Excerpted from one of the class action complaints filed against HITT.
This one: secfraud.com
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V. ALLEGATIONS OF FRAUD
24. During the Class Period, the Defendants engaged in a scheme to defraud the investors of
Hitsgalore.com, Inc. by disseminating false, incomplete and misleading information about the
Company's management, operations and business conditions.
25. Defendants began their scheme on February 17, 1999, in their form 8-K filing to the
Securities Exchange Commission ("SEC") regarding the merger and reorganization of Systems
Communications, Inc. into Hitsgalore.com, Inc., when they falsely stated that:
"Except as set forth in Schedule , there is no claim, legal action, suit, arbitration,
governmental investigation, or other legal or administrative proceeding, nor any
order, decree or judgment in progress, pending or in effect or to Hitsgalore.com's
knowledge threatened, against or relating to Hitsgalore.com, its directors,
officers or employees, its properties, assets or business or the transaction
contemplated by this Agreement and Hitsgalore.com does not know or have any
reason to be aware of any basis for the same, including any basis for a claim of
sexual harassment or racial or age discrimination."
26. That same day defendants, in a press release, further announced that:
"Hitsgalore.com is emerging as a major player in search engine technology.
Hitsgalore.com may joint venture on other technologies as it sees fit to maintain market
dominance." (Emphasis added)
27. On March 8, 1999, defendant Bradford continued the fraud by stating:
"'We are anxious to complete the merger, and we are confident that all conditions
of the agreement will be met in a timely manner.We had a very good month in
February with dramatic growth in revenues, and we are excited about the future
prospect of being one of the few public Internet companies that is actually
profitable. We believe that combining our successful Internet business model with
the public company, Systems Communications, Inc., will be a winning situation for
all concerned.'" (Emphasis added)
28. On March 18, 1999, the defendants continued their scheme by falsely stating in a press
release that:
"Systems Communications, Inc. (OTC BB:SCMI) and Hitsgalore.com announced that
their reverse merger transaction is complete . . . Appropriate filings are being
made. Steve Bradford, CEO of Hitsgalore.com stated: 'We are very pleased to have
the reverse merger finalized. The Company is being completely changed, with new
management, new offices, a new name and a new Internet business model that we
believe will continue to be profitable.' Additional information concerning the
reverse split and trading symbol change, and the spin-off of International
HealthCare Systems, Inc., will be made soon. Hitsgalore.com is profitable Internet
company." (Emphasis added)
29. On March 19, 1999, in a press release, defendants further stated that:
"Hitsgalore.com, Inc., formerly known as Systems Communications, Inc.
(OTCBB-SCMI), announced unaudited Gross Revenues for February 1999 of $
152,369 related to the hitsgalore.com website. This is more than
double the January 1999 revenues of approximately $ 70,000. The Company
anticipates announcing continued growth for this month. Hitsgalore.com has been a
profitable Internet company with a Internet search community that means
business." (Emphasis added)
30. On March 24, the defendants again omitted highly material facts from the public when they
stated:
"Hitsgalore.com, Inc., (OTCBB-HITS) has received word from the NASD that its
stock is now trading under the ticker symbol HITS. Hitsgalore.com is a profitable
Internet company with a Internet search community that means business. The
Company has previously announced Gross Revenues for February 1999 of
$152,369. This is more than double the January 1999 revenues of approximately $
70,000. The website came out of beta testing in late November '98 and generated
revenues of less than $ 20,000 from inception to 12/31/98 (all revenue figures
are unaudited). The Company anticipates announcing continued growth for this
month." (Emphasis Added)
31. On March 30, 1999, in a press release, the defendants further announced that:
"We believe we have dramatically enhanced our ability to implement our total
e-commerce solution, which will benefit the consumer using
hitsgalore.com as their portal, as well as the hundreds of thousands
of businesses that comprise our database." (Emphasis added)
32. On April 8, 1999, the defendants further made misleading statements regarding the
company by omitting material facts in a press release:
"Hitsgalore.com, Inc., today announced a contract with DoubleClick Inc. for online
advertising . . .
This is just the first wave of Internet ads that will help us establish and expand
our recognition as a major search portal and as a serious player in the search
industry. . ." said Hitsgalore.com CEO Bradford.
33. On April 16, 1999, the defendants again omitted the material facts in a press release:
"Hitsgalore.com, Inc., (OTC BB:HITT) announced that it has entered into a Letter of
Intent with the Life Foundation Trust for a $10 million investment in the company
. . .
Steve Bradford, CEO of Hitsgalore.com, stated: 'We are certain that this
investment will help Hitsgalore.com gain valuable market share through the
advertising campaigns we have planned. We will also be able to continue our
development and expansion into other exciting technologies that are now being
readied for release, many of which should occur by the end of this quarter.'
Jeanette Wilcher, trustee for the Life Foundation Trust, stated: 'We were attracted
to Hitsgalore.com . . . and we are looking to be a long-term holder of
Hitsgalore.com stock.'"
34. Less than once week later on April 21, 1999, the defendants in a press release stated:
"Steve Bradford, Hitsgalore.com CEO noted: 'The market has reacted favorably
since the investment was announced on April 16, 1999. At the time the investment
was negotiated, the trust was acquiring Hitsgalore.com stock at virtually no
discount from the market value. That market value has now nearly doubled, and we
are confident that the trust is pleased and will favorably consider other
significant transactions with Hitsgalore.com.'" (Emphasis added)
35. On May 10, 1999, the defendants' scheme to inflate the stock without disclosing the
material FTC case was succeeding admirably when they announced:
"Hitsgalore.com Inc., a business Internet search directory, said the $1 billion-plus
Life Foundation Trust is boosting its stake in the company with a $100 million
investment.
The trust's acquisition of 4 million restricted shares at $25 apiece, in addition to
its previous purchase of 2 million shares for $10 million, will give it an 11
percent stake, company spokesman Frank Pinizzotto said. Hitsgalore.com's shares
surged as much as 33 percent on the news, rising 2 13/16 to 18 5/16 in early
afternoon trading after earlier touching 20 11/16."
36. The above statements (¶¶ 25-35 herein) were false and misleading because during the
Class Period, defendants were well aware of, or recklessly disregarded, the fact 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 statements were further false and misleading
because defendants knew, yet failed to disclose, that the Company initiated its merger with a
shell company -- Systems Communications, Inc. -- for the sole purpose of avoiding the due
diligence investigation of an initial public offering which would have undoubtedly revealed the
above material facts regarding its founder.
VI. TRUTH DISCLOSED
37. Stunning the investment community, on May 11, 1999, the truth regarding the FTC case
against founder Reed was finally revealed to the public. As reported in Business Wire:
"Hitsgalore.com Inc., an Internet company whose market value soared from $53 million to $1
billion in three months, didn't disclose its founder was accused of cheating customers at a
previous job.
Dorian Reed, who founded Hitsgalore.com 10 months ago, and two co-defendants
were last month ordered by a federal judge to pay $613,110 to 100 customers for
false claims made by Internet Business Broadcasting, a failed online advertising
company they worked for. When Hitsgalore.com became a public company in
February, a year after the federal fraud investigation began, it told the Securities
and Exchange Commission there were no suits or government inquiries involving
any of its employees.
Hitsgalore.com shares plummeted 53 percent, or 10 3/4 to 9 3/8, cutting the
company's market worth by $534 million. It was the largest percentage loss of any
U.S. stock. The 3.6 million shares traded were 10 times the average of the last 30
days."
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But the real cause for the tumble lies with "evil bashers" and naked Nigerian shorts, of course. ;)
edit - the "(emphasis added)" was in the original, but emphasised lines didn't copy that way. Click the link to see the parts they emphasised.
...Mezz - |
