UNITED STATE'S DISTRICT COURT JOSEPH AND PATRICIA …securities.stanford.edu/filings-documents/1029/MRN...3. Medical Staffing, based in Boca Raton, Florida and founded in 1998, is

Case 9:04-cv-80158-WPD Document 24 Entered on FLSD Docket 09/07/2004 Page 1 of 97

UNITED STATE'S DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

CASE NO. 04-8015 8-CIV-DIMITROULEAS

JOSEPH AND PATRICIA MARRARI, JEROME GOULD, TOMMIE L. WILLIAMS, and HADDON ZIA, on behalf of themselves and all others similarly situated, ;

Plaintiffs,

VS.

MEDICAL STAFFING NETWORK HOLDINGS, INC., et al. JURY TRIAL DEMANDED

Defendants. /

CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

NATURE OF THE ACTION

1. Lead Plaintiff Thomas Greene ("Greene" or "Plaintiff'), individually and on

behalf of a proposed class (the "Class") of all purchasers of the publicly traded securities of

Medical Staffing Network Holdings, Inc. ("Medical Staffing" or the "Company") (NYSE: MRN)

between April 18, 2002 and June 16, 2003, inclusive (the "Class Period"), by and through his

undersigned counsel, alleges the following against Medical Staffing and certain of its top officers

upon personal knowledge as to those allegations concerning himself and, as to all other matters,

upon the investigation of counsel, which included, among other things: (a) review and analysis of

public filings made by Medical Staffing with the Securities and Exchange Commission (the

"SEC"); (b) review and analysis of securities analysts' reports concerning Medical Staffing; (c)

review and analysis of Medical Staffing press releases and other publicly available information;

(d) contact with factual sources, including interviews with individuals formerly employed by


Medical Staffing; (e) online research, including a review of Medical Staffing's website; (f)

reference to authoritative accounting literature; and (g) consultation with forensic accounting

experts. Plaintiff believes that substantial additional evidentiary support will exist for the

allegations set forth herein after a reasonable opportunity for discovery.

INTRODUCTION

2. This is a securities class action brought under Sections 11 and 15 of the Securities

Act of 1933 (the "Securities Act"), 15 U.S.C. §§ 77k and 77o, and Sections 10(b) and 20(a) of

the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and

the regulations promulgated thereunder by the SEC, including Rule 1 Ob-5, 17 C.F.R. § 240.10b-

5.

3. Medical Staffing, based in Boca Raton, Florida and founded in 1998, is a

supplemental healthcare staffing company that provides hospitals and other healthcare facilities

with a range of staffing services, including "per diem" nurses, "allied" professionals and "travel"

nurses. Medical Staffing's per diem staffing assignments place its professionals, predominantly

nurses, at hospitals and other healthcare facilities to solve its clients' temporary staffing needs.

As of December 29, 2002, Medical Staffing claimed it had more than 180 per diem branches that

provided nurse staffing on a per diem basis in 44 states. At the close of the fiscal year ended

December 28, 2003, the Company stated that it consisted of more than 140 per diem branches in

43 states. For the fiscal year 2002, the per diem nurse staffing portion of Medical Staffing's

business represented approximately 76% of the Company's revenues. Allied healthcare

professional staffing represented 16% of Medical Staffing's 2002 revenues.

4. On or about April 15, 2002, Medical Staffing filed with the SEC a Form S-I/A

Registration Statement (the "Registration Statement") for its Initial Public Offering (the "lPO")

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On or about April 18, 2002, the prospectus (the "Prospectus") filed in connection with the IPO,

which forms part of the Registration Statement, became effective and 7,812,500 shares of

Medical Staffing stock were sold to the public at $19.00 per share, raising approximately $136

million. In addition, Medical Staffing granted its underwriters an over-allotment option on

1,171,875 shares. When the underwriters exercised the allotment, it brought the total number of

shares issued to 8,984,375 for total proceeds from the IPO, net of expenses, of $155 million.

5. Prior to and during the Class Period, Medical Staffing touted its rapid expansion

and growth through its opening of "de novo" branch offices, a term Medical Staffing used to

describe branches it opened since its inception, as opposed to branches acquired from third

parties. For example, Medical Staffing stated that since its inception it opened 138 "de novo"

branches, including 30 branches in 2000, 64 in 2001, and 40 in 2002. As described in detail

below, the Defendants' goal was to open numerous de novo branches as quickly as possible to

create the appearance of growth. In addition to opening new offices, Medical Staffing also

acquired numerous other companies during the Class Period to sustain its illusion of growth.

However, the Company's Registration Statement and Prospectus, SEC filings, and other public

statements misrepresented or failed to disclose the true performance of Medical Staffing's de

novo offices.

6. In reality, the de novo offices, like the rest of the Company, entered into a

downward spiral in 2002 that culminated in early 2003 with the Company announcing the

suspension of its de novo program along with the closing of approximately 40 offices.

Defendants kept the Company's true financial conditional and performance under wraps while

providing the market with utterly bogus and unrealistic financial projections and budget targets,

relying on its rapid expansion program to hide the cracks in the wall.

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7. Thus, as described in detail below, despite knowing that the Company was not

performing well and facing severe pricing pressure from its clients and nurses, Medical Staffing

painted a rosy picture for the public, even claiming to not understand why its competitors were

struggling, despite the fact that Medical Staffing faced the same struggles.

8. When Defendants could hide the true condition of the Company no longer, the

Company announced on May 12, 2003, without warning and shortly after once again raising the

Company's earnings forecasts, that the Company would be implementing a restructuring plan

and withdrawing its prior annual guidance for 2003. News of Medical Staffing's financial woes

shocked the market, and the price of Medical Staffing stock dropped 11.73%, or $1.01 per share,

to close a $7.60 on May 13, 2003.

9. On June 16, 2003, Medical Staffing announced the completion of its

"restructuring plan" - that it was significantly lowering its 2003 financial guidance, had already

closed numerous branch offices on May 21, 2003, and would be taking a restructuring cost of

approximately $800,000. Again, the market reacted swiftly to Medical Staffing's negative news,

resulting in shares of Medical Staffing falling 16.27%, or $1.44 per share, to close at $7.41 per

share on June 17, 2003.

10. As described in detail below, in connection with the Company's IPO, and in

numerous public statements made throughout the Class Period, Defendants failed to disclose or

recklessly disregarded the following: (I) that the Company's strategy of rapid expansion through

the opening and development of de novo branches only created the appearance of success and

was, in reality, adversely affecting the Company's revenue growth; (2) that the Company's de

novo program consistently failed to meet budget targets and forecasts, and was near termination;

(3) that the Company was facing and/or in the process of consolidation due to adverse growth

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prospects; (4) that the Company's budgets and financial forecasting was wholly unreliable,

arbitrary, and designed to mislead the market, fueled not by reality, but by the Defendants' desire

to report "better" numbers to "Wall Street;" (5) that the Company faced severe pricing pressure

from both clients and nurses; and (6) that due to the regional and seasonal fluctuations in hospital

patient censuses, particularly in Florida, more of the Company's hospital and healthcare facility

clients adjusted staffing levels, which adversely affected the Company's business.

JURISDICTION AND VENUE

11. This Court has jurisdiction over the subject matter of this action pursuant to § 27

of the Exchange Act, 15 U.S.C. § 78aa, Section 22 of the Securities Act, 15 U.S.C. § 77v, and 28

U.S.C. § 1331. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange

Act, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule lOb-5 promulgated thereunder, 17 C.F.R.

§ 240.1Ob-5, and Sections 11 and 15, 15 U.S.C. §§ 77k and 77o, of the Securities Act.

12. Venue is proper in this District pursuant to § 27 of the Exchange Act, 15 U.S.C.

§ 78aa, and § 22 of the Securities Act, 15 U.S.C. § 77v, and 28 U.S.C. § 1391(b). At all times

relevant to this action, Medical Staffing maintained its principal executive office in this District

and many of the acts and transactions alleged herein, including the preparation and dissemination

of materially false and misleading information, occurred in substantial part in this District.

13. In connection with the acts, conduct, and other wrongs alleged in this Complaint,

Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

including, but not limited to, the United States mails, interstate telephone communications, and

the facilities of the national securities markets.

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THE PARTIES

Plaintiff

14. Plaintiff Greene purchased Medical Staffing securities on the open market during

the Class Period as set forth in his certification previously filed with the Court. The Court's July

2, 2004 Order appointed Greene as Lead Plaintiff in this consolidated action.

Defendants

15. Defendant Medical Staffing, a Delaware corporation, maintains its principal place

of business at 901 Yamato Road, Suite 110, Boca Raton, Florida 33431.

16. During the Class Period, Defendant Robert J. Adamson ("Adamson") was the

Company's President, Chief Executive Officer, and a Director. As part of the IPO, Adamson

signed the Prospectus.

17. During the Class Period, Defendant Kevin S. Little ("Little") was the Company's

Chief Financial Officer and was also a Company Director. As part of the IPO, Little signed the

Prospectus.

18. During the Class Period, Defendant Joel Ackerman ("Ackerman") was a Director

of the Company. As part of the IPO, Ackerman signed the Prospectus. Plaintiff asserts that

Ackerman is liable only for violations of the Securities Act Claims.

19. During the Class Period, Defendant David J. Wenstrup ("Wenstrup") was a

Director of the Company. As part of the IPO, Wenstrup signed the Prospectus. Plaintiff asserts

that Wenstrup is liable only for violations of the Securities Act Claims.

20. During the Class Period, Defendant Scott F. Hillinski ("Hillinski") was a Director

of the Company. As part of the IPO, Hillinski signed the Prospectus. Plaintiff asserts that

Hillinski is liable only for violations of the Securities Act Claims.


21. Defendants Adamson, Little, Ackerman, Wenstrup, and Hillinski are sometimes

hereinafter collectively referred to as the "Individual Defendants."

22. During the Class Period, each of the Individual Defendants, as a senior executive

officer and/or director of Medical Staffing, was privy to non-public information concerning

Medical Staffing's business, finances, sales, marketing and promotion, and present and future

business prospects via access to internal corporate documents, conversations, and connections

with other corporate officers and employees, attendance at management and Board of Directors

meetings and committees thereof, and via reports and other information provided to him in

connection therewith. Because of their possession of such information, the Individual

Defendants knew or recklessly disregarded the fact that adverse facts specified herein had not

been disclosed to, and were being concealed from, the investing public. Except to the extent set

forth in this Complaint as provided by Confidential Witnesses who were primary Medical

Staffing employees, Plaintiffs and other members of the Class had no access to such information,

which was, and remains, solely under the control of Defendants. The Individual Defendants

were involved in drafting, producing, reviewing, and/or disseminating the materially false and

misleading statements complained of herein. The Individual Defendants were aware, or

disregarded with deliberate recklessness, that materially false and misleading statements were

being issued regarding the Company and nevertheless approved, ratified, and/or failed to correct

those statements, in violation of the federal securities laws.

23. Throughout the Class Period, the Individual Defendants were able to, and did,

control the contents of the Company's SEC filings, reports, press releases, and other public

statements. The Individual Defendants were provided with copies of, reviewed and approved,

and/or signed such filings, reports, releases, and other statements prior to or shortly after their

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issuance and had the ability and opportunity to prevent their issuance or to cause them to be

corrected. The Individual Defendants also were able to, and did, directly or indirectly, control

the conduct of Medical Staffing's business, the information contained in its filings with the SEC,

and its public statements. Moreover, the Individual Defendants made or directed the making of

affirmative statements to securities analysts and the investing public at large, and participated in

meetings and discussions concerning such statements. Because of their positions and access to

material information available to them but not to the public, each of the Individual Defendants

knew that the adverse facts specified herein had not been disclosed to and were being concealed

from the public and that the positive representations that were being made were then false and

misleading. As a result, each of the Individual Defendants is responsible for the accuracy of

Medical Staffing's corporate releases detailed herein as "group-published" information and is

therefore responsible and liable for the representations contained therein.

CLASS ACTION ALLEGATIONS

24. Plaintiff Greene brings this action as a federal class action pursuant to Federal

Rules of Civil Procedure 23(a) and (b)(3) on behalf of the Class. For purposes of the Securities

Act claims, the Class consists of all those who acquired shares of Medical Staffing stock

pursuant to or traceable to the Registration Statement and Prospectus. For purposes of the

Exchange Act claims, the Class consists of all purchasers of the publicly traded securities of

Medical Staffing between April 18, 2002 and June 16, 2003, inclusive, who were damaged

thereby. Excluded from the Class are defendants, the 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.

25. The members of the Class are so numerous that joinder of all members is

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impracticable. Throughout the Class Period, Medical Staffing securities were actively traded on

the New York Stock Exchange. 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 or thousands of members in the proposed Class.

26. Plaintiffs claims are typical of the claims of the members of the Class, because

Plaintiff and all of the Class members sustained damages arising out of Defendants' wrongful

conduct complained of herein.

27. Plaintiff will fairly and adequately protect the interests of the Class members and

has retained counsel who are experienced and competent in class actions and securities litigation.

28. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy, since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual members of the Class may be relatively small, the expense

and burden of individual litigation make it impossible for the members of the Class to

individually redress the wrongs done to them. There will be no difficulty in the management of

this action as a class action.

29. Questions of law and fact common to the members of the Class predominate over

any questions that may affect only individual members, in that defendants have acted on grounds

generally applicable to the entire Class. Among the questions of law and fact common to the

Class are:

(a) Whether the federal securities laws were violated by Defendants' acts as alleged

herein;

(b) Whether the Company's publicly disseminated press releases and statements

during the Class Period omitted and/or misrepresented material facts;


(c) For purposes of the Exchange Acts claims only, whether the defendants acted

with knowledge, or recklessly, in omitting and/or misrepresenting material facts;

(d) Whether the Company's IPO Registration Statement and Prospectus contained

untrue statements of material fact or omitted to state material facts necessary to

make the statements made not misleading;

(e) Whether the market price of Medical Staffing's stock sold in and/or traceable to

the IPO was artificially inflated due to the non-disclosures and/or untrue

statements complained of herein; and

(f) Whether the members of the Class have sustained damages and, if so, what is the

appropriate measure of damages.

V. CONFIDENTIAL WITNESSES

30. Plaintiffs' allegations herein, concerning the falsity of Defendants' statements

and, for purposes of the Exchange Act claims only, their scienter, are based upon, in part,

interviews with former Medical Staffing employees, including, but not limited to, a former vice

president and director of business operations, a former national business development director,

and an executive vice president. These witnesses, who spoke to Plaintiff's counsel on a

confidential basis, are referred to herein as Confidential Witnesses (hereinafter, "CW ")

numbers 1 through 12.

Confidential Witness #1

31. CW I worked for Medical Staffing from February 1999 until August of 2003.

During the course of CW I's employment with Medical Staffing, CW 1 was the Vice President of

Business Development, served as the Company's Corporate Director of Operations, and was a

Regional Director, overseeing approximately 20 branch offices in Florida. As the Vice President


for Business Development, stationed at Medical Staffing's corporate headquarters, CW1 reported

directly to and had frequent, if not daily, contact with Adamson, the Company's President and

CEO, and Little, the Company's Chief Financial Officer.

32. As described in more detail below, CW1 received his/her orders directly from

Adamson, attended weekly meetings (held every Monday) at the boardroom table with Adamson

and Little, and communicated with Adamson and Little on a regular basis. CWI's meetings with

Defendant Adamson concerned a variety of issues, each described with particularity below,

including, but not limited to, the following substantive matters: budget targets and forecasts,

actual financial results concerning the failure of the de novo branch offices, and the declining

financial performance of Medical Staffing's offices, including the manipulation of financial

information to provide "results" acceptable for disclosure to Wall Street and the public. In

addition, CW1 and Adamson specifically discussed Medical Staffing's acquisition of new

businesses and the Company's closing of its existing offices. CWI participated directly in both

the opening and closing of Medical Staffing's de novo offices.


33. CW2 worked for Medical Staffing for nearly four years, beginning in February of

2000 and ending in January of 2004. CW2 was a National Business Development Director for

Medical Staffing and oversaw a team of five Regional Managers. In addition, CW2 served as a

Regional Manager, opening and managing 22 branch offices. Specifically, CW2 worked in

Medical Staffing's Allied Division, which supplied all types of so-called "ancillary" staff,

including respiratory technicians, radiology technicians, and physical therapists. The Allied

Division was headquartered in Chicago, Illinois. CW2 was the Allied Division's Regional

Manager for the Southwest Region, which included Louisiana and all the states north and west to

U


California.

34. One of CW2's main functions was to open Allied units in Nursing Division

branch offices. These Allied units were referred to as "BIBs" (business-in-business). CW2

worked for Jeffrey Jacobson ("Jacobson"), the Executive Vice-President in charge of the Allied

Division, who also headed the Pharmacy Division. Jacobson was based in Chicago and reported

directly to Adamson.


35. CW3 was initially hired as a Medical Staffing Regional South Florida Recruiting

Specialist during April of 2003. During the course of CW3's employment with Medical

Staffing, CW3 was promoted to South Florida Regional Manager for Allied Medical Services

Staffing. CW3 was responsible as Regional Manager for branches in the following counties in

South Florida: St. Lucie, Palm Beach, Broward, and Dade. In addition, CW3 managed Medical

Staffing's Pompano Beach, Florida branch office. CW3 worked for Medical Staffing at its Boca

Raton headquarters until approximately January of 2004.

36. Throughout CW3's employment with Medical Staffing, CW3 had personal

experience with Medical Staffing's branch office closings, budget forecasting process, regulatory

compliance failures, and accounting issues.

37. Although some of CW3's experiences took place after the end of the Class Period

(June 16, 2003), the information CW3 provided is consistent with facts as related by other

Confidential Witnesses concerning identical practices during the Class Period.


38. CW4 worked for Medical Staffing from September of 2002 until July of 2003 as

Medical Staffing's Vice-President for Strategic Accounts. In this role, CW4 led Medical

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Staffing's sales team in dealing with national and other major accounts, focusing on so-called

"vendor on premises" and "preferred sourcing" relationships with hospitals and long-term care

facilities. CW4 reported directly to Adamson and was stationed at Medical Staffing's corporate

headquarters in Boca Raton, Florida. In fact, CW4's office was separated from Adamson's

office by only one room.

39. CW4 had direct exposure Medical Staffing's de novo program and saw firsthand,

as explained specifically below, how Medical Staffing's gross margins rapidly compressed while

the Company lauded its growth and hid the truth from the investing public, including Plaintiff

and the Class. Like other Confidential Witnesses, CW4 witnessed Medical Staffing's office

closings and budget manipulations, wherein Adamson would order and force high-ranking

Medical Staffing managers, regional directors, and vice presidents to falsely and misleadingly

manipulate their budget forecasts and financial projections so that the Company could deliver

higher earnings projections to Wall Street.


40. CW5 worked for Medical Staffing beginning in July 2002, when Medical Staffing

acquired STAT Medical Services ("STAT Medical"), the company that then employed CW5.

CW5 worked for Medical Staffing as a sales manager until March of 2003. CW5 experienced

first hand as Medical Staffing's acquisition of the successful STAT Medical turned sour. For

example, CW5 describes how after the acquisition, all of the branch offices previously owned

and operated by STAT Medical lost a substantial amount of business, either because their client

hospitals severed their relationship with Medical Staffing or because those customers simply cut

back severely their staffing orders to Medical Staffing.

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41. Like CW5, CW6 began working for Medical Staffing when Medical Staffing

acquired STAT Medical and left Medical Staffing in approximately June of 2003. CW6 was

STAT Medical's sales manager and remained in that capacity after Medical Staffing acquired

STAT Medical. CW6 witnessed the failure of the STAT Medical acquisition firsthand and

described in detail why Medical Staffing experienced a severe decline in business after the STAT

Medical acquisition.


42. CW7 is a former HR/Staffing Coordinator from Medical Staffing's Albuquerque,

New Mexico branch office. CW7 worked for Medical Staffing for nearly three years, beginning

in March of 2001 and ending in December of 2003.

43. CW7 witnessed firsthand the severe drop in business at Medical Staffing's New

Mexico branch office, which mirrored Medical Staffing's overall decline during the Class

Period, as detailed by other Confidential Witnesses. In addition, CW7 has firsthand experience

with Medical Staffing's regulatory compliance problems and collection difficulties.


44. CW8 worked for Medical Staffing from the time it acquired STAT Medical in

July of 2002 until September of 2002 as the Seattle Regional Staffing Manager. Prior to working

for Medical Staffing, CW8 worked for STAT Medical, also as the Regional Staffing Manager.

CW8 was responsible for staffing so-called "acute care" facilities, such as hospitals, nursing

homes, and clinics, with registered nurses, licensed practical nurses, and certified nursing

assistants. CW8 worked out of the former STAT Medical headquarters in Portland, Oregon.

45. Although briefly employed by Medical Staffing, during the course of CW8's

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employment CW8 witnessed, like other Confidential Witnesses, the rapid decline and erosion of

STAT Medical's business in the Seattle region after Medical Staffing acquired it.

Confidential Witness # 9

46. CW9 worked for Medical Staffing as an Accounts Receivable Specialist/Account

Adjuster from August of 2002 until April 1, 2004. Throughout his/her employment, CW9

worked at Medical Staffing's corporate headquarters in Boca Raton, Florida. CW9 began

working with Medical Staffing as a "Billing" staff member, before being transferred to the

"Collections" staff in May of 2003. CW9 experienced Medical Staffing's weekly financial

reporting procedures and witnessed the decline in Medical Staffing's business during 2002 and

2003. In addition, CW9 provided detailed information regarding Medical Staffing's account

receivables problems.


47. CW10 worked as Medical Staffing's Western Regional Director from February of

2002 until April of 2003. As the Company's Western Regional Director, CW1O was responsible

for offices in Colorado, Arizona, Nevada, Idaho, Washington, Kansas, and Oklahoma. CW 10

was personally involved in Medical Staffing's budgeting process and, like other Confidential

Witnesses, witnessed the decline of Medical Staffing's business during 2002 and 2003.


48. CWI I joined Medical Staffing in approximately August of 1998, when Medical

Staffing's predecessor company, South East Partners, acquired All Better Nursing, a nursing

staffing agency owned and operated by CW 11 's family. All Better Nursing was South East

Partners' first acquisition. Adamson hired CWI I to run the business that Medical Staffing/South

East Partners acquired. CWI I worked for Medical Staffing until his/her termination on May 21,

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2003. At the time of his/her termination, CW1 1 was Medical Staffing's Regional Director for

Florida, which included CWI l's South Miami Branch Office, Medical Staffing's largest revenue

producer.

49. CW1 1 had personal experience with Medical Staffing's weekly reporting

procedures, the de novo program, budget/financial forecasting process, and problems with

Medical Staffing's gross margin, including direct contact with Adamson and Little,


50. CW12 worked for Medical Staffing from December of 2002 until June 27, 2003

as an "Insourcing Manager," and, as CWI2 was referred to within the Company, as a

"firefighter." As a firefighter, CW12's primary responsibility was to turn around failing Medical

Staffing "insourcing accounts," otherwise known as vendor on premises ("VOP") accounts and

de novo offices. For example, CW12 was assigned the job of saving Medical Staffing's branch

office in Metaric, Louisiana.

51. In addition to having first-hand experience with Medical Staffing's firefighter

role, CW12 is knowledgeable about Medical Staffing's regulatory compliance problems and its

weekly financial reporting procedures.

SUBSTANTIVE ALLEGATIONS

CLAIMS AGAINST DEFENDANTS UNDER THE SECURITIES ACT

A. OVERVIEW OF SECURITIES ACT CLAIMS

52. The Securities Act claims are brought on behalf of all persons who purchased or

otherwise acquired Medical Staffing common stock as a result of the Company's IPO of

7,812,500 shares at $19.00 per share, which became effective on April 18, 2002. The Section II

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claim alleges that the Registration Statement and Prospectus issued in connection with the IPO

misrepresented and omitted material facts in that, among other things, the Prospectus failed to

disclose that Medical Staffing's expansion program was near termination and that the Company

was facing adverse growth prospects.

53. Specifically, the Prospectus failed to disclose material information about Medical

Staffing's, including the following: (I) that the Company's strategy of rapid expansion through

the opening and development of de novo branches was not successful, only created the

appearance of success, and was thus adversely affecting the Company's revenue growth; (2) that

the Company's de novo program consistently failed to meet budget targets and revenue

forecasts; (3) that the Company's budgets and financial forecasts were wholly unreliable,

arbitrary, and designed to mislead the market; (4) that the Company faced severe pricing

pressure from both clients and nurses; and (5) that the Company faced adverse growth prospects.

54. The Section 11 claim, which is styled Counts I, in this Consolidated Amended

Complaint, is brought against defendant Medical Staffing, the issuer of the IPO, and certain

present and former Medical Staffing executives who signed the Prospectus in connection with

the IPO. Count II is brought under Section 15 of the Securities Act against certain of the

Defendants for control person liability.

55. Count I and Count II allege only that the Prospectus misrepresented and omitted

material facts. There is no allegation with respect to Count I or Count II that any of the

Securities Act defendants acted with scienter.

B. BACKGROUND

56. Medical Staffing is a supplemental healthcare staffing company that provides

hospitals and other healthcare facilities with a range of staffing services, including per diem

17


nurses, allied professionals and travel nurses. Its client base includes more than 7,000 healthcare

facilities, including for-profit and not-for-profit hospitals, teaching hospitals, and regional

healthcare providers.

57. Medical Staffing's per-diem staffing assignments place its professionals,

predominantly nurses, at hospitals and other healthcare facilities to solve its clients' temporary

staffing needs. Medical Staffing also provides staffing of specialized radiology and diagnostic

imaging and clinical laboratory technicians, so called "allied health professionals."

58. According to the Company's most recent annual report, the per diem nurse

staffing portion of its business provides nurses for assignments with durations ranging from a

single shift to a 13-week assignment and represented approximately 76% of the Company's

fiscal year 2002 revenues.' The Company offers its clients all major classifications of nurses,

including registered nurses and licensed practical nurses. Medical Staffing provides per diem

personnel to a variety of healthcare facilities including acute care hospitals, nursing homes,

clinics, and surgical ambulatory care centers. Medical Staffing serves both for-profit and not-

for-profit organizations that range in scope from one facility to national chains with over 100

facilities and currently provides per diem nurse staffing to more than 3,500 healthcare facilities.

59. Medical Staffing's allied staffing division specializes in providing allied

professionals to hospitals, nursing homes, clinics, and surgical and ambulatory care centers, both

on a per diem or travel basis. Allied healthcare professional staffing represented 16% of Medical

Staffing's 2002 revenues.

60. According to the Company, since 1998, it opened 138 "de novo" branches -

branches opened internally since Medical Staffing's inception, as opposed to branches acquired

In 2001, approximately 75% of Medical Staffing's revenues were derived from per diem nurse stuffing.

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from third parties, including 30 branches in 2000, 64 in 2001 and 40 in 2002. The Company

states that it operates an integrated network that consisted of more than 180 per diem branches

located in 44 states as of the end of 2002. These branches are organized into several geographic

regions, each of which is coordinated by a regional director. According to the Company, the

branches serve as Medical Staffing's direct contact with its healthcare professionals and clients

and are "active in recruiting, scheduling and sales and marketing." Medical Staffing states that

the typical branch is staffed with four or five professionals who are responsible for the day-to-

day operations of the business. These professionals include a branch manager, two to three

staffing coordinators, and a payroll administrator. Thus, according to the Company, its branches

are uniform in structure across the country.

61. A critical component of Medical Staffing's business strategy was the expansion of

its business through the opening and development of de novo branches in an attempt to become

the largest medical staffing company in this highly-fractionalized field. The Company states that

its expansion activity has contributed substantially to its operating results and that if the

Company's ability to continue to open de novo branches were impaired, its revenue growth

would be adversely affected.

(1) Medical Staffing's Thrice-Weekly Reporting

62. Throughout the Class Period, Medical Staffing maintained a rapid internal

financial reporting system. Several of the Confidential Witnesses, including CW 1, CW7, CW9,

CWIO, CWI 1, and CWI2 state that each branch office reported financial numbers to Medical

Staffing's headquarters three times each week and that the system was rigorously enforced.

CWI provided the following example: on Monday of "week two," the branch offices submit

estimates of the actual results for "week one" (the prior week). On Wednesday of week two, the

ILI


0

branch offices submit the actual results for week one, and on Thursday of week two, the branch

offices submit to the corporate headquarters a forecast or projection of the results for week two.

CW 1 states that this thrice-weekly reporting schedule was strictly enforced and monitored very

closely -- deviations were not tolerated. CW1 emphasized that Adamson and Little always

received each of the three weekly reports. CW I knows this because, among other things, the

distribution list for the reports included CW1, Adamson, Little, Mohammad Osman ("Osman"),

Medical Staffing's Senior Financial Analyst and, according to CW1, Adamson's "right-hand

man," and Lynn Stacey ("Stacey"), Medical Staffing's Divisional Executive Vice President for

per diem divisions.

63. More specifically, CW1 states each branch would submit its information

concerning the amount of its billings and the amount of money owed to the persons who filled

the assignments (i.e., the nurses) in accordance with a process named the "Weekly Cutoff," by

entering the time card data into a database or software program named "Healthworks." Next, an

accounting package named "Healthworks Accountant" transformed the data into report form,

which was sent to the corporate office in Boca Raton. CW 1 stated there was no doubt in his/her

mind that Adamson and Little kept up with the reports, as discussed in more detail below.

64. CWI's description of the thrice weekly reporting was corroborated other

Confidential Witnesses. For example, CW3 stated that if anyone were five minutes late with a

report, that person would get a call about it. CW3 confirmed that projections of billings and fee

payments for the prior week were due at the corporate office at noon each Monday. CW3

described that the so-called "cut-off" or close of the final billings and payments for the previous

week were due each Wednesday at noon and that the deadline for projections for the following

week were due each Thursday by noon. CW7 had identical experiences with the thrice weekly

20


billing requirements, stating that the corporate office generated all bills to clients each Friday.

CW9 and CWI 1 described the thrice-weekly reporting in near-identical fashion.

65. Like CW1, CW3 knows from his/her experience as a Regional Manager that

Adamson reviewed these submissions.

(2) Medical Staffing's De Novo Growth Plan

66. Medical Staffing's "tremendous growth" prior to and during the Class Period was

due in great part to its de novo office openings and its growth by acquisition strategies. Medical

Staffing focused on expanding by opening new offices and acquiring other companies, pursuing

both ends in a manner that would be immediately accretive to earnings. CW4 states that as a

"run-up" to Medical Staffing's IPO, Adamson embarked on a strategy of growing Medical

Staffing's revenues by opening a large number of de novo offices and acquiring some existing

medical staffing businesses.

(a) De Novo Office Openings - "Come Hell or High Water"

67. According to CW1, Adamson mandated in 2001 that the Company open 80 de

novo branch offices, "come hell or high water." Following this directive, beginning in 2001

before the Company's IPO, CW1 was responsible for opening 40 of those de novo branch

offices, and Stacey, was responsible for opening the other 40 de novo branch offices. CW4 and

CW 10 confirm that Stacey was responsible for the de novo growth plan. CW I states that

Adamson's goal for Medical Staffing as a whole was to add 80 de novo offices while at the same

time acquiring other companies to make Medical Staffing the largest per diem staffing company

based on the number of locations in the coming year, 2002. Thus, in addition to opening its de

novo offices, Medical Staffing acquired 18 different companies, discussed in more detail below.

CW2, a Medical Staffing National Business Development Director, describes that the de novo

21


branch offices were brand-new start up Nursing Division branch offices.

68. Nine months into 2001, CWI had opened 22 branch offices in California, in cities

such as Long Beach, Burbank, Culver City, and Woodland Hills, among others. CW1 states that

Adamson's goal with the new de novo branch offices was to get them up and running and

profitable within three months. Similarly, CW2 states that Medical Staffing's plan was to bring

the de novo branches to a certain level of profitability as soon as possible. CWI quotes

Adamson as saying that the goal was to do anything CW1 could to get revenue "through the

door" and "on the books."

69. CW 1 states that Medical Staffing lacked any plan as to where it would open de

novo offices and recalls that Adamson gave the order to open a certain number of offices, and it

was left to CWI and Stacey to determine where to open them - there was no due diligence or

market studies. According to CW 1, the only thing Adamson did do was say that he wanted new

offices in California.

70. CW 1 described that the opening of offices often came down to two things,

picking out the cities in large print on maps and opening an office wherever the Company could

find a decent branch manager. In fact, sometimes Medical Staffing would put an ad in the paper

for a branch manager, and the first person to respond to the ad would be hired and the Company

would open a de novo office in the city where the responding person was located. In addition,

sometimes Medical Staffing would simply open offices in the cities of its competitors, such as

StarMed, Intel istaff, and NurseFinders.

(b) Gross Margins for De Novo Branches - Buying the Business

71. When CWI opened a new de novo branch, CWI would establish that office's

pricing structure, i.e., its bill rate and pay rate. Together, the bill rate and the pay rate formed the

22


"gross margin" - the difference between what Medical Staffing billed its clients and paid its

nurses. According to CW 1, gross margin was used to determine whether each de novo branch

would become profitable. CWI states that a 25% gross margin was the general rule for the de

novo offices.

72. Thus, in addition to opening new de novo offices, a large part of CWI 's

responsibilities was to monitor the financial performance of the de novo branches on a weekly

basis. CW1 states that he/she was responsible for reporting the results of CW1 's de novo office

monitoring and enforcement each month, in addition to the thrice-weekly reporting.

73. CWI described the financial formula for setting up de novo branch offices as a

template. The template required CW 1 to hire a branch manager, at a salary limit of $50,000, and

set up an office at a maximum rent of $1,500 per month. CW 1 states that he/she was permitted

to exceed these numbers in California because market conditions simply demanded amounts in

excess of the template figures.

74. CW 1 states that if he/she had to raise the template numbers, then CW 1 would

have to compensate for that increase in other places in order to maintain a satisfactory gross

margin level.

75. In some instances, Medical Staffing would open a new de novo office and attempt

to "buy the business" in that market. CW 1 states that in such situations, an 18% gross margin

was acceptable. According to CWI, buying the business entailed lowering bill rates to

customers and increasing pay rates to nurses to undercut competition in the market.

76. Similarly, CW4 states that Adamson's strategy was to send a Medical Staffing

person (Stacey or CW I) into a new town and have them determine the hourly rate paid to nurses.

Medical Staffing would then offer $2 more per hour than the going rate, allowing Medical

23


Staffing to bid the nurses away from other staffing companies and control the supply of nurses

available to staffing companies. As a result, Medical Staffing could make customers (hospitals

and other medical facilities) dependent on Medical Staffing. CW4 states that this process, often

repeated with every new de novo office, enabled Medical Staffing to show a "balloon of sales"

and "very rapid growth."

77. Thus, CW1 and CW4 confirm that Medical Staffing would often enter new

markets by sacrificing gross margin in order to "buy business" and create the appearance of rapid

growth and surging sales.

(c) The Decline of Medical Staffing's Dc Novo Offices and Overall Business

78. Immediately prior to and throughout the Class Period, CWI states that Medical

Staffing witnessed an overall decline in business. Through his/her monitoring of the de novo

offices, in addition to reviewing the thrice-weekly reporting, CW 1 knew that the de novo offices

never performed up to expectations. Indeed, CW1 recalls that the Company developed a specific

role, termed the "firefighter" role, just for handling the poor-performing de novo offices. The

job of the person in the firefighter role was to travel to the de novo offices and try and "turn them

around" and raise their performance to acceptable levels.

79. CWI states that overall, the de novo offices were always struggling. Through

his/her monthly monitoring, in addition to the thrice weekly reporting reviewed by Adamson and

Little, CW I knew that the de novo offices consistently made only 50% of their budget/financial

projection targets. CW I was not the only person that knew this fact. In addition, CW I states

that the fact that the de novo offices were operating 50% below expectations was clear, not only

from the thrice weekly reporting, but also from weekly and monthly "flash reports" designed to

24


provide a current picture of Medical Staffing's financial performance.

80. CWI thus describes the de novo offices as "always struggling" and that

"everyone knew it every week," both before and during the IPO. Specifically, CWI states that

between the end of 2001 and the IPO in April of 2002, the de novo offices did not do well. CW 1

states that Stacey became less involved in the problems of the de novo offices during that time

frame because Stacey was promoted and "went to corporate" - meaning Stacey worked at the

Boca Raton headquarters and was no longer responsible for opening new de novo offices. In

addition, CW 1 states that there was inadequate corporate infrastructure in the field to support the

de novo offices. Similarly, CW1 1 states that Medical Staffing's de novo program was a "joke"

and that the offices did not perform well.

81. At the same time - between the end of 2001 and prior to the IPO - CW I states

that the per diem nursing market changed. The market changed for two specific reasons,

according to CW1. First, clients realized they were paying too much for nurse staffing and

began to seriously balk at high bill rates. Second, nurses began to organize in an effort to boost

the rates they received from companies such as Medical Staffing. CW1 described the nurses'

efforts as playing "staffing poker" - the nurses would essentially auction themselves off to the

highest bidder. Each of these problems combined to place serious strain on Medical Staffing's

gross margin, further impairing any potential opportunities for the de novo program's success.

Thus, CWI states that Medical Staffing's business declined because the Company had poor

budgeting (indeed, false budgeting) as discussed below, poor planning, and failed to adopt the

changes required by its customers as a condition for retaining its clients' business.

82. CWI's observations about the problems Medical Staffing experienced prior to

and during the lPO are hardly personal to CWI. In fact, CWI states that the main topic of

25


discussion at Medical Staffing's weekly Monday management meetings ("Monday Management

Meetings"), which CW1 attended every week along with Adamson and Little, was the details of

the budget forecasts for each branch office. Specifically, Adamson, Little, CW 1, and others

would discuss the financial performance of each branch office on a weekly basis, branch office

by branch office. CW1 states that the Company was very "hands on" about getting immediate

financial feedback from its offices, including the de novo offices, prior to and during the IPO.

83. For example, at the Monday Management Meetings, CWI states that they would

discuss why the branch offices were not "doing better." Specifically, they discussed in detail the

Company's inability to manage its branch offices, that the Company did not know much about its

branch office managers, i.e., their main, and often only, contact with the branch managers was

the numbers the managers sent in three times a week, that the Company needed to manage its

branch offices more effectively, and CW 1 states that they immediately discussed the above-

mentioned changes that occurred in the medical staffing marketplace, including gross margin

pressure being asserted by both clients and nurses.

84. CW 1 states that CW 1, Adamson, Little, and other high-ranking members of

management specifically discussed these problems before and during the Company's IPO. CW 1

also states that he/she felt that the opening of numerous de novo offices enabled Medical Staffing

to hide the fact that things were not going well, specifically allowing the Company to

demonstrate a so-called increase in revenues, despite the fact that Medical Staffing's offices

continuously operated below their target budget numbers.

(3) Medical Staffln2's Acaulsitions - STAT Medical

85. As described above, Medical Staffing's growth plans were twofold. In addition to

opening vast quantities of de novo offices, Medical Staffing also acquired numerous companies.

26


86. CW1 states that the de novo growth process during 2001 and early 2002 was

slower than expected and that, as a result, Defendant Adamson decided Medical Staffing needed

a stronger West Coast presence. Specifically, although CWI had opened a de novo branch office

in Portland, Oregon, Defendant Adamson decided that "things were not moving fast enough" and

said, "Let's acquire STAT Medical Services." CWI states that STAT Medical was a "big

player" in the West Coast medical staffing market. CW1 said that STAT Medical billed

approximately $200,000 per week (approximately $10 million annually). CW1 recalls that

Adamson made that statement in CW1 's presence at a meeting shortly prior to the April 2002

IPO. CWI recalls that Little, Patricia Donohoe ("Donohoe"), a Medical Staffing Executive Vice

President, and Linda Duval ("Duval"), the Executive Vice President for Per Diem Acquisitions,

also attended the meeting.

87. Thus, Medical Staffing planned, prior to the IPO, on acquiring STAT Medical

because of its problems developing and maintaining its de novo offices.

(4) Medical Staffin2's Budget Manipulations - What to Take to the Street

88. According to CW 1, in late October or early November of every year Medical

Staffing began preparing its budgets, forecasts, and financial projections for the upcoming year.

CW I describes that the working document for the budget was a Microsoft Excel spreadsheet

showing projected financial information on a month-by-month basis for the entire year. That

spreadsheet was e-mailed to the Regional Directors and branch offices. Data was then placed in

the spreadsheet at the branch office level, and the spreadsheet was then presented back to

Adamson, Little, Osman, and others, in Boca Raton, Florida by Regional Directors and Vice

Presidents.

89. As detailed below, numerous Confidential Witnesses describe Medical Staffing's

27


budget process and financial forecasting experiences as a complete "joke," and that Adamson

dictated the terms of the Company's numbers and guidance - even if Adamson knew the

numbers were unattainable and lacking any basis in fact. The Confidential Witnesses all

describe how Adamson arbitrarily forced each of them to accept wildly exaggerated forecasts

and budget targets and how each was pressured to do so. CW I described Adamson as "divorced

from [the] reality" of accurately reporting Medical Staffing's financial outlook. For example,

when confronted with the actual numbers and forecasts that the Regional Managers knew they

could get from their branches, Adamson would respond with things such as "Don't make me go

to Wall Street with these numbers," and would demand and order the inflation of the numbers.

90. CW2 recalls that in June of 2000, there was an internal "re-forecast" for the last

half of 2000, which was repeated in the September-October 2000 timeframe for the 2001 budget.

CW2 referred to this as the "same routine." The "same routine" involved Medical Staffing

internally revising its budgets and financial targets because of unrealistically high, unjustifiable

numbers put in place by Adamson.

91. CW 1 echoed CW2 's "same routine" comments. Specifically, CW 1 states that it

was Adamson's "M.O." to manipulate the budget forecasts every year and that there were always

significant discrepancies between Medical Staffing's internal budget numbers and what it would

eventually report to the public.

C. THE FALSE AND MISLEADING PROSPECTUS

92. On or about April 15, 2002, Medical Staffing filed its Registration Statement with

the SEC on Form S-1/A for its IPO. On or about April 18, 2002, Medical Staffing's Prospectus,

filed in connection with the IPO and which forms part of the Registration Statement, became

effective and 7,812,500 Medical Staffing shares were sold to the public, raising approximately

28


$136 million. Each of the Individual Defendants signed the Registration Statement and

Prospectus.

93. On April 22, 2002, the Company announced that it had made a public offering of

7,812,500 shares of its common stock. All of the shares were sold by the Company at the IPO

offering price of $19.00 per share. As part of the IPO, the Company granted the underwriters an

over-allotment option on 1,171,875 shares.

94. The Company stated that the underwriters exercised the over-allotment option,

bringing the total number of shares issued to 8,984,375. Total proceeds received by the

Company, net of estimated expenses related to the IPO were $155.0 million.

95. In the Company's Prospectus filed with the SEC on Form 424131, the Company

stated:

Our business has grown significantly since our founding in 1998. Over 70% of our revenue growth in 2001 was derived from organic sources with the remainder coming from acquisitions. The organic growth was comprised of same-store revenue growth (defined as revenue growth from our branches that have been open more than two years) and growth from branches opened in 2000 and 2001. Our same-store revenue growth has been the result of our ability to leverage our national network and leading brand name, successfully recruit nurses and cross-sell our services. Branches that we have opened, which we call "de novo" branches, generated rapid revenue growth and typically achieved positive EBITDA within six months of operation. We opened 30 de novo branches In 2000 and 64 de novo branches In 2001. Due to our capability to leverage the fixed costs within our branches and our corporate overhead, our EBITDA has increased substantially from $7.1 million in 1999 to $32.4 million in 2001, and our EBITDA margin increased from 7.4% to 9.6% during the same period. In 2001, we experienced a net loss available to common stockholders of approximately $3.1 million and used approximately $1.6 million of net cash flow in operating activities.

96. Additionally, the Company stated:

SUCCESSFUL DE NOVO PROGRAM. We make extensive use of our

29


carefully developed program for opening new branches, which we call our de novo program. Since 1998, we have opened 100 new branches using this program, including 64 in 2001. This strategy has enabled us to expand our U.S. presence and quickly and efficiently enter new markets. These branches have generated attractive financial results, including high growth, rapid EBITDA profitability and significant return on investment. We opened 30 de novo branches in 2000, which generated $48.9 million in revenues in 2001.

97. With respect to the Company's growth strategy, Medical Staffing's Registration

Statement and Prospectus stated:

GROWTH STRATEGY

We seek to continue our rapid growth by pursuing the following strategies:

- FURTHER EXPAND OUR LEADERSHIP POSITION IN THE PER DIEM MEDICAL STAFF1NG1NDUSTRY. We intend to maintain and grow our leadership position in the per diem medical staffing industry. By continuing to offer our clients and professionals highly attractive solutions and alternatives, we believe we can maintain and expand our leadership position.

- DRIVE SAME-STORE REVENUE GROWTH. We intend to foster continued same-store revenue growth by increasing the number of professionals we recruit and staff, by increasing the number of facilities with which we work and by improving our staffing penetration at those facilities.

- CONTINUE OUR DE NOVO DEVELOPMENT PROGRAM. We will continue to foster growth through new and existing de novo branches and to enter attractive new markets that demonstrate high demand for temporary medical staffing and complement our existing infrastructure.

- EXPAND OUR SERVICE OFFERINGS TO OUR HEALTHCARE CLIENTS. We intend to leverage our local infrastructure and relationships with healthcare facilities to promote cross-selling opportunities.

- PURSUE SELECTIVE ACQUISITIONS. We Intend to continue to use acquisitions to expand our U.S. presence and to add complementary service offerings. However, we do not have any

30


commitments or agreements for any material acquisitions.

98. With respect to per diem staffing, Medical Staffing stated:

In 2000, per diem nurse staffing was the largest sector of the temporary medical staffing industry, representing $4.1 billion in revenues, or 57% of the temporary medical staffing industry. The per diem industry provides healthcare professionals for assignments of a single shift to 13 weeks, and is used to meet local labor shortages and openings due to holidays, vacations, illness and staff turnover, as well as daily and seasonal fluctuations in hospital volume. The per diem market operates with many local operators and is highly fragmented. In 2000, the top nine per diem staffing companies generated 26% of the market's revenues. The per diem staffing model requires a local presence in every market served because these short-term staffing needs are typically filled on a local basis, and are dependent on the relationship that exists between branch offices, professionals and the healthcare facility. In 2001, approximately 75% of our revenues were derived from per diem nurse staffing.

99. With respect to Medical Staffing's de novo programs, the Company stated:

CONTINUE OUR DE NOVO DEVELOPMENT PROGRAM. A key element of our growth strategy involves the implementation of our de novo branch development program. We have refined this program by opening 100 new locations since our inception, including 64 new branches opened in 2001. Our de novo development program is implemented by our dedicated de novo team which uses a specialized set of criteria to identify attractive potential markets, focusing initially on identifying management for the branch. Following the pre-opening procedures, the de novo team establishes a physical presence and capitalizes on the Medical Staffing Network brand name by launching marketing and recruiting campaigns. The team continues to oversee the branch until it has stabilized. Due to the expertise of our de novo management team, our de novo branches typically achieved positive EBITDA within six months of operation. We expect a significant portion of our growth to be driven by the maturation of the 64 de novo branches opened In 2001, which averaged sales of $390,000, compared to our branches open prior to 2000, which averaged sales of over $4 million. Decisions regarding the implementation of our de novo program are made by our management team based on our business plan, which Is approved annually by our board of directors.

100. In addition, the Prospectus identified several "Risk Factors," stating:

WE OPERATE IN A HIGHLY COMPETITIVE MARKET AND OUR

31


SUCCESS DEPENDS ON OUR ABILITY TO REMAIN COMPETITIVE IN OBTAINING AND RETAINING HOSPITAL AND HEALTHCARE FACILITY CENTERS AND TEMPORARY HEALTHCARE PROFESSIONALS.

To the extent competitors seek to gain or retain market share by reducing prices or increasing market expenditures, we could lose revenues or hospital and healthcare facility clients and our margins could decline, which could seriously harm our operating results and cause the price of our stock to decline.

AN IMPORTANT PART OF OUR STRATEGY IS THE EXPANSION OF OUR BUSINESS THROUGH THE OPENING AND DEVELOPMENT OF DE NOVO BRANCHES. THE SUCCESS OF THIS EXPANSION DEPENDS ON OUR ABILITY TO CONTINUE TO IDENTIFY AND RETAIN LOCAL MANAGEMENT AND TO SECURE GOOD LOCATIONS.

If our ability to continue to open de novo branches is impaired, our revenue growth may be adversely affected. In addition, if our existing de novo branches do not develop as quickly as we anticipate, or if we fail to integrate de novo branches effectively into our national network, our results of operations may be adversely affected.

101. Each of the statements relating to Medical Staffing's business contained in

1110 1 - 105 and made in the Registration Statement/Prospectus was false or misleading when

issued. The true, but concealed, facts at the time of the IPO were as follows:

(a) that the Company's "de novo" program was not succeeding and was, in

fact, not generating the "high growth," "rapid EBITDA profitability," or "significant return on

investment," which the Prospectus stated. In fact, the "de novo" program was in shambles and

the Company's de novo offices were no longer actually producing or actually projected to

generate positive EBITDA within six months of operation;

32


(b) that the Company had no plan as to where its de novo offices should open

- there was no "specialized" set of criteria to identify "attractive potential markets;"

(c) that the Company's thrice-weekly reporting demonstrated that the de novo

offices were always struggling - consistently operating approximately 50% below their expected

budget projections/forecasts;

(d) that Medical Staffing was witnessing significant changes in the per diem

market that negatively impacted Medical Staffing's growth prospects and overall performance;

(e) that the Company's "de novo" program was teetering on the brink of

suspension, if not termination altogether; and

(f) that Medical Staffing manipulated its budget projections and forecasts to

create the illusion of growth, despite the fact that the Company's de novo offices were not

performing up to expectations.

102. In addition, the Risk Factors identified in 1106, were false and misleading,

ineffective "cookie-cutter" warnings because, at the time they were made, Medical Staffing knew

that its de novo offices were performing poorly, that the medical staffing marketplace had

changed, and that the Company was experiencing severe margin compression as a result.

However, Medical Staffing did not disclose any of these facts to investors in the Registration

Statement or Prospectus.

103. Had the true nature and history of Medical Staffing's business operations been

described in the Registration Statement and Prospectus, no shares could have been sold, or the

shares would have been sold at a far lower price.

33


COUNT I

FOR VIOLATIONS OF SECTION 11 OF THE SECURITES ACT AGAINST ALL DEFENDANTS

104. Plaintiff incorporates each of the foregoing allegations set forth above as if fully

set forth herein, except to the extent that such allegations charge the Defendants with intentional

or reckless misconduct. For the purposes of this Count, Plaintiff expressly disavows any

allegation that any Defendant acted with scienter or fraudulent intent, which is not an element of

Securities Act claims.

105. The Registration Statement and Prospectus disseminated in connection with the

IPO, pursuant to which Plaintiff and the Class purchased shares of Medical Staffing common

stock, was inaccurate and misleading, contained untrue statements of material facts, omitted to

state other facts necessary to make the statements made not misleading, and concealed and failed

adequately to disclose material facts as described above.

106. The Individual Defendants signed the Registration Statement and Prospectus and

were responsible for its contents and dissemination. As signatories, the Individual Defendants

are strictly liable to Plaintiff and the other members of the Class for the material misstatements in

and omissions from the Registration Statement and Prospectus.

107. None of the Defendants named herein made a reasonable investigation or

possessed reasonable grounds for the belief that the statements contained in the Registration

Statement and Prospectus were true, without omissions of any material facts. Defendants issued

and participated in the dissemination of materially false and misleading written statements to the

investing public that were contained in the Registration Statement and Prospectus. By reason of

the conduct herein alleged, each Defendant violated Section II of the Securities Act.

34


108. Plaintiff and the other members of the Class acquired shares of Medical Staffing

stock pursuant to or traceable to the Registration Statement or Prospectus. None of these shares

were acquired after the Company made generally available to its investors an earning statement

covering a period of at least twelve months beginning after the effective date of the Registration

Statement and Prospectus.

109. Plaintiff and other members of the Class have sustained damages. As a direct and

proximate cause of Defendants' wrongful conduct, the market price for Medical Staffing stock

sold pursuant to the Prospectus was artificially inflated, and the Plaintiff and members of the

Class suffered substantial damages in connection with their purchase of Medical Staffing stock

pursuant to or traceable to the IPO.

110. At the time Plaintiff and other members of the Class purchased Medical Staffing

stock, Plaintiff and other members of the Class were without knowledge of the facts concerning

the wrongful conduct alleged herein and could not have reasonably discovered those facts prior

to the end of the Class Period. Less than one year has elapsed from the time that Plaintiff

discovered or reasonably could have discovered the facts upon which this complaint is based to

the time that Plaintiff or members of the Class field the earliest complaints that are consolidated

in this action. Less than three years have elapsed from the time that the shares upon which this

claim is brought were bonafide offered to the public to the time Plaintiff and other members of

the Class filed this action.

COUNT II

FOR VIOLATIONS OF SECTION 15 OF THE SECURITIES ACT AGAINST THE INDIVIDUAL DEFENDANTS

Ill. Plaintiff incorporates each of the foregoing allegations set forth above as if fully

35


set forth herein, except to the extent that such allegations charge the Defendants with intentional

or reckless misconduct. For the purposes of this Count, Plaintiff expressly disavows any

allegation that any Defendant acted with scienter or fraudulent intent, which is not an element of

Securities Act claims.

112. The Individual Defendants were control persons of the Company. By virtue of

their high-level positions with the Company, participation in and/or awareness and/or intimate

knowledge of the Company's actual performance, the Individual Defendants had the power to

influence and control and did influence and control, directly or indirectly, the decision-making of

the Company, including the content and dissemination of the Registration Statement and

Prospectus. As a result, the Individual Defendants are jointly and severally liable for the alleged

violations of Section 11 of the Securities Act.

113. As a result of the foregoing, Plaintiff and the other members of the Class suffered

damages.

CLAIMS AGAINST DEFENDANTS UNDER THE EXCHANGE ACT

A. OVERVIEW OF THE EXCHANGE ACT CLAIMS

114. Plaintiff incorporates each of the foregoing allegations set forth above as if filly

set forth herein.

115. The remaining two counts of this Consolidated Amended Complaint are brought

by Plaintiff under Sections 10(b) and 20(a) of the Exchange Act and Rule I Ob-5 promulgated

thereunder on behalf of all persons who purchased or otherwise acquired the stock of Medical

Staffing during the Class Period, to recover damages resulting from Defendants' fraudulent

conduct during that period. Plaintiff brings his claim for violations of § 10(b) of the Exchange

36


Act and Rule I Ob-5 against Medical Staffing, Adamson, and Little. Plaintiff brings his claim for

violations of § 20(a) of the Exchange Act against Adamson and Little.

B. ADDITIONAL BACKGROUND - AFTER THE IPO

(1) The Continuing Decline of Medical Staffing's De Novo Offices and Overall Business

116. As detailed by numerous Confidential Witnesses, Medical Staffing continued to

experience a significant decline in its business after the IPO. In fact, the decline became more

and more pronounced as time went on. CW1 states that the de novo offices were struggling both

before and after Medical Staffing's IPO - just that the struggling got more intense as time went

on.

117. CW1 's observations about the problems Medical Staffing experienced after the

IPO are, as mentioned before, hardly personal to CW I. As described above, CW I states that the

main discussion at Medical Staffing's Monday Management Meetings, which CW1 attended

along every week with Adamson and Little, was the details of the budget forecasts for each

branch office. CWI states this process continued with increased intensity after the IPO.

Specifically, Adamson, Little, CW 1, and others would discuss the financial performance of each

branch office on a weekly basis, branch office by branch office. CW I states that the Company

was very "hands on" about getting immediate financial feedback from its offices, including the

de novo offices, both prior to and after the IPO.

118. For example, at the Monday Management Meetings, CW I states that they would

discuss why the branch offices were not "doing better." Specifically, they discussed in detail the

Company's inability to manage its branch offices, that the Company did not know much about its

branch office managers, i.e., their main contact with the branch manager was the numbers the

37


branch manager sent in three times a week, that the Company needed to manage its branch

offices more effectively, and CW1 states that they specifically discussed the above-mentioned

changes that were occurring in the medical staffing marketplace, including gross margin pressure

being asserted by both clients and nurses.

119. As stated previously, CW 1 states that CW 1, Adamson, Little, and other high-

ranking members of management specifically discussed these problems before, during, and after

the Company's IPO, and that the closer it got to 2003, the more severe these problems became.

CW1 also states that he/she felt that the opening of numerous de novo offices enabled Medical

Staffing to hid the fact that things were not going well, specifically allowing the Company to

demonstrate a so-called increase in revenues, despite the fact that Medical Staffing's offices

continuously operated below their target budget numbers.

120. By Third Quarter of 2002, CWI states that Medical Staffing's margin

compression situation was "very bad." Specifically, CW 1 states that management, including the

Adamson and Little, noticed a significant overall drop in business during Third Quarter 2002,

as some of Medical Staffing's clients implemented "vendor management models" designed to

reduce their temporary staffing costs and place companies such as Medical Staffing in a "take it

or leave it" situation. CW I states that by the third quarter of 2002, shortly after the IPO, more

and more of its clients were starting to dictate terms to Medical Staffing and that there was

constant pressure on the Company's gross margin.

121. CW9 confirms that there was a big decline in Medical Staffing's business during

the period from August of 2002 until May of 2003. CW9 states that during that period, the

decline in billing by branch offices ranged between 25% and 50%, averaging about 30%. For

example, CW9 recalled that branch offices with weekly billings in the $125,000-150,000 range

38


fell to $100,000 and struggled to maintain that level. Similarly, branch offices with weekly

billings in the $30,000-40,000 range fell to $15,000. CW9 stated that revenue was falling and

that many large contracts were not being renewed. One important cause of Medical Staffing's

difficulties, according to CW9 (similar to other Confidential Witnesses), was that Medical

Staffing did not keep its branch office staff "up to par" on its relationship with clients, especially

the branch office managers. Thus, CW9's assessment of Medical Staffing's client relationship

problems mirrors that of CW1 - the Company failed at the branch manager level, a problem that

was well known to the Company and the Individual Defendants.

122. Similarly, CW1O described how Medical Staffing's local branch offices provided

poor service and because the corporate office failed to maintain adequate communication with its

clients in Arizona, particularly the Arizona Association of Hospitals, which represents

approximately 70% of the hospitals in the Phoenix and Tucson, Arizona areas (making it the

largest customer in the area), that Medical Staffing was in danger of losing major contracts.

123. Like the other Confidential Witnesses, CW1 1 confirmed that Medical Staffing

faced harsh gross margin compression during the Class Period. For example, CW1 I states that

in late 2002/early 2003, Tenet and All About Staffing, two large clients of Medical Staffing, cut

into the Company's gross margin. However, in the face of real world cuts by the Company's

customers, Adamson still demanded that Medical Staffing maintain a minimum gross margin

rate of 25%. CW1 I states that he/she argued with Adamson about this, and that maintaining a

25% minimum gross margin was unrealistic in the per diem nurse staffing business, given

market conditions.

124. CWI I was not the only Confidential Witness to argue with Adamson about

maintaining gross margin numbers. Regarding the efforts of the Company's clients to set prices,

39


CW1 states that Adamson "would not hear it" and would tell CW1 to "find a way to make it

work," meaning that CW1 had to maintain margin levels. CW1 recalls that Adamson gave CW1

a 10-minute lecture on how customers could not dictate terms to Medical Staffing because of the

country's nursing shortage. Adamson refused to accept that he was incorrect and always

maintained the position that the Company's customers would have to cow to Medical Staffing's

billing terms, not the other way around. CW1 states that Adamson's refusal to accept what

customers were saying manifested itself in knowing and purposeful manipulation of published

budget targets and forecasts, as discussed in detail below.

(2) Medical Staffin2's Firefighters

125. Medical Staffing was aware that its de novo offices were failing. In fact, as

mentioned previously, Medical Staffing created the role of "firefighter" specifically to deal with

the failing offices. CW11 recalls that during a meeting of regional directors, Adamson informed

CW 11 that he/she had been "elected" to be the de novo firefighter - despite the fact that CW 11

was completely unaware of any such "election."

126. CW12 worked as one of Medical Staffing's firefighters. CW12's position was to

"turn around" failing "Insourcing Accounts," otherwise known as VOP accounts. For example,

CW 12 states he/she was assigned to "save" Medical Staffing's branch office in Metaric,

Louisiana.

127. CW 12's firefighting work involved changing the branch office's staff, training the

staff, and helping recruit nurses to fill available positions. CW 12 would spend about I month at

each office, improve it as much as possible, and then move on to the next office. The offices that

CWI2 worked on were billing less than $20,000 per week (less than $1 million per year).

Several Confidential Witnesses, including CW I, state that the minimum threshold for keeping a

riii


branch office open was $1 million per year in sales.

128. Regarding the Metaric, Louisiana branch office, CWI 2 states that there was

nothing left to "save," because the branch manager had started his own company in that office by

signing up all the customers and nurses to his own company. Nevertheless, Adamson ordered

CW12 to "save" the branch. CW12's experience as a Medical Staffing firefighter further

demonstrates that the de novo offices were struggling during the Class Period and that the

Company, Adamson, and Little were aware of it, but never disclosed the Company's significant

problems to the public.

(3) After the IPO. Medical Staffing Acquires STAT Medical

129. As discussed earlier, prior to the IPO, Medical Staffing made the decision to

acquire STAT Medical because the Company's de novo offices in that region were not

performing well.

130. CW5 began working for Medical Staffing when it acquired STAT Medical in July

of 2002. Similar to CWI, CW5 described STAT Medical as a very large "player" in the medical

staffing business in Northern California, Oregon, and Washington. By acquiring STAT Medical,

CW5 states that Medical Staffing acquired five branch offices: Portland, Oregon (the largest),

Seattle, Washington (the second largest), Northern California, Salem, Oregon, and Tacoma,

Washington.

131. CW5 states that the former STAT Medical clients Medical Staffing obtained in

the acquisition included large hospital systems, hospitals, and other health care facilities. For

example, STAT Medical had staffing contracts with every hospital in Oregon, including the three

largest hospital systems in the state. In particular, CW5 named Providence Medical Center,

Oregon Health and Sciences University, and Legacy Health System.

41


132. Prior to the acquisition, STAT Medical won its medical staffing contracts by

bidding for them in response to requests for proposals published by the hospitals. As a result,

STAT Medical came to Medical Staffing with substantial capital assets - its contracts and

relationships with its customer base.

(a) Due Diligence Problems with the STAT Medical Acquisition

133. According to CW1, Stacey was responsible for handling the STAT Medical

acquisition. CW1 states that the due diligence for the acquisition was supposed to be done by

Stacey and Duval, but that the due diligence was inadequate, stating that Medical Staffing had a

track record of making acquisitions in order to create an illusion of growth, while failing to do

the requisite due diligence.

134. CW1's due diligence concerns were confirmed by CW5 and CW6. CW5 states

that STAT Medical's managers were completely unaware of the acquisition until two weeks

before the deal closed, and that Medical Staffing's failure to involve the managers meant the loss

of opportunity for gaining important information about STAT Medical's past, present, and future

business prospects. Similarly, CW6 states that Medical Staffing bought what STAT Medical

told it without due diligence and that CW6 never saw any Medical Staffing people at STAT

Medical's corporate offices until after the acquisition, not before. CW6 states that if Medical

Staffing had done its own market analysis, it would have known that it would not be able to

sustain the results STAT Medical had achieved six months before the acquisition. As discussed

in detail below, CW6 states the reasons for Medical Staffing's inability to sustain STAT

Medical's prior results were the loss of specific clients and the loss of business in the Portland,

Oregon market because of a specific, known problem that resulted in a "flood of nurses."

42


(b) The Rapid Decline in STAT Medical's Business

135. According to CWI, CW5, and CW6, Medical Staffing failed to maintain the level

of business activity attained by STAT Medical prior to the acquisition and that problems arose

almost immediately. Specifically, CW1 states that Medical Staffing's corporate office ignored

the special relationships STAT Medical had with its customers - the hospitals and other health

care facilities whose staffing needs it serviced. In short, Medical Staffing attempted to dictate

terms to these customers, specifying the "bill rates" (rates the customers would have to pay for

Medical Staffing's services) and the "pay rates" (rates that Medical Staffing would pay to the

medical workers performing assignments) in order to maintain a set gross margin percentage.

CW 1 states that Medical Staffing demanded conformity to a "cookie cutter" set of arrangements

that it forced upon its newly acquired clients.

136. As a result of Medical Staffing's "cookie cutter" policies, CW I states that the

hospitals (former STAT Medical clients) began cutting their orders to Medical Staffing and that

the competition came in and "took the business away." As discussed in more detail below,

Medical Staffing never disclosed the problems with STAT Medical after the acquisition.

137. CW5 echoed CW1 's comments. Specifically, CW5 stated that Medical Staffing's

top management knew little about the medical staffing business and that after the acquisition,

Medical Staffing changed all of STAT Medical's business practices, which had a large negative

effect on the former STAT Medical clients. Also, CW8 states that in the first month following

Medical Staffing's acquisition of STAT Medical, CW8's billings fell by approximately 25%.

CW8 states this was a dramatic decline caused, in part, by a decline in demand from hospitals.

138. As mentioned above, CW I states that STAT Medical's business "began slipping

dramatically" and the decline was very noticeable in Third Quarter 2002, shortly after the IPO.

43


In fact, CWI recalls that Stacey was sent to Portland to try and recover the business. Further,

CW 1 states the problems with the STAT Medical acquisition were discussed almost immediately

after the acquisition at Medical Staffing's Monday Management Meetings, attended by CWI,

Adamson, Little, and Stacey, among others. CW1 states that Adamson and Little were aware

that the Company experienced a significant decline in business after the STAT Medical

acquisition and that the decline was represented in numbers (i.e., the thrice-weekly reporting)

they reviewed at the Monday Management Meetings.

139. As an example of the way that Medical Staffing literally destroyed a valuable

asset, CW5 described a situation that occurred shortly after the acquisition. CW5 recalled that an

administrator for a large multi-care facility related the following story to CW5. About one year

before the acquisition, the facility issued a request for proposals for medical care staffing and

STAT Medical won the bid. Medical Staffing also submitted a bid, but "lost badly," placing out

of the top 20. A year later, after the acquisition, Medical Staffing's corporate office sent a letter

to this client facility, stating that Medical Staffing was now the staffing service provider and

telling this client that it should deal with Medical Staffing's corporate office directly, instead of

the local offices (previously STAT Medical's offices). Because of Medical Staffing's poor

reputation and low ranking, the customer became very displeased. Further, CW5 stated that

Medical Staffing's "corporate interference" reduced the quality of service to such a level that the

client accused Medical Staffing of "bait and switch" tactics, significantly reducing its level of

business with Medical Staffing.

140. As described above, CW5 states that from the time Medical Staffing acquired

STAT Medical in July of 2002, until CW5 left Medical Staffing in February of 2003, STAT

Medical's business declined significantly. For example, at the time of the acquisition STAT

44


Medical's Portland, Oregon branch office had weekly gross revenues of approximately $220,000

(approximately $11 million annually). By February of 2003, CW5 states that the weekly gross

had declined to a range of between $130,000 to $150,000 (approximately $6.5 million to $7.5

million annually). CW5 states that this severe reduction in revenue was accompanied by

substantial personnel cuts. In the Portland, Oregon office alone, the staff declined by half, from

36 to 18.

141. In addition to the foregoing, CW6 states that STAT Medical's market had begun

to change for the worse before Medical Staffing acquired it. These problems resulted from

significant changes in two major health care providers in STAT Medical's market. CW6 states

that Medical Staffing did not examine this issue in its due diligence before the acquisition.

142. Specifically, CW6 states that Oregon Health Sciences University ("OHSU"), one

of STAT Medical's largest customers in the Portland, Oregon market (STAT Medical's most

important market), suffered from a strike by its nurses during the time period after September 11,

2001 and before Christmas of 2001. Initially, OHSU would not negotiate with the striking

nurses, and the strike was not settled for several months, until early 2002. CW6 states that

nurses with OHSU were typically on long contracts and when they could not secure work with

OHSU, they turned to staffing agencies. CW6 says that, as a result, there was a "flood" of nurses

into staffing agencies, including STAT Medical.

143. The impact of the strike was clearly noticeable. CW6 states that prior to the

strike, STAT Medical had about four to six recruits each day. After the strike began, CW6 states

that the recruit number jumped to 25 to 26 per day, virtually all Registered Nurses.

144. By the time the strike ended, OHSU had contracted with national staffing

agencies and imported nurses from out-of-state. As a result, STAT Medical found itself with an

45


increased supply of nurses available for staffing assignments, without a matching increase in

demand for those services. CW6 said this was the context in which STAT Medical was

functioning at the time of the Medical Staffing acquisition.

145. To provide further context, CW6 states that in about April of 2001, about six

months before the strike, STAT Medical's revenues reached a maximum of approximately $475

thousand per week, and then began to decline.

146. In an effort to regain its footing, Medical Staffing moved its Portland, Oregon

office operations to STAT Medical's Portland office and used Medical Staffing's Portland

branch office for recruiting only, cutting staff and personnel.

147. This, however, did not solve the problem. As a result, Medical Staffing closed its

Portland, Oregon office - in 2002. CW 1 states that Stacey managed the closure of the Portland,

Oregon office. CW1 knows that Stacey managed the closure because, by that time, Stacey's title

changed to Vice President of Per Diem Operations and Stacey had an office at the Company's

headquarters in Boca Raton, where CW I worked.

148. In addition to the foregoing, CW1 states that at the same time Medical Staffing

experienced significant losses resulting from the STAT Medical acquisition, Medical Staffing

experienced a significant decline in its overall business, as described above. CWI states that

many of the reasons for Medical Staffing's overall decline were the same as the problems with

the STAT Medical acquisition. For example, CWI states that Medical Staffing attempted to

dictate terms to its clients via the Company's corporate headquarters in Boca Raton, and that

such a practice ignored the special local relationships that are required to run a medical staffing

company - the relationship between the branch offices and the clients they service.

r1


(4) After the IPO, Medical Staffing Continues to Manipulate its Budget

149. As described earlier, in late October or early November of every year, Medical

Staffing began preparing its budgets, forecasts, and financial projections for the upcoming year.

In particular, numerous Confidential Witnesses were involved with the 2003 budget planning.

(a) The 2003 Budget Process

150. CW10 states that Medical Staffing's corporate office in Boca Raton solicited a

first round of the 2003 budget/forecast numbers from the Company's branch offices. CW2

recalls that at the beginning of the 2003 budget process, CW2 received an Excel spreadsheet

showing the 2003 budget targets CW2 was required to meet. CW2 states that each Excel

spreadsheet arrived accompanied by a "large e-mail" with detailed instructions for completing

the spreadsheet. CW2 received his/her spreadsheet directly from Jeffrey Jacobson ("Jacobson"),

a Medical Staffing Executive Vice President in charge of the Allied Division, CW2's supervisor.

CW2 states that CW2 knew from personal experience that Jacobson received the spreadsheet

from Adamson, to whom Jacobson reported directly.

151. CW2 states that the budget packages "stopped" at the regional level and that the

Regional Managers did the work to complete the budget spreadsheets. CW2 describes that

he/she was "shocked" to see that for each month of 2003, CW2 would have to show a 17%

increase in top line revenue over the actual results for the commensurate month in 2002.

Moreover, the budget targets required no increase in expenses, so the revenue increase targets

translated directly into increased profit targets.

152. CW2 states that the 2003 budget targets were the same for each of the 22 Allied

branch offices under CW2's responsibility requiring a 17% increase in top line revenue month-

to-month over 2002. In addition, CW2 states that all other Allied Regional Managers faced the

47


exact same targets. In short, CW2 characterized the 2003 budget targets as "excessive" and

"unjustifiable" in relation to the numbers that the branch offices were actually achieving.

153. As part of the budget forecasting process, CW2 states that based on initial input

from the branch offices, Adamson would meet with several high-ranking Medical Staffing

officers and employees to decide on budget targets. According to CW2, these persons included

Osman, Little, and the head of the accounting department, Mike Messagno ("Messagno").

154. According to CW2, after Adamson, Little, Osman, and Messagno determined the

2003 budget targets, Adamson sent an e-mail to Osman asking him to set up the budget meeting

with the Executive Vice Presidents, including Stacey and Jacobson, who both reported directly to

Adamson. CW2 is aware of this procedure because CW2 received an e-mail regarding that

process which was forwarded to CW2.

155. One such person who attended the budget forecasting meetings was CW 1. In

fact, CW1 attended every meeting concerning Medical Staffing's 2003 budget. The meetings

took place in the boardroom on the second floor of Medical Staffing's corporate headquarters in

Boca Raton, Florida. The participants included everyone at the Vice President level and above,

including Adamson and Little. At the meetings, an Executive Vice President for each region

made a presentation of the projections for the branch office locations in his/her region to the

attendees, including Adamson and Little.

156. CW2 describes a similar process. After completing the budget Excel

spreadsheets, CW2 brought them to a budget meeting at Medical Staffing's Boca Raton

headquarters in early 2003. At the budget meeting, CW2 states that each Regional Manager

"presented" its completed budget to Adamson and Little, Executive Vice President Stacey, and

Jacobson, among others.

48


157. While unable to cite exact figures, CW1 recalls that Adamson required the 2003

budget targets to exceed the 2002 actual results by "an overwhelming amount." Each of the

Executive Vice President presenters was familiar with their markets and, according to CW 1, they

each fold Adamson that they could not achieve his targets and showed him figures of exactly

what numbers they could reasonably expect to achieve.

158. CW2 describes that in almost every case, the budget presentations were rejected

by Adamson, who told several presenters (Regional Managers or Executive Vice Presidents) to

"go back downstairs" to an office with a computer and "fix the numbers." By "fixing the

numbers," CW2 states that Adamson meant the numbers should be changed to arrive at the

targets set by Adamson. CW2 states that everyone had to "fix" their numbers, even though they

knew they could not actually make A damson's targets.

159. CW2 states that the Regional Managers "fought" for their numbers because they

knew their own markets and Adamson and Little did not, but that Adamson "insisted" that the

numbers be changed.

160. Specifically, CW2 recalls Defendant Adamson requiring the unjustified changes

and that his justification was "this is what I need to fake to the stock market." CW2 states that

Adamson "insisted" that the Regional Managers and Executive Vice Presidents "give him the

numbers he wanted." CW2 quotes Defendant Adamson as saying, "Now that we are public,

everything is about what we take to the market."

161. In response to Adamson's outrageous budget numbers demand, CW2 told

Adamson that CW2 could not achieve the targets he set. Adamson's response: "get more

business." CW2 continued to stand up to Adamson, arguing that in CW2's region Medical

Staffing already had 95% of the business, so there was little room for growth. Adamson replied,

49


telling CW2 to cut the fees paid to Medical Staffing workers engaged to fill staffing assignments.

CW2 told Adamson that offering lower fees would make it impossible to keep the staff necessary

to fill the assignments - they would simply go to higher paying competitors. Adamson's

response: "increase the price charged to customers." CW2 told Adamson that such a response

would lead to a loss of business as competitors could come in and take it away with lower

pricing plans. CW2's recalls that none of CW2's concerns made any difference, as Adamson

was adamant about his numbers so that the Company could report "growth" to Wall Street.

162. The 2003 budget was not the only time Adamson insisted on unrealistic targets.

CW2 recalls that in June of 2000, there was a "re-forecast" for the last half of 2000, which

continued in the September-October 2000 timeframe with the budget for 2001. CW2 referred to

the process as the "same routine." The "same routine" involved unrealistically high,

unjustifiable numbers. Specifically, CW1 states that it was Adamson's "M.O." to manipulate the

budget forecasts every year and that there were always discrepancies between Medical Staffing's

internal budget numbers and what it reported to investors and the public.

163. Like CW2, CW1 states that in January 2003, CW1 was present at a budget

meeting with Adamson in which Adamson directed the Regional Vice Presidents to "give him

2% more margin" over and above the results actually achieved in January 2003. CW 1 recalls

that Adamson said explicitly that he needed the extra 2% in the Company's forecasts for the

ensuing months beginning February 2003 to report to Wall Street and the investing public.

164. Like CWI and CW2, CWIO (Medical Staffing's Western Regional Director) was

forced by Adamson to create false financial figures. Specifically, CW 10 states that he/she went

to the Company's Boca Raton headquarters to present the budget numbers CW 10 collected from

the branch offices in his/her region. CW 10 recalls, however, that the presentation was just a

LII]


"formality" because corporate management knew the numbers that it wanted and would

eventually get them.

165. CW 10 states that after presenting his/her 2003 budget information, Adamson

informed him/her that his/her numbers were inadequate and that CW 10 must increase the

numbers to conform to the targets of corporate management. CW 10 specifically recalls this

conversation taking place and recalls being required to go to a computer at the Company's

headquarters and make arbitrary changes to his/her budget numbers on an Excel spreadsheet.

Ultimately, CW 10 made the changes and presented them in final form to Little.

166. CW 10 was then required to deliver to his/her branch office managers the

budget/forecast numbers that conformed to the corporate targets imposed by the Company.

CW1O characterized the targets as "overblown" and "impossible to meet." CW1O recalls

conversations with his/her branch office managers in which many complained that they thought

they had gotten agreement on the first round of numbers, which were based on an understanding

of market conditions in the local markets. The branch office managers told CW 10 that they

could not make the revised numbers and that they were very demoralized because their incentive

compensation depended on making the numbers.

167. Like the other Confidential Witnesses, CW 11 states that the budget/forecasting

process produced extremely unrealistic numbers that were without factual support. CW1 I

confirms that Adamson insisted that each Regional Director submit numbers that Adamson and

Little had preconceived. CW 11 gives the following example. For the 2003 budget/forecast,

Adamson knew that Tenet, a large client of Medical Staffing, had cut Medical Staffing's hourly

billing rate from $56 to $46, a cut of approximately 18%. Nevertheless, Adamson expected

branch offices doing business with Tenet to post budget/forecast numbers for 2003 that exceeded

51


the 2002 numbers by 15% or more - a wholly unrealistic amount.

168. CW1 1 confirmed that Adamson and Little refused to listen to what the Regional

Directors were saying about their financial prospects and insisted that the Regional Directors

capitulate to their demands. In addition, CWI 1 said that any deviation from Adamson's

demands would have resulted in the loss of CWI l's employment with Medical Staffing.

(b) Medical Staffing's Failure to Achieve 2003 Targets

169. As a result of the concerns expressed to Adamson by the Confidential Witnesses

and many others, Medical Staffing failed to make its targets for First Quarter 2003. CW2

believes the Company could have achieved some growth, but that, as described above,

Adamson's unrealistic targets made meeting forecasts impossible. CW4 confirms that during

2003, until CW4 left in July, in no month did Medical Staffing succeed in making its budget

numbers.

170. In particular, in January of 2003, CWI states that Adamson would send scathing

e-mails because he was disappointed with the reported actual performance of the Company and

that there were frequent conference calls during which they discussed the Company's poor

financial performance.

171. By the end of January of 2003, CWI states that Adamson was telling his

executive staff on those conference calls, "You're not giving me what you said you would,"

referring to the budget targets Adamson forced his executives to adopt. CWI specifically recalls

a Thursday at the end of January 2003 when the final January numbers came out and Adamson

was very disappointed with the actual results. CW I states that Adamson directed CW I and

Stacey to call each of the Company's Vice Presidents and go over the numbers, branch office by

branch office, to determine what could be done to "turn them around." CW I describes the

52


conversations as "painful," because there was no positive result that could come from the calls -

Adamson was operating under performance goals that everyone knew were unrealistic,

unattainable, and unsupported by actual data.

172. CWI states that the facts underlying each conversation with the Vice Presidents

were the same - that the 2003 targets were grossly overstated. The calls centered on how

Medical Staffing's hospital clients would not pay higher fees to Medical Staffing and that the

nurses would not take lower fees as well. Put simply, CW1 states that it all stemmed from the

unrealistic budget targets that Adamson "had to have to satisfy Wall Street," even though CW1

knew the medical staffing market had changed and that the Company was facing severe margin

compression.

173. CW1 states that after these unpleasant conversations, CW1 and Stacey would

report back to Adamson in meetings in Adanison's office and tell Adamson and Little what the

Vice Presidents were saying. CWI called this process "walking the green mile," referring to the

green carpeted hallway from CW1 's office to Adamson's. CWI states that even at this time,

Adamson was adamant and would say things such as, "This is unacceptable. . . find a way to fix

it." CW I knew that "find a way to fix it" meant "get me the numbers I want."

174. Thus, with the 2003 budget, CW2 states that Medical Staffing went through the

"same routine." The budget targets were unrealistically high and the Company failed to make its

numbers for January and February of 2003. CW2 said the 2003 actual results were "so far off

the budget" and "horrendous," that they caused Medical Staffing to make a re-forecast of its

numbers in early March of 2003. Because of the failure to make the March and April 2003

numbers, the Company made another re-forecast in May of 2003. CW2 states that Medical

Staffing made a re-forecast every two months in 2003 because the targets were missed every

53


month.

175. As a result of missing targets, CW2 states that with every re-forecast, Adamson

would put CW2 and CW2's peers through the "same routine." CW2 and others would present

their re-forecasts, based on their assessments of their markets and Adamson would reject them,

claiming they were "ridiculous." CW2 and others would try to reason with Adamson, but he

would say that he had to have his inflated numbers to take them to the stockholders and the

market.

176. Medical Staffing's budget manipulations did not end with the close of the Class

Period. CW3 states that he/she "wrote the Allied Services budget for the last two quarters of

2003 and the entire year forecast for 2004." CW3 said that Medical Staffing's top management

in the Boca Raton corporate headquarters determined the budget targets or goals. These targets

were established in a process that began in August of the year preceding the subject year of the

budget, with the submission of "forecasts" or projections by each branch office manager. The

submissions from each branch office went first to the Regional Manager for that office and then

to the Area Vice President, who submitted them to the corporate office. At the corporate office,

Medical Staffing's "Executive Committee" reviewed these submissions. The so-called

Executive Committee included the Regional Vice-Presidents, Executive Vice Presidents and the

"Corporate Finance Team," which included Adamson, Little, and Osman. The Executive

Committee reviewed the preliminary submissions and approved them or "kicked" them back for

revision. CW3 says these submissions were virtually always returned for upward revision - to

make the projections higher to support higher budget targets.

177. CW3 recalls the August 2003 South Florida regional budget meeting with CW3's

direct report Executive Vice President, Pat Layton ("Layton"). The meetings took place over a

54


three-day period and nine branch office managers participated. CW3 said this group "got their

forecast numbers together" and submitted them, but the numbers were rejected as being too low.

CW3 states that the group then "reworked" the numbers to conform to the projections demanded

by the Executive Committee and resubmitted them.

178. Although CW3 could not recall the exact numbers, CW3 said the 2004 budget

targets his/her group was required to justify were "very, very high," as the targets for each month

exceeded the 2003 actual numbers for each month, by a year-over-year increase of

approximately 17%.

(5) Medical Staffing's Undisclosed Collection Difficulties

179. In May of 2003, CW9 joined Medical Staffing's Collections staff. When CW9

joined the Collections staff, he/she participated in Medical Staffing's organized "drive" to clear

its books of "stale" accounts receivable, some of which dated back to 1999. CW9 stated that the

accounts had not been collected because it was a matter of "nothing being done."

180. Thus, CW9 states that Medical Staffing created an incentive program during the

June and July 2003 timeframe and that the program was aimed at resolving all accounts

receivable dated prior to January of 2003. Thus, although some of CW9's experiences occurred

after the close of the Class Period, CW9 is able to provide detailed information about Medical

Staffing's accounts receivable problem during the Class Period - his/her experiences are relevant

to Class Period conduct.

181. CW9 states that Medical Staffing would "resolve" its accounts receivable in one

of three ways: collected, adjusted-off, or written-off as uncollectable. As part of this process,

CW9 states the Cash Applications staff prepared credit memoranda to write-off the invoices for

accounts determined to be uncollectable.

55


182. CW9 participated in Medical Staffing's accounts receivable drive, and his/her

target was to "clean up" $1.5 million in pre-2003 accounts receivable. Had CW9 achieved

that $1.5 million goal, he/she would have qualified for a $5,000 bonus. CW9 states he/she

missed the $1.5 million target by $150 and received a bonus of $1,500.

183. At the same time CW9 worked on the Accounts Receivable Drive, CW9 had to

collect all of his/her current accounts receivable within the 30-day limit. CW9 states that

Medical Staffing's policy was that invoices were due and payable within 30 days of the invoice

date. That meant that customers were supposed to pay within 21 days of receipt of invoice,

because the invoices were dated on Mondays, sent by Fridays, and received early in the

following week. CW9 adds that some customers received specific exceptions to this policy and

faced 60-day or 90-day payment periods.

184. CW9 states that in the July to August 2003 timeframe, Johnny Carson ("Carson")

became Medical Staffing's Accounts Receivable Director. When Carson joined Medical

Staffing, CW9 states that approximately 50% of all the accounts receivable in the Healthworks

system (previously described by CW 1) were more than 60 days old. As a result, CW9 states that

Medical Staffing's "numbers were [and previously had been] inflated" because some of the

accounts were uncollectable. CW9 states that Carson created another bonus plan designed to

eliminate the overdue accounts receivable.

185. The bonus plan involved approximately 20 collectors, including CW9, whose goal

was to reduce the number of 60-day-plus overdue accounts receivable by 10% or more each

month. CW9 states that each collector was given a portfolio of about $4 to $8 million, with

roughly equal proportions of 60-day-plus overdue accounts and regular 30-day accounts. The

10% figure was calculated by taking into account the 60-day-plus receivables on the books and

56


the receivables that were prevented from rolling over into the 60-day-plus category. The

collectors who achieved this monthly goal received a $1,000 bonus. CW9 states that some of the

accounts receivable were "very old," between four and 12 months overdue.

186. Similarly, CW7 states that some clients of CW7's New Mexico branch office did

not pay within the 30-day receivable period, and that some of the delinquent accounts belonged

to large clients. Generally, CW7, like CW9, states that "collections were a problem" and that

two clients alone (Mission Manor Nursing Home and Addus) were more than $180,000 in

arrears, but that Medical Staffing continued to do business with them. CW7 emphasized that the

thrice-weekly reporting reflected billings, not collections, which made the numbers "look good

on paper" even though the Company was not making any money. Further, CW7 stated that the

branch offices were responsible for sales, but were not allowed to get involved in the collections

process.

(6) Medical Staffing's Questionable Regulatory Practices & Nurse Hirin2

187. Each nurse or other health care professional who performs an assignment for

Medical Staffing at a hospital or other health care facility, the so-called "health care delivery

organization," must have certain credentials qualifying them to engage in the assignment. These

credentials include a state license, competency exams, continuing education units (CEUs), CPR

card, advanced resuscitation skill certificate, criminal background check, drug screening, annual

TB screening, and an annual physical. Compliance with these requirements is monitored by at

least two regulatory agencies: (I) the Joint Commission for Accreditation of Health Care

Organizations ("JAACHO"); and (2) the Agency for Health Care Administration ("AHCA").

These regulatory boards require health care delivery organizations, such as hospitals, to confirm

that each field associate (e.g., nurse) passes the regulatory requirements. In turn, the health care

57


delivery organizations, i.e., Medical Staffing's customers, require Medical Staffing, along with

all other third party provider agencies, to meet those regulatory requirements as a condition for

keeping a contract to provide staffing.

188. Medical Staffing frequently did not do an acceptable job of meeting the JAACHO

and AHCA regulatory requirements in all instances.

189. For example, CW3 described that Medical Staffing failed to meet the regulatory

standards at a facility in Miami, Florida (the "Miami Facility"). The Miami Facility is the largest

trauma center in Miami, owned by a County trust, and located in the Liberty City section of

Miami. CW3 stated that the Miami Facility put Medical Staffing on probation for sending a

nursing professional without a license to a staffing assignment. As a result of Medical Staffing's

failure to comply with the regulatory requirements of JAACHO and AHCA, CW3 states that

Medical Staffing lost almost all of its nursing services business with that hospital, causing a

severe 90% loss of revenue that was not regained at the time CW3 left Medical Staffing.

190. In addition, because of Medical Staffing's "questionable record," CW3 states that

hospitals were unwilling to accept Medical Staffing "attestation" that its field associates

possessed the requisite certification. Instead, hospitals required Medical Staffing to submit the

actual findings, particularly regarding the field associates' health information.

191. As a result of hospitals requiring Medical Staffing to submit field associates'

health information, CW3 states that Medical Staffing violated the Health Insurance Portability

and Accountability Act of 1996 ("HIPPA"). Specifically, Medical Staffing submitted its field

associates health information in violation of HIPPA prohibitions enacted to protect the privacy of

field associates as patients.

192. Concerned that Medical Staffing was violating federal law as a result of its

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certification compliance problems, CW3 wrote several memoranda about the violations and sent

them to Medical Staffing Executive Vice Presidents Layton and Stacey. With each memoranda

CW3 sent, CW3 encouraged Layton and Stacey to share them with Adamson.

193. Further, CW3 had a conference call with Layton and Stacey regarding Medical

Staffing's HIPPA violations. At the conclusion of the call, Layton and Stacey instructed CW3 to

stop "creating policy" for Medical Staffing.

194. In addition, CW7 describes how Medical Staffing's Albuquerque, New Mexico

branch office encountered compliance problems. CW7 said that the Albuquerque branch did not

keep files as required by the state of New Mexico and JAACHO, as described above. CW7

states that he/she reported this fact to the Medical Staffing Compliance Hotline, a Regional

Manager, and CW7's District Manager, Barbara Salazar ("Salazar"). CW7 recalls that Salazar

directed CW7 to continue using the nurses that were not in compliance.

195. In addition to failing to meet some regulatory guidelines, Medical Staffing rarely

interviewed the nurses it hired, despite, as described below, touting itself as doing so and stating

that the Company's practice of interviewing each nurse it hired as a competitive advantage that

set it apart from other medical staffing companies. For example, CW 1 and CW 11 state that

Medical Staffing did not interview each applicant in person by a local branch manger. In fact,

Medical Staffing's standard practice was not to conduct interviews. As described by CW 1, a

high-ranking Company Vice President deeply involved in Medical Staffing's per diem and de

novo programs, Medical Staffing interviewed, on average, approximately one-third of its

applicants. As described by CWI I, the Company's Managing Director of Florida, Medical

Staffing simply did employ the personnel necessary to conduct substantive applicant interviews.

CWI I states that prospective nurses were simply recruited, often just hired away from a

59


competitor (a practice confirmed by other Confidential Witnesses), and were told to fill out the

required paperwork - without formal job interviews.

(7) The Failure of Medical Staffing's Dc Novo Strategy and Branch Office Closin2s

196. Similar to CW1, CW4 states that Medical Staffing's de novo strategy contained

"serious flaws." First, CW4 states that the $2 per hour wage premium that Medical Staffing

frequently offered to attract nurses and "buy the business" ended up cutting Medical Staffing's

gross margin on nursing staffing (the difference between the amount that Medical Staffing billed

its customers and the amount that Medical Staffing paid the nurses who filled the staffing

assignments) by about 5% to 8%.

197. CW4 states that it took several months for Medical Staffing's competitors to

understand Medical Staffing's tactics and to understand why Medical Staffing was able to

increase sales volume in the face of a slowing market (i.e., figure out that Medical Staffing was

sacrificing gross margin to "buy the business"). When they did respond, CW4 states that

Medical Staffing's competitors simply adjusted the fees they paid to nurses and were able to

regain market share.

198. Several Confidential Witnesses stated that Medical Staffing's de novo expansion

strategy failed because of the Company's inability to recognize the importance of the

relationships between the branch office personnel and their customers. Specifically, CW4 states

that Medical Staffing failed to make the necessary investments in human capital and that because

Medical Staffing did not have an established, committed customer base at its newly opened de

novo offices, Medical Staffing lost business. Instead of having a committed customer base,

Medical Staffing's customers were "transitory," according to CW4.


199. As described above, CWI confirms that Medical Staffing knew little about its

branch office managers and that Adamson and Little recognized that the Company had

management problems over its branch offices - they discussed it at the Monday Management

Meetings. Rather than investing in human capital, Medical Staffing attempted to manage from

its corporate headquarters in Boca Raton, Florida. CW9 and CW1O confirm the problems

between Medical Staffing and its clients.

200. CWI states that Medical Staffing's de novo strategy failed and that the failure

became most evident in late 2002 and very early 2003, although the problems leading up to its

failure had been known and kept secret for a long period of time. In order to maintain

appearances of growth, CW 1 states that Medical Staffing was secretly closing de novo branch

offices at the same time that it was opening new de novo offices in other locations. CW4

confirms CW1 's outlook, recalling that the de novo offices were "ready to be closed on the day

they opened."

201. CWJ states that actual de novo office closings began in early 2003, even though

Medical Staffing did not begin to report such closings until May of 2003. In fact, CWJ was

responsible for coordinating the first round of de novo branch office closings, which was not

publicly disclosed until May of 2003. CWJ states that the first round of closings was planned

at least four months earlier, in late January 2003 - at the same time Medical Staffing was

upwardly revising its earnings guidance for 2003.

202. In order to further maintain the appearance of prosperity, CWI states that the high

level management of Medical Staffing was "sworn to secrecy" so that there would be absolutely

no leaks to the public about the office closings.

203. Specifically, CW I states that Defendant Adamson gave a "directive" to close the

61


de novo offices at a meeting in January 2003 around a table in Defendant Adamson's office (the

"Secret Office Closure Meeting"). CW4 confirms that the decision to close de novo offices was

made in January of 2003. Other participants in the Secret Office Closure Meeting including

Little, Stacey, Christin Marcello ("Marcello"), the then and current Chief Information Officer,

the then and current head of Human Resources, and Osman.

204. At the Secret Office Closure Meeting in January 2003, Osman "ran the numbers"

identifying the branch offices that were operating below budget targets. Then, Adamson gave

the directive to close each branch for which expenses could not be cut enough to show a profit.

CW1 states that by this time (January 2003), Adamson had begun to accept his executives'

position that revenue of de novo branch offices simply could not be increased as hospitals

refused to pay more. CW4 confirms that the decision and plan to close the de novo branches was

based on forecasts of declining business.

205. During the Secret Office Closure Meeting, Adamson provided attendees with the

aggregate dollar expenditure ceiling for the entire group of offices that were operating below the

budget targets. This group of offices exceeded 40 branches and approximated two thirds of the

branch offices then in operation. CW1 states that by January 2003, the business was "headed

south, fast."

206. As detailed above, CW3 began work at Medical Staffing in April of 2003. At that

time, CW3 states that plans for closing 40 branch offices had been completed. Specifically,

CW3 recalled that, based on conversations with others, the planning had been done for

approximately eight weeks - dating back to approximately February of 2003.

207. CW3, Medical Staffing's South Florida Regional Manager for Allied Medical

Services, confirms that the Adamson and Little knew about the branch office closings and the

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downfall of Medical Staffing's business in early 2003.

C. FALSE AND MISLEADING STATEMENTS

208. In addition to the false and misleading statements identified below, Plaintiff

incorporates by reference the statements made in the Registration Statement and Prospectus for

purpose of the Exchange Act claims. As previously stated, Plaintiff does not incorporate any

allegations of scienter into his Securities Act claims.

209. Following the completion of the Company's IPO, Medical Staffing announced

"record results" in a press release on May 13, 2002. For the period ended March 31, 2002, the

Company reported record revenues of $103.2 million for the first quarter of 2002, an increase of

46% over revenue for the same period in the prior year of $70.5 million. The Company reported

net income of $2.8 million, or $0.13 per diluted share, for the first quarter of 2002 compared to a

net income of $1.9 million, or $0.07 per diluted share for the prior year first quarter, an increase

of 47%. Earnings before interest, taxes, depreciation, and amortization ("EBITDA"), a key

measure used by management to evaluate the Company's operations, increased to $9.6 million

for the first quarter of 2002 from $7.3 million for the first quarter of 2001. Income available to

common stockholders for the first quarter of 2002, which reflected accrued dividends on the

Company's previously outstanding convertible preferred stock, which were converted into shares

of common stock in connection with the Company's IPO, was $0.3 million, or $0.02 per diluted

share.

210. Commenting on these results, Defendant Adamson stated:

We are very pleased with the strength of our first quarter 2002 results which reflect our significant organic growth[.] . . . The success of our de novo program and same store growth resulted in organic revenue growth of 41% during the first quarter of 2002 over the same period In the prior year. Over 90% of our organic revenue growth was the

63


result of an increase in volume, with the balance coming from price increases and a shift in mix toward higher billing staffing specialties.

211. On May 30, 2002, the Company filed its quarterly report with the SEC on Form

10-Q. The Company's Form lO-Q was signed by Defendants Adamson and Little and

reaffirmed the Company's previously announced financial results.

212. The statements identified in ¶1209-21 1 were false and misleading when made

because:

(a) the Company's "de novo" program was not succeeding and was, in fact,

not generating the "high growth," "rapid EBITDA profitability," or "significant return on

investment," which the Prospectus stated. In fact, the "de novo" program was in shambles and

the Company's de novo offices were no longer actually producing or actually projected to

generate positive EBITDA within six months of operation;

(b) the Company had no plan as to where its de novo offices should open;

(c) the Company's thrice-weekly reporting demonstrated that the de novo

offices were always struggling - consistently operating approximately 50% below their expected

budget projections/forecasts;

(d) Medical Staffing was witnessing significant changes in the per diem

market that negatively impacted Medical Staffing's growth prospects and overall performance;

(e) the Company's "de novo" program was teetering on the brink of

suspension, if not termination altogether;

(f) Medical Staffing deliberately manipulated its budget projections and

forecasts to create the appearance of growth, despite the fact that the Company's de novo offices

were not performing up to expectations;

64


(g) instead of benefiting from seasonal fluctuation, the Company would

actually be adversely impacted by seasonality; and

(h) the Company's South Florida operations were suffering from adverse

growth rates and seasonality.

213. On July 30, 2002, the Company announced in a press release its financial results

for the period ended June 30, 2002. Medical Staffing reported "record revenues" of $1 15.5

million for the second quarter of 2002, an increase of 39% over revenues of $83.2 million for the

second quarter of 2001. Net income was $5.1 million, or $0.17 per diluted share, for the second

quarter of 2002, an increase of 173% compared with net income of $1.9 million, or $0.07 per

diluted share, for the prior year second quarter. The $0.17 income per diluted share exceeded the

consensus analysts' estimate of $0.16 per diluted share. EBITDA increase to $11.3 million for

the second quarter of 2002 from $8.0 million for the second quarter of 2001, an increase of4l%.

214. The Company also issued the following guidance, touting its "on track" de novo

openings as part of the key to its success:

2002 and 2003 Revenue and Earnings Guidance

The Company expects full-year 2002 revenue to grow to $480 million, or approximately 42% over 2001, and expects to generate net income of $20 million, or $0.68 to $0.70 per diluted share. EBITDA for 2002 is expected to reach $45 to $46 million. In addition, the Company is on track to open that targeted 40 de novo branches for the year.

For the third quarter of 2002, the Company expects earnings to be $0.18 to $0.19 per diluted share on revenue ranging from $125 to $130 million. EBITDA for the third quarter of 2002 is expected to reach $12 million.

For 2003, the Company expects full-year revenue to increase to $590 to $600 million, and expects to generate net income of $30 to $31 million, or $0.90 to $0.92 per diluted share. EBITDA for 2003 is expected to grow to $59 to $60 million.

65


215. Discussing acquisitions (which included the STAT Medical acquisition), the

Company stated:

The Company completed three acquisitions in July for a combined cash purchase price of approximately $16 million. All three transactions were completed in early July and did not contribute to the results of the second quarter. The Company expects the acquisitions to generate annualized revenue in excess of $20 million and annualized EBITDA in excess of $2 million.

216. Commenting on these results, Adamson stated:

We continue to experience strong demand for our staffing services[.] As our strong results suggest, demand for temporary staffing

healthcare staff is very robust and there continues to be a significant imbalance between supply and demand. Despite the efforts noted by certain of our hospital customers to tightly manage temporary staffing, these hospital companies have reported that temporary staffing expenditures have continued to increase, albeit with one company noting a slower rate of growth. Many of our other customers have embraced temporary staffing as a way to control overall labor costs. We believe this is reflected in the overall healthcare staffing market growth substantially exceeding that quoted by these hospital companies and, of course, in our own growth, which substantially exceeds even the market growth rate.

217. Following this announcement, shares of Medical Staffing common stock rose

approximately 1.3% or $0.26 per share, to close at $19.9 per share.

218. The statements identified in 1"213-216 were false and misleading when made for

the reasons stated in 1212. In addition, the Company, Adamson, and Little knew that demand

was not robust and that Medical Staffing was not "growing" in excess of the market growth rate.

To the contrary, Medical Staffing manipulated its financial numbers to create an illusion of

growth, all while facing severe margin compression and poor financial results, as reflected in the

thrice-weekly reporting.

219. On August 7, 2002, Medical Staffing issued a press release wherein it announced

66


that "it was 'very comfortable' with the earnings guidance it had reported in its second quarter

earnings release issued on July 30, 2002." Commenting on the Company's guidance, Defendant

Adamson stated:

We remain very comfortable with the guidance we gave the investment community on July 30th. At that time, we projected that full-year 2002 revenue would grow to $480 million, or approximately 42% over 2001, and that net income would increase to $20 million, or $0.68 to $0.70 per diluted share. EBITDA for 2002 is expected to reach $45 to $46 million. In addition, the Company is on track to open the targeted 40 de novo branches for the year. For the third quarter of 2002, the Company expects earnings to be $0.18 to $0.19 per diluted share on revenue ranging from $125 to $130 million. EBITDA for the third quarter of 2002 is expected to reach $12 million. For 2003, the Company expects full-year revenue to increase to $590 to $600 million, and expects to generate net income of $30 to $31 million, or $0.90 to $0.92 per diluted share. EBITDA for 2003 is expected to grow to $59 to $60 million.

• . We note that one of the leading providers of travel nurse services commented today that demand for travel nurses was less than expected in certain markets during the second quarter. They went on to say that hospital clients who were experiencing lower patient census were transitioning their needs for temporary staffing to per diem providers. Our company did in fact see an increase in demand for per diem nurses in those marketplaces during the second quarter and demand has continued to be strong going into the third quarter. We expect that the value we add to the healthcare delivery system will directly translate into increase value for our shareholders.

220. On August 14, 2002, the Company filed its quarterly report with the SEC on Form

l0-Q (the 112Q 2002 Form l0-Q"). The Company's 2Q 2002 Form l0-Q was signed by

Defendants Adamson and Little and reaffirmed the Company's previously announced financial

results. Regarding its 2Q 2002 results, the Company stated:

Our service revenues for the three months ended June 30, 2002 increased $32.3 million, or 39%, form 83.2 million for the three months ended July I, 2002 to $115.5 million for the three months ended June 30, 2002. The majority of the increase in revenues for the three months ended June 30, 2002 was attributable to a $26.5 million, or 44%, increase in our per diem nurse staffing revenues from $59.9 million for the tFree months ended July

67


1, 2001 to $86.4 millions for the three months ended June 30, 2002. Of this increase, $22.9 million, or 87%, was the result of year over year organic growth. The remaining increase of our per diem nurse staffing revenues of $3.5 million, or 13%, came from our 2001 acquisition.

221. In addition, the Company described its recent acquisitions in more detail:

In July 2002, the Company acquired certain assets of three per diem nursing companies, STAT Medical Services, Inc., Medical Staffing Services, Inc., and Pro Med, Inc., for an aggregate cash purchase consideration of approximately $16 million.

222. The statements identified in 111219-221 were false and misleading when made for

the reasons stated in 1212. Medical Staffing could not have been "comfortable" with its earnings

guidance, when it is clear from the statements of several Confidential Witnesses that Medical

Staffing's earnings projections were arbitrary and severely manipulated by Adamson and Little

in order to provide positive numbers to Wall Street and investors. In addition, the Company was

fully aware that demand for nurse staffing had dramatically changed and that it was experiencing

severe gross margin compression. Further, the Company failed to disclose the reasons behind

the STAT Medical acquisition (the poor performance of de novo offices in that region) or the

problems that immediately manifested after the acquisition.

223. On October 8, 2002, Medical Staffing issued a press release in which Adamson

stated, "We remain confident that the Company's earnings will be in line with previously issued

guidance."


approximately 6.5% or $0.62 per share, to close at $9.98 per share.

225. The statement identified in 111223 was false and misleading when made for the

reasons stated in 1212. Medical Staffing could not have been "confident" with its earnings

guidance, when it is clear from the statements of several Confidential Witnesses that Medical

68


Staffing's earnings projections were arbitrary and severely manipulated by Adamson and Little

in order to provide positive numbers to Wall Street and investors.

226. On October 29, 2002, Medical Staffing issued a press release announcing its

"record" financial results for the third quarter of 2002. The Company reported record revenues

of $127.5 million for the third quarter of 2002, which was an increase of 35% over revenue of

$94.3 million for the third quarter of 2001. Net income increased 215% to $6.1 million, or $0.19

per diluted share, for the third quarter of 2002 compared with net income of $1.9 million, or

$0.07 per diluted share, for the prior year third quarter. EBITDA increased 44% to $12.3 million

for the third quarter of 2002 from $8.6 million for the third quarter of 2001. More than 82% of

quarter-over-quarter revenue growth was attributable to organic sources.

227. Commenting on the Company's purported "record" results, Defendant Adamson

stated:

Demand for temporary nurse staffing services, and per diem nurses in particular, remains very strong. I am especially pleased to note that our earnings continue to grow at a higher rate than our top line, which demonstrates the scalability and operating leverage of our business model. Our growth rate continues to exceed the growth rate of the overall market as well as that of our publicly traded competitors in the per diem nurse staffing industry. Hours worked by our licensed nursing professionals in the third quarter of 2002 increased over 30% over the prior year quarter with nearly 75% of the growth being organic.

Medical Staffing Network also continued to open new locations at a brisk pace, adding ten de novo offices during the third quarter. The new office additions bring the total new office openings to 31 for the year. We continued to drive the unparalleled success of our de novo program In an efficient and disciplined manner, which solidifies our position as the fastest growing company in the per diem nurse staffing industry[.]

mo


228. Additionally, the Company also increased 2003 guidance, as follows:

Increased Earnings Guidance for 2003

For the fourth quarter of 2002, the company expects net income per diluted share to be $0.20 per diluted share, on revenue growth ranging from 41% to 44% over the prior year. Adjusted EBITDA is expected to increase 45% to 50% over the same period in 2001.

Combined with quarterly results previously reported, the company expects full year 2002 net income per diluted share to increase to $0.70. Total year 2002 revenue is expected to range from $480 to $483 million, an increase of 40% to 41% over 2001.

The Company is increasing its guidance for 2003 and now expects net income per diluted share to range between $0.91 and $0.93 on revenue growth ranging from 23% to 26% as compared to 2002. Adjusted EBITDA for 2003 is expected to increase 30% to 32% over 2002.

229. Following this announcement, shares of Medical Staffing common stock rose 3%

or $0.38 per share, to close at $12.98 per share.


the reasons stated in 1212. As detailed by the Confidential Witnesses, Medical Staffing had no

reasonable basis for increasing its earnings guidance, as it is clear that Medical Staffing's

earnings projections and guidance were arbitrary and severely manipulated by Adamson and

Little in order to provide positive numbers to Wall Street and investors. In addition, the

statements failed to disclose that Medical Staffing was experiencing a decrease in demand from

its clients, along with the impacts of severe margin compression, which was known to the

Company, Adamson, and Little.

231. On October 30, 2002, Medical Staffing, through Adamson and Little, hosted an

earnings conference call regarding its third quarter "record" results and confirming its increased

guidance for 2003 (the "3Q 2002 Conference Call"). During the 3Q 2002 Conference Call,

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Adamson and Little repeatedly touted Medical Staffing's success. For example, Adamson said:

We believe that we can continue to expand our market leading positions through superior same-store growth, our successful diversification into other healthcare staffing services, and our unparalleled success in opening new offices on a scale that is unmatched in this industry."

232. Regarding a question concerning the efforts of Medical Staffing's clients to assert

affirmative control over Medical Staffing's billing rates, Little replied:

[W]e've very much taken the view that the service that we provide is absolutely essential to the hospital industry and we have made very significant efforts and have had very significant successes in explaining to hospitals how we can better partner with them to proactively manage their expenditure in this very sensitive environment, where expenditure in temporary nurses is very much a high profile issue for all of the publicly traded and non-profit facilities.

233. Regarding seasonal business, Adamson stated:

We haven't seen any seasonal variances that we hadn't anticipated. Obviously in the Southeast, for some belt states, this is the seasonal low census point before the winter season starts with the snow bird migration, but the volume of business that we see in those market places are very consistent with our projections, there has not been [sic] under what we've projected it to be.

234. Following the 3Q 2002 Conference Call, shares of Medical Staffing common

stock rose 2.8% or $0.36 per share, to close at $13.34 per share.

235. On November 11, 2002, the Company filed its quarterly report with the SEC on

Form 10-Q (the "3Q 2002 Form l0-Q"). The Company's 3Q 2002 Form 10-Q was signed by

Defendants Adamson and Little and reaffirmed the Company's previously announced financial

results.

236. The statements identified in ¶231-233 and 235 were false and misleading when

made for the reasons stated in 1212. Medical Staffing was not expanding its "market-leading"

positions and was facing extreme gross margin compression and price dictation by its customers,

71


as detailed by the Confidential Witnesses.

237. On January 31, 2003, Medical Staffing filed a Form 8-K and a related press

release announcing that Medical Staffing was taking a one-time charge of approximately $3.8

million due to the bankruptcy of one of its clients. Calming investors' concerns and commenting

on the medical staffing industry, Adamson stated, "Demand for temporary healthcare staff

remains robust, and absent this one time charge taken in the fourth quarter, our business

remains on target to meet our previously disclosed earnings expectations."

238. The statement identified in ¶11237 was false and misleading when made for the

reasons stated in T212. The descriptions of the Confidential Witnesses make it clear that demand

for Medical Staffing was not "robust" and that the Company was facing severe margin

compression, as well as significant difficulty with the performance of its de novo offices.

239. On February 18, 2003, Medical Staffing issued a press release announcing its

fourth quarter and year-end financial results for the period ended, December 29, 2002. The

Company reported record revenues of $137.2 million for the fourth quarter of 2002, which was

an increase of 44.6% over revenues of $94.9 million for the fourth quarter of 2001. Net income

increased to $3.9 million, or $0.13 per diluted share, for the fourth quarter of 2002 compared

with a net loss attributable to common stockholders of $8.8 million, or $4.09 per diluted share,

for the prior year fourth quarter. Net income for the fourth quarter of 2002 increased to $6.2

million, or $0.20 per diluted share. EBITDA, a non-GAAP measure, increased to $9.2 million

for the fourth quarter of 2002 from $8.6 million for the fourth quarter of 2001. Excluding the

$3.8 million charge, fourth quarter 2002 EBITDA was $12.9 million.

240. Commenting on these results, Defendant Adamson stated:

We are pleased to report record revenues for the fourth quarter of 2002

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and a 41% increase in full year 2002 revenues over 2001. Of particular note is the fact that over 80% of our year-over-year revenue growth came from organic sources. Our growth has been driven by our continued consolidation of market share in the highly fragmented $5 billion nurse per diem industry together with our successful diversification into allied healthcare staffing specialties. Medical Staffing Network Holdings is the largest provider in the nurse per diem industry and has significant long-term growth opportunities as it continues to aggregate market share. Based on our success to date with our de novo and product line diversification programs, the Company further expanded its organic growth initiatives in the Company further expanded its organic growth initiatives in the second half of 2002. We made significant investments in our travel nurse division, allied branch-in-branch program as well as rolling out new product specialties within our core allied healthcare staffing division. As a result of this investment, revenue from our branch-in-branch operations almost tripled in the fourth quarter of 2002 as compared with the fourth quarter of 2001, and fourth quarter 2002 revenue for our travel nursing division is up over 50% over last years fourth quarter.

Consistent with our previous organic growth initiatives, particularly our highly successful de novo program, these programs result in near-dilution of earnings but provide the Company with the capacity to sustain an above market growth rate. The outcome of our successes in consolidating per diem marketing share and diversifying our product lines short term Is reflected in our guidance for revenues for the first quarter of 2003, representing a year-over-year increase of 38% to 42%. We believe this growth rate is the strongest in our industry. We continue to believe that the $5 billion per diem nurse market provides the best long-term growth opportunity within the overall healthcare staffing industry.

While reviewing the various growth opportunities available to the Company, we have recently made the decision to discontinue our physician staffing operation, which contributed less than 1% of our company-wide revenues and did not offer us a meaningful organic growth opportunity. The costs associated with the closure of this service line have been reflected in our first quarters' earnings guidance.

241. For the year ended December 29, 2002, revenues increased 41.0% to $483.5

million from $343.0 million for the year ended December 30, 2001. Net income increased in

2002 to $17.9 million, or $0.62 per diluted share, from a net loss attributable to common

73


stockholders of $3.1 million, or $0.49 per diluted share, in 2001. Excluding the $3.8 million

pretax charge, net income for 2002 increased to $20.1 million, or $0.70 per diluted share. In

2001, excluding the aforementioned special charges, the Company would have had net income of

$9.4 million, or $0.34 per diluted share. EBITDA increased 30.7% to $42.4 million in 2002

from $32.4 million in the prior year. Excluding the $3.8 million charge, full year 2002 EBITDA

was $46.2 million.

242. Additionally, the Company stated:

2003 Earnings Guidance

For 2003, the Company expects full year net income per diluted share to be $0.91 to $0.93 on an increase in revenues of 28% to 30% to $620 to $630 million. The Company currently plans to open 20 new de novo branches and add 40 to 45 allied branch-in-branch operations during 2003.

For the first quarter of 2003, the Company expects revenues to increase 38% to 42% to $142 to $147 million and expects to generate $0.17 to $0.18 per diluted share, an increase of 30% to 38% over the same period in 2002.

[Commented Defendant Adamson,] [t]he growth outlined in our 2003 earnings guidance is the result of our continued commitment to investment in multiple growth initiatives. Our guidance for revenues for the first quarter of 2003 represents a year-over-year increase of 38% to 42%, or 41/o to 7% sequentially. Our first quarter guidance of $0.17 to $0.18 per diluted share, while a 30% to 38% increase over the same period in the prior year, is a sequential quarter decline from earnings per share of $0.20 (before the charge, as the Company believes this is a more useful measure of quarter-over-quarter performance) in the fourth quarter of 2002 and is reflective of the near-term dilution from our new growth initiatives discussed above and the costs associated with the closure of our physician stalling business unit. Medical Staffing Network Holdings has had favorable experience from investing in growth opportunities, and, while we regret the near-term dilutive impact on earnings from these Initiatives, our experience suggests that the return, In the form of higher than market growth rates, is an excellent outcome.

243. According to the Company's February 18, 2003 announcement, Medical Staffing

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opened 10 de novo offices during the fourth quarter of 2002, bringing the total new office

openings to 40 for the year. Commenting on this, Defendant Adamson stated: "We successfully

achieved our target of opening 40 new per diem locations during 2002. These offices are

projected to contribute significantly to our 2003 organic growth. In addition, the Company

successfully opened 19 allied branch-in-branch operations and further expanded the range of

services offered by its allied staffing group[.]"


2.2% or $0.20 per share, to close at $9.31 per share.

245. The investment community clearly bought into Medical Staffing's rhetoric.

Commenting on Medical Staffing's earnings announcement, analysts from Deutsche Bank-North

America stated on February 19, 2003 (prior to the conference call) that:

[Medical Staffing] continues to post very solid operating results and deliver on its growth initiatives, unaffected by the poor macroeconomic environment. The Company has not witnessed the same erosion in volumes or pricing that has been reported recently by competitors within the travel nurse domain. Citing muted demand from hospitals for travel nurses, both AMN Healthcare I and Cross Country (J have recently reduced guidance for 2003. . . [Medical Staffing] has not reduced its 2003 financial targets and we take that to mean that the company is not suffering from the same adverse demand trends currently afflicting the travel nurse providers. This fact seems to confirm our longstanding belief that the per diem model is the more attractive of the two models.

246. In addition, on February 19, 2003, Medical Staffing, through Anderson and Little,

hosted an earnings conference call to address its fourth quarter 2002 results. During that call,

Adamson stated:

There has been a great deal of speculation recently of whether the rate at which increasing demand for temporary nurses is moderating or not. I'd like to point to our revenue growth and suggest that MSN has positioned itself to sustain superior growth rates regardless of the possibility of any short-term fluctuations in demand.

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Our track record of success and our large scale de novo growth initiative encouraged us to further invest in opportunities in future revenue growths. In addition to continuing to target 20 new nurse per diem staffing locations during 2003, MSN will be stepping up its investment in its branch in branch project.

247. During the Q4 2002 Conference Call, Van Brady of Presidio Management posed

the following question:

I think it would be helpful to all of us if we could get a fix on what kind of organic growth in the per diem nursing business you've included in the forecast that you made. One of the things that I guess I'm a little perplexed at, Bob, you said that growth constrained only by the ability to add nurses to the labor pool, yet if you look at the 45-plus that you've added to the forecast for 2003 from the acquisitions that you've enumerated in the earnings release and then considering that you're forecasting between 620 and 630, let's say 625 for purposes of my discussion, if you take that 45 million out of it, that would leave the business presently constituted at 580 million by my calculations, which actually is less than the analysts who are predicting around 600 million for the year.

So is that - are we seeing a slowing of the per diem nursing business, and if so, maybe you could give us what kind of organic growth you see for that business in the current year, and then talk about the conditions, some of the two travel companies have said that - particularly [C]ross [C]ountry, it was on a conference call just before you did, said that they thought there would be some substitution for Travel Nurses by per diem nurses, but the conditions that are affecting their business are going to affect everybody's business.

Adamson replied, in pertinent part:

Our organic growth for 2003 in our projections is in the range of 20 to 25%, which I think is a pretty healthy organic growth rate. Overall growth, 38 to 42%. Yeah, we hare the comments coming our of the two large Travel Nurse Industries, the two Travel Nurse companies. 1 guess we're trying to rationalize how they could go from a year ago or less than a year ago saying that they had five orders for every nurse that they had available to now finding themselves in a situation where demand is a problem... that would suggest that demand has fallen off

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by some 80%. And our results obviously would suggest that the market has not gone that soft.

248. Adamson further stated:

So, we're seeing very healthy results. We understand that clients are hesitant to make those 13-week commitments [to hire travel nurses], but we think that's [a] very healthy opportunity to sell those clients more per diem services.

249. Following the Q4 2002 Conference Call, shares of Medical Staffing common

stock gained approximately 5% or $0.46 per share, to close at $9.77 per share.

250. As reported by analysts from Deutsche Bank-North America, after the conference

call: "During its 4Q02 conference call with investors, [Medical Staffing] gave an upbeat

assessment of current business trends and long-term prospects."

251. The statements identified in 111239-243 and 246-248 were false and misleading

when made for the reasons stated in 1212. In addition, at the time of these statements, Medical

Staffing and the Individual Defendants knew that Medical Staffing would be closing numerous

branch offices. As detailed by the Confidential Witnesses, the decision to close the branch

offices was made in January of 2003. Furthermore, the Confidential Witnesses make clear that

Medical Staffing's budget forecasts and earnings estimates were wholly false and fabricated, and

that Medical Staffing failed to achieve any of its budget targets during 2003. Contrary to

Adamson's statements, demand had sharply fallen off and the Company, Adamson, and Little

knew it.

252. On March 28, 2003, the Company tiled its annual report with the SEC on Form

10-K (the "2002 Form 10-K"). The Company's 2002 Form 10-K was signed by each of the

Individual Defendants and reaffirmed its previously announced financial results.

253. Commenting on de novo office growth, the 2002 Form 10-K stated:

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Branches that we have opened since our inception, as opposed to branches acquired from third parties, which we call our "de novo" branches, generated rapid revenue growth and typically achieved positive EBITDA, a non-GAAP measure consisting of net income (loss) excluding net interest, taxes, depreciation, amortization, loss on early extinguishments of debt and recapitalization expenses, within six months of operation. We opened 30 de novo branches in 2000, 64 de novo branches in 2001 and 40 de novo branches in 2002.

254. Regarding employment qualification standards, the 2002 Form 10-K stated:

All of our per diem healthcare professions undergo a rigorous screening process which includes requirements such as a minimum of one year of related work experience and the successful completion of written tests specific to the area of specialty. Each applicant is then interviewed in person by a local branch manager. This sets us apart from our competitors who often do not conduct face-to-face interviews. We also check prior work references, confirm the validity of the applicant's professional license(s) and screen the applicant for any criminal activity and drug abuse. All of these standards comply with or exceed those requires by OSHA (Occupational Safety & Health Administration) and JCAHO (Joint Commission on Accreditation of Healthcare Organizations).


the reasons stated in 1212. In addition, at the time of these statements, Medical Staffing and the

Individual Defendants knew that Medical Staffing would be closing numerous branch offices.

As detailed by the Confidential Witnesses, the decision to close the branch offices was made in

January of 2003. Furthermore, the Confidential Witnesses make clear that Medical Staffing's

budget forecasts and earnings estimates were wholly false and fabricated, and that Medical

Staffing failed to achieve any of its budget targets during 2003.

256. Also, the statements were false and misleading when made because, as described

by CWI and CWI I, Medical Staffing did not interview each applicant in person by a local

branch manger. Thus, Medical Staffing's hiring procedures did not set them apart from

competitors who did not conduct face-to-face interviews. In fact, Medical Staffing's standard

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practice was not to conduct interviews.

257. More importantly, the statements identified in ¶J252-254 were false and

misleading when made because, as described by CW3 and CW7, Medical Staffing violated

federal licensing regulations to such an extent that it impaired contracts and contractual relations

with its clients.

258. In addition, Medical Staffing's financial statements failed to disclose its

contingent liabilities and significant risks and uncertainties in conformity with GAAP.

259. GAAP requires that financial statements disclose contingencies when it is at least

reasonably possible (e.g., a greater than slight chance) that a loss may have been incurred.

FASB's Statement of Financial Accounting Standards No. 5, 110. The disclosure shall indicate

the nature of the contingency and shall give an estimate of the possible loss, a range of loss, or

state that such an estimate cannot be made.

260. The SEC considers the disclosure of loss contingencies to be so important to an

informed investment decision that it issued Article 10-01 of Regulation S-X [17 C.F.R. § 210.10-

01], which provides that disclosures in interim period financial statements may be abbreviated

and need not duplicate the disclosure contained in the most recent audited financial statements,

except that "where material contingencies exist, disclosure of such matters shall be provided

even though a significant change since year end may not have occurred."

261. In addition, GAAP requires that financial statements disclose significant risks and

uncertainties associated with an entity's. American Institute of Certified Public Accountant's

Statement of Position No. 94-6.

262. In violation of GAAP, Medical Staffing's Class Period financial statements

improperly failed to disclose the true risks and uncertainties associated with its de novo program

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and the reasonably possibility that the Company's de novo program may be suspended or

terminated because its de novo offices consistently operated at approximately 50% below their

expected budget projections and forecasts.

THE TRUTH BEGINS TO EMERGE

263. On May 12, 2003, Medical Staffing announced record revenues for the first

quarter of 2003. The Company reported record revenues of $144.4 million for the first quarter of

2003, which is an increase of 39.9% over revenues of $103.2 million for the first quarter of 2002.

Net income increased to $5.2 million, or $0.17 per diluted share, for the first quarter of 2003

compared with $2.8 million, or $0.13 per diluted share, for the prior year first quarter.

Commenting on these results, Defendant Adamson stated:

Our record revenue for the quarter is reflective of the strength of the MSN brand, the quality of the services we provide to our clients, the superior employment opportunities and benefit programs offered to our healthcare staff and, of course, our diversified growth initiatives. Our ability to post materially higher revenue growth rates than our competitors is partially a function of the better operating dynamics of the per diem staffing sector and the fact that we are also benefiting from the continued maturation of our de novo and branch-in-branch (BIB) programs. We remain confident that, over time, our significant investment in and the near-term dilutive effect of our growth initiatives will be offset by our ability to grow our market share even during difficult market conditions.

Demand for temporary nurses is currently going through a period of contraction as hospitals are experiencing flat to declining admission rates and are placing greater reliance on full-time staff overtime and Increase nurse patient loads. We believe that the underlying factors that contribute to the growing national shortage of qualified healthcare professionals, particularly registered nurses, will result in sustainable long-term growth for our industry. However, as we work through this softer market, we do have the benefit of being a well diversified healthcare staffing company and, perhaps most importantly, MSN continues to gain market share in its core business, the estimated $7 billion per diem nurse staffing segment.

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I am pleased to announce that we have completed our full target of BiB sites for 2003 during the first four months of the year. We achieved the opening of 44 BIB sites by redirecting resources from our nurse de novo management team. There is a great deal of upside potential in further expansion of our de novo activity, but we have decided to put new office openings on hold until we see market conditions strengthen. In an effort to provide our services more cost effectively, the Company has enhanced its IT platform to network together client and employee databases in contiguous markets. Additionally, we recently launched our MSNIVisa Direct Pay Debit Card that enables our per diem healthcare professionals to have their earnings electronically transferred on to a Visa label debit card on a daily basis, eliminating the requirement of visiting the local office to collect a paycheck. These enhancements enable us to expand the geographical coverage areas of our per diem offices. As a result, we will be able to service current markets with fewer brick and mortar sites. The Company will take a charge in the second quarter for this restructuring. We have not yet finalized our restructuring plan, so the exact amount of the charge is uncertain. We expect that it will be material to net income for the second quarter, but we do not expect it to result in a loss for the quarter or to adversely impact that operating results of any subsequent quarter. We further expect this restructuring to improve the operating results that would otherwise have been generated in the second half of 2003 and beyond.

While we are confident that the long-term fundamentals for the healthcare staffing industry remain intact, market factors have reduced visibility for future earnings. Due to this reduced visibility, we are withdrawing our prior annual guidance for the year ending December 28, 2003. We plan to have our restructuring plan finalized by the end of May and will provide further information as to the charges related to the plan and our earnings guidance for the second quarter and full year 2003 at that time.

264. Following this announcement, shares of Medical Staffing common stock fell

11.73% or $1.01 per share, to close at $7.60 per share.

265. On May 13, 2003, Medical Staffing, through Adamson and Little, hosted an

earnings conference call to discuss the Company's IQ 2003 results (the "IQ 2003 Conference

Call"). Discussing Medical Staffing's decision to halt its de novo program, Adamson stated:

There is no accurate means by which we're able to determine when the

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current market conditions are likely to reverse and therefore in an effort to adjust our infrastructure to the lower demand environment our industry is experiencing, we plan to halt further openings and restructure our operations.

We expect the restructuring to be completed in the next four weeks. The exact amount of the restructuring charge has not been finalized. We expect the charge will be material to the net income for the second quarter, but we do not expect it to result in a loss for the quarter nor do we anticipated [sic] it to adversely impact the operating results for any subsequent quarter.

Due to the restructuring, we're withdrawing our prior annual guidance for the year ended December 28, 2003. We will provide further information as to the changes related to the plan and our earnings guidance for the second quarter and the full year 2003 once the restructuring plan is complete.

No, I don't want to mischaracterize the nature of the restructuring. We're not targeting to have a centralized business model to be successful in the per diem world. You have to have brick and mortar signs, you have to be in the communities that you service, you have to see the nurses who work for you in [sic] a very frequent basis... So, we're dependent on those satellite locations. But I don't think you'll see the day that any labor or human resource business that's per diem based doesn't do so through brick and mortar locations. We're merely tweaking our model to cut back on the necessity of satellite locations.

266. In response to a question addressing Medical Staffing's gross margin, Adamson

responded:

Yeah, there's definitely been contracting in growth margin in general In our industry over the past six months or long Isici for some companies. I don't think that the margin compression is going to turn around this year. I think they - the clients are going through a very intensive effort, very focused effort to use less staffing agencies.

267. The Defendants' May 13, 2003 statements and announcements only partially

revealed the truth about the Defendants' fraud detailed in this Complaint. On May 13, 2004,

Defendants minimized the Company's situation and did not fully "come clean" to investors,

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citing recent declines in demand and gross margin, rather than informing investors that the

decision had been made to close numerous branch offices because of the failure of the de novo

program and about the rapid decline in the Company's business that had been occurring since

prior to the IPO, which was detailed three times a week to Adamson and Little in the thrice-

weekly reports. In fact, Defendants did not "drop the other shoe" and more fully reveal

the Company's significant problems to investors until June 16, 2003, when the Company

announced it would be shutting down numerous branch offices, lowering its 2003 financial

guidance, and indefinitely suspending its de novo and allied branch-in-branch programs.

268. On June 16, 2003, the Company announced the "Completion of Restructuring

Plan, Issue[d] New Guidance, and Name[d] New President and Chief Operating Officer." More

specifically, the Medical Staffing stated:

As a result, the Company expects to report second quarter 2003 income from continuing operations per diluted share of $0.02 (including of the restructuring charges but exclusive of the loss from the discontinued physicians staffing) on revenues of $136 to $137 million. For full year 2003, the Company expects to report income from continuing operations of $0.43 to $0.46 (inclusive of the restructuring charges but exclusive of the loss from the discontinued physicians staffing) on revenues of $555 to $570 million. The Company also announced the appointment of Greg Guckes as President and Chief Operating Officer.

Restructuring Plan

Under the restructuring plan, the Company closed 13 satellite per diem recruitment locations and 16 per diem branches on May 21, 2003. Market-specific plans have been implemented to transfer the businesses from closed branches to other Medical Staffing Network locations. As a result of an intensive effort to demonstrate continued commitment to clients and nursing staff, to date the Company has exceeded its original expectation of retaining 50% of the revenues generated from the closed branches.

In commenting on the restructuring. Robert J. Adamson, Chairman and Chief Executive Officer of Medical Staffing Network Holdings, Inc.,

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stated, "The decision to close certain branches was driven by weaker demand and pricing pressure. We may increase our presence in certain of these markets when demand rebounds. Our client base is currently focused on alternative sources for nurse staffing capacity, such as increased overtime from their full-time staff, higher patient loads, an increased focus on recruitment and retention of full-time, facility-based employees.

"In addition to closing certain branch locations, we reduced the number of full-time staff in our branch locations and corporate office by approximately 5%. This adjustment is our infrastructure is also in response to a contraction in demand for temporary healthcare professionals and continued pressure on gross margins.

"Despite the overall contraction in the healthcare staffing industry, Medical Staffing Network has continued to show volume growth through the first half of 2003. We continue to gain market share. The principal challenge facing the Company today is pricing pressure, driven by weaker demand, resulting in gross margin erosion. The Company believes that the 300 basis point margin erosion that it has experienced in the past six months will be only partially recovered until the overall industry environment improves. The Company can not accurately predict when market conditions will change and gross margins will Improve."

Mr. Adamson continued, "At this time, the only region in which our second quarter revenues are materially declining from first quarter levels Is the South Florida market. The South Florida marketplace Is subject to significant seasonality fluctuations. However, the seasonal nature of this market has been masked in the last few years by the significant growth in demand. MSN continues to be the dominant provider of per diem nurse staffing services In this market."

As previously announced, the Company has made a decision to suspend further de novo or allied branch-In-branch development for the current year. This decision will reduce the Company's previous revenue projections for the balance of 2003. The Company will evaluate reactivating its growth initiatives when management is comfortable that demand and price pressure issues have sufficiently recovered from present levels.

Second Quarter Results

The Company's second quarter results will be impacted by a restructuring cost of approximately $800,000 and a loss from

84


discontinued operations, net of taxes, of approximately $400,000 relating to the cessation of physicians staffing. The restructuring will yield improved operating income in subsequent quarters, as it is expected to decrease quarterly selling, general and administrative expenses by approximately $1 million. Further, second quarter results will reflect reduced gross margins as the Company absorbed the impact of increased compensation and benefit costs of its healthcare employees in an environment where bill rate increases were minimal.

New President and Chief Operating Officer

The Company also announced that Greg Guckes has joined the executive management team as President and Chief Operating Officer and will be reporting to Mr. Adamson.

Commenting on the appointment, Mr. Adamson said, "I am pleased to announce that, after an extensive six-month search, we have been successful in identifying an extremely qualified, talented, and charismatic individual to serve as President and Chief Operating Officer. Greg has spent his entire 25-year career in the healthcare sector, with executive management responsibilities in sales, marketing and operations. Most recently, he was Executive Vice President and Chief Operating Officer for American Medical Response, a leading provider of emergency and non-emergency ambulance services with over 200 locations across the country.

"Greg has extensive expertise in successfully managing multi-state healthcare operations and dealing with the challenges of growing a business towards the billion dollar revenue mark. I look forward to working with Greg in continuing to build Medical Staffing Network into one of the leading healthcare staffing companies in the country."

269. News of these events shocked the market, resulting in shares of Medical Staffing

falling 16.27%, or $1.44 per share, to close at $7.41 per share on June 17, 2003.

270. On June 16, 2003, Medical Staffing, through Adamson and Little, hosted a

conference call (the "Restructuring Conference Call"). During the Restructuring Conference

Call, Adamson commented on the de novo office closings:

As previously announced, the company has made a decision to suspend further de novo and allied branch and Isici branch development for the current year. This decision will reduce the company's previous revenue projections for the balance of 2003. The company will evaluate

85


reactivating these growth initiatives when management is comfortable that demand and price pressures have significantly recovered from present levels.

• . . we expect to report second quarter income from continuing operations per diluted share of $0.02, inclusive of the restructuring charges, but exclusive of the loss from the discontinued physicians staffing business on revenues of $136m to $137m. For the full year 2003, we expect to report income from continuing operations of $0.43 to $0.46, inclusive of the restructuring charges but exclusive of the loss from the discontinued physician staffing business on revenues of $555m to $570m.

271. Commenting on pricing pressures, Adamson stated, "There's generally just a

push back on all price increases, and that's come right out of our top-line, and obviously

right out of our gross margin."

272. Commenting on the locations of the de novo office closures, Adamson provided

limited detail, saying it was "very spread out over the country."

UNDISCLOSED ADVERSE FACTS

273. The market for Medical Staffing's common stock was open, well-developed and

efficient at all relevant times. As a result of these materially false and misleading statements and

failures to disclose, Medical Staffing's common stock traded at artificially inflated prices during

the Class Period. Plaintiff and other members of the Class purchased or otherwise acquired

Medical Staffing common stock relying upon the integrity of the market price of Medical

Staffing's common stock and market information relating to Medical Staffing, and have been

damaged thereby.

274. During the Class Period, Defendants materially misled the investing public,

thereby inflating the price of Medical Staffing's common stock, by publicly issuing false and

86


misleading statements and omitting to disclose material facts necessary to make Defendants'

statements, as set forth herein, not false and misleading. Said statements and omissions were

materially false and misleading in that they failed to disclose material adverse information and

misrepresented the truth about the Company, its business, and its operations, as alleged herein.

275. At all relevant times, the material misrepresentations and omissions particularized

in this Complaint directly or proximately caused or were a substantial contributing cause of the

damages sustained by Plaintiff and other members of the Class. As described herein, during the

Class Period, Defendants made or caused to be made a series of materially false or misleading

statements about Medical Staffing's business, prospects, and operations. These material

misstatements and omissions had the cause and effect of creating in the market an unrealistically

positive assessment of Medical Staffing's business, prospects, and operations, thus causing the

Company's common stock to be overvalued and artificially inflated at all relevant times.

Defendants' materially false and misleading statements during the Class Period resulted in

Plaintiff and other members of the Class purchasing the Company's common stock at artificially

inflated prices, thus causing the damages complained of herein.

ADDITIONAL SCIENTER ALLEGATIONS

276. As alleged herein, Defendants acted with scienter in that they knew or recklessly

disregarded that the public documents and statements issued or disseminated in the name of the

Company were materially false and misleading. In addition to the numerous allegations of

scienter throughout the Complaint, the Confidential Witnesses detail how Adamson and Little

specifically discussed the Company's rapid decline before, during, and after the IPO (1l 17-

119), how Adamson severely manipulated Medical Staffing's budget and forced Company

executives to "fix" their budget forecasts, threatening to fire them if they did not comply with his

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demands, and how Adamson insisted on inflated numbers and would "demand" more margin

because he "needed" to take increased numbers to Wall Street, saying things such as, "Now that

we are public, everything is about what we take to the market." (1150-178).

APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE MARKET DOCTRINE

277. At all relevant times, the market for Medical Staffing's publicly traded securities

was an efficient market for the following reasons, among others:

a. Medical Staffing's stock met the requirements for listing and was listed

and actively traded on the NYSE, a highly efficient and automated market;

b. as a regulated issuer, Medical Staffing filed periodic public reports with

the SEC, including reports on Form S-3;

C. Medical Staffing communicated with public investors via established

market communication mechanisms, including through regular disseminations of press releases

on the national circuits of major newswire services and through other wide-ranging public

disclosures, such as communications with the financial press and other similar reporting services;

and

d. Medical Staffing was followed by several securities analysts and

employed by major brokerage firms who wrote reports that were distributed to the sales force

and certain customers of their respective brokerage firms. Each of these reports was publicly

available and entered the public marketplace.

278. As a result, the market for Medical Staffing's publicly traded securities promptly

digested current information regarding Medical Staffing from all publicly-available sources and

reflected such information in Medical Staffing's stock price. Under these circumstances, all

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purchasers of Medical Staffing's publicly traded securities during the Class Period suffered

similar injury through their purchase of Medical Staffing's publicly traded securities at

artificially inflated prices and a presumption of reliance applies.

NO SAFE HARBOR

279. The federal statutory safe harbor provided for forward-looking statements under

certain circumstances does not apply to any of the allegedly false statements pleaded in this

Complaint. Many of the specific statements pleaded herein were not identified as "forward

looking statements" when made. To the extent there were any forward-looking statements, there

were no meaningful cautionary statements identifying important factors that could cause actual

results to differ materially from those in the purportedly forward-looking statements. In

addition, pursuant to Section 27A of the Securities Act, there is no safe harbor for forward-

looking statements made in connection with an initial public offering; any of the Company's

forward-looking statements in its Registration Statement and Prospectus receive no safe harbor

protection.

280. Alternatively, to the extent that the statutory safe harbor does apply to any

forward-looking statements pleaded herein, Defendants are liable for those false forward-looking

statements because at the time each of those forward-looking statements was made, the particular

speaker knew that the particular forward-looking statement was false, and/or the forward-looking

statement was authorized and/or approved by an executive officer of Medical Staffing who knew

that those statements were false when made. Moreover, to the extent that Defendants issued any

disclosures designed to "warn" or "caution" investors of certain "risks," those disclosures were

also false and misleading because they did not disclose that Defendants were actually engaging

in the very actions about which they purportedly warned and/or had actual knowledge of material

89


adverse facts undermining such disclosures.

281. In addition, to the extent that Defendants issued any disclosures designed to

"warn" or "caution" investors of certain "risks," those disclosures remained fixed even as the

risks they purported to warn of changed. Defendants left both their forecasts and cautions as is

throughout the Class Period.

COUNT III

FOR VIOLATIONS OF SECTION 10(B) OF THE EXCHANGE ACT AND RULE 1OB-5 PROMULGATED THEREUNDER AGAINST

MEDICAL STAFFING, ADAMSON, AND LITTLE

282. Plaintiff repeats and realleges the allegations set forth above as though fully set

forth herein. This claim is asserted against all Medical Staffing, Adamson, and Little.

283. During the Class Period, Medical Staffing, Adamson, and Little, and each of

them, carried out a plan, scheme, and course of conduct which was intended to and, throughout

the Class Period, did: (i) deceive the investing public, Plaintiffs and other Class members, as

alleged herein; (ii) artificially inflate and maintain the market price of Medical Staffing's

publicly traded securities; and (iii) cause Plaintiffs and other members of the Class to purchase

Medical Staffing's publicly traded securities at artificially inflated prices. In furtherance of this

unlawful scheme, plan, and course of conduct, Medical Staffing, Adamson, and Little, and each

of them, took the actions set forth herein.

284. These Defendants: (i) employed devices, schemes, and artifices to defraud; (ii)

made untrue statements of material fact and/or omitted to state material facts necessary to make

the statements not misleading; and (iii) engaged in acts, practices, and a course of business that

operated as a fraud and deceit upon the purchasers of the Company's securities in an effort to

maintain artificially high market prices for Medical Staffing's securities in violation of Section


10(b) of the Exchange Act and Rule 1 Ob-5. These Defendants were primary participants in the

wrongful and illegal conduct charged herein. Adamson and Little are also sued as controlling

persons of Medical Staffing, as alleged below.

285. In addition to the duties of full disclosure imposed on Defendants as a result of

their making of affirmative statements and reports, or participating in the making of affirmative

statements and reports to the investing public, they each had a duty to promptly disseminate

truthful information that would be material to investors in compliance with the integrated

disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R. § 210.01 et

seq.) and S-K (17 C.F.R. §229.10 et seq.) and other SEC regulations, including accurate and

truthful information with respect to the Company's operations, financial condition and

performance so that the market prices of the Company's publicly traded securities would be

based on truthful, complete and accurate information.

286. Medical Staffing, Adamson, and Little, individually and in concert, directly and

indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails,

engaged and participated in a continuous course of conduct to conceal adverse material

information about the business, business practices, performance, operations and future prospects

of Medical Staffing as specified herein.

287. These Defendants each employed devices, schemes and artifices to defraud, while

in possession of material adverse non-public information and engaged in acts, practices, and a

course of conduct as alleged herein in an effort to assure investors of Medical Staffing's value

and performance and continued "substantial growth," which included the making of, or the

participation in the making of, untrue statements of material facts and omitting to state material

facts necessary in order to make the statements made about Medical Staffing and its business

iJ1


operations and future prospects in the light of the circumstances under which they were made,

not misleading, as set forth more particularly herein, and engaged in transactions, practices and a

course of business which operated as a fraud and deceit upon the purchasers of Medical

Staffing's securities during the Class Period.

288. Each of the Defendants' primary liability, and Adamson and Little's controlling

person liability, arises from the following facts: a) Adamson and Little were high-level

executives and/or directors at the Company during the Class Period; b) Adamson and Little, by

virtue of their responsibilities and activities as senior executive officers and/or directors of the

Company, were privy to and participated in the creation, development and reporting of the

Company's internal budgets, plans, projections and/or reports; c) Adamson and Little enjoyed

significant personal contact and familiarity with each other and were advised of and had access

to other members of the Company's management team, internal reports, and other data and

information about the Company's financial condition and performance at all relevant times; and

d) Adamson and Little were aware of the Company's dissemination of information to the

investing public which each knew or recklessly disregarded was materially false and misleading.

289. Each of these Defendants had actual knowledge of the misrepresentations and

omissions of material facts set forth herein, or acted with reckless disregard for the truth in that

each failed to ascertain and to disclose such facts, even though such facts were available to each

of them. Such Defendants' material misrepresentations and/or omissions were done knowingly

or recklessly and for the purpose and effect of concealing Medical Staffing's operating condition,

business practices and future business prospects from the investing public and supporting the

artificially inflated price of its securities. As demonstrated by Defendants' overstatements and

misstatements of the Company's financial condition and performance throughout the Class

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Period, each of the Defendants, if he did not have actual knowledge of the misrepresentations

and omissions alleged, was reckless in failing to obtain such knowledge by deliberately

refraining from taking those steps necessary to discover whether those statements were false or

misleading.

290. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market prices of Medical Staffing's

securities were artificially inflated during the Class Period. In ignorance of the fact that market

prices of Medical Staffing's publicly traded securities were artificially inflated, and relying

directly or indirectly on the false and misleading statements made by Defendants, or upon the

integrity of the market in which the securities trade, and/or on the absence of material adverse

information that was known to or recklessly disregarded by Defendants but not disclosed in

public statements by Defendants during the Class Period, Plaintiffs and the other members of the

Class acquired Medical Staffing securities during the Class Period at artificially high prices and

were damaged thereby.

291. At the time of said misrepresentations and omissions, Plaintiffs and other

members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiffs

and the other members of the Class and the marketplace known of the true performance, business

practices, future prospects and intrinsic value of Medical Staffing, which were not disclosed by

Defendants, Plaintiffs and other members of the Class would not have purchased or otherwise

acquired their Medical Staffing publicly traded securities during the Class Period, or, if they had

acquired such securities during the Class Period, they would not have done so at the artificially

inflated prices which they paid.

292. By virtue of the foregoing, Medical Staffing, Adamson, and Little each violated

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Section 10(b) of the Exchange Act, and Rule 1Ob-5 promulgated thereunder.

293. As a direct and proximate result of Defendants' wrongful conduct, Plaintiffs and

the other members of the Class suffered damages in connection with their respective purchases

and sales of the Company's securities during the Class Period.

COUNT IV

FOR VIOLATIONS OF SECTION 20(A) OF THE EXCHANGE ACT AGAINST THE INDIVIDUAL DEFENDANTS

294. Plaintiff repeats and reiterates the allegations as set forth above as if set forth fully

herein. This claim is asserted against Adamson and Little.

295. Adamson and Little acted as controlling persons of Medical Staffing within the

meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level

positions with the Company, participation in and/or awareness of the Company's operations

and/or intimate knowledge of the Company's actual performance, Adamson and Little each had

the power to influence and control and did influence and control, directly or indirectly, the

decision-making of the Company, including the content and dissemination of the various

statements which Plaintiffs contend are false and misleading. Adamson and Little were provided

with or had unlimited access to copies of the Company's reports, press releases, public filings

and other statements alleged by Plaintiffs to be misleading prior to and/or shortly after these

statements were issued and had the ability to prevent the issuance of the statements or cause the

statements to be corrected.

296. In addition, Adamson and Little had direct involvement in the day-to-day

operations of the Company and, therefore, are presumed to have had the power to control or

influence the particular transactions giving rise to the securities violations as alleged herein, and

94


exercised the same.

297. As set forth above, Medical Staffing, Adamson, and Little each violated Section

10(b) and Rule 1 Ob-5 by their acts and omissions as alleged in this Complaint. By virtue of their

controlling positions, Adamson and Little are liable pursuant to Section 20(a) of the Exchange

Act. As a direct and proximate result of Defendants' wrongful conduct, Plaintiffs and other

members of the Class suffered damages in connection with their purchases of the Company's

securities during the Class Period.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs, on their own behalf and on behalf of the Class, pray for relief

and judgment, as follows:

a. Declaring that this action is a proper class action, and certifying Plaintiffs as class

representatives pursuant to Rule 23 of the Federal Rules of Civil Procedure and

Plaintiffs' counsel as Lead Counsel;

b. Awarding compensatory damages in favor of Plaintiffs and the other Class

members against all Defendants, jointly and severally, for all damages sustained

as a result of Defendants' wrongdoing, in an amount to be proven at trial,

including interest thereon;

C. Awarding Plaintiffs and the Class their reasonable costs and expenses incurred in

this action, including counsel fees and expert fees; and

d. Such other and further relief as the Court deems appropriate.

95


JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

DATED: September 1, 2004

LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP

Z4, ' "(- /I lou.W4, Jack Reise Florida Bar No. 058149 [email protected] Robert J. Robbins Florida Bar No. 0572233 [email protected] 197 South Federal Highway, Suite 200 Boca Raton, Florida 33432 Telephone: 561-750-3000 Facsimile: 561-750-3364

all


CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and correct copy of the foregoing was furnished to the

following by United States Mail on the following, on this 1St day of September, 2004.

Stanley Howard Wakshlag Brian Paul Miller Akerman Senterfitt & Eidson SunTrust International Center 1 S.E. 3rd Avenue 28th Floor Miami, Florida 33131-1714

Steven W. Greiner Wilikie Farr & Gallagher 787 Seventh Avenue New York, New York 10019-6099

e,4,4 ~- za".' Robert Robbin6'

97

Documents

UNITED STATE'S DISTRICT COURT JOSEPH AND PATRICIA …securities.stanford.edu/filings-documents/1029/MRN...3. Medical Staffing, based in Boca Raton, Florida and founded in 1998, is