The Suing Game

They are as American as layoffs, stock market manias and dishonest politicians.

Lawsuits.

And Corporate America is no stranger to this favorite pastime, of course.

However, the collapse among hundreds of stocks in the past year or so and the recent rash of accounting scandals and earnings restatements have spawned at least one growth industry—The plaintiff bar. Shareholder class action lawsuits have been proliferating like day- traders during a mania.

Indeed, a recent PricewaterhouseCoopers study more than half of the 201 shareholder class action lawsuits filed in federal courts last year contained allegations of financial fraud.

And, for the most part, it's the same law firms bringing the case to court--Milberg Weiss Bershad Hynes & Lerach, Charles J. Piven, P.A., Cohen, Milstein, Hausfeld & Toll, P.L.L.C., Pomerantz Haudek Block Grossman & Gross LLP, and Cauley Geller Bowman & Coates, LLP, to name just a few.

Of course, class action suits among shareholders are not exactly a new phenomenon. See 1999 CFO magazine story.

Thursday's action was just one typical day in the life of the legal assault on corporations. Let's recap:

• A class action suit was filed against Dollar General, Cal Turner, Jr., its Chairman and Chief Executive Officer, Brian M. Burr, Chief Financial Officer, and Deloitte & Touche, LLP, Dollar General's auditor and principal accounting firm. This was the fifth such lawsuit filed in recent days.

The suit stems from the company's late-April warning that it will restate its financial results for the past three years due to accounting irregularities. The stock subsequently plunged more than 37 percent on the news.

The complaint alleges, in part, that "Deloitte, by virtue of its position as independent accountant and auditor of Dollar General, had access to the files and key employees of the Company at all relevant times… Deloitte knew or recklessly disregarded Dollar General's true financial and operating situation, and intentionally or recklessly failed to take steps which, as Dollar General's auditor, Deloitte could and should have been taken to fully and fairly disclose that situation to the investing public."

It added, "Dollar General falsely represented that is audits of Dollar General financial statements had been conducted in accordance with GAAS and wrongfully issued "clean" or unqualified opinions or certifications that those financial statements fairly presented Dollar General's financial condition and results of operations in conformity with GAAP."

• Cauley Geller Bowman & Coates, LLP became the latest firm to file a class action on behalf of shareholders of SeaView Video Technology, Inc., which currently trades on the OTC Bulletin Board.

Its complaint charges SeaView and its President and Chief Executive Officer, Richard L. McBride "made numerous materially false and misleading statements, concerning, among other things, SeaView's reported revenues for the second and third quarter of 2000 as well as expected revenue for the Year 2000, the demand for SeaView's products, and SeaView's ability to manufacture sufficient product to meet the purported demand." In addition, the Complaint charges that "SeaView and McBride failed to disclose that the Company recognized revenue for non- existent sales."

• Milberg Weiss Bershad Hynes & Lerach LLP filed a suit on behalf of shareholders of NaviSite, Inc., alleging that when the company filed for its IPO in 1999, its prospectus was "materially false and misleading," because it failed to disclose, among other things, that underwriter Robertson Stephens had received excessively large commissions from its customers and worked out a deal with the customers to buy more shares in the aftermarket once the stock began trading. This is related to the SEC investigation of Credit Suisse First Boston's practices regarding IPOs.

• Cauley Geller Bowman & Coates, LLP filed a class action against Luxottica and Share Acquisition Corp., which teamed up to buy Sunglass Hut International, Inc. The suit alleges that the defendants "offered and paid greater consideration to James N. Hauslein, the Chairman of the Board of Sunglass, than to other tendering Sunglass shareholders, as an inducement to Hauslein to support the Tender Offer and to tender his approximately 1.7 million Sunglass shares to" the acquiring entity.

The suit also alleges that "the additional consideration to Hauslein, which was never offered nor paid to other Sunglass shareholders, was in the form of a lucrative Consulting Agreement entered into between Hauslein and Luxottica, under which Luxottica allegedly agreed to pay Hauslein $15 million over a five-year period. "

• Beatie and Osborn LLP has filed a class action lawsuit against Curtis International Ltd., which on May 4 announced a privatization plan under which it would buy for cash all shares of its stock not owned by Aaron Herzog, the Company's President and CEO, Jacob Herzog, the Company's Chairman and certain related family trusts.

The suit alleges that the tender offer documents were materially false and misleading because "they failed to disclose defendants' scheme to defraud shareholders of Curtis by artificially depressing the company's stock price in order to eventually repurchase the company from the public at a steep discount."

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