Silvio Pietroluongo, et al. v. Golden Bear Golf Inc, et al ...securities.stanford.edu/filings-documents/1001/JACK98/1998731_r0… · maintain the market price of Golden Bear common

Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 1 of 40

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

SILVIO PIETROLUONGO, on Behalf of Himself and All r c Others Similarly Situated, : 90 — 8

Plaintiff,

no

GOLDEN BEAR GOLF INC.; JACK W. NICKLAUS; RICHARD P. BELLINGER; JACK P. BATES; STEPHEN S. WINSLETT; and JOHN BOYD,

Defendants.

- HURLEY CIVIL ACTIONFK J. LYNCH, JR.

UNITED STATES MAGISTRATE JUDGE

JURY TRIAL DEMANDED

CLASS ACTION COMPLAINT

Plaintiff, by and through his undersigned counsel, and

for his Complaint against Defendants, makes the following

allegations upon information and belief (except as to the allega-

tions specifically pertaining to the named plaintiff and his

counsel) , based upon the facts alleged below, which are predicated

upon, inter alia, a review of relevant filings made with the

Securities and Exchange Commission ("SEC") , press releases, news

and analyst reports, and an investigation undertaken by plaintiff's

counsel. Plaintiff believes that further substantial evidentiary

0


support for the allegations set forth below will be shown to exist

after a reasonable opportunity for discovery.

NATURE OF THE ACTION

1. This is a class action on behalf of a class (the

"Class") consisting of all persons other than defendants who

purchased the common stock of Golden Bear Golf Inc. ("Golden Bear"

or the "Company") from August 1, 1996 through July 24, 1998,

inclusive (the "Class Period") . Golden Bear common shares are

listed on the NASDAQ National Market System and trade under the

symbol "JACK."

2. Throughout the Class Period, defendants overstated,

inter alia, the Company's revenues, net profits, and earnings per

share. As a result of defendants' actions, the price of Golden

Bear common stock was artificially inflated at all relevant times

during the Class Period.

JURISDICTION AND VENUE

3. The claims asserted herein arise under and pursuant

to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934

(the "Exchange Act") [15 U.S.C. §§ 78j (b) and 78t (a) and Rule

10b-5 promulgated thereunder by the SEC [17 C.F.R. § 240.10b-51

2-


4. This Court has jurisdiction over the claims asserted

in this Complaint pursuant to § 27 of the Exchange Act as amended

[15 U.S.C. § 78aaJ, 28 U.S.C. H 1331 and 1337.

5. Venue is properly laid in this judicial district

pursuant to § 27 of the Exchange Act. Certain acts and conduct

complained of herein, including the dissemination of materially

false and misleading information to the investing public, occurred

in the Southern District of Florida. Golden Bear maintains its

corporate headquarters and principal place of business in this

District and did so at all relevant times.

6. In connection with the acts and conduct alleged in

this Complaint, defendants, directly or indirectly, used the means

and instrumentalities of interstate commerce, including, but not

limited to, the mails, interstate telephone communications and the

facilities of the NASDAQ National Market System, a national

securities exchange.

PARTIES

7. Plaintiff Silvio Pietroluongo ("plaintiff")

purchased the common stock of Golden Bear, as described in the

certification attached hereto, and has suffered damages as a result

of the wrongful acts of defendants as alleged herein.

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8. Defendant Golden Bear purports to be a diversified,

international brand name golf products and services company engaged

in the development, marketing, and management of golf-related

businesses including the licensing, ownership, and operation of

golf practice and instruction facilities, the operation of golf

instructional schools, and the licensing, distribution and sale of

golf-related consumer products. In addition, the Company's wholly

owned subsidiary, Paragon Construction International ("Paragon")

provides comprehensive project management and golf course

construction services to resort, residential, and commercial golf

developments around the world. Golden Bear maintains its principal

executive offices at 11780 U.S. Highway One, Palm Beach, Florida.

9. Defendant Jack W. Nicklaus ("Nicklaus") is and was

Chairman of the Board of Golden Bear at all relevant times during

the Class Period. Nicklaus was a signatory to Golden Bear's Form

S-i Registration Statement and the Company's Form 10-Ks for fiscal

1996 and fiscal 1997.

10. Defendant Richard P. Bellinger ("Bellinger") is and

was President, Chief Executive Officer, and a director of Golden

Bear at all relevant times during the Class Period. Bellinger was

a signatory to Golden Bear's Form S-i Registration Statement and

the Company's Form 10-Ks for fiscal 1996 and fiscal 1997. In


addition, Bellinger was a signatory to all of Golden Bear's Form

10-Qs filed during the Class Period.

11. Defendant Jack P. Bates ("Bates") was Chief

Financial Officer, Secretary, and a Senior Vice President of Golden

Bear up until his resignation on or about October 22, 1997. Bates

was a signatory to Golden Bear's Form S-i Registration Statement

and the Company's Form 10-K for fiscal 1996. In addition, Bates

was a signatory to the Company's Form 10-Qs for the second and

third quarters of fiscal 1996 and the first two quarters of fiscal

1997.

12. Defendant Stephen S. Winslett ("Winslett") is Chief

Financial Officer and a Senior Vice President of Golden Bear and

has held those positions since October 22, 1997. Winslett was a

signatory to the Company's Form 10-K for fiscal 1997. In addition,

Winslett was a signatory to the Company's Form 10-Qs filed for the

third quarter of fiscal 1997 and the first quarter of fiscal 1998.

13. Defendant John Boyd was President of Paragon from

the beginning of 1997 through April 1998.

14. Collectively, defendants Nicklaus, Bellinger, Bates,

Winslett, and Boyd will be referred to herein as the "Individual

Defendants." The Individual Defendants participated in, conspired

to effect, and/or consciously or recklessly pursued the wrongdoing

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complained of herein so that they could artificially inflate and

maintain the market price of Golden Bear common stock during the

Class Period. Plaintiff and other members of the Class purchased

such common stock at artificially inflated prices and have suffered

damages.

15. During the Class Period, the Individual Defendants

each occupied positions in the Company that made them privy to

material, adverse non-public information. Because of their senior-

level positions with Golden Bear and/or Paragon and/or positions on

the board of directors of the Company, they each had access to such

internal information. The Individual Defendants knew or were

reckless in failing to uncover the adverse facts specified herein.

16. All of the Individual Defendants were control

persons of Golden Bear within the meaning of Section 20(a) of the

Exchange Act by reason of their own involvement in the daily

business of Golden Bear and/or their positions on Golden Bear's

Board of Directors, and/or as senior executives of Golden Bear.

The Individual Defendants, at the time they held positions with

Golden Bear, were able to, and did, exercise substantial control

over the operations of Golden Bear, including control of the

materially false and misleading statements, omissions and course of

conduct complained of herein.


17. It is appropriate to treat the Individual Defendants

as a group for pleading purposes and to presume that the false and

misleading information conveyed in Golden Bear's public filings,

press releases, interviews and other publications as alleged herein

are the collective actions of the narrowly defined group of

Individual Defendants identified above.

18. As officers, directors and/or controlling persons of

a publicly held company and under the federal securities laws, the

Individual Defendants had a duty (a) to disseminate promptly

complete, accurate and truthful information with respect to Golden

Bear; (b) to correct any previously issued statements from any

source that had become materially misleading or untrue; and (c) to

disclose any trends that would materially affect earnings and the

present and future operating results of Golden Bear, so that the

market price of Golden Bear's publicly traded securities would be

based upon truthful and accurate information. The Individual

Defendants failed to adequately discharge these duties.

PLAINTIFF'S CLASS ACTION ALLEGATIONS

19. Plaintiff brings this lawsuit pursuant to Rule 23(a)

and (b) (3) of the Federal Rules of Civil Procedure, on behalf of

herself and on behalf of a class of persons who purchased shares of

Golden Bear common stock from August 1, 1996 through July 24, 1998,

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inclusive. Excluded from the Class are defendants herein, members

of the immediate family of each of the defendants, any person,

firm, trust, corporation, officer, director or other individual or

entity in which any defendant has a controlling interest or which

is related to or affiliated with any of the defendants, and the

legal representatives, agents, affiliates, heirs, successors-in-

interest or assigns of any such excluded party.

20. This action is properly maintainable as a class

action for the following reasons:

a. The Class of investors for whose benefit this

action is brought is so numerous that joinder of all Class members

is impracticable. As of May 8, 1998, Golden Bear had approximately

2.745 million shares of common stock outstanding. Members of the

Class reside throughout the United States.

b. There are questions of law and fact which are

common to members of the Class and which predominate over any

questions affecting only individual members. The common questions

include, inter alia, the following:

(1) Whether the defendants' acts as alleged

herein violated the federal securities laws;

(2) Whether defendants participated in and

pursued the common course of conduct complained of herein;


(3) Whether documents, press releases and

other statements disseminated to the investing public and Golden

Bear's shareholders during the Class Period misrepresented material

facts about the business, management, revenues, transactions,

markets, financial condition, risk and business prospects of Golden

Bear;

(4) Whether the market price of Golden Bear

common stock during the Class Period was artificially inflated due

to the material misrepresentations and failure to correct the

material misrepresentations complained of herein; and

(5) To what extent the members of the Class

have sustained damages and the proper measure of damages.

C. The claims of plaintiff are typical of the

claims of other members of the Class and plaintiff has no interests

that are adverse or antagonistic to the interests of the Class.

d. Plaintiff is committed to the vigorous

prosecution of this action and has retained competent counsel

experienced in litigation of this nature. Accordingly, plaintiff

is an adequate representative of the Class and will fairly and

adequately protect the interests of the Class.


e. Plaintiff anticipates that there will not be

any difficulty in the management of this litigation as a class

action.

21. For the reasons stated herein, a class action is

superior to other available methods for the fair and efficient

adjudication of this action and the claims asserted herein.

Because of the size of the individual class members' claims, few,

if any, class members could afford to seek legal redress

individually for the wrongs complained of herein.

APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD - ON-THE-MARKET DOCTRINE

22. At all relevant times, the market for Golden Bear

common stock was an efficient market for the following reasons,

among others:

a. Golden Bear common stock met the requirements

for listing and was listed and actively traded on NASDAQ, a highly

efficient and automated market;

b. As a regulated issuer, Golden Bear filed

periodic public reports with the SEC and the National Association

of Securities Dealers ("NASD") ; and

C. Golden Bear regularly communicated with the

investing public through the dissemination of various reports,

10-


participated in meetings and conferences with investors and

securities analysts and through other customary means of

communicating such as use of major newswire services for the

dissemination of press releases and providing information and

interviews about the Company to the business media.

23. As a result, the market for Golden Bear securities

promptly digested current information regarding Golden Bear from

all publicly available sources and reflected such information in

Golden Bear's stock price. Under these circumstances, all

purchasers of Golden Bear shares during the Class Period suffered

similar injury through their purchase of shares at artificially

inflated prices and a presumption of reliance applies.

SUBSTANTIVE ALLEGATIONS

24. On or about June 7, 1996, Golden Bear filed a Form

S-i Registration Statement and Prospectus (collectively, the

"Prospectus") with the SEC for the sale of 1.8 million shares of

Golden Bear common stock in an initial public offering. The

Prospectus was amended several times and became effective on or

about July 31, 1996.

25. On Page 10 of the Prospectus, Golden Bear touted the

importance of its senior management:

ii-


The Company's success is dependent on the active participation of the Company's principal executive officers and the Company's ability to continue to attract and retain highly capable management personnel. (emphasis added).

26. Golden Bear's statement concerning its senior

management was materially false or misleading as defendants failed

to disclose that the Company's senior management lacked sufficient

internal controls to monitor the Company's performance.

27. On Page 24 of the Prospectus, the Company discussed

the operations of Paragon as follows:

The Company's golf course construction, shaping and consulting services revenues increased to $19.2 million in 1995 from $2.2 million in 1993. This increase was primarily attributable to the increased number of, and amount of work performed under, construction and renovation projects, the increased demand for golf course development and construction throughout Southeast Asia and increased construction and renovation projects in the United States. The Company believes that domestic and international demand for new and renovated golf courses will provide continuing growth opportunities.

28. The Company's statements concerning Paragon's

operations were materially false or misleading as defendants knew

or recklessly disregarded that the Company lacked sufficient

internal management controls to adequately monitor Paragon's

performance.

12-


29. On or about August 1, 1996, pursuant to its

materially false or misleading Prospectus, Golden Bear sold

approximately 2.16 million shares of common stock, priced at $16.00

per share, generating over $34.5 million in its initial public

offering (the VIp011) . Golden Bear common stock began trading on

the Nasdaq National Market System, closing at $18.50 per share on

August 1, 1996.

30. On or about October 31, 1996, Golden Bear issued a

press release announcing its financial results for the third

quarter of fiscal 1996. The Company reported revenues of $9.9

million, up from $9.4 million in revenues for the third quarter of

1995. Earnings per share for the quarter were reported as $0.06

per share.

31. Golden Bear's October 31, 1996 press release was

materially false or misleading as defendants knew or recklessly

disregarded the following undisclosed information:

a. that Golden Bear lacked sufficient internal

management controls to monitor the financial performance and

results of Paragon;

b. that Paragon was understating expenses,

including construction and shaping costs;

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C. that Paragon was overstating revenues; and


d. that, as a result of Paragon's overstatement of

revenue and understatement of expenses, Golden Bear's revenues, net

profit, and earnings per share were materially overstated.

32. On or about February 28, 1997, Golden Bear issued a

press release announcing its financial results for the fourth

quarter and full year ended December 31, 1996. Fourth quarter

revenues were reported as $10.9 million, up from $7.9 million in

the fourth quarter of 1995. Year-end revenues were reported as

$33.5 million, up from $28.8 million for 1995. Defendant Bellinger

commented:

Growth in all three divisions led to our strong revenue performance . . . . Paragon Golf Construction completed a successful restructuring, and is competing effectively on new project awards . . . . (emphasis added)

33. Golden Bear's February 28, 1997 press release was





results of Paragon;

b. that Paragon was substantially understating

expenses, including construction and shaping costs;

14-



d. that, as a result of Paragon's false financial

statements, Golden Bear's revenues, net profit, and earnings per

share were materially overstated.

34. On or about March 31, 1997, Golden Bear filed its

1996 annual report on Form 10-K with the SEC. The annual report

repeated the financial results announced in the Company's February

28, 1997 press release. Thus, the 1996 annual report was

materially false or misleading for the reasons set forth in

paragraph 33.

35. On or about April 10, 1997, in an article reported

in Dow Jones Online News, Golden Bear reported that first-quarter

results would be hurt by delays and senior management changes. The

Company stated that it would take a charge of $570,000 in the first

quarter to cover severance costs as a result of personnel changes.

Golden Bear announced that it had hired defendant Boyd as the

President of Paragon. The Company added that Paragon had a lower

volume of business in the first quarter, but said it has

implemented improved processes and controls.

36. Contrary to the Company's assurances, Golden Bear's

internal management controls were still unable to adequately

monitor the financial performance of Paragon. Thus, Golden Bear's

15-


statement that it had "implemented improved processes and controls"

was materially false or misleading.

37. On or about April 30, 1997, Golden Bear issued a

press release announcing its results for the first quarter of

fiscal 1997. The Company reported revenues of $6.8 million, up

from $4.3 million for the first quarter of 1996. Golden Bear again

stressed the improvements at Paragon:

The restructuring of Paragon, which began in the fourth quarter of 1996, continued into the first quarter of 1997. This decision led to a lower volume of active business in the first quarter, but has resulted in improved processes and controls. (emphasis added)

38. Golden Bear's April 30, 1997 press release was

materially false and misleading as defendants knew or recklessly




results of Paragon;



16-






39. On or about June 18, 1997, in an article published

in the Daily Business Review (Miami, Florida), in referring to the

recent changes at Paragon, the Company stated that "future

profitability and growth is assured by the executive and

organizational changes that have already been implemented." This

statement was materially false or misleading as defendants knew or

recklessly disregarded that Golden Bear still lacked adequate

management controls to monitor the financial performance of

Paragon. Moreover, defendants knew or recklessly disregarded that,

as a result of inaccurate financial reporting at Paragon, Golden

Bear's revenues, earnings per share, and net profit were materially

overstated.

40. On or about July 31, 1997, Golden Bear issued a

press release announcing its financial results for the second

quarter of fiscal 1997. Revenues for the second quarter were

reported as $22.3 million, representing a 164% increase over

revenue reported for the same period in 1996. The Company reported

that revenues for Paragon increased 153% over revenues from 1996.

Golden Bear added that Paragon, "continued to win substantial

17-


project awards . . . bringing total awards through June 30, 1997 to

more than $90 million."

41. Golden Bear's July 31, 1997 press release was





results of Paragon;







42. On or about October 7, 1997, Golden Bear announced

the completion of a definitive credit agreement with SunTrust Bank

for a $10 million revolving credit facility. Defendants were

motivated, in part, to misrepresent the Company's financial

condition in an effort to secure this line of credit.

43. On or about October 30, 1997, Golden Bear issued a

press release announcing its financial results for the third

quarter of 1997. The Company reported revenues of $17.7 million,


up 79% from revenues of $9.9 million reported for the third quarter

of 1996. Net earnings for the quarter were $364,000, or $0.07 per

share, up from the $268,000 reportedly earned in the third quarter

of 1996. Golden Bear reported that Paragon's revenues increased

50% over the third quarter of 1996. Defendant Bellinger commented,

"Paragon . . . continued to win substantial project awards, and is

currently developing nearly 30 projects around the world."

44. Golden Bear's October 30, 1997 press release was





results of Paragon;




d. that, as a result of Paragon's falsified

financial statements, Golden Bear's revenues, net profit, and

earnings per share were materially overstated.

45. On or about February 27, 1998, Golden Bear issued a

press release announcing its financial results for the fourth

quarter and fiscal year ended December 31, 1997. Revenues for the

19-


fourth quarter were reported as $21.0 million, up 93% from revenues

in the fourth quarter of 1996. Paragon's revenues reportedly

increased 133% from the corresponding quarter in 1996.

46. For fiscal year 1997, the Company reported

consolidated revenues of $67.7 million, a 102% increase over 1996

revenues. The net loss for the year was reported as $2.9 million,

or $0.53 per share, an improvement over the net loss of $0.57 per

share recorded for fiscal 1996. Defendant Bellinger was quoted in

the press release:

Paragon . . . generated record revenues and profits this year. We are very pleased with the results of our restructuring of Paragon, which is poised for substantial growth in 1998

47. Golden Bear's February 27, 1998 press release was





results of Paragon;



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48. On or about March 31, 1998, Golden Bear filed its

annual report on Form 10-K with the SEC. The annual report

repeated the financial results announced in the Company's February

27, 1998 press release. In addition, the annual report stated:

The level of construction service [provided by Paragon] during the fourth quarter of 1996 and the first quarter of 1997 was limited based on management's decision to curtail such activities pending the implementation of new systems and the integration of new staff. The Company believes that the improved processes and controls that have been put into place will facilitate the future growth of its Construction Division. During 1997, the Company continued to receive significant new project awards, bringing Paragon's total backlog as of December 31, 1997 to over $170 million, compared to a backlog of less than $10 million at December 31, 1996.

49. The financial results reported and the above

statements in Golden Bear's 1997 annual report were materially

false or misleading as defendants knew or recklessly disregarded

the following undisclosed information:



results of Paragon;

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50. On or about April 23, 1998, Golden Bear issued a

press release announcing its financial results for the first

quarter of fiscal 1998. The Company reported revenues of $22.5

million, "more than triple the $6.8 million in revenues recorded

for the first quarter of fiscal 1997." Paragon reported revenues

of $16.0 million, compared to revenues of only $1.3 million in the

year ago quarter.

51. Golden Bear's reported first quarter financial

results were materially false or misleading as defendants knew or

recklessly disregarded the following undisclosed information:



results of Paragon;



22-






52. On or about May 8, 1998, in an article published in

The Palm Beach Post, Golden Bear announced that defendant Boyd had

left his position as President of Paragon a month earlier.

According to the Company, three other unnamed executives also

departed. In connection with these departures, Golden Bear

announced that the Company had initiated an internal review of

Paragon. Defendant Bellinger commented, "We've been able to

identity the potential for potential losses . . . . but we don't

know that to be fact."

53. Golden Bear's comments in the May 8, 1998 article

were materially false or misleading as defendants failed to

disclose that Paragon's financial results were substantially

overstated, which would require Golden Bear to restate earnings for

all of fiscal 1997 and part of fiscal 1998.

54. On or about July 14, 1998, an article published in

the Daily Business Review reported that Golden Bear may have to

reduce net profits for 1997 and part of 1998 due to Paragon's

understatement of certain expenses. According to the article,

23-


Paragon spent at least $10 to $15 million more on expenses than

what it initially reported.

55. The Company's statements reported in the July 14,

1998 article were materially false or misleading as such statements

failed to disclose the full extent of Paragon's false financial

reporting. In addition to the understatement of certain expenses,

Paragon had materially overstated revenues, thereby rendering the

construction unit's financial results completely false and

unreliable.

56. In response to the Company's partial disclosure of

Paragon's problems, the price of Golden Bear common stock began to

decline as rumors concerning the amount of the restatement began to

surface. From May 8, 1998 to July 27, 1998, the common stock price

of Golden Bear fell from $8.50 per share to $4.00 per share.

57. On or about July 27, 1998, Golden Bear issued a

press release announcing the completion of its internal review of

construction projects at Paragon. As a result of the

investigation, the Company reported that it would restate its loss

for fiscal 1997 as $24.7 million, or $4.49 per share. Previously,

the Company had reported a net loss of only $2.9 million, or $0.53

per share. Trading in the Company's common stock was halted prior

to the announcement.

24-


58. In addition, Golden Bear announced that it expects

to recognize losses for the six months ended June 30, 1998 of up to

$17 million attributable to ongoing Paragon construction projects.

The Company stated that previously filed financial statements for

the periods ended December 31, 1997 and March 31, 1998 should not

be relied upon.

59. Golden Bear further disclosed that the Company had

found clear and compelling evidence that the former management of

Paragon deliberately falsified records, misrepresented the status

of construction projects, and made false statements about Paragon's

revenues, costs, and profits.

60. Golden Bear reported that the restatement of results

for 1997 reflects recognition of losses at Paragon primarily due to

the previous understatement of construction and shaping costs by

former Paragon management. For the 1997 period, an operating loss

at Paragon of $16.1 million will be recorded compared to the

operating income of $3.9 million as originally reported.

61. At all relevant times during the Class Period, each

of the defendants either knew, or in the exercise of reasonable

care should have known, that the Company's revenues and earnings

were materially overstated due to Paragon's falsified financial

results.

25-


ADDITIONAL SCIENTER ALLEGATIONS

62. As alleged herein defendants acted with scienter in

that the Individual Defendants either knew or recklessly

disregarded that the public documents and statements issued or

disseminated in the name of Golden Bear were materially false and

misleading; knew that such statements or documents would be issued

or disseminated to the investing public; and knowingly or

recklessly permitted the issuance or dissemination of false

financial statements to the investing public. In so doing, each

defendant acted as a primary violator of the federal securities

laws. As set forth elsewhere herein in detail, defendants, by

virtue of their receipt of information reflecting the true facts

regarding Golden Bear, their control over, and/or receipt and/or

modification of Golden Bear's allegedly materially misleading

misstatements and/or their associations with Golden Bear which made

them privy to confidential proprietary information concerning

Golden Bear, participated in or recklessly permitted the fraudulent

scheme alleged herein.

63. Defendants participated in the fraudulent scheme

alleged herein in order to, inter alia, (1) sell 2.16 million

shares of Golden Bear common stock in the IPO at an artificially

inflated price, thereby generating over $34.5 million in cash

26-


proceeds; and (ii) secure a revolving credit line with SunTrust

Bank for $10 million.

64. The undisclosed adverse information concealed by

defendants during the Class Period is the type of information

which, because of SEC regulations, rules of the national stock

exchanges and customary business practice, is expected by investors

and securities analysts to be disclosed to the investing public.

This information is known by corporate officials and their legal

and financial advisors to be the type of information which is

expected to be and must be disclosed. For example:

a. Under Item 303 of Regulation S-K, promulgated

by the SEC under the Exchange Act, there is a duty to disclose in

periodic reports filed with the SEC "known trends or any known

demands, commitments, events or uncertainties" that are reasonably

likely to have a material impact on a company's sales revenues,

income or liquidity, or cause previously reported financial

information not to be indicative of future operating results. 17

C.F.R. § 229.303(a) (l)-3(3) and Instruction 3. In addition to the

periodic reports required under the Exchange Act, management of a

public company has a duty promptly "to make full and prompt

announcements of material facts regarding the company's financial

condition." SEC Release No. 34-8995, 3 Fed. Sec. L. Rep. (CCH)

27-


¶ 23,120A, at 17,095, 17 C.F.R. § 241.8995 (October 15, 1970). The

SEC regulates companies "that can reasonably be expected to reach

investors and the trading markets, whoever the intended primary

audience." SEC Release No. 33-6504, 3 Fed. Sec. L. Rep. (CCH)

¶ 23,120, at 17,095-3, 17 C.F.R. § 241.20560 (January 13, 1984).

The SEC has emphasized that 11 [i]nvestors have legitimate

expectations that public companies are making, and will continue to

make, prompt disclosure of significant corporate developments."

SEC Release No. 18271, [1981-1982 Transfer Binder] Fed. Sec. L.

Rep. (CCH) ¶ 83,049, at 84,618 (November 19, 1981)

65. The market for Golden Bear common stock was open,

well-developed and efficient at all relevant times. As a result of

the materially false and misleading statements and failures to

disclose the full truth about Golden Bear, its business and future

prospects, Golden Bear common stock traded at artificially inflated

prices throughout the Class Period. Plaintiff and other members of

the Class purchased or otherwise acquired Golden Bear common stock

relying upon the integrity of the market price of Golden Bear

common stock and market information relating to Golden Bear or, in

the alternative, upon defendants' materially false and misleading

statements, and in ignorance of the adverse, material undisclosed

:


information and false financial statements known to defendants and

have been damaged thereby.

cour I

[Violations of Section 10(b) of the Exchange Act and Rule lOb-5 Promulgated Thereunder Against Golden Bear

and the Individual Defendants]

66. Plaintiff repeats and realleges the allegations set

forth above as though fully set forth herein.

67. This count is brought by plaintiff pursuant to

Section 10(b) of the Exchange Act and Rule 10b-5 promulgated

thereunder by the SEC against Golden Bear and the Individual

Defendants.

68. The defendants (a) employed devices, schemes, and

artifices to defraud; (b) made untrue statements of material fact

and/or omitted to state material facts necessary to make the

statements not misleading; and (c) engaged in acts, practices, and

a course of business which operated as a fraud and deceit upon the

purchasers of Golden Bear's stock in an effort to maintain

artificially high market prices for Golden Bear's securities in

violation of Section 10(b) of the Exchange Act and Rule 10b-5.

Golden Bear and the Individual Defendants are sued either as

primary participants in the wrongful and illegal conduct charged

herein or as controlling persons as alleged below.

29-


69. In addition to the duties of full disclosure imposed

on the Individual Defendants, by their status as controlling

persons of Golden Bear, as a result of their affirmative statements

and reports, or participation in the making of affirmative

statements and reports to the investing public, 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 S-X (17 C.F.R.

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

seq.) and other SEC regulations, including accurate and truthful

information with respect to Golden Bear's operations, financial

condition and earnings so that the market price of Golden Bear's

common stock would be based on truthful, complete and accurate

information.

70. Golden Bear and the Individual Defendants,

individually and in concert, directly and indirectly, by the use of

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 Golden Bear as specified herein.

The defendants employed devices, schemes and artifices to defraud,

while in possession of material adverse non-public information and

30-


engaged in acts, practices, and a course of conduct as alleged

herein in an effort to assure investors of Golden Bear'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 Golden Bear 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 Golden Bear common stock during the

Class Period.

71. The primary liability, and controlling person

liability of the defendants named in this count, arises from the

following facts: (i) each of the Individual Defendants was a

high-level executive and/or director at Golden Bear during the

Class Period and was a member of Golden Bear's management team;

(ii) each of the Individual Defendants, by virtue of his

responsibilities and activities as a senior officer and/or director

of Golden Bear, was aware of the true financial condition of

Paragon; (iii) each of the Individual Defendants enjoyed

significant personal contact and familiarity with the other

31-


defendants and was advised of and had access to other members of

Golden Bear's management team, internal reports and other data and

information about Golden Bear's finances, operations, policies and

practices at all relevant times; and (iv) each of the defendants

was aware of Golden Bear's dissemination of information to the

investing public which they knew or recklessly disregarded was

materially false and misleading.

72. The Individual 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 Golden

Bear's operating condition and future business prospects from the

investing public and supporting the artificially inflated price of

its stock. As demonstrated by said defendants' overstatements and

misstatements of Golden Bear's business, operations and future

earnings prospects throughout the Class Period, said 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

32-


necessary to discover whether those statements were false or

misleading.

73. As a result of the dissemination of the materially

false and misleading information and failure to disclose material

facts by all defendants, as set forth above, the market price of

Golden Bear common stock was artificially inflated during the Class

Period. In ignorance of the fact that market prices of Golden

Bear's publicly-traded common stock was 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 the truth of any representations

made to appropriate agencies as to the investing public, at the

times at which any statements were made, 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, plaintiff and the other members

of the Class acquired Golden Bear's common stock during the Class

Period at artificially high prices and were damaged thereby.

74. At the time of said misrepresentations and

omissions, plaintiff and other members of the Class were ignorant

of their falsity, and believed them to be true. Had plaintiff and

the other members of the Class and the marketplace known of the

33-


true financial condition and business prospects of Golden Bear,

which were not disclosed by defendants, plaintiff and other members

of the Class would not have purchased or otherwise acquired their

Golden Bear securities during the Class Period, or, if they had

acquired such securities during the Class Period, they would not

have done so at the artificially inflated prices which they paid.

75. By virtue of the foregoing, Golden Bear and the

Individual Defendants have violated Section 10(b) of the Exchange

Act, and Rule 10b-5 promulgated thereunder.

76. As a direct and proximate result of the wrongful

conduct of the defendants named in this count, plaintiff and the

other members of the Class suffered damages in connection with

their purchases of Golden Bear's securities during the Class

Period.

COUNT II

(Violation of Section 20(a) of the Exchange Act Against the Individual Defendants]

77. Plaintiff repeats and realleges the allegations set

forth above as if set forth fully herein. This claim is asserted

by plaintiff against the Individual Defendants.

78. The Individual Defendants acted as controlling

persons of Golden Bear within the meaning of Section 20(a) of the

34-


Exchange Act as alleged herein. By virtue of their high-level

positions, substantial stock holdings, participation in and/or

awareness of the Company's operations and/or intimate knowledge of

the Company's internal financial condition, business practices,

products and the actual progress of its development and marketing

efforts, these defendants had the power to influence and control

and did influence and control, directly or indirectly, the

decision-making of Golden Bear, including the content and

dissemination of the various statements which plaintiff contends

are false and misleading. Each of the Individual Defendants was

provided with or had unlimited access to copies of Golden Bear's

internal reports, press releases, public filings and other

statements alleged by plaintiff 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.

79. In particular, each of the Individual Defendants had

direct involvement in or intimate knowledge of the day-to-day

operations of Golden Bear 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.

35-


80. As set forth above, the Individual Defendants each

violated Section 10(b) and Rule 10b-5 by their acts and omissions

as alleged in this Complaint. By virtue of their positions as

controlling persons, these defendants are liable pursuant to

Section 20(a) of the Exchange Act.

81. As a direct and proximate result of the wrongful

conduct of these defendants, plaintiff and other members of the

Class suffered damages in connection with their purchases of the

Company's securities during the Class Period.

PRAYER FOR RELIEF

WHEREFORE, plaintiff, on behalf of himself and the Class,

prays for judgment as follows:

A. declaring this action to be a plaintiff class

action properly maintained pursuant to Rule 23

of the Federal Rules of Civil Procedure;

B. awarding plaintiff and other members of the Class

damages together with interest thereon;

C. awarding plaintiff and other members of the Class

their costs and expenses of this litigation,

including reasonable attorneys' fees, accountants'

fees and experts' fees and other costs and dis-

bursements; and


D. awarding plaintiff and other members of the Class

such other and further relief as may be just and

proper under the circumstances.

JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.

Dated: July 28, 1998

BURT & PUCILLO, LLP

BY: Uhr-01Qa-A~1 N chae . Pucillo FBN: 261033 Wendy Zoberman FBN: 434670 Esperanté Bldg., Suite 300 East 222 Lakeview Avenue West Palm Beach, Florida 33401 Phone: (561) 835-9400 Fax: (561) 835-0322

OF COUNSEL:

SCHIFFRIN CRAIG & BARROWAY, LLP Andrew L. Barroway Gregory M. Castaldo Three Bala Plaza East Suite 400 Bala Cynwyd, PA 19004 Phone: (610) 667-7706 Fax: (610) 667-7056

Attorneys for plaintiff

37-


CERTIICATCN OF NAMED PLAIr:F' PTISUAN' TO FEDERAL SECURITIES LAWS

S:Lv:o P:ETRCLUCNGO '?ainciff') declares, as to : - e clrr.s

asser:o under :he federal securties laws, that:

Pla..n:if has reviewed the CcrnDla:nt ar.a auhcrized its

2. Plaintiff did not purchase t.he security chat is the

subject of this action at the direction of Plaintiff's counsel or

in order to carticicate in any private aczion.

3. Plaintiff is willing to ser'ie as a representative party

cn behalf of the class, including providing testimony at depositicn

and trial, if necessary.

4. Plaintiff's transaction in the security that is the

subject of this action during the Class Period is as follows:

Price Securtv Tranacticn Date Per Share

Common Stack Purchased 30 shares 0810119 in the off erinc

S. During the three years prior to the date of this

Certificatiofl, Plaintiff has souic cc see or se:-.red as a

representative party for a class in the following actions filed

under the federal securities laws: N/A

6. Plaint-'f will not accept any payment for sefing as a

rresentar.ive par-y on behalf of the class beyond the Plainciffs

crc raca share of any recovery, ecect such reascnale costs and

exenses :ncud:ng lost wages) ai reccly relatinc to the

9Presentaton of the class as ordered or sprcved by : -.z Court


I uiide er.Jry cf pcjury t-t t .s

cc:. ecc day

rLv:0 ?-CLuc'cu

COUNTY OF RESIDENCE OF FIRST LISTED MD fj'i( BJCH

NOTE. INLAND TRACT OF LAND INVOLVED

NEW YORK

/ L-ict

V. NATURE OF SUIT (PLACE AN "X" IN ONE BOX ONLY)

A CONTRACT I A TORTS

9 110 Insurance

9 120 Marine

9 130 Miller Act

0 140 Negotiable Instrument

9 150 Recovery of Overpayment & Enforcement of Judgment

'l 151 Medicare Act 152 Recovery or Defaulted

Student Loans Enci Veterans

0

153 Recovery of Overpayrner - 1

of Veteran s Benefits

O 160 Stockholders Suits 9 190 Ctnei Contract :• 195 Conliact Product Lability

A REAL PROPERTY

9 210 -ano Condemnation 0 220 Foreclosure

9 230 Rest Lease & Ejectment 0 240 Torts to Land 0 245 Tort Product Liability -1290 5lI Other Real Property

PERSONAL INJURY D 310 Airplane 0 315 Airplane Product

Liability

0 320 Assault. Libel & Slander

0 330 Federal Employers Liabillt1,

0 340 Marine

O 345 Marine Product Liability

0 350 Motor Vehicle O 355 Motor Vehicle

Proauct Liabrirty

0 360 Other Personal lnjuO

A CIVIL RIGHTS

0 441 Voting

0 442 Employment

0 443 Housing,, Accommodations

o 444 Welfare 0 440 Other Civil Rights

PERSONAL INJURY 0 362 Personal Injury -

Med Malpractice

0 365 Personal Inj ury -

Product Liability

O 368 Asbestos Personal I n jury Product Liability

PERSONAL PROPERTY 9 370 Other F'aud 0 371 Truth in LeriOrng 0340 Other Personal

Property Carnage

O 385 Property Damage Product ,.ability

PRISONER PETITIONS

BC 510 Motions :c Vacate Sentence

HABEAS CORPUS: 8 0 530 General AD 535 Death Penalty BO 540 Mandamus & Other

DC 550 Civil Rights

80 555 Prison Condition

JS 44 Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 40 of 40 (Rev. 12/96) CIVIL COVER SHEET The JS-44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by law except as provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required icr the use of the Clerk of Court for the purpose of initiating the civil docket sheet (SEE INSTRUCTIONS ON THE ER OF THE

1. (a) PLAINTIFFS DEFENDANTS 9 2 OLDEN BEAR GOLF, INC.,JACK W SICK US,

gk RX

SILVIO PIETROLUONGO, on behalf of RICHARD P. BWI,.',]R TdD ES; himself and all others similarly STEPHEN S. situated

(b) CCUNT'Y OF RESIDENCE OF FIRST LISTED PLAINTIFF _______________________

(EXCEPT IN U.S. PLAINTIFF

qkC`Ijj,"` 9~5-~Zlo —

(c) ATTORNEYS FIRM NAME ADDRESS. AND TELEPHONE NUMBER)

lichael J. Pucillo, Esq., Burt & Pucillo, LLP, 222 Lakeview Ave., #300, West Palm Beach, FL

Andrew Barroway, Esq., Schiffrin, Craig & Barroway, LLP, Three Bala Plaza East, #400, Bala Cynwyd, PA 19004, 610/667-7706 -

d) CIRCLE COUNTY WHERE ACTION AROSE: DADE, MONROE, BROWARD, MARTIN, ST. LuCIE. INDIAN RIVER. 0KEEcH0BEE HIGHLANDS

III. CITIZENSHIP OF PRINCIPAL PARTIES (PLACE AN •X IN ONE BOX FOR PLAINTIFF

(For Diversity Cases Only) AND ONE BOX FOR DEFENDANT)

PTF DEF PTF DEF Citizen of This State C l 0 1 Incorporated or Principal Place 0 4 0

of Business In This State

Citizen of Another State C 2 02 Incorporated and Principal Place 0 5 135 of Business in Another State

Citizen or Subject of a 3 0 3 Foreign Nation 0 6 0 6

BASIS OF JURISDICTION (PLACE AN kIN ONE BOX ONLYI

1 U.S Government It 3 Federal Question Plaintiff (U.S. Government Not a Party)

9 2 U S Government 0 4 Diversity Defendant (Indicate Citizenship of Parties

in Item III)

IV. ORIGIN (PLACE AN "X" IN ONE BOX ONLY) Transferred from

i Original 0 2 Removed from o 3 Remanded from 0 4 Reinstated or 0 s another district

Proceeding State Court Appellate Court Reopened (specify) O 6 Muitidistrict

Litigation

- Appeal to District Judge fnxn

Judgment

FORFEITURE/PENALTY A BANKRUPTCY

B0 610 Agriculture 0 422 Appeal 28 USC 158 80 620 Other Food & Drug BC 625 Drug Related Seizure 0 423 Withdrawal

of Property 21 USC 881 I 28 USC 157 BO 630 Liquor Laws BC $40 A R & Truck A PROPERTY RIGHTS

BC 650 Airline Pegs

80 660 Occupational 0 820 Copyrights

Safety/Health 1 0 830 Patent 9 340 Trademark

6 0 690 Other

A LABOR B SOCIAL SECURITY

9 710 nail Lao: StarrOardy 9 861 H1A t3Yhtf Act 9 862 Black Lung 1923i

9 720 Labor Mo' Relations 0 863 D1WCD1WiN i405Igmi

9 864 SS1D Title XVI

0 730 Labor'Mo'Tt Reoorlrrrc 9 865 9S1 1405lglI & Disclosure Act

9 740 Railway Labor Act FEDERAL TAX SUITS

0 790 Other Labor Litigation AC 870 Taxes IU S Plaintiff

AD 791 EmpI Per nc or Defendant)

*0 871 IRS - Third Party Security Act USC 7609

_A OTHER STATUTES

0 400 Stale Reapportionment

O 410 Antitrust 0 430 Banks and Banking

BO 450 Commerce/iCC Pales/etc 0 480 Deportation

0 470 Racketeer influenced and Corrupt Organlzarlons

0 810 Selecltve Service Ea $50

Euctrance

O 875 Customer Challenge 12 USC 3410

9 891 Agricultural Acts

9 892 Economic Stabilization Act 0 893 Environmental Matters

C $94 Energy Allocation Act C 895 Freedom of

information Act

0 900 Appeal of Pee Determination Under Equal Access to Justice

o 950 Constttutionairty of State Statutes

0890 Other Statutory Actions A OR B

VI. CAUSE OF ACTION (CITE THE US CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE BRIEF STATEMENT OF CAUSE DO NOT CITE JURISDICTIONAL STATUTES UNLESS DIVERSITY)

Sections 10(b) and 20(a) of Securities Exchange Act of 1934 ENGTH [15 U.S.C. Sections 78j(b) and 78t(a)} and Rule lOb-5 a Utays estimated (for both sides to try entire case)

VII. REQUESTED IN CHECK IF THIS IS A CLASS ACTION DEMAND $ CHECK YES only if demanded in complaint:

COMPLAINT: UNDER FR C P 23 JURY DEMAND: Xq ' NO

,1111. RELATED CASE(S) IF ANY

DATE

JUDGE

OF

DOCKET NUMBER

July 28, 1998 Michael Jucillo, Esq.

FOR OFFICE USE ONLY

PECEn A VICI

Documents

Silvio Pietroluongo, et al. v. Golden Bear Golf Inc, et al ...securities.stanford.edu/filings-documents/1001/JACK98/1998731_r0… · maintain the market price of Golden Bear common