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/raid1/www/Hosts/bankrupt/CAR_Public/991208.MBX C L A S S A C T I O N R E P O R T E R Wednesday, December 8, 1999, Vol. 1, No. 216 Headlines ALASKA STATE: Wildfire Property Owners Face Legal Fees and Will Appeal CANADIAN GOVT: Councillor Will Sue If City Reserve Fund Isn't Protected CENDANT CORP: Settles for $2.8B Securities Suit over HFS & CUC Merger DEFOLIANTS MAKERS: Vets In Korea in Late 60s Sue in Phil. Over Exposure DRUG PRICE-FIXING: FTC & AGs Sue on 3200% Rise; Makers Thwart Generics GENERAL ELECTRIC: Consumers File Suit in Fla Over Defect in Dishwashers HOLOCAUST VICTIMS: Volcker Audit Reveals 54,000 Swiss Accounts INDIAN TRUST: Ct Appointed Master Criticizes Fd Govt for Lost Papers INTERNET GAMBLING: CA Suit Accuses AE & Discover of Aiding and Abetting NAVARRE CORP: Lockridge Grindal Announces Securities Lawsuit in Minn. PAYDAY LENDERS: Florida Borrower Sues Payday Express & Ace Cash PRINCETON ECONOMICS: Japanese Investors Planned to Sue over Bond Losses SGL CARBON: Set to Settle Antitrust Suit; Expects to Be Out of Ch 11 * Environmental Groups Say Chemical Industry Violates Human Rights * Franchise Advertising Fund May Benefit Franchisees but Lack Control * Paper Cites Downside of SEC Proposal Re Liability of Audit Committee ********* ALASKA STATE: Wildfire Property Owners Face Legal Fees and Will Appeal ---------------------------------------------------------------------- Seven Big Lake property owners who sued the state over the handling of a 1996 wildfire could face another financial hit. Superior Court Judge Beverly Cutler ruled that the seven will have to pay the state $ 64,000 in attorneys fees and may be liable for another $ 46,000 in costs for the suit, which was dismissed last February. The total amount works out to nearly $ 16,000 per plaintiff. Anchorage Attorney Peter Gruenstein, who is representing the property owners, could not be reached for comment. But Anna Von Reitz, one of the seven plaintiffs, said she expects they will appeal the judgment. ''We're not backing down, not for any reason,'' she said. ''We believe we're right . . . and, no, we're not bothered by Judge Cutler's decisions.'' The fire destroyed Von Reitz's house. Gruenstein has already filed an appeal of Cutler's decision to dismiss the case. Cutler rejected claims that class-action plaintiffs are immune from having to pay such costs and that the case was filed in the public interest. ''Their claim was quintessential private-interest litigation, a collecting suit where each individual sought money damages for their particular private property loss based on a theory of negligence,'' she wrote. She said that under Alaska law, the prevailing parties in almost all civil cases are entitled to attorneys fees. Cutler noted the losing side is required to pay 20 percent of the state's attorney fees, which in this case totaled about $ 321,000. Also, she said, they are liable for up to 100 percent of the associated legal costs, which totalled $ 46,000. The lawsuit, contending the state could have prevented the wildfire, was filed on behalf of about 700 property owners and sought an estimated $ 100 million in damages. The suit is one of two related to the 1996 fire, which burned across 37,000 acres and destroyed 454 buildings. State officials estimated it did about $ 15 million in damage. The second suit, handled by the same attorneys, was filed in June on behalf of 16 Big Lake property owners. That case was dismissed in September by Anchorage Superior Court Judge John Reese. That decision is also being appealed. Reese has also ruled in that case that the plaintiffs are liable for attorneys fees, state assistant attorney general William F. Morse said. (Anchorage Daily News December 4, 1999) CANADIAN GOVT: Councillor Will Sue If City Reserve Fund Isn't Protected ----------------------------------------------------------------------- A class-action lawsuit against the provincial government is being threatened by a Nepean councillor if the city's reserve fund isn't protected by legislation. Coun. Merv Sullivan, chair of the reserve fund committee, said the tax reduction in the legislation is not enough to ensure the $ 45 million goes to Nepean residents. "They've promised the fund will be protected but a lot can change before the third reading," he said. "The fund was accumulated over years of careful management. There's no doubt the money belongs completely to the residents of Nepean." Under the provincial plan, each municipality can have its own tax rate for eight years to cover varying financial situations, said Paul Jones, director of local government policy for the province. This clause applies to both debts and reserve funds. (The Ottawa Sun December 7, 1999) CENDANT CORP: Settles for $2.8B Securities Suit over HFS & CUC Merger --------------------------------------------------------------------- A landmark $2.8 billion settlement was announced December 7 in the securities class action law suit filed against Cendant Corporation (NYSE: CD), the company formed through the December, 1997 merger of HFS International and CUC International, Inc., according to Lead Counsel, the law firms of Bernstein Litowitz Berger & Grossmann LLP and Barrack, Rodos & Bacine. The two firms were appointed as Lead Counsel for the Class in October, 1998 by the Honorable William H. Walls, U.S. District Court Judge in the District of New Jersey. The $2.8 billion settlement amount is over three times the highest recovery ever obtained in a securities class action case (WPPSS), and approximately 10 times the recovery in the next largest securities class action case involving fraudulent financial statements (Lincoln Savings). The settlement successfully resolves all claims of the Class against all defendants in the case, except for Ernst & Young LLP, which had audited the financial statements of CUC. The Class consists of persons and entities, other than defendants and their affiliates, that purchased or otherwise acquired publicly traded securities of Cendant and its predecessor, CUC International, other than Cendant PRIDES, during the period from May 31, 1995 through and including August 28, 1998. The Settlement requires Cendant to institute corporate governance changes, that are far-reaching and unprecedented in securities class action litigation. These changes include: * The Board's Audit Committee, Nominating Committee and Compensation Committee will each be comprised entirely of independent directors (according to stringent definitions, endorsed by the institutional investment community, of what constitutes an independent director); * The majority of the Board will be independent within two years following final approval of the Settlement; * Cendant will take the steps necessary to provide that, subject to amendment of the Certificate of Incorporation de-classifying the Board of Directors by vote of the required super-majority of shareholders, all directors shall be elected annually; and * No employee stock option shall be "re-priced" following its grant without an approving vote of shareholders (except in accordance with its terms to take into account corporate transactions such as stock dividends, stock splits, recapitalization, merger or distributions). In addition, as part of the Settlement, the Class will be entitled to receive 50% of any recovery that Cendant and its officers and/or directors might achieve from prosecution of claims they will pursue against Ernst & Young. The Class will not be charged any costs or expenses in connection with Cendant and others continuing to pursue claims against E&Y, and will not be taxed for such costs in the event that there is no recovery from E&Y. The parties anticipate that a formal Stipulation of Settlement will be signed and submitted to the Court by mid-January, 2000, and that a final hearing on the Settlement will occur in April, 2000. The settlement amount will begin accruing interest upon District Court approval of the settlement. The law firms, representing Lead Plaintiffs and the Class, will continue to prosecute claims against Ernst & Young. FACT SHEET IN RE CENDANT CORPORATION LITIGATION MASTER FILE NO. 98-1664 (WHW) (D.N.J.) THE CLASS The case was brought on behalf of all persons and entities, other than defendants and their affiliates, who purchased or otherwise acquired publicly traded securities of Cendant and its predecessor, CUC International, Inc. (other than Cendant PRIDES), during the period from May 31, 1995 through August 28, 1998, inclusive. The Class encompasses persons and entities who acquired: (a) Cendant and CUC common stock, including stock acquired in exchange for HFS International common stock in the merger between HFS and CUC, which combined to form Cendant on December 17, 1997; (b) Cendant and CUC common stock options; (c) Cendant 5_% Senior Notes due 2003; (d) Cendant 4 3/4% Convertible Senior Notes due 2003; and (e) Cendant 3% Convertible Subordinated Notes due 2002. LEAD PLAINTIFFS FOR THE CLASS The California Public Employees' Retirement System (CalPERS); the New York State Common Retirement Fund; and the New York City Pension Funds. COUNSEL FOR THE CLASS Lead Plaintiffs and the Class are represented by the law firms of Bernstein Litowitz Berger & Grossmann LLP, based in New York, and Barrack, Rodos & Bacine, based in Philadelphia. THE FACTUAL BACKGROUND OF THE CASE On April 15, 1998, Cendant disclosed that it would restate previously reported financial results for 1997, including reducing 1997 net income by $100 million to $115 million, because of unspecified accounting irregularities relating to certain business segments of CUC. Cendant also announced that the Audit Committee of its Board of Directors had retained the law firm of Wilkie Farr & Gallagher ("WF&G") as special legal counsel to investigate the accounting irregularities, and that WF&G had retained the accounting firm of Arthur Andersen LLP ("AA") to perform an independent investigation. On July 14, 1998, Cendant announced that it would restate CUC's and Cendant's previously reported financial results for 1995, 1996 and 1997, and all quarters of those years. At that time, Cendant revealed its finding that a widespread fraud had occurred at CUC that included improperly recognizing fictitious revenues, falsely coding services sold to customers and fraudulently manipulating merger reserves. On August 28, 1998, Cendant filed with the SEC a report prepared by WF&G and AA and adopted by the Audit Committee, that detailed the fraud they discovered that had pervaded 17 of CUC's 22 operating units and had caused CUC's and CMS's operating income to be inflated by approximately $500 million; income from continuing operations before income taxes by approximately $297.2 million; earnings per share by$0.61; and quarterly operating income in 1995, 1996 and 1997 by $31 million, $87 million and $175 million, respectively. As a result of the disclosures, starting on April 15, 1998, the price of Cendant stock fell precipitously. On April 16, 1998, the market price of Cendant stock fell from approximately $35 per share to$19 per share, on trading of approximately 108 million shares, which was the largest market loss in U.S. history. With the announcements of July 14 and August 28, 1998, the stock fell to nearly $11 per share. PROCEEDINGS IN THE CASE Over 50 lawsuits were filed in the U.S. District Court for the District of New Jersey following the April 15 announcement. They were assigned to the Honorable William H. Walls, U.S. District Judge. The Court consolidated all of these cases by Order of May 29, 1998. On September 17, 1998, Judge Walls appointed the New York State Common Retirement Fund, CalPERS and various New York City Pension Funds as the Lead Plaintiffs, pursuant to the Private Securities Litigation Reform Act of 1995, which encourages institutional investors to seek lead positions in securities law class action cases. On October 9, 1998, Judge Walls appointed the law firms of Bernstein Litowitz Berger & Grossmann LLP and Barrack, Rodos & Bacine, who were selected by the Lead Plaintiffs to represent them, to be Lead Counsel for the Class after a competitive bidding process established by the Court to ensure the best representation for the Class at a fair price. On December 14, 1998, Lead Plaintiffs filed an Amended Consolidated Class Action Complaint on Behalf of Purchasers and Acquirers of All Cendant and CUC Publicly Traded Securities except PRIDES (the "Complaint"), asserting claims against Cendant; certain of its officers and directors; certain former officers and directors of CUC; and E&Y for alleged violations of the federal securities laws. At the same time, Lead Plaintiffs moved for certification of a Class of all persons and entities, other than defendants and their affiliates, who purchased or acquired publicly traded securities of Cendant and its predecessor, CUC, during the period from May 31, 1995 through August 28, 1998. On January 27, 1999, the Court granted the motion for certification of the Class requested by motion of December 14, 1998. On July 8, 1999, the Court heard argument on motions filed by various defendants to dismiss all or portions of the Complaint. On July 27, 1999, the Court denied all such motions, except that the Court granted E&Y's motion to dismiss the claims brought against it for purchases of Cendant publicly traded securities made after April 15, 1998. On July 27, 1999, the Court also heard oral argument on various motions to stay proceedings in the class action case pending the outcome of an investigation relating to Cendant being conducted by the U.S. Attorneys' Office. While permitting the U.S. Attorneys' Office to intervene for the purpose of moving to stay the case, the Court, with limited exceptions, denied the motions seeking a stay. DEVELOPMENTS LEADING TO SETTLEMENT OF THE CASE From the outset of the case, Lead Counsel conducted an extensive investigation concerning the allegations of wrongdoing pertaining to each defendant, the damages suffered by the Class, and the financial capabilities of the defendants. They inspected hundreds of thousands of documents produced by Cendant, Ernst & Young, the Individual Defendants and various non-parties. Lead Counsel further retained Forensic Economics, Inc., an expert consultant in the field of assessing damages in securities law cases, and Lazard Freres & Co. LLC, an internationally renowned investment banking firm, to assist in analysis and settlement negotiations. Settlement negotiations were conducted under the auspices of Lead Plaintiffs and with constant consultation between the Lead Plaintiffs and our two firms. The discussions with defendants' counsel, which began in earnest in May 1999, were intense, complicated and arduous. While settlement discussions were occurring, Lead Plaintiffs continued to vigorously prosecute the case on behalf of the Class, fighting the motions to dismiss and to stay, and pursuing the extensive factual investigation and analysis of documents. TIMING While a formal Stipulation of Settlement must still be completed, Lead Plaintiffs and Cendant have committed to the Settlement being announced. It is hoped that the formal Stipulation of Settlement can be submitted to the Judge by early January, and approved at a final settlement hearing sometime in April, 2000. Assuming preliminary approval of the Settlement by the Court, we anticipate that a formal Notice of the Settlement will be mailed to Class members. Contact: Bernstein Litowitz Berger & Grossmann LLP Ava C. Thorin 212/554-1429 or Barrack, Rodos & Bacine Leonard Barrack 215/963-0600 DEFOLIANTS MAKERS: Vets In Korea in Late 60s Sue in Phil. Over Exposure ----------------------------------------------------------------------- Korean and American veterans who served in the late 1960s filed a class action suit in U.S. District Court in Philadelphia on December 3 against the makers of three defoliants Agent Orange, Agent Blue and Monuron claiming the chemicals have had delayed toxic effects on the soldiers exposed to them. Attorneys Stewart J. Eisenberg of Weinstein Goss Schleifer Eisenberg Winkler & Rothweiler and Michael Choi of Choi & Associates filed the suit against six defendants Dow Chemical Co., Occidental Electro-Chemical Corp., Hercules Inc., Monsanto Co., Uniroyal Inc. and Thompson Hayward Agriculture & Nutrition Inc. The suit was filed by two individuals seeking to represent two related classes. Chang Ok-Lee is a citizen of Korea who seeks to represent a class of Koreans who served in that country's armed forces from 1967 to 1970 and who were unwittingly exposed to the defoliants during their service. Thomas Wolfe of Dayton, Ohio, is seeking to represent a similar group of American veterans who served near the Korean demilitarized zone which separates North Korea from the Republic of South Korea. During the three-year period, the suit says, thousands of gallons of Agent Orange and Agent Blue and thousands of pounds of Monuron were sprayed or applied in the DMZ. Troops were unwittingly exposed to the chemicals whose toxic effects can remain hidden for years, the suit says. The plaintiffs' lawyers say the class of Korean veterans is likely to number more than 9,000 and that their common legal questions whether the statute of limitations has run on their claim or if they should be excused as a group under the discovery rule since they only recently learned of their exposure and possible injury. The proposed class of American veterans numbers more than 1,000, the suit says, and their legal issues are similar, including whether they can prove that the manufacturers were aware of the toxic effects of the defoliants at the time of their use. The case, Ok-Lee v. Dow Chemical Co. et al., 99-cv-6127, has been assigned to U.S. District Judge Jan E. DuBois. (The Legal Intelligencer December 6, 1999) DRUG PRICE-FIXING: FTC & AGs Sue on 3200% Rise; Makers Thwart Generics ---------------------------------------------------------------------- In November 1997, tens of thousands of people were routinely filling prescriptions for 500 tiny clorazepate tablets to treat their anxiety and depression. The price was $ 11.37 a bottle. Then, two months later, the same supply suddenly shot up to $ 377. The 3,200-percent price increase -- most of it shouldered by government and private insurance plans -- prompted state and federal authorities to file a multimillion-dollar antitrust suit against the drug's manufacturer. Authorities also recently launched other investigations into possible price-fixing and illegal profit-taking practices within the nation's $ 122 billion-a-year pharmaceutical industry. Consumers, hospitals, insurance providers and government programs such as Medicaid could be overpaying by hundreds of millions of dollars annually for medications because of anticompetitive activities by some major drug companies, lawyers involved say. "We have only seen the tip of the iceberg," said Chicago attorney Robert Green, who specializes in pharmaceutical patent litigation. He says governmental and private class-action drug suits could eventually dwarf current tobacco litigation. "There's much more money at stake, if you can believe that," he said. The firms involved won't comment on specifics but generally deny any wrongdoing. The Pharmaceutical Research and Manufacturers of America, an industry trade organization, said the group has decided not to comment on the state and federal inquiry. Central to the investigation and lawsuits are agreements among manufacturers, or between manufacturers and suppliers, that make it difficult for patients to get lower-priced generic drugs as substitutes for brand-name medicines. Doctors often allow chemically similar generics if they feel the alternatives are as effective. In some cases, lawyers say, companies have signed suppliers of essential chemical ingredients to exclusivity agreements, which means that makers of generics have trouble getting raw materials. In other instances, they say, brand-name producers are paying generic-drug firms directly not to produce less expensive alternatives. The Federal Trade Commission and 32 state attorneys general in February filed companion civil lawsuits in federal court in Washington, D.C., accusing the maker of clorazepate, Pittsburgh-based Mylan Laboratories Inc., of conspiring with suppliers to dramatically raise drug prices -- and profits. Mylan denies doing anything improper. State and federal regulators, who are working together, confirm they are also weighing antitrust suits against at least six other pharmaceutical companies. Major pharmaceutical companies including Eli Lilly & Co., American Home Products and Abbott Laboratories confirm they have been informed they are under state and federal scrutiny, though they decline to comment on any details. Certain actions of Hoechst AG, a huge German drug company that makes Cardizem CD, a popular drug used to treat hypertension and chest pain, are also being examined, lawyers familiar with the joint probe say. Litigation experts predict more damage suits in coming months as well from consumer groups, insurance companies and hospitals alleging price fixing. State and federal agencies are "extremely concerned about recent developments in the pharmaceutical arena," said Richard Feinstein, director of the health-care services division at the FTC's Bureau of Competition. "We are looking at relationships between brand-name drug manufacturers and generic companies that could possibly delay the arrival of generic versions of the drugs," said Mr. Feinstein. He declined to identify companies being investigated or to go into specifics, but said the FTC is "working diligently with several states, including Texas." Investigators say motivation for thwarting or stalling production of generic drugs grows out of special 20-year patent protections granted drug companies that develop new medications. During that time, no other company is permitted to replicate the new drug. The patent in effect is a reward for risking the resources to develop better medications. However, once the patents expire, generic copies can be made and sold, typically at 30 percent to 50 percent less. These alternatives can cause revenues of the brand-name product to plummet by 75 percent within two years, say industry analysts. That kind of collapse can be a strong incentive to delay or prevent the arrival of generics, investigators say. "If a company's conduct effectively eliminates less expensive treatment options, then we have a responsibility to review it," said Texas assistant attorney general Mark Tobey, who heads the agency's antitrust division. "We've had people come to us saying they had to make a terrible choice: Spend the extra money on these medications or buy food for dinner." Amarillo pharmacist Robin Johnson is no trust-buster. But she does pay close attention to her records and what medications her customers need. And her curiosity about some extraordinary shortages and price hikes in 1998 at least partially brought about this spring's state and federal antitrust suits accusing Mylan of fixing prices on clorazepate and another anti-anxiety drug called lorazepam. For years, Ms. Johnson supplied the lorazepam to hundreds of gravely ill hospice patients every month. "Lorazepam was the absolute drug of choice, best for the patients," she said. Her records show she bought 500 tablets of the drug in January 1998 for $ 3.08 wholesale. But then for four months, she suddenly couldn't order it because Mylan said it didn't have enough and two generic drug companies said they no longer made the medication because their chemical supplier refused to sell them key ingredients used to make it. By May 1998, she said, she was able to once again order from Mylan. But the price of 500 pills had soared to $ 165. "I was furious because I knew these people couldn't afford the drug and because they are hospice patients, it's Medicaid and Medicare picking up the tab," Ms. Johnson said. "That's our tax dollars paying for this." She and others contacted state officials who quickly learned of similar complaints throughout the country. In February, Texas joined 31 other state attorneys general in accusing Mylan and a chemical supplier of "an unreasonable restraint of trade" by trying to "fix, raise of stabilize the prices" of lorazepam and clorazepate. According to the lawsuit, Mylan officials persuaded Profarmaco S.R.L., an Italian chemical maker, to allot its entire output of a key ingredient to Mylan for 10 years. In return, Mylan agreed to share its profits with Profarmaco, the suit says. Citing the pending litigation, Profarmaco officials declined to comment. The states contend there were no other legitimate suppliers of the key ingredient, and as a result, two Mylan competitors were no longer able to make generic versions. Within weeks, Mylan increased prices of its drugs 1,900 to 3,200 percent, the suit says. The federal and state lawsuits demand more than $ 120 million in reimbursements from Mylan, plus punitive damages. The allegations are "radical, rushed and wrong," said Mylan chairman Milan Puskar in a written statement. "Mylan has done nothing wrong. We will fight every suit vigorously." A federal judge so far has refused the company's request to dismiss the litigation and the case could go to trial next fall. The key issue, according to one legal expert, will be Mylan's motivations because it doesn't deny an agreement with its supplier. "The company is going to have to explain why this special exclusivity deal either made the products better or made producing their products more efficient," said Emory University law professor Thomas Arthur, an authority on antitrust law. "I think that's going to be a tough hurdle." Federal Trade Commission staff attorneys have asked for permission to sue additional drug makers, lawyers close to the state and federal inquiries say. And a handful of states have notified the federal agency they plan to bring their own antitrust actions. Antitrust investigators say they have documents indicating Hoechst paid Florida-based Andrx Corp., a generic drug company, about $ 40 million a year to refrain from marketing a version of Cardizem. Hoechst officials confirm that company records have been subpoenaed but deny any wrongdoing. Andrx lawyers declined to comment, citing the ongoing investigation. Relations between the two firms drew attention after another generic drug maker, Biovail Corp. of Ontario, Canada told the FTC last year that a senior officer at Hoechst offered Biovail the same deal as investigators say was offered Andrx. In court documents, Biovail officials describe the proposal as "a bribe or payoff." Biovail said it rejected the offer. Cardizem generated nearly $ 900 million in revenues for Hoechst in 1998, according to financial records. Stock market analysts say such arrangements between brand-name and generic-drug companies are no secret on Wall Street. Drug makers say they are convinced such deals aren't necessarily illegal. In July, a Florida drugstore chain filed an antitrust suit against Abbott Laboratories claiming the company is paying $ 24 million a year to Miami-based Ivax Corp. and an undisclosed amount of money to Geneva Pharmaceuticals of Broomfield, Colo., to keep the less expensive forms of a blood-pressure drug, Hytrin, off the market. Abbott's revenues from Hytrin in 1998 topped $ 400 million. Ivax and Geneva are also listed as defendants in the suit. Lawyers for the three companies said they would not comment on pending litigation. However, they have not disputed in court that they have a financial arrangement, and have argued that the deals are legitimate agreements between companies. If drug companies have trouble defending such transactions, "we are going to start seeing major insurance companies and hospitals lining up behind the state attorneys general to file claims" for huge dollar damages, said Paul Slater, a Chicago lawyer who specializes in pharmaceutical litigation. And if that happens, he said, the argument is likely to be framed in unflattering terms for drug makers: "The key will be proving that the pharmaceutical industry put profits over public health." (The Dallas Morning News December 7, 1999) GENERAL ELECTRIC: Consumers File Suit in Fla Over Defect in Dishwashers ----------------------------------------------------------------------- The following was released December 6 by James, Hoyer, Newcomer, Forizs & Smiljanich, P.A.: On December 3, 1999, Janette Walley, Maggie Jo Nees, Irene G. Bagley, Rita Bruno, and Joseph M. Vesely, residents of Sarasota, Florida, on behalf of a class of millions of consumers around the country, filed a suit against General Electric Company alleging that from 1983 through 1989 General Electric Company manufactured approximately 3.1 million dishwashers which have a defective slide switch that can cause fires. The dishwashers were marketed under the GE or Hotpoint brands. The slide switch allows users to choose between the heat drying and energy saver functions. Defective switches in the dishwashers have caused at least 50 fires in the past. The Consumer Product Safety Commission has recommended that consumers stop using the dishwashers immediately. The specific model numbers of these dishwashers are Models GSD500D, GSD500G, GSD540, HDA467, HDA477 or HDA487 with a serial number that has a second letter of A, M, R, S, T, V or Z (for example, BM12345). John Yanchunis, an attorney with the law firm which filed the suit stated that, "Owners of the dishwashers now have an appliance which is no longer useable because of the defective nature of the switch. The present condition of these dishwashers is unreasonably dangerous and poses a threat to consumers." The class action complaint was filed by Attorneys W. Christian Hoyer, John Yanchunis, and Christopher Casper of the Tampa, Florida law firm of James, Hoyer, Newcomer, Forizs & Smiljanich, P.A. Source: James, Hoyer, Newcomer, Forizs & Smiljanich, P.A. Contact: John Yanchunis of James, Hoyer, Newcomer, Forizs & Smiljanich, P.A., 813-286-4100 or jyanchunis@jameshoyer.com HOLOCAUST VICTIMS: Volcker Audit Reveals 54,000 Swiss Accounts -------------------------------------------------------------- A three-year audit of Swiss banks found records of 54,000 accounts that were probably linked to victims of Nazi persecution, a report released on December 6 said. The report described in detail how some banks had issued "deliberately misleading statements" for decades to Jews who had come looking for their family's assets. Only three years ago, the Swiss Bankers Association insisted that there were fewer than 800 such accounts on the books of the banks and that they had few assets. While highly critical of the actions of individual banks, the commission, headed by a former chairman of the Federal Reserve Board, Paul A. Volcker, said there was "no evidence of systematic destruction of records of victim accounts" and no "organized discrimination" against them. Instead, the panel found that the banks showed "a general lack of diligence even active resistance -- in response to private and official inquiries," the report said. Assessing the true value of the accounts proved virtually impossible. Much of the surviving information was fragmentary. Most of the accounts had been closed by unknown parties over the years and drained by bank fees and, in a few cases, by deliberate profit skimming by the banks. But Mr. Volcker said, to the enormous relief of the bankers, that he saw no reason to revise the $1.25 billion settlement that the two largest banks reached last year with surviving Holocaust victims. The World Jewish Congress, one of many Jewish groups involved in that pact, said they agreed with Mr. Volcker's assessment that the accord should stand. "It is appropriate for the number of living claimants and heirs," said Elan Steinberg, a top official of the World Jewish Congress. "The fact is that the owners of these accounts are mostly dead. We're only asking the banks for one thing today. The words, 'We're sorry.'" The banks said they felt vindicated by Mr. Volcker's findings. "The dramatic and sweeping accusations leveled against Swiss banks for years have proved to be unfounded," said Georg Krayer, president of the Swiss Bankers Association. The report ends one of the most contentious issues in modern Swiss history. The conflict quickly turned into a major source of tension between the United States, which pressed the inquiry, and Swiss authorities, who felt improperly blamed for activities under the duress of wartime. Mr. Volcker said most major banks in Switzerland cooperated with his team of hundreds of auditors, spending hundreds of millions of dollars to search out long-buried records. But he reported that some banks had resisted a "foreign investigation" and he identified one, Banque Cantonale de Geneve, that the report said had "not allowed the auditors to carry out any of their mandated functions" and "posed a substantial impediment" to the investigation. The most startling elements of the final report are anecdotes about the lengths that a number of banks went to hide those assets for decades after the war. Several banks endorsed procedures to mislead Jews, but not non-Jews, who came in search of old accounts. Apparently concerned about potential liability, the banks were not identified, a step that appeared far short of the full disclosure that had been promised when the audit began. The report quoted an internal memorandum from the legal department of one bank in 1969 that said, "In the case of inquiries about Jewish clients whose assets had to be transferred" to Germany in the 1930's, "we have always responded that we could not supply the requested information, as we are only obliged to retain ledgers and correspondence for a period of 10 years." In 1975, the report adds, another internal memorandum "confirms that the unequal treatment of Jewish claimants and their heirs was a direct result of the bank's concern that it may ultimately be held liable." The report describes another case of an account opened in 1930 by a Russian Jew that was worth more than one million Swiss francs by 1962. A memorandum found in the bank's record stated that the bank "could 'cream off' the returns on the investment and recreate the account documentation as if no profits had been earned." Only recently, the report added, the bank settled with the account holder's heirs. Although evidence of similar instances was scarce, the report said, the banks' attitude through recent decades has been one of resistance to individual and government calls for a full accounting. "The handling of these funds was too often grossly insensitive to the special conditions of the Holocaust and sometimes misleading in intent and unfair in result," the report stated. The panel was appointed by the Swiss banks and international Jewish organizations, and it was aided by the passage of a law that lifted some aspects of Swiss bank secrecy to allow auditors to do their work. Not surprisingly, the panel was divided about assessing the number of accounts and their value. Some panel members from the Jewish organizations, extrapolating from the data that the auditors found, said they believed that the value of the accounts could range up to $1.9 billion. But others said they thought that the number was one-fourth that figure, in part because it was impossible to know who had removed cash from the accounts during and after the war. For the Clinton administration, the report's publication assists its effort to repair badly strained relations with Switzerland. "It will take years to straighten out the damage and get some trust back," a senior administration official said. "But the first step was getting the banks to acknowledge how long they had misled so many." (The New York Times December 7, 1999) According to the Birmingham Post of December 7, 1999, the panel also said it had found 1,622 accounts that, based on name matches, might have belonged to top-ranking Nazis or their collaborators. No names were disclosed. Swiss bankers had a "completely insufficient" knowledge of the sufferings of Holocaust victims before the controversy over Holocaust-era assets, conceded Mr Georg Krayer, chairman of the Swiss Bankers Association, which helped pay for the search. "I should like to apologise for all the disappointments and hurt feelings this inadequacy may have caused," he said. The panel employed up to 650 international accountants to comb through 59 Swiss banks in search of accounts opened while the Nazis held power in neighbouring Germany from 1933 to 1945. The Irish Times of December 7, 1999 says that the banks welcomed the conclusion that there was no evidence of systematic destruction of records. The panel did, however, condemn some banks for "questionable and deceitful actions" in handling accounts and for a reluctance to respond to inquiries about lost funds. In one case, an account-holder who had fled to Chile asked his bank to make payments for food packages to be sent to his wife in a concentration camp. The bank refused and transferred the money to the Nazi Reichsbank in Berlin and to a bank in Luxembourg. According to the Toronto Star of December 7, 1999, a footnote in the report said other accounts possibly linked to Holocaust victims could now be worth up to $1.2 billion, but Volcker warned against trying to be too precise with data now more than half a century old. According to AP Online, December 6, 1999, the commission said the total assets of the banks at the end of World War II were $9.1 billion, and that covered not only customer deposits but also other assets. The report said current values are 10 times the 1945 value and noted that some panel members projected a 1999 value of between $192.3 million and $442 million for the Holocaust victim accounts, but that too much information was missing especially since many of the accounts had been closed. The audit checked for activity in the accounts up until this decade, and bank officials say details from 4 million accounts were entered in one computer database. That information was compared with a second database containing the names of more than 5.5 million Holocaust victims from records in Israel, the United States and elsewhere. The panel has been trying to determine how many of the accounts belonged to people killed by the Nazis and how many had nothing to do with the Holocaust. It recommended the publication of 25,000 more names on accounts so that relatives can file claims. Two years ago, Swiss banks published 5,559 names on missing account holders who lived outside Switzerland. Those accounts are now worth $44.2 million. The panel's report was released as last year's $1.25 billion out-of-court settlement between the two biggest Swiss banks and Holocaust victims and their heirs enters its final phase. That accord is supposed to cover the money turned up by the Volcker commission. According to the Jerusalem Post of December 7, 1999, the value of the assets was not identified, but some panel members projected a 1999 value of between $ 192.3 million and $ 442m. The Volcker Committee said the search for the rightful owners of the accounts was evidence of a new willingness by the banks to help bring "a sense of justice and closure to one part of the horrific experience of the Holocaust." The value of the Swiss accounts was first raised more than three years ago, when Jewish organizations indicated that victims of the Nazis may have had some $ 7b. in the banks. On Friday, an independent international panel of historians will release a report documenting how Switzerland treated refugees fleeing Nazi-held areas. Switzerland admitted 28,000 Jews, but also refused to admit at least 30,000 Jews, assuring their almost certain death at the hands of Nazis and their collaborators. The Swiss banks, which paid some $ 500m. for the audit and related expenses, said they hope that, with the Volcker findings, along with the $ 1.25b. settlement and the $ 200m. humanitarian fund, "closure can now take place as both moral and financial justice has been achieved." In its statement, the Swiss Bankers Association also noted that "the auditors have reported no evidence of systematic destruction of records of victim accounts, organized discrimination against the accounts of victims of Nazi persecution, or concerted efforts to divert the funds of victims of Nazi persecution to improper purposes." However, the Volcker report said auditors "confirmed evidence of questionable and deceitful actions by some individual banks in the handling of accounts of victims, including withholding of information from Holocaust victims or their heirs about their accounts." It also said it found cases of "inappropriate closing of accounts, failure to keep adequate records, many cases of insensitivity to the efforts of victims or heirs of victims to claim dormant or closed accounts." And it said it found "a general lack of diligence - even active resistance - in response to earlier private and official inquiries about dormant accounts." But, it said: "Switzerland and the Swiss banks were not responsible for those terrible events (of the Holocaust). Nor were they alone in being havens for victims' funds." Banks in the US and Britain also received funds from Jews and others trying to flee the Nazis. While US state and local finance officials have threatened sanctions against European banks, insurers, and other enterprises that failed to deal with war-era claims, there has been virtually no pressure on American institutions to identify and report on the fate of Holocaust-era assets. Funds in US banks that became dormant were turned over to state treasuries. The commission said the total assets of the banks at the end of World War II were $ 9.1b. Using Yad Vashem's database of Holocaust victims, the panel attempted to determine how many of the accounts belonged to people killed by the Nazis. It recommended the publication of 25,000 more names on accounts so that relatives can file claims. Swiss Urged To Publicise 25,000 Bank Accounts According to the Financial Times (London) of December 7, 1999, Swiss banks are being pressed to publicise the names of more than 25,000 account holders thought to be victims of Nazi persecution in a final bid to find out how much unclaimed money dating back to the second world war is still hidden in Swiss banks. The publication of the names is one of a series of recommendations in the final report of a three year long investigation into the dormant accounts of victims of Nazi persecution in Swiss banks headed by Paul Volcker, the former chairman of the US Federal Reserve. Another recommendation is that the value of accounts should be adjusted by a value of 10 times to provide a fair return to victims. Jewish representatives highlighted the confirmation of "questionable and deceitful actions" by some Swiss banks which had withheld information from Holocaust victims or their heirs. "We did the best we could at this late date", said Israel Singer, secretary general of the World Jewish Congress. "What happened today was a serious mea culpa maybe a mea maxima culpa. Anybody who says that this is an exoneration (of the Swiss banks) does not know the nature of accounting, finance and banks", said Mr Singer. "When a bank announces that one per cent of all accounts in effect belonged to Jews and were closed for reasons unknown. It means that things were taking place that were unusual." The Long Search for Lost Money MAY 1946 Switzerland agrees to repay $58 million in gold that Germany had stolen and deposited in Switzerland during World War II. DECEMBER 1962 With few Jewish accounts having been identified by Swiss banks, the Government passes a law requiring them to catalog all unknown accounts. An agency set up to handle inquiries about these assets locates only $2 million. SEPTEMBER 1995 Swiss bankers testify before Congress that they have found 775 accounts from before 1945, valued at about $32 million. MAY 1996 The Volcker commission is established to conduct an investigative audit of any dormant Swiss bank accounts that may have been held by Nazi victims. JULY 1997 Swiss banks publish a list of roughly 2,000 dormant accounts, worth more than $40 million. OCTOBER 1997 Swiss banks publish a new list of almost 3,700 more accounts. A class-action suit is filed in New York against the Swiss banks seeking $20 billion for Nazi victims. DECEMBER 6, 1999 The Volcker commission concludes its audit, saying it has found 54,000 accounts that were probably linked to Nazi victims. INDIAN TRUST: Ct Appointed Master Criticizes Fd Govt for Lost Papers -------------------------------------------------------------------- A court-appointed special master released a blistering report December 6 accusing federal government lawyers of failing to preserve potential evidence in a class action lawsuit brought by Native Americans and then keeping the destruction of 162 boxes of documents a secret for more than three months. The documents, apparently shredded as part of a routine housecleaning at a Treasury Department facility in Hyattsville, included papers that could have been relevant to a suit challenging the government's management of Indian trust funds, the special master reported. The suit alleges that the Treasury and Interior Departments have mismanaged the trusts for decades. Besides condemning the conduct of Treasury attorneys, special master Alan L. Balaran said the actions were "part of a general pattern of obfuscation" carried out by government officials involved in the litigation. In this instance, Balaran said, the Treasury attorneys kept the destruction a secret even from the Justice Department, which is managing the case. "This is a system clearly out of control," Balaran wrote. The 121-page report is the latest in a series of government setbacks. In February, U.S. District Judge Royce C. Lamberth found then-Treasury Secretary Robert E. Rubin, Interior Secretary Bruce Babbitt and Assistant Interior Secretary Kevin Gover in contempt of court for failing to ensure that records were turned over to lawyers representing the Indians. Lamberth later ordered the government to pay $ 625,000 to cover legal fees incurred by the Indians. Lamberth explored the possibility of putting the trust fund system into a receivership, stripping the government of control, after hearing testimony in the lawsuit last summer. He was on the verge of ruling in October when the two sides agreed to enter into mediation. That process is continuing, with the Indians seeking hundreds of millions of dollars in damages. Treasury and Justice officials issued a joint statement on December 6 saying they were disappointed with some of Balaran's conclusions. They said the Treasury Department's inspector general is investigating the matter, and noted the government will be given an opportunity to respond to Balaran's report before any final court action is taken. "In fairness to all concerned, we caution against drawing conclusions prematurely," the statement said. The lawsuit, filed in 1996 by the Native American Rights Fund, concerns individual Indian trust accounts established more than 100 years ago to hold and disburse income generated for Native American beneficiaries from the use of their land. The government was supposed to manage and pass along to Indians and their heirs royalties from the sale of petroleum, natural gas, timber and other natural resources, but both sides agree the records have been a mess for decades. Lamberth asked Balaran to investigate the document destruction after it came to his attention on May 11. The judge unsealed Balaran's report despite protests from the government attorneys, who wanted to keep the findings secret until they had a chance to respond. Balaran reviewed thousands of pages of internal papers and met with the Treasury attorneys, who hired private lawyers to represent them. Balaran said the attorneys showed a "lack of accountability" by not stepping forward once the document destruction came to light and at least some engaged in serious ethical lapses. Elouise Cobell, a member of the Blackfeet tribe and the lead plaintiff in the case, said the revelations underscored the need for strong court intervention. "Why the coverup?" she asked. "I think it's horrible." According to Balaran's report, the materials were collected and shredded starting last November at the behest of Treasury's Financial Management Service. More than 400 boxes of documents were scheduled for destruction, but the process came to a halt on Jan. 28, when officials first realized that some could contain papers relevant to the Indians' case. What concerned Balaran the most, he said, was why a seemingly careless mistake wasn't reported immediately. He said he got conflicting reports from the attorneys, who included the Treasury Department's assistant general counsel, Roberta McInerney; Deputy Assistant General Counsel Eleni Constantine; and Ingrid Falanga, Randall Lewis, Daniel Mazella and James Regan, who work for the financial management branch. Some insisted they had no idea that any of the destroyed records concerned Indian accounts, according to the report. (The Washington Post December 7, 1999) INTERNET GAMBLING: CA Suit Accuses AE & Discover of Aiding and Abetting ----------------------------------------------------------------------- A California man charging the credit card companies with facilitating and profiting from illegal online gambling loans sued American Express and Discover Card on December 6. The lawsuit was filed in California Superior Court - Marin County. The lawsuit, entitled Marino v. American Express, alleges that the Credit Card companies participate in and profit from illegal online gambling by issuing merchant accounts to Internet Casino Operators who accept bets from web surfers located in California where such gambling is illegal. The credit card companies and their affiliated banks are paid a fee by the Internet casinos, usually between 2% and 5%, for each illegal online gambling transaction. In addition, consumers pay American Express and Discover Card interest and late fees on the gambling loans. The suit alleges that California has a "strong, long standing public policy" against the enforcement of gambling debts. The suit also alleges that the credit card companies are sophisticated in the use of e-commerce and knew or should have known about the online casino operations and Internet gambling loans - American Express and Discover permitted their cards and logos to be used on Internet gambling Web Sites. The suit states there are a growing number of online operations offering realistic computer generated renditions of card games, roulette wheels, and other forms of casino style gambling. The lead Plaintiff, while web surfing in California in the summer of 1998, lost over $25,000 dollars to online gambling casinos using his American Express and Discover credit cards. American Express threatened to sue Mr. Marino and ruin his credit report which led to the filing of the complaint. "American Express and Discover are intimately involved in branding Internet gambling loans, making money off such loans, and harming your credit report if you do not pay them back - on loans which are illegal in California in the first place - we believe that this constitutes an unfair business practice and we are asking the Court to stop it" said Ira Rothken, an attorney representing Fred Marino and the General Public of California. The Plaintiff is requesting an injunction against American Express and Discover stopping them from extending credit for Internet gambling to California residents. If you wish to discuss this case or have any questions please contact Plaintiff's lead counsel, Ira Rothken of The Rothken Law Firm at 415-924-4250, website at www.techfirm.com or via e-mail at ira@techfirm.com NAVARRE CORP: Lockridge Grindal Announces Securities Lawsuit in Minn. --------------------------------------------------------------------- Pursuant to Section 21D (a)(3)(A)(i) of the Private Securities Litigation Reform Act of 1995, Lockridge Grindal Nauen P.L.L.P. hereby gives notice that a class action complaint has been filed in the United States District Court for the District of Minnesota on behalf of a Class of persons who purchased common stock issued by Navarre Corporation. (Nasdaq: NAVR - news; "Navarre" or the "Company") at artificially inflated prices during the period November 25, 1998 through December 9, 1998 (the "Class Period") and who were damaged thereby. The case allegedly involves the making of false and misleading statements that the Company was spinning off a majority-owned subsidiary and taking the newly formed company public by the end of the 1998 year. The Complaint charges that throughout the Class Period, Navarre Corporation, Eric H. Paulson (Chairman of the Board of Directors and the Company's CEO), Charles E. Cheney (Company's CFO), Alfred Teo (Board of Directors), Dickinson G. Wiltz (Board of Directors), James G. Sippl (Board of Directors) and Michael L. Snow (Board of Directors) violated Sections 10(b) and 20(a) of the Securities Exchanges Act of 1934 by issuing statements during the Class Period regarding the spinning off of a majority-owned subsidiary, which were materially false and misleading. The complaint alleges that these statements caused an artificial inflation of the Company's stock price. During the Class Period, the above-named insiders sold over 20% of their stock ownership and realized over $6.3 million. When the truth emerged, the price of the Company's stock plunged, causing substantial damage to the Class. Plaintiffs are represented by the law firm of Lockridge Grindal Nauen P.L.L.P. If you are a member of the class described above, you may, if you so choose, but not later than February 4, 2000 file a motion with the District Court to serve as lead plaintiff. Class members must meet certain legal requirements to serve as a lead plaintiff. If you have questions or information regarding this action, or if you are interested in serving as a lead plaintiff in this action, you may call or write: Gregg M. Fishbein Lockridge Grindal Nauen P.L.L.P. 100 Washington Avenue South Suite 2200 Minneapolis, Minnesota 55401, (612) 339-6900 or by e-mail at gmfishbein@locklaw.com PAYDAY LENDERS: Florida Borrower Sues Payday Express & Ace Cash --------------------------------------------------------------- Eugene R. Clement, 66, sued Payday Express Inc. of Tampa in federal court and Ace Cash Express Inc. of Irving, Texas, in Hillsborough County Circuit Court, St. Petersburg Times of December 07, 1999 reports. His Tampa attorney, Jonathan Alpert, is asking for both cases to be declared class actions on behalf of the companies' Florida borrowers. Similar cases have been filed against other companies in Florida. Clement, a clerical worker for a mortgage company, said he borrowed $ 300 from Payday Express in January and another $ 300 from Ace Cash Express in February because he and his wife had been sick and had "typical money problems." The two-week Payday Express loan cost him a $ 45 fee. When he couldn't repay the $ 300, Clement extended the loan repeatedly by paying a new $ 45 fee. On an annual basis, he was paying more than 260 percent interest, his lawsuit claims. Clement said the company broke Florida's usury law, which sets an 18 percent limit on most loans, and failed to disclose the rates being charged. Ace charged Clement $ 36.94 for its two-week loan. When he didn't repay the money, the company cashed his post-dated check for $ 336.94; it bounced. The company sent Clement a notice warning him that "Ace may at its discretion turn over the above dishonored check to the state attorney for criminal prosecution." The notice also claims that a driver's license may be suspended or revoked if a person is charged with passing a worthless check. The statements are false and deceptive, Alpert said. The provision about driver's licenses applies to persons who are prosecuted for passing worthless checks and who fail to appear before the court, he said. Alpert said payday loan borrowers cannot be prosecuted under the worthless check law because the company accepts their checks knowing they do not have enough money in the bank to cover them. Payday Express president Will T. Buchanan said he was surprised by the suit. He said the company has three stores in Tampa and one in Pinellas Park. "We work with everybody when they fall on hard times," he said. "We fix up payment plans for them. . . . There are a lot of companies out there that take advantage and as soon as the two weeks is up, they start yelling and screaming." Ace Cash Express spokesman Eric C. Norrington declined to comment, saying the company had not seen the suit. According to an article in the Tampa Tribune of December 7, 1999, the lawsuit says Florida law does not apply to any postdated check, nor in a situation in which the check holder might believe the person cashing the check did not have sufficient funds. Clement said in a telephone interview he needed extra money to pay bills after becoming ill. "When you need to buy medicine, you tend to grasp at straws," Clement said. The Tampa firm of Alpert, Barker & Rodems, which filed the suit on behalf of Clements, said it began considering the case this summer. "We wanted to be very careful before we took on an industry with the power and size of payday lenders," attorney Jonathan Alpert said. The lawsuits follow at least four others, all seeking class-action status, in recent months in Florida against payday advance companies. Consumer advocates say payday advance companies offer loans at triple digit interest rates, while the industry claims its advances are not loans and are not subject to Florida usury law. PRINCETON ECONOMICS: Japanese Investors Planned to Sue over Bond Losses ----------------------------------------------------------------------- Leading machine-tool maker Amada Co. and its two affiliates will sue Princeton Economics International Ltd. (PEI) in a U.S. court demanding damages over bonds sold to them by the U.S. firm's Japanese sales arm, Amada group officials said in late November. Tai Michiura, president of Amada Wasino Co., one of Amada's affiliates, told a news conference the three companies will also file a lawsuit against U.S. brokerage house Republic New York Corp., which was under contract with PEI to keep the funds invested by Japanese companies in its custody. The three companies hold a total of 12.5 billion yen in outstanding bonds floated by PEI, which are deemed irredeemable. In September, U.S. federal prosecutors filed a complaint against Martin Armstrong, the 49-year-old head of the Princeton group, accusing him of causing losses totaling at least 500 million dollars to his Japanese customers. The prosecutors said Armstrong broke an agreement that his company would manage the funds it raised from Japanese investors in a separate account from those for its other funds. In reality, the funds were placed together at Republic New York, they said. PEI raised several billion dollars from some 300 Japanese investors by selling bonds through Cresvale International Ltd., its Tokyo-based Japanese sales arm, they said. Meanwhile, a separate group of Japanese corporate investors is preparing to file a class-action lawsuit against PEI. But the three companies in the Amada group plan to file for damages independently of the other Japanese companies. Keizo Higuchi, managing director of Amada, said the three companies will probably file the lawsuit by the end of November. "The officials in charge of investment (at the three Amadas) have not received any rebate and the companies have not used the investments in the Princeton bonds to hide any losses" incurred in other business fields, Higuchi said. Higuchi was referring to allegations that some Japanese companies had used the investment scheme involving Princeton bonds to conceal balance-sheet losses. SGL CARBON: Set to Settle Antitrust Suit; Expects to Be Out of Ch 11 -------------------------------------------------------------------- SGL Carbon Corporation, one of SGL CARBON AG's (NYSE: SGG) affiliates in the US reached settlements with the class action plaintiffs, thereby resolving more than 96% of all claims through out of court settlements. As a direct consequence, a petition was submitted to the responsible court for termination of the Chapter 11 proceedings voluntarily requested end of 1998 to seek protection against excessive demands. On December 6, the judge has approved the above petition to close the procedure and therefore the Company expects to wind-up the Chapter 11 case in early 2000. As announced in previous press releases, SGL CARBON has established a reserve of DM 535 million for all potential liabilities. As a consequence of the latest agreements and in order to finalize all possible proceedings, the Company will book an additional extraordinary charge of DM 75 million in the fiscal year of 1999 which includes the legal fees in addition to actual settlement costs. Potential liabilities from the ongoing investigation in Europe are covered in the above reserves. From a net income and cash flow point of view the impact will be substantially less than the booked charges. The difference is due to the effect of long-term interest free payment terms for large parts of the settlements, of compensation in kind through product deliveries and of some tax deductibility in 1999 and future years. With these developments, SGL CARBON has settled the overwhelming part of its legal proceedings and expects significant earnings improvements in 2000 over 1999 as the markets show continued signs of recovery. Source: SGL CARBON AG * Environmental Groups Say Chemical Industry Violates Human Rights ------------------------------------------------------------------ The Environmental Health Fund, Earth Rights International and several other health, environment and human rights organizations in 15 countries released a report charging the chemical industry with numerous human rights atrocities in connection with 20th Century environmental disasters. The report, "Beyond the Chemical Century: Restoring Human Rights and Preserving the Fabric of Life," is being released on the 15th anniversary of the Bhopal disaster. On December 2, 1984, poisonous gases escaped from a Union Carbide pesticide factory into Bhopal, India, killing more than 16,000 and wounding more than 500,000, according to local estimates. "The Bhopal disaster is just one example of a much larger pattern of ongoing human rights abuses committed by the chemical industry throughout this century," said attorney Sanford Lewis, the report's primary author. The report explains how the largest chemical corporations have not only degraded the world's ecosystems, but also violated basic human rights recognized by the Universal Declaration on Human Rights: the right to life, health, and a livable environment. "The actions of these corporations are infringing upon those rights. Children are being born around the world with dangerous toxins in their bodies," said Gary Cohen of the Environmental Health Fund. "The industry is conducting a global chemical experiment without our informed consent." The chemical industry, through cost-cutting, concealment and delay, has damaged millions of lives in the 20th Century. Some predict the introduction of genetically engineered foods into human and animal diets will become one such example. Other cases include: Japan's Chisso Corporation knew for a decade that its mercury-containing waste discharge caused Minamata Disease, which attacks the human nervous system. As a result, 3,000 died and at least 10,000 survivors continue to live with deteriorated nervous systems. Chisso denied responsibility for victims' suffering. By 1974, scientists confirmed that chlorofluorocarbons (CFCs) deplete the ozone layer, but DuPont continued massive CFC production until the early 1990's. As a result of ozone depletion, up to one billion people may develop skin cancer, and as many as 17 million people may die, according to the U.S. EPA. The chemical industry's global health threats are accelerating under the auspices of the World Trade Organization (WTO). Under this new regime, corporations can export dangerous products and technologies to 134 nations, while looking for cheap labor and weak environmental and public health protections. When individual nations have imposed precautionary regulations defending their citizens, the WTO has struck down such rules as an unfair restriction of trade. The report follows the recent filing of a class action lawsuit against Union Carbide in New York on behalf of Bhopal victims. The suit charges the company with racial discrimination in the reckless manner it operated its Bhopal factory, as well as with crimes against humanity. Full text of the report is available at http://home.earthlink.net/gnproject/chemcentury.htmand at http://www.essential.org/cchw Source: Strategic Counsel on Corporate Accountability * Franchise Advertising Fund May Benefit Franchisees but Lack Control --------------------------------------------------------------------- Typical Clause: Franchisee shall pay four percent (4%) of gross sales into an advertising fund. Franchisor shall administer the advertising fund in its sole discretion. Franchisor shall provide an annual report of income and expenditures of the advertising fund to franchisee. Applicable Law: Many of the decisions involving advertising funds simply enforce the advertising fund clause as written. America's Favorite Chicken v. Cajun Enterprises Inc., Bus. Fran. Guide (CCH) Para. 11,297 (5th Cir. 1997). Other cases, however, apply the covenant of good faith and fair dealing to the clause. In Austin v. Burger King Corp., 805, F. Supp. 1007 (S.D. Fla. 1992), the federal district court held that the franchisor must exercise discretion in good faith over the expenditures of the advertising fund. The most publicized decision regarding advertising funds involved a class action alleging breach of fiduciary duty by the franchisor. Broussard v. Meineke Discount Muffler Shops Inc., 155 F.3d 331 (4th Cir. 1998). In Meineke, the federal court of appeals disapproved of the class certification and held the advertising clause at issue did not create a fiduciary duty. Accordingly, the Meineke advertising case was sent back to the trial court to be evaluated under breach of contract issues. Comment: National and regional advertising is a hallmark of franchising. An individual operating a one-shop business, unlike a franchisee, will not be able to participate in national or regional advertising, making many advertising media unavailable. On the other hand, a franchisee who is spending four percent of his or her gross income will expect some return for this investment. Many franchise agreements, however, provide for little or no input by franchisees regarding advertising. Thus, when advertising funds are spent foolishly, franchisees will suffer. And unlike a one-shop business, franchisees often will lack resources to advertise on their own, as they are already obligated to pay not only for advertising funds, but also for royalties. A better model for advertising funds may be to include franchisees as active, if not voting, participants in advertising fund expenditures. Thus, instead of a command decisionmaking structure, an advertising co-op or other association would allow a plurality of voices to decide on critical decisions. Similarly, when coupled with a reporting requirement, the franchisee participants will be able to observe how their money is being spent. (Franchising Business & Law Alert, Vol. 6; No. 2; Pg. 4, November 1999) * Paper Cites Downside of SEC Proposal Re Liability of Audit Committee ---------------------------------------------------------------------- Proposed rules intended to help prevent bogus accounting could end up backfiring, and Internet stock investors could feel the pain. The Securities and Exchange Commission is considering rule changes that could expose audit committees to so much potential liability that critics say qualified people won't want to take the job with young firms that dominate the Internet industry. And this is a position where shareholders want competent people: The audit committee acts as investors' watchdogs on the board of directors. The rules, likely to pass in some form by early next year, would require audit committees to document all their decisions and publish in annual proxy statements whether they see anything amiss in the financial statements. "Who in their right mind would take a seat on an audit committee (if these rules) are passed?" says Andrew Verhalen, partner at venture capital firm Matrix Partners, who's on the audit committees of Web firms Copper Mountain, Alteon WebSystems and WatchGuard Technology. "Anyone who's qualified won't do it." Assuming such risk at Internet companies, where quarterly performance is unpredictable, is too great, says David Kronfeld of JK&B Capital and member of Phone.com's audit committee. It also will open audit committee members to liability. "If you document, you are the target," he says. Laws that expose directors to more liability, "will narrow the candidates," says Bob Keith, managing director of Safeguard Scientifics, which invests in Internet companies. Some lawyers are already counseling audit committee candidates to think twice about taking the job, says John Langevoort, a Georgetown University securities law professor. Members of Internet companies' audit committees have reason to be worried, says John Olson, partner at Gibson Dunn & Crutcher. "Audit committee members will be targets in class-action lawsuits," he says. Not everyone agrees. Decisions are already recorded, so publishing them shouldn't be an issue, says Jim Breyer of Accel Partners, who sits on RealNetworks' audit committee. And more accountability is part of the price, because committee members often are venture capitalists with large stakes in the companies, says Gerard DiFiore, partner with Reed Smith Shaw & McClay. It's the only way to protect individual investors who get burned when companies restate earnings, DiFiore says. (USA Today Dec-2-1999) ********* 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. Theresa Cheuk and Peter A. Chapman, editors. Copyright 1999. 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 301/951-6400. * * * End of Transmission * * *