UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA WEST PALM BEACH DIVISION

Transcription

1 UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA WEST PALM BEACH DIVISION x Dr. Robert Gluck, On Behalf Of Himself And All Others Similarly Situated, Plaintiffs, CASE NO. CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAW - against - JURY TRIAL DEMANDED EAGLE BUILDING TECHNOLOGIES, INC., and ANTHONY M. D AMATO, Defendants x Plaintiff, individually and on behalf of all other persons similarly situated, by his undersigned counsel, alleges upon personal knowledge as to his own acts and upon the investigation conducted by his counsel, which included, among other things, a review of the public announcements made by defendants, Securities and Exchange Commission ("SEC") filings, press releases and media reports regarding Eagle Building Technologies, Inc. ( Eagle Building or the "Company"), as follows: NATURE OF THE CLAIMS 1. This is a shareholders' class action on behalf of all persons and entities, other than defendants, who purchased or otherwise acquired Eagle Building securities between April 18, 2001 and February 14, 2002, inclusive (the "Class Period"). 2. Eagle Building recently described itself as providing housing and construction development, and precision engineered machinery and doors.

2 3. The Class Period begins on April 18, 2001, the date on which Eagle Building announced its year-end 2000 results. The Class Period ends on February 14, 2002, the date on which the Company announced it would be restating earnings for at least the prior two years and suspended trading of the Company s stock. 4. During the Class Period, Eagle Building (a) improperly recorded revenue from its construction business in India and made false and misleading statements regarding its India operations, and (b) made false and misleading statements regarding its post-september 11 business endeavors, including an airport baggage security system, mail sterilization technology, and money laundering detection software. 5. As a result of Defendants' misrepresentations, Eagle Building s stock price was artificially inflated during the Class Period, trading as high as $ On the Company s February 14 announcement, the Company s stock fell 68% to $1.44 on heavy trading. 6. On February 14, 2002, the Securities and Exchange Commission (the SEC ) entered an order directing a private investigation of the above issues. 7. On February 18, 2002, Eagle Building s outside auditors, Tanner & Co., withdrew any assurances rendered with the Company s financial statements filed in years 2000 and On February 27, 2002, Eagle Building s Chairman Anthony D Amato, resigned his officer and board positions. 9. On March 1, 2002, the Company reported that it had recently discovered that the Company s earnings from operations in India for years 2000 and 2001 were fabricated, and that preliminary indications were that no earnings from such operations existed. The -2-

3 Company also announced it had consented to the entry of a preliminary injunction in the action brought against it by the SEC. 10. On April 3, 2002, the Company announced it would not file its year-2001 annual report on time. JURISDICTION AND VENUE 12. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. 1331, 1337 and 1367, and Section 27 of the Exchange Act (15 U.S.C 78aa). 13. This action arises under Sections 10(b) and 20(a) of the Exchange Act (15 U.S.C. 78J(b) and 78t(a)) and Rule 10b-5 promulgated thereunder (17 C.F.R b-5). 14. Venue is proper in this District pursuant to Section 27 of the Exchange Act (15 U.S.C. 78aa) and 28 U.S.C. 1391(b) and (c). Substantial acts in furtherance of the alleged fraud and/or its effects have occurred within this District and Eagle Building maintains its principal executive offices in this District. 15. In connection with the facts and omissions alleged in this Complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications, and the facilities of the national securities markets. PARTIES 16. As detailed in the attached sworn Certification, plaintiff Gluck purchased shares of Eagle Building stock during the Class Period at artificially inflated prices, and was damaged thereby. -3-

4 17. Defendant Eagle Building is a Nevada corporation with its principal offices at State Road 7, Suite 213, Boca Raton, Florida, Eagle Building's shares previously traded on the NASDAQ under the symbol EGBT. 18. Defendant Anthony D Amato, during all relevant times, served as Chairman and Chief Executive Officer of Eagle Building, except for a brief period starting October 9, 2001, during which he served only as Chairman. CONTROL PERSON LIABILITY 21. Anthony D Amato, by reason of his position with Eagle Building, Board membership, and ownership of Eagle Building common stock was a controlling persons of the Company and had the power and influence, and exercised the same, to cause Eagle Building to engage in the conduct complained of herein. He controlled the public dissemination of the false and misleading information. SCIENTER 22. The defendants knew of, or recklessly disregarded, the adverse, non-public information about Eagle Building s business and operations as well as its finances, markets, and present and future business prospects. 23. The defendants caused the artificial inflation of the price of Eagle Building s stock by, inter alia, issuing materially false and misleading statements, reports and press releases to the public regarding the Company's business, operations and future prospects. These statements and documents portrayed a false picture of the Company's business and operations and misrepresented and/or failed to disclose material, adverse facts concerning Eagle Building s business, revenues, earnings, financial condition and future prospects. -4-

5 MATERIALLY FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIOD 24. On April 18, 2001, Eagle Building filed its Form 10-KSB with the SEC for the year ended December 31, On the Form 10-KSB, signed by defendant D Amato, the Company reported gross profit of approximately $1.6 million compared to $0 in 1999, and further stated: the Company anticipates its opportunities in India will expand dramatically both within the Mumbai area and into other main population centers. The British influence on India helps facilitate both language and governmental functions. As in China, the Company s Indian subsidiary is the exclusive authorized representative of IMSI [licensing agreements the Company holds with a related party] technologies and related business development activities. 25. On May 14, 2001, the Company filed its Form 10-QSB with the SEC for the first-quarter 2001, ended March 31, On the Form 10-QSB, signed by Defendant D Amato, the Company reported sales for the quarter of approximately $4.1 million, compared to $0 for the same quarter year The Company stated: Net income recorded for the three months ended March 31, 2001, is primarily due to sales of the IMSI Block System and development work in India. The Company further reported gross profit of $2.4 million for the first quarter, compared to $0 for the same quarter year The Company reported cash resources of approximately $2.3 million, compared to $717,847 for the previous quarter, and stated: The Company is currently generating cash flow in excess of its operating requirements primarily due to the performance of its operations India. The Company may sell its securities to accredited investors to pay for the acquisition of Master Door. The Company has no present additional commitment that is likely to result in its liquidity increasing or decreasing in any significant way. In addition, the Company knows of no trend, additional demand, event or -5-

6 uncertainty that will result in, or that are reasonably likely to result in the Company s liquidity increasing or decreasing in any material way. 26. On August 13, 2001, the Company filed its Form 10-QSB with the SEC for the second-quarter 2001, ended June 30, On the Form 10-QSB, signed by Defendant D Amato, the Company reported sales of approximately $5.3 million compared with sales of $4.1 million for the previous quarter. It further reported net income of approximately $1.6 million compared with $1.1 million for the previous quarter. The Company s reported net profit for the six months ended June 30, 2001 was approximately $5 million, compared to $0 for the same quarter year The Company stated: Net profit recorded for the six months ended June 30, 2001, is primarily due to revenue from Eagle Building Technologies, PL of India and Fleming Manufacturing Company operations and investment income. In a corresponding press release issued August 15, 2001, the Company further stated that the quarter s net income was primarily due to sales of the IMSI Block System, development work in India and sales of Fleming equipment 27. On September 25, 2001, PR Newswire reported a Revolutionary Airport Security Equipment system had been unveiled by Eagle Building, in response the the FAA s tightening of security at all U.S. commercial airports. Paul-Emile Desrosiers, the Company s then Vice President of Operations and Governmental Relations, was quoted as saying: Given today s regrettable reality of heightened awareness of terrorist attacks, this detection system is ideal because it allows security personnel to be like Superman, literally have X-ray vision to see through luggage. Our mission is to build a better and safer world, and this technology supports that mission. 28. On November 20, 2001, Eagle Building filed its Form 10-QSB with the SEC for the third-quarter 2001, ended September 30, On the Form 10-QSB, signed by -6-

7 Defendant D Amato, the Company reported net sales of approximately $6.1 million, compared to $2.2 million for the same period in year The Company reported gross profit for the quarter of approximately $3.2 million for the quarter, compared to $1.4 million for the same period in year The Company stated it had acquired an Italian door manufacturer, resulting in an increase in assets from $15.2 million to $39.2 million. The Company further stated: Net profit recorded for the nine months ended September 30, 2001, is primarily due to operations of Eagle Building Technologies, PL of India. 29. The disclosures referred to in paragraphs 24 through 28 were materially false and misleading when made because they included overstated revenues attributable to the Company s India operations, when in reality, no earnings from such operations existed. Further, the statements regarding the Company s post-september 11 endeavors were false and misleading. for the past two years. THE TRUTH REVEALED 30. On February 14, 2002, Eagle Building reported it would restate earnings 31. Also on February 14, 2002, the SEC entered an order directing a private investigation in connection with the Company s foreign operations and certain post-september 11 th statements made by the Company regarding an airport security system, mail sterilization technology and money laundering detection software. 32. On March 1, 2002, the Company reported that the revenue from its India operations which accounted for most of the revenue reported by the Company in 2000 and 2001 had been intentionally fabricated. -7-

8 EAGLE BUILDING'S FALSE FINANCIAL STATEMENTS 34. Regulation S-X (17 CFR (a)(1)) states that financial statements filed with the SEC which are not prepared in compliance with GAAP are presumed to be misleading and inaccurate, despite footnote or other disclosure. GAAP are those principles recognized by the accounting profession as the conventions, rules and procedures necessary to define accepted accounting practice at the particular time. 35. In the Annual Report on form 10-KSB filed with the SEC on April 18, 2001, and more fully described in paragraph 24 herein, the Company represented that its financial statements filed with the SEC were prepared in accordance with GAAP. This representation was false, as defendant D Amato falsified Eagle Building's financial statements for the Company s fiscal year 2000 by, among other things, materially overstating the Company's revenue through fabricated revenues. 36. GAAP is clear that the correction of a material error in previously issued financial statements is to be handled by restating the financial statements of the affected prior period (Financial Accounting Standards Board ("FASB") No. 16 "Prior Period Adjustments," 41). This concept is critical in reviewing Eagle Building's disclosure of its intent to restate its financials for the past two years. Accounting Principles Board Opinion ("APB") No. 20 "Accounting Changes," 13 states: Reporting a correction of an error in previously issued financial statements concerns factors similar to those relating to reporting an accounting change and is therefore discussed in this Opinion. Errors in financial statements result from mathematical mistakes, mistakes in the application of accounting principles, or oversight or misuse of facts that existed at the time the financial statements were prepared. In contrast, a change in accounting estimate results from new information or subsequent developments and -8-

9 accordingly from better insight or improved judgement. Thus, an error is distinguishable from a change in estimate. [Emphasis added, footnotes excluded.] 37. Furthermore, APB No. 20 states: "A change in an estimate should not be accounted for by restating amounts reported in financial statements of prior periods or by reporting pro forma amounts for prior periods.... The Board concludes that correction of an error in the financial statements of a prior period discovered subsequent to their issuance should be reported as a prior period adjustment." (Emphasis added). Additionally, FASB No. 16, 41 states: "A major distinguishing feature of a correction of an error is that the financial statements of the affected prior period, when originally issued, should have reflected the adjustment," and "[t]he provisions of this Statement need not be applied to immaterial items." 38. Therefore, under GAAP, the fact that Eagle Building will restate previously reported financial information is an admission that a material error did occur in its publicly disseminated financial information, and that the error was not an error in estimation or judgment. The facts and circumstances giving rise to the restatement must have existed at the time the financial results were improperly recorded and at the time the results were publicly disclosed. If this were not the case, GAAP would not mandate the correction and restatement of Eagle Building's previously disclosed financial results. The financial restatement is required because all of the necessary information to accurately represent the Company's financial results was available to defendants at the time Eagle Building previously recorded and disclosed its results. 39. Furthermore, the Company has admitted, as stated supra, that the false and misleading statements were made intentionally by defendant D Amato. -9-

10 40. Defendants violated, among others, the following accounting principle: AAPB Opinion No. 28, "Interim Financial Reporting" requires that an enterprise prepare its interim financial statements based on the accounting principles and practices used in the preparation of its latest financial statements, unless it discloses a change in an accounting policy or practice. APB Opinion No. 28, paragraph 9 states: Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE 41. At all relevant times, the market for Eagle Building common stock was an efficient market for the following reasons, among others: (a) Eagle Building's common stock met the requirements for public listing, and was listed and actively traded on the NASDAQ, a highly efficient market; (b) As a regulated issuer, Eagle Building filed periodic public reports with the SEC; (c) Eagle Building's stock was followed by securities analysts and news reporters who wrote reports which were publicly available and entered the public marketplace. (d) Eagle Building regularly issued press releases which were carried by national news wires. Each of these releases was publicly available and entered the public marketplace. -10-

11 42. As a result, the market for Eagle Building securities promptly digested current information with respect to Eagle Building from all publicly-available sources and reflected such information in Eagle Building's stock price. Under these circumstances, all purchasers of Eagle Building common stock during the Class Period suffered similar injury through their purchase of stock at artificially inflated prices and a presumption of reliance applies. NO SAFE HARBOR 43. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false statements pleaded in this Complaint. The vast majority of the specific statements pleaded herein were not "forwardlooking statements" but were "hard" statements of financial results. To the extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein, defendants are liable for those false forward-looking statement because at the time each of those forwardlooking was made the particular speaker knew that the particular forward-looking statement was false, and/or the forward-looking statement was authorized and/or approved by an executive officer of Eagle Building who knew that those statements were false when made. CLASS ACTION ALLEGATIONS 44. Plaintiff brings this action on his behalf and as a class action pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure, on behalf of a class consisting of all persons and entities (other than defendants and the members of their immediately families, their heirs, successors and assigns) who purchased or acquired Eagle Building common stock during the period between April 18, 2001 and February 14, 2002, inclusive. -11-

12 45. Members of the Class are so numerous that joinder of all members is impracticable. 46. While the exact number of Class members is unknown to the plaintiff at this time and can only be ascertained through appropriate discovery, plaintiff believes that there are hundreds, if not thousands, of Class members who purchased Eagle Building securities in the open market at artificially inflated prices during the Class Period. 47. Plaintiff's claims are typical of the claims of the other members of the Class. Plaintiff and the other members of the Class have sustained damages because of defendants' unlawful activities alleged herein. Plaintiff has retained counsel competent and experienced in class and securities litigation and intends to prosecute this action vigorously. The interests of the Class will be fairly and adequately protected by plaintiff. Plaintiff has no interests which are contrary to or in conflict with those of the Class which plaintiff seeks to represent. 48. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy. Plaintiff knows of no difficulty to be encountered in the management of this action that would preclude its maintenance as a class action. 49. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are: (a) whether defendants violated Sections 10(b) and 20(a) of the Exchange Act, and SEC Rule 10b-5 promulgated thereunder. -12-

13 (b) whether defendants participated in and pursued the common course of conduct complained of herein; (c) whether documents, filings, releases and financial statements disseminated to the investing public omitted and/or misrepresented material facts about Eagle Building; (d) whether the market price of Eagle Building's securities was artificially inflated throughout the Class Period due to the nondisclosures and/or misrepresentations complained of herein; (e) whether defendants acted knowingly, willfully, or recklessly in omitting to state and/or misrepresenting material facts; and (f) whether the members of the Class have sustained damages as a result of defendants' misconduct and, if so, the proper measure of such damages. COUNT I AGAINST BOTH DEFENDANTS FOR VIOLATIONS OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 10b Plaintiff repeats and realleges each and every allegation contained in the above paragraphs, as if fully set forth herein. This claim is asserted against all defendants. 51. The defendants carried out a plan, scheme and course of conduct which was intended to and did: (a) deceive the investing public, including plaintiff and other Class members, as alleged herein; (b) artificially inflate and maintain the market price of Eagle Building common stock; and (c) cause members of the Class to acquire Eagle Building common stock at artificially inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants took the actions set forth herein. -13-

14 52. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements made not misleading; and (c) engaged in acts, practices and a course of business which operated as a fraud and deceit upon the acquirers of Eagle Building common stock in an effort to maintain artificially high market prices for Eagle Building's common stock in violation of Section 10(b) of the Exchange Act and Rule 10b In addition to the duties of full disclosure imposed on defendants as a result of their making of affirmative statements and reports, or participation in the making of affirmative statements and reports to the investing public, the defendants had a duty to promptly disseminate truthful information that would be material to investors in compliance with the integrated disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R et seq.) and S-K (17 C.F.R et seq.) and other SEC regulations, including accurate and truthful information with respect to the Company's operations and performance so that the market prices of the Company's publicly traded securities would be based on truthful, complete and accurate information. 54. Eagle Building, directly and indirectly, by the use of means and instrumentalities of interstate commerce and/or of the mails, engaged and participated in a continuous course of conduct to conceal adverse, material information about the Company's financial results, business, operations, and future outlook as specified herein. Eagle Building employed devices, schemes and artifices to defraud, while in possession of material, adverse, non-public information and engaged in acts, practices, and a course of conduct as alleged herein in an effort to assure open market purchasers of Eagle Building common stock concerning the -14-

15 value and performance and continued substantial growth of Eagle Building, which included the making of, or the participation in the making of, untrue statements of material facts and omitting to state material facts necessary in order to make the statements made about the Company's financial and business operations in the light of the circumstances under which they were made, not misleading, as set forth more particularly herein, and engaged in transactions, practices and a course of business which operated as a fraud and deceit upon the market for Eagle Building common stock. 55. Defendant D Amato had actual knowledge of the misrepresentations and omissions of material facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were available to them. 56. As a result of the dissemination of the materially false and misleading information and failure to disclose material facts, as set forth above, the market price of Eagle Building's common stock was artificially inflated throughout the Class Period. In ignorance of the fact that the market price of Eagle Building common stock were artificially inflated, and relying directly or indirectly on the false and misleading statements made by defendants, or upon the integrity of the market in which the securities trade, and the truth of any representations made to appropriate agencies and to the investing public, at the times at which any statements were made, and/or on the absence of material adverse information that was known or recklessly disregarded by defendants but not disclosed in public statements by defendants, plaintiff and the other members of the Class purchased or acquired Eagle Building common stock at artificially high prices and were damaged thereby. -15-

16 57. At the time of said misrepresentations and omissions, plaintiff and the other members of the Class were ignorant of their falsity, and believed them to be true. Had plaintiff and the other members of the Class and the marketplace known of the true nature of the operations of the Company and the noncompliance with federal law, which were not disclosed by defendants, plaintiff and the other members of the Class would not have purchased or acquired their Eagle Building common stock or, if they had purchased or acquired such securities, they would not have done so at the artificially inflated prices which they paid. 58. By virtue of the foregoing, defendants have violated Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder. 59. As a direct and proximate result of defendants' wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with their acquisition of Eagle Building common stock. COUNT II AGAINST DEFENDANT D AMATO FOR VIOLATION OF SECTION 20(a) OF THE EXCHANGE ACT 60. Plaintiff repeats and realleges each and every allegation contained in the above paragraphs, as if fully set forth herein. This claim is asserted against the individual defendant D Amato. 61. Defendant D Amato acted as controlling person of Eagle Building within the meaning of Section 20(a) of the Exchange Act as alleged herein. He controlled the content and dissemination of the various statements which plaintiff contends are false and misleading. -16-

17 62. As set forth above, Eagle Building violated Section 10(b) and Rule 10b-5 by its acts and omissions as alleged in this Complaint. By virtue of his position as controlling person of Eagle Building, Defendant D Amato is liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of his wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with their acquisition of Eagle Building common stock. PRAYER FOR RELIEF (a) Determining that this action is a proper Class action, designating plaintiff as Lead Plaintiff and certifying plaintiff as Class representative under Rule 23 of the Federal Rules of Civil Procedure and his counsel as Lead Counsel; (b) Awarding compensatory damages in favor of plaintiff and the other Class members against all defendants for all damages sustained as a result of defendants' wrongdoing, in an amount to be proven at trial, including interest thereon; (c) Awarding plaintiff and the Class their reasonable costs and expenses incurred in this Action, including counsel fees and expert fees; and (d) Such other and further relief as the Court may deem just and proper. -17-

18 Dated: April 8, 2002 PLAINTIFF DEMANDS A TRIAL BY JURY Michael J. Pucillo Wendy H. Zoberman Berman DeValerio Pease Tabacco Burt & Pucillo Northbridge Centre Suite North Flagler Drive West Palm Beach, Florida Tel: (561) Robert N. Kaplan KAPLAN FOX & KILSHEIMER LLP 805 Third Avenue, 22nd Floor New York, NY Tel: (212) Attorneys for Plaintiff -18-