SNRS<------The Doctors Last Compnay!!!!!
WEISS & YOURMAN
KEVIN J. YOURMAN (147159)
ELIZABETH P. LIN (174663)
10940 Wilshire Boulevard
24th Floor
Los Angeles, CA 90024
Telephone: (310) 208-2800
WEISS & YOURMAN
JOSEPH H. WEISS
319 Fifth Avenue
New York, NY 10016
Telephone: (212) 532-4171
SCHATZ & NOBEL, P.C.
ANDREW M. SCHATZ (CT00603)
JEFFREY S. NOBEL (CT04855)
216 Main Street
Hartford, CT 06106-1817
Telephone. (860) 493-6292
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
Ronda Morganstein, On Behalf of Herself ) Case No. 97-3103 SVW (Mcx)
and All Others Similarly Situated, )
)
Plaintiff, )
) CLASS ACTION
vs. )
)
Aura systems, Inc., Avi Kurtzman, Arthur )
J. Schwartz, Cipora Kurtzman Lavut, Neal )
B. Kaufman, Harvey Cohen, Norman Reitman,)
Steven C. Veen and Pannell Kerr Forster, ) JURY TRIAL DEMANDED
)
Defendants. )
_________________________________________)
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Plaintiff, complaining of the defendants, by her attorneys,
alleges upon personal knowledge as to herself and upon information
and belief as to others, based upon an investigation by plaintiff's
counsel, including, among other things, a review and analysis of
the SEC filings of Aura Systems, Inc. ("Aura" or the "Company"),
securities analysts reports and advisories about the Company, press
releases issued by the Company, and media reports about the
Company, as follows:
SUMMARY OF THE ACTION
1. This is a class action filed on behalf of all persons,
other than defendants and their affiliates, who purchased the
common stock of Aura Systems, Inc. between January 18, 1995 and
April 25, 1997, inclusive (the "Class Period").
2. During the Class Period, the defendants engaged in a
scheme to artificially inflate the stock price of the Company by
making misrepresentations, and/or omitting to state material facts,
about the Company in order to (i) create the appearance of the
success of the Company, (ii) raise capital for the Company, (iii)
protect and enhance their executive positions and the substantial
compensation and prestige they obtained thereby, and (iv) enhance
the value of their personal Aura securities and options holdings.
3. Aura also profited by selling Aura common stock at
discounts to the prevailing U.S. market price under Regulation S
adopted pursuant to the Securities Act of 1933 (17 C.F.R. 230.901 -
1230.904), without informing Aura's shareholders or the public at
large. During the Class Period, Aura issued over 20 million new
shares, most of which were sold through the Regulation S market.
4. The conduct of defendants has served to damage
plaintiff and members of the Class (as defined herein) because had
they known of the true financial condition and business-prospects
of Aura, plaintiff and other members of the Class would not have
purchased or otherwise acquired their Aura securities during the
Class Period or, if they had chosen to acquire Aura securities,
they would not have done so at the artificially inflated prices
which they paid.
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JURISDICTION AND VENUE
5. This Court has jurisdiction over this action pursuant
to 28 U.S.C. õõ 1331 and 1337, and Section 27 of the Securities
Exchange Act of 1934 (the "Exchange Act") (15 U.S.C. õ 78aa).
6. This action arises under Section 10(b) and 20(a) of the
Exchange Act (15 U.S.C. õõ 78j(b) and 78t(a)), Rule 10b-5
promulgated thereunder (17 C.F.R. õ 240.10b-5), and Section 12(1)
of the Securities Act of 1933 (15 U.S.C. õ 771(1)).
7. Venue is proper in this District pursuant to Section 27
of the Exchange Act and 28 U.S.C. õ 1391(b). Aura has its corporate
headquarters and principal place of business in this District, and
many of the acts and much of the conduct constituting the
violations of law set forth herein occurred in this District.
Furthermore, as hereinafter alleged, one or more of the defendants
resides in this District, and the claims herein stated either arose
in or out of conduct occurring or emanating from 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, interstate telephone communications, the mails and the
national securities markets.
PARTIES
9. Plaintiff Ronda Morganstein purchased 1200 shares of
Aura common stock during the Class Period, as hereinafter defined,
and was damaged thereby.
10. Defendant Aura Systems, Inc. is a Delaware corporation
with its headquarters at 2335 Alaska Avenue, El Segundo, California
90245.
11 The following individuals, collectively referred to
herein as the "Individual Defendants" are, or at all relevant times
herein were, owners, officers and/or directors of Aura:
(a) Defendant Avi "Harry" Kurtzman ("Kurtzman") is,
and at all relevant times herein has been, the Chief
Executive officer, President and a director of the Company.
Defendant Kurtzman participated in the preparation of,
reviewed and/or had the ability to control the contents of
Aura's 10-Q for the period ending November 30, 1994, 10-K for
the fiscal period ending February 28, 1995, 10-Q for the
quarter ending May 31, 1995, 10-Q for the quarter ending
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August 31, 1995, 10-Q for the quarter ending November 30,
1995, and 10-K for the fiscal period ending February 29,
1996. As of May 24,1996, Kurtzman owned 1,744,913 shares of
Aura common stock.
(b) Defendant Arthur J. Schwartz ("Schwartz") is, and
at all relevant times herein has been, the Executive Vice
President and a director of the Company. Defendant Schwartz
participated in the preparation of, reviewed and/or had the
ability to control the contents of Aura's 10-Q for the period
ending November 30, 1994, 10-K for the fiscal period ending
February 28, 1995, 10-Q for the quarter ending May 31, 1995,
10-Q for the quarter ending August 31, 1995, 10-Q for the
quarter ending November 30, 1995, and 10-K for the fiscal
period ending February 29, 1996. As of May 24, 1996,
Schwartz owned 1,602,713 shares of Aura common stock.
(c) Defendant Cipora Kurtzman Lavut ("Lavut") is, and
at all relevant times herein has been, the Senior Vice
President Corporate Communications and a director of the
Company. Defendant Lavut participated in the preparation of,
reviewed and/or had the ability to control the contents of
Aura's 10-Q for the period ending November 30, 1994, 10-K for
the fiscal period ending February 28, 1995, 10-Q for the
quarter ending May 31, 1995, 10-Q for the quarter ending
August 31, 1995, 10-Q for the quarter ending November 30,
1995, and 10-K for the fiscal period ending February 29,
1996. As of May 24, 1996, Lavut owned 1,343,390 shares of
Aura common stock.
(d) Defendant Neal B. Kaufman ("Kaufman") is, and at
all relevant times herein has been, the Senior Vice President
and a director of the Company. Defendant Kaufman
participated in the preparation of, reviewed and/or had the
ability to control the contents of Aura's 10-Q for the period
ending November 30, 1994, 10-k for the fiscal period ending
February 28, 1995, 10-Q for the quarter ending May 31, 1995,
10-Q for the quarter ending August 31, 1995, 10-Q for the
quarter ending November 30, 1995, and 10-K for the fiscal
period ending February 29, 1996. As of May 24, 1996, Kaufman
owned 1,385,868 shares of Aura common stock.
(e) Defendant Harvey Cohen ("Cohen") is, and at all
relevant times herein has been, a director of the Company.
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Defendant Cohen participated in the preparation of, reviewed
and/or had the ability to control the contents of Aura's 10-Q
for the period ending November 30, 1994, 10-K for the fiscal
period ending February 28, 1995, 10-Q for the quarter ending
May 31, 1995, 10-Q for the quarter ending August 31, 1995,
10-Q for the quarter ending November 30,1995, and 10-K for
the fiscal period ending February 29, 1996.
(f) Defendant Norman Reitman ("Reitman") is, and at
all relevant times herein has been, a director of the
Company. Defendant Reitman participated in the preparation
of, reviewed and/or had the ability to control the contents
of Aura's 10-Q for the period ending November 30, 1994, 10-K
for the fiscal period ending February 28, 1995, 10-Q for the
quarter ending May 31, 1995, 10-Q for the quarter ending
August 31, 1995, 10-Q for the quarter ending November 30,
1995, and 10-K for the fiscal period ending February 29,
1996.
(g) Defendant Steven C. Veen ("Veen") is, and at all
relevant times herein has been, the Vice President-Chief
Financial Officer of the Company. Defendant Veen
participated in the preparation of, reviewed and/or had the
ability to control the contents of Aura's 10-Q for the period
ending November 30, 1994, 10-K for the fiscal period ending
February 28, 1995, 10-Q for the quarter ending May 31, 1995,
10-Q for the quarter ending August 31, 1995, 10-Q for the
quarter ending November 30, 1995, and 10-K for the fiscal
period ending February 29, 1996.
12. Defendant Pannell Kerr Forster is, and at all relevant
times herein was, a partnership which served as the independent
public auditors of the financial statements of the Company.
Pannell Kerr Forster has its office in this District.
13. All of the defendants identified above pursued a
common enterprise and common course of conduct to accomplish the
wrongs complained of herein. The purpose and effect of the common
enterprise and common course of conduct complained of herein was to
artificially inflate the trading price of the common stock of Aura
by means of material misrepresentations and/or omissions of
material facts, by employing devices, schemes or artifices to
defraud, and by engaging in acts, practices and courses of business
which operate as a fraud and deceit upon plaintiff and the other
members of the Class.
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CLASS ACTION ALLEGATIONS
14. Plaintiff brings this action as a class action pursuant
to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of a
Class, consisting of all persons who purchased or otherwise
acquired shares of Aura common stock from January 18, 1995 through
April 25, 1997, 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 any defendant has or had a
controlling interest.
15. The members of the Class are so numerous that joinder
of all members is impracticable. Although the exact number of
Class members is unknown to plaintiff at this time and can only be
determined through appropriate discovery, plaintiff believes that
there am at least hundreds of members in the Class. As of May 30,
1996, there were approximately 1,950 record holders of the
Company's common stock, and 62,858,283 shares of Aura common stock
outstanding and actively traded over-the-counter on NASDAQ, an
efficient market in which millions of shares of the Company's stock
were traded during the Class Period. Record owners and other
members of the Class may be identified from records maintained by
Aura or its transfer agent and may be notified of the pendency of
this action by mail, using the form of notice similar to that
customarily used in securities class actions.
16. Common questions of law and fact exist as to all
members of the Class and predominate over any questions which may
affect solely individual members of the Class. Among such common
questions of law and fact are:
(a) Whether the federal securities laws were violated
by defendants' acts as alleged herein;
(b) Whether defendants participated in and pursued
the common course of conduct complained of herein;
(c) Whether documents, press releases and other
statements disseminated to the investing public and the
Company's shareholders during the Class Period misrepresented
material facts about the business, financial condition,
and/or prospects of Aura;
(d) Whether statements made by defendants to the
investing public during the Class Period misrepresented
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material facts about the business and finances of Aura;
(e) Whether the market price of Aura's common stock
during the Class Period was artificially inflated due to the
material misrepresentations and omissions complained of
herein;
(f) Whether defendants utilized Regulation S for
purposes of bypassing the federal registration requirements;
(g) Whether the value of Aura stock was diluted due
to defendants' utilization of Regulation S; and
(h) Whether the members of the Class have sustained
damages and, if so, the proper measure of damages.
17. Plaintiff's claims are typical of the claims of the
Class. Plaintiff and all members of the Class are similarly
affected by defendants' wrongful conduct in violation of federal
law as complained of herein.
18. Plaintiff will fairly and adequately protect the
interests of the members of the Class and has retained counsel
competent and experienced in securities and class litigation.
19. A class action is superior to other available methods
for the fair, efficient adjudication of this controversy, since
joinder of all members of the Class is impracticable. There will
be no difficulty in the management of this action and as a class
action. Furthermore, the damages suffered by individual Class
members may be relatively small, and the expense and burden of
individual litigation make it impossible for members to
individually address the wrongs done to them.
20. Plaintiff will rely, in part, upon the presumption of
reliance established by the fraud-on-the-market doctrine in that:
(a) Defendants made public misrepresentations and/or
omitted material facts during the Class Period, as alleged
herein;
(b) The misrepresentations and/or omissions were
material;
(c) Aura's common stock was traded in an efficient
market;
(d) The misrepresentations and/or omissions alleged
herein tended to induce reasonable investors to misjudge the
value of Aura shares; and
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(e) Plaintiff and members of the Class acquired their
shares without knowledge of the falsity of defendants'
representations and/or material omissions from their
statements.
21. Based upon the foregoing, plaintiff and members of the
Class are entitled to a presumption of reliance upon the integrity
of the market for, at least, purposes of class certification as
well as for ultimate proof of the claims on their merit.
Similarly, plaintiff and members of the Class are entitled to a
presumption of reliance with respect to the omissions alleged
herein.
BACKGROUND
22. Aura, which was formed in 1987, is purportedly engaged
in product development, commercialization and sales of systems and
components using electromagnetic technology as well as other
products such as sound cards, modems, multimedia kits and computer
monitors. Although much of the Company's business originally was
devoted to classified military programs and other government and
government-related contracts, by 1994, it had purportedly effected
a transition to develop products for the private market.
23. Before and during the Class Period, Aura claimed to have
developed various technologically advanced products for the
automotive and entertainment markets, but these touted products had
not resulted in profits for the Company; in fact, Aura has
consistently reported losses, including $9.6 million in net losses
for fiscal year (ending the last day of February) 1993; $10.6
million in net losses for fiscal 1994; $2.7 million in net losses
for fiscal 1995; and $26 million in net losses for 1996.
FALSE AND MISLEADING STATEMENTS
24. Defendants engaged in a scheme to artificially inflate
the stock price of Aura, which included misrepresentations about
the Company and its operations and finances contained in false
reports of revenue and earnings beginning no later than January 18,
1995, when Aura's results for the third quarter of fiscal 1995 in
its filing on Form 10-Q became public, and continuing in quarterly
reports on Form 10-Q and annual reports on Form 10-K As the
misrepresentations by the defendants have never been fully
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disclosed, the Class Period ends on April 25, l997, the last
trading day before the filing of this action.
25. The misrepresentations and omissions set forth in
paragraph 24 above included, but were not limited to:
(a) Improperly reporting revenue from "sales" to
purchasers which either (i) had not really agreed to purchase
the products or (ii) had the right to return the products
if the products were not resold by them;
(b) Falsely announcing that Aura had entered into
substantial contracts which in reality were business
arrangements which were either not binding agreements or of
much less economic significance than reported, including, but
not limited to: (i) arrangements with automobile
manufacturers which were really merely samples for testing
and (ii) Aura's announcement on June 26, 1995 that it had
"entered into an exclusive long-term supply agreement with
Key Tronic, Inc. for approximately $10 million of Aura's
audio products to be shipped over the next 18 months," when,
in fact the purported agreement was nothing more than an
exploratory relationship to create computer keyboards using
Aura's speaker technology.
26. In addition to the foregoing misrepresentations,
defendants also misrepresented and/or omitted material facts
concerning their use of Regulation S adopted pursuant to the
Securities Act of 1933, 17 C.F.R. 230.901 - 230.904:
(a) Regulation S was adopted by the SEC in 1990 to
clarify the extraterritorial application of the registration
provisions of the Securities Act of 1933. Under Regulation
S, companies were permitted to sell securities at any price
they choose to foreign investors - typically at a discount of
the prevailing U.S. stock prices - without satisfying federal
registration requirements. The foreign investors who
purchased unregistered securities at a discount could in turn
sell them back into the market (such as NASDAQ here) in the
United States for a profit after the expiration of a 40-day
restricted period.
(b) Under Regulation S, the defendants issued
millions of Aura shares to foreign investors and raised
massive amounts of capital for the ailing Company without
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registering such shares and without informing the SEC, Aura
shareholders or the market about this practice. Between May
1994 and May 1996, Aura's shares outstanding nearly doubled
from 34.1 million to 62.8 million. Of the 28 million new
shares, more than half were sold through Regulation S stock
sales whereby Aura issued enough new shares, usually at a
discount of approximately 15% to the U.S. market price, to
raise at least $60.7 million in fiscal 1996 and $27.7 million
in fiscal 1995. This money has kept the Company afloat
despite heavy operating losses.
(c) Defendants knew that they were required to
disclose facts about their use of Regulation S because, prior
to the Class Period, they had disclosed the number of shares
issued by Aura through Regulation S and the amount Aura
received through such sales in the Company's public filings
with the SEC. However, during the Class Period, Defendants
ceased making such disclosures in their public filings and
began, instead, making material misrepresentations and/or
omissions concerning Regulation S, leading Aura investors
into believing that defendants' practice of raising capital
through Regulation S had been discontinued.
(d) Defendants engaged in frequent use of Regulation
S in order to make Aura appear well capitalized so that the
Company's true condition would not be revealed and its stock
price would remain at an artificially high level. Regulation
S served as a vehicle for Aura to issue new shares and for
Aura's insiders to sell the shares they held without properly
registering stock and without disclosing the sales to the
Securities and Exchange Commission ("SEC"), Aura's
stockholders or potential investors in Aura stock.
(e) On May 30, 1995, during the Class Period, Aura's
10-K for fiscal year ending February 28, 1995 was filed with
the SEC. The 10-K contained the defendants' statement that:
"In Fiscal 1995, the Company raised $36,129,206 through the
sale of stock and payment for certain inventory and fixed
assets, $225,000 from the exercise of warrants and $790,452
from the exercise of stock options, thereby increasing total
stockholders equity by approximately 300% to $54,253,419 from
$18,075,793." Defendants also stated that: "During the year
ended February 28, 1995, the Company also issued 1,497,700
shares of Regulation 'S' restricted common stock in
consideration of previously recorded liabilities." These
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statements in the May 30, 1995 filing on Form 10-K were false
and misleading because at the time they were made the
defendants knew, but failed to disclose:
(i) That the vast majority of capital raised by
Aura through stock sales were made through its sale of
unregistered securities to foreign investors via
Regulation S;
(ii) That during fiscal 1995, Regulation S stock
issuances accounted for over $21 million of the capital
it raised;
(iii) That defendants issued over 4 million
shares to foreign investors in 1994 in addition to the
1.4 million Regulation S shares it issued in
consideration of previously recorded liabilities;
(iv) That defendants' use of Regulation S to
sell shares had a sharply dilutive effect on existing
Aura shareholders' ownership of Aura stock;
(v) That Aura insiders and/or their affiliates
sold some of their Aura stock holdings via Regulation
S;
(vi) That Aura shares sold through Regulation S
were sold for approximately 15% less than Aura shares
were sold in the United States;
(vii) That were it not for capital raised through
Regulation S, Aura would not have been able to bear its
continued operating losses and would have suffered collapse;
(viii)That Aura's use of Regulation S constituted
a scheme by which the defendants were able to raise
capital for the Company without having to comply with
the federal registration requirements of Section 5 of
the Securities Act of 1933, 15 U.S.C. õ 77e; at the
time of their stock sales via Regulation S, defendants
knew that most of the Aura shares sold to foreign
investors would be dumped right back into the United
States as soon as the 40 day restriction period was
over and would be purchased by U.S. investors during
the Class Period, thus effectively selling Aura stock
to U.S. investors without registering such shares;
(ix) That Aura's use of Regulation S to sell
stock had continued and would continue in fiscal 1996.
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27. Defendants' deceptive method of raising capital through
Registration S sales was concealed under news reports that touted
the strength of Aura's balance sheet. For example:
(a) A January 12, 1996 article in PR Newswire article
reported that "Aura's already strong balance sheet continued
to improve with net working capital of approximately $86.4
million, a current ratio of 8.6:1, cash of approximately
$19.6 million and long term liabilities of $4.6 million, or
less than 5% of stockholders' equity."
(b) Another PR Newswire report, dated May 29, 1996,
stated that "The company's balance sheet strengthened during
the year. Shareholder equity increased to $99.2 million at
year end vs. $54.2 million in the previous year and the
company's cash position increased over fivefold to $22
million from $3.8 million in the year before."
The foregoing statements were false and misleading because the
defendants failed to reveal that much of Aura's capital and cash
was raised through Regulation S sales of the Company's stocks. The
defendants knew that Aura's balance sheet was in fact weak and
that, were it not due to the defendants' capital raising efforts
via Regulation S, this would have been made abundantly clear to the
public.
28. Defendant Pannell Kerr Forster had knowledge of, or
recklessly disregarded, the misrepresentations and omissions set
forth in paragraphs 24 - 27 above, but nonetheless issued its
opinions, in connection with the financial statements contained in
the annual reports for both fiscal 1995 and fiscal 1996 filed on
Form 10-K, falsely representing that Aura's financial statements
were fairly presented and in conformity with generally accepted
accounting principles, when Pannell Kerr Forster knew that its
certification of the financial statements of Aura violated, and
constituted a significant departure from the standards of the
auditing and accounting profession, including the obligation to
state fairly all revenue and income, and the obligation to verify
information for which substantial questions and doubts have been
raised.
SALE OF UNREGISTERED SECURITIES
29. Concurrent with the foregoing scheme, defendants also
engaged in a scheme wherein they used Regulation S as a vehicle to
sell Aura shares to investors in the United States while skirting
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the federal registration requirements. In so doing, they violated
Section 5 of the Securities Act of 1933 (15 U.S.C. õ 77c).
30. Defendants actively participated in selling massive
amounts of stock during the Class Period to foreign investors at a
discount in order to benefit themselves and to benefit the Company,
even though they knew that such shares would immediately be resold
by the foreign investors for a profit back into the United States
after the expiration of the 40-day restriction period to Class
members.
31. In effect, the foreign investors served as conduits by
which defendants sold Aura shares to investors in the United States
without satisfying the federal registration and disclosure
requirements.
DAMAGES
32. As a result of the foregoing misrepresentations,
Plaintiff and the Class purchased shares of common stock of Aura at
artificially inflated prices and suffered damages. During the
Class Period, the common stock of Aura traded as high as $8 per
share.
33. As a result of the foregoing failure to register,
members of the Class who purchased such unregistered securities of
Aura were damaged thereby.
34. This action is brought (i) within three years of the
purchases and sales of the Aura common stock which are the subject
of this action and within three years of the misrepresentations
which are the basis of this action and (ii) within one year of the
discovery of the misrepresentations described in the Complaint and
within one year of the date that such misrepresentations could have
been discovered with the exercise of reasonable diligence.
COUNT I
(Violation of Section 10(b) of The Exchange Act
and Rule 10b-5 Promulgated Thereunder)
35. Plaintiff repeats and realleges the allegations set
forth above as though fully set forth herein.
36. During the Class Period, the defendants, and each of
them, carried out a plan, scheme and course of conduct which was
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intended to and did: (i) deceive the investin |
