/raid1/www/Hosts/bankrupt/CAR

/raid1/www/Hosts/bankrupt/CAR_Public/990222.MBX C L A S S A C T I O N R E P O R T E R Monday, February 22, 1999, Vol. 1, No. 12 Headlines DAIMLERCHRYSLER: Vows to Appeal Pennsylvania Air Bag Jury Verdict DATA SYSTEMS: Company Agrees to Settle Securities Claims DRUG PRICING: 19 Drug Companies Agree to $176MM Settlement Pact FLEMINGTON PHARMACEUTICAL: Company Discloses Filing of Litigation GENCOR INDUSTRIES: Weiss & Yourman Files Complaint in Florida HOLOCAUST VICTIMS: Surviving Experimentation Victim Sues Bayer AG LERNOUT & HAUSPIE: Milberg Weiss Files Complaint in New York LERNOUT & HAUSPIE: Pomerantz Haudek Files Suit in Massachusetts ORBITAL SCIENCES: Cohen Milstein Files Complaint in Virginia PEDIATRIX MEDICAL: Weiss & Yourman File Complaint in Florida PEDIATRIX MEDICAL: Milberg Weiss Files Complaint in Florida PEDIATRIX MEDICAL: Weinstein Kitchenoff Files Suit in Florida PEDIATRIX MEDICAL: Berman DeValerio File Complaint in Florida PEDIATRIX MEDICAL: Berger & Montague File Complaint in Florida SAFEWAY, INC.: Reaches Accord with Alaska Public Interest Group SEARS BANKRUPTCY: Pleads Guilty to Bankruptcy Fraud; $60MM Fine SERVICE CORPORATION: Kirby McInerney Files Complaint in Texas SERVICE CORPORATION: Kaplan Kilsheimer File Complaint in Texas SMARTALK TELESERVICES: Bernstein Litowitz Amends Complaint USA TALKS.COM: Weiss & Yourman Files Complaint in [California] USA TALKS.COM: Shepherd & Geller Files Complaint in California VISION TWENTY-ONE: Barrack Rodos Files Complaint in Florida WORLD ACCESS: Weiss & Yourman File Complaint in Georgia Y2K LITIGATION: Japanese Insurers Will Cover Harmed Individuals ********* DAIMLERCHRYSLER: Vows to Appeal Pennsylvania Air Bag Jury Verdict ----------------------------------------------------------------- DaimlerChrysler (NYSE: DCX) vowed to appeal a Pennsylvania jury's decision to award 75,000 plaintiffs $58.5 million in a class action lawsuit. The case involves a woman who credits the air bag in her 1989 Chrysler LeBaron with saving her and her unborn child from serious injury -- and possibly even death -- but who experienced a minor hand burn when the air bag deployed during a 1992 accident. "Ten years ago, we would have received a thank you note from a customer for the air bag having saved her life. Today, we get slapped with a multi-million dollar verdict. That is the nature of our out of control legal system," said DaimlerChrysler attorney Karl Lukens. "Holding DaimlerChrysler liable in this case is like holding the manufacturer of a bullet proof vest responsible because their product saved someone's life, but resulted in a few bruised ribs. This is a case about trial lawyer greed, not about a defective product." Crawley v. Chrysler is a class action suit brought on behalf of approximately 75,000 Pennsylvania residents who own Chrysler vehicles (model years last quarter of 1988, 1989 and 1990) with driver air bags that have vents at the 9 and 3 o'clock positions on the steering wheel. These vents allow for the rapid deflation of the airbag following deployment -- a critical feature in any air bag system. Only 14 of the 75,000 class members have ever had an experience similar to the name plaintiff, Louise Crawley. The plaintiffs' own expert admits that 99% of the members of this class action will never be involved in an accident that causes hand burns. DaimlerChrysler's expert believes the figure is around 99.99%. Dr. Daniel Hensell, who treated Mrs. Crawley, testified that she suffered a second-degree burn on her left wrist. The burn kept her from working at her job at a nail salon for a week, the Associated Press related. "The overwhelming majority of the 75,000 class members are satisfied drivers of Chrysler vehicles that are now eight to 10 years old," said Lukens. "Not a single penny of this award will go to compensate anyone for any injury. In fact, the lion's share will go straight into the pockets of the trial lawyers." Martin D'Urso, an attorney for the plaintiffs, told the Associated Press that the lawsuit was aimed at ensuring drivers can get safe air bags and not about trying to profit from a minor injury. Lukens called air bags "the most tested safety advance in automotive history." Prior to selecting the air bag design in question, Chrysler engineers examined the records of the National Highway Transportation Administration (NHTSA) for air bag performance in the field. Chrysler also reviewed the performance of air bags installed in vehicles produced by other automakers -- all of which had the 9 and 3 o'clock venting position. Chrysler and the air bag supplier also did extensive testing. None of these tests revealed any problems with burns due to the vent location. Even the plaintiffs' own expert admits that there was no information available that would have alerted Chrysler to the possibility that some drivers would experience hand burns in an air bag deployment. "We are confident we have strong substantive grounds for appeal," Lukens said. "Ultimately, this outrageous ruling will be reversed and justice will prevail." Damages are as follows: Jurors awarded $730 to each class member, and assessed $3.75 million in punitive damages ($730 x 75,000 class = $54.75 million + $3.75 million in punitives = $58.5 million). The trial began on January 20, 1999 in the Court of Common Pleas in Philadelphia. The judgment was just the latest against the company involving air bags. A federal jury in New York in December ordered DaimlerChrysler to pay $750,000 to a family of a 5-year-old boy killed by an air bag during a family vacation to Puerto Rico in 1995. Prior to the company's merger in November with Daimler- Benz AG, Chrysler and the parents of a 5-year-old Nashville, Tenn., girl killed when a minivan air bag deployed during an accident reached an out-of-court settlement. DATA SYSTEMS: Company Agrees to Settle Securities Claims -------------------------------------------------------- Data Systems Network Corporation (OTC BB:DSYS) announced it has agreed to a stipulation of settlement of the consolidated securities class action lawsuits filed in 1998. The stipulation of settlement has been filed in federal court in Detroit, Michigan. The Honorable John Corbett O'Meara gave preliminary approval for the proposed settlement last week, subject to his later determination of the settlement's fairness at a hearing currently set for May 12, 1999. Under the terms of the proposed settlement, and subject to various conditions, Data Systems would create a gross settlement fund valued at approximately two million dollars. The fund would benefit a settlement class of purchasers who bought Data Systems stock during the period of May 16, 1996 through February 24, 1998. The fund would be comprised of $900,000 provided by the Company's insurer, and, at the defendant's option either 650,000 Data Systems shares or an additional $1.1 million. In agreeing to the proposed settlement, the Company specifically made no admission of any wrongdoing. Earlier this month, Data Systems and Alydaar Software Corporation (NASDAQ:ALYD) of Charlotte, NC, Charlotte, North Carolina announced the signing of a definitive merger agreement. Alydaar is a worldwide developer of Enterprise Information Portals (EIP) and provides management consulting, design, development and the deployment of Virtual Information Solutions. Additionally, Alydaar assists organizations in transforming their current legacy information systems architecture to support a heterogeneous, scalable, flexible and ubiquitous Internet and Intranet architecture, and offers Y2K services utilizing SmartCode Technology. Data Systems provides computer network services and products that enable the control of complex distributed computing environments, allowing companies to capitalize on their investments in technology and people and provides a wide range of network integration services including installation, consultation, technical support and training. Michael Grieves, Data Systems Network Corporation's CEO, stated "the proposed resolution of the class action lawsuits represents a significant milestone in moving forward with the merger of our two companies. Alydaar has an exciting plan to implement Enterprise Information Portals (EIP) solutions. We look forward towards integrating Data Systems into Alydaar's growing e-Business." DRUG PRICING: 19 Drug Companies Agree to $176MM Settlement Pact --------------------------------------------------------------- Nineteen drug companies will pay more than $176 million to settle a class-action lawsuit alleging they overcharged for medicine sold at independent pharmacies in California, the San Francisco Chronicle reported Friday. In addition, the companies will have to pay $27 million in fees to attorneys who represented the plaintiffs in the suit brought on behalf of California's 32 million consumers. The drug companies agreed to furnish $148 million worth of brand- name drugs to 300 nonprofit medical clinics in the state that dispense drugs to the poor. The companies will pay $1.6 million to administer the three-year program. Merck & Co. will pay the most -- more than $19 million -- while Carter Wallace will pay the least, at $705,000. The case is set for a final hearing on April 21 before a judge in San Francisco Superior Court. Spokesmen at Merck and several other drug companies told the Associated Press Friday that they could not immediately confirm the settlement report. The drug companies used an unfair, two-tiered system to price wholesale drugs, according to the suit filed by the California Public Health Association, a group that represents the clinics that would receive the free drugs under the settlement. The companies sold drugs at discounts to health maintenance organizations and other big volume buyers like mail order drug firms, the suit alleged. However, exorbitant prices were charged neighborhood pharmacies and even some drug store chains. Druggists claimed they paid up to $28.90 for 100 tablets of a synthetic thyroid drug, while HMOs paid as little as $1.43. "It represents a cheap settlement for the drug companies, and they'll go on, business as usual, ripping off the public," Fred Mayer, a Sausalito pharmacist and past president of the association, told the Chronicle. FLEMINGTON PHARMACEUTICAL: Company Discloses Filing of Litigation ----------------------------------------------------------------- Flemington Pharmaceutical Corp. (OTCBB:FLEM) announced Friday that a former shareholder has filed a lawsuit against the company, its President and Chairman, as well as the company's former (now defunct) underwriter, Monroe Parker Securities, and two former principals of the underwriter. The lawsuit alleges violations of the federal securities laws, and purports to seek damages on behalf of a class of shareholders who purchased Flemington common stock during a period from Nov. 19, 1997 to Dec. 29, 1997. The company believes the lawsuit is without merit and intends to defend against it vigorously. Flemington is engaged in the development of novel drug delivery systems for presently marketed prescription and over-the-counter drugs. The novel delivery systems include lingual sprays and soft gelatin bite capsules. The company believes these delivery systems offer (i) improved drug safety by reducing the required dosage, therefore reducing side effects; (ii) improved dosage reliability; (iii) improved patient convenience and compliance; and (iv) enhanced dosage reliability. The company plans to develop such products through collaborative arrangements with major pharmaceutical companies. GENCOR INDUSTRIES: Weiss & Yourman Files Complaint in Florida ------------------------------------------------------------- Weiss & Yourman announced that a class action lawsuit against Gencor Industries, Inc. (AMEX:GX) and certain individuals associated with the Company was commenced Friday in the United States District Court for the Middle District of Florida on behalf of investors who purchased Gencor shares during the period February 5, 1998 through January 28, 1999, inclusive. The complaint charges Gencor and certain of its executive officers with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as Rule 10b-5 promulgated thereunder. The complaint alleges that defendants issued a series of materially false and misleading statements during the Class Period regarding the Company's financial condition and results of operations. These false and misleading statements caused the price of Gencor's common stock to be artificially inflated during the Class Period. HOLOCAUST VICTIMS: Surviving Experimentation Victim Sues Bayer AG ----------------------------------------------------------------- Patrick L. Thimangu, writing for the Associated Press, reports that one of the hundreds of twins experimented on by the infamous Dr. Josef Mengele at Auschwitz is suing Bayer AG, saying the German pharmaceutical giant collaborated with the Nazi scientist. In a lawsuit filed in U.S. District Court in Terre Haute, Indiana, last week, Polish immigrant Eva Moses Kor -- thought to be the first to target a German company for Nazi medical experiments -- alleges that Bayer paid Nazi officials for access to people in concentration camps and used the experiments as a form of research and development during World War II. Mrs. Kor contends that, at the age of 10, her arms tied and blood drawn until she fainted. Then, Bayer tested the effectiveness of its drugs on prisoners injected with disease-causing germs. Her lawsuit says a Bayer physician, identified only as Dr. Koenig, accompanied Mengele on experiments, recorded the results and reported back to Bayer. Mrs. Kor claims that she and her sister, Miriam, were among an estimated 1,500 sets of twins used in "grotesque medical experiments" by Joseph Mengele, the so-called "Angel of Death" at Auschwitz. Mrs. Kor seeks unspecified punitive damages and the recovery of profits Bayer allegedly earned as a result of Mengele's research for herself and others similarly situated. "In this case what we have is direct atrocities perpetrated by a corporation on human beings," Irwin Levin, one of the attorneys involved in the case, told Reuters. For many years, Mrs. Kor's complaint notes, Bayer denied involvement in the experiments and refused to offer compensation. But files from Auschwitz cited in the suit claimed to document correspondence between Bayer and the Auschwitz camp commander relating to the sale of 150 female prisoners for use in experiments. At one point, a Bayer representative apparently wrote to the camp official haggling over the sale price of women to be used in an experiment for a sleep-inducing drug. Later correspondence allegedly from Bayer said all of the women died and "We will contact you shortly about a new shipment." "This is an issue we have to look at carefully," Bayer spokesman Thomas Reinert in Leverkusen, Germany, said in response to the suit. Similar allegations of collaboration in Nazi medical experiments were levied against Farben during the Nuremberg trials but were "rejected as false," Reinert told the AP. In 1953, Farben's assets were divided among Hoechst, BASF, Bayer and other companies, and Farben remains basically as a trust to settle claims and lawsuits from the Nazi era. Reinert said Bayer should not be held responsible for any acts that may have been committed by Farben. Rabbi Marvin Hier, founder of the Simon Wiesenthal Center in Los Angeles, told the AP he expects Mrs. Kor's lawsuit to lead to similar cases. "If companies are paying compensation for slave labor," he said, "why shouldn't they pay for medical experiments?" LERNOUT & HAUSPIE: Milberg Weiss Files Complaint in New York ------------------------------------------------------------ A class action lawsuit was filed on February 19, 1999, in the United States District Court for the Eastern District of New York, on behalf of all persons who purchased the common stock of Lernout & Hauspie Speech Products (Nasdaq: LHSPF), between February 3, 1998 and December 1, 1999, inclusive, by Milberg Weiss Bershad Hynes & Lerach. The complaint charges L&H and certain officers with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 as well as Rule 10b-5 promulgated thereunder. The complaint alleges that defendants issued a series false statements concerning the Company's financial condition and financial performance. Because of the issuance of a series of false and misleading statements, the price of L&H common stock was artificially inflated during the Class Period. Prior to the disclosure of the adverse facts described above certain insiders sold over 500,000 of shares of L&H common stock to the unsuspecting investing public at inflated prices realizing proceeds in excess of $23 million. LERNOUT & HAUSPIE: Pomerantz Haudek Files Suit in Massachusetts --------------------------------------------------------------- Pomerantz Haudek Block Grossman & Gross LLP filed suit against Lernout & Hauspie Speech Products (Nasdaq: LHSPF) and certain corporate insiders in the United States District Court for the District of Massachusetts on behalf of all purchasers of Lernout securities during the period February 3, 1998 through and including December 1, 1998. The price of Lernout's common stock fell dramatically after the Company announced on December 1, 1998 that the Securities and Exchange Commission was reviewing the Company's accounting methods for acquisitions since 1996, with twelve of Lernout's 23 acquisitions during this time period coming under scrutiny. According to one analyst who follows the Company, earnings for the year could decline by nearly 50 percent, depending on what actions Lernout takes in response to the SEC inquiry. The complaint alleges that, by improperly accounting for certain expenses arising from acquisitions during the Class Period, Lernout issued false and misleading financial statements to the public, thereby causing the price of its stock to be artificially inflated. In addition, the complaint alleges that certain insiders sold more than 528,000 shares of Lernout common stock during the Class Period at the artificially inflated prices, yielding proceeds of more than $23 million. ORBITAL SCIENCES: Cohen Milstein Files Complaint in Virginia ------------------------------------------------------------ Cohen, Milstein, Hausfeld & Toll, P.L.L.C. and Berger & Montague P.C., on February 18, 1999, filed a lawsuit (Civil Action No. 99- 197-A) in the United States District Court for the Eastern District of Virginia, on behalf of purchasers of Orbital Sciences Corp. (NYSE:ORB) common stock during the period between April 21, 1998 and February 16, 1999, inclusive. The Complaint charges that Orbital and certain officers and directors of that Company during the relevant time period violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The Complaint alleges that defendants issued a series of materially false and misleading financial statements and failed to reveal that the Company was employing fraudulent accounting methods which artificially inflated Orbital's earnings. After the close of trading on February 16, 1999, the Company announced that, due to the improper accounting treatment of certain items, the Company would materially restate earnings for the first three quarters of 1998. The Complaint further alleges that defendants utilized their inside information regarding the artificial inflation of the Company's stock price to sell significant amounts of their own personal Orbital holdings for proceeds for over $3 million. PEDIATRIX MEDICAL: Weiss & Yourman File Complaint in Florida ------------------------------------------------------------ Weiss & Yourman commenced a class action lawsuit against Pediatrix Medical Group, Inc. (NYSE:PDX) and certain individuals associated with the Company was commenced today in the United States District Court, Southern District of Florida, West Palm Beach Division on behalf of investors who purchased Pediatrix shares during the period April 28, 1998 through and including February 12, 1999. The complaint charges Pediatrix and certain of its executive officers with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as Rule 10b-5 promulgated thereunder. The complaint alleges that defendants issued a series of materially false and misleading statements during the Class Period regarding the Company's financial condition and results of operations. These false and misleading statements caused the price of Pediatrix's common stock to be artificially inflated during the Class Period. PEDIATRIX MEDICAL: Milberg Weiss Files Complaint in Florida ----------------------------------------------------------- Milberg Weiss announced that it filed a class action lawsuit on February 17, 1999, in the United States District Court for the Southern District of Florida, West Palm Beach Division, on behalf of all persons who purchased the common stock of Pediatrix Medical Group Inc. (NYSE: PDX), between April 28, 1998 and February 12, 1999, inclusive. The complaint charges Pediatrix and certain officers with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 as well as Rule 10b-5 promulgated thereunder. The complaint alleges that defendants issued a series false statements concerning the Company's financial condition and results of operations. Because of the issuance of a series of false and misleading statements, the price of Pediatrix common stock was artificially inflated during the Class Period. PEDIATRIX MEDICAL: Weinstein Kitchenoff Files Suit in Florida ------------------------------------------------------------- Weinstein Kitchenoff Scarlato & Goldman Ltd. announces that a class action lawsuit has been commenced on behalf of anyone who purchased the common stock of Pediatrix Medical Group Inc. between April 28, 1998 and February 12, 1999. Pediatrix is traded on the NYSE under the symbol PDX. The lawsuit has been commenced in the United States District Court for the Southern District of Florida, charging Pediatrix and certain of its officers and directors with violating the federal securities laws by overstating Pediatrix's earnings, and issuing false and misleading statements about Pediatrix's accounts receivable. PEDIATRIX MEDICAL: Berman DeValerio File Complaint in Florida ------------------------------------------------------------- Berman DeValerio & Pease LLP, in a shareholder class action suit filed in the United States District Court for the Southern District of Florida, charges that Pediatrix Medical Group, Inc. (NYSE: PDX) overstated its revenues and earnings. The case, which alleges violations of the federal securities laws, was filed on behalf of all persons and entities who purchased the common stock of PDX from April 28, 1998 through and including February 12, 1999 and who suffered losses on their investments. According to the complaint, PDX issued materially overstated its 1998 financial results. On February 16, 1999, PDX announced that it would likely restate those results so that they would be in conformity with generally accepted accounting principles. PDX's stock price plummeted almost 50% on this revelation. PEDIATRIX MEDICAL: Berger & Montague File Complaint in Florida -------------------------------------------------------------- Berger & Montague, P.C. announced that it has filed a Complaint alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The action, seeking class action status, was filed in the United States District Court for the Southern District of Florida on behalf of purchasers of Pediatrix Medical Group, Inc. (NYSE:PDX) common stock during the period from April 28, 1998, through February 12, 1999, inclusive. The Complaint alleges that throughout the Class Period, Pediatrix overstated its earnings by at least $1.3 million by capitalizing bonuses paid to its acquisition team instead of treating those payments as expenses. Plaintiffs also allege that Pediatrix issued false and misleading statements concerning its accounts receivable. The Com Monumental Life Insurance Co., Life Investors Insurance Company of America, PFL Life Insurance Co., Peoples Benefit Life Insuplaint alleges that Pediatrix recently engaged a new auditor because the SEC found that its former auditor had violated auditor independence rules. Problems were identified, the complaint alleges, during the new auditor's audit of Pediatrix' 1998 financial statements. SAFEWAY, INC.: Reaches Accord with Alaska Public Interest Group --------------------------------------------------------------- Safeway Inc. and Carr-Gottstein Foods Co. announced today that the companies have settled with the Alaska Public Interest Research Group and six individual plaintiffs in Meyers et al. v Safeway et al., a purported class action lawsuit pending in state court in Anchorage, Alaska, which sought to prevent the proposed acquisition of Carrs by Safeway. The settlement says AKPIRG and the plaintiffs will no longer oppose the proposed acquisition of Carrs by Safeway or the consent decree regarding the merger filed recently in a proceeding initiated by the Alaska Attorney General's office, and will dismiss the Meyers et al. v Safeway et al. action. The settlement calls for the creation of a citizens advisory committee, to provide Safeway with input and reactions from Alaskan consumers and shoppers during the ten months immediately following the closing of the merger. The advisory committee will meet monthly with a Safeway senior manager from the company's Alaskan operations, from the closing of the merger until most of the supermarkets required to be divested by the consent decree have been sold. Carr-Gottstein Foods Co. is Alaska's largest food and drug retailer, operating 49 stores in Anchorage, Fairbanks, Juneau, Ketchikan, the Kenai Peninsula and other Alaska communities, as well as the state's largest food warehouse and distribution operation, and Alaska's largest freight company. Annual revenues in 1998 were $601.9 million. Safeway Inc. is one of the largest food and drug retailers in North America based on sales. The company operates 1,497 stores in the United States and Canada. Its common stock is traded on the New York Stock Exchange under the symbol SWY. SEARS BANKRUPTCY: Pleads Guilty to Bankruptcy Fraud; $60MM Fine --------------------------------------------------------------- A wholly owned subsidiary of SEARS, ROEBUCK AND COMPANY (NYSE:S) pled guilty today to a one count criminal Information charging an extensive scheme to defraud pro se bankruptcy debtors nationwide. It was also sentenced to pay a record $60 million fine. United States Attorney Donald K. Stern and Barry W. Mawn, Special Agent in Charge of the Boston Field Office of the Federal Bureau of Investigation, announced that a SEARS subsidiary known as SEARS BANKRUPTCY RECOVERY MANAGEMENT SERVICES, INC., Friday pled guilty before U.S. District Court Judge Douglas P. Woodlock to a one count criminal Information charging bankruptcy fraud for a fraudulent scheme involving SEARS' bankruptcy reaffirmation practices that began in 1985 and continued until early 1997. Judge Woodlock also imposed sentence of a $60 million fine. The criminal fine agreed to in this case is the largest fine ever to be paid in a bankruptcy fraud case. The fine also is believed to be the largest criminal fine ever in Massachusetts, and one of the largest nationwide. In imposing sentence, Judge Woodlock stated that SEARS' offense involved, "serious criminal conduct" that, "went to the heart of the bankruptcy process." Judge Woodlock noted that the conduct was institutional at SEARS, and was a proper subject of criminal prosecution. In recommending the sentence to the court, a federal prosecutor stated, "the fine will send a strong deterrent message to bankruptcy creditors nationwide that all participants in bankruptcy proceedings, not just debtors, are required to follow the law and act in a fair and honest manner with other participants and the bankruptcy court." At the hearing, Judge Woodlock was advised of SEARS' extraordinary cooperation, beginning in April 1997, when senior management and the Board of Directors became aware of the criminal conduct. SEARS' efforts involved effecting prompt and full restitution of more than $180 million to debtors for its conduct, paying a $40 million civil fine to the fifty state attorneys general, and providing full and complete cooperation to the government in its criminal investigation. SEARS' fraudulent scheme involved its practices relating to bankruptcy reaffirmation agreements. Such reaffirmation agreements, when executed in compliance with the Bankruptcy Code, have the effect of maintaining legally binding debts which would otherwise be discharged in bankruptcy. The discharge of debts is the principal benefit to a debtor filing for bankruptcy. The discharge prohibits all creditors from taking any collection action against the debtor for pre-bankruptcy debts that are not reaffirmed. If all the Bankruptcy Code requirements are not met, a reaffirmation agreement has no legal effect and the debts listed in it are discharged along with all others. The Bankruptcy Code requires that all such agreements be filed with the Bankruptcy Court. It also requires that where the debtor does not have a lawyer, that the Bankruptcy Court hold a hearing, advise the debtor of the effects of the reaffirmation agreement, and make an independent determination that the reaffirmation agreement does not impose an undue hardship on the debtor or a dependent of the debtor and that it is in the debtor's best interest. The purpose of these filing and hearing requirements is to protect debtors from being coerced into signing such agreements and to assure that they fully understand the consequences of such agreements. They also permit the Bankruptcy Courts to maintain some oversight of the reaffirmation process. SEARS' fraudulent bankruptcy practices began in 1985 and continued until April, 1997. SEARS and its subsidiary unit induced bankruptcy debtors to enter into reaffirmation agreements concerning their credit card debts with SEARS and lead them to believe that the agreements would be filed with the Bankruptcy Court and were binding contractual obligations, when in fact the agreements were not going to be filed and the debtors had no obligation to pay the debt. To further mislead debtors, SEARS sent regular monthly bills, which most debtors paid. When debtors did not pay, SEARS would make dunning phone calls and, in some cases, file a lawsuit to collect. SEARS' fraudulent practices began in response to an increase in bankruptcy filings in the mid-1980's. As part of its bankruptcy recovery program, a bankruptcy manual was drafted and distributed which addressed, among other things, the handling of reaffirmation agreements. The manual advised that reaffirmation agreements should not be filed with the bankruptcy court if the bankruptcy judge was likely to reject, particularly in cases where the debtor was not represented by an attorney. SEARS was not concerned about a loss of funds as a consequence of not filing because their experience showed that debtors, unaware that the agreements had not been filed and were not legally binding, generally paid the monthly bills they received. SEARS' employees were never instructed to tell debtors that the agreement would not be filed, that it was void and unenforceable or that the debtor had no obligation to make any payments. In fact, the actual reaffirmation agreements presented to debtors for signature implied that they were filed in court and legally binding documents. They even included a line for a signature of a bankruptcy judge when the debtor was not represented by an attorney. SEARS engaged in this conduct despite legal advice that the policy of not filing all reaffirmation agreements was at best highly risky and at worst illegal. The company received advise to that effect from outside counsel on its bankruptcy manual in 1985, but ignored it. SEARS' in-house counsel not only disagreed with that advice, but was critical of bankruptcy judges who, he said, refused to approve such agreements "based merely on their own personal prejudices as to what is best for the debtor." In 1992, counsel for SEARS gave similar advice to some credit department executives. However, the company weighed the likelihood of getting caught versus the advantages of obtaining hundreds of reaffirmations without filing them with the bankruptcy court and decided as a business decision to continue the practice. The $60 million criminal fine, will be deposited into the Crime Victims Fund, a major funding source for victim services throughout the country. The Fund supports state crime compensation programs and over 3,000 local victim service agencies, such as domestic violence shelters and rape crisis centers. Revenue for the Fund comes solely from the federal criminal fines, special assessments, forfeited bail bonds, and penalty fees collected by the U.S. Attorneys' Offices, U.S. Courts, and the Federal Bureau of Prisons. The case was referred by the Office of J. Christopher Marshall, U.S. Trustee in Massachusetts, and investigated by agents of the Federal Bureau of Investigation. The case was prosecuted by Assistant U.S. Attorney Mark J. Balthazard of Stern's Economic Crimes Unit. SERVICE CORPORATION: Kirby McInerney Files Complaint in Texas ------------------------------------------------------------- On February 11, 1999, Kirby McInerney & Squire, LLP and Claxton & Hill, P.L.L.C. filed a class action lawsuit in the United States District Court for the Southern District of Texas against Service Corporation International, Inc. (NYSE: SRV) and certain of its officers and directors. The lawsuit was filed on behalf of all purchasers of Service Corp. securities between July 23, 1998 and January 26, 1999, inclusive, including former shareholders of Equity Corp. International (NYSE: EQU), who acquired Service Corp. securities in the January 1999 merger between the two companies. The Complaint asserts that defendants violated Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The lawsuit alleges that defendants' material misrepresentations and omissions caused the Company's stock to trade at artificially inflated levels during the Class Period. Throughout the Class Period, defendants misled the public by downplaying the effect that certain industry-wide conditions were having upon the Company (an operator of funeral homes). Just days prior to the disclosing the Company's true financial and operating condition, Service Corp. completed the merger with Equity Corp. International, using $576 million worth of its artificially inflated common stock as currency. When the Company finally announced "revised earnings estimates" on January 26, 1999, the price of its common stock plunged from $34 7/16 per share to $19 1/8 per share in a single day, a decline of 44%. SERVICE CORPORATION: Kaplan Kilsheimer File Complaint in Texas -------------------------------------------------------------- Kaplan, Kilsheimer & Fox LLP has filed a Class Action against Service Corp. International (NYSE:SRV) and certain of its officers and directors in the United States District Court for the Southern District of Texas, Houston Division. The suit is brought on behalf of all persons or entities who purchased or acquired securities of Service Corp. between January 29, 1998 and January 26, 1999, inclusive. The complaint alleges that certain officers and directors violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by engaging in a fraudulent scheme during the Class Period whereby they improperly and prematurely recognized material amounts of revenue in connection with Service Corp.'s cemetery operations in violation of Generally Accepted Accounting Principles ("GAAP"). The complaint also alleges that the defendants issued a series of false and misleading statements concerning the Company's financials, business, operations and its prospects for future profitability. Because defendants issued these false and misleading statements, the price of Service Corp. common stock was artificially inflated during the Class Period. SMARTALK TELESERVICES: Bernstein Litowitz Amends Complaint ---------------------------------------------------------- Bernstein Litowitz Berger & Grossmann LLP was appointed lead counsel in the SmarTalk TeleServices, Inc. Securities Litigation and announced that it has filed an amended complaint on behalf of purchasers of SmarTalk TeleServices, Inc. (NASDAQ:SMTK) (NASDAQ:SMTKQ) securities between August 13, 1997 and January 7, 1999. The amended complaint consolidates the pending class actions previously filed against SmarTalk during August 1998, and also includes defendants' ongoing fraudulent conduct perpetrated after the August 1998 complaints were filed. The initial complaints filed by Lead Counsel charge SmarTalk and certain of its officers and directors, and its outside auditors, with violations of the Securities Exchange Act of 1934 during a class period of May 13, 1997 to August 10, 1998. The amended complaint includes defendants' misconduct subsequent to August 10, 1998, including defendants' financial fraud which culminated with defendants restating not only SmarTalk's fiscal 1997 results, its first quarter 1998 results and its second quarter 1998 results, but also its third quarter 1998 results as detailed in SmarTalk's January 7, 1999 announcement. The January 7, 1999 announcement caused SmarTalk's stock price to further collapse to $1-1/2 per share. The Company has declared bankruptcy. The amended complaint continues to name SmarTalk's officers and directors and SmarTalk's outside auditor, PricewaterhouseCoopers, LLP, with violations of the securities laws. USA TALKS.COM: Weiss & Yourman Files Complaint in [California] -------------------------------------------------------------- Weiss & Yourman announced it has filed a class action lawsuit on behalf of purchasers of USA Talks.com Inc. (OTCBB:USAT) securities between Nov. 24, 1998 and Jan. 29, 1999 for violations of federal securities laws. Defendants include USA Talks.com and certain of its officers and directors. The Complaint charges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10-b(5) by, among other things, issuing false misleading statements regarding USA Talks.com's financial condition as well as its present and future business prospects. USA TALKS.COM: Shepherd & Geller Files Complaint in California -------------------------------------------------------------- Shepherd & Geller, LLC announced Friday that it filed a class action lawsuit in the United States District Court for the Southern District of California on behalf of all persons who purchased or otherwise acquired common stock issued by USA Talks.Com, Inc. during the period November 24, 1998 through January 29, 1999. According to the Complaint, USAT and certain of its officers and directors violated Federal Securities laws by artificially inflating the price of USAT's common stock to a high of over $52 per share by misrepresenting USAT's publicly reported network installation and technology. On January 29, 1999, the SEC halted traded in the Company's common stock as a result of "questions about the accuracy of information released to the public by the company." VISION TWENTY-ONE: Barrack Rodos Files Complaint in Florida ----------------------------------------------------------- A class action has been commenced in the United States District Court for the Middle District of Florida on behalf of all persons who purchased or acquired the common stock of Vision Twenty-One, Inc. (Nasdaq: EYES) between December 5, 1997, and November 5, 1998, inclusive. The complaint charges that Vision Twenty-One and certain officers and directors violated the Securities Exchange Act of 1934 by issuing a series of materially false and misleading statements concerning the Company's ability to integrate acquisitions it had made during the Class Period. The complaint also alleges that Vision Twenty-One misstated its revenues, net income and expenses which caused the price of Vision Twenty-One common stock to be artificially inflated during the Class Period. WORLD ACCESS: Weiss & Yourman File Complaint in Georgia ------------------------------------------------------- A class action lawsuit against World Access, Inc. (NASDAQ:WAXS) and certain individuals associated with the Company was commenced in the United States District Court for the Northern District of Georgia on behalf of investors who purchased World Access shares during the period October 7, 1998 through and including February 11, 1999. The complaint charges World Access and certain of its executive officers with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as Rule 10b-5 promulgated thereunder. The complaint alleges that defendants issued a series of materially false and misleading statements during the Class Period regarding the Company's financial condition and results of operations. These false and misleading statements caused the price of World Access's common stock to be artificially inflated during the Class Period. This action seeks to recover damages on behalf of defrauded investors during the Class Period. Plaintiff is represented by Weiss & Yourman a law firm that has significant experience and expertise prosecuting class actions on behalf of investors and shareholders in federal and state courts throughout the United States, particularly those involving financial reporting improprieties. The firm has repeatedly been appointed by courts as lead counsel in numerous complex litigations and have recovered hundreds of millions of dollars on behalf of investors. Y2K LITIGATION: Japanese Insurers Will Cover Harmed Individuals --------------------------------------------------------------- Japanese casualty insurance companies will most likely pay the claims of individuals injured as a result of a year 2000 computer glitch, the chairman of the Marine and Fire Insurance Association of Japan said at a press conference attended by a reporter for Asia Pulse. The association of nonlife insurers has concluded that individuals have valid claims because, unlike companies, they do not have the means to avoid accidents in connection with the computer problem. Casualty insurers, Asia Pulse relates, have begun to insert clauses in their contracts with companies exempting them from liability in case of damage from the millennium bug. ********* 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., Princeton, NJ, and Beard Group, Inc., Washington, DC. Peter A. Chapman, Editor. Copyright 1999. All rights reserved. ISSN XXXX-XXXX. 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 301/951-6400. * * * End of Transmission * * *