in re: icn pharmaceuticals, inc. securities litigation 02...
TRANSCRIPT
2003 14:26 FAX 415 4776710 GREEN & flGARJIAN LLF 4 009
1 Robert S. Green (State Bar No. 136183)Robert A. Jigaijian (State Bar No. 171107)
2 GREEN Et 3-MARTIAN LLP235 Fine Sleet, 15th Floor
3 San Francisco, California 94104Telephone: (415) 477-6700
4 Facsimile: (415) 477-6710
5 Liaison Counsel
6 Jacob A_ Goldberg zStuart L. Berman C3
7 Christopher L. NelsonSCHIFFRIN & BARRO WAY, LLP
8 Three Bala Plaza East. Suite 400Bala Cynwyd, Pennsylvania 19004
9 Telephone: (610) 667-7706(2 Facsimile: (610) 667-7056 (1—;En •—.
0 -Lead Counsel
ra-
ff i(' it 1121
UNITED STATES DISTRICT COURT •—1
CENTRAL DISTRICT OF CALIFORNIA13
SOUTHERN DIVISION14
IN RE ICN PHARMACEUTICALS, INC. )15 SECURITIES LITIGATION ) No. SA.CV 02-0701-DOC (A2nIx) )
16 )THIS DOCUMENT RELATES TO: )
17 )ALL ACTIONS ) BY FAX
18
19 FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINT
20 Lead Plaintiff, by and through its attorneys, alleges the following based upon, inter alia,
21 the investigation of its attorneys, including without limitation: (a) review and analysis of public
22 filings made by ICC Pharmaceuticals ("ICN" or the "Company") with the Securities and
23 Exchange Cornmissicrn ("SEC"); (b) review and analysis of securities analysts' reports
24 concerning ION; (c) review and analysis of press releases and other publications disseminated by
25 or on behalf of ICN; (d) review and an ilysis of news articles concerning ICN; (e) interviews
26 with former employees of ICN; (f) interviews with non-managerial cinTent jaployeellfICN;
27 (g) review and analysis of other publicly available information about ICI\ ENJiQjJcMçNcu,=0 28
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1 SUMMARY OF THE CASE
2 1. Lead Plaintiff brings this class action for violations of the Securities Exchange
3 Act of 1934 15 U.S.C. § 78, et seq., (the "Exchange Act") against IC.N as well as current and
4 former top executives Milan Panic ("Panic"), Adam Jerney ("Jurley"), Bill MacDonald
5 ("MacDonald"), David C. Watt ("Watt"), John Giordani ("Giord.ani") and Richard A. Meier
6 ("Meier") (collectively the "Individual Defendants") : and PricewaterhouseCoopers ("PwC"),
7 1CN's outside auditor, on behalf of a proposed class of persons who purchased or acquired ICN
8 securities on the open market or otherwise from May 3, 2001 through and including July 10,
9 2002 (the "Class Period") and were damaged thereby (the "Class").
10 2. During the Class Period, defendants caused the Company to issue materially false
t and misleading statements that omitted material facts necessary to make the statements, in light
12 of the circumstances under which they were made, not misleading regarding: i) the Company's
13 earnings prospects and sales figures; ii) its operations in Russia; and iii) the earnings and sales of
14 its Photonics
15 3. The Class Period begins on May 3, 2001, when ICN announced "record" earnings
16 for its first quarter of 2001.
17 JURISDICTION AND VENUE
18 4. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
19 Act (15 U.S.C. §§78j(b) and 78t(a)) and the rules and regulations promulgated thereunder by the
20 SEC, including Rule 10b-5, 17 C.F.R. 240.10b-5.
21 5. This Court has jurisdiction over the claims asserted in this Complaint pursuant to
22 Section 27 of the Exchange Act (15 U.S.C. §78aa), and 28 U.S.C. § 1331.
23 6. Venue is proper in this district pursuant to Section 27 of the Exchange Act,
24 Section 22 of the Securities Act, and 28 U.S.C. §1391(b), because during the Class Period
25 defendant ICN maintained its principal place of business in this District and many of the acts
26 complained of, including the preparation and dissemination of materially false and misleading
27 statements, occurred in this district.
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1 7. In connection with the conduct complained of herein, defendants, directly or
2 indirectly, used the means and instrumentalities of interstate commerce, including the mails and
3 interstate telephone communications, arid the facilities of a national securities exchange.
4 THE PARTIES
5 8. Lead Plaintiff Bedford Oak Partners, LP (Bedford Oak") is an investment hedge
6 fund, with over $175 million in reported equity assets, located in Mt. Kisco, NY. Bedford Oak
7 purchased or acquired ICN securities on the open market or otherwise at artificially inflated
8 prices during the Class Period, as set forth in its certification previously filed with the Court on
9 or about September 24, 2002, in connection with its motion for appointment as Lead Plaintiff,
10 and was damaged thereby. The Court appointed Bedford Oak as Lead Plaintiff pursuant to an
11 Order dated March 17, 2003.
12 9. During the Class Period, Lead Plaintiff purchased ICN securities without
13 knowledge of the falsity of the Company's reported financial results and other public
1.4 representations, as specified herein, and the fact that the price of the Company's common stock
15 was artificially inflated. During the Class Period, Lead Plaintiff relied upon ICN's public
16 reports, press releases, filings with the SEC and other public statements, more fully described
17 below, and the fact that the Company's common stock was fairly priced and/or upon the integrity
18 of the market for its securities. As a result, Lead Plaintiff has been damaged by the wrongful
19 conduct alleged herein.
20 10. Defendant IC.N is a Delaware corporation that maintains, and has maintained at
21 all relevant times, its headquarters at 3300 Hyland Avenue, Costa Mesa, California, 92626. As
22 of March 17, 2003, the Company had 83,894,680 shares of common stock outstanding. ICN's
23 common stock was actively traded on the Now York Stock Exchange ("NYSE") under the ticker
24 symbol "ICN" during the class period.
25 11. According to the Company, ICN is a global, research-based pharmaceutical
26 company that develops, manufactures, distributes arid sells pharmaceutical, research and
27 diagnostic products. The Company distributes and sells a broad range of prescription (or
28 "ethical") and over-the-counter ("OTC") pharmaceutical and nutritional products in over 100
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1 counties. These pharmaceutical products treat viral and bacterial infections, diseases of the skin,
2 neuromuscular disorders, cancer, cardiovascular disease, diabetes and psychiatric disorders.
3 12. Defendant Panic is the founder of ICN, and was Chairman of the Board and Chief
4 Executive Officer of ICN until he resigned those positions on .1'.1rIe 10, 2002. During the Class
5 Period, Panic sold 1,363,981 shares of ICN for proceeds of $35.7 million to $43.2 million.
6 Further, defendant Panic received a $33,050,000 bonus in connection with the completion of the
7 Ribapharrn IPO. During the Class Period, defendant Panic was a controlling person within the
8 meaning of §20(a) of the Exchange Act.
9 13. Defendant Jerney was President, Chief Operating Officer, and a Director of the
10 Company at all relevant times during the Class Period. During the Class Period, defendant
11 Ienley sold 677,883 shares of ICN for proceeds of approximately $11 .7 million to $15 million.
12 Further, Jemey received a $3,000,000 bonus in connection with the completion of the Ribaphann
13 IPO. During the Class Period, defendant Jerney was a controlling person within the meaning of
14 §20(a) of the Exchange Act.
15 14. Defendant MacDonald was ICN's Executive Vice President of Strategic Planning
16 at all relevant times during the Class Period. During the Class Period, defendant MacDonald
17 sold 202,808 shares of ICN for proceeds of approximately $5 million to $6.6 million. Further,
18 MacDonald received a $2000,000 bonus in connection with the completion of the Rihapharm
19 TO. During the Class Period, defendant MacDonald was a controlling person within the
20 meaning of §20(a) of the Exchange Act.
21 15_ Defendant Watt has been an Executive Vice President of the Company since
22 August 1, 2001. Prior to August 1, 2001, defendant Watt was General Counsel and Corporate
23 Secretary of ICN. During the Class Period, defendant Watt sold 135,377 shares of1CN for
24 proceeds of approximately $4.3 million. Further, Watt received a S1,000,000 bonus in
25 connection with the completion of the Ribaphann IPO, During the Class Period, defendant Watt
26 was a. controllin,g person within the meaning of §20(a) of the Exchange Act.
27 16. Defendant Giordani was an Executive Vice President of the Company at all
28 relevant times during the Class Period. During the Class Period, defendant Giordani sold
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I 186,403 shares of ION for proceeds of approximately S4.8 million to $6 million. During the
2 Class Period, defendant Criordani wa,s a controlling person within the meaning of §20(a) of the
3 exchange Act.
4 i 17. Defendant Meier was an Executive Vice President of the Company at all relevant
5 times until he was reassigned on May 1, 2002. During the Class Period, defendant Meier sold
6 3,500 cl-isres of ICN for proceeds of approximately $100,000. During thc Class Period,
7 defendant Meier was a controlling person within the meaning of §20(a) of the Exchange Act
8 18, It is appropriate to teat the Individual Defendants as a group for pleading
9 purposes and to presume that the false or misleading information conveyed in the Company's
10 public filings, and statements in press releases and other publications, as alleged herein, is the
11 collective action of this narrowly defined group of defendants. Each of the Individual
12 Defendants by virtue of his executive, managerial, or directorship positions with the Company,
13 directly participated in the daily management of the Company, was directly involved in the day-
14 to-day operations of the Company at the highest level, and was privy to confidential proprietary
15 information concerning the Company and its business and operations, and -revenue recognition
16 policies. The Individual Defendants were involved or participated in drafting, producing,
17 reviewing, and/or disseminating the false and misleading statements alleged herein.
18 19. The statements made by the Individual Defendants, as outlined below, were
19 materially false or misleading when made. The true financial and operating condition of the
20 Company, which was known or reeldessly disregarded by the Individual Defendants, remained
21 concealed from the investing public. The Individual Defendants, who were under a duty to
22 disclose those facts, instead misrepresented or concealed them during the relevant period herein.
23 20. The Individual Defendants, as officers and/or directors of a publicly-held
24 company, had a duty to promptly disseminate truthful and accurate information with respect to
25 1CN and to promptly correct any public statements issued by or on behalf of the Company that
26 had become false or misleading.
27 21, Defendant PricewaterlaouseCoopers acted as the Company's purportedly
28 independent outside auditors at all relevant times during the Class Period. PwC audited ICN's
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I materially false and misleading financial statements during the Class Period and issued
2 materially false and misleading opinions on those financial statements. PwC thus participated in
3 the scheme, plan and common cause of conduct described herein.
4 BACKGROUND TO THE LITIGATION
5 A. Overview of ICN and its Operations
6 22. ICN is a global, research-based pharmaceutical company that develops,
7 manufactures, distributes and sells pharmaceutical, research and diagnostic products. During the
8 Class Period, the Company described its business strategy as one of international expansion
9 which consisted of: i) the acquisition of high margin products that complement existing product
10 lines and can be introduced into new markets to meet the specific needs of those markets; ii) the
11 creation of a pipeline of new products through internal research and development, as well as
12 strategic partnerships, licensing arrangements and acquisitions; and iii) the consolidation of the
13 Company's leadership position in Central and Eastern Europe, including Russia. The Company's
14 research and development efforts are primarily focused on the discovery, development,
15 acquisition and commercialization of innovative products for the treatment of unmet medical
16 needs, principally in the antiviral and anticancer areas.
17 23. The Company operates in two principal business areas: the pharmaceutical
18 business, which comprised approximately 93% of the Company's 2001 total revenue, and the
19 biomedical business, which makes up the remainder. In 200) the Company's pharmaceutical
20 business operated as five regional businesses: North America, Latin America, Western Europe
21 ' (including Poland, Hungary and the Czech Republic), Eastern Europe (predominantly Russia),
22 and Asia, Africa and Australia ("AAA"). The regional businesses are each comprised of a
23 number of local operating subsidiaries, most of which are owned directly or indirectly through
24 the Company's principal operating company in the United States. The Company's biomedical
25 business operates in three primary areas: research chemicals, dosirnetry and diagnostic
26 equipment
27 24. ICN's pharmaceutical business is broken down into the categories of antiviral,
28 antibacterial, and "other ethicaIs" (which represents those pharmaceuticals not encompassed by
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1 the other two categories). The Company has a marketing and sales staff of approximately 2,800
2 persons who promote its pharmaceutical products. As part of its marketing program for
3 pharmaceuticals, the Company uses direct mailings, advertises in trade and medical periodicals,
4 exhibits products at medical conventions, sponsors medical education symposia and sells
5 through distributors in countries where it does not have its own sales staff.
6 25. According to the Company, the Photonies division encompasses the Company's
7 laser-based product (the "lasers"), known as Nlaite, for the reduction of wrinkles. During the
8 Class Period, the Company primarily marketed its lasers directly to dermatologists through its
9 own internal sales force.
10 26, Unbeknownst to the investing public and the members of the Class, and despite
11 the numerous positive public statements by ICN, set forth in detail, infra, ICN misled investors
12 by reporting revenues and earnings that were materially inflated as a result of a concerted
13 "cbannel stuffing" strategy, as well as the fabrication of sales reports and figures. In addition,
14 the Company touted two units, its Russian operations and its Photonics division, which in fact
15 were financial and operational disasters.
16 Channel Stuffing
17 27. Throughout the Class Period, defendants engaged in a pattern and practice of
18 "channel stuffing." "Channel stuffing," is a business practice by which a company essentially
19 steals revenue from a future period to make the revenue numbers for the current period look as
20 good as possible to the public. Companies achieve this through a variety of means, but it is most
21 commonly accomplished by offering tremendous incentives near the end of a fiscal quarter, in
22 many cases in the form of large discounts or extended payment terms, so as to Cause the
23 customer to buy more product in the culaiit period than he normally would buy. Channel
24 staffing results in lower margins and leaves customers and wholesalers with months of inventory
25 in stock, which means no additional sales for the channel stuffing company until the wholesalers
26 and customers sell through the inventory that has been stuffed. The danger presented by channel
27 stuffing is that while a company may be able to maintain the appearance of growth and normality
28 for several quarters, eventually, the channel stuffing will catch up, and the company will be left
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1 with severely decreased sales revenue, and correspondingly less income, while waiting for
2 wholesaler inventory to clear. Just suth a thing happened to ICN, when, during the Class Period,
3 it regularly engaged in channel stuffing - all the while explicitly and publicly denying that it was
4 channel stuffing.
5 28. On February 27, 2002, following conversations with ICN management and after
6 liStening . in on ICN's earnings conference call, JP Morgan stated that "Management reiterated
7 on its conference call that the product sales growth is completely natural (no channel
8 stuffing) and will continue into 2002." JP Morgan added that it was "relatively confidant in
9 management's assertion that wholesaler inventories are normal." (emphasis added)
10 29. IN reversed itself, a mere five months later when, on July 11,2002, the
11 Company announced that its had missed its sales numbers. The Company attributed this to ICN
12 customers clearing their inventories - a clear indication of channel stuffing by ICN. On that date,
13 with respect to channel stuffing, ICN's CEO, Robert O'Leary, stated that:
14 There is no question [inventories] were above industry norms, and we made
decision to proactively take them down. Perhaps the eye got taken off the ball
16 here and those levels were allowed to climb higher than they should have.
17 30. The response of the public and analysts to ICN's "explanation" was blistering.
18 On July 12, 2002, an article in the Orange County Register, authored by James Kelleher stated:
19 In a call with investors, Robert W. O'Leary, ICN's new interim head, blamed the
20 profit shortfall on several factors, including one that sounded sinister to cynical,
21 post-Enron era.: Former management, O'Leary said, had shipped too many of
22 ICN's products to wholesale customers in recent quarters—creating a glut that
23 will depress sales in the corning quarters.
24 31. In response to ICN's statements, Gerard analyst Larry Smith blasted the
25 Company: "In the best case, management's behavior has been highly unethical, in our opinion.
26 There will likely be an equally intense look at the inventory loading. This occurred prior to the
27 RNA offering and prior to the May annual meeting in which dissidents were seeking to oust
28 Milan Panic."
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32. 13y 2000, according to a former senior sales/marketing manager in the
2 southeastern United States, ICN was deeply involved in the practice of channel stuffing. This
3 former senior manager was employed by the Company from 1998 tlu-ough the end of 2002.
4 During the course of his employment, he dealt directly with doctors and pharmacies, the primary
5 customers for the Company and its wholesalers, selling most, if not all, of ICN's prescription
6 pharmaceutical products. He reported, on at least a weekly basis, via telephone, email, or in
7 person, to Chris Dax ("Da"), ICN's Director of Sales and Marketing. During the course of his
8 reports to Dax, he would inform Dax of the sales activity within his region and would receive his
9 "marching orders" from Dax. According to this former senior manager, Dax reported to Panic
10 and other senior officers of ICN. Further, Dax received his instructions from Panic and other
11 senior officers of the Company, and passed on all information received from sales managers to
12 Panic and other senior officers of the Company.
13 33. According to this former manager, he was pressured by Dax, during each of his
14 meetings, to sell 1CN products, particularly at the end of each quarter. He stated that Dax, and
15 his team of wholesale marketers stationed at the Company's headquarters, at the end of each
16 quarter, would offer huge incentives to wholesalers to overstock on ICN products so that ICN
17 could meet its quarterly sales tareets. He stated that the Company would offer the wholesalers
18 incentives in the form of huge price discounts and extended payment terms if they would buy in
19 large enough quantities to allow ICN to meet its sales targets. For example, he stated that this
20 practice was particularly notable with respect to the Company's marketing of chemotherapy
21 drugs. He stated that the market for certain chemotherapy drugs was cyclical with the weather,
22 and sold very poorly during the Summer, as the treatments were too painful for patients to
23 tolerate during the hotter months. He stated that the typical order by a wholesaler for those drugs
24 would be enough to sustain that wholesaler for 2 to 3 months. This particular chemotherapy
25 drug was an old., well-established one, and wholesalers knew the exact rate of use. Near the end
26 of a quarter, and particularly in the Spring, the Company would offer incentives that were
27 extreme enough to cause wholesalers to purchase 6 to 8 months worth of product - nearly 3 times
28 what they would normally order.
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1 34. The existence of a pervasive course of conduct by the Company with the end goal
2 of channel stuffing and artificially boosting sales near the end of a quarter has been confirmed by
3 numerous other employees ofICN.
4 35. A former Territory Manager in California stated that she believed the Company
5 was engaged in a similar practice with respect to Ribavarin, one of the Company's flagship
6 products with which distributors were being overloaded. She stated, accordingly, that this was
7 done to such an extent that she would be unable to sell Ribavarin for periods of up to six months,
8 because distributors needed first to clear their backlog of inventory.
9 36. A former Territory Manager for the Western Region, who primarily marketed
10 prescription dermatological products stated that ICN' s channel stuffing started as early as the
11 ' late 199 Os. Specifically, he stated that it was a regular practice within the Company for
12 distributors to be "overloaded" with products at the end of a quarter, se as to inflate sales for that
13 quarter. He stated that ICN would offer great incentives so as to accomplish this, including but
14 not limited to, large price-cuts in exchange for quantity purchases. Among those distributors
15 regularly "overloaded" were McKesson 8.t. Berger-Brunswig. The fomier Territory Manager
16 stated that he regularly reported to his Division Manager, Ed Bigby, who reported directly to
17 ICN's Director of Sales and Marketing. The formes Territory Manager further stated that he
18 received orders from them to "load" at the end of each quarter when /CN needed to meet its sales
19 targets. At the end of each quarter, he recalled calling every pharmacy within his region, in an
20 attempt to make certain that they were fully stocked with ICN products, and that the pharmacies
21 called wholesalers to set up the terms of their particular incentive deals. He further stated that he
22 knew, as did everyone within the Company, that the sales for the beginning of the next quarter
23 would be exceedingly low, as customers had just been "overloaded." and needed time to reduce
24 inventorY.
25 37. This former Territory Manager also stated that there was a unit at ICN
26 headquarters that had the sole responsibility of dealing with wholesalers of ICN pharmaceuticals.
27 This unit was also responsible for loading wholesalers the end of a quarter. He stated that
28 loading occurred at the regional, divisional, and company level so that the Company could
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1 appear to meet its sales forecasts for each quarter. 14e also stated that "channel stuffing" was
2 regularly discussed at sales meetings where Division Managers were present and that daily and
3 monthly sales and contact reports were filed and sent to his superiors at IN. As illustrated
4 below, if the Company could not channel stuff enough to meet its sales targets, defendants
5 simply fabricated the sales numbers.
6 38. Ibis is confirmed by a former employee of ICN's marketing group. As a member
7 of the gr oup, this former employee was in attendance at ICN sales meetings every Monday. At
8 those meetings, sales personnel were instructed to enter "fake and inflated" sales figures. He
9 stated that whenever someone would bring up that this was a problem, the meeting would be
10 stopped and all employees who were not comfortable with "going along with the fraudulent
11 program" would be kicked out of the meeting. Disgusted by this practice, in late 2001, this
12 employee sent an email to Panic, complaining. He and two other employees who also
13 complained were immediately fired by ICN.
14 39. Another former Territory Manager, from the Carolinas region, and employed with
15 the Company during the Class Period and until December, 2002, stated that ICN faked its sales
16 numbers. Specifically, he stated that he would submit his actual sales figures, the Company
17 would reject these figures, and then the Company would make up figures and report them to the
18 public as real numbers. He stated that he saw huge discrepancies between numbers he reported
19 and those that the Company reported. For example, the Company would report internally sales
20 numbers at the end of each quarter. Theu, at the end of the next quarter, the Company would
21 report the sales numbers for that quarter, as well as the preceding one. He stated that the
22 numbers never matched lip from quarter to quarter. He was also instructed to sell products 'no
23 matter what it took."
24 40, Selling "no matter what it took," was ICIN's mantra and descended from simple
25 financial fraud to creating dangerous conditions for patients using ICN's pharmaceuticals.
26 According to this former Territory Manager from the Carolinas region, he was expressly
27 instructed, by senior ICN executives to sell and promote ICN pharmaceuticals for off-label uses
28 — uses which had not been approved by the FDA and that endangered patients. Specifically, he
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1 related what happened with ICN's cancer drug, Efudex. Efudex was approved by the FDA for
2 use in the treatment of skin cancer, and was to be applied topically twice a day, the dosage at
3 which it was found to be effective and safe. Efudex was known by physicians and patients to
4 cause significant redness end pain when applied twice a day. Accordingly, many physicians and
5 patients preferred to use other, similar drugs, that were indicated for use once a day. ICN
6 realized that because of its side effects, Efudex was not competitive, and that sales were
7 suffering. To compensate, ION instructed its personnel to promote the sale and use of Efudex to
8 doctors "offlabel" — and to tell them to irisn-uct their patients to use it once a day, or once every
9 two days. However, ION did not have any studies showing that Efudex was effective at the
10 lower dose. This lower dose was not approved by the FDA. The former Territory Manager
11 stated that he received instructions to do this, and guidance on how to instruct doctors to do it, at
12 Company-wide national training seminars and meetings. He specifically recalls that the
13 Company had, and he watched, a videotape that demonstrated how to promote drugs for off-label
14 use. He also received written instructional materials on how to promote drugs for off-label use.
15 After the training sessions, he complained to 1CN's national sales maruager, but was told that
16 "ICN was getting hammered on sales" and to do "whatever it took" to sell ION pharmaceuticals.
17 41. In addition to promoting off-label use of its products and channel stuffing, the
18 Company engaged in similarly nefarious and dangerous schemes to inflate sales artificially. For
19 example, ICN routinely redated expired prescription drugs and then sold those drugs to the
20 public._ According to a former employee of ICN in its Purchasing/Inventory department, ICN
21 had a great deal of inventory that was expired, and would not write the inventory off and destroy
22 it. Instead, the expiration dates for old pharmaceuticals would be re-dated by the Company's
23 "management" and then the drugs would be sold. He stated that in many cases, products were
24 re-dated and sold when they had expired over a year before. This was done to keep the
25 Company from incurring write-off costs, and to liquidate useless inventory.
26 Background on ICN's Russian Operations
27 42. In 1998, ICN established its Eastern European headquarters in Moscow, Russia
28 and, in. early 1999, opened the first of it's retail pharmacies in Moscow. By September of 1999,
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1 pursuing an aggressive acquisition strategy, 1CN acquired a chain of 88 retail pharmacies in
2 Moscow and St. Petersburg. The Company claimed that the acquisition would produce 'the
3 necessary economies of scale to effectively implement the company's distribution strategy."
4 Currently, according to the Company's website, ICN operates 126 retail pharmacies in Russia.
5 43. During the Class Period, the Company repeatedly touted its growing revenues
6 from its Russian operations ("ICNRUS"), its dominance of the Russian pharmaceutical market in
7 both the retail and manufacturing contexts, and promised further investment in Russia to boosts
8 its sales up to 50% beyond its already, if one were to believe the Company's characterization,
9 stellar levels. The reality of the situation at ICNRUS, however, was far different from the
10 glowing picture painted by defendants.
11 44. From as early as mid-2000 ; it was apparent to defendants that ICNRUS operations
12 were materially impaired. Among the numerous problems facing ION were the fact that:
13 i. ICNRUS, and its senior management, had no experience doing business in
14 Russia;
15 ii. ICNRUS was not primarily a manufacturer, but rather a repackager of off-
16 label drugs, and was particularly unsuited to running a manufacturing
17 operation in Russia;
18 iii. ICNRUS's retail pharmacy operations in Russia were flawed in that ION
19 was only willing to acquire pharmacies already in existence, and then only
20 pay a fraction of each pharmacy's actual value;
21 iv. the retail pharmacies that ICNRUS was actually able to purchase were
22 outdated, and were subject to competition from the prior owners of the
23 pharmacies, crippling ICNRUS' s ability to market its drugs through its
24 own pharmacies;
25 v. ICNRUS's distribution network was impaired by the fact that it was
26 unable to find local distributors. Well-established distributors refused to
27 do business with ICNB.US because ICNRUS's pharmaceuticals were
28
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overpriced, and not profitable, due to the government's strict requirements
2 regarding the type and prices of drugs manufactured in Russia;
3 vi. 1CN had countless non-performing assets in Russia which the Company
4 knowingly failed to impair;
5 vii. ICNRUS's senior officers, personally selected and hired by Panic, micro-
6 managed operations and refused to entrust vital Company operations to
7 any non-Yugoslays working for the Company;
viii. ICNRUS was engaging in a pattern and practice, at the behest of senior
9 officers, of pushing expenses into future periods; and
10 ix. ICNRUS was refusing to pay bills to preserve cash, which caused vendors
11 to cease providing critical goods and services to the Company.
12 45. By 2000, ICN had purchased three manufacturing facilities in Russia; one in
13 Yoshkar-Ola, one in St. Petersburg, and one in Krasnoyarsk and claimed that it was well on its
14 way to implementing its market strategy in Russia. The facilities were purchased from various
15 regional governments within the Russian Federation. At the time of purchase, and as a condition
16 of purchase, defendant Panic committed the Company to avoid laying off workers from the
17 factories and to expend upwards of S1 billion to update the facilities. Much as was the case with
18 TCN's failed entry into the former Yugoslavia, the result of which was the seizure of the
19 Company's assets therein by the government for non-compliance with the terms of sale and
20 operation, the Company was entering obligations it could not meet. Under the terms of the
21 purchase contracts, if TCN could not meet its obligations, its ownership interests in the plants
22 were to revert to the state.
23 46. ICN was unable to pay for the required updates for each of the facilities. As a
24 result of the Company's failure to update the plants, the regional governments from which IN
25 purchased each facility began to exercise greater oontrol over the plants as time passed. At one
26 point, the ?resident of the Yoshicar-Ola territory issued an ultimatum to ICN that he would shut
27 down the factory for health and safety reasons if ICNi did not meet its obligations under the
28 purchase contract.
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1 47. According to Victor Dorodny ("Dorodny"), the former Vice President,
2 Corporate Development, ICNRUS, this was merely the tip of the iceberg of ICN's problems in
3 Russia. Dorodny was hired by Ortega in late 2001. However, this was not Dorodny's first
4 contact with ICN. In April, 2000, Dorodny represented the healthcare arm of Gazprom °AO
5 ("Gazprom”), one of Russia's largest companies, which was offering to purchase ICN's Russian
6 manufacturing facilities. In connection with that offering, Dorodny performed an extensive
7 survey, valuation, and analysis of ION' s manufacturing operations in Russia, enabling him to
8 become familiar with every aspect of its business.
9 48. By the end of April, 2000, it was clear to Dorodny that the value of the Russian
10 manufacturing facilities owned by ION was severely impaired. At one point, the plants
11 employed approximately 8,000 workers, many of whom were idle, but could not be fired by ION
12 under the terms of the purchase agreements. Thus, the Company left these workers, who were
13 contributing nothing to ION's profitability, on ICNRUS's payroll.
14 49. At that point, it became clear to Dorodny that ION did not understand how to do
15 business in Russia or how to run a manufacturing operation. According to Dorodny, with the
16 exception of its Ribavarin product, ION is a repackagcr of off-label drugs and not a
17 manufacturing company, Further, ION did not understand distribution and manufacturing in
18 Russia in that up to 50% of the pharmaceuticals manufactured in Russia are stolen and resold on
1.9 the streets for far less than manufacturers charge. This meant, essentially, that ICN would not
20 only lose 50% of its manufactured inventory, but that it would be unable to compete price-wise
21 with the same or similar drugs sold on the black market.
22 50. In connection with Dorodny's analysis of ION's operations, Gazprom's
23 healthcare arm offered to purchase 519/c of ICN' s interests in the plants, to hold ION harmless for
24 its liability to upgrade the facilities, and promised a 300% increase in production. Within two
25 weeks of the offer, Panic declined the sale in a brief email. According to Dorothy, Panic, and
26 MacDonald, knew that ION should have extricated itself from its Russian manufacturing
27 operations at that time. Panic, however, refused to sell.
28
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•
1 51. Shortly after the refusal to sell, Panic hired John Ortega ("Ortega") to manage
2 ICNRUS. Ortega was a retail specialist who was Panic's neighbor in Newport Beach,
3 California. Ortega spoke no Russian and had no understanding of local business, yet he was
4 hired by Panic despite those facts. Dorodny rnet Ortega during the latter's first day on the job
5 and, later, became an integral guide and resource for Ortega.
6 52. Panic hired Ortega, a retail specialist, because Panic wanted ICNRUS to focus on
7 its drugstore operations. Prior to Ortega's arrival, ICNRUS purchased distribution apparatuses
8 to compliment its manufacturing operations. According to Doroclny, ICNRUS was virtually
9 forced to create its own distribution apparatus because well-established distributors lost money
10 distributing ICNRUS pharmaceuticals. Pharmaceuticals manufactured in Russia were not
11 inexpensive. The government required ICNRUS to manufacture certain drugs and exercised
12 price controls on those drugs. This made it too expensive for distributors to purchase most
13 ICNRUS pharmaceuticals. Accordingly, 1CNRUS was faced with the substantial cost of
14 creating its own distribution network.
15 53. ICNRUS's distribution arm, however, fared worse even than the manufacturing
16 operations. According to Dorodny, ICN should never have distributed its drugs itself. The
17 combined manufacturing and distribution arms created a grave situation in that the drug
18 portfolios of ICKRUS plants were old and included substances that were banned in many
19 countries except Russia. Also, ICNRUS was ill-equipped to establish a distribution network and
20 was unable timely to deliver products. According to Dorodny, established distributors had a
21 system of trucks and cars, enabling them to make deliveries daily, at the request of pharmacies
22 and hospitals. ICNRUS's distribution operation was further hampered in that it was ill-funded
23 and could not afford the army of cars and tracks required to service its clients. Thus, ICNRUS
24 deliveries were spaced between several days and several weeks. As such, potential customers
25 were disinclined to purchase from ICNRUS, further jeopardizing its profitability.
26 54. In addition to its distribution problems, TCNRUS had significant inventory control
27 problems, and virtually no organized computer inventory system. Rather, according to Dorodny,
28 ICNRUS personnel would "eyeball" stock during the last three days of each quarter. Inevitably,
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1 ICNRUS had unpopular drugs or others that were near expiration. ICNRUS then offered end-
2 users and non-ICNRUS distributors alike incredible terms to make their numbers, including at
3 least 90 days to pay. The problem with this practice was that ICN was responsible for destroying
4 outdated drugs properly, itself a costly endeavor. Thus, even if ICNRUS could sell the drugs
5 that were on the verse of expiration, it was still responsible for collecting its expired drugs and
6 destroying them, but was so-ill funded and disorganized that it could do neither. Thus, ICNRUS
7 had material exposure to the Russian authorities and/or to the end-users that were holding its
8 expired pharmaceuticals. When combined with the problems of the manufacturing facilities,
9 ICNRIJS's operations were rapidly deteriorating.
10 al
55. In response to this, Panic, himself, detei ined to shift ICINTRUS's strategy to
11 acquiring and running its own drug stores. According to Dorodny, Panic declared that he wanted
12 to acquire 300 drug stores in Russia, mostly concentrated in Moscow. Panic, however,
13 committed a cardinal sin; he angered the mayor of Russia which directly hampered ICNRUS's
14 ability to complete deals to purchase existing pharmacies. Moreover, Panic was only prepared to
15 pay 25% of market value for pharmacies. It was in the context of /CNRUS's attempt to purchase
16 pharmacies that Dorothy began his official employment with ICN.
17 56. From Ortega's first day at ICNRUS, be had consulted with Dorodny about the
18 local business climate. As time wore on, according to Dorodny, he provided Ortega with ever
19 increasing assistance on local business issues. Sometime in mid-2001, Dorodny felt he should
20 be paid to advise Ortega. At the same time, ICNRUS was trying to negotiate a deal to acquire a
21 chain of pharmacy kiosks that were in subway stations. The deal was a particularly bad one for
22 ICNRUS because the owner of the kiosks had developed a plan to outfit trucks as mobile
23 pharmacies. The owner planned to sell the chain of kiosks, which generated low margins or
24 broke even, and then compete with them by placing his mobile pharmacies directly outside the
25 high-traffic entrances to the subway. Ortega hired Dorodny to assist with the negotiations to
26 purchase the kiosks and to determine what non-performing assets ICNRC S owned and how to
27 maximize value from those assets.
28
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1 57. In his review of ICNRUS's supposed assets and his visits thereto, Dorothy
2 quickly discovered that ICNRUS had countless non-performing assets which, according to
3 Dorodny, the Company did not impair. The woeful state ICNRUS's manufacturing and
4 distribution operations led ICNRUS to plan to impair and write-down those operations by at least
5 S40 million. To Dorodny's knowledge, however, neither ICNRUS nor ICN impaired the
6 factories on their balance sheet or consolidated balance sheet respectively.
7 58. According to Dorodny, however, the manufacturingidistribution situation was not
8 the only foundation of sand upon which ICNRUS's balance sheet, and, in turn, ICN' s balance
9 sheet, rested. ICNRLTS carried numerous other properties in Russia at amounts materially and.
10 dramatically in excess of their values — many worthless.
11 59. For example, during the Class Period, ICNRUS carried its Moscow headquarters
12 on its balance sheet at $17 million. The value, however, was far less — according to Dorodny
13 only about 1/3 of that value. The reason for this is that while ICN owns the ground under the
14 structure, the city owns all of the adjacent ground, including a parking lot which rcRus
15 represented that it owned and operated.
16 60. This posed siglificant problems for ICNRUS. The building is the largest ovvned
17 headquarters of a United States corporation in Moscow and is, therefore, a target. ICNRUS
18 derived material income from the property by leasing a substantial amount of the space to
19 another American firm. Included in that lease is parking for the building's tenants. Because
20 parking in Moscow is at a premium with on-street parking virtually unavailable, the value of the
21 parking to both ICNRUS and its tenants was enormous. Without it, the value of the building and.
22 the rents ICNRUS charged would be materially and dramatically reduced. Further, to gain
23 access to the building at all, tenants were required to traverse city land_ ICNRITS was using the
24 parking lot witheut paying the city. ICNRUS personnel knew of this, but could not cure the
25 situation. Had they paid the city, they would have increased the operating costs of the building
26 beyond what ICNRUS could afford, as its operations were not generating revenue_ Further, 1CN
27 was and is now in significant debt to the City of Moscow for its unpaid use of the parking lots.
28 During the Class Period, the building, therefore, was a significant liability rather than an asset to
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1 ICNRUS and, according to Dcrodny, should have been carried at no more than 1/3 of its
2 $17 million carrying value.
3 61. According to Dorodny, ICNRUS had additional impaired real estate on its books
4 that was not written down to its actual value. Adjacent to the Company's Ola-yabr plant in
5 St. Petersburg, ICICRUS owned two buildings. One was five or six stories and on the books for
6 $6 million. According to Dorodny, however, the building had a value of only $1 million, its uses
7 limited by a major radiation source. Also near St. Petersburg, the Company owned a student
8 hostel, condemned by the city. ICNRITS purchased the building for warehousing and had to pay
9 a company to resettle the students living there. ICNRUS paid that company half in cash and half
10 in pharmaceuticals. The relocation company then sold the pharmaceuticals, further undercutting
11 ICNRUS 's sales of its own products. Moreover, the building had historic significance and the
12 city mandated that it be repaired, not razed and rebuilt. The cost of rehabilitation, however, was
13 prohibitive, so the Company did nothing and left it on the books at its inflated value.
14 62. Still further, ICNRUS purchased a site on Vasilevsk-y Island, an island outside
15 St. Petersburg, consisting of a huge facility for which, according to Dorodny, ICNRUS paid
16 millions of dollars. ICNRUS intended to use it for warehousing and to house its sales and
17 marketing operations. The island, however, was zoned for hotels, and ICNIQU'S neither got a
18 variance nor was able to create hotels on the site because of old manufacturing smoke stacks,
19 designated historic landmarks. The island was also accessible only via two historic 150 year old
20 two-lane bridges, leading to severe traffic problems and rendering the site highly undesirable.
21 ICNRUS, therefore, was unable to make use of the site or to sell it. It did, however, maintain the
22 site on it books at full value instead of impairing it.
23 63. As such, Dorodny was shocked by the quality of the assets ICNRUS owned and
24 the amounts at which -they carried those assets. De turned to PwC, ICNRUS's and ICN's
25 auditors, for assistance, believing they would have knowledge of the values of the assets and the
26 information supporting those values. According to Dorodny, however, the ?WC partner in
27 charge of ICNRUS's audit was a Englishman named Tony, who, along with his staff, was
28 completely unaware of the values of the buildings or whether supporting information existed for
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I those values. Instead, the only thing Tony was interested in was leasing space in a building he
2 owned to ICNRUS for use as a drug store. According to Dorcciny, PWC never did an
3 appropriate investigation to determine the value of ICNRUS 's assets and whether and when they
4 should have been impaired.
5 64. As Dorodny began to uncover the problems with ICNRUS, he encountered a
6 considerable obstacle. Dorodny discovered much of what he knows by visiting sites and
7 speaking with employees below senior level. At some point, in the fall of 2001, &ten Vasic
8 ("Vasic"), CFO of ICNRUS, went berserk when he discovered that Dorodny was collecting
9 information on ICN's assets. Vasic demanded that ICNT4.1...7S employees no longer speak to
10 Dorodny and then confronted Dorodny, asking him "What are you doing? You were hired to
11 buy pharmacies," and demanding that he cease his inquiries.
12 65. According to Dorodny, Vasic was the real authority at ICNRUS. Panic, who
13 according to Dorodny, was a deeply suspicious person, bordering on paranoid, would only
14 entrust operations to other Yugoslays. Thus, Panic withheld financial control of ICNRES from
15 Ortega because he was not part of what Dorodny describes as Panic's "Yugoslavian inner-
16 sanctum." In fact, Vasic insisted that he approve every expense over $50. Vasie was also•
17 involved in micro-managing virtually every aspect of ICNRUS operations. According to
18 Dorodny, he did everything from telling marketers how to market drugs to how to shoot
19 commercials.
20 66. According to Dorodny, Vasic also engaged in outright manipulation of ICNRUS's
21 income Statements. When, at the end of a reporting period, TCNRUS 's bottom line was off,
22 Vasic simply pushed expenses into subsequent periods. To preserve the limited cash ICNRUS
23 bad, Vasic refused to pay bills. This further compounded ICNRUS's problems, as various
24 vendors ceased providing critical goods and services. Further, at the end of 2001, ICNRUS lest
25 its only viable warehousing facility and was searching for another while it occupied temporary
26 space. In the interim, /CNRUS finally attempted to work out strategic alliances with
27 distributors. The distributors were, however, reluctant to enter any arrangement with ICNR_US
28
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1 because it couldn't deliver product consistently and because Vasic was notorious for failing to
2 pay bills.
3 67. According to Dorodny, it is highly unlikely that Panic and MacDonald did not
4 know the circumstances of ICNRITS, in detail. First, MacDonald knew of the manufacturing and
5 distribution problems because Dorodny told him directly. Further, Vasic had Panic's ear. Panic
6 traveled to Russia once a month and before he arrived Vasic would give him a detailed report of
7 the situation on the ground. Further, Ortega, whom Dorodny described as a "straight shooter"
8 and a person of integrity, was on the phone with senior ICN personnel in Costa Mesa every
9 night. According to Dorodny, the contact was even closer around July of 2001 when ICN issued
10 its $525 million offering of 61/4% senior convertible notes. Dorodny remembers that everyone,
11 including Panic, Vasic, MacDonald, and Ortega, was concerned that the truth about ICNRUS
12 could scuttle that deal. Further, senior ICN personnel including MacDonald and the CFO
13 received daily communications and weekly reports from ICNRUS and responded to those reports
14 with comments and plans to remedy the most acute of ION'S problems. In turn, Ortega conveyed
15 those comments and plans to remedy problems directly to ICNRUS personnel. Approximately
16 90% of those communications with Costa Mesa were via email. According to Dorodny, all
17 emails of ICN personnel, including ICNRUS personnel, were routed through ICN's server in
18 Costa Mesa. This was the case even with respect to ernails from an ICNRUS employee to
19 another 1CNRUS employee across the hall. The email router enabled ION senior managers to
20 view all relevant communications about IONRUS.
21 68. Even ICNRUS's retail pharmacies were in jeopardy. The pharmacies were the
22 only performing, ummpaired ICNRUS assets, and according to Dorodny, were improving under
23 Ortega, According to Doroclny, ICNRUS lost $17 million in 2000 and Ortega was able to cut
24 that loss to $4 million in 2001. The potential perils from the manufacturing division, however,
25 soured the value of the pharmacy operations. If any of the regional governments had taken the
26 plants from IC\TRUS for its failure to adhere to the terms of its agreements, which they had the
27 right to do and which ION had already experienced with respect to its Yugoslavian operation,
28 ICNRUS would have been classified as a "non-performing foreign partner." Upon that
FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-070/ -DOC (ANx) 21
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1 occurrence, the governors were entitled to ,repossess ICNRUS' s assets to satisfy its commitments
2 to update the plants. Dorodny specifically told this to MacDonald in mid-2001.
3 ICN's Laser-Based Products
4 69. ICN's Photonics division was responsible for the marketing and sales of ICN's
5 laser products. Laser products, such as ICN's NLite system, are used by dermatologists for the
6 reduction of wrinkles. NLite is cleared by the FDA for the specific claim of wrinkle reduction.
7 The product is being tested for other indications, including acne. According to the Company,
8 NLite is complementary to its dermatological business. The Photonies business included the
9 acquisition of Medical Alliance, Inc., which occurred in January, 2001. Properly designed, and
10 effectively implemented, laser systems provide immediate and visible results to patients,
11 remedying superficial skin conditions like sun damage, photo aging, flushing, rosacea, sun-spots,
12 and pigmentation in just one treatment. ICN's sales force promised physicians that in just 1-2
13 treatments, results would be visible in 30-60 days. ICN'sl\TLite system, however, was neither
14 properly designed nor effectively implemented by the Company. In fact, NLite was such a poor
15 product that it was responsible for substantial revenue shortfalls suffered by the Company, and
16 constituted a material reason for the Company's July, 2002 disclosure that ION would be forced
17 to report BPS of $0.15 instead of the anticipated EPS of $0.44.
18 70. Specifically, Photonics was flawed in that:
19 NLite was released prematurely;
20 ii. NLite was infe-rior to competing products;
21 iii. ION could not effectively coordinate orders placed by customers for NLite
22 and ION had problems handling returns of NLite;
23 iv. N-Lite, and the supplies expended during its use, 1A/Cre substantially more
24 expensive than competing products;
25 v. the Company regularly and as 2. matter of course accepted returns of and
26 then resold expired cartridge dye kits, which are crucial to the functioning
27 of NLite
28
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1 vi. the Company regularly and as a matter of course misled physicians about
2 NLite s efficacy and the duration of treatment necessary to generate
3 results;
4 vii. the Company was engaging in a program to market NLite such that the
5 incentives offered contributed substantially to the unprofitability of NLite;
6 viii_ the Company instituted an unprofitable leasing program and then, when
7 the Company was unable to meet its sales numbers for Nlite in 3Q2001,
8 attempted to force lessees to purchase the NLite systems by ending the
9 leasing program, resulting in the alienation of those customers and further
10 undermining IC .N's ability to market NLite; and
11 bc.. ICN failed to integrate the acquisition of the Cool Touch Laser system and
12 was eventually forced to sell it off.
13 71. With respect to the initial release and implementation of the NLite system, a
14 former sales representative from ICN's New York region stated that from the moment ICN
15 entered the laser business, "Photonics [was] in absolute disarray and did not contribute to the
16 growth of ICN." This was due, in part, to the fact that "ICN went into the laser business without
17 understanding it." ICN' s inability to use Photonics to create profit and growth came as no
18 surprise to the Company, given that, with no experience in the field of laser products, ICN
19 brashly purchased the NLite system with little analysis and did not, as a consequence, have a
20 sufficient understanding of the product or how it should be marketed.
21 72. Shortly afler the ICN' s entry into the laser business in 2000, it was apparent to the
22 Company, and what few customers it did have, that NLite was flawed, and patently inferior to
23 competing laser products. Rather than concede this fact and divest itself of the near-useless
24 NLite system, the Company hid this fact. from its customers and the investing public, continued
25 to pour money into a product that was so inferior that it was highly probable that it would 2ever
26 be able to compete with other laser products on the market.
27 73. Of paramount difficulty for the Company with respect to NLite was the fact that
25 when compared with other laser systems, it simply didn't work. In order for NLite to effectively
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I satisfy its indication - primarily the reduction of wrinkles - a minimum of 3-5 treatments and
2 120 days were required before the patient or doctor could see any results. Competing products,
3 however, required only 1-2 treatments and as little as 30 or mere days to show results. To
4 compensate for the inferiority of its product, ICN misled its customers.
5 74. A former employee of ICN - Medical Alliance, employed from 1997 - 2002,
6 stated that when 1CN started its laser business in 2000, the Company held training seminars at
7 which Company officials made extravagant promises concerning the functionality of the laser
8 that never materialized. Specifically, the former employee recalled that doctors were told that
9 only one treatment with the Nlite system was necessary. Additionally, he recalled sales
10 representatives who went out to the offices of potential customers were instructed to tell the
11 doctors that the product would generate results with one treatment. Later, doctors realized that
12 one treatment generated no effect and many called the Company to complain. Company
13 managers told the doctors that changes needed to be made to the settings and operation of the
14 laser on the doctors' end - mainly that it was a problem created by the user, when it was in fact
15 due to the flawed nature of NLite. In fact, directly contrary to /CN' s representations, additional
16 treatments were necessary. The former employee recalled that NLite was so inferior to its
17 competition that the doctors who were misled and used it quickly tired of its inability to perform,
18 and refused to purchase or rent NLite. The ill will created by ICN' s false promises with respect
19 to NLite had a further detrimental effect on the Company: namely, that when it did acquire a
20 competitive and effective laser system - the Cool Touch system - doctors still refused to do
21 business with. ICN. This ill will was so pervasive that 1CN was unable to market the Cool Touch
22 system, a superior and cost effective product, forcing IN, in early 2003, to sell it back to New
23 Star, the company from which it had originally purchased Cool Touch.
24 75. The inferiority of the NLite laser was well known throughout the Company at all
25 levels. Numerous former sales representatives of ICN, as well as sales managers and consultants
26 responsible for the sales and implementation of IOM's lasers during the Class Period have stated
27 to Lead Plaintiff's counsel, uniformly, that the product was deeply flawed, and that they were
28 instructed by their superiors to conceal this from 1CN's customers.
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1 76. Also flawed was ICN's training program with respect to the use of the lasers. For
2 a fee of $300, doctors could sign on to ICN's website, and "point and click" though a basic
3 tutorial on the use of the laser system. According to a former sales representative from New
4 York, the tutorial was severely deficient. According to this sales representative, the flawed
5 training program, however, allowed the Company to undertrain the doctors and conceal NLite's
6 inefficacy from the doctors and then, when the product failed to work, blame its failure on user
7 error rather than on the shortcomings of the product itself.
8 77. Also crippling ICN's ability to sell the NLite system was the fact that NLite was
9 far more expensive to operate than cornpcting products in virtually every way. Three former
10 sales representatives and/or sales managers of ICN assigned to Photonics between 2000 and
11 2002 stated that the NLite system cost 20%-30% more than competing products - products that
12 were far superior even when cost was not taken into consideration. Accordingly, the dismal
13 failure of the NLite system was no surprise to the Company.
14 78• Further contributing to the unprofite.bility of the NLite system was the fact that
15 the Company implemented a policy whereby the machines were placed, in certain cases, for free.
16 A former sales manager for ICN-Medical Alliance during 2001 stated that the Company would
17 install these machines - worth S80,000 - S100,000 - for nothing and then, having received no
18 revenue, fraudulently book the transaction as if a sale had occurred. Essentially, this had the
19 effect of materially inflating the appearance of the Company's revenue from its Photonics
20 division when, in fact, the laser products were costing the Company millions of dollars in
21 purchase and installation costs, while generating no actual income for the Company. Even more
22 troubling is that the former sales manager indicated that it was well known within the Company
23 that these drastic and unprofitable incentive practices, designed to create the appearance of sales
24 and revenue, induced collusion among several individual sales representatives and practitioners
25 who split the "profits" of the laser systems "sales" with the customers so as to encourage them to
26 "purchase" from ICN. This "profit" splitting with customers served to further bleed money from
27 the Company with respect to its Photonics products.
28
...o.mva4A1--s FIRST AMENDED CONSOLIDATED CLASS AcTION COMPLALNTNo. SACV 02-0701-DOC (ANx) 25
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1 79. An additional cost issue regarding the NLite system, above and beyond the fact
2 that it was more expensive to purchase than other, superior systems, is the fact that the leasing
3 costs of an NLite laser were over 4.5 times greater than competing systems. For example, a
4 former New York Photonics sales representative stated that while the far superior Cool Touch
5 laser system rented for as little as $1000 per day, NLite system rentals required a $2500
6 initiation fee and a daily rental fee of 82000. At 4.5 times the cost, and for an inferior product, it
7 came as no surprise to the Company that doctors did not want to lease the NLite system unless it
8 came at no cost to the doctors - a no win situation for 1CN.
9 80. An additional impediment to the profitability of the sales and leasing of the NLite
10 system was that its operating costs in terms of supplies far exceeded those of competing lasers.
11 Regardless of whether a doctor purchased or leased a laser system from ION, thc machines still
12 required cartridge dye kits that were expended with each use of the machine. These cartridges
13 were very expensive, costing 89000 each, and had to be purchased from ION. Most doctors .
14 were, not surprisingly, unwilling to pay 89000 per cartridge when the machine generated no
15 results for their patients. To compensate for this problem, according to a former sales manager
16 for ICN-Medical Alliance, the Company instituted a policy whereby it would drop the price of
17 the cartridges to $5000 each, but only for those doctors who were willing to "play ball" with ICN
18 and use an ineffective product. These doctors, according to the former sales manager, were
19 called the "second-tier" doctors and were notoriously unscrupulous in that they knew and did not
20 care that the product was ineffective and provided no meaningful results to their patents. To
21 quote the former sales manager "as long as they were making money" these doctors "did not care
22 about" the efficacy of the machines.
23 81. Further, with respect to the cartridge dye kits, the former Photonics sales manager
24 indicated that these cartridges had a shelf expiration date - a date after which the cartridges
25 expired and should not have been used. The former sales manager indicated that when earti-idges
26 were returned to ION, rather than take a 89000 write-off and dispose of the cartridge, the
27 Company would resell the defective and expired cartridge to another customer. This practice
28 was designed to create the appearance of revenue from the cartridges. This could not have been
...mp la, ni.PIN L ., 7n d FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-0701-DOC (ANx) 26
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1 effective, because the customers who purchased expired cartridges would simply return the
2 cartridge to ICN and the process would begin all over again with another doctor. Thus, the
3 Company was able to create a cycle in which it was reselling the same cartridge over and over
4 again and reporting revenue from the sales, but never accounting for the fact that it was forced to
5 return money to customers.
6 82. In a belated effort to bolster its virtually worthless laser division, in January,
7 2002, ICN purchased the Cool Touch laser system. As discussed above, the Cool Touch laser
8 performed far more effectively than the NLite system and was substantially cheaper to obtain
9 and operate for doctors. Instead of switching its focus from the inferior and costly NLite system,
10 ICN chose to continue to emphasize sales and leasing of the NLite system. Further, ICN's
11 ability to sell the Cool Touch laser system was impaired by the bad-will generated by ICN's
12 fraudulent sales and marketing practices with respect to the NLite system. Potential Cool Touch
13 system customers refused to deal with ICN because they had such a bad experience with ICN's
14 NLite. Quite logically, this carried over far beyond those doctors with whom ION had direct
15 contacl, as many of the potential customers for the Cool Touch laser had heard about what
16 happened with NLite from their colleagues, and refused to deal with ICN.
17 83. Also crippling the profitability of Coal Touch for ION was the fact that ICN never
18 properly integrated the product and sales force for Cool Touch. According to a former Vice
19 President of Lumenis, one of ICN's competitors in the dermatological laser market, it was
20 widely known that the sales force for NLite was managed like most pharmaceutical sales forces
21 and that the Cool Touch sales force consisted of a hybrid organization of independent
22 representatives and a few direct company representatives. Not surprisingly, ION was unable to
23 integrate the two vastly different sales methodologies.
24 84. In a failed attempt to salvage the Photonics division, the Company, in late 2001,
25 according to a former sales representative, began engaging in "rental blackmail." As discussed
26 above, the Company purposely and improperly recorded sales of the NLite laser when it was
27 really giving the lasers to doctors for free to create the appearance of growth in the product line.
28 The Company had a great incentive to "sell" lasers rather than to lease -them to doctors.
ErilVO,1001n L-FINAL.Yrod FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. S ACV 02-0701-DOC (ANx) 27
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L
I Accordingly, in late 2001, the Company announced to its leasing customers that it would be
2 ending the leasing program, so as to force the doctors to buy the NLite system so ICN could
3 meet its sales targets and promises to the investing public. The Company's plan backfired, and
4 of 350 machines leased to customers mentioned by the former sales representative, the Company
5 only sold 30. The other 320 machines - now not generating any leasing income since the
6 Company ended the program - were returned to the manufacturer which failed in its attempt to
7 resell them in Europe. This transaction served to cause tremendous losses to the Company in
8 that it essentially lost 90% of the income that it was earning on leased machines, in exchange for
9 the sale of a mere 10% of the lasers.
10 85. Not surprisingly, given the above, The Company decided to begin to exit the
11 dennatologic laser business. The Company purportedly "spun-off" its remaining laser products
12 from ION-Medical Alliance into a new division and then, in early 2003, sold off its Photonics
13 division, including the Cool Touch laser system. According a former sales representative from
14 New York, the 'spin-off' was in name only. The books of the new division were still
15 commingled with those of ICN so as to conceal the losses being experienced.
16 ACCOUNTING ALLEGATIONS
17 86. GAAP are those principles recognized by the SEC and the accounting profession
18 as the conventions, rules and procedures necessary to define accounting practice at a particular
19 time. SEC regulation S-X (17 C.F,P, §210.4-01(a)(1) requires that financial statements filed
20 with the SEC be prepared in conformity with GAAP and those that are not in conformity with
21 GAAP are presumed to be misleading and inaccurate, despite footnotes or other disclosures.
22 ICN's overstated earnings were achieved through repeated violations of GA.A.P.
23 Improper Revenue Recognition
24 87. As alleged above, in each quarter of the class period, ICN overstated its revenue
25 in violation of GAAP. financial statements were materially false and misleading due to
26 the reporting ofrovenue (i) from "sales" of equipment that were given to physicians; and
27 (ii) from pre-shipped orders.
28
zrr.cormpl p int- , (NAL.wpc] FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-070I-DOC (ANx) 28
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1 88. GAAP, in the form of Statements of Financial Accounting Concepts
2 ("FASCON'') 5: Recognition and Measurement in Financial Statements of Business Enterprises,
3 states that revenue "... recognition involves consideration of two factors (a) being realized or
4 realizable and (b) being earned..." (If 83). The FASCON describes the concept of "earned" in
5 relevant part as follows:
6 Revenues are not recognized Luitil earned, An entity's revenue-earning activities
7 involve delivering or producing goods, rendering services, or other activities that
8 constitute its ongoing major or central operations, and revenues are considered to
9 have been earned when the entity has substantially accomplished what it must do
10 to be entitled to the benefits represented by the revenues__ (emphasis added,
11 CONS, Par. 83(b)).
12 89. Further, the FASCON states:
13 The two conditions (being reali2ed or reali2able and being earned) are usually met
14 by the time product or merchandise is delivered or services are rendered to
15 customers, and revenues from manufacturing and selling activities and gains and
16 losses from sales of other assets are commonly recognized at time of sale (usually
17 cleaning delivery) (CON 5, 5 84(a)).
18 90. Additionally, the SEC provided its views in applying GAAP to selected revenue
19 recognition issues through the issuance of Staff Accounting Bulletin ("SAB") No. 101 —
20 Revenue Recognition in Financial Statements in December 1999. SAB 101 states, in relevant
21 part, as follows:
22 The staff believes that revenue generally is realized or realizable and earned when all of
23 the following criteria are met:
24 Persuasive evidence of an arrangement exists,
25 Delivery has occurred or services have been rendered,
26 The seller's price to the buyer is fixed or determinable,
27 and Conectibilipy is reasonably assured.
28
wncomplai ni-FINA.L.wpd FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAD,rTNo. SACV 02-0701-DOC (ANx) 29
MAY 16 2003 14 : 43 415 4776710 FIGE.37
VJ/10 , AULJ J 14:S1 ra,s, 410 4/10/1V VA.D.C.0 m YVV
r
1 91. For example, as alleged above, ICN improperly recorded revenue from "sales" of
2 NLite machines, which were placed in physician's offices Cor free. SAB 101 prohibits the
3 recognition of revenue on this type of transaction since in substance it is a consignment and not a .
4 sale. SAB 101 states, in relevant part, as follows:
5 ... situations may exist where title to delivered products passes to a buyer, but the
6 substance of the transaction. is that of a consignment or a financing__ The staff
7 believes that the presence of one or more of the following characteristics in a transaction
8 precludes revenue recognition even if title to the product has passed to the buyer:
9 1. The buyer has the right to return the product and:
10 a) the buyer does not pay the seller at the time of sale, and the
11 buyer is not obligated to pay the seller at a specified date or dates.
12 b) the buyer does not pay the seller at the time of sale but rather is
13 obligated to pay at a specified date or dates, and the buyer's obligation to
14 pay is contractually or implicitly excused until the buyer resells the
15 product or subsequently consumes or uses the product,
16 c) the buyer's obligation to the seller would be changed (e.g., the
17 seller would forgive the obligation or grant a refund) in the event of theft
18 or physical destruction or damage of the product,
19 d) the buyer acquiring the product for resale does not have economic
20 substance apart from that provided by the seller, or
21 e) the seller has significant obligations for future performance to
22 directly bring about resale of the product by the buyer.
23 (emphasis added)
24 92. Further, at the end of each quarter, ICN recorded sales from product deeply
25 discounted, with rights of return and extended payment terms. Again, such transactions may not
26 qualify for revenue recognition since they were in substance consignments.
27
28
ammenpl ol-ftriAL, wpd FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-0701-DOC (A.Nx) 30
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1 Impaired Assets at /CNRUS
2 93. As alleged in paragraphs 4210 68 above, it was apparent by mid-2000 that
3 ICNRUS operations were materially impaired. However, ION failed to record an impairment
4 charge associated with ICNRUS until 3Q02, when it shocked the market by revealing an
. approximate S75 million asset impairment charge related to ICNRUS. Then in 4Q02, 1CN
6 recorded an additional $72 million loss on disposal of discontinued operations. There is a good
possibility that a material portion of the additional charges relates to the Russian operations as
8 well. ICN's financial statements were materially false and misleading and violated GAAP
9 because ICN failed to assess and record the required impairment charge in the proper time
10 period.
11 94. In its Form 10-K for the year ended December 31, 2001, filed March 27, 2002,
12 ION made the following disclosure regarding asset impaimient, in the footnote to financial
13 statements:
14 In August 2001, the FASB issued SPAS No. 144, Accounting for the Impairment
15 of Long-lived Assets. SPAS No. 144, which addresses financial accounting and
16 reporting for the impairment of long-livcd assets and for long-lived assets to be
17 disposed of, supercedes SFAS No. 121 and is effective for fiscal years beginning
18 after December 15, 2001. While the Company is currently evaluating the impact
19 adoption of SPAS No. 144 will have on its results of operations and financial
20 position, it does not expect such impact to be material.
21 95. However, in accordance with SFAS No. 121, ICN was required to test for asset
22 impairment relating to the Russian properties because, as discussed in paragraphs 42 to 68
23 above, ICN knew or should have known that there were events and circumstances that indicated
24 that the carrying amount of the Russian properties exceeded the fair value of such properties.
25 SFAS No. 121, states the following regarding when to measure for possible impairment:
26 An entity shall review long-lived assets and certain identifiable intangibles to be
27 held and used for impairment whenever events or changes in circumstances
28 indicate that the carrying amount of an asset may not be recoverable. (14)
aaaaaaaaa...aa FIRST AMENDED CONSOLIDATED CLASS ACTION CONIPLA.INTNo. SACV 02-0701-DOC (ANx) 31
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1
2 The following are examples of events or changes in circumstances that indicate
3 that the recoverability of the carrying amount of an asset should be assessed:
4 a. A significant decrease in the market value of an asset
5 b. A significant change in the extent or manner in which an asset is used or a
6 significant physical change in an asset
7 c. A significant adverse change in legal factors or in the business climate
8 that could affect the value of an asset or an adverse action or
9 assessment by a regulator
10 d. An accumulation of costs significantly in excess of the amount originally
11 expected to acquire or construct an asset
12 e. A current period operating or cash flow loss combined with a history
13 a operating or cash flow losses or a projection or forecast that
14 demonstrates continuing losses associated with an asset used for the
15 purpose of producing revenue. 5, emphasis added)
16 96. As alleged above, Dorodny was employed to evaluate the appropriateness of the
17 recorded values of various assets of ICNRUS. He notified both the ICNRUS CFO, Vasic, and
ICN CEO, Panic, about his concerns regarding the over-valuation of the Russian properties.
19 Dorodny even notified ICN's auditor's, PwC, in an attempt to understand the magnitude of the
20 asset impairment of the Russian properties. Unfortunately, Dorodny left the Company and ICN
21 was able to continue to avoid recording an impairment loss. ICN's financial statements violated
22 GAAP because it failed to record the required impairment loss. SFAS No. 121 states, regarding
23 recording impairment, as follows:
24 if the sum of the expected future cash flows (undiscounted and without interest
25 charges) is less than the carrying amount of the asset, the entity shall recognize an
26 impairment loss... (116)
27
28
FIRST AMENDED CONSOLIDAT.E.D CLASS AMON COMPLAINTNo. SACV 02-0701-DQC (Anc) 32
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1 ION knew that conditions in the Russian business environment were changing and
2 therefore, it should have evaluated whether the properties were impaired and
3 recorded an. appropriate impairment charge.
4 Failure to Properly Record ICNRUS Expenses
5 97. As alleged above, throughout the class period, ICNRIIS repeatedly failed to
6 properly record expenses, Thereby overstating pre-tax earnings. Such expenses included various
7 fixed costs, as well as other expenses in connection with ICNRUS operations. FASCON 5
8 provides the guidance for the recognition of expenses in finapcial statements. FASCON 5 states
9 in relevant part as follows:
10 Expenses and losses are generally recognized when an entity's economic
11 benefits are used up in delivering or producing goods, rendering services, or other
12 activities that constitute its ongoing major or cental operations or when
previously recognized assets are expected to provide reduced or no further
14 benefits. (1T 85)
15 Further, FASCON 5 states, with respect to loss or lack of future benefit, as
16 follows:
17 All expense or loss is recognized if it becomes evident that
18 previously recognized future economic benefits of an asset have
19 been reduced or eliminated, or that a liability has been incurred or
20 increased, without associated economic benefits. (II 87)
21 ION knew or should have known that it was violating GAAP by falling to
22 properly record expenses in the appropriate quarter.
23 PwC
24 98. ION engaged PwC to provide independent auditing and accounting services
25 during the relevant time period (for the years ended December 31, 2001 as well as the quarters
26 within 2001 and 2002). PwC's report included in ICN's 10-K stated that ICN Is financial
27 statements for the year ended December 31, 2001, fairly presented its financial condition and the
28 results of its operations in conformity with GAAP and that the audits by PwC were performed in
FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo, SACV 02-0701 .DOC (ANx) 33
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1 accordance with Generally Accepted Auditing Standards ("GAAS"). PwC's unqualified audit
2 report was false and misleading as ICN i s financial statements were not presented in conformity
3 with GAAP, as described in paragraphs 63 and 69, .supra. Also, PwC's report was false and
4 misleading because PwC failed to comply with GAAS in conducting its audit of ICN's financial
5 statements.
6 99. Dorodny said that he specifically inquired of PwC pariner, Tony, regarding the
7 recorded values of several of the properties located in Russia. Dorodny stated that, "Tony and
8 his staff were completely unaware of the values of the buildings or whether supporting
9 information existed for those values. Instead the only thing Tony wanted was to sell a drug store
10 in a building he owned to Dorodny and ICN Rnssia."
11 100. PwC was required to comply with GAAS, which were approved and adopted by
12 the membership of the ATCPA, as amended by the AICPA Auditing Standards Board (ASB), and
13 arc as follows:
14 General Standards
15 1. The audit is to be performed by a person or persons having adequate
16 technical training and proficiency as an auditor.
17 2. In all matters relating to the assignment, an independence in mental
18 attitude is to be maintained by the auditor or auditors.
19 3. Due professional care is to be exercised in the performance of the audit
20 and the preparation of the report.
21 Standards of Field Work
22 1. The work is to be adequately planned and assistants, if any, are to be
23 properly supervised.
24 2. A sufficient understanding of internal control is to be obtained to plan the
25 audit and to determine the nature, timing, and extent of tests to be
26 performed.
27
28
FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-070I-DOC (ANK) 34
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1 3. Sufficient competent evidential matter is to be obtained through
2 inspection, observation, inquiries, and confirmations to afford a
3 reasonable basis for an opinion regarding the financial statements under
4 audit.
5 Standards of Reporting
6 1. The report shall state whether the financial statements are presented in
7 accordance with generally accepted accounting principles (GAAP).
8 2. The report shall identify those circumstances in which such principles
9 have not been consistently observed in the current period in relation to the
10 preceding period.
11 3. Informative disclosures in the financial statements are to be regarded as
12 reasonably adequate unless otherwise stated in the report.
13 4. The report shall contain either an expression of opinion regarding the
14 financial statements, taken as a whole, or an assertion to the effect that an
15 opinion cannot be expressed. When an overall opinion cannot be
16 expressed, the reasons therefor should be stated. In all cases where an
17 auditor's name is associated with financial statements, the report should
18 contain a clear-cut indication of the character of the auditor's work, if any,
19 and the degree of responsibility the auditor is taking. (AU §150)
20 101. As disclosed in ICIN's 10-K's, the Russian operations were a material part of ICN's
21 consolidated results and therefore should have been appropriately audited with allegations of
22 overstated assets investigated. Instead PwC turned a blind eye to what was standard business
23 practice in Russia.
24 FALSE AND MISLEADING STATEMENTS
25 102. On May 3, 2001, defendants caused ION to issue a press release announcing
26 record revenues for the first quarter of 2001. 1CN reported total revenues of $199 million, an
27 increase of 3 percent over the $192 million for the same period in 2000. ICN reported revenues
28 from the underlying pharma.ceu.tical business of $156 million, an increase of S% in the quarter.
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The Company further rep oned that North America revenues for the period increased to
2 $42 million from $30 million in the first quarter of 2000.
3 103. The financial information released on May 3, 2001 for the first quarter of 2001 by
4 ION was incorporated in the Company's Form 10-Q , which was filed with the SEC on May 15,
5 2001, and was signed by defendants Panic and Meier.
6 104. The above statements were false and misleading because of the Company's failure
7 to disclose that its reported financial results were materially overstated and that:
8 i) the Company was engaged in a pattern and practice of channel stuffing, as
9 alleged in paragraphs 27-41, supra, that materially inflated its sales during
10 the Class Period;
11 ii) the Company fraudulently reported materially inflated pharmaceutical
12 sales figures, as alleged in paragraphs 38-39, supra.;
13 U.0 defendants caused ICN to record improperly revenues in violation of
14 GAAP for the "sales' of ICN laser products, and, contrary to
15 representations throughout the Class Period, the Photonios division was
16 non-productive and was not a material component ofICN's engine for
17 growth as alleged in paragraphs 69-85, supra;
18 iv) revenues were improperly recorded for the sales of expired pharmaceutical
19 products, as alleged in paragraph 41, supra; and
20 v) /CINTRUS operations were in disarray, and ICNRUS had countless non-
21 performing assets that the Company did not impair, but rather, kept on its
22 books at inflated values in violation of GAAP, as alleged in paragraphs
23 44-68, Rupra_..
24 105. ICN's Form 10-Q for the first quarter, fled with the SEC on May 15, 2001, also
25 included the following:
26 REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
27 To the Board of Directors and Stockholders of ION Pharmaceuticals, Inc.:
28
arnzmnflAlr L.F1NAL wpd FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-070) -DOC (ANx) 36
MAY 1G 2007 14 : 45 415 477;710 PAGG.44
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1 We have reviewed the accompanying consolidated condensed balance
2 sheet of ICN Pharmaceuticals, Inc. and its subsidiaries as of March 31, 2001 and
3 the related consolidated condensed statements of income, comprehensive income
4 and cash flows for each of the three-month periods ended March 31, 2001 and
5 2000. These consolidated condensed financial statements are the
6 responsibility of the Company's management
We conducted our review in accordance with standards established by the
8 American institute of Certified Public Accountants. A review of interim
9 financial information consists principally of applying analytical procedures to
10 financial data and making inquiries of persons responsible for financial and
11 accounting matters. It is slabstantiafly less in scope than an audit conducted in
12 accordance with generally accepted auditing standards, the objective of
13 which is the expression of an opinion regarding the financial statements taken
14 as a whole.
15 Accordingly, we do not express such an opinion.
16 Based on our review, we are not aware of any material modifications that
17 should be made to the accompanying consolidated condensed interim financial
18 statements for them to be in conformity with accounting principles generally
19 accepted in the United States of America.
10 We previously audited in accordance with auditing standards generally
21 accepted in the United States of America, the consolidated balance sheet as of
22 December 31, 2000, and the related consolidated statements of income,
23 stockholders' equity, and cash flows for the year then ended (not presented
24 herein), and in our report dated March 1, 2001, except for Note 12, as to
25 which the date is March 15, 2001, which included, an emphasis of matter
26 paragraph related to the Company's change in method of accoariting for ICN
27 Yugoslavia, a previously consolidated subsidiary, as more fully described in
28 Notes 2 and 14 to those consolidated statements, we expressed an unqualified
wp FIRST AMENDED CONSOLIDA7EID CLASS ACTION COMPLANTNo. SACV 02-0701-DOC (ANx) 37
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1 opinion on those consolidated financial statements. In our opinion, the
2 information set forth in the accompanying consolidated condensed balance sheet
3 as of December 31, 2000, is fairly stated, in all material respects, in relation to
4 the consolidated balance sheet from which it has been derived.
5 /S1PricewaterhouseCoopers LLP
6 PricewaterhouseCoopen LLPOrange County, California
7 May 3, 2001
8 106. PwC's audit report was false and misleading as ICN's financial statements were
9 not presented in conformity with GA.AP, as described in paragraphs 63 and 99, sutra. Also,
10 PwC's report was false and misleading because PwC failed to comply with GAAS in conducting
11 its audit of ICN's financial statements.
12 107, In response to the May 3, 2001 press release, IF Morgan rated the stock a Long
13 1 Term Buy.
14 108. On May 31, 2001, .IP Morgan issued a report maintaining its rating of ICN as a
15 Long Term Buy based on positive drug marketing.
16 109. On July 26, 2001, analyst JP Morgan maintained its rating of ICN as a Long Term
17 Buy, to which the market reacted positively, and closed at $30.93, 7% higher than its closing on
18 the prior clay.
19 2001 Results
20 110. On August 2, 2001 1 defendants caused ION to issue a press release announcing its
21 results for the second quarter of 2001., reporting record revenues. In the press release, the
22 Company touted ICN's performance for the quarter, reporting total Company revenue of
23 $206 million, an increase of 7% over the same period last year. Reported pretax income wa_s a
24 record $37 million. Second quarter revenue for the Americas group increased to $74 million
25 from $56 million the prior year, an increase of 32%. North America second quarter revenue was
26 $44 million, up 64% from last year. The Biornedicals Group's reported revenue was
27 $15 million. The Company reported that sales from the NLite Laser system contributed to
28 growth in the quarter.
FTRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-070I-DOC (ANx) 38
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1
1 111. Analysts responded positively to ICN's second quarter results. Following
2 conversations with management, on August 3, 2001, SP Morgan issued a report maintaining its
3 rating of ICN as a Long Term Buy. The Long Term Buy rating was based in part, on strong
4 fourth quarter sales, which were up 18%, according to JP Morgan. The analyst stated, "[w]e
5 were surprised by the upside-one penny to our estimate and two pennies to our consensus—given
6 weak Rthetron scripts (-33%) and Intron family salcs(-13%)."
7 112. In addition, analyst Arnhold and Bleichroeder, Inc. issued a report on August 3,
8 2001, reporting that ICN's second quarter results evidenced improved operating -trends in
9 specialty pharina operations in both North America and Europe. Based on conversations with
10 management and, in part, on these improved trends, Arahold raised its 2002 EFS estimate from
11 $2.05 to $2.15. Arnhold focused on specialty pharma sales, which ICN reported was up 20%
12 worldwide.
13 113. The financial information released on August 2, 2001 for the second quarter of
14 2001 by ICN was incorporated in the Company's Form 10-Q, which was filed with the SEC on
15 August 14, 2001, and was signed by defendants Panic and Meier.
16 114. ICN's Form 10-Q for the second quarter, filed with the SEC on August 14, 2001,
17 also included a REVIEW REPORT OF INDEPENDENT ACCOUNTANTS substantially similar
18 to the one set forth in its entirety above in paragraph 105, supra, that was materially false and
19 misleading as set forth in paragraph 106, supra.
20 115. The Company's Form I0-Q for the second quarter of 2001, and the press releases
21 issue in connection therewith were false and misleading for at least the reasons stated in
22 paragraph 104, supra.
23 116. On August 15, 2001, JP Morgan maintained its rating of ICN as a Long Term
24 Buy, expectng a large number of sales this fall and no earnings risk until 2004.
25 117. On September 17, 2001 7 defendants caused ICN to issue a press release
26 announcing its intentions to invest $13 million in Russia. Panic reported that sales in Russia
27 were around $100 million last year, and should be up 5%-10% this year, with growth potential in
28
rota inio..-FINAL.wp.i ' FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAPSTNo. SACV 02-0701-DOC (Ant) 39
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1 Russia in the Long Term. Defendant Panic stated, "I believe Russia is an excellent investment
2 place..."
3 /18. The September 17, 2001 press release was false and misleading in that ICNRUS
4 operations were in disarray, and. ICNRUS had countless non-performing assets that the Company
5 did not impair, but rather, kept on. its books at inflated values in violation of GAAP.
6 119. On September 25, 2001, defendants caused IC'N to issue a press release
7 announcing a third quarter cash dividend, supported by its record earning performance in the
8 first half of the year. The Company again stated that total Company revenue for the second
9 quarter increased to a record $206 million, and revenue for the first six months was a record
10 $405 million. The Company touted that the dividend was the highest cash dividend ever paid by
11 ICN.
12 120. On October 9, 2001, JP Morgan issued a Special Pharma Quarterly Report,
13 reporting on many pharmaceutical companies, including ICN. The market reacted positively to
14 JP Morgan's analysis that ICN was the best risk-reward profile in the sector.
15 121. On October 16, 2001, J? Morgan analyst Corey Davis issued a report stating that
6 based conversations with ICN management regarding the upside of IC ,T's market exclusivity and
17 explosive earnings for the next 12 months, combined with a multiple 50% lower than its peers,
18 ICN was a great short-term play.
19 3001 Results
20 122. On October 26, 2001, defendants caused ION to issue a press release reporting
21 that the Company expected record sales from operations for the tbird quarter. The Company •
22 reported that North America continued to show strong revenue and earnings growth in the third
23 quarter of 2001.
24 123. On November 1, 2001, defendants caused ION to issue a press release reporting
25 its results for the third quarter of 2001. It reported re-eord revenues of $167 million, compared to
26 $158 million for the sante period in 2000. Specifically, in. the Americas Group, revenues for the
27 qu.arter rose to $84 million, up 17% from the third quarter of 2000, and operating income was
28 $11 million, up 32% from the prior year. The Company reported that North American sales for
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1 the first 9 months of the year were a record $125 million. In addition, the company reported that
2 sales of lasers from 1CN's photonics business contributed to the U.S. performance. Defendant
3 Panic commented, "While the delay in the launch of PegIntron negatively impacted our earnings,
4 the company reported strong results from operations. Our North American operations posted a
5 record 53% year over year growth in revenue and a 32% increase in operating profit."
6 124. On November 1, 2001, following conversations with management, JP Morgan
7 issued a report on ICN, maintaining its previous rating of Long Tenn Buy. Based on
3 conversations with management, .11) Morgan estimated 2002 earnings would increase to
9 $961 million or $1.66 earnings per share.
10 125. The financial information released on November 1, 2001 was incorporated in the
11 Company's Form 10-Q for the third quarter 2001, which was filed with the SEC on November
12 14, 2001, and was signed by defendants Panic, Giordani and Meier.
13 126. ICN's Form 10-Q for the third quarter, filed with the SEC on November 1, 2001,
14 also included a REVIEW REPORT OF INDEPENDENT ACCOUNTANTS substantially similar
15 to the one set forth in its entirety above in paragraph 105, supra, that was materially false and
16 misleading as sel forth in paragraph 106, supra.
17 127. The Company's Form 10-Q for the third quarter of 2001, and the press releases
18 issue in connection therewith were false and misleading for at least the reasons stated in
19 paragraph 104, supra.
20 128. On November 20, 2001, Gerard Klauer M2iiiS011 initiated Coverage of ICN, at a
21 price of $27.00, and a 12 month target price of $41.00.
22 129. On November 21, 2001, JP Morgan issued a report maintaining its previous rating
23 of Long Term Buy, "with very little downside."
24 130. On December 13, 2001, defendants caused ICN to issue a press release
25 announcing that it expected sales in Russia to increase by 10% in 2002 to 3 billion rubles (about
26 $100 million dollars). The Company further announced that ICN Russia planned to spend
27 $20-$30 million on a program to promote Russian-made drugs, which was expected to boost
28 ION sales in Russia by 50% in 2002.
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I 4Q01 and Year end Results
2 131. On January 10, 2002, defendants caused ICN to issue a press release reporting
3 that it expected its fourth quarter 2001 earnings to exceed analysts' consensus of $0.29 per share.
4 Defendant Panic attributed the growth to, among other things, "the continued good
5 performance of our specialty pharmaceutical business." (Emphasis Added). Panic added,
6 "We will also most likely exceed analyst 2002 earnings consensus estimates of $132 per share."
7 132. On January 22, 2002, ICN issued announced an agreement to acquire CoolTouch
8 Corporation, which became part of its ph.otonics business. Panic stated:
9 This acquisition underscores ICN's long-term commitment to dermatology by
10 enhancing our portfolio of facial aesthetic products to include FDA approved
11 non-invasive treatments for pen-ocular wrinkle reduction and. hair reduction.
12 Panic added:
13 ICN will now offer physicians the market's two leading systems for peri-ocular
14 wrinkle reduction—NLite(Tiv1) and CoolTouch®), combined with a number of
15 complimentary eosmeceuticals and prescription products for facial sibs/care.
16 The Company further announced that the CEO of CoolTouch would assume
17 command of ICN's "newly formed U.S. dermatology device unit, ION
18 photonics."
19 133. On February 25, 2002, defendants caused ICN to issue a press release announcing
20 that its subsidiary, ICN Photonics, Ltd., received clearance from the FDA to market the NLite
21 System. IC1‘7 also announced its intent to acquire CoolTouch Inc. ICN reported that with both
22 companies owned by ION, that it is the leader in developing and marketing advanced non-
23 ablative laser technology, cosmeceuticals and pharmaceutical therapies. ION reported that as
24 many as 5,000 non-invasive wrinkle-reduction systems may be placed in thc U.S. within the next
25 3-5 years, creating a potential S1.2 billion market for physicians.
26 134. On February 27, 2002, defendants caused ION to issue a press release announcing
27 its results for the fourth quarter and year end. 2001. ION boasted that it had achieved the highest
28 level of revenues and pre-tax income in any quarter of the Company's history. The Company
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,• ' - I
I reported record fourth quarter revenues of $262.3 million, and operating income for the quarter
2 was a record $77.6 million, an increase of 303% from the fourth quarter of 2000. Virtually half
3 of the increase was attributable to the specialty pharmaceutical business, which reportedly
4 increased its operating income by $38.8 million.
5 135. For year end 2001, ICN posted record revenues of $S58.1 million, and operating
6 income of $189.3 million. Pretax income for the year totaled a record $144.4 million. For North
T America, pharmaceutical sales were $173.7 million, an increase of 44%, and operating income
8 was $68.2 million, up 42%.
9 136. In addition, the Company reported that in Moscow, "the most important market,"
10 "ICN has become the single largest pharmacy retailer with over 100 retail outlets. The fourth
11 quarter of 2001 was Russia's first profitable quarter, since the first quarter of 2000..."
12 137. In addition, defendant Panic stated:
13 Our higher Sales and Marketing expenses indicate how aggressive we are in
14 moving into niche markets in the specialty pharmaceuticals business. Despite the
15 increased sales and marketing activities, overall G &A is down, reflecting
16 increased efficiencies."
17 138. On February 27, 2002, following conversations with management,]? Morgan
18 issued a report maintaining its previous rating of ICN as Long Term Buy. IP Morgan was
19 particularly impressed. by the higher product sales that were, according to management, not
20 boosted by channel stuffing:
21 [rn]ost of the upside came from higher than expected product sales, offset hy a •
22 much higher tax rate. This product sales increase occurred across all major
23 geographical sectors of the business... Management reiterated on its conference
24 call that the product sales growth is completely natural (no channel stuffing)
25 and will continue into 2002. (Emphasis Added)
26 JP Morgan added:
27 ... there is still a substantial discrepancy between what would have been an 8%
28 growth in revenue and the 14% volume decline [i.e., number of drug products
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1 sold]. This would imply either channel stuffing or a whopping 20% impact of
2 price. We are relatively confident la management's assertion that wholesaler
3 inventories are normal,— (Emphasis Added)
4 139. The financial results reported on February 27, 2002 were incorporated into ICN's
5 Form 10-K filed with the SEC on March 27, 2002, and signed by defendants Panic, Giordarii,
6 and Jemcy.
7 140. ICN"s Form 10-K filed with the SEC on March 27, 2002 also included the
8 following "Report of Independent Accountants:"
9 In our opinion, the consolidated financial statements listed in the accompanying
10 index present fairly, in all material respects, the financial position of 1CN
11 Pharmaceuticals, Inc. (a Delaware corporation) and Subsidiaries at December 31,
12 2001 and 2000, and the results of their operations and their cash flows for each of
13 the three years in the period ended December 31, 2001, in conformity with
14 accounting principles generally accepted in the United States of America. In
15 addition, in our opinion, the financial statement schedule listed in the
16 accompanying index presents fairly, in all material respects, the information set
17 forth therein when read in conjunction with the related consolidated financial
18 statements. These financial statements and financial statement schedule are the
19 responsibility of the Company's management: our responsibility is to express an
20 opinion on these financial statements and financial statement schedule based on
21 our audits. We conducted our audits of these statements in accordance with
22 auditing standards generally accepted in the United States of America, which
23 require that we plan and perform the. audit to obtain reasonable assurance about
24 whether the financial statements are free of material misstatement An audit
25 includes examining, on a test basis, evidence supporting the amounts and
26 disclosures in the financial statements, assessing the accounting principles used
27 and significant estimates made by management, and evaluating the overall
28
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1 financial statement presentation. We believe that our audits provide a reasonable
2 basis for the opinion.
3PRICEWATERHOUSECOOPERS LLP
4 Orange County, California , February 27, 2002
5 141. PwC's audit report was false and misleading as ICN's financial statements
6 were not presented in conformity with GAAP, as described in paragraphs 63 and 99, supra.
7 Also, P-wC's report was false and misleading because PwC failed to comply with GAAS in
8 conducting its audit of 'CM financial statements.
9 142. The Company's Form 10-K for the fiscal year ended December 31, 2001,
10 and the press releases issue in connection therewith were false and misleading for at least the
11 reasons stated in paragraph 104, supra.
12 143. On March 7 1 2002, defendants caused ICN to issue a press release
13 announcing that it planned to invest $200 million in Russia over the next 3 years. The Company
14 reported that it controlled 20% of the Russian pharmaceuticals market. ICN stated that it
15 expected 2002 sales in Russia to increase by 50%.
16 144. The March 7, 2002 press release was false and misleading in that ICNRUS
17 operations were in disarray, and ICNRUS had countless non-performing assets that the Company
18 did not impair, but rather, kept on its books at inflated values in violation of GAM',
19 Proxy Fight Initiated
20 145. On March 13, 2002, two dissident shareholders, Iridian Asset
21 Management("Iridian") and Franklin Mutual Advisors, LLC("Franklin"), both large ICN
22 investors, filed a joint 13D statement stating that they joined forces, and expressing belief that
23 ION common stock traded at significant discounts to its intrinsic value. They proposed
24 restructuring ION into three separate wholly independent businesses, similar to the plan
25 originally announced by ICN in October 2000. The restructuring would entail a biotechnology
26 company, Ribapharrn; IO:',IInternational, which would be comprised of the Western and Eastern
27 Europe, and Asia, Africa and Australia businesses; and ION Americas, to be comprised of the
28 North and Latin American businesses. They noted that, even though it appeared that following
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1 ICS's May 2001 annual meeting, the election of new directors would precipitate this
2 restructuring, nothing had taken place in the intervening nine months. Indian and Franklin
3 added that they intended to wage a proxy fight with the goal of bringing in new directors who,
4 with the three directors elected the previous year, would consummate the restructuring.
5 146. On March 13, 2002, defendants caused ICN to issue a press release in
6 response to the 13D Schedule filed by Indian and Franklin:
7 [ICN is] fully committed to building value for its shareholders, as it has
8 repeatedly demonstrated throughout its corporate history. ION has made
9 significant progress in achieving this objective in several ways:
10 —Strong operating performance—ICN has just completed one of the most
11 successful years in its operating history. The company recorded record results for
12 the 2001 fourth quarter and year-to-date in several important metrics.
13 --Revenues were at record levels for the fourth quarter and full year.
14 —Operating income hit a record for the fourth quarter.
15 —Pre-tax income was at record levels for the fourth quarter and full year
16 —Royalty revenues were at record levels in the fourth quarter.
17 The company's strong results were achieved primarily as a result of the continued performance
18 of its core specialty pharmaceutical business and an accelerating royalty stream.
19 147. The Company's March 13, 2002 Proxy was false and misleading for at least the
20 reasons stated in paragraph 104, ;supra.
21 Ribapharm IPO Completed
22 148. Ribapharm is a biotethno/ og,y company focused on the discovery and
23 commercialization of pharmaceuticals in the antiviral and anticancer areas. In a desperate effort
24 to retain control and defeat the dissident shareholders' proxy fight, ICN completed a partial IPO
25 of Ribapharrn, in an attempt to show shareholders that ICN would move forward with its initial
26 rest-ucturing plan.
27 149. On April 17, 2002, defendants caused ICN to issue a press release and file a Form
28 8-K reporting the completion of an IPO for 26 million shares(17.33% of the outstanding
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1 Ribapharm shares) of the common stock of its subsidiary, Ribapharm, Inc., excluding the
2 underwriters' over-allotment option to purchase an additional 3.9 million shares. ICN owned the
3 remaining 82.67% of the outstanding Ribapharm shares. ICN reported in its Form 8-K filed with
4 the SEC on April 17, 2002, that the Company posted record full year revenues of $858 million
5 and record pre-tax income of S144 million. The company reported that year over year, from
6 March 2001 through March 2002, ICN outperformed the drug industry by 42%. It further
7 re-ported that its total cash position at March 31, 2002 was 1381 million, compared to
8 $328 million at the same time last year.
9 150. As a result of the completion of the Ribapharm IPO, a cash bonus pool was paid
10 to ICN directors and management. Panic received $33.1 million cash bonus for arranging the
11 IPO of a 19.9% stake in Ribapharm, Inc. Specifically, the following bonuses were paid out:
12 -Milan Panic: $33,050,000
13 -Adam Jerney: $3,000,000
14 -Bill MacDonald: $2,000,000
15 -David C. Watt: $1,000,000
16 -9 non-executive directors: $330,500 each
17 Proxy Fight Continues
18 151. On April 19, 2002, ICN filed a preliminary proxy statement with the SEC,
19 in connection with the Company's 2002 annual meeting. In those materials, ICN touted
20 management's performance, specifically stating:
21 ICN has been creating value through performance that has been recognized by
22 investors through significant benchmarks in revenue, dividends and operating
23 income. Revenues for the last six years on a compounded basis has equated to
24 24% increase, dividends has resonated 9% compounded growth and operating
25 income has grown 31%. ICN has been delivering record numbers year-over-year
26 for investors by increasing the royalty stream from ribavirin, expanding the depth
27 of the drug development pipeline, and lastly, restructuring the company.
28 -StocIdialders' equity rose $803 million as of December 31, 2001
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1-Record revenue of $858.1 million in 2001 compared to $800.3 in
2 2000, up 25% from a year ago
3 -Operating income of $189.3 million compared to $184.0 millionin 2000
4-Pre-tax income of S144.4 million in 2001 compared to
5 $129.6 million in 2000
6 -Income for 2001 before an extraordinary loss due to repurchase ofdebt (due to restructuring plan) was $85.2 million compared to
7 $93.4 million in 2000
8 -EBITDA was $260 million in 2001
9 152. The Company's April 19, 2002 Proxy was false and misleading for at least
10 the reasons stated in paragraph 104, supra.
11 1002 Resuits
12 153. On May 2, 2002, defendants caused ICN to issue a press release
13 announcing the results from the first quarter of 2002. The Company reported record revenues of
14 $247.7 million, up 23% from the first quarter of 2001. Operating income was reportedly a
15 record $65.8 million, an increase of 60%. Reported net income was a record S33.7 million, an
16 increase of 60% from the same period in 2001. Reported earnings per share for the first quarter
17 were $0.40, an increase of 54%, Reportedly, EBITDA increased 43% from the same period last
18 year. Defendant Panic commented,
19 Results for the first quarter continue to demonstrate the strength of our operations.
20 In almost every measure of performance in the first quarter, we exceeded
21 expectations and set new records. Our strong performance, coupled with our
22 promise kept to restructure ICN, underscores our commitment to building value
23 for all of our shareholders. These results were not achieved by accident. They
24 are the direct result of the hard work of our employees, led by an experienced
25 management team arid independent board.
26 154. On May 2, 2002, in response to ICN's earnings release, CIBC World Markets
27 analyst Steven Gerber issued a report rating ICN a Strong Buy.
28
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1 155. On May 2, 2002, in response to ICN's earnings release, analyst JP Morgan issued
2 a report in line with his previous rating of ICN as a Long Term Buy.
3 156. The financial results reported on May 2, 2002 were incorporated in to JCNs
4 Fenn 10-Q for the first quarter of 2002, filed by ICN with the SEC on May 15, 2002 and signed
5 by defendants Panic and Giordani. In addition, the Company's Form 10-Q reported net income
6 of S33,697,000; 1CN North American Pharmaceutical segment revenues of S46,939,000, up
7 11% for the period; and Russian revenues of $29,776,000, up 22% for the period, due to an
8 increase in sales of its major products.
9 157. ICN's Form 10-Q for the first quarter, filed with the SEC on May 15, 2002, also
10 included a REVIEW REPORT OF INDEPENDENT ACCOUNTANTS substantially similar to
11 the one set forth in its entirety above in paragraph 105, supra, that was materially false and
12 misleading as set forth in paragraph 106, supra.
13 158. The Company's Form 10-Q for the first quarter of 2002, and the press releases
14 issue in connection therewith were false and misleading for at least the reasons stated in
15 paragraph 104, supra.
16 159. On May 15, 2002, ICN announced that its subsidiary, ICN ph.otortics, entered into
17 an agreement with Enfis, an optical company, to develop light-emitting diodes for the treatment
18 of skin disease and other medical conditions. Marc Clement, senior vice president of Research
19 and Development at ICN Photonics noted that "tjhis technology, used either by itself or in
20 combination with pharmaceuticals, could trigger innovations in dermatology and oncology." He
21 further stated, "Enfis has a portfolio of technology patents that are compatible with the ICN
22 intellectual property base."
23 Preliminary Proxy Fight Results
24 160. On May 30, 2002, a Business Week Online Article discussed that it was likely
25 that the dissident shareholders election for directors would be successful, although the results
26 were not expected to be finalized for two more weeks. A week before, ICN had acknowledged
27 that such an outcome would result in a change of control of the Company.
28
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I Additional Statements Regarding Operations
2 161. On June 3, 2002 Gerard Analyst Larry Smith rated ICN a Buy, stating: "We
3 assume that product sales of ICN' s specialty pharmaceutical business increase at 10% in 2002,
4 7% in 2003 and 7% in 2004. Our estimates are made on the basis of trends and guidance
5 from raanagement,"(Emphasis Added)
6 162. On June 5, 2002, defendants caused ICN to issue a press release announcing its
7 strong presence in the Russian market. It reported that it is going to expand its retail chain in
8 Russia tenfold during the next five years. ICN reported that it has 48 drugstores in the capital of
9 Russia, and 93 throughout the country. John Ortega, Senior Vice President of Switzerland-based
10 1CN International, a subsidiary of ICN pharmaceuticals, stated that Russia accounts for 30% of
11 ICN International's revenues and that the figure is growing. Ortega stated that "Mlle company's
12 turnover predictions are 50 percent higher this year than last." ION further reported that the
13 production, sales and marketing section of ION-Eastern Europe reported gross earnings of
14 $21 million for the first quarter this year. Ortega stated, "In terms of absolute volume of sales
15 we are the No. 1 Western company and No. 1 Russian company."
16 163. On June 7, 2002, and June 13, 2002, ION issued press releases, reporting that ION
17 Russia, a subsidiary of the Company, had boosted its domestic sales by 30% over the prior year,
18 reaching $21 million in the first quarter of 2002.
19 164. The June 5, 2002, June 7, 2002, and June 13, 2002 press releases were false and
20 misleading in. that IONRUS operations were in disarray, and 'CYRUS had countless non-
21 performing assets that the Company did not impair, but rather, kept on its books at inflated
22 values in violation of GAAP.
23 165. On June 10, 2002, defendants caused ION to issue a press release reiterating
24 guidance that ION had previously given the market, noting that the Company anticipated sales
25 for 2002 by its specialty pharmaceutical business would be $800 million, with consolidated
26 revenues of over $1 billion dollars. The Company reported that earnings per share for the
27 specialty pharmaceutical business was expected to be $0.80 per share, and consolidated earnings
28 per share was expected to be $2.00 (in addition, if the Ribapharm IPO is taken, into account, than
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I S3.00 per share). Defendant Panic commented, "ICN is an enormously successful company,...,
2 the fundamentals of 'C.,. Ps business, which axe strong and continue to grow.''
3 166. The June 10, 2002 press release, defendants' last, glowing press release, was
4 issued one day before defendants Panic and Giordani, and three days before defendant Jemey,
5 each sold hundreds of thousands of shares of /CN for proceeds of millions of dollars. The press
6 release was false and misleading for at least the reasons stated in paragraph 104, supra.
7 Final Proxy Fight Results
8 167. On June 12, 2002, defendants caused ICN to issue a press release announcing the
9 results of the shareholder vote for nominees for election to ICN's board. The nominees by the
10 dissident shareholders were all elected: Richard Koppes, Randy Thurman and Robert O'Leary.
Ii 168. On June 12, 2002, ICN announced defendant, Panic's, immediate retirement as
12 CEO. In connection with his retirement, Mr. Panic received severance of $12,000,000,
13 Robert O'Leary, one of the directors elected to the Board by the dissidents, took over as interim
14 CEO.
15 169. On June 26, 2002, defendants caused ICNRUS to issue a press release reiterating
16 that it had boosted sales by 30% over the prior year. The Company stated that there were new
17 drugs on the local market, and that the Company anticipated that sales would continue to rise as
18 ICNRUS strengthened its regional presence with new divisions in Kazakhstan and Uzbekistan.
19 170. The June 26, 2002 press release was false and misleading in that ICNRUS
20 operations were in disarray, and ICNRUS had countless non-performing assets that the Company
21 did not impair, but rather, kept on its books at inflated values in violation of GAAP.
22 The Revelations
23 171. On July 11, 2002, defendants caused ICN to issue a press release significantly
24 cutting anticipated financial results for the second quarter of 2002. The Company expected 2002
25 earnings in the second quarter to be between $0.15 and $0.20 per share, rather than the analyst
26 consensus estimate of $0.44 per share. This was at least 50% less than prior forecasts. The
27 Company attributed the lower results to the following factors:
28
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— Lower product sales in ICN‘s North America division resulting from decisions
2 to reduce inventories at the wholesale Level;
3 — Lower than expected revenues for ICN's Photonics division;
4 — Additional research and development expenses from a recent North America
5 acquisition; and,
6 — Lower than expected sales from operations in Russia
7 172. CN's CEO, Robert O'Leary, stated that:
8 several distributors were reducing bloated inventories for the rem2dnder of 2002
9 and well into next year.
10 He further stated:
11 There is no question [inventories] were above industry norms, and we made
12 decision to proactively take them down. Perhaps the eye got taken off the bail
13 here and those levels were allowed to climb higher than they should have.
14 173. On July 12, 2002, an article in the Orange County Register, authored by
15 James Kelleher stated:
16 In a call with investors, Robert W. O'Leary, s new interim head, blamed the
17 profit shortfall on several factors, including one that sounded sinister to cynical,
18 post-Enron era: Former management, O'Leary said, had shipped too many of
19 ICN's products to wholesale custOnleTS in recent quarters—creating a glut that will
20 depress sales in the coming quarters.
21 174. On July 12, 2002, Janes Kelleher authored another article in the Orange County
22 Register, stating that "Wholesale customers, who had been encouraged to purchase more of the
23 company's products than they needed, now have inventories of unsold goods they need to
24 exhaust before buying more, the company said."
25 175. 1.11 response to the July 11th disclosure, various analysts downgraded their ratings
26 of ICN, and reduced revenue and EPS cstima.tes. Gerard. a.nalyst Larry Smith blasted the
27 Company: "lo the best case, management's behavior has been highly unethical, in our opinion.
28 There will likely be an equally intense look at the inventory loading. This occurred prior to the
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I RNA offering and prior to the May annual meeting in which dissidents were seeking to oust
2 Milan Panic."
3 176. In response to this disclosure and downgrades, the price of ICN common stock
4 plummeted, falling over 50% in one day, from a July 10, 2002 closing price of $19.95 per share
5 to $ $9.30 on July 11, on extremely heavy trading volume at almost 20 million shares. The stock
6 price closed 73% down from the class period high of $34.26 on June 12, 2001.
7 177. Par all the reasons set forth herein, the supposed "factors" that caused ICN's
8 disastrous results were known to defendants by the beginning of the Class Period.
9 ADDITIONAL SCIENTER ALLEGATIONS
10 178. Defendants had substantial motive to engage in the acts alleged herein, not the
11 least of which was the successful completion of the Ribaplaann IPO. Specifically, and in order
12 to bring the Ribapharm IPO to completion, defendants needed to make ICN appear to be stable
13 and profitable by 1) meeting its sales targets each quarter; and ii) keeping costs, expenses, and
14 reserves to a minimum. In order to achieve that goal, as alleged above, defendants concealed
15 that i) ICN was channel stuffing; ii) ICN's laser business was unprofitable, in violation of
16 GAAP, and in disarray; and iii) 1CNRUS operations were unprofitable and car-ricd numerous
17 assets at inflated values,
18 179. The Ribaphanm IPO was particularly important to defendants Panic, Jerney,
19 MacDonald, and Watt in that each of them Stood to gain lame amounts of money if the
20 transaction was completed. As the direct result of the Ribaphann IPO, defendant Panic stood to
21 gain, and did gain, a cash bonus of $33,050,000. Defendant Jerney received a cash bonus of
22 $3,000,000 as a direct result of the Ribapharm IPO. Defendant MacDonald received a cash
23 bonus of $2,000,000 as a direct result of the Ribapharm IPO. Similarly, defendant Watt received
24 a $1,000,000 cash bonus for the successful Completion of the Ribaphann IPO,
25 180_ Additionally, each of the defendants, during the Class Period, had sales of ICN
26 securities that were suspicious in timing or amount as set forth below:
27
28
arr.comnbt at . 1, NALlupd FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-0701-DOC (ANx) 53
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1 Defendant Date Number Sold Price Per Share Sale Proceeds
2 Panic 6/11-14/02 951918 $24.61-32.50 $23.5MM-31MM3/15/02 95,640 $29.68 $2.8MM
3 1/18/02 314,423 $29.89 $9.4MM
4 Watt 3/12/02 35,990 $28.40 $1.02MM12114/01 12,478 $30.93 $386K
5 6/13-15/01 86,909 $33.54-34.00 $2.9.M.M
6 MacDonald 6/14/02 202,808 $24.61-32.50 $5MM-6.6MM
7 Jerney 7/11102 350,000 $10.33-12.24 $3.6M1v1-4.3MM6/11-14/02 327,883 $24.61-32.50 $8.1MM-10.7MM
8Giordani 6/11-14/02 157,800 $24.61-32.50 $3.9MM-5.1MM
9 11/20/01 5,188 $26.84 $139K6/08/01 23,415 $32.28 $756K
10Meier 11126/01 3,500 $28.62 $100K
11
12 181. Defendant Panic's sales of ICN securities were suspicions in both timing and
13 amount in that between March 30, 1995 and April 5, 2001, he sold a total of 272,439 shares of
14 ICN common stock for a staggering total of between $35.7 and $43.2 million in proceeds. None
15 of these sales were planned. Thus, over the course of the six years preceding the Class Period,
16 he sold a mere 20% of the total number of shares that he sold in the six months preceding the
17 Company's July 11, 2002 disclosure that caused the Company's stock to plummet.
18 182. Defendant Watt's sales of ION securities were suspicious in timing or amount in
19 that prior to the Class Period, the largest single stock sale he had ever engaged in was 23,934
20 shares sold in late December of 2000. Two of his three sales during the Class Period fat exceed
21 that amount.
22 183. Defendant MacDonald's sale of ION securities were suspicious in both timing arid
23 amount. His sale of 202,808 shares cf ION securities, worth between $5 million and $6.6 million
24 was his only sale during the class period and was made a mere three days after the Company's
25 last, glowing press release on June 10, 2002 and less than one month before the Company's
26 shocking July 11, 2002 disclosure.
27 184. Defendant Jerney's sales of ICN securities were suspicious in both timing and
28 amount. His sale of 327,883 shares of /CN securities, worth between $8.1 million and
FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-0701-DOC (ANx) 54
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1 $10.7 million commenced one day aer the Company's last, glowing press release cm June 10,
2 2002 and less than one month before the Company's shocking July 11, 2002 disclosure. His
3 sale of 350,000 shares on July 11, 2002, worth between $3.6 million and S4.3 million, was a last
4 ditch attempt by Jeniey to sell his shares of 1CN before the stock price could "bottom-out" as the
5 result of the Company's disclosure on that day.
6 185. Defendant Giordani sales of ICN securities were suspicious in both timing and
7 amount. His sale of 157,800 shares of ICN securities, worth between $3.9 million and
8 $5.1 million commenced one day after the Company's last, glowing press release on June 10,
9 2002 and less than one month before the Company's shocking July 11, 2002 disclosure.
10 INAPPLICABILITY OF STATUTORY SAFE HARBOR
186. The statutory safe harbor provided for forward-looking statements under certain
12 circumstances does not apply to any of the allegedly false or misleading statements pleaded in
13 this Complaint. The statements alleged to be false and misleading herein all relate to then-
14 existing facts and conditions. In addition, to the extent certain of the statements alleged to be
15 false may be characterized as forward-looking, there were no meaningful cautionary statements
16 identifying important facts that could cause actual results to differ materially from those in the
17 purportedly forward-looking statements. Alternatively, to the extent that the statutory safe
18 harbor does apply to any forward-looking statements pleaded herein, defendants are liable for
19 those false forward-looking statements because at the time each of those forward-looking
20 statements was made, the particular speaker had actual knowledge that the particular forward-
21 looking statements was false, and/or the forward-looking statement was authorized and/or
22 approved by an executive officer of ICN who knew that those statements were false when made.
23 CLASS ACTION ALLEGATIONS AND THE FRAUD-ON-T • E-MARKET PRESUMPTION OF RELIANCE
24
25 187. Lead Plaintiff brings this action on its own behalf and as a class action pursuant to
26 Federal Rules of Civil Procedure 23(a) and 23(b) (3) on behalf of a class (the "Class') consisting
27 of all persons or entities who purchased or otherwise acquired 1CN securities on the open market
28 from. May 3, 2001 through and including July 10, 2002 inclusive (previously defined as the
amiumult-I1NAL.orra Fan' AMENDED CONSOLIDATED CLASS ACTION colv.rpLAINTNo. SACV 02-070I-DOC (ANx) 55
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1 "Class Period") and who were damaged thereby. Excluded from the Class are defendants, the
2 officers and directors of the Company at all relevant times, members of their immediate families,
3 parents, subsidiaries, officers, directors and affiliates of the corporate defendant, any entity in
4 which any defendant has a controlling interest, directly or indirectly, and their legal.
5 representatives, heirs, successors or assigns.
6 1$8. The members of the Class are so numerous that joinder of all members is
7 impracticable. Throughout the Class Period, ICN is common stock was actively traded on the
8 New York Stock Exchange. While the exact number of Class members can only be ascertained
9 through appropriate discovery, Lead Plaintiff believes that Class consists of thousands of
10 members. As of March 17, 2003, there were over 83 million shares of ICN common stock
11 outstanding and millions of shares were traded on the New York Stock Ex.change during the
12 Class Period.
13 189. The market for ICN common stock was efficient. Among the indicia of the
14 efficient market in which 1CN traded were its ability to file registration statements on Form 5-3,
15 that numerous securities analysts followed the stock, that the market instantly absorbed
16 information about ICN, and that millions of shares of ICN stock were traded daily. Because
17 ICN' s stock traded in. an efficient market, Lead Plaintiff and members of the Class are entitled to
18 avail themselves of the fraud-on-the-market presumption of reliance.
19 190. Lead Plaintiffs claims are typical of the claims of the members of the Class.
20 Plaintiff and all members of the Class sustained damages as a result of defendants' wrongful
21 conduct complained of herein.
22 191. Lead Plaintiff will fairly and adequately protect the interests of the members of
23 the Class and has retained counsel competent and experienced in class and securities litigation.
24 Lead Plaintiff has no interest that is in conflict with those of the Class.
25 192. Common questions of law and fact exist as to all members of the Class and
26 predominate over any questions solely affecting individual members, including:
27 1) whether the federal securities law were violated by defendants' acts as
28 alleged herein;
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ii) whether statements made by defendants to the investing public during the
2 Class Period misrepresented material facts about the business, operations
3 and finances of 1CN;
4 iii) whether defendants pursued the fraudulent scheme and course of business
5 alleged herein;
6 iv) whether defendants acted with the requisite scienter; and
7 v) whether the market price of ION common stock during the Class Period
8 was manipulated or artificially inflated due to the activities complained of
9 here.
10 CAUSATION AND DAMAGES
11 193. As a direct and proximate result of the foregoing material misrepresentations and
12 omissions, the market price of ICN common stock was artificially inflated during the Class
13 Period.
14 194. In ignorance of the materially misleading and/or incomplete nature of defendants'
15 Class Period representations and omissions, Lead Plaintiff and other members of the Class relied
16 to their detriment upon the accuracy and completeness of defendants' statements and/or upon the
17 integrity and efficiency of the market for ION common stock.
18 195. Lead Plaintiff and the other members of the Class would not have purchased or
19 acquired ICN securities on the open market or otherwise at the market prices that prevailed
20 during the Class Period, if at all, had they been aware of the true facts concerning the Company's
21 operations, financial results, and future prospects.
22 196. The market price of ION common stock declined dramatically upon the public
23 disclosure of the facts that had been concealed and misrepresented by defendants during the
24 Class Period. Lead Plaintiff arid other members of the Class have therefore suffered substantial
25 damages.
26 197. By reason of the foregoing, defendants knowingly or recklessly violated
27 Section 10(b) of the Exchange Act and Rule 101)-5 promulgated thereunder in that they:
28 (a) employed devices, schemes and artifices to defraud; (b) made material misrepresentations of
aRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-0701-DOC (ANx) 57
MAY 15 2003 14 : 52 415 4776710 PA7.65
r,
1 fact and failed to disclose material facts necessary in order to make their statements, in light of
2 the circumstances under which they were made, not misleading; or c) engaged in acts, practices
3 and a course of business that operated as a fraud or deceit upon Lead Plaintiff and other members
4 of the Class in connection with their purchases of /CN common stock during the Class Period,
5 COUNT I
6 [Against Aft Defendants Under Section 10(b)of the Exchange Act and Rule 10b-5)
7
8 198. Lead Plaintiff repeats and rcalleges each of the foregoing allegations as if fully set
9 forth herein.
10 199. Lead Plaintiff brings this Count against all defendants on behalf of the Class.
11 200. During the Class Period defendants, individually and in conceit, engaged in a
12 plan, scheme and course of conduct, pursuant to which they knowingly and/or recklessly
13 engaged in acts, transactions, practices, and courses of business which operated as a fraud upon
14 Plaintiffs and other members of the Class.
15 201. Defendants perpetrated this fraudulent scheme by making various representations
16 that were false or which omitted material facts necessary in order to make the statements, in light
17 of the circumstances under which they were made, not misleading.
18 202. Defendants had actual knowledge that the statements specifically alleged above
19 were materially false and misleading and that additional disclosures were necessary to correct
20 the misleading effect of their statements. In the alternative, defendants acted with reckless
21 disregard for the truth in that they failed or refused to ascertain that their statements concerning
22 the Company's business, operations, and financial results lacked a reasonable basis when made.
23 203. .Lead Plaintiff and the other members of the Class would not have purchased or
24 acquired ICN securities on the open market or otherwise at the market prices that prevailed
25 during the Class Period, if at all, had they been aware of the true facts concerning the Company's
26 operations, financial results, arid future prospects,
27 204. The market price of ICN common stock declined dramatically upon the public
28 disclosure of the facts that had been concealed and misrepresented by defendants during the
sruceerlplairt . PRA rk— svpd FIRST AIN,C-Nz, DED CONSOLIDATED CLASS ACTiON COMPLAINTNo. SACV 02-0701-DOC (ANx) 58
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1 Class Period. Lead Plaintiff and other members of the Class have therefore suffered substantial
2 damages.
3 205. By reason of the foregoing, defendants knowingly or recklessly violated
4 Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder in that they:
5 (a) employed devices, schemes and artifices to defraud; (b) made material misrepresentations of
6 fact and failed to disclose material facts necessary in order to make their statements, in light of
7 the circumstances under which they were made, not misleading; or (c) engaged in acts, practices
8 and a course of business that operated as a fraud or deceit upon Plaintiff and other members of
9 the Class in connection with their purchases of ICN common stock during the Class Period.
10 COUNT II
11 [Against the Individual DefendantsUnder Section 20(a) of the Exchange Act]
12
13 206. Lead Plaintiff repeats and reaileges the foregoing allegations as if fully set forth
14 herein.
15 207. Lead Plaintiff brings this Count against each of the Individual Defendants on
16 behalf of the Class.
17 208. The Individual Defendants, by virtue of their positions within ICN, ownership of
18 ICN common stock, and specific acts, were, at the time of the wrongs alleged herein, controlling
19 persons of ICN within the meaning of § 20(a) of the Exchange Act.
20 209. Each of the Individual Defendants qualifies as a "controlling person" because:
21 ! (a) they had the power to cause ICN to engage in the unlawful conduct complained of herein and
22 because they could have prevented the unlawful conduct that Lead Plaintiff alleges; and (b) they
23 were knowing and culpable participants in the misconduct alleged herein.
24 210. Because the Individual Defendants were "controlling persons" of the Company
25 and of persons who are primarily liable to Lead Plaintiff and the Class under § 10(h) of the
26 Exchange Act, the Individual Defendants, in addition to being primarily liable, are secondarily
27 liable for those primary violations pursuant to § 20(a) of the Exchange Act.
28
=CORA. n?•;124.1.. MI7d FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-0701-DOC ( A-Nx) 59
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1 PRAYER FOR RELIEF
2 WHEREFORE, Lead Plaintiff, on its own behalf and on behA]f of the other members of
3 the Class, prays for judgment as follows:
4 A. Declaring this action to be a proper class action, and certifying the Lead
5 Plaintiff as the Class Representative;
6 B. Declaring and determining that defendants violated the federal securities
7 laws by reason of their conduct as alleged herein;
8 C. Awarding money damages against defendants in favor of the Lead
9 Plaintiff and the other members of the Class for all losses and injuries suffered as a result of the
10 acts and transactions complained of herein, together with prejudgment interest on ail of the
11 aforesaid damages which the Court shall award from the date of said wrongs to the date of
12 judgment herein at a rate the Court shall fix;
13 D. Awarding Lead Plaintiff their costs and expenses incurred in this action,
14 including reasonable attorneys', accountants", and experts' fees; and
15 E. Awarding such other relief as may be just and proper.
16 JURY TRIAL DEMANDED
17 Lead Plaintiff hereby demands a trial by jury.
18 Dated: May 16, 2003 Respectfully submitted,
19 SCHIFFREC BARRO WAY, LLP
20
21 13y( ‹c A22 Jacob A. Goldberg
23 Stuart L. BermanChristopher L. Nelson
24 Three Bala Plaza East, Suite 400Bala Cynwyd, PA 19004
25 Telephone: (610) 667-7706Facsimile: (610) 667-7056
26Lead Counscl
27
28
wncomplaine .rwAlwnet FIRST. ANIENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-0701-DOC (ANx) 60
MRY 16 2223 14 : 53 415 4776712 PAGE.68
05/16/2003 14:47 FAX 415 4776710 GREEN & J I GARO IAN LLP ZI 069
1 Robert S. Green.Robert A. Jigarjian
2 GREEN & JIGARJIAN LLP235 Pine Street, 15th Floor
3 San Francisco, California 94104Telephone: (415) 477-6700
4 Facsimile: (415) 477-6710
5 Liaison Counsel
6Other Plaintiffs Catmsel
7William S Lerach Joseph J Tobacco, Jr
8 Darren J Robbins Jennifer S AbramsMILBERG WEISS BERSHAD HYNE. S BERMAN DEVALERIO PEASE
9 & LERACH TABACCO BURT & PUCILLO401 B Street, Ste 1700 425 California St, 21st rl
10 San Diego, CA 92101 San Francisco, CA 94104-2205
11 Robert Scott Dreher Lionel Z GlancyROBERT S DREHER LAW OFFICES Peter Arthur Binkow
12 835 5th Ave, Ste 202 Michael M GoldbergSan Diego, CA 92101 GLANCY & BINKOW
13 1801 Avenue of the Stars, Ste 311Jeffrey S Abraham Los Angeles, CA 90067
14 ABRAHAM & ASSOCIATESOne Penn Plaza, Ste 1910 Mel E Lifshitz
15 New York, NY 10119-0165 Michael S BiginBERNSTEIN LIENIARD & LIFSHITZ
16 Daniel L Germain 10 E 40th St, 22nd FIROSMAN & GERIVIA/N New York, NY 10016
17 815 Moraga DrLos Angeles, CA 90049-1633 Nadeern Farucli
18 FARUQI & FARUQIPaul 3 Geller 320 E 39th St
19 CAULEY GELLER BOWMAN New York, NY 10017COATES & RUDMAN
20 1 Boca P1 Ira M Press2255 Glades Rd, Ste 421A KIRBY MCINERNEY & SQUIRE
21 Boca Raton, FL 33431 830 3rd Ave, 10th F1New York, NY 10022
22 Shaye FuchsRichard A Speirs Betsy C. Manifold
23 ZWERLING SCHACFITER & WOLF HALDENSTEIN ADLERZWERLING FREEMAN & HERZ
24 757 3rd Ave Symphony Twr.New York, NY 10017-2023 750 B St, Ste 2770
25 San Diego, CA 92101
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in comp& i MST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-0701-DOC (ANx) 61
MRY 15 23 14 : 54 415 477571D PAGE.69
05/16/2003 14:47 FAX 415 4778710 GREEN & JIGARJIAN Le-Jur')
1 Andrew Robert JacobsEPSTEIN EITZSITVIMONS BROWN
2 GIOIA JACOBS & SPROLTLS245 Green Village Rd
3 P 0 Box 901Chatham Township, NJ 07928-0901
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uncomplarg-FINAL wyd PIM.: AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02-070; -DOC (AiNx) 62
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05/16/2003 14:48 FA.I 415 4776710 GREEN & JIGARJIAN LLP [11071
1.
CERTIFICATE OF SERVICE
2 I, Leslie R. Cuesta, hereby declare as follows:
3 1 am employed by Green & Jigarjian, A Limited Liability Partnership, 235 Pine Street,
4 15th Floor, San Francisco, California 94104. 1am over the age of eighteen years and am not a
5 party to this action. On May 16, 2003, I served the within document(s):
6 FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINT
7 X.X by placing the document(s) listed above for collection and mailing following the firm'sordinary business practice in a s caled envelope with postage thereon fully prepaid for
8 deposit in the United States mail at San Francisco, California addressed as set forthbelow.
9 by personally delivering the document(s) listed above the person(s) at the address(es) set
10 forth below.
11 by causing personal delivery by of the document(s)listed above to the person(s) at the address(es) set forth below,
12by depositing the document(s) listed above in a scaled envelope with delivery fees
13 provided for a FedEx pick up box or office designated for overnight delivery, andaddressed as set forth below.
14by transmitting via facsimile the above listed document(s) to the fax number(s) set forthbelow on this date.
16 SEE ATTACHED SERVICE LIST
17 I declare under penalty of pet ury under the laws of the State of California that the above
18 is true and correct, executed May 16, 2003, at San Francisco, California..
19 /n
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FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINTNo. SACV 02,O701-DOC (ANx) 63
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•
In re ICN rharmaceuticalS, Inc. Securities Litivrtion,Case No. CV-02-0701-DOC (Anx)
SERVICE LIST
Counsel for Defendants Paul J GellerCAULEY GELLER BOWMAN •
Eric S. Waxman COATES & RUDMANLance A. Etcheverry I Boca P1SKADDEN, ARPS, SLATE, MEAGHER 2255 Glades Rd, Ste 421A
& FLOM LLP Boca Raton, FL 33431300 South Grand Ave., Suite 3400Los Angeles, CA 90071 Shaye FuchsTelephone: (213) 687-5000 Richard A SpeirsFacsimile: (213) 687-5600 ZWERLING SCHACHTER &
ZWERLINGCounsel for Plaintiffs 767 3rd Ave
New York, NY 10017-2023Jacob A. GoldbergStuart L. nerman Joseph J Tobacco, JrChristopher L. Nelson Jennifer S AbramsSCHIFFRIN & BARRO WAY, LLP BERMAN DEVALERIO PEASEThree Bala Plaza East, Suite 400 TABACCO BURT & PUCILLOBala Cynwyd, PA 19004 425 California St, 21st Fl
San Francisco, CA 94104-2205William S LeracbDarren I Robbins Lionel Z GlancyMILBERG WEISS BERSHAD HYNES Peter Arthur Binkow
& LERACH Michael M Goldberg401 B Street, Ste 1700 GLANCY & BLNHOWSan Diego, CA 92101 1801 Avenue of the Stars, Ste 311
Los Angeles, CA 90067Robert Scott DreherROBERT S DREHER LAW OFFICES Mel E Lifshitz835 5th Ave, Ste 202 Michael S BiginSan Diego, CA 92101 BERNSTEIN LIEBHARD & LIFSHITZ
10 E 40tb St, 22nd FlJeffrey S Abraham New York, NY 10016ABRAHAM & ASSOCIATESOne Penn Plaza, Ste 1910 Nadeerri FaruciiNew York, NY 10119-0165 FARUQI & FARUQI
320 E 39th StDaniel L Germain New York, NY 10017ROSMAN & GERMAINS15 Moraga DrLos Angeles, CA 90049-1633
MAY 15 20E3 14 : 54 415 4776710 PAGE.72
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Ira M PressKIRBY MCINERNEY & SQUIRE830 3rd Ave, 10th flNew York, NY 10022
Betsy C. ManifoldWOLF HALDENSTEIN ADLER.
FREEMAN & liERZSymphony MT750 Et St, Ste 2770San Diego, CA 92101
Andrew Robert JacobsEPSTEIN FITZSIMMONS BROWN
GIOIA JA.COBS & SPROULS245 Green Village RdP 0 Box 901Chatham Township, NJ 07928-0901
'IRY 1E 2023 14 : 54 415 477E710 PAGE.'73