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/raid1/www/Hosts/bankrupt/CAR_Public/020125.mbx C L A S S A C T I O N R E P O R T E R Friday, January 25, 2002, Vol. 4, No. 18 Headlines ARIZONA: State Rep Sets Aside Proposal Banning Tax Refund Lawsuits ARTHUR ANDERSEN: Hagens Berman Files RICO Suit Due To Enron Collapse BAYCOL LITIGATION: British Users To Sue Anti-Cholesterol Drug Maker BLACK & DECKER: Recalls Lawn Mowers For Defective Blade Control Device CALIFORNIA: Superior Court Asks Parties To Define "Class" In Tax Suit CHEMICAL COMPANIES: 69 Families Reach Settlement in Pollution Suit CSX RAILROAD: Indiana Landowners Settle Railroad "Right-Of-Way" Suit FORD MOTOR: Sued By Black Workers in Nashville Plant For Racial Bias HOME-BUILDING FRAUD: Lawyers in Toussie Rights Suit Turn Away Whites INCO LTD.: Plaintiffs Say Houses Sinking Due To Nickel Contamination MCM INTERNATIONAL: Recalls 50T Electric Washers For Counterfeit Parts METROPOLITAN LIFE: Court Orders Firm to pay Interest for Late Benefits TEXAS: Supreme Court Rejects Racial Bias Charges V. Housing Officials *Turbulent Market Brings Need For Company Execs' Liability Insurance Securities Fraud ANALYTICAL SYSTEMS: SEC Starts Accounting Processes Investigation CAPTEC NET: Grout Firm Initiates Securities Suit in N.D. California COURTNEY SMITH: Securities, Fraud Claims Proceed Against CNN Analyst ENRON CORPORATION: Plaintiffs Ask Court To Stop Shredding of Documents GLOBIX CORPORATION: Cohen Milstein Initiates Securities Suit in S.D. NY IMCLONE SYSTEMS: Berman DeValerio Lodges Securities Suit in S.D. NY INFONET SERVICES: Kirby McInerney Lodges Securities Suit in C.D. CA ORATEC INTERVENTIONS: Charles Piven Lodges Securities Suit in S.D. NY SUPREMA SPECIALTIES: Milberg Weiss Commences Securities Suit in NJ TAKE-TWO INTERACTIVE: Cauley Geller Reveals Delay in Earnings Results XO COMMUNICATIONS: Finkelstein Krinsk Lodges Securities Suit in S.D. CA XO COMMUNICATIONS: Lionel Glancy Commences Securities Suit in E.D. VA ********* ARIZONA: State Rep Sets Aside Proposal Banning Tax Refund Lawsuits ------------------------------------------------------------------ Legislation which would have prohibited class action lawsuits related to tax refunds, unless all affected taxpayers had already exhausted administrative appeals with the State, has been set aside by the sponsoring legislator, the Associated Press reported recently. Republican Representative, Steve May, of Paradise Valley, Arizona sponsored the bill, which was prompted by a State Supreme Court ruling last year upholding class-action status for a case challenging state taxation of some stock dividends. That case, known as Ladewig, may cost Arizona hundreds of millions of dollars once all claims are settled. Mr. May's bill would not have affected the Supreme Court's ruling or disposition of the Ladewig case. Critics of the bill told the House Ways and Means Committee at a recent hearing that requiring all claimants to have exhausted their administrative appeals would be setting a condition impossible to meet, because some people would not even know about the case in question. The critics said individuals and small businesses that could not afford to hire their own lawyers would have been prohibited from even going to court as a group to fight for their taxpayer rights. "What you're essentially eliminating is the only vehicle the average person has to pursue an unconstitutional tax claim," said Randall Wilkins, plaintiffs' attorney in the Ladewig case. "It penalizes the very people who need help the most." Representative May said he will try to come up with new legislation to protect the State, but this time he would include taxpayer representatives in his discussions on how to achieve that goal. "That proposal would have been unfair to taxpayers," the legislator acknowledged. "The taxpayer should have an advantage." ARTHUR ANDERSEN: Hagens Berman Files RICO Suit Due To Enron Collapse -------------------------------------------------------------------- Hagens Berman filed a class action suit in US Federal Court against Arthur Andersen LLP and certain officers of Enron Corporation (NYSE:ENE) alleging violations of the Racketeering Influences and Corrupt Organizations Act (RICO). The suit is the first to charge Arthur Andersen with violations under the RICO act. The suit claims they conspired to hide Enron's true financial condition by withholding critical information, which caused employees to lose more than $1.3 billion from their retirement funds. The suit was filed on behalf of more than 100 named plaintiffs and seeks to represent an estimated 21,000 Enron savings plan participants. The suit claims Arthur Andersen's chief auditor, David Duncan, repeatedly certified financial statements he knew were false in an attempt to cover debts and losses, while Enron CEO Kenneth Lay knowingly used that false information to promote the overvalued Enron stock to employees in order to provide "compensation," secure their loyalty and to have stock holdings available as a tool to fend off any hostile takeovers. The suit alleges that Andersen's actions make the company liable under RICO, which prohibits any person from using the assets of any employee pension benefit plan for their own use. Steve Berman, attorney for the plaintiffs, said "We will show that Enron and Andersen had a dirty little secret: both organizations knew Enron was in deep trouble a long time ago.The problem is they had an obligation, both legally and ethically, to share that information. Instead, we will show that they conspired to propagate a myth that Enron was doing well, solely to serve their interests." Several Enron officers are accused of conspiring to defraud Enron employees by contributing worthless stock to retirement plans as part of what the suit describes as a "Retirement Plan Conspiracy" run jointly by Kenneth Lay, other high ranking Enron officials and Andersen. According to Mr. Berman, each time Enron officers matched an employee's contribution with stock, they knowingly contributing stock that was worth much less that the purported value. "Employees were earnestly planning for their future, thinking Enron's stock contribution was putting them further down the road to retirement," he noted. "In fact, we intend to prove that Enron knew it was matching employees' contribution with the modern-day equivalent of plugged nickels." According to the suit, every transfer of Enron stock to the class members' savings plan constituted a violation of the RICO act, which makes it a crime whenever any person "embezzles, steals, or unlawfully and willfully abstracts or converts to his own use or to the use of another, any of the moneys, funds, securities, premiums, credits, property, or other assets of any employee welfare benefit plan or employee pension benefit plan, or of any fund connected therewith." "The RICO act is a powerful tool to punish those who conspire to defraud, and one we think fits Andersen and Enron like a glove," Mr. Berman added. The suit makes several claims of wrongdoing by Andersen, Northern Trust (Nasdaq: NTRS), and several Enron officers and retirement plan administrators, including: (1) Lockdown of Employee Savings Plans in Violation of ERISA: Northern Trust and Enron savings plan administrators breached their fiduciary duty to Enron employees by locking down employee savings plans from Oct. 17 to Nov. 19 without advance notice that the lockdown would begin on Oct. 17, and when they knew, or should have known, that Enron was on the brink of collapse, according to the suit. Furthermore, Northern Trust and the savings plan administrators should not have allowed the planned Oct. 29 lockdown to proceed, since Enron's financial troubles were already partially disclosed. (2) Wrongfully Encouraging Employees to Purchase Enron Stock: Enron savings plan administrators promoted employee contributions to Enron savings and stock option plans when they knew, or should have known, that Enron was not a prudent investment. (3) Using Enron Stock For Matching Contributions in Violation of ERISA: Enron savings plan administrators repeatedly breached their fiduciary duties by making employer contributions with stock they knew, or should have known, was worthless. (4) Retirement Plan Conspiracy - Violations of RICO: Andersen chief Enron auditor David Duncan, Enron CEO Kenneth Lay and other Enron officers conspired to save Enron hundreds of millions of dollars in savings plan contributions by donating what they knew to be worthless Enron stock. Several accounting principals also demonstrate that Andersen and Enron officers released intentionally misleading financial statements, the suit claims. Enron's complete restatement of every financial statement from 1997 to 2000, rather than a simple change in financials, proves that both Andersen and Enron officers knew the off-balance sheet partnerships were being covered up, according to the suit. For more information, contact Mark Firmani by Phone: 206-443-9357 or by E-mail: mark@firmani.com or Steve Berman by Phone: 206-623-7292 or by E-mail: steve@hagens-berman.com BAYCOL LITIGATION: British Users To Sue Anti-Cholesterol Drug Maker ------------------------------------------------------------------- British users of Baycol, the anti-cholesterol drug produced by German pharmaceutical giant Bayer AG, are mulling a class action against the Company on behalf of 22 Britons who complained of adverse side effects ranging from liver and kidney problems to heart failure, the Times reported. The Company withdrew the drug from the market last year after it was linked to more than one hundred deaths worldwide. It was also alleged that the drug led to a serious muscle-wasting condition known as rhabdomyolysis that in some cases can lead to life-threatening kidney failure. So far, the link between Baycol and the deaths have not been proven conclusively, but class actions have been filed in the US over the drug. The suit is the first multi-party action on behalf of British patients. Bringing the suits is John Watkins of Hugh James Ford and Simey, a firm specializing in litigation against pharmaceutical companies. According to The Times, Mr Watkins is currently investigating 492 reports to the UK's Medicines Control Agency of adverse side effects allegedly caused by Baycol. The Company admitted last week that the number of deaths linked to Baycol had doubled to more than 100. However, it denied knowledge of any UK fatalities linked to Baycol. BLACK & DECKER: Recalls Lawn Mowers For Defective Blade Control Device ---------------------------------------------------------------------- Black and Decker (US) Inc. is cooperating with the US Consumer Product Safety Commission (CPSC) by voluntarily recalling to repair about 1,300 reconditioned cordless electric lawn mowers. The clips holding the control cable to the handle may be missing, which could cause the blade control device to fail and keep the mower blade running when it should stop. If the blade control device fails, consumers could suffer serious injuries. The Company has not received any reports of injuries with these lawn mowers. This recall is being conducted to prevent the possibility of injury. The recalled cordless electric lawn mowers have an orange deck and a charcoal black motor cover. The reconditioned lawn mowers have the model number CMM1000R and date codes between 0043 M.N.D.C. and 0121 M.N.D.C., both of which are located on a silver and black label on the rear door of the mower. The lawn mower has the words "Black & Decker" and "Cordless" on top of the motor cover. Black & Decker factory stores nationwide sold these lawn mowers from December 2000 through May 2001 for between $145 and $290. For more information, contact the Company by Phone: 866-229-5570 between 8 am and 4:30 pm ET or visit the firm's Website: http://www.blackanddecker.com CALIFORNIA: Superior Court Asks Parties To Define "Class" In Tax Suit --------------------------------------------------------------------- A property tax class action seems likely in California after Superior Court Judge John M. Watson asked attorneys from both sides to define the individuals who could be covered by his ruling. According to the Los Angeles Times, the suit revolves around the "recapturing" method implemented statewide, which Judge Watson found unconstitutional in December. Property tax lawyer Rob Pool filed the complaint against Orange County Assessor Webster J. Guillory, after Mr. Guillory raised the assessed value of Mr. Pool's property by more than 2%-a-year, a cap set in Proposition 13, a landmark tax reform measure passed by California voters in 1978. The method, according to the report, is used on properties that have dropped in value and had their assessments lowered. When the values rebound, the new assessments routinely exceed the 2% limit. Mr. Guillory and county attorneys have defended this practice and for the past four years taxpayers have been told that the method is legal. Judge Watson ruled otherwise. The report says some US$285 million in refunds and a future reduction of US$147 million a year in the tax base for school districts, cities and other agencies that rely on property taxes are ultimately at stake in this case. Mr. Pool says he intends to define the "class" of individuals who can fall under the ruling as broadly as possible. He says the tax relief should not only be limited to taxpayers who appealed past property tax bills, but also those who "sat on the beach" and thought about appealing but didn't. Judge Watson has set the next hearing for March 11. CHEMICAL COMPANIES: 69 Families Reach Settlement in Pollution Suit ------------------------------------------------------------------ Sixty-nine Dover Township families whose children were allegedly stricken with cancer due to polluted water settled the class action they brought against Ciba Specialty Chemicals Corporation, Union Carbide Corporation and United Water Toms River. From 1979 to 1995, 90 children in Dover Township were diagnosed with cancer, 23 cases more than researchers would normally expect to find among the township's population of about 80,000, state officials said, according to an Associated Press report. Officials also stated that leukemia, brain cancers and central nervous system cancer all occurred at higher-than-normal rates. A study later linked contaminated well water and chemical plant emissions with some leukemia cases, although there was no single environmental cause for the high cancer rates. The families then sued the three Companies, claiming drinking water from a Ciba-Geigy chemical plant and a site where Union Carbide dumped toxic wastes caused the children to get sick. Both Companies took responsibility for the contamination but denied liability for the water pollution that allegedly caused the illnesses. In mid-December, the 69 families decided to enter the settlement. A few have opted out and are seeking class-action status for their lawsuits. The exact settlement amount, though likely to reach millions of dollars, cannot be disclosed due to a confidentiality agreement. Linda Gillick, a spokeswoman for the families, would not confirm or deny the dollar amount Wednesday, according to the Associated Press. "These families have been through enough. They don't need the general public finding out what they did or didn't get," Ms. Gillick said. Her 22-year-old son, Michael, suffers from neuroblastoma, a rare type of tumor. CSX RAILROAD: Indiana Landowners Settle Railroad "Right-Of-Way" Suit -------------------------------------------------------------------- An Indiana court has approved the settlement of a 9-year-old class action filed by more than 9,000 Indiana landowners against CSX Railroad, involving fiber optic cable and other unauthorized uses of abandoned railroad rights-of-way. The suit was originally filed in Hamilton Superior Court in 1994, and in the same year, was granted class certification by Judge William J. Hughes. In 1995, the Indiana Court of Appeals upheld that decision, explaining that the case was "based on CSX's unreasonable refusal to acknowledge the extinguishment of abandoned right-of-ways (easements or lesser interests) throughout Indiana and CSX's continued course of conduct in exercising dominion over these extinguished interests which has clouded the landowners' title to abandoned railroad corridors." The suit was the first of its kind to be filed in Indiana, and one of the first in the nation. As a result of discovering thousands of documents in the suit, landowners became aware of deals reached between CSX and certain telecommunications companies, such as AT&T and MCI WorldCom, to install fiber optic cable on both active and abandoned railroad corridors, as well as on pipelines and power lines. That knowledge gave rise to other multi-million dollar class actions against the major telecommunications companies, railroads, pipeline and power companies. According to lawyers for the landowners, the Company has agreed to "quiet title" in favor of landowners who own portions of 1,200 miles of abandoned railroad right-of-way in Indiana, and to pay as much as $7 million dollars to the class members. Nels Ackerson, one of the lead attorneys for the class of landowners, explained, "This has been a very long and expensive battle for Indiana landowners. Finally they will be paid for the use of their land. Even more important to many landowners, the cloud on their title will be lifted, so they will finally have the full use and enjoyment of their property." Lead plaintiff George Clark said, "I am pleased that this lawsuit has finally been resolved in a way that compensates landowners like myself for all the trouble the railroad has put us through. At last they are doing the right thing. This is what we have been waiting for." For more information, contact Nels Ackerson and Andrew Myers by Mail: The Ackerson Grou, Chartered 1666 K Street, NW Ste 1010 Washington DC 20006-1217 by Phone: 202-833-8833 by E-mail: nackerson@ackersonlaw.com or visit the firm's Website: http://www.ackersonlaw.comor contact Henry J. Price and Arlene G. Anderson by Mail: 301 Massachusetts Avenue, Indianapolis, Indiana 46204 by Phone: (317) 633-8787 by E-mail: hprice@price-law.com or visit the firm's Website: http://www.price-law.com FORD MOTOR: Sued By Black Workers in Nashville Plant For Racial Bias -------------------------------------------------------------------- Ford Motor Company faces a class action filed in the US District Court in Nashville, by seven black employees working in the Company's Nashville facility, alleging discriminatory treatment after on-the-job injuries, harsher punishment for infractions and being passed over for training and promotions, according to a Tennesseean.com report. The suit, which also names the plant's owner, Visteon Corporation, as defendant, includes allegations that the Company turned down black applicants even though they were qualified for a job. The complaint states there are more than 100 affected employees and an unknown number of unsuccessful job applicants. The suit states "Racial discrimination is the standard operating procedure at the Visteon glass plant rather than a sporadic occurrence." The discrimination was allegedly "systematic" and "reaches back many years in time and is continuing in nature." Two law firms with a record in discrimination cases are representing the plaintiffs, Gordon, Silberman, Wiggins and Childs, and the Nashville law firm, Stewart, Estes and Donnell. HOME-BUILDING FRAUD: Lawyers in Toussie Rights Suit Turn Away Whites -------------------------------------------------------------------- Some people who bought homes from Robert and Isaac Toussie, one of the largest developers in Suffolk County, New York, have said they were not allowed to join a class action which was filed against the developers, according to a recent Newsday report. About 10 white homeowners have said they were turned away from joining the lawsuit, which was filed, in US District Court in Brooklyn, by five minority plaintiffs seeking class action status on behalf of hundreds more minority home buyers. John Wirenius of Leeds, Morelli & Brown in Carle Place, one of the law firms handling the case, said that "while there were whites who did buy homes" from the Toussies, the thrust of the lawsuit is that the developers took advantage of vulnerable minorities. Mr. Wirenius said that he is directing white homeowners to other lawyers. Maxine Wilson, a Toussie homeowner and an African-American who lives in Gordon Heights, said the lawsuit should be based on civil rights violations, saying "There are about 230 [plaintiffs on the suit] who are minorities.The numbers speak for themselves." The lawsuit, which alleges that the Toussies sold overpriced, shoddily- built homes in the Gordon Heights area, is centered around civil rights violations. The Toussies deny these charges, and the judge has not yet made a decision on the class-action certification. The original lawsuit filed against Robert and Isaac Toussie was amended to include racketeering charges against the pair and to include more than 70 other defendants, such as appraisers, construction companies and a number of lenders. "We thought that based on the fact that there is an admitted criminal conspiracy that it was appropriate to file charges under the RICO statutes (the federal Racketeer Influenced and Corrupt Organizations Act)," said another lawyer for the plaintiffs, Barry Weprin of the Manhattan-based law firm, Milberg, Weiss, Bershad, Hynes & Lerach. Isaac Toussie had pleaded guilty to a federal felony charge in connection with falsifying homeowners' incomes in order to qualify them for FHA loans and is awaiting sentencing. Robert Toussie was not charged with this offense. However, the federal government arrested 19 lawyers, appraisers, salesmen and loan officers, of which 13 have pleaded guilty. INCO LTD.: Plaintiffs Say Houses Sinking Due To Nickel Contamination -------------------------------------------------------------------- Residents of a neighborhood in the southern Ontario city of Port Colborne, who brought a $750-million class action against Inco Ltd. over the nickel contamination of their properties, now say that their houses are sinking because of the contamination, The Globe and Mail recently reported. A geological study indicates the source of the sinking house problem in Port Colborne may be the same as the source of the nickel contamination, one of the residents' lawyers, Eric Gillespie, said. Contaminant-control wells installed on Inco's property, near the Rodney Street neighborhood, may be responsible for cracks in the homes' foundations. The wells were installed to capture contamination leaching from an Inco refinery. Terraprobe Ltd., an environmental engineering firm hired by lawyers leading the class action against Inco over the nickel contamination, inspected seven properties near the company. MCM INTERNATIONAL: Recalls 50T Electric Washers For Counterfeit Parts --------------------------------------------------------------------- MCM International is cooperating with the US Consumer Product Safety Commission (CPSC) by voluntarily recalling about 50,000 Black CatTM electric pressure washers. MCM International imported the pressure washers from a manufacturer in China who installed counterfeit ground fault circuit interrupter (GFCI) plugs on some of the units, without the Company's approval. All of the plugs are labeled "WELLONG;" however, the pressure washers with counterfeit "WELLONG" GFCI plugs appear virtually identical to those with genuine "WELLONG" GFCIs. It will require a professional inspection to identify the counterfeit GFCIs. GFCIs are important safety devices that are intended to protect consumers against shock or electrocution. The Company has not received any reports of incidents in which the GFCI plugs failed to operate. This recall is being conducted to prevent the possibility of injury. The recalled Black CatTM pressure washers have a sticker with a cat and the words "Black-Cat" on each side of the unit. The model numbers, either BC-2000 or TW-1750, can be found on a label on the right side of the power station. The label also reads in part, "Made in China," "High Pressure Cleaning Machines," and the "Production Date" (which should fall between March 2001 and July 2001). The GFCI plugs have a green "Reset" button and a blue "Test" button. Some plugs also have a label that reads "CONNECT TO INDIVIDUAL BRANCH CIRCUIT ONLY." On the back of the GFCI plug near the electrical prongs are the words "WELLONG" and "Rainproof." Target and Menard's stores nationwide sold these pressure washers from August 2001 to September 2001 for between $85 and $100. For more information, contact the Company by Phone: (800) 304-1316 between 8 am and 5 pm CT Monday. METROPOLITAN LIFE: Court Orders Firm to pay Interest for Late Benefits ---------------------------------------------------------------------- The 2nd U.S. Circuit Court of Appeals recently ruled that a delay in the release of disability benefits is a form of "unjust enrichment," hence an insurance company must pay interest. According to the New York Law Journal, the ruling was made on the case of Helen Dunnigan, an employee of Deloitte & Touche accounting firm, who is seeking the interest payment from Metropolitan Life Insurance Company. The Court, through Justice Pierre N. Leval, said the interest payment cannot be deemed an "extracontractual, compensatory money damages, which are generally not recoverable under ERISA." The insurance giant had used this defense in successfully asking New York Southern District Judge Shira Scheindlin to dismiss the claim. Ms. Dunnigan filed the suit in 1995 when Metropolitan denied her application for long-term disability benefits, after being diagnosed with Chronic Fatigue Syndrome. In 1999, however, the company gave her a lump-sum payment for 55 months of long-term disability, without interest. Ms. Dunnigan questioned this absence of interest, claiming the company had breached its fiduciary duties and was guilty of unjust enrichment. She sought recovery of interest and "other appropriate equitable relief" under the Employee Retirement Income Security Act of 1974. Judge Scheindlin, however, denied this claim, saying that while a duty of good faith and fair dealing applies to ERISA plans, and a claim for interest might be asserted under ERISA's "equitable relief" provision, the plaintiff did not allege a breach of that duty in her complaint. But Justice Leval disagrees. In overruling Judge Scheindlin, he said: "Where interest is sought to make the plaintiff whole by eliminating the effect of a defendant's breach of a fiduciary duty, we see no reason why such interest should not be deemed 'appropriate equitable relief' within the scope of Section 502(a)(3)(B) [of ERISA]." "When benefits are paid only after the date on which the beneficiary was entitled to receive them under the terms of the plan, the beneficiary has not received the full value of what was promised and, to the same degree, the plan has realized an unjust enrichment (assuming the lateness was unjustified). An award in such circumstances serves as an equitable make-whole remedy," he added. The Appellate Court remanded the case to the Southern District Court for reconsideration of whether the case should be certified as a class action, the Journal said. Scott M. Riemer and Michael E. Schoeman of Schoeman, Updike & Kaufman represented Dunnigan, while Myron D. Rumeld of Proskauer Rose represented Metropolitan Life Insurance Company, the Journal said. For more information, contact Schoeman, Updike & Kaufman by Mail: 60 East 42nd Street New York, New York 10165 or by Phone: 212-661-5030 TEXAS: Supreme Court Rejects Racial Bias Charges V. Housing Officials --------------------------------------------------------------------- Some racial discrimination charges against Dallas housing officials "died" at the Supreme Court, as it refused to consider letting two black women sue the city of Dallas and the US Department of Housing and Urban Development on behalf of black property owners whose homes were being demolished, the Associated Press reports. The 5th US Circuit Court of Appeals had said that Irma Jean James and Terri Lary did not have standing for the discrimination class action lawsuit. The Supreme Court Justices, without comment, refused to review their appeal. The Bush administration said it agreed with the court's decision. Both women's homes have been destroyed as part of the City's neighborhood cleanup program. Neither plaintiff received letters notifying them that their houses were being destroyed, their lawyer claimed. Their lawsuit sought an injunction to prevent the City from destroying repairable structures owned by blacks or in predominantly black areas. "Because neither of the named plaintiffs owns un- demolished property in the city that would be subject to the proposed injunctions, the named plaintiffs cannot demonstrate that this requested relief will offer them redress," the Appeals Court said. "The city continues to classify predominantly African-American neighborhoods as inherently unstable and not worthy of protection from decline," the plaintiffs' attorney Michael M. Daniel wrote in court filings. Ms. James and Ms. Lary can still pursue other parts of their lawsuit, but not the racial discrimination part. *Turbulent Market Brings Need For Company Execs' Liability Insurance -------------------------------------------------------------------- The stormy equity market has produced a stream of lawsuits and a rise in the number and severity of claims against company executives, according to Lloyd's List International. Most of these suits have been brought by shareholders, investors highly impatient when companies fall short of financial expectations and more focused on accountability from corporate boards. Numerous high-profile corporate scandals have required governments, regulators and the companies themselves to take a closer look at fundamental corporate governance issues. Directors' and officers' liability insurance (D&O) becomes a critical issue with the rise in claims against company executives. The situation has been lent new urgency following the collapse of energy giant Enron Corporation. The number and severity of D&O claims means, according to Lloyd's Lists, that D&O could be heading for a massive "shakeup" as tighter corporate governance is required, not only by regulators and shareholders, but also by the insurance companies, which will have to place higher qualifications before the corporations in order to provide the necessary coverage at an affordable price. D&O was pioneered and developed in the Lloyd's market and has shown sustained growth over the years. Recently, however, insurers underwriting this class of business have taken some big losses, particularly in the United States, where class actions are a thriving legal activity. In the United States alone, more than 250 shareholder class actions were filed in the first ten months of 2001, up from 201 in the whole of 2000 and 207 in 1999. The average settlement or judgment is more than $12 million. "We are also seeing more (D&O) claims in Europe and in China and Japan," says Steven Anderson, a managing director of Marsh Inc., a megabroker in the D&O field. Within the European Union, nine of the 15 member countries allow individual investors to sue for damages. Consequently, there has been some retrenchment. Premium rates are moving sharply upwards, especially as reinsurance costs escalate. Marsh has warned that the higher standards of corporate governance being demanded, and which will continue to be demanded, particularly in post-Enron times, are impacting D&O anew. Regulators are demanding more financial transparency and more responsible management of organizational risks. Martin Rayfield, a managing director at MMC Enterprise Risk in London, says that many companies, perhaps for the first time, must put on their agenda the issue of governance risk and how to manage it. Corporations will be seeking the advice of their legal counsel over ways of achieving adherence to stricter regulations and obtaining the necessary D&O that the current market improprieties and downright illegalities have made so expensive and highly restrictive in coverage. In the United States, a major reason for the recent and alarming increase in litigation and D&O claims is the higher incidence of financial restatement, often an indicator of improper accounting practices. The US Securities and Exchange Commission noted recently an "alarming" rise in financial reporting improprieties by US-based public companies. The growing problems surrounding financial reporting and other governance issues have resulted in a worldwide focus on all corporate governance activities. According to Marsh, the consensus is that while stricter regulation will ultimately reduce companies' exposure to governance risks, liability claims will continue to be a problem in the short term. Insurers, already battered by the growing number and severity of the claims, are going to be more demanding when it comes to providing D&O coverage. Steven Anderson, a managing director at Marsh Inc., makes these predictions: (1) There will be bigger premiums; also, some pullback in capacity and some exclusions starting to be attached on a case-by-case basis that were not even discussed a few years ago. For instance, some underwriters are adding a bankruptcy exclusion; (2) Underwriters will increase the retentions on D&O policies, and are introducing co-insurance for some part of the loss in excess of the retained amount; (3) In isolated cases, underwriters will assert a right to rescind D&O policies based upon material misrepresentation of facts resulting from financial restatements. In particular, underwriters want to be assured that financial reporting is accurate and falls within appropriate standards and regulations; (4) If the underwriters believe they have been misled by the same financial reports that misled shareholders, when a claim is filed they will take the position that no coverage exists for it. Mergers and acquisitions represent another danger area, both for the corporations, who are liable to the shareholders, and the D&O underwriters, who, Mr. Anderson points out, have paid some large losses in recent years because of some very poor acquisitions. When companies subsequently take write-downs or write-offs for overvalued acquisition, the result often is shareholder lawsuits. Long term, the corporation can take steps to establish improved corporate governance, in order to assure appropriate and stable D&O liability insurance. Short term, to ensure proper coverage and to get the most favorable terms, a company should demonstrate to insurers its familiarity with the changes in laws and regulations affecting D&O liability, thereby presenting a better risk profile. Securities Fraud ANALYTICAL SYSTEMS: SEC Starts Accounting Processes Investigation ----------------------------------------------------------------- The Securities and Exchange Commission commenced a formal investigation of Analytical Surveys, Inc. (Nasdaq: ANLT), a provider of customized data conversion and digital mapping services for the geographic information systems (GIS) and related spatial data markets. The SEC is looking into the Company's accounting policies, procedures, disclosures and system of internal controls relating to the period from October 1998 through March 2000. The SEC is also investigating AS's former officers, directors and others relating the Company's restatement of its earnings for the fiscal year ended September 30,1999 in March 2000. Since March 2000, a new executive management team has implemented remedial measures to improve accounting procedures and internal financial control systems, particularly with respect to project cost- of-completion estimates. In addition, AS has already settled a class action lawsuit against it and certain of its former officers and directors for damages sustained by shareholders during the timeframe under SEC investigation. Analytical Surveys intends to cooperate fully with the SEC in this investigation. CAPTEC NET: Grout Firm Initiates Securities Suit in N.D. California ------------------------------------------------------------------- The Grout Law Firm commenced a securities class action in the United States District Court for the Northern District of California on behalf of all persons or entities who purchased the common stock of Captec Net Lease Realty, Inc. (Nasdaq:CRRR) between August 9, 2000 and July 2, 2001. The suit alleges claims against the Company, Commercial Net Lease Realty, Inc. (NYSE:NNN), and certain of their officers and/or directors for violations of Sections 10 and 20(a) of the Securities and Exchange Act of 1934. The suit alleges that defendants made materially false and misleading statements to the market concerning the value of a note payable to the Company and the value of its interests in a joint venture and certain limited partnerships. For further details, contact Daniel Grout by Mail: 409 13th Street, 17th Floor, Oakland, California 94612 by Phone: 510-832-0300 by E-mail: dangrout@msn.com or contact William C. Rand by Mail: 19 West 44th Street, New York, New York 10036 by Phone: 212-609-5058 or by E-mail: wcrand@wcrand.com COURTNEY SMITH: Securities, Fraud Claims Proceed Against CNN Analyst -------------------------------------------------------------------- New York Federal Judge Joanna Seybert refused to throw out claims of common law fraud and securities law violations against former CNN analyst Courtney Smith for allegedly misleading investors about a company's stock he had a stake in. The suit was commenced last year in the US District Court in the Eastern District of New York by internet advertising firm Cyber Media, after Mr. Smith allegedly made favorable comments on air about the stock of Apponline.com, an Internet mortgage banker that filed for bankruptcy protection last year. According to a Law.com report, Cyber Media alleges that it was persuaded to sell the Company in a stock-for- stock purchase agreement to Apponline.com after Apponline.com principals directed Company officers to watch a CNN program in which Mr. Smith said that Apponline.com was a "double your money stock." The suit further alleges that Smith was an officer in the venture capital fund Inculab, whose stock was directly tied to Apponline.com, and that he benefited from the "double your money stock" statement. Judge Seybert, however, rejected Cyber Media's claims under the: (1) Sections 18(a) and 20(a) of the Securities Exchange Act, (2) Racketeer Influenced and Corrupt Organizations Act, (3) New York General Business Law, (4) the covenant of good faith and fair dealing, and (5) unjust enrichment Mr. Smith also is named as a defendant in several class actions against GenesisIntermedia Inc. in the Southern District of New York, which alleges that in 1999 he took a $3 million payment to tout the stock of a company known as Genesis Intermedia on CNN, CNBC and Bloomberg Television. The shares reportedly climbed as high as $25 before they plummeted upon the announcement of an investigation into company practices. ENRON CORPORATION: Plaintiffs Ask Court To Stop Shredding of Documents ---------------------------------------------------------------------- Plaintiffs in the securities class actions pending against fallen energy giant Enron Corporation are asking the US District Court in Texas to ensure the Company's former accounting firm Arthur Andersen doesn't destroy anymore documents related to Enron's collapse. The plaintiffs started discussions on how best to stop further destruction of the documents, but could not agree on the best way to do it. Some plaintiffs want Andersen to agree to protect documents dating back 15 years to the start of its business with Enron. They also want AA to open its offices for plaintiffs' inspections in the four cities where the company has stored Enron-related documents, to ensure adequate preservation measures, according to an FT.com report. Some plaintiffs chose a more urgent solution, proposing to Texas Federal Court Judge Melinda Harmon to obtain immediate depositions from six senior Andersen officers. According to David Scott, one of the plaintiffs' attorneys, it is vital to get the Court involved in protecting the documents. He says "If someone is going to flagrantly violate a court order, this is not going to do anything.You would hope a judge's order would make people think twice before they destroy documents.Although I am beginning to wonder." FT.com reports that the plaintiffs are not focusing on Enron Corporation, because the Company is in bankruptcy and such orders would get caught in bankruptcy proceedings. Earlier, an Enron executive testified that massive shredding had occurred in Enron's headquarters for the past few months, but the Company has denied any knowledge. However, Arthur Andersen has admitted to destroying Enron-related documents, spurring a lawsuit charging Andersen with violations of the Racketeering Influences and Corrupt Organizations Act (RICO). GLOBIX CORPORATION: Cohen Milstein Initiates Securities Suit in S.D. NY ----------------------------------------------------------------------- Cohen Milstein Hausfeld & Toll, PLLC commenced a securities class action in the United States District Court for the Southern District of New York, on behalf of those persons who purchased or otherwise acquired the common stock of Globix Corporation (NASDAQ: GBIX) during the period of November 16, 2000 through and including December 27, 2001, against the Company and: (1) Marc Bell, (2) Peter Herzig and (3) Brian Reach The suit alleges that the defendants violated federal and state securities laws by, among other things, issuing false misleading statements regarding the Company's financial condition as well as its present and future business prospects. As alleged in the suit, in November 2000, in an effort to stabilize the price of Company stock and to assuage investor concerns over the Company continuing as going concern, defendants set forth Globix's business plan which stated that it would be fully funded to fiscal 2003 and thereafter cash flow positive. This sentiment was repeated in the Company's annual report filed on Form 10-K with the Securities Exchange Commission and numerous times thereafter in Company press releases and conference calls. Despite such assurances, on December 27, 2001, defendants shocked the investing community by announcing that management had been secretly negotiating with its bond holders and preferred stock holders to effectuate a pre-packaged bankruptcy that would result in a near total dilution of the existing common stockholders' interest in the Company. For more information, contact Steven J. Toll or Mary Ann Fink by Mail: 1100 New York Avenue, NW West Tower, Suite 500 Washington, DC 20005 by Phone: 888-240-0775 or 202-408-4600 or by E-mail: stoll@cmht.com or mfink@cmht.com IMCLONE SYSTEMS: Berman DeValerio Lodges Securities Suit in S.D. NY ------------------------------------------------------------------- Berman DeValerio Pease Tabacco Burt and Pucillio initiated a securities class action against ImClone Systems, Inc. (Nasdaq:IMCL) and two of its top officers, claiming they misled investors about an experimental cancer drug. The suit was filed in the U.S. District Court for the Southern District of New York on behalf of all investors who bought ImClone stock between April 26, 2001 and January 7, 2002. The suit accuses ImClone, a biopharmaceutical company headquartered in New York, of artificially inflating its stock price by making false and misleading statements about Erbitux, a cancer treatment the company was developing. During the class period, the company publicly and repeatedly touted Erbitux as a breakthrough drug that would become "one of the important new drugs in the history of oncology." According to the complaint, the defendants conditioned the market to believe that Erbitux was effective in reducing cancer and that its application for regulatory approval was progressing smoothly. Getting the US Food and Drug Administration (FDA) to approve Erbitux quickly was vital to the company because several competitors were racing to develop rival treatments. In fact, the complaint maintains the defendants made the positive statements about Erbitux knowing or recklessly disregarding that they had failed to submit documentation that the FDA had previously told them was necessary for it to accept the application. Finally, on December 28, 2001, ImCLone announced that the FDA had refused to even review its application for approval. The company's announcement and the emergence of other details about its deception sent the Company share price tumbling, according to the lawsuit. For more information, contact Alicia M. Duff or Michael G. Lange by Mail: One Liberty Square, Boston, MA 02109 by Phone: 800-516-9926 by E- mail: law@bermanesq.com or visit the firm's Website: http:// www.bermanesq.com. INFONET SERVICES: Kirby McInerney Lodges Securities Suit in C.D. CA ------------------------------------------------------------------- Kirby McInerney & Squire LLP filed a securities class action in the United States District Court for the Central District of California on behalf of all purchasers of Infonet Services Corporation (NYSE: IN) stock during the period from December 16, 1999 and July 31, 2001, including investors who purchased Company shares in its December 1999 IPO. The suit charges the Company, as well as certain of its senior officers and directors, with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The suit further alleges: (1) that the Company misled the investing public during the class period by making false or misleading statements concerning the company's business operations and financial condition; and that (2) as a result of such statements, Company shares traded at artificially inflated prices during the class period, to the detriment of those investors who purchased them. Specifically, the suit alleges that defendants portrayed Infonet as a company that was experiencing, and would continue to experience, rapidly rising sales and profits from core products and from its AUCS sales channel (AUCS refers to business arising out of its participation in an AT&T-Unisource Communications Services agreement). As a result of such statements, Company stock price rose as high as $32.9375 per share. However, in July 2001, the company began to reveal the truth about its operations, and announced financial results would fall below market expectations due to disappointing results from its European operations and its AUCS sales channel. The next day, Infonet's share price fell by nearly 50% to close at $3.55 per share. For more information, contact Ira M. Press by Mail: 830 Third Avenue 10th Floor New York, New York 10022 by Phone: 212-317-2300 or visit the firm's Website: http://www.kmslaw.com ORATEC INTERVENTIONS: Charles Piven Lodges Securities Suit in S.D. NY --------------------------------------------------------------------- Chales J. Piven, PA initiated a securities class action against ORATEC Interventions, Inc. (Nasdaq:OTEC) in the United States District Court for the Southern District of New York, alleging violations of federal securities laws. The suit alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In April 2000, the Company commenced an initial public offering of 4 million of its shares of common stock at an offering price of $14 per share. In connection therewith, Oratec filed a registration statement, which incorporated a prospectus with the SEC. The suit further alleges that the prospectus was materially false and misleading because it failed to disclose, among other things, that: (i) the underwriters had solicited and received excessive and undisclosed commissions from certain investors in exchange for which those underwriters allocated to those investors material portions of the restricted number of IPO shares issued in connection with the IPO; and (ii) the underwriters had entered into agreements with customers whereby the underwriters agreed to allocate shares to those customers in the IPO in exchange for which the customers agreed to purchase additional shares in the aftermarket at pre-determined prices. For more information, contact Charles J. Piven by Mail: The World Trade Center-Baltimore, 401 East Pratt Street, Suite 2525, Baltimore, Maryland 21202 By Phone: 410-332-0030 by E-mail: piven@pivenlaw.com SUPREMA SPECIALTIES: Milberg Weiss Commences Securities Suit in NJ ------------------------------------------------------------------ Milberg Weiss Bershad Hynes & Lerach LLP initiated a securities class action on behalf of purchasers of the securities of Suprema Specialties Inc. (NASDAQ: CHEZ) between August 8, 2001 and December 21, 2001 inclusive, in the United States District Court for the District of New Jersey against the Company and officers Mark Cocchiola (CEO and President) and Steven Venechanos (CFO). The suit charges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of materially false and misleading statements to the market between August 8, 2001 and December 21, 2001. During the class period, defendants issued quarterly and annual press releases, and filed reports with the Securities and Exchange Commission (SEC) which favorably portrayed Suprema's business and financial performance. The representations in the press release were, according to the allegations of the complaint, materially false and misleading because the Company was using questionable accounting practices in reporting its financial performance, which distorted its reported financial statements. In November 2001, the Company commenced a secondary offering of common stock, pursuant to a prospectus and registration statement filed with the SEC and containing allegedly misleading financial statements. In the secondary offering, the Company, defendants Cocchiola and Venechanos, and others, sold a total of 4,050,000 shares at a price of $12.75 per share. Subsequently, in December 2001, only weeks after the secondary offering, the Company issued a press release announcing that it is conducting an internal investigation into its previously filed financial statements, and that defendant Venechanos has resigned from his position as its CFO. Immediately after this announcement, the Nasdaq Stock Market halted trading in Company stock, pending its receipt of additional information on the matter. The Company's stock has not resumed trading over the Nasdaq Stock Market. For more information, contact Steven G. Schulman or Samuel H. Rudman by Phone: 800/320-5081 by E-mail: supremaspecialtiescase@milbergNY.com or visit the firm's Website: http://www.milberg.com TAKE-TWO INTERACTIVE: Cauley Geller Reveals Delay in Earnings Results --------------------------------------------------------------------- Cauley Geller Bowman & Coates LLP revealed that Take-Two Interactive Software, Inc. (Nasdaq: TTWO) issued a press release announcing that it is postponing the release of its fourth quarter and fiscal year end 2001 financial results indefinitely, due to the lack of cooperation by its auditors. Failing to do so has caused the halt in all trading of the companies stock. This information comes soon after the firm announced that it had filed a complaint in the United States District Court for the Southern District of New York on behalf of purchasers of the Company's publicly traded securities during the period between February 24, 2000 and December 17, 2001, inclusive. The suit charges Take-Two and certain of its officers and directors with issuing a series of material misrepresentations to the market between February 24, 2000 and December 17, 2001, concerning its financial performance for the Company's fiscal year 2000 and the first three quarters of Take-Two's fiscal year 2001. Throughout the class period, defendants issued press releases reporting Take-Two's quarterly and year-end financial performance, and filed reports confirming such performance with the United States Securities and Exchange Commission. These reports positively portrayed Take-Two's performance during the Class Period and discussed several quarters of supposedly "record" results. These statements, as alleged in the complaint, were materially false and misleading because the Company had, throughout the class period, improperly recognized revenues, thereby inflating its reported sales and earnings. In December 2001, Take-Two's stock price plunged 31%, falling from $15.05 to $10.33, as news leaked that it will likely restate previously filed financial reports. On December 17, 2001, the Company issued a press release announcing that the Company will restate its financial results for its fiscal year 2000 and the first three quarters of its fiscal year 2001. According to the press release, the Company had improperly recognized revenue on products that were subsequently returned to the Company. For fiscal year 2000, the restatement will have the effect of decreasing net sales by $12-15 million and decreasing net income by $3.1-$3.7 million. For the three quarters of 2001, the restatement will have the effect of decreasing net sales by approximately $9.5 million and increasing net income by $0.3 million. For more information, contact Jackie Addison, Sue Null or Shelly Nicholson by Mail: P.O. Box 25438, Little Rock, AR 72221-5438 by Phone: 888-551-9944 by E-mail: info@classlawyer.com or visit the firm's Website: http://www.classlawyer.com XO COMMUNICATIONS: Finkelstein Krinsk Lodges Securities Suit in S.D. CA ----------------------------------------------------------------------- Finkelstein & Krinsk filed the first California-based class action securities lawsuit against XO Communications, Inc. (formerly NextLink Communications) along with certain of its officers and directors, including Craig McCaw. The suit was filed in the United States District Court for the Southern District of California, on behalf of all purchasers of the Company's securities from at least April 4, 2001, through November 29, 2001. The suit alleges that XO and certain of its directors and officers issued a series of materially false and misleading statements concerning its financial condition and cash reserves. Specifically, the complaint alleges that in order to promote its stock, the defendants misrepresented the Company's cash reserves, capital requirements and the Company's ability to survive until such time that it would be cash flow positive. The public investors were misled through the defendants' misrepresentations and deserve a "level playing field" instrumental to investor confidence in today's markets. As an investor, you need not have relied on the misinformation. For more information, contact Jeffrey R. Krinsk by Phone: 877-493-5366 (toll-free) or 619-238-1333 by Fax: 619/238-5425 or by E-mail: fk@class-action-law.com XO COMMUNICATIONS: Lionel Glancy Commences Securities Suit in E.D. VA --------------------------------------------------------------------- The Law Offices of Lionel Z. Glancy initiated a securities class action in the United States District Court for the Eastern District of Virginia on behalf of all persons who purchased securities of XO Communications, Inc. (Nasdaq:XOXO.OB) between April 4, 2001 and November 29, 2001, inclusive. The suit charges XO and certain of its officers and directors with violations of federal securities laws. Among other things, plaintiff claims that defendants' material omissions and the dissemination of materially false and misleading statements regarding the nature of the Company's financial condition as well as its present and future business prospects caused its stock price to become artificially inflated, inflicting enormous damages on investors. For more information, contact Michael Goldberg by Mail: 1801 Avenue of the Stars, Suite 311, Los Angeles, Calif. 90067 by Phone: 310-201-9150 or 888-773-9224 or by E-mail: info@glancylaw.com. ********* S U B S C R I P T I O N I N F O R M A T I O N Class Action Reporter is a daily newsletter, co-published by Bankruptcy Creditors' Service, Inc., Trenton, New Jersey, and Beard Group, Inc., Washington, D.C. Enid Sterling, Aurora Fatima Antonio and Lyndsey Resnick, Editors. Copyright 2002. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re- mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 240/629-3300. * * * End of Transmission * * *