in re: willbros group, inc. securities litigation 05-cv-01778...
TRANSCRIPT
UNITED STATES DISTRICT COURTSOUTHERN DISTRICT TEXA S
HOUSTON DIVISION
IN RE WILLBROS GROUP, INC .SECURITIES LITIGATIO N
This Document Relates to :
ALL ACTIONS
Master File No . : 05-CV-1778
Jury Trial Demanded
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT
TABLE OF CONTENTS
NATURE OF ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
JURISDICTION AND VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
CONFIDENTIAL SOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1
BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 3
A. The Willbros Group : Its History and Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 3
B . The Importance of Willbros International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6
C . The Importance of EBITDA and Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 7
THE GENESIS OF THE FRAUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 9
A. Willbros Overstated EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 9
B. Willbros Overstated Contract Revenue & Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
C. Willbros Overstated Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
D. Corruption at Willbros Was Widespread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
E. Material Weaknesses in Willbros' Internal Controls and Procedures . . . . . . . . . . . . . . . . . .34
F. Regulatory Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
DEFENDANTS' FALSE AND MISLEADING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
WILLBROS' ACCOUNTING FRAUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1
A. Willbros' Financial Statements Failed to Comply with GAAP and SECRegulations Prohibiting False and Misleading Public Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1
B. Willbros Improperly Recognized Revenue on Fictitious/Non-Existen tContracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
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Table of Contents(continued)
Page
C. Willbros Failed to Disclose Material Related-Party Transactions . . . . . . . . . . . . . . . . . . . . . . . 14 1
D. Willbros Failed to Disclose its Corrupt Business Practices Which Werethe Sine Qua Non of a Material Amount of Willbros' Revenues . . . . . . . . . . . . . . . . . . . . . . . . 143
E. Willbros Knew That Its Reported Financial Information Was Not Indicativ eof Future Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
DEFENDANTS' CONSCIOUS MISBEHAVIOR OR SEVERE RECKLESSNESS . . . . . . . . . . . . . . . . 146
A. General Allegations of Scienter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
B. Conscious Misbehavior or Severe Recklessness by the Individua lDefendants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
C. Motive and Opportunity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
APPLICABILITY OF PRESUMPTION OF RELIANCE :FRAUD-ON-THE MARKET DOCTRINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
LOSS CAUSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
NO STATUTORY SAFE HARBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
CLASS ACTION ALLEGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1
CLAIMS FOR RELIEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
COUNT I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
COUNT II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
JURY DEMAND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
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Lead Plaintiff ADAR Investment Management , LLC ("ADAR" or "Lead Plaintiff ' )
brings this action as a class action on behalf of all persons and entities who purchased o r
otherwise acquired the securities of Willbros Group, Inc. ("Willbros" or the "Company")
between May 6, 2002 and May 16, 2005 (the "Class Period"), and who were damaged thereby .
As a result of the wrongdoing alleged herein, the members of the Class (as defined below) los t
millions of dollars .
1 . Lead Plaintiff alleges the following upon information and belief, except as t o
those allegations concerning Lead Plaintiff, which are alleged upon personal knowledge . Lead
Plaintiffs information and belief is based upon, inter alia, its counsel's investigation regarding
Willbros and its subsidiaries (such as Willbros International, Inc . ("Willbros International")) ,
including, without limitation : (a) review and analysis of filings made by Willbros with th e
United States Securities and Exchange Commission (the "SEC"); (b) in person and telephoni c
interviews with numerous former Willbros employees ; (c) review and analysis of internal
Willbros documents ; (d) review and analysis of press releases, public statements , news art icles
and other publications disseminated by or concerning Willbros, Willbros International, and othe r
defendants including, but not limited to, Michael F . Curran, Warren L . Williams, and James K .
Tillery ; (e) review and analysis of Willbros' analyst conference calls; (f) review and analysis of
securities analysts' reports concerning Willbros; and (g) other publicly available information
concerning Willbros, Willbros International, and the Individual Defendants (as defined below) .
NATURE OF ACTION
2. Throughout the Class Period, Willbros held itself out to the public as one of th e
leading independent contractors serving the oil, gas, and power industries, providing
construction, engineering and specialty services . Though based in Houston, Texas, the
Company' s revenues are primarily generated from operations overseas by Willbros International ,
one of the Company's wholly-owned subsidiaries . According to Willbros' Annual Report o n
Form 10-K for the year-ended December 31, 2004 (the "2004 10-K"), 60% of the Company' s
contract revenues were generated from operations in Africa, South America, and the Middl e
East .
3 . To generate these contract revenues, the Company needed cash and was
dependent upon its ability to borrow. As the Company has represented to the public : "The
inability of the Company to access new letters of credit could negatively impact the Company' s
ability to take on new work or bid additional work where letters of credit are required in order t o
bid on a project . "
4. The Company's ability to borrow is based on, among other things, its reported
earnings before interest, taxes, depreciation, and amortization - also known as "EBITDA."
Given the importance of the Company's borrowing, EBITDA is a key metric used by th e
investment community to assess the Company's performance. As noted in each of the
Company's periodic filings with the SEC during the Class Period : "Management believes that
EBITDA is used by the financial community as a method of measuring performance and o f
evaluating the market value of companies considered to be in similar businesses to those of th e
Company."
5. To secure the Company's credit facility and mask the true nature of its financia l
performance, Defendants caused the Company in its financial statements, press releases, an d
periodic filings with the SEC to report materially inflated EBITDA . Defendants' scheme
worked, as Willbros' reported growth enabled it to amend and restate its 2002 credit agreement
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on March 12, 2004 (the "2004 Credit Facility"), which provided for $150 million of availabl e
credit capacity to be used for letters of credit and cash borrowing .
6 . Backlog, like EBITDA, is another important indicator of how a company lik e
Willbros is performing. Backlog is a term used to report the Company's anticipated contrac t
revenue from contracts for which award is either in hand or reasonably assured . Cognizant of its
importance to the financial and investing community, as described herein, Defendants materiall y
overstated the Company's backlog during the Class Period .
7. Contract revenue and operating income are other important indicators of th e
Company's performance. As described herein, the Company materially overstated its contract
revenue and operating income throughout the Class Period, misleading the investing public as to
the true nature of its ability to generate business .
8. But the accounting improprieties alleged herein are only some of the causes fo r
the false and misleading statements and omissions complained of herein . Corrupt business
practices and illegal activities also formed the predicate for many of the misstatements and
omissions complained of herein. For example, revenues from contracts were purportedly
obtained "by competitive bidding or through negotiations with long-standing clients o r
prospective clients," when, in truth, as Willbros has admitted, the Company secured contracts fo r
work overseas, primarily in Nigeria, by, among other things, bribing government officials i n
violation of federal law .
9. The Company's unethical and illegal business practices were not limited t o
bribery. As described herein, several of the Company's senior executives and other employee s
engaged in self-dealing and usurped corporate opportunities - practices which, like bribery, wer e
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well-known throughout the Company. Certain employees engaged in the misappropriation of
millions of dollars of Willbros' cash funds through the use of fraudulent vendor invoices an d
consulting agreements and also misappropriated additional funds to refurbish equipment no t
owned by the Company. Further, certain employees also engaged in myriad unscrupulous tax
practices, which included the filing of false tax returns, the failure to file required tax returns,
and the failure to pay certain taxes in locations outside the U .S .
10. As described below, Willbros' corrupt business practices had a negative impac t
on the Company's financial statements, enabling the Company to materially overstate severa l
significant items on its financial statements . Indeed, the cumulative effect of the Company' s
material overstatements throughout the Class Period are as follows : EBITDA by $46,599,000 ;
backlog by $1,169,000 ; contract revenues by $3,038,000 ; and operating income by $10,355,000 .
As a consequence of the wrongful conduct complained of herein, the Company announced that i t
would restate its financial statements for the years 2002 and 2003 and the first three quarters o f
2004 .
11 . As explained below, the fraudulent accounting, corruption, and illegal activity a t
Willbros were made possible by material weaknesses in the Company's internal controls and
procedures . Indeed, the corporate governance policies of Willbros were, throughout the Clas s
Period, fundamentally deficient . The Company has identified an extensive list of deficien t
controls as a factor that allowed the wrongful conduct alleged herein .
12 . Defendants' wrongful conduct constituted blatant violations of the Company' s
Revised Code of Business Conduct and Ethics, as well as the Code of Ethics for CEO and Senior
Financial Officers . See IT 79, 310-312 . These codes of conduct condemn the wrongful conduc t
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that gave rise to investigations of the Company by the SEC, the United States Department o f
Justice ("DOJ"), and The United States Department of Treasury's Office of Foreign Assets
Control ("OFAC"), as well as this litigation .
13. As a result of Defendants ' wrongful conduct and schemes to de fraud , Willbros'
common stock was artificially inflated during the Class Period, trading as high as $24 .52 per
share, enabling the Individual Defendants (defined below) to pocket millions of dollars in illega l
insider trading proceeds .
14. Willbros' unscrupulous business practices partially came to light on January 26 ,
2005, when the Company announced that Defendant Tillery, the President of Willbro s
International, "resigned" from the Company in the wake of a $2 .5 million tax assessment lodged
against one of its South American operating locations on a completed project . The Company
also announced that its Audit Committee retained independent, outside legal counsel, an d
forensic accountants and commenced an investigation of the circumstances surrounding th e
assessment and the conduct of Company personnel .
15. On February 28, 2005, the Company announced that as a result of this tax
assessment and the Audit Committee's ongoing investigation into the facts and circumstance s
surrounding the tax assessment , the Company would restate its previously issued financial
statements for the years 2002 and 2003 and the first three quarters of 2004, and that the financia l
statements for these periods "should no longer be relied upon ."
16. Three months later, on May 16, 2005, the Company finally revealed the nature
and extent of the wrongful conduct engaged in by, among others, the Defendants . In relevant
part, Willbros stated that :
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a. Tillery and other Willbros International employees owned interestsin enterprises with whom Willbros International did business, andmay have usurped corporate opportunities, received payments andother improper benefits from consultants, suppliers or competitors ;that Tillery and others benefited personally as a result of suchtransactions and that their failure to disclose such activities mayconstitute a violation of United States and/or foreign law ;
b. Tillery and other Willbros International employees or consultantsmay have directly and indirectly promised to make, made, causedto be made, or approved payments to government officials inBolivia, Nigeria and Ecuador, and possibly to client personnel inone or more of those countries . Tillery may have also acquiescedin, or approved, a prior commitment by another to make animproper future payment in Mexico, and that these activities andtheir possible mischaracterization on Willbros International'sfinancial records may constitute violations of the United StatesForeign Corrupt Practices Act ("FCPA"), other laws of the UnitedStates or the laws of other countries ;
C, Under the direction of Tillery and other Willbros Internationalemployees or consultants, certain subsidiaries of WillbrosInternational filed false tax returns, failed to file required taxreturns, and failed to pay certain taxes in locations outside theUnited States;
d. Tillery and other Willbros International employees or consultantsmay have engaged in discussions with competitors and othersregarding bids for projects outside the United States . Thesediscussions may have been in violation of United States law or thelaws of other countries ; and
e. Following Tillery's resignation, Willbros International employeesand former consultants may have contravened Company directivesand continued to carry out some of the activities described above .
17. In response to the deficient internal controls and improper conduct that has give n
rise to this Action, the Company implemented or is in the process of implementing an enhanced
system of internal controls and procedures designed to eliminate these weaknesses including,
among others :
a. Realignment of the reporting of the financial staff in all busines s
units directly to the Corporate Controller's Office ;
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b. Adoption of a more frequent rotation policy for the operations
and financial staff at the business unit level ;
c . Implementation of an enhanced, stand-alone FCPA Complianc e
Program ;
d. Implementation of an enhanced Whistle Blower policy ;
e. Appointment of a senior-level Company employee reporting t o
the Audit Committee with primary responsibility fo r
implementation , oversight and enforcement of Corporate
Governance Policies ;
f. Expansion of internal audit staff;
g. Internal control improvements related to cash disbursements ; and
h. Expanded review by corporate tax personnel of all tax liability
accounts on a quarterly basis .
18. Once the truth about Defendants' improper conduct was revealed, the market' s
reaction was swift, decisive, and overwhelmingly negative . Willbros' stock declined, o n
unusually high trading volume of 6 .9 million shares, from its closing price of $15 .92 per share o n
May 16, 2005, to a closing price of $11 .00 per share on May 17, 2005 - a one-day decline o f
over 31 %.
19. On March 31, 2005, the Company announced that it was delaying the filing of th e
2004 10-K. The Company stated: "Due to the limited timeframe between initiation of it s
investigation in January 2005 and March 31, 2005, the Company could not meet its objective o f
analyzing the high volume of data relating to the investigation and translating the financial
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impact of this information to the Company 's financial statements for the years 2002 and 2003 ,
the three quarters ended September 30, 2004 and the year ended December 31, 2004 . "
20. On November 22, 2005, the Company announced that it filed its restated financial
results for 2002, 2003, and the first three quarters of 2004 in conjunction with the filing of the
2004 10-K. The 2004 10-K also included , inter alia , the results of the Company's investigation
into the circumstances surrounding the tax assessment in South America and the conduct o f
Company personnel . The Company al so announced that it engaged an investment bank to assis t
management and the Board of Directors in the evaluation of its strategic alternatives to maximiz e
shareholder value, including equity or debt financings, as well as transactions that could result i n
the sale of all or a portion of the Company.
JURISDICTION AND VENUE
21 . This Court has jurisdiction over the subject matter of this action pursuant to
Section 27 ofthe Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78aa, and
28 U.S.C. § 1331 .
22. Lead Plaintiff brings this action pursuant to Sections 10(b) and 20(a) of th e
Exchange Act, 15 U .S.C. §§ 78j(b) and 78t(a), and Rule lob-5 promulgated under Section 10(b) ,
17 C.F.R. § 240.10b-5 . Venue is proper in this District as Defendants conduct business in thi s
District and many of the wrongful acts alleged herein took place or originated in this District .
23 . In connection with the acts alleged in this Complaint, Defendants, directly o r
indirectly, used the means and instrumentalities of interstate commerce, including, but no t
limited to, the mails, interstate telephone communications and the facilities of the nationa l
securities markets .
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THE PARTIES
Lead Plaintiff
24. Lead Plaintiff ADAR Investment Management , LLC, purchased shares of
Willbros common stock during the Class Period , as set forth in the certification filed i n
connection with its lead plaintiff motion (and incorporated herein), and has been damage d
thereby.
Defendants
25. Defendant Willbros Group, Inc. lists its worldwide headquarters as Plaza 200 0
Building , 50th Street , 8th Floor, Apartado 6307, Panama 5, Republic of Panama . Its principal
executive offices in the United States are located at 4400 Post Oak Parkway, Suite 1000 ,
Houston , Texas 77027. All its investor relations are handled, press releases are issued, and
conference calls are conducted from its executive offices in the United States . According to it s
website :
Willbros Group, Inc. is an independent contractor that primarily providesconstruction, engineering and specialty services to the oil, gas and powerindustries and government entities worldwide. The Company specializesin pipelines and associated facilities for onshore, coastal and offshorelocations . Its construction capabilities include the expertise to constructand replace large diameter, cross-country and offshore pipelines; toconstruct oil and gas production facilities, pump stations, flow stations,gas compressor stations, gas processing facilities and other relatedfacilities, and to construct offshore platforms, piers, docks and bridges .The Specialty service provides a range of support and ancillary servicesrelated to the construction, operation, repair and rehabilitation of pipelines .The engineering services include feasibility studies, conceptual anddetailed design services, field services, material procurement and overallproject management .
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26. Defendant Michael F . Curran ("Curran") was, at all relevant times herein ,
Director, Vice Chairman of the Board, President and Chief Executive Officer (Principal
Executive Officer) (CEO after May 30, 2002) of Willbros .
27. Defendant Warren L. Williams ("Williams") was, at all relevant times herein,
Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer an d
Principal Accounting Officer) of Willbros .
28. Defendant James K. Tillery ("Tillery") was, at all relevant times herein, Executive
Vice President of Willbros International until his "resignation" from Willbros International on
January 6, 2005 .
29. Defendants Curran, Williams, and Tillery are referred to collectively as the
"Individual Defendants ."
30. As officers, directors, and/or controlling persons of a Company, whose securities,
were, and are, registered with the SEC and, therefore, subject to the disclosure requirements of
the federal securities laws, the Individual Defendants had a duty to : (a) promptly disseminate
accurate and truthful information concerning the Company's operations, business, products,
markets, management, earnings and present and future business prospects ; (b) correct any
previously issued statements made by them that were materially false and misleading whe n
made; and (c) disclose any trends that were impacting the Company's present and future
operating results .
31 . Each of the Individual Defendants participated in the drafting, preparation, and/o r
approval of the public representations complained of herein . Because of their positions an d
access to material, non-public information, each of the Individual Defendants knew or wer e
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severely reckless in not knowing that the adverse facts specified herein had not been disclosed to ,
and were being concealed from, the investing public, and that the positive representations that
were being made were materially false and misleading .
32. As a result , the Individual Defendants are responsible for the accuracy of the
public reports and releases detailed herein and are, therefore, responsible for the materia l
omissions and misrepresentations alleged herein .
CONFIDENTIAL SOURCE S
33 . Numerous former Willbros employees have provided Lead Plaintiff wit h
information concerning Willbros' fraudulent scheme to improperly manipulate the market fo r
Willbros securities during the Class Period . These witnesses gave information on a con fidential
basis, and each is designated as CS_, as stated below .
34. CS 1 worked for the Company from approximately February 2001 through
February 2005 . Based out of the Company's headquarters in Houston, Texas, CS 1 held th e
position of fixed asset/general accountant . CS 1's duties included oversight of the accounting
treatment of fixed assets for all Willbros companies. CS 1 also ensured that Accounts Payables
for all Willbros companies were correctly coded to specific jobs and properly approved for
payment before they were entered within the Company's JD Edwards accounting system. CS 1
has information concerning the Company's internal accounting controls, including the process i n
which invoices submitted by all Willbros employees for payment were to be approved .
35. CS 2 is a former employee of Willbros West Africa who worked as a Projec t
Engineer in Nigeria from June 2003 through July 2004 . CS 2's responsibilities included, inter
alia : heading the project controls department ; supervising subcontractors onsite ; monitoring th e
control of free issue materials ; and, preparing procedures and method statements for client11
approval. CS 2 has information demonstrating his knowledge of Tillery's self dealing, as well a s
the Company's practice of engaging in bribery for the purpose of obtaining, retaining or
directing business in Nigeria .
36. CS 3 is a former employee of Willbros who was based in Port Harcourt, Nigeri a
as an Offshore Operations Manager for approximately one year beginning in late 2000 and
ending in late 2001 . CS 3 managed offshore activities on heavy lift barges, pipe lay barges, an d
work boats, and provided logistical support to drilling, production, and installation operations .
CS 3 has information concerning the Company's practice of engaging in bribery for the purpose
of obtaining, retaining or directing business in Nigeria.
37. CS 4 is a former employee of Willbros USA who worked in the Company' s
Houston headquarters from January 2004 through October 2005 . CS 4 was employed as an
assistant to Corporate Controller Ronald Lefaive and then as an International Accounts Payabl e
clerk. CS 4's responsibilities included full cycle accounts payable processing for internationa l
purchasing, international human resources and international project accounting, as well as
invoice research, resolution and reporting. CS 4 worked in the same executive suite of offices as
Curran and Williams. CS 4 has information concerning weaknesses in the Company's interna l
controls .
38. CS 5 is a former employee of Willbros Nigeria. From 1996 through 2001, CS 5
worked as a Warehouse/Procurement Manager in Choba, Willbros Nigeria's base in Port
Harcourt, Nigeria, the primary location for all parts, supplies, and materials for Willbros i n
Nigeria . CS 5 administered more than $11 million in inventory at the warehouse, including th e
12
purchase, receipt, and storage of local and imported items . CS 5 has information concerning the
Company's practice of engaging in bribery to facilitate the shipment of product out of Nigeria .
39. CS 6 is a former employee of Willbros International who worked in Por t
Harcourt, Nigeria, from April 2004 through May 2005 . CS 6 was a Project Engineer from Apri l
2004 to November 2004 and Associate General Manager from January 2005 to May 2005 . As
Project Engineer, CS 6 was responsible for preparing budgets, resolving design and contractua l
issues, developing contract variation procedures, and directing the management of materials . As
Associate General Manager, CS 6 developed and reviewed contracts and financial packages fo r
projects and advised project management on maximizing profitability . CS 6 has information
concerning the weaknesses in Willbros Nigeria's internal controls .
40. CS 7 is a former employee of Willbros who worked in the Company's Houston
headquarters from January 2005 to September 2005 . CS 7 was the Lead Project Buyer for the
Company's West Africa Gas Pipeline project (WAGP), which encompassed construction in
African countries including Togo, Ghana, and Benin . CS 7's responsibilities as Lead Project
Buyer included purchasing onshore equipment for the WAGP, administering purchasing
contracts, and working closely with the end user on recommendations, assembly, manufacturing ,
welding, repairs, and shipping of equipment . CS 7 has information concerning the weaknesse s
in the Company's internal controls .
BACKGROUND
A . The Wi ibros Group : Its History and Corporate Structure
41 . Willbros traces its roots to the pipeline construction business of the Williams
Brothers Company ("Williams Brothers"), founded in 1908 by Miller and David Williams .
13
42. In 1949, the business was reconstituted and acquired by the next generation of th e
Williams family. The resulting enterprise eventually became The Williams Companies, Inc ., a
U.S . energy and interstate natural gas and petroleum products transportation compan y
("Williams") .
43 . In 1975, Williams discontinued its pipeline construction activities and, in
December 1975, sold substantially all of the non-U.S. assets and international entities comprisin g
its pipeline construction division to a newly-formed Panama corporation (eventually renamed th e
Willbros Group, Inc.) owned by employees of the division . In 1979, Willbros Group, Inc . retired
the debt incurred in the acquisition by selling a 60% equity interest to Heerema Holdin g
Construction, Inc. ("Heerema") . In 1986, Heerema acquired the balance of Willbros Group, Inc . ,
which then operated as a wholly-owned subsidiary of Heerema until April 1992 .
44. In April 1992, Heerema sold Willbros Group, Inc . to a corporation formed o n
December 31, 1999, in the Republic of Panama by members of the Company's management a t
the time, certain other investors, and Heerema . Subsequently, the original Willbros Group, Inc.
was dissolved into the acquiring corporation, which was renamed "Willbros Group, Inc ." In
August 1996, the Company completed an initial public offering of common stock in whic h
Heerema sold all of its shares of common stock . In October 1997, the Company completed a
secondary offering in which the other investors sold substantially all of their shares of commo n
stock. In May 2002, the Company completed a third public offering of common stock, whic h
was used to repay debt and to provide cash for general corporate purposes .
45 . Noted for completing logistically difficult pipeline projects around the world,
Willbros has been employed by more than 400 clients to carry out work in 55 countries . Within
14
the past 10 years, the Company has worked in Africa, Asia, Australia, the Middle East, Nort h
America, and South America. Willbros has historically had a steady base of operations in th e
United States, Canada, Nigeria, Oman, and Venezuela, which has been enhanced by majo r
projects in Australia, Bolivia, Cameroon, Chad, Ecuador, Egypt, Gabon, Indonesia, Ivory Coast ,
Kuwait, Mexico and Pakistan .
46. The Company's principal subsidiaries are Willbros International and Willbros
USA. Willbros International is a wholly-owned subsidiary of Willbros . All significant
operations outside North America are carried out by Willbros International, which include : (i)
Willbros Middle East, Inc .; (ii) Willbros West Africa, Inc.; (iii) Willbros (Nigeria) Limited; (iv)
Willbros (Offshore) Nigeria Limited ; (v) Constructora CAMSA, C .A . ; (vi) The Oman
Construction Company LLC ; and (vii ) Willbros Transandina, S .A.
47 . In addition, all significant international operations are carried out by materia l
direct or indirect subsidiaries of Willbros International . All significant operations in the United
States and Canada are carried out by material direct or indirect subsidiaries of Willbros.
48. The illustration below shows the relationship between and among Willbros and it s
subsidiaries :
15
B. The Importance of Willbros Interna tional
49. The Company's contract revenues are primarily generated from operations
overseas by Willbros International, the Company 's core business . According to Willbros '
Annual Report for the year-ended December 31, 2004, over 60% of the Company's contrac t
revenues were generated by Willbros International .
50. Willbros International's largest market is in Africa . As the Company stated in it s
2004 10-K: "Africa has been an important strategic market for us . There are large, potentiall y
exploitable reserves of natural gas in West Africa, extending from the Ivory Coast to Angola .
Depending upon the world market for natural gas and the availability of financing, the amount o f
16
potential new work could be substantial . Currently, we are monitoring or bidding on major work
prospects in Algeria, Angola, Egypt, Gabon, Libya and Nigeria . "
51 . For this reason, the majority of the Company's employees - 63% - are located i n
Nigeria, where the Company has maintained a continuous presence since 1962 . Fifteen percen t
of the Company's employees are located in Oman. The Company maintains management staff
resident in Africa, assisted by engineers , managers and craftsmen with extensive African
experience, who are capable of providing construction expertise, fabrication services, repair an d
maintenance services, dredging operations, pipe coating and engineering support .
52. At December 31, 2004, backlog for Africa was reported to be $554,692,000 ,
representing 84% of the Company's entire backlog for the year ; backlog for Willbros
International for the same period was reported to be 86% . Backlog consists of anticipated
revenue from the uncompleted portions of existing contracts and contracts whose award i s
reasonably assured .
C. The Importance of EBITDA and Backlo g
53 . The Company uses EBITDA ( earnings before net interest, income taxes ,
depreciation and amortization) as part of its overall assessment of financial performance b y
comparing EBITDA between accounting periods . As the Company stated in the 2004 10-K,
EBITDA is used by the financial community as a method of measuring Willbros' performanc e
and of evaluating the market value of companies considered to be in businesses similar to that o f
Willbros .
54. The Company's credit facility was a function of its reported EBITDA . Based on
its reported operating results and EBITDA, in 2004, for example, the Company secured a waiver
17
of non-compliance with a financial covenant to its credit agreement and obtained its much-
needed financing. As the Company reported in its 2004 10-K :
2004 Credit Facility Waivers
For the quarter ended June 30, 2004, due to the Company's operatingresults and EBITDA (earnings before net interest, income taxes,depreciation and amortization) levels, an Amendment and WaiverAgreement (the "Waiver Agreement") was obtained from the syndicatedbank group to waive non-compliance with a financial covenant to thecredit agreement at June 30, 2004 and to amend certain financialcovenants. The Waiver Agreement provides for an amendment of certainquarterly financial covenants and the multiple of EBITDA calculationwith respect to the borrowing base determination through September 30,2005 .
55. The Company's borrowing capability was material to the Company's ability to
generate contract revenues . Indeed, as the Company represented in its 2004 10-K :
The Company was not in compliance with certain of the financialcovenants under the 2004 Credit Facility at September 30, 2005 and theCompany has not obtained a waiver. The Company also believes it willnot be in compliance with certain of the financial covenants under the2004 Credit Facility at December 31, 2005 . As a result of the covenantviolations and the failure to provide certain financial statements bySeptember 30, 2005, the bank syndicate has the right to discontinueadvances under the facility as well as the issuance of new letters of credit .The inability of the Company to access new letters of credit couldnegatively impact the Company 's ability to take on new work or bidadditional work where letters of credit are required in order to bid on aproject.
(Emphasis added.)
56. As described above, the Company's ability to secure contracts for substantial new
work is (and was) dependent upon the availability of such financing .
57. Moreover, as noted, backlog is a signi ficant indicator of the Company' s
performance. As the Company stated in its 2004 10-K: "In our industry, backlog is considere d
an indicator of potential future performance because it represents a portion of the future revenu e
18
stream . Our strategy is not focused solely on backlog additions but, rather, on capturing qualit y
backlog with margins commensurate with the risks associated with a given project . Backlog
consists of anticipated revenue from the uncompleted portions of existing contracts and contract s
whose award is reasonably assured ."
58. Analysts and investors recognize the importance of backlog in the evaluation o f
companies like Willbros . For example, as reported on April 13, 2005 by Burkenroad Reports
(www.burkenroad.org) :
Willbros stock price rose over 66% in 2004, ending the year near its 52-week high . Even more impressively, this dramatic rise in the stock priceoccurred in a year where Willbros has posted a net loss in all reportedquarters .
Much of the rise in the stock price can be attributed to the recordbacklog Willbros booked in 2004 . At the end of 2004, Willbros' backlogstood at $650M, an 11 .3% increase over the third quarter when it stood at$584M. This is [sic] now three straight quarters of record backlog .
(Emphasis added.)
THE GENESIS OF THE FRAUD
A. Willbros Overstated EBITD A
59. During the Class Period, Defendants caused the Company to report inflated
EBITDA in its financial statements , press releases, and periodic fi lings with the SEC.
Cumulatively, EBITDA was overstated by $46,599,000 . Defendants overstated EBITD A
through (i) accounting practices that were non-compliant with generally accepted accountin g
principles ("GAAP"), ( ii) the inclusion of improper revenue, and (iii ) the exclusion of legitimat e
expenses .
60. EBITDA is calculated by adding reported interest , taxes, depreciation, and
amortization to reported net income. Due to the nature of the Company's business, at all relevan t
19
times, "depreciation and amortization" was the primary determinant of its reported EBITDA. By
way of illustration, the Company's March 31, 2004 Form 10-Q set forth a calculation o f
EBITDA for the quarter ended March 31, 2004, as follows :
%Quarter En ed
l we h 31, 20U4 (S in Fhuu :
Net (loss) (232)Interest, net 386Provision (benefit) for income taxes 12 5
Depreciation and amo rt ization 5,31 5EBITDA 5,594
61 . During the Class Period, cognizant of the relationship between depreciation and
EBITDA, Defendants improperly inflated the amount of Company's reported depreciation i n
order to report materially inflated EBITDA. This was accomplished by improperly causing th e
Company's financial statements to exclude the dollar value of parts used in construction (i.e. ,
contract expense ) and improperly depreciate inventory, in contravention of GAAP (Statement of
Position 81-1 and Accounting Research Bulletin No. 43, respectively) and the Company's stated
accounting policy as set forth in its Class Period Forms 10-K, and as incorporated into variou s
other Class Period filings with the SEC . See, e.g., 2002 10-K at 31 ("estimated contract incom e
and resulting revenue is generally accrued based on costs incurred to date as a percentage of tota l
estimated costs, taking into consideration physical completion") . This was also accomplished by
material weaknesses ("reportable conditions") surrounding the Company's recognition o f
revenue and expenses and improper misapplication of the percentage-of-completion method o f
accounting .
62. The improper and manipulative accounting devices used by Defendants served t o
understate construction costs, enabling the Company to overstate profit and/or avoid th e
recognition of losses on construction contracts, while concomitantly enabling the Company to
20
report overstated EBITDA through excessive add-backs to the reported net income (or loss), a s
follows (in thousands) :
I3ep1'ia and_l[tloi tRcp,'J«d
I)ep'ti ai diiai t . a sTZ ti€.,t d
T .re i~ cL)epr'n
ddedi13ac;k't 113ltw
La31 l U.~. ak d
C~~cr,t~ietneilt„t FBI ] k ) ;A I) uc.t> Fxce ;3ti rDR.r711 t d-Rack
2000 22,408 14,762 7,646 13,938 54 .86%2001 19,522 13,389 6,133 51,070 12 .01%2002 23,304 16,627 6,677 60,052 11 .12%2003 22,285 15 ,570 6,715 16,881 39 .78%Q1 2004 5,315 3,713 1,602 5,594 28.64%Q2 2004 5,759 3,959 1,800 9,019 19.96%
63 . Other manipulative accounting devices (which, as discussed herein, violate d
GAAP, SEC Rules, and the Company's accounting policies (¶¶ 68, 264-301)) utilized to
improperly inflate reported EBITDA and operating income during the Class Period principally
included the following, which the Company disclosed in the 2004 10-K :
a. Failure to properly accrue Bolivian taxes, file Bolivian tax returns,and pay Bolivian taxes, causing a $3 .3 million understatement ofexpenses .
b. Understatement and underpayment of value added taxes ("VAT")and payroll related taxes with resultant penalties and interest atcertain international subsidiaries , causing a $8,714,000understatement of expenses ($2,658,000 in 2003 ; $3,596,000 in2002; and $2,460 ,000 in prior periods) .
c. Recordation of an earn-out payment in connection with the 2002acquisition of Mt . West classified as a purchase price adjustmentinstead of compensation expense, causing a $230,000understatement of expenses .
d. Overstatement of net accounts receivable, as a result of inaccurateinformation provided by several members of management ofinternational subsidiaries resulting in an understatement of baddebt expense of approximately $6,737,000 .
e. Overstatement of net accounts receivable, as a result of thefictitious recordation of work having been performed on afictitious contract change order, resulting in an overstatement ofcontract revenue and margin of $3,664,000 .
21
f. Misappropriation of $5,847,000 in cash funds for the period from1999 through December 2003 ($1,500,000 in 2003 ; $1,534,000 in2002; and $2,813,000 in prior periods), through the use of vendorinvoices in Nigeria which resulted in an overstatement of fixedassets, and timing differences in the recognition of contractrevenue on fixed price contracts .
g. Misappropriation of $2,356,000 in cash funds for the period of2002 through 2003 ($814,000 in 2003 and $1,542,000 in 2002)through the use of fraudulent consulting agreements in Nigeriawhich resulted in an overstatement of contract costs (subsequentlyreclassified as other operating costs) and timing differences in therecognition of contract revenue on fixed price contracts .
h. Overstatement of estimated contract margins for several significantNigeria contracts resulting in an overstatement of contract marginsand in timing differences in the recognition of contract revenue onfixed price contracts ,
i . Misappropriation of funds to refurbish equipment not owned bythe Company charged to contract costs in the amount ofapproximately $2,182,000 .
64. The impact of these additional expense understatements and revenu e
overstatements served to further increase the amount of the reported EBITDA overstatements .
Restatement of the Company's previously disseminated financial statements to correct the abov e
improper financial recordations (and certain other accounting improprieties) revealed that, during
the Class Period, the Company had materially inflated EBITDA, as follows (in thousands) :
LI3fFD\7tz',oit d
E~~ITI)„1-
Re's tsat_ecI
f
Over l g4lpnt~'Lr c' tifa~E °()',crstatentent
2000 13,938 6,749 7,189 51 .58%2001 51 , 070 41 , 504 9,566 18 .73%2002 60,052 49,603 10,449 17.40%2003 16,881 2,073 14,808 87.72%Q12004 5 , 594 3,981 1,613 28.83%Q2 2004 9,019 6,045 2,974 32.97%
65 . The foregoing overstatements materially affected each of the financial statement s
that were disseminated to the investing public during the Class Period as illustrated below :
22
Year Ended December 31, 200 2
As Ret,,;iFe_d A ~ j stuients{S In Thou ands)
Restated
Contract Revenue 583,703 (874 ) 582,829
Operating expenses ( income) :
Contract 488,256 6,062 494,31 8
Depreciation and amortization 23,304 (6,677) 16,627General and administrative 33,846 200 34,04 6
Other operating costs -- 3,076 3,076
Total operating expenses 545,406 2 ,661 548,067
Operating income 38 ,297 (3,535 ) 34,762
Other income ( expense) :
Interest income 400 72 472
Interest expense (1,951) 294 (1,657)
Foreign exchange loss (1,025) -- 1(,025)
Other --- net (524) 237 (761)
Total other expense 3 100 129 (2,971 )
Income before income taxes 35,197 (3,406) 31,79 1
Provision for income taxes 5,448 1,437 6,88 5
Net income 29.749 4 843 24,90 6
EBITDA 60,052 (10,449) 49,60 3
Income ( loss) per common share :Basic 1 .63 ( .27) 1 .3 6
Diluted 1 .59 ( .26) 1 .33
23
Year Ended December 31, 2003
A~ Rernirl"ed 1cliustale is
( Ijr_Thoi sands) .
IRest 7te d
Contract Revenue 418,737 (2,164) 416,573
Operating expenses :
Contract 365,625 8,817 374,442
Depreciation and amor tization 22,285 (6,715) 15,570
General and administrative 36,060 240 36,300
Other operating costs -- 2,314 2,31 4
Total operating expenses 423,970 4,656 428,626
Operating loss (5,233) 6,820 (12,053)
Other income (expense) :
Interest income 524 85 609
Interest expense (1,746) 416 (1,330)
Foreign exchange loss (677) (112) 789
Other - net 506 (1,161) 655
Total other expense (1,393) (772) (2,165 )
Loss before income taxes (6,626) (7,592) (14,218 )
Benefit for income taxes (3,413) 112 (3,301 )
Net income (loss) 3 213 7 704 10 91 7
EBITDA 16,881 (14,808) 2,073
Income (loss) per common share :Basic (0 .16) (0 .37) (0 .53 )
24
Quarter Ended March 31, 2004
~s Reported Adjutitmkrits Resfated '.
( .in Thousa„d, )Contract Revenue 102,338 (691) 101,647
Operating expenses :
Contract 86,704 13 86,71 7Depreciation and amortization 5,315 (1,602) 3,71 3General and administrative 10,402 -- 10,402Other operating costs -- 786 78 6Total operating expenses 102,421 803 101,61 8Operating income (loss) (83) 112 2 9Other income (expense) :Interest - net (386) 76Other -- net 362 (123)Total other expense (24) 47
V
Income (loss) before income taxes (107) 6 5Provision for income taxes 125 --Net income (loss) 232 65 Q11
EBITDA 5,594 (1,613) 3,98 1Income (loss) per common share :Basic (0 .01) (0 .01)Diluted (0 .01) (0 .01 )
Quarter Ended June 30, 200 4
AS .RepoIted Ad jistrnenis kcstat l
'11- T { to ''Thous .-d~ )Contract Revenue 116,003 201 116,204
Operating expenses ( income) :Contract 95,928 2,242 98,170Depreciation and amortization 5,759 (1,800) 3,959General and administrative 11,216 -- 11,21 6Other operating costs -- 822 822Operating income 112,903 1 ,264 114,167Other income (expense) : 3,100 (1,063) 2,037Interest - net (842 ) 65 (777 )Other -- net 160 111 49Total other expense ) (46) 72 8Income before income taxes 2,418 (1,109) 1,30 9Provision for income taxes ,911 -- 2,91 1Net income ( loss) 493 1{ ,1091 1 602
9,019 2,974 6,045EBITDA
Income ( loss) per common share :Basic (0.02) (0 .06) (0 .08)Diluted (0 .02) (0 .06 ) (0 .08 )
25
B. Willbros Overstated Contract Revenue & Operating Income
66. As Defendants have admitted, the Company improperly recognized revenue in
connection with the performance of activities or the expenditure of funds in connection with
work that no customer had agreed to pay for - i .e ., fictitious contract change orders and
duplicative invoices. 64 . As discussed further below (T¶ 264-301), such improper revenue
recognition violated several GAAP .
67. In addition, such improper revenue recognition violated the Company's stated
accounting policy. See, e.g., 2002 10-K: "Revenue from change orders, extra work and
variations in the scope of work is recognized when agreement is reached with clients as to bot h
the scope of work and price . "
68 . For the years 2003 and 2002, Willbros reported contract revenues o f
$418,737,000 and $583,703,000, respectively. As Defendants have admitted, these figures were
materially overstated.
69 . Specifically, as illustrated in the 2004 10-K, Willbros restated its contract
revenues for 2003 and 2002 as follows :
]NTRACT REMUEInternational , : . . . . . . . . .
. .Uni ted states & Canada
Year BndEd Decor 31,--------------------------------------------
2004 2003 RESTATED 2002 R
maunt Percent Amcwzt Percent . Aiunt-------- -------- -------- ------- ---------
(D311ar . amounts in t1iousanda)
$240,524 Go ,1% 112 2,241 6346% ~337,E921.92,?94 39.9 154,33.2 37.0 245,237
0493,8 100 :0% 14416,571 100.0 $5S2F9 2 9
26
3, TkTEC
.Percent
42 .1
lpt7[i~
70. As the foregoing chart reflects (comparing the reported figures to the restated
figures), Willbros actually recorded a decrease in contract revenue of $3,038,000 for 2003 an d
2002.
71 . In addition, for the first and third quarters of 2004, Defendants reported contrac t
revenue of $102,338,000, and $118,459,000, respectively. Defendants significantly overstated
contract revenue for each of these periods . As the 2004 10-K reflects, Willbros restated contrac t
revenue for the first and third quarters of 2004 as being $101,647,000, and $117,933,000 ,
respectively, thus reporting total decreases in contract revenue of $691,000, and $526,000 ,
respectively.
72 . Defendants also significantly overstated operating income during the Class
Period. For the years 2003 and 2002, Willbros reported operating income (loss) as being
($5,233,000), and $38 ,297,000 , respectively .
73 . As the 2004 10-K reflects (comparing the reported figures to the restated figures) ,
Willbros restated operating income for 2003 and 2002 as ($12,053,000) and $34,762,000,
respectively, thus reporting a total decrease in operating income of $10,355,000 .
74. In addition, for the second and third quarters of 2004, Defendants reporte d
operating income as being $3,100,000, and ($897,000), respectively . Defendants significantl y
overstated operating income for each of these periods . As the 2004 10-K reflects, Willbros
restated operating income for the second and third quarters of 2004 as being $2,037,000, an d
($6,038,000), respectively .
C. Wiibros Overstated Backlo g
75. In Willbros' industry, backlog is considered an indicator of potential futur e
performance because it represents a port ion of the Company's future revenue stream. Backlog27
consists of anticipated revenue from the uncompleted portions of existing contracts and contract s
whose award is reasonably assured. As discussed above and herein, Willbros improperl y
recognized, and materially overstated, its contract revenues. Since backlog is determined base d
upon contract revenues , as a consequence of Wilibros ' improper recognition of contrac t
revenues, Willbros' reported backlog was materially false and misleading .
76. For example, in 2003, Willbros reported backlog of $224,712,000 . However, as
alleged herein, Willbros' reported backlog was materially overstated . As the chart below shows ,
Willbros reported a material decrease in backlog of $1,169,000 for the 2003 annual period .
2003 2903 R STATE D----------------- -
Amouat Percent
-------- -
Amount
--------- -
Percen t
(Dollar
------ -
amcnutts in thouBandj )
Internationa l
Africa ------- $554,69 94V 49,01 .8 22% .6oLith#miica . : . . . . . . .
. . . .
.
. . .
:. . . 12,211 2 23,359 1 0Itiddlo East . . . . . . . . . . . . 3,500 1 5 7 ,953 20L
Satatotal .Tnternational . . . . . . . 569,402 9 1:30,249 5 9
United . States ,~ Canada
TJnited States . . .. . . . . . . . . . . : . ._ . . . 69,92€ 10 53,592 24
Canada : : . . . . . . . . . . . . . . . . . . . . . . . . . 22,503 4 39,709 1S
Subtotal United States & Canada
------- -
91,529
-- -
id
-------- -
93e291
-- -
92
Total., $564,42 104% 4223,531 100%
D. Corruption at Willbros Was Widesprea d
77. As the Company has now admitted : "Our international business operation s
include projects in countries where corruption is prevalent . "
78. That Defendants knew of the pervasiveness of corruption in some of the countrie s
in which Willbros operated and understood the necessity of monitoring the activities of thei r
officers and employees in those countries is reflected in the Company's conduct and ethic s
codes. Indeed, Willbros' Revised Code of Business Conduct and Ethics, dated December 16 ,
28
2003 (the "Code"), made publicly available on the "Investors" section of the Company' s
website, emphasized the foregoing :
8. Prohibited Payments
It is our policy to deal with clients and suppliers, and the governments ofall jurisdictions in which we operate, in a straightforward and aboveboardmanner.
In addition to other standards of conduct set forth in this Code, you maynot directly or indirectly offer or provide any gift, gratuity, orentertainment as a bribe, kickback, or other payment to any governmentofficial or employee to obtain or retain business or special concessions .
Similarly, you are not authorized to make payments as a bribe, kickback orother payment, including commissions, finder's fees, etc ., to employees ofother companies or organizations, directly or indirectly, for the purpose ofobtaining favorable treatment in securing business or otherwise obtainingspecial concessions from such other companies or organizations .
9. Foreign Corrupt Practices Act of 1977
The Foreign Corrupt Practices Act of 1977, as amended, in general,prohibits the giving of money or things of value to a non-U .S. governmentofficial, political candidate, or political party for the purpose of obtainingor retaining business .
Under the provisions of the Act :
• Bribes to a non-U.S. official, political party, political party official,or candidate for political office, to assist in obtaining, retaining ordirecting business to any person are prohibited.
• Complete and accurate books, records and accounts, in reasonabledetail, must be kept and must fairly reflect transactions anddispositions of assets .
• A system of internal accounting controls must be maintained andsuch system must be sufficient to provide reasonable assurancesthat (i) transactions are executed in accordance with managementauthorizations, (ii) transactions are recorded as necessary to permitthe preparation of financial statements in conformity withgenerally accepted accounting principles, (iii) access to assets ispermitted only in accordance with management's authorization,and (iv) the recorded accountability for assets is compared withexisting assets at reasonable intervals .
It is our policy to comply with all applicable provisions of the Act .
29
(Emphasis added . )
79. Willbros personnel at every level of the Company knew that corruption wa s
common practice . For example, according to CS 2 , in Nigeria, it was a common, accepted, an d
expected practice to pay bribes to win contracts. "That's Nigeria, of course. You have to pay
bribes to get work . "
80. According to CS 3 : "Nobody in Nigeria gets something for nothing or because o f
their reputation for doing good . You either bribe them or you don't get the job . I don't care who
you are. Unless you dash [i.e ., bribe] people, you get nothing done in Nigeria . It doesn't matter
if you're low or high bidder. The people always have their hands out ."
81 . According to CS 5, it was common practice for Willbros to pay a certain amount
of money on the side to customs agents in order to facilitate the shipment of their product in or
out of the country.
82. Defendants also knew of the pervasiveness of corruption in some of the countrie s
in which Willbros operated and understood the necessity of monitoring the activities of thei r
officers and employees in those countries because, as the Company admitted in the 2004 10-K :
"Many of our clients make compliance with applicable laws and ethical conduct a condition t o
their business relationships ."
83 . As a consequence , the following misconduct occurred at Willbros International :
a. Under the direction of Tillery and others acting under his direction,the Company's Bolivian subsidiary filed incorrect tax returns,failed to file required tax returns and failed to pay taxes owed ;
b. Tillery . and other employees or consultants of WillbrosInternational or its subsidiaries made or caused others to makepayments directly or indirectly to government officials inconnection with the submission of incorrect tax information ;
30
c . Tillery and other employees or consultants of WillbrosInternational or its subsidiaries made or caused others to makepayments directly or indirectly to government officials and clientrepresentatives in connection with the award and retention ofbusiness in Nigeria, the reduction of Nigerian tax obligations, thefacilitation of Nigerian customs clearances and the disposition ofNigerian legal proceedings ;
d. Tillery and other employees or consultants of WillbrosInternational or its subsidiaries made or caused others to makepayments directly or indirectly to government officials inconnection with attempts to obtain and/or retain business inEcuador;
e. Acts carried out by Tillery and others acting under his directionwith respect to a bid for work in Sudan may constitute facilitationefforts prohibited by U.S. law, a violation of U.S . trade sanctionsand the unauthorized export of technical information ;
f. Some of the actions of Tillery and other employees or consultantsof Willbros International or its subsidiaries caused the Company toviolate U.S. securities laws, including the Foreign CorruptPractices Act and/or other U .S . and foreign laws; and
g. Following Tillery's resignation, other employees of WilibrosInternational or its subsidiaries continued to carry out improperactivities previously initiated by Tillery. Those employees madepayments directly to certain government officials or to third partyconsultants with the understanding that such payments would bepaid to government officials.
84. Bribery was not, however, the only form of corruption impacting the Company .
Conflicts of interest and usurpation of corporate opportunities by senior management (e.g. ,
Tillery) were also pervasive occurrences within the Company and prohibited by the Code :
3. Conflicts of Interest
A "Conflict of Interest" exists when a person's private interest interferesin any way with the interests of Willbros . Each of you have a duty toavoid financial, business or other relationships which might be opposed toour interests or might cause a conflict with the performance of your duties .You should conduct yourself in a manner that avoids even the appearancesof conflict between your personal interests and those of the Company.
A conflict of interest situation may arise in many ways . A conflictsituation can arise when you take actions or have interests that may mak e
31
it difficult to perform your work on behalf of the Company objectively andeffectively. Conflicts of interest may also arise when you, or members ofyour family, receive improper personal benefits as a result of your positionin the Company . Loans to, or guarantees of obligations of, you and yourfamily members may create conflicts of interest. It is not possible todiscuss every circumstance that may lead to a conflict of interest, but thefollowing examples are illustrative :
• Owning or holding a substantial financial interest in a companywhich has material business dealings with us or which engages inany significant field of activity engaged by us .
• Acting as a director , officer, consultant or employee for anybusiness institution with which we have a competitive orsigni ficant business relationship , unless so requested or approvedby us .
• Placing of business with a firm owned or controlled by a Willbrosemployee without the prior specific approval of the ChiefExecutive Officer or the Chief Financial Officer.
4. Corporate Opportunities
You are prohibited from taking for yourself personally, opportunities thatare discovered, through the use of corporate property, information orposition, without the consent of the Board of Directors . You may not usecorporate property, information or position for improper personal gain,and you may not compete with the Company directly or indirectly . Youowe a duty to the Company to advance its legitimate interests when theopportunity to do so arises .
5. Unauthorized Use of Corporate Funds and Asset s
The use of corporate funds or assets for any unlawful or improper purposeis strictly prohibited. Examples include illegal corporate politicalcontributions to candidates, parties or government officials in any country,and payments to any government officials or private individuals to inducecustomers to purchase our goods and services .
6. Record Keeping
Financial statements and the books and records on which they are basedmust accurately reflect all corporate transactions . All receipts anddisbursements of Company funds must be properly recorded in the books,and records must disclose the nature and purpose of the Company'stransactions . All records and transactions are subject to review by internaland external auditors. Full cooperation with the auditors is expected an d
32
under no circumstances will any relevant information be intentionallywithheld from them.
The following requirements apply to all Company records :
• No undisclosed or unrecorded fund or asset of ours shall beestablished for any purpose .
• No false or artificial entries shall be made in our books and recordsfor any reason, and no employee shall engage in any arrangementthat results in such prohibited act .
• All transactions shall be executed in accordance withmanagement's general or specific authorization .
• Transactions shall be properly recorded to permit preparation offinancial statements in accordance with generally acceptedaccounting principles and to maintain accountability for assets .
• No payment on behalf of the Company shall be approved or madewith the intention or understanding that any part of such paymentis to be used for any purpose other than that described by thedocuments supporting the payment.
85. Nevertheless, among other things, the following wrongful conduct occurred fo r
which Defendants knew of or with severe recklessness disregarded :
a. Tillery and other employees or consultants of WillbrosInternational or its subsidiaries usurped corporate opportunitiesand owned undisclosed interests in enterprises with which theCompany had material relationships . As the Company hasadmitted, despite the Company's policies forbidding self-dealing,during the years December 31, 2002, 2003, and 2004, theCompany made related party payments of over $33 million toseveral Tillery-owned companies as follows :
Year Ended December 11 ,- - ---------------------------------
2001 2003 2202 Total
Arbaeti Trading Ltd 2,047. $ 2 UTPUSiaa Petroleum Services Ltd 071 071Rydrodive O rello o Gervicea
Tnternat1onal, Inc- -- 2,G92 10493 13,165Hyirodive .Internat ondl , Ltd_ S, ` 05 3,9:31 9,130Hydrodive Nigeria Ltd. 210 112 991 1, -mKaplan and Asaociatee .524 617 940 1a 001O0 Incvstrial Services Ltd. 63 207 236 596
Windfall 13nerg]r Services Ltd. 922 205 -- 1,207symoil Potrolelun Ltd. 1 ,121 544 1,632 1,25 7
------- ------ ------- -------T[ta1 $5,411; $7,959 $16x,119 $33,49 3
33
b. The Company recorded $10.8 million in revenue with respect toentities where Tillery appeared to have had an ownership interestor over whose operations he appeared to have exercised some levelof control . According to the Company, the related party paymentswere mainly in connection with marine vessel charters, divingservices and consulting services for projects in Nigeria, Boliviaand Ecuador, all of which fall within the Company's core businessoperations;
c. Tillery and other employees or consultants of WillbrosInternational or its subsidiaries engaged in discussions or enteredinto arrangements with competitors of the Company regardingbidding strategies for projects outside the United States ;
d. Tillery acquiesced in or approved a prior commitment by anotherto make an improper future payment in Mexico ;
e. Tillery and other employees of Willbros International or itssubsidiaries may have received kickbacks, payments and/or otherimproper benefits from Company consultants, suppliers and/orcompetitors or may otherwise have benefited personally as a resultof the activities described above ; and
f. Tillery and other employees or consultants of WillbrosInternational or its subsidiaries intentionally mischaracterizedCompany expenditures resulting in the Company's books notaccurately reflecting the true nature of such expenditures .
86. As a consequence of these corrupt prac tices , Tillery resigned in January 2005 .
E. Material Weaknesses in Willbros' Internal Controls and Procedure s
87. The fraudulent accounting and corruption at Willbros was made possible by the
Company's material weaknesses in its internal controls and procedures .
88. In the Company's 2004 10-K, the Company defines a "material weakness" as "a
control deficiency, or a combination of control deficiencies, that results in a more than remot e
likelihood that a material misstatement of the annual or interim financial statements will not b e
prevented or detected ." The Company has identified the following material weaknesses in it s
internal controls over financial reporting that existed during the Class Period :
34
1 . Company Level Controls - The Company did not maintain effectivecompany-level controls in the control environment, risk assessment, andmonitoring components as defined by the Internal Control--IntegratedFramework issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO), including related antifraud controls .Specifically, the following deficiencies were identified :
• The Company's control environment did not sufficientlypromote effective internal control over financial reportingthroughout our management structure, and this material weaknesswas a contributing factor in the development of other materialweaknesses described below ;
• The Company did not provide sufficient training forpersonnel engaged in key elements of the financial reportingprocess, including training on relevant regulations such as theForeign Corrupt Practices Act ;
The Company's policies and procedures did not effectivelyensure that : (1) personnel, including internal audit, have theappropriate skills and experience commensurate with their jobresponsibilities ; (2) the reporting structure of the organization wasappropriate; and (3) key personnel in certain internationalsubsidiaries adhere to a periodic rotation policy ;
• The Company failed to educate and train employees inidentifying, monitoring, or reporting and responding to, incidentsof alleged misconduct or unethical behavior, including theCompany's whistleblower policy and the Company's code ofconduct policies .
These deficiencies in the Company's internal control over financialreporting resulted in material overstatement of contract revenue andunderstatement of contract costs, in previously-issued annual and interimfinancial statements . Accordingly, the Company restated its consolidatedfinancial statements as of and for the years ended December 31, 2002 and2003, and the first three quarters of 2004 .
2. Construction Contract Management - The Company's operatingsubsidiaries in Nigeria did not maintain effective policies and proceduresregarding review and approval processes relating to : (i) original andrevised project cost estimates ; (ii) original contract pricing ; (iii)establishment and management of contract contingencies; and (iv) changeorder management . These deficiencies in the Company's internal controlover financial reporting resulted in material overstatement of contractrevenue and understatement of contract costs, in previously-issued annualand interim financial statements . Accordingly, the Company has restated
35
its consolidated financial statements as of and for the years endedDecember 31, 2002 and 2003, and the first three quarters of 2004 .
3. International Taxes - The Company's policies and procedures did notprovide for effective supervisory review of the Company's accounting forinternational taxes, value added taxes, and payroll taxes and the relatedrecordkeeping activities . These deficiencies in the Company's internalcontrol over financial reporting resulted in material understatement ofcontract cost and income tax expense in previously-issued annual andinterim financial statements . Accordingly, the Company has restated itsconsolidated financial statements as of and for the years ended December31, 2002 and 2003, and the first three quarters of 2004 .
4 . Disbursements Process - The Company did not maintain effective policiesand procedures regarding its disbursements process . Specifically,deficiencies in policies and procedures were noted in the following areas :(i) petty cash disbursements at the Company's Nigerian subsidiaries ; (ii)the Company's vendor approval process and maintenance of an approvedvendor listing; and (iii) disbursement approval levels for individuals,subsidiaries, and senior management. These deficiencies resulted inmaterial undisclosed related party transactions and payment of fraudulentvendor invoices resulting in material overstatement of contract revenueand overstatement of contract cost in previously-issued annual and interimfinancial statements. Accordingly, the Company has restated itsconsolidated financial statements as of and for the years ended December31, 2002 and 2003, and the first three quarters of 2004 .
89. The lack of internal controls and procedures were well-known throughout the
Company. For example, according to CS 4, Willbros USA had no process in place to properl y
allocate expenses to individual projects . After January 2005, Willbros formed an internal audit
group, charged by Williams under the orders of the Company's General Counsel, Jay Dalton ,
with the task of updating journal entries back to 2002 to accurately reclassify where the money
had gone. The audit group had also discovered that back-up for journal entries - i.e., original
invoices - were missing .
36
90. Further, sometime before CS 4 left Willbros in October 2005, the Company's
Controller Ron Lefaive, sent an e-mail to the accounting staff that all journal entries had to have
back-up which, according to CS 4, was a first-time policy.
91 . According to CS 4, prior to January 2005, there was no standard procedure fo r
paying bills in Nigeria, despite the fact that the Company's terms on payment of international
invoices were stated at net 45 days . Moreover, according to CS 4, Gerald Jansen, the controller
for Willbros Nigeria, often directed Treasury Manager Angie Patterson to make immediate
payments - via wire through Willbros West Africa or Willbros Nigeria accounts, maintained by
Willbros International - to certain Nigerian-based vendors, such as HydroDive, a Tillery-
affiliated company. According to CS 4, "there were times money was sent out at Gerald
Jansen's request before it was processed in the system."
92. According to CS 6, accounting processes were non-existent within Willbros '
Nigerian operations . "What really frustrated me was I came there with project-management and
cost-control expertise . When I got there, there was absolutely no business infrastructure to
enable an effective cost-control system to be implemented. There was no accounting in real
terms." For example, no "cost coding" procedures had been put in place in ongoing projects,
which CS 6 described as a set of labels applied to expenditures in a project to identify where the
money was going. "That didn't exist."
93. Further, according to CS 6, in Nigeria, Willbros had no practice of preparing
financial projections or forecasts . According to CS 6, it was not until the end of 2004 that
Willbros started to implement financial projections .
37
94. In addition, according to CS 7, when CS 7 joined the Company in January 2005,
Willbros had no policies in place governing purchasing. "Let's put it this way. Willbros was
just getting into the stage of running a business with document control, putting in place
purchasing procedures and processes . All of that was being implemented and it was a big
learning curve for everyone. It wasn't something that everybody was real familiar with . I guess
you could say that it was difficult for people to grasp the new processes that needed to take
place ."
95 . According to CS 7, when CS 7 started in January 2005, employees in th e
International Procurement Department - each assigned to manage vendor relationships (i .e.,
solicitation of bids and award of contracts) for different ongoing Willbros projects overseas -
were confused about from whom they should seek approval for purchase orders over certain
amounts . "When I got hired on, there was no delegation of authority . We didn't know what
purchasing sign-off authority we had. We just had to keep asking questions, such as `Who signs
off on orders of a certain value?' We didn't know, and we weren't told . Anybody could sign off
on a purchase order for any amount . When the invoice came back, that same person (who
originally approved the purchase order) could approve it and send it off to accounting to be
paid." It wasn't until September 2005, when CS 7 left the Company, that "they definitely had
that [procedure] in place . "
96. In addition, according to CS 7, in January 2005, Willbros in Houston was
collecting quotes from vendors without a standard "sealed-bid" process which is designed to
guard against the steering of business to favored suppliers . It wasn't until September 2005, when
CS 7 left the Company, that Willbros, under the instruction of Mike Donohue, Manager of th e
38
International Procurement Department, had imposed a mandate requiring all vendors to submit
quotes in a sealed envelope carrying the label: "Sealed Bid. Do Not Open." The bids were then
held in a secured area in "document control" and, after the bid due date had passed, they would
be opened simultaneously by a designated committee of Willbros employees . According to CS
7 : "This alleviates the situation where anybody at Willbros could have access to quotations,
pricing and have the possibility of another bidder come back and underbid that bidder."
97. In response to the improper accounting practices and internal control deficiencies ,
the Company has taken substantial remedial measures . According to the 2004 10-K, subsequent
to December 31, 2004, the Company has undertaken the following actions to remediate the
aforementioned material weaknesses, and to improve the Company's internal control over
financial reporting :
• Initiation of an enhanced worldwide awareness program to educateemployees with respect to the content of our whistleblower policyto better achieve reporting of any suspected problems ;
• Realignment of the reporting of all business units' financial staffdirectly to the Corporate Controller's Office ;
• Adoption of a more frequent rotation policy for the operations staffat our business units ;
• Adoption of a policy requiring approval of the General Counsel orthe Chief Financial Officer for the engagement of legal, accountingand tax advisors ;
• Implementation of an "enhanced and stand-alone" FCPACompliance Program (separate from that incorporated previouslyinto our Code of Business Conduct and Ethics), inclusive of a"Definitive FCPA Policy Statement" from the Board of Directorsand an FCPA Compliance Procedure providing for, among othermeasures, routine training company-wide, starting in Nigeria, LatinAmerica and Oman ;
• Requirement that employees in positions of authority, as well asprofessional consultants, identify any direct or indirect ownershipinterest in entities doing business with the Company. Included in
39
this disclosure will be any entities owned or controlled in whole orin part by immediate family members such as spouses ;
• Improvements to strengthen existing internal controls relatingspecifically to Nigerian cash disbursements, approved vendor listsand approval levels for individuals, subsidiaries and seniormanagement; and
• Expansion and formalization of the review process by corporatetax personnel of all international tax returns on at least a quarterlybasis . Book and tax liability accounts will be reconciled andcompared with tax returns as filed . This process was already inplace for the North American subsidiaries ;
In addition, Company management with oversight from the Audit Committee i s
implementing other improvements, as described below :
• Appointment of a senior - level Company employee with primaryresponsibility for implementation , oversight and enforcement ofthe (i) Definitive FCPA Policy Statement ; (ii) the Code of BusinessConduct and Ethics ; and (iii) the Whistleblower Policy, andpublish that appointment throughout the Company. The appointeewill have a direct communication line to the Audit Committee;
• Movement of the internal audit function from an outsourcedfunction with an independent accounting firm to an in-housedepartment to facilitate more frequent and more in-depthexamination of controls throughout the Company .
98. Defendants knew about the material weaknesses in the Company's interna l
controls and procedures and, although they did not disclose them to the public, they
acknowledged such weaknesses internally by attempting certain minor remedial steps . For
example, according to CS 1, beginning in or around May 2004, Willbros changed the way
invoices submitted by all Willbros employees, including Tillery, were to be approved, instituting
the requirement that either Curran or Williams sign off on amounts above a certain threshold .
"Everybody who submitted invoices over a certain amount had to have approval from the CE O
or CFO."
40
99 . According to CS 1, around May 2004, the internal audit team, which was created
to comply with the Sarbanes-Oxley Act of 2002 and which reported to Williams, had begun to
issue a set of remediations, including stricter controls over invoice payments across the board,
for both the domestic and international side of the business . According to CS 1, this was in stark
contrast to prior practice, in which "Tillery used to bring down invoices to Accounts Payable an d
it was for international and people would pay them . The invoices for international had hi s
signature and that was all that was needed to be paid . I had no idea if they were actual bills or
invoices he dummied on his computer ." According to CS 4, prior to this time , Tillery had sole
authority to approve individual invoices for up to $5 million . According to CS 4, it was rare that
any bill came close to this amount . "Tillery had the final say on anything that came from
Nigeria."
100 . According to CS 1, the Company's Sarbanes-Oxley audit continued throughout
2004 and was headed by John Jackson . According to CS 1, Jackson, accompanied by two o r
three auditors, traveled to Willbros International's offices "in order to audit all procedures an d
policies and make sure that they were carrying them out in the field, as well as at corporate ."
According to CS 1, operations in Nigeria were "flying wide open over there and people wer e
doing whatever they wanted" and that one emphasis of the Sarbanes-Oxley audit was to "brin g
those people more under the control of corporate . "
101 . According to CS 1, as a result of the Company's Sarbanes -Oxley audit, effective
sometime in the summer of 2004, all employees making general ledger entries had to obtai n
approval within the Company's JD Edwards accounting system from John Hiney, the head o f
financial reporting, before the entries could be posted . To facilitate this new requirement,
41
Willbros' IT department programmed a pre-existing capability within the JD Edwards system to
demonstrate an "approve bottom" that would register next to each journal entry and had to b e
checked before the entry could post .
102. Finally, according to CS 7, beginning in the spring of 2005, Roy Gonzalez ,
Purchasing Manager for the WAGP project, and Mike Donahue, both based in Houston, ha d
become involved in introducing a new set of controls over memorializing various purchasin g
procedures and the flow of documentation - i.e., the "trackability of documents - relating t o
contract awards . For the first time, the Company began entering and scanning all vendo r
communications, RFPs, transmittals referencing quotations, and other relevant back-up into th e
Company's JD Edwards computer program in designated file systems . "That was a big process,
because [before this time] people didn't know who was talking to who and what information was
being sent out. At a company the size of Willbros, doing the electronic data input is crucial ,
because other companies like [a major oil company at which CS 7 worked] have been doing tha t
for years . "
F. Regulatory Actions
103 . Willbros is currently under investigation by several government agencies
concerning the wrongful conduct complained of herein .
104. The SEC is conducting a formal non -public investigation into whether th e
Company and others may have violated various provisions of the Securities Act of 1933 and th e
Securities Exchange Act of 1934 .
105. The DOJ is conducting an investigation concerning possible violations of th e
United States Foreign Corrupt Practices Act ("FCPA") and other applicable U .S. laws .
42
106 . The OFAC is investigating certain activities conducted by certain Wilibro s
employees that may constitute a violation of U .S. trade sanctions administered and enforced b y
the Department of Treasury and U.S. export restrictions administered by the Department o f
Commerce.
DEFENDANTS' FALSE AND MISLEADING STATEMENT S
The First Quarter 2002 Press Release
107. On May 6, 2002, after the close of the market, Willbros issued a press releas e
announcing its results for the first quarter ended March 31, 2002 . The press release was
headlined "Willbros First Quarter Earnings are $0 .30 Per Share," and stated in relevant part :
HOUSTON--(BUSINESS WIRE) -- May 6, 2002 -- Willbros Group Inc .(NYSE :WG) today reported first quarter earnings of $4 .6 million ($0 .30per diluted share) for the quarter ended March 31, 2002 on revenue of$147.5 million . Net incomefor the same period in 2001 was $0.8 million($0.05 per diluted share) on revenue of $65.7 million . Revenue, by typeof service, for the first quarter of 2002 was as follows : Construction, $83 .3million ; Engineering, $49 .9 million ; and Specialty Services, $14 .3 million.Backlog as of March 31, 2002 was $390 .4 million, as compared to the$407.6 million record backlog at Dec . 31, 2001 . On a comparable basis,revenue, by type of service, for the same period in 2001 was:Construction, $26 .6 million ; Engineering, $24 .1 million ; and SpecialtyServices, $15 .0 million . EBITDA for the first quarter of 2002 was $15.2million or $0.98 per share, up from the $7.6 million or $0.52 per sharefor the sameperiod in 2001. [Emphasis added] .
Compared to the same quarter in the prior year, earnings were upprimarily due to higher revenue resulting from greater engineering activityin North America, substantial completion of a U.S . pipeline project,construction activity on the Chad-Cameroon Pipeline Project and marinemaintenance and construction in offshore West Africa . The increase inrevenue was offset to some extent by higher depreciation, higher generaland administrative expenses and a higher level of income taxes in thecompany's U .S. businesses resulting from higher earnings .
43
($ millions}: 1{)_2O{ 12 1( l ?rif}1` 'Net Income 4.6 0 . 8EBITDA(1) 15 .2 7 . 6Revenue
Construction 83 .3 26 . 6
Engineering 49.9 24. 1Specialty Services 14 .3 15. 0Total 147 .5 65. 7Backlog(2) 390.4 390.6
108. Defendants knew or were severely reckless in not knowing that the statement s
concerning EBITDA, income, and revenue in the first quarter 2002 earnings press release wer e
materially false and misleading for several reasons . Defendants improperly inflated the amount
of the Company's reported depreciation by improperly causing the Company's financia l
statements to exclude the dollar value of parts used in construction (i.e ., contract expense) and
improperly depreciate inventory. This served to understate construction costs, enabling th e
Company to overstate profit and/or avoid the recognition of losses on construction contracts, an d
to overstate EBITDA through excessive add-backs to the reported net income or loss . In
addition, Defendants, inter alia : understated and underpaid taxes at certain international
subsidiaries, resulting in a material understatement of expenses ; misappropriated cash funds
through the use of vendor invoices and fraudulent consulting agreements which resulted in a n
overstatement of contract costs and timing differences in the recognition of contract revenue ;
overstated contract margins for several significant contracts, which resulted in the imprope r
recognition of revenue ; and misappropriated funds to refurbish equipment not owned by the
Company. See IT 60-75, 264-301 .
109. Following the issuance of the materially false and misleading May 6, 2002
announcement , Willbros' common stock fell from a close of $18 .55 per share on May 6, 2002 to
44
$18 .25 per share on May 7, 2002 . But for the foregoing materially false and misleadin g
statements concerning EBITDA, income, and revenue, the price of Willbros common stock
would have further declined .
The May 2002 Offerin
110. On May 9, 2002, the Company announced a secondary offering of 3 .845 million
shares of Willbros common stock at $17 .75 per share. The press release stated in relevant part :
HOUSTON -- (BUSINESS WIRE) -- May 9, 2002 -- Willbros Group, Inc.(NYSE:WG) announced today that it priced a public offering of itscommon shares at $17.75 per share; 3,845,000 shares are being sold by theCompany, and 800,000 shares are being sold by certain sellingshareholders. Approximately 18,960,000 common shares will beoutstanding after the offering. In addition, the underwriters have beengranted an option to purchase up to 696,750 additional shares, 511,750shares by the Company and 185,000 shares by some of the sellingshareholders, to cover potential over-allotments . CIBC World Markets(Books), Credit Lyonnais Securities (USA) Inc., D.A. Davidson & Co.,Frost Securities, Inc . and Morgan Keegan & Company, Inc . are theunderwriters for the offering of shares to the public .
111 . On that same day, the Company filed a prospectus and registration statement (th e
"May 9, 2002 Prospectus") . The table below lists the selling shareholders and the number of
shares they sold in the secondary offering :
sfMfa sBENET ic-aJJ Y N~ :BFI: ~H RLOWNI F ( )1 BEN LFICT :A LNK!OI,t IO ~[ ~ ti LY'),WNFFHIS, ! HhING Al T R ThIS
1N II }FQY',N1 R OF UFFET'dCf PI R('FN1 l)FF ~.EU t?FF KlN(r I' V CL`JIt}ENIIa'1 .Ot (,'#2t)tIP Vl~Mf3E,R : __ _: N •TBE K Nf .lN11iEI' A( F
Larry J. Sum 1 1,301 ,691 8.60 545 ,000 756,691 4.00The Mitchell Group ,Inc .(4) 995,153 6.70 0 995,153 5.3 0Royce & Associates,
Asset917,0501 6.20 1 0 1 917,050 1 4.90
45
Management,L.L .C .(6) 845,180 5 .70 0 845,180 4 .5 0Michael F. Curran 837,496 5 .60 225,000 612,496 3 .30Husic CapitalManagement(8) 784,000 5 .30 0 784,000 4 .20James R. Beasley 185,500 1 .20 0 185,500 1 .00John K. Allcorn 166,568 1 .10 0 166,568 *Arthur J . West 130,000 * 30,000 100,000
Warren L. Williams 63,166 * 0 63,166Peter A. Leidel 42,872 0 42,872 *John H. Williams 25,000 * 0 25,000
Guy E. Waldvogel 19,000 * 0 9,000Michael J . Pink 10,000 * 0 10,000 *James B . Taylor, Jr. 8,000 * 0 8,000
Rodney B. Mitchell 5,000 0 5,000All executive officersand Directors as agroup (11 people) 2,664,293 17 .20 770,000 1,894,293 9.80
112. The May 9, 2002 Prospectus stated in relevant part :
On May 6, 2002, we reported net earnings for the quarter ended March 31,2002 of $4.6 million, or $0.30 per diluted share, compared to net incomeof $0.8 million, or $0.05 per diluted share for the same period in 2001 .Revenue for the first quarter of 2002 was $147.5 million, compared to$65.7 million in the first quarter of 2001. Revenue, by type of service,for the first quarter of 2002 was as follows : construction, $83 .3 million ;engineering, $49 .9 million; and specialty services, $14 .3 million. On acomparable basis, revenue, by type of service, for the same period in 2001was : construction, $26 .6 million ; engineering, $24 .1 million ; and specialtyservices, $15 .0 million . Backlog as of March 31, 2002, was $390 .4million, as compared to $407 .6 million at December 31, 2001 . EBITDAfor the first quarter of 2002 was $15 .2 million or $0.98 per share, up from$7.6 million or $0.52 per share for the same period in 2001 .
The increase in earnings from the same period in 2001 was primarilyattributable to higher revenue resulting from increased engineeringactivity in North America, substantial completion of a U .S. pipelineproject, construction activity on a pipeline project in Chad and Cameroonand marine maintenance and construction in offshore West Africa . Theincrease in revenue was partially offset by higher depreciation, highergeneral and administrative expenses and a higher level of income taxesresulting from increased earnings by our U.S . businesses .
(Emphasis added.)
46
113 . The May 9, 2002 Prospectus included a Management's Discussion and Analysi s
of the Company's financial condition and results of operations ("MD&A") . In relevant part, the
MD&A stated :
GENERAL
We derive our revenue from providing construction, engineering andspecialty services to the oil, gas and power industries and governmententities worldwide . We obtain contracts for our work primarily bycompetitive bidding or through negotiations with long-standing orprospective clients . Bidding activity, backlog and revenue resulting fromthe award of contracts to us may vary significantly from period to period .Contracts have durations from a few weeks to several months or in somecases more than a year .
CONTRACT PROVISION S
We usually obtain contracts through competitive bidding or throughnegotiations with long-standing clients. We are typically invited to bidon projects undertaken by our clients who maintain approved bidder lists .Bidders are pre-qualified by virtue of their prior performance for suchclients, as well as their experience, reputation for quality, safety record,financial strength and bonding capacity.
(Emphasis added.)
114. Defendants knew, or were severely reckless in not knowing that the statements
concerning EBITDA, income, and revenue in the May 9, 2002 announcement and Prospectus
were materially false and misleading for several reasons . Defendants improperly inflated the
amount of the Company's reported depreciation by improperly causing the Company's financial
statements to exclude the dollar value of parts used in construction (i .e., contract expense) and
improperly depreciate inventory. This served to understate construction costs, enabling the
Company to overstate profit and/or avoid the recognition of losses on construction contracts and
to overstate EBITDA through excessive add-backs to the reported net income or loss . In
addition, Defendants, inter alia : understated and underpaid taxes at certain international
47
subsidiaries, resulting in a material understatement of expenses ; misappropriated cash funds
through the use of vendor invoices and fraudulent consulting agreements which resulted in an
overstatement of contract costs and timing differences in the recognition of contract revenue;
overstated contract margins for several significant contracts, which resulted in the improper
recognition of revenue ; and misappropriated funds to refurbish equipment not owned by the
Company. See I( 60-75, 264-301 .
115 . Moreover, Defendants knew, or were severely reckless in not knowing, that the
statements in the MD&A concerning contract procurement (e .g., "[w]e obtain contracts for our
work primarily by competitive bidding or through negotiations with long-standing clients o r
prospective clients") were materially false and misleading because the Company, through its
Wilibros International subsidiary, was obtaining contracts primarily through bribery of
government officials in Nigeria, Bolivia, and Ecuador . As the Company has admitted, Tillery
and other employees or consultants of Willbros or its subsidiaries : (i) caused others to make
payments directly or indirectly to government officials and client representatives in connectio n
with the award and retention of business in Nigeria, the reduction of Nigerian tax obligations, the
facilitation of Nigerian customs clearances and the disposition of Nigerian legal proceedings ; (ii)
made or caused others to make payments directly or indirectly to government officials in
connection with attempts to obtain and/or retain business in Ecuador ; (iii) may have engaged in
discussions or entered into arrangements with competitors of the Company regarding bidding
strategies for projects outside the United States ; and (iv) may have received kickbacks, payments
and/or other improper benefits from Company consultants, suppliers and/or competitors or ma y
48
otherwise have benefited personally as a result of the activities described above . See ¶¶ 9-10, 12 ,
17, 78-87 .
116. Further, Defendant Curran and other corporate insiders also had the motive t o
commit and participate in the fraudulent schemes and course of conduct complained of herein .
As owners of significant amounts of Willbros common stock, they were in a position to realiz e
significant gains through the liquidation of their investments . As demonstrated by their sales of
their Willbros common stock, both privately and through the secondary offering, Defendant
Curran and other insiders capitalized upon the artificially inflated stock price, and generated for
themselves millions of dollars in proceeds .
The First Quarter 2002 Form 10- 0
117. On May 15, 2002, the Company filed with the SEC on Form 10-Q its interim
report for the quarter ended March 31, 2002 (the "First Quarter 2002 Form 10-Q"), which was
signed by Defendant Williams . In the First Quarter 2002 Form 10-Q, the Company reporte d
earnings of $4 .6 million ($0.30 per diluted share) on revenues of $147 .5 million . Net income fo r
the same period in 2001 was reported to be $0 . 8 million ($0.05 per diluted share) on revenues o f
$65 .7 million. EBITDA reportedly increased to $15 .2 million for the first quarter 2002, an
increase of $7 .6 million, compared to the first quarter March 31, 2001 . Contract revenue
purportedly increased $81 .8 million (125%) to $147.5 million .
118 . In the First Quarter 2002 Form 10-Q MD&A, Defendants discussed the
Company's financial condition and results of operations. In relevant part, the MD&A stated :
GENERAL
We derive our revenue from providing construction, engineering andspecialty services to the oil, gas and power industries and governmententities worldwide . We obtain contracts for our work primarily b y
49
competitive bidding or through negotiations with long-standing clientsor prospective clients. Bidding activity, backlog and revenue resultingfrom the award of contracts to us may vary significantly from period toperiod. Contracts have durations from a few weeks to several months orin some cases more than a year.
EBITDA increased to $15.2 million for the three month period endedMarch 31, 2002, an increase of $7.6 million compared to the threemonth period endedMarch 31, 2001 .
(Emphasis added . )
119. Defendants knew, or were severely reckless in not knowing, that the statement s
concerning EBITDA, income, and revenue in the First Quarter 2002 Form 10-Q were materiall y
false and misleading for several reasons . Defendants improperly inflated the amount of the
Company's reported depreciation by improperly causing the Company's financial statements to
exclude the dollar value of parts used in construction (i.e., contract expense) and improperly
depreciate inventory. This served to understate construction costs, enabling the Company to
overstate profit and/or avoid the recognition of losses on construction contracts and to overstat e
EBITDA through excessive add-backs to reported net income (or loss) . In addition, Defendants ,
inter alia : understated and underpaid taxes at certain international subsidiaries, resulting in a
material understatement of expenses ; misappropriated cash funds through the use of vendor
invoices and fraudulent consulting agreements which resulted in an overstatement of contrac t
costs and timing differences in the recognition of contract revenue ; overstated contract margins
for several significant contracts, which resulted in the improper recognition of revenue ; and
misappropriated funds to refurbish equipment not owned by the Company . See ¶¶ 60-75, 264-
301 .
50
120. In addition, Defendants knew, or were severely reckless in not knowing, that the
statements in the MD&A concerning contract procurement (e .g., "[w]e obtain contracts for our
work primarily by competitive bidding or through negotiations with long-standing clients or
prospective clients") were materially false and misleading because the Company, through its
Willbros International subsidiary, was obtaining contracts primarily through bribery of
government officials in Nigeria, Bolivia, and Ecuador . As the Company has admitted, Tillery
and other employees or consultants of Willbros or its subsidiaries : (i) made or caused others to
make payments directly or indirectly to government officials and client representatives in
connection with the award and retention of business in Nigeria, the reduction of Nigerian tax
obligations, the facilitation of Nigerian customs clearances and the disposition of Nigerian legal
proceedings; (ii) made or caused others to make payments directly or indirectly to government
officials in connection with attempts to obtain and/or retain business in Ecuador ; (iii) may have
engaged in discussions or entered into arrangements with competitors of the Company regarding
bidding strategies for projects outside the United States ; and (iv) may have received kickbacks,
payments and/or other improper benefits from Company consultants, suppliers and/or
competitors or may otherwise have benefited personally as a result of the activities described
above. See ¶¶ 9-10, 12, 17, 78-87 .
The Second Quarter 2002 Press Release
121 . On August 1, 2002, before the market opened, the Company issued a press release
entitled, "Willbros Second Quarter Earnings are $0 .41 Per Share," in which Wilibros reported
earnings of $7.6 million ($0.41 per diluted share on 18.7 million shares) for the quarter ended
June 30, 2002, on revenues of $148 .1 million . In addition, the Company reported EBITDA fo r
51
the second quarter of 2002 at $17.0 million, or $0.91 per share , up from the $6 .9 million, or
$0.46 per diluted share, for the same period in 2001 . The press stated in relevant part :
Willbros Group, Inc . (NYSE: WG) today reported second quarter earningsof $7.6 million ($0.41 per diluted share on 18 .7 million shares) for thequarter ended June 30, 2002 on revenue of $148 .1 million. Net income,on a comparable basis (excluding a one time gain of $5.6 million relatedto termination of a benefit plan), for the same period in 2001 was $1.5million ($0.10 per diluted share on 15.2 million shares) on revenue of$78.8 million . Revenue, by type of service, for the second quarter of 2002was as follows : Construction, $85 .0 million; Engineering, $47 .0 million;and Specialty Services, $16 .1 million. Backlog as of June 30, 2002 was$365.6 million, comparable to the same quarter in 2001 . On a comparablebasis, revenue, by type of service, for the same period in 2001 was :Construction, $43 .7 million; Engineering, $21 .9 million ; and SpecialtyServices, $13 .2 million . EBITDA for the second quarter of 2002 was$17.0 million or $0.91 per share, up from the $6.9 million or $0.46 perdiluted share (excluding a one time gain of $5.6 million related totermination of a benefit plan) for the same period in 2001 . [Emphasisadded] .
2Q ' 002 ~ ?(3-'2O 0Net Income 7 .6
f7 . 1
Termination of benefit plan -- (5 .6 )Net Income ( excluding one time gain) 7 .6 1 .5EBITDA(l) 17 .0 12 .5Term ination of benefit plan -- (5 .6 )EBITDA( 1) (excluding one time gain ) 17 .0 6 . 9Revenue
Construction 85 .0 43 . 7Engineering 47.0 21 . 9Specialty Services 16 .1 13 . 2Total 148 .1 87 . 8Backlog (2) 365 .6 364 . 9
122. Commenting on the second quarter results, Defendant Curran stated :
We are experiencing higher levels of bid activity than at this time lastyear, particularly in markets outside of North America . Basic demand forenergy continues to be strong. We see more opportunities for growth forthe Company in the next year, especially given our strong financialposition .
(Emphasis added.)
52
123 . Defendants knew, or were severely reckless in not knowing, that the statement s
concerning EBITDA, income, and revenue in the second quarter 2002 earnings release wer e
materially false and misleading for several reasons . Defendants improperly inflated the amount
of the Company's reported depreciation by improperly causing the Company's financia l
statements to exclude the dollar value of parts used in construction (i.e., contract expense) an d
improperly depreciate inventory . This served to understate construction costs, enabling th e
Company to overstate profit and/or avoid the recognition of losses on construction contracts and
to overstate EBITDA through excessive add-backs to the reported net income (or loss) . In
addition, Defendants, inter alia : understated and underpaid taxes at certain internationa l
subsidiaries, resulting in a material understatement of expenses ; misappropriated cash funds
through the use of vendor invoices and fraudulent consulting agreements which resulted in a n
overstatement of contract costs and timing differences in the recognition of contract revenue ;
overstated contract margins for several significant contracts, which resulted in the imprope r
recognition of revenue ; and misappropriated funds to refurbish equipment not owned by the
Company . See ¶¶ 60-75, 264-301 .
124. In addition, Defendant Curran knew, or was severely reckless in not knowing, tha t
the portion of his statement "especially given our strong financial position" was materially false
and misleading because the Company's income, revenue and EBITDA were materiall y
overstated for the reasons set forth in ¶¶ 60-75, 264-301 and the paragraphs cited therein .
125. On July 31, 2002, Willbros' common stock closed at $13 .20. Following the
issuance of the materially false and misleading August 1, 2002 earnings announcement ,
Willbros' common stock rose to a close of $13 .50 per share on August 1, 2002 .
53
The Second Quarter 2002 Form 10-0
126 . On August 14, 2002, the Company filed with the SEC on Form 10-Q its interim
report for the second quarter ended June 30, 2002 (the "Second Quarter 2002 Form 10-Q"),
which was signed by Defendant Williams . In the Second Quarter 2002 Form 10-Q, the
Company reported earnings of $7 .6 million ($0.41 per diluted share on 18 .7 million shares) on
revenues of $148 .1 million. Net income, on a comparable basis (excluding a one time gain o f
$5.6 million related to termination of a benefit plan) for the same period in 2001, was reported t o
be $1 .5 million ($0 .10 per diluted share on 15 .2 million shares) on revenues of $78 .8 million. In
addition, the Company reported that EBITDA increased to $32 .2 million for the six month perio d
ended June 30, 2002, an increase of $12 .1 million (60%), compared to the six month perio d
ended June 30, 2001 .
127. In the Second Quarter 2002 Form 10 -Q MD&A, Defendants discussed th e
Company's financial condition and results of operations . In relevant part, the MD&A stated :
GENERAL
We derive our revenue from providing construction, engineering andspecialty services to the oil, gas and power industries and governmententities worldwide . We obtain contracts for our work primarily bycompetitive bidding or through negotiations with long-standing clientsor prospective clients . Bidding activity, backlog and revenue resultingfrom the award of contracts to us may vary significantly from period toperiod. Contracts have durations from a few weeks to several months orin some cases more than a year.
EBITDA increased to $32.2 million for the six month period ended June30, 2002, an increase of $12,1 million (60%) compared to the six monthperiod ended June 30, 2001.
(Emphasis added.)
54
128. Defendants knew, or were severely reckless in not knowing, that the statement s
concerning EBITDA, income, and revenue in the Second Quarter 2002 Form 10-Q wer e
materially false and misleading for several reasons . Defendants improperly inflated the amount
of the Company's reported depreciation by improperly causing the Company's financia l
statements to exclude the dollar value of parts used in construction (i.e., contract expense) an d
improperly depreciate inventory . This served to understate construction costs, enabling th e
Company to overstate profit and/or avoid the recognition of losses on construction contracts and
to overstate EBITDA through excessive add-backs to reported net income (or loss) . In addition ,
Defendants, inter alga: understated and underpaid taxes at certain international subsidiaries ,
resulting in a material understatement of expenses; misappropriated cash funds through the us e
of vendor invoices and fraudulent consulting agreements which resulted in an overstatement of
contract costs and timing differences in the recognition of contract revenue ; overstated contract
margins for several significant contracts, which resulted in the improper recognition of revenue ;
and misappropriated funds to refurbish equipment not owned by the Company. See ¶¶ 60-75,
264-301 .
129. In addition, Defendants knew, or were severely reckless in not knowing, that the
statements in the MD&A concerning contract procurement (e.g., "[w]e obtain contracts for our
work primarily by competitive bidding or through negotiations with long-standing clients o r
prospective clients") were materially false and misleading because the Company, through its
Willbros International subsidiary, was obtaining contracts primarily through bribery o f
government officials in Nigeria, Bolivia, and Ecuador . As the Company has admitted, Tillery
and other employees or consultants of Willbros or its subsidiaries : (i) made or caused others t o
55
make payments directly or indirectly to government officials and client representatives in
connection with the award and retention of business in Nigeria, the reduction of Nigerian tax
obligations, the facilitation of Nigerian customs clearances and the disposition of Nigerian legal
proceedings ; (ii) made or caused others to make payments directly or indirectly to government
officials in connection with attempts to obtain and/or retain business in Ecuador ; (iii) may have
engaged in discussions or entered into arrangements with competitors of the Company regarding
bidding strategies for projects outside the United States ; and (iv) may have received kickbacks,
payments and/or other improper benefits from Company consultants, suppliers and/or
competitors or may otherwise have benefited personally as a result of the activities described
above. See ¶J 9-10, 12, 17, 78-87 .
The Third _Quarter 2002 Press Releas e
130. On November 6, 2002, after the close of the market, the Company issued a pres s
release entitled, "Willbros Reports Earnings of 40 Cents Per Share in Third Quarter." The
Company reported earnings of $7 .9 million ($0.40 per diluted share on 20.0 million shares) for
the quarter ended September 30, 2002, on revenues of $151 .7 million . Net income, on a
comparable basis for the same period in 2001, was reported to be $2.6 million, on revenues of
$113.3 million. EBITDA for the third quarter of 2002 was reported to be $14 .3 million, up from
the $12 .6 million for the same period in 2001 . Commenting on these results, Defendant Curran
stated:
Our business is operating at the highest levels of activity since goingpublic and on track to generate record levels of revenue, income andEBITDA for the year . The unanticipated distress in the U .S . market, andthe coincident problems created for those of our clients, who participate inenergy trading, have caused us to take a very conservative view of theUnited States market . We believe our strong financial position will proveto be a powerful differentiator in the year ahead . Furthermore, the
56
international markets for our services are experiencing higher levels of bidactivity than at this time last year, and the investment outlook for ourinternational customer base appears to be positive. We are well positionedto take advantage of any additional opportunities that may appear.
(Emphasis added . )
131 . Defendants knew, or were severely reckless in not knowing, that the statements
concerning EBITDA, income, and revenue in the third quarter 2002 earnings release were
materially false and misleading for several reasons . Defendants improperly inflated the amount
of the Company's reported depreciation by improperly causing the Company's financial
statements to exclude the dollar value of parts used in construction (i.e., contract expense) and
improperly depreciate inventory. This served to understate construction costs, enabling the
Company to overstate profit and/or avoid the recognition of losses on construction contracts and
to overstate EBITDA through excessive add-backs to reported net income (or loss) . In addition,
Defendants, inter alia : understated and underpaid taxes at certain international subsidiaries,
resulting in a material understatement of expenses ; misappropriated cash funds through the use
of vendor invoices and fraudulent consulting agreements which resulted in an overstatement o f
contract costs and timing differences in the recognition of contract revenue ; overstated contract
margins for several significant contracts, which resulted in the improper recognition of revenue ;
and misappropriated funds to refurbish equipment not owned by the Company . See ¶¶ 60-75,
264-301 .
132 . In addition, Curran lacked a reasonable basis to state that the Company was "on
track to generate record levels of income, revenue and EBITDA for the year." Curran knew, or
was severely reckless in not knowing, that the primary way in which the Company could do s o
57
was by materially overstating income, revenue, and EBITDA, as set forth in ¶' 60-75, 264-30 1
and the paragraphs cited therein .
133 . Moreover, Curran knew, or was severely reckless in not knowing, that the
statement that the Company was in a "strong financial position" was materially false an d
misleading because the Company was not in a strong financial position . Curran knew that the
statement was based on, inter alia, the overstatement of income, revenue, and EBITDA as se t
forth in ¶' 60-75, 264-301, and the paragraphs cited therein .
134 . Finally, Curran knew, or was severely reckless in not knowing, that his statemen t
concerning the Company's bid activity was materially false and misleading because such activit y
was based , in part , on bribery and other corrupt practices in countries such as Nige ria and
Ecuador. See 11 9-10, 12, 17, 78-87 .
135. Following the issuance of the materially false and misleading November 6, 200 2
earnings announcement , Willbros' common stock dropped from a close of $7.80 per share on
November 6, 2002 to $7 .49 per share by November 7, 2002. But for the foregoing materially
false and misleading statements, the price of Willbros common stock would have decline d
further.
The Third Ouarter 2002 10-0
136. On November 14, 2002, the Company filed with the SEC on Form 10-Q it s
interim report for the third quarter ended September 30, 2002 (the "Third Quarter 2002 Form 10-
Q"), which was signed by Defendants Williams and Curran. In the Third Quarter 2002 Form 10-
Q, the Company reported earnings of $7 .9 million ($0.40 per diluted share on 20 .0 million
shares), on revenues of $151 .7 million. Net income, on a comparable basis for the same perio d
in 2001, was reported to be $2 .6 million ($0.17 per diluted share on 15 .1 million shares), on58
revenues of $113 .3 million. In addition, backlog was reported to be $284 .7 million for the third
quarter .
137. In the Third Quarter 2002 Form 10-Q MD&A, Defendants discussed th e
Company's financial condition and results of operations . In relevant part, the MD&A stated :
GENERAL
We derive our revenue from providing construction, engineering andspecialty services to the oil, gas and power industries and governmententities worldwide . We obtain contracts for our work primarily bycompetitive bidding or through negotiations with long-standing clientsor prospective clients. Bidding activity, backlog and revenue resultingfrom the award of contracts to us may vary significantly from period toperiod. Contracts have durations from a few weeks to several months orin some cases more than a year .
EBITDA increased to $46.5 million for the nine month period endedSeptember 30, 2002, an increase of $13.8 million (42%) compared to thenine month period ended September 30, 2001.
ITEM 4. CONTROLS AND PROCEDURES . Within the 90 days prior tothe filing date of this report, we carried out an evaluation, under thesupervision and with the participation of our management, including ourChief Executive Officer and Chief Financial Officer, of the effectivenessof the design and operation of our disclosure controls and procedures .Based upon that evaluation , our Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and proceduresare effective. Disclosure controls and procedures are designed to ensurethat information required to be disclosed in our reports filed or submittedunder the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time periods specified in Securitiesand Exchange Commission rules and forms . Subsequent to the date oftheir evaluation, there were no significant changes in our internal controlsor in other factors that could significantly affect these controls .
(Emphasis added.)
138. The Third Quarter 2002 Form 10-Q contained Certifications signed by
Defendants Curran and Williams pursuant to Section 302 of Sarbanes-Oxley, stating th e
59
following: "The information contained in the Report fairly presents , in all mate rial respects, th e
financial condition and result of operations of the Company." In addi tion, the Cert ifications also
stated, in pertinent part :
2. Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstancesunder which such statements were made, not misleading with respect tothe period covered by this quarterly report ;
3 . Based on my knowledge, the financial statements, and otherfinancial information included in this quarterly report, fairly present in allmaterial respects the financial condition, results of operations and cashflows of the registrant as of, and for, the periods presented in this quarterlyreport ;
4 . The registrant's other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-14 and 15d-14) for the registrant andwe have :
a. Designed such disclosure controls and procedures to ensurethat material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this quarterly report isbeing prepared;
b. Evaluated the effectiveness of the registrant's disclosurecontrols and procedures as of a date within 90 days prior to the filing dateof this quarterly report (the "Evaluation Date") ; and
c. Presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date ;
5 . The registrant's other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant's auditors and theaudit committee of registrant's board of directors (or persons performingthe equivalent function) :
a. All significant deficiencies in the design or operation ofinternal controls which could adversely affect the registrant's ability torecord, process, summarize and report financial data and have identifiedfor the registrant's auditors any material weaknesses in internal controls ;and
60
b . Any fraud, whether or not material , that involvesmanagement or other employees who have a significant role in theregistrant 's internal controls . . . .
139. Defendants knew, or were severely reckless in not knowing, that the statement s
concerning EBITDA, income, and revenue in the Third Quarter 2002 Form 10-Q were materiall y
false and misleading for several reasons . Defendants improperly inflated the amount of the
Company's reported depreciation by improperly causing the Company's financial statements to
exclude the dollar value of parts used in construction (i .e., contract expense) and improperl y
depreciate inventory. This served to understate construction costs, enabling the Company t o
overstate profit and/or avoid the recognition of losses on construction contracts and to overstat e
EBITDA through excessive add-backs to reported net income (or loss) . In addition, Defendants ,
inter alia : understated and underpaid taxes at certain international subsidiaries, resulting in a
material understatement of expenses ; misappropriated cash funds through the use of vendo r
invoices and fraudulent consulting agreements which resulted in an overstatement of contrac t
costs and timing differences in the recognition of contract revenue ; overstated contract margins
for several significant contracts, which resulted in the improper recognition of revenue ; and
misappropriated funds to refurbish equipment not owned by the Company. See ¶¶ 60-75, 264-
301 .
140. In addition, Defendants knew, or were severely reckless in not knowing, that th e
statement concerning contract procurement, e .g., "[w]e obtain contracts for our work primarily
by competitive bidding or through negotiations with long-standing clients or prospective clients, "
was materially false and misleading because the Company, through its Willbros Internationa l
subsidiary, was obtaining contracts primarily through bribery of government officials in Nigeria ,
Bolivia, and Ecuador. As the Company has admitted, Tillery and other employees or consultants
61
of Willbros or its subsidiaries : (i) made or caused others to make payments directly or indirectl y
to government officials and client representatives in connection with the award and retention o f
business in Nigeria, the reduction of Nigerian tax obligations, the facilitation of Nigerian
customs clearances and the disposition of Nigerian legal proceedings ; (ii) made or caused other s
to make payments directly or indirectly to government officials in connection with attempts to
obtain and/or retain business in Ecuador; (iii) may have engaged in discussions or entered int o
arrangements with competitors of the Company regarding bidding strategies for projects outsid e
the United States ; and (iv) may have received kickbacks, payments and/or other imprope r
benefits from Company consultants, suppliers and/or competitors or may otherwise have
benefited personally as a result of the activities described above . See ¶¶ 9-10, 12, 17, 78-87 .
141 . Defendants also knew, or were severely reckless in not knowing, that their
statement in MD&A Item 4, that the "Chief Executive Officer and Chief Financial Officer
concluded that [the Company's] disclosure controls and procedures are effective" was materially
false and misleading because material weaknesses in the Company's internal controls and
procedures then-existed. See 1188-103 .
142. In addition, Defendants Curran and Williams knew, or were severely reckless i n
not knowing, that the statements contained in their Sarbanes-Oxley Certifications wer e
materially false and misleading. Specifically, Items 2 & 3, concerning the truth and non-
misleading nature of the Third Quarter 2002 Form 10-Q were materially false and misleading fo r
the reasons set forth in ¶¶ 60-75, 88-103, 264-301, and the paragraphs cited therein .
143 . Finally, Defendants Curran and Williams knew, or were severely reckless in no t
knowing, that the statements contained in Items 4 & 5 of their Sarbanes-Oxley Certification s
62
were materially false and misleading because the following material weaknesses in th e
Company's internal controls then-existed : (i) Willbros did not maintain effective Company-leve l
controls in the control environment, risk assessment, and monitoring components ; (ii) the
Company's operating subsidiaries in Nigeria did not maintain effective policies and procedures
regarding review and approval processes relating to original and revised project cost estimates ,
original contract pricing, establishment and management of contract contingencies, and chang e
order management ; (iii) the Company's policies and procedures did not provide for effective
supervisory review of the Company's accounting for international taxes, value added taxes, an d
payroll taxes and the related recordkeeping activities ; and (iv) the Company did not maintai n
effective policies and procedures regarding its disbursements process . See ¶¶ 88-103 .
The Fourth Quarter and Year End 2002 Press Releas e
144. On February 13, 2003, before the market opened, the Company issued a pres s
release entitled, "Willbros Reports 2002 Earnings Per Share of $1 .59 on Revenue of $58 4
Million." The Company reported the following results for the fourth quarter and year-ended
December 31, 2002 :
FOURTH QUARTER 200 2
Revenue for the fourth quarter of 2002 increased to $136.4 millioncompared to revenue of $132.2 million for the fourth quarter a year ago.The three percent increase in revenue for the quarter was the result ofincreased construction and specialty services activity partially offset by adecrease in engineering work. Construction revenue for the fourth quarterincreased ten percent to $83.2 million from $75 .7 million for the sameperiod last year . Specialty services revenue for the quarter increased 13percent to $17 .8 million from $15 .7 million in the fourth quarter of 2001 .Engineering revenue for the fourth quarter decreased 13 percent to $35 .4million from $40.8 million for the same period last year . EBITDA(A) forthe fourth quarter of 2002 was $13.6 million compared to a reported$18.4 million in 2001. The decrease in EBITDA for 2002 from 2001 isprimarily the result of the non-cash, non-taxable gain of $3.6 million
63
realized in 2001 attributable to the termination and settlement ofemployee benefit plan s
Net income for the fourth quarter 2002, was $9 .6 million or $0.46 perdiluted share, versus $8.6 million or $0.56 per diluted share in the fourthquarter last year on 5.3 million additional shares during the fourthquarter of 2002. Fully diluted shares increased to 20.7 million from15.4 million (34%) for the same period last year as a result of the equityoffering in May 2002 and the shares issued in connection with the Mt.West acquisition in October 2002.
FULL YEAR 2002
Revenue for 2002 increased 50 percent to a new record of $583.7 millioncompared to $390. 1 million during 2001, driven by increased activity inall three service lines provided by the Company. Construction revenuefor 2002 increased 61 percent to $344 .8 million from $214 .4 millionduring 2001 . Specialty services revenue for 2002 increased 11 percent to$61 .7 million compared to $55.4 million during 2001 . During 2002,engineering services revenue increased 47 percent to $177 .2 million from$120.3 million in. 2001 . Since its initial public offering in 1996, theCompany has grown its revenue at a compound annual growth rate of 19 .8percent.
EBITDA in 2002 increased 18 percent to a new record, since goingpublic in 1996, of $60.1 million, or $3.21 per diluted share. Reported net
income for 2002 increased 55 percent to $29 .7 million, or $1 .59 perdiluted share versus $19.1 million, or $1 .27 per diluted share during 2001 .
The 2001 results included non-taxable gains of $9 .2 million, or $0.61 per
diluted share related to the termination of employee benefit plans . Fullydiluted weighted average shares increased to 18 .7 million during 2002
from 15.1 million in 2001 .
[Emphasis added] .
145 . In the same February 13, 2003 press release, Defendant Curran stated :
We believe our performance during 2002 confirms that our strategy isproducing results superior to many of our peers . Our financial strengthand flexibility provide the Company with a competitive advantage and weplan to capitalize on it . Despite the slowdown in the U .S . natural gaspipeline industry, the international markets for our services continue toexperience encouraging levels of bid activity. This is especially true inLatin America and West Africa where the capital expenditures of ourinternational customer base for 2003 and beyond remain strong.Furthermore, we are expanding our marketing focus to include area s
64
around Australia, Southeast Asia and the Caspian where our experienceand capabilities will allow us to compete for attractive new opportunitiesemerging in those areas . We also are continuing our emphasis on tightcost control . Our G&A costs in 2002 fell to 5 .8 percent of revenues from7.7 percent in 2001 . [Emphasis added] .
146 . Defendants knew, or were severely reckless in not knowing, that the statements
concerning EBITDA, income, and revenue in the fourth quarter and year-ended 2002 earnings
release were materially false and misleading for several reasons . Defendants improperly inflated
the amount of the Company's reported depreciation by improperly causing the Company's
financial statements to exclude the dollar value of parts used in construction (i.e., contract
expense) and improperly depreciate inventory . This served to understate construction costs,
enabling the Company to overstate profit and/or avoid the recognition of losses on constructio n
contracts and to overstate EBITDA through excessive add-backs to reported net income (or loss) .
In addition, Defendants, inter alia : understated and underpaid taxes at certain international
subsidiaries, resulting in a material understatement of expenses ; misappropriated cash funds
through the use of vendor invoices and fraudulent consulting agreements which resulted in an
overstatement of contract costs and timing differences in the recognition of contract revenue ;
overstated contract margins for several significant contracts, which resulted in the improper
recognition of revenue ; and misappropriated funds to refurbish equipment not owned by the
Company. See IT 60-75, 264-301 . As a result, for the year ended 2002, the Company
overstated: operating income by $3,535,000 ; contract revenue by $874,000 ; and EBITDA by
$10,449,000.
147. In addition, Defendant Curran knew, or was severely reckless in not knowing, that
the statements that the Company's "strategy is producing results superior to many of our peers"
and "financial strength . . . provide[s] the Company with a competitive advantage" were
65
materially false and misleading because the Company's financial strength and competitive
advantage were achieved through overstated income, revenue and EBITDA, illegal practices, and
deficient internal controls .
148. In addition, Defendant Curran knew, or was severely reckless in not knowing, that
the statement that "the international markets for our services continue to experience encouraging
levels of bid activity . . . especially in Latin America and West Africa" was materially false and
misleading because the Company, through its Willbros International subsidiary, was obtaining
contracts primarily through bribery of government officials in Nigeria, Bolivia, and Ecuador . As
the Company has admitted, Tillery and other employees or consultants of Willbros or its
subsidiaries : (i) made or caused others to make payments directly or indirectly to government
officials and client representatives in connection with the award and retention of business i n
Nigeria, the reduction of Nigerian tax obligations, the facilitation of Nigerian customs clearances
and the disposition of Nigerian legal proceedings ; (ii) made or caused others to make payments
directly or indirectly to government officials in connection with attempts to obtain and/or retain
business in Ecuador; (iii) may have engaged in discussions or entered into arrangements with
competitors of the Company regarding bidding strategies for projects outside the United States ;
and (iv) may have received kickbacks, payments and/or other improper benefits from Company
consultants, suppliers and/or competitors or may otherwise have benefited personally as a result
of the activities described above.
149. On February 12, 2003, Willbros' common stock closed at $7 .11 per share.
Following the issuance of the materially false and misleading February 13, 2003 earnings
announcement, Willbros' common stock rose to close at $7 .56 per share on February 13, 2003 .
66
The 2002 Form 10- K
150. On March 24, 2003, the Company filed with the SEC on Form 10-K its annual
report for the year ended December 31, 2002 (the "2002 Form 10-K"), which was signed b y
Defendants Curran and Williams. In the 2002 Form 10-K, the Company reported that revenue s
for the fourth quarter of 2002 increased to $136 .4 million, compared to revenues of $132 . 2
million for the fourth quarter in the prior year. In addition, EBITDA for the year 2002 wa s
reported to be $60 .1 million, up $8.5 million from $51 .6 million for 2001 .
151 . In the 2002 Form 10-K MD&A, Defendants discussed the Company's financial
condition and results of operations . In relevant part, the MD&A stated :
GENERAL
We derive our revenue from providing construction, engineering and
specialty services to the oil, gas and power industries and government
entities worldwide . We obtain contracts for our work primarily by
competitive bidding or through negotia tions with long-standing orprospective clients. Bidding activity, backlog and revenue resulting from
the award of contracts to us may vary significantly from period to period .Contracts have durations from a few weeks to several months or in some
cases more than a year.
OTHER FINANCIAL MEASURES
We use EBITDA (earnings before net interest, income taxes, depreciationand amortization) as part of our overall assessment of financialperformance by comparing EBITDA between accounting periods . Webelieve that EBITDA is used by the financial community as a method ofmeasuring our performance and of evaluating the market value ofcompanies considered to be in businesses similar to ours. EBITDA forthe year 2002 was $60.1 million, up $8.5 million from $51.6 million for2001.
We define anticipated contract revenue as backlog when the award of acontract is reasonably assured, generally upon the execution of a definitiveagreement or contract . Anticipated revenue from post-contract awardprocesses, including change orders, extra work, variations in the scope ofwork and the effect of escalation or currency fluctuation formulas, is no t
67
added to backlog until realization is reasonably assured . New contractawards totaled $392. I million during the year ended December 31, 2002.
(Emphasis added .)
152 . The 2002 Form 10-K further stated in relevant part :
We usually obtain contracts through competitive bidding or throughnegotiations with long-standing clients. We are typically invited to bidon projects undertaken by our clients who maintain approved bidder lists .Bidders are pre-qualified by virtue of their prior performance for suchclients, as well as their experience, reputation for quality, safety, record,financial strength and bonding capacity.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90 days prior to the filing date of this report, we carried out anevaluation, under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of our disclosurecontrols and procedures . Based upon that evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures are effective. Disclosure controls andprocedures are designed to ensure that information required to bedisclosed in our reports filed or submitted under the Securities ExchangeAct of 1934 is recorded, processed, summarized and reported within thetime periods specified in Securities and Exchange Commission rules andforms. Subsequent to the date of their evaluation, there were nosignificant changes in our internal controls or in other factors that couldsignificantly affect these controls .
(Emphasis added.)
153 . The 2002 Form 10-K also stated that "[t]he consolidated financial statements ar e
prepared in accordance with generally accepted accounting principles in the United States . . . . "
154. The 2002 Form 10-K contained Certifications signed by Defendants Curran and
Williams pursuant to Section 302 of Sarbanes-Oxley, stating the following : "The information
contained in the Report fairly presents, in all material respects , the financial condition and resul t
of operations of the Company ." In addition, the Certifications also stated, in pertinent part :
68
2. Based on my knowledge, this annual report does not contain anyuntrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstancesunder which such statements were made, not misleading with respect tothe period covered by this annual repor t
3 . Based on my knowledge, the financial statements, and otherfinancial information included in this annual report, fairly present in allmaterial respects the financial condition, results of operations and cashflows of the registrant as of, and for, the periods presented in this annualreport ;
4. The registrant's other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-14 and 15d-14) for the registrant andwe have :
a. designed such disclosure controls and procedures to ensurethat material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this quarterly report isbeing prepared;
b. evaluated the effectiveness of the registrant's disclosurecontrols and procedures as of a date within 90 days prior to the filing dateof this quarterly report (the "Evaluation Date") ; and
c. presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date ;
5. The registrant's other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant's auditors and theaudit committee of registrant's board of directors (or persons performingthe equivalent function) :
a. all significant deficiencies in the design or operation ofinternal controls which could adversely affect the registrant's ability torecord, process, summarize and report financial data and have identifiedfor the registrant's auditors any material weaknesses in internal controls ;and
b. any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in theregistrant's internal controls . . . .
155 . Defendants knew, or were severely reckless in not knowing, that the statements
concerning EBITDA, income, and revenue in the 2002 Form 10-K, and the statement that "[t]h e
69
consolidated financial statements are prepared in accordance with generally accepted accounting
principles in the United States . . .," were materially false and misleading for several reasons .
Defendants improperly inflated the amount of the Company's reported depreciation by
improperly causing the Company's financial statements to exclude the dollar value of parts used
in construction (i .e., contract expense) and improperly depreciate inventory . This served to
understate construction costs, enabling the Company to overstate profit and/or avoid the
recognition of losses on construction contracts and to overstate EBITDA through excessive add-
backs to reported net income (or loss). In addition, Defendants, inter alia : understated and
underpaid taxes at certain international subsidiaries, resulting in a material understatement of
expenses; misappropriated cash funds through the use of vendor invoices and fraudulen t
consulting agreements which resulted in an overstatement of contract costs and timing
differences in the recognition of contract revenue ; overstated contract margins for several
significant contracts, which resulted in the improper recognition of revenue ; and misappropriated
funds to refurbish equipment not owned by the Company . See IT 60-75, 264-301 . As a result,
for the year ended 2002, the Company overstated : operating income by $3,535,000; contract
revenue by $874,000 ; and EBITDA by $10,449,000 .
156 . In addition, Defendants knew, or were severely reckless in not knowing, that th e
statement "[w]e obtain contracts for our work primarily by competitive bidding or through
negotiations with long-standing clients or prospective clients" was materially false and
misleading because the Company, through its Willbros International subsidiary, was obtaining
contracts primarily through bribery of government officials in Nigeria, Bolivia, and Ecuador. As
the Company has admitted, Tillery and other employees or consultants of Willbros or its
70
subsidiaries : (i) made or caused others to make payments directly or indirectly to government
officials and client representatives in connection with the award and retention of business i n
Nigeria, the reduction of Nigerian tax obligations, the facilitation of Nigerian customs clearance s
and the disposition of Nigerian legal proceedings ; (ii) made or caused others to make payments
directly or indirectly to government officials in connection with attempts to obtain and/or retain
business in Ecuador; (iii) may have engaged in discussions or entered into arrangements wit h
competitors of the Company regarding bidding strategies for projects outside the United States ;
and (iv) may have received kickbacks, payments and/or other improper benefits from Compan y
consultants, suppliers and/or competitors or may otherwise have benefited personally as a resul t
of the activities described above .
157. Defendants also knew, or were severely reckless in not knowing, that thei r
statement in MD&A Item 14, that the "Chief Executive Officer and Chief Financial Officer
concluded that [the Company's] disclosure controls and procedures are effective" was materiall y
false and misleading because material weaknesses in the Company's internal controls and
procedures then-existed . See ¶J 88-103 .
158. In addition, Defendants Curran and Williams knew, or were severely reckless i n
not knowing, that the statements contained in their Sarbanes -Oxley Section 302 Certifications
were materially false and misleading. Specifically, Items 2 & 3, concerning the truth and non-
misleading nature of the 2002 Form 10-K, were materially false and misleading for the reasons
set forth in ¶¶ 60-75, 88-103 , 264-301, and the paragraphs cited therein.
159. Finally, Defendants Curran and Williams knew, or were severely reckless in no t
knowing, that the statements contained in Items 4 & 5 of their Sarbanes-Oxley Section 30 2
71
Certifications were materially false and misleading because the following material weaknesses in
the Company's internal controls then-existed : (i) Wilibros did not maintain effective Company-
level controls in the control environment, risk assessment, and monitoring components ; (ii) the
Company's operating subsidiaries in Nigeria did not maintain effective policies and procedures
regarding review and approval processes relating to original and revised project cost estimates ,
original contract pricing, establishment and management of contract contingencies, and chang e
order management ; (iii) the Company's policies and procedures did not provide for effectiv e
supervisory review of the Company's accounting for international taxes, value added taxes, an d
payroll taxes and the related recordkeeping activities ; and (iv) the Company did not maintai n
effective policies and procedures regarding its disbursements process . See ¶J 88-103 .
The First Quarter 2003 Press Release
160. On May 7, 2003, after the close of the market, the Company issued a press releas e
entitled, "Willbros Reports First Quarter 2003 Results," and stated in relevant part :
HOUSTON - May 7 - Willbros (NYSE : WG) today reported a firstquarter 2003 loss of $0 .22 per fully diluted share on $98 .9 million ofrevenue , in line with the guidance it provided on April 23, 2003 .
Revenue in the first quarter of 2003 was $98.9 million compared to $147 .5million during the first quarter of 2002 . The 33 percent decline in revenuewas the result of a combination of factors including a weak market forpipeline-related services and the impact of inclement weather in NorthAmerica, social unrest in Nigeria and Venezuela and the uncertaintyassociated with the war in Iraq . Construction revenue for the first quarterdeclined to $65 .6 million from $83 .3 million for the same period last year .Engineering revenue for the quarter decreased to $13 .8 million from $49 .9million in the first quarter of last year. Specialty services revenue in thefirst quarter increased to $19 .5 million from $14 .3 million for the sameperiod last year.
EBITDA(A) for the first quarter of 2003 was $0. S million compared to$15.1 million in 2002 . The decrease in EBITDA for the first quarter ofthis year was driven by the decline in revenue and a series of unforeseencosts related to Bolivia, Chad-Cameroon and North America, which
72
amount to approximately $7 .0 million. These costs relate to contractvariations, increased demobilization costs and project delays . Willbros'accounting policy requires the Company to record contract variation costsas incurred and to defer recognition of anticipated revenue until it isreasonably assured. Management believes a significant amount of thecosts incurred in the first quarter will be recovered as additional revenue infuture periods .
m
[ . . .] Backlog(B) as of March 31, 2003 was $218 .3 million, with animbedded margin of 27 .5 percent compared to $216 .0 million at the end of2002, with an imbedded margin of 22 .1 percent . The increase in backlogis primarily from new project awards in North America, Africa and theMiddle East .
(Emphasis added; footnotes omitted) .
161 . In that same release, Defendant Curran stated : "We have seen an increase in th e
level of bid activity, even in North America." (Emphasis added) .
162. Defendants knew, or were severely reckless in not knowing, that the statements
concerning EBITDA, income, revenue, and backlog in the first quarter 2003 earnings releas e
were materially false and misleading for several reasons. Defendants improperly inflated th e
amount of the Company's reported depreciation by improperly causing the Company's financial
statements to exclude the dollar value of parts used in construction (i .e., contract expense) and
improperly depreciate inventory. This served to understate construction costs, enabling the
Company to overstate profit and/or avoid the recognition of losses on construction contracts and
to overstate EBITDA through excessive add-backs to reported net income (or loss) . In addition,
Defendants, inter alia: understated and underpaid taxes at certain international subsidiaries ,
resulting in a material understatement of expenses ; overstated accounts receivable as a result o f
inaccurate information provided by several members of management of international
subsidiaries, as well as the fictitious recordation of work having been performed on a fictitiou s
73
contract change order; misappropriated cash funds through the use of vendor invoices and
fraudulent consulting agreements which resulted in an overstatement of contract costs and timing
differences in the recognition of contract revenue; overstated contract margins for several
significant contracts, which resulted in the improper recognition of revenue ; and misappropriate d
funds to refurbish equipment not owned by the Company. See ¶ 60-77.
163. In addition, Curran knew, or were severely reckless in not knowing, that th e
statement concerning bid activity, e .g., "[w]e have seen an increase in the level of bid activity, "
was materially false and misleading because the Company, through its Willbros International
subsidiary, was obtaining contracts primarily through bribery of government officials in Nigeria ,
Bolivia, and Ecuador . As the Company has admitted, Tillery and other employees or consultant s
of Willbros or its subsidiaries : (i) made or caused others to make payments directly or indirectly
to government officials and client representatives in connection with the award and retention o f
business in Nigeria, the reduction of Nigerian tax obligations, the facilitation of Nigeria n
customs clearances and the disposition of Nigerian legal proceedings ; (ii) made or caused others
to make payments directly or indirectly to government officials in connection with attempts t o
obtain and/or retain business in Ecuador ; (iii) may have engaged in discussions or entered into
arrangements with competitors of the Company regarding bidding strategies for projects outsid e
the United States; and (iv) may have received kickbacks, payments and/or other imprope r
benefits from Company consultants, suppliers and/or competitors or may otherwise hav e
benefited personally as a result of the activities described above .
74
164. Following the issuance of the materially false and misleading May 7, 2003
earnings announcement , Willbros' common stock rose from a close of $8 .73 per share on May 7 ,
2003 to $ 8 .92 per share by May 9, 2003 .
The First Quarter 2003 Form 10- 0
165. On May 15, 2003, the Company filed with the SEC on Form I0-Q its interim
report for the first quarter ended March 31, 2003 (the "First Quarter 2003 Form 10-Q"), whic h
was signed by Defendants Curran and Williams . In the First Quarter 2003 Form 10-Q, the
Company reported a loss of $0 .22 per fully diluted share on $98 .9 million of revenue. Revenues
were reported to be $98 .9 million, compared to $147 .5 million during the first quarter of 2002 .
In addition, EBITDA purportedly decreased to $0 .5 million for the three month period ended
March 31, 2003, a decrease of $14 .6 million compared to the three month period ended March
31, 2002 .
166. In the First Quarter 2003 Form 10-Q MD&A, Defendants discussed th e
Company's financial condition and results of operations . In relevant part, the MD&A stated :
GENERAL
We derive our revenue from providing construction, engineering andspecialty services to the oil, gas and power industries and government
entities worldwide . We obtain contracts for our work primarily bycompetitive bidding or through negotiations with long-standing clientsor prospective clients. Bidding activity, backlog and revenue resulting
from the award of contracts to us may vary significantly from period to
period. Contracts have durations from a few weeks to several months or
in some cases more than a year .
We use EBITDA (earnings before net interest, income taxes, depreciationand amortization) as part of our overall assessment of financialperformance by comparing EBITDA between accounting periods . Webelieve that EBITDA is used by the financial community as a method ofmeasuring performance and of evaluating the market value of
75
companies considered to be in businesses similar to ours. EBITDAdecreased to $0.5 million for the three month period ended March 31,2003, a decrease of $14.6 million compared to the three month periodended March 31, 2002.
We recognize anticipated contract revenue as backlog when the award of acontract is assured, generally upon the execution of a definitive agreementor contract . Anticipated revenue from post-contract award processes,including change orders, extra work, variations in the scope of work andthe effect of escalation or currency fluctuation formulas, is not added tobacklog until realization is assured . New contract awards totaled $101.2million during the quarter ended March 31, 2003. Additions to backlogduring the period were as follows: construction, $58.5 million;engineering, $5.2 million; and specialty services, $37.5 million . Backlogdecreases by type of service as a result of services performed during theperiod were as follows : construction, $65 .6 million; engineering, $13 .8million; and specialty services, $19 .5 million. Backlog at the end of thequarter was up $2 .3 million (1%) from December 31, 2002, to $218 .3million and consisted of the following : (a) construction, $125.1 million,down $7.1 million ; (b) engineering, $15 .4 million, down $8 .5 million ; and(c) specialty services, $77 .8 million, up $17.9 million. Constructionbacklog consists primarily of the Chad-Cameroon Pipeline Project (seebelow) as well as construction projects in Offshore West Africa,Venezuela, Oman and the United States . Engineering backlog consistsprimarily of engineering projects in the United States . Specialty servicesbacklog is primarily attributable to a 16-year water injection contractawarded in 1998 to a consortium in which the Company has a 10 percentinterest in Venezuela, a ten-year contracted gas processing fee at thenatural gas processing plant in Opal, Wyoming and other service contractsin the United States and Canada .
CONTROLS AND PROCEDURES
Within the 90 days prior to the filing date of this report, we carried out anevaluation, under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of our disclosurecontrols and procedures . Based upon that evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures are effective . Disclosure controls andprocedures are designed to ensure that information required to bedisclosed in our reports filed or submitted under the Securities ExchangeAct of 1934 is recorded, processed, summarized and reported within thetime periods specified in Securities and Exchange Commission rules andforms. Subsequent to the date of their evaluation, there were no
76
significant changes in our internal controls or in other factors that couldsignificantly affect these controls .
(Emphasis added . )
167. The First Quarter 2003 10-Q contained Certifications, signed by Defendant s
Curran and Williams pursuant to Section 302 of Sarbanes-Oxley, stating the following : "The
information contained in the Report fairly presents , in all material respects, the financial
condition and result of operations of the Company ." In addition, the Certifications also stated, in
pertinent part :
2 . Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstancesunder which such statements were made, not misleading with respect tothe period covered by this quarterly report ;
3 . Based on my knowledge, the financial statements, and otherfinancial information included in this quarterly report, fairly present in allmaterial respects the financial condition, results of operations and cashflows of the registrant as of, and for, the periods presented in this quarterlyreport ;
4. The registrant's other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-14 and 15d-14) for the registrant andwe have :
a. Designed such disclosure controls and procedures to ensurethat material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this quarterly report isbeing prepared;
b. Evaluated the effectiveness of the registrant's disclosurecontrols and procedures as of a date within 90 days prior to the filing dateof this quarterly report (the "Evaluation Date") ; and
c. Presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;
5 . The registrant's other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant's auditors and the
77
audit committee of registrant's board of directors (or persons performingthe equivalent function) :
a. All significant deficiencies in the design or operation ofinternal controls which could adversely affect the registrant's ability torecord, process, summarize and report financial data and have identifiedfor the registrant's auditors any material weaknesses in internal controls ;and
b. Any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in theregistrant's internal controls . . . .
168. Defendants knew, or were severely reckless in not knowing, that the statements
concerning EBITDA, income, revenue, and backlog in the First Quarter 2003 Form 10-Q were
materially false and misleading for several reasons . Defendants improperly inflated the amount
of the Company's reported depreciation by improperly causing the Company's financia l
statements to exclude the dollar value of parts used in construction (i.e ., contract expense) an d
improperly depreciate inventory . This served to understate construction costs, enabling th e
Company to overstate profit and/or avoid the recognition of losses on construction contracts an d
to overstate EBITDA through excessive add-backs to reported net income (or loss ) . In addition,
Defendants, inter alia : understated and underpaid taxes at certain international subsidiaries ,
resulting in a material understatement of expenses ; overstated accounts receivable as a result o f
inaccurate information provided by several members of management of international subsidiaries
as well as the fictitious recordation of work having been performed on a fictitious contrac t
change order; misappropriated cash funds through the use of vendor invoices and fraudulen t
consulting agreements which resulted in an overstatement of contract costs and timin g
differences in the recognition of contract revenue; overstated contract margins for several
significant contracts, which resulted in the improper recognition of revenue ; and misappropriate d
funds to refurbish equipment not owned by the Company . See ¶¶ 60-77, 264-301 .
78
169. Defendants also knew, or were severely reckless in not knowing, that th e
statements concerning contract procurement, e .g., "[w]e obtain contracts for our work primaril y
by competitive bidding or through negotiations with long-standing clients," was materially false
and misleading because the Company, through its Willbros International subsidiary, wa s
obtaining contracts primarily through bribery of government officials in Nigeria, Bolivia, an d
Ecuador . As the Company has admi tted , Tillery and other employees or consultants of Willbro s
or its subsidiaries : (i) made or caused others to make payments directly or indirectly to
government officials and client representatives in connection with the award and retention o f
business in Nigeria, the reduction of Nigerian tax obligations, the facilitation of Nigerian
customs clearances and the disposition of Nigerian legal proceedings ; (ii) made or caused others
to make payments directly or indirectly to government officials in connection with attempts t o
obtain and/or retain business in Ecuador; (iii) may have engaged in discussions or entered into
arrangements with competitors of the Company regarding bidding strategies for projects outsid e
the United States; and (iv) may have received kickbacks, payments and/or other imprope r
benefits from Company consultants, suppliers and/or competitors or may otherwise hav e
benefited personally as a result of the activities described above .
170. In addition, Defendants Curran and Williams knew, or were severely reckless i n
not knowing, that the statements contained in their Sarbanes-Oxley Section 302 Certifications
were materially false and misleading. Specifically, Items 2 & 3, concerning the truth and non-
misleading nature of the First Quarter 2003 10-Q, were materially false and misleading for th e
reasons set forth in $$ 60-77, 88-103, 264-301, and the paragraphs cited therein .
79
171 . Finally, Defendants Curran and Williams knew, or were severely reckless in no t
knowing, that the statements contained in Items 4 & 5 of their Sarbanes-Oxley Section 30 2
Certifications were materially false and misleading because the following material weaknesses i n
the Company's internal controls then-existed: (i) the Company did not maintain effective
company-level controls in the control environment, risk assessment, and monitoring components ;
(ii) the Company's operating subsidiaries in Nigeria did not maintain effective policies an d
procedures regarding review and approval processes relating to original and revised project cost
estimates, original contract pricing, establishment and management of contract contingencies,
and change order management ; (iii) the Company's policies and procedures did not provide for
effective supervisory review of the Company's accounting for international taxes, value added
taxes, and payroll taxes and the related recordkeeping activities ; and (iv) the Company did not
maintain effective policies and procedures regarding its disbursements process . See ¶¶ 88-103 .
The Second Quarter 2003 Press Release
172. On August 6, 2003, after the close of the market , the Company issued a press
release entitled, "Willbros Reports Second Quarter 2003 Earnings of $0 .20 Per Share." The
Company reported earnings of $0.20 per diluted share on revenues of $122 .9 million for the
quarter ended June 30, 2003 . Net income for the second quarter 2003 was reported to be $4 . 1
million, or $0.20 per diluted share on 20.8 million shares, compared to net income of $7 .6
million, or $0.41 per diluted share on 18 .7 million shares during the same period in the prior
year. EBITDA for the second quarter of 2003 was reported to be $8 .1 million, compared to
$17 .1 million in 2002 . The Company further reported that the decrease in EBITDA in the
second quarter was driven by a decline in engineering revenue and margin that resulted fro m
80
weakness in the North American market . In addition, the Company reported Backlog of $164 . 4
million .
173 . Defendants knew, or were severely reckless in not knowing, that the above-
referenced statements concerning EBITDA, income, revenue, and backlog in the second quarter
2003 earnings release were materially false and misleading for several reasons . Defendant s
improperly inflated the amount of the Company's reported depreciation by improperly causin g
the Company's financial statements to exclude the dollar value of parts used in construction (i .e . ,
contract expense) and improperly depreciate inventory. This served to understate constructio n
costs, enabling the Company to overstate profit and/or avoid the recognition of losses on
construction contracts and overstate EBITDA through excessive add-backs to the reported net
income (or loss) . In addition, Defendants, inter alia : understated and underpaid taxes at certain
international subsidiaries, resulting in a material understatement of expenses ; overstated account s
receivable as a result of inaccurate information provided by several members of management o f
international subsidiaries, as well as the fictitious recordation of work having been performed o n
a fictitious contract change order ; misappropriated cash funds through the use of vendor invoice s
and fraudulent consulting agreements that resulted in an overstatement of contract costs an d
timing differences in the recognition of contract revenue; overstated contract margins for severa l
significant contracts, which resulted in the improper recognition of revenue ; and misappropriate d
funds to refurbish equipment not owned by the Company. See ¶¶ 60-77, 264-301 .
174 . Following the issuance of the materially false and misleading August 6, 200 3
earnings announcement, Willbros' common stock rose from a close of $8 .95 per share on August
6, 2003 to $9 .32 per share by August 7, 2003 .
81
The Second Quarter 2003 Form 10- Q
175 . On August 13, 2003, the Company filed with the SEC on Form 10-Q its interim
report with for the second quarter ended June 30, 2003 (the "Second Quarter 2003 Form 10-Q") ,
which was signed by Defendants Curran and Williams . In the Second Quarter 2003 Form 10-Q,
the Company reported earnings of $0 .20 per diluted share on revenues of $122 .9 million. In
addition, the Company reported EBITDA of $8 .6 million for the six month period ended June 30 ,
2003, a decrease of $23 .6 million (73%), compared to the six month period ended June 30, 2002 .
176. In the Second Quarter 2003 Form 10-Q MD&A, Defendants discussed th e
Company's financial condition and results of operations . In relevant part, the MD&A stated :
GENERAL
We derive our revenue from providing construction, engineering andspecialty services to the oil, gas and power industries and governmententities worldwide . We obtain contracts for our work primarily bycompetitive bidding or through negotiations with long-standing clientsor prospective clients. Bidding activity, backlog and revenue resultingfrom the award of contracts to us may vary significantly from period toperiod. Contracts have durations from a few weeks to several months orin some cases more than a year.
We recognize anticipated contract revenue as backlog when the award of acontract is assured, generally upon the execution of a definitive agreementor contract . Anticipated revenue from post-contract award processes,including change orders, extra work, variations in the scope of work andthe effect of escalation or currency fluctuation formulas, is not added tobacklog until realization is assured . New contract awards totaled $69.0million during the quarter ended June 30, 2003 . Additions to backlogduring the period were as follows: construction, $46.7 million;engineering, $4.4 million; and specialty services, $179 million. Backlogdecreases by type of service as a result of services performed during theperiod were as follows : construction, $90 .9 million; engineering, $11 .7million; and specialty services, $20 .3 million. Backlog at June 30, 2003,was down $53.9 million (25%) from March 31, 2003 to $164.4 millionand consisted of the following : (a) construction, $80 .9 million, down$44.2 million; (b) engineering, $8 .1 million, down $7 .3 million; and (c)
82
specialty services, $75.4 million, down $2.4 million. Constructionbacklog consists primarily of construction projects in Venezuela, Oman,the United States and Offshore West Africa and the Chad-CameroonPipeline Project (see below) . Engineering backlog consists of engineeringprojects in the United States . Specialty services backlog is primarilyattributable to a 16-year water injection contract awarded in 1998 to aconsortium in which the Company has a 10 percent interest in Venezuela,a ten-year contracted gas processing fee at a natural gas processing plantin Opal, Wyoming and service contracts in Canada and the United States .We anticipate that approximately $90 .0 million of the backlog at June 30,2003, will be worked off during the remainder of 2003 .
ITEM 4. CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with theparticipation of our management, including our Chief Executive Officerand Chief Financial Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures as of June 30, 2003 .Based upon that evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and proceduresare effective . Disclosure controls and procedures are designed to ensurethat information required to be disclosed in our reports filed or submittedunder the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time periods specified in Securitiesand Exchange Commission rules and forms. During the period covered bythis Form 10-Q, there have been no changes in our internal control overfinancial reporting that have materially affected or are reasonably likely tomaterially affect our internal control over financial reporting.
(Emphasis added.)
177. The Second Quarter 2003 Form 10-Q contained Certifications signed by
Defendants Curran and Williams pursuant to Section 302 of Sarbanes-Oxley, which stated as
follows : "The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company ." In addition, the Certifications also
stated, in pertinent part:
2. Based on my knowledge, this report does not contain any untruestatement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such
83
statements were made, not misleading with respect to the period coveredby this report ;
3 . Based on my knowledge, the financial statements, and otherfinancial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this report ;
4. The registrant's other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-14 and 15d-14) for the registrant andwe have :
a. Designed such disclosure controls and procedures to ensurethat material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this quarterly report isbeing prepared ;
b . Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date") ; and
c. Presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date ;
5 . The registrant's other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant's auditors and theaudit committee of registrant's board of directors (or persons performingthe equivalent function) :
a. All significant deficiencies in the design or operation ofinternal controls which could adversely affect the registrant's ability torecord, process, summarize and report financial data and have identifiedfor the registrant's auditors any material weaknesses in internal controls ;and
b. Any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in theregistrant's internal controls . . . .
178. Defendants knew, or were severely reckless in not knowing, that the statement s
concerning EBITDA, income, revenue, and backlog in the Second Quarter 2003 Form 10-Q were
materially false and misleading for several reasons. Defendants improperly inflated the amount
of the Company's reported depreciation by improperly causing the Company's financia l
84
statements to exclude the dollar value of parts used in construction (i .e ., contract expense) and
improperly depreciate inventory. This served to understate construction costs, enabling the
Company to overstate profit and/or avoid the recognition of losses on construction contracts an d
to overstate EBITDA through excessive add-backs to reported net income (or loss) . In addition ,
Defendants, inter alia : understated and underpaid taxes at certain international subsidiaries ,
resulting in a material understatement of expenses ; overstated accounts receivable as a result o f
inaccurate information provided by several members of management of international
subsidiaries, as well as the fictitious recordation of work having been performed on a fictitiou s
contract change order ; misappropriated cash funds through the use of vendor invoices and
fraudulent consulting agreements which resulted in an overstatement of contract costs and timin g
differences in the recognition of contract revenue; overstated contract margins for severa l
significant contracts, which resulted in the improper recognition of revenue and misappropriate d
funds to refurbish equipment not owned by the Company . See ¶¶ 60-77, 264-301 .
179. In addition, Defendants knew, or were severely reckless in not knowing, that the
statements concerning contract procurement, e .g., "[wje obtain contracts for our work primarily
by competitive bidding or through negotiations with long-standing clients or prospective clients, "
were materially false and misleading because the Company, through its Willbros International
subsidiary, was obtaining contracts primarily through bribery of government officials in Nigeria,
Bolivia, and Ecuador. As the Company has admitted, Tillery and other employees or consultant s
of Willbros or its subsidiaries : (i) made or caused others to make payments directly or indirectl y
to government officials and client representatives in connection with the award and retention of
business in Nigeria, the reduction of Nigerian tax obligations, the facilitation of Nigeria n
85
customs clearances and the disposition of Nigerian legal proceedings ; (ii) made or caused others
to make payments directly or indirectly to government officials in connection with attempts to
obtain and/or retain business in Ecuador ; (iii) may have engaged in discussions or entered into
arrangements with competitors of the Company regarding bidding strategies for projects outsid e
the United States; and (iv) may have received kickbacks, payments and/or other imprope r
benefits from Company consultants, suppliers and/or competitors or may otherwise have
benefited personally as a result of the activities described above .
180. Defendants also knew, or were severely reckless in not knowing, that thei r
statement in MD&A Item 4, that the "Chief Executive Officer and Chief Financial Office r
concluded that [the Company's] disclosure controls and procedures are effective" was materiall y
false and misleading because material weaknesses in the Company's internal controls and
procedures then-existed . See ¶11 88-103 .
181 . In addition, Defendants Curran and Williams knew, or were severely reckless i n
not knowing, that the statements contained in their Sarbanes-Oxley Section 302 Certification s
were materially false and misleading. Specifically, Items 2 & 3, concerning the truth and non-
misleading nature of the Second Quarter 2003 Form 10-Q, were materially false and misleading
for the reasons set forth in ¶¶ 60-77, 88-103, 264-301 , and the paragraphs cited therein .
182. Finally, Defendants Curran and Williams knew, or were severely reckless in no t
knowing, that the statements contained in Items 4 & 5 of their Sarbanes -Oxley Section 302
Certifications were materially false and misleading because the following material weaknesses in
the Company' s internal controls then-existed: (i) Willbros did not maintain effective Company-
level controls in the control environment, risk assessment, and monitoring components ; (ii) the
86
Company's operating subsidiaries in Nigeria did not maintain effective policies and procedure s
regarding review and approval processes relating to original and revised project cost estimates ,
original contract pricing, establishment and management of contract contingencies, and chang e
order management ; (iii) the Company' s policies and procedures did not provide for effectiv e
supervisory review of the Company's accounting for international taxes, value added taxes, and
payroll taxes and the related recordkeeping activities ; and (iv) the Company did not maintain
effective policies and procedures regarding its disbursements process . See It 88-103 .
The September 2003 Conference
183 . On September 17, 2003, Willbros conducted a conference entitled , "Willbros
Group, Inc . at D.A . Davidson & Co. Second Annual Engineering & Construction Conference . "
During the conference call, Defendant Curran stated in relevant part :
Nigeria is a very strong market of ours. We've been there, as I mentioned,over 40 years continuously. And while the business has been slow the lastcouple of years, we see business really ramping back up the way it wastwo or three years ago in Nigeria, both onshore and offshore.
We have a tremendous infrastructure in Nigeria . We work in the marsh.We work on land . We work offshore there . And we feel that this is anarea that is really going to -- where the work is really going to increasewithin the next six months in all probability.
In Oman we're having the biggest year we've had there in four or fiveyears. And we see some real opportunities in Oman as well .
(Emphasis added.)
184. Defendant Curran knew, or was severely reckless in not knowing, that hi s
statements concerning the Company's prospects for growth in Nigeria was materially false and
misleading because the Company, through its Willbros International subsidiary, was obtainin g
contracts primarily through bribery of government officials in Nigeria . As the Company ha s
admitted , Tillery and other employees or consultants of Willbros or its subsidiaries : ( i) made or
87
caused others to make payments directly or indirectly to government officials and client
representatives in connection with the award and retention of business in Nigeria, the reductio n
of Nigerian tax obligations, the facilitation of Nigerian customs clearances and the disposition o f
Nigerian legal proceedings ; (ii) may have engaged in discussions or entered into arrangement s
with competitors of the Company regarding bidding strategies for projects outside the Unite d
States; and (iii) may have received kickbacks, payments and/or other improper benefits fro m
Company consultants, suppliers and/or competitors or may otherwise have benefited personally
as a result of the activities described above .
185 . Following the September 17, 2003 conference call, the price of Willbros '
common stock rose from a close of $10.01 per share on September 17, 2003 to $10 .08 per shar e
by September 19, 2003 .
The Third Quarter 2003 Press Release
186. On November 5, 2003, after the close of the market, the Company issued a pres s
release entitled, "Willbros Reports Third Quarter 2003 Results ; Company Awarded $147 Million
of New Work During the Third Quarter ." The Company reported a loss of $(0 .42) per share on
revenues of $91 .5 million for the quarter ended September 30, 2003 . Further, the Company
reported that EBITDA for the third quarter of 2003 was a negative $3.8 million compared to
$14.3 million in 2002 .
187. Commenting on the results, Defendant Curran stated :
Despite the challenges we have been facing since the beginning of theyear, the Company remains in excellent financial condition and shouldbenefit as our markets improve . Bidding has been more active recentlyand is now being complemented by an increasing pace of project awards .The Company has been awarded $147 million in new work during thethird quarter. We are pleased and encouraged by our recent awards,especially because our bidding strategy continues to be driven by pricing
88
discipline. Our competitive position remains strong and managementbelieves the Company will continue to win its fair share of projects . Weremain optimistic that our level of business and profitability will improveduring 2004 and 2005, driven by the pent-up demand for pipelineengineering, construction and rehabilitation services worldwide .
EBITDA(1) for the third quarter of 2003 was a negative $3 .8 millioncompared to $14.3 million in 2002.
Backlog(2) as of September 30, 2003 was $220 million compared to$164.4 million at the end of June 2003 .
(Emphasis added.)
188. Defendants knew, or were severely reckless in not knowing, that the statements
concerning EBITDA, income, revenue, and backlog in the third quarter 2003 earnings release
were materially false and misleading for several reasons. Defendants improperly inflated th e
amount of the Company's reported depreciation by improperly causing the Company's financial
statements to exclude the dollar value of parts used in construction (i .e., contract expense) and
improperly depreciate inventory. This served to understate construction costs, enabling the
Company to overstate profit and/or avoid the recognition of losses on construction contracts and
to overstate EBITDA through excessive add-backs to reported net income (or loss) . In addition ,
Defendants, inter alia : understated and underpaid taxes at certain international subsidiaries ,
resulting in a material understatement of expenses ; overstated accounts receivable as a result of
inaccurate information provided by several members of management of international
subsidiaries, as well as the fictitious recordation of work having been performed on a fictitiou s
contract change order; misappropriated cash funds through the use of vendor invoices and
fraudulent consulting agreements which resulted in an overstatement of contract costs and timing
differences in the recognition of contract revenue; overstated contract margins for several
89
significant contracts, which resulted in the improper recognition of revenue ; and misappropriate d
funds to refurbish equipment not owned by the Company . See ¶¶ 60-77, 264-301 .
189. In addition, Defendant Curran knew, or was severely reckless in not knowing, tha t
the statements concerning contract procurement, e.g., "our bidding strategy continues to b e
driven by pricing discipline," and competitive position, e .g., "[o]ur competitive position remain s
strong" were materially false and misleading because the Company, through its Willbros
International subsidiary, was obtaining overseas contracts primarily through bribery o f
government officials in Nigeria, Bolivia, and Ecuador . As the Company has admitted, Tillery
and other employees or consultants of Willbros or its subsidiaries : (i) made or caused others t o
make payments directly or indirectly to government officials and client representatives in
connection with the award and retention of business in Nigeria, the reduction of Nigerian ta x
obligations , the facilitation of Nigerian customs clearances and the disposition of Nigerian legal
proceedings ; (ii) made or caused others to make payments directly or indirectly to government
officials in connection with attempts to obtain and/or retain business in Ecuador ; (iii) may have
engaged in discussions or entered into arrangements with competitors of the Company regarding
bidding strategies for projects outside the United States; and (iv) may have received kickbacks,
payments and/or other improper benefits from Company consultants, suppliers and/o r
competitors or may otherwise have benefited personally as a result of the activities described
above.
190 . Moreover, Defendant Curran knew, or was severely reckless in not knowing, tha t
the statement "the Company remains in excellent financial condition" was false and misleadin g
because the Company was materially overstating its income, revenue, backlog, and EBITDA.
90
191 . Following the issuance of the materially false and misleading November 5, 200 3
earnings announcement , Willbros' common stock rose from a close of $11 .42 per share on
November 5, 2003 to $11 .60 per share by November 7, 2003 .
The November 2003 Conference Cal l
192. On November 6, 2003, the Company conducted a conference call to discuss it s
third quarter 2003 earnings . During the call, Defendant Williams stated in relevant part :
WARREN WILLIAMS, CFO, WILLBROS GROUP :
EBITDA for the third quarter of 2003 was a negative $3.8 million,versus a positive 14.3 million for the same quarter in 2002. Areconciliation of EBITDA to net income can be found in the earningspress release posted on our website , along with some other informationregarding EBITDA.
(Emphasis added . )
193 . Defendant Williams knew, or was severely reckless in not knowing, that hi s
statements concerning EBITDA during the November 6th conference call were materially fals e
and misleading for several reasons . Defendant Williams knew, or was severely reckless in no t
knowing, that Defendants improperly inflated the amount of the Company's reporte d
depreciation by improperly causing the Company's financial statements to exclude the dolla r
value of parts used in construction (i .e ., contract expense) and improperly depreciate inventory .
This served to understate construction costs and enabled the Company to overstate profit and/o r
avoid the recognition of losses on construction contracts and to overstate EBITDA through
excessive add-backs to the reported net income (or loss) . In addition, Defendant Williams knew ,
or was severely reckless in not knowing, that Defendants, inter alia : understated and underpaid
taxes at certain international subsidiaries, resulting in a material understatement of expenses ;
failed to write off uncollectible accounts receivable, causing an understatement of expenses ;
91
fictitiously recorded work having been performed on a fictitious contract change order, causin g
an overstatement of contract revenue and margin ; and fictitiously recorded duplicate invoices,
causing an overstatement of contract margin . See ¶¶ 60-66 , 264-301 .
194. Following the November 6, 2003 conference call, Willbros' common stock ros e
from a close of $11 .53 per share on November 6, 2003 to $11 .60 per share by November 7 ,
2003 .
The Third Quarter 2003 Form 10-0
195 . On November 13, 2003, the Company filed with the SEC on Form 10-Q it s
interim report for the third quarter ended September 30, 2003 (the "Third Quarter 2003 Form 10-
Q"), which was signed by Defendants Curran and Williams . In the Third Quarter 2003 Form 10-
Q, the Company repo rted a loss of $ (0.42) per share on revenues of $91 . 5 mi ll ion. In addition,
the Company reported EBITDA at $8 .6 million for the six month period ended June 30, 2003 .
196. In the Third Quarter 2003 Form 10-Q MD&A, Defendants discussed the
Company's financial condition and results of operations . In relevant part , the MD&A stated :
GENERAL
We derive our revenue from providing construction, engineering andspecialty services to the oil, gas and power industries and governmententities worldwide . We obtain contracts for our work primarily bycompetitive bidding or through negotiations with long -standing clientsor prospective clients. Bidding activity, backlog and revenue resultingfrom the award of contracts to us may vary significantly from period toperiod. Contracts have durations from a few weeks to several months orin some cases more than a year.
We recognize anticipated contract revenue as backlog when the award of acontract is assured, generally upon the execution of a definitive agreementor contract . Anticipated revenue from post-contract award processes,including change orders, extra work, variations in the scope of work andthe effect of escalation or currency fluctuation formulas, is not added t o
92
backlog until realization is assured . New contract awards totaled $147 .1million during the quarter ended September 30, 2003. Additions tobacklog during the period were as follows : construction, $109.2 million;engineering, $2.9 million ; and specialty services, $35.0 million. Backlogdecreases by type of service as a result of services performed during theperiod were as follows : construction, $63 .5 million; engineering, $5 .7million; and specialty services, $22 .3 million . Backlog at September 30,2003, was up $55.6 million (34%) from June 30, 2003 to $220.0 millionand consisted of the following : (a) construction, $126 .7 million, up $45.7million; (b) engineering, $5 .3 million, down $2 .8 million ; and (c) specialtyservices, $88.0 million, up $12.7 million. Construction backlog consistsprimarily of construction projects in Iraq, Venezuela, Oman, the UnitedStates and offshore West Africa. Engineering backlog consists ofengineering projects in the United States . Specialty services backlog isprimarily attributable to a ten-year contracted gas processing fee at anatural gas processing plant that we own in Opal, Wyoming, servicecontracts in Canada and the United States and a 16-year water injectioncontract awarded in 1998 to a consortium in which the Company has a 10percent interest in Venezuela . We anticipate that approximately $80 .0million of the backlog at September 30, 2003, will be worked off duringthe remainder of 2003 .
ITEM 4 . CONTROLS AND PROCEDURE S
We carried out an evaluation, under the supervision and with theparticipation of our management, including our Chief Executive Officerand Chief Financial Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures as of September 30,2003 . Based upon that evaluation, our Chief Executive Officer andChief Financial Officer concluded that our disclosure controls andprocedures are effective . Disclosure controls and procedures are designedto ensure that information required to be disclosed in our reports filed orsubmitted under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified inSecurities and Exchange Commission rules and forms . During the periodcovered by this Form 10-Q, there have been no changes in our internalcontrols over financial reporting that have materially affected or arereasonably likely to materially affect our internal controls over financialreporting .
197. The Third Quarter 2003 Form 10-Q contained Certifications signed by
Defendants Curran and Williams pursuant to Section 302 of Sarbanes-Oxley, which stated a s
follows: "The information contained in the Report fairly presents, in all material respects, the
93
financial condition and result of operations of the Company ." In addition, the Certifications also
stated, in pertinent part :
2 . Based on my knowledge, this report does not contain any untruestatement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period coveredby this report ;
3 . Based on my knowledge, the financial statements, and otherfinancial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this report ;
4. The registrant's other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-14 and 15d-14) for the registrant andwe have :
a. Designed such disclosure controls and procedures to ensurethat material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this quarterly report isbeing prepared;
b. Evaluated the effectiveness of the registrant's disclosurecontrols and procedures as of a date within 90 days prior to the filing dateof this quarterly report (the "Evaluation Date") ; and
C. Presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date ;
5. The registrant's other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant's auditors and theaudit committee of registrant's board of directors (or persons performingthe equivalent function) :
a. All significant deficiencies in the design or operation ofinternal controls which could adversely affect the registrant's ability torecord, process, summarize and report financial data and have identifiedfor the registrant's auditors any material weaknesses in internal controls ;and
b. Any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in theregistrant's internal controls . . . .
94
198 . Defendants knew, or were severely reckless in not knowing, that the statements
concerning EBITDA, income , revenue, and backlog in the Third Quarter of 2003 Form 10- Q
were materially false and misleading for several reasons . Defendants improperly inflated th e
amount of the Company's reported depreciation by improperly causing the Company's financia l
statements to exclude the dollar value of parts used in construction (i .e., contract expense) and
improperly depreciate inventory . This served to understate construction costs, enabling th e
Company to overstate profit and/or avoid the recognition of losses on construction contracts and
to overstate EBITDA through excessive add-backs to reported net income (or loss) . In addition,
Defendants, inter alia : understated and underpaid taxes at certain international subsidiaries ,
resulting in a material understatement of expenses ; overstated accounts receivable as a result o f
inaccurate information provided by several members of management of international
subsidiaries, as well as the fictitious recordation of work having been performed on a fictitiou s
contract change order; misappropriated cash funds through the use of vendor invoices and
fraudulent consulting agreements which resulted in an overstatement of contract costs and timing
differences in the recognition of contract revenue; overstated contract margins for several
significant contracts, which resulted in the improper recognition of revenue ; and misappropriated
funds to refurbish equipment not owned by the Company. See ¶¶ 60-77, 264-301 .
199. Defendants knew, or were severely reckless in not knowing, that the statemen t
concerning contract procurement, e .g., "[w]e obtain contracts for our work primarily b y
competitive bidding or through negotiations with long-standing clients or prospective clients, "
was materially false and misleading because the Company, through its Willbros International
subsidiary, was obtaining contracts primarily through bribery of government officials in Nigeria ,
95
Bolivia, and Ecuador. As the Company has admitted, Tillery and other employees or consultant s
of Willbros or its subsidiaries : (i) made or caused others to make payments directly or indirectl y
to government officials and client representatives in connection with the award and retention of
business in Nigeria, the reduction of Nigerian tax obligations, the facilitation of Nigeria n
customs clearances and the disposition of Nigerian legal proceedings ; (ii) made or caused other s
to make payments directly or indirectly to government officials in connection with attempts t o
obtain and/or retain business in Ecuador ; (iii) may have engaged in discussions or entered int o
arrangements with competitors of the Company regarding bidding strategies for projects outsid e
the United States; and (iv) may have received kickbacks, payments and/or other imprope r
benefits from Company consultants, suppliers and/or competitors or may otherwise hav e
benefited personally as a result of the activities described above .
200. Defendants also knew, or were severely reckless in not knowing, that thei r
statement in MD&A Item 4, that the "Chief Executive Officer and Chief Financial Officer
concluded that [the Company's] disclosure controls and procedures are effective" was materially
false and misleading because material weaknesses in the Company's internal controls an d
procedures then-existed . See ¶¶ 88-103 .
201 . In addition, Defendants Curran and Williams knew, or were severely reckless in
not knowing, that the statements contained in their Sarbanes -Oxley Section 302 Certifications
were materially false and misleading. Specifically, Items 2 & 3, concerning the truth and non-
misleading nature of the Third Quarter 2003 Form 10-Q, were materially false and misleadin g
for the reasons set forth in ¶¶ 60-77, 88-103, 264-301, and the paragraphs cited therein .
96
202 . Finally, Defendants Curran and Williams knew, or were severely reckless in not
knowing, that the statements contained in Items 4 & 5 of their Sarbanes-Oxley Section 30 2
Certifications were materially false and misleading because the following material weaknesses in
the Company' s internal controls then-existed: (i) the Company did not maintain effective
company-level controls in the control environment, risk assessment, and monitoring components ;
(ii) the Company's operating subsidiaries in Nigeria did not maintain effective policies and
procedures regarding review and approval processes relating to original and revised project cos t
estimates, original contract pricing, establishment and management of contract contingencies ,
and change order management ; (iii) the Company's policies and procedures did not provide for
effective supervisory review of the Company's accounting for international taxes, value added
taxes, and payroll taxes and the related recordkeeping activities ; and (iv) the Company did no t
maintain effective policies and procedures regarding its disbursements process . See ¶¶ 88-103 .
The Fourth Quarter and Year End 2003 Press Release
203 . On February 23, 2004, after the close of the market, the Company issued a pres s
release entitled, "Willbros Reports 2003 Results ." The Company reported that revenues for th e
fourth quarter 2003 were $ 105.4 million compared to revenues of $136 .4 million for the fourth
quarter in the prior year . Net income for the fourth quarter 2003 was reported to be $6 .0 million,
or $0.28 per diluted share, versus $9 .6 million, or $0.46 per diluted share, in the fourth of th e
prior year . In addition, the Company reported EBITDA to be $12 .2 million and backlog to be
$224.7 million.
204. Commenting on the reported results, Defendant Curran stated in pertinent part :
We are pleased that our results for the quarter came in better thanexpected but disappointed that 2003 was such a difficult year for theCompany. Revenue levels and contract margins were negatively impacted
97
by weak market conditions . We also experienced an unusually high levelof political and weather disruptions that reduced margins . As we enter2004, we believe we are emerging from the bottom of this business cycleand we are encouraged by the significant increase in the level ofinternational bidding activity .
(Emphasis added . )
205. Defendants knew, or were severely reckless in not knowing, that the statements
concerning EBITDA, income, revenue, and backlog in the fourth quarter and year-end 200 3
earnings release were materially false and misleading for several reasons . Defendants
improperly inflated the amount of the Company's reported depreciation by improperly causin g
the Company's financial statements to exclude the dollar value of parts used in construction (i.e. ,
contract expense) and improperly depreciate inventory . This served to understate constructio n
costs, enabling the Company to overstate profit and/or avoid the recognition of losses o n
construction contracts and to overstate EBITDA through excessive add-backs to reported net
income (or loss). In addition, Defendants, inter alia : understated and underpaid taxes at certain
international subsidiaries, resulting in a material understatement of expenses ; overstated account s
receivable as a result of inaccurate information provided by several members of management of
international subsidiaries, as well as the fictitious recordation of work having been performed on
a fictitious contract change order; misappropriated cash funds through the use of vendor invoice s
and fraudulent consulting agreements which resulted in an overstatement of contract costs an d
timing differences in the recognition of contract revenue ; overstated contract margins for severa l
significant contracts, which resulted in the improper recognition of revenue ; and misappropriate d
funds to refurbish equipment not owned by the Company . See 11 60-77, 264-301 . For these
reasons, Defendants knew, or were severely reckless in not knowing, that the statement "[w]e ar e
pleased that our results for the quarter came in better than expected" was false and misleading.
98
206. Following the issuance of the materially false and misleading February 23, 200 4
earnings announcement, Willbros' common stock rose from a close of $13 .66 per share on
February 23, 2004 to $15.05 per share by February 25, 2004 .
The February 2004 Conference Call
207 . On February 24, 2004, the Company hosted a conference call entitled , "Q4 2003
Willbros Group, Inc. Earnings Conference Call - Final ." On this call, Defendant Curran state d
in pertinent part :
We completed the fourth quarter of 2003 with a net income of $6 millionor 28 cents per share on 20 million diluted shares . This compares to 9 .6million or 46 cents per share on 20 .7 million diluted shares in the fourthquarter of 2002. EBITDA for the fourth quarter of 2003 was $12.2million versus $13. 6 million in 2002. The reduction in EBITDA was duemainly to lower revenue in 2003 . Revenue of $105.4 million in thefourth quarter of 2003 was a decrease of 23%, or $31 million over thesame period in 2002, driven primarily by lower engineering revenue inNorth America.
Contract margin in the fourth quarter was 20 .7%, up 5 percentage pointsfrom the same quarter in 2002 . Both the fourth quarter and annualfinancial results in 2003 included the impact of the final agreement of aportion of the company's contract variations. The resolution of thesecontract variations positively impacted revenue, contract income,EBITDA, and net income by $6 .9 million, or 33 cents per diluted share .Adjustment for the impact of these contract variations in the fourth quarterof 2003 contract margins between 2002 and 2003 for the fourth quarterwere comparable. [Emphasis added] .
208. Defendants knew, or were severely reckless in not knowing, that the statement s
concerning revenue and EBITDA in the fourth quarter and year end 2003 conference call were
materially false and misleading for several reasons . Defendants improperly inflated the amount
of the Company's reported depreciation by improperly causing the Company's financial
statements to exclude the dollar value of parts used in construction (i .e., contract expense) and
improperly depreciate inventory . This served to understate construction costs, enabling th e
99
Company to overstate profit and/or avoid the recognition of losses on construction contracts and
to overstate EBITDA through excessive add-backs to reported net income (or loss) . In addition,
Defendants, inter alia : understated and underpaid taxes at certain international subsidiaries,
resulting in a material understatement of expenses ; overstated accounts receivable as a result of
inaccurate information provided by several members of management of international
subsidiaries, as well as the fictitious recordation of work having been performed on a fictitious
contract change order; misappropriated cash funds through the use of vendor invoices and
fraudulent consulting agreements which resulted in an overstatement of contract costs and timing
differences in the recognition of contract revenue; overstated contract margins for several
significant contracts, which resulted in the improper recognition of revenue; and misappropriated
funds to refurbish equipment not owned by the Company. See ¶IJ 60-72, 264-301 .
209. Following the February 24, 2004 conference call, Willbros' common stock rose
from a close of $14 .11 per share on February 24, 2004 to $15 .78 per share by February 26, 2004 .
The 2003 Form 10- K
210. On March 12, 2004, the Company filed with the SEC on Form 10-K its annua l
report for the year-ended December 31, 2003 (the 2003 Form 10-K"), which was signed by
Defendants Curran and Williams . In that 2003 Form 10-K, the Company reported revenues of
$105 .4 million, compared to revenues of $136 .4 million for the fourth quarter in the prior year .
In addition, the Company reported EBITDA for 2003 to be $16 .9 million, compared to $60 .1
million reported in 2002 .
211 . The 2003 10-K also stated :
Backlog consists of anticipated revenue from the uncompleted portions ofexisting contracts and contracts whose award is reasonably assured. AtDecember 31, 2003, backlog was $224.7 million, compared to $216.0
100
million at December 31, 2002 . We believe the backlog figures are firm,subject only to the cancellation and modification provisions contained invarious contracts. We expect that approximately $170 million, or 76%,of our existing backlog at December 31, 2003, will be recognized inrevenue during 2004. Historically, a substantial amount of our revenue ina given year has not been reflected in our backlog at the beginning of thatyear. Additionally, due to the short duration of many jobs, revenueassociated with jobs performed within a reporting period will not bereflected in backlog. We generate revenue from numerous sources,including contracts of long or short duration entered into during a year aswell as from various contractual processes, including change orders, extrawork, variations in the scope of work and the effect of escalation orcurrency fluctuation formulas . These revenue sources are not added tobacklog until realization is assured .
We usually obtain contracts through competitive bidding or throughnegotiations with long-standing clients . We are typically invited to bidon projects undertaken by our clients who maintain approved bidder lists .Bidders are pre-qualified by virtue of their prior performance for suchclients, as well as their experience, reputation for quality, safety record,financial strength and bonding capacity.
ITEM 9A. CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officerand Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rule 13a-15(e) under the SecuritiesExchange Act of 1934) as of December 31, 2003 . Based on thisevaluation, our Chief Executive Officer and Chief Financial Officerconcluded that, as of December 31, 2003, the disclosure controls andprocedures are effective in alerting them on a timely basis to materialinformation required to be included in our periodic filings with theSecurities and Exchange Commission.
No change in our internal control over financial reporting (as defined inRule 13a-15(f) under the Securities Exchange Act of 1934) occurredduring the fiscal quarter ended December 31, 2003 that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting .
(Emphasis added.)
101
212, The 2003 Form 10-K also stated that "[t]he consolidated financial statements are
prepared in accordance with generally accepted accounting principles in the United States . . . . "
213 . The 2003 Form 10-K contained Certifications signed by Defendants Curran and
Williams pursuant to Section 302 of Sarbanes-Oxley, which stated as follows: "The informatio n
contained in the Report fairly presents, in all material respects, the financial condition and resul t
of operations of the Company." In addition, the Certifications also stated, in pertinent part :
2. Based on my knowledge, this report does not contain any untruestatement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period coveredby this report ;
3 . Based on my knowledge , the financial statements , and otherfinancial information included in this report , fairly present in all materialrespects the financial condition , results of operations and cash flows of theregistrant as of, and for, the periods presented in this repo rt ;
4. The registrant's other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-14 and 15d-14) for the registrant andwe have :
a. Designed such disclosure controls and procedures to ensurethat material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this quarterly report isbeing prepared ;
b . Evaluated the effectiveness of the registrant's disclosurecontrols and procedures as of a date within 90 days prior to the filing dateof this quarterly report (the "Evaluation Date") ; and
c . Presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date ;
5 . The registrant's other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant's auditors and theaudit committee of registrant's board of directors (or persons performingthe equivalent function) :
102
a. All signi ficant deficiencies in the design or operation ofinternal controls which could adversely affect the registrant' s ability torecord, process , summarize and report financial data and have identifiedfor the registrant 's auditors any material weaknesses in internal controls ;and
b . Any fraud , whether or not material , that involvesmanagement or other employees who have a signi ficant role in theregistrant 's internal controls . . . .
214. Defendants knew, or were severely reckless in not knowing, that the statements
concerning EBITDA, income, revenue, and backlog in the 2003 Form 10-K, and the statement
that "[t]he consolidated financial statements are prepared in accordance with generally accepted
accounting principles in the United States . . .," were materially false and misleading for several
reasons. Defendants improperly inflated the amount of the Company's reported depreciation by
improperly causing the Company's financial statements to exclude the dollar value of parts used
in construction (i .e., contract expense) and improperly depreciate inventory . This served to
understate construction costs, enabling the Company to overstate profit and/or avoid the
recognition of losses on construction contracts and to overstate EBITDA through excessive add-
backs to reported net income (or loss) . In addition, Defendants, inter alia : understated and
underpaid taxes at certain international subsidiaries, resulting in a material understatement of
expenses; overstated accounts receivable as a result of inaccurate information provided by
several members of management of international subsidiaries, as well as the fictitiou s
recordation of work having been performed on a fictitious contract change order;
misappropriated cash funds through the use of vendor invoices and fraudulent consulting
agreements which resulted in an overstatement of contract costs and timing differences in the
recognition of contract revenue ; overstated contract margins for several significant contracts,
which resulted in the improper recognition of revenue; and misappropriated funds to refurbish
103
equipment not owned by the Company. See ¶¶ 60-77, 264-301 . As a result, for the year ended
2003, the Company overstated : operating income by $6,820,000 ; contract revenue by
$2,164,000; backlog by $1,169,000 ; and EBITDA by $14,808,000.
215 . Defendants knew, or were severely reckless in not knowing, that the statemen t
concerning contract procurement, e .g., "[w]e usually obtain contracts through competitive
bidding or through negotiations with long-standing clients," was materially false and misleading
because the Company, through its Willbros International subsidiary, was obtaining contracts
primarily through bribery of government officials in Nigeria, Bolivia, and Ecuador . As the
Company has admitted, Tillery and other employees or consultants of Willbros or its
subsidiaries : (i) made or caused others to make payments directly or indirectly to government
officials and client representatives in connection with the award and retention of business in
Nigeria, the reduction of Nigerian tax obligations, the facilitation of Nigerian customs clearance s
and the disposition of Nigerian legal proceedings; (ii) made or caused others to make payments
directly or indirectly to government officials in connection with attempts to obtain and/or retain
business in Ecuador; (iii) may have engaged in discussions or entered into arrangements with
competitors of the Company regarding bidding strategies for projects outside the United States ;
and (iv) may have received kickbacks, payments and/or other improper benefits from Company
consultants, suppliers and/or competitors or may otherwise have benefited personally as a result
of the activities described above .
216 . Defendants also knew, or were severely reckless in not knowing, that their
statement in MD&A Item 9A, that the "Chief Executive Officer and Chief Financial Officer
concluded that [the Company's] disclosure controls and procedures are effective" was materially
104
false and misleading because material weaknesses in the Company' s internal controls and
procedures then-existed. See 11 88-103 .
217 . In addition, Defendants Curran and Williams knew, or were severely reckless in
not knowing, that the statements contained in their Sarbanes -Oxley Section 302 Certification s
were materially false and misleading. Specifically, Items 2 & 3, concerning the truth and non-
misleading nature of the 2003 10-K, were materially false and misleading for the reasons se t
forth in IT 60-77, 88-103, 264-301 , and the paragraphs cited therein .
218. Finally, Defendants Curran and Williams knew, or were severely reckless in no t
knowing, that the statements contained in Items 4 & 5 of their Sarbanes-Oxley Section 302
Certifications were materially false and misleading because the following material weaknesses in
the Company's internal controls then-existed: (i) the Company did not maintain effectiv e
company-level controls in the control environment, risk assessment, and monitoring components ;
(ii) the Company' s operating subsidiaries in Nigeria did not maintain effective policies and
procedures regarding review and approval processes relating to original and revised project cos t
estimates, original contract pricing, establishment and management of contract contingencies,
and change order management ; (iii) the Company's policies and procedures did not provide fo r
effective supervisory review of the Company's accounting for international taxes, value adde d
taxes, and payroll taxes and the related recordkeeping activities ; and (iv) the Company did not
maintain effective policies and procedures regarding its disbursements process . See ¶¶ 88-103 .
The April 2004 Presentation
219. On April 15, 2004, the Company conducted a presentation at the "Howard Wei l
Conference Presentation ." The Company stated that it was "Highly Confident" that qualified
prospects in West Africa as of March 1, 2004 would result in $400 million to the Company:105
220. Defendants knew, or were severely reckless in not knowing, that the Company' s
statement that it was "Highly Confident" that qualified prospects in West Africa as of March 1 ,
2004 would result in $400 million to the Company was materially false and misleading becaus e
the Company, through its Willbros International subsidiary, was obtaining contracts primaril y
through bribery of government officials in Nige ria. As the Company has admitted , Tillery and
other employees or consultants of Willbros or its subsidiaries: (i) may have made or caused
others to make payments directly or indirectly to government officials and client representative s
in connection with the award and retention of business in Nigeria, the reduction of Nigerian ta x
obligations, the facilitation of Nigerian customs clearances and the disposition of Nigerian lega l
proceedings ; (ii) may have engaged in discussions or entered into arrangements with competitor s
of the Company regarding bidding strategies for projects outside the United States ; and (iii) may
have received kickbacks, payments and/or other improper benefits from Company consultants ,
106
suppliers and/or competitors or may otherwise have benefited personally as a result of th e
activities described above .
The First Quarter 2004 Press Releas e
221 . On May 3, 2004, after the close of the market, the Company issued a press release
entitled, "Willbros Reports First Quarter 2004 Results ." The Company reported EBITDA to b e
$5.6 million, compared to $0.5 million in the same period last year, and reported contract
revenues to be $102 .3 mil lion, compared to $98.9 million in the same period last year.
222. In the same press release, Defendant Curran commented :
"Willbros is in very strong financial condition and we continue to he acontractor of choice with many of our customers. We are confident thatthe Company is positioned to perform well in this improving businesscycle despite the continued uncertainty related to the timing of awards.With respect to our outstanding contract variations, we continue to meetand negotiate with our customers. Our timetable for the resolution ofthese matters has not changed and we believe we will finalize negotiationson these issues before the end of this year . "
(Emphasis added.)
223 . Defendants knew, or were severely reckless in not knowing, that the statements
concerning EBITDA and revenues in the first quarter 2004 earnings release was materially false
and misleading for several reasons . Defendants improperly inflated the amount of th e
Company's reported depreciation by improperly causing the Company's financial statements to
exclude the dollar value of parts used in construction (i.e., contract expense) and improperly
depreciate inventory. This served to understate construction costs, enabling the Company to
overstate profit and/or avoid the recognition of losses on construction contracts and to overstat e
EBITDA through excessive add-backs to reported net income (or loss) . In addition, Defendants
knew, or were severely reckless in not knowing, that the statements concerning EBITDA and
107
revenues in the first quarter 2004 press release were materially false and misleading because,
following Defendant Tillery's resignation in January 2005, other employees of Willbros
International or its subsidiaries continued to carry out the improper activities previously initiated
by Tillery which significantly impacted the Company's reported EBITDA and revenues . See ¶¶
17, 60-72, 84.
224. In addition, Defendant Curran knew, or was severely reckless in not knowing that
his statement about the Company's purported "strong financial condition" was materially false
and misleading because the Company's EBITDA and revenues were overstated for the reasons
set forth in ¶ 224, and the paragraphs cited therein .
225. Following the issuance of the materially false and misleading May 3, 2004
earnings announcement, Willbros' common stock dropped from a close of $14 .35 per share on
May 3, 2004 to $14.04 per share by May 4, 2004 . But for the foregoing materially false and
misleading statements, the price of Willbros common stock would have declined further .
The First Quarter 2004 Form 10-
226. On May 7, 2004, the Company filed with the SEC on Form 10-Q its interim
report for the first quarter ended March 31, 2004 (the "First Quarter 2004 10-Q"), which was
signed by Defendants Curran and Williams. In the First Quarter 2004 10-Q, the Company
reported that EBITDA for the three-months ended March 31, 2004 was $5 .6 million, as
compared to $0 .5 million for the same period in 2003, and reported that contract revenues for the
three months ended March 31, 2004 were $102 .3 million, as compared to $98 .9 million for the
same period in 2003 .
227. In the First Quarter 2004 10-Q MD&A, Defendants discussed the Company's
financial condition and results of operations . In relevant part, the MD&A stated :108
OVERVIEW
We derive our revenue from providing construction, engineering andspecialty services to the oil, gas and power industries and governmententities worldwide . In 2004, our revenue was primarily generated fromoperations in Canada, Iraq, Nigeria, Oman, the United States, andVenezuela . We obtain contracts for our work mainly by competitivebidding or through negotiations with long-standing or prospectiveclients. Contracts have durations from a few weeks to several months orin some cases more than a year .
ITEM 4. CONTROLS AND PROCEDURE S
Our management, with the participation of our Chief Executive Officerand Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rule 13a-15(e) under the SecuritiesExchange Act of 1934) as of March 31, 2004 . Based on this evaluation,our management , including our Chief Executive Officer and ChiefFinancial Officer, concluded that, as of March 31, 2004, the disclosurecontrols and procedures are effective in alerting them on a timely basisto material information required to be included in our periodic filingswith the Securities and Exchange Commission .
No change in our internal control over financial reporting (as defined inRule 13a-15(f) under the Securities Exchange Act of 1934) occurredduring the fiscal quarter ended March 31, 2004 that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.
(Emphasis added . )
228. The First Quarter 2004 Form 10-Q contained Certifications signed by Defendant s
Curran and Williams pursuant to Section 302 of Sarbanes-Oxley, stating the following : "The
information contained in the Report fairly presents, in all material respects, the financia l
condition and result of operations of the Company ." In addition, the Certifications also stated, in
pertinent part :
2. Based on my knowledge, this report does not contain any untruestatement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period coveredby this report ;
109
3 . Based on my knowledge, the financial statements, and otherfinancial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-14 and 15d-14) for the registrant andwe have :
a. Designed such disclosure controls and procedures to ensurethat material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this quarterly report isbeing prepared ;
b. Evaluated the effectiveness of the registrant's disclosurecontrols and procedures as of a date within 90 days prior to the filing dateof this quarterly report (the "Evaluation Date") ; and
c. Presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date ;
5. The registrant's other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant's auditors and theaudit committee of registrant's board of directors (or persons performingthe equivalent function) :
a. All significant deficiencies in the design or operation ofinternal controls which could adversely affect the registrant's ability torecord, process, summarize and report financial data and have identifiedfor the registrant's auditors any material weaknesses in internal controls ;and
b. Any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in theregistrant's internal controls . . . .
229 . Defendants knew, or were severely reckless in not knowing, that the statements
concerning EBITDA and revenues during the first quarter of 2004 were materially false and
misleading for several reasons. Defendants improperly inflated the amount of the Company's
reported depreciation by improperly causing the Company's financial statements to exclude the
dollar value of parts used in construction (i .e ., contract expense) and improperly depreciat e
110
inventory. This served to understate construction costs, enabling the Company to overstate profi t
and/or avoid the recognition of losses on construction contracts and to overstate EBITD A
through excessive add-backs to reported net income (or loss) . In addition, Defendants knew, or
were severely reckless in not knowing, that the statements concerning EBITDA and revenues i n
the first quarter 2004 press release were materially false and misleading because, followin g
Defendant Tillery's resignation in January 2005, other employees of Willbros International or its
subsidiaries continued to carry out the improper activities previously initiated by Tillery which
significantly impacted the Company' s reported EBITDA and revenues . See 11 17, 60-72, 84 .
230. Defendants knew, or were severely reckless in not knowing, that the statemen t
concerning contract procurement, e.g.,"[w]e obtain contracts for our work mainly by competitiv e
bidding or through negotiations with long-standing or prospective clients," was materially fals e
and misleading because the Company, through its Willbros International subsidiary, wa s
obtaining contracts primarily through bribery of government officials in Nigeria, Bolivia, an d
Ecuador. As the Company has admitted, Tillery and other employees or consultants of Willbro s
or its subsidiaries : (i) made or caused others to make payments directly or indirectly to
government officials and client representatives in connection with the award and retention o f
business in Nigeria, the reduction of Nigerian tax obligations , the facilitation of Nigerian
customs clearances and the disposition of Nigerian legal proceedings; (ii) made or caused others
to make payments directly or indirectly to government officials in connection with attempts t o
obtain and/or retain business in Ecuador ; (iii) may have engaged in discussions or entered into
arrangements with competitors of the Company regarding bidding strategies for projects outsid e
the United States; and (iv) may have received kickbacks, payments and/or other imprope r
111
benefits from Company consultants, suppliers and/or competitors or may otherwise have
benefited personally as a result of the activities described above .
231 . Defendants also knew, or were severely reckless in not knowing, that their
statement in MD&A Item 4, that the "Chief Executive Officer and Chief Financial Office r
concluded that [the Company's] disclosure controls and procedures are effective" was materiall y
false and misleading because material weaknesses in the Company's internal controls an d
procedures then-existed. See 11 88-103 .
232. In addition, Defendants Curran and Williams knew, or were severely reckless i n
not knowing, that the statements contained in their Sarbanes-Oxley Section 302 Certification s
were materially false and misleading . Specifically, Items 2 & 3, concerning the truth and non-
misleading nature of the First Quarter 2004 10-Q, were materially false and misleading for the
reasons set forth in ¶¶ 17, 60-72, 84, 88-103, and the paragraphs cited therein.
233 . Finally, Defendants Curran and Williams knew, or were severely reckless in no t
knowing, that the statements contained in Items 4 & 5 of their Sarbanes-Oxley Section 30 2
Certifications were materially false and misleading because the following material weaknesses in
the Company' s internal controls then-existed: (i) the Company did not maintain effective
company-level controls in the control environment, risk assessment, and monitoring components ;
(ii) the Company's operating subsidiaries in Nigeria did not maintain effective policies and
procedures regarding review and approval processes relating to original and revised project cos t
estimates , original contract pricing, establishment and management of contract contingencies ,
and change order management ; (iii) the Company's policies and procedures did not provide for
effective supervisory review of the Company's accounting for international taxes, value added
112
taxes, and payroll taxes and the related recordkeeping activities; and (iv) the Company did no t
maintain effective policies and procedures regarding its disbursements process . See IT 88-103.
The Second Quarter 2004 Press Release
234 . On August 9, 2004, before the close of the market, the Company issued a pres s
release entitled, "Willbros Reports Second Quarter 2004 Results ." The Company reporte d
EBITDA for the second quarter of 2004 to be $9.0 million , compared to $8.1 million in the sam e
quarter in 2003 . Although the Company reported an increase EBITDA during the second quarter
2004, the Company also reported a second quarter 2004 loss of $0 .02 per share, at the high end
of the Company's July guidance of a loss of $0 .02-$0.07 per share. The Company also reported
operating income for the second quarter of 2004 to be $3,100,000, compared to $2,510,000 in the
same quarter in 2003 .
235 . Defendants knew, or were severely reckless in not knowing, that the statements
concerning EBITDA and operating income in the second quarter 2004 press release wer e
materially false and misleading for several reasons . Defendants improperly inflated the amount
of the Company's reported depreciation by improperly causing the Company' s financial
statements to exclude the dollar value of parts used in construction ( i.e., contract expense) and
improperly depreciate inventory. This served to understate construction costs, enabling th e
Company to overstate profit and/or avoid the recognition of losses on construction contracts and
to overstate EBITDA through excessive add-backs to reported net income (or loss) . In addition ,
Defendants knew, or were severely reckless in not knowing, that the statements concerning
EBITDA and operating income in the first quarter 2004 press release were materially false and
misleading because, following Defendant Tillery's resignation in January 2005, other employee s
of Willbros International or its subsidiaries continued to carry out the improper activities113
previously initiated by Tillery which significantly impacted the Company's reported EBITD A
and operating income . See IN 17, 60-66, 73-75, 84 .
236 . Following the issuance of the materially false and misleading August 9, 2004
announcement, Willbros' common stock dropped from an open of $14.59 to a close of $14.35
per share on August 9, 2004 . But for the foregoing materially false and misleading statements ,
the price of Willbros common stock would have further declined .
The Second Ouarter 2004 Form 10-0
237. On August 9, 2004, the Company filed with the SEC on Form 10-Q its interi m
report for the second quarter ended June 30, 2004 (the "Second Quarter 2004 Form 10-Q") ,
which was signed by Defendants Curran and Williams . In that Second Quarter 2004 Form 10-Q ,
the Company reported EBITDA for the six-month period ended June 30, 2004 at $14,613,
compared to $8,563 for the same period in 2003 . The Company also reported operating income
for the second quarter of 2004 to be $3,100,000, compared to $2,510,000 in the same quarter in
2003 .
238. In the Second Quarter 2004 Form 10-Q MD&A, Defendants discussed the
Company's financial condition and results of operations . In relevant part, the MD&A stated :
OVERVIEW
We derive our revenue from providing engineering and constructionservice and developing and operating facilities for the oil, gas and powerindustries and government entities worldwide. In 2004, our revenue wasprimarily generated from operations in Canada, Iraq, Nigeria, Oman, theUnited States, and Venezuela . We obtain contracts for our work mainlyby competitive bidding or through negotiations with long-standingclients. Contracts have durations from a few weeks to several months orin some cases more than a year.
ITEM 4. CONTROLS AND PROCEDURES
114
Our management, with the participation of our Chief Executive Officerand Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rule 13a-15(e) under the SecuritiesExchange Act of 1934) as of June 30, 2004 . Based on this evaluation,our management, including our Chief Executive Officer and ChiefFinancial Officer, concluded that, as of June 30, 2004, the disclosurecontrols and procedures are effective in alerting them on a timely basisto material information required to be included in our periodic filingswith the Securities and Exchange Commission .
No change in our internal control over financial reporting (as defined inRule 13a-15(f) under the Securities Exchange Act of 1934) occurredduring the fiscal quarter ended June 30, 2004 that has materially affected,or is reasonably likely to materially affect, our internal control overfinancial reporting .
(Emphasis added.)
239. The Second Quarter 2004 Form 10-Q contained Certifications signed b y
Defendants Curran and Williams pursuant to Section 302 of Sarbanes-Oxley, stating th e
following: The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company." In addition, the Certifications also
stated, in pertinent part :
2. Based on my knowledge, this report does not contain any untruestatement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period coveredby this report ;
3 . Based on my knowledge, the financial statements, and otherfinancial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this report ;
4. The registrant's other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-14 and 15d-14) for the registrant andwe have :
a. Designed such disclosure controls and procedures to ensurethat material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those
115
entities, particularly during the period in which this quarterly report isbeing prepared;
b. Evaluated the effectiveness of the registrant's disclosurecontrols and procedures as of a date within 90 days prior to the filing dateof this quarterly report (the "Evaluation Date") ; and
c. Presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date ;
5. The registrant's other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant's auditors and theaudit committee of registrant's board of directors (or persons performingthe equivalent function) :
a. All significant deficiencies in the design or operation ofinternal controls which could adversely affect the registrant's ability torecord, process, summarize and report financial data and have identifiedfor the registrant's auditors any material weaknesses in internal controls ;and
b. Any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in theregistrant's internal controls . . . .
240. Defendants knew, or were severely reckless in not knowing, that the statement s
concerning EBITDA and operating income in the Second Quarter 2004 Form 10-Q were
materially false and misleading for several reasons . Defendants improperly inflated the amount
of the Company's reported depreciation by improperly causing the Company' s financia l
statements to exclude the dollar value of parts used in construction (i.e ., contract expense) an d
improperly depreciate inventory. This served to understate construction costs, enabling th e
Company to overstate profit and/or avoid the recognition of losses on construction contracts and
to overstate EBITDA through excessive add-backs to reported net income (or loss) . In addition ,
Defendants knew, or were severely reckless in not knowing, that the statements concernin g
EBITDA and operating income were materially false and misleading because , following
Defendant Tillery's resignation in January 2005, other employees of Willbros International or its
116
subsidiaries continued to carry out the improper activities previously initiated by Tillery which
significantly impacted the Company's reported EBITDA and operating income . See ¶¶ 17, 60-
66, 73-75, 84.
241 . Defendants knew, or were severely reckless in not knowing, that the statemen t
concerning contract procurement, e.g., "[w]e obtain contracts for our work mainly b y
competitive bidding or through negotiations with long-standing clients," was materially false an d
misleading because the Company, through its Willbros International subsidiary, was obtainin g
contracts primarily through bribery of government officials in Nigeria, Bolivia, and Ecuador . As
the Company has admitted, Tillery and other employees or consultants of Wilibros or it s
subsidiaries : (i) made or caused others to make payments directly or indirectly to government
officials and client representatives in connection with the award and retention of business i n
Nigeria, the reduction of Nigerian tax obligations, the facilitation of Nigerian customs clearances
and the disposition of Nigerian legal proceedings; (ii) made or caused others to make payments
directly or indirectly to government officials in connection with attempts to obtain and/or retain
business in Ecuador; (iii) may have engaged in discussions or entered into arrangements with
competitors of the Company regarding bidding strategies for projects outside the United States ;
and (iv) may have received kickbacks, payments and/or other improper benefits from Company
consultants, suppliers and/or competitors or may otherwise have benefited personally as a resul t
of the activities described above .
242. Defendants also knew, or were severely reckless in not knowing, that thei r
statement in MD&A Item 4, that the "Chief Executive Officer and Chief Financial Office r
concluded that [the Company's] disclosure controls and procedures are effective" was materially
117
false and misleading because material weaknesses in the Company's internal controls and
procedures existed . See 11 88-103 .
243 . In addition, Defendants Curran and Williams knew, or were severely reckless in
not knowing, that the statements contained in their Sarbanes-Oxley Section 302 Certifications
were materially false and misleading. Specifically, Items 2 & 3, concerning the truth and non-
misleading nature of the Second Quarter 2004 10-Q, were materially false and misleading for the
reasons set forth in IT 17, 60-66, 73-75, 84, 88-103, and the paragraphs cited therein .
244. Finally, Defendants Curran and Williams knew, or were severely reckless in not
knowing, that the statements contained in Items 4 & 5 of their Sarbanes-Oxley Section 302
Certifications were materially false and misleading because the following material weaknesses in
the Company's internal controls then-existed: (i) the Company did not maintain effectiv e
company-level controls in the control environment, risk assessment, and monitoring components ;
(ii) the Company's operating subsidiaries in Nigeria did not maintain effective policies and
procedures regarding review and approval processes relating to original and revised project cost
estimates, original contract pricing, establishment and management of contract contingencies,
and change order management ; (iii) the Company's policies and procedures did not provide for
effective supervisory review of the Company's accounting for international taxes, value added
taxes, and payroll taxes and the related recordkeeping activities ; and (iv) the Company did not
maintain effective policies and procedures regarding its disbursements process . See 11 88-103 .
The Au ust 2004 Presentation
245 . On August 30, 2004, the Company conducted an investor presentation . The
Company stated that it was "Highly Confident" that qualified prospects in West Africa as of
August 1, 2004 would result in $370 million to the Company .118
246. Defendants knew, or were severely reckless in not knowing, that these statement s
were materially false and misleading because the Company, through its Willbros International
subsidiary, was obtaining contracts primarily through bribery of government officials in, amon g
other countries, Nigeria . As the Company has admitted, Tillery and other employees or
consultants of Willbros or its subsidiaries : (i) may have made or caused others to make payment s
directly or indirectly to government officials and client representatives in connection with the
award and retention of business in Nigeria, the reduction of Nigerian tax obligations, the
facilitation of Nigerian customs clearances and the disposition of Nigerian legal proceedings ; (ii )
may have engaged in discussions or entered into arrangements with competitors of the Company
regarding bidding strategies for projects outside the United States ; and (iii) may have received
kickbacks, payments and/or other improper benefits from Company consultants, suppliers and/o r
119
competitors or may otherwise have benefited personally as a result of the activities described
above .
The Third Quarter 2004 Form 10-0
247. On November 9, 2004, the Company filed with the SEC on Form 10-Q its interim
report for the third quarter ended September 30, 2004 (the "Third Quarter 2004 10-Q"), whic h
was signed by Defendants Curran and Williams . In that Third Quarter 2004 Form 10-Q, the
Company reported contract revenues for the third quarter of 2004 to be $118,459,000, compared
to $91,498,000 for the same period in 2003. The Company also reported operating income fo r
the third quarter of 2004 to be ($897,000), compared to ($9,541,000) in the same quarter in 2003 .
248. In the Third Quarter 2004 10-Q MD&A, Defendants discussed the Company's
financial condition and results of operations . In relevant part, the MD&A stated :
OVERVIEW
We derive our revenue from providing engineering and constructionservices, and developing, owning and operating facilities for the oil, gasand power industries and government entities worldwide . In the first ninemonths of 2004, our revenue was primarily generated from operations inCanada, Ecuador, Iraq, Nigeria, Oman, the United States and Venezuela .We obtain contracts for our work mainly by competitive bidding orthrough negotiations with long-standing clients. Contracts havedurations from a few weeks to several months or in some cases more thana year .
ITEM 4. CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officerand Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rule 13a-15(e) under the SecuritiesExchange Act of 1934) as of September 30, 2004 . Based on thisevaluation, our management, including our ChiefExecutive Officer andChief Financial Officer, concluded that, as of September 30, 2004, thedisclosure controls and procedures are effective in alerting them on atimely basis to material information required to be included in ourperiodicfilings with the Securities and Exchange Commission .
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No change in our internal control over financial reporting (as defined inRule 13a-15(f) under the Securities Exchange Act of 1934) occurredduring the fiscal quarter ended September 30, 2004 that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover -financial reporting .
(Emphasis added .)
249. The Third Quarter 2004 Form 10-Q contained Certifications signed by
Defendants Curran and Williams pursuant to Section 302 of Sarbanes-Oxley, stating the
following: "The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company." In addition, the Certifications also
stated, in pertinent part :
4. The registrant's other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules l3a-14 and 15d-14) for the registrant andwe have:
a. Designed such disclosure controls and procedures to ensurethat material information relating to the registrant, including itsconsolidated subsidiaries , is made known to us by others within thoseentities , particularly during the period in which this quarterly report isbeing prepared;
b. Evaluated the effectiveness of the registrant 's disclosurecontrols and procedures as of a date within 90 days prior to the filing dateof this quarterly report (the "Evaluation Date") ; and
c. Presented in this quarterly repo rt our conclusions about theeffectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant's auditors and theaudit committee of registrant 's board of directors (or persons performingthe equivalent function) :
a. All signi ficant deficiencies in the design or operation ofinternal controls which could adversely affect the registrant 's ability torecord, process, summarize and repo rt financial data and have identifiedfor the registrant' s auditors any material weaknesses in internal controls ;and
121
b. Any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in theregistrant's internal controls . . . .
250. Defendants knew, or were severely reckless in not knowing, that the statements
concerning contract revenues and operating income were materially false and misleading
because, following Defendant Tillery's resignation in January 2005, other. employees of Willbros
International or its subsidiaries continued to carry out the improper activities previously initiated
by Tillery which significantly impacted the Company's reported EBITDA and operating income .
See ¶¶ 17, 67-75, 84.
251 . Defendants knew, or were severely reckless in not knowing, that the statemen t
concerning contract procurement, e .g,, "[w]e obtain contracts through competitive bidding or
through negotiations with long-standing clients," was materially false and misleading because
the Company, through its Willbros International subsidiary, was obtaining contracts primarily
through bribery of government officials in Nigeria, Bolivia, and Ecuador. As the Company has
admitted, Tillery and other employees or consultants of Willbros or its subsidiaries : (i) made or
caused others to make payments directly or indirectly to government officials and client
representatives in connection with the award and retention of business in Nigeria, the reduction
of Nigerian tax obligations, the facilitation of Nigerian customs clearances and the disposition of
Nigerian legal proceedings ; (ii) made or caused others to make payments directly or indirectly to
government officials in connection with attempts to obtain and/or retain business in Ecuador ;
(iii) may have engaged in discussions or entered into arrangements with competitors of the
Company regarding bidding strategies for projects outside the United States ; and (iv) may have
received kickbacks, payments and/or other improper benefits from Company consultants ,
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suppliers and/or competitors or may otherwise have benefited personally as a result of the
activities described above .
252. Defendants also knew, or were severely reckless in not knowing, that their
statement in MD&A Item 4, that the "Chief Executive Officer and Chief Financial Officer
concluded that [the Company's] disclosure controls and procedures are effective" was materially
false and misleading because material weaknesses in the Company's internal controls and
procedures then-existed . See ¶J 88-103 .
253 . In addition, Defendants knew, or were severely reckless in not knowing, that the
statements contained in their Sarbanes-Oxley Section 302 Certifications were materially false
and misleading . Specifically, Items 2 & 3, concerning the truth and non-misleading nature of the
Third Quarter 2004 10-Q, were materially false and misleading for the reasons set forth in ¶¶ 17,
67-75, 84, 88-103, and the paragraphs cited therein .
254. Finally, Defendants Curran and Williams knew, or were severely reckless in not
knowing, that the statements contained in Items 4 & 5 of their Sarbanes-Oxley Section 302
Certifications were materially false and misleading because the following material weaknesses in
the Company's internal controls then-existed : (i) the Company did not maintain effective
company-level controls in the control environment, risk assessment, and monitoring components ;
(ii) the Company's operating subsidiaries in Nigeria did not maintain effective policies and
procedures regarding review and approval processes relating to original and revised project cost
estimates, original contract pricing, establishment and management of contract contingencies,
and change order management ; (iii) the Company's policies and procedures did not provide for
effective supervisory review of the Company's accounting for international taxes, value adde d
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taxes, and payroll taxes and the related recordkeeping activities ; and (iv) the Company did no t
maintain effective policies and procedures regarding its disbursements process . See IT 88-103.
Ti lery Resigns
255. On January 26, 2005, after the close of the market, the Company issued a press
release entitled, "Willbros Announces Resignation of International Executive." In the release,
the Company announced that Tillery, the President of Willbros International, "resigned " from the
Company as a consequence of the actions taken by the tax authorities in one of its South
American operating locations - it assessed Willbros' subsidiary $2 .5 million on a complete d
project. Commenting on the purported resignation, Defendant Curran stated :
"This Company and the management team hold as an overridingimperative the ethical performance of their duties. We are extremelyupset that our trust was violated by those who did not conform their
conduct to the standards required by the Company and to the policies in
place ."
(Emphasis added.)
256. On January 26, 2005, after opening at $21 .13 per share, Willbros common stock
closed at $20.96 per share. On January 27, 2005, after opening at $20 .96 per share, Willbro s
common stock closed at $20 .45 per share.
The Company Be ins To Disclose Its Financial Reporting Problems
257. On February 28, 2005, after the close of the market, the Company issued a pres s
release entitled, "Willbros Updates Status of Tax Assessment, Announces Restatement o f
Financial Information, and Provides Guidance and Outlook for 2005." In the release, the
Company reported that as a result of the previously disclosed tax assessment related to a
completed project in Bolivia and its ongoing internal investigation into the facts and
circumstances surrounding the tax assessment (which, according to the Company, commenced in
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December 2004), the Company would restate its previously issued financial statements for the
years 2002 and 2003 and the first three quarters of 2004 .
258 . Following the issuance of the February 28, 2005 press release, Willbros' commo n
stock fell from an opening price of $22.50 per share on. February 28, 2005 to a closing price of
$19.99 per share on March 1, 2005.
259 . One month later, on March 31, 2005, the Company issued a press release
announcing that it would delay the filing of its Annual Report on Form 10-K for the year ende d
December 31, 2004 .
Defendants Finally Reveal That Willbros 'Financial Results Were Overstated Throughout The Class Perio d
260. On May 16, 2005, after the close of the market, the Company issued the followin g
press release :
Willbros Updates Status of Audit Committee Investiga tion
Discusses expected financial impact on restatements
Discusses expected results for the year ende d
December 31, 2004 and the quarter ended March 31, 2005
Discusses financial outlook for 200 5
Schedules conference call for Tuesday, May 17, 2005 at 9:00 a.m .Eastern Time
HOUSTON, May 16 /PRNewswire-FirstCall/ -- Willbros Group, Inc .(NYSE : WG) provided an update today on its Audit Committee'sindependent internal investigation and on its expected financial results .The Audit Committee has substantially completed its investigation . TheCompany and its external Auditors are reviewing and analyzing the resultsof the Audit Committee's investigation in order to finalize the Company'sfinancial statements .
AUDIT COMMITTEE INVESTIGATION
As previously repo rted in January 2005, the Company 's Audit Committee,with the assistance of independent counsel , has been carrying out aninvestigation into the activities of James K. Tillery, the former President
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of Willbros International, Inc. ("WII"), and other employees andconsultants of WIT and its subsidiaries . WII and its wholly ownedsubsidiaries operate internationally outside the United States and Canada("Willbros International") . WII is a wholly owned subsidiary of WillbrosGroup, Inc .
Mr. Tillery resigned without severance benefits from WillbrosInternational, Inc. on January 6, 2005, as a direct result of seniormanagement's preliminary investigation into a tax matter in Bolivia.After Mr. Tillery's resignation, the Company discovered numerousdocuments and encrypted computer files indicating that Mr . Tillery mayhave been concealing other improper activities . Senior managementpromptly brought this information to the attention of the Audit Committeewhich then launched its own independent investigation.
The investigation conducted by the Audit Committee confirmed that Mr.Tillery and others who directly or indirectly reported to him violatedCompany policies and possibly the laws of several countries, includingthe United States. Based on the Audit Committee's independentinvestigation and on information obtained by senior management, theCompany has determined the following:
-- Mr. Tillery and other Willbros International employees or consultantsowned interests in enterprises with whom Willbros International didbusiness, and may have usurped corporate opportunities, receivedpayments and other improper benefits from consultants, suppliers orcompetitors . Mr. Tillery and these others appear to have benefitedpersonally as a result of such transactions. Their failure to disclose suchactivities may constitute a violation of United States law, or the laws ofother countries .
-- Mr. Tillery and other Willbros International employees or consultantsmay have directly and indirectly promised to make, made, caused to bemade, or approved payments to government officials in Bolivia, Nigeriaand Ecuador, and possibly to client personnel in one or more of thosecountries . Mr. Tillery may have also acquiesced in, or approved, a priorcommitment by another to make an improper future payment in Mexico .These activities and, in some cases, their possible mischaracterization onWillbros International's financial records, may constitute violations of theUnited States Foreign Corrupt Practices Act ("FCPA"), other laws of theUnited States, or the laws of other countries .
-- Under the direction of Mr . Tillery and other Willbros Internationalemployees or consultants, certain subsidiaries of WII filed false taxreturns, failed to file required tax returns, and failed to pay certain taxes inlocations outside the United States .
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-- Mr. Tillery and other Willbros International employees or consultantsmay have engaged in discussions with competitors and others regardingbids for projects outside the United States . These discussions may havebeen in violation of United States law or the laws of other countries .
-- Following Mr . Tillery's resignation, Willbros International employeesand former consultants may have contravened Company directives andcontinued to carry out some of the activities described above .
The process and results of the Audit Committee's investigation have beenvoluntarily reported to both the United States Securities and ExchangeCommission ("SEC") and the United States Department of Justice("DOJ"), which are currently investigating these matters . The Company iscooperating fully with these governmental authorities .
The Company, including the Audit Committee, is continuing to examinecertain of Willbros International's operations to determine whether thereare any other improper or illegal activities by Mr. Tillery or others. It ispossible that additional instances of improper or illegal behavior could beidentified in the future . The Company has already taken a variety ofremedial actions in response to the findings of the Audit Committee andwill continue to evaluate the necessity of taking additional remedialactions .
The Company cannot predict the outcome of any investigations conductedby the SEC, the DOJ or other governmental authorities, whether they willresult in legal proceedings against the Company, or whether the Companywill be subject to civil or criminal fines or penalties or other regulatoryaction which could have a material adverse effect on the Company'sbusiness and results of operations . If the Company or one of itssubsidiaries is found to have violated the FCPA, that entity could besubject to civil penalties of up to $650,000 per violation and criminalpenalties of up to the greater of $2 million per violation or twice the grosspecuniary gain resulting from the improper conduct. The Company and itssubsidiaries could also be barred from participating in future United Statesgovernment contracts . There may be other penalties that could applyunder other laws of the United States or the laws of other countries .
In addition to the liability of the Company or its subsidiaries that couldarise out of the governmental proceedings described above, there are otheradverse effects that could occur as a result of the foregoing, including thefollowing :
-- The net, uninsured expense of responding to anticipated investigationsby governmental authorities and fulfilling the Company's obligations tofund director and officer legal costs could adversely affect results ofoperations .
127
-- The Company's refusal to make improper payments, or to permit othersto do so on its behalf, may negatively affect ongoing internationaloperations, particularly in Nigeria.
-- The competitors of the Company may be able to exploit thesecircumstances to the disadvantage of the Company.
The discovery of the circumstances described above has also led the AuditCommittee and the Company to conclude that material weaknesses existedin the Company's internal controls and procedures . The Company is inthe process of implementing an enhanced system of internal controls andprocedures designed to eliminate these recently discovered weaknessesincluding, among others :
-- Realignment of the reporting of the financial staff in all business unitsdirectly to the Corporate Controller's Office ;
-- Adoption of a more frequent rotation policy for the operations andfinancial staff at the business unit level ;
-- Implementation of an enhanced, stand-alone FCPA ComplianceProgram ;
Implementation of an enhanced Whistle Blower policy ;
-- Appointment of a senior-level Company employee reporting to theAudit Committee with primary responsibility for implementation,oversight and enforcement of Corporate Governance Policies ;
-- Expansion of internal audit staff;
-- Internal control improvements related to cash disbursements ; and
-- Expanded review by corporate tax personnel of all tax liability accountson a quarterly basis .
There is no assurance that enhanced controls and procedures will eliminateall future inaccuracies or potential violations of law .
The Company has initiated certain recovery measures against some whohave compromised the interests of the Company. The Company willcontinue with its recovery effort and is assessing all of its options in thatregard .
EXPECTED FINANCIAL RESTATEMENT
The previously announced financial restatements for the years endedDecember 31, 2002, and 2003, and the first three quarters of 2004 willincorporate the results of the Audit Committee's investigation, and areview of the Company's financial records . The estimated financialimpact of those restatements on the referenced periods are expected to beas follows :
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For the year ended December 31, 2002, reductions in net incomeranging from $4.3 to $5.0 million and consisting of:
-- $3.1 to $3 .3 million related to Bolivian taxes, penalties and interest ; and
-- $1 .2 to $1 .7 million related to underpayment of Nigerian payroll taxesand other accounting adjustments .
For the year ended December 31, 2003, reductions in net incomeranging from $1.5 to $2.1 million and consisting of:
-- $1 .0 to $1 .3 million related to Bolivian taxes, penalties and interest ; and
-- $0 .5 to $0.8 million related to underpayment of Nigerian payroll taxesand other accounting adjustments .
For the three quarters ended September 30, 2004, reductions in netincome ranging from $1.4 to $2.1 million and consisting of.
-- $1 .0 to $1 .4 million related to Bolivian taxes, penalties and interest; and
-- $0.4 to $0.7 million related to underpayment of Nigerian payroll taxesand other accounting adjustments .
The total financial statement impact of the restatements for the periodsdiscussed above is currently estimated to be a reduction in net incomeranging from $7.2 to $9.2 million . During this same timeframe theCompany recorded net income before restatements of approximately$20.8 million.
EXPECTED 2004 RESULT S
Based on current information, the Company expects to report a loss in therange of $11 .5 to $12.0 million for the full year 2004 . In addition to therestatement amounts noted above, full year 2004 results were negativelyimpacted by:
-- Increased reserves for accounts receivable and warranty work, primarilyin Nigeria ;
-- Reductions of estimated contract margins on work in progress atyearend in Nigeria; and
-- Increases in general and administrative expenses ("G&A") related toexternal audit and Sarbanes-Oxley compliance .
The investigation disclosed that during the years ended December 31,2002, 2003 and 2004, the Company (1) made related party payments of$33 .2 million and (2) recorded $10 .8 million in revenue with respect toentities where Mr. Tillery appears to have had an ownership interest orover whose operations he appears to have exercised some level of control .The related party payments were mainly in connection with marine vesse l
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charters, diving services and consulting services for projects in Nigeria,Bolivia and Ecuador.
FIRST QUARTER 2005
As reported previously, the Company incurred costs of approximately $1 .5million associated with the performance of the Audit Committee'sindependent internal investigation through March 1, 2005. Total costs forthe investigation in the quarter ended March 31, 2005 were approximately$4.0 million, including the previously reported amount . Currently,management expects to record revenue of approximately $135 to $140million and a loss of approximately $5 .0 to $7.0 million for the quarterended March 31, 2005, including the costs for the internal investigation .In addition to the investigation costs noted above, first quarter 2005 resultswere negatively impacted by:
-- Increased contract and indirect costs in Nigeria ;
-- The Company declining to perform a contract in Ecuador ; and
Lower than anticipated margins on liquids extracted at the Company'sOpal facility.
ESTIMATES SUBJECT TO CHANGE
All of the estimates presented above are subject to change based upon thefurther review and analysis of the results of the Audit Committee'sinvestigation by management and the Company's external auditors .
GUIDANCE FOR 2005
The Company is withdrawing its guidance for the remainder of 2005 dueto the following uncertainties associated with its operations this year :
-- Ongoing costs associated with current and anticipated investigations ;
-- Increased costs associated with actions taken to improve internalcontrols ; and
-- Potential negative impact on contract margins in Nigeria due to changesin management, business relationships and business practices .
CREDIT FACILIT Y
Based on the anticipated results for 2004 and the first quarter of 2005, theCompany expects to have a technical default under its Credit Agreementrelated to non-compliance with a financial covenant. The Company iscurrently working with its banks to obtain a waiver of this covenant andbelieves that it will obtain the waiver. However, until this waiver isfinalized, the Company cannot access the credit facility for the issuance ofnew letters of credit or borrowings . There are no borrowings under th e
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credit facility as of this date and there are currently approximately $45million in letters of credit outstanding under the facility.
(Emphasis added.)
261 . Immediately following the Company's release, Willbros' stock plummeted, o n
usually high trading volume of 6.9 million shares, from its closing price of $15.92 per share on
May 16, 2005, to a closing price of $ 11 .00 per share on May 17, 2005 - a one-day drop of over
31 percent .
262. Finally, on November 22, 2005, Willbros filed its restated results for 2002, 200 3
and the first three quarters of 2004 as set forth in the 2004 10-K. The 2004 10-K also included ,
inter alia, the results of the Company's investigation into the circumstances surrounding the ta x
assessment in South America and the conduct of Company personnel. The Company also
announced that it engaged an investment bank to assist management and the Board of Director s
in the evaluation of its strategic alternatives to maximize shareholder value, including equity o r
debt financings, as well as transactions that could result in the sale of all or a portion of th e
Company.
WILLBROS' ACCOUNTING FRAUD
263 . Defendants' scheme to generate revenues through the employment of corrup t
business practices, and their efforts to conceal these practices from the public, rendered th e
Company's financial statements materially false and misleading and in violation of GAAP an d
the SEC' s regulations governing financial statement repo rting .
A. Willbros ' Financial Statements Failed to Comply with GAAP and SEC RegulationsProhibiting False and Misleading Public Filings
264 . GAAP are those p rinciples recognized by the accounting profession as the
conventions, rules, and procedures necessary to define accepted accounting practices at a
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particular time . Those principles are the official standards accepted by the SEC and promulgate d
in part by the American Institute of Certi fied Public Accountants ("AICPA"), a private
professional association, through three successor groups it established : the Committee on
Accounting Procedure ; the Accounting Principles Board (the "Board"), and the Financial
Accounting Standards Board (the "FASB") with the permission of the SEC (Accounting Series
Release 150) .
265. The SEC requires that public companies prepare their financial statements i n
accordance with GAAP . As set forth in SEC Rule 4-01 (a) of SEC Regulation S-X, "[flinancial
statements filed with the [SEC] which are not prepared in accordance with [GAAP] will b e
presumed to be misleading or inaccurate ." 17 C.F . R. § 210.4-01(a)(1). Management i s
responsible for preparing financi al statements that conform with GAAP . As noted by AICP A
auditing standards ("AU"), § 110 .02 :
Financial statements are management's responsibility . . . [M]anagementis responsible for adopting sound accounting policies and for establishingand maintaining internal controls that will, among other things, record,process, summarize, and report transactions (as well as events andconditions) consistent with management's assertions embodied in thefinancial statements . The entity's transactions and the related assets,liabilities and equity are within the direct knowledge and control ofmanagement . . . . Thus, the fair presentation of financial statements inconformity with Generally Accepted Accounting Principles is an implicitand integral part of management's responsibility .
266. Willbros' financial statements filed with the SEC during the Class Period violated
the following GAAP , among others discussed below :
• The principle that financial reporting should provide information that is usefulto present and potential investors and creditors and other users in makingrational investment, credit and similar decisions . (FASB Statement ofFinancial Accounting Concepts - "SFAC" No . 1) .
132
• The p rinciple that financial reporting should provide information about theeconomic resources of an enterp rise, the claims to those resources , and theeffects of transactions, events, and circumstances that change resources andclaims to those resources . (SFAC No . 1) .
• The principle that financial report ing should provide information about howmanagement of an enterprise has discharged its stewardship responsibility toowners (stockholders ) for the use of enterprise resources entrusted to it . Tothe extent that management offers secu rities of the enterprise to the public, itvoluntarily accepts wider responsibilities for accountability to prospectiveinvestors and to the public in general . (SFAC No. 1) .
• The principle that financial reporting should provide information about anenterprise's financial performance during a certain time period. Investors andcreditors often use information about the past to help in assessing theprospects of an enterprise . Thus, although investment and credit decisionsreflect investors' expectations about future enterprise performance, thoseexpectations are commonly based at least partly on evaluations of pastenterprise performance. (SFAC No. 1) .
• The principle that the quality of reliability and, in particular, ofrepresentational faithfulness leaves no room for accounting representationsthat subordinate substance to form . (SFAC No. 2) .
• The principle that financial reporting should be reliable in that it representswhat it purports to represent. That information should be reliable as well asrelevant is a notion that is central to accounting . (SFAC No. 2) .
• The principle of completeness, which means that nothing is left out of theinformation that may be necessary to insure that it validly representsunderlying events and conditions. (SFAC No. 2) .
+ The principle that conservatism be used as a prudent reaction to uncertainty totry to ensure that uncertainties and risks inherent in business situations areadequately considered . The best way to avoid injury to investors is to try toensure that what is reported represents what it purports to represent . (SFACNo. 2) .
• The principle that expenses and losses are general ly recognized when anentity's economic benefits are used up in delive ring or producing goods,rendering services , or other activities that constitute its ongoing major orcentral operations or when previously recognized assets are expected toprovide reduced or no further benefits . (SFAC No . 5) .
• The principle that expenses are outflows or other using up of assets orincurrences of liabilities (or a combination of both) from delivering orproducing goods, rendering services, or carrying out other activities thatconstitute the entity's ongoing major or central operations . (SFAC No. 6) .
133
• The principle that the cost to an acquiring corporation of an entire acquiredcompany should be determined by the principles of accounting for theacquisition of an asset . (APB Opinion No. 16) .
• The principle that losses be accrued for when a loss contingency exists .(Statement of Financial Accounting Standards - "FASB Statement" - No . 5) .
• The principle that if no accrual is made for a loss contingency, then disclosureof the contingency shall be made when there is at least a reasonable possibilitythat a loss or an additional loss may have been incurred . (FASB StatementNo. 5) .
• The principle that contingencies and other uncertainties that affect the fairnessof presentation of financial data at an interim date shall be disclosed in interimreports in the same manner required for annual reports . (APB Opinion No .28) .
• The principle that disclosures of contingencies shall be repeated in interim andannual reports until the contingencies have been removed, resolved, or havebecome immaterial . (APB Opinion No. 28) .
• The principle that management should provide commentary relating to theeffects of significant events upon the interim financial results . (APB OpinionNo. 28) .
• The principle that disclosure of accounting policies should identify anddescribe the accounting principles followed by the reporting entity and themethods of applying those principles that materially affect the financialstatements . (APB Opinion No. 22) .
267 . The foregoing GAAP were violated because, as alleged herein and furthe r
discussed below, Willbros : (i) failed to properly accrue Bolivian taxes, file Bolivian tax returns,
and pay Bolivian taxes; (ii) failed to properly accrue value added taxes and payroll related taxes,
causing a material understatement of expenses; (iii) recorded an earn-out payment on a
transaction as a purchase price adjustment instead of compensation expense, causing a material
understatement of expenses ; (iv) failed to write off uncollectible accounts receivable, causing a
material understatement of expenses ; (v) recorded fictitious contract change orders and
duplicative orders; (vi) failed to disclose millions of dollars of related-party transactions entered
into between the Company, on the one hand, and certain executive officers and/or their affiliate d
134
entities, on the other hand ; (vii) failed to disclose the method it employed to secure lucrative
contracts for work in foreign countries ; and (viii) failed to disclose the uncertainty surrounding
its ability to continue to generate revenues in foreign countries in the event that the true method
of securing contracts for these revenues (i.e., bribery of government officials) was publicly
disclosed.
268 . Moreover, cognizant of the relationship between depreciation and EBITDA,
Defendants improperly inflated the amount of the Company's reported depreciation in order to
enable the Company to report materially inflated EBITDA . This was accomplished by
improperly causing the Company's financial statements to exclude the dollar value of parts used
in construction (contract expense) and improperly depreciate inventory in contravention of
GAAP Statement of Position 81-1 and Accounting Research Bulletin No . 43, as well as the
Company's stated accounting policy set forth in its Forms 10-K filed with the SEC during the
Class Period, which stated : "estimated contract income and resulting revenue is generally
accrued based on costs incurred to date as a percentage of total estimated costs, taking into
consideration physical completion . "
269. The SEC regulates statements by companies "that can reasonably be expected t o
reach investors and the trading markets, whoever the intended primary audience ." SEC Release
No. 33-6504, 3 Fed . Sec. L. Rep. (CCH) 23,120, at 17,095-3, 17 C.F.R. § 241 .20560 (Jan.
13, 1984) . Under SEC regulations, the management of a public company has a duty promptly
"to make full and prompt announcements of material facts regarding the company's financial
condition." SEC Release No . 34-8995, 3 Fed. Sec. L. Rep. (CCH) ¶ 23,120A, at 17,095, 17
C .F.R. § 241 .8995 (Oct. 15, 1970). The SEC has emphasized that "[i]nvestors have legitimate
135
expectations that public companies are making, and will continue to make, prompt disclosure o f
signi ficant corporate developments ." SEC Release No . 18271, [1981-1982 Transfer Binder]
Fed. Sec. L. Rep. (CCH) J 83,049, at 84,618 (Nov. 19, 1981) .
270. In Securities Act Release No. 6349 (Sept. 8, 1981), the SEC stated that :
[IJt is the responsibility of management to identify and address those keyvariables and other qualitative and quantitative factors which are peculiarto and necessary for an understanding and evaluation of the individualcompany.
271 . In Accounting Series Release 173, the SEC reiterated the duty of management t o
present a true representation of a company's operations :
[I]t is important that the overall impression created by the financialstatements be consistent with the business realities of the company'sfinancial position and operations .
272 . Item 7 of Form 10-K and Item 2 of Form 10-Q, Management's Discussion and
Analysis of Financial Condition and Results of Operations, require the issuer to furnish
information required by Item 303 of Regulation S-K (17 C.F.R. § 229.303) .
273 . On May 18, 1989, the SEC issued an interpretive release (Securities Act Release
No. 6835 - May 18, 1989) which stated, in relevant part :
The MD&A requirements are intended to provide, in one section of afiling, material historical and prospective textual disclosure enablinginvestors and other users to assess the financial condition and results ofoperations of the registrant, with particular emphasis on the registrant'sprospects for the future . As the Concept Release states :
The Commission has long recognized the need for a narrative explanationof the financial statements, because a numerical presentation and briefaccompanying footnotes alone may be insufficient for an investor tojudge the quality of earnings and the likelihood that past performance isindicative of future performance . MD&A is intended to give the investoran opportunity to look at the company through the eyes of managementby providing both a short and long term analysis of the business of thecompany. The Item asks management to discuss the dynamics of thebusiness and to analyze the financials .
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274. SEC Staff Accounting Bulletin No . 101 ("SAB 101"), Revenue Recognition in
Financial Statements, drawing from Regulation S-K, Item 303, and Financial Reporting Releas e
No. 36, also reiterated the importance of the MD&A in financial statements :
Management's Discussion & Analysis (MD&A) requires a discussion ofliquidity, capital resources, results of operations and other informationnecessary of a registrant's financial condition, changes in financialcondition and results of operations . This includes unusual or infrequenttransactions, known trends, or uncertainties that have had, or mightreasonably be expected to have, a favorable or unfavorable material effecton revenue, operating income or net income and the relationship betweenrevenue and the costs of the revenue. Changes in revenue should not beevaluated solely in terms of volume and price changes, but should alsoinclude an analysis of the reasons and factors contributing to the increaseor decrease. The Commission stated in Financial Reporting Release(FRR) 36 that MD&A should "give investors an opportunity to look atthe registrant through the eyes of management by providing a historicaland prospective analysis of the registrant's financial condition andresults of operations, with a particular emphasis on the registrant'sprospects for the future. "
(Emphasis added; footnotes omitted . )
275 . In discussing results of operations, Item 303 of Regulation S-K requires the
registrant to "[d]escribe any known trends or uncertainties that have had or that the registrant
reasonably expects will have a material favorable or unfavorable impact on net sales or revenue s
or income from continuing operations ." The Instructions to Item 303(a) further state, "[t)he
discussion and analysis shall focus specifically on material events and uncertainties known t o
management that would cause reported financial information not to be necessarily indicative o f
future operating results ." 17 C.F.R. § 229.303(a)(l)-(3) and Instruction 3 .
276. In addition , the SEC, in its May 18, 1989 Interpretive Release No. 34-2683 1, has
indicated that registrants should employ the following two-step analysis in determining when a
known trend or uncertainty is required to be included in the MD&A disclosure pursuant to Ite m
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303 of Regulation S-K : (a) a disclosure duty exists where a trend, demand, commitment, event or
uncertainty is both presently known to management; and (b) is reasonably likely to have a
material effect on the registrant's financial condition or results of operations .
277. As more fully set forth below, however, the MD&A section of Willbros' filings
with the SEC during the Class Period failed to comply with the foregoing SEC regulations
because Willbros : (i) improperly recognized revenue on fictitious/non-existent contracts ; (ii)
failed to disclose material, related-party transactions entered into between the Company, on the
one hand, and certain executive officers and/or their affiliated entities, on the other hand ; (iii)
failed to disclose the true method it employed to secure lucrative contracts for work in foreign
countries such as Nigeria; and (iv) failed to disclose the uncertainty surrounding its ability to
continue to generate revenues in foreign countries in the event that the true method of securing
contracts for these revenues (i.e ., bribery of government officials) was publicly disclosed .
278 . From 2002 onward, Willbros issued certifications signed by its CEO and CFO,
Defendants Curran and Williams, respectively, pursuant to the requirements of the Sarbanes-
Oxley Act of 2002, which stated that the Company's SEC filings did not contain any untrue
statement of material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading and that
the financial statements, and other financial information included in the SEC filings, fairly
presented in all material respects the financial condition, results of operations and cash flows of
the Company.
279. In addition to the foregoing, Defendants' representations that the Company's
financial statements were prepared in accordance with GAAP were materially false an d
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misleading because Defendants knew, or recklessly disregarded, that the Company materially
misstated its financial statements because they included : (i) earnings that the Company has now
admitted were overstated due, in part, to the failure to pay and/or underpay taxes in foreign
countries; (ii) reserves for accounts receivable and warranty work, primarily in Nigeria, that the
Company has now admitted were understated ; (iii) contract margins on work in progress at year
end in Nigeria that the Company has now admitted were overstated ; and (iv) general and
administrative expenses related to external audit and Sarbanes-Oxley compliance that the
Company has now admitted were understated . Indeed, GAAP provides that previously issued
financial statements that are materially misstated are to be retroactively restated . See, e.g.,
Accounting Principles Board ("APB") Opinion No . 20, APB Opinion No . 9 and the American
Institute of Certified Public Accountants' ("AICPA") Statement on Auditing Standards No . 53.
280. The fact that the Company restated its financial statements for fiscal years 2002,
2003 and the first three quarters of 2004 is an admission that the financial statements originally
issued were false and misleading and that the overstatement of contract revenues and operating
income was material . Pursuant to GAAP, as set forth in Accounting Principles Board Opinio n
("APB") No . 20, the type of restatement announced by Willbros was to correct for material
misstatements in its previously issued financial statements . See APB No. 20, 117-13 . The
restatement of past financial statements is a disfavored method of recognizing an accounting
change as it dilutes confidence by investors in the financial statements , it makes it difficult to
compare financial statements and it is often difficult, if not impossible, to generate the numbers
when restatement occurs . See APB No. 20, ¶ 14. Thus, GAAP provides that financial
statements should only be restated in limited circumst ances, i.e., when there is a change in the
139
reporting entity, there is a change in accounting principles used or to correct misstatements i n
previously issued financial statements.
281 . Willbros' restatement is not due to a change in reporting entity or a change in
accounting principle, but rather misstatements in previously issued financial statements . Thus,
the restatement is an admission by Willbros that its previously issued financial results and it s
public statements regarding those results were materially false .
B . Willbros Improperly Recognized Revenue on Fictitious/Non-Existent Contracts
282. There is no basis in GAAP for the recognition of revenue in connection with the
performance of activities or the expenditure of funds in connection with work that no custome r
had agreed to pay for --- i.e ., fictitious contract change orders and duplicative invoices .
283. Such revenue recognition violated the Company's stated accounting policy . See,
e.g., 2002 10-K: "Revenue from change orders, extra work and variations in the scope of work i s
recognized when agreement is reached with clients as to both the scope of work and price . "
284. Such revenue recognition also violated the following GAAP :
• The concept that conservatism be used as a prudent reaction to uncertaintyto try to ensure that uncertainties and risks inherent in business situationsare adequately considered (FASB Statement of Financial AccountingConcepts No. 2).
• The principle that revenues should ordinarily be accounted for at the time atransaction is completed (Accounting Principles Board Opinion No. 10) .
• The concept that revenues and gains generally are not recognized untilrealized or realizable, and revenues are considered to have been earnedwhen the entity has substantially accomplished what it must do to beentitled to the benefits represented by the revenues (Statement of FinancialAccounting Concepts No . 5).
• The principle that contingencies that might result in gains usually are notreflected in the accounts since to do so might recognize revenue prior to itsrealization (Statement of Financial Accounting Standards No . 5) .
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285. Finally, the doctrine that revenue is to be accounted for at the time that th e
earnings process is complete and the billing is collectible is a well established GAAP and it ha s
been reaffirmed by the SEC on numerous occasions . It was reaffirmed by the SEC in :
• Accounting and Auditing Enforcement Release No . 817 (September 19,1996) which states : "Under APB Statement No . 4, which was rescindedin March 1993, revenue was generally recognized when (1) the earningsprocess was complete or virtually complete, and (2) an exchange hadtaken place . This revenue recognition concept has been carried forward inFASB Statement of Financial Accounting Concepts No . 5, para. 83-84,and in other authoritative literature and continues to provide thefoundation for revenue recognition in accordance with GAAP . "
• Accounting and Auditing Enforcement Release No . 812 (September 5,1996) which states: "Generally Accepted Accounting Principles("GAAP") provide that revenue should not be recognized until anexchange has occurred, the earnings process is complete, and thecollection of the sales price is reasonably assured . These conditionsordinari ly are met when products are exchanged for cash or claims tocash , and when the entity has substantially performed the obligationswhich entitle it to the benefits represented by the revenue. "
• Staff Accounting Bulletin No . 101 (December 3, 1999) which states :"The staff believes that revenue generally is realized or realizable andearned when all of the following criteria are met : (i) Persuasive evidenceof an arrangement exists ; (ii) delivery has occurred or services have beenrendered; (iii) the seller's price to the buyer is fixed or determinable, and(iv) collectibility is reasonably assured."
C. Wi€llbros Failed to Disclose Material Related-Party Transactions
286. According to Statement of Financial Accounting Standards No. 57 ("FAS 57") ,
financial statements are not complete and reliable unless they contain additional explanations of
and information about related -party transactions . FAS 57 defines related parties- to include the
principal owner of an enterprise and its management , as well as their affiliates . FAS 57 requires
that the disclosure of material related-party transactions include : ( i) the nature of the relationship
involved ; (ii) a description of the transactions for each of the periods for which incom e
statements are presented, and such other information deemed necessary to an understanding o f
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the effects of the transaction on the financial statements ; (iii) the dollar amounts of transactions
for each of the periods for which income statements are presented ; and (iv) amounts due from or
to related parties as of the date of each balance sheet presented and, if not otherwise apparent ,
their terms and manner of settlement .
287. Moreover, Section 210 .4-08(k) of SEC Regulation S-X states that related-part y
transactions should be identified and the amounts stated on the face of the balance sheet, incom e
statement , or statement of cash flows . Item 404(a) under SEC Regulation S-K requires a
description of transactions exceeding $60,000 between the registrant and any of its directors o r
executive officers or any member of their immediate families . Item 404(a) requires disclosure o f
the person and the person's relationship to the registrant, the nature of the person's interest in th e
transaction, and, where practicable, the amount of the person's interest in the transaction .
288. At the end of the Class Period, Defendants admitted that during the Class Period ,
the Company: (i) made related-party payments of $33 .2 million, and (ii) recorded $10 .8 million
in revenue, with respect to entities where Defendant Tillery had an ownership interest or over
whose operations he had exercised some level of control . According to the Company, the
related-party payments were mainly in connection with marine vessel charters, diving service s
and consulting services for projects in Nigeria, Bolivia and Ecuador, all of which fall within the
Company's core business operations .
289 . Throughout the Class Period, Defendants never disclosed any of the materia l
related-party transactions described above, and accordingly, violated GAAP and SEC
regulations .
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D. Willbros Failed to Disclose its Corrupt Business Practices, Which Were the SineQua Non of a Material Amount of Willbros' Revenues
290. In 2002, Willbros recorded over $337 million in contract revenue from Wilibro s
International . For the year ended December 31, 2002, this represented 58% of Willbros' total
revenues . In 2003, Willbros recorded over $262 million in contract revenue from Willbro s
International. For the year ended December 31, 2003, this represented 63% of Willbros' tota l
revenues .
291 . While Willbros' corrupt business practices were material in the context of a
percentage of revenues and profits analysis, they were also material, and thus require d
disclosure, because of their importance to Willbros' overall business plan. The SEC states in
Staff Accounting Bulletin ("SAB") No . 99 that materiality also concerns the significance of a n
item to readers of a company's financial statements . In Willbros' case, the Company's award of
contracts for work in foreign count ries was material and thus required disclosure because i t
materially affected :
a. Willbros' earnings trends ;
b. Whether Willbros met analysts' consensus expectations ;
c. Willbros' compliance with its credit facility;
d. Management's compensation; and
e. The volatility of Willbros' stock price as a result of the market'ssensitivity to these revenues .
292. The method employed by Defendants in securing contracts for work in foreign
count ries , such as Nigeria, was material to understanding Willbros' financial position and
operating results as well as its prospects for the future.
293 . The SEC requires an issuer to furnish information required by Item 303 o f
Regulation S-K [17 C.F.R. § 229.303] in the section of its Form 10-K (Item 7) and Form 10- Q
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(Item 2 ) titled MD&A . Paragraph (a) of Item 303 of Regulation S-K requires that a basic and
overriding requirement of the MD&A is to "provide such other information that the registran t
believes to be necessary to an understanding of its financial condition, changes in financial
condition and results of operations . "
294. The MD&A requirements are intended to provide , in one section of a filing ,
material historical and prospective textual disclosure enabling investors and other users to asses s
the financial condition and results of operations of the registrant, with particular emphasis on the
registrant's prospects for the future. Willbros violated the MD&A requirements by materially
misstating, among other things, the method in which it was awarded lucrative contracts for work
in foreign countries .
295. Despite the SEC mandate that the MD&A discuss "unusual" transactions "that
have had, or might reasonably be expected to have, a favorable or unfavorable material effect o n
revenue," Willbros failed to disclose the true nature of the Company's business development
strategy in its Class Period public filings .
296. Willbros' improper business practices were particularly significant for the
investing public because it deprived them of the knowledge that the Company's business
practices were improper and in violation of federal law and the ability to assess the consequence s
of this fact, including whether the Company would be compelled to cease its improper activitie s
in the future. It is for precisely this reason that the SEC in SAB 101, citing Financial Reportin g
Release No. 36 (promulgated by the SEC), explained that the MD&A should "give investors a n
opportunity to look at the registrant through the eyes of management by providing a historica l
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and prospective analysis of the registrant's financial condition and results of operations, with a
particular emphasis on the registrant's prospects for the future ."
297. Similarly, under Regulation S-K Item 303, Management's Discussion an d
Analysis of Financial Condition and Results of Operations, the SEC states that disclosure shoul d
focus specifically on material events and uncertainties known to management that would caus e
reported financial information not to be necessarily indicative of future operating results or o f
future financial condition . With respect to results of operations, the SEC states that management
should :
Describe any unusual or infrequent events or transactions or anysignificant economic changes that materially affected the amount ofreported income from continuing operations and, in each case, indicate theextent to which income was so affected . In addition, describe any othersignificant components of revenues or expenses that, in management'sjudgment, should be described in order to understand the results ofoperations; and describe any known trends or uncertainties that have hador that management reasonably expects will have a material favorable orunfavorable impact on net sales or revenues or income from continuingoperations .
298 . According to the SEC, these requirements are intended to provide in one section
of a filing, material historical and prospective textual disclosure enabling investors and othe r
users to assess the financial condition and results of operations of the company, with particular
emphasis on a company's prospects for the future . Disclosure is mandatory where a known trend
or uncertainty is reasonably likely to have a material effect on a company's financial condition o r
results of operations .
299. Rather than complying with the letter, spirit and intent of disclosure requirement s
set forth in the above regulations, Willbros' SEC filings reveal a concerted effort to mislea d
investors as to the true manner in which the Company obtained contracts in foreign countrie s
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such as Nigeria. Defendants' statements in Willbros' Class Period SEC filings that the Company
was securing contracts for revenues in foreign countries through competitive bidding wer e
materially false and violated SEC disclosure requirements, because, in truth, Willbros wa s
securing such contracts through bribery of government officials in countries such as Nigeria ,
Bolivia, and Ecuador .
E. Willbros Knew That Its Reported Financial Information Was Not Indicative ofFuture Operations
300. Throughout the Class Period, Defendants withheld the following materia l
information (later disclosed on November 22, 2005 in the 2004 10-K) : (a) "Our international
business operations include projects in countries where corruption is prevalent" ; and (b) "Many
of our clients make compliance with applicable laws and ethical conduct a condition to thei r
business relationships ." Defendants' failure to disclose such material information about th e
corrupt nature of the environment in which Willbros conducts a substantial portion of it s
business , as well as the potential risk of losing business in the event Willbros' corrupt business
practices were revealed, violated GAAP and the federal securities laws .
301 . Indeed, in the 2004 Form 10-K, the Company disclosed that "[t]he actions of Mr .
Tillery and other employees of [Willbros International] or its subsidiaries may cause us to b e
disqualified from some business opportunities with clients and others who require their busines s
partners to maintain high ethical standards."
DEFENDANTS' CONSCIOUS MISBEHAVIOR OR SEVERE RECKLESSNES S
A. General Allegations of Sciente r
302. The Individual Defendants, by virtue of their receipt of information reflecting th e
improper and fraudulent behavior described above and/or their failure to review information they
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had a duty to monitor, their actual issuance of and control over Willbros' materially false an d
misleading statements, and their association with the Company, which made them privy t o
confidential, proprietary information concerning the Company, were active, culpable, an d
primary participants in the fraudulent schemes alleged herein. The Individual Defendants knew
or were severely reckless in not knowing the materially false and misleading nature of th e
information they caused to be disseminated to the investing public .
303. The Individual Defendants also knew or were severely reckless in not knowin g
that the misleading statements and omissions contained in Willbros' public statements woul d
adversely affect the integrity of the market for the Company's common stock and would caus e
the price of the Company's common stock to be artificially inflated . The Individual Defendants
acted knowingly or in such a severely reckless manner as to constitute a fraud and deceit upo n
Lead Plaintiff and other members of the Class .
304 . In addition to the foregoing and other acts alleged herein, the following fact s
provide evidence that the Individual Defendants acted with conscious misbehavior, or, at the
very least, with severe recklessness .
B. Conscious Misbehavior or Severe Recklessness b the Individual Defendants
305. A key element of the Individual Defendants' securities fraud is their materiall y
false and misleading disclosures and material omissions regarding the method for securin g
contracts for work in foreign countries . The revenue generated by Willbros International
accounted for a material percentage of Willbros' total revenues . In 2002, Wilibros recorded over
$337 million in contract revenue from Willbros International . For 2002, this represented 58% of
Willbros' total revenues. In 2003, Willbros recorded over $262 million in contract revenu e
from Willbros International . For 2003 , this represented 63% of Willbros' total revenues .147
306. When the size of the revenues generated by the Company's corrupt busines s
practices is coupled with the following additional facts, among others as described herein, th e
strong inference that the Individual Defendants acted with scienter is undeniable .
307. The magnitude and duration of the alleged fraud constitutes strong circumstantia l
evidence that Defendants acted with scienter . As set forth herein, the alleged fraud commence d
as early as May 2002 and continued until the Company disclosed the full truth about improper
business practices and financial reporting on May 16, 2005 . The impact of the alleged fraud had
a material effect on the Company's financial statements . For example, as described above ,
Willbros' corrupt business practices, fraudulent accounting practices, and weak internal control s
enabled the Company to materially overstate several significant items in its financial statements .
Indeed, the cumulative effects of Defendants' wrongful conduct are as follows : EBITDA
overstated by $46,599,000 ; backlog overstated by $1,169,000; contract revenues overstated b y
$3,038,000; and operating income overstated by $10,355,000 . As a consequence, the Company
announced that it would restate its financial statements for the years 2002 and 2003 and the first
three quarters of 2004.
308. Further, the restatement itself, in conjunction with the other facts alleged herein ,
constitutes strong circumstantial evidence that Defendants acted with scienter . Under GAAP, the
need to restate a previously reported financial statement arises only when the facts that
necessitate the restatement existed at the time the financials were originally issued . See
Accounting Principles Board Opinion No . 20, ¶ 13 . By restating prior financials, Defendant s
have admitted that Willbros' improper and erroneous accounting and financial reporting was
therefore known or recklessly disregarded at the time all of the foregoing fraudulent financia l
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statements were originally released, and that the originally issued financial statements wer e
materially misleading .
309. Moreover, the Individual Defendants had specific duties to monitor unethical an d
improper business practices and the integrity of the Company's financial reporting . Willbros'
Revised Code of Business Conduct and Ethics, dated December 16, 2003 (the "Code"), and made
publicly available on the "Investors" section of the Company's website, emphasized that th e
Individual Defendants had a duty to monitor the Company's business practices . Indeed,
demonstrating that the Individual Defendants' sensitivity to issues, such as conflicts of interest ,
usurping of corporate opportunities, illegal contributions to government officials, and th e
existence of material weaknesses in the Company' s internal controls was heightened, the Code
provided, in pertinent part, the following :
3 . Conflicts of Interest
A "Conflict of Interest" exists when a person's private interest interferesin any way with the interests of Willbros . Each of you have a duty toavoid financial, business or other relationships which might be opposed toour interests or might cause a conflict with the performance of your duties .You should conduct yourself in a manner that avoids even the appearancesof conflict between your personal interests and those of the Company.
A conflict of interest situation may arise in many ways . A conflictsituation can arise when you take actions or have interests that may makeit difficult to perform your work on behalf of the Company objectively andeffectively. Conflicts of interest may also arise when you, or members ofyour family, receive improper personal benefits as a result of your positionin the Company . Loans to, or guarantees of obligations of, you and yourfamily members may create conflicts of interest . It is not possible todiscuss every circumstance that may lead to a conflict of interest, but thefollowing examples are illustrative :
Owning or holding a substantial financial interest in a companywhich has material business dealings with us or which engages inany significant field of activity engaged by us .
• Acting as a director, officer, consultant or employee for anybusiness institution with which we have a competitive or
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significant business relationship, unless so requested or approvedby us .
+ Placing of business with a firm owned or controlled by a Willbrosemployee without the prior specific approval of the ChiefExecutive Officer or the Chief Financial Officer .
4. Corporate Opportunities
You are prohibited from taking for yourself personally, opportunities thatare discovered, through the use of corporate property, information orposition, without the consent of the Board of Directors . You may not usecorporate property, information or position for improper personal gain,and you may not compete with the Company directly or indirectly . Youowe a duty to the Company to advance its legitimate interests when theopportunity to do so arises .
5. Unauthorized Use of Corporate Funds and Assets
The use of corporate funds or assets for any unlawful or improper purposeis strictly prohibited. Examples include illegal corporate politicalcontributions to candidates, parties or government officials in any country,and payments to any government officials or private individuals to inducecustomers to purchase our goods and services .
6. Record Keeping
Financial statements and the books and records on which they are basedmust accurately reflect all corporate transactions . All receipts anddisbursements of Company funds must be properly recorded in the books,and records must be disclose the nature and purpose of the Company'stransactions. All records and transactions are subject to review by internaland external auditors . Full cooperation with the auditors is expected andunder no circumstances will any relevant information be intentionallywithheld from them.
The following requirements apply to all Company records :
• No undisclosed or unrecorded fund or asset of ours shall beestablished for any purpose .
• No false or artificial entries shall be made in our books and recordsfor any reason, and no employee shall engage in any arrangementthat results in such prohibited act .
+ All transactions shall be executed in accordance withmanagement's general or specific authorization .
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• Transactions shall be properly recorded to permit preparation offinancial statements in accordance with generally acceptedaccounting principles and to maintain accountability for assets .
• No payment on behalf of the Company shall be approved or madewith the intention or understanding that any part of such paymentis to be used for any purpose other than that described by thedocuments supporting the payment .
7. Political Contributions and Activitie s
No Company funds or assets, including the work time of an employee,will be contributed, loaned, or made available, directly or indirectly, toany political party or to the campaign of any candidate for political office .
8. Prohibited Payments
It is our policy to deal with clients and suppliers, and the governments ofall jurisdictions in which we operate, in a straightforward and aboveboardmanner.
In addition to other standards of conduct set forth in this Code, you maynot directly or indirectly offer or provide any gift, gratuity, orentertainment as a bribe, kickback, or other payment to any governmentofficial or employee to obtain or retain business or special concessions .
Similarly, you are not authorized to make payments as a bribe, kickback orother payment, including commissions, finder's fees, etc ., to employees ofother companies or organizations, directly or indirectly, for the purpose ofobtaining favorable treatment in securing business or otherwise obtainingspecial concessions from such other companies or organizations .
9. Foreign Corrupt Practices Act of 1977
The Foreign Corrupt Practices Act of 1977, as amended, in general,prohibits the giving of money or things of value to a non-U .S.government official, political candidate, or political party for the purposeof obtaining or retaining business .
Under the provisions of the Act :
• Bribes to a non-U .S. official, political party, political party official,or candidate for political office, to assist in obtaining, retaining ordirecting business to any person are prohibited .
• Complete and accurate books, records and accounts, in reasonabledetail, must be kept and must fairly reflect transactions anddispositions of assets.
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• A system of internal accounting controls must be maintained andsuch system must be sufficient to provide reasonable assurancesthat (i) transactions are executed in accordance with managementauthorizations, (ii) transactions are recorded as necessary to permitthe preparation of financial statements in conformity withgenerally accepted accounting principles, (iii) access to assets ispermitted only in accordance with management's authorization,and (iv) the recorded accountability for assets is compared withexisting assets at reasonable intervals .
It is our policy to comply with all applicable provisions of the Act .
(Emphasis added .)
310. Indeed, the Company required that "[e]ach officer or director of the Company an d
each Work Country Manager shall annually certify that he or she (i) has read this Code, (ii) has
not violated any requirements thereof during the preceding year, and ( iii) is not aware of any
material violation of the Code's requirements by any other person . "
311 . In addition to the Code, the CEO and senior financial officers are subject to th e
Code of Ethics for CEO and Senior Financial Officers, dated December 16, 2003, which
provides as follows :
1 . The CEO and all senior financial officers are responsible for full,fair, accurate, timely and understandable disclosure in the periodic reportsrequired to be filed by the Company with the Securities and ExchangeCommission. Accordingly, it is the responsibility of the CEO and eachsenior financial officer to promptly bring to the attention of the DisclosureCommittee any material information of which he or she may becomeaware that affects the disclosures made by the Company in its publicfilings or otherwise assist the Disclosure Committee in fulfilling itsresponsibilities .
2. The CEO and each senior financial officer shall promptly bring tothe attention of the Disclosure Committee and the Audit Committee anyinformation he or she may have concerning (a) significant deficiencies inthe design or operation of internal controls which could adversely affectthe Company's ability to record, process, summarize and report financialdata or (b) any fraud, whether or not material, that involves management
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or other employees who have a significant role in the Company's financialreporting, disclosures or internal controls .
3 . The CEO and each senior financial officer shall promptly bring tothe attention of the General Counsel of the Company or the CEO and tothe Audit Committee any information he or she may have concerning anyviolation of the Company's Code of Business Conduct and Ethics,including any actual or apparent conflicts of interest between personal andprofessional relationships, involving any management or other employeeswho have a significant role in the Company's financial reporting,disclosures or internal controls .
4. The CEO and each senior financial officer shall promptly bring tothe attention of the General Counsel or the CEO and to the AuditCommittee any information he or she may have concerning evidence of amaterial violation of the securities or other laws, rules or regulationsapplicable to the Company and the operation of its business, by theCompany or any agent thereof, or of any violation of the Code of BusinessConduct and Ethics or of these additional procedures .
5. The Board of Directors of the Company (the "Board") shalldetermine, or designate appropriate persons to determine, appropriateactions to be taken in the event of violations of the Code of BusinessConduct and Ethics or of these additional procedures by the CEO and thesenior financial officers . Such actions shall be reasonably designed todeter wrongdoing and to promote accountability for adherence to the Codeof Business Conduct and Ethics and to these additional procedures, andshall include written notices to the individual involved that the Board hasdetermined that there has been a violation and the action to be taken, suchas censure by the Board, demotion or re-assignment of the individualinvolved, suspension with or without pay or benefits (as determined by theBoard), and termination of the individual's employment . In determiningwhat action is appropriate in a particular case, the Board or such designeeshall take into account all relevant information, including the nature andseverity of the violation, whether the violation was a single occurrence orrepeated occurrences, whether the violation appears to have beenintentional or inadvertent, whether the individual in question had beenadvised prior to the violation as to the proper course of action, andwhether or not the individual in question had committed other violationsin the past .
312 . As set forth above, the Individual Defendants also knew of the pervasiveness o f
corruption in some of the countries in which Willbros operated and understood the necessity o f
monitoring the activities of their officers and employees in those countries because, as the
153
Company admitted in the 2004 Form 10-K: "Many of our clients make compliance with
applicable laws and ethical conduct a condition to their business relationships . "
313 . Defendants Curran and Williams also had a separate statutory duty, pursuant t o
Sarbanes-Oxley, to monitor Willbros' disclosures and its "disclosure controls and procedures . "
As described herein, they each specifically signed sworn certifications that they implemente d
proper disclosure controls and procedures and evaluated their effectiveness .
314. Moreover, as the Company has admitted, despite the Company's policies
forbidding self-dealing, during the years ended December 31, 2002, 2003 , and the first thre e
quarters of 2004, the Company : (i) made related-party payments of $33 .2 million, and (ii )
recorded $10 .8 million in revenue, with respect to entities where Defendant Tillery had a n
ownership interest or over whose operations he had exercised some level of control . According
to the Company, the related-party payments were mainly in connection with marine vesse l
charters, diving services, and consulting services for projects in Nigeria, Bolivia and Ecuador, al l
of which fall within the Company's core business operations .
C. Motive and Opportunity
315. The Individual Defendants' scienter is further evidenced by the insider
transactions in Company stock during the Class Period, which as shown below, were significan t
and unusual in timing and nature .
316. Defendant Curran sold more than $3 .9 million of Willbros common stock during
the Class Period . During May of 2002, he sold 225,000 of 837,496 shares of Willbros common
stock (this amount includes 753,155 shares of Willbros common stock, 83,500 shares of Willbros
common stock subject to stock options exercisable at $6 .14 per share, and 841 shares of Willbro s
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common stock held in a 401(k) Plan), or more than 26% of his holdings . His Class Period
transactions are:
Michael Curran PresidQnt,`CLOrcoO
Transaction Date Shares Price $ Value
5/6/2002 225,000 17.75 3,993,750 .0 0
317. Defendant Tillery sold more than $500,000 of Willbros common shares during the
Class Period . During November and December of 2004, he sold 27,625 of 101,625 shares o f
Willbros common stock (this amount includes 71,817 shares of Willbros common stock an d
29,808 shares of Willbros common stock subject to stock options exercisable at $12 .19 per
share), or more than 27% of his holdings . His Class Period transactions are :
nes fi1ery : 1'onner Senior VF
Transaction Date Shares P rice $ Value
5/6/2002 225,000 17.75 3 , 993,750 .0 011/30/2004 16,817 18 .00 302,706 .0 012/3/2004 10,808 18 .27 197,462 .1 6
27,625 500 ,168.16
318. Defendant Williams sold more than $207,000 of Willbros common shares during
the Class Period . During August of 2004, he sold 15,000 of 122,653 shares of Willbros commo n
stock (this amount includes 33,475 shares of Willbros common stock, 87,150 shares of Willbro s
common stock subject to stock options exercisable at $13 .68 per share and 2,028 shares of
Willbros common stock held in a 401(k) Plan), or more than 12 % of his holdings . His Clas s
Period transactions are :
155
V!'arreri \%'ir iiammm , : wiliAlr V,P/CF'O
Transaction Date '1iare5 1'ricc "aloe
8/19/2004 6,100 13 .85 84,485.008/19/2004 4,900 13 .80 67,620 .008/19/2004 4,000 13 .81 55,240 .0 0
15,000 207,345.0 0
319. The Individual Defendants ' stock sales were concentrated , with each of the
Individual Defendants selling stock within the same period, suggesting a concerted insider effort
to dispose of shares during the Class Period .
320. Finally, as described herein, to generate contract revenues, Willbros needed cash
and was dependent upon its ability to borrow via the Company's credit facility, which was base d
upon the Company's reported financial performance . For this reason, the Individual Defendants
were also motivated to participate in the alleged fraud .
APPLICABILITY OF PRESUMPTION OF RELIANCE :FRAUD -ON-THE MARKET DOCTRINE
321 . In connection with their claims, Lead Plaintiff and members of the Class will rely ,
in part, upon the presumption of reliance established by the fraud-on-the-market doctrine in that:
a. Defendants made public misrepresentations or failed to disclose material
facts during the Class Period ;
b. The omissions and misrepresentations were material ;
c. The common stock of the Company traded in an open and efficient
market;
d. The misrepresentations and omissions alleged would tend to induce a
reasonable investor to misjudge the value of the Company's securities ; and
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322. Lead Plaintiff and members of the Class purchased their Willbros securities
between the time Defendants failed to disclose or misrepresented material facts and the time th e
true facts were fully disclosed, without knowledge of the omitted or misrepresented facts .
323. At all relevant times, the market for Willbros common stock was an efficien t
market for the following reasons, among others :
a. Willbros common stock met the requirements for listing, and was liste d
and actively traded , on the NYSE, an open and highly efficient market ;
b . As a regulated issuer, Willbros filed periodic reports with the SEC ;
c. Willbros stock was followed by securities analysts who wrote reports that
were distributed to the sales force and customers of their respective firms . These reports were
publicly available and entered the public marketplace ; and
d. Willbros regularly issued press releases that were carried by national
newswires . Each of these releases was publicly available and entered the public marketplace .
324. As a result , the market for Willbros stock promptly digested current informatio n
with respect to the Company from all publicly-available sources and reflected such informatio n
in Willbros's stock price. Under these circumstances, all purchasers of Willbros stock during th e
Class Period suffered similar injury through their purchases of Willbros stock at artificiall y
inflated prices and a presumption of reliance applies .
325 . The material misrepresentations and omissions alleged herein directly and
proximately caused the damages sustained by Lead Plaintiff and the members of the Class .
During the Class Period Willbros common stock traded as high as $24 .52 per share. As a resul t
of the misstatements and omissions alleged herein, the value of these shares droppe d
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precipitously and remained depressed , closing on May 17, 2005 at $10.15 per share .
Approximately 6 .9 million shares of Willbros common stock were traded during the Class
Period .
LOSS CAUSATION
326. The market for Willbros ' securities was open, well-developed and efficient at al l
relevant times. As a result of materially false and misleading statements and omissions detailed
herein, Willbros' securities traded at artificially inflated prices during the Class Period . Lead
Plaintiff and the other members of the Class purchased or otherwise acquired Willbros securitie s
relying upon the integrity of the market price of Willbros' securities and market informatio n
relating to Willbros, and have been damaged thereby .
327. During the Class Period, as detailed herein, Defendants engaged in a scheme t o
deceive the market and a course of conduct that artificially inflated Willbros' stock price an d
operated as a fraud or deceit on Class Period purchasers of Willbros stock by failing to disclos e
material information regarding a critical source of its revenues and issuing false financia l
statements in SEC filings and press releases . By misrepresenting the Company's financia l
results, Defendants presented a misleading picture of Willbros' business and prospects . Instead
of truthfully disclosing during the Class Period that a significant amount of the Company' s
revenue was derived from illicit practices, that the Company's financial statements wer e
materially false, and that the Company suffered from widespread internal control deficiencie s
that jeopardized its business prospects, Defendants made repeated material misstatements and
omissions as alleged above.
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328. These material misrepresentations and omissions caused and maintained the
artificial inflation in Willbros' stock price throughout the Class Period and until the truth wa s
fully revealed to the market .
329. Defendants' false and misleading statements had the intended effect and cause d
Willbros stock to trade at artificially inflated levels throughout the Class Period, reaching as hig h
as $24.52 per share .
330. As described above, on May 16, 2005, Willbros announced that, in violation o f
United States and/or foreign law, Tillery and other Willbros International employees : owned
interests in enterprises with whom Willbros International did business, and may have usurped
corporate opportunities, received payments and other improper benefits from consultants ,
suppliers or competitors ; directly and indirectly promised to make, made, caused to be made, o r
approved payments to government officials in, inter alia, Bolivia, Nigeria and Ecuador, an d
possibly to client personnel in one or more of those countries ; caused certain subsidiaries o f
Willbros International to file false tax returns, fail to file required tax returns, and fail to pa y
certain taxes in locations outside the United States; and engaged in discussions with competitor s
and others regarding bids for projects outside the United States .
331 . As a direct result of Defendants' admissions and the public revelations regardin g
the truth about Willbros' statements concerning its internal controls, the accuracy of its financia l
statements and the manner in which it did business overseas , Willbros' stock price plummeted
31 % . This drop removed the inflation from Willbros' stock price, causing real economic loss t o
investors who had purchased the stock during the Class Period . In sum , as the truth about
Defendants' fraud and Willbros' financial condition, results of operations, and busines s
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performance were revealed, the Company's stock price declined, the artificial inflation came ou t
of the price of Willbros securities and Lead Plaintiff and other members of the Class wer e
damaged, suffering actual economic losses .
332. The decline in Willbros' stock price at the end of the Class Period was a direc t
result of the nature and extent of Defendants' fraud being fully revealed to investors and the
market .
333. The timing and magnitude of Willbros' stock price decline negate any inferenc e
that the loss suffered by Lead Plaintiff and other Class members was caused by changed marke t
conditions, macroeconomic or industry factors, or Company-specific facts unrelated to th e
Defendants ' fraudulent conduct . The economic loss, i .e., damages, suffered by Lead Plaintiff
and other members of the Class was a direct result of Defendants' fraudulent scheme to
artificially inflate Willbros' stock price and the subsequent significant decline in the value o f
Willbros' stock when Defendants' prior misrepresentations and other fraudulent conduct wa s
fully revealed .
NO STATUTORY SAFE HARBOR
334. The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint .
Each of the statements alleged to be false and misleading referred to historical or existin g
conditions . The specific statements pleaded herein were not identified as "forward-lookin g
statements" when made. Nor was it stated with respect to any of the statements forming the basi s
of this Complaint that actual results "could differ materially from those projected ." To the extent
there were any forward-looking statements, there were no meaningful cautionary statements
identifying important factors that could cause actual results to differ materially from those in the160
purportedly forward-looking statements . Alternatively, to the extent that the statutory safe
harbor does apply to any forward-looking statements pleaded herein, Defendants are liable for
those false forward-looking statements because at the time each of those forward-looking
statements was made the particular speaker knew that the particular forward-looking statement
was false and/or the forward-looking statement was authorized and/or approved by an executiv e
officer of Willbros who knew that those statements were false when made .
CLASS ACTION ALLEGATION S
335. Lead Plaintiff brings this action as a class action pursuant to Rule 23(a) and Rul e
23(b)(3) of the Federal Rules of Civil Procedure on its own behalf and on behalf of a class of al l
persons who purchased or otherwise acquired Willbros securities during the period May 6, 200 2
through May 16, 2005, inclusive, and were damaged thereby. Excluded from the Class are th e
Defendants herein, members of the family of each of the Individual Defendants, officers and/o r
directors of the corporate defendants, any person, firm, trust, corporation, officer, director o r
other individual or entity in which any Defendant has a controlling interest or which is related to
or affiliated with any of the Defendants, and the legal representatives, agents, affiliates, heirs ,
successors -in-interest or assigns of any such excluded party.
336. The Class is so numerous that j oinder of all members is impracticable. As of
March 31, 2004, Willbros had approximately 21,020,638 million shares of common stoc k
outstanding, which were actively traded on the New York Stock Exchange ("NYSE") . The
Company has hundreds, if not thousands, of securities holders, although the exact number and
names of the members of the Class are presently unknown to Lead Plaintiff and can b e
determined only through appropriate discovery . The names and addresses of the record owner s
of publicly-traded Willbros securities are available from the Company's transfer agent. Notice161
may be provided to such record owners via first class mail using techniques and a form of notice
similar to those customarily used in class actions.
337. Lead Plaintiffs claims are typical of the claims of the other members of the Class .
All members of the Class sustained damages arising out of Defendants' conduct in violation o f
federal law as complained of herein .
338 . Lead Plaintiff has retained counsel experienced in prosecuting securities and other
complex class action litigation.
339. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. Because the damages suffered by individual Class member s
may be relatively small , the expense and burden of individual litigation make it virtuall y
impossible for Class members individually to seek redress for the wrongful conduct allege d
herein .
340. Common questions of law and fact exist as to all members of the Class and
predominate over any questions affecting solely individual members of the Class . Among the
questions of law and fact common to the Class are whether:
a. the federal securities laws were violated by Defendants' acts as alleged
herein ;
b. Willbros' financial results during the Class Period were materiall y
misstated ;
c. Defendants omitted material information about Willbros, its financia l
condition, and its business practices ;
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d. the market prices of Willbros' publicly-traded securities were artificiall y
inflated, during the Class Period, due to the material omissions and misrepresentation s
complained of herein ; and
C. the members of the Class have sustained damages and, if so, the
appropriate measure thereof.
341 . Lead Plaintiff knows of no difficulty that will be encountered in the management
of this action that would preclude its maintenance as a class action .
CLAIMS FOR RELIEF
COUNT I
For Violation of Section 10(b) of The Exchange Actand Rule 10b-5 Promulgated Thereunder Against A ll Defendants
342 . Lead Plaintiff incorporates by reference the allegations above as if fully set forth
herein .
343 . By engaging in the conduct alleged herein, by the making of false and misleadin g
statements identified above, Defendants employed devices and artifices, and engaged in a
scheme and course of business that was intended to and did act to induce Lead Plaintiff and th e
members of the Class to purchase Willbros securities at artificially inflated prices during th e
Class Period .
344. During the Class Period, Defendants, individually and in concert, directly an d
indirectly, engaged and participated in a course of business constituting a plan, scheme, an d
unlawful course of conduct, pursuant to which they knowingly or with severe recklessness
engaged in acts, transactions, and courses of business that operated as a fraud and deceit upon
Lead Plaintiff and the other members of the Class. Defendants knowingly or recklessly made th e
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materially false and misleading statements, and failed to disclose the material facts necessary t o
make the statements made not misleading . As a result, Lead Plaintiff and the Class relied, t o
their detriment, on the integrity of the market price in purchasing Willbros securities . Had Lead
Plaintiff and the other members of the Class known the truth, they would not have purchase d
Willbros securities or would not have purchased them at the inflated prices that they paid .
345. In addition, Defendants failed to correct or supplement earlier reports an d
statements that they knew or with severe recklessness disregarded were materially false an d
misleading and as to which there was a likelihood that market participants purchasing th e
Company's securities could reasonably be expected to rely, either directly or indirectly .
346. By reason of the foregoing, Defendants violated Section 10(b) of the Exchange
Act and Rule 10b-S promulgated thereunder in that they : (a) employed devices, schemes, and
artifices to defraud; (b) made untrue statements of material facts or omitted to state material fact s
necessary in order to make the statements made, in the light of the circumstances under which
they were made, not misleading ; and/or (c) engaged in acts, practices, and a course of busines s
that operated as a fraud and deceit upon Lead Plaintiff and the other members of the Class i n
connection with their purchases of Willbros common stock during the Class Period .
347. Lead Plaintiff and the Class have suffered damages in that, in reliance on th e
integrity of the market, they paid artificially inflated prices for Willbros securities . Lead Plaintiff
and the Class would not have purchased Willbros securities at the prices they paid, or at all, i f
they had been aware that the market prices had been artificially and falsely inflated by
Defendants' wrongful scheme and/or misleading statements and omissions .
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348. As a direct and proximate result of Defendants' wrongful conduct, Lead Plaintiff
and the other members of the Class suffered damages in connection with their purchases of
Willbros securities during the Class Period and the revelation of the full truth .
COUNT II
For Violation of Secti on 20(a) of theExchange Act Against the Individual Defendants
349 . Lead Plaintiff repeats and realleges the allegations contained above, as if set forth
fully herein .
350. The Individual Defendants, by virtue of their positions and/or specific act s
described above, were, at the time of the wrongs alleged herein, controlling persons within th e
meaning of Section 20(a) of the Exchange Act .
351 . As described above, the Individual Defendants had the power, directly or
indirectly, to control or influence the management, operations and corporate policy of Willbros .
352 . By reason of the conduct alleged herein, the Individual Defendants are liable fo r
the aforesaid wrongful conduct, and are liable to Lead Plaintiff and to the other members of th e
Class for the substantial damages they suffered in connection with their purchase of th e
Company's common stock during the Class Period .
WHEREFORE, Lead Plaintiff, on behalf of itself and the Class, prays for judgment as
follows :
a. Declaring this action to be a proper class action under Rule 23 of th e
Federal Rules of Civil Procedure ;
165
b. Awarding compensatory damages in favor of Lead Plaintiff and the othe r
members of the Class against all Defendants for the damages sustained as a result of Defendants '
wrongdoing, together with interest thereon ;
c. Awarding Lead Plaintiff the fees and expenses incurred in this action ,
including reasonable allowance of fees for Lead Plaintiffs attorneys and experts ; and
d. Granting such other and further relief as the Court may deem just an d
proper.
JURY DEMAND
Lead Plaintiff demands a trial by jury .
DATED: January 9, 2006
HOEFFNER & BILEK, L.L.P.
7A, caoThomas E. BilekState Bar No . 02313525 / Federal Bar No. 93381000 Louisiana, Suite 1302Houston , TX 77002Tel: (713) 227-7720Fax : (713) 227-9404
Liaison Counselfor Lead Plaintiffand the Class
BERNSTEIN LIEBI-IARD & LIFSHITZ, LLPJeffrey M. HaberBrian S . CohenGregory M. Egleston10 East 40th Street, 22nd FloorNew York, NY 10016Tel : (212) 779-1414Fax: (212) 779-321 8
Counselfor Lead Plaintiff and the Class
166
CERTIFICATE OF SERVIC E
I certify that a true and correct copy of the foregoing will be served automatically on theknown Filing Users via Notice of Electronic Filing and will be sent by first class mail, postageprepaid, on January 9, 2006, to the other counsel of record :
Michele Rose Daniel SommersLaurie Smilan Cohen Milstein et al .Latham & Watkins, LLP Suite 500 West11955 Freedom Drive, Suite 500 1100 New York Avenue N .W.Reston, VA 20190 Washington, DC 2000 5
Ramzi AbadouLerach Coughlin et al .655 West Broadway, Suite 1900San Diego , CA 92101
7hr eThomas E. Bilek
167