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UNITED STATES DISTRICT COURT DIS TRICT Corrnr• SOUTHERN DISTRICT OF NEW YORK

CE) p ti:11 : 7: •.;

: RICHARD DOVVE ROTH IRA on behaif of;• himself and all others similarly sitUated,

: Plaintiff, T1167 CaN 0 1 . 2 6 3•

„ . Civil Act No

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E!1 ACTRADE FINANCIAL TECI-1NOLOGIES,, LTD„ Aroos AHARONI, ALFXANDER C. JURY TRIAL DEMANDED.9.

• - STONKLIS, and DAVID ASKIN,

: Defendants.

CLASS ACTION COMPLAINT•

Plaintiff, individually and on behalf of all others similarly situated, by and through hisJ"^V,

I

attorneys, alleges the following upon inforMation and Peke'', exc.-:ept as to .the allegations

. . which pertain to the named plaintiff arid his counsel, which are alleged upon personal

knowledge: Plaintiff's information and belief are based, filter Oa on the investigation

made by and through his attorneys.

NATURE OF THE ACTION

" 1, This is a federal securities class aCion on behalf of a class (the "Class"),

'rrr consisting of all persons who purchased the common stock of Actrade Financial

i," Technologies, Ltd. ("Aotrade" or the Compan')ftoniMarch11 1999 through February 8,

2002, inclusive (the "Class Porioe"). Plaintiff seeks to recover damages caused to the4J.:P•

Class by defendants' violations of Section 10(b) of the Securities Exchanger Act of 1934:

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(the "Exchange Act'') and Rule 101-5 promulgated thereunder, and Section 20(a) of the

Exchange Act.

JURISDICTION AND VENUE .

i . 2. This Court has jurisdiction of this action pursuant to Section 27 of the

Exchange Ad [15 U.S.C. § 78aaj, and 28 U.S.C. §§ 1331 and 1337. .

3. This action arises under and pursuant to Section 10(b) of the Exchange Act

[15 'U.S.C. § 781(b)}, Rule 10b-5 promulgated thereunder by the SEC [17 C.F.R.

§ 240.10b-5j and Section 20(a) of the Exchange Act [15 U.G.C.S. § 78t(a)].

4. Venue is pmper in this District pursuant to Section 27 of the Exchange Act

and 28 U.S.C. § 1391(b). Actrade has its headquarters in this District, and the acts, .

coMplained of herein, including the preparation, issuance and dissemination of materially. :

false and misleading information to the investing public, occurred in substantial part in this

.i.District.,

5. In connection with the acts alleged in this Complaint, defendants, directly or

: :;', . • :: indirectly, used the means and instrumentalities of interstate commerce, including, but not

limited to the mails, interstate telephonic communications and the facilities of the National. .

Association of Securities Dealers Automated Quotation System ("NASDAQ"), a national

securities exchange.

PARTIES

i ' ::, : • 6. plaintiff Richard Bowe Roth-IRA purchased shares of Actrade common stock,, ...... . ..

during the Class Period, as set forth in the certification attached hereto and incorporated i

!.,:..:! : : i• : herein by reference, and was damaged thereby.

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fill'i ..; ± 7, Defendant Actrade is a Delaware corporation with its principal Place of

!..`;' n .. ' , : business located at 7 Penn Plaza, in New or New York. Actrade is d publicly traded

••:...?

.::: , i . : : holding company. Its business operations are conducted through several Wholly owned

subsidiaries. The Company Changed its name from Actrade InternatiOnal, Ltd_ in August

2000. .: :'•.l •:.• ' : :::: :8. Defendant Amos Aharoni ("Aharoni") has served as a director of the,,,- .:.. ...

Company since February 1991. He was elected Chairman of the 'Board of Directors

effective January 3, 2001. Aharoni was also Chief Executive Officer Of the COMpany from

: 1991 through January 3, 2001. He also servos as the President of the Company's foreign

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subsidiaries, Actracie South America, Ltd. and Actrade Resources, Inc. Since founding the

Company in 1987, Aharoni has served as the financial executive of the Company and its

subsidiaries. Since Actrade!s inception in 1987, Aharcni has also controlled the business

of and is the sole oflicer and director of NTS Corporation, which is the Company '8 principal

shareholder. Prior to founding the Company in '1987, Aharoni ran a group of international

trade companies in Israel, which hit the financial skids in the mid 1980s At the end of

1085, when Aharoni traveled to the U.S.—ostensibly to raise money to pay off creditors—hiss1• ';'. :;

assets in Israel were seized and later liquidated, leaving a largo port of his debts unpaid.

In early 1998 1 creditors, alerted to Anaroni's success in the United States by an article in

the Israeli daily, Ha'aretz, tiled suit in a United States bankruptcy court. Aharoni settled the

suit later that year. Defendant Aharoni signed each of Actrade's annual repbrtS on Form

10-K filed with the SEC during the Class Period.

9: Defendant Alexander C. Stonkus ("Stenkus"), has served as a director of the. ...

Company since January 1998. He has been employed by the Company since August

1997 and currently serves as President and Chief Executive Officer, effective January 3,

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•IR :';':: H E : ‘::2001. Prior to that he held various senior management positions including President and

1 :Chief Operating Officer, Chief Financial Officer, and also as President of Actrade Capita!,

Inc. ("Capital"), a wholly owned subsidiary. He is also a director of the coMpany and eachir•E: :: .‘, :,:: :

l!,,::: : •,:" of its subsidiaries. Defendant Stonkus signed each of Actracte's annual reports on Form,.•,:: :.

: 10-K filed with the SEC during the Class Period.

o: •i : . . • 10. Defendant David J. Askin ("Askin") has scrved as Executive 1/lee President:-. . .1 - :

•li : `..- ll: ' • of External Affairs al Ai...trade since January 3, 2001. Askin's name appears as the

Company's contact person on and he participated in the preparation and dissemination of...... 7each of the Company's press releases from January 3 r 2001 through the end of the Class

'::::! • : •.::: ' : Period. In 1995, Askin settled SEC proceedings in which he was charged with fraudulent.•:.::: 1.

'conduct in the collapse of a $600 million hedge fund he had founded which, at the time,

was one Of the biggest financial disasters in the history of Wall Street. Askin't company,i

Askin Capital Management, had promised investors "15% returns with little risk." AS part-- , - of the settlement, Askin was barred by the SEC frorn the securities industry for two years,

and agreed to pay a $50,000 fine without admitting or denying guilt.

11. Defendants Aharoni, Stonkus and Askin are sometimes referred to herein at

l , ,H" 7'' : ' • the "Individual Defendants."

12. The Individual Defendants, by reason of their high-level executive positions

with the Company and Board membership, were controlling persons of Antrade and had l

the power and influence, and exercised tho same, to cause the Company to engage in the

conduct complained of herein. .

.. -.- .-.'. PLAINTIFF'S CLASS ACTION ALLEGATIONS

13. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

i ::: : : ':: ::' • Procedure 23(a) and (b)(3) on behalf of a Class consisting of all persons or entities who,,, • , .l.i 'l l purchased shares of Actrade common stock from March 11, 1999 through February 8,

2002, inclusive (the "Class Period") and who were damaged thereby. Excluded from the

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LiClass are defendants; members of the Individual Defendants immediate families; any

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, director, officer, subsidiary, or affiliate of Actrade; any entity in which any excluded person

.'! has a controlling interest; and their legal representatives, heirs, successors and assigns

14, The members of the Class are so numerous that joinder of all members is

impracticable. While tile exact number of Class members is unknown to plaintiff at this

time and can only be ascertained through appropriate discovery, plaintiff believes that

" there are thousands of members of the Class located throughout the United states.

fhroughout the Class Period, Actrade common stock was actively traded in an efficient

market on the NASDAQ stock market. Record owners and other members of the Class

may be identified from records maintained by Actrade arid/or its transfer agent and r nay

be notified of the pendency of this action by mail and publication r using forms of notice

similar to those customarily used in securities class actions.

15. Plaintiffs claims are typical of the claims of other members of the C1ASS as

•• all members of the Class were similarly affected by defendants' wrongful conduct in

• violation of federal law that is complained of herein

16. Plaintiff will fairly and adequately protect the interests of the members of the

Class arid has retained counsel competent and experienced in class and securities

r litigation .

17. Common questions of law and fact exist as to 211 members of the Class and

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predominate over any questions solely affecting individual menibers of the Class. Among

. the questions of law and fact common to the Class are

(a) Whether the federal securities laws were violated by defendants' acts'

and omissions as alleged herein;_.; . (b) Whether defendants participated in and pursued the illegal course of

conduct complained of herein;

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19„. (c) Whether statements disseminated to the investing public and the

. Cornpany's shareholders during the Class Period made„

misrepresentations or omissions of rnaterial information as alleged, .

herein;

(d) Whether the market price of Autrade common stock during the Class-

Period was artificially inflated due to the material misrepresentations

and omissions complained of herein;

(e) To what extent the members of the Class have sustained damages•

and the proper measure of damages.,

. 18_ A class action is superior to ail other available methods for the fair and

, efficient adjudication of this controversy since joinder of ali members is impracticable. As

- ' the damages suffered by individual Class members may be relatively small, the expense' • ;

: and burden of individual litigations make it impossible for members of the Class individually. ,' to seek redress for the wrongs done to them. There will be no difficulty in tho management

:of this suit as a class action.

SUBSTANTIVE ALLEGATIONS

19, Actrade is a subprime lender to businesses that are willing to pay what

: amounts to 20%-40% annualized interest rates for short term commercial loans.:

: Throughout the Class Period, the Company has represented that its goal is to establish

„Actrade's payment technologies as the preferred methods of payment for large-scale

: commercial transactions and to maintain Actrade's leadership role in the global electronic

payments industry.

211 The Company's leading products are its Trade Acceptance Draft ("IAD")•

Program and Electronic Trade Acceptance Draft C'E- TAD') Program (sometimes"

: collectively referred to herein as "TADs"). in mid 1993 the ComPany . completed

development of the TAD Program as a new trade fine nco tool for commercial transactions .:

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designed to improve cash flow arid increase sales. The TAD Program purportedly allowed

suppliers of commercial goods arid services to offer credit terms to their commercial

: " • customers through the use of pre-authorized debit trade acceptance drafts.. During fiscal

2000, the Company completed the d evelopmer it of its E-TAD Program, which was officially

launched in August 2000, in order to meet the added needs and challenges present in'

buSinoss-to-business e-commerce. The Company claims that this patented payment- option enables United States companies to nay for purchases with terms up to 6 months,

while their suppliers, who cart be located globally, receive immediate payment.

- 21. Most of the Company's TADs are insured against nOn-payrnent through a:

combination of business credit insurance policies that Capital has secured with a major

insurance carrier and payment bonds issued through major surety companies. In the event

. that a buyer defaults on a TAD, the Company looks to its surety for reirnbursernent.-

Defendants' Materially False and Misleading Statement*_ .

• 22_ -I hroughout the Class Period, Defendants falsely represented in a series of:

press releases and public filings with the SEC that the Company WdS providing char rig.,. -V

to businesses for commercial transactions, when in tact it was also providing financing

.individuals for non-commercial purposes,::

23. On March 11, 1999, the Company issued a press release announcing that:

: it had secured a five-year, $25 million revolving GI edit facility with ING Borings, the global

corporate and investment banking organization, which would allow Actrocle to expand its

TAD Program by providing Up to $100 million a yearcf additional TAD purchasing capacity.

: With respect to Actrade'S business operations, the Press release stated in relevant part:

. Based in New York City, [the Company], through its wholly owned• subsidiaries, provides innovative domestic and international trade

: finance seevices. The Company's TAD Program and other services are: marketed to businesses in the United States and abroad through offices, = in Atlanta, Fort Lauderdale, Los Angeles and New York. A newly established:

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-'74 ' international division, Actrade Resources, inc., based in the Bahamas, will

: develop and provide financing tools for companies trading outside the UnitedStates and for American er4)orters. Actrade Capital Canada, inc.,. based in

.r Toronto, focuses on the financing and trading needs of Canadian basedcompanies. (Emphasis added.)

24. Each of Actrade'S press releases issued to the investing public during the

Ty: :: Class Period contained a similar representation concerning Actrad b's business operations.

ii6;• Defendant Askin's name appeared as Actrado's contact person on each of the pressif:•4 ` •

releases issued by the Company from January 3, 2001 through the end of the Class:

• Period.•

: 25. In addition, in Actrade's annual report for the year ended June 30, 1999,

Which was Signed by defendants Ahareni and Stonkus and filed with the SEC on Form 10-

K on October 4, 1999, the Company made the following representation concerning

Actrade's business operations::

In developing the TAD Program, Capital's principal goal is tostandardize TADs as the third business-to-businesS payment optionthe first being "cash on delivery arid the second being "open account."Management believes that, much like the credit card revolutionizedpayment for consumer purchases, the TAD Program will have a similar: -

: - impact upon the way business funds commercial transactions, By:- , providing immediate payment to Suppliers with extended Payment

terms for Buyers, the benefits the TAD Program offers business closelyparallels the benefit credit cards provide to consuiners. (Emphasis

.':i •: . added.)

26. Each of Actrade's other annual reports filed with the SEC on Form 10-K

during the Class Period including Actrade's 2000 Form 10-K, filed with the SEC on

:' - September 29, 2000, and Actrade's 2001 Form 10-K, filed with the SEC on September 19,"

2001, contained a virtually identical representation regarding Aetrade's business,

•: operations. Defendants Aharoni and Stonkus signed each ot the Company's Form 10-Ks

filed with the SEC during the Class Period.

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27. The above statements were materially false and misleading in that

. defendants knew or recklessly disregarded that during the Class Period, defendants had.. .-•! : .

loaned millions of dollars to individuals foi nun-commelcial purposes, engaged in

. ''..t. :. :• : fraudulent lending practices, and defrauded its sureties into providing coverage for these

. li •• . • - • - loans. For instance. defendants defrauded its surety, Amwest Slirety Insuranc,e Company

4:7,.f ' • ' ..,-,..:i • ' • ' ... ("Arnwest"), into providing coverage by failing to disclose that it was lending $4.6 million- .

to a time-share marketer to buy raw African diamonds - not time-shares -- from a company

.il'.?...:. , ' • he himself owned. In addition, according to a court-filed affidavit, Clifton A, Hinds: •; Y: -.

- supposedly borrowed $6.3 million from Actrade to renovate multi-family dwellings but

• instead pocketed the funds. When an Actracle lending officer questioned the authenticity

•::-. • of a KPMG auditor's report, Hinds gave the fending officer a $15,000 Rolex watch to buy,-.:i.. •• - .:>.

his Silence. After Defendants defrauded Actrade's sureties, Arnvvest and CNA Insurance:.

Company (CNA"), into providing insurance coverage for loans to Hinds by failing to,•., _ .

: - • disclose these fraudulent lending practices. Actrade proceeded to lend Hinds over $6

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million and solicit an additional $18 million from other lenders on his behalf. Furthermore,

Hinds says in a court filed deposition that defendant Stonkus not only extended Hinds.,•:, .

credit, but also sought to hire him as Actrade's Los Angeles broker

s.. .. 28. In addition, during the Class Period, defendants repeatedly reportedi„ -.i --. ; •.- Actrade's "record" quarterly and annual financial results based on the success of the. . ,

, • - Company's TAD Program...- -

•.I' .29. For example, on May 5, 1990, the Company issued a press release

announcing its "record breaking" financial results for the quarter ended March 31, 1990..... .. '-.•'.'.i ,- • The press release stated in relevant part:

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" For the three months ended March 31, 1999, ACtrade reported sales fromoperations Of $52.9 million, more than double (an increase Of over 107%) the

: $25.6 million recorded in the third quarter of fiscal 1008, For the nine monthsended March 31, 1999, Actrade had sales of $137.1 million, as compared to„.$68.7 million from the same period last year

;: * *

: The TAD Program was responsible for $34.4 million in sales in the thirdquarter, an increase of 125% over the $15.3 million generated during thequarter ended March 31, 1998.

: 30. In the press release, defendant Stonkus trumpeted the success of the TAD

:Program:

Mr. Alexander C. Stonkus, Chief Operating Officer and Chief FinancialOfficer, pointed out that Actrade has signed up more new Customers fer its

: TAD Program in the last three months, 208, than in any quarter since itsinception. This represents a 22% increase over the previous quarter's recordof 170 new Customers.. :

:In addition, Actrade completed a record 471 individual TAD transactions in

.the third quarter, an increase of 28% over the previous' record of 36-7

I : established in the second quarter of fiscal 1909.

31. In addition, on October 4, 1999, the Company issued a press release:

announcing its financial results for the fourth quarter and year ended June 30, 1999 and

expected growth based on the anticipated successful expansion of its TAD Program: In:

the press release, defendant Stonkus stated in relevant part:

l'Actrade has 110W completed 13 consecutive quarters of growth in both gross;10sales and net income. We have invested heavily in the expansion of oin'infrastructure to ensure the seamless and continued strong growth of our

„ TAD Program. We expect this major investment to yield strong operatingresults in fiscal 2000 and beyond...."

32. Similarly, on February 15, 2000, the Company issued a press release

:announcing "strong growth" in its fiscal quarter ended December 31, 1999 based on the

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purported success of its TAD program. In that press release, defendant Stonkus stated:

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:f,:: :.,. The company's continued growth, powered by the TAD Programf s proven value as a

132B payment method has contributed to increasing recognition from the Wall Street

community." (Emphasis added ): ::•1 : ,,-: ' .

33. As yet another example, on May 11, 2000, the Company issued a press

release announcing that the its financial results had exceeded estimates as the reSult of

:Hi:.:: ', ::: record setting'' demand for its TAD Program. The press release stated in relevant part:

he third quarter of fiscal 2000 is noteworthy for two key reasons. First:,.. Actrade's TAD originations exceeded $86 million and net earnings climbed

to $0.35 per share — both record-breaking achievements. This quarter's. results also affirmed the acceptance of the TAD Program as a. ,

purchasing method for large B2B transactions and began to show theexpected return on the investment Actrade has made in expanding itsinfrastructure to support the TAD Program. .,. .

"We believe our third quarter results confirm the acceptance ofthe TAP Program as a preferred payment method for large coriimercial..: : .

. transactions," commented Alexander C. Stonkus, President anti COO ofActrade International, Ltd 'The significant investment we have made over thepast year to implement operating efficiencies, automate workflow and deliverservice to our customers more rapidly, has begun to Contribute significantly

:.C: i . :' :.: • to the overall growth of the company as well as being evident in bottom-lineprofitability." . .

Mr. Stonkus continued, "Not only is our business stronger than,.,... .

:. .- ever, but our banking relationships recognize our future growthpotential and the value of our proven payment method to the business .

:f: : :, , : : • community." (Emphasis added.)

34. The above statements were materially false and misleading in that Actrade's

;. 'r ::.' ! . . •:... % purported financial results were based on revenues improperly recognized as the result of.-,.i Al r4: : ' , ,

' .; ; nii -:: : the fraudulent lending practices alleged herein. Defendants knew or recklessly. . . ,

.disregarded that during the Class Period defendants had engaged in fraudulent lending

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1:: ,, ! ' .: .: practices and defrauded its sureties into providing insurance coverage for those loans as

alleged in detail in paragraph 26 above.

• iC_I, ;::, ..: 35: During the Class Period, defendants also represented that the Company had•:•:

"sought to incorporate into the TAD 'p rogram as many safeguards as possible in order to'-:4

• : Minimize the risk of non-payr neut."

36. For instance, in its annual report for fiscal 1999, filed with the SEC on Form

10-K on October 4, 1999, the Company stated:

From its inception, management has sought to incorporate into the TAD- i . .i. . . Program as many safeguards as possible in order to minimize the risk of

non-payment. In management's. opinidn, the following features of the IADProgram have proven to reduce the risk of non collection, .

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1. Limitation of Exposure. The TAD Program is intended to finance onlya small portion of a Buyers needs. Banks, factors and other lenderstypically continue to fulfill a Buyers principal financing needs.- Byrepresenting only a small portion of a company's debt, the overallexposure for Capital is limited,

2. Credit Insurance and Payment Bonds Most TADs are insured against— non-payment through a corribinatiOn of business credit insurance

policies that Capital has secured with a major insurance carrier andPayment Bonds issued through major surety companies.

37. Each uf Actrade's annual reports filed with the SEC on Form 10: K during the• '.'• . ' ' Class Period, including its 2000 Form 10-K filed on September 29,2000 and its n01 Form;Ir .:: • , ::

10-K filed on September 19, 2001, contained similar representations concerning Actrade's

: ::, • '•::: ... efforts to implement sategOards to "minimize the risk of non-payment."

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38. I he above statements were materially false and misleading in that

defendants knew or recklessly disregarded that during the Class Period defendantsrr',1‘ .:::: .

(a) had engaged in fraudulent lending practices, (b) made loans to individuals or non-, ::•:!: : :

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: commercial purposes, and (0) had defrauded Actrade's sureties by failing to disolose these

: fraudulent lending practices, as alleged in detail in paragraph 26 above.

4 • 39 in its annual report for fiscal year 2000, filed with the SEC on Form -10-K on:: •

: September 29, 2000, the Company discloSed aS fOliOWS:

, a. During fiscal 2000, a participant in Capital's TAD Program defaulted- "under its obligations in the principal amount of approximately $4,000,000.This obligation was secured by both the personal guarantees of its principaland by a surety bond. After numerous attempts to resolve the dispute, the

; matter resulted in litigation being instituted by the participant against Capitol, to preclude Capital from its efforts to secure payment under the surety

" bond.... The complaint alleges claims of breach of contract andmisrepresentation against Capital, Capital has filed counterclaims against theplaintiffs for breach of contract socking repayment of TADs that are in defaultand filed claims against the surety company for breach of contract resultingfrom their failure to pay under the e> press terms of the bond.... Based upon

•: the facts of the matter and upon the opinion of its litigation counsel, Capitalbelieves that the plaintiffs claims are spurious in nature, that it has validdefenses to the claims against it and that it will ultimately prevail in the suitand obtain payment from plaintiff or in the alternative, from the surety

: • company pursuant to the terms of the surety bond. Management does notanticipate any adverse financial consequences as a result of this suit,

b. In another unrelated matter, a California company defaulted under its- .-

obligations to capital in the principal amount of approximately $1,300,000.The total defaulted TADs were in the original principal amount of„ .

. approximately $6,300,000 and were fully insured by two surety bonds issuedin favor of Capital. After the default; Capital filed claims with both surety

: companies. One surety company paid $5,000,000 to Capital as required by

- _its surety bond. The second surety, Which is the same surety company that

- : issued the bond referred to under paragraph (a) above, refused payment in:

breach of its obligations under its bond. that surety company, as plaintiff,. filed a complaint in - the Superior Court of California, County of Los Angeles,'

: Central District, against the principals of the defaulting party to force thosepersons to post certain collateral they had promised to deliver in connection:with the surety agreeing to issue the surety bond. This complaint was

:, • amended by the surety company to include capital, among several otherparties, as a defendant in that action. The plaintiff brought claims against

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Capital seeking to avoid its obligation to Capital on a number of suretybonds, which secured underlying transactions between Capital and certain

• ,of its program participants. In essence, plaintiff has alleged breach of

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' .Capital believes that the surety's claims of fraud are totally without merit and

, .intended solely to avoid its obligations under its surety bonds and Capitalintends to file a motion to dismiss these claims. Based upon the facts of thematter and upon the opinion of its litigation counsel, Capital believes that the

: e; • " plaintiff's claims are spurious in nature, that it has valid defenses to theclaims against it and that it will ultimately prevail in the suit and obtain

. : payment from plaintiff or, in the alternative, pursuant to the terms of the

e: surety bend, Management does not anticipate any adverse financial- consequences as a result of this edit.

• 40. The above statements Were materially false and misleading in that

: defendants knew or recklessly disregarded that they had engaged in fraudulent lending

,practices and had defrauded the above referenced surety companies, AMwest and CNA,

• by failing to disclose these fraudulent lending practices, as alleged in detail in paragraph

• :26 above.

41. The above statements were materially false and misleading in that; -

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defendants knew or recklessly disregarded that they had engaged in fraudulent tending

practices and had defrauded Amvvest by failing to disclose these fraudulent lending

„practice's, alleged in detail in paragraph 27 above.

42. In its 2001 Form 10-K, filed with the SEC on September . 19, 2001, the

- Company made the feilowine statement eoncerning litigation involvieg its sureties and,

defaulting customers:

. .• : During fiscal 2000, participants iri Copitel's E-TAD Program defaulted on

_ obligations with an aggregate principal emourit of approximately $10.5million. Surety bonds secured these obligations. Sureties paid off $5 Millionof these obligations. However, another surety did not pay its Obligationstotaling approximately $5.5 million. Capital has engaged in extensive

- litigation to recover these monies and such effort is ongoing. However, the:Company reported en Form 8-K in June 2001 that an order of liquidation hadbeen entered against the surety in Nebraska. Accordingly, managementwrote off these receivables in the 4th quarter of fiscal 2001. Some of thesereceivables were owned by Capital, others had been sold to Funding.

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43. The above statements were materially false and misleading in that

defendants knew or recklessly disregarded that they had engaged in the fraudulent lending, .- .., • ‘.

practices alleged herein and had defrauded the above-referenced surety, Annwest, by

failing to disclose these fraudulent lending practices,

The Truth Emerges1,7:ii i•‘..' . . . 44, An article appearing in the February 11, 2002 issue of Barron's, a leading

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financial publication, raised serious concerns about Actradc's lending practices. In that

article, which Was first on hliciy released over the February 9-10, 2002 weekend, Balton 's

ii:-- •.:- reported:

., ."That Road is Gold"

: A tiny New York company called Actrade Financial Technologies claims to. : have the Internet's best technology for commercial loans. Actrade shares

have climbed from pennies to as high as 44 over the last decade, as itsofficials talked up the "multi-trillion dollar" opportunity beckoning the firm'sElectronic-Trade Acceptance Drafts. or E-TADs. "Whoever comes up withwhat is the currency for the internet , . . that road is gold," Actrade PresidentAlex C. Stonkus told me last week,

Some 2_3 million Actrade shares have been sold short by investors..: ' who may recall how Actrade founder Amos Aharoni fled Israel, and his

creditors, in 1985. Actrade's external affairs officer is David J. Askin, who. settled SEC administrative charges, without admitting or denying guilt, that, .

..• i .. he defrauded clients amid the famed 1994 collapse of his $500 million hedge. ,.. . - funds.

Despite the e-trappings of its E-TADs. Actrade is essentially a... . .subprime lender to businesses who are desperate enough to pay whatamount to 20%-40% annualized interest rates for short-term trade financing.

1 ' . Actrade reported earnings of $9.5 million, or 80 cents, in the Decemberquarter.. . .

Stonkus says that Actrade has been tightening its lending practices..1,n =', ' There was room for improvement. Of the eight borrowers highlighted in. , Actrede's 1999 arid 2000 annual reports, four subsequently defaulted ori . I entered bankruptcy court.

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Actrade can make loans as large as $16 million, Stnnkus says;':.lI,'.:.-.:,: i , : , • because insurers reimburse Actrade in the event of default. But the firm'sr• ::),:; : .'.: , shares have slid to a recent 24, as investors worry whether that insurance P.'

net is becoming a mirage -- and defaults more of a threat to reported: . .earnings. Last June, Actrade wrote off $5.4 million in default claims due from -one insurer that regulators were liquidating. And last month, Actrade .restructured $8.85 million in short-term E-TADs into a four-year lban. Whydidn't Actraele go to its insurers on the $8.85 million? "If you entered in a caraccident and got a $1,000 repair bill and tied a $500 deductible . . ." SaidStonkus, on a call to analysts, "do you file the claim and have your iesuranueg0 up . . . and have them drop you, potentially'?" .

At least two former insurers are allegina they were duped by Actrale,In an Atlanta federal court, Amwest Surety says it was suckered intounderwriting $4.5 million in E-TAD loans to :a time-shore marketer named .Daniel DelPiano, because Actrade's.,Stonkus didn't disclose that DelPiano .

'',. : i . ‘: n ' :: : aimed to use the money to buy raw African diomonds, not time7shares. In acourt-filed affidavit, moreover, DelPiano says he bought the diamonds from: im : •a firm that he himself owned.iis....,

Arnwest and insurer CNA make even graver charges surrounding the$6.3 million default by Clifton A. Hinds: An inner-city booster known for hishuge parties, Hinds says in a court-filed deposition that Stonkus not onlyextended Hinds credit, but sought to hire him as Actrade's Les Angelesbroker. Hinds supposedly borrowed Actrade's money to renovate multi familydwellings, but his former girlfriend, Gene Lofton, says, in her own court-filedaffidavit, that Hinds just pocketed the funds.

Hinds' ox further stated that Actrade l s lending officer expressedconcern in 1998 that the KPMG audit attestation on Hinds' financials was aforgery. Lofton added that Hinds mollified the Actrade official's concerns byhaving her purchase him a $15,000 Rolex. After first securing insurance

; ,' 7 ' • coverage from the hapless sureties, Actrade proceeded to lend Hinds over$6 million and solicit $18 million from other lenders on his behalf.

: :• : : : i 45. The market reacted sharply and adversely to these disclosures concerning. .,

Actrade'S fraudulent lending practices and evidence that defendants had defrauded its..., ,:

insurers. On February 11, 2002, in response to the disclosures in the Barron 's article,

Shares of Actrade plunged $11_14 or 45 percent to $13.75, a 52-week low, on extremely

heavy volume of 6,348,400 shares. . .

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40. As a result of Defendants false and misleading statements alleged herein,

Actrade's stock price rose from $13.50 per share at the beginning of the Class Periud to.; !: zi: .: .11. , •

a Class Period high of $44.30 per share on June 5, 2001.',111..l1'.:1•!..t. . ' 47, According to the Company's public filings, on October 11, 2000, the Board: •-i - .

of Directors adopted a stock option plan, subject to shareholder approval, to award stock

options to employees and directors of the Company. A total of 5,000,000 shares were.. ,- .l.'''• .- . reserved for issuance under the Company's stock option plan, As of November 19, 2001,,...:.,: , •

:..,: the Company had 10,143,216 common shares outstanding, and options to purchase

, 1 , • 3,286,276 shares of the Company's common stock had been granted pursuant to that

• ' , , option plan. During the fiscal year ended iure 30, 2001, 718,952 options valued at over

$6.3 million were granted to Defendant Aharoni and 2,500 options velum' at $20,000 wore. •

granted to Defendant Stonkus. Evidence that the Company's management awarded

. . themselves a substantial number of stock options supports a strong inference that the

Defendants were motivated by personal gain to falsely inflate the price of the Company's. .

l .. . shares.

;. . COUNT IL.

Against All Defendants For Violations ofSection 10(b) of the Exchange Act And Rule 10b-5 Promulgated Thereunderl! ,

48. Plaintiff repeats and realleges each and every allegation set forth above.. .

49. Defendants knew or recklessly disre-garded that 0) defendants had. .-

engaged in the fraudulent lending practices alleged herein' (h) defendants had riefr;3iidedr.ii• -'. - '- .

flr . : :-- . . Actrade's sureties by failing 10 disclose these fraudulent lending practices; and (c) Actrade,...

had improperly recognized revenues based on these fraudulent lending practices

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50. Defendants violated § 10(b) of the Exchange Act and Rule :10b-5

promulgated thereunder in that they (a) employed devices, schemes and artifices to

defraud; (b) made untrue statements of material fact or omitted to state material facts

necessary in order to make statements made. in light of the circurnstanc-ms under which

,,l''.: ' •they word made, not misleading; or (c) engaged in acts, practices and a course of business

that operated as a fraud or deceit upon the purchasers of Actrade common stock during

the Class Period.

51. Plaintiff and the Class have suffered damage in that in reliance on the

:,..: integrity of the market, they paid artificially inflated prices for Actrade common stock.

Plaintiff and the Class would not have purullased Actrade common stock at the prices they..,„....

paid, or at all if they had been aware that the market prices had been artificially and falsely

inflated by defendants false and misleading statements .

COUNT II

Against The Individual Defendants ForViolations of Section 200j of the Exchange Act

,•! . ' - 52. Plaintiff repeats and realleges each and every allegation set forth above.

:1 - : .' . ' • 53. By reason of his status as an officer and/Or director of the Company, each

of the Individual Defendants Was a "controlling person'' of Ai trade within the meaning of

Section 20(a) of the Exchange Act and had the power and influence to cause the Company

, .to engage in the unlawful conduct complained of herein. Because of his position, of control,

each of the Individual Defendants was able to and did, directly or indirectly, control the

information contained in its filings with the OEC and public statements about the

:!:,•;: : : : :. ..

Company's business. -rhe Individual Defendants were provided with or had unlimited

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access to copies of the Company's internal reports, and public filings and statements maderaa.. = ,..

to the investing public alleged by plaintiff to be misleading prior to arid/or 5 h o rtly after theseIP*-

•.: statements were issued and had the ability to prevent the issuance of the statements or

a i • a cause the statements to be corrected. Actrade controlled the Individual Defendants and..; , .

. , • all of its employees.

•',:, • 54_ The Individual Defendants, in their positions as officers and directors ofa;• : Actrade, had direct involvement in the day-to-day operations of the Company and

, therefore, are presumed to have had the power to control or influence the particular

. statements giving rise to the securities violations as alleged herein, and exercised the

. same.

55. As set forth above in Count I, Actradc violated Section 10(b) and Rule 10h-5

.... -' . promulgated thereunder hy its acts and omissions as alleged in this Complaint. By virtue

:.;• of his position as a conti °thug person of Actrade, each of the Individual Defendants is liable. .

H: . ' ‘• for the Company's violations of Section '10(b) of the Exchange Act and Rule 10b-5;-a f 1•'

promulgated thereunder, as alleged in Count I, pursuant to Section 20(a) of the Exchange

th.„' • 2 ' . , Act

' 56. As a direct and proximate result of the Individual Defendants wrongful

,. .';. • :. conduct, plaintiff and other members of the Class suffered damages in . corinection with

thcir purchases of the Company's common stock during the Class Period. .

PRAYER FOR RELIEF

WHEREFORE, plaintiff, on behalf of himself and the Class, prays for judgment as

follows:

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, A. declaring this action to be a plaintiff class action properly maintained pursuant

, to Rule 23(a) and (b)(3) 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 disbursements; and •

D. awarding plaintiff and other members of the Class such other and further

. • relief as may be just and proper under the circumstances.

By his attorneys,, .• " " LOWEY DANNENBERG BEMPORAD:

& SELINGER, P.C.••

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.By:

,A7/

..r4; •

Riehard Bempora4RB-8 78)Jeanne aEsposito (JD-: 43)

The Gateway, 11th 11.One North Lexington Avenue• .White Plains, NY 10601-1714(914) 997-0500

Thomas G. Shapiro (TS 3077)Theodore M, Hess -Mahan (TH-8499)

• SHAPiRO HABER & URMY LLP75 State StreetBoston, MA 02108„ • (617) 439-3939

CQUI1Sei fur Pluiritifi:•

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