Merzin, et al. v. Provident Financial Group Inc., et al. 03-CV-165 …securities.stanford.edu/filings-documents/1027/PFGI03-01/... · 2014. 6. 9. · UNITED STATES DISTRICT COURT

UNITED STATES DISTRICT COURT

()

'T•. SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION

JACK MERZIN, et al., Consolidated Civil Action Master File No. C-1-03-165

Plaintiffs, (Spiegel, S.J.)

vs.

PROVIDENT FINANCIAL GROUP INC., et al.,

Defendants

THIS DOCUMENT RELATES TO:

ALL ACTIONS

CONSOLIDATED AND FIRST AMENDED CLASS ACTION COMPLAINT

(Jury Trial Demanded)

Lead Plaintiffs Linda Clark, Paul Conners, Michael Doherty, John Hoeting, Elaine

Hoeting, David Kent, Robert Holden, Marie Holden, John Torbeck, Mary Schultz, Trustee, Dan

Geeding, Edgar Rust, and Local 144 Nursing Home Pension Fund (collectively referred to as the

"Clark Group" or "Lead Plaintiffs"), on behalf of themselves and all others similarly situated, by

their attorneys, allege the following upon knowledge, with respect to their own activities, and

upon facts obtained as a result of an investigation of their counsel, which included, among other

things, a review of the relevant filings made by Provident Financial Group, Inc. ("Provident" or

the "Company") with the Securities and Exchange Commission ("SEC"), securities analysts'

reports, press releases, and media reports concerning the Company.

NATURE OF THE ACTION

1. This is a securities fraud class action brought by Lead Plaintiffs on behalf of

themselves and all other persons other than Defendants and certain related persons (the "Class")

who purchased or otherwise acquired the common stock of Provident during the period between

March 30, 1998 and March 5, 2003, inclusive (the "Class Period"). This action arises out of

Defendants' deliberate misstatement of Provident's financial condition and results during the

Class Period. As a result of Defendants' scheme, Provident's reported earnings for the years

1997-2002 were overstated in the aggregate by more than $70 million and the Company

concealed substantial debt obligations totaling at times during the Class Period in excess of one

billion dollars, in violation of Generally Accepted Accounting Principles ("GAAP"), applicable

federal banking regulations and federal securities laws. Further, throughout the Class Period,

Defendants falsely represented that Provident's financial statements were prepared in accordance

with GAAP, that the Company's internal controls were effective, and that its earnings to debt

ratios were healthy. Defendants' fraudulent scheme caused the price of Provident's common

stock to be artificially inflated, injuring Lead Plaintiffs and the Class.

2. In addition to persons who purchased or acquired Provident common stock in

open-market transactions, the Class contains three subclasses: plaintiff Silverback Master Ltd.

("Silverback") represents the first subclass (the "PRIDES Subclass"), consisting of all persons

who purchased or otherwise acquired, at any time prior to March 5, 2003, Provident Income

PRIDES" ("PRIDES") securities pursuant or traceable to Provident's June 6, 2002 offering of

said securities and the prospectus disseminated by Provident in connection therewith.

3. Plaintiffs Linda Clark, Michael P. Doherty, David Kent, Robert Holden, Marie

Holden, John Torbeck, Mary Schultz, Trustee, Dan Geeding and Edgar Rust ("the Fidelity

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Plaintiffs") represent the second subclass ("the Fidelity Subclass"), consisting of all persons who

purchased or otherwise acquired shares of common stock of Provident through an exchange of

shares in connection with a merger of Fidelity Financial of Ohio, Inc. and its wholly-owned

subsidiary, Centennial Bank (collectively, "Fidelity Financial"), into Provident and its subsidiary,

Provident Bank, respectively, pursuant to an Agreement and Plan of Merger dated as of August

16, 1999 and completed on February 4, 2000.

4. Plaintiffs Paul Conners, Elaine Hoeting, Trustee, and John Hoeting (the "OHSL

Plaintiffs") represent the third subclass (the "OHSL Subclass"), consisting of all persons who

purchased or otherwise acquired shares of common stock of Provident through an exchange of

shares as part of a merger of OHSL Financial Corp. and its wholly-owned subsidiary, Oak Hills

Savings and Loan Company (collectively, "OHSL"), into Provident and its subsidiary, Provident

Bank, respectively, pursuant to an Agreement and Plan of Merger dated August 2, 1999, and

completed December 3, 1999.

5. Lead Plaintiffs and plaintiffs named herein seek, on behalf of themselves, and the

Class and Subclasses, to recover damages suffered by them as a result of Defendants' violations

of the federal securities laws.

6. During the Class Period, Defendants engaged in a common course of conduct

designed to mislead the investing public into believing that Provident was successfully growing

its business, was experiencing strong financial results, and had an effective system of internal

controls. In truth, Provident was facing an increasing need for liquidity and, at the same time, it

was experiencing an unusual increase in expenses and consumer lease financing charge-offs.

During this same time period, Provident was engaged in an aggressive acquisition campaign

through a series of stock-for-stock acquisitions, using its own stock as currency, as well as a

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number of public securities offerings. In an effort to satisfy Provident's liquidity needs and to

artificially inflate the price of its stock for purposes of its acquisitions, Defendants devised a

scheme whereby Defendants materially misrepresented Provident's earnings performance,

artificially inflated its return on assets and understated the amount of its liabilities by removing

massive debt from its balance sheet.

7. The scheme involved thousands of automobile lease contracts, which were the

subject of sale-leaseback transactions with institutional investors. The sale portion of these

transactions enabled Provident to receive an immediate influx of cash and recognize millions of

dollars of profit. However, by improperly accounting for the leaseback portion of the

transactions, Defendants were able to hide from the investing public the massive debt Provident

had incurred in connection with the transactions.

8. A key aspect of the scheme was the improper characterization by Defendants of

the lease portion of these sale-leaseback transactions as "operating" leases instead of as "capital"

leases for accounting purposes. By improperly characterizing the transactions as "operating"

leases, Defendants removed Provident's non-cancelable obligation to pay back the investor-

purchasers (who were actually creditors) from the balance sheet. By these means, Defendants

hid the debt obligation Provident incurred as a result of these transactions from the investing

public. During 1999 alone, this improper accounting treatment resulted in the omission of well

over $1 billion in debt from Provident's balance sheet.

9. Under GAAP, a sale of property accompanied by a lease back of all or part of the

property for all or part of its remaining economic life must be accounted for by the seller-lessee

in accordance with the rules for determining whether the lease meets one of the criteria for

treatment as a capital lease. These criteria, as discussed infra at ¶56, are well-defined under

SEE

Financial Accounting Standards No. 13, titled "Accounting for Leases" ("FASB 13'). The rules

governing the proper accounting treatment of leases are well-established, basic rules which are

particularly familiar to those in the banking, finance and accounting industries. FASB 13, which

establishes the standards of financial accounting and reporting for leases by lessees and lessors,

was issued in November 1976. FASB 28, which amended FASB 13, was issued in May 1979.

These standards were implemented for the express purpose of making the determination of the

appropriate accounting treatment of a lease an objective rather than a subjective one. If a lease

meets one of the four criteria set forth in FASB 13, it must be accounted for as a capital lease. If

a lease is a capital lease, the lessee must carry the total amount due under the lease as debt.

Alternatively, if a lease is classified as an operating lease, the debt is not reflected on the balance

sheet and only a periodic lease payment is reported on the income statement.

10. The determination of whether a lease is a capital lease or an operating lease is

made once at the outset of the transaction and does not change over time. Defendants violated

this long-standing GAAP rule by incorrectly characterizing the leaseback portion of the

automobile leaseback transactions as operating leases and, in so doing, failed to report the leased

assets or the related massive debt obligations Provident incurred in connection with these

transactions on its balance sheet, as required by GAAP. Under Regulation S-X [17 C.F.R.

§210.4-01(a)(1)], because Provident's financial statements filed with the SEC were not prepared

in conformity with GAAP, they are presumed to be misleading and inaccurate.

11. Defendants falsely represented to investors during the Class Period that Provident

had in place an effective system of internal controls and procedures. Contrary to these

representations, Provident did not have effective internal controls and procedures in place to

ensure the proper accounting treatment of the nine sale-leaseback transactions it had entered into

between 1997 and 1999.

12. Further, Defendants have now admitted that Provident's internal controls were so

inadequate they failed to detect that the Company's reported earnings were overstated by more

than $70 million in the aggregate from 1997 through 2002 due to an error in a financial model

used to calculate interest payable to investors in the nine sale-leaseback transactions. Defendants

have admitted that, had they had a proper system in place to test the financial models at any time

during the period from 1997 to 2003, the massive restatement of Provident's results from 1997 to

2002, announced on March 5, 2003, would have been avoided.

13. Defendants had a strong motive to engage in the fraudulent scheme alleged

herein. During the relevant period, the Company was: (a) experiencing an unusual increase in

expenses and consumer lease charge-offs, (b) in need of immediate cash, and (c) engaged in an

aggressive acquisition campaign, using its stock as currency, as well as a number of public

securities offerings. By engaging in the fraudulent scheme alleged herein, Defendants materially

inflated Provident's reported financial results and improved its key financial ratios, which were

relied upon by financial analysts and the investing public to value Provident's shares. As

demonstrated by the events of March 5, 2003, had Defendants disclosed the truth concerning

Provident's financial condition and results during the Class Period, the price of Provident's shares

would have dropped precipitously.

14. On March 5, 2003, Provident issued a press release admitting that each of its

quarterly and annual financial reports filed with the SEC during the Class Period contained

materially misstated financial statements that violated GAAP. Specifically, the Company

revealed that: (a) it was restating earnings for the years 1997 through 2002 in the aggregate

amount of $70 million or $1.39 per share; and (b) its liabilities for each of these years were

understated by as much as $1 billion. According to the Company, the restatement was

attributable to the fact that the Company had improperly accounted for the nine auto lease

transactions as off-balance sheet transactions.

15. When Provident announced its restatement on March 5, 2003, investors

immediately suffered the consequences: Provident's common stock plummeted, falling 20% in

one day, from a March 4, 2003 close of $28.08 per share to $22.46 on March 5, on extremely

heavy trading volume exceeding 5.4 million shares, well above its average daily trading volume

of 165,000. The price of the PRIDES also dropped in a similar fashion, falling from $28.23 per

unit to $23.18 per unit on the same dates.

16. Dow Jones Business News ("Dow Jones") reported in an article published on

March 5, 2003, that the Company had achieved the dubious distinction of announcing "the

longest continuous string of amendments in memory for a U.S. company," predicting that "if

history is any indication, Provident's problems are only just beginning."

17. Dow Jones' prediction was borne out. On April 15, 2003, Provident announced an

increase in its restatement of earnings to include an additional $44.4 million of income, after tax,

improperly recognized since 1994 as income from direct finance leases. Under the latest

restatement, according to the April 15 press release, in 2002 the Company reportedly earned

$95.5 million, or $1.88 per share, instead of the originally restated amounts of $99.3 million, or

$1.96 per share reported on March 5, 2003.

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PARTIES

Plaintiffs

18. Lead Plaintiffs, as set forth in their certifications attached to the Declaration of

Richard S. Wayne dated May 5, 2003, submitted with the Memorandum in Support of the

Motion of the Clark Group for Consolidation, Appointment as Lead Plaintiff and For Approval

of Selection of Lead Counsel filed May 5, 2003, and incorporated herein by reference, each

purchased shares of Provident during the Class Period and have suffered damages as a result of

the violations of law alleged herein. On June 11, 2003, the Court appointed the Clark Group as

Lead Plaintiffs, pursuant to Section 21D of the Exchange Act, 15 U.S.C. § 78u-4.

19. The following additional Plaintiffs purchased Provident securities on the open

market and suffered damages as a result of Defendants' violations of the federal securities laws:

Jack Merzin, Elliott Waldbaum, James McKay, Robert Nicci, John Koot, Bernard Spitz, and

Paul Marzoff, WA.

20. Plaintiff Silverback Master Ltd. purchased PRIDES during the Class Period and

has suffered damages as a result. Silverback's purchases of PRIDES are set forth in the

Certification submitted with its initial complaint.

21. The Fidelity Plaintiffs purchased or otherwise acquired shares of common stock

of Provident through an exchange of shares in connection with a merger of Fidelity Financial

into Provident and its subsidiary, Provident Bank, respectively, pursuant to an Agreement and

Plan of Merger dated as of August 16, 1999 and completed on February 4, 2000.

22. The OHSL Plaintiffs purchased or otherwise acquired shares of common stock of

Provident through an exchange of shares as part of a merger of OHSL into Provident and its

subsidiary, Provident Bank, respectively, pursuant to an Agreement and Plan of Merger dated

August 2, 1999, and completed December 3, 1999.

Defendants

23. Defendant Provident is an Ohio corporation with its principal executive offices

located at One East Fourth Street, Cincinnati, Ohio 45202. Provident is a Cincinnati-based

commercial banking and financial services company.

24. Defendant The Provident Bank ("Provident Bank") is an Ohio corporation and a

state-chartered bank, which is a wholly-owned subsidiary of Provident. Provident Bank's

executive offices are located at One East Fourth Street, Cincinnati, Ohio 45202. Provident Bank

is named as a Defendant in only the Sixth and Seventh Claims for Relief.

25. PFGI Capital Corporation ("PFGI Capital") is a Maryland corporation,

incorporated on May 9, 2002. PFGI Capital is an indirect subsidiary of Provident, by virtue of

the fact that all of PFGI's common stock is owned by Provident Bank. PFGI Capital's executive

offices are located at One East Fourth Street, Cincinnati, Ohio 45202. PFGI Capital is named as

a Defendant in only the Third and Fourth Claims for Relief.

26. Defendant Robert L. Hoverson ("Hoverson") served as President and Chief

Executive Officer of the Company from May 1998 through the end of the Class Period. Prior to

his appointment as President, Hoverson served as the Company's Senior Vice President.

27. Defendant Christopher J. Carey ("Carey") served as the Company's Executive

Vice President and Chief Financial Officer from November 19, 1998 through the end of the

Class Period.

28. Defendants Hoverson and Carey are collectively referred to herein as the

"Individual Defendants." The Individual Defendants and Provident are sometimes collectively

referred to herein as the "Defendants."

29. Because of their positions with Provident, the Individual Defendants had access to

the adverse undisclosed information about the Company's business, operations, products,

operational trends, financial statements, markets and present and future business prospects via

access to internal corporate documents (including the Company's operating plans, budgets and

forecasts and reports of actual operations compared thereto), conversations and connections with

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

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

connection therewith.

30. It is appropriate to treat the Individual Defendants as a group for pleading

purposes and to presume that the false, misleading and incomplete information conveyed in the

Company's public filings, press releases and other publications as alleged herein are the

collective actions of the Individual Defendants. Each of the above officers of Provident, by virtue

of his high-level position with the Company, directly participated in the management of the

Company, was directly involved in the day-to-day operations of the Company at the highest

levels, and was privy to confidential proprietary information concerning the Company and its

business, operations, products, growth, financial statements, and financial condition, as alleged

herein.

31. As officers and controlling persons of a publicly-held company whose common

stock was, and is, registered with the SEC pursuant to the Exchange Act, traded on the

NASDAQ National Market during the Class Period, and governed by the provisions of the

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federal securities laws, each of the Individual Defendants had a duty to disseminate prompt,

accurate and truthful information with respect to the Company's financial condition and

performance, growth, operations, financial statements, business, products, markets, management,

earnings and present and future business prospects, and to correct any previously-issued

statements that had become materially misleading or untrue, so that the market price of the

Company's publicly-traded securities would be based upon truthful and accurate information.

The Individual Defendants' misrepresentations and omissions during the Class Period violated

these specific requirements and obligations.

32. The Individual Defendants participated in the drafting, preparation, and/or

approval of the various public reports and other communications complained of herein and were

aware of, or recklessly disregarded, the misstatements contained therein and omissions

therefrom, and were aware of their materially false and misleading nature. Because of their

executive and managerial positions with Provident, the Individual Defendants had access to the

adverse undisclosed information about Provident's business prospects and financial condition

and performance as particularized herein and knew (or recklessly disregarded) that these adverse

facts rendered the positive representations made by or about Provident and its business issued or

adopted by the Company materially false and misleading.

33. Because of their positions of control and authority as officers of the Company, the

Individual Defendants were able to and did control the content of the various SEC filings, press

releases and other public statements pertaining to the Company during the Class Period. Each

Individual Defendant was provided with copies of the documents alleged herein to be misleading

prior to or shortly after their issuance and/or had the ability and/or opportunity to prevent their

issuance or cause them to be corrected. Accordingly, each of the Individual Defendants is

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responsible for the accuracy of the public reports and releases detailed herein and is therefore

primarily liable for the representations contained therein.

34. Each of the Defendants is liable as a participant in a fraudulent scheme and course

of business that operated as a fraud or deceit on purchasers of Provident common stock by

disseminating materially false and misleading statements and/or concealing material adverse

facts. The scheme: (a) deceived the investing public regarding Provident's business, finances,

financial statements and the intrinsic value of Provident common stock; and (b) caused Plaintiffs

and other members of the Class to purchase Provident securities at artificially inflated prices.

CLASS ACTION ALLEGATIONS

35. Lead Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all persons or entities who

purchased or otherwise acquired the securities of Provident between March 30, 1998 and March

5, 2003, inclusive. Plaintiff Silverback brings this action on behalf of the PRIDES Subclass,

which consists of all persons or entities who purchased or otherwise acquired, prior to March 5,

2003, PRIDES traceable to Provident's June 6, 2002 offering of said securities and its prospectus

disseminated in connection therewith, and were damaged thereby. The Fidelity Plaintiffs bring

this action on behalf of all persons who purchased or otherwise acquired shares of common stock

of Provident through an exchange of shares they owned in Fidelity Financial as part of a merger

of Fidelity Financial and Provident pursuant to an Agreement and Plan of Merger dated as of

August 16, 1999, which merger was completed on February 4, 2000. The OHSL Plaintiffs bring

this action on behalf of all persons who purchased or otherwise acquired shares of Provident

common stock through an exchange of shares they owned in OHSL as part of a merger of OHSL

and Provident pursuant to an Agreement of Merger dated August 2, 1999, which merger was

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completed on December 3, 1999. Excluded from the Class and Subclasses are Defendants, the

officers and directors of the Company at all relevant times, members of their immediate families,

and their legal representatives, heirs, successors or assigns, and any entity in which Defendants

have or had a controlling interest.

36. The members of the Class and Subclasses are so numerous that joinder of all

members is impracticable. Throughout the Class Period, Provident had in excess of 42 million

shares of common stock outstanding, which were actively traded on the NASDAQ National

Market. In addition, Provident sold 6.6 million PRIDES to the public, 4.6 million shares were

exchanged in the Fidelity Financial merger, and 1.4 million shares were exchanged in the OHSL

merger. While the exact number of Class members is unknown to Plaintiffs at this time and can

only be ascertained through appropriate discovery, Plaintiffs believe that there are thousands of

members in the proposed Class. Record owners and other members of the Class may be

identified from records maintained by Provident or its transfer agent and may be notified of the

pendency of this action by mail, using the form of notice similar to that customarily used in

securities class actions.

37. Lead Plaintiffs' claims are typical of the claims of the members of the Class and

Subclasses, as all members of the Class and Subclasses are similarly affected by Defendants'

wrongful conduct in violation of federal law complained of herein.

38 Lead Plaintiffs will fairly and adequately protect the interests of the members of

the Class, and Silverback, the Fidelity Plaintiffs, and the OHSL Plaintiffs will fairly and

adequately protect the interests of the members of their respective Subclasses and have retained

counsel competent and experienced in class and securities litigation.

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39. Common questions of law and fact exist as to all members of the Class and

Subclasses and predominate over any questions solely affecting individual members of the Class

and Subclasses. Among the questions of law and fact common to the Class and Subclasses are:

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

alleged herein;

(b) whether the documents, press releases, reports or other public statements

disseminated to the investing public during the Class Period omitted or misrepresented material

facts about the business, operations and financial statements of Provident;

(c) whether the Registration Statement and Prospectus issued by Provident in

connection with its PRIDES offering contained untrue statements of material facts or omitted to

state material facts that were required to be stated therein or necessary to make the statements

therein not misleading;

(d) whether Defendants acted with knowledge or with reckless disregard for

the truth in materially misrepresenting during the Class Period, the business, operations and

financial statements of Provident, as well as its accounting practices;

(e) whether, during the Class Period, the market price of Provident's common

stock was artificially inflated due to the material misrepresentations and omissions concerning

the business, operating financial condition and accounting practices of Provident and its

adherence to GAAP, as complained of herein; and

(f) whether the members of the Class and Subclasses have suffered damages

and, if so, the proper measure thereof.

40. The claims of Lead Plaintiffs (the Clark Group), Silverback, the Fidelity

Plaintiffs, and the OHSL Plaintiffs are typical of the claims of the members of the Class and

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Subclasses. Lead Plaintiffs, Silverback, the Fidelity Plaintiffs, the OHSL Plaintiffs, and other

members of the Class and Subclasses have sustained damages arising out of Defendants'

wrongful conduct alleged herein in violation of the federal securities laws.

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

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

the damages suffered by individual Class and Subclasses members may be relatively small, the

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

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

management of this action as a class action.

NO SAFE HARBOR

42. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.

Many of the specific statements pleaded herein were not identified as "forward-looking

statements" when made. To the extent there were any forward-looking statements, there were no

meaningful cautionary statements identifying important factors that could cause actual results to

differ materially from those in the purportedly forward-looking statements. Alternatively, to the

extent that the statutory safe harbor does apply to any forward-looking statements pleaded

herein, Defendants are liable for those false forward-looking statements because, at the time each

of those forward-looking statements was made, the particular speaker knew that the particular

forward-looking statement was false, or the forward-looking statement was authorized or

approved by an executive officer of Provident who knew that those statements were false when

made.

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SUBSTANTIVE ALLEGATIONS

The Scheme

43. Throughout the Class Period, Provident, through its wholly-owned subsidiaries,

was engaged in, among other things, the business of leasing automobiles to consumers.

Conventional accounting rules for third-party leasing required Provident to record lease revenues

and profit over the life of these lease contracts. Faced with an increase in unusual expenses and

consumer lease financing charge-offs, and an increasing need for liquidity to fund an aggressive

acquisition campaign, Defendants devised a scheme which, throughout the Class Period,

materially and falsely improved Provident's reported cash flow and earnings performance,

artificially increased its return on assets and understated the amount of Provident's liabilities by,

among other things, removing massive amounts of debt from its balance sheet.

44. Defendants' scheme involved the pooling together and sale by Provident of

thousands of automobile lease contracts (and the underlying vehicles themselves) to institutional

investors and the simultaneous lease back by Provident of the lease contracts and vehicles in

what Defendants improperly characterized as an "off-balance sheet sale and leaseback of

operating leases." In a sale-leaseback transaction, the owner of an asset sells the asset and

simultaneously leases it back from the purchaser. Because Provident, the seller-lessee, actually

retained control of the asset through the leaseback portion of the transaction, the leaseback in

each case should have been treated as a capital lease, with the full amount due under the lease

reflected as a debt on Provident's balance sheet. However, Provident instead accounted for these

leases as operating leases, which requires no addition of debt to the balance sheet, but only the

addition of a periodic lease payment as an expense to the income statement. During the period

from 1997 to 1999, Provident entered into a total of nine such sale-leaseback transactions.

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The Scheme Enabled Provident to Misrepresent Its Financial Condition

45. A key component of the scheme was the improper characterization by

Defendants, for accounting purposes, of the leaseback portion of the sale-leaseback transactions

as "operating" leases instead of as "capital' leases. In so doing, Defendants improperly treated

Provident's obligation to pay back the investor-purchasers (creditors) as an off-balance sheet

item and, thereby, hid this massive debt from the investing public by failing to report it on

Provident's balance sheet as required by GAAP.

46. The following table illustrates the amount of debt improperly omitted from

Provident's balance sheet during the period from 1998 through 2001:

Hidden Debt From Balance Sheet

1600 1400 1200

1000

800

600 400 200

1998 1999 2000

Hidden Debt

2001

During 1999 alone, Defendants improperly omitted from Provident's balance sheet well over $1

billion of debt. According to Provident's annual report for the year 1999, filed with the SEC on

Form 10-K (the "1999 10-K"), as of December 31, 1999, Provident had total assets of $9.7

billion.

47. The result of these transactions was an immediate influx of cash flow to

Provident, which recognized millions of dollars of profit during the Class Period relating to these

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transactions. In addition to hiding from the investing public Provident's massive debt obligation,

Defendants also overstated Provident's income relating to the lease contracts by millions of

dollars throughout the Class Period. The following illustrates the extent to which Defendants

overstated Provident's net income from 1998 through 2002:

Original Net Income Vs. Restated Net Income

160

140 -

120 --

100

60 Ej OI

40 ijRestated

20H

I

I- -20 1998

2001

48. Defendants' improper accounting for and reporting of these financing transactions

also grossly distorted key financial ratios relied upon by stock analysts and investors, and grossly

distorted the perceived value of Provident's shares.

49. The "return on asset" ratio is a key profitability ratio, which measures the

efficiency and economic success of a banking firm. Stock analysts frequently evaluate the

performance of a bank by reviewing this ratio (defined as the ratio of income' to total assets). A

high rate of return on assets is accorded considerable weight by the marketplace because, in a

competitive industry such as banking, it implies particular acumen commensurate with the ability

to charge above-market prices. Provident's overstated return on assets during the Class Period

caused the market to significantly overvalue Provident's shares during that time period to the

Income is typically defined as earnings before interest, but after taxes.

detriment of its investors. The following illustrates the amounts by which Defendants overstated

Provident's return on assets from 1998 through 2001:

1.60%

1.40%

1.20%

1.00%

0.80% I 0.60%

0.40%

0.20% - -

0.00% -

-0.20% - 1998

Return on Assets

II 20,01,

FRes

hgin taJ

50. Defendants' gross overstatement of Provident's net income during the Class

Period also caused Provident's "return on equity" ratio (defined as the ratio of net income to

shareholders' equity) to be overstated. The following demonstrates the extent to which

Provident's return on equity ratio was overstated from 1998 to 2001:

Return on Equity

18.00%

16.00% 14.00%

12.00%

10.00%

8.00%

6.00% -

4.00% -

2.00% -

0.00%

-2.00% -

rrk

I 1!J1! IIIDU 2001

Ej Original Restj

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51. Defendants' improper off-balance sheet treatment of the massive debt Provident

incurred in connection with the automobile sale-leaseback transactions also significantly

distorted Provident's financial leverage (as indicated by its "long-term debt-to-equity" ratio)

during the Class Period, as demonstrated by the following:

L.T. Debt to Equity Ratio

6.00

5.00

4.00

::

00

1998 1999

H _ cOriginaI

11 Restated I! 2000 2001

52. During the Class Period, Provident's off-balance sheet financing scheme disguised

and understated to the investing public the extent of the Company's debt and distorted the

Company's capital structure, which directly impacted the value of the Company. Through the

accounting scheme described herein, Defendants avoided disclosing Provident's true long-term

debt-to-equity ratio and thus deprived its investors of critical information required to accurately

assess the financial condition of Provident.

53. Defendants not only failed to disclose the massive debt liability Provident had

assumed in connection with these nine financing transactions, Defendants actively misled the

investing public by falsely stating that Provident was reducing its dependence on long-term

liabilities through these automobile leasing transactions.

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Provident's False And Misleading Financial Statements And Financial Disclosures

54. At all relevant times during the Class Period, Defendants represented that

Provident's financial statements were prepared in conformity with GAAP, which are recognized

by the accounting profession and the SEC as the uniform rules, conventions and procedures

necessary to define accepted accounting practice at a particular time. SEC Regulation S-X states

that financial statements filed with the SEC that are not prepared in compliance with GAAP are

presumed to be misleading and inaccurate. 17 C.F.R. § 210.4-01(a)(1).

55. The representations that the Company's financial statements were prepared in

accordance with GAAP were materially false and misleading because the Defendants knew, or

recklessly ignored, that Provident employed improper accounting practices, in violation of

GAAP and the SEC's financial reporting requirements, to falsely overstate and misrepresent its

operating results and financial condition during the Class Period. In so doing, Provident's

reported revenues and earnings were materially inflated, its liabilities were materially more than

disclosed and the Company's representation that its internal controls were sound was materially

false and misleading.

Defendants Violated Fundamental Accounting Rules Relating to the Proper Treatment of Sale-Leaseback Transactions

56. GAAP requires that a sale of property accompanied by a lease back of all or any

part of the property for all or part of its remaining economic life must be accounted for by the

seller-lessee in accordance with the rules for determining whether the lease meets one of the

criteria for treatment as a capital lease. Under FASB 13, if the lease meets any one of the

following four criteria at the inception of the lease, the seller-lessee must account for the lease as

a capital lease:

-21-

(a) the lease transfers ownership of the leased asset to the lessee by the end of

the lease term;

(b) the lease contains a bargain purchase option;

(c) the lease term is equal to 75% or more of the remaining estimated

economic life of the leased asset at the lease inception; or

(d) the present value of the minimum lease payments at the inception of the

lease is at least 90% of the market value of the leased asset at the time.

57. The significance of properly characterizing the leaseback portion of a sale-

leaseback transaction as a "capital" lease or as an "operating" lease is the effect such

characterization has on the seller-lessee's balance sheet. For GAAP purposes, a "capital" lease is

a lease contract that transfers essentially all the risks and rewards of ownership in the transferred

assets from the lessor (the legal owner of the asset) to the lessee (the party leasing the asset). If a

lease is a capital lease, the lessee acquiring the asset (in this case Provident) must account for the

property as if it had been purchased by reflecting the asset on its balance sheet and recording the

corresponding liability. In addition, GAAP requires the lessee to record a current expense

relating to depreciation of the assets and interest expense related to the capital lease obligation,

consistent with a capital lease transaction. Operating leases, on the other hand, do not transfer

substantially all of the risks and benefits of ownership from the lessor to the lessee. Unlike

capital leases, the lessee does not report the leased asset on its balance sheet, nor is it required to

reflect depreciation or carry the total amount due under the lease as a liability on its balance

sheet. With an operating lease, the lessee records lease payments as rental expense as the

payments come due.

-22-

58. Defendants knew or recklessly disregarded that the leaseback portion of the sale-

leaseback transactions in 1997, 1998 and 1999 satisfied the criteria of SFAS No. 13 and,

therefore, should have been treated as capital leases. The leaseback portions of these transactions

were long-term obligations, which extended over the useful life of the automobile leases sold.

When asked about the terms of the leaseback during a conference call on March 5, 2003,

Defendant Carey, Provident's Executive President and Chief Financial Officer, responded: "Well,

the loans themselves—the consumer leases average around five years. The financing structure

has an initial term that is minimum six years, can go to eight years." As a result, the leaseback

portion of the nine sale-leaseback transactions should have been reported as capital leases, with

all associated assets and liabilities included on the balance sheet.

59. As detailed herein, Defendants entered into these transactions at a time when

Provident was experiencing an unusual increase in expenses and consumer lease financing

charge-offs, was in need of immediate cash flow, and was engaged in an aggressive campaign of

stock-for-stock acquisitions, as well as a number of public securities offerings. Defendants'

mischaracterization of the transactions grossly distorted Provident's key financial information

and resulted in the artificial inflation of Provident's stock price.

Provident Improperly Accelerated Income On Its Auto Leases

60. Provident also violated GAAP by treating its auto leases as direct financing

leases, rather than as operating leases for accounting purposes. Unlike the nine sale-leaseback

transactions described above, Provident's auto leases were clearly operating leases under SFAS

No. 13, because Provident retained a substantial economic interest in the vehicle being leased in

the form of the residual value of the vehicle. As a result, Provident retained the risk of loss with

respect to the value of the leased vehicles at the end of the lease term.

-23-

61. By improperly treating its auto leases as direct financing leases, Defendants were

able to smooth and accelerate Provident's earnings. One significant difference between an

operating and a direct financing lease is that, in the case of a direct financing lease, more income

is recognized during the first half of the lease. Provident disclosed on April 15, 2003, that the

improper accounting for its auto leases had overstated after-tax income by $44.4 million in the

aggregate for fiscal years 1994 through 2002.

Defendants Failed to Maintain Internal Controls

62. Section 1 3(b)(2)(B) of the Exchange Act requires every issuer that has securities

registered pursuant to Section 12 of the Exchange Act, such as Provident, to devise and maintain

a system of internal accounting controls sufficient to reasonably assure, among other things, that

transactions are recorded as necessary to permit preparation of financial statements in conformity

with GAAP.

63. Statements on Auditing Standards ("SAS") No. 55, AU §319.03, n.1, states that

management must establish and maintain effective internal controls. These responsibilities are

broad. Thus, management must implement a plan that ensures (a) the reliability of financial

reporting; (b). the effectiveness of operations; and (e) compliance with applicable laws and

regulations. Management must continually ensure that such plan reduces risk to a reasonable

level and modify it as conditions at the company change.

64. Paragraph 37 of SAS 55 states that "[a]n important function of management

responsibility is to establish and maintain internal control ... . It involves assessing the design

and operation of controls on a timely basis and taking necessary corrective action."

65. Finally, as 12 to SAS No. 1 makes clear, "[t]he financial statements are

management's responsibility."

-24-

66. Consistent with the foregoing requirements, the Individual Defendants

responsible for ensuring the integrity of the financial statements and other financial information

disseminated to Provident's investors and the adequacy of its internal accounting controls.

Provident's Annual Reports for 1998, 1999, 2000 and 2001 (all of which were signed by the

Individual Defendants), stated:

The integrity of the financial statements and other financial information contained in the Annual Report is the responsibility of the management of Provident Financial Group, Inc. Such financial information has been prepared in accordance with generally accepted accounting principles, based on the best estimates and judgment of management.

Provident Financial Group, Inc. maintains a system of internal accounting controls designed to provide reasonable assurance that transactions are executed and recorded in accordance with management's authorization and that the assets of Provident Financial Group, Inc. are properly safeguarded. This system includes the careful selection and training of staff, the communication of policies and procedures consistent with the highest standards of business conduct, and the maintenance of an internal audit function.

67. Contrary to these assurances, Defendants failed to maintain the required internal

accounting controls to ensure the proper accounting treatment of Provident's automobile sale-

leaseback transactions and its auto leases, and the impact of such treatment on Provident's

reported financial condition and results.

68. Further, Provident's internal controls were so inadequate that they failed to detect

a massive overstatement of the Company's reported revenues during the Class Period due to an

error in a financial model used to calculate interest payable to investors in the nine sale-

leaseback transactions. In Provident's 2002 Annual Report (disseminated on or about April 15,

2003), Defendants admitted that Provident's restatement of financial results announced March 5,

2003 was the direct result of "weaknesses in our internal controls." In addition, although

-25-

Provident stated in its annual report for the year 2002 (the "2002 10-K") (at page 90) that the

Company's management, including its principal executive and financial officers, had concluded

that Provident's internal controls "were effective with no significant weaknesses noted," it also

admitted that the same disclosure controls and procedures had failed to detect until early 2003

the improper accounting treatment of its auto lease transactions. In a March 7, 2003 article in

The Cincinnati Enquirer, Defendant Carey, Provident's Chief Financial Officer, was quoted as

stating that the overstatement of $70 million of profits from 1997 "was caused by a bad internal

system that showed the transactions created more revenue than they actually did." Defendant

Carey also admitted that at no time since the auto lease transactions were first implemented in

1997 had the financial model utilized by the Company in connection with the accounting for the

transactions been reviewed, stating:

[T]his is a rather simple amortization model. While these were treated as operating leases, as you know we report these in our managed assets. There is an asset and there is debt related to these, so I don't believe in 1997 that someone in our accounting firm reviewed the model... It probably would have been unusual for them to do it because this was not viewed as something complicated. Unfortunately an initial mistake was made in how that model was used, and that just got carried forward as we have seen here.

(Transcript of Provident Financial Group (PFGI) Restatement of Operating Results, March 5,

2003. By their own admission, had Defendants implemented such testing of the financial model

at any time during the period from 1997 to 2003, the massive restatement of Provident's results

from 1997 to 2002, announced on March 5, 2003, would have been avoided.

69. According to The Actuary (July 2003):

In March 2003 Provident Financial Group of Cincinnati announced a restatement of its results for the five financial years from 1997 to 2002. Between 1997 and 1999 Provident created nine pools of car leases. Part of the financial restatement was because the leases were treated off balance sheet, rather than on balance sheet as was

-26-

later thought to be appropriate. But there was also a significant restatement of earnings, because there was a mistake in the model that calculated the debt amortization for the leases. It appears that the analysts who built the model used for the first pool 'put in the wrong value, and they didn't accrue enough interest expense over the deal term. The first model that was put together had the problem, and that got carried through the other eight, according to the chief financial officer.

70. Provident failed to implement and maintain an adequate internal accounting

control system, or knowingly or recklessly tolerated the failure to use existing internal controls in

a manner that would ensure compliance with GAAP and was thus unable to sufficiently detect

that its auto lease financial models were materially overstating income. The impact of the

modeling error was to overstate net income by more than $70 million in the aggregate from 1997

through 2002. The error in the model was not only material to the financial statements but was

also inexplicably long-running. According to a March 14, 2003, ERisk News article, lease

modeling experts stated that they "find it hard to understand how the problem could go

undetected since 1997,"

71. Defendants knew or recklessly disregarded the fact that Provident's earnings were

overstated. A March 6, 2003 American Banker article disclosed:

Income from auto leasing, a low-return business that Provident had started to unwind in 2001, seemed too high. "We knew the business wasn't super-profitable, and it looked like it was more profitable than it should be," Mr. Carey said.

Defendants' Scienter and Motive for En 2auin2 in Securities Fraud

72. During the Class Period, Defendants had actual knowledge that the statements

complained of herein were materially false and misleading and intended to deceive Plaintiffs and

the other members of the Class or, alternatively, Defendants acted with reckless disregard for the

-27-

truth by ignoring or failing to ascertain and disclose readily available facts that would have

revealed the materially false and misleading nature of the statements complained of herein.

73. Defendants had a motive to engage in the accounting scheme described herein and

to issue the materially false and misleading statements regarding Provident's financial condition

in order to pursue an aggressive acquisition campaign. In Provident's annual report for the year

1997 (the "1997 10-K"), Defendants reported recent acquisitions made by Provident as part of a

change in its strategic business initiatives:

The financial services industry is highly competitive. To effectively compete in this market, management has changed the way it views banking and does business. These changes include...

Acquire Strategic Businesses -- To broaden its customer base, add value to its product line, provide a more diverse revenue stream and lower its cost of funds, Provident Financial has made tactical business acquisitions. Recent acquisitions include two banks in Florida (South Hillsborough Community Bank and Florida Gulfcoast Bancorp, Inc.) and a small ticket equipment leasing company (Information Leasing Corporation).

(Emphasis added).

74. Similarly, in Provident's annual report for the year 1998, filed with the SEC on

Form 10-K (the "1998 10-K"), Defendants reported additional recent acquisitions consummated

by Provident as a continuation of its strategic plan:

Provident has expanded its franchise in recent years through internal growth and acquisitions. Business lines that have been expanded to operate at a national level include Provident Capital Corp (a middle market structured finance products division), Provident Commercial Group and Information Leasing Corporation (commercial leasing divisions) and Provident Consumer Financial Services (a mortgage loan division). Provident has also expanded by acquisitions of Florida Gulfcoast

-28-

Bancorp, Inc. located in Sarasota, Florida and South Hillsborough Community Bank located in Hillsborough County, Florida.

(Emphasis added).

75. In all, during the period from 1996 to 2000, Provident made the following stock-

for-stock acquisitions:

December 1996 - Provident acquired Information Leasing Corporation (an equipment leasing company) and Procurement Alternatives Corporation (Information Leasing's affiliated lease servicing company). Provident issued 776,786 shares of its common stock at the date of the acquisition plus an additional 84,183 shares of its common stock during 1997 for meeting certain financial objectives. Provident reported in its 1997 10-K that an additional 174,746 shares of its common stock and $2 million would be paid to the former shareholders if additional financial objectives were met over the next three fiscal years.

February 1997 - Provident purchased South Hillsborough Community Bank for 189,259 shares of Provident common stock having an aggregate value of $7.2 million.

September 1997 - Provident acquired Florida Gulfcoast Bancorp, Inc. (parent of Enterprise National Bank) for approximately 713,000 shares of Provident common stock having an aggregate value of $34.9 million.

December 1999 - Provident purchased OHSL Financial Corp. (parent of Oak Hills Savings and Loan Co.) for approximately 1.4 million shares of Provident common stock with an aggregate value of $54.2 million.

February 2000 - Provident acquired Fidelity Financial. Provident issued approximately 4.6 million shares of its common stock to Fidelity Financial's shareholders.

In addition to these acquisitions, during the Class Period, Provident engaged in the following

public offerings of its securities:

June 2002 - Provident offered 6.6 million PRIDES to the public at an aggregate offering price of $165 million July 2002 - Provident offered $75 million of its 8.375% Senior Notes Due 2032

-29-

July 2002 - Provident offered $75 million of its Floating Rate Subordinated Notes Due 2005

Without Provident's stock trading at high levels, Defendants would have been deprived of

currency to pursue these acquisitions and securities offerings.

76. During this same time period, Provident was experiencing an unusual increase in

expenses and consumer lease charge-offs. In the 1997 10-K, Provident reported:

Expenses for Provident Financial have also increased during this three-year time period. The provision for loan and lease losses increased significantly during 1996, but leveled off in 1997. The increase in the provision was a result of a higher level of charge-offs, principally in commercial, auto and credit card lending, than experienced in prior years.

(Emphasis added).

With respect to consumer lease charge-offs, Provident stated:

Consumer lease financing charge-offs during 1997, 1996 and 1995 were $6.0 million, $3.1 million and $.6 million, respectively. Th e steady increase in charge-offs of this type is due to the growth in consumer lease financing portfolio, prior to the sale-leaseback transactions on leased automobiles.

(Emphasis added).

77. The increase in Provident's expenses and charge-offs was not limited to 1997, but

continued throughout the Class Period, thereby providing a continuing motive for Defendants to

inflate Provident's stock price by engaging in the accounting scheme described herein. In its

2000 10-K, Provident reported:

Provident incurred unusual and significant expenses during each of the past three years. During 2000, merger and restructuring charges of $39.3 million were expensed in connection with the acquisition of Fidelity Financial of Ohio and other post-merger business line restructurings. During 1999, Fidelity Financial had taken merger charges of $4.2 million related to their acquisition of Glenway Financial Corporation. Provident initiated a reengineering project

-30-

and discontinued two business units which resulted in a charge to earnings of $22.0 million during 1998.

[H]igher charge-offs and declining credit quality ratios were experienced by Provident during the fourth quarter of 2000. Unfavorable business conditions related to three loans totaling $52 million required Provident to move the loans to nonaccrual status. In light of the change in Provident's asset quality indicators and the uncertain economic environment, Provident increased its loan loss reserve ratio from 1.44% at the end of the third quarter to 1.70% at the end of the fourth quarter of 2000.

78. Moreover, in its 200110-K, Provident reported:

Unfavorable business conditions and difficulties experienced by the airline industry have caused Provident to take large loan loss provisions during the past two years. Late in the fourth quarter of 2000, Provident placed three large loans, totaling $52 million, on nonaccrual status. Additionally, several large commercial loan charge-offs were recorded at that time. Nonacerual loans and charge-offs increased during 2001 as the economic climate continued to deteriorate, particularly with regard to the airline industry. During 2001, Provident recorded charge-offs, write-downs and additional provision of $66 million on commercial airline loans and leases. Another $15 million of provision was recorded within industries other than commercial airlines that was related to September 11. Based on Provident's analyses of the lending portfolio, deterioration of asset quality indicators as well as the uncertain economic environment, Provident recorded additional provision to raise its loan loss reserve to total loans ratio to 2.29% during 2001.

79. Defendants were also motivated to mischaracterize the sale-leaseback transactions

as off-balance sheet transactions because the massive liability Provident had incurred in

connection with these transactions would have had a detrimental effect on Provident's long-term

debt-to-equity ratio and other quantifiable indicators of risk. Moreover, the presence on

Provident's balance sheet of the assets sold in these transactions would have lowered (among

other things) Provident's return on its assets. While Defendants' accounting scheme may have

provided immediate cash flow to the Company, in reality, Provident's financial condition was

- 31 -

vastly different from the picture portrayed to the market. By mischaracterizing the sale-leaseback

transactions as off-balance sheet transactions and eliminating massive debt from Provident's

balance sheet, Defendants materially misrepresented the true financial condition of the

Company.

80. A further indicia of motive is the fact that, during the relevant period, among

Provident's primary liquidity needs was the payment of dividends to the holders of its common

stock, 55% of which was held by a small group of insiders.

81. In short, during the Class Period, Defendants knew that the public documents and

statements issued or disseminated in the name of the Company were materially false and

misleading; knew that such statements or documents would be issued or disseminated to the

investing public; and knowingly and substantially participated or acquiesced in the issuance or

dissemination of such statements or documents as primary violations of the federal securities

laws.

Materially False and Misleading Statements Disseminated by Defendants During the Class Period

82. The Class Period begins on March 30, 1998, when Provident filed its 1997 10-K,

and continues to March 5, 2003, when Provident's fraudulent scheme finally came to light.

During this period, Defendants issued to the investing public a number of materially false and

misleading statements, which are detailed below.

83. As described in detail above, each of the annual reports filed by Provident during

the Class Period contained false representations by Defendants that the Company's financial

statements were prepared in accordance with GAAP.

-32-

84. Each of Provident's annual reports on Form 10-K filed after the 1997 10-K was

signed by Defendants Hoverson and Carey.

85. The 1997 10-K represented that Provident's net earnings for the year were

$115,302,000 and diluted earnings per share were $2.63. The 1997 10-K further reported that the

Company's five year annual compound net income growth rate was 21.5%.

86. Defendants falsely stated in the 1997 10-K that Provident had reduced its

dependence on long-term liabilities, stating:

Provident Financial has reduced its dependence on long-term liabilities by securitizing nonconforming residential loans, the sale and leaseback of vehicles under lease and the sale of seasoned residential loans.

(Emphasis added). Defendants did not disclose that Provident had incurred a massive debt

obligation in connection with the automobile sale-leaseback transactions.

87. On March 30, 1999, Provident filed its 1998 10-K, in which the Company

reported net income of $114,952,000 for 1998 and diluted earnings per share of $2.56 per share.

The 1998 10-K further represented that the five year annual compound growth rate of the

Company's net income was 17.5%.

88. On January 19, 2000, Provident issued a press release announcing its results for

the year 1999 and touting Provident's performance for the year. Specifically, earnings per share

reportedly increased 14% from $2.88 to $3.29 in 1998, while operating earnings increased 13%

from $129.3 million to $146.4 million. Defendant Hoverson attributed the seemingly "strong

financial performance for both the quarter and the year" to the Company's core business.

89. On March 29, 2000, Provident filed its 1999 10-K with the SEC, in which the

Company reported net income of $146,000,000 and diluted earnings per share of $3.29 in 1999,

reportedly representing a five year compound net income growth rate of 21%.

-33-

90. On January 17, 2001, Provident issued a press release reporting its results for the

year 2000. According to the press release, earnings per share were $2.00 and the net income was

$100.6 million, compared with $3.14 earnings per share and $153.7 million net income for the

full year ended December 31, 1999.

91. On March 15, 2001, Provident filed its annual report for the year 2000 (the "2000

10-K"), in which the Company reported net income of $73,614,000 and diluted earnings per

share of $1.46 in 2000.


the year 2001. In the press release, Provident reported earnings per share of $0.46 compared with

$2.00 in 2000, while net income was reportedly $23.3 million, compared with $100.6 million in

2000. Commenting on the Company's performance, Defendant Hoverson highlighted Provident's

reportedly strong growth in interest income and expected earnings improvement, stating, in

relevant part, as follows:

Positive developments in 2001 included healthy net interest income growth, strong retail deposit formation and level operating expenses. Additionally, some new fee-income initiatives have started to show encouraging signs of growth. Part of our long-term plan includes changing the risk profile of the company by adding to our existing fee-based income initiatives to reach a more balanced earnings pattern between stable margin revenues and fee income. As we resolve our credit issues, we should see steady earnings improvement along with a more predictable earnings stream.

93. On March 27, 2002, Provident filed its annual report for the year 2001 on Form

10-K (the "2001 10-K") with the SEC, in which the Company reported net income of

$23,329,000 and diluted earnings per share of $0.46 in 2001.

94. On May 16, 2002, Provident (and PFGI Capital) filed a Registration Statement on

Form S-3 (Registration Nos. 333-88446, 333-88446-01) (the "Registration Statement") with the

-34-

SEC for an offering of 6.6 million PRIDES to the public. The Registration Statement was

subsequently amended various times, and incorporated into a Prospectus dated June 6, 2002 (the

"Prospectus"). The offering became effective on June 6, 2002, with Provident selling 6.6 million

PRIDES, priced at $25 per unit, to the investing public. The net proceeds to the Company from

the PRIDES offering, after all costs of issuance, totaled approximately $144.5 million.

95. In the Prospectus, Provident materially misstated in summary form its financial

results for the years 1999-2001, as well as its financial statements for January 1, 2002 to March

31, 2002. The selected consolidated financial data provided, among other items, the net income

($ in millions) of Provident:

3 Months Ended 3/31/02 2001 2000 1999

$30 $24 $75 $155

In addition to this misstatement in summary form, the Prospectus also incorporated by reference

Provident's 2001 1 0-K, Current Report on Form 8-K dated January 3, 2002, Current Report on

Form 8-K dated June 6, 2002; and quarterly report on Form 10-Q for the quarter ended March

31, 2002.


the year 2002. According to the press release, net income for the year was $119.4 million, with

earnings per share of $2.35. These results were compared favorably in the press release to the

2001 reported results of $23.3 million in net income and earnings per share of $0.46. Defendant

Hoverson attributed the improved results to the Company's effective execution of its business

strategy and highlighted that the Company had fared better than most of its competitors, who had

struggled in a down economy.

-35-

97. The statements referenced above in ¶1183-96 were materially false and misleading

when made because they failed to disclose the following facts, which then existed, among others:

(a) that the Company had materially overstated its reported earnings due to its

inadequate internal controls, which failed to detect significant and increasing overstatements of

earnings related to nine sale-leaseback transactions;

(b) that the Company had improperly kept the sale-leaseback financing

transactions off its balance sheet;

(c) that the Company had been improperly classifying its auto leases as direct

finance leases instead of operating leases, which inflated Provident's reported earnings;

(d) that Provident's financial statements materially inflated its reported

earnings, growth rate and financial condition; and

(e) that the Company's internal controls were not adequate and its reported

financial statements were not, in contrast to the Company's express assurances, prepared and

presented in accordance with GAAP, nor did they fairly present its true financial condition,

because Provident's reported results and financial condition were overstated by material

amounts, as set forth specifically in paragraphs 45-50 hereinabove.

The Truth Emerges

98. On March 5, 2003, the Company issued a press release announcing that its

financial reports filed with the SEC since 1997 would have to be restated because the Company

had improperly accounted for certain auto lease financing transactions originated between 1997

and 1999 in a manner which materially inflated the Company's reported earnings for the years

1997 through 2002. The Company further revealed that "none of the transactions should have

been reported off-balance sheet as a sale and lease back of operating leases." The Company

Wrom

further disclosed that it would be restating its operating results for the years 1997 through 2002

and that it had informed the SEC and the Federal Reserve of the matter.

99. According to the information contained in the March 5 press release, the

Company's restatement would erase a material portion of the Company's net income reported

between 1997 through 2002 and, correspondingly, would require a significant downward

revision of previously reported earnings per share. Specifically, the Company's restatement

would have the following effect:

Net Income & Diluted Earnings Per Share ($ in millions, except per share data)

Year Ended December 31,

2002 2001 2000 1999 1998 1997 As Reported

Net Income

Earnings Per Share

Restated

Net Income

Earnings Per Share

Variance

Net Income

Earnings Per Share

$119.40

$ 2.35

$99.30

$ 1.96

$23.30 $73.60 $150.90

$ 0.45 $1.46 $ 3.08

$ 3.20 $57.70 $139.60

$ 0.07 $ 1.15 $ 2.85

$122.40

$ 2.48

$120.40

$ 2.44

$(2.00)

$(0.04)

$114.70

$ 2.38

$113.80

$ 2.36

$(0.90)

$(0.02)

$(20.10) $(20,10) $(15.90) $(11.30)

$ (0.39) $ (0.40) $ (0.31) $ (0.23)

-37-

The Company also lowered its previously reported outlook for 2003, from $2.50 and $2.70 to

$2.30 and $2.50 per share.

100. The announced restatement of Provident's prior issued financial statements

constitutes an admission that the financial statements were materially false when issued. Under

GAAP, restatements are only required for material accounting misstatements that existed at the

time the financial statements were prepared.

101. Thus, throughout the Class Period, Defendants disseminated press releases,

financial statements and reports that falsely portrayed the Company's financial condition and

results of operations. These documents contained untrue statements of material fact, and omitted

to state material facts necessary in order to make the statements made, in light of the

circumstances under which they were made, not misleading, as set forth above. The Company

materially overstated its assets, revenue and earnings throughout the Class Period by, among

other things, improperly recognizing revenue in violation of GAAP. As a result, Defendants'

presentation of the financial results was false and misleading as well.

102. In response to this disclosure, the price of Provident common stock plummeted,

falling 20% in one day, from a March 4, 2003 close of $28.08 per share to $22.46 on March 5,

on extremely heavy trading volume exceeding 5.4 million shares, well above its average daily

trading volume of 165,000. The price of the PRIDES also dropped in a similar fashion, falling

from $28.23 per unit to $23.18 per unit on the same dates.

103. Subsequently, on April 15, 2003, the Company announced that, in addition to the

foregoing, it had also been improperly classifying its auto leases as direct finance leases since

1994 and that, in addition to the previous restatement, it would be restating income received

under these leases downwards by another $44.4 million, after-tax. Under the latest restatement,

-38-

according to the April 15 press release, the Company reportedly earned $95.5 million, or $1.88

per share for the year ended December 31, 2002, instead of the originally restated amounts of

$99.3 million, or $1.96 per share, as the Company had reported on March 5, 2003.

Undisclosed Adverse Information

104. As a result of the aforementioned materially false and misleading statements and

omissions, Provident's common stock traded at artificially inflated prices during the Class

Period. The artificial inflation continued until Provident acknowledged that it would be restating

the financial results it had filed with the SEC during the Class Period. Plaintiffs and other

members of the Class purchased or otherwise acquired Provident securities relying upon the

integrity of the market price of Provident's securities and market information relating to

Provident, and have been damaged thereby.

105. During the Class Period, Defendants materially misled the investing public,

thereby inflating the price of Provident's securities, by publicly issuing false and misleading

statements and omitting to disclose material facts necessary to make Defendants' statements, as

set forth herein, not false and misleading. Said statements and omissions were materially false

and misleading in that they failed to disclose material adverse information and misrepresented

the truth about the Company, its business and operations, including, inter alia:

(a) that the Company's financial statements were not prepared in accordance

with GAAP and/or in accordance with the federal securities laws and SEC regulations

concerning fair reporting;

(b) that the Company had violated GAAP and its own accounting policies by

improperly recognizing revenues, income and earnings;

- 39 -

(c) that the Company had improperly recognized a material portion of its

earnings from auto lease financing transactions that were improperly accounted for as sale and

leaseback of operating leases;

(d) that the Company's touted growth was, in material part, the result of

improper accounting entries; and

(e) that the Company's estimates, projections and opinions as to its expected

revenues, earnings, income and value of its stock were lacking in reasonable basis at all relevant

times.

106. At all relevant times, the material misrepresentations and omissions particularized

in this Complaint directly or proximately caused or were a substantial contributing cause of the

damages sustained by Plaintiffs and other members of the Class. As described herein, during the

Class Period, Defendants made or caused to be made a series of materially false or misleading

statements about Provident's business, prospects and operations. These material misstatements

and omissions had the cause and effect of creating in the market an unrealistically positive

assessment of Provident and its business, prospects and operations, thus causing the Company's

securities to be overvalued and artificially inflated at all relevant times. Defendants' materially

false and misleading statements during the Class Period resulted in the purchase by Plaintiffs and

other members of the Class of the Company's securities at artificially inflated prices, thereby

causing the damages complained of herein.

Applicability Of Presumption Of Reliance: Fraud-On-The-Market Doctrine

107. At all relevant times, the market for Provident's securities was an efficient market

for the following reasons, among others:

IM

(a) Provident's stock met the requirements for listing, and was listed and

actively traded on the NASDAQ National Market, a highly efficient and automated market;

(b) As a regulated issuer, Provident filed periodic public reports with the SEC

and the NASDAQ Stock Exchange;

(c) Provident regularly communicated with public investors via established

market communication mechanisms, including through regular disseminations of press releases

on the national circuits of major newswire services and through other wide-ranging public

disclosures, such as communications with the financial press and other similar reporting services;

and

(d) Provident was followed by several securities analysts employed by major

brokerage firms who wrote reports which were distributed to the sales force and certain

customers of their respective brokerage firms. Each of these reports was publicly available and

entered the public marketplace.

108. As a result of the foregoing, the market for Provident's securities promptly

digested current information regarding Provident from all publicly available sources and

reflected such information in Provident's stock price. Under these circumstances, all purchasers

of Provident's securities during the Class Period suffered similar injury through their purchase of

Provident's securities at artificially inflated prices and a presumption of reliance applies.

-41-

CLAIMS FOR RELIEF

FIRST CLAIM

For Violations of Section 10(b) of The Exchange Act and Rule 1 Ob-5 Against All Defendants (Except PFGI Capital and Provident Bank)

109. Lead Plaintiffs repeat and reallege each and every allegation contained above as if

fully set forth herein.

110. During the Class Period, Provident and the Individual Defendants carried out a

plan, scheme and course of conduct which was intended to and, throughout the Class Period, did:

(a) deceive the investing public, including Lead Plaintiffs and other Class members, as alleged

herein; (b) artificially inflate and maintain the market price of Provident's securities; and

(c) cause Lead Plaintiffs and other members of the Class to purchase Provident's securities at

artificially inflated prices. In furtherance of this unlawful scheme, plan and course of conduct,

Defendants, and each of them, took the actions set forth herein.

111. Defendants violated §lOb of the Exchange Act and Rule 10b-5 by:

(a) employing devices, schemes, and artifices to defraud;

(b) making untrue statements of material fact and/or omitted to state material

facts necessary to make the statements not misleading; and

(c) engaging in acts, practices, and a course of business which operated as a

fraud and deceit upon the purchasers of the Company's securities in an

effort to maintain artificially high market prices for Provident's securities.

All Defendants are sued either as primary participants in the wrongful and illegal conduct

charged herein or as controlling persons as alleged below.

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112. In addition to having duties of full disclosure, Defendants had a duty to promptly

disseminate truthful information that would be material to investors in compliance with the

integrated disclosure provisions of the SEC, as embodied in SEC Regulation SA (17 C.F.R.

Sections 210.01 et seq.) and Regulation S-K (17 C.F.R. Sections 229.10 et seq.) and other SEC

regulations, including accurate and truthful information with respect to the Company's

operations, financial condition and earnings so that the market price of the Company's securities

would be based on truthful, complete and accurate information.

113. Provident and the Individual Defendants, individually and in concert, directly and

indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails,

engaged and participated in a continuous course of conduct to conceal adverse material

information about the business, operations and future prospects of Provident as specified herein.

114. Defendants employed devices, schemes and artifices to defraud, while in

possession of material adverse non-public information, and engaged in acts, practices, and a

course of conduct as alleged herein in an effort to assure investors of Provident's value and

performance and continued substantial growth, which included the making of, or the

participation in the making of, untrue statements of material facts and omitting to state material

facts necessary in order to make the statements made about Provident and its business operations

and future prospects in the light of the circumstances under which they were made, not

misleading, as set forth more particularly herein, and engaged in transactions, practices and a

course of business which operated as a fraud and deceit upon the purchasers of Provident's

securities during the Class Period.

115. Each of the Individual Defendants' primary liability, and controlling person

liability, arises from the following facts: (a) the Individual Defendants were high-level

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executives at the Company during the Class Period and members of the Company's management

team or had control thereof, (b) each of the Individual Defendants, by virtue of his

responsibilities and activities as a senior officer of the Company, was privy to and participated in

the creation, development and reporting of the Company's internal budgets, plans, projections

and/or reports; (c) each of the Individual Defendants enjoyed significant personal contact and

familiarity with the other Defendants and was advised of and had access to other members of the

Company's management team, internal reports and other data and information about the

Company's finances, operations, and sales at all relevant times; and (d) each of the Individual

Defendants was aware of the Company's dissemination of information to the investing public

which he deliberately or recklessly disregarded was materially false and misleading.

116. The Defendants had actual knowledge of the misrepresentations and omissions of

material facts set forth herein, or acted with reckless disregard for the truth in that they failed to

ascertain and to disclose such facts, even though such facts were available to them. Such

Defendants' material misrepresentations and/or omissions were done knowingly or recklessly

and for the purpose and effect of concealing Provident's true operating condition and future

business prospects from the investing public and supporting the artificially inflated price of its

securities. As demonstrated by Defendants' overstatements and misstatements of the Company's

business, operations and earnings throughout the Class Period, Defendants, if they did not have

actual knowledge of the misrepresentations and omissions alleged, were reckless in failing to

obtain such knowledge by deliberately refraining from taking those steps necessary to discover

whether those statements were false or misleading.

117. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price of Provident's securities

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was artificially inflated during the Class Period. In ignorance of the fact that market prices of

Provident's publicly-traded securities were artificially inflated, and relying directly or indirectly

on the false and misleading statements made by Defendants, or upon the integrity of the market

in which the securities trade, and/or on the absence of material adverse information that was

known to or recklessly disregarded by Defendants but not disclosed in public statements by

Defendants during the Class Period, Plaintiffs and the other members of the Class acquired

Provident securities during the Class Period at artificially high prices and were damaged thereby.

118. At the time of said misrepresentations and omissions, Lead Plaintiffs and other

members of the Class were ignorant of their falsity, and believed them to be true. Had Lead

Plaintiffs and the other members of the Class and the marketplace known of the true financial

condition and business prospects of Provident, which were not disclosed by Defendants, Lead

Plaintiffs and other members of the Class would not have purchased or otherwise acquired their

Provident securities, or, if they had acquired such securities during the Class Period, they would

not have done so at the artificially inflated prices they paid.

119. By virtue of the foregoing, Defendants have violated Section 10(b) of the

Exchange Act, and Rule lOb-5 promulgated thereunder.

120. As a direct and proximate result of Defendants' wrongful conduct, Lead Plaintiffs

and the other members of the Class suffered damages in connection with their respective

purchases and sales of the Company's securities during the Class Period.

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SECOND CLAIM

For Violation of Section 20(a) of The Exchanae Act Aaainst The Individuals Defendants

121. Lead Plaintiffs repeat and reallege each and every allegation contained above as if

fully set forth herein.

122. Defendants Hoverson and Carey acted as controlling persons of Provident within

the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level

positions, and their ownership and contractual rights, participation in and/or awareness of the

Company's operations and/or intimate knowledge of the false financial statements filed by the

Company with the SEC and disseminated to the investing public, the Individual Defendants had

the power to influence and control, and did influence and control, directly or indirectly, the

decision-making of the Company, including the content and dissemination of the various

statements which Lead Plaintiffs contend are false and misleading. The Individual Defendants

were provided with, or had unlimited access to, copies of the Company's reports, press releases,

public filings and other statements alleged by Lead Plaintiffs to be misleading prior to and/or

shortly after these statements were issued, and had the ability to prevent the issuance of the

statements or cause the statements to be corrected.

123. In particular, each of the Individual Defendants had direct and supervisory

involvement in the day-to-day operations of the Company and, therefore, is presumed to have

had the power to control or influence the particular transactions giving rise to the securities

violations as alleged herein, and exercised the same.

124. As set forth above, Provident and the Individual Defendants each violated Section

10(b) and Rule lOb-5 by their acts and omissions as alleged in this Complaint. By virtue of their

EM

positions as controlling persons, the Individual Defendants are liable pursuant to Section 20(a) of

the Exchange Act. As a direct and proximate result of Defendants' wrongful conduct, Lead

Plaintiffs and other members of the Class suffered damages in connection with their purchases of

the Company's securities during the Class Period.

THIRD CLAIM

For Violation of 411 of the 1933 Act A2ainst All Defendants (Except Provident Bank)

125. Plaintiff Silverback repeats and realleges each and every paragraph contained

above as if set forth herein, except to the extent such allegations charge Defendants with

intentional or reckless misconduct. Thus, Silverback does not repeat or reallege the allegations

in paragraphs 1,6,7,8, 13, 31, 33, 41-54, 57, 69-81, and 108-123.

126. This Claim is brought by Silverback against all Defendants pursuant to § 11 of the

1933 Act, 15 U.S.C. §77k, on behalf of the PRIDES Subclass.

127. The Registration Statement and Prospectus referenced herein were inaccurate and

misleading, contained untrue statements of material fact, omitted to state other facts necessary to

make the statements made not misleading, and failed to adequately disclose material facts as

described above.

128. Each of Provident and PFGI Capital was a registrant of the Registration Statement

and Prospectus.

129. Each of Provident and PFGI Capital was an issuer of the PRIDES sold or

otherwise exchanged through the Registration Statement and Prospectus. As issuers of the

registered PRIDES, Provident and PFGI Capital are strictly liable to Plaintiffs and the PRIDES

Subclass for the misstatements and omissions contained in said filings.

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130. Defendants were responsible for the content and dissemination of the Registration

Statement and Prospectus in connection with the PRIDES offering, and caused such filings to be

made with the SEC.

131. None of the Defendants made a reasonable investigation or possessed reasonable

grounds for the belief that the statements contained in the Registration Statement and Prospectus

referenced herein were true, did not omit any material fact, and were not misleading.

132. Defendants issued, caused to be issued, and participated in the issuance of,

materially false and misleading written statements to the investing public contained in the

Registration Statement and Prospectus referenced herein, which statements misrepresented or

failed to disclose, inter alia, the facts set forth above.

133. As a direct and proximate result of Defendants' acts and omissions in violation of

the 1933 Act, the market price of Provident's securities was artificially inflated in the offering

made pursuant to the Registration Statement and Prospectus referenced herein, and Plaintiff

Silverback and the members of the PRIDES Subclass suffered substantial damage in connection

with their purchase and/or acquisition of Provident's PRIDES as part of such offering. By reason

of the conduct herein alleged, Defendants violated and/or controlled a person who violated §11

of the 1933 Act.

134. At the times they purchased or otherwise acquired Provident's PRIDES, Plaintiff

Silverback and the members of the PRIDES Subclass were without knowledge of the facts

concerning the false or misleading statements or omissions alleged herein. Less than one year

has elapsed from the time that Plaintiff Silverback and the members of the PRIDES Subclass

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

the time that this Complaint is filed. Less than three years have elapsed from the time that the

IMM

securities upon which this Claim is brought were bonafide offered to the public to the time that

Plaintiffs instituted this action.

FOURTH CLAIM

For Violations of 12(a)(2) of the 1933 Act Against All Defendants (Except Provident Bank)


above as set forth herein, except to the extent each allegation charges Defendants with

intentional or reckless misconduct. Thus, Silverback does not repeat or realleges the allegations

in paragraphs 1,6,7,8, 13, 31, 33, 41-54, 57, 69-81, and 108-123.

136. This Count is brought by Plaintiff Silverback pursuant to §12(a)(2) of the 1933

Act, 15 U.S.C. §771(2), on behalf of the PRIDES Subclass.

137. Defendants, and each of them, were sellers, offerors and/or solicitors of sales of

Provident securities in connection with the Registration Statement and Prospectus referenced

herein.

138. The actions taken by Defendants in solicitation of such sales included

participation in the preparation and dissemination of the false and misleading Registration

Statement and Prospectus issued in connection with the PRIDES offering, which contained

untrue statements of material facts, which omitted to state other facts necessary to make the

statements made not misleading, and which failed to disclose material facts.

139. Defendants, and each of them, solicited and/or played a substantial role in the

offering of Provident securities as referred to above. But for the participation by Defendants,

including the solicitation as set forth herein, the PRIDES offering could not, and would not, have

been accomplished. Defendants were motivated, at least in part, by a desire to serve their own

financial interests. Defendants engaged in the following acts in furtherance of the sale of

Provident securities:

(a) they actively and jointly drafted, revised and approved the Registration

Statement and Prospectus referenced herein and other written selling materials by which the

offering of Provident securities was made;

(b) they finalized the Registration Statement and Prospectus relating to the

offering of Provident securities and caused it to become effective. But for the fact that

Defendants drafted, filed, signed and/or authorized the signing of the Registration Statement and

Prospectus, the PRIDES offering could not have been accomplished; and

(c) they conceived and planned the offering of the Provident securities and

jointly orchestrated all activities necessary to effect the sale of these securities, by issuing the

securities, promoting the securities, supelyising their distribution and ultimately selling the

securities.

140. Plaintiff Silverback and the PRIDES Subclass members purchased or otherwise

acquired Provident PRIDES pursuant to the defective Registration Statement and Prospectus

referenced herein. Plaintiff Silverback and the PRIDES Subclass members did not know, or in

the exercise of reasonable diligence could not have known, of the untruths and omissions

contained in the Registration Statement and Prospectus referenced herein.

141. Plaintiffs, individually and representatively, hereby tender to the Defendants those

PRIDES which Plaintiff Subclass members continue to own, in return for the consideration paid

for those PRIDES, together with interest thereon.

142. By reason of the conduct alleged herein, Defendants violated and/or controlled a

person who violated §12(a)(2) of the 1933 Act, 15 U.S.C. 771(a)(2). As a direct and proximate

-50-

result of these violations, Plaintiffs and the PRIDES Subclass members sustained substantial

damage in connection with their purchase and/or acquisition of PRIDES. Plaintiffs and the

PRIDES Subclass members who purchased or otherwise acquired their PRIDES pursuant to the

defective Registration Statement and Prospectus referenced herein, but who still hold their

PRIDES, have the right to rescind and to tender their PRIDES to the Defendants and hereby

reserve that right.

143. Less than one year has elapsed from the time Plaintiffs and the PRIDES Subclass

members discovered or reasonably could have discovered the facts upon which this Claim is

based to the time of the filing of this class action. Less than three years has elapsed from the sale

to the public of the securities upon which this Claim is brought to the time Plaintiffs filed this

Complaint.

FIFTH CLAIM

For Violations of §15 of the 1933 Act Against The Individual Defendants


above as if set forth herein, except insofar as such might invoke a claim or element of fraud.

Thus, Silverback does not repeat or realleges the allegations in paragraphs 1, 6, 7, 8, 13, 31, 33,

41-54, 57, 69-81, and 108-123.

145. This Claim is brought by Plaintiff Silverback on behalf of the PRIDES Subclass

pursuant to §15 of the 1933 Act, 15 U.S.C. §77o, against the Individual Defendants.

146. Each of the Individual Defendants, by reason of his stock ownership and/or

management position, was a controlling person of the Company and had the power and

influence, and exercised the same, to cause Provident to engage in the violations of law

-51-

complained of herein. The Individual Defendants, and each of them, are thus liable under §15 of

the 1933 Act to Plaintiffs and the PRIDES Subclass members who purchased or otherwise

acquired their Provident PRIDES securities pursuant to the defective Registration Statement and

Prospectus referenced herein.

SIXTH CLAIM

Fidelity Plaintiffs' Breach of Contract Claim A2ainst Provident and Provident Bank

147. The Fidelity Plaintiffs repeat and reallege each and every allegation contained

above as if fully set forth herein, except insofar as such might invoke or claim an element of

fraud. Thus, the Fidelity Plaintiffs do not repeat or reallege the allegations in paragraphs 1, 6, 7,

8, 13, 31, 33, 41-54, 57, 69-81, and 108-123.

148. Section 3.5 of the Agreement and Plan of Merger dated as of August 16, 1999,

among Provident, Provident Bank and Fidelity Financial (the "Fidelity Merger Agreement')

provided in pertinent part that the financial statements of Provident had been prepared in

accordance with GAAP and fairly presented the financial condition of Provident and its

subsidiaries:

Section 3.5 FINANCIAL INFORMATION. The consolidated balance sheets of PFGI and its Subsidiaries as of December 31, 1998 and 1997, and related consolidated statements of income, changes in shareholders' equity and cash flows for the years then ended, together with the notes thereto, included in PFGI's Annual Report on Form 10-K for the year ended December 31, 1998, as currently on file with the SEC, and the unaudited consolidated balance sheets of PFGI and its Subsidiaries as of March 31, 1999, and the related unaudited consolidated income statements and statements of changes in shareholders' equity and cash flows for the quarter then ended included in PFGI's Quarterly Report on Form 10-Q for such quarter, as currently on file with the SEC, and the year-end and quarterly Reports of Condition and Reports of Income of each of the subsidiary banks of PFGI for 1998,

-52-

and March 31, 1999, respectively, as currently on file with the applicable Regulatory Agencies (together, the "PFGI FINANCIAL STATEMENTS"), have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be disclosed therein and except for regulatory reporting differences required by the reports of Provident Bank) and fairly present in all material respects the consolidated financial position and the consolidated results of operations, changes in shareholders' equity and cash flows of PFGI and its consolidated Subsidiaries as of the dates and for the periods indicated (subject, in the case of interim financial statements, to normal recurring year-end adjustments, none of which shall be material).

(Emphasis added).

149. In addition, Section 3.9 of the Fidelity Merger Agreement provided that none of

the material reports and statements, including financial statements, filed by Provident with any

regulatory agency having jurisdiction over Provident or it subsidiaries, contained any untrue

statement of a material fact or omitted to state any material fact:

Section 3.9 REPORTS. PFGI and each of its significant Subsidiaries has filed all material reports and statements, together with any amendments required to be made with respect thereto, that it was required to file with the Regulatory Agencies having jurisdiction over PFGI or any of its significant Subsidiaries, and have paid all fees and assessments due and payable in connection therewith. As of their respective dates, each of such reports and documents, as amended, including any financial statements, exhibits and schedules thereto, complied with the relevant statutes, rules and regulations enforced or promulgated by the Regulatory Agency with which they were filed and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(Emphasis added).

150. Section 3.13 of the Fidelity Merger Agreement specifically provided that

Provident had no liabilities other than those disclosed in its financial statements:

Section 3.13 NO UNDISCLOSED LIABILITIES. As of the date hereof, PFGI and its Subsidiaries do not have any liability, whether known or unknown, whether asserted or unasserted,

-53-

whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due, including any liability for Taxes (and there is no past or present fact, situation, circumstance, condition or other basis for any present or future action, suit or proceeding, hearing, charge, complaint, claim or demand against PFGI or its Subsidiaries giving rise to any such liability), except (i) for liabilities set forth in the PFGI Financial Statements, and (ii) normal fluctuation in the amount of the liabilities referred to in clause (i) above occurring in the ordinary course of business of PFGI and its Subsidiaries since the date of the March 31, 1999 balance sheet included in the PFGI Financial Statements.

151. Section 3.14 of the Fidelity Merger Agreement provided in relevant part as

follows:

SECTION 3.14 STATEMENTS TRUE AND CORRECT. None of the information supplied or to be supplied by PFGI and Provident Bank for inclusion in this Agreement or in any other documents filed with any Regulatory Agency in connection with the transactions contemplated by this Agreement shall contain any untrue statement of a material fact, or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading.

152. Provident and Provident Bank knew or reasonably should have known that the

financial statements referenced in the Fidelity Merger Agreement were not prepared in

accordance with GAAP, and that these statements did not fairly present the financial condition of

Provident and its subsidiaries. In particular, Provident and Provident Bank knew or reasonably

should have known that these financial statements failed to disclose the massive amount of debt

concealed by Defendants with regard to the automobile sale-leaseback scheme described above.

153. Accordingly, Provident and Provident Bank were in material breach of Sections

3.5, 3.9, 3.13, and 3.14 of the Fidelity Merger Agreement quoted above.

154. In accordance with, and as expressly contemplated by, the Fidelity Merger

Agreement, the Fidelity Plaintiffs and members of the Fidelity Subclass received Provident stock

in exchange for their stock in Fidelity.

- 54 -

155. Accordingly, the Fidelity Plaintiffs and members of the Fidelity Subclass were

intended third party beneficiaries of the Fidelity Merger Agreement.

156. As a result of Provident's and Provident Bank's material breach of Sections 3.5,

3.9, 3.13 and 3.14 of the Fidelity Merger Agreement, the Fidelity Plaintiffs and members of the

Fidelity Subclass received shares of stock with an artificially inflated value. Had the true value

of the Provident stock been known at the time of the merger, the Fidelity Plaintiffs and members

of the Fidelity Subclass would have received far more value in exchange for their valuable

Fidelity stock.

157. Accordingly, the Fidelity Plaintiffs and members of the Fidelity Subclass suffered

damages as a direct and proximate result of Provident's and Provident Bank's material breach of

Sections 3.5, 3.9, 3.13 and 3.14 of the Fidelity Merger Agreement, to which the Fidelity

Plaintiffs and members of the Fidelity Subclass were intended third party beneficiaries.

SEVENTH CLAIM

OHSL Plaintiffs' Breach of Contract Claim A2ainst Provident and Provident Bank

158. The OHSL Plaintiffs repeat and reallege each and every allegation contained

above as if fully set forth herein, except insofar as such might involve or claim an element of

fraud. Thus, the OHSL Plaintiffs do not repeat or reallege the allegations in paragraphs 1, 6, 7,

8, 13, 31, 33, 41-54, 57, 69-81, and 108-123.

159. Section 3.5 of the Agreement and Plan of Merger dated August 2, 1999, among

Provident, Provident Bank, OHSL Financial Corp. and Oak Hills Savings and Loan Company

(the "OHSL Merger Agreement") provided in pertinent part that the financial statements of

- 55 -

Provident had been prepared in accordance with GAAP and fairly presented the financial

condition of Provident and its subsidiaries:

Section 3,5 FINANCIAL INFORMATION. The consolidated balance sheets of PFGI and its subsidiaries as of December 31, 1998 and 1997, and related consolidated statements of income, changes in shareholders' equity and cash flows for the years then ended, together with the notes thereto, included in PFGI's Annual Report on Form 10-K for the year ended December 31, 1998, as currently on file with the SEC, and the unaudited consolidated balance sheets of PFGI and its subsidiaries as of March 31, 1999, and the related unaudited consolidated income statements and statements of changes in shareholders' equity and cash flows for the quarter then ended included in PFGI's Quarterly Report on Form 10-Q for such quarter, as currently on file with the SEC, and the year-end and quarterly Reports of Condition and Reports of Income of each of the subsidiary banks of PFGI for 1998, and March 31, 1999, respectively, as currently on file with the applicable Regulatory Agencies (together, the "PFGI FINANCIAL STATEMENTS"), have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be disclosed therein and except for regulatory reporting differences required by the reports of Provident Bank) and fairly present in all material respects the consolidated financial position and the consolidated results of operations, changes in shareholders' equity and cash flows of PFGI and its consolidated Subsidiaries as of the dates and for the periods indicated (subject, in the case of interim financial statements, to normal recurring year-end adjustments, none of which shall be material).

(Emphasis added).

160. In addition, Section 3.9 of the OHSL Merger Agreement provided that none of the

material reports and statements, including financial statements, filed by Provident with any

regulatory agency having jurisdiction over Provident or it subsidiaries, contained any untrue

statement of a material fact or omitted to state any material fact:

Section 3.9 REPORTS. PFGI and each of its significant subsidiaries has filed all material reports and statements, together with any amendments required to be made with respect thereto, that it was required to file with the Regulatory Agencies having jurisdiction over PFGT or any of its significant subsidiaries, and have

paid all fees and assessments due and payable in connection therewith. As of their respective dates, each of such reports and documents, as amended, including any financial statements, exhibits and schedules thereto, complied with the relevant statutes, rules and regulations enforced or promulgated by the Regulatory Agency with which they were filed and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(Emphasis added).

161. Section 3.13 of the OHSL Merger Agreement specifically provided that Provident

had no liabilities other than those disclosed in its financial statements:

Section 3.13 NO UNDISCLOSED LIABILITIES. As of the date hereof, PFGI and its subsidiaries do not have any liability, whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due, including any liability for Taxes (and there is no past or present fact, situation, circumstance, condition or other basis for any present or future action, suit or proceeding, hearing, charge, complaint, claim or demand against PFGI or its subsidiaries giving rise to any such liability), except (i) for liabilities set forth in the PFGI Financial Statements, and (ii) normal fluctuation in the amount of the liabilities referred to in clause (i) above occurring in the ordinary course of business of PFGI and its subsidiaries since the date of the March 31, 1999 balance sheet included in the PFGI Financial Statements.

162. Section 3.14 of the OHSL Merger Agreement provided in relevant part as

follows:

SECTION 3.14 STATEMENTS TRUE AND CORRECT. None of the information supplied or to be supplied by PFGI and Provident Bank for inclusion in this Agreement or in any other documents filed with any Regulatory Agency in connection with the transactions contemplated by this Agreement shall contain any untrue statement of a material fact, or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading.

163. Provident and Provident Bank knew or reasonably should have known that the

financial statements referenced in the OHSL Merger Agreement were not prepared in accordance

Isirm

with GAAP, and that these statements did not fairly present the financial condition of Provident

and its subsidiaries. In particular, Provident and Provident Bank knew or reasonably should have

known that these financial statements failed to disclose the massive amount of debt concealed by

Defendants with regard to the automobile sale-leaseback scheme described above.

164. Accordingly, Provident and Provident Bank were in material breach of Sections

3.5, 3.9, 3.13, and 3.14 of the OHSL Merger Agreement quoted above.

165. In accordance with, and as expressly contemplated by, the OHSL Merger

Agreement, the OHSL Plaintiffs and members of the OHSL Subclass received Provident stock in

exchange for their stock in OHSL.

166. Accordingly, the OHSL Plaintiffs and members of the OHSL Subclass were

intended third party beneficiaries of the OHSL Merger Agreement.

167. As a result of Provident's and Provident Bank's material breach of Sections 3.5,

3.9, 3.13 and 3,14 of the OHSL Merger Agreement, the OHSL Plaintiffs and members of the

OHSL Subclass received shares of stock with an artificially inflated value. Had the true value of

the Provident stock been known at the time of the merger, the OHSL Plaintiffs and members of

the OHSL Subclass would have received far more value in exchange for their valuable OHSL

stock.

Accordingly, the OHSL Plaintiffs and members of the OHSL Subclass suffered damages

as a direct and proximate result of Provident's material breach of Sections 3.5, 3.9, 3.13 and 3.14

of the OHSL Merger Agreement, to which the OHSL Plaintiffs and members of the OHSL

Subclass were intended third party beneficiaries.

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WHEREFORE, Plaintiffs pray for relief and judgment, as follows:

A. Declaring this action to be a proper class action and certifying the Lead

Plaintiffs as the proper representatives of the Class, Silverback as the proper representative of the

PRIDES Subclass, the Fidelity Plaintiffs as the proper representatives of the Fidelity Subclass,

and the OHSL Plaintiffs as the proper representatives of the OHSL Subclass, under Rule 23 of

the Federal Rules of Civil Procedure;

B. Awarding compensatory damages in favor of Plaintiffs and the other Class

and Subclass members against Defendants, jointly and severally, for all damages sustained as a

result of Defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;

C. Awarding Plaintiffs, the Class and the Subclasses their reasonable costs

and expenses incurred in this action, including counsel fees and expert fees;

D. Canceling and requiring reimbursement of all bonuses received by the

Company's senior executives awarded during the Class Period; and

B. Granting such other and further relief as the Court may deem just and proper.

DATED August 22, 2003 ST& TROY

Richard S. Wayne (0022390) (rswaynestrausstroy. corn)

William K. Flynn (0029536) (wkJlynntrausstroy. corn)

Shawn M. Young (0038849) (srnyoungstrausstroy.com)

Steven F. Stuhlbarg (0059215) (sfstuhlbarg@strausstroy. corn)

The Federal Reserve Building 150 East Fourth Street Cincinnati, OH 45202-4018 (513) 621-2120--phone (513) 629-9426 - fax

and

OF COUNSEL:

David P. Kamp Carl Stitch WHITE, GETGEY & MEYER CO., L.P.A. 1700 PNC Bank Tower 1 West Fourth Street Cincinnati, OH 45202 (513) 241-3685 —phone (513) 241-2399 - fax

Deborah Clark-Weintraub Douglas J. Hoffman Liii Sabo MILBERG WEISS BERSHAD HYNES

& LERACH LLP One Pennsylvania Plaza New York, NY 10119-0165 (212) 594-5300 phone (212) 868-1229 - fax

Plaintiffs' Lead Counsel and Counsel for the Fidelity Plaintiffs and OHSL Plaintiffs

Ira M. Press KIRBY McINERNEY & SQUIRE, LLP 830 Third Avenue New York, NY 10022 (212) 371-6600 - phone (212) 751-2540 - fax Plaintiffs Counsel for PRIDES Subclass

45688. 883 .399134.4

KITIN

CERTIFICATE OF SERVICE

I hereby certify that a true and accurate copy of the foregoing was served by ordinary United States mail, first class postage prepaid, upon the following counsel this 22 day of August, 2003:

James E. Burke, Esq. James R. Matthews, Esq. KEATING, MUETHING & KLEKAMP 1800 Provident Tower One East Fourth Street Cincinnati, Ohio 45202

-q'i~ ~' Richard S. Wayne (0022390)

45688.883.399134.4

Documents

Merzin, et al. v. Provident Financial Group Inc., et al. 03-CV-165 …securities.stanford.edu/filings-documents/1027/PFGI03-01/... · 2014. 6. 9. · UNITED STATES DISTRICT COURT