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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------------X TEACHERS’ RETIREMENT SYSTEM OF LOUISIANA, individually and on behalf of itself and all others similarly situated, Plaintiffs,
- v. - A.C.L.N., LIMITED, JOSEPH J. H. BISSCHOPS, ALDO LABIAD A/K/A ABDERRAZAK LABIADH, ALEX DE RIDDER, CHRISTIAN L. PAYNE, MICHAEL S. DOHERTY, EARL GOULD, CHARLES L. BROCK, MARINA SAVVA, YIANNAKIS ECONOMIDES, and BDO INTERNATIONAL, Defendants.
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Master File No. 01-CV-11814
---------------------------------------------------------------------X
Lead Plaintiff, the Teachers’ Retirement System of Louisiana (“Louisiana
Teachers”), by and through its attorneys, allege the following based upon the investigation of
counsel, and upon personal knowledge as to themselves and their own acts, and upon
information and belief as to all other matters. Counsel's investigation included: (a) review and
analysis of public filings made by A.C.L.N., Limited (“ACLN” or the “Company”) with the U.S.
Securities and Exchange Commission (“SEC”); (b) review and analysis of securities analysts'
reports concerning ACLN; (c) review and analysis of news releases and media reports
disseminated by Defendants, the SEC and the New York Stock Exchange (“NYSE”); (d) media
reports and other information about ACLN; and, (e) investigation conducted by Lead Counsel.
NATURE OF THE ACTION
1. This action is brought as a class action on behalf of all persons who
purchased ACLN common stock from June 29, 2000 through March 18, 2002 (the “Class
57363.6 2
Period”). Plaintiffs’ claims arise under Section 10(b) of the Securities Exchange Act of 1934,
(the “Exchange Act”) which provides a remedy for damages caused by the misrepresentation or
omission of material facts in public statements and filings with the SEC, under Section 20(a) of
the Exchange Act, which creates control person liability for the underlying violations, and under
Section 20A of the Exchange Act which creates liability for insider-trading by persons while in
possession of material, non-public information about the adverse information detailed herein.
2. During the Class Period, Defendants issued press releases, filed quarterly
and annual reports with the SEC, and made other public statements that highlighted the
Company’s apparent growth and strong financial performance. These statements, however, were
materially false and misleading because they failed to describe the true state of financial affairs
at the Company.
3. Specifically, the various Defendants engaged, inter alia, in the following
wrongful acts: • Issued financial statements and other public disclosures that contained
material misstatements; • inaccurately reported the number of cars it sold, causing the Company’s
revenues to be overstated; • inaccurately claimed ownership of a ship, the Sea Atef, when in fact the ship
is owned in part by an entity controlled by defendant Bisschops and in part by an unrelated third party;
• inaccurately reported the utility of the Sea Atef;
• inaccurately reported the qualifications of its audit committee;
• failed to disclose that one of its senior officers was the subject of an arrest
warrant; • inaccurately reported the Company’s holdings in cash and cash equivalents; • misstated the Company’s selling, general and administrative expenses,
57363.6 3
causing the Company’s net income to be overstated;
• failed to disclose certain self-dealing transactions between the Company and defendants or private entities which they controlled; and,
• failed to employ an independent auditor to audit its financial statements by
retaining the same firm to perform both its accounting work and its external audit.
4. Defendant BDO International violated the securities laws in at least three
ways. First, it issued an audit opinion stating that it had conducted an audit in accordance with
Generally Accepting Auditing Standards (“GAAS”) of the Company’s 1999 and 2000 financial
statements and that these statements conformed with Generally Accepted Accounting Principles
(“GAAP”) despite the fact that BDO International knew or was reckless in not knowing the
following facts:
• The Company falsely stated that it owned a ship called the Sea Atef; • The Company falsely stated that the Sea Atef was fully utilized; • The Company misstated the number of vehicles it had claimed to have
shipped, thereby falsely increasing its revenue statements;
• Because the Company had not actually shipped the number of vehicles it had claimed, “per vehicle” payments to its port agent were grossly excessive, commercially unreasonable and without consideration;
• The Company misrepresented the qualifications of its audit committee; • Defendant Labiad is the subject of an arrest warrant; • The Company misstated the ownership interest held by Company insiders;
• The Company misstated its general, selling and administrative expenses and
therefore, the Company’s net revenues had been overstated; • The Company violated its own stated policy with regard to recognition of
revenue by reporting revenue for the cars sold as soon as the ship carrying the cars left port and not when the shipment is completed;
57363.6 4
• The Company misstated its holdings in cash and cash equivalents.
BDO International also violated the securities laws by stating in audit opinions that it knew
would be filed with the SEC and made available to the investing public in the United States that
its audits had conformed to GAAP when it knew or was reckless in not knowing that this
statement was false. Finally, BDO International violated the securities laws by failing to
disclose, as alleged herein upon information and belief, that it simultaneously served as both the
Company’s internal accountant and outside auditors in violation of GAAS.
5. During the Class Period, the Company's stock traded in the approximate
range of $29-50 per share. On December 20, 2001, after an article appeared on a prominent
financial website which was critical of the Company in numerous respects, the stock closed at
$9.40 per share. A similar article appeared in the December 21, 2001 edition of The New York
Times. Although the Company issued a press release just prior to the close of trading on
December 21, 2001, it did not refute some of these articles’ key allegations, particularly those
involving ACLN's ownership position in the Sea Atef, its financial performance, and its failure
to disclose the status of millions of shares previously reported to be controlled by defendant
Bisschops, including their possible sale into the market.
6. On March 18, 2002, the SEC halted trading in ACLN shares due to the
Defendants’ financial chicanery and subsequently, the NYSE de-listed the Company’s stock.
When trading, suspended through April 1, 2002, was allowed to resume in over-the-counter
trading, the stock further plummeted to less than $2.00 per share at the close of trading on April
2, 2002.
7. As a result of these material misrepresentations and omissions, and others
detailed herein, the Company's stock traded at inflated prices during the Class Period, damaging
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all Class members who purchased at such inflated prices.
JURISDICTION AND VENUE
8. The claims alleged herein arise under Sections 10(b), 20(a) and 20A of the
Exchange Act, 15 U.S.C. §78j(b) and 78t, and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated
by the SEC thereunder.
9. The jurisdiction of this Court is based on Section 27 of the Exchange Act,
15 U.S.C. § 78a and 28 U.S.C. §§ 1331 and 1337.
10. Venue is proper in this District pursuant to Section 27 of the Exchange
Act and 28 U.S.C. § 1391(b). Many of the acts and practices complained of herein occurred in
substantial part in this District. Personal jurisdiction is proper because at all relevant times, the
Company contracted many of its investor-relations functions to Allen & Caron, Inc., a company
with offices in New York. ACLN’s annual shareholders’ meeting was held on July 23, 2001 at
the Peninsula Hotel, in New York, New York. According to the Company’s August 8, 2001 6-
K, the Company conducted an election of its directors at that meeting, including the election of
most of the Individual Defendants herein, and reappointed BDO International to serve as its
auditor. ACLN’s legal needs were served in New York by a New York law firm, Brock
Silverstein (now known as Reitler Brown and referred to herein as “the Brock law firm.”).
ACLN’s stock was traded during the Class Period on either the NYSE or NASDAQ, both located
in New York. The Company is properly subject to suit in this District.
11. As alleged below, each of the other defendants are also properly subject to
suit in this District. Each was involved in wrongdoing that had a foreseeable impact upon
members of the Class in the United States and in this forum. In addition, at all relevant times,
the stock at issue traded in New York based exchanges and the statements and omissions made
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by the defendants impacted upon the trading in ACLN stock on those exchanges.
12. In connection with the acts, transactions and conduct alleged herein,
Defendants used the means and instrumentalities of interstate commerce, including the United
States mails, interstate telephone communications and the facilities of national securities
exchanges and markets.
THE PARTIES
13. Plaintiff Louisiana Teachers is a public pension fund organized for the
benefit of the current and retired public school teachers of the State of Louisiana. The fund is
located in Baton Rouge, Louisiana. Louisiana Teachers purchased the common stock of ACLN
during the Class Period (as defined below), and has been damaged as a result of Defendants’
conduct alleged herein as set forth in the Certification previously filed with the Court.
14. By Order dated May 1, 2002, the Court appointed Louisiana Teachers as
Lead Plaintiff.
15. Additional Plaintiffs are Thomas C. Minter, Steven Edelson, Christopher
Swadling, Howard Pritchard, Peter F. Homsher, Edward Feuer, William Wendell, and Lee
Mikell each of whom purchased shares of ACLN common stock during the Class Period (as
defined below), as set forth in the Certifications previously filed with the Court, and have been
damaged as a result of Defendants’ conduct alleged herein.
16. Defendant ACLN is a Cypriot corporation. During the Class Period,
ACLN maintained offices in Cyprus, Belgiam, and Los Angeles, California (at 10990 Wilshire
Boulevard). ACLN is currently located Cyprus. ACLN purports to engage in two major lines of
business: (i) automobile logistics services between Europe and Africa, and (ii) a wholesale
automobile distribution service in Africa. The Company provides shipping and logistics of
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personal vehicles from Europe to developing countries in Africa. According to the Company’s
public statements and press accounts, ACLN never had more than eight employees. During the
Class Period, the Company maintained an office in Los Angeles, California and conducted its
annual meeting in New York, New York. The Company’s Chief Financial Officer, defendant
Christian Payne, and the Company’s Vice President for Investor Relations, Jane Creber, were
based in the Company’s Los Angeles office, but regularly interacted with the Company’s
attorneys and investor relations consultant in New York. In addition, Ms. Creber regularly
interacted with shareholders, including those in the New York area. The Company also
employed New York based attorneys, including defendant Charles Brock. The Company issued
numerous press releases, SEC filings, and made other public statements as alleged herein that
were both made in the United States and directed to potential investors in the Company,
including members of the Class. These statements were false as alleged herein and foreseeably
caused injury to the class. The Company’s stock was traded on the NASDAQ from June 25,
1998 through July 18, 2001, when it moved to the NYSE. ACLN stock traded on the NYSE
through March 18, 2002, until trading was halted by the SEC.
17. Defendant Joseph J. H. Bisschops (“Bisschops”) is, and has been at all
relevant times, Chairman and Managing Director of ACLN. Bisschops engaged in insider
trading of at least 314,366 shares during the Class Period. Bisschops owned 50% or more of all
outstanding ACLN shares during the Class Period. He was one of the group of defendants that
caused the Company to issue public press releases, SEC filings, and make other public
statements as alleged herein that were both made in the United States and directed to potential
investors in the Company, including members of the Class. These statements were materially
false and foreseeably caused injury to the Class.
57363.6 8
18. Defendant Aldo Labiad a/k/a Abderrazak Labiadh (“Labiad”) has, at all
material times, served as President, Chief Executive Officer, Chief Operating Officer and a
Director of ACLN. Labiad personally approved many of the false and misleading statements
complained of herein. The SEC has identified Labiad as a wanted criminal who uses a false
name. Labiad is also known as Abderrazak Labiadh. Labiad’s purpose in using multiple names is
clear: he is a wanted fugitive in Tunisia under a 10 year-old arrest warrant for the
misappropriation of business funds. This information was withheld by ACLN in its SEC filings,
in contravention of disclosure rules. He was one of the group of defendants that caused the
Company to issue public press releases, SEC filings, and make other public statements as alleged
herein that were both made in the United States and directed to potential investors in the
Company, including members of the Class. These statements were materially false and
foreseeably caused injury to the Class.
19. Defendant Alex de Ridder (“de Ridder”) is and has been, at all relevant
times, ACLN’s Vice President and Chief Operating Officer or Vice President and Chief
Financial Officer. He was one of the group of defendants that caused the Company to issue
public press releases, SEC filings, and make other public statements as alleged herein that were
both made in the United States and directed to potential investors in the Company, including
members of the Class. These statements were materially false and foreseeably caused injury to
the Class.
20. Defendant Christian L. Payne (“Payne”) served as ACLN’s Chief
Financial Officer from January 2001 until his reported resignation in late March, 2002. Prior to
serving as CFO, Payne was a 26 year-old investment banker at Cruttendon Roth, the investment
firm that took ACLN public. Payne personally approved many of the false and misleading
57363.6 9
statements complained of herein. Payne engaged in insider trading of 17,000 shares for proceeds
of approximately $515,400 during the Class Period. Payne served as CFO for a salary of only $1
per year, and any further compensation was dependent on increases in the value of stock options
granted to Payne, or on Payne’s ability to arrange a debt or equity offering for the Company (as
to which he was to be paid a bonus of 1% of the gross amount). As of December 31, 2000,
Payne had options to acquire 150,000 shares of stock at a price of $21.38 per share. During the
Class Period, defendant Payne worked from the Company’s Los Angeles office. He was one of
the group of defendants that caused the Company to issue public press releases, SEC filings, and
make other public statements as alleged herein that were both made in the United States and
directed to potential investors in the Company, including members of the Class. These
statements were materially false and foreseeably caused injury to the Class. Defendant Payne is
a resident of Los Angeles, California.
21. Defendant Michael S. Doherty (“Doherty”) has, at all relevant times until
his resignation on or about March 4, 2002, served as a Director of ACLN. Doherty was a
Director of Private Equity at Cruttendon Roth before he was appointed a Director at ACLN. He
was one of the group of defendants that caused the Company to issue public press releases, SEC
filings, and make other public statements as alleged herein that were both made in the United
States and directed to potential investors in the Company, including members of the Class.
These statements were materially false and foreseeably caused injury to the Class. Defendant
Doherty is a resident of Los Angeles, California.
22. Defendant Earl Gould (“Gould”) has, at all relevant times until his
resignation on or about March 4, 2002, served as a Director of ACLN. He was one of the group
of defendants that caused the Company to issue public press releases, SEC filings, and make
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other public statements as alleged herein that were both made in the United States and directed to
potential investors in the Company, including members of the Class. These statements were
materially false and foreseeably caused injury to the Class.
23. Defendant Marina Savva (“Savva”) has, at all relevant times until the
expiration of her term on or about June 28, 2001, served as a Director of ACLN. She was one of
the group of defendants that caused the Company to issue public press releases, SEC filings, and
make other public statements as alleged herein that were both made in the United States and
directed to potential investors in the Company, including members of the Class. These
statements were materially false and foreseeably caused injury to the Class.
24. Defendant Yiannakis Economides (“Economides”) has, at all relevant
times since on or about June 28, 2001, served as a Director of ACLN. Economides is a partner of
the law firm of Economides, Patsalides & Co. Advocates, Cyprus counsel to the Company.
According to the Company, Mr. Economides has been practicing law for nineteen years,
specializing in company law, contract law, shipping law, insurance law, business law and
international investments, and presently serves as a director and/or corporate secretary of several
shipping and other offshore and onshore companies. He was one of the group of defendants that
caused the Company to issue public press releases, SEC filings, and make other public
statements as alleged herein that were both made in the United States and directed to potential
investors in the Company, including members of the Class. These statement s were materially
false and foreseeably caused injury to the Class.
25. Defendant Charles L. Brock (“Brock”) has, at all relevant times until his
resignation on or about March 4, 2002, served as a Director of ACLN, as Chairman of the two
member ACLN Audit Committee. Brock also served as ACLN’s attorney in the United States,
57363.6 11
initially through his firm, Brock Silverstein (now known as Reitler Brown and referred to herein
as the “Brock law firm”). He was one of the group of defendants that caused the Company to
issue public press releases, SEC filings, and make other public statements as alleged herein that
were both made in the United States and directed to potential investors in the Company,
including members of the Class. These statements were materially false and foreseeably caused
injury to the Class. Defendant Brock is a resident of New York, New York.
26. Defendant BDO International was, at all relevant times, retained by ACLN
as the Company’s independent auditor and, upon information and belief, also served as the
Company’s internal accountants. BDO International’s headquarters are located in Brussels,
Belgium, but it also maintains offices in several U.S. cities, including New York (from which it
performed some of its work for ACLN). As the Company’s internal accountant, BDO
International provided the Company with accounting services including, but not limited to, the
maintenance of the Company’s financial books and records, preparation of financial statements
and reports on the Company’s financial performance, and the ordinary functions of a business’s
accounting department.
27. In its role as the Company’s supposedly independent outside auditor, BDO
International also prepared the Independent Auditor’s Report dated April 30, 2001, for the year
ended December 31, 2000, which offered an unqualified audit opinion of ACLN’s financial
results. This document was filed with the SEC as part of ACLN’s 2000 Form 20-F on June 28,
2001 (“the 2000 Form 20-F”) and was signed by BDO International. BDO International also
prepared the Independent Auditor’s Report dated April 7, 2000, for the year ended December 31,
1999, which offered an unqualified audit opinion of ACLN’s financial results. This document
also was filed with the SEC as part of ACLN’s 1999 Form 20-F on June 29, 2000 (“the 1999
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Form 20-F”) and was signed by BDO International.
28. In addition, billing records from the Brock law firm indicate that at least
some portion of BDO International’s work on behalf of ACLN was conducted through its New
York office because those records refer to work performed by BDO International partner Lee
Dewey, who is based in New York. In addition, BDO International was one of the group of
defendants that caused the Company to issue public press releases, SEC filings, and make other
public statements as alleged herein that were both made in the United States and directed to
potential investors in the Company, including members of the Class. These statements were
materially false and foreseeably caused injury to the Class.
29. At all times herein, BDO International also maintained two offices in
Cyprus. One is in Nicosia, Cyprus at Galaxias Commercial Center, 4th Floor, Office 403 33
Makarios the III Ave and 36 Ayias Elenis Street, and a second office is located in Limassol,
Cyprus at the corner of Leontios and Gregoris Afxentiou Streets, Romantzo Court, 2nd Floor,
CY-3020.
30. Defendants Bisschops, Labiad, de Ridder, Payne, Doherty, Gould, Savva,
Economides and Brock are sometimes referred to as the “Individual Defendants.”
31. Because of the Individual Defendants’ positions with the Company and
BDO International’s role as both outside auditor and internal accountants for the Company, the
Individual Defendants and BDO International had access to adverse undisclosed information
about ACLN’s business, and operations, through access to internal corporate documents and
conversations with other corporate officers and employees, attendance at management and Board
of Directors meetings and through reports and other information provided to them in connection
with their duties and responsibilities at ACLN.
57363.6 13
32. The Individual Defendants and BDO International should be treated as a
group for pleading purposes, as it may be presumed that the false, misleading and incomplete
information conveyed in the Company’s repeated public filings, press releases and other
publications, as alleged herein, are the product of the collective actions of the Individual
Defendants and BDO International.
33. As officers and controlling persons of a publicly-held company whose
securities are registered with the SEC pursuant to the Exchange Act, and were traded on the
NYSE (until its de- listing as described herein) and other U.S. exchanges, and governed by the
provisions of the federal securities laws, the Individual Defendants and Defendant BDO
International each had a duty to promptly disseminate, accurate and truthful information with
respect to the Company’s financial condition and performance, growth, operations, financial
statements, business, products, markets, management, earnings, and business prospects, and to
correct any previously- issued statements that had become materially misleading or untrue, so
that the market price of the Company’s publicly-traded securities would be based upon truthful
and accurate information. The Individual Defendants’ and BDO International’s
misrepresentations and/or omissions during the Class Period violated these duties and
obligations.
34. The Individual Defendants and Defendant BDO International participated
in the drafting, preparation, and/or approval of the various public reports and other
communications complained of herein and were aware of, or recklessly disregarded, the
misstatements contained therein and omissions therefrom, and were aware of their materially
false and misleading nature.
35. Because of their Board membership and/or executive and managerial
57363.6 14
positions with ACLN and/or close involvement with the Company, each of the Individual
Defendants and Defendant BDO International, had access to the adverse undisclosed information
about ACLN’s business prospects and financial condition and performance as particularized
herein and knew (or recklessly disregarded) that these adverse facts rendered the positive
representations made by or about ACLN and its business, issued or adopted by the Company,
materially false and misleading.
36. The Individual Defendants and Defendant BDO International, because of
their positions of control and authority as officers, directors, auditors, and accountants for the
Company, were able to and did control the content of the various SEC filings, press releases and
other public statements pertaining to the Company during the Class Period. Each of the
Individual Defendants and Defendant BDO International was provided with copies of the
documents alleged herein to be misleading prio r to, or shortly after their issuance, and/or, had the
ability, and/or, opportunity to prevent their issuance or cause them to be corrected. Accordingly,
each of the Individual Defendants and Defendant BDO International are responsible for the
accuracy of the public reports and releases detailed herein and each is therefore primarily liable
for the representations contained therein.
37. Each of the Defendants is liable as a participant in a scheme to defraud or
a course of business that operated as a fraud or deceit on purchasers of ACLN securities by
disseminating materially false and misleading statements and/or concealing material adverse
facts. The scheme and fraudulent course of business: (i) deceived the investing public regarding
ACLN’s business, operations, management and the intrinsic value of ACLN securities, and (ii)
caused Plaintiffs and other members of the Class to purchase ACLN securities at artificially
inflated prices.
57363.6 15
CLASS ACTION ALLEGATIONS
38. Plaintiffs bring this action as a class action pursuant to Federal Rules of
Civil Procedure 23(a) and (b)(3) on behalf of a class consisting of all persons who purchased
ACLN common stock on the NYSE or other U.S. Exchanges during the period from June 29,
2000 through March 18, 2002, inclusive (the “Class Period”) and who were damaged thereby
(the “Class”). Excluded from the Class are (1) the Company, its officers and directors,
employees, affiliates, legal representatives, heirs, predecessors, successors and assigns, and any
entity in which the Company has a controlling interest or of which the Company is a parent or
subsidiary; (2) BDO International, its officers and directors, employees, affiliates, legal
representatives, heirs, predecessors, successors and assigns, and any entity in which BDO
International has a controlling interest or of which BDO International is a parent or subsidiary,
and (3) the Individual Defendants, their employees, affiliates, legal representatives, heirs,
predecessors, successors and assigns, and any entity in which they have a controlling interest.
39. The members of the Class are located in geographically diverse areas and
are so numerous that joinder of all members is impracticable. The Company has over 14 million
shares of common stock outstanding, of which approximately 6.2 million traded actively on the
NYSE until the NYSE de-listed the stock on March 18, 2002. Currently, the common stock of
the Company is traded on the over-the-counter exchange. While the exact number of Class
members is unknown to Plaintiffs at this time, Plaintiffs believe the exact number can be
established through the discovery process, and at a minimum, at least hundreds are members of
the Class who hold shares of the Company stock. Record owners and other members of the Class
may be identified from records maintained by ACLN or its transfer agent and may be notified of
57363.6 16
the pendency of this action by mail, using the form of notice similar to that customarily used in
securities class actions.
40. 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:
a) Whether Defendants engaged in acts or conduct in violation of the federal securities laws as alleged herein;
b) Whether Defendants acted knowingly or recklessly in making statements to the
investing public during the Class Period which were materially false and misleading with regard to the business, operations and management of ACLN;
c) Whether Defendants failed to correct statements made to the investing public
upon learning that they were materially false and misleading during the Class Period;
d) Whether the market price of the Company’s common stock during the Class
Period was artificially inflated because of Defendants’ conduct complained of herein; and,
e) Whether, and to what extent, the members of the Class have sustained damages
and, if so, the proper measure of damages.
41. Plaintiffs’ claims are typical of the claims of the members of the Class as
Plaintiffs and members of the Class sustained damages arising out of Defendants’ wrongful
conduct in violation of federal law as complained of herein.
42. Plaintiffs will fairly and adequately protect the interests of the members of
the Class and has retained counsel competent and experienced in class and securities litigation.
43. A class action is superior to other available methods for the fair and
efficient adjudication of this controversy since joinder of all members of the Class is
impracticable. Furthermore, because the damages suffered by many of the individual Class
members may be relatively small, the expense and burden of individual litigation make it
57363.6 17
impossible for the Class members individually to redress the wrongs done to them. There will be
no difficulty in the management of this action as a class action.
SUBSTANTIVE ALLEGATIONS Background
44. ACLN is a marine logistics company that arranges for the shipment of
automobiles from Europe to North and West Africa and the Middle East, and provides for related
customs-clearance and stevedoring services.
45. ACLN purportedly operates with individuals and port agents in 15 ports
located in 13 countries in North and West Africa and from four ports in large established markets
in Northern Europe. ACLN began operations in 1978, shipping cars from Belgium to Lebanon.
46. First incorporated in 1993 under the name Hemswell Holdings Co. Ltd. in
Cyprus, the Company eventually acquired all of the capital stock of C.L.N., S.A.M. (”CLN”), a
Monaco corporation that began operations in 1978 and was incorporated in 1988 to “carry on”
the operations of Continent Levant Lines. Renaming itself “C.L.N. Limited” and later changing
its name to “A.C.L.N. Limited,” in June 26, 1998, ACLN went public in the United States. Its
shares traded first on the NASDAQ under the ticker symbol ACLNF in June 1998 and then, in
July 2001, on the New York Stock Exchange, under the ticker symbol ASW.
47. The Company was originally taken public by the investment banking firm
Cruttenden Roth, Inc., where defendant Payne (later appointed Chief Financial Officer of
ACLN) was employed as a 26 year old investment banker. Defendant Doherty was a Director of
Private Equity at Cruttenden Roth at the time ACLN went public. Defendant Brock provided
legal services in connection with the initial public offering.
48. As of December 31, 2000, ACLN had eight full time employees and
57363.6 18
represented that it maintained offices in Los Angeles, California, Limassol, Cyprus, and
Antwerp, Belgium.
False and Misleading Statements During the Class Period
49. The Company’s public filings and other public statements during the Class
Period inter alia (a) falsely stated that the Company was undergoing dramatic increases in
revenue from increased sales of cars, (b) falsely stated that the Company had acquired a sea
vessel known as the Sea Atef, (c) falsely stated that the Sea Atef was being fully utilized, (d)
falsely claimed that ACLN had retained an Audit Committee that was fully qualified to oversee
the Company’s financial disclosures, and (e) failed to identify that one of the Company’s senior
officers, defendant Labiad, is a wanted fugitive from justice.
A. False Claims of Ownership of the Sea Atef
50. According to its public reports, ACLN was growing revenues and profits
at a rapid pace, and had been able to keep costs low. Costs in this type of business consist of two
primary components -- (1) sea freight, or the cost of chartering vessels which transport vehicles
and (2) port agent fees, or the fees paid to port agents and others in destination ports for the
discharging, stevedoring and customs management of cars. Utilizing ships owned by others
potentially increased the Company’s shipping costs. As the Company warned in its 2000 Form
20-F, in certain circumstances “the availability of specialized car transport vessels could be
reduced and we would be required to seek alternative sources of cargo space at costs which may
be substantially greater than those currently paid by us resulting in higher operating costs.”
51. In the 2000 Form 20-F, as well as in other publicly disclosed documents,
ACLN continued to further its image as a self-reliant, cost-cutting shipping company,
announcing that it had acquired the Sea Atef, a ship formerly known as the M/V Emerald Bay,
57363.6 19
for $6 million, that the Sea Atef would be “written off’ for depreciation at a rate of $1.8 million
per year, and that it paid $10 million as a deposit for the purchase of two more ships.
52. The 2000 Form 20-F repeatedly made statements that the Company owned
the Sea Atef, by referring to “a description of our ownership of the Sea Atef, the vessel we
purchased in 2000,” and claiming that “[i]n May 2000, we acquired the Sea Atef, a car carrier
vessel with a 2,850 car capacity, at a cost of approximately $6,000,000.” (emphasis added).
53. The Company’s June 30, 2000 Form 6-K (“June 2000 6-K”) represented
that the Company had sea vessel assets of $5.97 million as a result of its purchase of the ship, the
Sea Atef, for a purported $6 million in that quarter.
54. On November 15, 2000, ACLN issued a press release of its results for the
third quarter ended September 30, 2000 (the “November 2000 press release”). The November
2000 press release stated that the Company had its “first full quarter with the company-owned
vessel, Sea Atef, in operation and it achieved full utilization.” The press release also reported
sea vessel assets of $5.88 million as a result of its purchase of the Sea Atef.
55. On February 23, 2001, ACLN filed with the SEC its Form 6-K for the
third quarter ended September 30, 2000 (the “September 2000 Form 6-K”). The September 2000
Form 6-K represented that ACLN had sea vessel assets of $5.88 million as a result of its
purchase of the Sea Atef.
56. Furthermore, ACLN operates a website at the internet address,
http://www.aclnfltd.com (“the ACLN website”) which published during the Class Period false
and misleading photographs in an apparent attempt to show that it was the owner of the Sea Atef
and other ships.
57. The ACLN website also contains an undated “Shareholder Letter” from
57363.6 20
defendant Bisschops, and states falsely that “[w]e also acquired the vessel Sea Atef, which will
reduce our dependence on third party shipping companies for capacity to ship our growing car
volumes, which reached a record of approximately 112,000 vehicles in 2000.” The letter further
asserts that “[o]ur vessel, the Sea Atef, should provide additional margin enhancement
opportunities into the future.”
58. In fact, and contrary to these representations, ACLN had not purchased
the Sea Atef and never owned it. Rather, the Sea Atef is owned by Sea Atef Shipping Company
(“SASC”), a Maltese entity that is fifty percent owned by Abou Merhi (“Mr. Merhi”) and the
other fifty percent is owned by D.C.C. Limited (“D.C.C.”), a company affiliated with defendant
Bisschops, who serves as D.C.C.’s chief executive officer. Plaintiffs’ counsel interviewed Mr.
Mehri and his agent, Eberhard Koch (“Mr. Koch”), who confirmed these facts.
59. On December 21, 2001, Realmoney.com published an article entitled
Through the Looking Glass With ACLN written by its senior columnist Herb Greenberg (the
“Looking Glass article”) that raised serious doubts concerning the Company’s ownership of the
vessel and consequently, the validity of its financial statements and adherence to GAAP.
60. The fact that ACLN never owned the Sea Atef was confirmed by Mr.
Merhi, who was interviewed by Plaintiffs’ counsel and provided a written statement dated
November 19, 2001. Mr. Merhi states that the Sea Atef is owned by SASC. Fifty percent of the
SASC is in turn owned Mr. Merhi and the other fifty percent is owned by D.C.C. According to
Mr. Merhi, D.C.C. is in turn affiliated with ACLN and defendant Bisschops serves as the Chief
Executive Officer of DCC. In addition, Mr. Merhi and Mr. Koch dispute the purchase price of
the vessel. They state that that on May 26, 2000, the Sea Atef, when known as the m/v Emerald
Ray, was purchased by SASC from Waldorf Shipping, Inc. for $3,950,000 and not the reported
57363.6 21
$6 million. See “Shares in Belgian Company Fall 64% as Questions Grow,” Alex Berenson,
NewYork Times, Dec. 21, 2001.
61. In addition, according to Mr. Merhi and Mr. Koch, the ACLN web site
contains inaccurate pictures of the Sea Atef that gave false impression that the Company owns
the vessel. On the web page entitled “Ports of Origination & Destination,” the Company
includes an image of the “Sea Atef” vessel at a “Terminal at Antwerp” (http://www.aclnfltd.com
/company/ports/cfm). The image of a ship shows the “ACLN” logo on the ship’s hull. However,
in interviews with Mr. Merhi and Mr. Koch by pla intiffs counsel, and in the written statement
Mr. Merhi provided to Plaintiffs’ counsel, Mr. Merhi and Mr. Koch state that the image used in
the ACLN website has been altered because the ship does not have such a logo.
62. Thus, ACLN’s public claims prior to the Looking Glass article regarding
its claims of owners of the Sea Atef patently were false. In addition, the Company’s prior claims
to have paid for the ship and listing it as an expense were also false.
B. The Sea Atef Was Never Fully Operational During the Time The Company Claimed to Own It.
63. As alleged above, the Company claimed ownership of the Sea Atef as of
May 2000. However, despite repeated statements that the ship was being fully utilized, it now
appears that the ship was repeatedly under repair and renovation and was actually barely utilized.
64. In the Company’s November 15, 2000 press release, the Company stated
that the Third Quarter 2000, was the “first full quarter with the company-owned vessel, Sea Atef,
in operation and it achieved full utilization.”
65. However, the Company stated its September 2000 Form 6-K (filed on
February 23, 2001) that “[d]uring the period the Company’s vessel required significant engine
repairs.” This is in direct conflict with the Company’s statements in its November 2000 press
57363.6 22
release.
66. In the Looking Glass article, Herb Greenfield revealed that the Sea Atef
made only one trip during that three month period ending September 30, 2000. Therefore, the
Company’s statements in the November 2000 press release concerning the operations of the Sea
Atef were false and misleading. Furthermore, the September 2000 6-K materially omitted the
true nature of the Sea Atef’s incapacity. Far from being fully utilized, the Sea Atef was not
functioning.
C. Dramatic Overstatements of Revenue
67. Throughout the Class Period, ACLN professed that its business objective
was “to build the largest and most profitable marine automotive logistics company in the world”
through importing used automotive vehicles from Europe to Africa and the Middle East. In
touting its stock, ACLN claimed that there was limited availability of automobiles in “North and
West Africa, the Middle East and the Caribbean due to the lack of significant automobile
manufacturing and import restrictions. . . .” See, 1999 Form 20-F. Nevertheless, the Company
claimed to enjoy “long-standing relationships in the automotive and shipping industries [which
would allow it] to capitalize on [these] underserved markets....” See, 2000 Form 20-F.
68. In an apparent effort to inflate the price of ACLN’s stock, the Company
made a series of materially false and misleading statements relating to its revenues and failed to
correct favorable, but patently false marketplace rumors. As a result, ACLN’s share price made
a precipitous climb.
69. On August 14, 2000, the Company issued a press release announcing its
preliminary second quarter revenues and earnings for the period ended June 30, 2000. The
Company reported that it estimated that its unaudited financial statements for the second quarter
57363.6 23
of 2000 would disclose revenues of approximately $39 million, as compared with $24,461,700
during the second quarter of 1999, and net income of approximately $10,700,000, as compared
with $5,430,426 during the second quarter of 1999. Defendant Labiad commented positively on
the Company’s performance and stated in pertinent part:
We have been encouraged by the increased trading volume since our last stock dividend and hope that both our geographic and business segment expansions, which have fueled substantial growth in revenues and earnings, will gain the attention of Wall Street analysts. 70. On August 30, 2000, the Company issued a press release announcing its
financial results for the second quarter of 2000 for the three months ended June 30, 2000.
According to the announcement, sales for the three months ended June 30, 2000 increased by
$15,352,176, or 62.8%, to $39,813,876 compared with $24,461,700 for the three months ended
June 30, 1999.
71. Defendant Labiad commented positively on the Company’s strong growth
and stated in pertinent part:
We are pleased with our growth during this past quarter. However, we experienced a slight decline in net margins from the quarter ended March 31, 2000 because a higher percentage of the automobiles sold were lower-priced models under the recently instituted program of acquiring closed-out models for resale. We believe it will take a couple of quarters of automobile trading activity to determine an average margin.
During the second quarter we experienced full utilization of our newly purchased vessel and placed a deposit for the construction of two modern, large-capacity car carriers. We expect delivery of these vessels at the end of 2001.
Defendant Bisschops commented on the increase in the value of the Company’s stock price,
stating in pertinent part:
We are pleased with the recent increased trading activity and price appreciation of our shares. After reporting eight consecutive quarters of year-over-year gains, we believe the Company is beginning to gain more visibility. We intend to further our efforts to gain Wall Street coverage in the coming quarters.
57363.6 24
72. On October 11, 2000, the Company issued a press release announcing that
it shipped approximately 35,000 vehicles in the third quarter ended September 30, 2000, an
increase of over 24% over the comparable quarter the prior year. Defendant Labiad commented
on this achievement, stating in pertinent part:
During the third quarter we have seen our greatest demand to date. We are also continuing our expansion strategy, with a goal of opening one new destination port every four months. Mauritania is our 15th port in 13 served countries. 73. On November 15, 2000, the Company announced its financial results for
the third quarter of 2000 for the period ended September 30, 2000. The Company reported that
its revenues increased by $22,147,780, or 78.7%, to $50,304,180 during the third quarter. Net
income increased by $6,205,965, or 99.0%, to $12,475,291 for the three months ended
September 30, 2000, from $6,269,326 for the three months ended September 30, 1999.
Defendant Labiad commented on the Company’s growth, stating in pertinent part:
We are pleased with our continued growth this year. At the beginning of the year we had not anticipated the high demand for our automobile trading business. Due to its success this year, we are in the process of negotiating contracts intended to increase our supply next year. We continue to have strong growth in our shipping business. Our fourth quarter has already gotten off to a strong start as we recently made our largest shipment in company history. [Emphasis added.]
Defendant Bisschops commented on the performance of the Sea Atef, the Company’s shipping vessel, during the third quarter, stating in pertinent part: During the third quarter, we opened our newest port of destination, Nouakchott, in Mauritania. Additionally, we had our first full quarter with the Company-owned vessel, Sea Atef, in operation and it achieved full utilization. [Emphasis added.]
74. On January 18, 2001, the Company issued a press release announcing that
it had shipped a record number of cars for the fourth quarter of 2000 for the period ended
December 31, 2000. Defendant Labiad commented on the Company’s continued growth, stating
in pertinent part:
57363.6 25
We are pleased with the continued growing demand for our services and the strong growth we experienced in 2000. This momentum appears to be continuing in 2001. We have delivered 8,000 automobiles in the first two weeks of this year and have over 6,000 vehicles at our origination points awaiting shipment. [Emphasis added.]
75. On March 6, 2001, the Company announced its preliminary financial
results for the year 2000 for the period ended December 31, 2000. The Company reported total
revenue of $168,148,920 for fiscal year 2000. Specifically, the Company reported that its
Selling, General and Administrative expenses for the fiscal year 2000 were $4,922,804 and its
Net Income was $42,728,759.
76. On March 20, 2001, based on seemingly glowing financial reports issued
by ACLN, Griffin Securities, Inc. issued a “Strong Buy” recommendation on shares of ACLN.
77. On April 23, 2001, ACLN announced in a press release (the “April 23,
2001 press release”) that it had sold and delivered 6,500 new cars in the first quarter ended
March 31, 2001 and shipped a total of 36,439 cars.
78. On May 16, 2001, the Company issued a press release announcing its
financial results for the first quarter of 2001 for the period ended March 31, 2001. The Company
reported that its financial results reached “record levels,” and that its revenue of $63.2 million
was more than double its revenue of $28.6 million from the first quarter of 2000. The Company
claimed to have earned revenue of $33,142,000 from sales of automobiles and $30,043,046 in
shipping revenues. Defendant Bisschops commented on the Company’s strong performance,
stating in pertinent part:
We believe our strong proprietary positions in the ports we serve, together with our low-cost provider business model, give us the opportunity to grow the top and bottom line exponentially as the demand for new and pre-owned vehicles escalates in our markets.
Defendant Labiad also commented on the Company’s financial results, stating in pertinent part:
57363.6 26
We firmly believe the results for this year’s first quarter, which is typically a slower sales period, clearly demonstrates a continuing and rapidly increasing upward trend in demand for automobiles in Africa, which validates the focus of our strategy. The volume increases in both our logistics and wholesale distribution businesses are very encouraging, and we intend to continue to capitalize and expand on the opportunities we see in these underserved markets for automobiles.
79. On August 13, 2001, the Company issued a press release announcing its
financial results for the second quarter of 2001 for the period ended June 30, 2001. Revenue for
the second quarter ended June 30, 2001 was $78.9 million, up from $39.8 million in the second
quarter of 2000. Net income for the second quarter rose to $17.8 million, or $1.26 per basic share
and $1.21 per diluted share, compared to net income of $10.7 million, or $0.78 per basic and
$0.74 per diluted share for the prior year’s second quarter, an increase of 61% in net income per
basic share and 63% in net income per diluted share. Defendant Labiad commented positively on
the Company’s strong performance and business prospects:
While we have seen dramatic increases in the volumes of cars shipped, and an acceleration of demand, we are entering our seasonally strongest period and expect the rapidly growing upward trend to continue. The markets we serve are significantly under penetrated. For instance, in Nigeria there is one car per thousand inhabitants, as compared to 55 cars per 100 inhabitants in Europe. The economies and infrastructures of the countries we serve are improving, and those dynamics in turn are driving demand. [Emphasis added].
See, Form 6-K for August, 2001 filed with the SEC on Sept. 21, 2001.
80. On August 30, 2001, ACLN filed with the SEC its Form 6-K for the
quarter ended March 31, 2001 (the “March 31, 2001 Form 6-K”). The March 31, 2001 Form 6-K
stated, in material contradiction of the April 23, 2001 press release, that in fact during the first
three months of fiscal year 2001, the Company only sold approximately 5,523 cars (as compared
to the 6,500 previously claimed in the April 23, 2001 press release).
81. After the events of September 11, 2001, there were market fears as to the
Company's ability to maintain its rapid growth. In order to allay these fears, ACLN issued a
57363.6 27
press release on September 19, 2001 assuring public investors that business was stronger than
ever. In that press release, defendant Labiad stated:
We are seeing our greatest demand so far this quarter fueled by explosive growth in West African countries such as Nigeria, Benin and Togo. It is a seasonally strong period, but our ability to offer regular and reliable delivery, coupled with strengthening economic and market forces are stimulating an acceleration of demand for our services. We fully expect to see a continuation of this upward trend with little or no negative impact on our business from the terrible tragedies in New York and Washington, D.C. last week.
See, Form 6-K filed with the SEC on September 21, 2001 (emphasis added).
82. Given its strong business outlook, ACLN continued to attract coverage
and strong buy recommendations from respected analysts at BB&T Securities and J.P. Morgan
Chase Securities. On October 31, 2001, Defendants Labiad and Payne appeared in person at a
BB&T conference in Boston, Massachusetts, and repeated previous bullish pronouncements on
the Company’s business.
83. On November 7, 2001, to create an illusion of profitability and thereby
artificially increase its stock price, ACLN issued a press release in which it said that it would buy
up to one million shares of its own stock in the open market. Defendant Labiad said in that
release, “[a] stock repurchase at current market prices represents an excellent opportunity to
enhance value for our shareholders.” See, ACLN Press Release, “A.C.L.N. Limited Announces
One Million Common Share Repurchase Plan,” PR Newswire, November 7, 2001 and Form 6-K
filed with the SEC on November 19, 2001.
84. On November 14, 2001, the Company issued yet another bullish report,
this time on its performance for the third fiscal quarter, ended September 30, 2001. See, Form 6-
K filed with the SEC on November 19, 2001. Defendant Labiad said, “Demand for our logistics
services was very strong in the quarter, and has continued into the fourth quarter. Volumes of
57363.6 28
vehicles shipped grew 100 percent year over year, and 37 percent in the third quarter when
compared to the second quarter of this year. Our logistics business in West Africa remains solid
and has, to date, been unaffected by the unrest reported in the northern regions of Nigeria. In our
wholesale business we are on schedule with our deliveries according to plan.” For the quarter
ending September 30, 2001, the Company reported a cash balance of $117.6 million, reflecting a
rapid growth in cash on hand during the year 2001.
85. On November 16, 2001, The Wall Street Transcript published the
comments of Fred Astman, Chairman at First Wilshire Securities Management, Inc., on ACLN’s
performance and business prospects. Astman stated, in pertinent part:
One of our favorite holdings is ACLN Limited, and this company is a freight forwarder currently selling at about 8.5 times TTM earnings. The company will report earnings in about two weeks, and they should exceed 100% growth over last year’s same period. I mean, this is the kind of growth we like. This one has been growing at 50% compounded annual growth the last five years and is selling at 8 times earnings, not 50 times earnings. 86. In mid to late November 2001, rumors began to circulate that the
Company had purchased, or was to purchase, three ships through $150 million of financing from
J.P. Morgan Chase.
87. When articles published in Trade Winds and other trade magazines on or
around late November 2001 further propelled these rumors, the Company failed to deny this
misinformation notwithstanding the fact that a failure to deny or clarify such rumors is a clear
violation of Rule 435 of the New York Stock Exchange. Accordingly, ACLN’s silence served to
artificially boost the Company’s share prices.
88. However, each of the statements regarding the Company’s revenue
described in ¶¶ 67-87 above was false. Plaintiffs have learned, through interviews of Mr. Merhi
and Mr. Koch, public press reports, and statements by the SEC that ACLN greatly exaggerated
57363.6 29
the numbers of cars it shipped during the Class Period and therefore, materially misrepresented
its reported revenues.
89. While ACLN has claimed that it shipped more than 183,000 cars in 2001,
the true number was much lower. ACLN shipped as few as a hundred-fifty cars a month, and
shipped in total 1,500-2,000 cars for the entire year 2001, according to Mr. Merhi, who is
knowledgeable about ACLN’s business as manager of the ships that ACLN uses to transports its
cars to market (the Sea Atef and the Sea Tarak).
90. As discussed below in ¶¶ 133-141 and 143-151, the public press reports
and statements made by the SEC indicate that the Company overstated its revenue by misstating
the number of cars it shipped. In fact, according to Reuters, the SEC questioned whether the
Company’s new car business “even exists.” See, Soares, “U.S. Suspends Trade in Cypriot
Transport Firm,” Reuters, Mar. 18, 2002.
91. ACLN’s seemingly unending string of glowing press releases halted on
December 17, 2001, when ACLN announced that it was taking a $7.5 million charge after
canceling a ship construc tion contract. In order to mitigate the negative impact of this news,
ACLN claimed that the cancellation was due to the Company’s need for a larger vessel than the
one allegedly contracted for, as business was expanding.
D. ACLN’s Sham Audit Committee
92. To ensure that there would be no truly independent oversight regarding
Defendants’ questionable business activities, Defendants appointed a sham audit committee to
oversee ACLN and, in order to prevent shareholders from learning about this fact,
misrepresented the backgrounds of the members of the audit committee.
93. ACLN is incorporated in Cyprus, whose corporate governance laws
57363.6 30
require an audit committee to consist of two directors. Defendants appointed only two
individuals to ACLN’s audit committee: Defendant s Brock and Savva.
94. In the 2000 Form 20-F and other publicly disseminated documents, ACLN
asserted that Savva was a 25-year old “associate” of Economides, Patsalides & Co., a Cypriot
law firm that serves as counsel to ACLN. The 1999 20-F lists Ms. Savva as an “associate” of
another firm. However, a January 10, 2002 RealMoney.com article revealed that Savva was not
a licensed attorney, but is instead a secretary who answers phones at the Cypriot law firm.
ACLN never explained why it appointed an individual as unqualified as Savva to the Audit
Committee or why it misrepresented her qualifications.
95. In direct conflict with ACLN’s assertion in its 1999 Form 20-F filing, that
“the Audit Committee consists of Directors who are not and have not been employed by the
Company or any affiliates thereof,” Brock was a senior member and name partner of the law
firm that was retained as counsel to ACLN in the United States.
96. ACLN has never commented on its failure to appoint a legitimate audit
committee and has ignored related media inquiries.
E. ACLN’s Dark Secret Is Discovered by the SEC: ACLN’s CEO Is A Wanted Fugitive
97. On March 18, 2002 Defendant Aldo Labiad a/k/a Abderrazak Labiadh
was identified by the SEC in the March 18, 2002 Order and press release as a wanted criminal
who uses multiple names.
98. In the March 18, 2002 Order and press release, the SEC “temporarily
suspended trading in the securities of ACLN because of questions that have been raised about the
accuracy and adequacy of publicly disseminated information concerning... the bases for the
nondisclosure in any Commission filing the warrant issued by Tunisian authorities for the arrest
57363.6 31
or Abderrazak Labiadh, ACLN’s President, CEO, and Managing Director, for allegedly
misappropriating funds from a Tunisian company he founded.”
99. The information concerning Labiad’s arrest warrant, a material matter,
was withheld by ACLN in its SEC filings.
Failure to Disclose Self-Dealing Transactions
100. Throughout the Class Period, the Company and insiders engaged in
numerous transactions with Company insiders, none of which were publicly disclosed. The
Individual Defendants and Defendant BDO International knew or were reckless in not knowing
about these transactions. The Individual Defendants and Defendant BDO International took no
action to publicly expose these transactions or investigate their propriety.
A. Purported Agent Payments to Matina Forwarding and Trading Company
101. Matina Forwarding and Trading Company (“MFT”) is a company founded
by Defendants Bisschops and Labiad in 1979 in Antwerp, Belgium, which purportedly served as
ACLN’s agent in Antwerp, and provided the Company with office space in Antwerp as part of
the per vehicle fee paid to the agent. Defendant Alex de Ridder, ACLN’s COO, Vice President,
Director and sometime CFO, served as an assistant at MFT, oversaw the geographic expansion
of MFT and its affiliates, and was responsible for the establishment of its internal controls and
systems. See, 1999 Form 20-F and 2000 Form 20-F.
102. With Labiad, Bisschops and de Ridder controlling both ACLN and MFT,
the business relationship between ACLN and MFT was not at arms’ length, and ACLN’s SEC
filings did not consistently or accurately report the amount of its purported per vehicle payments
to MFT.
103. On March 13, 2002, ACLN stated in a press release that it intended to
57363.6 32
“terminate its relationship” with MFT. The Company gave no explanation for ending its
business relationship with the closely held MFT, but stated in its press release hat “none of the
agent companies it is considering to replace MFT ‘have a relation to the management of ACLN
Limited.’”
104. Also, on March 13, 2002, Reuters reported that MFT is “controlled” by
Bisschops, and that ACLN had decided to “sever ties” with MFT because it is uncertain whether
it will be able to secure a wholesale new vehicle contract because of the “negative press”
attention it has received.
105. As discussed above, ACLN’s claims of shipped vehicles were greatly
exaggerated, and thus, commission payments to MFT were greatly inflated as those payments
were based, in part, on the number of vehicles ACLN actually shipped.
B. The Sea Atef Was Actually Held By Insiders
106. As discussed above in ¶ 50-62, ACLN claimed from May 2000 through
December 2001 that it owned the Sea Atef outright. However, in its response to the Looking
Glass article, the Company acknowledged that it did not own the Sea Atef directly or entirely.
107. In fact, ACLN claimed in its December 21, 2001 press release that “[t]he
Company owns the Sea Atef indirectly through the Sea Atef Shipping Company which, in turn is
owned by D.C.C. Limited and Mr. Merhi Abou Ali Merhi.” However, according to Mr. Merhi,
defendant Labiad is the CEO of D.C.C. This allegation was later confirmed by the Looking
Glass article.
108. Thus, in addition to failing to truthfully state its ownership interest in the
Sea Atef, the Company failed to identify the transaction as one involving Company insiders in
any of its public filings. In addition, as alleged above, although the Company claims to have
57363.6 33
spent $6 million to purchase the Sea Atef, Mr. Merhi and Mr. Koch state that the actual figure
was much lower.
C. Rental of Office Space In Los Angeles
109. As alleged above, the Company maintained an office in Los Angeles,
California and employed Defendant Payne to serve as its Chief Financial Officer and to work out
of that office. The Company’s Vice President of Investor Relations, Jane Creber, also worked
out of that office.
110. Defendant Payne owns a company called Catalyst Business Systems,
which is a consulting firm that purported to provide “services and office space” to ACLN for an
undisclosed sum at 10990 Wilshire Boulevard, Los Angeles (“the Los Angeles building”).
111. Although the existence of the rental agreement was disclosed, the amount
of money paid by the Company to rent space from a company controlled by its CFO was never
disclosed in any public filing.
The Company’s Annual Reports Were Manipulated and Inconsistent
112. During the Class Period, ACLN issued annual and quarterly reports and
press releases that contained false and inconsistent statements relating to, among other things, the
Company’s expenses, its payments to MFT, and the ownership interest in the Company held by
insiders. As alleged below, these false statements are evidenced by subsequent disclosures by
the Company and demonstrate that the Company engaged in a pattern of manipulating its
financial reporting in order to deceive the investing public. Furthermore, the failure of the
Individual Defendants and Defendant DBO International to take any action relating to these
discrepancies or investigate them in any way demonstrates that they were reckless in failing to
carry out their duties and obligations to the Company.
57363.6 34
A. Inconsistent Statements Relating to Insider Ownership
113. On June 15, 1999, ACLN filed with the SEC its Form 20-F for the year
ended December 31, 1998 (the “1998 Form 20-F”). The 1998 Form 20-F stated that Defendant
Bisschops owned 76.7 % of ACLN’s common stock. According to the 1998 Form 20-F,
Bisschops owned 27.7 % of that common stock indirectly through four companies named
Pearlrose Holdings International (“Pearlrose”), Scott Investments, Gilbert Management and
Emerald Sea Marine. The 1998 Form 20-F was signed by Defendant Bisschops.
114. Violating the requirement that the sale of shares held by the Company’s
principal shareholders must be registered with the SEC, between the time ACLN went public on
June 26, 1998 and the time it filed its 1999 Form 20-F, 2,265,221 shares of ACLN stock held by
entities controlled by Chairman Joseph Bisschops, comprising over 29% of his total holdings in
the Company, vanished without explanation from the ‘principal and management shareholders’
list in the company’s SEC filings. The 1999 Form 20-F also was signed by Defendant Bisschops.
115. At no time between the filing of the 1998 Form 20-F and the filing of the
1999 Form 20-F did ACLN disclose that the shares owned by Bisschops in the 1998 Form 20-F
via the Pearlrose, Scott Investments, Gilbert Management and Emerald Sea Marine were
transferred.
116. Any sale of shares held by principal shareholders must be registered with
the SEC in a Form 144, which shows the intent to sell. Sales can also be part of a stock offering,
but the shares in question were not involved in ACLN’s only private offering.
117. There also have been no Form 144’s listing the sale of the 2,265,221
shares. In addition, there has been no disclosure about where those shares went and what became
57363.6 35
of the proceeds from the sales. Bisschops failed to file a single Form 144.
118. The only Form 144’s filed by any of the missing entities were filed on
three separate occasions by Pearlrose, which is identified in each as having no relationship to
ACLN. However, according to SEC filings, Pearlrose is controlled by ACLN Chairman
Bisschops. The filings, which were made after Pearlrose disappeared from the Company’s
formal documents, cover the sale of 198,683 pre-split shares that had been transferred to
Pearlrose from ACLN on June 25, 1998 -- one day before ACLN went public.
119. Moreover, the SEC filings show that the number of shares sold was more
than had been registered, and that Pearlrose held a steady number of shares (adjusted for two
splits) from six months prior to ACLN’s initial public offering to the time Pearlrose’s name, and
shares, disappeared fro ACLN’s public filings.
120. The missing shares represented 20% of the outstanding shares of ACLN’s
common stock. ACLN has failed to offer any explanation regarding these highly unusual
transfers of Bisschops-controlled shares, the whereabouts of these shares, and if they were sold,
the whereabouts of the sale proceeds. BDO International issued clean audit opinions in the 1999
and 2000 20-F’s despite these contradictory statements.
B. Inconsistent Reporting of Payments to MFT
121. During the Class Period, ACLN made several public statement s about its
payments to MFT. However, the amounts are inconsistently reported.
122. The 1999 Form 20-F reported that for the years ended December 31, 1999
and December 31, 1998 ACLN had paid fees to MFT amounting to $2,903,000 and $2,427,000,
respectively.
123. The 2000 Form 20-F stated that ACLN had paid MFT $4,463,148 for the
57363.6 36
year ended 1998 and $5,402,328 for the year ended 1999. The 1998 and 1999 figures materially
contradict the 1999 Form 20-F which stated MFT had been paid only $2,903,000 for year ended
1998 and $2,427,000 for the year ended 1999.
124. The Company, for the first time in a December 21, 2001 press release
admitted that “[t]he Company is aware of the discrepancy in the disclosure of the amount of fees
paid to its Belgian port agent, MFT, which is controlled by Mr. Bisschops.”
125. The Company has made no further statement explaining this discrepancy.
BDO International issued a clean audit opinion to the 1999 Form 20-F and 2000 Form 20-F
despite these contradictory sections.
C. Inconsistent Statements Relating to Expenses
126. In SEC filings and press releases the Company understated its Selling,
General and Administrative expenses, causing the Company’s net income to be materially
overstated.
127. On March 6, 2001, ACLN issued in a press release its results for the fourth
quarter and the year ended December 31, 2000 (the “4Q 2000 press release”). The 4Q 2000
press release stated that for the quarter and year ended December 31, 2000, the Company
reported Selling, General and Administrative expenses of $4,922,804 for the year.
128. Then, on June 28, 2001, ACLN filed its 2000 Form 20-F. In material
contradiction to the 4Q 2000 press release, the 2000 Form 20-F stated that ACLN had Selling,
General and Administrative expenses of $5,228,235 for the year.
129. No reason was given in the 2000 20-F filing for the $305,431 discrepancy.
Thus, the Company’s initial statements about these expenses were false and misleading.
Defendant Bisschops signed the 2000 Form 20-F. BDO International issued clean audit opinions
57363.6 37
in the 1999 and 2000 20-F’s despite these contradictions.
Improper and Contradictory Revenue Recognition
130. During a November 14, 2002 conference call held shortly after the close
of the third quarter, a money manager asked why there was an apparent 23% sequential drop in
the number of cars sold. Defendant Labiad stated that the ship holding the cars left port three
days late, and instead of leaving the port at the end of the third quarter, it left at the beginning of
the fourth quarter. See, Looking Glass article. Labiad’s assertion implies that the Company
counts cars sold as revenue when the ship leaves port. But according to ACLN’s revenue
recognition policy, revenue is not recognized until a “shipment is completed,” not started.
131. The 1999 Form 20-F sets forth the Company’s policy on recognition of
revenue. The 1999 Form 20-F provided, in pertinent part:
Revenue Recognition
The Company is a facilitator of cargo transport and sales are recorded at the time the shipment in [sic] completed.
See also, Form 6-K dated December 1, 2001 filed with the SEC on December 18, 2001 (“Once
the Company has performed all its logistics services and the cars are delivered to their owners in
Africa through the Company's African port agent, the Company records the revenues and the
related accounts receivable”).
132. ACLN never explained the discrepancy between Labiad’s statement and
ACLN’s official revenue recognition policy and has refused to answer inquiries from the media
or the public.
The Truth Begins to Emerge
133. On December 21, 2001 the Looking Glass article in RealMoney.com
contradicted the Company’s prior SEC filings by revealing that ACLN did not actually own the
57363.6 38
Sea Atef. The Looking Glass article detailed numerous inconsistencies, inadequate disclosures
and discrepancies in ACLN’s press releases and SEC filings during the Class Period with regard
to the Company’s revenues, share ownership, purported ownership of the Sea Atef, its selling,
general and administrative expenses, and its payments to MFT:
• That after the end of the first quarter 2001, ACLN issued the April 23, 2001 press release stating that it had sold 6,500 cars during the quarter. A few weeks later, when the first quarter was reported in a press release, the Company stated it sold $33 million worth of cars. Three months later, in the March 31, 2001 Form 6-K, the number of cars sold dropped to 5,523, but the amount of sales remained the same at $33 million;
• From the time ACLN went public, on June 26, 1998, until it filed an annual report
with the SEC on June 29, 2000, as many as 2,265,221 shares held by entities controlled by Bisschops, 29% of his total holdings, vanished from the Principal and Management Shareholders list in the Company’s SEC filings;
• Form 144’s were filed only on three separate occasions by Pearlrose, which
claimed no relationship to ACLN, and none by Scott Investments, Gilbert Management and Emerald Sea Marine;
• According to SEC filings, Pearlrose is controlled by ACLN Chairman Bisschops.
The Form 144 filings were made only after the disappearance of Pearlrose’s name from the Company’s formal documents. It covers the sale of 198,683 pre-split shares that had been transferred to Pearlrose from ACLN one day before ACLN went public on June 25, 1998;
• Pearlrose’s Form 144 reveals that the number of shares sold by Pearlrose was
greater than the number of shares Pearlrose reported to the SEC that it owned; • According to ACLN’s SEC filings, the Sea Atef, formerly the M/V Emerald Bay,
was purportedly “acquired” by ACLN for $6 million, and was to be written off at a rate of $1.8 million per year;
• As to whether ACLN actually owns the Sea Atef, the Looking Glass article
reported that a search of the ship registration website and documents provided by the Registry of Companies in Malta, where the Sea Atef is based, show the ship’s owner as Sea Atef Shipping Co. Ltd., a company that is jointly owned by Merhi Ali Abou Merhi and D.C.C. Limited. Defendant Bisschops is a member of the Board of Sea Atef Shipping Co. Ltd.;
• If ACLN does not own the ship, then the $6 million payment is questionable, as
well as the $1.8 million annual write off. Without proper disclosure, it is
57363.6 39
impossible for investors to ascertain whether the ownership of assets and the capitalization of assets were recorded properly and at arms- length rates, especially when it is apparent that Bisschops is involved in improperly identified companies doing business with ACLN;
• The Company said that the Sea Atef had a period of “inactivity” because it
“required significant engine repairs” during the third quarter of 2000. However, it its November 2000 press release, the Company said that the third quarter marked its first full quarter with the company-owned vessel, the Sea Atef, in operation and that it had achieved full utilization;
• The fourth quarter 2000 press release states that the Selling, General and
Administrative costs for the fiscal year 2000 were $4.9 million. However, in contradiction to the press releases, in the 2000 Form 20-F, the Company stated that Selling, General and Administrative expenses for the year were $5.2 million; and,
• According to the 1999 Form 20-F, ACLN paid MFT $2.9 million in 1999 and
$2.4 million in 1998. In the 2000 Form 20-F, using the same Cyprus auditors, ACLN represented it paid MFT $5.4 million in 1999 and $4.5 million in 1998 or almost double the amounts contained in the 1999 Form 20-F.
134. The Looking Glass article disclosed that ACLN’s sole transport vessel’s
true former name was Emerald Ray, and that the ship’s true owner was SASC, not ACLN.
135. SASC, in turn, as discussed above in ｶ 50-62, was discovered to be
jointly owned by Merhi and D.C.C., whose CEO was Joseph Bisschops, ACLN’s Chairman.
DCC’s ownership stake in the Sea Atef and Bisschops’ membership on DCC’s board had never
been previously disclosed to the investing public; nor did the Company ever explain the
whereabouts of the $6 million it had allegedly paid towards the purchase of the Sea Atef.
136. Moreover, the Company remained silent as to why it was writing off $1.8
million a year for the alleged depreciation/amortization of a vessel in which it had no actual legal
ownership.
137. Thus, ACLN falsely claimed in the 2000 Form 20-F, that in May 2000, the
Company acquired “the Sea Atef, a car carrier vessel with a 2,850 car capacity, at a cost of
57363.6 40
approximately $6,000,000.” As alleged above, the Company never owned the Sea Atef and did
not pay $6 million for the ship.
138. Following publication of the Looking Glass article, the price of ACLN
shares fell dramatically as shocked investors, realizing the Company was not all it claimed to be,
rushed to withdraw their investments in the Company. By the next day, December 21, 2001, the
price of ACLN stock fell from $26.11 per share to $9.40 per share (63 %) on very heavy trading.
139. In response to this expose, J.P. Morgan Chase, which purportedly was to
provide financing for the purchase of several new ships by ACLN, downgraded the Company’s
stock twice in two days after it could not verify the Company’s reported information, including
the amount of cash on hand. J.P. Morgan Chase also cited, as an additional concern, the
Company’s failure to buy back its shares at lower prices. BT&T dropped coverage altogether.
140. In a January 4, 2002 press release, in response to the SEC investigation,
ACLN falsely stated, “the Company believes that its SEC filings are accurate in all material
respects, welcomes the Commission’s inquiry and is committed to addressing the issues raised
by the Commission promptly and fully.”
141. On January 7, 2002, the price of ACLN shares plunged an additiona l 29%,
to $7.23, following the Company’s announcement that the SEC had begun an investigation into
ACLN’s financial disclosures and that the SEC staff has advised the Company it had “serious
questions” regarding disclosures made by ACLN in its SEC filings.
Insider Trading
142. During all of the malfeasance discussed above, according to the
Company’s Form 144 filings with the SEC, the Individual Defendants engaged in insider trading,
as the chart below indicates:
57363.6 41
Defendant/Position Date No. Shares Sold Pearlrose Holdings (owned by Joseph Bisschops, Chairman)
October 3, 2000 88,300
Pearlrose Holdings
November 8, 2000
110,383
Pearlrose Holdings
March 26, 2001 115,683
Christian Payne, CFO
September 19, 2001
11,000
Christian Payne, CFO
September 19, 2001
6,000
SEC Investigates ACLN and Halts Trading; NYSE De-Lists ACLN
143. On March 18, 2002, the SEC was compelled to halt trading in ACLN
shares due to the Defendants’ financial chicanery. Trading was suspended through April 1, 2002,
but is never likely to resume on the NYSE, as the SEC cited concerns in its Order (“the March
18, 2002 Order”) about the accuracy of ACLN’s financial statements:
The Commission temporarily suspended trading in the securities of ACLN because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things:
• the bases for ACLN’s financial and other disclosure, as contained in its annual
report on Form 20-F for the fiscal year ended December 31, 2000 (“2000 Form 20-F”), report on Form 6-K for the quarter ending September 30, 2001 and other public statements, concerning the revenue and income obtained by ACLN from its new car wholesale business, the volume of that business and the source of the cars sold;
• the bases for ACLN’s financial and other public disclosure in its 2000 Form
20-F and in its December 21, 2001 press release concerning the ownership of the shipping vessel, the Sea Atef, and the bases under generally accepted accounting principles for claiming it as a $5.5 million asset, even though
57363.6 42
documents of title indicate that the vessel is jointly owned by persons or entities other than ACLN;
• the bases for ACLN’s financial and other disclosure in its report on Form 6-K
for the quarter ending September 30, 2001 concerning the revenue and income ACLN obtained from arranging the transportation of used cars, including its reported increase of approximately $60 million in revenue for the first nine months of 2001 over the same period of 2000;
• the bases for the statements in ACLN’s February 5, 2002 press release
announcing that it had acquired a majority interest in five companies, each of which owns a “pure car and truck carrier vessel”;
• the business relationship and the nature of all financial transactions between
ACLN and Matina Forwarding and Trading, also known as MFT; • the source and subsequent use of funds claimed by ACLN as a corporate asset
on its financial statements for the fiscal year ending December 31, 2000 and the fiscal quarter ending September 30, 2001, and deposited at the BNP Paribas Bank, Luxembourg; and,
• the bases for the nondisclosure in any Commission filing of the warrant issued
by Tunisian authorities for the arrest of Abderrazak Labiadh, ACLN’s President, CEO, and Managing Director, for allegedly misappropriating funds from a Tunisian company he founded.
The Commission cautions broker-dealers and current and prospective holders of ACLN securities that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.
144. Richard Sauer, SEC Assistant Director of the Division of Enforcement,
observed that ACLN’s non-existent assets created a serious hazard to the American investing
public, stating that “at this point there isn’t verifiable public information about [ACLN] that
would support a public market stock.” Explaining that the SEC was unable to “verify the source
or use of money in ACLN’s corporate bank accounts or the accuracy of information in the
Company’s financial systems,” he characterized the trading halt as “a product of attempts to
obtain information from and about the company that have obviously not been satisfied.” Mr.
Sauer also stated that, “this is a company that may have to some degree exploited its status as an
57363.6 43
offshore company, a foreign filer, to frustrate inquiries about its business practices.”
145. Another SEC source ominously observed that “[o]ne of the things we’re
looking at is whether the new car business even exists.” See, Soares, “U.S. Suspends Trade in
Cypriot Transport Firm,” Reuters, Mar. 18, 2002.
146. As discussed above, ACLN greatly exaggerated the numbers of cars it had
shipped. While ACLN has claimed that it shipped more than 183,000 cars in 2001, in truth,
ACLN appears to have shipped substantially fewer cars.
147. Late on March 18, 2002, hours after the SEC’s halting of trade in ACLN
shares, the New York Stock Exchange took almost unprecedented action in moving to de- list
ACLN’s common stock.
148. The fact that this was the first time in 27 years that the NYSE had taken
this drastic measure further underscores the seriousness of the SEC’s allegations against ACLN.
A spokeswoman for the NYSE declared that ACLN was “never go ing to open again” for trading
on the exchange. See, Lahart, “SEC Stops Trading in A.C.L.N.,” Street.com, March 18, 2002.
149. In the press release issued by the NYSE on March 18, 2002 announcing
the suspension of trading in ACLN and its removal of the stock from its listing on the exchange,
the NYSE asserted, that
[o]ne of the factors noted in the Exchange’s continued listing criteria that may lead to a company’s delisting is conduct not in keeping with sound public policy. In addition, the Exchange may, at any time, suspend a security if it believes that continued dealings in or listing of the security on the NYSE are not advisable. In light of all the circumstances involving the Company, including the order issued today by the Securities and Exchange Commission suspending trading in the Company’s stock, the Exchange has determined that the Company’s common stock is no longer suitable for continued listing on the NYSE.
150. The Company has never commented regarding the suspension by the SEC
and de- listing by the NYSE.
57363.6 44
151. Prior to the halt, ACLN stock had traded at $8.35 per share, down from its
prior 52-week high of $50.00 per share. When the stock reopened for over-the-counter trading
on April 2, 2002, ACLN stock traded at less than $2.00 per share, another 75% decline in the
stock’s value.
The Company's Inaccurate Statements About Its Cash Position
152. ACLN’s December 21, 2001 press release said: “The Company's cash and
equivalents in its bank accounts at September 30, 2001 was $117,587,888. The company's cash
and cash equivalents are liquid and fully available for use in its business.”
153. In the March 18, 2002 Order, the SEC said it was concerned about the
accuracy and adequacy of publicly disseminated information concerning, among other things,
“the source and subsequent use of funds claimed by ACLN as a corporate asset on its financial
statements for the fiscal year ending December 31, 2000 and the fiscal quarter ending September
30, 2001, and deposited at the BNP Paribas Bank, Luxembourg.”
ACLN’s Disappearance
154. On or around March 20, 2002, ACLN appears to have surreptitiously and
suddenly closed the “Los Angeles office” and disconnected the telephone without leaving any
forwarding number or address. On that date, defendant Payne and Investor Relations Vice
President Jane Creber - the two executives working for ACLN’s purported U.S. office - abruptly
resigned from the Company without giving information as to their whereabouts.
155. In March 2002, ACLN announced that it had moved its headquarters from
Belgium to Cyprus and claimed to have only four current employees. Thus, the Company
appears to be shrinking and becoming more unreachable, and even less accountable than ever.
Involvement of Defendant Brock
57363.6 45
156. During the Class Period, part and parcel of ACLN’s fraud was the
involvement of their American lawyer, defendant Brock.
157. From 1997 to the beginning of January 2001, Brock’s law firm, currently
known as Reitler Brown, and formerly known as Brock Silverstein, continuously provided legal
services to ACLN. See, Reitler Brown v. ACLN, (S.D.N.Y. 2001), Complaint, ¶ 7. Brock was a
senior and managing partner in the Brock law firm. Upon information and belief, Brock
continued to provide legal services for ACLN after January 2001 through March 2002.
158. The Brock law firm was a large shareholder in the Company and thus
Brock had a vested interest in taking actions that would enable the value of its ACLN stock to
remain at the highest price possible. As of December 31, 2000, the Brock law firm owned
156,250 shares of ACLN common stock (worth over $6 million at times during the Class
Period). See, 2000 Form 20-F; see also, Herb Greenberg, “Meet ACLN’s Audit Committee and
Worry,” RealMoney.com, Jan. 14, 2002. In addition, on or around December 13, 2001, Brock
filed a Form 144 to sell 93,750 ACLN shares for estimated proceeds of $3.351 million.
Although Brock did not complete the sale of his shares, his action demonstrates that he knew that
the Company’s troubles would soon inevitably come under public scrutiny.
159. ACLN first retained the Brock law firm in or about 1997 to represent the
Company in the financing of the business and a planned initial public offering of stock to the
American public. See, Reitler Brown v. ACLN, Complaint, ¶ 6.
160. The Brock law firm’s attorneys, working under the direction of defendant
Brock, assisted in preparation of ACLN's press releases and drafted, prepared, revised, and
reviewed ACLN’s SEC filings including its Form F-3, Form 6-K, Form 20-F, Schedule 13 G,
and S-8 filings.
57363.6 46
161. As reflected in the Billing Statements from the Brock law firm to ACLN,
on October 7, 1999, October 11, 2000, and January 10, 2001 the Brock law firm conferred with
ACLN’s BDO International auditors in New York and Cyprus; prepared Form 6-K financial
reports and press releases during the Class Period; prepared materials for the Company for
NASDAQ Capital Stock Market filings; researched and prepared legal opinions with respect to
registration under the Securities Act of 1933 and the removal of restrictive legends from stock
certificates evidencing shares held by Pearlrose Holdings and non-affiliated holders; prepared,
reviewed, and revised periodic reports under the Securities Exchange Act of 1934, including
annual reports on Form 20-F, reports on Form 6-K and Form S-8; prepared, reviewed and
revised press releases and meeting scripts; and generally undertook corporate and securities
representation of ACLN.
162. The Brock law firm’s October 7, 1999 invoice provides:
FOR SERVICES RENDERED from the period from December 1, 1998 through September 30, 1999, in connection with the general corporate and securities representation of A.C.L.N. Limited, including, without limitation, drafting of annual and periodic reports, including Forms 6-K and 20-F and schedules 13G, and preparation of closing binders, representation of A.C.L.N. Limited in connection with the private placement or ordinary shares through Spencer Trask, including, without limitation, preparation of private placement memoranda, negotiation of placement agent agreements, warrants, consulting agreements, and closing documents, coordinating of closing, and press releases, opinions, costs, disbursements, meetings, telephone calls, and research relating to the foregoing.
163. The Brock law firm’s October 11, 2000 invoice provides:
FOR SERVICES RENDERED from October 1, 1999 through September 30, 2000, in connection with the representation of A.C.L.N. Limited, including, without limitation; preparation, revision, and review of periodic reports under the Securities Exchange Act of 1934, as amended, including annual reports on form 20-F and reports on form 6-K; preparation, review, and revision of press releases and meeting scripts; post closing matters relating to the private placement of ordinary shares of A.C.L.N. Limited, including preparation, revision, and review of filings under the Securities Act of 1933, as amended, state securities law filings, and coordination of removal of restrictive legends with the transfer agent,
57363.6 47
including drafting of relevant legal opinions; preparation, revision, and review of board and other minutes and attendance, in person or by conference telephone, at board meetings; preparation, revision, and review of annual proxy statement and review and revision of annual report to stockholders; preparation of notices and other actions relating to splits of outstanding ordinary shares; assisting with investment banking and public relations matters; preparation, revision, and review of registration statement of Form S-8; coordination with Cypress counsel and auditors, and meetings, telephone calls, and research relating to the foregoing, including costs and disbursements recorded through September 30, 2000.
164. The Brock law firm’s January 10, 2001 invoice provides:
FOR SERVICES RENDERED during the three months ended December 31, 2000 consisting principally of: matters with respect to Securities Exchange Act of 1934 reports, primarily drafts and filing of reports on Form 6-K disclosing results for the three and six months ended June 30, 2000, review of related management’s discussion and analysis and related conferences with Christakis Joannou and Lee Dewey of BDO Seidman and office of Michael Doherty and drafts and filing of reports on Form 6-K containing press releases dated October 10, 2000 and November 15, 2000, including review and revisions of drafts and related conferences with representative of company; matters with respect to five-for-four stock split effected on September 18, 2000, including preparation of materials for NASDAQ capital stock market, correspondence, including legal opinions, to continental stock transfer company, the transfer agent for the ordinary shares concerning issuance of shares and cash payments in lieu of fractions and related telephone conferences with representatives of the transfer agent and of the company; matters with respect to the cash exercises and cashless exercises of warrants, including confirmation to the transfer agent for the ordinary shares of number of shares to be issued and cash payment to be made as a result of stock splits and preparation of related legal opinions to transfer agent with respect to shares issued; matters with respect to transfers by holders of ordinary shares, including research and preparation of several legal opinions with respect to registration of exemptions from registration under the Securities Act of 1933, as amended and preparation of legal opinions concerning removal of restrictive legends from stock certificates evidencing shares held by Pearlrose Holdings and non-affiliated holders; and matters with respect to a proposed borrowing, including securing and transmitting materials requested by Economides, Palisades and Co. Plus unreimbursed costs and disbursements through December 31, 2000, consisting principally of long distance telephone tolls, telecopy tolls, pho tocopy charges and local and overseas deliveries
165. Thus, the Brock law firm’s legal services for ACLN were extensive and
therefore, Defendant Brock was intimately involved with, and knowledgeable of, the operation
57363.6 48
and financial condition of ACLN.
166. Defendant Brock, as a director with close ties to ACLN management, as
Chairman of the Audit Committee, and as the Company’s attorney, had virtually unlimited
access to information about the Company.
167. Defendant Brock had extensive knowledge of the financial condition of
ACLN, including the Company's annual financial statements prepared in collaboration with the
Company's independent auditors and internal accountants. Consequently, Defendant Brock
knew or was reckless in not knowing that the Company had made false and exaggerated claims
about its expenses and revenues.
168. Defendant Brock, as Audit Committee Chairman and the Company’s
attorney, was charged with the responsibility to know about the sale, disposition or mortgaging
of vessels, if any, owned by the Company, and also was to conduct an annual review of the
ratings of the vessels, if any. Consequently, Defendant Brock knew or was reckless in not
knowing that the Company did not actually own any vessels, despite ACLN’s claim in
documents he and his law firm prepared.
169. Defendant Brock, as Audit Committee Chairman and the Company’s
attorney, was charged with the responsibility to know about contracts between the Company and
the officers, directors, and other affiliates thereof. Consequently, Defendant Brock knew or was
reckless in not knowing that the Company had entered into a contract with a port agent, MFT,
controlled by ACLN officers. Because he was privy to information about the revenues of
ACLN, he also knew or was reckless in not knowing that MFT was not being paid amounts that
were fair or reasonable, given the number of vehicles that ACLN had actually shipped.
170. Defendant Brock, as Audit Committee Chairman and the Company’s
57363.6 49
attorney, knew that the Company had made false and misleading public statements that
Defendant Savva, the other member of the Audit Committee, was an associate of a law firm
when in truth, as known to Brock, she was a receptionist or secretary employed by that law firm.
Defendant Brock also knew that the Company’s statements about his own independence were
inaccurate.
BDO International’s Involvement
A. Background relating to BDO International
171. Defendant BDO International, through its regional offices, offers a full
range of professional auditing, accounting, tax, financial and management advisory services, and
ranks number six on the list of the world’s largest multinational accounting and consulting firms.
BDO International maintains in excess of 590 offices in 99 countries worldwide with its
principal offices located in Brussels, Belgium. BDO International began in 1963 when firms
from the United Kingdom, Germany, the Netherlands, USA and Canada joined together under
the name Binder Seidman International Group. In 1988, as the firm continued to expand
globally, the umbrella organization BDO International was formed, to enable all of its regional
offices to operate as a single global partnership or joint venture.
172. The BDO International structure was and is designed to maintain the
perception of one large global firm, and was and is intended to foster the belief that BDO
International operates as a single entity because it does in fact operate as such. This model was
meant to preserve the unity of the global partnership, which includes joint financial reporting and
common standards of performance. As of September 30, 2001, BDO International reported total
income for the year of EUR 2.413 billion (or US$2.203 billion). The regional division of this
revenue was as follows: EUR 1.1278 billion came from the Americas; EUR 48.6 million came
57363.6 50
from Africa and the Middle East; EUR 215.1 million came from Asia Pacific; and EUR 1.0219
billion came from Europe.
173. The BDO International website also illustrates the interrelationship of the
various offices by offering direct links to the websites of BDO International’s various offices.
Moreover, two of the documents relating to BDO International’s role in the ACLN matter are the
audit opinions described above (and filed with ACLN’s Form 20-F’s) which were signed by
“BDO International.”
B. BDO International’s Role in the ACLN fraud
174. ACLN’s business was international in nature and depended upon business
dealings in the Middle East and Africa. These developing parts of the world are often considered
risky and difficult places to do business. Thus, ACLN needed to put the imprimatur of a well-
known and respected accounting firm in its public filings in order to demonstrate to the investing
public that ACLN was a worthwhile investment. Thus, BDO International’s involvement in the
efforts to deceive the investing public about ACLN’s true status was critical to the defendants.
Notably, BDO International’s website provides that a “BDO audit lends credibility to a client’s
financial statements because is [sic] backed up by indisputable experience and expertise.”
175. However, BDO International played another important role for ACLN.
Upon information and belief, BDO International served as ACLN’s internal accountants. Upon
information and belief, during at least the 1999 and 2000 fiscal years (the same time periods
which were later the subject of BDO International’s “clean” audit opinions), BDO International
provided accounting services to ACLN. Upon information and belief, these services included
but were not limited to the maintenance of the Company’s financial books and records,
preparation of financial statements and reports on the Company’s financial performance, and the
57363.6 51
ordinary functions of a business’s accounting department. Thus, in many ways, BDO
International audited its own work in clear violation of GAAS and the representations made in its
audit opinions.
176. BDO Minas Ioannou (a/k/a BDO Cyprus, BDO International and BDO) is
the name of the regional office of BDO International located in Cyprus. Minas Ioannou, as the
firm was originally known, joined BDO International in 1980 as a member firm and now
operates under the name BDO International and is in fact part of BDO International.
177. The Independent Auditor’s Report dated April 30, 2001, for the year
ended December 31, 2000, which offered an unqualified audit opinion of ACLN’s financial
results, was filed with ACLN’s 2000 Form 20-F on June 28, 2001, was signed by “BDO
International” and was issued from BDO International’s Nicosia office. BDO International
consented to the incorporation of its report in the 2000 Form 20-F. See, Consent of BDO
International, 2000 Form 20-F.
178. The Independent Auditor’s Report dated April 7, 2000, for the year ended
December 31, 1999, which offered an unqualified audit opinion of ACLN’s financial results, was
filed with ACLN’s 1999 Form 20-F on June 29, 2000, was signed by “BDO International” and
was issued from BDO International’s Nicosia office. BDO International consented to the
incorporation of its report in the 1999 Form 20-F. See, Consent of BDO International, 1999
Form 20-F.
179. At no time did BDO International publicly reveal its dual role as ACLN’s
internal accountants and external auditors.
180. BDO International’s work was performed not only in Cyprus, but in New
BDO International’s New York, New York office. According to billing records obtained from
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the Brock law firm, Christakis Joannou (of BDO International’s Nicosia office) and Lee Dewey
(of BDO International’s New York office) discussed with the Brock law firm the Company’s
SEC filings and public statements, including the Company’s public statements about its results
for the three and six months ended June 30, 2000 and press releases dated October 10, 2000 and
November 15, 2000. See ¶¶ 162 - 164.
C. BDO International Violated The Relevant Standards
181. The relevant standards at issue are those in the United States. BDO
International’s audit opinions state that the Company’s financial statements conformed to United
States GAAP and that BDO International’s audits conformed to United States GAAS. GAAS, as
approved and adopted by the American Institute of Certified Public Accountants (“AICPA”),
governs the standards by which audits are to be performed and the responsibilities of the
independent auditor. GAAS is divided into three groups: (1) general standards, (2) standards of
fieldwork, and (3) standards of reporting. Under Rule 202 of the AICPA’s Professional Code of
Conduct, every member of the AICPA must comply with GAAS in conducting audits.
182. The General Standards of GAAS require, among other things:
a. that in all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor and auditors; and,
b. that due professional care is to be exercised in the performance of the audit
and the preparation of the report.
183. The Reporting Standards of GAAS require, among other things:
a. that the auditor’s report shall state whether the financial statements are presented in accordance with GAAP;
b. that the report shall identify those circumstances in which such principles
have not been consistently observed in the current period in relation to the preceding period; and
57363.6 53
c. that informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report.
184. Statements on Auditing Standards (“SAS”) are endorsed by the AICPA as
the authoritative promulgation of GAAS and are sometimes also referred to by the term “AU”
which corresponds to Sections of the AICPA’s Professional Standards.
185. The controlling GAAS standard relating to an auditor’s independence is
SAS No. 1, entitled “Independence,” which states:
In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors.
186. The controlling GAAS standard for examination and reporting of
irregularities is SAS No. 53, entitled “THE AUDITORS RESPONSIBILITY TO DETECT AND
REPORT ERRORS AND IRREGULARITIES,” states in relevant part:
[53.03] The term irregularities refers to intentional misstatements or omissions of amounts or disclosures in financial statements. Irregularities include fraudulent financial reporting undertaken to render financial statements misleading, sometimes called management fraud . . . [53.05] The auditor should assess the risk that errors and irregularities may cause the financial statements to contain a material misstatement. Based on that assessment, the auditor should design the audit to provide reasonable assurance of detecting errors and irregularities that are material to the financial statements. The auditor’s responsibilities for detecting misstatements resulting from illegal acts, as defined in SAS No. 54, Illegal Acts by Clients, having a direct and material effect on the determination of financial statement amounts is the same as that for other errors and irregularities. Effect of Irregularities on the Audit Report. [53.26] If the auditor has concluded that the financial statements are materially effected by an irregularity, the auditor should
57363.6 54
insist that the financial statements be revised and, if they are not, express a qualified or an adverse opinion on the financial statements, disclosing all substantive reasons for his opinion.
[53.33] Disclosure to the [SEC] may be necessary if, among other matters, the auditor withdraws because the board of directors has not taken appropriate remedial action. Such failure may be a reportable disagreement on Form 8-K.
187. Had BDO International conducted its audits in accordance with GAAS, it
would not (because it could not) have issued unqualified audit opinions with respect to ACLN’s
1999 and 2000 financial statements as presented. The representations of Defendants BDO
International that its audits of ACLN’s financials conformed to GAAS were false and
misleading for, inter alia, the following reasons:
a. BDO International violated GAAS and the standards set forth in SAS No. 1 and SAS No. 82 by, among other things, failing to adequately plan and supervise the work of its staff and to establish and carry out procedures reasonably designed to search for and detect the existence of material misstatements caused by error or fraud, and most importantly, by failing to be independent because of its dual role as both the Company’s outside auditors and internal accountants;
b. BDO International violated Standard of Reporting No. 4 which requires
that, when an opinion on the financial statements taken as a whole cannot be expressed, the reasons therefore must be stated. BDO International should have stated that no opinion could be issued by it with respect to ACLN’s 2000 financial statements or issued an adve rse opinion stating that those financial statements were not fairly presented. The failure to make such qualification, correction, modification and/or withdrawal, was a violation of GAAS, including Standard of Reporting No. 4.;
c. BDO International violated GAAS, including AU §316.27, by failing to
exercise required professional skepticism in connection with its audits of ACLN’s financial statements. Moreover, BDO International failed to comply with AU §316 by knowingly or recklessly ignoring various red flags concerning the lack of integrity of ACLN’s management and ACLN’s lack of internal controls and internal reporting protocols;
d. BDO International violated GAAS General Standard No. 3, which
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requires that due professional care must be exercised by the auditor in the performance of the audit and the preparation of the report; and,
e. BDO International violated Standard of Fieldwork No. 3, which requires
sufficient competent evidential matter to be obtained through inspection, observation, inquiries and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit.
188. BDO International also failed to adhere to at least the following statements
of Auditing Standards:
a. SAS No. 31, which requires that an auditor obtain all corroborating information necessary to support the financial statements being audited, including, checks, invoices, contracts, minute of meetings, confirmations or other written representations by knowledge people, and information obtained from independent sources;
b. SAS No. 67, which requires that an auditor establish and perform a
confirmation process with third parties to verify information utilized in the audit; and,
c. SAS No. 19, which requires that an auditor not substitute client
representations for audit procedures necessary to form a reasonable basis as to the opinion being given on financial statements.
189. Thus, GAAS required BDO International to express either a qualified or
adverse opinion on ACLN’s financial statements. The failure of BDO International to do so, in
light of the warnings raising red flags about the validity of the Company’s financial statements,
reflects its knowing or reckless conduct, making it liable under Section 10(b) of the Exchange
Act.
190. Defendant BDO International, by virtue of its position as the independent
auditor of ACLN and as the Company’s internal accountant, had access to key employees of the
Company and continual access to and knowledge of ACLN’s confidential corporate, financial,
operating, and business information at all relevant times.
191. Defendant BDO International knew or recklessly disregarded ACLN’s
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true financial and operating condition, and intentionally or recklessly failed to take steps which,
as ACLN’s auditor and accountant, it could and should have taken to fully and fairly disclose to
the public.
192. Defendant BDO International falsely represented that its audits of
ACLN’s 1999 and 2000 financial statements had been conducted in accordance with GAAS and
wrongfully issued “clean” or unqualified opinions or certifications that those financial statements
fairly presented ACLN’s financial condition and results of operations in conformity with GAAP.
193. When BDO issued each of its audit opinions, it knew that these audit
opinions would in turn be included in the Company’s Form 20-F. As discussed above, the Form
20-F’s filed by ACLN for year-end 1999 and year-end 2000 included an audit opinion in which
BDO International expressed its opinion that the financial statements included in ACLN’s Form
20-F conformed with GAAP and had been audited by BDO International in accordance with
GAAS.
194. However, ACLN’s financial statements were not in compliance with
GAAP (for the reasons outlined herein) and BDO International’s audits had not been conducted
in compliance with GAAS. Thus, BDO’s statement that the financial statement complied with
GAAP and that its audit confirmed with GAAS are material misstatements.
195. BDO International violated its obligations to conduct an audit in
compliance with GAAS by, among other things:
• violating GAAS by failing to maintain the required independence of an auditor by simultaneously serving as both the Company’s internal accountant and its outside auditor;
• failing to disclose the dual role played by BDO International as the
Company’s outside auditor and internal accountants.
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196. In addition, BDO International’s statements that it conducted its audits in
compliance with GAAS were false because it was in possession of facts that were in direct
conflict with the statements made by the Company in its 20-F filings. These facts include the
following:
• BDO International knew or was reckless in not knowing (as alleged in ¶¶ 50-62) that ACLN did not own the Sea Atef and was not entitled to take certain write-offs associated with a ship it did not own because BDO International was obligated by GAAS to investigate and verify such information during its audits;
• BDO International knew or was reckless in not knowing (as alleged in ¶¶
152-153) that the Company’s public statements about the cash it held were greatly exaggerated because BDO International was obligated according to GAAS to investigate and verify such information during its audits;
• BDO International knew or was reckless in not knowing (as alleged in ¶¶
92-96) that the members of the Company’s audit committee were not accurately described in the Company’s public statements. Specifically, BDO International had an obligation under GAAS to meet with the members of the Audit Committee and such meetings would have revealed that defendant Savva was not an attorney and that defendant Brock was a Company insider because he also served as the Company’s attorney. In addition, ACLN’s public filings identified the Brock law firm as its attorneys and the billing records from the Brock law firm described herein state that BDO International regularly conferred with the Brock law firm and thus BDO International knew or was reckless in not knowing defendant Brock’s full role with ACLN;
• BDO International knew or was reckless in not knowing (as alleged in ¶¶
113-120) that the Company made inaccurate statements about the numbers of shares held by insiders because the Company’s public filings inconsistently listed the numbers of shares held by Company insiders and according to the Company’s public filings there were missing and unaccounted for shares of ACLN’s stock and because BDO International had an obligation under GAAS to investigate and verify such information;
• BDO International knew or was reckless in not knowing (as alleged in ¶¶
126-129) that the Company made inaccurate statements about its general, selling, and administrative expense because the Company’s public filings inconsistently listed Company’s general, selling and administrative expenses and that because such expenses had been understated, the Company’s net revenues had been overstated and because BDO
57363.6 58
International had an obligation under GAAS to investigate and verify such information;
• BDO International knew or was reckless in not knowing (as alleged in ¶¶ 130-132) that the Company violated its own stated policy with regard to its recognition of revenue by reporting revenue for the cars that the Company sold as soon as the ship carrying the cars left the port and not when the shipment was completed because BDO International had an obligation under GAAS to investigate and verify such information;
• BDO International knew or was reckless in not knowing (as alleged in ¶¶
67-91) that the Company had not actually shipped the number of vehicles it had claimed to have shipped because BDO International had an obligation under GAAS to investigate and verify such information;
• BDO International knew or was reckless in not knowing (as alleged in ¶¶
100-111) that the Company had failed to disclose self dealing transactions, including the MFT transactions, business conducted via a ship actually owned by a Company controlled by ACLN insiders, and renting office space from company insiders because BDO International had an obligation under GAAS to investigate the existence of such conflicts; and,
• BDO International knew or was reckless in not knowing (as alleged in ¶¶
101-105) that because the Company had not actually shipped the number of vehicles it had claimed, “per vehicle” payments were grossly excessive, commercially unreasonable and without consideration because BDO International had an obligation under GAAS to investigate and verify such information.
197. Finally, BDO International failed to disclose at any time during the Class
Period the dual nature of its role as both auditor and accountant for ACLN. At all relevant times,
BDO International knew or was reckless in not knowing that such information was material to
its public statements about ACLN’s financial information and that the omission of this fact from
BDO International’s statements about the Company’s financial results was a material omission.
Defendants Misrepresented and Failed to Disclose Material Facts
198. In knowing or recklessly disregarding the truth, Defendants issued and/or
participated in the issuance of materially false and misleading statements and financial
information to the investing public, as particularized above in paragraph ¶ 196. These
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representations were materially false and misleading when made for the reasons set forth herein
in that they falsely stated and/or failed to disclose adverse facts about ACLN’s business and
financial condition, which facts were known to, or recklessly disregarded, by Defendants.
Specifically, the Forms 6-K and 20-F, along with the corresponding press releases, which the
Individual Defendants and Defendant BDO International caused the Company to file and issue
during the Class Period, were the result of a fraud which deceived the investing public, who
purchased ACLN securities based upon those representations and further, these disclosures
contained financial information which, inter alia, among other things, misstated sea vessel assets,
vehicles shipped, and understated the Company’s selling, general and administrative expenses.
Scienter Allegations
199. Defendants’ false representations and material omissions were made with
scienter in that: Defendants knew or recklessly disregarded that the Forms 6-K and 20-F and the
corresponding press releases and statements issued or disseminated by ACLN during the Class
Period with respect to the financial results were materially false and misleading as described
above; knew or were reckless in not knowing that the false financial results would be issued or
disseminated to the investing public; and knowingly and substantially participated in the
preparation and/or issuance or dissemination of such statements or documents. The following
factors, as outlined in greater detail above, indicate that Defendants made the misrepresentations
knowingly or with reckless disregard for the truth:
a) Each of the defendants knew or was reckless in not knowing that the Company’s
Form 20-F’s, quarterly reports and public press releases contained material inconsistencies as described above. These inconsistencies should have alerted each of the defendants that ACLN’s financial reporting was inaccurate and each of the defendants had an obligation to correct the misstatements or, at the very least investigate why the company’s public statements were inconsistent. The willful failure to act in the face of such information is reckless.
57363.6 60
b) Defendant Brock, in his capacity as the Company’s lawyer and as Chairman of the Audit Committee, had virtually unlimited access to the Company’s financial records and knew that the Company’s financial reporting, at the very least, contained inconsistent statements. He knew or was reckless in not knowing that the Company’s financial reporting was false and misleading. He also knew the true identity of defendant Savva and that he was, contrary to the Company’s public statements, not an independent director properly serving on the Audit Committee.
c) Defendant’s Brock and his law firm owned a substantial amount of ACLN stock and he derived substantial legal fees from ACLN. Therefore, he was motivated to ignore ACLN’s financial improprieties.
d) Each of the Individual Defendants and BDO International knew or was reckless in not knowing the true backgrounds of the members of the Company’s audit committee. Each of these defendants had an obligation to meet with and communicate with the Audit Committee.
e) Each of the defendants knew or was reckless in not knowing that that BDO International was serving as both the Company’s auditor and its internal accountant but failed to take action to correct this problem or disclose it to the public.
f) Defendants Bisschops, as the CEO of D.C.C., knew the Company’s statements about ownership of the Sea Atef were false.
g) Bisschops, Labiad, and Payne were senior officers of the Company. As such, they had unlimited access to the Company’s financial information. They knew or were reckless in not knowing that the Company’s public statements about its financial performance as alleged above was false.
h) Bisschops signed all but one of the Forms 6-K and 20-F as described herein;
i) Defendants had the motive and the opportunity to perpetrate the fraudulent scheme and course of business described herein;
j) Bisschops and Payne engaged in insider trading as described herein;
k) ACLN grossly overstated the number of cars it had actually shipped and its revenues from those shipments by a magnitude approaching 1000%;
l) By grossly overstating the number of cars it had actually shipped, Labiad, Bisschops and de Ridder, as shareholders of ACLN, would benefit by inflating ACLN’s stock price;
m) Labiad is a wanted fugitive who used multiple names;
n) Because Payne’s compensation was based directly on the Company’s stock price,
57363.6 61
he had motivation to take actions that improved the price of ACLN stock;
o) As the SEC declared, ACLN intended to frustrate inquiries about its business practices;
p) BDO International violated GAAS by sacrificing its required independence and serving as both the Company’s outside auditor and its internal accountant;
q) BDO International failed to disclose in any way its dual role as ACLN’s accountant and auditor; and
r) BDO International possessed enough information, including the obvious errors in the Company’s public filings described above, including the inconsistent statements about insider stock ownership and expenses to alert BDO International that the Company’s public statements were inaccurate, yet BDO ignored these warnings and issued public statements that the Company’s annual reports confirmed to GAAP and that BDO International’s audits of those statements conformed to GAAS.
s) BDO International knew or was reckless in not knowing each of the facts described in ¶ 196 above, yet issued clean audit opinions for ACLN’s financial statements.
Fraud on the Market Presumption
200. Plaintiffs 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 regarding ACLN during the Class Period;
b) The omissions and/or misrepresentations were material;
c) The securities of the Company trade on the New York Stock Exchange, an efficient and open market;
d) The misrepresentations and omissions alleged would tend to induce a reasonable investor to misjudge the value of the Company’s securities; and
e) Plaintiffs and the members of the Class purchased their ACLN stock without knowledge of the misrepresented facts, between the time Defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed.
201. ACLN, traded on the NYSE, was followed by numerous market makers,
including Buyside Research, Inc., SM Lafferty Associates and ValuEngine, Inc. The price of
57363.6 62
ACLN’s stock during the Class Period reflected the effect of news disseminated in the market.
202. Based upon the foregoing, Plaintiffs and the members of the Class are
entitled to a presumption of reliance upon the integrity of the market. COUNT I
For Violations of Sections 10(b) of the Exchange Act and Rule l0b-5 Promulgated Thereunder Against All Defendants
203. Plaintiffs incorporate by reference and re-allege each of the foregoing
paragraphs as if fully set forth herein.
204. During the Class Period, Defendants, individually and/or in concert,
engaged in a course of conduct, pursuant to which they knowingly and/or recklessly engaged in
acts, transactions, practices, schemes and courses of business which operated as a fraud upon
Plaintiffs and other members of the Class, and made various untrue and deceptive statements of
material fact and omitted to state material facts necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading to Plaintiffs and other
Class members. The purpose and effect of this course of conduct was to induce Plaintiffs and the
Class to purchase ACLN common stock at artificially inflated prices.
205. During the Class Period, Defendants, pursuant to their unlawful course of
conduct, knowingly and/or recklessly issued, or caused to be issued statements to the investing
public as described above, including the Forms 6-K and 20-F and corresponding press releases,
as set forth above, including but not limited to in paragraphs ¶¶ 3-4, 49-99, 101-129, 130-131,
152-153, 167-170 and 193-198.
206. Defendants knew and/or recklessly disregarded the falsity of the
57363.6 63
foregoing statements.
207. As senior officers and/or directors of the Company, involved in its
business and operations, Defendants Bisschops, Labiad, de Ridder, Payne, Doherty, Gould,
Savva and Brock, in addition to the Company’s auditors/accountants BDO International,
respectively, had access to the non-public information detailed above, by virtue of their receipt of
periodic internal reports detailing actual sales, sales terms and other financial information.
Throughout the Class Period, ACLN acted through the Individual Defendants, whom it portrayed
and represented to the press and public as its authorized representatives, and also through its
accountants/auditors, Defendant BDO International.
208. The willfulness, motive, knowledge, and/or recklessness of Defendants
Bisschops, Labiad, de Ridder, Payne, Doherty, Gould, Savva, Economides, and Brock are
therefore imputed to ACLN, which is primarily responsible for the securities law violations of
the Individual Defendants while acting in their official capacity as Company representatives, or,
in the alternative, which is liable for the acts of the Individual Defendants under the doctrine of
respondeat superior.
209. Each of the Defendants knew or recklessly disregarded the fact that the
above acts and practices, misleading statements, and omissions would adversely affect the
integrity of the market in ACLN’s common stock. Had the adverse facts Defendants concealed
been properly disclosed, ACLN’s stock would not have sold at the artificially inflated prices it
did during the Class Period.
210. As a result of the foregoing, the market price of ACLN common stock was
artificially inflated during the Class Period. In ignorance of the false and misleading nature of the
representations, Plaintiffs and other members of the Class relied, to their detriment, on the
57363.6 64
integrity of the market as to the price of ACLN common stock.
211. The price of ACLN common stock declined materially upon public
disclosure of the true facts that had been misrepresented or concealed, as alleged in this
Consolidated Amended Complaint. Plaintiffs and other members of the Class have suffered
substantial damages as a result of the wrongs alleged herein.
212. By reason of the foregoing, Defendants violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder. COUNT II
For Violations of §20A of the Exchange Act Against Defendants Bisschops and Payne
213. Plaintiffs incorporate by reference and re-allege each of the foregoing
paragraphs as if fully set forth herein.
214. The Defendants named in this Count for Relief are the Defendants that
sold ACLN stock during the Class Period.
215. This Count is brought by the Plaintiffs and against the Defendants
Bisschops and Payne.
216. According to the defendants SEC filings, Plaintiffs Mikell and Minter
purchased ACLN stock contemporaneously with sales of ACLN stock by Defendants named in
this Count.
Defendant/Position Date of Defendant’s
Sale Plaintiff Date of Plaintiff’s
Purchase Pearlrose Holdings (owned by Joseph Bisschops, Chairman)
October 3, 2000 Lee Mikell October 3, 2000
57363.6 65
Pearlrose Holdings November 8, 2000 Lee Mikell
November 29, 2000
Christian Payne, CFO
September 19, 2001 Thomas Minter September 19, 2001
Christian Payne, CFO
September 19, 2001 Thomas Minter September 19, 2001
217. By virtue of their positions as senior insiders of ACLN, Defendants named
in this Count were in possession of material, non-public information about ACLN at the time of
their collective sales of more than $500,000 of their own ACLN stock to Plaintiffs and members
of the Class at artificially inflated prices.
218. By virtue of their participation in the scheme to defraud investors
described herein, and/or their sales of stock while in possession of material non-public
information about the adverse information detailed herein, these Defendants (Bisschops and
Payne) violated the Exchange Act and applicable rules and regulations thereunder.
219. Plaintiffs and all other members of the Class who purchased shares of
ACLN stock contemporaneously with the sale of ACLN stock by the Defendants named in this
Count: (1) have suffered substantial damages in that they paid artificially inflated prices for
ACLN stock as a result of the violations of §§ 10(b) and 20(a) of the Exchange Act and Rule
10b-5 herein described; and (2) would not have purchased ACLN stock at the prices they paid, or
at all, if they had been aware that the market prices had been artificially inflated by Defendants’
false and misleading statements.
57363.6 66
COUNT III
Violation Of Section 20(a) Of The Exchange Act Against Defendants Bisschops, Labiad, Payne and Brock
220. Plaintiffs incorporate by reference and re-allege each of the foregoing
paragraphs as if fully set forth herein.
221. Each of the Individual Defendants named in this Count (defendants
Bisschops, Labiad, Payne, and Brock) had direct and/or supervisory involvement in the day-to-
day operations of the Company and, therefore, is presumed to have had the power to control or
influence the particular transactions giving rise to the securities violations as alleged herein, and
exercised the same.
222. By reason of their status as officers and members of management and/or
as a director of ACLN, these defendants are “controlling persons” of ACLN within the meaning
of Section 20(a) of the Exchange Act and had the power and influence to cause ACLN to engage
in the unlawful conduct complained of herein. Because of their position of control, the
defendants named in this Count were able to, and did, directly or indirectly, control the conduct
of ACLN’s business, the information contained in its filings with the SEC, and public statements
about its business.
223. Each of the defendants named in this Count were provided with or had
unlimited access to copies of the Company’s reports, press releases, public filings and other
statements alleged by Plaintiffs to be misleading prior to and/or shortly after these statements
were issued and had the ability to prevent the issuance of the statements or cause the statements
to be corrected.
224. As set forth above, ACLN, Defendant BDO International and each of the
Individual Defendants each violated Section 10(b) of the Exchange Act and Rule l0b-5 by their
57363.6 67
acts and omissions as alleged in this Complaint. By virtue of their positions as controlling
persons, the defendants named in this Count are liable pursuant to Section 20(a) of the Exchange
Act. As a direct and proximate cause of the defendants’ wrongful conduct, Plaintiffs and other
members of the Class suffered damages in connection with their purchases of the Company’s
securities during the Class Period.
DEMAND FOR JURY TRIAL
Plaintiffs demand a trial by jury on all issues.
WHEREFORE, Lead Plaintiff on its own behalf and on behalf of the Class pray
for judgment as follows:
A. Declaring this action to be a proper class action maintainable pursuant to
Rule 23 of the Federal Rules of Civil Procedure and Plaintiffs to be a proper class representative;
B. Awarding Plaintiffs and the Class compensatory and recissionary
damages, together with appropriate prejudgment interest at the maximum rate allowable by law;
C. Ordering an accounting of Defendants' insider-trading proceeds;
D. Disgorgement of Defendants' insider-trading proceeds;
E. Restitution of investors' monies of which they were defrauded;
F. Awarding compensatory damages in favor of Plaintiffs and the other Class
members against all Defendants, jointly and severally, for all damages sustained as a result of
Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
G. Awarding Plaintiffs and the Class their costs and expenses for this
litigation including reasonable attorneys’ fees and other disbursements; and,
H. Granting such other and further relief as the Court deems to be just and
proper.
57363.6 68
Dated: May 29, 2002
BERNSTEIN LITOWITZ BERGER & GROSSMAN LLP
_/s/ Daniel L. Berger_____________ Daniel L. Berger (DLB-7748) 1285 Avenue of the Americas New York, NewYork 10019 Tel: (212) 554-1406 Fax: (212) 554- l444 Attorneys for Lead Plaintiff the Teachers’ Retirement System of Louisiana and Lead Counsel to the Class
Additional Plaintiffs’ Counsel Arthur N. Abbey, Esq. Joshua N. Rubin, Esq. Deborah Sturman, Esq. ABBEY GARDY, LLP 212 East 39th Street New York, New York 10016
Steven Schulman, Esq. Samuel H. Rudman, Esq. MILBERG WEISS BERSHAD HYNES & LERACH LLP One Pennsylvania Plaza, 49th fl. New York, New York, 10119-0165 Thomas A. Holman, Esq. STARR & HOLMAN LLP 10 East 40th Street, Suite 2904 New York, New York 10016
57363.6 69
Joseph Weiss, Esq. Jack Zwick, Esq. WEISS & YOURMAN 551 Fifth Avenue, Ste. 1600, New York, New York 10176 and, Wendell Tong, Esq. Kevin I. Yourman 10940 Wilshire Boulevard 24th Floor Los Angeles, California 90024
Kenneth F. McCallion, Esq. Curt Trinko, Esq. MCCALLION AND ASSOCIATES LLP 16 West 46th Street New York, New York 10036
Jeffrey S. Abraham (JA-2946) ABRAHAM & ASSOCIATES One Penn Plaza, Suite 1910 New York, NewYork 10119-1910