures, deceptive disclosures, and non-

GAAP accounting, the above particularized financial statements which the Company

disseminated to the investing public during the Class Period were materially false and misleading

for the reasons set forth above and because they violated the following GAAP concepts and

principles:

a. The concept that financial reporting should provide information that isuseful to present and potential investors and creditors and other users inmaking rational investment, credit and similar decisions (FASB Statementof Financial Accounting Concepts No. 1);

50



b. The concept that financial reporting should provide information about anenterprise's financial performance during a period (FASB Statement ofFinancial Accounting Concepts No. 1);

C. The concept that financial reporting should be reliable in that it representswhat it purports to represent (FASB Statement of Financial AccountingConcepts No. 2);

d. The concept of completeness, which means that nothing material is left outof the information that may be necessary to ensure that it validlyrepresents underlying events and conditions (FASB Statement of FinancialAccounting Concepts No. 2);

e. The concept that conservatism be used as a prudent reaction to uncertaintyto try to ensure that uncertainties and risks inherent in business situationsare adequately considered (FASB Statement of Financial AccountingConcepts No. 2);

f. The concept that the quality of reliability and, in particular, ofrepresentational faithfulness leaves no room for accountingrepresentations that subordinate substance to form (FASB Statement OfFinancial Accounting Concepts No. 2);

g. The principle that disclosure of accounting policies should identify anddescribe the accounting principles followed by the reporting entity and themethods of applying those principles that materially affect the financialstatements (APB Opinion No. 22).

C. The Truth Emerges

128. As explained in detail above, the truth of the Company's true financial condition

came crashing down on investors on September 26, 2003, when Defendants issued a press

release announcing that the Company would have to restate financial results for 2001, 2002 and a

portion of 2003. An example of the devastating news includes the following disclosure:

The change will increase net loss for 2001 by approximately $5.0million from $61.1 million to approximately $66.1 million, for2002 by approximately $2.3 million from $48.2 million toapproximately $50.5 million, and for the first six months of 2003by approximately $700,000 from $22.2 million to approximately$22.9 million.

51



129. Due to the disclosure of the restatement, the Company's stock price sank by more

than 30%, or by $0.54 to $1.22, on trading volumes about eight times the daily average.

SCIENTER ALLEGATIONS

130. CBS and Sportsline entered into an agreement whereby CBS receives the

Company's common stock in exchange for licenses of CBS trademarks, advertising and

promotional consideration and sales opportunities. The agreement with CBS requires Sportsline,

among other obligations, to issue to CBS $20 million worth of its common stock on each of

April 1, 2003, July 1, 2004, October 1, 2005 and January 1, 2007. The number of shares that

Sportsline issued to CBS on April 1, 2003 was limited to a number of shares that would not

increase Viacom's beneficial ownership of Sportsline's outstanding shares above 39.9% while

maintaining the aggregate payment amounts over the term of the agreement. On April 2, 2003,

Sportsline announced that 5,454,428 shares of its common stock were issued to CBS

Broadcasting Inc., a unit of Viacom Inc. The shares issued to CBS were valued at $5,399,884

and the remainder of the Company's 2003 obligation of $20 million was deferred until July 1,

2004. This issuance was based on Viacom's current ownership level and the number of shares of

Sportsline common stock currently outstanding. Therefore, is it apparent that the higher the

value of Sportsline's stock, the greater the amount of the obligation the Company could pay.

131. One of Defendants' primary objectives in perpetrating the fraud was to lessen the

amount of stock the Company would have to issue in order to meet its contractually obligated

payment to CBS and to complete its purchase of Sandbox.com.

132. Defendants Levy and Sanders also pocketed proceeds of $81,356 and $28,677,

respectively, from sales of stock during the Class Period. These sales were suspicious due to the

52



fact they were completed on the day (Sanders, August 14, 2003) or within days (Levy, August

18, 2003) of the issuance of the Company's SEC Form 10-Q for the period ended June 30, 2003,

which was the last financial disclosure before the Company revealed its true financial condition

at the end of the Class Period on September 25, 2003.

133. As alleged herein, Defendants acted with scienter in that Defendants knew or

recklessly disregarded that the public documents and statements issued or disseminated by or in

the name of the Company were materially false and misleading; knew or recklessly disregarded

that such statements or documents would be issued or disseminated to the investing public; and

knowingly and substantially participated or acquiesced in the issuance or dissemination of such

statements or documents as primary violators of the federal securities laws. As set forth

elsewhere herein in detail, Defendants, by virtue of their receipt of information reflecting the true

facts regarding Sportsline's accounting for its employee stock options, their control over and/or

receipt of Sportsline's allegedly materially misleading misstatements and/or their associations

with the Company which made them privy to confidential proprietary information concerning

Sportsline, were active and culpable participants 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. The ongoing

fraudulent scheme described in this complaint could not have been perpetrated over a substantial

period of time, as has occurred, without the knowledge and complicity of the personnel at the

highest level of the Company, including the Individual Defendants.

134. The Individual Defendants engaged in such a scheme to inflate the price of

Sportsline securities in order to: (i) protect and enhance their executive positions and the

53



substantial compensation and prestige they obtained thereby; (ii) enhance the value of their

personal holdings of Sportsline securities; and (iii) allow the Company to complete lucrative

deals with other companies. The Individual Defendants' scienter is evidenced by the fact that: (i)

Dan Leichtenschlag, president of operations/chief technology officer and Andrew Sturner,

president of corporate and business development were replaced (they either left the company or

were moved to new positions) at the same time the Company's financial difficulties were

occurring. Sturner abruptly resigned on the very same day that the Company announced its 2Q

2002 earnings and Leichtenschlag resigned two weeks before the Company released its 1Q 2002

earnings. Although this change taken alone might not support scienter, the fact that two different

division presidents resigned or moved is highly suspicious, particularly when coupled with the

additional allegations in the Complaint.

STATUTORY SAFE HARBOR

135. The federal statutory safe harbor provided for forward-looking statements under

certain circumstances does not apply to any of the allegedly false statements pleaded in this

Complaint. Further, none of the statements pleaded herein which were forward-looking

statements were identified as "forward-looking statements" when made. Nor was it stated that

actual results "could differ materially from those projected." Nor were the forward-looking

statements pleaded accompanied by meaningful cautionary statements identifying important

factors that could cause actual results to differ materially from the statements made therein.

Defendants are liable for the forward-looking statements pleaded because, at the time each of

those forward-looking statements was made, the speaker knew the forward-looking statement

54



was false and the forward-looking statement was authorized and/or approved by an executive

officer of Sportsline who knew that those statements were false when made.

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

136. At all relevant times, the market for Sportsline stock was an efficient market for

the following reasons, among others:

a. Sportsline stock met the requirements for listing, and was listed and

actively traded, on the NASDAQ, a highly efficient market;

b. As a regulated issuer, Sportsline filed periodic public reports with the SEC

and the NASD;

C. Sportsline stock was followed by securities analysts employed by major

brokerage firms who wrote reports that were distributed to the sales force and certain customers

of their respective brokerage firms and that were publicly available and entered the public

marketplace; and

d. Sportsline regularly issued press releases which were carried by national

newswires. Each of these releases was publicly available and entered the public marketplace.

137. As a result, the market for Sportsline securities promptly digested current

information with respect to Sportsline from all publicly-available sources and reflected such

information in Sportsline's stock price. Under these circumstances, all purchasers of Sportsline

securities during the Class Period suffered similar injury through their purchase of stock at

artificially inflated prices and a presumption of reliance applies.

55



COUNT FOR VIOLATIONS OF SECTION 10(B) OF THE EXCHANGE ACT

AND RULE 1OB -5 PROMULGATED HEREUNDERAGAINST DEFENDANTS SPORTSLINE, LEVY AND SANDERS

138. Plaintiffs reallege and incorporate the allegations set forth above as though fully

set forth herein.

139. During the Class Period, Sportsline, Levy and Sanders carried out a plan, scheme

and course of conduct which was intended to and, throughout the Class Period, did: (i) deceive

the investing public, including Plaintiffs and other Class members, as alleged herein; (ii)

artificially inflate and maintain the market price of Sportsline securities; and (iii) cause Plaintiffs

and other members of the Class to purchase Sportsline stock at artificially inflated prices. In

furtherance of this unlawful scheme, plan and course of conduct, Defendants Sportsline, Levy

and Sanders took the actions set forth herein.

140. The 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 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 securities in an effort to

maintain artificially high market prices for Sportsline securities in violation of Section 10(b) of

the Exchange Act and Rule l Ob-5. These Defendants are sued as primary participants in the

wrongful and illegal conduct charged herein. Defendants Sportsline, Levy and Sanders are also

sued herein as controlling persons of Sportsline, as alleged below.

141. In addition to the duties of full disclosure imposed on these 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, they each had a duty to disseminate

56



truthful information promptly 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, financial condition

and performance so that the market prices of the Company's publicly traded securities would be

based on truthful, complete and accurate information.

142. Sportsline and these Defendants, individually and in concert, directly and

indirectly, by the use of the mails or other means or instrumentalities of interstate commerce,

engaged and participated in a continuous course of conduct to conceal adverse material

information about the business, business practices, performance, operations and future prospects

of Sportsline as specified herein. These Defendants employed devices, schemes and artifices to

defraud, while in possession of material adverse non-public information and engaged in acts,

practices, and a course of conduct as alleged herein in an effort to assure investors of Sportsline's

value and performance and substantial growth. This 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 Sportsline and its business, operations and

future prospects in the light of the circumstances under which they were made, not misleading,

as set forth more particularly herein, and engaging in transactions, practices and a course of

business which operated as a fraud and deceit upon the purchasers of Sportsline securities during

the Class Period.

143. Defendants Sportsline, Levy and Sanders' primary liability, and controlling

person liability, arises from the following facts: (i) each of the Defendants was a high-level

57



executive and/or director at the Company during the Class Period; (ii) each of the Defendants, by

virtue of his responsibilities and activities as a senior executive officer and/or director of the

Company, was privy to and participated in the creation, development and reporting of the

Company's internal budgets, plans, projections and/or reports; (iii) these Defendants enjoyed

significant personal contact and familiarity with each other and were advised of and had access

to other members of the Company's management team, internal reports, and other data and

information about the Company's financial condition and performance at all relevant times; and

(iv) these 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.

144. Defendants Sportsline, Levy and Sanders 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 readily available to them. Such Defendants' material misrepresentations and/or

omissions were done knowingly or recklessly and for the purpose and effect of concealing

Sportsline's operating condition, business practices and future business prospects from the

investing public and supporting the artificially inflated price of its stock. As demonstrated by

their overstatements and misstatements of the Company's financial condition and performance

throughout the Class Period, these Defendants, if they did not have actual knowledge of the

misrepresentations and omissions alleged, were reckless in failing to obtain such knowledge by

deliberately refraining from taking those steps necessary to discover whether those statements

were false or misleading.

58



145. 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 Sportsline's

securities was artificially inflated during the Class Period. Unaware of the fact that the market

price of Sportsline's shares were artificially inflated, and relying directly or indirectly on the

false and misleading statements made by the Defendants, or upon the integrity of the market in

which the securities trade, and/or on the absence of material adverse information that was known

to or recklessly disregarded by these Defendants but not disclosed in public statements during the

Class Period, Plaintiffs and the other members of the Class acquired Sportsline securities during

the Class Period at artificially high prices and were damaged thereby.

146. At the time of said misrepresentations and omissions, Plaintiffs and other

members of the Class were unaware of their falsity, and believed them to be true. Had Plaintiffs

and the other members of the Class and the marketplace known of the true performance, business

practices, future prospects and intrinsic value of Sportsline, which were not disclosed by these

Defendants, Plaintiffs and other members of the Class would not have purchased or otherwise

acquired their Sportsline securities during the Class Period, or, if they had acquired such

securities during the Class Period, they would not have done so at the artificially inflated prices

which they paid.

147. By virtue of the foregoing, the Defendants each violated Section 10(b) of the

Exchange Act and Rule l Ob-5 promulgated thereunder.

148. As a direct and proximate result of Defendants' wrongful conduct, Plaintiffs and

the other members of the Class suffered damages in connection with their purchases of the

Company's securities during the Class Period.

59



COUNT II FOR VIOLATIONS OF SECTION 20(A) OF THE

EXCHANGE ACT AGAINST DEFENDANTS LEVY AND SANDERS

149. Plaintiffs reallege and incorporate the allegations set forth above as if set forth

fully herein.

150. Defendants Levy and Sanders were and acted as controlling persons of Sportsline

within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their

high-level positions with the Company, participation in and/or awareness of the Company's

operations and/or intimate knowledge of the Company's actual performance, these Defendants

had the power to influence and control and did influence and control, directly or indirectly, the

decision-making of the Company, including the content and dissemination of the various

statements which Plaintiffs contend are false and misleading. Each of these Defendants was

provided with or had access to copies of the Company's reports, press releases, public filings and

other statements alleged by Plaintiffs to be misleading prior to and/or shortly after these

statements were issued and had the ability to prevent the issuance of the statements or cause the

statements to be corrected.

151. In addition, each of the Defendants had direct involvement in the day-to-day

operations of the Company and, therefore, is presumed to have had the power to control or

influence the particular transactions giving rise to the securities violations as alleged herein, and

exercised the same.

152. As set forth above, Sportsline and these Defendants each violated Section 10(b)

and Rule IOb-5 by their acts and omissions as alleged in this Complaint. By virtue of their

controlling positions, Defendants Levy and Sanders are liable pursuant to Section 20(a) of the

60



Exchange Act. As a direct and proximate result of these Defendants' wrongful conduct,

Plaintiffs and other members of the Class suffered damages in connection with their purchases of

the Company's securities during the Class Period.

BASIS OF ALLEGATIONS

153. This complaint is pled in conformance with the Federal Rules of Civil Procedure

and the PSLRA. Plaintiffs have alleged the foregoing based upon the investigation of Plaintiffs'

counsel, which included, inter alia, a review of Sportsline's SEC filings, securities analysts'

reports and advisories about the Company, press releases issued by the Company and media

reports about the Company.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs, on behalf of themselves and the Class, pray for judgment as

follows:

a. declaring this action to be a class action properly maintained pursuant to

Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure;

b. awarding Plaintiffs and other members of the Class damages together with

interest thereon; 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 disbursements; and

C. awarding Plaintiffs and other members of the Class such other and further

relief as may be just and proper under the circumstances.

61



JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

Dated: February 17, 2004 Respectfully submitted,

MILBERG WEISS BERSHADHYNES & LERACH LLP

By: .,GtwJ^ l/L^

Howard K. Coates, Jr.Florida Bar [email protected]. Timothy VannattaFlorida Bar No. [email protected] Town Center Road, Suite 900Boca Raton, FL 33486Tel: (561) 361-5000Fax: (561) 367-8400

and

Steven G. SchulmanAndrei RadoOne Penn Plaza, 49th FloorNew York, NY 10119Tel: (212) 594-5300Fax: (212) 868-1229

BRODSKY & SMITH, LLCEvan SmithTwo Bala PlazaSuite 602Bala Cynwyd, PA 19004Tel: (610) 617-1736Fax: (610) 667-9029

Co-Lead Counsel for Co-Lead Plaintiffs

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CERTIFICATE OF SERVICE

WE HEREBY CERTIFY that a true and correct copy of the foregoing was served by U.S. Mail,postage prepaid, this 17th day of February, 2004, on the following:

Hilarie Bass LAW OFFICES OF MARC S. HENZELDavid A. Coulson Marc S. HenzelBarry L. Rothberg 273 Montgomery Avenue, Suite 202GREENBERG TRAURIG PA Bala Cynwyd, PA 190041221 Brickell Avenue Tel: (610) 660-8000Miami, FL 33131 Fax: (610) 660-8080Tel: (305) 579-0500Fax: (305) 579-0717 VIANALE & VIANALE

Kenneth J. VianaleCounsel for Defendants 5355 Town Center Road, Suite 801

Boca Raton, FL 33486CAULEY GELLER BOWMAN & RUDMAN, Tel: (561) 391-4900Paul J. Geller Fax: (561) 368-9274Jack Reise197 S. Federal Highway, Suite 200 LOCKRIDGE GRINDAL NAUEN & HOLSTEINBoca Raton, FL 33432 Richard A. LockridgeTel: (561) 750-3000 100 Washington Avenue South, Suite 2200Fax: (561) 750-3364 Minneapolis, MN 55401

Tel: (612) 339-6900LAW OFFICES OF BERNARD M. GROSS Fax: (612) 339-0981Susan M. Gross1515 Locust Street, 2"d Floor MARKS & ARTAUPhiladelphia, PA 19102 Jeffrey Stanley MarksTel: (215) 561-3600 2499 Glades Road, Suite 308Fax: (215) 561-2000 Boca Raton, FL 33431

Tel: (561) 416-9801, Fax: (561) 416-9805EMERSON POYNTER, LLPJohn G. Emerson, Jr. LAW OFFICES OF CURTIS V. TRINKOScott E. Poynter Curtis V. TrinkoPO Box 164810 16 West 46th Street, 7th FloorLittle Rock, AR 72216-9817 New York, NY 10036Tel: (501) 907-2555, Fax: (501) 907-2556

Tel: (212) 490-9550Fax: (212) 986-0158

MAGER WHITE & GOLDSTEIN LLPJayne A. Goldstein MUCH SHELIST, et al.Abraham Rapaport Carol V. Gilden2825 University Drive 191 N. Wacker Drive, Suite 2100Coral Springs, FL 33065 Chicago IL 60601Tel: (954) 341-0844, Fax: (954) 341-0855 Tel: 312) 521 2000, Fax: (312) 521 2100

R. Timothy Vannatta

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gordon, et al. v. sportsline.com inc., et al. 03-cv-61849...

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