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Kevin J. Yourman (147159)
James E. Tullman (175008)
Ronald T. Theda (193223)
WEISS & YOURMAN
10940 Wilshire Blvd., 24th Floor
Los Angeles, CA 90024
Telephone: (310) 208-2800
Michael D. Braun (167416)
STULL, STULL & BRODY
10940 Wilshire Blvd., Suite 2300
Los Angeles, CA 90024
Telephone: (310) 209-2468
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
JOHN GILPIN, On behalf of Himself and All Others Similarly situated,
Plaintiff,
vs.
HITSGALORE.COM INC., and STEVE BRADFORD,
Defendants.
CASE NO. 99-5151 R (MANx)
CLASS ACTION
CLASS ACTION COMPLAINT FOR THE VIOLATION OF FEDERAL SECURITIES LAWS
JURY TRIAL DEMANDED
Plaintiff, individually and on behalf of all others similarly situated, by and through his attorneys, alleges the following upon the investigation made by and through plaintiff's counsel.
I. PRELIMINARY STATEMENT
1. For over a period of many months, defendants have concealed from the investing public the fact that they have continuously been committing gross violations of the federal securities laws, including misleading the public as to the current business affairs of defendant Hitsgalore.com, Inc. ("Hitsgalore" or the "Company").
2. Throughout the Class Period of February 17, 1999 to May 12, 1999, defendants disseminated materially false and misleading statements regarding the Company's current business condition. Specifically, while making positive statements about the strength and growth of the Company, the defendants were aware, but failed to disclose, that its founder, Dorian Reed, along with two other individuals, had been ordered to pay over $600,000 to 100 customers for "false claims made by Internet Business Broadcasting, a failed online advertising company they worked for." The above revelation was in direct contravention to defendants' previous representations. On May 11, 1999, Bloomberg reported that "[o]n Feb. 11, Hitsgalore.com went public by merging with Systems Communications Inc., a publicly traded shell company. In the merger agreement, filed with the SEC, Hitsgalore.com said there were no suits or governmental investigations against any of its officers, directors or employees. It didn't disclose the FTC's case against Reed in its subsequent SEC filings."
3. When the truth of defendants' deception was finally revealed to the public on May 11, 1999, the market's reaction was quick and dramatic. In direct response to the above news, Hitsgalore shares plummeted 53% or $10 3/4 to $9 3/8, on volume of 3.65 million shares, ten times the average daily volume for the past thirty days.
4. As a result of defendants' deceptive and illegal conduct, plaintiff and other class members purchased their Hitsgalore shares at grossly inflated prices. Had plaintiff and the other class members been aware of the true condition of Hitsgalore, they would not have purchased their Hitsgalore shares or at least not at the inflated prices at which they purchased those shares.
II. JURISDICTION AND VENUE
5. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §§1331 and 1337, §27 of the Exchange Act (15 U.S.C. §78aa), and pursuant to Section 22 of the Securities Act (15 U.S.C. §77v).
6. This action arises under §§10(b) and 20(a) of the Exchange Act (15 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder (17C.F.R. §240.10b-5), §§11, 12(a)(2) and 15 of the Securities Act (15 U.S.C. §§77k, 77l(a)(2) and 77o) and under state law.
7. Venue is proper is this district pursuant to §27 of the Exchange Act, Section 22 of the Securities Act, and 28 U.S.C. 1391(b). The Company has offices in this District, the violations of law charged herein, including the preparation and dissemination of materially false and misleading information occurred in substantial part in this District.
8. In connection with the acts alleged in this Complaint, the 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.
III. PARTIES
9. Plaintiff John Gilpin, purchased shares of Hitsgalore common stock, as indicated in his certification attached hereto, during the Class Period and was damaged thereby.
10. Defendant Hitsgalore is an Internet search engine focused on business to business listings and provides city specific search engines in cities nationwide. Defendant Hitsgalore maintains its principal executive offices at 10134 6th Street, Suite J, Rancho Cucamonga, California 91730.
11. Defendant Steve Bradford ("Bradford") at all relevant times was President and Chief Executive Officer of Hitsgalore.
12. Defendant Bradford was at all relevant times during the Class Period a controlling person of Hitsgalore within the meaning of Section 20(a) of the Exchange Act. In addition, Bradford had the power and influence, and exercised such power and influence, to cause Hitsgalore to engage in the unlawful practices complained of herein. Because of his managerial positions with Hitsgalore, Bradford had access to the adverse, non-public information about the business, management and operations of Hitsgalore as particularized herein and acted to misrepresent, misstate or conceal such information from plaintiff, class members and the investing public.
13. Defendant Bradford participated in the wrongdoing complained of herein in order to, among other things, inflate and maintain the price of the common stock of the Company, and conceal the adverse facts concerning the Company's operations, business and management, so that he could, among other things, (i) protect and enhance his position as an officer of Hitsgalore and the substantial compensation and prestige he obtained thereby; and (ii) enhance the value of his personal holdings of Hitsgalore common stock.
14. Defendants are liable, jointly and severally, as direct participants in the wrongs complained of herein. Defendants had a duty to promptly disseminate accurate and truthful information with respect to Hitsgalore's business, management and operations or to cause and direct that such information be disseminated so that the market price of Hitsgalore stock would be based on truthful and accurate information.
15. Each of the defendants knew of and recklessly disregarded the fact that the illegal acts and practices and misleading financial statements and omissions described herein would adversely affect the integrity of the market for Hitsgalore common stock and would artificially inflate or maintain the price of those securities. Each of the defendants, by acting as herein described, did so knowingly or in such a reckless manner as to constitute a fraud and deceit upon plaintiff and members of he Class plaintiff seeks to represent.
IV. PLAINTIFF'S CLASS ACTION ALLEGATIONS
16. Plaintiff brings this action as a class action pursuant to Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure on behalf of a Class consisting of all persons and entities who purchased or otherwise acquired Hitsgalore common stock from February 17, 1999 to May 12, 1999, inclusive (the "Class Period"), and who were damaged thereby. Excluded from the Class are the defendants, officers and directors of the Company, members of their immediate families, and their legal representatives, heirs, successors or assigns and any entity in which defendants have or had a controlling interest.
17. During the Class Period, thousands of shares of common stock of Hitsgalore were traded on an efficient and developed securities market. Thousands of brokers nationwide have access to trading information about Hitsgalore through the system. Within minutes of any transaction taking place, this system displays the most recent trades and prices.
18. The members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members is unknown to plaintiff at this time and can only be ascertained through appropriate discovery, plaintiff believes that there are hundreds, if not thousands, of members of the Class. As of May 11, 1999, there were 8 million shares of Hitsgalore common stock outstanding and actively traded on the OTC, an efficient market, under the ticker symbol "HITT".
19. Plaintiff's claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by defendants' wrongful conduct in violation of federal law that is complained of herein.
20. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities litigation. Plaintiff has no interests that are adverse or antagonistic to those of the Class.
21. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. Because the damages suffered by many individual Class members may be relatively small, the expense and burden of individual litigation make it virtually impossible for the Class members to individually seek redress for the wrongful conduct alleged herein.
22. Common questions of law and fact exist as to all members of the Class and predominate over any questions affecting solely individual members of the Class. Among the questions of law and fact common to the Class are:
(i) whether the federal securities laws were violated by defendants' acts as alleged herein;
(ii) whether defendants participated in and pursued the common course of conduct complained of herein;
(iii) whether documents, press releases and other statements disseminated to the investing public and the Company's shareholders during the Class Period misrepresented the business condition of Hitsgalore;
(iv) whether defendants failed to correct prior statements when subsequent events rendered those prior statements untrue or inaccurate;
(v) whether defendants acted willfully or recklessly in misrepresenting and/or omitting to state material facts;
(vi) whether the market price of Hitsgalore's common stock during the Class Period was artificially inflated due to the misrepresentations and/or non-disclosures complained of herein; and
(vii) whether the members of the Class have sustained damages, and, if so, what is the proper measure thereof.
23. Plaintiff will rely, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine in that:
defendants made public misrepresentations or omitted material facts during the Class Period, as alleged herein;
the misrepresentations and/or omissions were material;
Hitsgalore's common stock was traded in an efficient market;
the misrepresentations and/or omissions alleged tended to induce reasonable investors to misjudge the value of Hitsgalore shares; and
plaintiff and members of the Class acquired their shares between the time defendants made the misrepresentations and/or omissions and the time the truth was revealed, without knowledge of the falsity of the misrepresentations. |
