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Class Action Lawsuits
Chapman, Spira & Carson - Disscusion

From: Robert Spira
Date: 4/7/99
Time: 9:44:55 AM
Remote User:

Comments

The Securities act was recently revised and the test to bring a "class action" lawsuit against company management and brokers involved in the securities in question is now literally impossible with the fraud having taking place.

When the federal laws were enacted it appeared that these types of cases would vanish from the landscape but this has not been the case. Not only are they still around in force, but the State of California is involved in making it even easier to file these types of cases.

If you feel that this sort of thing has occurred in a company in which you own stock, there are hundreds of law firms practicing this type of law and they can easily be found by perusing the web.

Furthermore, we can help evaluate your claim and potentially help you find the right firm to handle it if indeed it conforms with current regulation. Understand we are not lawyers and are only offering to this as a public service. We have no arrangements with any law firms for any kind of compensation. We can treat your inquiry in a confidential manner or discuss here should you desire.

In the meantime, we have included a case that got a lot of interest a while back. The Company was called shopping.com and the as sometimes happens with Internet oriented securities, the stock shot up to unbelievable heights, the short perceiving an easy meal started selling it and they got caught.

When the smoke cleared the stock had been suspended for a time, the brokerage firm pushing the stock was literally forced out of business and many people lost a lot of money. The prologue of the story though is that apparently, the company had good technology and was acquired by a computer manufacturer at a substantial price. A bizarre ends for a very weird story.

MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH (68581) DARREN J. ROBBINS (168593) 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058

SPECTOR & ROSEMAN, P.C. ROBERT M. ROSEMAN 2000 Market Street 12th Floor Philadelphia, PA 19103 Telephone: 215/864-2400 - and - ELLEN GUSIKOFF STEWART (144892) DIANE P. DOHERTY (175350) 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/338-4514

REINHARDT & ANDERSON RANDALL H. STEINMEYER E-1000 First National Bank Building 332 Minnesota Street St. Paul, MN 55101 Telephone: 612/227-9990

Attorneys for Plaintiff

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF ORANGE

MICHAEL A. MARTUCCI, On Behalf of ) Case No. [793137] Himself and All Others Similarly ) [filed Apr. 16, 1998] Situated, ) CLASS ACTION ) Plaintiff, ) ) COMPLAINT FOR VIOLATION OF vs. ) CAL. CORP. CODE 25400 AND ) 25500; AND BUS. & PROF. SHOPPING.COM, INC., ROBERT J. ) CODE 17200, ET SEQ. McNULTY, DOUGLAS HAY, WALDRON & ) CO., CERY PERLE, WEDBUSH MORGAN ) SECURITIES INC., WENDY REY and DOES ) 1-25, inclusive, ) ) Defendants. ) Plaintiff Demands A ___________________________________ ) Trial By Jury

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INTRODUCTION AND OVERVIEW

1. This is a securities class action on behalf of all

persons who purchased the common stock of Shopping.com, Inc.

("Shopping" or the "Company") between November 25, 1997 and March

26, 1998, inclusive (the "Class Period"), alleging violations of

the California securities laws against Shopping, two of its senior

executives and two investment banking firms which assisted

Shopping's senior executives in manipulating the price of

Shopping's shares.

2. Shopping holds itself out as an innovative Internet-based

electronic retailer that markets an immense selection of brand name

consumer and commercial products at low prices via its website

using state-of-the-art proprietary technology. During the Class

Period, the defendants, including Shopping, its senior-most

officers and directors and its underwriter Waldron & Co.

("Waldron"), participated in a scheme and wrongful course of

business to manipulate the price of Shopping stock, which scheme

included: (i) defendant Waldron's refusal to execute sell orders;

(ii) the use of illegal stock parking; (iii) the use of illegal

above-market buy-ins to intimidate and dissuade potential short

sellers from selling Shopping stock short; (iv) the sale of

Shopping shares to discretionary accounts without regard to

suitability; and (v) the dissemination of materially false and

misleading statements about Shopping's operating performance and

its future prospects. The defendants' misconduct in connection

with and subsequent to the Company's November 1997 initial public

offering ("IPO"), enabled the defendants to raise $11.7 million by

selling 1.3 million Shopping shares to public at $9 per share and

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thereafter drive the price of Shopping's stock to an all time high

of over $32 per share in March 1998. The defendants engaged in

this illegal scheme and caused materially false and misleading

statements to be issued in order to bring the Company public and

thereafter avoid a total collapse in the price of Shopping stock as

the truth about the Company's prior misconduct came to light so

that Shopping insiders and Waldron and its favored clients could

later sell their Shopping holdings when the "lock-up" period

expired on November 25, 1998.

3. As part of defendants' scheme to avert a collapse in

Shopping's stock price, Waldron and Wedbush Morgan Securities, Inc.

("Wedbush") employed various illegal tactics, including fraudulent

sales, refusals to execute customers' sales orders, stock parking,

and forced buy-ins at prices more than 50% above Shopping's trading

price in order to stimulate artificial activity in the stock price

and manipulate its price. As a result of this coordinated

manipulation by the defendants, the market capitalization for

Shopping, a company with minimal sales and a history of losses,

came to exceed $200 million.

4. In order to successfully complete Shopping's IPO, the

defendants needed to prime the market about Shopping's success

prior to and in connection with the issuance of the prospectus for

Shopping's IPO. To this end, Shopping secretly arranged to sell

$250,000 of product to Waldron as part of defendants' effort to

have Shopping post revenue growth prior to Shopping's planned IPO.

Shopping also made a series of announcements of hires and the

execution of agreements with several companies to help promote the

Company. Each of the very positive statements which accompanied

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these announcements weredesigned to foment interest in the Company

and its planned IPO. Additionally, the defendants hoped that this

would result in future investors valuing Shopping as a "growth

stock," allowing it to trade at huge multiples of revenues.

However, the defendants also realized that they had to take

Shopping public quickly as its existing business was weak and that

Shopping was not and could not internally generate the rate of

growth needed to drive the Company's stock price once it became

public.1

5. On November 25, 1997, Shopping completed its IPO, selling

1.3 million shares at $9 per share, for proceeds of $11.7 million.

Following the IPO, the defendants continued to hype the Company and

its prospects, issuing false and misleading information about: (i)

Shopping's newly implemented marketing campaign, which purportedly

was attracting substantial additional traffic to the Company's

website; (ii) Shopping's implementation of a new business model

which would allow Shopping to "grow rapidly while maintaining no

physical inventories resulting in lower costs than traditional

retailers"; (iii) Shopping's execution of a marketing agreement

which would enable the Company to tap into the $120 billion a year

automotive after market; and (iv) the launch of Shopping's national

radio campaign. In conjunction with the issuance of the false and

misleading information by defendants, defendants Waldron and

Wedbush employed a sophisticated market manipulation scheme

____________________

1 To assist in preparing the Registration Statement, Shopping also hired counsel who held tens of thousands of Shopping shares in order to avoid having a thorough due-diligence investigation of Shopping and its operations completed in connection with the Company's IPO.

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designed to control transactions in Shopping stock in order to

manipulate the market price of Shopping so that it would continue

to trade at artificially inflated levels. As a result thereof, the

defendants were able to manipulate the price of Shopping as it rose

from its IPO price of $9 per share to over $32 per share in a

little over three months.2

6. However, contrary to defendants' positive statements

concerning Shopping's operations, customer base and prospects (and

despite the defendants' manipulation of Shopping's stock price),

the true facts began to emerge as the Securities and Exchange

Commission ("SEC") announced on March 25, 1998 the suspension of

trading of the Company's stock on suspicions of stock manipulation.

In a press release it was reported that:

On March 24, the Commission temporally suspended, pursuant to Section 12(k) of the Securities Exchange Act of 1934, over-the-counter trading of the securities of Shopping.com, Inc. (Shopping.com), of Corona Del Mar, California. The suspension is effective from 9:30 a.m. (E.S.T.) On March 24, 1998 to 11:59 p.m. (EDT) on April 6, 1998.

The Commission suspended trading, temporarily, because of concerns that there was a lack of current and accurate information regarding the securities of Shopping.com due to recent market activity in the stock that may have been the result of manipulative conduct. (Rel.34-39786)

7. On March 26, 1998, another bombshell was dropped on

Shopping's shareholders when Kristine Webster, the Company's Chief

____________________

2 The actual price of Shopping stock is subject to debate, as Waldron, in conjunction with Wedbush, has charged prices 50% higher than the trading price of Shopping shares in the open market to short sellers seeking to deliver borrowed shares. This tactic has been used to "punish" short sellers and intimidate potential short sellers from even attempting to sell Shopping stock short. As of April 13, 1998, quoted trading prices for Shopping shares are illusory as no broker/dealer is willing and able to make a market in Shopping stock.

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Financial Officer, stunned investors, disclosing that 23% of the

Company's revenues since the inception of its business had not been

obtained from the sale of product to third party customers, but

rather via Waldron's purchases of computer equipment and other

office equipment, valued at more than $250,000! This was never

disclosed to the investing public in Shopping's Prospectus or any

other Shopping public filing. The reaction to these shocking

revelations was swift and severe. Despite defendants' continued

efforts to continue to manipulate Shopping stock by refusing to

sell shares for customers who had ordered the sale of such shares,

Shopping lost 30% of its value, falling from $30 to $21.

8. Each of the positive statements about Shopping's business

made during the Class Period was materially false and misleading

when issued, and failed to disclose, inter alia, the following

adverse information which was then known only to defendants due to

their access to internal Shopping data:

(a) Shopping was, in fact, having difficulty attracting

customers and providing a high enough level of safety for them to

buy;

(b) Shopping was not generating sufficient revenue to

support the 1998 revenue numbers claimed by defendant Waldron in

connection with Shopping's IPO;

(c) Shopping's revenues were not meeting the Company's

business plan and, as a result, the Company was not achieving the

earnings which were projected in Shopping's planning reports;

(d) The Company's revenues are actually "pass-through"

in nature and post-costs of goods sold income more accurately

represents the Company's revenues. Therefore, net sales for the

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nine months ended October 31, 1997 were $18,841 as opposed to the

$376,822 reported;

(e) Since the inception of its business, 23% of the

Company's revenues had come via sales of computers and other office

equipment to Waldron, the primary underwriter of Shopping's IPO;

(f) Shopping began the IPO process with Waldron before

it had ever closed a sale and as part of the arrangement between

defendant Shopping, its CEO and COO and Waldron for Waldron to

underwrite Shopping's IPO, Waldron secretly arranged to purchase

$250,000 in product from Shopping, thereby enabling Shopping to

post substantial pre-IPO revenue growth;

(g) The price of the Company's stock following the IPO

was being manipulated by defendants as a result of defendant

Waldron's utilization of fraudulent sales practices including

fraudulant sales, refusals to execute customer's sales orders,

stock parking and other manipulative practices;

(h) As a result of the foregoing, there was no

reasonable basis in fact for the assurance that Shopping would

continue to sustain sequential earnings growth. As a result of the

foregoing, defendants' publicly made forecasts that Shopping would

achieve sequential earnings per share increases in the fourth

quarter of 1997 and beyond, were false and had no reasonable basis

in fact, as such earnings per share were impossible to achieve in

light of these undisclosed problems; and

(i) The publicly made forecasts of Shopping's sequential

earnings growth were false and were not genuinely believed by the

defendants, as they were aware of the adverse information set forth

above which contradicted these forecasts.

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JURISDICTION AND VENUE

9. This Court has jurisdiction over the causes of actions

asserted in this Complaint pursuant to the California Constitution,

Article VI, 10, because this case is a cause not given by statute

to other trial courts. The claims asserted herein arise under

25400 and 25500 of the Cal. Corp. Code and 17200, et. seq. of

the California Business & Professions Code.

10. Shopping is a citizen of California, as it is a

California corporation with executive offices and its principal

place of business located at 2101 East Coast Highway in Corona Del

Mar, California. Defendants Waldron and Wedbush are citizens of

California as each has its principal place of operations in this

state. The individual defendants reside in and/or conduct business

in and are citizens of California. The defendants' acts giving

rise to the causes of action alleged herein occurred within and

emanated from this state, including defendants' false statements

and manipulative conduct. The defendants' sale of Shopping stock

in Shopping's IPO also took place in this County. Plaintiff's

damages do not exceed $75,000. This action may not be removed to

federal court.

THE PARTIES

11. Plaintiff Michael A. Martucci purchased 250 shares of

Shopping on March 19, 1998 at $32.25 per share and was damaged

thereby.

12. Defendant Shopping is incorporated in the State of

California and maintains its principal place of business in Corona

Del Mar, California. Shopping began operations in February 1996,

and commenced selling on the Internet on July 11, 1997. The

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Company is an Internet-based electronic wholesaler/retailer

specializing inretail marketing of a broad range of top brand-name

consumer products and services at wholesale prices to both consumer

and trade customers. Utilizing proprietary technology, the Company

designed a fully-scalable systems architecture for the Internet

shopping marketplace. The Company's strategy is to become a

dominant low-price leader in "wholetailing" on the Internet by

utilizing the warehousing, purchasing and distribution strengths of

multiple manufacturers and distributors. As of January 9, 1998,

Shopping had approximately 4 million shares outstanding. During

the Class Period, Shopping shares were actively traded on the NASD

OTC Electronic Bulletin Board, even though it met NASDAQ OTC

requirements.

13. Defendant Robert J. McNulty ("McNulty") was, at all

relevant times, the President and Chief Executive Officer of

Shopping and a member of its Board of Directors. Because of his

position with Shopping, McNulty knew the adverse, non-public

information about its business, finances, products, markets and

present and future business prospects via access to internal

corporate documents (including Shopping's operating plans, budgets

and forecasts and reports of actual operations compared thereto),

conversations and connections with other corporate officers and

employees, attendance at management and Board of Directors'

meetings and committees thereof and via reports and other

information provided to him in connection therewith. McNulty knew

or recklessly disregarded that the statements particularized herein

were false and misleading when made and would affect trading in

Shopping securities and/or would create a false and misleading

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appearance with respect to the market for Shopping securities

before the truth about its products and financial condition was

revealed to the public. Defendant McNulty is a recidivist stock

manipulator. For example, in October 1995, defendant McNulty

settled an action brought by the SEC, and consented to a judgment

providing for a civil penalty, which included disgorgement of his

illegally obtained profits from a prior fraud. Defendant McNulty

participated in the fraud complained of herein despite the

injunction which prohibits him from violating the antifraud

provisions of the federal securities laws. Defendant McNulty

prepared, reviewed and signed the false Registration Statement and

Prospectus.

14. Defendant Douglas Hay ("Hay") was, at all relevant times,

the Chief Operating Officer of Shopping and a member of its Board

of Directors. Because of his position with Shopping, Hay knew the

adverse, non-public information about its business, finances,

products, markets and present and future business prospects via

access to internal corporate documents (including Shopping's

operating plans, budgets and forecasts and reports of actual

operations compared thereto), conversations and connections with

other corporate officers and employees, attendance at management

and Board of Directors' meetings and committees thereof and via

reports and other information provided to him in connection

therewith. Hay knew or recklessly disregarded that the statements

particularized herein were false and misleading when made and would

affect trading in Shopping securities and/or would create a false

and misleading appearance with respect to the market for Shopping

securities before the truth about its products and financial

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condition was revealed to the public. Defendant Hay prepared,

reviewed and signed the false Registration Statement and

Prospectus.

15. Defendant Waldron purportedly was founded in 1939. In

fact, Waldron was a near-bankrupt shell when acquired by defendant

Cery Perle and his cohorts in 1996. Waldron is a California

corporation, and was at all relevant times a securities

broker/dealer and purported NASD member with its principal place of

business located at 595 Market Street, San Francisco, California.

Waldron claims to be a full service banking and brokerage firm,

focusing its corporate finance efforts in Southern California's

high technology community. Waldron maintains offices within this

District. Defendant Waldron was the lead underwriter for the

Company's IPO and issued analysts' reports on Shopping during the

Class Period.

16. Defendant Cery Perle ("Perle"), a resident of California,

is and was at all relevant times the principal officer of defendant

Waldron. Defendant Perle controlled Waldron in fact and was a

control person of that firm pursuant to 20 of the Securities

Exchange Act of 1934.

17. Defendant Wedbush is a California corporation with its

principal place of business located at 1000 Wilshire Blvd., Los

Angeles, California. At all relevant times hereto, Wedbush was a

securities broker/dealer and NASD member. Wedbush acted as the

clearing firm for Waldron and Waldron cleared its trades through

Wedbush. Wedbush, in turn, cleared its trades through the National

Securities Clearing Corporation ("NSCC"), which is the major

clearing house in the United States for securities transactions on

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the major stock exchanges as well as those effected through the

NASDAQ system. As an NASD member firm, Wedbush has agreed to and

is legally bound to abide by the NASD's rules, including its

Uniform Practice Code and Business Conduct Rules.

18. Defendant Wendy Rey ("Rey") is a resident of California

and was at all times relevant hereto in charge of equity trading at

defendant Wedbush. Defendant Rey directed defendant Wedbush's

participation in the manipulative scheme alleged herein by, among

other things, orchestrating the forced buy-ins at prices 50% higher

than Shopping's then-current trading price despite NASD opinions

and/or advice against doing so.

19. The true names and capacities of defendants sued herein

under California Code of Civil Procedure 474 as Does 1 through 25,

inclusive, are presently not known to plaintiff, who therefore sues

these defendants by such fictitious names. Plaintiff will seek to

amend this complaint and include these Doe defendants' true names

and capacities when they are ascertained. Each of the fictitiously

named defendants is responsible in some manner for the conduct

alleged herein and for the injuries suffered by the Class.

20. During the Class Period, the defendants, individually and

in concert, directly and indirectly, engaged and willfully

participated in a continuous course of conduct to misrepresent the

results of Shopping's operations, and to conceal adverse material

information regarding Shopping as specified herein in order to sell

1.3 million Shopping shares in Shopping's November 1997 IPO. The

defendants employed devices, schemes, and artifices to defraud, and

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

alleged in an effort to increase and maintain an artificially high

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market price for Shopping shares. This included the formulation

of, making, and/or participation in the making of untrue statements

of material facts, and the omission to state material facts

necessary in order to make the statements made, in light of the

circumstances under which they were made, not misleading, which

operated as a fraud and deceit upon plaintiff and the other members

of the Class.

DEFENDANTS' MOTIVE TO PARTICIPATE IN THE SCHEME TO DEFRAUD

21. Each defendant had the opportunity to commit and

participate in the fraud. Defendants Hay and McNulty were the top

officers and/or directors of Shopping and they controlled its press

releases, corporate reports, SEC filings and its communications

with analysts. Thus, they controlled the public dissemination of,

and could falsify, the information about Shopping's business,

products, financial results and future prospects that reached the

public and impacted the price of its stock.

22. Each of the defendants also had the motive to commit and

participate in the fraud. Completing Shopping's IPO was extremely

important to defendants McNulty, Hay, Waldron and Perle because

prior to becoming a publicly traded company, these defendants had

received warrants and preferred stock so that they stood to obtain

huge benefits if the defendants could complete the IPO and keep the

price of Shopping stock inflated through 1998. These defendants

also participated in the scheme in order to cover up the problems

with and deterioration in Shopping's business to make it appear as

if Shopping's business was succeeding and achieving the strong

growth they had forecasted prior to the IPO, so that its stock

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would trade atartificially high levels, high enough so that they

could sell their Shopping stock once the "lock-up" period expired.

These defendants also were motivated to conceal the serious

problems Shopping was having in attracting new customers in an

attempt to maintain Shopping's competitive position in its markets,

which was increasingly impaired by aggressive competitors.

Defendants Wedbush and Rey were motivated to participate in the

manipulation of Shopping in order to avoid a collapse of Waldron

and the resulting loss to Wedbush of as much as $10 million.

BACKGROUND TO CLASS PERIOD

23. On July 15, 1997, the Company announced through defendant

McNulty the hiring of Mark S. Winkler as Chief Information and

Technology Officer of the Company who would be responsible for the

management of the Company's proprietary computer systems and

ensuring that the web-based retailer "remains on the cutting edge"

of Internet commerce.

24. The Company announced on July 16, 1997 that it had

retained Waldron to assist the Company with financing, strategic

acquisitions and the management of a possible IPO.

25. In August of 1997, the Company issued Series B Preferred

stock. First it sold 8,333 shares of its Series B Preferred stock

in a private placement at a price of $3 per share to Webster (CFO

and Secretary). In connection with this offering, Webster was

issued five warrants to purchase 4,166 shares of common stock with

an exercise price of $3 per share as well as registration rights

providing for one demand and unlimited piggyback registration

rights.

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26. Also in August 1997, 193,167 shares of Series B Preferred

Stock were issued. In connection therewith, five-year warrants

were issued to purchase 96,583 shares (including those issued to

Webster) of common stock with an exercise price of $3 per share as

well as registration rights providing for one demand and unlimited

piggyback registration rights. The Series A and Series B Preferred

Stock issued and outstanding prior to the Company's IPO were

converted into common stock in connection with the IPO.

27. On August 26, 1997, the Company announced that it had

signed an agreement with CitySearch (which was co-founded by Bill

Gross who is Chairman of the Board of the Company), a market

innovator in providing community-based on-line information services

for the Web. The announcement stated that CitySearch would provide

"shopping cart" tools, customer credit authentication and

verification, coordination with the merchant that an order has been

placed, communication with the customer when the order will be

shipped, collection of payment from the user and disbursement of

payments to the merchant. CitySearch planned to develop, manage

and monitor the electronic commerce program, select customers for

participation in the pilot program, as well as market the program

through it's Austin CitySearch Website.

28. On September 15, 1997, En Pointe Technologies, Inc. ("En

Pointe") made an investment in the Company by purchasing $600,000

worth of subordinated notes. The Company issued 399,600 warrants

to purchase the Company's common stock at $2.25 per share. As a

result of these warrants being issued with an exercise price of

less than fair market value of similar warrants, the Company

announced it would recognize additional financing costs of $299,700

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over the nine-month term of this subordinated note with the

unamortized portion at the closing of the IPO being expended

immediately.

29. On September 16, 1997, the Company announced through

defendant McNulty the hiring of Dr. Ogden M. Forbes as Chief

Knowledge and Research Officer of the Company, who would be

responsible for researching electronic commerce trends, tracking

the competition and providing corporate representation to both the

media and the Government.

30. On September 29, 1997, the Company announced that it had

selected En Pointe to be its exclusive supplier for computer

hardware, software and peripherals under a five-year agreement.

Under the agreement, the Company would use the computing equipment

for their internal infrastructure as well as for resale to their

Internet customers. In exchange for the five-year license, the

Company gave En Pointe 250,000 shares of the Company's common stock

valued at $3 per share, and agreed to pay an annual maintenance and

upgrade fee of $100,000.

DEFENDANTS' FRAUDULENT SCHEME

31. On or about November 25, 1997, defendants completed

Shopping's IPO, selling 1.3 million shares of Shopping common stock

at $9 per share, via a Registration Statement and Prospectus which

was prepared, reviewed and/or signed by defendants McNulty and

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Hay.3 All of the shares were being offered and sold via defendant

Waldron.

32. Concealing that almost 25% of Shopping's total revenue

from its inception had been obtained via the "sale" of product to

Waldron and claiming that the offering price of Shopping shares

reflected "the results of operations of the Company in recent

periods" as well as "estimates of the business potential of the

Company" the Registration Statement and Prospectus stated:

The Company anticipates that sales from the Company's Web Site will constitute substantially all of the Company's sales.

33. The Prospectus also discussed the emergence of commerce

on the Internet and the potential positive impact on the Company.

It cited a report by International Data Corporation which estimates

that the number of users accessing the Web will grow from 28

million in 1996 to 175 million in 2001 and that the amount of

commerce conducted over the Web will increase from approximately

$2.6 billion in 1996 to $220 billion in 2001.

34. Shopping's Registration Statement and Prospectus were

false and misleading. The true facts were that Shopping had

obtained much of its pre-IPO revenue by arranging with Waldron, the

underwriter of Shopping's planned IPO, to buy $250,000 worth of

equipment from Shopping as part of defendants' efforts to cause

Shopping to show revenue growth.

____________________

3 Following the IPO, Shopping had 4,002,000 shares outstanding. This figure includes the conversion of Series A and B Preferred Stock into 1,286,500 shares of common stock. The 1,286,000 shares are subject to a 12-month "lock-up" period following the date of the IPO.

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35. On January 12, 1998, the Company announced that it had

entered into an 18-month agreement with @Home Network, the "leader"

in high-speed Internet services via cable, which, according to the

press release, "will give [the Company] a significant presence as

a shopping supplier, offering over one million brand name products

on the @Home service." The agreement consisted of a "broadband

strategic promotion of [the Company] across @Home Guide pages, Home

page and other areas on the @Home Network." The press release

further stated that:

"In addition to conventional Internet access, web shoppers will soon have high-speed, direct access to Shopping.com's Superstore through @Home service," stated Douglas Hay, Chief Operating Officer at Shopping.com. "We are very excited about the @Home opportunity. During the first three days of our promotional program on @Home, we achieved more 'hits' from @Home to our site than we received from customers using the AOL browser."

36. On February 3, 1998, the Company announced financial

results for the third quarter ended October 31, 1997, reporting net

sales of $321,281 as compared to $55,541 reported for the second

quarter ended July 31, 1997; a net loss of $1.3 million or $.19 per

share compared to a net loss in the quarter ended July 31, 1996 of

$726,000 or $.21 per share. Commenting on the results defendant

McNulty stated:

"We began selling products on our Web site on July 11, 1997, these results reflect the progress achieved without significant advertising in the quest to capture additional sales in the exploding Internet marketplace. . . . Our business model allows us to grow rapidly while maintaining no physical inventories resulting in lower operating costs than traditional retailers. Since the completion of our public offering in November, we have implemented a marketing campaign to attract additional traffic to our website, established more vendor relationships, made key management additions and are making IS improvements to handle substantially higher volumes of sales orders. We believe these initiatives will move us towards our mission to become the dominant

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low price leader on the Internet selling brand name products."

37. On February 9, 1998, the Company announced that it signed

an agreement with Profit Pro, Inc. for the use of that company's

cataloging software which will look up auto parts on Shopping's

website. The software will allow web shoppers to search for an

auto part and receive a part number with a price. The press

release stated:

"We are pleased to be part of the $120 billion automotive after-market as the agreement with Profit Pro, Inc. gives our customers the convenience of shopping for their auto parts on-line without the hassle of calling or driving around to parts stores and enforces our goal of being a one-step online shopping center to Web consumers. We will continue to expand and strengthen our relationship with vendors like Profit Pro Inc. to offer even larger selection of merchandise," stated Bob McNulty, Chief Executive Officer at Shopping.

38. On February 10, 1998, the Company announced that it had

signed a two-year marketing and distribution agreement with En

Pointe, a provider of information technologies and services. Under

the agreement, En Pointe's direct sales force, in excess of 200,

would sell the Company's 15,000 business and office products line

to Fortune 500 companies. According to defendant McNulty, "[t]his

agreement will enable Shopping to not only tap into En Pointe's

extensive sales network, but to secure a stronger hold in the $120

billion business and office products industry."

39. On March 9, 1998, the Company announced that it had

signed a network radio advertising contract with Premiere Radio

Networks, Inc, a division of Jacor Communication, Inc. The ad

campaign was to air in the first and second quarters, and according

to the Company, would reach over 111 million people nationwide.

Defendant McNulty stated, "We have been extremely pleased with the

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national exposure and customer response to our advertising campaign

thus far."

DEFENDANTS' SCHEME BEGINS TO UNRAVEL

40. On March 11, 1998, an independent analyst at

broker/dealer Chatfield Dean & Co. published a research report with

a "sell" recommendation for Shopping. The report stated that

Shopping's sales were "overvalued," that Shopping's $29+ stock

price was "exuberant," and that a market value of $5 per share

would be more appropriate. On the same day, another broker/dealer

firm, Key West Securities, Inc., initiated a sell recommendation

for Shopping stock and issued a press release stating that "[t]he

Company has no sales to speak of. Waldron completely dominates and

controls almost every share and can basically place the price

anywhere he wants. This is not a fair or real market."

41. The very next day, on March 12, 1998, defendant Waldron

responded in spades to the negative analyst coverage by independent

brokerage houses which had issued "sell" recommendations, issuing

an extremely positive report on the Company as well as a "Buy"

recommendation with a 12-month stock price objective of $43 per

share. The report was prepared, reviewed and/or issued by

defendants Perle, McNulty and Hay and stated:

• Since becoming public on November 25, 1997, the company exceeds many of our preliminary expectations by positioning itself as an emerging e-tailer to both the individual consumer and commercial trade marketplace;

• The Company estimates that it is successfully on track to complete FY98 with revenues of approximately $800,000 (selling products for only seven months since July 1997) with projections to generate over $15.4 million for this current fiscal year 1999;

• Investors should also remember that IBUY is marketing its products to a more educated Internet shopping customer base

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who has become more comfortable with shopping over this new electronic medium;

• Other factors which help substantiate the company's projections are the recent agreements the company has signed with En Pointe Technologies, Inc. and @Home Network which we hope will allow Shopping.com to reach a deeper customer base with less advertising than some other Internet e-tailers are spending to attract traffic to its web site;

• As total transaction revenues for retail and wholesale commerce conducted over the Internet grow from an estimated $2.6 billion in 1996 to over $220 billion by 2001, IBUY seems well poised to ride this wave of anticipated growth;

• We believe there exists a huge opportunity for the company to gain an early lead by establishing itself as a highly recognized brand name shopping site known for its low prices. Shopping.com has begun to deploy some of the $10.2 million net proceeds it raised from its IPO to establish market share through an aggressive marketing and advertising campaign aimed at keeping itself at the forefront of the everyday Internet shopper who will hopefully begin to associate IBUY with its low prices and wide selection;

• We believe the company is well positioned to launch and survive any "predatory price wars" which come into the marketplace as companies scramble for more market share. Shopping.com hopes to operate this fiscal year 1999 at a blended gross margin of 7 percent to 9 percent spread out over its entire product category width while other e-tailers are currently realizing somewhere between 15 percent to 25 percent gross margins;

• We are rating Shopping.com with a "Buy" recommendation at this time given that its valuation of roughly $104 million seems discounted to its comps if the company is successful in meeting its projections of $15.4 million for this fiscal year 1999;

• Since the company will have an estimated 5.5 million shares outstanding fully-diluted by year end, it is our hope that the company will begin to trade up near the Price/Sales multiples currently enjoyed by three other pure play competitors if the company achieves $15.4 million in sales by 1/31/99.

42. On March 17, 1998, the Company issued a release

announcing that it was continuing to develop its concept and the

the Company was moving ahead per plan. "We are pleased with our growth

and progress to date," said defendant McNulty. "During the 4th

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quarter we enjoyed visits from almost 300,000 potential customers

to our website and saw our hits grow to over 11 million. Sales in

the 4th quarter exceeded $400,000 and our sales continue to

increase in the 1st quarter."

THE DEFENDANTS' MANIPULATION OF THE MARKET FOR SHOPPING SECURITIES

43. Waldron, its customers, and the accounts controlled by

Waldron beneficially own the great majority of the public float of

Shopping stock, which is approximately 1.3 million shares. As of

mid-February 1998, Waldron itself maintained an inventory of more

than 400,000 shares of Shopping in proprietary accounts. Waldron

also sold the stock to many of its customers, who continue to hold

large positions in the stock in their accounts with Waldron.

44. Commencing at the time of the IPO, Waldron, at the

direction of defendant Perle, began to manipulate the price of

Shopping stock via artificial market activity including parking

arrangements, guarantees against losses, and fraudulent purchasing.

Waldron and Perle also worked closely with defendant McNulty on a

weekly basis whereby defendant McNulty would pass the supposedly

confidential information of those who had "hit" or contacted

Shopping's website to defendants Perle and Waldron. Defendants

Waldron and Perle used this information to solicit persons who had

visited Shopping's website regarding the purchase of Shopping

shares. None of those arrangements were disclosed to plaintiff or

the marketplace.

45. As a result of the manipulative devices employed by

defendants, the price of Shopping stock rose far beyond any

rational value. Notwithstanding the historical losses of the

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Company, the stock sold at $9 per share in the IPO. Moreover, as

a result of defendants' manipulative conduct and their issuance of

the false and misleading statements, the price of Shopping rose to

over $30 per share in mid-March 1998 for a total market

capitalization of approximately $200 million.

46. In or about January 1998, despite the defendants' best

efforts, the supply of Shopping stock exceeded the demand, putting

downward pressure on its price. In order to prop up its stock

price, the defendants began to issue false information in

conjunction with Waldron. In addition, in order to relieve some of

the selling pressure, Waldron's trading room, at the direction of

defendant Perle, adopted a policy of refusing to accept sell orders

from customers. Waldron also pressured its registered

representatives to sell Shopping stock to their customers without

regard to its suitability, which resulted in sales of the stock to

many unsuitable customers.

47. Due to the size of Waldron's positions, it was apparent

to each of the defendants that if Shopping's price was allowed to

fall to true value, Waldron would sustain a huge loss and be forced

out of business. Defendants Perle, Hay and McNulty would also

suffer serious losses (along with other Shopping insiders who

received stock prior to the IPO) from such a price collapse.

Additionally, as Waldron's clearing firm, Wedbush would be liable

for Waldron's losses and market obligations. Wedbush stood to lose

as much as $10 million, a loss that would drive it out of business.

Accordingly, Wedbush, via defendant Rey, joined Waldron in its

efforts to continue the manipulation of the market for Shopping.

Wedbush continued to clear trades in Shopping while knowing of

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Waldron's unlawful activities, and defendant Rey actively

participated in the scheme by executing forced buy-ins of uncovered

short positions at prices far in excess of the trading price,

despite having been advised against this illegal practice by the

NASD.

48. On March 25, 1998, Shopping was forced to disclose that

trading in Shopping shares was suspended for 10 days by the SEC

because of suspicions of manipulative conduct. In addition, it was

reported that defendant Waldron is facing charges that it rigged

the market to pump up the stock of the Company. In response to the

suspension of trading, and denying any wrongdoing by the Company,

defendant McNulty stated the following:

"What is going on with Wall Street isn't happening on Main Street which is where our company does its business. Our company continues to execute its plan and despite the controversy, we continue to service our customers, and develop relationships with suppliers and vendors to build our franchise in the explosive electronic retail marketplace."

"Shopping.com remains focused on its mission statement to be the dominant low price leader on the Internet selling brand-name consumer products everyday. The Company has continued to position itself as a worldwide retailer as evidenced by the opening of our European offices to secure products and distribution for that marketplace."

49. Another bomb shell was dropped when on March 26, 1998,

Kristine Webster, the Company's Chief Financial Officer, disclosed

that 23% of the Company's revenues since the inception of its

business have come via the purchases of computers and other office

equipment valued at more than $250,000 by defendant Waldron. This

was never disclosed to the investing public in any filing including

the prospectus for the IPO. Thus, at the time of the offering,

Waldron, the principal underwriter, was itself the principal source

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of Shopping's revenues! Clearly, these transactions were

consummated for the purpose of generating revenue growth as Waldron

prepared to take the Company public.

FIRST CAUSE OF ACTION

Violation Of 25400/25500 Of The California Corporations Code

50. Plaintiff incorporates 1-49.

51. Acting individually and pursuant to a common conspiracy

or aiding and abetting each other, defendants concealed and/or

misrepresented material adverse information and/or willfully

participated in the concealment and misrepresentation of such

information regarding Shopping in order offer to sell and/or sell

Shopping securities in the IPO at inflated prices. Defendants'

wrongdoing included willful participation in the manipulation of

the trading activity in Shopping shares and the making of untrue

statements of material facts and the omission to state material

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

the circumstances under which they were made, not misleading, and

engaging in acts, practices and a wrongful course of conduct in

order to induce the purchase of shopping stock by plaintiff and the

members of the Class. Each act and/or false statement alleged

herein was made for the purpose of selling and/or offering to sell

securities and was prepared in and/or disseminated from the

California offices of Waldron, Wedbush and/or Shopping.

52. Plaintiff and the members of the Class have suffered

substantial damages because they paid artificially inflated prices

for Shopping stock. Moreover, members of the Class who still hold

Shopping shares are locked into a stock in which no broker/dealer

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makes a market. Plaintiff and the members of the Class would not

have purchased Shopping stock at the prices they paid, or at all,

if they had been aware that the market price had been artificially

and falsely inflated by defendants' misleading statements and

concealments. At the time of the purchases by plaintiff and the

members of the Class of Shopping stock, the fair market value of

said stock was substantially less than the prices paid by them.

53. By reason of the foregoing, defendants violated 25400 of

the Cal. Corp. Code, thereby entitling plaintiff and the members of

the Class to recover damages pursuant to 25500.

SECOND CAUSE OF ACTION

Unlawful, Unfair Or Fraudulent Business Practices In Violation Of California Business & Professions Code 17200, et seq.; False Or Misleading Advertising In Violation Of California Business & Professions Code 17500, et seq.

54. Plaintiff incorporates 1-49.

55. California Business & Professions Code 17200 prohibits

acts of unfair competition, which include "any unlawful, unfair or

fraudulent business act or practice."

56. Defendants' stock manipulation, misrepresentations and

nondisclosures of material facts during the Class Period are

prohibited by California Civil Code 1572, 1709 and 1710, and

California Penal Code 395 as well as principles of common law.

Accordingly, defendants have violated Business & Professions Code

17200's proscription against engaging in an unlawful business act

or practice.

57. Defendants' scheme to manipulate the price of Shopping

stock as well as misrepresent and/or conceal material facts and by

participating in illegal insider trading during the Class Period

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also constitute an unfair business act or practice within the

meaning of Business & Professions Code 17200. Defendants'

misrepresentations were unfair business practices as defendants

were aware (or should have been aware) at all relevant times, that

the Company's operations, performance and expected earnings per

share were not as represented. No justification existed for

defendants' misrepresentations and failures to disclose material

facts.

58. Defendants' scheme to manipulate Shopping stock as well

as their misrepresentations and nondisclosures of material facts

during the Class Period also constitute a fraudulent business act

or practice within the meaning of Business & Professions Code

17200. Defendants' conduct had a tendency to deceive the

investing public because defendants:

(a) Misrepresented the quality of the solicited

investment;

(b) Misrepresented the true value of Shopping shares;

and

(c) Failed to disclose material facts necessary to make

the statements made not misleading.

59. Defendants' use of various forms of marketing to falsely

advertise, call attention to, or give publicity to the sale of

shares of Shopping common stock by, inter alia, making untrue

and/or deceptive representations as to the nature and quality of

the investment and about Shopping's business and business

prospects, constitutes false or misleading advertising within the

meaning of Business & Professions Code 17500, et seq., because

defendants either knew or reasonably should have known that such

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advertising was untrue and/or misleading. Necessarily, defendants'

violation of 17500, et seq., also constitutes a violation of

Business & Professions Code 17200, et seq.

60. Accordingly, because defendants have committed unlawful,

unfair and/or fraudulent business acts or practices in violation of

Business & Professions Code 17200, t seq., and engaged in false

and misleading advertising in violation of Business & Professions

Code 17500, et seq., plaintiff, the members of the class and the

general public are entitled to relief under 17203 and 17535 which

may include (1) orders or judgments enjoining defendants from

engaging in further unlawful, unfair or fraudulent acts or

practices, or (2) orders of disgorgement or restitution to prevent

defendants from retaining any money or property -- including

profits from illegal trading obtained by means of their

unlawful, unfair or fraudulent acts 'or practices. Plaintiff

additionally requests that such money or property be impounded by

this Court, or that an asset freeze or constructive trust be

imposed upon such revenues and profits, to avoid dissipation and/or

fraudulent transfers or concealment of such monies by defendants.

Plaintiff, the members of the Class and the general public may be

irreparably harmed and/or denied an effective and complete remedy

if such an order is not granted.

CLASS ACTION ALLEGATIONS

61. Plaintiff brings this action as a class action pursuant

to California Code of Civil Procedure 382 on behalf of all persons

who purchased or otherwise acquired Shopping stock (the "Class")

between November 25, 1997 and March 26, 1998, inclusive. Excluded

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from the Class are each of the defendants, members of their

families and any entity in which a defendant has an interest.

62. The Class is composed of numerous residents of

California, as well as persons dispersed throughout the United

States, the joinder of whom in one action is impracticable. The

disposition of their claims in a class action will provide

substantial benefits to the parties and the Court. During the

Class Period, Shopping had more than 4 million shares of stock

outstanding, owned by hundreds of shareholders.

63. There is a well-defined community of interest in the

questions of law and fact involved in this case. The questions of

law and fact common to the members of the Class, which predominate

over questions which may affect individual Class members, include

the following:

(a) Whether defendants participated in a scheme to

manipulate Shoppingfs stock price;

(b) Whether defendants misrepresented material facts;

(c) Whether defendants' statements omitted material

facts necessary to make the statements made, in light of the

circumstances under which they were made, not misleading;

(d) Whether defendants knew or should have known that

their statements were false and misleading;

(e) Whether defendants violated Cal. Corp. Code 25400

and 25500;

(f) Whether defendants violated Cal. Bus. & Prof. Code

17200, et seq.;

(g) Whether the price of Shopping stock was artificially

inflated during the Class Period; and

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(h) The extent of damage sustained by Class members and

the appropriate measure of damages.

64. Plaintiff's claims are typical of those of the Class

because plaintiff and the Class sustained damages from defendants'

wrongful conduct.

65. Plaintiff will adequately protect the interests of the

Class. He has retained counsel who are experienced in class action

securities litigation. Plaintiff has no interests which conflict

with those of the Class.

66. A class action is superior to other available methods for

the fair and efficient adjudication of this controversy.

67. The prosecution of separate actions by individual Class

members would create a risk of inconsistent and varying

adjudications.

BASIS OF ALLEGATIONS

68. Plaintiff has alleged the foregoing based upon the

investigation of his counsel, which included a review of Shopping's

SEC filings, securities analysts' reports and advisories about the

Company, press releases issued by the Company, and media reports

about the Company and believes that substantial additional

evidentiary support will exist for the allegations set forth herein

after a reasonable opportunity for discovery.

PRAYER FOR RELIEF

WHEREFORE, plaintiff, on behalf of himself and the other

members of the Class, demands judgment against the defendants as

follows:

1. Declaring this action to be a proper class action on

behalf of the Class defined herein;

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2. Awarding plaintiff and the members of the Class

compensatory damages;

3. Awarding plaintiff and the members of the Class pre-

judgment and post-judgment interest, as well as reasonable

attorneys' fees, expert witness fees, and other costs;

4. Awarding extraordinary, equitable, and/or injunctive

relief as permitted by law and/or equity; and

5. Awarding such other relief as this Court may deem just

and proper.

DATED: April 15, 1998 MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH DARREN J. ROBBINS

/s/ ______________________________ WILLIAM S. LERACH

600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058

SPECTOR & ROSEMAN, P.C. ROBERT M. ROSEMAN 2000 Market Street 12th Floor Philadelphia, PA 19103 Telephone: 215/864-2400

SPECTOR & ROSEMAN, P.C. ELLEN GUSIKOFF STEWART DIANE P. DOHERTY 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/338-4514

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REINHARDT & ANDERSON RANDALL H. STEINMEYER E-1000 First National Bank Building 332 Minnesota Street St. Paul, MN 55101 Telephone: 612/227-9990

Attorneys for Plaintiff

COMPLNTS\SHOPPING.CP2

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Securities Class Action Clearinghouse U.S.D.C. N.D. Cal. Robert Crown Law Library Stanford University School of Law

inquiries@securities.stanford.edu

Source: Scanned paper copy of court-stamped document.


Last changed: March 17, 2000