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1 Plaintiffs' allegations pertaining to plaintiff and hiscounsel are made on knowledge. All other allegations are madeupon information (including that derived from analysis ofdocuments filed with the Securities and Exchange Commission,press releases, statements of securities analysts, news reports,and the investigation conducted by and through plaintiff'scounsel) and belief.
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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK
-------------------------------------x
SEMEN LEYKIN, :
on behalf of himself :
and all others similarly situated, :
: CASE NO. CV - -
Plaintiff, :
: CLASS ACTION COMPLAINT
v. :
:
: JURY TRIAL DEMANDED
AT&T CORPORATION, PATTI S. HART, :C. MICHAEL ARMSTRONG, MARK :McEACHEN, FRANK IANNA, :
CHARLES H. NOSKI, DANIEL H. SOMERS, :MUFIT CINALI, and JOHN C. PETRILLO :
: :
:
Defendants. :
:
-------------------------------------x
Plaintiff complains1 of defendants as follows:
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I. SUMMARY OF ALLEGATIONS
1. This is a securities class action on behalf of all
persons who purchased, converted, exchanged or otherwise acquired
the common stock of At Home Corp. (d/b/a Excite@Home, formerly
NasdaqNM “ATHM”, hereinafter referred to as “At Home” or “the
Company”) between April 17, 2001 and August 28, 2001. During the
class period, defendants made misrepresentations and/or omissions
of material fact, including:
C failing to disclose that At Home was burning
through its cash at a drastically higher rate than
indicated in its filings with the SEC and in other
public statements;
C failing to disclose that At Home had obtained $100
million worth of convertible note financing in
June 2000 from New York hedge fund Promethean
Investment Group, LLC by fraud, based on
misrepresenting the rate at which At Home was
burning through cash; and,
C affirmatively misrepresenting the amount of cash
that At Home would need to finance its ongoing
operations for the calendar year 2001.
2. While failing to disclose the foregoing material
facts, defendants caused At Home to fraudulently obtain so-called
2 The proposed class consists of all persons that purchased,exchanged, or otherwise acquired the stock of At Home Corp.between April 17, 2001 and August 28, 2001, inclusive.
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“death spiral” convertible note financing from Promethean
Investment Group, LLC (“Promethean”), which, when the fraud was
discovered and At Home Corp.’s stock hovered on the edge of being
delisted from the Nasdaq, was eventually called by Promethean.
3. Once Promethean found out about the fraud and
demanded $50 million in cash back from its investment in the
convertible notes and At Home indicated that it would not (and
could not) repay the loan, At Home’s cable company partners in
providing broadband Internet access over cable wires, Comcast and
Cox, immediately canceled their joint ventures with At Home, thus
depriving At Home of its only significant source of revenue. On
September 29, 2001, At Home announced that it would seek
bankruptcy protection. On October 23, 2001, At Home Corp.’s
share price hit a 52-week low of four cents per share.
4. In direct consequence of defendants' false and
misleading omissions to state material facts and fraudulent
course of conduct in violation of the Exchange Act and the common
law, plaintiff (and other members of the proposed class2)
purchased shares of At Home Corp. at artificially inflated prices
and suffered damages.
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II. JURISDICTION AND VENUE
5. The claims asserted herein arise under and pursuant
to multiple alleged violations of Sections 10(b) and 20(a) of the
Exchange Act 15 U.S.C. §§ 78j(b) and 78t(a) and Rule 10b-5
promulgated thereunder by the Securities and Exchange Commission
17 C.F.R. §240.10b-5, and the common law.
6. This Court has jurisdiction over the subject matter
of this action pursuant to 28 U.S.C. §§ 1331, 1337 and 1367 and
Section 27 of the Exchange Act 15 U.S.C. § 78aa.
7. Venue is proper in this District pursuant to
Section 22 of the Securities Act, Section 27 of the Exchange Act
and 28 U.S.C. § 1391(b). Defendant AT&T maintains its principal
place of business in this District; plaintiff's purchase occurred
here; and the acts complained of (including the trading of the
stock based upon misleading information, and the preparation,
issuance and dissemination of the materially false and misleading
information to the investing public), occurred in substantial
part in this District.
8. In connection with the acts alleged in this
Complaint, defendants, directly or indirectly, used the mails and
the means and instrumentalities of interstate commerce, including
telephonic communications.
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III. PARTIES
9. Plaintiff Semen Leykin (“plaintiff”) purchased At
Home Corp. stock during the class period at artificially inflated
prices as set forth in the Certification annexed as Exhibit “A”
hereto and was damaged thereby. Plaintiff and class members
relied or are deemed to have relied on market prices and on the
AT&T defendants to prepare truthful and accurate SEC filings and
other public statements.
10. Defendant AT&T Corp. (“AT&T”) is incorporated
under the laws of the State of New York and maintains its
executive offices at 32 Avenue of the Americas, New York, New
York. At all relevant times AT&T controlled, and acted as a
control person of, At Home Corp., d/b/a At Home by virtue of its
ownership of all of AT&T’s Class B stock, which constituted a 23%
economic interest in At Home and a 74% voting interest. At all
relevant times AT&T appointed six directors of At Home, which
constituted a majority of At Home’s eleven-person board.
11. Several individual defendants (together with
defendant AT&T Corp. the "AT&T Defendants") served, at times
relevant to the claims set forth herein, as a director and/or as
an executive officer of AT&T as set forth below:
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Name Position
C. Michael Armstrong Chairman of the Board of
Directors and Chief Executive Officer, AT&T Corp.
Frank Ianna Chief Quality Officer
Charles E. Noski Senior Executive Vice President
and Chief Financial Officer
Daniel H. Somers President and CEO, AT&T Broadband
John C. Petrillo Executive Vice President of Corporate Strategy and Business Development
In addition, defendant At Home Corp. Director Mufit
Cinali was nominated and elected by AT&T Corp.
12. Defendants Patti S. Hart and Mark McEachen served
at all relevant times as At Home’s Chief Executive Officer and
Chief Financial Officer, respectively. The AT&T Defendants and
defendants Hart and McEachen are known collectively as the
“Individual Defendants”.
IV. CLASS ACTION ALLEGATIONS
13. Plaintiff brings this action as a class action
pursuant to Rules 23(a) and (b)(3) of the Federal Rules of Civil
Procedure, on behalf of himself and a class (“the Class") of all
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persons who purchased, converted, exchanged or otherwise acquired
shares of At Home Corp. stock between April 17, 2001 and August
28, 2001, inclusive.
14. Excluded from the Class are defendants herein;
members of the immediate families of the individual defendants;
the directors, officers, affiliates, subsidiaries and parents of
defendant AT&T, as well as all of its subsidiaries and operating
affiliates (including, without limitation, At Home Corp.); any
person in which any excluded person has a controlling interest;
and the legal representatives, agents, heirs,
successors-in-interest or assigns of any excluded person.
15. The members of the Class are geographically
dispersed and so numerous that joinder of all members is
impracticable. At Home had approximately 400,000 Series A and B
common shares issued and outstanding at times relevant hereto.
The precise number of Class members is unknown to plaintiff at
this time but Class members are believed to number at least in
the thousands.
16. Common questions of law and fact exist as to all
members of the Class and predominate over any questions affecting
solely individual members of the Class. Among the questions of
law and fact common to the Class are:
-8-
C Whether defendants public statements including,
inter alia, At Home Corp.’s SEC filings, contained
untrue or misleading statements of material fact
C Whether the federal securities laws were violated
by defendants' acts as alleged herein; and,
C The extent of injuries sustained by members of the
Class and the appropriate measure of damages.
17. Plaintiff's claims are typical of the claims of
the other members of the Class. The damages suffered by
plaintiff and all other Class members arise from and were caused
by the same violations and course of conduct. Plaintiff does not
have interests antagonistic to, or in conflict with, the Class.
18. Plaintiff will fairly and adequately represent and
protect the interests of the members of the Class. Plaintiff has
retained competent counsel experienced in class action litigation
under the federal securities laws to further ensure such
protection and intends to prosecute this action vigorously.
19. A class action is superior to other available
methods (if any) for the fair and efficient adjudication of this
controversy. Since the damages suffered by individual Class
members may be relatively small, the expense and burden of
individual litigation make it virtually impossible for individual
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Class members to seek redress for the wrongful conduct alleged.
Plaintiff knows of no difficulty which will be encountered in the
management of this litigation that would preclude its maintenance
as a class action.
20. The names and addresses of the record purchasers
of At Home common stock during the Class Period are available
from the records of records of defendants, brokers, the
underwriters of At Home Corp. stock, and others. Notice can be
provided to Class members via a combination of published notice
and first-class mail using techniques and forms of notice similar
to those customarily used in class actions arising under the
federal securities laws.
21. Common questions of law and fact predominate and
include whether the defendants violated the Exchange Act, whether
defendants omitted and/or misrepresented material facts, and the
extent and appropriate measure of damages.
3At Home Corp. is and was at all relevant times a Delawarecorporation having its principal place of business at 450Broadway Street, Redwood City, California.
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V. UNDERLYING ALLEGATIONS
A. January 1999 Through April 2001: The Failure ofThe Excite@Home Business Model That Was Based OnGenerating Advertising Revenue Through AttractingVisitors To The Excite Web Site
22. Excite@Home, the moniker under which the At Home
Corp.3 conducted business at all relevant times, was formed on
May 28, 1999, at the height of the Internet boom, when At Home,
then as now primarily a provider of high-speed Internet access to
consumers via cable wires, acquired Excite, Inc., which then
operated web portal and content provider Excite.com, for cash and
stock worth $7.2 billion. The idea of the merger was that the
two operations would feed one another synergistically, because At
Home would provide viewers for Excite's content and Excite would
provide content for At Home's cable Internet customers. Making
certain not to undersell the combination, Tom Jermuluk, then the
Chairman and CEO of the new Excite@Home, stated in a press
release announcing the completion of the merger:
The closing of this merger represents the dawn of a newInternet era that will revolutionize the way consumers view and interact with communication, information, andentertainment services.
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23. Revenue would be produced by selling advertising
that could be targeted to individual consumers based on their
interests and spending habits, which in turn could be pinpointed
by monitoring what information each user accessed on the Excite
web portal.
24. The combination continued, after the business
model of the day, to seek ways of acquiring more and more
additional users to visit its Excite web site, which, Excite@Home
reasoned, would lead eventually to commensurately increasing
targeted advertising revenue. In the hopes of acquiring new
visitors to its web site, Excite@Home made numerous acquisitions
of content providers, including most notably acquiring the
electronic greeting card web site Blue Mountain Arts for over
$780 million. Blue Mountain continually lost money, but, because
it continually ranked among the most visited web sites it was
thought to be an important acquisition for the purpose of
steering more visitors toward the Excite web site. This was not
an unusual approach during the period-- quite the contrary. For
example, within a three-month period in early 1999 Yahoo! bought
online community GeoCities for $3 billion, and then raised the
stakes again by acquiring streaming media provider Broadcom for a
whopping $5 billion.
25. By late-2000, the At Home Corp. had realized that
its online media properties such as the Excite portal and Blue
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Mountain Arts still were not producing significant revenue and
that some of the goodwill and other intangible assets associated
with them would have to be written down. During 4Q 2000 (which
ended on December 31, 2000), At Home "recorded impairment write-
downs related to intangible assets of $4.6 billion." 10K/A-2
filed with the SEC on or about August 20, 2001, p. 13. This and
other factors led to a drop of At Home's claimed total assets
from $9.1 billion at the end of FY 1999 to $2.1 billion at the
end of FY 2000.
26. Thus, by the end of 2000 it was apparent that At
Home’s advertising-based online media business model had failed
and that At Home’s revenue growth in the future would likely come
from its sale of subscriptions for high-speed Internet service to
consumers through cable companies.
B. As of April 2001 At Home Corp. Appeared To BeViable As An Ongoing Broadband Internet AccessProvider, But Its Cash “Burn Rate” Emerged As ACrucial Material Fact For Investors Attempting ToEvaluate It As A Going Concern.
27. Despite the fact that Internet advertising as a
revenue source was turning out to be a non-starter, At Home
continued to present itself as a viable ongoing business based on
the relatively steady revenues produced by subscriptions to its
broadband Internet service.
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28. In a press release dated April 17, 2001 in which
At Home pre-announced its 1Q 2001 results showing increased
revenue over the year-earlier period, At Home's then-CEO, George
Bell, emphasized the potential of Internet service subscriptions:
Our core broadband business is strong... subscribergrowth continues at a rapid rate, our network isperforming a record levels of scale and reliability, andwe see important new opportunities... However, aweakening advertising environment has adversely affectedour narrowband media business. We must focus ourfinancial and human resources on our core business, andmake certain that we have the cash resources and the coststructure we need in order to realize the tremendousbroadband opportunities before us.
29. As of April 2001, At Home delivered its
subscription broadband Internet access service to about 3.2
million subscribers, including 2.9 million North American
subscribers, through several major cable companies, including
AT&T, the nation's largest cable company, which delivered service
to 950,000 customers and owned a 23% economic interest in At
Home. Two of At Home’s other large customers were Cox
Communications, Inc., which owned 7.1% of At Home, and Comcast
Corp., which owned 6% of At Home.
30. While the sale of Internet access through cable
wires was proving to be a solid revenue producer, accounting for
at least 53% of At Home’s revenues during the first quarter of
2001 and for an even greater proportion of its actual cash
revenues, At Home continued (as it had since beginning
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operations in 1995) to lose money during the first quarter of
2001, losing $832.6 million, or $2.05 per share, including yet
another writedown of goodwill and other intangible assets of
$600.01 million, on revenues of $142 million. Based on the
foregoing, At Home revealed to investors in the above-mentioned
April 17, 2001 press release for the first time that it would
probably not have enough cash to make it through the calendar
year 2001 unless it raised additional funds:
If the company does not raise at least $75 million to $80million by the end of the second quarter, there would bea material adverse impact on the company’s operations andliquidity. At Home Press Release date April 17, 2001.
The company elaborated in its quarterly report for the
first quarter:
Our cash position has deteriorated more rapidly than wepreviously anticipated since the end of the first quarterof 2001 due in large part to accelerating weakness in thedemand for online advertising and marketing services...10Q dated May 15, 2001, p. 25.
31. At Home only had $104.5 million in cash, cash
equivalents and short-term investments as of the end of 1Q 2001,
down from $200.8 million at the end of fiscal 2001. 10Q dated May
15, 2001, p. 3. Thus, At Home appeared to have about another
quarter’s worth of cash at its current “burn rate”.
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32. Based on the foregoing, as of May 15, 2001, the
“burn rate” or the rate at which At Home was consuming its cash
was a crucial material fact to investors in attempting to gauge
the likelihood that At Home could continue operations.
C. April--June 2001: Defendants Misrepresent to thePublic and Potential Investors At Home Corp.’sCash Burn Rate And Fraudulently Obtain AdditionalSo-Called “Death Spiral” Convertible DebtFinancing From Hedge Fund Promethean Investments
33. In attempting to address its cash crunch, At Home
turned first to AT&T, which owned a 37 percent economic interest
and a 74 percent voting interest in At Home by virtue of its
ownership of 100% of At Home’s Series B common stock and which
had elected six of At Home’s eleven directors. On April 19, 2001
At Home filed a Form 8-K with the SEC indicating that At Home and
AT&T had concluded in principle a “non-binding Letter of
Agreement” under which AT&T would provide At Home with $75-80
million in cash “in connection with restructuring of the backbone
fiber agreement between the companies and with a joint initiative
to maintain and improve current network performance levels.” The
agreement was structured in the form of a lease but essentially
provided that At Home would repay the $75-80 million cash
infusion over a 20-year period at the rate of $627,330 per month.
4The toxic notes could also be converted at any time byPromethean Capital (the Promethean entity that actually boughtthe notes) and Angelo, Gordon & Co., Inc., the firm that boughtthe other $50 million worth of notes, at the price of $4.3806 pershare. At Home could call or “redeem” the notes on the second,third, and fourth anniversaries of their issue. Otherwise, thenotes would mature five years after issue.
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34. To obtain even more funding, At Home turned to
Promethean Investment Group, LLC, a hedge fund that has been
termed Wall Street’s lender of last resort. Promethean and At
Home arranged for a private placement of $100 million worth of
“zero-percent five-year convertible secured notes” (“the toxic
notes”). Such notes are a species of what has come to be known
as “death spiral financing” or “toxic convertibles” because they
have in the past driven such cash-short enterprises as eToys Inc.
into bankruptcy. The reason such financing is so potentially
toxic to the desperate borrower is that the notes are convertible
to the borrower’s stock at approximately the market price upon
the occurrence of certain events. In the case of the At Home
toxic notes, Promethean could convert the notes into either cash
or At Home stock, at At Home’s option, on any of the first,
second, third or fourth anniversary of their issue or if At Home
was delisted by the Nasdaq.4
35. The provision allowing Promethean to convert the
notes into unlimited amounts of At Home stock should At Home be
delisted was regarded by commentators as the most potentially
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pernicious because the further the price of At Home stock fell,
the more shares that Promethean would obtain upon conversion and
the greater the dilutive effect of a conversion, assuming that At
Home opted to repay the loan in stock. This provided the
opportunity for Promethean and others to short the stock, drive
it below the threshold for listing on the Nasdaq, and then
exercise the conversion option, which would in turn dilute
shareholders and drive the share price down yet further (hence
the term “death spiral”). As New York fund manager Barry Nelson
stated:
The implications of a death spiral convertible are verysimilar to what happens in a bankruptcy situation,because the debt holders can end up with a theoreticallyunlimited amount of equity. (“Convertible Issuers AddReset Provisions”, Reuters, September 2, 2001)
36. The market immediately reacted negatively upon the
announcement of the Promethean toxic note financing, sending At
Home in a slide to $3.55 per share from $3.92. However,
commentators suggested that an imminent “death spiral” was not as
likely as it might be because of AT&T’s historic backing of At
Home. Indeed, at least one observer speculated that:
If the agreement with AT&T [to restructure the “backbone”contract and infuse $75-85 million] goes through, Excitemay very well pay back the bondholders from the proceeds.“Near Death Convertibles: Excite’s Latest Issue In SomeWays Resembles the Infamous eToys Death Spiral”,Investment Dealers Digest, June 18, 2001.
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37. The AT&T deal did indeed go through and was
announced on June 19, 2001 in a press release. In a June 19
conference call with investors, CEO Patti Hart stated that the
total of $185 million of new financing obtained by At Home in
June “exceeded our previously announced [cash needs] for the
calendar year.” Ms. Hart also gushed to Bloomberg News, “Today
is a great day for us at Excite@Home. Today is a day when we
have put the need for funding behind us." CFO Mark McEachen
stated in the conference call that he expected At Home’s cash
usage rate to decrease in the second half of 2000. Questioned
about At Home’s need for cash in 2001 and why At Home had not
borrowed more money from AT&T rather than concluding the
Promethean deal, McEachen added: “We have to look at how we can
get the financing need behind us... As we said, we needed $75-85
million by the end of the year... and we raised $185 million.”
38. Also in the conference call on June 19, when
questioned about the cash burn rate in connection with providing
cash to pay Promethean in June 2002 if the notes were converted,
incredibly, defendant Hart denied that she believed that At Home
would need to sell any assets to raise cash to repay the $100
million to Promethean.
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D. July-August 2001: Defendants Continue to MaintainThat At Home Can Continue As a Going ConcernDespite Revelations That It Needs More Cash toSurvive Until After The Shocking Firing of ItsAuditors and Looming Delisting From The Nasdaq
39. Notwithstanding defendants Hart and McEachen’s
triumphant statements in the June 19 conference call after
obtaining the Promethean and AT&T financing, At Home shocked the
market a little over one month later by revealing, in a
Registration Statement for the convertible toxic notes dated July
23, 2001, that in fact At Home needed yet more cash to continue
operations for the remainder of calendar year 2001. The market
reacted adversely, sending At Home’s share price to $1.60 on July
24.
40. At Home once again put a positive spin on matters.
As defendant Hart stated in a July 23, 2001 press release:
We are working quickly to reshape our company in order tolead the next phase of the growth in broadband... We areunique in our ability to deliver highly reliablebroadband network services and applications, and we arefocused on leveraging these capabilities to deliver awider array of services to a broader set of customers.
At Home Press Release dated July 23, 2001.
41. Despite the beginnings of questions about At Home’s
continued viability, analysts continued to doubt that AT&T and At
Home’s other major cable company shareholders, Cox and Comcast
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would allow At Home to go under. As Banc of America Securities
Analyst Douglas Shapiro stated after the announcement:
Though funding problems send up an immediate red flag inthis market, we believe it is highly unlikely that eitherAT&T or Excite@Home’s other cable partners would let thecompany fail. The reason is that Excite@Home is simply toostrategically important: the cable operators can’t run therisk that Excite@Home’s problems will result in widespreadservice shortfalls or outages for their cable modemsubscribers.
42. Announcing its 2Q 2001 earnings in a press release on
July 23, defendant Hart gave no indication that At Home was
desperately shore of cash, instead stating:
Despite facing a number of tough challenges, we executedsolidly this quarter, posting results in line with ourtargets and delivering ever-higher levels of networkreliability and customer satisfaction. Demand for broadbandservices remains high, our access revenues continue to growrapidly and we continue to work towards the break-even markon operating EBITDA. At Home Press Release Dated July 23,2001.
43. In the general optimism despite At Home’s astounding
July 23 reversal regarding its need for cash to continue its
operations until the end of 2001, many investors overlooked the
fact that, with its lowered net tangible assets and shareholder
equity, At Home needed to maintain a $3 minimum bid price, not
merely keep its price above $1, to remain listed on the Nasdaq.
44. On August 21, 2001, At Home dropped a bomb on
investors, revealing in an amendment to its annual report that
its independent auditors, Ernst & Young, LLP, had raised
5“Excite@Home Warns It May Shut Down” The Wall StreetJournal, August 21, 2001.
-21-
“substantial doubt” about At Home’s ability to continue as a
going concern during what now began to appear to be a serious
cash crunch.
45. At Home now changed its tune, stating:
These conditions raise substantial doubt about our abilityto continue as a going concern...[w]e cannot guarantee thatwe will be able to obtain additional funding on acceptableterms, if at all.” 2000 10K/A2 filed with the SEC on orabout August 20, 2001, p. 43.
46. This announcement sent At Home stock, already
hovering below the usual Nasdaq $1.00-per-share threshold for
listing, plunging forty cents or 46% to 47 cents per share.
However, an unnamed At Home source let it be known that it was
unlikely that AT&T would ever let Excite@Home fold completely
since its network was so important to the future of AT&T
Broadband.5
47. On August 22, At Home announced that it had fired
Ernst & Young as its auditors as of August 15, 2001.
-22-
E. Defendants’ Fraud On Promethean And Out Of Control Burn RateAre Revealed And At Home Defaults On Its Debts and Loses ItsTwo Biggest Contracts As A Result
48. The disasters of August were not yet over for At
Home. On August 27, 2001 Excite issued a press release which
read, in part:
Excite@Home (Nasdaq: ATHM) announced today that it hasreceived a written notice from two of the holders of itsConvertible Notes demanding payment of $50 million of thosenotes on or before Friday, August 31, 2001. The Notes wereissued on June 8, 2001 in a private placement to twoinvestment funds managed by Promethean Investment Group LLC. Promethean has asserted that Excite@Home breached certain
representations made when the Notes were issued. Excite@Homedisputes both the assertion of breach of representations andthe contention that the Notes may now be declared due andpayable. However, if the company were required to makepayments of the Notes at this time, it would have amaterially adverse impact on the company's liquidity and itsability to fund its operations.
49. Thus, it appeared that already cash-poor At Home had
less than one week to come up with $50 million.
50. While Promethean refused to comment on the manner in
which AT&T had misrepresented itself, saying only that it had
“carefully considered the underlying facts which form the basis
for the breach of the agreement and [was] highly confident about
the position it ha[d] taken,” Promethean sources intimated to
reporters that At Home had lied about its cash burn rate and
misrepresented its financial position at the time of the
-23-
negotiations preceding Promethean’s agreement to invest in At
Home. Many in the press now openly speculated whether having to
pay back $50 million in cash would send cash-poor At Home into
bankruptcy.
51. On August 30, At Home announced that it would refuse
to repay Promethean’s loan, due the next day. Then, on August
31, At Home’s last best hope for survival evaporated when its
cable partners Cox and Comcast announced that they were
terminating their relationship with At Home because of doubts
regarding its continuing ability to operate. Said Comcast
President Steve Burke:
In light of recent published reports regarding ExcitAtHome’sfinancial condition, we felt that exercising the exitprovision in our contract now was in the best interests ofour customers and shareholders... we will have 950,000customers by year-end, and we need to ensure that theycontinue to be well served.
At Home’s stock price plunged nineteen percent, to 42 cents.
52. On September 10, 2001, At Home announced that
defendant McEachen had resigned as CFO effective September 9.
53. On September 28, 2001 At Home sought bankruptcy
protection in the U.S. Bankruptcy Court for the Northern District
of California.
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54. On October 22, At Home was delisted from the Nasdaq,
and on October 23, 2001 At Home hit a new low in its first day
trading on the OTC Bulletin Board, changing hands at four cents
per share.
G. STATUTORY SAFE HARBOR AND FRAUD ON THE MARKET
55. The statutory safe harbor provided for forward-
looking statements does not apply here as the statements
challenged in the Registration Statement and Prospectus were not
forward looking. Plaintiff will rely at least in part upon the
presumption of reliance established by the fraud-on-the-market
doctrine.
AS AND FOR A FIRST CAUSE OF ACTION AGAINST ALL DEFENDANTS FORVIOLATIONS OF SECTION 10 (b) OF THE EXCHANGE ACT AND RULE 10b-5PROMULGATED THEREUNDER
56. Plaintiff repeats and realleges each and every
allegation contained above as though fully set forth herein.
57. Defendants and At Home Corp. had a duty promptly to
disseminate truthful information that would be material to
investors in compliance with the integrated disclosure provisions
of the SEC as embodied in SEC regulations S-X (17 C.F.R. §§
210.01 et seq.) and Regulation S-K (17 C.F.R. §§ 229.10 et seq.)
-25-
and other SEC regulations. This included but was not limited to
accurate and truthful information with respect to At Home’s burn
rate and ability to continue in business without additional
funding.
58. However, the defendants and At Home, 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, operations, and future prospects of At Home as
specified herein.
59. When defendants and At Home made positive statements
about At Home’s ongoing operations and prospects to plaintiff
during the Class Period, the defendants knew of the omitted
material facts alleged above but purposely concealed same as part
of the fraudulent scheme, artifice and course of conduct alleged
herein.
60. The delay of the disclosure of adverse facts was
intended to manipulate market perceptions and constituted a
course of conduct which was intended to and did: (i) deceive the
investing public, including plaintiff; (ii) artificially inflate
and maintain the price of At Home stock; and, (iii) cause
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plaintiff and the Class to purchase At Home stock at an
artificially inflated price.
61. In furtherance of this unlawful scheme, plan and
course of conduct, defendants and At Home Corp. took the actions
set forth herein. In doing so, defendants (a) employed devices,
schemes and artifices to defraud; (b) made untrue statements of
material fact and/or omitted to state material facts necessary to
make the statements not misleading; and (c) engaged in acts,
practices, and a course of business which operated as a fraud and
deceit upon plaintiff.
62. Defendants’ ongoing artifice and scheme to
artificially inflate the price of At Home stock was unknown to
plaintiff at the time of his purchases and was not disclosed or
reported in any filing by At Home under the federal securities
laws.
63. Defendants’ intent to engage in the scheme and
artifice alleged herein can be inferred from the illegality and
irregularity of such a scheme and artifice, based on the fact
that such scheme was highly unreasonable and an extreme departure
from the standards of ordinary care, such that the dangers
inherent therein were either known to defendants or so obvious
that they must have been aware of them. In addition, defendants
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engaged in such scheme and artifice motivated by substantial
personal financial motives as set forth in ¶ 64, infra.
64. Defendants had substantial economic motives to
conceal the facts and deceive plaintiff and the market, including
the desire to keep At Home’s stock price at as high a level as
possible in order to artificially inflate the value of their own
At Home stock and/or exercise their own At Home stock options
which would not have been “in the money” were it not for the
price artificiality caused by defendants’ course of conduct.
65. Alternatively, defendants and At Home Corp.
recklessly misled plaintiff. If defendants did not have actual
knowledge of the misrepresentations and omissions alleged, then
they were reckless in failing to obtain such knowledge by
deliberately refraining
from taking those steps necessary to discover whether statements
made to plaintiff were true.
66. As a result of the dissemination of the materially
false and misleading information and failure to disclose all the
material facts, the market price of At Home stock was
artificially inflated. In reliance on defendants' conduct and
the market, plaintiff acquired At Home stock at artificially high
prices and was damaged thereby.
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67. Plaintiff reasonably relied or is legally deemed to
have reasonably relied on defendants' misstatements and omissions
of the previously alleged material facts. Plaintiff’s
acquisition of At Home stock at an inflated price was the
foreseeable result of the aforementioned material omissions
because said omissions led to the inflation of At Home stock’s
market price and, by connection, the price at which plaintiff
bought the stock.
68. By virtue of the foregoing, defendants and At Home
Corp. have violated § 10(b) of the Exchange Act, and Rule 10b-5
promulgated thereunder. As a direct and proximate result of said
violation, plaintiff suffered damages in connection with the
purchase and/or sale of At Home stock.
AS AND FOR A SECOND CAUSE OF ACTION PURSUANT TO SECTION20(a) OF THE EXCHANGE ACT AGAINST ALL DEFENDANTS
69. Plaintiff repeats and realleges each and every
allegation contained above as though fully set forth herein,
including the allegations of scienter set forth at ¶¶ 63-65,
supra.
70. Defendants acted as controlling persons of At Home
Corp. within the meaning of Section 20(a) of the Exchange Act as
alleged herein. By virtue of defendant AT&T Corp.’s majority
voting interest in At Home Corp. and the individual defendants’
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high-level positions, and their ownership and contractual rights,
participation in and/or awareness of At Home’s operations, the
defendants had the power to influence and control and did
influence and control, directly or indirectly, the decision-
making of At Home, including the wrongful acts alleged herein.
71. In particular, by virtue of their positions each of
the individual defendants had direct and supervisory involvement
in the operations of At Home Corp. and, therefore, is presumed to
have had the power to control or influence the particular
transactions giving rise to the securities violation herein, and
exercise the same. Such transactions included, without
limitation, At Home’s dissemination of misleading public
statements and failure to disclose adverse material facts
regarding its financial condition.
72. As set forth above, defendants, including, inter
alia, AT&T, as well as nonparty At Home Corp., each violated §
10(b) and Rule 10b-5 by their acts and omissions as alleged in
this Complaint. By virtue of their positions as controlling
persons of At Home Corp., the defendants are liable pursuant to
§ 20(a) of the Exchange Act. As a direct and proximate result of
defendants’ wrongful conduct, plaintiff suffered damages in
connection with his purchases of At Home stock.
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AS AND FOR A THIRD CAUSE OF ACTION AGAINST ALL DEFENDANTS FOR COMMON LAW FRAUD
73. Plaintiff repeats and realleges each of his previous
allegations as though fully set forth hereat.
74. Defendants owed plaintiff a duty of full disclosure,
honesty, candor, and a duty to exercise reasonable care in making
public statements regarding At Home's business, financial results
and operations.
75. In furtherance of the scheme and artifice alleged
herein, and with intent to deceive investors, defendants made
and/or participated in the making of the misrepresentations and
omissions of fact to plaintiff regarding At Home’s business as
described above.
76. The aforementioned materially misleading
misrepresentations and omissions of material facts were made by
defendants intentionally, with knowledge that they were false, or
in reckless disregard of their falsity, to artificially inflate
the market price of At Home's common stock and to induce
plaintiff to purchase said stock. Defendants knew that plaintiff
and the Class were relying on their misrepresentations and
omissions as well as the artificially inflated market price of At
Home's common stock.
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77. As a direct and proximate result of such unlawful
conduct, plaintiff has suffered money damages.
JURY DEMAND
Plaintiff hereby demands a trial by jury.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for judgment as follows:
A. Awarding plaintiff damages and statutory compensation
against all defendants, jointly and severally,
including disgorgement of all unjust enrichment,
jointly and severally, and punitive damages pursuant to
the common law of the State of New York, jointly and
severally, in favor of plaintiff in an amount to be
determined to at trial plus pre-judgment interest
thereon;
B. Awarding plaintiff the costs and expenses of this
litigation, including reasonable attorneys' fees, and
experts' fees and other costs and disbursements; and,
C. Granting plaintiff such other and further relief as to
this honorable Court may seem just and proper.
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Dated: New York, New YorkMarch 5, 2002
LOVELL & STEWART, LLP
By__________________________Christopher Lovell (CL 2595)Christopher J. Gray (CG 0334)500 Fifth AvenueNew York, New York 10110(212) 608-1900
Attorneys for Plaintiff Semen Leykin