"Magellan versus OVIS"
JOHN M. McKENNA SNB 91174
Attorney at Law
11661 San Vicente Boulevard
Suite 303
Los Angeles, California 90049
(310) 442-8464
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES
MAGELLAN LITIGATION ) Case No.: SC049037
SERVICES, INC., )
) COMPLAINT FOR DAMAGES
Plaintiff, )
)
vs. )
)
OLYMPUS VENTURES, INC., )
MICHAEL ZAPARA, GARY MORGAN, )
ROLAND BRETON, and DOES 1 )
through 50, inclusive, )
)
Defendants. )
_______________________________)
Plaintiff alleges:
SUMMARY OF ACTION
1. This action is brought on behalf of MAGELLAN LITIGATION SERVICES, INC. as assignee of the rights of DEMPSEY MORK, seeking to remedy violations of California state law by OLYMPUS VENTURES, INC. and its officers and agents, which violations involve the issuance of false financial statements and other positive statements. Defendants used these statements to artificially increase share value of OLYMPUS stock so as to sell shares of the stock at inflated prices before the truth concerning OLYMPUS' business and finances were revealed. OLYMPUS stock price, which had traded as low as $ .20 per share in August of 1997 traded up to over $4.00.
2. During all times herein mentioned, OLYMPUS and its officers bombarded the market with reports and press releases to the effect that OLYMPUS was growing rapidly, was expanding its manufacturing facilities, was signing new deals, would report sales increased and that these sales and earnings trends were expected to continue for the foreseeable future.
3. However, each of the defendants' positive statements about OLYMPUS' business and finances was materially false and misleading when issued, and failed to disclose, inter alia, the following adverse information which was then known only to defendants through their access to internal OLYMPUS data:
(a) That OLYMPUS financial statements were reported in violation of Generally Accepted Accounting Principles (:"GAAP");
(b) That OLYMPUS recognized revenues in violation of GAAP and had no reasonable basis upon which to reasonably estimate future returns;
(c) The defendants had no reasonable basis for a belief that OLYMPUS sales would continue to rapidly increase; and
(d) That there was no basis for defendants' statements that OLYMPUS sales would continue to grow.
THE PARTIES
4. Plaintiff MAGELLAN LITIGATION SERVICES, INC. ("MAGELLAN") has been assigned all rights and interests in any cause of action held by shareholder DEMPSEY MORK ("MORK").
5. Defendant MICHAEL ZAPARA ("ZAPARA"), is a resident of Riverside County, California.
6. Defendant OLYMPUS VENTURES, INC. ("OLYMPUS") is a Washington Corporation, doing business in the County of Los Angeles, California.
7. Defendant GARY MORGAN ("MORGAN"), is Chief Executive Officer of OLYMPUS and is a resident of the state of Florida.
8. Defendant ROLAND BRETON ("BRETON"), is President of OLYMPUS and is a resident of the state of Florida.
9. Plaintiff does not know the identity of defendants sued herein as DOES 1 through 50, inclusive and therefore sues these defendants by such fictitious names. Plaint is informed and believes that each of these fictitiously named defendants is in some way responsible for the damages herein alleged.
10. Plaintiff alleges that defendants and each of them, are the agents of their co-defendants.
11. The defendants, and each of them, by reason of their position as officers and directors or OLYMPUS, were controlling persons of OLYMPUS and had the power and influence, and exercised the same, to cause OLYMPUS to engage in the conduct complained of herein.
12. Each of the defendants is liable as a primary violator, in making false and misleading statements, and for participating in a fraudulent scheme and/or conspiracy and/or aiding and abetting that operated as a fraud or deceit on purchasers of OLYMPUS stock. All of the defendants pursued a fraudulent scheme and conspiracy in furtherance of their common goal, i.e., inflating the price of OLYMPUS stock by making false and misleading statements and concealing material adverse information. The fraudulent scheme and conspiracy was designed to and did: (i) deceive the investing public, including plaintiff; (ii) artificially inflate the price of OLYMPUS stock: and (iii) cause plaintiff to purchase OLYMPUS stock at inflated prices.
13. The defendants' motive to engage in this conduct included a desire to inflate the price of OLYMPUS stock sales to: (i) cover up and conceal OLYMPUS deteriorating business and prospects to protect and enhance their executive positions and the substantial compensation and prestige they obtained thereby; and (ii) inflate the value of OLYMPUS stock so OLYMPUS insiders could make undeserved profits from the sale of illegal stock.
FALSE AND MISLEADING STATEMENTS
14. Defendants, and each of them, violated federal securities laws by doing the following:
(a) Failing to amend the Form S-8 registration statements after charging the stock distribution plan;
(b) Issuing stock outright in violation of the stock option plan of OLYMPUS;
(c) Illegally issuing 12.7 million shares of stock;
(d) Issuing these 1.7 million shares of illegal stock to promoters and financial public relations individuals for the purpose of artificially inflating the stock price;
(e) Holding out to the public that these shares of stock were duly registered;
(f) Hiding the identity of the corporate management persons;
(g) Withholding financial statements for the years 1994, 1995 and 1996; and
(h) Falsely claiming profitability to induce increases in stock value.
FIRST CAUSE OF ACTION
Violation of 25400 and 25500 Of
The California Corporation Code
15. Plaintiff incorporates paragraphs 1 through 14.
16. Acting individually and pursuant to a scheme and conspiracy, defendants, directly and indirectly, inducted the trading of OLYMPUS stock by plaintiff by circulating or disseminating, in or from California, false information about OLYMPUS which inflated its stock price. Defendants made, for the purpose of inducing the trading of OLYMPUS stock by plaintiff, statements which were, at the time and in light of the circumstances under which they were made, not misleading, and which defendants knew or had reasonable grounds to believe were false and misleading.
17. Plaintiff trading in OLYMPUS stock at prices which were affected by defendants' scheme and sustained substantial damages as a result of defendants' acts, in reliance on the integrity of the market. Plaintiff would not have traded OLYMPUS stock at all, if it had been aware that the market price had been artificially and falsely inflated by defendants' misleading statements and concealments.
18. By reason of the foregoing, defendants violated 25400 of the Cal. Corp. Code, thereby entitling plaintiff to recover damages pursuant to 25500.
SECOND CAUSE OF ACTION
Violation of 1709-1710 Of
The California Civil Code
19. Plaintiff incorporates paragraphs 1 through 18.
20. Defendants OLYMPUS, ZAPARA, MORGAN, BRETON and DOES 1 through 50, and each of them, willfully deceived plaintiff and intentionally induced it to trade OLYMPUS stock after which the defendants artificially inflated the price, by employing a scheme and conspiracy to defraud plaintiff in violation of California law. As part of their scheme, defendants knowingly suppressed true material facts and/or gave information of other facts which was likely to mislead, for want of communications of the true facts, as set forth above. Said representations and statements were not true and defendants either did not believe them to be true or had no reasonable grounds for believing them to be true. Said acts by defendants were made negligently, without any reasonable grounds and/or were fraudulent, oppressive and malicious.
21. Plaintiff relied on one or more of the false statement alleged herein and was damages thereby.
22. By reason of the foregoing, defendants violated 1709-1710 of the California Civil Code.
THIRD CAUSE OF ACTION
Unlawful, Unfair Or Fraudulent, Business Practices
In Violation of California Business & Professions
Code 17200, et seq.; False Or Misleading
Advertising In Violation of California Business
& Professions Code 17500, et seq.
23. Plaintiff incorporates paragraph 1 through 22.
24. California Business & Professions Code 17200 prohibits acts of unfair competition, which include "any unlawful, unfair or fraudulent business act or practice . . . ."
25. Defendants' misrepresentations and nondisclosures of material facts are prohibited by California Corporations Code 25400, California Civil Code 1572, 1709 and 1710, as well as principles of common law. Accordingly, defendants have violated Business & Professions Code 17200's proscription against engaging in an unlawful business act or practice.
26. Defendants' misrepresentations and nondisclosures of material facts also constitutes an unfair business act or practice within the meaning of Business & Professions Code 17200 because defendants were aware (or should have been aware) at all relevant times that the Company's operations, performance and expected earnings per share were not as represented. No justification existed for defendants' misrepresentations and failures to disclose material facts. Defendants' failures to disclose material facts. Defendants' misrepresentations and nondisclosure of material facts also constitute a fraudulent business act or practice within the meaning of Business & Professions Code 17200. Defendants' conduct had a tendency to deceive the investing public because defendants:
(a) Misrepresented the quality of the solicited investment; and
(b) Failed to disclose material facts necessary to make the statements which were made not misleading.
27. Defendants' use of various forms of promoting and marketing to falsely advertise, call attention to, or give publicity to the sale of shares of OLYMPUS common stock by, inter alia, untrue and/or deceptive representations as to the nature and quality of the investment and OLYMPUS business and business prospects constitutes false or misleading advertising within the meaning of Business & Professions Code 17500, et seq. because defendants either knew or reasonably should have known that such advertising was untrue and/or misleading. Necessarily, defendants violation of Business & Professions Code 17200, et seq.
28. Accordingly, because defendants have committed unlawful, unfair and/or fraudulent business acts or practices in violation of Business & Professions Code 17200, and engaged in false and misleading advertising in violation of Business & Profession Code 17500, et seq., plaintiff and the general public are entitled to relief under 17203 and 17535 which may include: (1) orders or judgments enjoining defendants from engaging in further unlawful, unfair or fraudulent acts or practices; or (2) order of disgorgement or restitution to prevent defendants from retaining any money or property obtained by means of their unlawful, unfair or fraudulent acts or practices. Plaintiff additionally request that such money or property be impounded by this Court, or that an asset freeze or constructive trust be imposed upon such revenues and profits, to avoid dissipation and/or fraudulent transfers or concealment of such monies by defendants. Plaintiff and the general public may be irreparably harmed and/or denied an effective and complete remedy if such an order is not granted.
BASIS OF ALLEGATIONS
29. Plaintiff has alleged the foregoing based upon the investigation of its counsel, which included a review of OLYMPUS SEC filings, securities analysts' reports and advisories about the OLYMPUS, press releases issued by the OLYMPUS, media reports about the OLYMPUS and discussions with consultants. Substantial evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for judgment as follows:
1. Awarding plaintiff compensatory and/or punitive damages;
2. Awarding plaintiff pre-judgment and post-judgment interest, as well as reasonable attorneys' fees, expert witness fees and other costs;
3. Awarding extraordinary, equitable and/or injunctive relief as permitted by law, equity and the appropriate state law remedies; and
4. Awarding such other relief as this Court may deem just and proper.
Dated: September 17, 1997 LAW OFFICES OF JOHN M. McKENNA
___________________________________
JOHN M. McKENNA
Attorney for Plaintiff
MAGELLAN LITIGATION SERVICES, INC. |
