Kalmus, et al. v. Cobin & Wertz, et al. 96-CV-1250-First ...securities.stanford.edu/filings-documents/1015/access96/1997623_r... · San Diego, CA 92101 Telephone: ... PETER KALMUS,

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

2-1

^:

28

MILBERG WEISS BERSHAD ORIGINALHYNES & LERACH LLP

WILLIAM S. LERACH (68581)PATRICK J. COUGHLIN (111070)HENRY ROSEN (156963)KRISTEN McCULLOCH (177558)600 West Broadway, Suite 1800San Diego, CA 92101Telephone: 619/231-1058

EUGENE MIKOLAJCZYK (106929)1165 N. BienvenedaPacific Palisades, CA 90272Telephone: 310/454-8435

WECHSLER HARWOOD HALEBIAN& FEFFER LLP

ROBERT I. HARWOODRICHARD B. BRUALDI805 Third Avenue7th FloorNew York, NY 10022Telephone: 212/935-7400

Attorneys for Plaintiffs

F7 ri

JUN 2 3 ..a7 .

Cl ERK, U . S. Gigi" CTCOURTCENTRAL DISTRf CF CALIFORNIA

[Additional counsel appear on signature page.]

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

SOUTHERN DIVISION

PETER KALMUS , et al., On Behalf ofT em-seIve-s, and All Others SimilarlySituated,` ,

Plaintiffs,o

Y L+ ':IWB ti; WERTZ , et al.,N Du

Defendants.

No. SACV-96-1250-GLT(Eex)

CLASS ACTION

FIRST AMENDED CLASS ACTIONAND INDIVIDUAL COMPLAINTFOR VIOLATIONS OF THESECURITIES EXCHANGE ACT OF1934

Plaintiffs Demand aTrial By Jury

[Caption continued on following page.]

INrraED ON DiS_^^

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

RICHARD AVON, KEN AVON, JEANCHARLENT, DUANE D'AGOSTINO, STEPHEN

MADDEN, ROBERT MASESSA, LOUIS ANDROSE ARGENZIANO, ROBERT AND MICHELEBACON, FRED BERGMAN, LAURA J. BOHN,

DR. JUAN C. CARIONI, P.C., JUAN C.CARIONI, CHARLES COSTELLO, JOSEPHDEROSA, HENRY AND MARISOLDIGIROLAMO, WILBUR ECKERSON,CARMINE GESUALDI, CARMINE ANDKATHLEEN GESUALDI, J. DAVIDJOHNSON, DONALD AND KAREN JONES,BARBARA LOONEY, WILLIAM LOONEY,GEORGE AND GEORGIANNA MARINARI,GEORGE MARINARI, ANTHONY AND GLORIAMARSICO, JOHN P. MCKENNA, JOHN J.MELLETT, DR. ARTHUR ROSE, DONALDSCOVIRA, GLEN AND YOLAN SLATER,YOLAN SLATER, BRET SLATER, ANTHONYAND CARMEN SPERDUTO, ERNA BERGER,ROBERT L. AND CAROLE J. CERASIA,DR. PATRICK CICCONE, DR. LOUISPADAVANO, STEPHEN J. COHEN, DR.JOHN PETILLO, ARTHUR C. ASCHOFF, A.DAVID ASCHOFF, JOHN CHRABASZ,KENNETH BARBOZA, COREY AND TERRYDUVALL, SUZANNE EIKEN, ERIC ANDHALLIE SWERDLIN, ERIC SWERDLIN,JERRY CHAIT, THE ELLIE WATSONTRUST, RONALD FEIGER, DONNA GEILS,MARK GLASS, DAVID HAYES, GOLDIEMILLER, CLIFF SAMARA, JEROME ANDSUSAN SCHLICHTER, JOYCE SWERDLIN,DAVID WOLFSON, DAVID WOLFSON TRUSTUWO, AND ZARINELO AND LENETTEORTEGA,

Plaintiffs,

vs.

STEVEN E. LEVY, KEITH M. BERMAN,JAMES J. KEEGAN, JOHN D. GARBER,PHILIP BECTON, CORBIN & WERTZ, ANDFENWICK & WEST,

Defendants.

No. SACV-97-191-GLT(Eex)

CLASS ACTION

1 SUMMARY OF ACTION

2 1. This is an individual and class action on behalf of all

3 persons who purchased the securities of Access HealthNet, Inc.

4 ("Access HealthNet" or the "Company"), between January 25, 1995 and

5 December 29, 1995 (the "Class Period") , seeking to pursue remedies

6 under Sections 10(b) and 20(a) of the Securities Exchange Act of

7 1934 ("Exchange Act") and Rule 10b-5 promulgated thereunder (the

8 "Class"). This action involves a course of conduct by Access

9 HealthNet insiders, officers and directors of the Company, the

10 Company's auditors and United States Securities and Exchange

11 Commission ("SEC") counsel that was designed to and did defraud

12 those who purchased Access HealthNet securities during the Class

13 Period.

14 2. This case involves defendants' use of manipulative

15 devices and their dissemination of false financial statements and

16 other false and misleading information about Access HealthNet's

17 business, all of which was, inter alia , designed to and did:

18 (a) artificially inflate the price of Access HealthNet securities

19 during the Class Period; (b) induce investors to purchase shares of

20 Access HealthNet stock; (c) allow certain defendants to sell or

21 offer to sell millions of dollars of their own Access HealthNet

22 shares at artificially inflated levels; and (d) allow defendants to

23 sell or offer to sell millions of dollars of Access HealthNet

24 securities to private investors in various private placement

25 transactions.

26 3. Not until December 29, 1995, did the true extent of

27 defendants' wrongful conduct become apparent, since on that date

28 Access HealthNet announced that it would liquidate pursuant to

- 2 -

1 Chapter 7 of the Federal Bankruptcy Code. Access HealthNet remains

2 in bankruptcy through the current time.

3 INTRODUCTION

4 4. Access HealthNet developed and sold computer operated

5 information and communication systems to the healthcare industry,

6 including hospitals, commercial and biomedical research

7 laboratories, physicians offices and clinics. Access HealthNet

8 products were designed to operate on commercially available off-

9 the-shelf computer hardware to allow easy communication between

10 clinical laboratories, physicians offices and hospitals. The

11 Company's computer systems were all modular, i.e., an entry level

12 system that could be upgraded into a more powerful system. Access

13 HealthNet's computer systems were ostensibly designed to collect

14 and report analytical as well as billing and general office data.

15 5. The Company designed its various hardware and software

16 products to appeal to the needs and demands of particular

17 healthcare market niches. The Company's flagship products included

18 three trademark products: LabACCESS, RemoteACCESS and ACCESS

19 MedLink. LabACCESS was designed for use in medical laboratories as

20 an adjunct to clinical testing instruments by collecting data

21 directly from laboratory devices, performing specialized data

22 manipulation functions and reporting the results to laboratory

23 personnel. LabACCESS also incorporated software that managed

24 regulatory and quality assurance protocols, as well as billing

25 functions. RemoteACCESS was designed to allow physicians to order

26 laboratory tests and retrieve and code laboratory test results

27 directly from the physician's office. RemoteACCESS also included

28 a wide range of other features such as back office accounting

- 3 -

1 functions, electronic mail and billing. ACCESS MedLink was an

2 enhanced version of RemoteACCESS designed to provide direct

3 communication between the physician's office and the hospital,

4 laboratory, pharmacy or radiology center. ACCESS MedLink also

5 included additional software packages including two word-processing

6 programs, electronic mail, auto-fax, billing and electronic mail

7 transfer of insurance claims to Medicare. Each of the Company's

8 products were designed to be specially tailored to fit the needs of

9 each individual customer.

10 6. Access HealthNet commenced business in 1989. The Company

11 was incorporated in Delaware with its principal place of business

12 in California. Until June 1992 the Company's business consisted

13 primarily of selling its LabACCESS laboratory information systems

14 to small hospital clinical laboratories. In July 1992, the Company

15 shipped its first remote communication product, RemoteACCESS.

16 Based upon the purported success of its LabACCESS and RemoteACCESS

17 products as well as its ACCESS MedLink product which was introduced

18 in March 1994, the Company reported "' record sales and earnings ,'"

19 and represented to the market that it was experiencing consistent

20 increases in revenues and income throughout 1994 and 1995 . In

21 fact, however, to the contrary, defendants were "cooking the books"

22 at Access HealthNet. During the period of time alleged herein,

23 Access HealthNet prematurely and improperly recognized lease and

24 sales revenues in violation of Generally Accepted Accounting

25 Principles ("GAAP") and utilizing the false financial statements

26 that resulted therefrom, certain of Access HealthNet's officers and

27 directors, in conjunction with the Company's accountants Corbin &

28

11

Wertz and attorneys Fenwick & West, artificially inflated the price

- 4 -

1 of Access HealthNet stock and thereafter raised millions of dollars

2 from investors through open market sales and private placements of

3 Access HealthNet securities. Moreover, certain of Access

4 HealthNet's officers and directors successfully capitalized on

5 their false and misleading statements by selling hundreds of

6 thousands of dollars of their own Access HealthNet holdings at

7 artificially inflated prices.

8 7. On January 25, 1995, the beginning of the Class Period,

9 the Company became listed on the NASDAQ National Market System. On

10 the same day, each of the defendants signed, prepared, disseminated

11 and/or wilfully participated in: (a) the filing of the Registration

12 Statement on Form SB-2 and amendments thereto (the "Registration

13 Statement"), which included a Prospectus (the "Prospectus"); and

14 (b) the dissemination of the Prospectus. By means of the

15 Prospectus, defendants registered Access HealthNet shares for sale

16 to create a trading market, thereby liquefying Access HealthNet

17 stock. With the wilful participation of the Company's auditors and

18 SEC counsel -- defendants Corbin & Wertz and Fenwick & West,

19 respectively -- defendants were able to file multiple drafts and

20 the final Registration Statement and Prospectus that contained

21 materially false and misleading statements, including false

22 financial statements for fiscal year 1994 ended March 31, 1994, the

23 three month period ended June 30, 1994 and the six month period

24 ended September 30, 1994. The drafts and final Registration

25 Statement and Prospectus also omitted material information

26 regarding the Company's actual operating performance in that the

27 Company: (a) faced huge liquidity problems; (b) was not converting

28 accounts receivable; (c) was improperly recognizing massive amounts

- 5 -

1 of revenue from distributors that were actually related parties;

2 (d) revenue recognition policies violated GAAP; (e) equity

3 structure was in dispute; (f) future business prospects were bleak;

4 and (g) was unable to report accurate financial information, as

5 described in detail at ¶¶110-54.

6 8. Despite the misleading statements in and omissions from

7 the Prospectus, the selling stockholders, including certain

8 defendants, nonetheless registered 2,738,085 shares and offered

9 them for sale. On the same day the Registration Statement was

10 declared effective and Access HealthNet shares were listed on the

11 NASDAQ National Market System, defendant John D. Garber ("Garber")

12 sold 20,000 shares on the open market.

13 9. On February 10, 1995, the Company falsely reported

14 "RECORD" revenues of $3.3 million for the first nine months of

15 fiscal 1995 ended December 31, 1994, an increase of over 3000 from

16 the prior year and net income of approximately $408,068. The

17 Company claimed that the increase in revenues was " primarily a

18 result of increased sales to distributors ." Thereafter, the

19 defendants continued to assert that the Company was experiencing

20 " RECORD " results and that they were "' excited '" about the Company's

21 prospects. To the contrary, the true facts at that time were that:

22 (a) defendants Steven E. Levy ("Levy"), Keith M. Berman ("Berman"),

23 James J. Keegan ("Keegan") , Garber and Corbin & Wertz caused and/or

24 allowed Access HealthNet to report artificially inflated revenues

25 and earnings; and (b) the Company faced serious liquidity problems.

26 Consequently, to hide their misrepresentations and material

27 omissions, the defendants found it necessary to repeatedly comfort

28 the market with announcements regarding Access HealthNet's future

- 6 -

1 financing programs which purportedly would allow Access HealthNet

2 to readily convert Access HealthNet's lease receivables into cash.

3 The defendants made these false representations despite the fact

4 that a majority of such leases had not even been executed or had

5 been executed on terms that rendered them unsalable to third party

6 institutions. Consistently throughout the Class Period, the

7 defendants maintained that they were improving the Company's

8 liquidity through such financing agreements.

9 10. In July 1995, Access HealthNet announced that it was

10 necessary to restate its "RECORD" interim financials, admitting

11 that the defendants had overstated 1995 revenues by a total of $4.4

12 million. In response to this adverse announcement, the price of

13 Access HealthNet stock dropped by more than 10% on heavy volume,

14 but continued to trade at artificially inflated levels because

15 defendants failed to reveal the full amount of falsely recognized

16 revenue and instead steadfastly represented that revenue had been

17 and would be recognized only " upon complete delivery " and

18 " acceptance by the customer or distributor ." With the complicity

19 of Corbin & Wertz, the defendants were able to falsely convince the

20 market that Access HealthNet was now recognizing and reporting

21 revenue properly. Furthermore, the defendants maintained that al

22 majority of the " adjustments " made in connection with the fiscal

23 1995 audit would be recognized during fiscal 1996. The Company

24 also announced that defendant Levy would take over day-to-day

25 control of Access HealthNet. Despite such assurances to the market

26 that the Company was recognizing revenue properly and that the

27 Company would recognize the adjusted revenue in 1996, defendants

28 were aware that at least an additional $5.7 million of 1995 revenue

- 7 -

1 had been improperly recognized in violation of GAAP. Defendants

2 were also aware that Corbin & Wertz had not conducted its 1995

3 audit in accordance with Generally Accepted Auditing Standards

4 ("GRAS") and that no reasonable basis existed for the statement

5 that the Company expected to recognize most of the revenue adjusted

6 in 1995 during fiscal 1996.

7 11. In a further attempt to deceive the market by alleviating

8 concerns regarding the liquidity of certain of Access HealthNet's

9 assets, the defendants continued to represent, as late as August

10 1995, that most of the Company's $14 million in accounts receivable

11 would be converted into cash within the next 180 days .

12 Furthermore, with respect to Access HealthNet's accounting

13 policies, defendants Levy, Berman, Keegan and Garber continued to

14 cause the Company to falsely represent that its financial

15 statements reflected " all adjustments . considered necessary

16 for a fair presentation ." Moreover, the defendants represented

17 that they were "' very excited '" and " very pleased '" with Access

18 HealthNet's prospects, at the same time they continued to approve

19 and disseminate fraudulent financial statements.

20 12. In late September 1995, Horace Hertz ("Hertz"), formerly

21 the Corbin & Wertz concurring partner of the Access HealthNet

22 audit, became the Senior Vice President in charge of Finance at

23 Access HealthNet.

24 13. To further maintain defendants' charade, on or about

25 October 18, 1995, defendant Levy disseminated a letter to

26 shareholders in which he stated that his sole objective was "to

27 maximize shareholder value ;" that the Company had " more than 70

28 proposals outstandincr, which represent[ed] over $20,000,000 in

- 8 -

1 revenues ;" that the Company was " in the process of implementing a

2 program " that would enable it to liquify existing obligations owed

3 to it; and that the Company " expect[ed] to complete a significant

4 number of installations in the quarter ending March 31, 1996 ."

5 14. At the same time, however, that defendants were assuring

6 the market of their efforts to "maximize shareholder value," the

7 Company actually faced severe liquidity problems and was in dire

8 need of a capital infusion in order to continue its operations.

9 Therefore, defendants set about to offer for sale the private

10 placement of Access HealthNet securities in September and October

11 1995, as a result of which the Company raised approximately $2

12 million.

13 15. Throughout October, November and December 1995,

14 defendants continued to represent that they had taken steps to

15 strengthen the Company and turn it around. At the same time,

16 however, defendants knew, or should have known, that customers were

17 cancelling contracts with Access HealthNet because the Company

18 could not install systems that functioned properly nor possessed

19 the capabilities promised by the Company. Such customers included

20 Community Health Systems, Unilab Corporation ("Unilab") and

21 Physicians Clinical Laboratory, Inc. ("PCL") as well as the

22 Company's largest distributor in Southern California. Furthermore,

23 by October 1995, the Company had returned substantial amounts of

24 hardware to Digital Equipment Corp. ("Digital Equipment") and

25 placed a moratorium on equipment purchases.

26 16. It was not until December 1995, approximately two months

27 after raising $2 million in private placements, that the Company

28 11 revealed to the public its "'huge burn rate.'" Thereafter, on

- 9 -

1

1 December 29, 1995, leaving Access HealthNet's shareholders who had

2 purchased stock at artificially inflated prices holding the bag,

3 defendants announced that Access HealthNet had sought protection

4 under Chapter 7 of the Federal Bankruptcy Code. Consequently,

5 after having traded as high as $13-3/8 per share during the class

6 Period, Access HealthNet stock became worthless and was delisted

7 from NASDAQ.

8 17. Defendants' wrongful conduct, therefore, involved stock

9 manipulation by corporate insiders who intentionally issued false

10 and misleading statements for the purposes of offering to sell

11 and/or inducing the purchase of Access HealthNet securities,

12 despite the fact that they knew or should have known of the falsity

13 of their representations. The defendants' false statements

14 inflated the price of Access HealthNet stock, allowing certain

15 defendants and the Company to sell millions of dollars of Access

16 HealthNet securities at inflated prices to the investing public.

17 Defendants' wrongful conduct also includes at least reckless

18 participation by defendants Corbin & Wertz and Fenwick & West in

19 the other defendants' wrongful acts of selling or offering to sell

20 Access HealthNet stock while making material misrepresentations

21 and/or omissions.

22 18. Although plaintiffs, both individual and Class and the

23 Class they seek to represent, purchased shares of Access HealthNet

24 stock at artificially inflated prices and they were left with

25 worthless stock following the Company's filing of bankruptcy,

26 certain defendants fared better by selling their own Access

27 HealthNet stock at prices artificially inflated by their fraud.

28

11 - 10 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Defendants Garber and Berman sold at least $626,290 and $135,000

respectively of the Company's stock during the Class Period.

19. The stock chart below shows the price of Access HealthNet

stock while defendants were issuing their false and misleading

statements about the Company, and the subsequent collapse when the

true facts about the Company were disclosed as well as the

defendants' insider selling during the Class Period.

Access HealthNet, Inc.

16

14

12

10

8

6

4

2

January 25, 1995 - January 3, 1996

Daily Stock Prices

January 26, 1995Defendant Garber sells 20,000shares for proceeds of $ 165,000.

l-

April 1995Defendants Garber and Bermansell 28 ,000 share for proceeds of$ 255,250.

August - September 1995Defendant Garber sells 38,000shares for proceeds of $ 341,040.

1A

0 1 101/25/95

Vr

04/19/95

03/08/95 05/31/95

07/12/95 10/03/95

08/22/95 11/13/95

12126/95

- 11 -

1 JURISDICTION AND VENUE

2 20. This Court has jurisdiction over this action pursuant to

3 §27 of the Exchange Act, 15 U.S.C. §78aa, and 28 U.S.C. §1331. The

4 claims asserted herein arise under H10(b) and 20(a) of the

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

6 C.F.R. §240.10b-5, promulgated thereunder by the SEC.

7 21. Venue is proper in this District pursuant to §27 of the

8 Exchange Act and 28 U.S.C. §1391(b). Many of the acts giving rise

9 to the violations complained of, including the dissemination of

10 false and misleading information, occurred in this District.

11 22. In connection with the wrongs complained' of, the

12 defendants used the instrumentalities of interstate commerce, the

13 United States mails and the facilities of the national securities

14 markets.

15 THE PARTIES

16 23. (a) Plaintiff Peter Kalmus purchased 2,000 shares of

17 Access HealthNet common stock on July 5, 1995 at $12-7/8 and has

18 been damaged thereby. Peter Kalmus is a resident and citizen of

19 New York.

20 (b) Plaintiff Leslie Rubell purchased 450 shares of

21 Access HealthNet common stock on June 28, 1995 at $12-7/8 and has

22 been damaged thereby. Leslie Rubell is a resident and citizen of

23 New York.

24 (c) Plaintiff Volunteer Limited Partnership purchased

25 8,300 shares of Access HealthNet common stock on August 1, 1995 for

26 $75,322; S,000 shares on September 20, 1995 for $40,250; and 33,333

27 shares on October 23, 1995 for $99,999 and has been damaged

28 thereby.

- 12 -

1 (d) Plaintiffs William Hirschberg and Elisa Hirschberg

2 purchased 5,000 shares of Access HealthNet common stock on March

3 28, 1995 for $46,650; 5,000 shares on March 28, 1995 for $47,275;

4 3,000 shares on March 31, 1995 for $27,990; and 12,500 shares on

5 June 1, 1995 for $100,000 and have been damaged thereby.

6 (e) Plaintiff Sigma Pairs purchased 60,000 shares of

7 Access HealthNet common stock on July 6, 1994 for $495,000; 5,000

8 shares on August 2, 1994 for $50,000; and 10,000 shares on August

9 4, 1994 at $102,500 and has been damaged thereby.

10 (f) Plaintiff Jerry Karel purchased 2,000 shares of

11 Access HealthNet common stock on August 5, 1994 for $16,785; and

12 10,000 shares on August 5, 1994 for $83,750 and has been damaged

13 thereby.

14 (g) Plaintiff Karel Private Managers Fund Series TE

15 purchased 1,200 shares of Access HealthNet common stock on August

16 2, 1994 for $11,796; and 4,800 shares on August 2, 1994 for $48,384

17 and has been damaged thereby.

18 (h) Plaintiff Karel Private Managers Fund purchased 200

19 shares of Access HealthNet common stock on August 2, 1994 for

20 $1,966; 800 shares on August 2, 1994 for $8,064; and 2,600 shares

21 on November 29, 1994 for $18,637 and has been damaged thereby.

22 (i) Plaintiff Western Hospital Corp. Retirement Trust

23 purchased 2,500 shares of Access HealthNet common stock on October

24 6, 1994 for $22,700 and has been damaged thereby.

25 (j) Plaintiff Access Self Liquidating Trust purchased

26 95,000 shares of Access HealthNet common stock on June 30, 1995 for

27 $725,750; and 25,000 shares of Access HealthNet preferred stock on

28 October 10, 1995 for $75,000 and has been damaged thereby.

- 13 -

1 (k) Plaintiff Collins Group Trust III purchased 2,500

2 shares of Access HealthNet common stock on July 18, 1995 for

3 $24,500; 3,000 shares on July 18, 1995 for $28,275; 10,000 shares

4 on July 18, 1995 for $95,500; 10,000 shares on July 20, 1995 for

5 $90,800; 66,115 shares on July 26, 1995 for $600,000; 10,000 shares

6 on September 11, 1995 for $90,500; 5,000 shares on September 12,

7 1995 for $45,250; 83,333 shares on November 11, 1995 for $249,999;

8 and 25,000 shares on December 20, 1995 for $17,387 and has been

9 damaged thereby.

10 (1) Plaintiff Compass Series E purchased 126,900 shares

11 of Access HealthNet common stock on December 22, 1994 for $999,337;

12 162,500 shares on January 31, 1995 for $1,404,812; 7,000 shares on

13 March 31, 1995 for $65,310; 126,900 shares on April 3, 1995 for

14 $970,785; 16,667 shares on April 26, 1995 for $155,003; 5,000

15 shares on May 31, 1995 for $55,875; 5,500 shares on May 31, 1995

16 for $71,225; 90,000 shares on July 31, 1995 for $816,750; 10,000

17 shares on September 12, 1995 for $91,750; 2,000 shares on October

18 31, 1995 for $8,100; 2,000 shares on October 31, 1995 for $8,350;

19 3,000 shares on October 31, 1995 for $12,900; and 5,000 shares on

20 October 31, 1995 for $20,875 and has been damaged thereby.

21 (m) Plaintiff Renaud Anselin beneficially purchased

22 10,000 shares of Access HealthNet common stock on February 14, 1995

23 for $107,500; and 2,500 shares on February 15, 1995 for $25,000 and

24 has been damaged thereby.

25 (n) Plaintiff The Charles Talbot Fund purchased 8,300

26 shares of Access HealthNet common stock on August 1, 1995 for

27 $75,322 and has been damaged thereby.

28

- 14 -

1 (o) Plaintiff Michael B. Targoff purchased 66,667 shares

2 of Access HealthNet common stock on October 24, 1995 for $200,001

3 and has been damaged thereby.

4 (p) Plaintiff Hinton Family Revocable Living Trust

5 purchased 5,000 shares of Access' HealthNet common stock on

6 September 13, 1995 for $45,875; 5,000 shares on September 18, 1995

7 for $40,875; 5,000 shares on September 20, 1995 for $40,250; and

8 33,333 shares on October 13, 1995 for $99,999 and has been damaged

9 thereby.

10 24. (a) Plaintiff Richard Avon is a New Jersey resident who

11 owned 2,300 shares of Access HealthNet stock at relevant periods,

12 2,000 of which he purchased on or about July 20, 1995 and 300 of

13 which he purchased on or about September 20, 1995 and has been

14 damaged thereby.

15 (b) Plaintiff Ken Avon is a New Jersey resident who


17 which he purchased on or about July 20, 1995 and has been damaged

18 thereby.

19 (c) Plaintiff Jean Charlent is a resident of Belgium who



22 thereby.

23 (d) Plaintiff Duane D'Agostino is a New Jersey resident

24 who owned 500 shares of Access HealthNet stock at relevant periods,


26 thereby.

27 (e) Plaintiff Stephen Madden is a New Jersey resident

28 who owned 500 shares of Access HealthNet stock at relevant periods,

- 15 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

which he purchased on or about July 20, 1995 and has been damaged

thereby.

(f) Plaintiff Robert Masessa is a New Jersey resident

who owned 500 shares of Access HealthNet stock at relevant periods,

which he purchased on or about July 20, 1995 and has been damaged

thereby.

(g) Plaintiffs Louis and Rose Argenziano are New Jersey

residents who owned 2,000 shares of Access HealthNet stock at

relevant periods, which they purchased between February 1995 and

January 1996 and have been damaged thereby.

(h) Plaintiffs Robert and Michele Bacon are Colorado


relevant periods: 4,000 shares were purchased on or about

September 27, 1995; and 2,000 shares were purchased on or about

September 29, 1995 and have been damaged thereby.

(i) Plaintiff Fred Bergman is a New York resident who

owned 2,300 shares of Access HealthNet stock at relevant periods,

which he purchased on or about October 13, 1995 and has been

damaged thereby.

(j) Plaintiff Laura J. Bohn is a New York resident who

owned 2,000 shares of Access HealthNet stock at relevant periods:

1,000 shares were purchased on or about July 26, 1995; and 1,000

shares were purchased on or about September 18, 1995 and has been

damaged thereby.

(k) Plaintiff Dr. Juan C. Carioni, P.C. is a Michigan

professional corporation which owned 2,000 shares of Access

Healthnet stock at relevant periods, which were purchased on or

about July 18, 1995 and has been damaged thereby.

- 16 -

-J

1 (1) Plaintiff Juan C. Carioni is a Michigan resident who


3 which he purchased on or about August 14 , 1995 and has been damaged

4 thereby.

5 (m) Plaintiff Charles Costello is a Florida resident who

6 owned 2,500 shares of Access HealthNet stock at relevant periods:

7 1,500 shares were purchased on or about July 24, 1995; and 1,000

8 shares were purchased on or about September 6, 1995 and has been

9 damaged thereby.

10 (n) Plaintiff Joseph DeRosa is a New Jersey resident who

11 owned 2 , 000 shares of Access HealthNet stock at relevant periods:

12 1,000 shares were purchased on or about July 24, 1995 ; and 1,000


14 damaged thereby.

15 (o) Plaintiffs Henry and Marisol DeGirolamo are New

16 Jersey residents who owned 400 shares of Access HealthNet stock at

17 relevant periods, which they purchased on or about October 13, 1995

18 and have been damaged thereby.

19 (p) Plaintiff Wilbur Eckerson is a New Jersey resident

20 who owned 4,000 shares of Access HealthNet stock at relevant

21 periods: 2,000 shares were purchased on or about August 24, 1995;

22 and 2,000 shares were purchased on or about September 22, 1995 and


24 (q) Plaintiff Carmine Gesualdi is a New Jersey resident


26 periods , which she purchased on or about July 24, 1995 and has been

27 damaged thereby.

28

- 17 -

1 (r) Plaintiffs Carmine and Kathleen Gesualdi are New

2 Jersey residents who owned 1,000 shares of Access HealthNet stock

3 at relevant periods, which they purchased on or about August 18,

4 1995 and have been damaged thereby.

5 (s) Plaintiff J. David Johnson is a Pennsylvania

6 resident who owned 400 shares of Access HealthNet stock at relevant

7 periods, which he purchased on or about August 24, 1995 and has

8 been damaged thereby.

9 (t) Plaintiffs Donald and Karen Jones are New Jersey

10 residents who owned 1,000 shares of Access HealthNet stock at

11 relevant periods, which they purchased on or about September 27,


13 (u) Plaintiff Barbara Looney is a New Jersey resident


15 periods: 1,000 shares were purchased on or about July 28, 1995;

16 1,000 shares were purchased on or about August 14, 1995; and 2,000


18 damaged thereby.

19 (v) Plaintiff William Looney is a New Jersey resident



22 and 100 shares were purchased on or about September 7, 1995 and has


24 (w) Plaintiffs George and Georgianna Marinari are

25 Pennsylvania residents who owned 1,600 shares of Access HealthNet

26 stock at relevant periods, which they purchased on or about

27 September 19, 1995 and have been damaged thereby.

28

- 18 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

(x) Plaintiff George Marinari -is a Pennsylvania resident

who owned 1,500 shares of Access HealthNet stock at relevant

periods, which he purchased on or about August 24, 1995 and has

been damaged thereby.

(y) Plaintiffs Anthony and Gloria Marsico are New Jersey


relevant periods: 1,000 shares were purchased on or about July 24,

1995; 1,000 shares were purchased on or about August 14, 1995; and

1,000 shares were purchased on or about September 6, 1995 and have

been damaged thereby.

(z) Plaintiff John P. McKenna is a New York resident who

owned 1,500 shares of Access HealthNet stock at relevant periods,

which he purchased on or about August 8, 1995 and has been damaged

thereby.

(aa) Plaintiff John J. Mellett is a New York resident who


2,000 shares were purchased on or about July 18, 1995; and 1,000


damaged thereby.

(ab) Plaintiff Dr. Arthur Rose is a Michigan resident who


2,000 shares were purchased on or about August 24, 1995; and 1,000


damaged thereby.

(ac) Plaintiff Donald Scovira is an Arizona resident who


1,000 shares were purchased on or about July 24, 1995; 1,500 shares

were purchased on or about August 21, 1995; and 1,000 shares were

- 19 -

1 purchased on or about September 7, 1995 and has been damaged

2 thereby.

3 (ad) Plaintiffs Glen and Yolan Slater are New York


5 relevant periods: 1,000 shares were purchased on or about July 27,

6 1995; and 1,000 shares were purchased on or about September 7, 1995


8 (ae) Plaintiff Yolan Slater is a New York resident who


10 which she purchased on or about September 7, 1995 and has been

11 damaged thereby.

12 (af) Plaintiff Bret Slater is New York resident who

13 owned 500 shares of Access HealthNet stock at relevant periods,

14 which he purchased on or about November 6, 1995 and has been

15 damaged thereby.

16 (ag) Plaintiffs Anthony and Carmen Sperduto are New York


18 relevant periods: 1,000 shares were purchased on or about July 24,

19 1995; and 1,000 shares were purchased on or about September 25,


21 (ah) Plaintiff Erna Berger is a New York resident who


23 which she purchased on or about July 25, 1995 and has been damaged

24 thereby.

25 (ai) Plaintiff Robert L. Cerasia is a New Jersey resident



28

- 20 -

1 and 1,000 shares were purchased on or about August 30, 1995 and has


3 (aj) Plaintiff Carole J. Cerasia is a New Jersey resident


5 periods: 2,000 shares were purchased on or about April 27, 1995;

6 4,000 shares were purchased on or about July 13, 1995; 2,000 shares

7 were purchased on or about July 24, 1995; and 2,000 shares were

8 purchased on or about October 20, 1995 and has been damaged

9 thereby.

10 (ak) Plaintiff Dr. Patrick Ciccone is a New Jersey

11 resident who owned 2,000 shares of Access HealthNet stock at

12 relevant periods, which he purchased on or about July 26, 1995 and


14 (al) Plaintiff Stephen J. Cohen is a Florida resident who


16 8,000 shares were purchased on or about June 8, 1995; 10,000 shares

17 were purchased on or about October 30, 1995; 2,000 shares were

18 purchased on or about October 31, 1995; 8,000 shares were purchased

19 on or about November 1, 1995; 15,000 shares were purchased on or

20 about November 6, 1995; 5,000 shares were purchased on or about

21 November 8, 1995; 10,000 shares were purchased on or about November

22 10, 1995; 30,000 shares were purchased on or about November 13,

23 1995; 5,000 shares were purchased on or about November 16, 1995;

24 2,000 shares were purchased on or about November 17, 1995; and

25 3,000 shares were purchased on or about November 20, 1995 and has


27 (am) Plaintiff Dr. Louis Padavano is a New York resident


- 21 -

1 periods: 500 shares were purchased on or about August 29, 1995;

2 and 500 shares were purchased on or about October 24, 1995 and has


4 (an) Plaintiff Dr. John Petillo is a New Jersey resident



7 500 shares were purchased on or about August 29, 1995; and 1,000

8 shares were purchased on or about October 24, 1995 and has been

9 damaged thereby.

10 (ao) Plaintiff Arthur C. Aschoff is a Massachusetts

11 resident who owned 1,500 shares of Access HealthNet stock at

12 relevant periods: 500 shares were purchased on or about July 25,

13 1995; 500 shares were purchased on or about July 26, 1995; and 500

14 shares were purchased on or about August 24, 1995 and has been

15 damaged thereby.

16 (ap) Plaintiff A. David Aschoff is a Vermont resident who


18 300 shares were purchased on or about July 24, 1995; 200 shares

19 were purchased on or about July 25, 1995; 400 shares were purchased

20 on or about August 9, 1995; and 600 shares were purchased on or

21 about September 28, 1995 and has been damaged thereby.

22 (aq) Plaintiff John Chrabasz is a New Jersey resident who


24 500 shares were purchased on or about July 27, 1995; and 500 shares

25 were purchased on or about September 19, 1995 and has been damaged

26 thereby.

27 (ar) Plaintiff Kenneth Barboza is a new York resident who


- 22 -


2 were purchased on or about July 27, 1995 and has been damaged

3 thereby.

4 (as) Plaintiffs Corey and Terry Duvall are New Jersey

5 residents who owned 700 shares of Access HealthNet stock at

6 relevant periods: 300 were purchased on or about July 25, 1995;

7 200 shares were purchased on or about September 11, 1995; and 200

8 shares were purchased on or about September 27, 1995 and have been

9 damaged thereby.

10 (at) Plaintiff Suzanne Eiken is a New Jersey resident who

11 owned 580 shares of Access HealthNet stock at relevant periods:


13 were purchased on or about September 29, 1995 and has been damaged

14 thereby.

15 (au) Plaintiffs Eric and Hallie Swerdlin are New Jersey


17 relevant periods, which they purchased on or about July 26, 1995


19 (av) Plaintiff Eric Swerdlin is a New Jersey resident who



22 thereby.

23 (aw) Plaintiff Jerry Chait is a New Jersey resident who



26 thereby.

27 (ax) Plaintiff The Ellie Watson Trust is a Colorado trust

28 which owned 1,000 shares of Access HealthNet stock at relevant

- 23 -

1 periods, which it purchased on or about August 1, 1995 and has been

2 damaged thereby.

3 (ay) Plaintiff Ronald Feiger is a New Jersey resident who


5 which he purchased on or about July 1995 and has been damaged

6 thereby.

7 (az) Plaintiff Donna Geils is a Florida resident who

8 owned 300 shares of access HealthNet stock at relevant periods,

9 which she purchased on or about July 1995 and has been damaged

10 thereby.

11 (ba) Plaintiff Mark Glass i s a Missouri resident who



14 thereby.

15 (bb) Plaintiff David Hayes is a Florida resident who



18 thereby.

19 (bc) Plaintiff Goldie Miller is a Missouri resident who



22 thereby.

23 (bd) Plaintiff Cliff Samara is a New York resident who



26 thereby.

27 (be) Plaintiffs Jerome and Susan Schlichter are Missouri


- 24 -

1 relevant periods, which they purchased on or about July 1995 and

2 have been damaged thereby.

3 (bf) Plaintiff Joyce Swerdlin is a New York resident who



6 thereby.

7 (bg) Plaintiff David Wolfson is a California resident who



10 thereby.

11 (bh) Plaintiff David Wolfson Trust UWO is a California

12 trust which owned 1,500 shares of Access HealthNet stock at

13 relevant periods, which it purchased on or about July 1995 and has


15 (bi) Plaintiffs Zarinelo and Lennette Ortega are Illinois


17 relevant periods, which they purchased on or about July 1995 and

18 have been damaged thereby.

19 25. Plaintiffs referenced in ¶24(a)-(bi), with the exception

20 of plaintiff Bret Slater, are brokers or retail customers who

21 purchased Access HealthNet stock through the Florham Park, New

22 Jersey, office of Smith Barney & Co. The stock was purchased

23 through brokers Steven Jones, Donald Jones, Robert Cerasia, and

24 Thomas Aschoff. These brokers, along with other brokers and

25 financial analysts, including Eric Swerdlin formerly of Smith

26 Barney's Florham Park office -- now employed by Swerdlin Financial

27 Service, Inc. of Chester, New Jersey -- and Gregory Cook, formerly

28 of the Dallas, Texas, office of Bear Stearns & Co., received

- 25 -

1 various information from Access HealthNet and its officers and

2 directors which they shared in good faith and in reliance with

3 their customers and each other. Their customers also shared this

4 information with each other and with various of the forenamed

5 brokers. Plaintiff Bret Slater purchased Access HealthNet stock

6 based, in part, on information provided by the defendants to the

7 Florham Park, New Jersey, office of Smith Barney & Co.

8 26. Defendant Corbin & Wertz was, at all material times

9 hereto, a firm of certified public accountants with its only office

10 in California. Corbin & Wertz was engaged by Access HealthNet to

11 provide independent accounting, consulting and auditing services.

12 Prior to and during the Class Period, Corbin & Wertz, through its

13 partners Hertz, Joseph Johnson ("Johnson"), and other employees,

14 gave the Company, defendants Levy, Berman, Keegan and Garber in

15 addition to former member of management Michael McMahon

16 ("McMahon"), accounting advice and consultation regarding Access

17 HealthNet's annual and quarterly reports filed with the SEC.

18 Corbin & Wertz, through its partners and other employees, assisted

19 in the preparation and filing of the Registration Statement and

20 Prospectus, consented to being named as experts therein and caused

21 its opinion to be included in the Registration Statement and

22 Prospectus. During the process of obtaining final approval of the

23 Registration Statement and Prospectus from the SEC, Corbin & Wertz

24 participated in conference calls with the SEC accounting staff

25 during which Corbin & Wertz defended the Company's false financial

26 statements and revenue recognition policies. Corbin & Wertz

27 reviewed, assisted in the preparation of and/or knowingly approved

28 materially false reports which were made in connection with Access

- 26 -

1

1 HealthNet's fiscal year 1994 audited financials, fiscal 1995

2 interim financials (both of which were included in the Prospectus),

3 its fiscal year 1995 audited financials and its first fiscal

4 quarter 1996 interim financials. Members and employees of Corbin

5 & Wertz, including Johnson, assisted in the preparation and review

6 of Access HealthNet's quarterly financial statements prior to the

7 public release of the results and knew, or recklessly disregarded,

8 the material falsity of Access HealthNet's press releases and SEC

9 filings reporting those results. In the course of rendering

10 services to Access HealthNet, Corbin & Wertz knew, or recklessly

11 disregarded, that Access HealthNet was improperly reporting

12 revenues and income. Corbin & Wertz knew, or should have known,

13 that these transactions suffered from serious defects as detailed

14 in ¶$110-54, which made reporting virtually all this income

15 improper and/or required write-offs and/or writedowns under GAAP.

16 In addition, Corbin & Wertz knew, or should have known, that its

17 audit was not conducted in accordance with GAAS. See 1$155-200.

18 27. Defendant Fenwick & West was, at all relevant times, a

19 partnership engaged in the practice of law with its office located

20 at 2 Palo Alto Square, Suite 800, Palo Alto, California. During

21 the period early 1993 to late 1995, Fenwick & West served as

22 corporate counsel to Access HealthNet and advised the Company on

23 numerous matters, including several private offerings of Access

24 HealthNet securities. Fenwick & West served as legal counsel to

25 Access HealthNet in connection with the registration of the

26 Company's securities on January 25, 1995 and the listing of the

27 Company's shares on the NASDAQ National Market System the same day.

28 In that capacity, Fenwick & West passed on various legal matters in

- 27 -

1 connection with the registration and listing on the NASDAQ National

2 Market System and allowed its name to be displayed in the

3 Registration Statement and Prospectus. In return for such

4 services, Fenwick & West received substantial fees from Access

5 HealthNet throughout the Class Period. Fenwick & West, through its

6 attorneys responsible for working on the Access HealthNet

7 engagement, assisted in the preparation and filing of the

8 Registration Statement and Prospectus, consented to being named as

9 experts therein and caused its opinion to be included in the

10 Registration Statement and Prospectus. During the process of

11 obtaining final approval of the Registration Statement and

12 Prospectus from the SEC, Fenwick & West corresponded and

13 participated in conference calls with the SEC. During such

14 interaction with the SEC, along with defendant Corbin & Wertz,

15 Fenwick & West defended the Company's false financial statements

16 and revenue recognition policies. Through its due diligence

17 investigations of Access HealthNet while assisting in the

18 preparation and drafting of different versions of the Registration

19 Statement and Prospectus filed with the SEC, Fenwick & West

20 negligently or recklessly disregarded the falsity of the

21 Registration Statement, the Prospectus, their own statements made

22 to the SEC and statements made by other defendants including Corbin

23 & Wertz. Because of Fenwick & West's position as SEC counsel to

24 the Company, they had access to the non-public information about

25 Access HealthNet's business, accounting practices, finances,

26 products, markets and present and future business prospects via

27 access to internal corporate documents (including the Company's

28 operating plans, budgets and forecasts and reports of actual

- 28 -

1 operations compared thereto), conversations and connections with

2 other corporate officers and employees, attendance at management

3 and Board of Directors meetings and committees thereof and via

4 reports and other information provided to them in connection

5 therewith. Fenwick & West had access to material non-public

6 information regarding the Company's improper accounting practices,

7 including impropriety of certain revenue recognized, and based on

8 such information, knew, or recklessly disregarded, that the Company

9 was improperly reporting revenues and income by issuing false

10 financial results in press releases and SEC filings as detailed in

11 ¶¶110-54 and 201-05.

12 28. (a) Defendant Levy was, at all relevant times, the sole

13 stockholder of Kalorama Corporation, the Managing General Partner

14 of Threshold Technology Partners, L.P. ("Threshold"), which, as of

15 December 31, 1994, was the Company's largest shareholder, owning

16 16.46 of the Company's stock, most of which was acquired at

17 approximately $1.04 per share in a marked contrast to the public

18 shareholders' purchase prices. Defendant Levy also controlled an

19 additional 565,000 shares which were held by parties related to

20 defendant Levy, including certain limited partners in Threshold.

21 Even prior to July 18, 1995, defendant Levy controlled Access

22 HealthNet and certain of the other defendants through his large

23 holdings of Access HealthNtet stock. His control over Access

24 HealthNet is further evidenced by his July 1995 "reorganization" of

25 the Company. After July 18, 1995, defendant Levy functioned as

26 Chairman of the Board and Chief Executive Officer of the Company.

27 Because of Levy's position with the Company, he had access to the

28 non-public information about Access HealthNet's business,

- 29 -

1 accounting practices, finances, products, markets and present and-

2 future business prospects via access to internal corporate

3 documents (including the Company's operating plans, budgets and

4 forecasts and reports of actual operations compared thereto),

5 conversations and connections with other corporate officers and

6 employees, attendance at management and Board of Directors meetings

7 and committees thereof and via reports and other information

8 provided to him in connection therewith. During his tenure as

9 Chairman and Chief Executive officer, defendant Levy knew, or

10 should have known, that customers, including PCL, Community Health

11 Systems and Unilab, were cancelling existing contracts. During the

12 Class Period, defendant Levy also engaged in a series of

13 transactions designed solely to manipulate the price of Access

14 HealthNet stock.

15 (b) Defendant Berman was, at all relevant times prior to

16 July 18, 1995, Chief Executive Officer and a director of the

17 Company, and until his termination in October 1995, President of

18 the Company. Defendant Berman signed, prepared, and/or

19 disseminated the Registration Statement and Prospectus for the

20 purpose of selling and/or offering to sell Access HealthNet

21 securities. Furthermore, defendant Berman disseminated additional

22 false statements during the Class Period -for the purpose of

23 inflating the price of Access HealthNet stock and inducing others

24 to purchase his shares of Access HealthNet stock. Because of

25 Berman's position with the Company, he had access to the non-public

26 information about Access HealthNet's business, accounting

27 practices, finances, products, markets and present and future

28 business prospects via access to internal corporate documents

- 30 -

1 (including the Company's operating plans, budgets and forecasts and

2 reports of actual operations compared thereto), conversations and

3 connections with other corporate officers and employees, attendance

4 at management and Board of Directors meetings and committees

5 thereof and via reports and other information provided to him in

6 connection therewith. Defendant Berman had access to material non-

7 public information regarding the Company's fraudulent accounting

8 practices, including the impropriety of certain recognized revenue,

9 as well as the Company's inability to fulfill orders and install

10 products as represented. Based on such information, Berman knew,

11 or should have known, that the Company was improperly reporting

12 revenues and income by issuing false financial results in press

13 releases and SEC filings. In connection with Access HealthNet's

14 1994 and 1995 SEC filings and private placement offerings,

15 defendant Berman prepared and disseminated fraudulent financial

16 statements. During the Class Period and as part of the fraudulent

17 scheme, Berman sold $135,000 of Access HealthNet stock based on

18 inside information.

19 (c) Defendant Keegan was, at all relevant times, until

20 late September 1995 with the appointment of Hertz as Senior Vice

21 President - Finance, the Company's Chief Financial officer and

22 Treasurer. Defendant Keegan signed, prepared and/or disseminated

23 the Registration Statement and Prospectus for the purpose of

24 selling and/or offering to sell Access HealthNet securities.

25 Because of Keegan's position with the Company, he had access to the


27 accounting practices, finances, products, markets and present and


- 31 -






6 provided to him in connection therewith. Defendant Keegan had

7 access to material non-public information regarding the Company's

8 fraudulent accounting practices, including the impropriety of

9 certain recognized revenue, as well as the Company's inability to

10 fulfill orders and install products as represented. Based on such

11 information, Keegan knew, or should have known, that the Company

12 was improperly reporting revenues and income by issuing false

13 financial results in press releases and SEC filings. In connection

14 with Access HealthNet's 1994 and 1995 SEC filings and private

15 placement offerings, defendant Keegan prepared and disseminated

16 fraudulent financial statements.

17 (d) Defendant Garber was, at all relevant times, a

18 director of the Company and as of December 31, 1994, beneficially

19 owned over 555,000 shares of Access HealthNet common stock. For

20 the purpose of offering to sell and selling his own Access

21 HealthNet shares and inducing the purchase of Access HealthNet

22 securities by others, defendant Garber signed the Registration

23 Statement and assisted in the preparation and dissemination of the

24 Prospectus and made other statements during the Class Period,

25 despite the fact that, because of his attendance at monthly Board

26 of Director meetings and his membership on the Audit Committee, he

27 was familiar with certain fictitious sales and knew, or should have

28 11 known, that the various financial results contained in the

- 32 -

1 Registration Statement and Prospectus reflected egregious

2 violations of GAAP and included the recognition of revenue for

3 contracts which had not been executed and for sales to certain

4 distributors neither of which could be recognized pursuant to GAAP .

5 Because of Garber's position with the Company, he had access to the


7 accounting practices, finances, products, markets and present and







14 provided to him in connection therewith. Despite the fact that he

15 knew or should have known of the adverse facts alleged in 11110-54,

16 defendant Garber reviewed and signed the false Report on Form

17 10-KSB and made other false statements, while selling at least

18 71,000 shares of his own Access HealthNet stock during the Class

19 Period for as much as $9.25 per share, for proceeds of $626,290.

20 (e) Defendant Philip Becton ("Becton") was, at all

21 relevant times since July 1995, a director of the Company.

22 Defendant Becton was also, at all relevant times, the sole

23 stockholder of Flagship Corporation, the Administrative General

24 Partner of Threshold. Because of Becton's position with Threshold

25 and the Company, he had access to the non-public information about

26 Access HealthNet's business, finances, products, markets and

27 present and future business prospects via access to internal

28 corporate documents (including the Company's operating plans,

- 33 -

1 budgets and forecasts and reports of actual operations compared

2 thereto), conversations and connections with other corporate

3 officers and employees, attendance at management and Board of

4 Directors meetings and committees thereof and via reports and other

5 information provided to him in connection therewith. As an officer

6 and director of Access HealthNet, defendant Becton had a duty to

7 Access HealthNet shareholders to act honestly and in good faith.

8 In connection with his positions with Access HealthNet and

9 Threshold, defendant Becton along with defendant Levy engaged in a

10 series of transactions which were designed to manipulate the price

11 of Access HealthNet securities.

12 (f) The individuals named as plaintiffs in (a) - (e) above

13 are sometimes referred to herein as the "Individual Defendants."

14 29. Defendants Levy, Berman, Keegan and Becton by reason of

15 their stock ownership, management position and/or membership on the

16 Company's Board of Directors, were controlling persons of Access

17 HealthNet and had the power and influence, and exercised the same,

18 to cause the other defendants to engage in the conduct complained

19 of herein. Evidence of their control is further evidenced by

20 defendant Levy's and Becton's orchestration of the reorganization

21 of Access HealthNet in mid-1995.

22 30. As officers, directors and/or controlling persons of a

23 publicly-held company whose stock is registered with the SEC under

24 the Exchange Act and traded on the NASDAQ National Market System

25 and NYSE, the Individual Defendants had a duty to promptly

26 disseminate accurate and truthful information with respect to the

27 Company's operations, business, products, markets, management,

28 earnings, and present and future business prospects, to correct any

- 34 -

1 previously issued statements that had become untrue and to disclose

2 any adverse trends that would materially affect the present and

3 future financial operating results of the Company, so that the

4 market price of the Company's stock would be based upon truthful

5 and accurate information.

6 31. The Individual Defendants, because of their positions

7 with the Company, controlled the contents of its quarterly and

8 annual reports, press releases and presentations to securities

9 analysts. The Individual Defendants were provided with copies of

10 the Company's reports and press releases alleged herein to be

11 misleading prior to or shortly after their issuance and had the

12 ability and opportunity to prevent their issuance or cause them to

13 be corrected. Because of their positions and access to material

14 non-public information available to them but not the public, each

15 of these defendants knew or recklessly disregarded that the adverse

16 facts specified herein had not been disclosed to and were being

17 concealed from the public and that the positive representations

18 which were being made were then false and misleading. As a result,

19 each of the Individual Defendants is responsible for the accuracy

20 of the corporate reports, filings and releases detailed herein as

21 "group published" information and is therefore responsible and

22 liable for the representations contained therein.

23 DEFENDANTS' MOTIVE AND OPPORTUNITY

24 32. The defendants' motive to engage in this conduct included

25 a desire to inflate the price of Access Health-Net stock sales and

26 to: (a) cover up and conceal the mismanagement of Access HealthNet

27 by the Individual Defendants while protecting and enhancing their

28 executive positions and the substantial compensation and prestige

- 35 -

1 they obtained thereby; (b) enhance the value of their holdings of

2 Access HealthNet stock and/or options to purchase Access HealthNet

3 stock; (c) inflate the reported profits of Access HealthNet or

4 falsify its progress in order to obtain larger payments under the

5 Company's officer bonus compensation plan and/or via discretionary

6 individual performance bonuses; (d) permit Access HealthNet and

7 Company insiders to sell their Access HealthNet stock at inflated

8 prices; (e) permit Access HealthNet to register its stock for sale

9 to the open market; and (f) permit Corbin & Wertz and Fenwick &

10 West to earn substantial fees.

11 33. Each of the Individual Defendants had the opportunity to

12 commit and participate in the fraud. The Individual Defendants

13 were the top officers, directors and/or controlling persons of

14 Access HealthNet and controlled its press releases, corporate

15 reports, SEC filings, the preparation of its financial statements

16 and its communications with analysts. Thus, the Individual

17 Defendants controlled the public dissemination of, and could

18 falsify, the information about Access HealthNet's business,

19 finances and future prospects that reached the public and impacted

20 the price of its stock.

21 ACCESS HEALTHNET'S INTERNAL FORECASTS,PLANS AND PROJECTIONS

2234. A key management tool for Access HealthNet's top

23executives was Access HealthNet's annual budget or forecast. The

24

Individual Defendants closely monitored the Company's actual25

performance, i.e., actual results of operations, compared to the26

budgeted and/or forecasted results. Each of the Individual27

Defendants was aware of Access HealthNet's 1995 and 1996 forecasts28

- 36 -

1 and budgets and of internal reports circulated monthly, comparing

2 Access HealthNet's actual results to those previously budgeted

3 and/or forecasted. Access HealthNet's top executives used its 1995

4 and 1996 budgets and forecasts as the basis for the statements they

5 publicly made about the Company's performance during 1995.

6 Furthermore, throughout the Class Period, each of the defendants

7 disseminated false financial projections for the purpose of

8 inducing the purchase of Access HealthNet warrants, common stock,

9 preferred stock and subordinated debentures ("securities").

10 STATUTORY SAFE HARBOR

11 35. The statutory safe harbor provided for forward-looking

12 statements under certain circumstances does not apply to any of the

13 allegedly false forward-looking statements pled in this Complaint

14 because the statements pled in ¶¶37, 40, 46-48, 50, 56, 60, 63-67,

15 69-74, 76-79, 81-84, 86-90, 93-96, 98-100, 102-04, 160, 181 and 186

16 were made prior to the enactment of the statutory safe harbor on

17 December 22, 1995, via legislation that may not be applied

18 retroactively. Alternatively, none were identified as "forward-

19 looking statements" when made. Nor was it stated that actual

20 results "could differ materially from those projected." Nor did

21 meaningful cautionary statements identifying important factors that

22 could cause actual results to differ materially from those in the

23 forward-looking statements accompany those forward-looking

24 statements. Alternatively, to the extent that the statutory safe

25 harbor does apply to any forward-looking statements pled in ¶¶37,

26 40, 46-48, 50, 56, 60, 63-67, 69-74, 76-79, 81-84, 86-90, 93-96,

27 98-100, 102-04, 160, 181 and 186, the defendants are liable for

28 those false forward-looking statements because at the time each of

- 37 -

1 those forward-looking statements was made, the speaker knew the

2 forward-looking statement was false and the forward-looking

3 statement was authorized and/or approved by an executive officer of

4 Access HealthNet who knew that those statements were false when

5 made.

6 DEFENDANTS' FRAUDULENT SCHEME AND COURSE OF BUSINESS

7 36. Each of the defendants is liable as a participant in a

8 fraudulent scheme and course of business that operated as a fraud

9 or deceit on purchasers of Access HealthNet stock, by making false

10 and misleading statements and/or concealing material adverse facts,

11 including certain fraudulent accounting practices and issuing or

12 certifying false financial statements. The fraudulent scheme and

13 course of business: (a) artificially inflated the price of Access

14 HealthNet stock; (b) deceived the investing public, including

15 plaintiffs and Class members, regarding Access HealthNet's

16 financial condition and business; (c) caused plaintiffs and members

17 of the Class to purchase Access, HealthNet stock at inflated prices;

18 (d) permitted Access HealthNet and defendants Berman and Garber to

19 sell, or otherwise dispose of, their Access HealthNet stock at

20 artificially inflated prices; (e) permitted defendants to sell or

21 offer to sell millions of dollars of Access HealthNet securities to

22 private investors in various private placement transactions; and

23 (f) permitted Corbin & Wertz and Fenwick & West to earn substantial

24 fees.

25 DEFENDANTS' PRE-CLASS PERIOD CONDUCT AND STATEMENTS

26 37. On December 1, 1993, Access HealthNet filed a

27 Registration Statement on Form SB-2 in which Fenwick & West was

28 prominently featured on the front page as SEC counsel to the

- 38 -

1 Company. In preparing the December 1993 Registration Statement and

2 the subsequent four amendments, Fenwick & West knew of the

3 following "red flags" which should have prevented the filing of a

4 Registration Statement:

5 (a) Fenwick & West knew as early January 1993 that

6 McMahon, Access Healthnet's Chief Financial Officer from 1989 to

7 late 1994, had confessed to fraud when, McMahon, then a Chief

8 Executive Officer of an equipment leasing business, had

9 intentionally induced investors to advance funds for the purchase

10 of lease equipment that his company did not own ;

11 (b) Approximately 700 of the customers of Access

12 HealthNet financed their purchase through a leasing option,

13 however, most of the Company's leasing documentation was not signed

14 by either party and in most cases the original proposal was only

15 signed by Access HealthNet;

16 (c) No customer agreements existed relating to

17 RemoteACCESS, the Company's newest product;

18 (d) Some of Access HealthNet's distributors were on the

19 Company's payroll, received Company benefits and had their local

20 officers subsidized by Access HealthNet, a representation initially

21 made by McMahon as early as May 1993;

22 (e) The basis of Access HealthNet's technology remained

23 at issue in that no license agreement existed and no promissory

24 note for the purchase of such technology from defendant Berman's

25 former company, SDI Holding Company, was verified;

26 (f) A June 1993 draft of Cooper & Lybrand's management

27 letter to the Individual Defendants listing approximately ten

28 reportable conditions involving significant deficiencies in the

- 39 -

v r.il

1 Company's internal control structure that could adversely affect

2 the Company's ability to report data consistent with management's

3 representations and with the Company's financial statements;

4 (g) The reportable conditions found by Coopers & Lybrand

5 included the Company's lack of paperwork to evidence customers'

6 orders, no organized shipping system, no purchasing system, limited

7 documentation for capitalized software costs, items in accounts

8 receivable misclassified, accounts receivables mixed lease

9 receivables currently due and receivables collected on behalf of

10 lease investors, failing to record capitalized lease obligations

11 according to GAAP, lack of warehouse security, and lack of

12 documentation for sales, credit and collection policies; and

13 (h) In multiple conversations between Fenwick & West,

14 defendant Levy advised Fenwick & West that defendant Berman

15 intentionally withheld significant documents from auditors (July

16 26, 1993) and that "Berman is cavalier about everything" (late

17 June/early July 1993).

18 38. Handwritten notes made by Fenwick & West during Fenwick

19 & West's representation of the Company prior to the effective date

20 of the Registration Statement while they were conducting their due

21 diligence investigation state that Fenwick & West was concerned

22 with the accuracy of the Company's financial statements and

23 compliance with relevant securities laws.

24 39. The same handwritten notes also reflect that a key issue

25 is whether a new auditor can adequately deal with issues raised by

26 former auditors, Coopers & Lybrand, as " [t]hese local guys might

27 not be smart enough (i) to deal w/ the questions raised by the SEC

28 or (ii) to deal w/ fairness issues on California permit

- 40 -

1 application." In addition, these notes reflect concern about the

2 search for a new Chief Financial Officer to replace McMahon.'

3 40. On March 14, 1994, Amendment No. 1 to the Form SB-2 was

4 filed by the Company, again listing Fenwick & West as SEC counsel.

5 41. Throughout 1994, after interviews with and approval by

6 Fenwick & West, Access HealthNet hired at least four different

7 individuals to replace McMahon as Chief Financial Officer. On

8 three occasions, these individuals resigned shortly thereafter.

9 For example, Alan Geddes was hired in early July 1994, only to

10 resign on July 25, 1994. On July 25, 1994, Geddes told Fenwick &

11 West that his resignation was based, in part, upon the following:

12 (a) Berman's position on revenue recognition "is very aggressive;"

13 (b) Corbin & Wertz wants to write down revenue but Berman refuses;

14 (c) "[f]inancial systems are weak;" (d) Geddes "would not endorse

15 the numbers;" and (e) problems exist with customer satisfaction on

16 certain accounts due to an absence of customer support and

17 servicing.

18 42. On July 26, 1994, Corbin & Wertz informed Fenwick & West

19 that the auditors lacked enough information to verify numbers.

20 According to Corbin & Wertz, shipping records as well as other

21 records are "not very good," and signed lease contracts and revenue

22 confirmation letters was missing. As to revenue recognition,

23 Corbin & Wertz could not agree that revenue could be recognized

24 before the systems were installed when installation is significant

25 and occurs many months (or quarters) later. As to leasing

26 documentation, Berman rewrites leases without any documentation.

27

28 Coopers & Lybrand withdrew as Access HealthNet's auditor inSeptember 1993.

- 41 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Finally, when information is requested from the Company, it arrives

late and only raises more questions. The auditors tell Fenwick &

West that a " [p7 attern [is] evolving raisingquestions of what's

going on. "

43. On August 11, 1994, Corbin & Wertz again contacted

Fenwick & West asking for a legal opinion as to whether anti-fraud

rules have been violated and requesting a contingent liability note

allowing rescission of sale offer if a violation is found. As to

the March 31, 1994 audit, the audit still remains incomplete in

August 1994.

44. On August 19, 1994, Levy advised Fenwick & West that

Corbin & Wertz was "just about done" with the audit of the March

31, 1994 numbers.

45. On September 12, 1994, Levy and Fenwick & West discussed

the Company's on-going problems with hiring and retaining a Chief

Financial Officer. The "principle issues" are the Company's weak

financial and administrative controls and the challenge to provide

product on a timely basis.

46. On October 4, 1994, Access HealthNet issued a press

release which was reviewed prior to its issuance by defendants

Corbin & Wertz and Fenwick & West announcing its financial results

for the 1994 fiscal year ended March 31, 1994 and the first quarter

of fiscal 1995 ended June 30, 1994. The Company reported that:

For the year ended March 31, 1994 the Company

reported an increase in revenues of 1170 to $4,595,016,

compared with revenues for the year ended March 31, 1993

of $2,112,756. Net income for the fiscal year 1994 was

$558,047, or $0.12 per share, an increase of 3190 over

- 42 -

1 last fiscal year's net income of $133,340 or $0.05 per

2 share. The Company's weighted common shares and common

3 equivalent shares outstanding increased from 2,902,782 on

4 March 31, 1993 to 4,852,580 on March 31, 1994.

5 During the course of its year end audit, the Company

6 recorded adjustments which had the effect of reducing its

7 quarterly and annual revenues, net income and net income

8 per share for fiscal year 1994. Such adjustments

9 resulted in the reduction of fiscal year 1994 revenues in

10 the amount of $2.2 million, in net income in the amount

11 of $862,000, and in net income per share in the amount of

12 $0.19. Approximately $1.8 million of these fiscal year

13 1994 revenues and related net income are expected to be

14 recognized in the Company's 1995 fiscal year.

15 For the first quarter ended June 30, 1994 the

16 Company reported revenues of $2,279,426 compared to

17 revenues of $1,134,295 for the corresponding quarter in

18 the prior year. Net income for the 1995 fiscal first

19 quarter was $361, 972, or $0.07 per share, compared to net

20 income of $58,230 or $0.01 per share, for the first

21 quarter ended June 30, 1993.

22 Mr. Keith Berman, CEO of Access HealthNet, Inc.,

23 stated, "We are excited about the progress Access

24 HealthNet, Inc. made throughout fiscal year 1994 and the

25 first quarter of fiscal year 1995 , as the Company

26 reported record sales and earnings during these periods."

27 47. On October 7, 1994, defendants again amended the

28 Registration Statement and filed Amendment No. 2 to Form SB-2.

- 43 -

1 Fenwick & West appeared on the cover of Amendment No. 2 as SEC

2 counsel. Additionally, Corbin & Wertz' fiscal 1994 audit opinion

3 dated June 10, 1994 appeared in the Prospectus attached to the

4 Registration Statement. That version of the Prospectus also

5 contained financial statements for the first quarter of fiscal 1995

6 ended June 30, 1994. As set forth in ¶1110-54, the fiscal 1994

7 year ended March 31, 1994 financial statements contained within

8 Amendment No. 2 were false, as were the financial statements for

9 the first quarter of fiscal 1995 ended June 30, 1994. Corbin &

10 Wertz' significant role in auditing and reviewing false financial

11 statements contained within the Registration Statement and

12 Prospectus including drafts thereof is set forth in 1$155-200.

13 Fenwick & West's role in wilfully participating in the filing of

14 the false and misleading Registration Statement and Prospectus

15 including drafts thereof is set forth in $$201-05. Amendment No.

16 2 was signed by defendants Berman and Garber.

17 48. On November 21, 1994, Access HealthNet announced that it

18 had entered into an agreement with Data General Corp. ("Data

19 General") to acquire and finance computers and printers for

20 placement in Access HealthNet accounts nationwide. That release

21 stated:

22 Mr. Keith Berman, Chief Executive Officer of ACCESS

23 HEALTHNET, INC. stated, "This is a major step for our

24 Company as we will now be acquiring equipment and

25 services from one of the largest computer companies in

26 the world. Moreover, this agreement provides ACCESS

27 HealthNet with a nationwide on site maintenance force and

28 the capacity to install its RemoteACCESS units in large

44

1 quantities throughout the country." Mr. Berman

2 continued, "Whereas, a 1,000 unit installation would have

3 taken in-house teams two to three months, we now have the

4 capability to process installments of this magnitude in

5 two to three weeks. This will provide our Company with

6 a competitive edge while accelerating revenue growth."

7 49. On November 23, 1994, the Company filed Amendment No. 3

8 to Form SB-2. In addition to the false financial statements for

9 the fiscal 1994 year ended March 31, 1994, Amendment No. 3

10 contained false financial statements for the six-month period ended

11 September 30, 1994. Corbin & Wertz' significant role in auditing

12 and reviewing false financial statements contained within the

13 Registration Statement and Prospectus including drafts thereof is

14 set forth in 11155-200. Fenwick & West's role in wilfully

15 participating in the filing of the false and misleading

16 Registration Statement and Prospectus including drafts thereof is

17 set forth in 1$201-05. Amendment No. 3 was signed by defendants

18 Berman, Keegan and Garber.

19 50. On the same day defendants caused Amendment No. 3 to be

20 filed with the SEC, the Company issued a press release, as approved

21 by defendants Corbin & Wertz and Fenwick & West, announcing fiscal

22 1995 second quarter results for the period ended September 30,

23 1994. That release stated:

24 Revenues for the second quarter ended September 30,

25 1994 were $2,969,582 compared to revenues of $541,162 for

26 the corresponding prior period. Net income for the

27 second quarter of fiscal 1995 was $426,048, or $0.08 per

28

- 45 -

v

1 share as compared to net income of $66,796, or $0.01 per

2 share.

3 For the six months ended September 30, 1994 the


5 revenues for the corresponding period ended September 30,

6 1993 of $1,675,457. Net income for the first six months

7 of fiscal 1995 was $788,020, or $0.14 per share as

8 compared to net income of $125,026, or $0.03 per share

9 for the corresponding six months of the prior year. The

10 Company's weighted common shares and common equivalent

11 shares outstanding increased from 4,477,193 for the

12 period ending September 30, 1993 to 5,559,665 for the

13 period ending September 30, 1994.

14 Keith Berman, Chief Executive Officer of ACCESS

15 HEALTHNET INC., stated, "We are very pleased with the

16 Company's financial results for the second quarter and

17 six month period ended September 30, 1994. The more than

18 200. increase in revenues for the second quarter and six

19 months reflects the continued demand for our products and

20 services." Mr. Berman continued, "Our agreements with

21 some of the largest laboratory and hospital management

22 companies in the country have provided us with a steady

23 stream of recurring revenues and, more importantly, have

24 given our products national exposure allowing us to

25 procure product agreements with other healthcare

26 organizations. In addition, our existing agreements have

27 continued to be renewed and upgraded which is a testament

28

- 46 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

to our commitment to provide our clients with high

quality systems and customer service."

51. Throughout October, November and December 1994, Fenwick

& West, as SEC counsel to the Company, actively worked with Corbin

& Wertz and other defendants in preparing and drafting portions of

amendments to the Registration Statement and Prospectus and letters

to the SEC regarding questions concerning information in the

Registration Statement and Prospectus. In order to respond to

certain questions from the SEC regarding revenue recognition and

financial results for interim periods of 1995, Fenwick & West

worked very closely with Corbin & Wertz and other defendants.

52. In November 1994, Fenwick & West specifically addressed

the SEC's concerns that the Company's financial statements in the

proposed Registration Statement were false and misleading. Fenwick

& West agreed with the SEC that "the information was not accurate"

in the earlier amendments but that the inaccuracies were immaterial

as the sales were properly recognized in later periods. Fenwick &

West's " BASIC PITCH " to the SEC was that the Company was "doing

well," that Company had hired a "[b]ig time CFO," and that the

Company received an " [u]nqualified audit" so Access HealthNet is

entitled "to get . . . effective[]." Internally, however, Fenwick

& West questioned whether sufficient evidence existed to support

Fenwick & West's " BASIC PITCH ."

53. On November 10, 1994, NASDAQ advised Fenwick & West that

due, in part, to concerns about McMahon's prior confessions of

fraud, the Company's application for approval for listing on NASDAQ

would not be granted . Shortly thereafter, on November 11, 1994,

McMahon resigned as an officer and director. The application was

- 47 -

1 resubmitted and later approved after a formal hearing which

2 included Fenwick & West's " BASIC PITCH " as described above.

3 54. Handwritten notes by Fenwick & West dated December 8,

4 1994 describe an "All-hands" meeting which included Fenwick & West

5 attorneys, Gail Suniga ("Suniga"), Iain Mickle and Edward Urschel.

6 The Fenwick & West attorneys discussed an on-going private

7 placement offering by Access HealthNet and held "[c]ash in our

8 trust account pending a deal."

9 55. Fenwick & West partner Joel D. Kellman ("Kellman"), in

10 the months just prior to the effective date of the Registration

11 Statement, met with the Company's Audit Committee and Board of

12 Directors regarding the status of the Registration Statement.

13 56. In order to clarify the Company's revenue recognition

14 policies and the amount of revenue recognized for the first six

15 months of fiscal 1995 ended September 30, 1994, Fenwick & West,

16 Corbin & Wertz and defendant Keegan participated in conference

17 calls with the SEC accounting staff, including a call conducted on

18 December 30, 1994. Partners Suniga and Kellman of Fenwick & West

19 along with Johnson of Corbin & Wertz participated with defendant

20 Keegan in such conference call with the SEC on December 30, 1994.

21 During that conference call, Fenwick & West, Corbin & Wertz and

22 Keegan defended the Company's false financial statements and

23 revenue recognition policies that caused the Company to improperly

24 inflate its revenues and thus operating results to the SEC.

25 Fenwick & West, Corbin & Wertz and defendant Keegan assured the SEC

26 that the Company had properly recognized revenue without any

27 reasonable basis for believing that to be true and, in fact,

28 knowing it to be false.

- 48 -

1 57. Following the conference call with the SEC, Fenwick &

2 West responded in writing to SEC concerns. In a letter dated

3 January 5, 1995, Fenwick & West again defended the revenue

4 recognized by the Company for the six months ended September 30,

5 1994 and even attached a schedule of revenue for that period. As

6 set forth in ¶1139-43, the revenue recognized by the Company for

7 the period ended September 30, 1994 was false.

8 58. On January 18, 1995, Access HealthNet's Board of

9 Directors met. Present at the meeting were defendants Levy, Berman

10 and Keegan, and Kellman of defendant Fenwick & West. Kellman,

11 acting as secretary of the meeting, prepared the minutes.

12 According to these minutes, Kellman discussed the status of the

13 Company's Registration Statement and the Board of Directors

14 approved, after the fact, a private placement of up to 602,462

15 shares of common stock and warrants to purchase up to 102,462

16 shares of common stock at a price of $7.65 per share for a total

17 purchase price of approximately $4.6 million.

18 59. Also on January 18, 1995, shortly after the Board of

19 Directors meeting, the Audit Committee, consisting of outside

20 directors Robert S. Colman ("Colman") and Mary C. Falvey Fuller

21 ("Falvey Fuller"), met. Also, present at the Audit Committee

22 meeting was Kellman, Hertz and Johnson on behalf of defendant

23 Corbin & Wertz, and defendants Berman and Keegan. The Audit

24 Committee met to discuss the Corbin & Wertz management letter

25 purportedly dated June 10, 1994, which was supposedly issued six

26 months prior to the meeting. However, as defendant Fenwick & West

27 were well aware, Corbin & Wertz did not complete its audit of the

28 March 31, 1994 numbers until October 1994 and the management letter

- 49 -

1 was not received by the Company until January 1995. The management

2 letter indicated that "Management's estimate of the probability

3 of collectibility of receivables from distributors is vital to the

4 revenue recognition process and is based on management's analysis

5 of the financial wherewithal of the distributors ." Corbin & Wertz

6 also noted audit difficulties including the failure of client

7 personnel to complete client-preparation schedules on a timely and

8 accurate basis, disagreements as to revenue recognition and

9 capitalization of software costs, and weak internal control

10 systems.

11 60. On January 18, 1995, defendants once again amended the

12 Registration Statement and Prospectus and filed Amendment No. 4 to

13 Form SB-2 with the SEC. Amendment No. 4 was signed by defendants

14 Berman, Keegan and Garber. This final version of the Registration

15 Statement attached a copy of the final Prospectus that was

16 ultimately dated January 25, 1995. Corbin & Wertz' significant

17 role in auditing and reviewing false financial statements contained

18 within the Registration Statement and Prospectus, including drafts

19 thereof, is set forth in ¶¶155-200. Fenwick & West's role in

20 wilfully participating in the filing of the false and misleading

21 Registration Statement and Prospectus, including drafts thereof, is

22 set forth in 11201-05.

23 61. The aforementioned statements in ¶155-205 remained

24 alive, uncorrected, and part of the total mix of information

25 regarding Access HealthNet at the beginning of the Class Period.

26 62. As motivation to make the Registration State effective at

27 whatever cost, the payment of Fenwick & West's substantial legal

28 fees, in excess of $200,000 for the Registration Statement alone,

- 50 -

1 were dependent on the Registration Statement becoming effective.

2 As early as March of 1993, defendants Berman and Levy advised

3 Fenwick & West that "[i]f the deal does close, [there will be] no

4 quibbling on price;" however, if the deal fails to close, i.e., the

5 Registration Statement is not effective, Fenwick & West must then

6 look to the Company whose cash flow was insufficient to support

7 such costs.

8 DEFENDANTS' CONDUCT IN FURTHERANCEOF THEIR SCHEME AND WRONGFUL

9 COURSE OF BUSINESS

10 63. On or about January 25, 1995, the Prospectus attached to

11 Amendment No. 4 to Form SB-2 filed by the defendants with the SEC

12 was declared effective. The defendants concurrently began

13 disseminating the Prospectus for the purpose of offering for sale

14 and selling their Access HealthNet stock. The defendants

15 represented that the shares offered pursuant to the Prospectus

16 would be " offered on a continuous basis ." Using the Prospectus,

17 defendants Levy and Becton through Threshold (an entity controlled

18 by them), and other entities in which they directly or indirectly

19 held beneficial interests, offered for sale and/or sold 1,568,680

20 shares of Access HealthNet common stock. Defendant Garber took

21 immediate advantage of the false Prospectus, selling 20,000 of his

22 own Access HealthNet shares on January 26, 1995 for proceeds of

23 $165,000.

24 64. The Prospectus included Access HealthNet's false

25 financial statements and stated that for the first six months of

26 fiscal 1995 ended September 30, 1994, Access HealthNet had

27 revenues, net income and earnings per share ("EPS") of $5,249,008,

28 $788,020 and $0.14, respectively.

- 51 -

J

1

2

3

4

5

6

7

8

9

10 I

11

12

13

14

15

16

17 I

18

19

20

21

22

23

24

25

26

27

28

65. The Prospectus also included financial statements,

audited by defendant Corbin & Wertz, which showed that Access

HealthNet had generated fiscal 1994 revenues and earnings of $4.6

million and $558,047, respectively. The Prospectus also bullishly

discussed the Company's liquidity, stating that Access HealthNet

would have sufficient capital to operate for the next 12 months

without raising additional funds . The Prospectus stated:

The Company anticipates that its existing capital

resources and cash flow from operations will be adequate

to satisfy its capital requirements for at least the next

twelve months .

The Prospectus also stated:

As of March 31, 1994 and September 30, 1994, total

lease receivables as a percentage of total receivables

were 54% and 61%, respectively. In order to finance a

portion of the Company's equipment inventory needed to

meet the equipment leasing needs of its customers, the

Company has in turn leased computer equipment from third

party lessors and then subleased the equipment to its

customers. During fiscal 1993, fiscal 1994 and the six

months ended September 30, 1994, the Company acquired

approximately $602,000, $1,050,000 and $366,000,

respectively, in equipment held for sublease to

customers. These transactions have helped to preserve

the Company's working capital and the Company expects to

enter into similar transactions in the future . In fiscal

1994 and continuing into fiscal 1995, the Company

received a larger percentage of the orders for its

- 52 -

1 products from fiscally stronger customers , such as

2 distributors for commitments to national accounts and

3 sales to United States military organizations . These

4 orders are primarily structured as purchases or leases

5 that can be institutionally financed (i.e., sold for

6 cash). The Company anticipates that, if this trend

7 continues, the adverse effect on the Company's cash flow

8 and working capital position due to the large number of

9 leases relative to sales will be substantially mitigated .

10 Although the Company expects this trend to continue,

11 there can be no assurance that it will do so in the

12 future. In addition, the Company is currently

13 negotiating an agreement with a third party equipment

14 lessor which, if such agreement is consummated, would

15 provide for the purchase by such equipment lessor of

16 certain of the Company's existing leases with end users .

17 Furthermore, the agreement would provide for the ability

18 of the third party lessor, rather than the Company, to

19 finance the purchase of the Company's systems by end

20 users. Accordingly, if such agreement is consummated,

21 the Company expects that it will no longer enter into

22 lease agreements with end users . There can be no

23 assurance that the proposed agreement will be

24 consummated.

25 66. With respect to Access HealthNet's revenue recognition

26 practices, the Prospectus stated:

27 Revenue from sales . to distributors is recognized

28 upon complete delivery. comoletion of all significant

53

1 vendor obligations, acceptance by the customer or

2 distributor, and when collectibility is deemed probable .

3 67. With regard to the Company's internal controls and

4 ability to report accurate accounting information, the Prospectus

5 stated:

6 The Company is currently experiencing a period of

7 rapid growth that has placed, and is likely to continue

8 to place, a significant strain on the Company's financial

9 and other resources. The Company's ability to manage its

10 growth effectively will require it to continue to improve

11 its operational, financial and management information

12 systems, and to attract, train and motivate its employees

13 effectively. In mid-1993, the Company designed and

14 partially implemented a system to capture software

15 development activities for purposes of capitalizing

16 software. Since that time, the Company has developed and

17 formalized policies and procedures such as the following:

18 (a) established systematic customer order procedures and

19 acknowledgments, (b) developed an organized shipping

20 system with documented controls and segregated duties,

21 (c) adopted procedures for maintaining and updating aging

22 reports for accounts receivable and (d) adopted security

23 measures for inventory control. The Company has also

24 hired additional accounting personnel, including a

25 controller, and a new Chief Financial Officer and

26 Treasurer who commenced his employment with the Company

27 in October 1994. The Company's former Chief Financial

28 Officer and Treasurer, Michael McMahon, resigned as an

- 54 -

1 officer and director of the Company in November 1994.

2 Mr. McMahon is currently an employee of the Company with

3 limited responsibilities. The Company is in the process

4 of (a) implementing a new accounting system, (b) creating

5 purchasing procedures and document retention systems and

6 (c) identifying further control procedures to be

7 implemented . No assurance can be given that the

8 Company's recent attempts to standardize and coordinate

9 procedures and documentation for its business

10 relationships will be implemented successfully. If the

11 Company's management is unable to manage growth

12 effectively in its existing markets or in new markets the

13 Company may enter, the Company's operating results and

14 financial condition could be adversely effected.

15 68. The Prospectus and Registration Statement were false and

16 misleading when issued in that they omitted and/or misrepresented

17 material facts. The true facts then known by or available to

18 defendants Levy, Berman, Keegan, Garber, Corbin & Wertz and Fenwick

19 & West were that:

20 (a) A material portion of the Company's existing leases

21 had not been executed and/or were executed on terms or with parties

22 which defendants knew, or should have known, rendered the leases

23 unsalable to third parties;

24 (b) During 1994 and 1995 the Company improperly

25 recognized revenue from distributors despite the fact that all

26 significant vendor obligations had not been completed and/or

27 collectibility was not probable;

28

- 55 -

1 (c) The Company faced a huge liquidity problem and was

2 not recovering accounts receivables;

3 (d) The Company's distributors were related parties and

4 that, in fact, certain distributors were on the Company's payroll,

5 received benefits under the Company's health benefit plans and had

6 their local offices subsidized by the Company;

7 (e) The schedule of revenue provided to the SEC as an

8 attachment to a letter from Fenwick & West dated January 5, 1995

9 for the six-month period ended September 30, 1994, had not been

10 collected by the Company prior to effectiveness of the Registration

11 Statement, yet it was represented to the SEC that it had been

12 received;

13 (f) The Company had numerous material weaknesses

14 constituting reportable conditions in its internal accounting

15 controls impacting its ability to report accurate financial

16 information;

17 (g) The Company had not taken steps to strengthen its

18 internal accounting controls to improve its ability to accurately

19 report its financial condition;

20 (h) Corbin & Wertz had neither completed its audit of

21 the Company's fiscal 1994 year ended March 31, 1994 financial

22 statements in a timely fashion nor conducted its audit in

23 accordance with GAAS;

24 (i) Because of (a) and (b) above and the defendants'

25 other violations of GAAP as complained of herein in 11110-54,

26 Access HealthNet's Prospectus included false financial statements;

27 (j) It was defendant Berman's practice to never read

28 documents including material contracts that he signed on behalf of

- 56 -

1 the Company so that he could later assert that he would not be

2 bound by a document bearing his signature;

3 (k) The Company had breached from inception an agreement

4 with a supplier of computer equipment, Data General, because of

5 Berman's practice to not read documents;

6 (1) Defendant Berman and a former member of management,

7 McMahon, failed to keep adequate records of: (i) the Company's

8 formation and public trading history before the filing of the

9 Registration Statement; (ii) the company's issuance of stock given

10 that Access HealthNet had issued 25 times more stock than was

11 authorized; and (iii) the election of the purported directors of

12 the Company;

13 (m) Defendant Berman and a former member of management,

14 McMahon, failed to file or to have filed: (i) the appropriate

15 documentation with the Delaware Secretary of State recording the

16 two reverse stock splits undertaken by McMahon and Berman; (ii) the

17 appropriate filings with the California Department of Corporations

18 to allow the Company's common stock to trade in the NASDAQ National

19 Market System in compliance with California Corporate Securities

20 Law ("CSL""); and (iii) exemption notices under CSL §25102 to allow

21 the Company's sale of securities in California;

22 (n) The Company's former auditor, Lawrence Hecht

23 ("Hecht"), whose audit opinion for fiscal 1993 appears in the

24 Registration Statement: (i) was not independent because he may have

25 been a director of the Company while serving as its auditor; (ii)

26 never came to California while performing his audit but instead

27 simply reviewed the audit work performed by an Access HealthNet

28 employee named Richard Dunham ("Dunham"); (iii) never participated

- 57 -

1 in reviewing the Prospectus or his audit opinion contained therein

2 or in conference calls with the SEC to which defendant Berman

3 stated Hecht was a party; and (iv) signed his audit opinion and

4 consented to its inclusion in the Registration Statement without

5 reviewing it;

6 (o) A major discrepancy existed related to payments by

7 McMahon or defendant Berman for warrants and exercise of options in

8 December 1993;

9 (p) McMahon and defendant Berman authorized the issuance

10 of all stock by the Company without obtaining a legal opinion or

11 obtaining approval from the Company's Board of Directors;

12 (q) Defendant Berman caused Rule 144 restricted stock to

13 be issued without the Rule 144 legend attached to the Certificate

14 and never obtained a legal opinion allowing such issuance;

15 (r) Defendant Berman had a practice of forging Company

16 documents including stock certificates;

17 (s) The Company accepted an additional $1 million

18 investment in December 1994 pursuant to a private placement

19 conducted in the summer of 1994 after defendants told the SEC that

20 the private placement was terminated in August 1994;

21 (t) Although Fenwick & West represented to the SEC when

22 the Company's Registration Statement was amended in March or April

23 1995 that the cash it had and would receive from operations would

24 be sufficient for a period of at least one year, the Company, in

25 fact, continued to be plagued by liquidity problems, was not

26 collecting accounts receivable and was existing from the proceeds

27 of the private placements following effectiveness of the

28

- 58 -

yI

1 Registration Statement and issuance of the Prospectus on January

2 25, 1995;

3 (u) Certain affiliates of Access HealthNet had been

4 changed from employee to non-employee status in an effort to

5 deflect scrutiny of Access HealthNet but, in fact, Access HealthNet

6 retained control over the affiliates' accounting, finances and

7 policies and procedures; and

8 (v) The Company issued false annual reports to enable

9 the Company stock to continue to trade publicly.

10 69. On February 10, 1995, defendants Berman, Keegan and

11 Corbin & Wertz caused Access HealthNet to issue a press release

12 announcing " RECORD THIRD QUARTER AND NINE MONTH FINANCIAL RESULTS ."

13 The press release stated:

14 ACCESS HEALTHNET, INC. . . . today announced

15 financial results for the third quarter and first nine

16 months of fiscal year 1995.

17 Revenues for the fiscal third quarter ended December

18 31, 1994 increased over 300% to $3,303,178 from $744,936

19 for the corresponding prior period. Net income for the

20 third quarter of fiscal year 1995 was $408,068, or $0.07

21 per share, as compared to a net loss of $6,017 for the

22 corresponding prior period.

23 For the nine months ended December 31, 1994 the


25 revenues for the corresponding period ended December 31,

26 1993 of $2,420,393, representing -an increase of over

27 2500. Net income for the first nine months of fiscal

28 1995 was 81,196.088, or 50.21 oer share, as compared to

59

1 net income of $119,009, or $0.03 per share for the

2 corresponding nine months of the prior year . . . .


4 HEALTHNET INC., stated, " We are very pleased with the

5 Company's financial results for the third quarter and

6 nine month period ended December 31, 1994. The more than

7 3000 increase in revenues for the third quarter reflects

8 the continued demand for our products ."

9 70. On or about February 24, 1995, Access HealthNet filed

10 with the SEC its quarterly report on Form 10-QSB for the quarter

11 ended December 31, 1994, signed by defendant Keegan. The Report on

12 Form 10-QSB contained false financial statements and stated:

13 Revenues . Revenues increased from $745,000 for the

14 three months ended December 31, 1993 to $3,303,000 for

15 the three months ended December 31, 1994. This increase

16 was primarily a result of an increase in the number of

17 units of RemoteACCESS sold by the Company to distributors

18 for commitments from national accounts . Sales of

19 RemoteACCESS increased from $896,000 for the three months

20 ended December 31, 1993 to $2,580,000 for the three

21 months ended December 31, 1994 while sales of LabACCESS

22 increased from $0 to $70,000 during these periods.

23 During this period, the increase in revenues was

24 primarily a result of increased sales to distributors

25 based on orders from national accounts .

26 71. The February 10, 1995 press release and the Report on

27 Form 10-QSB for the quarter ended December 31, 1994 were false and

28 misleading when issued. However, the true facts then known by or

60

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

available to defendants Berman , Keegan and Corbin & Wertz were

that:

(a) The Company's revenue and income for the nine-month

period ended December 31, 1994 were overstated by at least $4.0

million and $1.4 million, respectively, as a result of defendants'

violations of GAAP as complained of herein in 1$110-54;

ll(b) Because of the Company's false financials and

growing cash-flow problems, defendants were not "' very pleased '"

with the Company's financial results;

(c) Because the Company had not taken steps to

strengthen its internal accounting controls and ability to report

accurate financial information, the Company would have to make

adjustments to the revenue recognized; and

(d) The Board of Directors had not yet been informed of

the reportable conditions undermining the Company's accounting

department.

72. In or about early March 1995, the defendants made an

offer to Access HealthNet warrant holders which included statements

regarding the status of Access HealthNet's operations and finances

and projections that Access HealthNet would experience growing

revenues and earnings during fiscal 1996. These statements were

false or misleading and became part of the total mix of information

available to the market and thus likewise inflated the price of

Access HealthNet stock and were made for the purpose of inducing

Access HealthNet warrant holders to accelerate their purchase of

Access HealthNet stock. According to the Company's Report on Form

8-K, filed with the SEC on April 19, 1995, as a result of

defendants' offer, " Warrants for the purchase of 393,938 shares of

- 61 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

the Company's Common Stock were exercised and the Company received

$3,014,000 of additional capital ." In a press release on April 19,

1995, defendant Keegan stated that "These actions will have a

positive impact on the Company's short term cash flow and working

capital."

73. On March 16, 1995, the Company announced in a press

release that it had completed development of its ACCESS PSx product

line that was ostensibly tailored to meet the requirements of

patient service centers. The press release noted that outpatient

service centers were growing at 1,000 centers per month. The

release also stated:

Mr. Keith Berman, Chief Executive Officer of ACCESS

HEALTHNET, INC. stated, "The market for specialized data

and communication products for the outpatient service

center industry is estimated to be in excess of $250

million per year and is growing at almost exponential

rates. No clear market leader has emerged to service

this expanding market, and no single company has, until

now, concentrated on marketing a complete line of

products to meet the defined needs of this segment of the

market. We believe that the PSx product line will make

an immediate impact by meeting the existing needs of

these centers since our products will integrate the

medical procedures requests/fulfillment with medical

billing."

74. On or about March 23 1995, Access HealthNet issued a

press release announcing that the Company had entered into an

agreement with Digital Equipment to provide installation and

- 62 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

training services to Access HealthNet customers which would

purportedly allow Access HealthNet to provide its customers with

"' immediate installation and training ' 11 thereby allowing Access

HealthNet to "' maintain '" its " accelerating revenue growth .'"

75. The statements and/or omissions of defendants Berman and

Keegan made in connection with the March private placements, the

March 16 and 23, 1995 press releases and the April 19, 1995 Form 8-

K and press release were each false or misleading. The true facts,

then known by or available to the defendants, were that:

(a) The Company had prematurely recognized revenue under

contracts with customers and distributors in violation of GAAP as

complained of herein in ¶¶110-54;

(b) The Company was still troubled by serious liquidity

problems and was not converting accounts receivable to cash; and

(c) The Company was not successfully installing its

products with customers and was not able to demonstrate the

purported capabilities of its products.

76. On or about May 5, 1995, Access HealthNet issued a press

release announcing a financing program with Forrest Financial

Corporation ("Forrest Financial") which was to " provide over $35

million in funding during the remainder of this year and

thereafter ," and enable Access HealthNet to improve its liquidity

by selling its leases. The press release stated:

Mr. James Keegan, Chief Financial Officer of ACCESS

HealthNet, Inc. stated, " This financing agreement

provides ACCESS with additional resources to service

projected requirements of our national account programs,

the fastest growing segment of the Company . The money

- 63 -

1 now reserved for ACCESS HealthNet by Forrest Financial

2 Corporation will provide funding for both a portion of

3 the contracts we currently have in place and are in the

4 process of negotiating. More importantly, the Company

5 has also obtained approval to fund our remote system

6 sales, providing management with the ability to secure

7 new contracts with other large healthcare companies."

8 77. The May 5, 1995 press release was false and misleading

9 when issued. The true facts, then known to defendants, were that

10 they did not expect that the Company would be able to materially

11 improve its liquidity by selling leases, because a majority of the

12 leases that purportedly were to be "sold" had not been executed and

13 that most of those which had been executed with distributors ands

14 end-users contained terms or were with parties which defendants

15 knew, or should have known, would not allow Access HealthNet to

16 recognize revenue or sell the leases to third parties and that up

17 to this point the Company had not been successful in selling a

18 significant number of its leases. Moreover, as to certain lease

19 "sales," the only way such "sales" had been accomplished was to

20 sell non-existent leases or leases that had been cancelled to

21 unsuspecting investors , who only discovered the fraudulent nature

22 of the leases they had purchased after they stopped receiving

23 monthly payments from the Company. Upon further investigation,

24 later it was discovered that Access HealthNet ran a Ponzi scheme

25 regarding its leases, in that the leases sold were cancelled or

26 non-existent and the investors in these leases had been receiving

27 payments from the Company itself and not from any customer that had

28 agreed to lease Access HealthNet products.

- 64 -

1 78. On or about May 10, 1995, defendants Berman and Keegan

2 caused Access HealthNet to issue a press release announcing that

3 PCL had agreed " to purchase, over a three year period, at least

4 . 2,000 Access HealthNet remote communication systems ." The

5 press release also stated:


7 HealthNet stated "We are very excited that Physicians

8 Clinical Laboratories will join Access HealthNet's

9 growing community of clients. We now have both major

10 independent clinical reference laboratories in the State

11 of California as clients. PCL's Northern California

12 prominence complements Access HealthNet's existing

13 Southern California network. We expect our contract with

14 PCL to add over 4,000 doctors to our healthcare

15 information network. Introduction to these healthcare

16 providers will grant Access HealthNet the opportunity to

17 generate additional revenues from specialty products now

18 in development which are designed for the physician's

19 office."

20 79. On or about May 15, 1995, in connection with the offering

21 of Access HealthNet stock and for the purpose of offering to sell

22 and/or inducing the purchase of Access HealthNet stock, the

23 defendants filed with the SEC, Supplement No. 2 to the Prospectus.

24 Despite their concurrent knowledge to the contrary, the defendants

25 continued to attempt to use inadequate and non-meaningful

26 boilerplate disclosures, such as " [wlhile there [could] be no

27 assurance . . .," yet defendants still represented that they

28 believed that Access HealthNet's " existing cash balances, available

- 65 -

1 borrowings and other cash sources from third party equipment

2 lessors and other lending sources and cash flow from operations

3 [would] be adequate to meet the Company's cash requirements at

4 least through January 1996 ."

5 80. The Supplement No. 2 was false and misleading when

6 issued. The true facts then known or available to the defendants

7 were that:

8 (a) Defendants' transparent attempt to immunize

9 themselves from liability by representing that " there [could] be no

10 assurance " that the Company would be able to meet its cash

11 requirements, was not only an inadequate "risk disclosure" but also

12 misleading because defendants were aware that the majority of

13 Access HealthNet's "leases" were either unexecuted or were on terms

14 that would not allow them to be readily converted to cash and

15 therefore the defendants knew or should have known that these

16 transactions could not be properly recorded as revenue and that

17 Access HealthNet would be unable to sell a material portion of its

18 leases to raise cash;

19 (b) One of the few ways the Company had been able to

20 receive cash was by fraudulently selling non-existent or cancelled

21 leases to unsuspecting investors; and

22 (c) The defendants did not expect Access HealthNet's

23 cash flow from operations to contribute materially to the Company's

24 cash requirements during fiscal 1996.

25 81. On or about July 18, 1995, Access HealthNet issued a

26 press release announcing changes in the Company's management and

27 organizational structure. Levy, the sole shareholder of Kalorama

28 Corporation (the Managing General Partner of Threshold), was named

- 66 -

1 Chief Executive Officer and Chairman of the Board. Becton, the

2 sole shareholder of Flagship Corporation (the Administrative

3 General Partner of Threshold), was named to the Board of Directors.

4 Furthermore, Falvey Fuller was named Chairman of the Board's

5 Compensation Committee and Colman was named Chairman of the Board's

6 Audit Committee. Additionally, on July 18, 1995, the Company

7 issued another press release which contained its financial results

8 for the fourth quarter and 1995 fiscal year ended March 31, 1995.

9 Although this press release referred to the Company's prior

10 dissemination of inaccurate financial statements, the release far

11 from revealed the true extent of the defendants' misrepresentations

12 and/or omissions regarding the Company's financial statements.

13 Moreover, this release still contained false financial results

14 despite the adjustments and other material misrepresentations and

15 omissions regarding the Company's ability to collect adjusted

16 revenue during fiscal 1996 and accurately report financial

17 information, stating:

18 For the year ended March 31, 1995, the company

19 reported an increase in revenues of 74 percent to

20 $7,983,000, compared with revenues for the year ended

21 March 31, 1994, of $4,595,000.

22 Net income for the fiscal year 1995 was $221,000, or

23 4 cents per share, a decrease over last fiscal year's net

24 income of $558,000 or 12 cents per share.

25 The decrease in net income was primarily the result

26 of increased expenses relating to the company's growth

27 including personnel expenses. The company had 5,814,776

28

- 67 -

1 shares outstanding as of March 31, 1995 , and 4 , 8S2,580 as

2 of March 31, 1994.

3 During the course of its year-end audit , the company

4 recorded adjustments , primarily related to revenues,

5 which had the effect of reducing its current revenues,

6 net income , and net income per share for fiscal year

7 1995. Such adjustments resulted in the reduction of

8 fiscal year 1995 revenues in the amount of $4,400,000,

9 net income in the amount of $1,400,000 , and net income

10 per share in the amount of 23 cents.

11 The company believes that approximately $3,600,000

12 of these revenues will be recognized in the company's

13 current fiscal year and the remaining amount will be

14 recocinized in future periods in the form of increased

15 product sales and unit prices .

16 * * *

17 The company expects that it will reflect in that

18 filing adjustments to its previously published quarterly

19 results for fiscal 1995 resulting from the above

20 mentioned fourth quarter adjustments . For the nine

21 months ended Dec. 31, 1995 [sic], the company had

22 previously reported revenues of approximately $ 8,500,000.

23 82. Attempting to minimize the market ' s concerns regarding

24 the Company's operations , the defendants falsely represented that

25 the adjustments were of minimal consequence in that they primarily

26 related to mere "timing " issues . Moreover , defendant Berman even

27 had the audacity to state that other than the Company's adjusted

28

- 68 -

1 financial statements, he was "' very pleased with the progress that

2 the company made during the fiscal year -lust ended .-

3 83. On or about July 31, 1995, Access HealthNet filed with

4 the SEC its Report on Form 10-KSB for the fiscal 1995 year ended

5 March 31, 1995. The Report on Form 10-KSB was prepared, audited,

6 reviewed and/or signed by each of the defendants and included the

7 Company's restated revenues and earnings for each quarter of fiscal

8 1995. Revenues were restated and reduced for the second, third and

9 fourth quarters in the amount of $890,000, $1.4 million and $2.1

10 million, respectively. Similarly, net income for those same

11 periods were restated and reduced by $282,000, $448,000 and

12 $669,000, respectively. In order to avoid or minimize a downward

13 reaction in the price of Access HealthNet stock and the public and

14 regulatory scrutiny that would likely be attendant therewith, which

15 might have resulted in revelations as to defendants' wrongful

16 conduct, the defendants continued to falsely represent that a

17 substantial portion of the revenue "deferred" would be recognized

18 in the near future.

19 84. The Report on Form 10-KSB reflected the defendants'

20 representations regarding the restatement of interim financials,

21 stating:

22 As previously indicated, it has been the Company's

23 practice to ship product based upon purchase orders from

24 distributors and to recognize the sale at the time of

25 shipment. Although the Company believes that its

26 distributors and the customers of the company's

27 distributors have accepted such product , the principal

28 part of the Company's sales during fiscal 1995 remain

- 69 -

1 accounts receivable from its distributors which have not

2 been collected by the Company. Also, as disclosed above,

3 a substantial number of shipments to Company distributors

4 relate to product that is not yet leased or purchased by

5 the distributor's customer, and, therefore, these

6 customer leases have not yet been documented nor have any

7 lease payments been made by the distributors or the

8 distributors' customers on leases that were to have to

9 been entered into for fiscal 1995.

10 Accordingly, none of the Company's revenue could be

11 recognized for fiscal 1995 without completion of an

12 extensive audit by the Company's independent auditors,

13 primarily the receipt of confirmations of sale or lease

14 from the Company's distributors and from customers of the

15 Company's distributors. As a result of the audit

16 completed in July 1995, revenue actually recognized, as

17 disclosed below, was substantially less than the amount

18 represented by product that was shipped for fiscal 1995

19 and was less than revenue reported in the Company's Form

20 10-QSB or by press release for the third quarter of

21 fiscal 1995. Revenues for the Company's prior fiscal

22 year, as described below, were also overstated in the

23 third quarter of that year as a result of revenue

24 recognition adjustments during the audit for fiscal 1994.

25 85. The defendants' statements during July, including the

26 July 18, 1995 press releases and the *Company's 1995 Report on

27 Form 10-KSB for the year ended March 31, 1995, were materially

28

- 70 -

1 false and misleading. The true facts, then known to all of the

2 defendants based upon internal Company data, were that:

3 (a) Despite the defendants' restatement of Access

4 HealthNet's earnings, the Company's earnings and revenues for

5 fiscal 1995 were still not recognized in conformity with GAAP and

6 remained inflated by at least $5.7 million as a result of the

7 accounting manipulation complained of in ¶¶110-54;

8 (b) Defendants knew or should have known that the

9 "deferred sales" were made on such terms or with such parties that

10 there was no reasonable basis to expect, and the defendants did not

11 in fact expect, that $3.6 million of the revenue restated in

12 connection with Access HealthNet's year-end audit would be

13 recognized in fiscal 1996;

14 (c) The Company had a cash "burn rate" such that the

15 defendants did not expect Access HealthNet to continue to operate

16 as a going concern absent a massive infusion of cash;

17 (d) Corbin & Wertz failed to conduct its audit of the

18 Company's 1995 financial statements in accordance with GAAS; and

19 (e) Because of the adverse information outlined in (a)-

20 (d) above, the defendants were far from "very pleased'" with

21 Access HealthNet's results.

22 86. On or about August 14, 1995, Access HealthNet filed with

23 the SEC its Report on Form 10-QSB for the first quarter of fiscal

24 1996 ended June 30, 1995, which was prepared and/or reviewed by

25 defendants Levy, Berman, Keegan, Garber, Becton and Corbin & Wertz

26 and signed by defendant Keegan. The Company reported revenues, net

27 income and EPS of $2.94 million, $107,754 and $0.02, respectively.

28 The Management's Discussion and Analysis ("MD&A") section of the

-1 - 71 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Report on Form 10-QSB included a bullish discussion of the

Company's performance, representing:

Revenues . Revenues increased 29o from $2,277,000

for the three months ended June 30, 1994 to $2,941,000

for the three months ended June 30, 1995. This increase

is due primarily to an increase in the number of

RemoteACCESS units sold from the previous period as well

as increased prices of certain RemoteACCESS units

shipped. Sales of RemoteACCESS units represented more

than 90% of revenues for the three months ended June 30,

1995.

87. The MD&A section of the Report on Form 10-QSB also

described positively the Company's exponential growth in revenues

during 1994 and 1995 while minimizing the growth in Access

HealthNet's expenses, stating:

Continuing into fiscal 1996, growth in revenues for the

Company has been primarily with distributors. Sales to

national accounts occur primarily through distributors.

Revenue is recognized on the sale to the distributors

upon complete delivery, completion of all significant

vendor obligations, acceptance by the distributor, and

when collectibility is deemed probable .

General and Administrative Expenses . General and

Administrative expenses increased from $643,000 for the

three months ended June 30, 1994 to $1,126,000 for the

three months ended June 30, 1995. This 75% increase in

the level of expenditure as well as the related increase

- 72 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

from 28% of revenues in fiscal 1995 to 38% of revenues in

fiscal 1996 is due primarily to increases in personnel

and related costs as the Company continues to hire

support personnel in its Customer Service departments and

related overhead support functions, including finance and

office administration as well as increased costs incurred

in professional services .

88. The Report on Form 10-QSB also stated:

At June 30, 1995, the Company had approximately

$(289,000) of working capital, approximately $650,000 of

leases receivable, and approximately $14,000,000 of

accounts receivable, most of which is expected to be

converted to leases within the next 180 days .

89. In an attempt to further allay any concerns regarding the

integrity of the Company's financial statements, the defendants

also included in the Company's financial statements a " SUMMARY OF

SIGNIFICANT ACCOUNTING POLICIES " which represented:

Unaudited Interim Financial Statements

The financial statements for the three months ended June

30, 1994 and 1995 are unaudited. In the opinion of

management, all adjustments, consisting only of normal

recurring accruals, considered necessary for a fair

presentation have been included .

90. On or about August 15, 1995, the defendants disseminated

a press release reciting the Company's results for the first

quarter of fiscal 1996. The press release bullishly stated:

Steven E. Levy, who was elected Chairman of the

Board and named Chief Executive Officer last month, said

- 73 -

1 "The first quarter was effected [sic] by an increase in

2 Sales, General and Administrative expenses during the

3 period. The company embarked upon a program to bring on

4 additional technical and field support personnel to

5 service its fast growing national accounts program .

6 These additions and related costs had a significant

7 impact on earnings even though sales rose 29 percent for

8 the period."

9

10 Levy pointed out that, "Additionally, although cost

11 of sales increased 35 percent for the quarter, directly

12 related to the number of RemoteACCESS units sold, these

13 units will now generate recurring revenues as the units

14 are placed in use. These recurring revenues will provide

15 substantially higher margins ."

16 With respect to Access HealthNet's continuing

17 operations, Levy said, " During the past few weeks we have

18 revamped and fine-tuned our strategy. We have redefined

19 our organizational structure. I am very excited about

20 the prospects for Access HealthNet and I am extremely

21 pleased to be working with the Access HealthNet

22 management and employee team ."

23 91. Access HealthNet's Report on Form 10-QSB for the quarter

24 ended June 30, 1995 and the August 15, 1995 press release contained

25 false financial statements and included additional false and/or

26 misleading statements. The true facts, then known to defendants

27 Levy, Berman, Keegan, Garber, Becton and Corbin & Wertz based upon

28 internal corporate data, were that:

- 74 -

1 (a) The entirety of the Company's revenue for the

2 quarter was phony and that Access HealthNet's earnings for the

3 first quarter of fiscal 1996 ended June 30, 1995, were artificially

4 inflated by at least $4.1 million as a result of defendants'

5 accounting manipulation;

6 (b) As part of the attempts of defendants Levy, Berman

7 and Keegan to raise equity capital and/or place debentures,

8 defendants prepared and disseminated false 1996 revenue and

9 earnings projections for Access HealthNet of almost $20 million and

10 $400,000, respectively;

11 (c) Absent the accounting artifices described herein in

12 ¶1110-54, Access HealthNet had not experienced "growth" in revenues

13 but in fact was continuing to experience massive losses; and

14 (d) A material portion of the leases underlying the

15 Company's outstanding leases receivable had not been executed

16 and/or were executed on terms such that the defendants did not

17 expect to convert a material portion of Access HealthNet's $14

18 million in leases to cash by February 1996.

19 92. Between August 31, 1995, and September 12, 1995, less

20 than two weeks after an Access HealthNet Board of Directors

21 meeting, while in possession of undisclosed adverse information,

22 defendant Garber sold at least 38,000 shares of his personal

23 holdings in Access HealthNet stock for proceeds of more than

24 $341,000.

25 93. On September 11, 1995, Access HealthNet announced the

26 conclusion of a $1.9 million private placement. In connection with

27 the private placement, defendant Levy falsely stated, "' Our primary

28

- 75 -

1 objective is to build shareholder value for all of Access

2 HealthNet's investors ."'

3 94. In a press release dated on or about September 14, 1995,

4 defendants Levy and Berman announced that the defendants had

5 further "' solidifie[d] '" Access HealthNet's "' leadership position

6 in the remote medical networking market .The press release

7 stated:

8 Mr. Levy pointed out that " This technology

9 solidifies our leadership position in the remote medical

10 networking market and provides us with a significantly

11 broader market . Moreover, remote medical communications

12 is one of the fastest growing segments in the healthcare

13 information services industry. The market for these

14 applications has grown to approximately $800 million

15 annually and is expanding at a rate of about 35 percent

16 a year ."

17 Keith Berman, Access HealthNet President, said "This

18 exciting addition to the Access HealthNet line will

19 immediately integrate into our Remote Medical Provider

20 Systems and contribute a significant and instantaneous

21 enhancement to this product ."

22 95. On or about September 27, 1995, the Company issued a

23 press release which appeared over the PR Newswire announcing the

24 appointment of Hertz as Senior Vice President in charge of Finance

25 and Administration. The press release stated:

26 Mr. Hertz worked on the Access HealthNet account for

27 the past two years while a partner at Corbin and Wertz,

28

- 76 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

an accounting firm specializing in serving middle market

companies .

Steven E. Levy, Chairman and Chief Executive Officer

of Access HealthNet, said, "We are pleased to welcome Mr.

Hertz on board at Access HealthNet. His substantive and

broad expertise in Securities and Exchange Commission

issues and regulations, as well as finance, financial

reporting systems and financial controls will add

significant value to the Access HealthNet team .

"Mr. Hertz, in this new position, will have the full

responsibilities of a Chief Financial Officer, as well as

overseeing Access HealthNet's administrative functions."

96. In a press release dated October 12, 1995, Access

HealthNet announced that it would restate its financial results for

the first quarter of fiscal 1996 ended June 30, 1995, and that the

Company expected to post losses of approximately $5 million for the

second and third quarters of fiscal 1996 due to " changes in its

operations " which would require it to assume vendor obligations in

connection with product sales previously performed by its

distributors, and that this would result in a delay in the

recognition of revenues. In addition, it was announced that

Berman's affiliation with the Company had ceased.

97. Although the October 12, 1995 press release partially

disclosed the falsity of the revenue and income figures for the

first quarter of fiscal 1996, this release did not come close to

revealing the full extent of the internal control and accounting

problems affecting the Company and that the Company was wholly

- 77 -

1 unable to satisfy its customers with its products. In fact,

2 customers were actually cancelling enormous contracts for which the

3 Company had already recognized substantial revenue. For example,

4 instead of revealing that PCL, the Company's largest customer, had

5 cancelled the contract under which the Company had improperly

6 recognized over $4 million in revenue for fiscal 1995, defendants

7 continued to make false statements regarding the Company's

8 operations.

9 98. Moreover, still not revealing that material customers

10 were cancelling contracts, the October 12, 1995 press release

11 reported that members of the Board of Directors or their affiliates

12 had made an equity investment of $2 million in the form of 666,667

13 units of convertible preferred stock and warrants at a price of $3

14 each. During October, in connection with Levy's, Berman's and

15 Keegan's attempts to raise equity capital and/or place debentures,

16 defendants prepared and disseminated revenues and earnings

17 projections for Access HealthNet during calendar 1996 of almost $20

18 million and $400,000, respectively .

19 99. On October 17, 1995, instead of revealing that customers

20 were cancelling contracts due to the Company's nonperformance, the

21 Company announced one of its largest contracts in its history. An

22 article appearing in the Los Angeles Times announced that:

23 Access HealthNet Inc., a Westlake Village provider

24 of information management and communications systems to

25 the health care industry, has landed an important new

26 customer .

27

28

- 78 -

1 Access will provide its remote communications

2 systems to Unilab Corp . to install an information network

3 for the Alameda Alliance for Health in Oakland.

4 Unilab, based in Tarzana, will use Access' software

5 to help doctors and others in the Oakland area health

6 industry keep track of such matters as patients'

7 insurance eligibility, treatment authorizations and

8 medical referrals.

9 Financial terms of the deal weren't disclosed, but

10 the Alameda alliance includes more than 900 physicians,

11 several large hospitals, the Alameda County Health Agency

12 and 25 clinics .

13 " This agreement is one of the largest in Access

14 HealthNet's history ," said Steven E. Levy, Access'

15 chairman and chief executive. He said Access' systems

16 will be installed at Children's Hospital Oakland and

17 Highland General Hospital in Oakland, linking the

18 hospitals and their physicians to an areawide network.

19 The agreement calls for Access to provide its

20 MedLink patient management technology to link Alameda

21 County's clinics to the community health information

22 network.

23 Levy said remote communication is one of the fastest

24 growing segments of the health care industry. The market

25 for such systems has grown to $800 million annually and

26 is expanding at a rate of about 35% a year, he added .

27 100. Again on October 18, 1995, instead of revealing that

28 customers were cancelling contracts, defendant Levy issued a letter

- 79 -

1 to shareholders telling them exactly the opposite. The letter

2 stated:

3 Dear Access HealthNet Stockholder:

4 Given the magnitude of the changes occurring at your

5 Company, I believe it is important to give you a broad

6 summary of Access HealthNet's prospects.

7 To introduce myself, I am the President of Kalorama

8 Corporation, the Managing General Partner of Threshold

9 Technology Partners L.P., an investment partnership

10 specializing in technology companies. Threshold

11 Technologies is the largest direct shareholder of Access

12 HealthNet. Since its initial investment in 1992,

13 Threshold Technology has never sold a share of stock in

14 Access HealthNet. My own investment management career

15 has been spent as a manager of, and an advisor to, firms

16 engaged in the late-stage commercialization of innovative

17 technologies .

18 Overview

19 It became clear to the Board of Directors that

20 Access HealthNet lacked the necessary focus,

21 organizational infrastructure and management personnel to

22 reach significant revenues and profits. When the Board

23 called upon me to help strengthen the Company I became

24 its Chairman and Chief Executive Officer. I did so

25 because I believe in the Company, its products, its

26 markets and its future. I assumed the position of Chief

27 Executive Officer with only one objective in mind: to

28 maximize shareholder value .

- 80 -

1 I am serving without compensation of any sort and

2 expect that I will continue in my position as Chief

3 Executive Officer until the Company's operations are

4 stabilized and a firm foundation is in place for future

5 growth and profitability .

6 It is clearly a challenging task. As you are by now

7 aware, we recently announced that the Company expects to

8 report losses in the quarters ending September 30 and

9 December 31, 1995. The losses result from a change in

10 timing for when income is recognized. It is not a result

11 of sales transactions being reversed by customers. The

12 Company will experience these losses primarily because

13 management concluded that it was necessary to chancre its

14 relationship with its distributors to ensure that its

15 products are installed in a timely fashion, operate

16 reliably and meet its customers' needs. Because of this

17 change, the Company will assume vendor duties in

18 connection with product sales that were performed

19 previously by its distributors and delay the recognition

20 of revenues until these new duties are performed .

21 The Company has hired additional personnel and

22 instituted procedures to expedite and monitor the

23 installation of its products. The Company expects to

24 complete a significant number of installations in the

25 quarter ending March 31, 1996 .

26 We hope that Access HealthNet will return to

27 profitability and be cash flow positive during calendar

28 year 1996 . To that end, we have taken a number of

- 81 -

1 important steps: we are in the process of redesigning

2 the infrastructure of the organization; we have made

3 strategic additions to cur manacrement team; we have added

4 critical technical skills to our staff; and we have

5 refocused our marketing effort .

6

7 We are industry leaders and firmly intend to

8 maintain that position as we expand the market

9 penetration of our unique core products. Given the

10 rapidly changing and complex nature of the technology

11 industry in the 1990's, this will require constant

12 reinvention and reengineering. To that end, we have

13 adopted as our corporate motto: "The Relentless Pursuit

14 of Excellence ."

15

16 Mr. Hertz is a CPA with extensive experience in

17 public accounting for smaller technology concerns. In

18 addition to his responsibilities as Chief Financial

19 Officer, he will lead an internal cost control task

20 force, in conjunction with our recently hired Controller,

21 Karen Nissim, to re-examine every aspect of our cost

22 structure and product pricing. In addition, he assisted

23 in our recently completed preferred stock placement and

24 will take a lead in any future financings required to

25 support our growth plans. Mr. Hertz is also in the

26 process of implementing a program that will enable us to

27 sign and either sell leases or borrow against leases upon

28 installation of our products. Last week, a lease

- 82 -

1 financing source, Forrest Financial Corporation, brokered

2 the sale of our first lease for approximately $210,000

3 and we will evaluate alternative financing sources that

4 will either purchase our leases or use the leases as

5 collateral for borrowings .

6

7 We are placing a renewed focus on marketing our

8 products in a systematic and disciplined manner. At this

9 time, we have more than 70 proposals outstanding, which

10 represent over $20,000,000 in revenues over contract

11 life. Although we car-not project the probability of

12 closing these proposals, it is important to stress that

13 we are in the marketplace in a highly visible manner .

14 Our Sales and Marketing personnel have developed a

15 formal prospect pipeline monitoring and reporting system,

16 have created a generic full-capability demonstration

17 system, have instituted a thorough review of our

18 distribution system and have expanded our trade show

19 presence. Three recent trade shows generated more than

20 150 leads .

21 101. The September 11, 1995 press release, the September 14,

22 1995 press release, the October 12, 1995 news article, the October

23 17, 1995 press release and the October 18, 1995 letter to

24 shareholders were each false and misleading when issued. The true

25 facts, then available to or known by each of the defendants, were

26 that:

27 (a) Access Healthivet's largest customers were cancelling

28 contracts due to the Company's inability to perform;

- 83 -

1 (b) The reason for the restatement of the quarterly

2 results and the disclosure of Access HealthNet's massive losses in

3 the first quarter of fiscal 1996 were not due to " changes in its

4 operations " but rather, resulted from the combination of: (i) the

5 defendants' practice of fraudulently recording revenue in violation

6 of GAAP; and (ii) customers cancelling their contracts with Access

7 HealthNet for nonperformance;

8 (c) Defendants Levy, Berman and Keegan lacked a basis

9 for the financial projections disseminated by them in connection

10 with the debt and equity offerings;

11 (d) By October 1995 certain customers, including two

12 hospitals, had returned units provided by Access HealthNet because

13 such units were not functional and were unable to interface with

14 lab instruments and because the defendants repeatedly failed to

15 provide any technical support or training;

16 (e) Defendant Levy's claim that Access HealthNet would

17 " assume vendor duties " going forward was in fact untrue because

18 Access HealthNet had always shouldered such duties and its

19 distributors had never been responsible for installation, training

20 or technical support, and defendant Levy knew, or should have

21 known, based on customer cancellations, that the Company was

22 incapable of providing these essential aspects of its goods and

23 services; and

24 (f) Access HealthNet was not an industry leader and

25 given the problems discussed in (a) - (e) above, defendant Levy knew,

26 or should have known, that Access HealthNet would neither

27 "maintain" its position or "expand the market penetration" of the

28 Company's products.

- 84 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

102. On or about November 14, 1995, Access HealthNet issued a

press release which appeared over the PR Newswire revealing a net

loss for Access HealthNet for the second quarter of fiscal 1996

ended September 30, 1995, of $2.1 million dollars on revenues of a

mere $63,161. Yet, the Company still attempted to mitigate these

results by attributing them to " changes in its operations " that had

" resulted in a delay in the recognition of revenues ." The press

release stated:

The Company said the losses were due to changes in

its operations which have required it to assume certain

vendor obligations in connection with product sales that

were performed previously by its distributors. This

assumption has resulted in a delay in the recognition of

revenues.

Steven E. Levy, Chairman and Chief Executive Officer

said, " As I stated earlier, in our letter to

shareholders, we hope that Access HealthNet will return

to profitability and be cash flow positive during

calendar year 1996. The steps we have taken to

strengthen the Company and turn it around are in place

and working. Our redesign of the infrastructure, our

strategic additions to the managemen t team and our

refocused marketing effort are taking hold and we hope to

see the fruits of these efforts in the near future."

103. On November 20, 1995, Access HealthNet filed with the SEC

its Report on Form 10-QSB containing its previously released

results for the second quarter of fiscal 1996 ended September 30,

1995. The Report falsely stated that the results represented that

- 85 -

1 " all adjustments considered necessary for a fair

2 presentation " of operations had been accounted for. The MD&A

3 section of the Report on Form 10-QSB stated:

4 In fiscal 1996, the Company has discontinued its

5 distributor network and commenced selling directly to its

6 customers. In connection with this change, the Company

7 has assumed obligations (the training and installation)

8 that were previously performed by the distributors .

9 104. The Notes to the financial statements contained in the

10 Report on Form 10-QSB also stated:

11 The financial statements for the three months ended June

12 30, 1995, have been restated to reverse previously

13 recognized revenues of $2,941,218. The reversal was

14 required because substantially all revenues related to a

15 contract not consummated until after June 30, 1995. Such

16 revenues, however, will not be recognized during the

17 quarter ended September 30, 1995 or December 31, 1995, as

18 a result of the operating changes described in the

19 following paragraph.

20 Commencing on July 1, 1995, the Company assumed certain

21 vendor obligations previously performed by its

22 distributors. The assumption of such responsibilities

23 requires the delay in revenue recognition until such

24 obligations are completed . Because of the change in

25 operations, the Company anticipates that minimal revenues

26 will be recognized during the quarter ending December 31,

27 1995.

28

- 86 -

1 105. The November 14, 1995 press release and the Company's

2 Report on Form 10-QSB for the second quarter of fiscal 1996 were

3 false and misleading when issued. The true facts, then known by or

4 available to defendants Levy, Keegan, Becton, Garber and Corbin &

5 Wertz were that:

6 (a) Defendants had no reasonable basis to believe that

7 Access HealthNet would be returning to profitability given the huge

8 customer cancellations;

9 (b) Defendants Levy and Becton had not discontinued

10 Access HealthNet's relationship with its distributors in order to

11 sell directly to its customers, but had done so because the

12 distributors were undisclosed related parties that were unable to

13 sell and serve the Company's customers and were unwilling to pay

14 for the product unless the product was in turn resold to the end-

15 user;

16 (c) Despite defendants' contention, Access HealthNet had

17 always been responsible for training, installing and supporting its

18 systems, and the assertion that the " delay in the recognition of

19 revenues " was attributable to this purported policy change was

20 merely a smoke screen; and

21 (d) The defendants expected "minimal" revenues not

22 because of "changes in its operations" but because of the Company's

23 total inability to satisfy its obligations to its customers.

24 106. On December 22, 1995, Hertz revealed that without

25 additional financing Access HealthNet would be out of business,

26 revealing for the first time that the Company had a ''huge burn

27 rate.'"

28

- 87 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

107. On December 29, 1995, the Company announced that it had

sought protection under Chapter 7 of the Federal Bankruptcy Code.

Upon this revelation, after having traded as high as $13-3/8 only

six months previously during the Class Period, the Company's stock

was removed from listing on the NASDAQ National Market System.

108. Each of the statements about Access HealthNet's business

and financial performance described above, were materially false

and misleading when issued. Furthermore, the Company's financial

statements for the 1995 fiscal year ended March 31, 1995, and the

first quarter of fiscal 1996 ended June 30, 1995, falsely

overstated revenues and income. Defendants also concealed and

failed to disclose, or recklessly or negligently disregarded, inter

alia , substantial amounts of adverse information concerning the

Company detailed herein, disclosure of which was necessary to make

the statements made not false and misleading, and which facts were

then known only to defendants due to their access to internal

Access HealthNet corporate data. In addition to the facts alleged

in connection with each such statement, the defendants concealed

the following adverse information throughout the Class Period:

(a) That the Company's quarterly financial statements

for the periods ended June 30, 1994, September 30, 1994,

December 31, 1994, and June 30, 1995 and year end financial

statements for March 31, 1994 and 1995 did not accurately or fairly

present the Company's financial condition or operating results, but

rather materially overstated revenue, net income and EPS;

(b) That contrary to defendants' representations

regarding Access HealthNet's revenue recognition policy, Access

HealthNet was falsely recognizing revenue in violation of GAAP;

- 88 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

(c) That Access HealthNet insiders knew, or should have

known, that because the Company was fraudulently recognizing

revenue, they had no reasonable basis to expect that Access

HealthNet would achieve the level of profitability it forecast;

(d) That defendants concealed the deterioration of the

Company's business and falsely reported profitability in order to

continue to raise money through private placements; and

(e) That in order to create the appearance that the

Company was receiving cash from contracts pursuant to which the

Company was recognizing revenue, the Company, in conjunction with

its related party distributors, created and participated in a Ponzi

scheme in which the Company was selling non-existent and cancelled

leases to unsuspecting investors.

109. The undisclosed adverse information concealed by

defendants during the Class Period is the type of information

which, because of SEC regulations, regulations of the national

stock exchanges and customary business practice , is expected to be

disclosed to investors and securities analysts and is known by

corporate officials and their legal, financial and accounting

advisors to be the type of information which is expected to be and

must be disclosed. For example:

(a) Under Item 303 of Regulation S-K, promulgated by the

SEC under the Exchange Act, there is a duty to disclose in periodic

reports filed with the SEC "known trends or any known demands,

commitments, events or uncertainties" that are reasonably likely to

have a material impact on a company's sales, revenues, income or

liquidity, or cause previously reported financial information not

to be indicative of future operating results. 17 C.F.R.

- 89 -

1 §229.303(a)(1)-(3) and Instruction 3. In addition to the periodic

2 reports required under the Exchange Act, management of a public

3 company has a duty "to make full and prompt announcements of

4 material facts regarding the company's financial condition." SEC

5 Release No. 34-8995, 3 Fed. Sec. L. Rep. (CCH) ¶23,120A, at 17,096,

6 17 C.F.R. §241.8995 (October 15, 1970). The SEC has repeatedly

7 stated that the anti-fraud provisions of the federal securities

8 laws, which are intended to ensure that the investing public is

9 provided with "complete and accurate information about companies

10 whose securities are publicly traded," apply to all public state-

11 ments by persons speaking on behalf of publicly traded companies

12 "that can reasonably be expected to reach investors and the trading

13 markets, whoever the intended primary audience." SEC Release No.

14 33-6504, 3 Fed. Sec. L. Rep. (CCH) 123,120, at 17,095-3, 17 C.F.R.

15 §241.20560 (January 13, 1984). The SEC has emphasized that

16 "Investors have legitimate expectations that public companies are

17 making, and will continue to make, prompt disclosure of significant

18 corporate developments." SEC Release No. 18271, [1981-1982

19 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶83,049, at 84,618

20 (November 19, 1981); and

21 (b) Schedule D of the National Association of Securities

22 Dealers ("NASD") Manual, which governs companies whose securities

23 are included in the NASDAQ requires a NASDAQ company to "make

24 prompt disclosure to the public through the press of any material

25 information that may affect the value of its securities or

26 influence investors' decisions." NASD Manual, Schedule D, Part II,

27 §1 (c) (13) [11803 (c) (13) ] .

28

- 90 -

1 ACCESS HEALTHNET'S MATERIALLY FALSE ORMISLEADING FINANCIAL STATEMENTS

2110. In order to overstate Access HealthNet ' s revenues and

3earnings during year ended March 31, 1994, the first , second and

4third quarters of fiscal 1995, the year ended March 31, 1995 and

5the first quarter of fiscal 1996 , the defendants caused Access

6HealthNet to improperly and fraudulently recognize revenue on sales

7

and leases of product and related software.8

111. The defendants fraudulently represented Access

9

HealthNet ' s revenue recognition policy in the Notes• to its10

financial statements for fiscal years ended March 31, 1994 and11

March 31, 1995 , and the Prospectus dated January 25, 1995. Thel12

Prospectus stated:13

Revenue Recognition14

Revenue from sales of completed systems, including the15

software and equipment components , to customers and to16

distributors is recognized upon complete delivery,

17

completion of all significant vendor obligations,18

acceptance by the customer or distributor, and when19

collectibility is deemed probable, in accordance with20

Statement of Position ( SOP) 91-1. Software Revenue

21Recognition . Revenue attributable to equipment leased in

22connection with the lease of software is accounted for as

23a sales type lease in accordance with FAS 13. The

24allocation of revenues between software and equipment is

25

based on fair value.26

112. This statement was false and misleading when made because27

the Company was not recognizing revenue in accordance with GAAP,28

- 91 -

1 SOP 91-1 or Statement of Financial Accounting Standards ("SFAS")

2 No. 13, but was fraudulently recording revenue for: (a) "sales"

3 which were incomplete; (b) "sales" which were conditional upon

4 resale or lease to the end-user; (c) "sales" where acceptance of

5 the product along with payment from the end-user was doubtful; and

6 (d) "sales" which were made to related parties from which Access

7 HealthNet did not have a reasonable basis to expect payment.

8 Access HealthNet was also inappropriately recording revenues from

9 leases where the product being leased had not been delivered to the

10 end-user, the benefits and risks were not transferred to the end-

11 user and in certain instances the leases had been cancelled or were

12 not signed by the end-user.

13 113. As a result of defendants' fraudulent practice, Access

14 HealthNet accumulated long outstanding accounts receivable balances

15 which were not being paid and Access HealthNet did not expect to

16 collect. Access HealthNet's sales, as originally reported by the

17 Company, increased by $690, 156 or 30.31 from June 1994 to September

18 1994 and by $1,023,752 or 44.9% from June 1994 to December 1994.

19 During this same period, current accounts receivable and lease

20 receivables increased by $954,312 or 78.7% from June 1994 to

21 September 1994 and by $1,C50,712 or 86.6% from June 1994 to

22 December 1994.

23 114. Access HealthNet's current accounts receivable and lease

24 receivables were disproportionately increasing faster than revenues

25 because defendants were recording false sales which were not being

26 collected and leases which were not being paid, confirming that

27 "receivables" were not properly due and payable. In fact, revenue

28 was being recognized on shipments to related party distributors

- 92 -

1 even though these transactions did not constitute a sale. If and

2 when the product was shipped to an end-user , Access HealthNet's

3 accounts receivable balance was simply transferred from a

4 distributor account to an end-user account demonstrating that the

5 Company expected payment from the end - user not the distributor.

6 Even when the product was shipped to an end - user, the end - user was

7 not required to pay until there was acceptance of the system. End-

8 users were not paying for systems because they were not installed

9 or were not working. Thus , total receivables were growing faster

10 than sales. In accordance with GAAP , the revenue and related

11 accounts receivable should not have been recognized until the

12 product was shipped to the end-user, the end-user accepted the

13 system and payment was likely.

14 115. By fraudulently recognizing revenue, the defendants were

15 able to give the false impression that Access HealthNet was

16 experiencing increased earnings while, in reality , Access HealthNet

17 was starving for cash. During the first quarter of fiscal 1995

18 ended June 30, 1994, Access HealthNet reported net income of

19 $361 , 972 and cash used in operating activities of $722 , 168. By the

20 third quarter ended December 31, 1994, however, Access HealthNet

21 reported net income of $1,196 , 088, but actually used $1,738,802 of

22 cash for operating activities . This net decrease in cash while

23 income was increasing was the result of recognizing revenue before

24 payments were received which allowed defendants to report

25 successful results based on "paper" earnings . In fact, Corbin &

26 Wertz identified in their July 17 , 1995 letter to the Company's

27 Audit Committee of the Board of Directors ("1995 Management

28 Letter ") that sales to the Company's distributors did not

- 93 -

1 necessarily constitute a sale under SOP 91-1 and that collection of

2 payments from the distributors was questionable.

3 Accounting Criteria

4 116. Generally Accepted Accounting Principles encompass the

S rules, conventions and practices recognized and employed by the

6 accounting profession for the preparation of financial statements.

7 Statements of Financial Accounting Standards are promulgated by the

8 professions's Financial Accounting Standards Board, and are

9 considered the highest authority of GAAP. Other authoritative

10 pronouncements include Statements of Position of the American

11 Institute of Certified Public Accountants ("AICPA"). Financial

12 statements filed in any document with the SEC are required by

13 Regulation S-X (17 C.F.R. §210.4-01(a) (1) ) to conform to GAAP. Not

14 one of Access HealthNet's financial statements which the defendants

15 caused to be filed with the SEC during fiscal 1995 on Form 10-QSB,

16 Form 10-KSB, Amendments Nos. 2-4 to the Registration Statement and

17 the January 25, 1995 Prospectus were prepared in accordance with

18 GAAP.

19 117. In accordance with SOP 91-1, ¶¶.67, .68 and Financial

20 Accounting Standards Board ("FASB") Concepts Statement No. 5,

21 183(b):

22 Revenues are not recognized until earned. An entity's

23 revenue-earning activities involve delivering or

24 producing goods, rendering services , or other activities

25 that constitute its ongoing major or central operations,

26 and revenues are considered to have been earned when the

27 entity has substantially accomplished what it must do to

28

94 -

1 be entitled to the benefits represented by the revenues .

2 [Footnote omitted.]

3 If other vendor obligations remainincr after delivery

4 are significant, revenue should not be recognized ,

5 because the earnings process is not substantially

6 completed.

7 118. In accordance with SOP 91-1, ¶.36:

8 If, after delivery, there is significant uncertainty

9 about customer acceptance of the software, license

10 revenue should not be recognized until the uncertainty

11 becomes insignificant.

12 119. In accordance with SFAS No. 13, "Accounting for leases,"

13 in order for a company to recognize revenue under a "sales-type"

14 lease, the lease should transfer substantially all of the benefits

15 and risks incident to the ownership of the property.

16 120. In spite of the above requirements, the defendants caused

17 Access HealthNet to improperly record sales and leases even though

18 the sales were false, incomplete, or conditional upon resale or

19 lease to the end-user, the product had not been delivered to the

20 end-user, leases were never signed and Access HealthNet had

21 substantial remaining obligations such as system installation and

22 training which had not been completed.

23 Incomplete Sales and Leases

24 121. Access HealthNet sold communication systems and products

25 which were designed to accommodate the needs and demands of a

26 particular customer and included LabACCESS, RemoteACCESS, ACCESS

27 MedLink and ACCESS PSx. A significant amount of sales and leases

28 of these products were false and incomplete. A complete sale

- 95 -

1 included delivering, installing, testing, data converting,

2 interfacing to a particular system and training. In several

3 instances, the defendants caused Access HealthNet to recognize

4 revenue from sales and leases even though the systems had not been

5 delivered or installed. In other instances, Access HealthNet had

6 delivered and installed systems (albeit months after recognizing

7 revenue) but the systems were not operational. The defendants

8 knew, or should have known, that Access HealthNet had not completed

9 its obligations and more importantly, knew that the customer would

10 not pay for the systems until they were installed and working. In

11 spite of the fact that sales were incomplete, the defendants

12 deliberately recorded revenue in order to falsely inflate earnings

13 and their financial condition. Examples of these fraudulent

14 transactions are described in $1129-45.

15 Conditional Sales And Leases

16 122. Similarly, there was significant uncertainty about

17 customer acceptance and payment for the product because the

18 customers would not accept and pay for the product until the system

19 was installed and working. Moreover, sales were improperly

20 recognized because the systems sold to distributors were often

21 conditional upon resale or lease to the end-user and payment was

22 not expected until the end-user paid for the system and signed a

23 lease. In fact, distributors were not paid commissions from Access

24 HealthNet for sales or leases made to the end-user until the end-

25 user had paid for the system. Since the end-users were not paying

26 for uninstalled or non-working systems, the distributors, in turn,

27 were not being paid commissions. For example, in an October 6,

28 1995 letter from David C. Doyle ("Doyle") of CRT Medical Systems,

- 96 -

1 Inc. ("CRT") (an Access distributor), to Levy of Access HealthNet

2 regarding commission payments, Doyle states, "I fully understand

3 that I can not get paid until you get paid. I understand that it

4 takes time to install systems, develop interfaces and do other

5 types of jobs. But the problem I face is that of cash flow." This

6 evidences that customers were not accepting and paying for the

7 systems. This demonstrates that Access HealthNet was not recording

8 revenue in accordance with SOP 91-1 because sales were conditional

9 and payment was uncertain. Furthermore, revenue should not have

10 been recorded in accordance with SFAS No. 48.'

11

12 2 SFAS No. 48 states, in pertinent part:

13 .06 If an enterprise sells its product but gives thebuyer the right to return the product, revenue from the

14 sales transaction shall be recognized at the time of thesale only if all of the following conditions are met :

15a. The Seller's price to the buyer is

16 substantially fixed or determinable at thedate of the sale.

17b. The buyer has paid the seller, or the buyer is

18 obligated to pay the seller and the obligationis not contingent on resale of the product .

19c. The buyer's obligation to the seller would not

20 be changed in the event of theft or physicaldestruction or damage of the product.

21d. The buyer acquiring the product for resale has

22 economic substance apart from that provided bythe seller.

23e. The seller does not have significant

24 obligations for future performance to directlybring about resale of the product by the

25 buyer.

26 f. The amount of future returns can be reasonablyestimated.

27g. SOP 91-1 par.36 states: If, after delivery,

28 there is significant uncertainty aboutcustomer acceptance revenue should not be

- 97 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Inappropriate Leases

123. The defendants also inflated Access HealthNet's earnings

by improperly classifying their leases as " sales -type" leases.

This means that, unlike conventional operating leases, Access

HealthNet would be entitled to record revenue and profit only if

the Company after completing delivery of the product and signing

the lease fulfilled particular criteria.

124. Some of the essential criteria under SFAS No. 13 are: (a)

if a lease transfers substantially all of the benefits and risks

incident to the ownership of property; (b) if no important

uncertainties surround the amount of unreimbursable costs yet to be

incurred; and (c) if collectibility of minimum lease payments is

reasonably predictable, then the lessor can account for the lease

as a "sales-type" lease and record revenue and profits. However,

if any of these criteria of SFAS No. 13 are not met, the lease

cannot be accounted for as a "sales-type" lease and thus, full

profit cannot be recorded immediately.

125. Access HealthNet's leases did not meet the above criteria

and thus defendants improperly caused the Company to recognize

revenue in violation of GAAP. First, Access HealthNet did not

transfer all the risks of ownership to the end-user because many of

the systems were delivered to a distributor or reseller who merely

held the goods until resale. Second, the transactions were

conditional upon acceptance of product by the end-user and signing

of the lease. Some lease contracts were never even signed by the

end-user and in many instances the end-user never accepted product

recognized.

- 98 -

1 because it was not delivered or installed properly. Moreover, the

2 Company's distributors were related parties and affiliates of

3 Access HealthNet.3 Thus, at a minimum, risk was never transferred

4 and payment under the lease was doubtful. Even in instances where

5 the systems were delivered to the end-user, lease payments would

6 not begin until Access HealthNet had installed the main servers,

7 loaded the remote units with software and ensured that the system

8 operated. Thus, defendants knew, or recklessly disregarded, that

9 these criteria and obligations had not been completed and therefore

10 knew, or should have known, that collectibility of these lease

11 payments at the time they were recognized was uncertain.

12 126. For example, at March 31, 1994, at least $691,731 was

13 improperly recognized as revenue from Unilab. Unilab's contract

14 with Access HealthNet was dated and signed March 15, 1994, however,

15 at March 31, 1994, most of the product ostensibly sold to Unilab

16 was still in the possession of two distributors. Therefore,

17 installation was not complete, this transaction did not meet the

18 criteria of SFAS No. 13 and SOP 91-1 and the revenue to Unilab

19 should not have been recognized at March 31, 1994.

20 Fraudulent Revenue Adjustments

21 127. In Note 3 to Access HealthNet's year ended March 31,

22 1994 financial statements (as included in the January 25, 1995

23 Prospectus), the defendants recorded revenue adjustments during the

24

25 3 SOP 91-1, ¶.35 states:

26 The sale of property subject to, an operating lease, or ofproperty that is leased by or intended to be leased by

27 the third-party purchaser to another party shall not betreated as a sale if the seller or any party related to

28 the seller retains substantial risks of ownership in theleased property. SFAS No. 12, 121.

- 99 -

1 fourth quarter of fiscal 1994 which were related to "changes in the

2 timing of the recording of revenues . . . because it was determined

3 that not all of the criteria established by Statement of Position

4 91-1 . . . for sale recognition were met as of March 31, 1994."

5 Adjustments were also taken related to the "expensing of software

6 development costs previously capitalized." Those adjustments

7 resulted in a reduction in revenues, net income and net income per

8 common share of $2,189,000, $862,000 and $0.19, respectively, for

9 the year ended March 31, 1994. In a response letter to the SEC

10 dated December 10, 1994, regarding comments on Amendment No. 3 to

11 the Registration Statement on Form SB-2, the following response was

12 made:

13 As a result of the reviews performed by the auditing

14 firms, procedural changes were made within the Company to

15 strengthen the documentation of sales to customers and to

16 ensure that the guidelines of SOP 91-1 and FASB 86 were

17 being met concerning the recognition of revenues on

18 system sales and the capitalization of software

19 development costs.

20 128. This statement was false because it did not disclose the

21 true nature and magnitude of the Company's accounting

22 irregularities. Although defendants claimed that they had

23 corrected the problems in 1994, the truth was that Access HealthNet

24 was continuing to record fraudulent revenue to related party

25 distributors. In fact, during the next fiscal year, on July 18,

26 1995, defendants announced that each fiscal 1995 quarterly

27 financial statement was overstated with respect to revenues, net

28 income and EPS as a result of "changes by the company in the timing

- 100 -

1 of the recording of its revenues due to the delay in securing

2 leasing on its end-user systems." Access HealthNet knew, or should

3 have known, that their revenue recognition did not conform to GAAP

4 and once again admitted in their Report on Form 10-KSB the

5 following:

6 The Company recorded revenue adjustments during the

7 fourth quarter of fiscal 1995, primarily related to

8 changes in the timing of the recording of revenues

9 because it was determined that not all of the criteria

10 established by SOP 91-1 (primarily as it relates to the

11 probability determination of collectibility) for sale

12 recognition were met as of March 31, 1995 . The reduction

13 in revenues, net income, and net income per common share

14 as a result of these adjustments were approximately

15 $4,400,000, $1,400,000, and $.23, respectively, for the

16 year ended March 31, 1995. The adjustments resulted in

17 the reduction to revenues, net income, and net income per

18 common share for each of the four quarters of fiscal 1995

19 as follows: approximately $2,000, $1,000 and $.00,

20 respectively (first quarter), $890,000, $282,000, and

21 $.05, respectively (second quarter), $1,408,000,

22 $448,000, and $.07, respectively (third quarter), and

23 $2,100,000, $669,000, and $.11, respectively (fourth

24 quarter).

25 These admissions are themselves evidence that Access HealthNet's

26 financial statements were not prepared in accordance with GAAP in

27

28

- 101 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1994 or 1995.4 Although the defendants reversed a portion of the

improper revenue recognized at the end of fiscal 1994 and 1995,

they failed to disclose that revenue remained inflated by a

material amount because the revenue recognized included sales to

related parties for which Access HealthNet had no reasonable basis

to expect payment.

Related Party Distributors

129. During fiscal years ended March 31, 1994 and 1995, Access

HealthNet was fraudulently recognizing revenue on sales to related

party distributors. These transactions were never disclosed to the

investing public. Per SFAS No. 57, ¶2, "financial statements shall

include disclosures of material related party transactions."

Disclosures described in SFAS No. 57, 12 include the following:

a. The nature of the relationship(s) involved;

b. A description of the transactions, including

transactions to which no amounts of nominal amounts

were ascribed, for each of the periods for which

income statements are presented, and such other

information deemed necessary to an understanding of

the effects of the transactions on the financial

statements;

c. The dollar amounts of transactions for each of the

periods for which income statements are presented

and the effects of any change in the method of

4 If the auditor has concluded that the financial statements arematerially affected by an irregularity, the auditor should insistthat the financial statements be revised. AU §316.26.

- 102 -

1 establishing the terms from that used in the

2 preceding period; and

3 d. Amounts due from or to related parties as of the

4 date of each balance sheet presented and, if not

5 otherwise apparent, the terms and manner of

6 settlement.

7 130. Had defendants disclosed the true nature of the

8 relationship with their distributors as required by GAAP, they

9 would have disclosed the following:

10 (a) California Corporations RPSS I and RPHS II were

11 controlled by Company insiders and they in turn controlled several

12 of the Company's distributors;

13 (b) RPSS I and RPHS II had the same mailing address as

14 Access HealthNet and •key personnel at Access HealthNet were

15 involved with these corporations in the following roles: defendant

16 Berman, Chief Executive Officer of Access HealthNet, was President

17 and director of RPSS I; Barbara Asbell ("Asbell"), Vice President

18 and Secretary of Access HealthNet, was Registered Agent of both

19 RPSS I and RPHS II as well as a director at RPSS I; defendant

20 Garber was a director of RPHS II; and McMahon, the former Chief

21 Financial Officer and former director and current employee of

22 Access HealthNet, was a director at RPSS I;

23 (c) RPSS I was doing business as United Medical

24 Management which is synonymous with AHNT (an acronym for Access

25 HealthNet) of the Midwest, one of Access HealthNet's supposedly

26 independent distributors -- interestingly, Paul Barlow ("Barlow"),

27 an employee of Access HealthNet, signed the United Medical

28

- 103 -

1 Management accounts receivable confirmation as a representative of

2 United Medical Management;

3 (d) The President & director of RPHS II, Doyle, is also

4 the Registered Agent for CRT, supposedly an Access HealthNet

5 independent distributor;

6 (e) Asbell, Vice President and Secretary of Access

7 HealthNet, and Barlow, employee of Access HealthNet, are directors

8 at AHNT of the Gator State, supposedly an Access HealthNet

9 independent distributor; and

10 (f) McMahon and Barlow, both who are employees of Access

11 HealthNet, are directors at South Coast Medical Systems, Inc.

12 ("South Coast Medical Systems"), supposedly an Access HealthNet

13 independent distributor.

14 131. Had defendants disclosed the true nature of the

15 distributor relationships, they would have also had to disclose the

16 dollar amount of the transactions with their related distributors.

17 This would have informed the investing public that 340 or

18 $1,571,811 of the fiscal year ended March 31, 1994 revenue

19 recognized, 50% or $2,632,436 of the six months ended September 30,

20 1994 revenue recognized and 210 or $1,700,000 of the fiscal year

21 ended March 31, 1995 revenue recognized was from related party

22 distributors. In order to fraudulently conceal the true nature of

23 the sales and give the false impression of a real sale, Access

24 HealthNet concealed this from the public.

25 Fraudulent Transactions March 31, 1994

26 132. In Note 3 of Access HealthNet's year ended March 31, 1994

27 financial statements, the defendants recorded revenue adjustments

28 during the fourth quarter of fiscal 1994 for revenue which did not

- 104 -

1 meet the revenue recognition criteria of SOP 91-1. These

2 adjustments resulted in a reduction of revenue for the year ended

3 March 31, 1994 of $2,189,000. These adjustments, however, did not

4 reflect the true nature of the accounting irregularities. At March

5 31, 1994, an additional $1,571,811 or 34% of revenue was

6 inappropriately recognized as sales to Access HealthNet's

7 distributors CRT, AHNT of the Gator State, and AHNT of the Midwest.

8 Not only were these three distributors undisclosed related parties,

9 the revenue recognized from these distributors did not meet the

10 revenue recognition criteria under SOP 91-1 and SFAS No. 13 or

11 SOP 91-1. Additionally, Access HealthNet recognized $691,731 of

12 revenue on a sale of a lease to an end-user, Unilab, which did not

13 meet the sales type lease criteria of SFAS No. 13. Combined, this

14 resulted in a total revenue overstatement of $2,263,542 at

15 March 31, 1994. According to the Company's cash receipts journal,

16 this $2,263,542 of "revenue" was never received but nonetheless was

17 inappropriately included in the January 25, 1995 Prospectus.

18 CRT Medical Systems

19 133. For the fiscal year ended March 31, 1994, $1,453,263 of

20 revenue was recognized on fraudulent sales to CRT. CRT and Access

21 HealthNet signed a lease dated December 23, 1993. By March 31,

22 1994, Access HealthNet had recognized revenue of $98,878 which

23 represented almost the entire value of the lease. This revenue was

24 false when recognized because the lease did not transfer

25 substantially all of the benefits and risks incident to the

26 ownership of the equipment. Further, there was question as to the

27 collectibility of minimum lease payments because Access HealthNet

28 never expected and never received payment from this related party

- 105 -

1 distributor. Therefore, this lease did not meet the revenue

2 recognition criteria under SFAS No. 13 and should not have been

3 recognized.

4 134. Other revenue from CRT recognized by the Company in 1994,

5 $1,354,385, was also false because CRT was a related party

6 distributor and as such cash collection was unlikely. Furthermore,

7 any product delivered to CRT was conditional upon resale to the

8 end-user. Since affiliated CRT did not have a true obligation to

9 pay and Access HealthNet had no reasonable basis of expecting

10 payment, the $1,453,263 should not have been recorded as revenue

11 during the fiscal year ended March 31, 1994 in accordance with

12 GAAP. The entire $1,453,263 in accounts receivable should have

13 been reserved because collection was uncertain.'

14 AHNT of the Gator State/Integrated Laboratory Systems

15

16

17 ' SFAS No. 5, 122 reads in pertinent part that:

18 [L]osses from uncollectible receivables shall be accruedwhen both conditions in paragraph 8 are met. Those

19 conditions may be considered in relation to individualreceivables in relation to groups of similar types of

20 receivables. If conditions are met, accrual shall bemade even though the particular receivables that are

21 uncollectible may not be identifiable.

22 SFAS No. 5, ¶8 states: An estimated loss from a losscontingency shall be accrued by a charge to income if both of

23 the following conditions are met:

24 a. Information available prior to issuance of thefinancial statements indicates that it is probable

25 that an asset has been impaired or a liability hasbeen incurred at the date of the financial

26 statements. It is implicit in this condition thatit must be probable that one or more future events

27 will occur confirming the facts of the loss.

28 b. The amount of loss can be reasonably estimated.[Footnote omitted.]

- 106 -

1 135. For the fiscal year ended March 31, 1994, Access

2 HealthNet recognized $56,819 in revenue from a lease sold to

3 Integrated Laboratory Systems on December 28, 1993. Integrated

4 Laboratory Systems was synonymous with AHNT of the Gator State.

5 This revenue was false when recognized because the lease did not

6 transfer substantially all of the benefits and risks incident to

7 the ownership of the equipment and there was question as to the

8 collectibility of minimum lease payments because Access HealthNetl

9 never expected and never received payment from this related party

10 distributor. Therefore, this lease did not meet the revenue

11 recognition criteria under SOP 91-1 and SFAS No. 13 and should not

12 have been recognized.

13 136. At March 31, 1994, approximately $296,600 of revenue

14 recognized on sales to Integrated Laboratory Systems was reversed

15 because the revenue did not meet the revenue recognition criteria

16 under SOP 91-1. The remaining $56,819, however, should not have

17 been recognized as a sale to Integrated Laboratory Systems since

18 payment was unlikely and the sale was conditional upon re-sale. As

19 explained above, Asbell and Barlow, employees of the Company, were

20 also directors of AHNT of the Gator State.

21 AHNT of the Midwest/United Medical Management

22 137. Barlow was also President of United Medical Management

23 and signed audit confirmations sent to Corbin & Wertz. For the

24 fiscal year ended March 31, 1994, Access HealthNet recognized

25 revenue of $61,729 from an undated lease scheduled to commence on

26 January 1, 1994. As United Medical Management was a related party

27 to Access HealthNet, payment was never expected and according to

28 the Company's cash receipts journal, payment was never received.

- 107 -

1 Also, the revenue was false when recognized because the lease did

2 not transfer substantially all of the benefits and risks incident

3 to the ownership of the equipment and there was question as to the

4 collectibility of minimum lease payments. Therefore, this lease

5 did not meet the revenue recognition criteria under SFAS No. 13 and

6 should not have been recognized.

7 Unilab

8 138. At March 31, 1994, at least $691,731 was recognized as

9 revenue from Unilab, an end-user. Unilab's contract with Access

10 HealthNet was dated and signed March 15, 1994. One wonders how the

it Company could deliver, install, test, debug and obtain Unilab's

12 acceptance within 15 days. In fact, at March 31, 1994, most of the

13 product was still in the possession of the distributor and was

14 clearly not installed at Unilab's location. This lease revenue did

15 not meet the criteria of SFAS No. 13 and thus the revenue of

16 $691,731 was false at March 31, 1994.

17 Fraudulent Transactions September 30, 1994

18 139. At September 30, 1994, as reported in the January 25,

19 1995 Prospectus, a total of $2,632,436 or 5096 of revenue was

20 inappropriately recognized as sales to Access HealthNet's

21 distributors CRT, AHNT of the Gator State, AHNT of the Midwest and

22 South Coast Medical Systems. All four distributors were

23 undisclosed related parties and all four did not meet the revenue

24 recognition criteria under SOP 91-1. Furthermore, at March 31,

25 1995, Access HealthNet reversed and restated $892,000 of revenue

26 originally reported for their six months ended September 30, 1994.

27 However, this restatement did not encompass all the necessary

28 adjustments to properly state Access HealthNet's true sales.

- 108 -

1 Therefore, an additional adjustment of at least $1.7 million should

2 have been made to properly state the revenue at September 30, 1994,

3 as detailed in $114.0-43 below.

4 CRT Medical Systems

5 140. For six months ended September 30, 1994, total shipments

6 to CRT were $1,333,225. The entire revenue recognized on these

7 shipments was false because CRT was a related party distributor, as

8 such, cash payment was never expected and according to the

9 Company's cash receipts journal, payment was never received.

10 Furthermore, payment for the product shipped to the related party

11 distributor was conditional upon resale to the end-user. Access

12 HealthNet did not collect cash from CRT because CRT was affiliated

13 with Access HealthNet. Since CRT was affiliated, defendants had no

14 reasonable basis of expecting payment. The $1,333,225 should not

15 have been recorded as revenue during the six months ended

16 September 30, 1994 in accordance with GAAP. At a minimum, the

17 entire $1,333,225 of accounts receivable should have been reserved

18 for in accordance with SFAS No. S.

19 AHNT of the Gator State/Integrated Laboratory Systems

20 141. For the six months ended September 30, 1994, total

21 shipments to Integrated Laboratory Systems was $780,400. The

22 entire revenue recognized on the shipments was false because

23 Integrated Laboratory Systems was a related party distributor, as

24 such, cash payment was not expected. Based on the Company's cash

25 receipts journal, only one payment of $22,245 was received from

26 AHNT of the Gator State between March 31, 1994 and September 30,

27 1994. Furthermore, payment for product shipped to the related

28 party distributor was conditional upon resale to the end-user.

- 109 -

1 Access HealthNet did not collect cash from AHNT of the Gator State

2 because AHNT of the Gator State was a related party to the Company.

3 Since affiliated, defendants had no reasonable basis of expecting

4 payment and the $780,400 should not have been recorded during the

5 six months ended September 30, 1994 in accordance with GAAP. At a

6 minimum, at least $758,000 should have been reserved for in

7 accordance with SFAS No. 5.

8 AHNT of the Midwest/United Medical Management


10 shipments to United Medical Management was $257,783. The entire

11 revenue recognized on the shipments was false because United

12 Medical Management was a related party distributor, as such, cash

13 payment was never expected. Based on the Company's cash receipts

14 journal, only one payment of $6,090 was received from AHNT of the

15 Midwest between March 31, 1994 and September 30, 1994.

16 Furthermore, payment for the product shipped to the related party

17 distributor was conditional upon resale to the end-user. Access

18 HealthNet did not collect material amounts of cash from AHNT of the

19 Midwest because AHNT of the Midwest was affiliated with Access

20 HealthNet. Since affiliated, defendants had no reasonable basis of

21 expecting payment and the $257,783 should not have been recorded

22 during the six months ended September 30, 1994 in accordance with

23 GAAP. At a minimum, at least $250,000 should have been reserved

24 for in accordance with SFAS No. 5.

25 South Coast Medical Systems/Gulf Coast Medical Systems


27 shipments to Gulf Coast Medical Systems ("Gulf Coast") was

28 $261,028. The entire revenue recognized on the shipments was false

- 110 -

1 because Gulf Coast was a related party distributor, as such, cash

2 payment was not expected. Based on the Company's cash receipts

3 journal, only one payment of $2,030 was received from Gulf Coast

4 between March 31, 1994 and September 30, 1994. Furthermore,

5 payment for product shipped was conditional upon resale to the end-

6 user. Access HealthNet did not collect material amounts of cash

7 from Gulf Coast because Gulf Coast was affiliated with Access

8 HealthNet. Since affiliated, defendants had no reasonable basis of

9 expecting payment and the $261,028 should not have been recorded

10 during the six months ended September 30, 1994 in accordance with

11 GAAP. At a minimum, at least $255,000 should have been reserved

12 for in accordance with SFAS No. 5.

13 Fraudulent Transactions March 31, 1995

14 144. In Note 3 of Access HealthNet's year ended March 31, 1995

15 financial statements, defendants recorded revenue adjustments

16 during the fourth quarter of fiscal 1995 for revenue which did not

17 meet the revenue recognition criteria of SOP 91-1. These

18 adjustments resulted in a reduction of revenue for the year ended

19 March 31, 1995 of $4,400,000. These adjustments, however, did not

20 reflect the true nature of the accounting irregularities. In fact,

21 the false revenue recognized from related parties for the six

22 months ended September 30, 1994 of $1.7 million, as pled above in

23 ¶139, was still included in the revenue recognized for the fiscal

24 year ended March 31, 1995. Additionally, defendants fraudulently

25 recognized $4.0 million of revenue at March 31, 1995 from a "sale"

26 to PCL.

27

28

- 111 -

1 Physician's Clinical Laboratories

2 145. The revenue from PCL was false when recognized because as

3 of March 31, 1995, the Company had only entered into a letter of

4 intent with PCL dated March 17, 1995. This letter of intent does

5 not constitute a signed lease agreement between Access HealthNet

6 and PCL, as such, no revenue should have been recognized at March

7 31, 1995. Furthermore, the term sheet for the agreement between

8 PCL and Access HealthNet is not dated and signed until April 26,

9 1995 and the lease contract is not dated until June 27, 1995. Even

10 if the lease agreement had been signed and executed before March

11 31, 1995, the revenue recognized would still be false because the

12 equipment would have been in possession of the distributor,

13 therefore, installation would not have taken place by year end.

14 This revenue could not properly be recognized until the system was

15 installed and accepted by PCL. Therefore, revenue for the year

16 ended March 31, 1995 was overstated by an additional $5.7 million

17 beyond the $4.4 million adjustment already admitted as false.

18 False Cash Receipts

19 146. To give the false appearance of cash collection on

20 fraudulent sales, Access HealthNet attempted to sell leases to

21 investors to generate cash flow for the Company. In so doing, the

22 Company sold nonexistent or cancelled leases.

23 147. For example, on December 23, 1993, Access HealthNet

24 entered into a lease agreement with CRT to commence on January 1,

25 1994. The lease agreement called for 36 monthly payments from CRT

26 to Access HealthNet at $3,316.67 per month. At March 31, 1994,

27 this lease had 33 payments left, therefore, the value of the lease

28 was $109,450. As alleged in ¶¶133-34 above, this lease was

- 112 -

1 improperly recognized into revenue at March 31, 1994, since CRT is

2 a related party, payment on the lease was never expected. However,

3 to give the false appearance of cash flow, in April 1995, this

4 lease was sold to an unsuspecting third party investor, Harris

5 Schoenfeld ("Schoenfeld"), for $99,500. Defendants manipulated the

6 date the payment from Schoenfeld was received to give the false

7 appearance of cash receipts by March 31, 1994, even though

8 Schoenfeld's check reflecting his investment was dated April 4,

9 1994.

10 148. In yet another example of Access HealthNet's fraudulent

11 actions, on March 13, 1995, Access HealthNet was informed of a

12 partial termination of the leasing arrangement with Maxwell Air

13 Force Base. Two days later, defendants again induced Schoenfeld to

14 purchase the lease for a cash payment of $107,398. On April 28,

15 1995, Maxwell Air Force Base cancelled the entire lease. Access

16 HealthNet recognized $98,356 in revenue to Maxwell Air Force Base

17 in its March 31, 1995 financial statements even though the Company

18 knew, or recklessly disregarded, that the cash paid by Schoenfeld

19 was fraudulently obtained.

20 149. During the 1995 audit, Corbin & Wertz failed to obtain a

21 signed confirmation from Maxwell Air Force Base. Had Corbin &

22 Wertz simply called Maxwell Air Force Base it would have discovered

23 that Maxwell Air Force Base had cancelled the lease. Obtaining

24 this confirmation would have revealed that the cash received on the

25 sale of the lease to Schoenfeld was false and misleading and that

26 defendants were operating Access HealthNet as a Ponzi scheme.

27

28

- 113 -

1 Financial Statement Impact

2 150. In summary, the January 25, 1995 Prospectus included

3 overstated revenue for the year ended March 31, 1994 of $2,263,542.

4 The Prospectus also included overstated revenue for the six months

5 ended September 30, 1994 of at least $2,632,436. At year end March

6 31, 1995 (just three months after the entire $2,632,436 of revenue

7 for September 30, 1994 was included in the January 1995

8 Prospectus), $892,000 of this revenue was reversed off of the

9 Company's books. This adjustment, however, was inadequate and

10 illusory because at least an additional $1.7 million of false

11 revenue still remained on Access HealthNet's books for the six

12 months ended September 30, 1994. See ¶139.

13 151. Moreover, this $1.7 million of false revenue was also

14 included in Access HealthNet's nine months ended December 31, 1994

15 financial statements.

16 152. At March 31, 1995, defendants continued to improperly

17 recognize revenue and a total of $5.7 million was falsely included

18 in the audited year end financial statements. The following graph

19 and chart demonstrate the overstatements during fiscal years 1994,

20 1995 and the first quarter of fiscal year 1996.

21

22

23

24

25

26

27

28

- 114 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

ACCESS HEALTHNET, INC.EFFECTS OF ACCOUNTING IMPROPRIETIES

FY ended 03/31/94 Six months Nine months FY ended 03/31/95 1'96 06/30/95

ended 09/30/94 ended 12/31/94

dmitted Improper $ 892,000 $2 ,300,000 $2,941,218

RevenueRecognition

Additional $2,263,542 $1,700,000 $1,700,000 $5,700,000

Improper Revenue

Recognition

Gross Margin $1,184,704) $1,583,855) ($2,601,105) ($2,678,253) $1,191,074

Effect

Net Over-statement $1,078,838 $1,008,145 $1,398,895 $3,021,747 $4,132,292

Net income as $ 558,047 $ 788,020 $1,196,088 $221,321 107,754

ported

Actual Net Income ($ 520,791) $ 220,125) ($202,807) ($2,800,426) $4,024,538)

S - as reported $0.12 $ 0.14 $0.21 $ 0.04 0.02

[Actual EPS ( $0.11) ($ 0.04) ($0.04) ($ 0.47) ($ 0.66)

Access HealthNet, Inc.Reported vs. Actual EPS

$0.40

$0.20

$0.00

N ($0.20)mCEw ($0.40)

($0.60)

($0.80)

$0.21

$0.12

$0.04 $0.02

($0.04) ($0.04)($0.11)

($0.47)

($0-66)

03/31 09/30 12/31 03/31 06/30Year-to-Date

n Reported Restated/Actual

- 115 -

1 153. Eventually, as. a result of the defendants' fraudulent

2 accounting practices, as described above, the Company was forced to

3 announce at the end of 1995 that it had exhausted all sources of

4 borrowings and investment capital, had no revenues to support

5 operations and was forced to cease operations and file for Chapter

6 7 bankruptcy proceedings.

7 154. Due to the accounting improprieties set forth above in

8 ¶1110-54, the defendants presented the Company's results in a

9 manner which violated, among others, the following Generally

10 Accepted Accounting Principles:

11 (a) The principle that financial reporting should

12 provide information that is useful to present and potential

13 investors and creditors and other users in making rational

14 investment, credit and similar decisions (FASB Statement of

15 Concepts No. 1, ¶34);

16 (b) The principle that financial reporting should

17 provide information about the economic resources of an enterprise,

18 the claims to those resources, and the effects of transactions,

19 events and circumstances that change resources and claims to those

20 resources (FASB Statement of Concepts No. 1, ¶40);

21 (c) The principle that financial reporting should

22 provide information about how management of an enterprise has

23 discharged its stewardship responsibility to owners (stockholders)

24 for the use of enterprise resources entrusted to it. To the extent

25 that management offers securities of the enterprise to the public,

26 it voluntarily accepts wider responsibilities for accountability to

27 prospective investors and to the public in general (FASB Statement

28 of Concepts No. 1, ¶50);

- 116 -

1 (d) The principle that financial reporting should

2 provide information about an enterprise ' s financial performance

3 during a period. Investors and creditors often use information

4 about the past to help in assessing the prospects of an enterprise.

5 Thus , although investment and credit decisions reflect investors'

6 expectations about future enterprise performance, those

7 expectations are commonly based at least partly on evaluations of

8 past enterprise performance ( FASB Statement of Concepts No. 1,

9 ¶42);

10 (e) The principle that financial reporting should be

11 reliable in that it represents what it purports to represent. That

12 information should be reliable as well as relevant is a notion that

13 is central to accounting ( FASB Statement of Concepts No. 2, ¶158-

14 59) ;

15 (f) The principle of completeness , which means that

16 nothing is left out of the information that may be necessary to

17 ensure that it validly represents underlying events and conditions

18 (FASB Statement of Concepts No. 2, ¶79); and

19 (g) The principle that conservatism be used as a prudent

20 reaction to uncertainty to try to ensure that uncertainties and

21 risks inherent in business situations are adequately considered.

22 The best way to avoid injury to investors is to try to ensure that

23 what is reported represents what it purports to represent (FASB

24 Statement of Concepts No. 2, ¶195, 97).

25 ROLE OF CORBIN & WERTZ

26 155. Corbin & Wertz was engaged by Access HealthNet to provide

27 independent auditing, accounting and review services throughout the

28 Class Period . Corbin & Wertz examined and certified the financial

- 117 -

1 statements of Access HealthNet for the fiscal years ended March 31,

2 1994 and 1995 and consented to the use of its name as an expert and

3 the use of its opinion in the Prospectus dated January 25, 1995.

4 In addition, Corbin & Wertz was consulted with respect to Access

5 HealthNet's quarterly reports filed with the SEC and disseminated

6 to the investing public. Throughout the relevant time period,

7 certain Corbin & Wertz representatives spent significant time on

8 the Access HealthNet engagement.

9 156. As a result of the services rendered to Access HealthNet,

10 Corbin & Wertz personnel were present at Access HealthNet's

11 corporate headquarters and financial offices frequently throughout

12 the year and had continual access to, and knowledge of, Access

13 HealthNet's private and confidential corporate financial and

14 business information, including, internal monthly financial

15 statements, Board minutes and internal memoranda and thus knew, or

16 recklessly disregarded, the true facts as alleged herein concerning

17 Access HealthNet's actual financial condition and business problems

18 which were concealed from investors.

19 157. Corbin & Wertz examined Access HealthNet's financial

20 statements for the years ended March 31, 1994 and 1995 and issued

21 clean and unqualified opinions. Corbin & Wertz falsely reported

22 that Access HealthNet's 1994 year end financial statements fairly

23 presented the Company's financial position, results of operations

24 and changes of financial position in conformity with GAAP, and that

25 the financial statements had been examined in accordance with GAAS.

26 Corbin & Wertz' false report was included in Access HealthNet's

27 January 25, 1995 Prospectus. Corbin & Wertz also reviewed the

28 Company's results for the six month period ended September 30, 1994

- 118 -

1 included in the Registration Statement and Prospectus and even

2 defended these results to the SEC during the registration process.

3 Corbin & Wertz also inappropriately consented to the use of its

4 name as an expert in the January 25, 1995 Prospectus.

5 Additionally, Corbin & Wertz falsely reported that Access

6 HealthNet's 1995 year end financial statements, which were included

7 in Access HealthNet's 1995 Report on Form 10-KSB, were fairlyi

8 presented in conformity with GAAP and that the financial statements

9 had been examined in accordance with GAAS. Corbin & Wertz was also

10 consulted by the Company to give accounting advice regarding the

11 Company's quarterly financial reports on Forms 10-QSB throughout

12 the Class Period.

13 158. Corbin & Wertz participated in the scheme to induce

14 investors to purchase Access HealthNet stock pursuant to the

15 Prospectus by working actively on Access HealthNet's January 25,

16 1995 stock offering, reviewing and preparing its interim financial

17 results in connection therewith and providing Access HealthNet with

18 necessary assurances and opinion concerning Access HealthNet's

19 financial condition and results of operations for the year ended

20 March 31, 1994, without which the sale of Access HealthNet

21 securities could not have taken place.

22 GAAS Standards

23 159. Statements on Auditing Standards are issued by the

24 Auditing Standards Board, the senior technical body of the

25 Institute designated to issue pronouncements on auditing matters.

26 Rule 202 of the Institute's Code of Professional Conduct requires

27 adherence to the applicable generally accepted standards

28 promulgated by the Institute. It recognizes Statements on Auditing

- 119 -

1 Standards as interpretations of GAAS and requires that members be

2 prepared to justify departures from such statements. The Board has

3 issued a codification of Statement on Auditing Standards commonly

4 referenced by "AU §- . 11

5 160. In reporting Access HealthNet's March 31, 1994 financial

6 statements contained in the January 25, 1995 Prospectus and March

7 31, 1995 financial statements contained in Access HealthNet's Form

8 10-KSB filed on July 31, 1995, Corbin & Wertz stated that its

9 examinations were "in accordance with generally accepted auditing

10 standards." This statement was false and misleading when made in

11 that the following Generally Accepted Auditing Standards, among

12 others, were violated:

13 (a) AICPA General Standard No. 3 which requires that due

14 professional care is to be exercised in the performance of the

15 examination and in the preparation of the report (AU §§150, 230);

16 (b) AICPA Standard of Field Work No. 1 which requires

17 that the work is to be adequately planned and assistants, if any,

18 are to be properly supervised (AU §§150, 310-311);

19 (c) AICPA Standard of Field Work No. 2 which requires

20 that there is to be a proper study and evaluation of the existing

21 internal controls as a basis for reliance thereon and for the

22 determination of the result and extent of the tests to which

23 auditing procedures are to be restricted (AU §§150, 320);

24 (d) AICPA Standard of Field Work No. 3 which standard

25 requires that sufficient competent evidential matter is to be

26 obtained through inspection, observation, inquiries and

27 confirmations in order to afford a reasonable basis for an opinion

28

- 120 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

regarding. the financial statements under examination (AU §150,

326) ;

(e) AICPA Standard of Reporting No. 1 which requires

that the report shall state whether the financial statements have

been presented in accordance with GAAP (AU §§150, 410-411);

(f) AICPA Standard of Reporting No.. 3 which requires

that the informative disclosures contained in the financial

statements be regarded as reasonably adequate unless otherwise

stated in the report (AU §§150, 431); and

(g) AICPA Standard of Reporting No. 4 which requires

that the report shall contain an expression of opinion regarding

the financial statements, the auditor's clean-cut indications of

the character of the examination, if any, and the auditor's degree

of responsibility (AU §§150, 504).

Risk Assessment

161. In accordance with AU §316, ¶1.03, .05, .08:

The auditor should assess the risk that errors and

irregularities may cause the financial statements to

contain a material misstatement . Based on. that

assessment, the auditor should design the audit to

provide reasonable assurance of detecting errors and

irregularities that are material to the financial

statements. . . . The auditor should exercise (a) due

care in planning, performing and evaluating the results

of audit procedures, and (b) the proper degree of

professional skepticism to achieve reasonable assurance

that material errors or irregularities will be detected.

. . . The term irregularities refers to intentional

- 121 -

1 misstatements or omissions of amounts or disclosures in

2 financial statements. Irregularities include fraudulent

3 financial reporting undertaken to render financial

4 statements misleading, sometimes called management fraud,

5 and misappropriation of assets, sometimes called defalca-

6 tions. Irregularities may involve acts such as the

7 following:

8 • Manipulation, falsification , or alteration of

9 accounting records or supporting documents

10 from which financial statements are prepared

11 • Misrepresentations or intentional

12 omissions of events, transactions , or

13 other significant information

14 • Intentional misapplication of accounting

15 principles relating to amounts,

16 classification, manner of presentation, or

17 disclosure

18 The primary factor that distinguishes errors from

19 irregularities is whether the underlying cause of a

20 misstatement in financial statements is intentional or

21 unintentional.

22 162. Corbin & Wertz did not exercise due professional care in

23 planning audit procedures and did not appropriately assess the risk

24 that errors and irregularities may cause Access HealthNet's

25 financial statements to be misstated in that:

26 (a) Corbin & Wertz knew, or should have known, going

27 into the March 31, 1994 audit, that Access HealthNet's former Chief

28 Financial Officer had committed fraud. Corbin & Wertz also knew

- 122 -

1 that a national "Big Six" firm, Coopers & Lybrand, had recently

2 resigned due to substantial disagreements with Access HealthNet's

3 management and management's refusal to provide information in a

4 timely manner. As part of the Engagement Risk and Control

5 Environment Questionnaire completed during the March 31, 1994

6 audit, the Corbin & Wertz auditor answered "No" to the following

7 questions:

8 Are we aware of reasons to question the characteristics

9 or integrity of one or more members of management or

10 otherwise raise questions as to our ability to rely on

11 management's representations ?

12 *

13 Has the client frequently changed banks, attorneys or

14 auditors ?

15 Both of these questions should have been answered "Yes" because

16 Corbin & Wertz knew, or should have known, that it was the third

17 audit firm to be hired by Access HealthNet in a little over a year;

18 and

19 (b) GAAS requires (AU §315) that Corbin & Wertz initiate

20 communication with Coopers & Lybrand before accepting the Access

21 HealthNet audit engagement- This communication would include such

22 inquiries as to the integrity of management, disagreements with

23 management, accounting procedures and accounting principles.

24 Corbin & Wertz failed to communicate appropriately with Coopers &

25 Lybrand prior to Corbin & Wertz accepting the engagement. Only one

26 small reference relating to communication with the prior auditors

27 was included in the workpapers -- a handwritten note stating the

28 following:

- 123 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Per predecessor auditors there was a lack of adequate

controls in place at 3/31/93. Per inquiry of the client

an adequate control system was put into practice during

July 1993.

Corbin & Wertz inappropriately ignored the comments made by Coopers

& Lybrand and instead relied completely on management representa-

I tions.

163. Therefore, Corbin & Wertz knew, or should have known, no

later than April 1994, that management's integrity was compromised

and it could not reasonably rely on their representations.6

Corbin & Wertz also was aware that Access HealthNet's internal

controls were completely inadequate.' However, Corbin & Wertz

ignored these factors and further exacerbated it shortcomings by

failing to adequately communicate with Coopers & Lybrand prior to

accepting the audit.

False Statements Contained In The Prospectus

164. The Prospectus, dated January 25, 1995, was filed under

the Securities Act of 1933 ("Securities Act") and contained the

audited March 31, 1993 and 1994 financial statements and the

unaudited September 30, 1993 and 1994 financial statements. Corbin

& Wertz knew, or should have known, that:

(a) The unaudited interim financial statements for the

six months ended September 30, 1994 were materially false and were

6 Management integrity is important because management candirect subordinates to record transactions or conceal informationin a manner that can materially misstate financial statements.AU §316.17.

A lack of control procedures could permit an error orirregularity to occur repeatedly and the repeated occurrence couldaccumulate to a material amount. AU §316.34, ¶9.

- 124 -

1 presented in violation of GAAP due to the inclusion of at least

2 $2,592,000 in revenues which did not meet the criteria for revenue

3 recognition under SOP 91-1; and

4 (b) Other defendants were making false statements

5 regarding improved internal controls in the Management of Growth

6 section of the Prospectus' which Corbin & Wertz read or was

7 required to read in accordance with GAAS.

8 165. GAAS required that Corbin & Wertz read the entire

9 Prospectus and extend its procedures with respect to subsequent

10 events up to the effective date (or as close thereto as

11 practicable) of the Prospectus. In performing its procedures,

12 Corbin & Wertz knew, or should have known, that the Company's

13 audited and unaudited financial statements were not in conformity

14

15 8 Manactement of Growth

16[T]he Company has developed and formalized policies and

17 procedures such as the following: (a) establishedsystematic customer order procedures and acknowledgments,

18 (b) developed an organized shipping system withdocumented controls and segregated duties, (c) adopted

19 procedures for maintaining and updating aging reports foraccounts receivable and (d) adopted security measures for

20 inventory control. . . .

21 Financial Controls: Accounting Matters

22

23Prior to withdrawal, the auditors discussed with the

24 Company various conditions that they believed constitutedweaknesses in the Company's financial controls and

25 informally informed the Company of the need to implementprocedures and practices to address these weaknesses.

26 The Company has taken the steps described above under"Management of Growth" in response to discussions that

27 transpired between the auditors and the Company'smanagement concerning the lack of controls and to more

28 effectively provide financial information in a timelymanner.

- 125 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

with GAAP, therefore, it was required to notify management and, if

necessary, withdraw from the engagement.

166. GAAS states:

To sustain the burden of proof that he has made a

"reasonable investigation" as required under the

Securities Act of 1933, an auditor should extend his

procedures with respect to subsequent events from the

date of his audit report up to the effective date or as

close thereto as is reasonable and practicable in the

circumstances. . . . In addition to performing the

procedures outlined in 560.12 at or near the effective

date, the auditor generally should

a. Read the entire prospectus and other pertinent

portions of the registration statement.

b. Inquire of and obtain written representations

from officers and other executives responsible

for financial and accounting matters about

whether any events have occurred other than

those reflected or disclosed in the

registration statement, that, in the officers'

or other executives' opinion, have a material

effect on the audited financial statements

included therein or that should be disclosed

in order to keep those statements from being

misleading. (AU §711.10)

If an accountant concludes on the basis of facts

known to him that unaudited financial statements or

unaudited interim financial information presented or

- 126 -

1 incorporated by reference in a registration statement are

2 not in conformity with generally accepted accounting

3 principles, he should insist on appropriate revision.

4 Failing that . . . he should modify his report on the

5 audited financial statements to describe the departure

6 from generally accepted accounting principles contained

7 in the unaudited financial statements or interim

8 financial information.

9 * *

10 [T] he accountant should also consider, probably with the

11 advice of his legal counsel, withholding his consent to

12 the use of his report on the audited financial statements

13 in the registration statement. (AU §711.13)

14 [T]he accountant may become aware of matters that cause

15 him or her to believe that interim financial information,

16 filed or to be filed with a specified regulatory agency,

17 is probably materially misstated as a result of a

18 departure from generally accepted accounting principles.

19 In such circumstances, the accountant should discuss the

20 matters with the appropriate level of management as soon

21 as practicable.

22 If, in the accountant's judgment, management does

23 not respond appropriately to the accountant's

24 communication within a reasonable period of time, the

25 accountant should inform the audit committee, or others

26 with equivalent authority and responsibility (hereafter

27 referred to as the audit committee), of the matters as

28 soon as practicable. This communication may be oral or

- 127 -

1 written. If information is communicated orally, the

2 accountant should document the communication in

3 appropriate memoranda or notations in the working papers.

4 If, in the accountant's judgement, the audit

5 committee does not respond appropriately to the

6 accountant's communication within a reasonable period of

7 time, the accountant should evaluate (a) whether to

8 resign from the engagement, related to the interim

9 financial information, and (b) whether to remain as the

10 entity's auditor or stand for reelection to audit the

11 entity's financial statements. The accountant may wish

12 to consult with his or her attorney when making these

13 evaluations. (AU §722.20-22)

14 Despite these requirements, Corbin & Wertz participated in the

15 dissemination of false and misleading financial statements as

16 described herein.

17 167. During their March 31, 1995 audit, Corbin & Wertz

18 identified material weaknesses in the Company's internal control

19 structure which had not been corrected by the time the Prospectus

20 was filed in January 1995.

21 168. On or about January 17, 1995, just a week before the

22 Prospectus was issued, Corbin & Wertz presented a letter to Access

23 HealthNet's Audit Committee. In this letter, dated June 10, 1994,

24 the auditors falsely stated that no matters came to their attention

25 that caused them to believe that the information was materially

26 inconsistent with the information or manner of its presentation

27 appearing in the financial statements included in the revised Form

28 SB-2. However, this was false because Corbin & Wertz knew, or

128

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

recklessly disregarded, that there were material weaknesses in

Access HealthNet's internal accounting controls which it uncovered

during the 1994 audit. These severe weaknesses were described in

a separate letter to management also dated June 10, 19949 as

follows:

• Significant revenue adjustments were necessary

because sales recognition criteria under SOP 91-1

were not met ;

• Supporting documentation was not always readily

available and could not always be located;

• Adequate segregation of duties was not present thus

compromising the internal control system; and

• Adequate records were not kept for the capture and

capitalization of software development costs in

accordance with SFAS 86.

In fact, just a few months later, Corbin & Wertz issued another

letter to management dated July 17, 1995, relating to the March 31,

1995 audit, in which it repeated many of the same material

weaknesses from the June 10, 1994 letters.

169. Therefore, at the time Corbin & Wertz consented to the

use of its name and the use of its opinion in the Company's

Prospectus, it was fully aware that:

(a) The Company's controls were severely weak which, in

turn, allowed inappropriate revenue to be recognized on the

Company's books;

9 Interestingly, Corbin & Wertz dated the letter June 10, 1994but did not forward it to Access HealthNet' s management until March31., 1995.

- 129 -

1 (b) These severely weak controls had not been corrected

2 by January 25, 1995; and

3 (c) These weak controls thereby resulted in the

4 overstatement of revenue by a material amount in the Prospectus.

5 170. Corbin & Wertz knew, or should have known, that the

6 Company's interim September 30, 1994 financial statements which

7 were included in the Prospectus were materially false and

8 misleading due to overstated revenue of at least $2,592,000, as

9 alleged in ¶1140-43. Based on their knowledge, Corbin & Wertz, in

10 compliance with AU §711, should have withheld its consent to use

11 its name as it appears under the caption "EXPERTS" in the

12 Prospectus dated January 25, 1995, or withdrawn from the

13 engagement. Without Corbin & Wertz' clean opinion and consent as

14 experts, the January 25, 1995 Prospectus would never have been

15 issued.

16 Corbin & Wertz Partner Makes Material Misrepresentations ToThe SEC

17171. Defendant Berman issued a memo dated December 31, 1994 to

18

Falvey Fuller, Colman and defendant Levy describing a conference19

call which took place on December 30, 1994 between an SEC20

Accounting Specialist, Keegan, Corbin & Wertz audit partner Johnson21

and Fenwick & West attorneys Kellman and Suniga. This memo reveals22

in pertinent part the following:23

[I] t was decided that the company's auditors would carry24

the company's argument in the conference call with the25

S.E.C. , they (the auditors) being the best people to26

discuss the general accounting principals of the27

company's revenue recognition policies.28

- 130 -

1 The discussion with the S.E.C. was designed to attack

2 each of the perceived misunderstandings one at a time.

3 The first goal was to put to rest lease accounting

4 issues . The next goal was to put to rest the type of

5 transactions between the company and its distributors and

6 the company and its national accounts. The final goal

7 was to emphasize the "arms length" nature of the

8 company's relationship with its distributors.

9 95% of the discussion with the S.E.C. was handled by the

10 company's auditors . What could not be read from/into the

11 S.E.C. questions, became clear in the discussion. The

12 S.E.C. did not understand the relationship between the

13 company and its distributors or the relationship on the

14 one hand between the distributors and the national

15 account and the company and the national account.

16 As with all discussions, each patry [sic] requireed [sic]

17 a portion of the discussion in the beginning to "place

18 their stake in the ground" -- meaning the parties were

19 initially far apart. The company's auditincr -partner, Joe

20 Johnson, argued the company's position forcefully .

21 172. Corbin & Wertz partner Johnson "argued the Company's

22 position forcefully" even though he knew, or recklessly

23 disregarded, that:

24 (a) Material weaknesses existed at the Company;

25 (b) The revenue for the six months ended September 30,

26 1994 contained material amounts of revenue which was improperly

27 recognized in violation of GAAP;

28

- 131 -

1 (c) Prior year material weaknesses resulted in massive

2 revenue adjustments; and

3 (d) The Company had not corrected the material

4 weaknesses.

5 173. Despite the fact that Corbin & Wertz partner Johnson knew

6 of, or recklessly disregarded, the above irregularities, he

7 nevertheless misled the SEC into believing that the Company's

8 revenue was properly stated for the six months ended September 30,

9 1994 in order to ensure that the Prospectus would be successfully

10 completed.

11 Audit Report Date

12 174. In accordance with AU §530, the independent auditor's

13 report should be dated as of the completion of the fieldwork. In

14 order to conceal the difficulties and disagreements during the

15 audit, Corbin & Wertz improperly dated its auditor's opinion

16 relating to the March 31, 1994 financial statements June 10, 1994.

17 Corbin & Wertz had not completed its audit fieldwork until at least

18 August 1994 -- five months after year end. Corbin & Wertz allowed

19 its improperly dated opinion to be included in the January 25, 1995

20 Prospectus.

21 175. In failing to appropriately date its audit report, Corbin

22 & Wertz concealed from the investing public that there were

23 significant problems encountered during the audit which caused the

24 audit delay. One problem was that Access HealthNet did not have

25 the necessary basic accounting schedules to support the revenue

26 recognized in its financial statements. In order to complete their

27 March 31, 1994 audit, Corbin & Wertz presented, on or about June 7,

28 1994, a list of pending items to Access HealthNet's management.

- 132 -

1 This list included, in pertinent part, requests for copies and/or

2 explanations supporting such items as deposits in transit,

3 authorized reseller agreements, shipping and receiving controls

4 between March 31, 1994 and April 4, 1994, shipping logs for

5 particular clients, payment terms, personnel files for capitalized

6 salaries and determination of sales revenue versus cash receipts.

7 In particular, the third pending item requested confirmations that

8 had not been received by June 28, 1994 . Receipt of these

9 confirmations of significant revenue sent to the Company's clients

10 was necessary to complete audit fieldwork.

11 176. On or about August 19, 1994, Dunham of Access HealthNet

12 sent Corbin & Wertz partner Johnson accounting journal entries for

13 revenue, medical laboratory payments and bad debt reserves for the

14 period ended March 31, 1994. One of these journal entries was to

15 adjust bad debt reserves by $278,148.52. Thus, as of August 19,

16 1994, Corbin & Wertz was still performing significant audit work

17 for the March 31, 1994 financial statements, well after the

18 purported end of the fieldwork date.

19 177. Moreover, Corbin & Wertz, with the assistance of

20 defendant Fenwick & West, also misled the SEC with respect to the

21 date of completion of the fieldwork. Fenwick & West stated in a

22 letter to the SEC dated December 10, 1994:

23 Response 3 . Corbin & Wertz completed their

24 fieldwork on June 10, 1994 and issued their independent

25 auditors' report in late September, 1994 prior to the

26 October 7, 1994 filing of Amendment No. 2 to the

27 Registration Statement and after completing their review

28 of certain pending matters, including the fourth quarter

- 133 -

1 fiscal 1994 adjustments described in Note 3 of Notes to

2 Financial Statements.

3 178. In a subsequent Fenwick & West letter to the SEC dated

4 December 20, 1994, Response 3 above is changed by adding that:

5 The primary reason that Corbin & Wertz did not release

6 its auditors' report until late September 1994 was

7 because it sent out a second round of audit confirmations

8 related to revenue recognition issues and it was awaiting

9 the return of the confirmations from the Company's

10 customers.

11 179. Corbin & Wertz and Fenwick & West knew, or recklessly

12 disregarded, that this statement was misleading because audit

13 fieldwork was not completed for more reasons than merely a "second

14 round of audit confirmations." In fact, audit fieldwork was not

15 completed as of June 10, 1994 for the following reasons:

16 • As of June 7, 1994, Corbin & Wertz had still not

17 received a large percentage of the first round of

18 account receivable confirmations since most of the

19 confirmations were sent out in late May 1994 and

20 early June 1994. Audit procedures were not

21 scheduled to begin on this first round of account

22 receivable confirmations until June 28, 1994.

23 • Based on problem responses from the first round of

24 confirmations, Corbin & Wertz sent a second round

25 of confirmations dated July 27, 1994 to verify

26 acceptance of the system in order to recognize

27 revenue under SOP 91-1. These responses were not

28 received until August 1994 which ultimately

- 134 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

resulted in the Company reversing $3.013 million of

revenue.

• Access HealthNet was posting material adjustments

to their March 31, 1994 financials well into August

1994, i.e., the books were not closed. One such

entry was faxed to Corbin & Wertz on August 19,

1994.

180. Had Corbin & Wertz properly dated its auditor's opinion

and responded adequately to the SEC inquiry, the investing public

and the SEC would have known that the audit took a significant

amount of time to complete and would have been aware that problems

at Access HealthNet caused the delay of the report. Had the SEC

been aware of these significant problems, they may have delayed, if

not prevented, the January 1995 registration from taking place.

Related Party Transactions 1994

181. The Corbin & Wertz audit opinion for the Company's

March 31, 1994 financial statements was false when made. The audit

opinion stated that Access HealthNet's financial statements were

prepared in conformity with GAAP. This was false because SFAS No.

57, ¶2 requires that "financial statements shall include

disclosures of material related party transactions . . . ." Corbin

& Wertz ignored numerous "red flags" that, if followed up on, would

have allowed it to discover the Company's material transactions

with related parties.

182. In accordance with AU §334:

The auditor should place emphasis on testing

transactions of known related parties. However,

determining the existence of other related parties

- 135 -

1 requires the application of specific audit procedures

2 which include reviewing the filings by the reporting

3 entity with the Securities and Exchange Commission and

4 other regulatory agencies for the names of related

5 parties and for other businesses in which officers and

6 directors occupy directorship or management positions.

7 183. During their 1994 audit, Corbin & Wertz received a

8 confirmation from United Medical Management, a purported

9 independent third party distributor, "confirming" $66,990 in

10 receivables. However, the confirmation was signed by Barlow, an

11 employee of Access HealthNet. This confirmation was a "red flag"

12 which put Corbin & Wertz on notice that management was recording

13 revenue from related parties.

14 184. Corbin & Wertz also knew, or should have known, that

15 additional related parties existed. Since Corbin & Wertz was

16 already on notice of management's questionable integrity, Corbin &

17 Wertz should have expanded its audit testing and performed

18 additional audit procedures, such as, investigating the other

19 distributors in order to determine the true relationship between

20 the Company and the distributor and quantify the magnitude of sales

21 to related parties. For example, had Corbin & Wertz simply

22 requested incorporation and other documents for the distributors,

23 it would have discovered that the Company's major distributors were

24 related to Access HealthNet. One distributor, CRT, represented at

25 least 31% of the Company's total revenue and improperly recognized

26 revenue of $1,453,263 for the year ended March 31, 1994. In

27 addition, CRT represented 250 of the Company's total revenue and

28 improperly recognized revenue of $1,333,225 for the six months

- 136 -

1 ended September 30, 1994. This revenue was included in the

2 Prospectus dated January 25, 1995. Furthermore, Corbin & Wertz

3 knew, or should have known, that, including CRT, a total of

4 $2,263,542 and $2,592,000 of revenue was improperly recognized for

5 related party distributors at year ended March 31, 1994 and six

6 months ended September 30, 1994, respectively. See ¶1133-34 and

7 140.

8 185. Corbin & Wertz should have required Access HealthNet to

9 disclose the related party transactions in the Prospectus. This

10 disclosure would have informed investors that a material amount of

11 revenue recorded during 1994 was with related parties and were not

12 carried out at arms-length and was questionable at best. If Access

13 HealthNet refused to adequately disclose the related party

14 transactions in the financial statements, Corbin & Wertz should

15 have withdrawn from the engagement. Without Corbin & Wertz' clean

16 opinion and consent as experts, the January 25, 1995 registration

17 would not have been possible for Access HealthNet.

18 Related Party Transactions 1995

19 186. The Corbin & Wertz audit opinion for the Company's March

20 31, 1995 financial statements was false when made. The 1995 audit

21 opinion stated that Access HealthNet's financial statements were

22 prepared in conformity with GAAP. This was false because the

23 Company continued to improperly recognize revenue on sales to

24 related party distributors which Corbin & Wertz continued to

25 overlook.

26 187. For example, at March 31, 1995, related party CRT

27 represented 130 of the Company's total revenue and improperly

28 recognized revenue of $1,059,502. Additionally, Corbin & Wertz

- 137 -

1 knew, or should have known, that, including CRT, a total of

2 $1,700,000 of revenue was improperly recognized for related party

3 distributors for the year ended March 31, 1995. See ¶144.

4 188. According to Corbin & Wertz' 1995 audit program, Corbin

5 & Wertz signed off that the following procedure was completed

6 relating to verification of unusual and related party transactions:

7 •[C]onsider whether there are unusual transaction terms

8 such as:

9 -- insufficient cash payments to warrant immediate

10 recognition of income. . . .

11 Furthermore, Corbin & Wertz signed off the following step as not

12 applicable:

13 5. Determine that known related party transactions and

14 balances are properly reflected:

15 a. Accounting in accordance with substance, not

16 form.

17 b. Collectibility of receivables.

18 This auditing step included factors to consider such as

19 "appropriate audit evidence documenting the ability and intent to

20 repay" and "circular' situations, affecting income recognition or

21 repayment ability."

22 189. Based on the prior year audit, Corbin & Wertz knew, or

23 should have known, that Access HealthNet had numerous improper

24 transactions with related party distributors. However, Corbin &

25 Wertz ignored these related party transactions and failed to

26 complete the appropriate audit procedures, thus related party

27 transactions were not adequately disclosed in the March 31, 1995

28 Form 10-KSB.

- 138 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

190. For year ended March 31, 1995, the Company reversed $4.4

million in improperly recognized revenue, as alleged in ¶144. This

reversal, however, was not adequate in that at least an additional

$4.0 million of improperly recognized revenue relating to sales to

PCL remained on the books at March 31, 1995. In failing to perform

its audit in compliance with GAAS, Corbin & Wertz knew, or

recklessly disregarded, that the Company improperly recognized a

total of $5.7 million in revenue relating to undisclosed related

party transactions and sales that were recognized in violation of

GAAP and SOP 91-1.

Going Concern

191. Corbin & Wertz' audit opinion for the March 31, 1995

financial statement was false when made. Corbin & Wertz should

have, at a minimum, provided an explanatory paragraph in its audit

report that there was substantial doubt about Access HealthNet's

ability to continue as a going concern.

192. In accordance with AU §341:

The auditor has a responsibility to evaluate whether

there is substantial doubt about the entity's ability to

continue as a going concern 1' for a reasonable period of

time, not to exceed one year beyond the date of the

financial statements being audited (hereinafter referred

to as a reasonable period of time). The auditor's

evaluation is based on his knowledge of relevant

to The "going concern" assumption relates to the entity's

inability to continue to meet its obligations as they become duewithout substantial disposition of assets outside the ordinary

course of business, restructuring of debt, externally forcedrevisions of its operations, or similar actions.

- 139 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

conditions and events that exist at or have occurred

prior to the completion of fieldwork. . . . If, after

considering identified conditions and events and

management's plans, the auditor concludes that

substantial doubt about the entity's ability to continue

as a going concern for a reasonable period of time

remains, the audit report should include an explanatory

paragraph (following the opinion paragraph) to reflect

that conclusion. . . . If, the auditor concludes that the

entity's disclosures with respect to the entity's ability

to continue as a going concern for a reasonable period of

time are inadequate, a departure from crenerally accepted

accounting principles exists. This may result in either

a qualified (except for) or an adverse opinion .

Reporting guidance for such situations is provided in

section 508, Reports on Audited Financial Statements.

193. Had Corbin & Wertz applied pertinent auditing standards

to the information available, prior to the issuance of its opinion,

it would have concluded that conditions and events indicated that

Access HealthNet's ability to continue as a going concern was

doubtful. These standards include:

• The auditor may identify information about certain

conditions or events that, when considered in the

aggregate, indicate there could be substantial

doubt about the entity's ability to continue as a

going concern for a reasonable period of time.

• Negative trends - for example, recurring operating

losses, working capital deficiencies, negative cash

- 140 -

1 flows from operating activities , adverse key

2 financial ratios .

3 • Other indications . . . need to seek new sources or

4 methods of financing . ( AU §341.06)

5 194. Access HealthNet ' s cash flows from operating activities

6 were shocking. For the year ended March 31, 1995 , Access

7 HealthNet ' s cash from operations was a negative $ 6,056,062! By

8 September 30, 1995, Access HealthNet was running, on an annual

9 basis, a negative cash flow from operations of approximately $9.5

10 million. Corbin & Wertz was also aware that Access HealthNet would

11 need to seek new sources or methods of financing in order to

12 receive enough cash to continue.

13 195. Access HealthNet ' s management falsely represented

14 potential new sources of financing , including the sale of leases

15 and common stock or funding through loans . However, Corbin & Wertz

16 was aware that each of these funding sources were unlikely to

17 generate sufficient cash needed to fund Access HealthNet's

18 operations because pending negative earnings information would

19 diminish the stock price and fictitious receivables created through

20 improper revenue recognition practices had rendered leases

21 worthless. Furthermore , the secure financing source , Forrest

22 Financial , was not in place before the audit sign-off date and in

23 fact never provided financing to Access HealthNet.

24 196. In spite of the above , and in order to further their

25 scheme , Corbin & Wertz failed to modify or withdraw its opinion for

26 Access HealthNet ' s March 31 , 1995 financial statements and allowed

27 Access HealthNet to falsely state in the MD&A section of Access

28 HealthNet ' s Report on Form 10 - KSB filed July 31, 1995:

- 141 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

The Company believes that existing cash balances,

available borrowings from third party lessors, ability to

borrow from third party investors, cash flow from

operations , and working capital provided by the exempt

securities transactions described above will be adequate

to meet the Company's cash requirements for at least the

next twelve months .

197. However, on December 29, 1995, Access HealthNet announced

that it had exhausted all sources of cash.

198. Corbin & Wertz' representation that Access HealthNet's

March 31, 1994 and March 31, 1995 financial statements fairly

presented Access HealthNet's results of operations and financial

condition in conformity with GAAP was false and misleading because

Corbin & Wertz knew, or recklessly disregarded, that the audited

financial statements for the years ended March 31, 1994 and

March 31, 1995 and the financial statements contained in the

quarterly reports on Form 10-QSB were presented in a manner which

violated GAAP, as complained of herein.

199. Corbin & Wertz participated in this common course of

conduct with the other defendants in the making of the false

statements complained of herein. The following further details

Corbin & Wertz' participation in the scheme complained of herein:

(a) Corbin & Wertz conducted audit examinations and

participated in investigations into the business operations and

financial, accounting and management control systems of Access

HealthNet as part of the services it rendered to Access HealthNet

as alleged herein. Corbin & Wertz provided consultation with

regard to the Company's quarterly financial reports and

- 142 -

1 unqualifiedly certified that Access HealthNet's financial position

2 and results from operations were in conformity with GAAP and that

3 said statements had been examined in accordance with GAAS, even

4 though Corbin & Wertz knew, or should have known, the adverse facts

5 alleged herein and that Access HealthNet's reported revenues, net

6 income and EPS were overstated, because, inter alia , the defendants

7 had caused the Company to improperly record revenues on sales and

8 leases which were incomplete, conditional and phony, as specified

9 herein; and

10 (b) In taking the action specified above, defendant

11 Corbin & Wertz rendered substantial assistance and helped further

12 the fraud complained of herein, by permitting Access HealthNet to

13 continue to circulate copies of Access HealthNet's financial

14 statements, which Corbin & Wertz had assisted in preparing and/or

15 certified, even though Corbin & Wertz knew, or should have known,

16 that they had not been prepared in conformity with GAAP.

17 200. In connection with the work it performed for Access

18 HealthNet, Corbin & Wertz:

19 (a) Examined, reviewed and/or participated in reviews,

20 investigations and audit procedures regarding Access HealthNet's

21 financial condition, business operations and financial, accounting

22 and management control systems. In the course of performing such

23 services, Corbin & Wertz either obtained, or recklessly

24 disregarded, certain evidential matter which provided it with

25 information revealing the adverse facts about Access HealthNet's

26 business, finances and ability to continue as a going concern and

27 improperly failed to require, or to make, disclosures of such

28 facts. As a result of its investigations and audit work, Corbin &

- 143 -

1 Wertz knew, or should have known, that the reports and financial

2 statements described in this Complaint were materially misleading

3 or recklessly disregarded facts known to them which showed that

4 such statements were materially misleading;

5 (b) Knew, or recklessly disregarded, facts which

6 indicated that it should have: (i) withdrawn from its auditing and

7 review engagements; (ii) withdrawn the consent to use the March 31,

8 1994 audited financial statements and its name as it appears under

9 the caption " EXPERTS " in the Prospectus dated January 25, 1995;

10 (iii) qualified its opinion on Access HealthNet financial

11 statements for the year ended March 31, 1995 and 1995;

12 (iv) withdrawn, corrected or modified its opinion to recognize the

13 lack of adequate internal financial and accounting controls; (v)

14 provided a "going concern" paragraph in its opinion for March 31,

15 1995; or (vi) not given an opinion in light of the potentially

16 materially adverse effects of the undisclosed facts specified here.

17 The failure to make such a qualification, correction, modification

18 and/or withdrawal was a violation of GAAS, including the Fourth

19 Standard of Reporting; and

20 (c) Failed to cause Access HealthNet to disclose

21 material facts and allowed defendants to make material misrepre-

22 sentations regarding Access HealthNet to its investors during the

23 Class Period and also took steps in furtherance of the scheme

24 complained of herein.

25 ROLE OF FENWICK & WEST

26 201. Fenwick & West was retained by Access HealthNet as SEC

27 counsel to assist in the preparation, drafting and filing of the

28 original Registration Statement on December 1, 1993. Fenwick &

- 144 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

West appeared as counsel to the Company on the first page of the

Registration Statement and Amendments Nos. 1-4 filed on March 14,

1994, October 7, 1994, November 23, 1994, and January 18, 1995,

respectively. As SEC counsel, Fenwick & West played a central role

in drafting and reviewing all drafts of the Registration Statement

and Prospectus. As issuer's counsel, Fenwick & West advised Access

HealthNet and defendants as to their disclosure obligations.

Fenwick & West provided the Company with an opinion that its shares

registered pursuant to the Registration Statement were lawfully

issued and that defendants had complied with all securities laws in

offering these shares to the public for sale.

202. As issuer's counsel, Fenwick & West, in drafting the

Registration Statement and Prospectus attached thereto,

investigated the accuracy of information set forth in the

Prospectus. To verify the accuracy of information in the

Prospectus, Fenwick & West reviewed information from the Company's

management, including certain defendants, conducted meetings with

management and the Company's auditors Corbin & Wertz and obtained

information from third parties.

203. In addition to drafting the Prospectus and taking steps

to ensure its accuracy, Fenwick & West corresponded with the SEC

during the registration process. While interacting and

participating in conference calls with the SEC, Fenwick & West

advised its client Access HealthNet how to conceal adverse facts

from the SEC. Moreover, Fenwick & West, also assisted defendants

in concealing material information from the SEC.

204. Through their role as issuer's counsel, Fenwick & West

had access to the adverse non-public information about Access

- 145 -

1 HealthNet's business, finances, accounting practices, products,

2 markets and present and future business prospects via their review

3 of corporate documents and discussions with defendants, other

4 corporate officers and Corbin & Wertz. During the course of their

5 review of the Company and in their active role in preparing and

6 verifying the accuracy of the Registration Statement and

7 Prospectus, Fenwick & West obtained certain evidence revealing

8 adverse facts about Access HealthNet and improperly failed to

9 disclose, or cause the disclosure of, such facts. Instead, Fenwick

10 & West advised defendants how to conceal the adverse facts from the

11 public. In furtherance of defendants' common scheme, Fenwick &

12 West issued its false and misleading opinion that was necessary and

13 instrumental for the furtherance of the filing and effectiveness of

14 the Registration Statement and Prospectus.

15 205. Through their interaction with defendants Levy, Berman,

16 Keegan and Corbin & Wertz and other Access HealthNet officers

17 including McMahon, Fenwick & West knew, or recklessly disregarded,

18 false statements or material omissions from the Prospectus.

19 Fenwick & West also failed to adequately investigate the veracity

20 of statements in the Prospectus drafted by Fenwick & West based on

21 information provided by McMahon and defendants Levy, Berman, Keegan

22 and Corbin & Wertz. Such conduct includes:

23 (a) Fenwick & West failed to obtain documentary evidence

24 to corroborate events related orally by McMahon, the former Vice

25 President of Finance and Chief Financial Officer and defendant

26 Berman;

27 (b) Fenwick & West failed to disclose or withdraw as

28 issuer's counsel after McMahon and defendant Berman either failed

- 146 -

1 or refused to provide documentary support for statements appearing

2 in the Prospectus;

3 (c) Fenwick & West never obtained written verifications

4 despite repeated requests to McMahon and defendant Berman to verify

5 information in the Prospectus;

6 (d) Fenwick & West had no basis to believe the accuracy

7 of verifications received from McMahon and defendant Berman because

8 Fenwick & West had knowledge of Berman and McMahon's practice of

9 never reading documents received from their counsel or which they

10 themselves signed;

11 (e) Fenwick & West knew that it was defendant Berman's

12 practice never to read documents that he signed because he could

13 later assert that he would not be bound by a document bearing his

14 signature;

15 (f) Fenwick & West knew that the Company had breached,

16 from inception, an agreement with a supplier of computer equipment,

17 Data General, because of Berman's practice not to read documents;

18 (g) Fenwick & West knew that McMahon and defendant

19 Berman failed to keep adequate records of: (i) the Company's

20 formation and public trading history before the filing of the

21 Registration Statement; (ii) the Company's issuance of stock given

22 that Access Healthnet had issued 25 times more stock than was

23 authorized; and (iii) the election of the purported directors of

24 the Company;

25 (h) Fenwick & West knew but failed to disclose that the

26 attitude of the Individual Defendants in the issuance of stock,

27 options or warrants was to ignore any necessary corporate approvals

28 and "just do it;"

- 147 -

1 (i) As a result of the "just do it" attitude of the

2 Individual Defendants, significant corporate records were lacking

3 as to the issuance of stock, options, and warrants including the

4 failure to file as required under CSL its intent to sell stock in

5 its 1992 to 1994 offerings and to request an exemption under CSL

6 §25102 (Blue Sky Law Compliance), thereby creating significant gaps

7 in the Company's history and raising an issue as to the validity of

8 its stock issuances;

9 (j) As to the Company's former auditor, Hecht, whose

10 opinion appears in the Registration Statement, Fenwick & West never

11 spoke to Hecht despite the fact that Fenwick & West knew that: (i)

12 Hecht was not independent because he may have been a director of

13 the Company while serving as its auditor; (ii) Hecht never came to

14 California while performing his audit but instead simply reviewed

15 the audit work performed by Access HealthNet employee Dunham; (iii)

16 Hecht was not licensed to practice in California; (iv) Hecht never

17 reviewed the Prospectus or his audit opinion contained therein;

18 (v) Hecht did not participate in conference calls with the SEC to

19 which defendant Berman stated Hecht was a party; and (vi) Hecht

20 would sign audit reports and consents without reviewing the

21 documents;

22 (k) Fenwick & West never obtained a full listing of

23 stock issuances from defendant Berman despite repeated requests

24 that he provide such information;

25 (1) Fenwick & West knew that the list of stock issuances

26 was not reliable and was based upon the frequently changing

27 "recollections" of Berman and McMahon;

28

- 148 -

1 (m) Fenwick & West knew that the Company's entire

2 corporate structure and trading history was questionable as

3 management had failed to file or have filed: (i) the appropriate

4 documentation with the Delaware Secretary of State recording the

5 two reverse stock splits undertaken by McMahon and Berman; (ii) the

6 appropriate filings with the California Department of Corporations

7 to allow the Company's common stock to trade in the NASDAQ National

8 Market System in compliance with CSL; and (iii) exemption notices

9 under CSL §25102 to allow the Company's sale of securities in

10 California;

11 (n) Fenwick &:West never verified that McMahon orl

12 defendant Berman paid for the warrants and option exercises they

13 made in December 1993 granting themselves the largest amount of

14 options;

15 (o) Fenwick & West knew that McMahon and defendant

16 Berman authorized the issuance of all stock by the Company without

17 obtaining a legal opinion or obtaining approval from the Company's

18 Board of Directors;

19 (p) Fenwick & West knew that defendant Berman caused

20 stock restricted by Rule 144 to be issued without the Rule 144

21 legend attached to the Certificate and never obtained a legal

22 opinion allowing such issuance;

23 (q) Fenwick & West failed to verify whether defendant

24 Berman had a practice of forging documents including stock

25 certificates;

26 (r) Fenwick & West knew, or had reason to believe, that

27 the Company had filed false annual reports to enable it to continue

28 public trading yet did nothing to verify this information;

- 149 -

1 (s) Fenwick & West knew, or should have known, that

2 statements in the Prospectus about what ostensible steps the

3 Company had taken to make systemic and procedural changes to handle

4 its growth and adopt accounting and other controls to assure

5 accurate and complete reporting systems were false because the

6 Company had taken no such measures and was not generating accurate

7 financial information;

8 (t) Fenwick & West failed to verify that the Company had

9 clear title to the software contained in the Company's products;

10 (u) Fenwick & West represented to the SEC that a private

11 placement of Access HealthNet securities in the summer of 1994 was

12 terminated in August 1994 yet in December 1994, the Company

13 accepted an additional $1 million pursuant to that private

14 placement;

15 (v) Fenwick & West knew that the SEC would have barred

16 effectiveness of the Registration Statement or recommended an

17 enforcement action if they had known of the $1 million investment

18 following the termination, yet Fenwick & West took no action to

19 verify this information;

20 (w) Fenwick & West knew, or recklessly disregarded, that

21 the Company faced a huge liquidity problem and was not recovering

22 accounts receivables and instead of disclosing this information in

23 the Prospectus, agreed with defendants Berman, Keegan and Corbin &

24 Wertz to insert a generic risk disclosure that the Company might

25 have such a problem in the future;

26 (x) Fenwick & West knew, or recklessly disregarded, that

27 the Company's distributors were related parties to the Company and

28 that such distributors were on the Company's payroll, received

- 150 -

1 benefits under the Company's health benefit plans and had their

2 local offices subsidized by the Company;

3 (y) Fenwick & West knew, or recklessly disregarded, that

4 the Company's schedule of revenue for the quarter ended December

5 31, 1994 provided as an attachment to a January 5, 1995 letter to

6 the SEC, had not been collected by the Company prior to

7 effectiveness of the Registration Statement, yet, nonetheless,

8 represented to the SEC that it had been received;

9 (z) Fenwick & West knew, or should have known, that the

10 Company continued to be plagued by liquidity problems, was not

11 recovering accounts receivable and was living off proceeds of

12 private placements following effectiveness of the Registration

13 Statement and issuance of the Prospectus on January 25, 1995,

14 nonetheless, Fenwick & West represented to the SEC when the

15 Company's Registration Statement was amended in March or April 1995

16 that the cash it had and would receive from operations would be

17 sufficient for a period of at least one year;

18 (aa) Fenwick & West knew that the Board had not approved

19 the August 1995 private placements in the amount of $1.5 million,

20 that the stock offering documents had been changed by hand from

21 $9.15 to $9.075, that investor questionnaires were returned

22 uncompleted or blank and that there was no authorization or power

23 of attorney for an investor representative to sign on behalf of the

24 investors was provided; nonetheless, Fenwick & West released the

25 funds held in escrow in their trust accounts to the Company because

26 Access HealthNet was "out of money;"

27

28

- 151 -

1 (ab) Fenwick & West knew of, or recklessly disregarded,

2 the accounting improprieties of defendant Corbin & Wertz as alleged

3 in 11155-200; and

4 (ac) Fenwick & West knew of, or recklessly disregarded,

5 the Company's fraudulent financial statements as alleged in ¶1110-

6 54.

7 CLAIM FOR RELIEF I

8 Section 10(b) Of TheExchange Act And Rule 10b-5

9 206. Plaintiffs incorporate by reference $$1-205.10

207. Each of the defendants: (a) knew or had access to the

11material adverse non-public information about Access HealthNet's

12financial results and then existing business conditions, which was

13not disclosed, and (b) participated in drafting, reviewing and/or

14approving the misleading statements, Registration Statement,

15

Prospectus, releases, reports and other public representations of16

and about Access HealthNet.17

208. During the Class Period, defendants, with knowledge of or18

reckless disregard for the truth, disseminated or approved the19

false statements specified above, which were misleading in that20

they contained misrepresentations and/or failed to disclose21

material facts necessary in order to make the statements made, in22

light of the circumstances under which they were made, not23

misleading.24

209. Defendants have violated §10(b) of the Exchange Act and25

Rule 10b-5 promulgated thereunder in that they: (a) employed26

devices, schemes and artifices to defraud; (b) made untrue27

statements of material facts or omitted to state material facts28

- 152 -

1 necessary in order to make the statements made, in light of the

2 circumstances under which they were made, not misleading; or

3 (c) engaged in acts, practices and a course of business that

4 operated as a fraud or deceit upon the purchasers of Access

5 HealthNet stock during the Class Period.

6 210. Class plaintiffs and the Class have suffered damage in

7 that, in reliance on the integrity of the market, they paid

8 artificially inflated prices for Access HealthNet stock. Class

9 plaintiffs and the Class would not have purchased Access HealthNet

10 stock at the prices they paid, or at all, if they had been aware

11 that the market prices had been artificially and falsely inflated

12 by defendants' false and misleading statements.

13 CLAIM FOR RELIEF II

14 Section 20(a) Of The Exchange Act

15 211. Plaintiffs incorporate by reference ¶11-210.

16 212. Defendants Levy, Berman, Keegan and Becton acted as

17 controlling persons of Access HealthNet within the meaning of §20

18 of the Exchange Act. Defendant Levy, by reason of his positions as

19 Chairman of the Board and Chief Executive Officer of the Company

20 from July 18, 1995, as a director of Access HealthNet and through

21 his large holdings of Access HealthNet stock, defendant Berman, by

22 reason of his positions as Chief Executive Officer and a director

23 of the Company from July 18, 1995 and President of the Company

24 until his termination in October 1995, defendant Keegan, by reason

25 of his position as Chief Financial Officer and Treasurer for the

26 Company until September 1995, and defendant Becton, by reason of

27 his position as a director of the Company from July 1995 and as the

28 sole stockholder of Flagship Corporation, the Administrative

- 153 -

1 General Partner of Threshold, at all relevant times, were

2 controlling persons of Access HealthNet and had the power and

3 influence, and exercised the same, to cause Access HealthNet to

4 engage in the wrongful conduct complained of herein.

5 213. By reason of such wrongful conduct, defendants Levy,

6 Berman, Keegan and Becton are liable pursuant to §20(a) of the

7 Exchange Act. As a direct and proximate result of these

8 defendants' wrongful conduct, plaintiffs and members of the Class

9 suffered damages in connection with their purchases of the Access

10 HealthNet securities during the Class Period.

11 PLAINTIFFS' CLASS ALLEGATIONS

12 214. Plaintiffs bring this class action pursuant to Federal

13 Rule of Civil Procedure 23(a) and (b)(3) on behalf of all persons

14 who purchased the stock of Access HealthNet during the Class

15 Period, except defendants, members of their families and any entity

16 in which a defendant has a controlling interest.

17 215. The members of the Class are so numerous that joinder of

18 all members is impracticable. Prior to the bankruptcy, Access

19 HealthNet had more than 6 million shares of stock outstanding.

20 During the Class Period, millions of shares of Access HealthNet

21 stock were purchased by hundreds of persons who were damaged

22 thereby.

23 216. Plaintiffs' claims are typical of the claims of the Class

24 because plaintiffs and the Class members sustained damages from

25 defendants' wrongful conduct.

26 217. Plaintiffs will adequately protect the interests of the

27 Class. Plaintiffs have retained counsel who are experienced and

28

- 154 -

1 competent in class action securities litigation. Plaintiffs have

2 no interests which are in conflict with those of the Class.

3 218. A class action is superior to other available methods for

4 the fair and efficient adjudication of this controversy.

5 219. Common questions of law and fact predominate over

6 questions which affect only individual members of the Class. Among

7 the questions of law and fact common to the Class are:

8 (a) whether the federal securities laws were violated by

9 defendants' acts;

10 (b) whether defendants' statements during the Class

11 Period misrepresented and/or omitted material facts;

12 (c) whether defendants pursued the fraudulent scheme and

13 course of business complained of;

14 (d) whether defendants acted intentionally or

15 recklessly;

16 (e) whether the market price of Access HealthNet stock

17 was artificially inflated due to the activities complained of

18 herein; and

19 (f) the extent and measure of damage sustained by the

20 Class.

21 220. Plaintiffs will rely, in part, upon the presumption of

22 reliance established by the fraud-on-the-market doctrine in that:

23 (a) defendants made public misrepresentations and/or

24 omitted material facts during the Class Period, as alleged herein;

25 (b) the misrepresentations and/or omissions were

26 material;

27 (c) Access HealthNet common stock was traded at all

28 relevant times in an efficient market on the NASDAQ System;

- 155 -

1 (d) the misrepresentations and/or omissions alleged

2 tended to induce reasonable investors to misjudge the value of

3 Access HealthNet shares; and

4 (e) plaintiffs and members of the Class acquired their

5 shares between the time defendants made the misrepresentations

6 and/or omissions and the time the truth was revealed, without

7 knowledge of the falsity of the misrepresentations.

8 221. Based upon the foregoing, plaintiffs and members of the

9 Class are entitled to a presumption of reliance upon the integrity

10 of the market for purposes of class certification, as well as for

11 ultimate proof of the claims on their merit. Similarly, plaintiffs

12 and members of the Class are entitled to a presumption of reliance

13 with respect to the omissions alleged herein.

14 BASIS OF ALLEGATIONS

15 222. Plaintiffs have alleged the foregoing based upon the

16 investigation of their counsel, which included a review of Access

17 HealthNet's SEC filings, press releases issued by the Company and

18 media reports about the Company and discussions with consultants,

19 and believe that substantial evidentiary support will exist for the

20 allegations set forth in ¶¶1-213 after a reasonable opportunity for

21 discovery.

22 PRAYER FOR RELIEF

23 WHEREFORE, plaintiffs pray for judgment as follows:

24 1. Declaring this action to be a proper class action

25 pursuant to Rule 23(a) and 23(b)(3) of the Federal Rules of Civil

26 Procedure on behalf of the Class defined herein;

27 2. Awarding plaintiffs and the members of the Class

28 compensatory damages;

- 156 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3. Awarding plaintiffs and the members of the Class pre- and

post-judgment interest, as well as reasonable attorneys' fees,

expert witness fees and other costs;

4. Awarding extraordinary, equitable and/or injunctive

relief as permitted by law, equity and the federal statutory

provisions sued hereunder, pursuant to Rules 64, 65; and

5. Awarding such other relief as this Court may deem just

and proper.

JURY DEMAND

Plaintiffs demand a trial by jury.

DATED: June 20, 1997

MILBERG WEISS BERSHADHYNES & LERACH LLP

WILLIAM S. LERACH

PATRICK J. COUGHLIN

HENRY ROSEN

KRISTEN J'ICCULLOCH

600 Oa i roadway, Suite 1800San Diego, CA 92101Telephone: 619/231-1058

SOLTAN & ASSOCIATESVENUS SOLTAN660 Newport Center DriveSuite 320Newport Beach, CA 92660Telephone: 714/729-3100

Attorneys for Kalmus ClassPlaintiffs Peter Kalmus andLeslie Rubell

EUGENE MIKOLAJCZYK1165 N. BienvenedaPacific Palisades, CA 90272

Telephone: 310/454-8435

- 157 -

1 WOLF HALDENSTEIN ADLERFREEMAN & HERZ, LLP

2 FRANCIS M. GREGOREKBETSY C. MANIFOLD

3

4EGOREKFRANCI M

5

.

600 West Broadway , Suite 1800

6 San Diego, CA 92101Telephone : 619/338-4599

7Attorneys for Kalmus

8 Individual PlaintiffsVolunteer Limited Partnership,

9 William Hirschberg & ElisaHirschberg, Sigma Pairs, Jerry

10 Karel, Karel Private ManagersFund Series TE, Karel Private

11 Managers Fund, WesternHospital Corp. Retirement

12 Trust, Access Self LiquidatingTrust, Collins Group Trust

13 III , Compass Series E, RenaudAnselin , The Charles Talbot

14 Fund, and Michael B. Targoff

15E. PAUL TONKOVICH, P.C.

16 E. PAUL TONKOVICH

17

18 E. PAUL TONKOVICH1851 E. First Street

19 Suite 800Santa Ana , CA 92705

20 Telephone: 714/558-8655

21 Attorneys for KalmusIndividual Plaintiff Hinton

22 Family Revocable Living Trust

23

24

25

26

27

28

- 158 -

1 WECHSLER HARWOOD HALEBIAN& FEFFER LLP

2 ROBERT I. HARWOODRICHARD B. BRUALDI

3

4Alt L/-

ROBERT I'. WOOD5

805 Third Avenue6 7th Floor

New York, NY 100227 Telephone: 212/935-7.400

8 LAW OFFICES OF LIONEL Z.GLANCY

9 LIONEL Z. GLANCY1801 Avenue of the Stars

10 Suite 308Los Angeles , CA 90067

11 Telephone: 310/201-9150

12 LAW OFFICES OF RICHARD D.DE VITA

13 RICHARD D. DE VITA1114 Park Avenue, Suite 3L

14 Hoboken , NJ 07030Telephone : 201/714-7623

15

Attorneys for Avon Plaintiffs16

17

18

19

20

21

22

23

24

25

26

27

28

ACCESS MCL00660.CPT

- 159 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

DECLARATION OF SERVICE BY FEDERAL EXPRESS

I, the undersigned, declare:

1. That declarant is and was, at all times herein

mentioned, a citizen of the United States and a resident of the

County of San Diego, over the age of 18 years, and not a party to

or interested in the within action; that declarant's business

address is 600 West Broadway, Suite 1800, San Diego, California

92101.

2. That on June 20, 1997, declarant caused true copies of

FIRST AMENDED CLASS AND INDIVIDUAL ACTION COMPLAINT FOR

VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 to be delivered

to Federal Express for service on each of the parties listed on

the attached Service List on June 20, 1997.

I declare under penalty of perjury that the foregoing is

true and correct. Executed this 20th day of June, 1997, at San

Diego, California.

101111MICHELE M. HENRY

00-I

ACCESS HEALTHNET (FEDERI

Service List - 04/25/97

Page 1

COUNSEL FOR PLAINTIFF(S)

Francis M. GregorekBetsy C. ManifoldFrancis A. Bottini, Jr.WOLF HALDENSTEIN ADLER FREEMAN

& HERZ, LLP600 West Broadway, Suite 1800

San Diego, CA 92101

619/338-4599

619/231-7423 (fax)

Eugene MikolajczykATTORNEY AT LAW1165 N. BienvenedaPacific Palisades , CA 90272

310/454-8435310/454-2314 (fax)

COUNSEL FOR DEFENDANTS

William M. HensleyJACKSON DEMARCO & PECKENPAUGH4 Park Plaza, Suite 1600Irvine, CA 92714

714/752-8585714/752-0597 (fax)

Douglas F. GalanterRIVKIN RADLER & KREMER123 South Marengo AvenueSuite 400Pasadena, CA 91101-2481

818/795-1800818/795-2255 (fax)

Mary G. WhitakerKaren E. VaugheyLEWIS, D'AMATO, BRISBOIS

BISGAARD221 North Figueroa StreetSuite 1200Los Angeles, CA 90012

213/250-1800

213/250-7900 (fax)

E. Paul Tonkovich *E. PAUL TONKOVICH, P.C.1851 E. First Street, Suite 800Santa Ana, CA 92705

714/558-8655714/543-8406 (fax)

Venus SoltanSOLTAN & ASSOCIATES660 Newport Center DriveSuite 320Newport Beach, CA 92660

714/729-3100714/729-1527 (fax)

J. Neil GieleghemMichael BelcherWRIGHT, ROBINSON,

TATUM888 South Figueroa StreetSuite 1800Los Angeles, CA 90017-5455

213/488-0503213/624-3755 (fax)

Charles S. Battles, Jr.GIBSON, DUNN & CRUTCHER, LLP333 South Grand AvenueLos Angeles, CA 90071-3197

213/229-7000

213/229-7520 (fax)

Keith BardelliniG. Forsythe Bogeaus

& Helen PalmerBUCHALTER, NEMER, FIELD &

YOUNGER601 S. Figueroa, Suite 2400

Los Angeles, CA 90017-5704

213/891-0700

212/896-0400 (fax)

* Denotes Service via U.S. First Class Mail

-Ibl-

OSTHIMER &

Documents

Kalmus, et al. v. Cobin & Wertz, et al. 96-CV-1250-First ...securities.stanford.edu/filings-documents/1015/access96/1997623_r... · San Diego, CA 92101 Telephone: ... PETER KALMUS,