Professional Documents
Culture Documents
2
ED ENTERED
3 LO DGED RECEIVED
4 KN
MAR 0 9 200I
5 AT SEATTLE
CLERK U. S. DISTRICT coum'
WESTERN DISTRICT OF WASHINGTON
6 or DEPUTY
Co
9
10
MAXINE MARCUS, On Behalf
Co1o S :L
11 of Herself and All Others : Civil Action No.
Similarly Situated,
12
Plaintiff, COMPLAINT - CLASS ACTION
13 FOR VIOLATION OF FEDERAL
-against- SEC IES LAWS
14
JEFFREY P. BEZOS, JOSEPH GALLI, JR.,
15 WARREN C. JENSON, and
AMAZON.COM, INC.,
16
Defendants.
17 ----------------------------------
18
Plaintiff, individually and on behalf of all other persons similarly situated, by her
19
undersigned attorneys, for her complaint, alleges upon personal knowledge as to herself and her own
20
acts, and upon information and belief as to all others matters, based upon the investigation made by and
21
through her attorneys, which investigation included, inter ia, a review of the public documents and
22
press releases of Amazon.com, Inc. ("Amazon" or the "Company"), news articles, and analyst reports
23
regarding the Company.
24
NATURE OF ACTION
25
1. Plaintiff brings this action as a class action on behalf of herself and all other persons,
2 Amazon during the period February 2, 2000 through and including October 30, 2000 (the "Class
3 Period"), to recover damages caused by defendants' violations of the federal securities laws.
4 2. During the Class Period, defendants disseminated to the investing public false and
5 misleading financial statements in SEC filings and press releases concerning the Company's revenues,
6 investments in joint ventures, earnings, cash flow as well as its overall financial condition and future
7 prospects.
9 called Amazon Commerce Network partners ("ACNs") and the purported high margin revenue stream
10 created by such ventures. Because of Amazon's ongoing operating losses, it was critical for the
11 Company to demonstrate to the market significant cash flow to offset such losses until the Company
12 became profitable. However, defendants failed to disclose until the end of the Class Period that: (a) the
13 ACN investments were losing millions of dollars; (b) much of the purported revenue recorded appeared
14 to investors as cash, but was actually in the form of highly speculative equity investments; and (c) the
15 revenues recognized under the ACN agreements made Amazon's losses appear less than they were and
17 4. During the Class Period, Defendant Jeffrey Bezos sold 368,650 shares of the common
18 stock of Amazon at $54.24 on May 12, 2000 for proceeds of almost $20 million. In addition, defendants
19 completed an offering of Amazon convertible debt priced at greater than $680 million in February 2000.
20 5. During the Class Period, the Company improperly reported revenues from ACNs.
21 Defendants also boasted that present and future revenues pursuant to contracts with ACNs were to
22 exceed $500 million. Not until the end of the Class Period was it revealed that: (i) the operating losses
23 from ACNs were mounting; (ii) many of the ACN's were either in bankruptcy or on the edge of
24 bankruptcy; (iii) it was doubtful that the purported revenues could be realized; and (iv) the ACN
25 "agreements," which were never attached to SEC filings, were apparently not binding agreements but
3 7. However, after the close of trading on October 24, 2000, defendants announced that the
4 11 Company was the target of an informal investigation by the Securities and Exchange Commission (the
6 8. On October 30, 2000, buried in the Company' s Management ' s Discussion and Analysis
7 (the "MDA"), filed with the SEC on Form 10-Q for the quarter ended September 30, 2000 (the "2000
8 Third 10-Q"), defendants revealed that one of the Company's major ACNs , Living.com , declared
9 bankruptcy during the quarter ended September 30, 2000 and that during the nine months ended
10 September 30, 2000, the Company lost "$266 . 9 million of equity-method losses for investments in
11 ACN[s]." On the same day, the common stock of Amazon closed at $32.88 per share, down almost
12 nine percent from the previous day's close on heavy trading volume , and down more than 60 percent
14 9. On March 9, 2001 , it was reported that defendant, Jeffrey P. Bezos, was being
15 investigated by the SEC for stock sales just before a negative analyst report was released concerning
16 Amazon' s reporting of cash flows, ACNs, and the Company's unlikely viability as a going concern. On
17 March 9, 2001, Amazon's stock price was trading around $ 12.00 per share.
20 Act of 1934 (the "Exchange Act"), 15 U.S.C. 78j, and 78t, and Rule IOb-5, 17 C.F.R. 240.1Ob-5
21 promulgated thereunder by the SEC.
22 11. This Court has jurisdiction in this action pursuant to Section 27 of the Exchange Act, 15
25 U.S.C. 1391(b) and (c). Amazon' s corporate headquarters is located in this District. Thus, many
of the acts giving rise to the violations complained of herein, including the dissemination of false and
2 13. In connection with the acts, transactions and conduct alleged herein, defendants used the
3 means and instrumentalities of interstate commerce, including the United States mails, interstate
4 I telephone communications and the facilities of national securities exchanges and markets.
5 THE PARTIES
6 14. Plaintiff purchased shares of the Company's common stock during the Class Period on
7 11 the open market and was injured thereby, as attested to in the attached Certificate of Named Plaintiff
8 15. Defendant Amazon is a Delaware corporation with its principal executive offices at 1200
9 12' Avenue South, Suite 1200 , Seattle, Washington 98144. The Company is an online retailer offering
10 I items including books, music, DVD/Video, toys, electronics, software, and home products.
11 (a) Amazon's common stock trades on the National Association of Securities Dealers
12 Automatic Quotation System (the "NASDAQ"). At April 30, 2000, there were 351 ,774,236 shares of
13 the Company' s common stock issued and outstanding. Approximately 36 percent of such stock, or 127
14 million shares, were held by insiders . In addition, the Company had outstanding $680,685,000 of 6.875%
15 convertible subordinated notes due 2010 issued on February 16 , 2000 (the "PEACS"). The Company
16 maintains a Web site at www.Amazon.com where it disseminates investor information including annual
17 and quarterly reports filed with the SEC and earnings releases.
18 16. Defendant Jeffrey P. Bezos ("Bezos") has been the Chairman of the Board of the
19 Company since founding it in 1994, and Chief Executive Officer since May 1996. Bezos also became
20 President and Chief Operating Officer of the Company upon Joseph Galli, Jr.'s departure on July 25,
21 2000. As of February 28, 2000, Bezos beneficially owned 117,522,822 shares of the Company's
22 common stock. Because of Bezos' positions with the Company, he had access to adverse, non-public
2311 information about its business, finances, products, markets and present and future business prospects.
24 Bezos signed materially false and misleading statements filed with the SEC throughout the Class Period.
25 Defendant Bezos sold 368,650 shares ofthe common stock ofAmazon at inflated prices during the Class
2 Officer and on the board of directors from June 1999 until his "resignation" on July 25, 2000. As of
3 February 29, 1999. Galli beneficially owned 1,369,684 shares of the Company's common stock.
4 Because of defendant Galli's position with the Company, at all relevant times hereto, he had access to
5 adverse, non-public information about its business, finances, products, markets and present and future
6 business prospects. Galli signed materially false and misleading statements filed with the SEC during
8 18. Defendant Warren C. Jenson ("Jenson") was Chief Financial Officer and Senior Vice
9 President of the Company at all relevant times. As of February 29, 2000, Jenson beneficially owned
10 975,000 shares of Amazon common stock. Because of defendant Jepson's position with the Company,
11 he had access to adverse, non-public information about its business, finances, products, markets and
12 present and future business prospects. Jenson signed materially false and misleading statements filed
14 19. The defendants listed in paragraphs 16 through 18 are referred to herein as the "Individual
15 ^ Defendants."
16 20 The Individual Defendants, as officers and directors of the Company, were controlling
17 persons of the Company within the meaning of Section 20(a) of the Exchange. Act. By reason of their
18 stock ownership and positions with the Company, they were able to and did, directly or indirectly, in
19 whole or in material part, control the content of public statements issued by or on behalf of the
20 Company. They participated in and approved the issuance of such statements made throughout the Class
21 Period, including the materially false and misleading statements identified herein.
22 21. By reason of their positions with the Company, the Individual Defendants had access to
23 internal Company documents, reports and other information, including the adverse non-public
24 information concerning the Company's services, financial condition, and future prospects, and attended
25 management and/or board of directors meetings. As a result of the foregoing, they were responsible for
of the Company's financial statements, public reports and releases
2 ACN's, the nature and amount of equity received and the fact that Amazon received significantly less
4 22. Amazon and the Individual Defendants, as officers and directors of a publicly-traded
5 company, had a duty to promptly disseminate truthful and accurate information with respect to Amazon
6 and to promptly correct any public statements issued by or on behalf of the Company which had become
7 false or misleading.
8 23. The Individual Defendants and Amazon knew or recklessly disregarded the fact that the
9 misleading statements and omissions complained of herein would adversely affect the integrity of the
10 market for the Company's stock and would cause the price of the Company's common stock to become
11 artificially inflated. Each of the defendants acted knowingly or in such a reckless manner as to constitute
12 a fraud and deceit upon plaintiff and the other members of the Class.
14 24. Plaintiff brings this action as a class action pursuant to Federal Rules of Civil Procedures
15 23(a) and (b)(3) on behalf of a class consisting of all persons and entities who purchased or otherwise
16 acquired the Company's common stock during the period from February 2, 2000 through October 30,
17 2000 inclusive (the "Class Period"), and who suffered damages thereby (the "Class"). Excluded from
18 the Class are defendants, members of the Individual Defendants' families, any entity in which any
19 defendant has a controlling interest or is a part or subsidiary of or is controlled by the Company, and the
20 officers, directors, employees, affiliates, legal representatives, heirs, predecessors, successors and assigns
21 of any defendant.
22 25. The members of the Class are so numerous that joinder of all members is impracticable.
23 While the exact number of Class members is unknown to the plaintiff at this time and can only be
24 ascertained through appropriate discovery, plaintiff believes there are, at a minimum, thousands of
25 members of the Class who purchased the Company's common stock during the Class Period. The
24 -52 million shares of its common stock outstanding as of April 30, 2000.
4 (a) the Federal securities laws were violated by defendants' acts as alleged herein;
5 (b) the Company issued false and misleading financial statements during the Class Period;
6 (c) the Individual Defendants caused the Company to issue false and misleading financial
8 (d) defendants acted knowingly or recklessly in issuing false and misleading financial
9 statements;
10 (e) the market prices of the Company's securities during the Class Period were artificially
13 I measure of damages.
14 27. Plaintiff s claims are typical of the claims of the members of the Class as plaintiff and
15 members of the Class sustained damages arising out of defendants' wrongful conduct in violation of
17 28. Plaintiff will fairly and adequately protect the interests of the members of the Class and
18 has retained counsel competent and experienced in class actions and securities litigation. Plaintiff has
21 of the controversy since joinder of all members of the Class is impracticable. Furthermore, because the
22 damages suffered by the individual Class members may be relatively small, the expense and burden of
23 individual litigation makes it impracticable for the Class members individually to redress the wrongs
24 done to them. There will be no difficulty in the management of this action as a class action.
25
2 (a) defendants made public misrepresentations or failed to disclose material facts during
3 1 the Class Period;
6 (d) the misrepresentations and omissions alleged would tend to induce a reasonable
8 (e) plaintiff and members of the Class, who purchased the Company's stock during the
10
14 none of the statements pleaded herein were identified as "forward-looking statements" when made; or
15 (b) such statements did not contain meaningful cautionary statements identifying important factors that
16 could cause actual results to differ materially from those in the statements accompany those statements.
17 To the extent that the statutory safe harbor does apply to any statements pleaded herein deemed to be
18 forward-looking, defendants are liable for those false forward-looking statements, because at the time
19 each of those statements was made the speaker actually knew the forward-looking statement was false
20 and/or the statement was authorized and/or approved by an executive officer of the Company, who
22
23 Background
24 32. During the Class Period Amazon made equity investments in certain Internet companies
25 while simultaneously entering into agreements to provide such entities with various services in exchange
26 Amazon sted its reported earnings during the Class Period
3 1999 and 2000, accounting for them under either the cost or equity method. In certain instances, the
4 Company simultaneously entered into agreements that permit such companies to promote their products
5 on Amazon ' s website and receive other types of services in exchange for a fee. These entities are part
6 of the ACNs. For the quarters ended March 31, 2000 and June 30, 2000, the Company reported $24.3
7 million and $ 19.9 million, respectively, as revenue from its ACNs, and $23 . 6 million and $19.5 million,
9 34. At the beginning of the Class Period, defendants misled the investing public to believe
10 that Amazon agreed to receive payment for the services performed to ACN partners primarily or entirely
11 in cash instead of equity. Shortly, thereafter, the Company began accepting reduced future cash
12 payments, equity, and renegotiated shorter agreement terms. Moreover, in the event that the stock
13 received as payment either appreciated or depreciated, the amount the Company recorded as revenue
15 35. In fact, the Company recorded revenues and "gains" from Living.com, in which Amazon
16 I held a significant equity stake, even though Living.com was in dire financial condition, eventually filing
17 for Chapter 7 bankruptcy in August 2000.
18 36. In its filings with the SEC during the Class Period, defendants falsely represented that
19 its recognition of ACN related revenue was in accordance with Generally Accepted Accounting
20 Principles ("GAAP"), specifically, AICPA, Emerging Issues Task Force ("EITF") No. 00-8.
21 37. Defendants' SEC filings would repeat, in mantra-like fashion, selected portions of EITF
14 39. Throughout the Class Period, defendants failed to disclose: (1) the agreements with its
15 E ACNs as exhibits to SEC filings as required by SEC Rule S-K, Item 601; (2) the fact that the agreements
16 apparently were readily subject to renegotiation; and (3) that there were significant contingencies
17 surrounding the realization of the revenues due to the lack of viability of many of the ACNs.
18 40. It was not until August 2000 that defendants began reporting the amount of the revenue
19 received as cash and the amount received as equity investments, and related losses of the ACNs.
20 Notwithstanding, Amazon continued to improperly recognize ACN revenue throughout the remainder
4
Net sales for all of 1999 were $1.64 billion, a 169 percent increase over
5 net sales of $610 million reported for all of 1998.
7 "This was our fastest sequential growth as a public company, and we are
grateful that so many customers chose Amazon.com for such; a broad
8 range of products," said Jeff Bezos, Amazon.com founder and CEO.
12
13 During the fourth quarter and so far in 2000, Amazon.com has announced
partnerships with Next Card, Ashfordcom, Greenlight.com, Audible, and
14 living . com, as well as an expanded drugstore.com partnership. In
aggregate, these partnerships represent more than $500 million in revenue
15 commitments to Amazon.com over the next five years.
1611 * *
17 42. The preceding statements were false and misleading because defendants knowingly or
20 investments in ACNs, because the ACNs were not econothically viable, and revenues receivable from
23 substantial amounts were payable in the form of stock that in many instances was nonpublic or worth
251 (c) the preceding statements were also false and misleading for the reasons stated at
paragraphs 34-38.
27 CLASS ACTION COMPLAINT ZWERLING, SCHACHTER & ZWERLING, LLP
FOR VIOLATION OF 1904 Third Avenue , Suite 1030
28 FEDERAL SECURITIES LAWS 11 Seattle , WA 9810
43. On February 3, 2000, an analyst for the Company' s investment banker issued a research
2 report indicating payment from the ACNs would be in the form of cash. The price of the Company's
3 common stock soared to an intraday high of $85.938 per share, closing at $84 .188 per share, on a
4 record 43.2 million shares traded, up from its previous day's close of $69.438.
6 1 Notes."
15 represented that Amazon would receive a minimum of $362 million in revenues from these agreements.
16 On January 21, 2000, we announced that we had agreed to acquire 5% of
the outstanding shares of Greenlight.com, an online car buying service,
17 and warrants to increase our stake up to 30%. In connection with this
investment, we also announced that we had entered into a promotional
18 agreement with Greenlight.com. This agreement provides for the
payment of a minimum of $82.5 million to us over a five-year period.
19
On January 24, 2000, we announced that we had agreed to make an
20 additional $ 30 million investment in drugstore .com, an online retail and
information source for health, beauty, wellness, personal care and
21 pharmacy. This investment brings our total stake in drugstore.com to
approximately 28% ofthe outstanding drugstore .com common stock. We
22 also agreed to create a health and beauty store on the Amazon. com Web
site. Under the commercial agreement for this transaction, Amazon.com
23 will receive $ 105 million over a three-year period.
7
46. The preceding statements were knowingly or deliberately recklessly false and misleading
8
for the reasons stated at paragraphs 34-38, 42. The preceding statements were also knowingly or
9
deliberately false and misleading, as defendants failed to disclose the agreements with the ACNs as
10
exhibits to any of Amazon's filings with the SEC during the Class Period.
11
47. On February 16, 2000, Amazon "Announce[d the] Closing of the Public Offering of 6
12
7/8% Convertible Subordinated Notes Due 2010.
13
[Amazon] announced today that it has closed a public offering of 690
14 million euros aggregate principal amount of its 6 7/8% Convertible
Subordinated Notes due 2010.
15
The notes were offered at par. The notes and shares of common stock of
16 the company issuable upon conversion of the notes are covered by the
company's existing shelf registration statement.
17
An underwriting group led by Morgan Stanley Dean Witter and including
18 Credit Suisse First Boston and Donaldson, Lufkin & Jenrette offered the
notes.
19
20 48. On March 29, 2000, the Individual Defendants caused the Company to file on Form 10-K
21 its annual report for the year ended December 31, 1999 (the "1999 10-K"). All of the Individual
22 Defendants signed the 1999 10-K.
23 49. The 199910-K repeated the same information as the February 2, 2000 Press Release and
19 For the quarter, trailing 12-month sales per customer who purchased during the
past 12 months was $121 , up from $107 for the first quarter of 1999. The
20 Company also reported that its overall fulfillment expenses were $99 million or
17 percent of sales this quarter.
21
22 52. The preceding statements were knowingly or deliberately recklessly false and misleading
23 for the reasons stated at paragraphs 34-38 and 42, and because : (a) defendant Jenson had no reasonable
24 or good faith basis to state that, "With the leading platform in online commerce, a global brand and
25 scale, and $1 billion in cash, we are well positioned to deliver on our 2000 plans"; and (b) defendants
in value of many of its internet stocks, recognition of future
27 CLASS ACTION COMPLAINT ZWERLING, SCRACHTER & ZWERLING, LLP
FOR VIOLATION OF 1904 Third Avenue, Suite 1030
28 FEDERAL SECURITIES LAWS 14 Seattle, WA 98101
1 11 revenue was unlikely.
2 53. On May 15, 2000, the Individual Defendants caused the Company to file on Form 10-Q
3 I Amazon's quarterly report for the period ending March 31, 2000 (the "2000 First 10-Q"). Therein, in
4 1 addition to the statements made in the April 26, 2000 Press Release, the following statements were
5 I made.
11 Unearned revenue is recognized over the period in which the service for
which consideration has been received is performed (generally one to 2.5
12 years). During the three months ended March 31, 2000, the Company
recorded $19.9 million of revenue from ACN partners.
13
54. The preceding statements were knowingly or deliberately recklessly false and misleading
14
for the reasons stated at paragraphs 34-38 and 42, and because the Company's financial statements were
15
not prepared in accordance with GAAP as revenues were being recognized when significant
16
contingencies existed as to their realization.
17
55. On July 26, 2000, "Amazon ... announced that net sales for the second quarter of 2000
18
were $578 million, an increase of 84% over net sales of $314 million for the second quarter of 1999."
19
The Press Release continued.
20
21
"We are pleased to report strong year-over-year growth in revenue, gross
22 margin and operating margin improvement, U.S. Books, Music and
DVD/Video segment pro forma operating profitability, and a cash
23 balance of $908 million," said Warren Jenson, Amazon.com chief
financial officer. "Looking ahead, we continue to expect "r forma
24 operating losses in the single digits as a percentage of sales by the fourth
quarter of this year and strong-over-year sales growth. In addition we
25 expect to end the year with roughly $1 billion in cash."
5{s: mere false and misleading for the reasons stated at paragraphs
2 of the agreements, defendant Jenson had no good faith or reasonable basis to state "Looking ahead, we
3 continue to expect p forma operating losses in the single digits as a percentage of sales by the fourth
4 quarter of this year and strong-over-year sales growth. In addition we expect to end the year with
6 57. On August 2, 2000, the Individual Defendants caused Amazon to file with the SEC on
7 Form 10-Q its quarterly report for the period ending June 30, 2000 (the "2000 Second 10-Q").
8 58. Therein, the defendants made the same statements contained at paragraph 51 as stated
9 in the 2000 First 10-Q and the July 26, 2000 Press Release . Thus, the 2000 Second 10-Q was knowingly
10 or deliberately recklessly false and misleading for the reasons stated at paragraphs 52 and 56.
11 59. In addition, the following statements were made in the 2000 Second 10-Q.
12 During the three months and six months ended June 30, 2000, the
Company recorded $24.3 million and $44.2 million, respectively from
13 ACN partners . For the three months ended June 30, 2000, this revenue
was comprised of $4.2 million of cash, $ 19.2 million of equity securities
14 of public companies and $0. 9 million of equity securities of private
companies . For the six months ended June 30, 2000, this revenue was
15 comprised of $7.0 million of cash, $33.5 million of equity securities of
public companies and $3 .7 million of equity securities of private
16 companies.
24 60. Although the Company for the first time reported the same losses recorded relating to the
25 ACN investments and the composition ofthe revenue received from the related ACN "agreements," the
2 contingent to be recognized; and (b) defendants still failed to disclose the terms of the agreements, and
3 the agreements themselves as required by applicable SEC rules.
4 61. On October 24, 2000, the Individual Defendants caused Amazon to announce "net sales
5 Q for the third quarter of 2000 were $638 million, an increase of 79% over net sales of $356 store has
6 grown to become the second-largest U.S. store, behind Books and ahead of Music. Gross margin for
7 11 the third quarter of 2000 was 26%, up from 20% for the third quarter of 1999." The release continued:
8 "This was a strong quarter for Amazon.com; we are driving toward
profitability, and we surpassed our key internal operational and financial
9 objectives," said Warren Jenson, Amazon.com chief financial officer.
"As we enter our sixth holiday season, we are better prepared
10 operationally than ever operating margin for the fourth consecutive
quarter."
11l
62. The preceding statements were knowingly or deliberately recklessly false and misleading
12
for the reasons stated at paragraphs 34-38 and 42.
13
63. On October 30, 2000, the Individual Defendants caused Amazon to file with the SEC on
14
Form 10-Q its quarterly report for the period ending September 30, 2000 (the "3rd Qtr 10-Q"). The 3rd
15
Qtr 10-Q contained the same statements as in the October 24, 2000 Press Release, as well as the
16
statements contained in the 2nd Qtr 10-Q. Thus, the 3rd Qtr 10-Q was knowingly or recklessly false and
17
misleading for the reasons stated at paragraphs 60 and 62.
18
The Truth Is Revealed
19
64. In addition, the 3rd Qtr 10-Q reported the following:
20
The Company accounts for several of its investments in ACN partners
21 using the equity method During the three months and nine months ended
September 30, 2000, the Company recorded $69.1 million and $266.9
22 million of equity method losses for investments in ACN partners. During
the three months ended September 30, 2000, one of the Company's
23 equity method investees, living.com, Inc. (living.com) declared
bankruptcy.
24
25 We have significant indebtedness. As of September 30, 2000, we had
indebtedness under senior discount notes, convertible notes, capitalized
_other asset financingstotaling $2.1 billion.. _We
65. On October 30, 2000, a Barron's article reported the following, which defendants knew
2 More important, Meeker reported that the payments would be made in the
form of cash. In a February note published five days before Morgan
Stanley lead-managed Amazon's convertible eurobond offering, Meeker
wrote: "These partnerships are now developing into a highmargin
4 revenue stream for Amazon. Combined, the multiyear cash commitments
to Amazon from its partners now total over $450 million."
5
What's more, as yet another example of Amazon's lack of clear
6 disclosure, documents filed by the company with the SEC related to the
bond offering fail to make plain that some of the payments would be
7 made in stock.
12 That reads to us as though Amazon would get $30 million in cash from
Audible. But in fact, Amazon received $20 million in stock in front with
13 a pledge for the remaining $10 million in the third year of their
agreement. The reality is that the $20 million in Audible stock is now
14 worth about $1.3 million, and Audible's ability to pay the rest is in
question.
15
The result of all of this is that investors could have been led to believe
16 that Amazon would reap at least $450 million in high margin cash
revenues from its commerce partners as opposed to a fraction of that sum,
17 as represented by pounded-down shares. Amazon, in response to
telephone calls and an e-mail message, responded with an e-mailed copy
18 of a joint press release, which relates to one of their commerce partners
and is dated last December 1. It states: "In exchange for the investment
19 and the market relationship, Amazon.com will hold approximately 16.6%
of Ashford.com's outstanding common stock upon the closing of the
20 transaction." The company would not answer any questions or offer any
other examples.
21
Meeker's research note certainly didn't discourage European investors
22 from buying Amazon's convertibles. Nor did it hurt Amazon's stock on
the Nasdaq. The shares soared 21% to $84.19 on February 3, the first
23 trading day after Amazon announced its commerce-partner backlog.
24 Amazon could have set the record straight sooner and explained the
nature of the payments. If early payments were not intended to be made
25 mostly in cash, it could have easily released a statement clarifying or
correcting Meeker's information.
3
that do not arise from or are not necessarily representative of the registrant's ongoing business. Item
2 303(a)(2)(ii) to Regulation S-K requires the following discussion in the MD&A of a company's publicly
13 70. The Company's financial statements contained in the Prospectus, the 1999 10-K, and
14 quarterly reports filed with the SEC on Forms I0-Q for the quarterly periods throughout the Class Period
15 were presented in a manner that violated the principle of fair financial reporting and the following
16 GAAP, among others:
17 (a) The principle that financial reporting should provide information
that is useful to present and potential investors and creditors and
18 other users in making rational investment, credit and similar
decisions (FASB Statement of Concepts No. 1).
19
6 71. In contravention of the provisions of GAAP and Regulations S-X, the Company's
7 1 financial statements falsely stated that they were in compliance with GAAP for the reasons alleged
8 1 herein . In addition, the Company's financial statements failed to comply with the provisions of AICPA
9 Statement Of Position 94-6, Disclosure Of Significant Risks and Uncertainties , which states that:
14 72. Such disclosure is intended to clarify the investment community's understanding of the
15 operations of the Company. As stated by the SEC in its Accounting Series Release 173: "it is important
16 that the overall impression created by the financial statements be consistent with the business realities
17 of the company's financial position and operations ...."
18 73. The financial statements of the Company disseminated to the investing public during the
19 Class Period were not presented in accordance with GAAP in that such financial statements failed to
r
1 that they reasonably expected would have a material, unfavorable impact on net revenues or income or
2 that were reasonably likely to result in the Company's liquidity decreasing in a material way, in violation
3 of Item 303 of Regulation S-K under the Federal securities laws (17 C.F.R. 229.303), and that failure
4 to disclose the information rendered the statements that were made during the Class Period materially
6 (b) by failing to file financial statements with the SEC that conformed to the
7 I requirements of GAAP, such financial statements were presumptively misleading and inaccurate
11 revenues, and expenses in conformity with GAAP. The Company failed to make such disclosures and
12 to account for and to report its financial statements in conformity with GAAP. Defendants knew, or were
13 reckless in not knowing, the facts which indicated that the 1999 Form 10-K, the Prospectus , and all of
14 the Company's interim financial statements , press releases, public statements, and filings with the SEC,
15 which were disseminated to the investing public during the Class Period, were materially false and
16 misleading for the reasons set forth herein . Had the true financial position and results of operations of
17 the Company been disclosed during the Class period, the Company's common stock would have traded
20 76. As alleged herein, defendants acted with scienter in that they knew or recklessly
21 disregarded that the public documents and statements issued or disseminated in the name of the
22 Company were materially false and misleading; knew or recklessly disregarded that such statements or
23 documents would be issued or disseminated to the investing public; and knowingly participated in the
24 issuance or dissemina tion of such statements or documents as primary violations of the Federal securities
25 laws.
__ Cry to fi le financiaLstatements duri ngthe Class Period that
-77t-
27 CLASS ACTION COMPLAINT ZWERLING , SCHACHTER & ZWERLING , LLP
28 FOR VIOLATION OF 1904 Third Avenue, Suite 1030
FEDERAL SECURITIES LAWS 23 Seattle, WA 98101
were materially false and misleading, which defendants knew or recklessly disregarded were not in
2 conformity with GAAP.
3 78. As set forth herein, the Individual Defendants, by virtue of their receipt of information
4 reflecting the true facts regarding the Company and/or their control over the Company, which made them
5 privy to confidential proprietary information, participated in the fraudulent scheme alleged herein. With
7 disregarded the falsity and misleading nature of the information which they caused to be disseminated
9 79. The Individual Defendants engaged in such a scheme and course of conduct to inflate the
10 price of the Company' s common stock in order to, among other things: (i) profit from the future increase
11 in the Company's common stock price to obtain both cash and stock incentive awards; (ii) to continue
12 its investment spree in ACNs, and; (iii) place debt such as the PEACS in the market at inflated prices.
14 80. The Individual Defendants had the motive to commit and participate in the wrongful
15 conduct complained of herein. In addition to the profits realized by defendant Bezos alleged above,
16 defendants were also motivated to inflate the value of their significant common stock ownership and
17 executive compensation, both of which were inextricably intertwined with increasing the value of
19 81. The following statements were made in the 2000 Proxy Statement.
2 common stock because a substantial and material portion of their compensation and stock ownership
5 83. During the Class Period, as alleged above, the Company made numerous investments
6 I in ACNs and acquired other companies . In order to finance these investments, it was necessary for
9 February 16, 2000, only days after touting the viability of the ACNs and falsely portraying them as cash
10 cows. Because the PEACs were convertible to common stock, it was essential for defendants to
11 maintain the price of its common stock at artificially inflated levels in order to sell the notes at the price
13 85. The Individual Defendants had the opportunity to commit and participate in the wrongful
14 conduct complained of herein. Each is, or was, a senior executive officer and/or director of The
15 Company and, accordingly, controlled the information disseminated to the investing public in the
16 Company's press releases, SEC filings, and communications with analysts. Thus, each could falsify, and
17 did falsify, the information that reached the public about The Company's business and financial results.
18 COUNTI
(AGAINST ALL DEFENDANTS FOR VIOLATIONS OF
19 SECTION 10(b) OF THE EXCHANGE ACT AND
RULE 10b-5 PR MULGATED THEREUNDER)
20
86. Plaintiff repeats and re-alleges the allegations contained above, as if fully set forth herein.
21
87. This Count is asserted against all defendants and is based upon Section 10(b) of the
22
Exchange Act, 15 U. S.C. 78j (b), and Rule 10b-5 promulgated thereunder.
23
88. During the Class Period, defendants, singly and in concert, engaged in a common plan,
24
scheme, and unlawful course of conduct, pursuant to which they knowingly or recklessly engaged in
25
acts, transactions, practices, and courses of business which operated as a fraud and deceit upon plaintiff
2 and omitted to state material in order to make the statements made, in light of the circumstances under
which they were made, not misleading to plaintiff and the other members of the Class. The purpose and
4 effect of said scheme, plan, and unlawful course of conduct was, among other things, to induce plaintiff
and the other members of the Class to purchase the Company's common stock during the Class Period
7 89. During the Class Period, defendants, pursuant to said scheme, plan, and unlawful course
8 of conduct, knowingly and recklessly issued, cause to be issued, participated in the issuance of, the
9 preparation and issuance of deceptive and materially false and misleading statements to the investing
12 the market price of the Company's common stock was artificially inflated during the Class Period. In
13 ignorance of the false and misleading nature of the statements described above and the deceptive and
14 manipulative devices and contrivances employed by said defendants, plaintiff and the other members
15 of the Class relied, to their detriment, on the integrity of the market price of the stock in purchasing the
16 Company's common stock. Had plaintiff and the other members of the Class known the truth, they
17 would not have purchased said shares or would not have purchased them at the inflated prices that were
18 paid.
19 91. Plaintiff and the other members of the Class have suffered substantial damages as a result
22 Act and Rule l Ob-5 promulgated thereunder in that they: (a) employed devices, schemes, and artifices
23 to defraud; (b) made untrue statements of material facts or omitted to state material facts in order to
24 make the statements made, in light of the circumstances under which they were made, not misleading;
25 or (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon
2 COUNT H
3 (AGAINST TIE INDIVIDUAL DEFENDANTS
FOR VIOLATION OF SECTION 20(a) OF
4 THE EXCHANGE ACT)
5 93. Plaintiff repeats and realleges the allegations contained above, as if set forth fully herein.
6 94. The Individual Defendants, by virtue of their position, stock ownership and/or specific
7 acts described above, were, at the time of the wrongs alleged herein, controlling persons within the
9 95. The Individual Defendants had the power and influence and exercised the same to cause
10 the Company to engage in the illegal conduct and practices complained of herein.
11 96. By reason ofthe conduct alleged in Count I of the Complaint, the Individual Defendants
12 are liable for the aforesaid wrongful conduct, and are liable to plaintiff and to the other members of the
13 Class for the substantial damages which they suffered in connection with their purchase or acquisition
15 JURY DEMAND
18 WHEREFORE, plaintiff, on her own behalf and on behalf of the Class, prays for
19 judgment as follows:
20 A. Declaring this action to be a proper class action and certifying plaintiff as class
2 equity and federal and state statutory provisions sued on hereunder, including attaching, impounding,
3 imposing a constructive trust upon or otherwise restricting the proceeds of defendants' trading activities
4 or their other assets so as to assure that plaintiff have an effective remedy; and
5 E. Granting such other and further relief as the Court may deem just and proper.
6 1 Dated: March 9, 2001
9
y:
10 D r SBA 2 728}
4 Third Avenue, Suite 1030
11 Seattle , Washington 98101
Tel: (206) 223-2053
12 Fax: (206) 343-9636
13 WECHSLER HARWOOD HALEBIAN
& FEFFER LLP
14 Robert I. Harwood
Frederick W. Gerkens III
15 Thomas J. Harrison, III
488 Madison Avenue
16 New York, New York 10022
Tel: (212) 935-7400
17 Fax: (212) 753-3630