55 0Ken Cook told PEI that McBride=s representations regarding SeaView=ssupposedly extensive dealer network were false, and that the company received virtuallyno revenues from these dealers. According to Cook, SeaView would get dealers to agreethat they would accept six of SeaView=s cameras, even though (unbeknownst to thedealers) SeaView did not have the cameras to send. Moreover, the agreements usuallyprovided for the dealer to stock the camera for ninety days without charge. Then,SeaView would recognize these agreements as sales even though no money was receivedfrom the dealers and in most instances only one or two cameras were even sent to thedealers. Cook told PEI that SeaView=s revenues numbers Ahave been inflated from thevery beginning.@56 0Speaking of the supposedly wonderful sales by the Company=s salespeople, Ken Cook told PEI:Bogus. Here=s how it works. Here=s the first way he didit. With Seaview, what he did is B he wanted to start adealer network. Because basically he began selling themone by one in the local area and then he was doingadvertising sales. The product B quality of the product wasgarbage. He constantly quotes 5% return at the lowest inthe marine electronics industry. That=s bullshit. Youknow, about 20 to 25% return or higher would be moreaccurate. I am losing track. Where was I again?***Yeah, so the qualification of a dealer is like not there. Itdoesn=t exist. There=s no qualification for these people.And I know because I=ve dealt with them over the phone.I took care of all the returns, all the customer service for 7months. So anyway, we=ll move on so he builds his bogusdealership of 800 B a bogus network of 800 dealers B all ofthem are given 6 cameras. Six of the trolling version and 6of the minis. Well, the cameras didn=t exist when theywere signed up. They were only sent maybe 1 or 2 at atime, And less than a hundred of them actually did
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business. Now I have a dealer network piece of paper that Inabbed when I got out of there. It shows what exactly beensold and it=s a joke.***So that B you know doesn=t exist. But when I saw that hewas B so if you got that basically B what he does then B hetakes all B he claims that he sold all those cameras.***And then he takes that data and calls it revenue.***B Joe Worm salesman and I am Joe camera salesman. JoeWorm salesman I got the greatest thing. Everybody=sgonna love it and you don=t have to pay a penny for it.You can have it for free for 90 days. All you have to do issign this little agreement B I think the bank made him do itB you know sign that and you=ll be responsible for thereturn of the cameras. After 90 days you=ll pay the fee. Sothe B so the guy who signs that little sheet will beresponsible. Well, he sits there and waits and he doesn=tget his camera and doesn=t get his camera becausebasically we don=t have them. You know, they weren=tbuilt B they=re not ready to go. So maybe eventually B ina couple 2, 3 months he gets a demo camera and he=s not
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charged for that. So maybe a 100 or so out of the 700people sold one camera or more. Mostly 1 to 2 cameras.Some of the shops were selling a few of them. Now, theywould send a check in but see B that money that would besent in as a check would be counted again. So, you know,he=s just incredible.57 0On February 5, 2001, PEI conducted a recorded phone interview withArchie Cook, who at the time had been working for SeaView for more than two years.Archie Cook, who was Ken Cook=s father, apparently died on February 21, 2001.Likewise, Archie Cook confirmed that PEI was correct as to many of the assertions it hadmade in its two reports.58 0For example, Archie Cook described McBride=s improper revenuerecognition scheme as follows:I don=t believe the man, Rich McBride. He=s had thesame pattern of this pump and dump situation as long asI=ve known him and the other related methodology ofMcBride would be the situation of stating false revenuecoming in for a given day, week or month or quarter Bfrom the simple way out of what he called a floor plan.Which he says is completely legal and what he does he hasus get on the phone to give you an example and we=d maketelephone calls and we=d offer an individual a dealership ifhe has a storefront where he can display the products, andwe tell him we=ll send him maybe 3 cameras or 6 cameras
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and he doesn=t have to pay us until he sells them, and thenput down at the end of the day or week as incomingrevenue and the individuals never having seen a camerayet. There would still be weeks and months of delay. Theynever got 6 cameras or the free cameras as B as stated inthe sales pitch, they only got one [ unintelligible ] unit.59 0On April 16, 2001, SeaView filed its Form 10-K for the period endedDecember 31, 2000. In the Form 10-K, the following revelation was made:Item 1. BusinessGeneral.***Significant EventsDuring a review of our annual operations for the year endedDecember 31, 2000 by our recently hired Chief FinancialOfficer, we learned that we had materially misstatedrevenues in our unaudited financial information reported inour Form 10-Q filings for the periods ending June 30 andSeptember 30, 2000. As a result, we have restated ourfinancial statements for those periods. This restatement isincluded in Items 6, 7, and 8 of this report. Additionally,we filed amended Form 10-Q's for the periods ended June30 and September 30, 2000 reflecting the restatements ofour financial information.60 0In that same Form 10-K, SeaView detailed the falsity of its previousrepresentations as follows:
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Item 7. MANAGEMENT'S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONSRESTATEMENT OF PRIOR UNAUDITED FINANCIALINFORMATIONThe financial statements and results of operations for the2nd and 3rd quarter ended June 30, 2000 and September30, 2000, respectively, have been restated as set forthbelow, in accordance with Generally Accepted AccountingPrinciples.Our original Form 10-Q for the quarter ended September30, 2000, which was filed on November 14, 2000,incorrectly included as revenues and accounts receivableapproximately $2,252,794 of purchase orders that wereceived for our new SecureView security camera products,but were not shipped to the customer by September 30,2000. After restatement, our 3rd quarter net revenues wereapproximately $212,592. Our restatements also include areduction in liabilities, totaling approximately $849,235,that were previously recorded relating to the purchaseorders that were erroneously included as revenues. As setforth in the chart below, these restatements have resulted ina reduction of our net income by approximately $871,639for the quarter ended September 30, 2000. ***Our original Form 10-Q for the quarter ended June 30,2000, which was filed on August 14, 2000, incorrectlyincluded as revenues and accounts receivableapproximately $1,184,006 of purchase orders that werereceived by the Company for its new SecureView securitycamera products, but were not shipped to the customer byJune 30, 2000. After restatement, our 2nd quarter netrevenues were approximately $335,120. As set forth in thechart below, our restatements have resulted in a reductionof our net income by approximately $966,957 for thequarter ended June 30, 2000. ***
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61 0The Form 10-K also included the following two tables, which served tohighlight the material nature of defendants= previous misrepresentations:OriginalOriginalFilingRestatedFilingRestatedQuarter Ended Quarter EndedNine MonthsNine MonthsSept. 30Sept. 30$%Ended Sept 30 Ended Sept 30$%20002000Change Change20002000ChangeChangeNet Revenue $ 2,465,386$ 212,592 $ (2,252,794) -91%$ 4,405,580$ 968,780$ (3,436,800)-78%Net Income$ 216,132$ (655,507) $ (871,639) -403% $ 155,128$ (1,683,468) $ (1,838,596)-1185%Total Assets $ 5,937,5213,808,425 $ (2,129,096) -36% $ 5,937,521 $ 3,808,425 $ (2,129,096)-36%Total Liab.$ 1,231,939$ 382,704$ (849,235) -69% $ 1,231,939$ 382,704$ (849,235)-69%OriginalOriginalFilingRestatedFilingRestated
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Quarter Ended Quarter EndedSix MonthsSix MonthsJune 30June 30$%Ended June 30 Ended June 30$%20002000Change Change20002000ChangeChangeNet Revenue $ 1,519,126 $ 335,120 $ (1,184,006) -78% $ 1,940,194$ 756,188 $(1,184,006)-61%Net Income$ 176,797 $ (790,160) $ (966,957)-547%$ (61,003)$(1,027,961) $ (966,958)-1585%Total Assets $ 3,153,615 $ 2,472,467 $ (681,148)-22%$ 3,153,615$ 2,472,467 $ (681,148)-22%FALSE AND MISLEADING NATURE OFDEFENDANTS= CLASS PERIOD STATEMENTS62 0During the Class Period, defendants materially misled the investingpublic, thereby inflating the price of SeaView common stock, by publicly issuing falseand misleading statements and omitting to disclose material facts necessary to makedefendants= statements, as set forth herein, not false and misleading. The statementswere materially false and misleading in that they failed to disclose material adverseinformation and misrepresented the truth about the Company, its business and operations,and the acts and conduct of the Company=s officers and directors. On May 1, 2001,Reuters reported that Seaview had disclosed on April 30, 2001, that the Securities and
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Exchange Commission was investigating disclosures which Seaview had made about itsfinancial condition.63 0In particular, the statements and representations identified above werematerially false and misleading when made, for reasons that include the following:(a) Throughout the Class Period, the defendants massively misrepresentedsales and revenues figures for the Company, as SeaView=s recent Form 10-K filingadmits.(b) Throughout the Class Period, the defendants improperly recognizedrevenues on transactions that were not sales as defined by the Company=s publishedrevenue recognition policies.(c) Throughout the Class Period, the defendants misrepresented the natureand extent of the Company=s dealer network, and the revenues that could be generatedand that were actually generated by these dealers.(d) Throughout the Class Period, the defendants falsely touted numeroussales contracts and agreements with large retailers, either outrightly misrepresenting suchagreements, or providing information in such a fashion as to mislead investors as to thereasonably expected benefit from such agreements.(e) Throughout the Class Period, the defendants misrepresented the abilityof the Company to manufacture, or have manufactured, its products in quantitiessufficient to satisfy the purported demand for the products.
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(f) Throughout the Class Period, the defendants misrepresented thelikelihood of achieving the sales targets touted by the defendants in their statements to theinvesting public.(g) Throughout the Class Period, the defendants misrepresented and failedto disclose that defendant McBride was a felon on probation.64 0By the time of the first hint from the Company of the materially overstatedrevenues, as revealed in its March 19, 2001 press release, SeaView common stock hadfallen dramatically, closing at $1.125 per share that day on trading volume many timesnormal. The price was well below the inflated levels the stock had traded at during theClass Period, and a mere fraction of its inflated Class Period high of more than $14.75per share.65.In addition to the defendants= Class Period misrepresentations,the adverse information concealed by defendants during the Class Period is the type ofinformation which, because of SEC regulations, regulations of the national stockexchanges and customary business practice, is expected by investors and securitiesanalysts to be disclosed and is known by corporate officials and their legal and financialadvisors to be the type of information which is expected to be and must be disclosed.FIRST CLAIM FOR RELIEFFor Violation Of '10(b) Of The Exchange Act And Rule 10b-5Against All Defendants1 .Plaintiff incorporates the preceding paragraphs by reference.
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66.Each of the defendants: (a) knew or recklessly disregarded thematerial, adverse, non-public information about SeaView set forth above, which was notdisclosed; and (b) participated in drafting, reviewing, and/or approving the misleadingstatements, releases, reports, and other public representations of and about SeaView.67.During the Class Period, defendants disseminated or approved thefalse statements specified above, which they knew or recklessly disregarded weremisleading in that they contained misrepresentations and failed to disclose material factsnecessary in order to make the statements made, in light of the circumstances underwhich they were made, not misleading.68.Thus, the defendants violated '10(b) of the Exchange Act and Rule10b-5 promulgated thereunder in that they:(a) Employed devices, schemes, and artifices to defraud;(b) Made untrue statements of material facts or omitted to state materialfacts necessary in order to make statements made, in light of the circumstances underwhich they were made, not misleading; or(c) Engaged in acts, practices, and a course of business that operated as afraud or deceit upon plaintiff and others similarly situated in connection with theirpurchase of SeaView common stock during the Class Period.69.Plaintiff and the Class have suffered damages in that, in relianceon the integrity of the market, they paid artificially inflated prices for SeaView commonstock. Plaintiff and the Class would not have purchased SeaView common stock at the
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prices they paid, or at all, if they had been aware that the market prices had beenartificially and falsely inflated by defendants' false and misleading statements.SECOND CLAIM FOR RELIEFFor Violation Of '20(a) Of The Exchange Act AgainstThe Individual Defendant70.Plaintiff incorporates the preceding paragraphs by reference.71.The Individual Defendant acted as controlling persons of SeaViewwithin the meaning of ' 20(a) of the Exchange Act. By reason of his positions atSeaView, he had the power and authority to cause SeaView to engage in the wrongfulconduct complained of herein.72.By reason of such wrongful conduct, the Individual Defendant isliable pursuant to ' 20(a) of the Exchange Act. As a direct and proximate result of thiswrongful conduct, plaintiff and other members of the Class suffered damages inconnection with their purchase of SeaView common stock.CLASS ACTION ALLEGATIONS
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73.Plaintiff brings this action as a class action pursuant to FederalRule of Civil Procedure 23(a) and (b)(3) on behalf of the purchasers of the common stockof SeaView between March 30, 2000 through March 19, 2001, inclusive. Excluded fromthe Class are the officers and directors of SeaView during the Class Period, thedefendants herein, members of the immediate families of any excluded person, any entityin which a defendant has a controlling interest, and the legal representatives, heirs,successors-in-interest, or assigns of any excluded party.74.The members of the Class are so numerous that joinder of allmembers is impracticable. The disposition of their claims in a class action will providesubstantial benefits to the parties and the Court. During the Class Period, SeaView had inexcess of 18 million shares of common stock outstanding, owned by hundreds orthousands of shareholders.75.There is a well-defined community of interest in the questions oflaw and fact involved in this case. The questions of law and fact common to themembers of the Class which predominate over questions which may affect individualClass members include the following:(a) Whether the federal securities laws were violated by defendants;(b) Whether defendants omitted and/or misrepresented material facts;(c) Whether defendants' statements omitted material facts necessary tomake the statements made, in light of the circumstances under which they were made, notmisleading;
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(d) Whether defendants knew or recklessly disregarded that theirstatements were false and misleading;(e) Whether the price of SeaView common stock was artificially inflatedduring the Class Period; and(f) The extent of damage sustained by Class members and theappropriate measure of damages.76.Plaintiff's claims are typical of those of the Class because plaintiffand the Class sustained damages from defendants' wrongful conduct.77.Plaintiff will adequately protect the interests of the Class and hasretained counsel who are experienced in class action securities litigation. Plaintiffbelieves she has no interests which conflict with those of the Class.78.A class action is superior to other available methods for the fairand efficient adjudication of this controversy.79.The prosecution of separate actions by individual Class memberswould create a risk of inconsistent and varying adjudications.PRAYER FOR RELIEFWHEREFORE, plaintiff prays for judgment as follows:1 .Declaring this action to be a proper class action pursuant to Rule 23(a) and(b)(3) of the Federal Rules of Civil Procedure on behalf of the Class defined herein;2 .Awarding plaintiff and the members of the Class compensatory damages;
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3 .Awarding plaintiff and the members of the Class pre-judgment and post-judgment interest, as well as reasonable attorneys' fees, expert witness fees, and othercosts; and4 .Awarding such other relief as this Court may deem just and proper.JURY DEMANDPlaintiff demands a trial by jury.DATED: June ___, 2001.___________________________________Jonathan Alpert
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Florida Bar # 121970Alpert & Ferrentino P.A.100 South Ashley DriveSuite 2000Tampa, FL 33602(813) 223-4131Fred T. IsquithGregory M. NespoleWOLF HALDENSTEIN ADLERFREEMAN & HERZ LLP270 Madison AvenueNew York, New York 10016(212) 545-4600Steven J. TollCOHEN, MILSTEIN, HAUSFELD& TOLL, P.L.L.C.1100 New York Ave., N.W.West Tower, Suite 500Washington, D.C. 20005(202) 408-4600Marc S. Henzel, Esq.LAW OFFICES OF MARC S. HENZEL
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210 West Washington Square, Third FloorPhiladelphia, PA 19106Tel: (215) 625-9999/232109Attorneys for Plaintiff</html
72.14.207.104 |
