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Case 9:04-cv-80158-WPD Document 24 Entered on FLSD Docket 09/07/2004 Page 1 of 97
UNITED STATE'S DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA
CASE NO. 04-8015 8-CIV-DIMITROULEAS
JOSEPH AND PATRICIA MARRARI, JEROME GOULD, TOMMIE L. WILLIAMS, and HADDON ZIA, on behalf of themselves and all others similarly situated, ;
Plaintiffs,
VS.
MEDICAL STAFFING NETWORK HOLDINGS, INC., et al. JURY TRIAL DEMANDED
Defendants. /
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT
NATURE OF THE ACTION
1. Lead Plaintiff Thomas Greene ("Greene" or "Plaintiff'), individually and on
behalf of a proposed class (the "Class") of all purchasers of the publicly traded securities of
Medical Staffing Network Holdings, Inc. ("Medical Staffing" or the "Company") (NYSE: MRN)
between April 18, 2002 and June 16, 2003, inclusive (the "Class Period"), by and through his
undersigned counsel, alleges the following against Medical Staffing and certain of its top officers
upon personal knowledge as to those allegations concerning himself and, as to all other matters,
upon the investigation of counsel, which included, among other things: (a) review and analysis of
public filings made by Medical Staffing with the Securities and Exchange Commission (the
"SEC"); (b) review and analysis of securities analysts' reports concerning Medical Staffing; (c)
review and analysis of Medical Staffing press releases and other publicly available information;
(d) contact with factual sources, including interviews with individuals formerly employed by
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Medical Staffing; (e) online research, including a review of Medical Staffing's website; (f)
reference to authoritative accounting literature; and (g) consultation with forensic accounting
experts. Plaintiff believes that substantial additional evidentiary support will exist for the
allegations set forth herein after a reasonable opportunity for discovery.
INTRODUCTION
2. This is a securities class action brought under Sections 11 and 15 of the Securities
Act of 1933 (the "Securities Act"), 15 U.S.C. §§ 77k and 77o, and Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and
the regulations promulgated thereunder by the SEC, including Rule 1 Ob-5, 17 C.F.R. § 240.10b-
5.
3. Medical Staffing, based in Boca Raton, Florida and founded in 1998, is a
supplemental healthcare staffing company that provides hospitals and other healthcare facilities
with a range of staffing services, including "per diem" nurses, "allied" professionals and "travel"
nurses. Medical Staffing's per diem staffing assignments place its professionals, predominantly
nurses, at hospitals and other healthcare facilities to solve its clients' temporary staffing needs.
As of December 29, 2002, Medical Staffing claimed it had more than 180 per diem branches that
provided nurse staffing on a per diem basis in 44 states. At the close of the fiscal year ended
December 28, 2003, the Company stated that it consisted of more than 140 per diem branches in
43 states. For the fiscal year 2002, the per diem nurse staffing portion of Medical Staffing's
business represented approximately 76% of the Company's revenues. Allied healthcare
professional staffing represented 16% of Medical Staffing's 2002 revenues.
4. On or about April 15, 2002, Medical Staffing filed with the SEC a Form S-I/A
Registration Statement (the "Registration Statement") for its Initial Public Offering (the "lPO")
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On or about April 18, 2002, the prospectus (the "Prospectus") filed in connection with the IPO,
which forms part of the Registration Statement, became effective and 7,812,500 shares of
Medical Staffing stock were sold to the public at $19.00 per share, raising approximately $136
million. In addition, Medical Staffing granted its underwriters an over-allotment option on
1,171,875 shares. When the underwriters exercised the allotment, it brought the total number of
shares issued to 8,984,375 for total proceeds from the IPO, net of expenses, of $155 million.
5. Prior to and during the Class Period, Medical Staffing touted its rapid expansion
and growth through its opening of "de novo" branch offices, a term Medical Staffing used to
describe branches it opened since its inception, as opposed to branches acquired from third
parties. For example, Medical Staffing stated that since its inception it opened 138 "de novo"
branches, including 30 branches in 2000, 64 in 2001, and 40 in 2002. As described in detail
below, the Defendants' goal was to open numerous de novo branches as quickly as possible to
create the appearance of growth. In addition to opening new offices, Medical Staffing also
acquired numerous other companies during the Class Period to sustain its illusion of growth.
However, the Company's Registration Statement and Prospectus, SEC filings, and other public
statements misrepresented or failed to disclose the true performance of Medical Staffing's de
novo offices.
6. In reality, the de novo offices, like the rest of the Company, entered into a
downward spiral in 2002 that culminated in early 2003 with the Company announcing the
suspension of its de novo program along with the closing of approximately 40 offices.
Defendants kept the Company's true financial conditional and performance under wraps while
providing the market with utterly bogus and unrealistic financial projections and budget targets,
relying on its rapid expansion program to hide the cracks in the wall.
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7. Thus, as described in detail below, despite knowing that the Company was not
performing well and facing severe pricing pressure from its clients and nurses, Medical Staffing
painted a rosy picture for the public, even claiming to not understand why its competitors were
struggling, despite the fact that Medical Staffing faced the same struggles.
8. When Defendants could hide the true condition of the Company no longer, the
Company announced on May 12, 2003, without warning and shortly after once again raising the
Company's earnings forecasts, that the Company would be implementing a restructuring plan
and withdrawing its prior annual guidance for 2003. News of Medical Staffing's financial woes
shocked the market, and the price of Medical Staffing stock dropped 11.73%, or $1.01 per share,
to close a $7.60 on May 13, 2003.
9. On June 16, 2003, Medical Staffing announced the completion of its
"restructuring plan" - that it was significantly lowering its 2003 financial guidance, had already
closed numerous branch offices on May 21, 2003, and would be taking a restructuring cost of
approximately $800,000. Again, the market reacted swiftly to Medical Staffing's negative news,
resulting in shares of Medical Staffing falling 16.27%, or $1.44 per share, to close at $7.41 per
share on June 17, 2003.
10. As described in detail below, in connection with the Company's IPO, and in
numerous public statements made throughout the Class Period, Defendants failed to disclose or
recklessly disregarded the following: (I) that the Company's strategy of rapid expansion through
the opening and development of de novo branches only created the appearance of success and
was, in reality, adversely affecting the Company's revenue growth; (2) that the Company's de
novo program consistently failed to meet budget targets and forecasts, and was near termination;
(3) that the Company was facing and/or in the process of consolidation due to adverse growth
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prospects; (4) that the Company's budgets and financial forecasting was wholly unreliable,
arbitrary, and designed to mislead the market, fueled not by reality, but by the Defendants' desire
to report "better" numbers to "Wall Street;" (5) that the Company faced severe pricing pressure
from both clients and nurses; and (6) that due to the regional and seasonal fluctuations in hospital
patient censuses, particularly in Florida, more of the Company's hospital and healthcare facility
clients adjusted staffing levels, which adversely affected the Company's business.
JURISDICTION AND VENUE
11. This Court has jurisdiction over the subject matter of this action pursuant to § 27
of the Exchange Act, 15 U.S.C. § 78aa, Section 22 of the Securities Act, 15 U.S.C. § 77v, and 28
U.S.C. § 1331. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
Act, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule lOb-5 promulgated thereunder, 17 C.F.R.
§ 240.1Ob-5, and Sections 11 and 15, 15 U.S.C. §§ 77k and 77o, of the Securities Act.
12. Venue is proper in this District pursuant to § 27 of the Exchange Act, 15 U.S.C.
§ 78aa, and § 22 of the Securities Act, 15 U.S.C. § 77v, and 28 U.S.C. § 1391(b). At all times
relevant to this action, Medical Staffing maintained its principal executive office in this District
and many of the acts and transactions alleged herein, including the preparation and dissemination
of materially false and misleading information, occurred in substantial part in this District.
13. In connection with the acts, conduct, and other wrongs alleged in this Complaint,
Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
including, but not limited to, the United States mails, interstate telephone communications, and
the facilities of the national securities markets.
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THE PARTIES
Plaintiff
14. Plaintiff Greene purchased Medical Staffing securities on the open market during
the Class Period as set forth in his certification previously filed with the Court. The Court's July
2, 2004 Order appointed Greene as Lead Plaintiff in this consolidated action.
Defendants
15. Defendant Medical Staffing, a Delaware corporation, maintains its principal place
of business at 901 Yamato Road, Suite 110, Boca Raton, Florida 33431.
16. During the Class Period, Defendant Robert J. Adamson ("Adamson") was the
Company's President, Chief Executive Officer, and a Director. As part of the IPO, Adamson
signed the Prospectus.
17. During the Class Period, Defendant Kevin S. Little ("Little") was the Company's
Chief Financial Officer and was also a Company Director. As part of the IPO, Little signed the
Prospectus.
18. During the Class Period, Defendant Joel Ackerman ("Ackerman") was a Director
of the Company. As part of the IPO, Ackerman signed the Prospectus. Plaintiff asserts that
Ackerman is liable only for violations of the Securities Act Claims.
19. During the Class Period, Defendant David J. Wenstrup ("Wenstrup") was a
Director of the Company. As part of the IPO, Wenstrup signed the Prospectus. Plaintiff asserts
that Wenstrup is liable only for violations of the Securities Act Claims.
20. During the Class Period, Defendant Scott F. Hillinski ("Hillinski") was a Director
of the Company. As part of the IPO, Hillinski signed the Prospectus. Plaintiff asserts that
Hillinski is liable only for violations of the Securities Act Claims.
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21. Defendants Adamson, Little, Ackerman, Wenstrup, and Hillinski are sometimes
hereinafter collectively referred to as the "Individual Defendants."
22. During the Class Period, each of the Individual Defendants, as a senior executive
officer and/or director of Medical Staffing, was privy to non-public information concerning
Medical Staffing's business, finances, sales, marketing and promotion, and present and future
business prospects via access to internal corporate documents, 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. Because of their possession of such information, the Individual
Defendants knew or recklessly disregarded the fact that adverse facts specified herein had not
been disclosed to, and were being concealed from, the investing public. Except to the extent set
forth in this Complaint as provided by Confidential Witnesses who were primary Medical
Staffing employees, Plaintiffs and other members of the Class had no access to such information,
which was, and remains, solely under the control of Defendants. The Individual Defendants
were involved in drafting, producing, reviewing, and/or disseminating the materially false and
misleading statements complained of herein. The Individual Defendants were aware, or
disregarded with deliberate recklessness, that materially false and misleading statements were
being issued regarding the Company and nevertheless approved, ratified, and/or failed to correct
those statements, in violation of the federal securities laws.
23. Throughout the Class Period, the Individual Defendants were able to, and did,
control the contents of the Company's SEC filings, reports, press releases, and other public
statements. The Individual Defendants were provided with copies of, reviewed and approved,
and/or signed such filings, reports, releases, and other statements prior to or shortly after their
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issuance and had the ability and opportunity to prevent their issuance or to cause them to be
corrected. The Individual Defendants also were able to, and did, directly or indirectly, control
the conduct of Medical Staffing's business, the information contained in its filings with the SEC,
and its public statements. Moreover, the Individual Defendants made or directed the making of
affirmative statements to securities analysts and the investing public at large, and participated in
meetings and discussions concerning such statements. Because of their positions and access to
material information available to them but not to the public, each of the Individual Defendants
knew that the adverse facts specified herein had not been disclosed to and were being concealed
from the public and that the positive representations that were being made were then false and
misleading. As a result, each of the Individual Defendants is responsible for the accuracy of
Medical Staffing's corporate releases detailed herein as "group-published" information and is
therefore responsible and liable for the representations contained therein.
CLASS ACTION ALLEGATIONS
24. Plaintiff Greene brings this action as a federal class action pursuant to Federal
Rules of Civil Procedure 23(a) and (b)(3) on behalf of the Class. For purposes of the Securities
Act claims, the Class consists of all those who acquired shares of Medical Staffing stock
pursuant to or traceable to the Registration Statement and Prospectus. For purposes of the
Exchange Act claims, the Class consists of all purchasers of the publicly traded securities of
Medical Staffing between April 18, 2002 and June 16, 2003, inclusive, who were damaged
thereby. Excluded from the Class are defendants, the officers and directors of the Company,
members of their immediate families and their legal representatives, heirs, successors or assigns,
and any entity in which defendants have or had a controlling interest.
25. The members of the Class are so numerous that joinder of all members is
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impracticable. Throughout the Class Period, Medical Staffing securities were actively traded on
the New York Stock Exchange. While the exact number of Class members is unknown to
Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff believes
that there are hundreds or thousands of members in the proposed Class.
26. Plaintiffs claims are typical of the claims of the members of the Class, because
Plaintiff and all of the Class members sustained damages arising out of Defendants' wrongful
conduct complained of herein.
27. Plaintiff will fairly and adequately protect the interests of the Class members and
has retained counsel who are experienced and competent in class actions and securities litigation.
28. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy, since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual members of the Class may be relatively small, the expense
and burden of individual litigation make it impossible for the members of the Class to
individually redress the wrongs done to them. There will be no difficulty in the management of
this action as a class action.
29. Questions of law and fact common to the members of the Class predominate over
any questions that may affect only individual members, in that defendants have acted on grounds
generally applicable to the entire Class. Among the questions of law and fact common to the
Class are:
(a) Whether the federal securities laws were violated by Defendants' acts as alleged
herein;
(b) Whether the Company's publicly disseminated press releases and statements
during the Class Period omitted and/or misrepresented material facts;
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(c) For purposes of the Exchange Acts claims only, whether the defendants acted
with knowledge, or recklessly, in omitting and/or misrepresenting material facts;
(d) Whether the Company's IPO Registration Statement and Prospectus contained
untrue statements of material fact or omitted to state material facts necessary to
make the statements made not misleading;
(e) Whether the market price of Medical Staffing's stock sold in and/or traceable to
the IPO was artificially inflated due to the non-disclosures and/or untrue
statements complained of herein; and
(f) Whether the members of the Class have sustained damages and, if so, what is the
appropriate measure of damages.
V. CONFIDENTIAL WITNESSES
30. Plaintiffs' allegations herein, concerning the falsity of Defendants' statements
and, for purposes of the Exchange Act claims only, their scienter, are based upon, in part,
interviews with former Medical Staffing employees, including, but not limited to, a former vice
president and director of business operations, a former national business development director,
and an executive vice president. These witnesses, who spoke to Plaintiff's counsel on a
confidential basis, are referred to herein as Confidential Witnesses (hereinafter, "CW ")
numbers 1 through 12.
Confidential Witness #1
31. CW I worked for Medical Staffing from February 1999 until August of 2003.
During the course of CW I's employment with Medical Staffing, CW 1 was the Vice President of
Business Development, served as the Company's Corporate Director of Operations, and was a
Regional Director, overseeing approximately 20 branch offices in Florida. As the Vice President
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for Business Development, stationed at Medical Staffing's corporate headquarters, CW1 reported
directly to and had frequent, if not daily, contact with Adamson, the Company's President and
CEO, and Little, the Company's Chief Financial Officer.
32. As described in more detail below, CW1 received his/her orders directly from
Adamson, attended weekly meetings (held every Monday) at the boardroom table with Adamson
and Little, and communicated with Adamson and Little on a regular basis. CWI's meetings with
Defendant Adamson concerned a variety of issues, each described with particularity below,
including, but not limited to, the following substantive matters: budget targets and forecasts,
actual financial results concerning the failure of the de novo branch offices, and the declining
financial performance of Medical Staffing's offices, including the manipulation of financial
information to provide "results" acceptable for disclosure to Wall Street and the public. In
addition, CW1 and Adamson specifically discussed Medical Staffing's acquisition of new
businesses and the Company's closing of its existing offices. CWI participated directly in both
the opening and closing of Medical Staffing's de novo offices.
Confidential Witness #2
33. CW2 worked for Medical Staffing for nearly four years, beginning in February of
2000 and ending in January of 2004. CW2 was a National Business Development Director for
Medical Staffing and oversaw a team of five Regional Managers. In addition, CW2 served as a
Regional Manager, opening and managing 22 branch offices. Specifically, CW2 worked in
Medical Staffing's Allied Division, which supplied all types of so-called "ancillary" staff,
including respiratory technicians, radiology technicians, and physical therapists. The Allied
Division was headquartered in Chicago, Illinois. CW2 was the Allied Division's Regional
Manager for the Southwest Region, which included Louisiana and all the states north and west to
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California.
34. One of CW2's main functions was to open Allied units in Nursing Division
branch offices. These Allied units were referred to as "BIBs" (business-in-business). CW2
worked for Jeffrey Jacobson ("Jacobson"), the Executive Vice-President in charge of the Allied
Division, who also headed the Pharmacy Division. Jacobson was based in Chicago and reported
directly to Adamson.
Confidential Witness #3
35. CW3 was initially hired as a Medical Staffing Regional South Florida Recruiting
Specialist during April of 2003. During the course of CW3's employment with Medical
Staffing, CW3 was promoted to South Florida Regional Manager for Allied Medical Services
Staffing. CW3 was responsible as Regional Manager for branches in the following counties in
South Florida: St. Lucie, Palm Beach, Broward, and Dade. In addition, CW3 managed Medical
Staffing's Pompano Beach, Florida branch office. CW3 worked for Medical Staffing at its Boca
Raton headquarters until approximately January of 2004.
36. Throughout CW3's employment with Medical Staffing, CW3 had personal
experience with Medical Staffing's branch office closings, budget forecasting process, regulatory
compliance failures, and accounting issues.
37. Although some of CW3's experiences took place after the end of the Class Period
(June 16, 2003), the information CW3 provided is consistent with facts as related by other
Confidential Witnesses concerning identical practices during the Class Period.
Confidential Witness #4
38. CW4 worked for Medical Staffing from September of 2002 until July of 2003 as
Medical Staffing's Vice-President for Strategic Accounts. In this role, CW4 led Medical
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Staffing's sales team in dealing with national and other major accounts, focusing on so-called
"vendor on premises" and "preferred sourcing" relationships with hospitals and long-term care
facilities. CW4 reported directly to Adamson and was stationed at Medical Staffing's corporate
headquarters in Boca Raton, Florida. In fact, CW4's office was separated from Adamson's
office by only one room.
39. CW4 had direct exposure Medical Staffing's de novo program and saw firsthand,
as explained specifically below, how Medical Staffing's gross margins rapidly compressed while
the Company lauded its growth and hid the truth from the investing public, including Plaintiff
and the Class. Like other Confidential Witnesses, CW4 witnessed Medical Staffing's office
closings and budget manipulations, wherein Adamson would order and force high-ranking
Medical Staffing managers, regional directors, and vice presidents to falsely and misleadingly
manipulate their budget forecasts and financial projections so that the Company could deliver
higher earnings projections to Wall Street.
Confidential Witness #5
40. CW5 worked for Medical Staffing beginning in July 2002, when Medical Staffing
acquired STAT Medical Services ("STAT Medical"), the company that then employed CW5.
CW5 worked for Medical Staffing as a sales manager until March of 2003. CW5 experienced
first hand as Medical Staffing's acquisition of the successful STAT Medical turned sour. For
example, CW5 describes how after the acquisition, all of the branch offices previously owned
and operated by STAT Medical lost a substantial amount of business, either because their client
hospitals severed their relationship with Medical Staffing or because those customers simply cut
back severely their staffing orders to Medical Staffing.
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Confidential Witness #6
41. Like CW5, CW6 began working for Medical Staffing when Medical Staffing
acquired STAT Medical and left Medical Staffing in approximately June of 2003. CW6 was
STAT Medical's sales manager and remained in that capacity after Medical Staffing acquired
STAT Medical. CW6 witnessed the failure of the STAT Medical acquisition firsthand and
described in detail why Medical Staffing experienced a severe decline in business after the STAT
Medical acquisition.
Confidential Witness #7
42. CW7 is a former HR/Staffing Coordinator from Medical Staffing's Albuquerque,
New Mexico branch office. CW7 worked for Medical Staffing for nearly three years, beginning
in March of 2001 and ending in December of 2003.
43. CW7 witnessed firsthand the severe drop in business at Medical Staffing's New
Mexico branch office, which mirrored Medical Staffing's overall decline during the Class
Period, as detailed by other Confidential Witnesses. In addition, CW7 has firsthand experience
with Medical Staffing's regulatory compliance problems and collection difficulties.
Confidential Witness #8
44. CW8 worked for Medical Staffing from the time it acquired STAT Medical in
July of 2002 until September of 2002 as the Seattle Regional Staffing Manager. Prior to working
for Medical Staffing, CW8 worked for STAT Medical, also as the Regional Staffing Manager.
CW8 was responsible for staffing so-called "acute care" facilities, such as hospitals, nursing
homes, and clinics, with registered nurses, licensed practical nurses, and certified nursing
assistants. CW8 worked out of the former STAT Medical headquarters in Portland, Oregon.
45. Although briefly employed by Medical Staffing, during the course of CW8's
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employment CW8 witnessed, like other Confidential Witnesses, the rapid decline and erosion of
STAT Medical's business in the Seattle region after Medical Staffing acquired it.
Confidential Witness # 9
46. CW9 worked for Medical Staffing as an Accounts Receivable Specialist/Account
Adjuster from August of 2002 until April 1, 2004. Throughout his/her employment, CW9
worked at Medical Staffing's corporate headquarters in Boca Raton, Florida. CW9 began
working with Medical Staffing as a "Billing" staff member, before being transferred to the
"Collections" staff in May of 2003. CW9 experienced Medical Staffing's weekly financial
reporting procedures and witnessed the decline in Medical Staffing's business during 2002 and
2003. In addition, CW9 provided detailed information regarding Medical Staffing's account
receivables problems.
Confidential Witness #10
47. CW10 worked as Medical Staffing's Western Regional Director from February of
2002 until April of 2003. As the Company's Western Regional Director, CW1O was responsible
for offices in Colorado, Arizona, Nevada, Idaho, Washington, Kansas, and Oklahoma. CW 10
was personally involved in Medical Staffing's budgeting process and, like other Confidential
Witnesses, witnessed the decline of Medical Staffing's business during 2002 and 2003.
Confidential Witness #11
48. CWI I joined Medical Staffing in approximately August of 1998, when Medical
Staffing's predecessor company, South East Partners, acquired All Better Nursing, a nursing
staffing agency owned and operated by CW 11 's family. All Better Nursing was South East
Partners' first acquisition. Adamson hired CWI I to run the business that Medical Staffing/South
East Partners acquired. CWI I worked for Medical Staffing until his/her termination on May 21,
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2003. At the time of his/her termination, CW1 1 was Medical Staffing's Regional Director for
Florida, which included CWI l's South Miami Branch Office, Medical Staffing's largest revenue
producer.
49. CW1 1 had personal experience with Medical Staffing's weekly reporting
procedures, the de novo program, budget/financial forecasting process, and problems with
Medical Staffing's gross margin, including direct contact with Adamson and Little,
Confidential Witness #12
50. CW12 worked for Medical Staffing from December of 2002 until June 27, 2003
as an "Insourcing Manager," and, as CWI2 was referred to within the Company, as a
"firefighter." As a firefighter, CW12's primary responsibility was to turn around failing Medical
Staffing "insourcing accounts," otherwise known as vendor on premises ("VOP") accounts and
de novo offices. For example, CW12 was assigned the job of saving Medical Staffing's branch
office in Metaric, Louisiana.
51. In addition to having first-hand experience with Medical Staffing's firefighter
role, CW12 is knowledgeable about Medical Staffing's regulatory compliance problems and its
weekly financial reporting procedures.
SUBSTANTIVE ALLEGATIONS
CLAIMS AGAINST DEFENDANTS UNDER THE SECURITIES ACT
A. OVERVIEW OF SECURITIES ACT CLAIMS
52. The Securities Act claims are brought on behalf of all persons who purchased or
otherwise acquired Medical Staffing common stock as a result of the Company's IPO of
7,812,500 shares at $19.00 per share, which became effective on April 18, 2002. The Section II
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claim alleges that the Registration Statement and Prospectus issued in connection with the IPO
misrepresented and omitted material facts in that, among other things, the Prospectus failed to
disclose that Medical Staffing's expansion program was near termination and that the Company
was facing adverse growth prospects.
53. Specifically, the Prospectus failed to disclose material information about Medical
Staffing's, including the following: (I) that the Company's strategy of rapid expansion through
the opening and development of de novo branches was not successful, only created the
appearance of success, and was thus adversely affecting the Company's revenue growth; (2) that
the Company's de novo program consistently failed to meet budget targets and revenue
forecasts; (3) that the Company's budgets and financial forecasts were wholly unreliable,
arbitrary, and designed to mislead the market; (4) that the Company faced severe pricing
pressure from both clients and nurses; and (5) that the Company faced adverse growth prospects.
54. The Section 11 claim, which is styled Counts I, in this Consolidated Amended
Complaint, is brought against defendant Medical Staffing, the issuer of the IPO, and certain
present and former Medical Staffing executives who signed the Prospectus in connection with
the IPO. Count II is brought under Section 15 of the Securities Act against certain of the
Defendants for control person liability.
55. Count I and Count II allege only that the Prospectus misrepresented and omitted
material facts. There is no allegation with respect to Count I or Count II that any of the
Securities Act defendants acted with scienter.
B. BACKGROUND
56. Medical Staffing is a supplemental healthcare staffing company that provides
hospitals and other healthcare facilities with a range of staffing services, including per diem
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nurses, allied professionals and travel nurses. Its client base includes more than 7,000 healthcare
facilities, including for-profit and not-for-profit hospitals, teaching hospitals, and regional
healthcare providers.
57. Medical Staffing's per-diem staffing assignments place its professionals,
predominantly nurses, at hospitals and other healthcare facilities to solve its clients' temporary
staffing needs. Medical Staffing also provides staffing of specialized radiology and diagnostic
imaging and clinical laboratory technicians, so called "allied health professionals."
58. According to the Company's most recent annual report, the per diem nurse
staffing portion of its business provides nurses for assignments with durations ranging from a
single shift to a 13-week assignment and represented approximately 76% of the Company's
fiscal year 2002 revenues.' The Company offers its clients all major classifications of nurses,
including registered nurses and licensed practical nurses. Medical Staffing provides per diem
personnel to a variety of healthcare facilities including acute care hospitals, nursing homes,
clinics, and surgical ambulatory care centers. Medical Staffing serves both for-profit and not-
for-profit organizations that range in scope from one facility to national chains with over 100
facilities and currently provides per diem nurse staffing to more than 3,500 healthcare facilities.
59. Medical Staffing's allied staffing division specializes in providing allied
professionals to hospitals, nursing homes, clinics, and surgical and ambulatory care centers, both
on a per diem or travel basis. Allied healthcare professional staffing represented 16% of Medical
Staffing's 2002 revenues.
60. According to the Company, since 1998, it opened 138 "de novo" branches -
branches opened internally since Medical Staffing's inception, as opposed to branches acquired
In 2001, approximately 75% of Medical Staffing's revenues were derived from per diem nurse stuffing.
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from third parties, including 30 branches in 2000, 64 in 2001 and 40 in 2002. The Company
states that it operates an integrated network that consisted of more than 180 per diem branches
located in 44 states as of the end of 2002. These branches are organized into several geographic
regions, each of which is coordinated by a regional director. According to the Company, the
branches serve as Medical Staffing's direct contact with its healthcare professionals and clients
and are "active in recruiting, scheduling and sales and marketing." Medical Staffing states that
the typical branch is staffed with four or five professionals who are responsible for the day-to-
day operations of the business. These professionals include a branch manager, two to three
staffing coordinators, and a payroll administrator. Thus, according to the Company, its branches
are uniform in structure across the country.
61. A critical component of Medical Staffing's business strategy was the expansion of
its business through the opening and development of de novo branches in an attempt to become
the largest medical staffing company in this highly-fractionalized field. The Company states that
its expansion activity has contributed substantially to its operating results and that if the
Company's ability to continue to open de novo branches were impaired, its revenue growth
would be adversely affected.
(1) Medical Staffing's Thrice-Weekly Reporting
62. Throughout the Class Period, Medical Staffing maintained a rapid internal
financial reporting system. Several of the Confidential Witnesses, including CW 1, CW7, CW9,
CWIO, CWI 1, and CWI2 state that each branch office reported financial numbers to Medical
Staffing's headquarters three times each week and that the system was rigorously enforced.
CWI provided the following example: on Monday of "week two," the branch offices submit
estimates of the actual results for "week one" (the prior week). On Wednesday of week two, the
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0
branch offices submit the actual results for week one, and on Thursday of week two, the branch
offices submit to the corporate headquarters a forecast or projection of the results for week two.
CW 1 states that this thrice-weekly reporting schedule was strictly enforced and monitored very
closely -- deviations were not tolerated. CW1 emphasized that Adamson and Little always
received each of the three weekly reports. CW I knows this because, among other things, the
distribution list for the reports included CW1, Adamson, Little, Mohammad Osman ("Osman"),
Medical Staffing's Senior Financial Analyst and, according to CW1, Adamson's "right-hand
man," and Lynn Stacey ("Stacey"), Medical Staffing's Divisional Executive Vice President for
per diem divisions.
63. More specifically, CW1 states each branch would submit its information
concerning the amount of its billings and the amount of money owed to the persons who filled
the assignments (i.e., the nurses) in accordance with a process named the "Weekly Cutoff," by
entering the time card data into a database or software program named "Healthworks." Next, an
accounting package named "Healthworks Accountant" transformed the data into report form,
which was sent to the corporate office in Boca Raton. CW 1 stated there was no doubt in his/her
mind that Adamson and Little kept up with the reports, as discussed in more detail below.
64. CWI's description of the thrice weekly reporting was corroborated other
Confidential Witnesses. For example, CW3 stated that if anyone were five minutes late with a
report, that person would get a call about it. CW3 confirmed that projections of billings and fee
payments for the prior week were due at the corporate office at noon each Monday. CW3
described that the so-called "cut-off" or close of the final billings and payments for the previous
week were due each Wednesday at noon and that the deadline for projections for the following
week were due each Thursday by noon. CW7 had identical experiences with the thrice weekly
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billing requirements, stating that the corporate office generated all bills to clients each Friday.
CW9 and CWI 1 described the thrice-weekly reporting in near-identical fashion.
65. Like CW1, CW3 knows from his/her experience as a Regional Manager that
Adamson reviewed these submissions.
(2) Medical Staffing's De Novo Growth Plan
66. Medical Staffing's "tremendous growth" prior to and during the Class Period was
due in great part to its de novo office openings and its growth by acquisition strategies. Medical
Staffing focused on expanding by opening new offices and acquiring other companies, pursuing
both ends in a manner that would be immediately accretive to earnings. CW4 states that as a
"run-up" to Medical Staffing's IPO, Adamson embarked on a strategy of growing Medical
Staffing's revenues by opening a large number of de novo offices and acquiring some existing
medical staffing businesses.
(a) De Novo Office Openings - "Come Hell or High Water"
67. According to CW1, Adamson mandated in 2001 that the Company open 80 de
novo branch offices, "come hell or high water." Following this directive, beginning in 2001
before the Company's IPO, CW1 was responsible for opening 40 of those de novo branch
offices, and Stacey, was responsible for opening the other 40 de novo branch offices. CW4 and
CW 10 confirm that Stacey was responsible for the de novo growth plan. CW I states that
Adamson's goal for Medical Staffing as a whole was to add 80 de novo offices while at the same
time acquiring other companies to make Medical Staffing the largest per diem staffing company
based on the number of locations in the coming year, 2002. Thus, in addition to opening its de
novo offices, Medical Staffing acquired 18 different companies, discussed in more detail below.
CW2, a Medical Staffing National Business Development Director, describes that the de novo
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branch offices were brand-new start up Nursing Division branch offices.
68. Nine months into 2001, CWI had opened 22 branch offices in California, in cities
such as Long Beach, Burbank, Culver City, and Woodland Hills, among others. CW1 states that
Adamson's goal with the new de novo branch offices was to get them up and running and
profitable within three months. Similarly, CW2 states that Medical Staffing's plan was to bring
the de novo branches to a certain level of profitability as soon as possible. CWI quotes
Adamson as saying that the goal was to do anything CW1 could to get revenue "through the
door" and "on the books."
69. CW 1 states that Medical Staffing lacked any plan as to where it would open de
novo offices and recalls that Adamson gave the order to open a certain number of offices, and it
was left to CWI and Stacey to determine where to open them - there was no due diligence or
market studies. According to CW 1, the only thing Adamson did do was say that he wanted new
offices in California.
70. CW 1 described that the opening of offices often came down to two things,
picking out the cities in large print on maps and opening an office wherever the Company could
find a decent branch manager. In fact, sometimes Medical Staffing would put an ad in the paper
for a branch manager, and the first person to respond to the ad would be hired and the Company
would open a de novo office in the city where the responding person was located. In addition,
sometimes Medical Staffing would simply open offices in the cities of its competitors, such as
StarMed, Intel istaff, and NurseFinders.
(b) Gross Margins for De Novo Branches - Buying the Business
71. When CWI opened a new de novo branch, CWI would establish that office's
pricing structure, i.e., its bill rate and pay rate. Together, the bill rate and the pay rate formed the
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"gross margin" - the difference between what Medical Staffing billed its clients and paid its
nurses. According to CW 1, gross margin was used to determine whether each de novo branch
would become profitable. CWI states that a 25% gross margin was the general rule for the de
novo offices.
72. Thus, in addition to opening new de novo offices, a large part of CWI 's
responsibilities was to monitor the financial performance of the de novo branches on a weekly
basis. CW1 states that he/she was responsible for reporting the results of CW1 's de novo office
monitoring and enforcement each month, in addition to the thrice-weekly reporting.
73. CWI described the financial formula for setting up de novo branch offices as a
template. The template required CW 1 to hire a branch manager, at a salary limit of $50,000, and
set up an office at a maximum rent of $1,500 per month. CW 1 states that he/she was permitted
to exceed these numbers in California because market conditions simply demanded amounts in
excess of the template figures.
74. CW 1 states that if he/she had to raise the template numbers, then CW 1 would
have to compensate for that increase in other places in order to maintain a satisfactory gross
margin level.
75. In some instances, Medical Staffing would open a new de novo office and attempt
to "buy the business" in that market. CW 1 states that in such situations, an 18% gross margin
was acceptable. According to CWI, buying the business entailed lowering bill rates to
customers and increasing pay rates to nurses to undercut competition in the market.
76. Similarly, CW4 states that Adamson's strategy was to send a Medical Staffing
person (Stacey or CW I) into a new town and have them determine the hourly rate paid to nurses.
Medical Staffing would then offer $2 more per hour than the going rate, allowing Medical
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Staffing to bid the nurses away from other staffing companies and control the supply of nurses
available to staffing companies. As a result, Medical Staffing could make customers (hospitals
and other medical facilities) dependent on Medical Staffing. CW4 states that this process, often
repeated with every new de novo office, enabled Medical Staffing to show a "balloon of sales"
and "very rapid growth."
77. Thus, CW1 and CW4 confirm that Medical Staffing would often enter new
markets by sacrificing gross margin in order to "buy business" and create the appearance of rapid
growth and surging sales.
(c) The Decline of Medical Staffing's Dc Novo Offices and Overall Business
78. Immediately prior to and throughout the Class Period, CWI states that Medical
Staffing witnessed an overall decline in business. Through his/her monitoring of the de novo
offices, in addition to reviewing the thrice-weekly reporting, CW 1 knew that the de novo offices
never performed up to expectations. Indeed, CW1 recalls that the Company developed a specific
role, termed the "firefighter" role, just for handling the poor-performing de novo offices. The
job of the person in the firefighter role was to travel to the de novo offices and try and "turn them
around" and raise their performance to acceptable levels.
79. CWI states that overall, the de novo offices were always struggling. Through
his/her monthly monitoring, in addition to the thrice weekly reporting reviewed by Adamson and
Little, CW I knew that the de novo offices consistently made only 50% of their budget/financial
projection targets. CW I was not the only person that knew this fact. In addition, CW I states
that the fact that the de novo offices were operating 50% below expectations was clear, not only
from the thrice weekly reporting, but also from weekly and monthly "flash reports" designed to
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provide a current picture of Medical Staffing's financial performance.
80. CWI thus describes the de novo offices as "always struggling" and that
"everyone knew it every week," both before and during the IPO. Specifically, CWI states that
between the end of 2001 and the IPO in April of 2002, the de novo offices did not do well. CW 1
states that Stacey became less involved in the problems of the de novo offices during that time
frame because Stacey was promoted and "went to corporate" - meaning Stacey worked at the
Boca Raton headquarters and was no longer responsible for opening new de novo offices. In
addition, CW 1 states that there was inadequate corporate infrastructure in the field to support the
de novo offices. Similarly, CW1 1 states that Medical Staffing's de novo program was a "joke"
and that the offices did not perform well.
81. At the same time - between the end of 2001 and prior to the IPO - CW I states
that the per diem nursing market changed. The market changed for two specific reasons,
according to CW1. First, clients realized they were paying too much for nurse staffing and
began to seriously balk at high bill rates. Second, nurses began to organize in an effort to boost
the rates they received from companies such as Medical Staffing. CW1 described the nurses'
efforts as playing "staffing poker" - the nurses would essentially auction themselves off to the
highest bidder. Each of these problems combined to place serious strain on Medical Staffing's
gross margin, further impairing any potential opportunities for the de novo program's success.
Thus, CWI states that Medical Staffing's business declined because the Company had poor
budgeting (indeed, false budgeting) as discussed below, poor planning, and failed to adopt the
changes required by its customers as a condition for retaining its clients' business.
82. CWI's observations about the problems Medical Staffing experienced prior to
and during the lPO are hardly personal to CWI. In fact, CWI states that the main topic of
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discussion at Medical Staffing's weekly Monday management meetings ("Monday Management
Meetings"), which CW1 attended every week along with Adamson and Little, was the details of
the budget forecasts for each branch office. Specifically, Adamson, Little, CW 1, and others
would discuss the financial performance of each branch office on a weekly basis, branch office
by branch office. CW1 states that the Company was very "hands on" about getting immediate
financial feedback from its offices, including the de novo offices, prior to and during the IPO.
83. For example, at the Monday Management Meetings, CWI states that they would
discuss why the branch offices were not "doing better." Specifically, they discussed in detail the
Company's inability to manage its branch offices, that the Company did not know much about its
branch office managers, i.e., their main, and often only, contact with the branch managers was
the numbers the managers sent in three times a week, that the Company needed to manage its
branch offices more effectively, and CW 1 states that they immediately discussed the above-
mentioned changes that occurred in the medical staffing marketplace, including gross margin
pressure being asserted by both clients and nurses.
84. CW 1 states that CW 1, Adamson, Little, and other high-ranking members of
management specifically discussed these problems before and during the Company's IPO. CW 1
also states that he/she felt that the opening of numerous de novo offices enabled Medical Staffing
to hide the fact that things were not going well, specifically allowing the Company to
demonstrate a so-called increase in revenues, despite the fact that Medical Staffing's offices
continuously operated below their target budget numbers.
(3) Medical Staffln2's Acaulsitions - STAT Medical
85. As described above, Medical Staffing's growth plans were twofold. In addition to
opening vast quantities of de novo offices, Medical Staffing also acquired numerous companies.
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86. CW1 states that the de novo growth process during 2001 and early 2002 was
slower than expected and that, as a result, Defendant Adamson decided Medical Staffing needed
a stronger West Coast presence. Specifically, although CWI had opened a de novo branch office
in Portland, Oregon, Defendant Adamson decided that "things were not moving fast enough" and
said, "Let's acquire STAT Medical Services." CWI states that STAT Medical was a "big
player" in the West Coast medical staffing market. CW1 said that STAT Medical billed
approximately $200,000 per week (approximately $10 million annually). CW1 recalls that
Adamson made that statement in CW1 's presence at a meeting shortly prior to the April 2002
IPO. CWI recalls that Little, Patricia Donohoe ("Donohoe"), a Medical Staffing Executive Vice
President, and Linda Duval ("Duval"), the Executive Vice President for Per Diem Acquisitions,
also attended the meeting.
87. Thus, Medical Staffing planned, prior to the IPO, on acquiring STAT Medical
because of its problems developing and maintaining its de novo offices.
(4) Medical Staffin2's Budget Manipulations - What to Take to the Street
88. According to CW 1, in late October or early November of every year Medical
Staffing began preparing its budgets, forecasts, and financial projections for the upcoming year.
CW I describes that the working document for the budget was a Microsoft Excel spreadsheet
showing projected financial information on a month-by-month basis for the entire year. That
spreadsheet was e-mailed to the Regional Directors and branch offices. Data was then placed in
the spreadsheet at the branch office level, and the spreadsheet was then presented back to
Adamson, Little, Osman, and others, in Boca Raton, Florida by Regional Directors and Vice
Presidents.
89. As detailed below, numerous Confidential Witnesses describe Medical Staffing's
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budget process and financial forecasting experiences as a complete "joke," and that Adamson
dictated the terms of the Company's numbers and guidance - even if Adamson knew the
numbers were unattainable and lacking any basis in fact. The Confidential Witnesses all
describe how Adamson arbitrarily forced each of them to accept wildly exaggerated forecasts
and budget targets and how each was pressured to do so. CW I described Adamson as "divorced
from [the] reality" of accurately reporting Medical Staffing's financial outlook. For example,
when confronted with the actual numbers and forecasts that the Regional Managers knew they
could get from their branches, Adamson would respond with things such as "Don't make me go
to Wall Street with these numbers," and would demand and order the inflation of the numbers.
90. CW2 recalls that in June of 2000, there was an internal "re-forecast" for the last
half of 2000, which was repeated in the September-October 2000 timeframe for the 2001 budget.
CW2 referred to this as the "same routine." The "same routine" involved Medical Staffing
internally revising its budgets and financial targets because of unrealistically high, unjustifiable
numbers put in place by Adamson.
91. CW 1 echoed CW2 's "same routine" comments. Specifically, CW 1 states that it
was Adamson's "M.O." to manipulate the budget forecasts every year and that there were always
significant discrepancies between Medical Staffing's internal budget numbers and what it would
eventually report to the public.
C. THE FALSE AND MISLEADING PROSPECTUS
92. On or about April 15, 2002, Medical Staffing filed its Registration Statement with
the SEC on Form S-1/A for its IPO. On or about April 18, 2002, Medical Staffing's Prospectus,
filed in connection with the IPO and which forms part of the Registration Statement, became
effective and 7,812,500 Medical Staffing shares were sold to the public, raising approximately
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$136 million. Each of the Individual Defendants signed the Registration Statement and
Prospectus.
93. On April 22, 2002, the Company announced that it had made a public offering of
7,812,500 shares of its common stock. All of the shares were sold by the Company at the IPO
offering price of $19.00 per share. As part of the IPO, the Company granted the underwriters an
over-allotment option on 1,171,875 shares.
94. The Company stated that the underwriters exercised the over-allotment option,
bringing the total number of shares issued to 8,984,375. Total proceeds received by the
Company, net of estimated expenses related to the IPO were $155.0 million.
95. In the Company's Prospectus filed with the SEC on Form 424131, the Company
stated:
Our business has grown significantly since our founding in 1998. Over 70% of our revenue growth in 2001 was derived from organic sources with the remainder coming from acquisitions. The organic growth was comprised of same-store revenue growth (defined as revenue growth from our branches that have been open more than two years) and growth from branches opened in 2000 and 2001. Our same-store revenue growth has been the result of our ability to leverage our national network and leading brand name, successfully recruit nurses and cross-sell our services. Branches that we have opened, which we call "de novo" branches, generated rapid revenue growth and typically achieved positive EBITDA within six months of operation. We opened 30 de novo branches In 2000 and 64 de novo branches In 2001. Due to our capability to leverage the fixed costs within our branches and our corporate overhead, our EBITDA has increased substantially from $7.1 million in 1999 to $32.4 million in 2001, and our EBITDA margin increased from 7.4% to 9.6% during the same period. In 2001, we experienced a net loss available to common stockholders of approximately $3.1 million and used approximately $1.6 million of net cash flow in operating activities.
96. Additionally, the Company stated:
SUCCESSFUL DE NOVO PROGRAM. We make extensive use of our
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carefully developed program for opening new branches, which we call our de novo program. Since 1998, we have opened 100 new branches using this program, including 64 in 2001. This strategy has enabled us to expand our U.S. presence and quickly and efficiently enter new markets. These branches have generated attractive financial results, including high growth, rapid EBITDA profitability and significant return on investment. We opened 30 de novo branches in 2000, which generated $48.9 million in revenues in 2001.
97. With respect to the Company's growth strategy, Medical Staffing's Registration
Statement and Prospectus stated:
GROWTH STRATEGY
We seek to continue our rapid growth by pursuing the following strategies:
- FURTHER EXPAND OUR LEADERSHIP POSITION IN THE PER DIEM MEDICAL STAFF1NG1NDUSTRY. We intend to maintain and grow our leadership position in the per diem medical staffing industry. By continuing to offer our clients and professionals highly attractive solutions and alternatives, we believe we can maintain and expand our leadership position.
- DRIVE SAME-STORE REVENUE GROWTH. We intend to foster continued same-store revenue growth by increasing the number of professionals we recruit and staff, by increasing the number of facilities with which we work and by improving our staffing penetration at those facilities.
- CONTINUE OUR DE NOVO DEVELOPMENT PROGRAM. We will continue to foster growth through new and existing de novo branches and to enter attractive new markets that demonstrate high demand for temporary medical staffing and complement our existing infrastructure.
- EXPAND OUR SERVICE OFFERINGS TO OUR HEALTHCARE CLIENTS. We intend to leverage our local infrastructure and relationships with healthcare facilities to promote cross-selling opportunities.
- PURSUE SELECTIVE ACQUISITIONS. We Intend to continue to use acquisitions to expand our U.S. presence and to add complementary service offerings. However, we do not have any
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commitments or agreements for any material acquisitions.
98. With respect to per diem staffing, Medical Staffing stated:
In 2000, per diem nurse staffing was the largest sector of the temporary medical staffing industry, representing $4.1 billion in revenues, or 57% of the temporary medical staffing industry. The per diem industry provides healthcare professionals for assignments of a single shift to 13 weeks, and is used to meet local labor shortages and openings due to holidays, vacations, illness and staff turnover, as well as daily and seasonal fluctuations in hospital volume. The per diem market operates with many local operators and is highly fragmented. In 2000, the top nine per diem staffing companies generated 26% of the market's revenues. The per diem staffing model requires a local presence in every market served because these short-term staffing needs are typically filled on a local basis, and are dependent on the relationship that exists between branch offices, professionals and the healthcare facility. In 2001, approximately 75% of our revenues were derived from per diem nurse staffing.
99. With respect to Medical Staffing's de novo programs, the Company stated:
CONTINUE OUR DE NOVO DEVELOPMENT PROGRAM. A key element of our growth strategy involves the implementation of our de novo branch development program. We have refined this program by opening 100 new locations since our inception, including 64 new branches opened in 2001. Our de novo development program is implemented by our dedicated de novo team which uses a specialized set of criteria to identify attractive potential markets, focusing initially on identifying management for the branch. Following the pre-opening procedures, the de novo team establishes a physical presence and capitalizes on the Medical Staffing Network brand name by launching marketing and recruiting campaigns. The team continues to oversee the branch until it has stabilized. Due to the expertise of our de novo management team, our de novo branches typically achieved positive EBITDA within six months of operation. We expect a significant portion of our growth to be driven by the maturation of the 64 de novo branches opened In 2001, which averaged sales of $390,000, compared to our branches open prior to 2000, which averaged sales of over $4 million. Decisions regarding the implementation of our de novo program are made by our management team based on our business plan, which Is approved annually by our board of directors.
100. In addition, the Prospectus identified several "Risk Factors," stating:
WE OPERATE IN A HIGHLY COMPETITIVE MARKET AND OUR
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SUCCESS DEPENDS ON OUR ABILITY TO REMAIN COMPETITIVE IN OBTAINING AND RETAINING HOSPITAL AND HEALTHCARE FACILITY CENTERS AND TEMPORARY HEALTHCARE PROFESSIONALS.
To the extent competitors seek to gain or retain market share by reducing prices or increasing market expenditures, we could lose revenues or hospital and healthcare facility clients and our margins could decline, which could seriously harm our operating results and cause the price of our stock to decline.
AN IMPORTANT PART OF OUR STRATEGY IS THE EXPANSION OF OUR BUSINESS THROUGH THE OPENING AND DEVELOPMENT OF DE NOVO BRANCHES. THE SUCCESS OF THIS EXPANSION DEPENDS ON OUR ABILITY TO CONTINUE TO IDENTIFY AND RETAIN LOCAL MANAGEMENT AND TO SECURE GOOD LOCATIONS.
If our ability to continue to open de novo branches is impaired, our revenue growth may be adversely affected. In addition, if our existing de novo branches do not develop as quickly as we anticipate, or if we fail to integrate de novo branches effectively into our national network, our results of operations may be adversely affected.
101. Each of the statements relating to Medical Staffing's business contained in
1110 1 - 105 and made in the Registration Statement/Prospectus was false or misleading when
issued. The true, but concealed, facts at the time of the IPO were as follows:
(a) that the Company's "de novo" program was not succeeding and was, in
fact, not generating the "high growth," "rapid EBITDA profitability," or "significant return on
investment," which the Prospectus stated. In fact, the "de novo" program was in shambles and
the Company's de novo offices were no longer actually producing or actually projected to
generate positive EBITDA within six months of operation;
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(b) that the Company had no plan as to where its de novo offices should open
- there was no "specialized" set of criteria to identify "attractive potential markets;"
(c) that the Company's thrice-weekly reporting demonstrated that the de novo
offices were always struggling - consistently operating approximately 50% below their expected
budget projections/forecasts;
(d) that Medical Staffing was witnessing significant changes in the per diem
market that negatively impacted Medical Staffing's growth prospects and overall performance;
(e) that the Company's "de novo" program was teetering on the brink of
suspension, if not termination altogether; and
(f) that Medical Staffing manipulated its budget projections and forecasts to
create the illusion of growth, despite the fact that the Company's de novo offices were not
performing up to expectations.
102. In addition, the Risk Factors identified in 1106, were false and misleading,
ineffective "cookie-cutter" warnings because, at the time they were made, Medical Staffing knew
that its de novo offices were performing poorly, that the medical staffing marketplace had
changed, and that the Company was experiencing severe margin compression as a result.
However, Medical Staffing did not disclose any of these facts to investors in the Registration
Statement or Prospectus.
103. Had the true nature and history of Medical Staffing's business operations been
described in the Registration Statement and Prospectus, no shares could have been sold, or the
shares would have been sold at a far lower price.
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COUNT I
FOR VIOLATIONS OF SECTION 11 OF THE SECURITES ACT AGAINST ALL DEFENDANTS
104. Plaintiff incorporates each of the foregoing allegations set forth above as if fully
set forth herein, except to the extent that such allegations charge the Defendants with intentional
or reckless misconduct. For the purposes of this Count, Plaintiff expressly disavows any
allegation that any Defendant acted with scienter or fraudulent intent, which is not an element of
Securities Act claims.
105. The Registration Statement and Prospectus disseminated in connection with the
IPO, pursuant to which Plaintiff and the Class purchased shares of Medical Staffing common
stock, was inaccurate and misleading, contained untrue statements of material facts, omitted to
state other facts necessary to make the statements made not misleading, and concealed and failed
adequately to disclose material facts as described above.
106. The Individual Defendants signed the Registration Statement and Prospectus and
were responsible for its contents and dissemination. As signatories, the Individual Defendants
are strictly liable to Plaintiff and the other members of the Class for the material misstatements in
and omissions from the Registration Statement and Prospectus.
107. None of the Defendants named herein made a reasonable investigation or
possessed reasonable grounds for the belief that the statements contained in the Registration
Statement and Prospectus were true, without omissions of any material facts. Defendants issued
and participated in the dissemination of materially false and misleading written statements to the
investing public that were contained in the Registration Statement and Prospectus. By reason of
the conduct herein alleged, each Defendant violated Section II of the Securities Act.
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108. Plaintiff and the other members of the Class acquired shares of Medical Staffing
stock pursuant to or traceable to the Registration Statement or Prospectus. None of these shares
were acquired after the Company made generally available to its investors an earning statement
covering a period of at least twelve months beginning after the effective date of the Registration
Statement and Prospectus.
109. Plaintiff and other members of the Class have sustained damages. As a direct and
proximate cause of Defendants' wrongful conduct, the market price for Medical Staffing stock
sold pursuant to the Prospectus was artificially inflated, and the Plaintiff and members of the
Class suffered substantial damages in connection with their purchase of Medical Staffing stock
pursuant to or traceable to the IPO.
110. At the time Plaintiff and other members of the Class purchased Medical Staffing
stock, Plaintiff and other members of the Class were without knowledge of the facts concerning
the wrongful conduct alleged herein and could not have reasonably discovered those facts prior
to the end of the Class Period. Less than one year has elapsed from the time that Plaintiff
discovered or reasonably could have discovered the facts upon which this complaint is based to
the time that Plaintiff or members of the Class field the earliest complaints that are consolidated
in this action. Less than three years have elapsed from the time that the shares upon which this
claim is brought were bonafide offered to the public to the time Plaintiff and other members of
the Class filed this action.
COUNT II
FOR VIOLATIONS OF SECTION 15 OF THE SECURITIES ACT AGAINST THE INDIVIDUAL DEFENDANTS
Ill. Plaintiff incorporates each of the foregoing allegations set forth above as if fully
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set forth herein, except to the extent that such allegations charge the Defendants with intentional
or reckless misconduct. For the purposes of this Count, Plaintiff expressly disavows any
allegation that any Defendant acted with scienter or fraudulent intent, which is not an element of
Securities Act claims.
112. The Individual Defendants were control persons of the Company. By virtue of
their high-level positions with the Company, participation in and/or awareness and/or intimate
knowledge of the Company's actual performance, the Individual Defendants had the power to
influence and control and did influence and control, directly or indirectly, the decision-making of
the Company, including the content and dissemination of the Registration Statement and
Prospectus. As a result, the Individual Defendants are jointly and severally liable for the alleged
violations of Section 11 of the Securities Act.
113. As a result of the foregoing, Plaintiff and the other members of the Class suffered
damages.
CLAIMS AGAINST DEFENDANTS UNDER THE EXCHANGE ACT
A. OVERVIEW OF THE EXCHANGE ACT CLAIMS
114. Plaintiff incorporates each of the foregoing allegations set forth above as if filly
set forth herein.
115. The remaining two counts of this Consolidated Amended Complaint are brought
by Plaintiff under Sections 10(b) and 20(a) of the Exchange Act and Rule I Ob-5 promulgated
thereunder on behalf of all persons who purchased or otherwise acquired the stock of Medical
Staffing during the Class Period, to recover damages resulting from Defendants' fraudulent
conduct during that period. Plaintiff brings his claim for violations of § 10(b) of the Exchange
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Act and Rule I Ob-5 against Medical Staffing, Adamson, and Little. Plaintiff brings his claim for
violations of § 20(a) of the Exchange Act against Adamson and Little.
B. ADDITIONAL BACKGROUND - AFTER THE IPO
(1) The Continuing Decline of Medical Staffing's De Novo Offices and Overall Business
116. As detailed by numerous Confidential Witnesses, Medical Staffing continued to
experience a significant decline in its business after the IPO. In fact, the decline became more
and more pronounced as time went on. CW1 states that the de novo offices were struggling both
before and after Medical Staffing's IPO - just that the struggling got more intense as time went
on.
117. CW1 's observations about the problems Medical Staffing experienced after the
IPO are, as mentioned before, hardly personal to CW I. As described above, CW I states that the
main discussion at Medical Staffing's Monday Management Meetings, which CW1 attended
along every week with Adamson and Little, was the details of the budget forecasts for each
branch office. CWI states this process continued with increased intensity after the IPO.
Specifically, Adamson, Little, CW 1, and others would discuss the financial performance of each
branch office on a weekly basis, branch office by branch office. CW I states that the Company
was very "hands on" about getting immediate financial feedback from its offices, including the
de novo offices, both prior to and after the IPO.
118. For example, at the Monday Management Meetings, CW I states that they would
discuss why the branch offices were not "doing better." Specifically, they discussed in detail the
Company's inability to manage its branch offices, that the Company did not know much about its
branch office managers, i.e., their main contact with the branch manager was the numbers the
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branch manager sent in three times a week, that the Company needed to manage its branch
offices more effectively, and CW1 states that they specifically discussed the above-mentioned
changes that were occurring in the medical staffing marketplace, including gross margin pressure
being asserted by both clients and nurses.
119. As stated previously, CW 1 states that CW 1, Adamson, Little, and other high-
ranking members of management specifically discussed these problems before, during, and after
the Company's IPO, and that the closer it got to 2003, the more severe these problems became.
CW1 also states that he/she felt that the opening of numerous de novo offices enabled Medical
Staffing to hid the fact that things were not going well, specifically allowing the Company to
demonstrate a so-called increase in revenues, despite the fact that Medical Staffing's offices
continuously operated below their target budget numbers.
120. By Third Quarter of 2002, CWI states that Medical Staffing's margin
compression situation was "very bad." Specifically, CW 1 states that management, including the
Adamson and Little, noticed a significant overall drop in business during Third Quarter 2002,
as some of Medical Staffing's clients implemented "vendor management models" designed to
reduce their temporary staffing costs and place companies such as Medical Staffing in a "take it
or leave it" situation. CW I states that by the third quarter of 2002, shortly after the IPO, more
and more of its clients were starting to dictate terms to Medical Staffing and that there was
constant pressure on the Company's gross margin.
121. CW9 confirms that there was a big decline in Medical Staffing's business during
the period from August of 2002 until May of 2003. CW9 states that during that period, the
decline in billing by branch offices ranged between 25% and 50%, averaging about 30%. For
example, CW9 recalled that branch offices with weekly billings in the $125,000-150,000 range
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fell to $100,000 and struggled to maintain that level. Similarly, branch offices with weekly
billings in the $30,000-40,000 range fell to $15,000. CW9 stated that revenue was falling and
that many large contracts were not being renewed. One important cause of Medical Staffing's
difficulties, according to CW9 (similar to other Confidential Witnesses), was that Medical
Staffing did not keep its branch office staff "up to par" on its relationship with clients, especially
the branch office managers. Thus, CW9's assessment of Medical Staffing's client relationship
problems mirrors that of CW1 - the Company failed at the branch manager level, a problem that
was well known to the Company and the Individual Defendants.
122. Similarly, CW1O described how Medical Staffing's local branch offices provided
poor service and because the corporate office failed to maintain adequate communication with its
clients in Arizona, particularly the Arizona Association of Hospitals, which represents
approximately 70% of the hospitals in the Phoenix and Tucson, Arizona areas (making it the
largest customer in the area), that Medical Staffing was in danger of losing major contracts.
123. Like the other Confidential Witnesses, CW1 1 confirmed that Medical Staffing
faced harsh gross margin compression during the Class Period. For example, CW1 I states that
in late 2002/early 2003, Tenet and All About Staffing, two large clients of Medical Staffing, cut
into the Company's gross margin. However, in the face of real world cuts by the Company's
customers, Adamson still demanded that Medical Staffing maintain a minimum gross margin
rate of 25%. CW1 I states that he/she argued with Adamson about this, and that maintaining a
25% minimum gross margin was unrealistic in the per diem nurse staffing business, given
market conditions.
124. CWI I was not the only Confidential Witness to argue with Adamson about
maintaining gross margin numbers. Regarding the efforts of the Company's clients to set prices,
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CW1 states that Adamson "would not hear it" and would tell CW1 to "find a way to make it
work," meaning that CW1 had to maintain margin levels. CW1 recalls that Adamson gave CW1
a 10-minute lecture on how customers could not dictate terms to Medical Staffing because of the
country's nursing shortage. Adamson refused to accept that he was incorrect and always
maintained the position that the Company's customers would have to cow to Medical Staffing's
billing terms, not the other way around. CW1 states that Adamson's refusal to accept what
customers were saying manifested itself in knowing and purposeful manipulation of published
budget targets and forecasts, as discussed in detail below.
(2) Medical Staffin2's Firefighters
125. Medical Staffing was aware that its de novo offices were failing. In fact, as
mentioned previously, Medical Staffing created the role of "firefighter" specifically to deal with
the failing offices. CW11 recalls that during a meeting of regional directors, Adamson informed
CW 11 that he/she had been "elected" to be the de novo firefighter - despite the fact that CW 11
was completely unaware of any such "election."
126. CW12 worked as one of Medical Staffing's firefighters. CW12's position was to
"turn around" failing "Insourcing Accounts," otherwise known as VOP accounts. For example,
CW 12 states he/she was assigned to "save" Medical Staffing's branch office in Metaric,
Louisiana.
127. CW 12's firefighting work involved changing the branch office's staff, training the
staff, and helping recruit nurses to fill available positions. CW 12 would spend about I month at
each office, improve it as much as possible, and then move on to the next office. The offices that
CWI2 worked on were billing less than $20,000 per week (less than $1 million per year).
Several Confidential Witnesses, including CW I, state that the minimum threshold for keeping a
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branch office open was $1 million per year in sales.
128. Regarding the Metaric, Louisiana branch office, CWI 2 states that there was
nothing left to "save," because the branch manager had started his own company in that office by
signing up all the customers and nurses to his own company. Nevertheless, Adamson ordered
CW12 to "save" the branch. CW12's experience as a Medical Staffing firefighter further
demonstrates that the de novo offices were struggling during the Class Period and that the
Company, Adamson, and Little were aware of it, but never disclosed the Company's significant
problems to the public.
(3) After the IPO. Medical Staffing Acquires STAT Medical
129. As discussed earlier, prior to the IPO, Medical Staffing made the decision to
acquire STAT Medical because the Company's de novo offices in that region were not
performing well.
130. CW5 began working for Medical Staffing when it acquired STAT Medical in July
of 2002. Similar to CWI, CW5 described STAT Medical as a very large "player" in the medical
staffing business in Northern California, Oregon, and Washington. By acquiring STAT Medical,
CW5 states that Medical Staffing acquired five branch offices: Portland, Oregon (the largest),
Seattle, Washington (the second largest), Northern California, Salem, Oregon, and Tacoma,
Washington.
131. CW5 states that the former STAT Medical clients Medical Staffing obtained in
the acquisition included large hospital systems, hospitals, and other health care facilities. For
example, STAT Medical had staffing contracts with every hospital in Oregon, including the three
largest hospital systems in the state. In particular, CW5 named Providence Medical Center,
Oregon Health and Sciences University, and Legacy Health System.
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132. Prior to the acquisition, STAT Medical won its medical staffing contracts by
bidding for them in response to requests for proposals published by the hospitals. As a result,
STAT Medical came to Medical Staffing with substantial capital assets - its contracts and
relationships with its customer base.
(a) Due Diligence Problems with the STAT Medical Acquisition
133. According to CW1, Stacey was responsible for handling the STAT Medical
acquisition. CW1 states that the due diligence for the acquisition was supposed to be done by
Stacey and Duval, but that the due diligence was inadequate, stating that Medical Staffing had a
track record of making acquisitions in order to create an illusion of growth, while failing to do
the requisite due diligence.
134. CW1's due diligence concerns were confirmed by CW5 and CW6. CW5 states
that STAT Medical's managers were completely unaware of the acquisition until two weeks
before the deal closed, and that Medical Staffing's failure to involve the managers meant the loss
of opportunity for gaining important information about STAT Medical's past, present, and future
business prospects. Similarly, CW6 states that Medical Staffing bought what STAT Medical
told it without due diligence and that CW6 never saw any Medical Staffing people at STAT
Medical's corporate offices until after the acquisition, not before. CW6 states that if Medical
Staffing had done its own market analysis, it would have known that it would not be able to
sustain the results STAT Medical had achieved six months before the acquisition. As discussed
in detail below, CW6 states the reasons for Medical Staffing's inability to sustain STAT
Medical's prior results were the loss of specific clients and the loss of business in the Portland,
Oregon market because of a specific, known problem that resulted in a "flood of nurses."
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(b) The Rapid Decline in STAT Medical's Business
135. According to CWI, CW5, and CW6, Medical Staffing failed to maintain the level
of business activity attained by STAT Medical prior to the acquisition and that problems arose
almost immediately. Specifically, CW1 states that Medical Staffing's corporate office ignored
the special relationships STAT Medical had with its customers - the hospitals and other health
care facilities whose staffing needs it serviced. In short, Medical Staffing attempted to dictate
terms to these customers, specifying the "bill rates" (rates the customers would have to pay for
Medical Staffing's services) and the "pay rates" (rates that Medical Staffing would pay to the
medical workers performing assignments) in order to maintain a set gross margin percentage.
CW 1 states that Medical Staffing demanded conformity to a "cookie cutter" set of arrangements
that it forced upon its newly acquired clients.
136. As a result of Medical Staffing's "cookie cutter" policies, CW I states that the
hospitals (former STAT Medical clients) began cutting their orders to Medical Staffing and that
the competition came in and "took the business away." As discussed in more detail below,
Medical Staffing never disclosed the problems with STAT Medical after the acquisition.
137. CW5 echoed CW1 's comments. Specifically, CW5 stated that Medical Staffing's
top management knew little about the medical staffing business and that after the acquisition,
Medical Staffing changed all of STAT Medical's business practices, which had a large negative
effect on the former STAT Medical clients. Also, CW8 states that in the first month following
Medical Staffing's acquisition of STAT Medical, CW8's billings fell by approximately 25%.
CW8 states this was a dramatic decline caused, in part, by a decline in demand from hospitals.
138. As mentioned above, CW I states that STAT Medical's business "began slipping
dramatically" and the decline was very noticeable in Third Quarter 2002, shortly after the IPO.
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In fact, CWI recalls that Stacey was sent to Portland to try and recover the business. Further,
CW 1 states the problems with the STAT Medical acquisition were discussed almost immediately
after the acquisition at Medical Staffing's Monday Management Meetings, attended by CWI,
Adamson, Little, and Stacey, among others. CW1 states that Adamson and Little were aware
that the Company experienced a significant decline in business after the STAT Medical
acquisition and that the decline was represented in numbers (i.e., the thrice-weekly reporting)
they reviewed at the Monday Management Meetings.
139. As an example of the way that Medical Staffing literally destroyed a valuable
asset, CW5 described a situation that occurred shortly after the acquisition. CW5 recalled that an
administrator for a large multi-care facility related the following story to CW5. About one year
before the acquisition, the facility issued a request for proposals for medical care staffing and
STAT Medical won the bid. Medical Staffing also submitted a bid, but "lost badly," placing out
of the top 20. A year later, after the acquisition, Medical Staffing's corporate office sent a letter
to this client facility, stating that Medical Staffing was now the staffing service provider and
telling this client that it should deal with Medical Staffing's corporate office directly, instead of
the local offices (previously STAT Medical's offices). Because of Medical Staffing's poor
reputation and low ranking, the customer became very displeased. Further, CW5 stated that
Medical Staffing's "corporate interference" reduced the quality of service to such a level that the
client accused Medical Staffing of "bait and switch" tactics, significantly reducing its level of
business with Medical Staffing.
140. As described above, CW5 states that from the time Medical Staffing acquired
STAT Medical in July of 2002, until CW5 left Medical Staffing in February of 2003, STAT
Medical's business declined significantly. For example, at the time of the acquisition STAT
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Medical's Portland, Oregon branch office had weekly gross revenues of approximately $220,000
(approximately $11 million annually). By February of 2003, CW5 states that the weekly gross
had declined to a range of between $130,000 to $150,000 (approximately $6.5 million to $7.5
million annually). CW5 states that this severe reduction in revenue was accompanied by
substantial personnel cuts. In the Portland, Oregon office alone, the staff declined by half, from
36 to 18.
141. In addition to the foregoing, CW6 states that STAT Medical's market had begun
to change for the worse before Medical Staffing acquired it. These problems resulted from
significant changes in two major health care providers in STAT Medical's market. CW6 states
that Medical Staffing did not examine this issue in its due diligence before the acquisition.
142. Specifically, CW6 states that Oregon Health Sciences University ("OHSU"), one
of STAT Medical's largest customers in the Portland, Oregon market (STAT Medical's most
important market), suffered from a strike by its nurses during the time period after September 11,
2001 and before Christmas of 2001. Initially, OHSU would not negotiate with the striking
nurses, and the strike was not settled for several months, until early 2002. CW6 states that
nurses with OHSU were typically on long contracts and when they could not secure work with
OHSU, they turned to staffing agencies. CW6 says that, as a result, there was a "flood" of nurses
into staffing agencies, including STAT Medical.
143. The impact of the strike was clearly noticeable. CW6 states that prior to the
strike, STAT Medical had about four to six recruits each day. After the strike began, CW6 states
that the recruit number jumped to 25 to 26 per day, virtually all Registered Nurses.
144. By the time the strike ended, OHSU had contracted with national staffing
agencies and imported nurses from out-of-state. As a result, STAT Medical found itself with an
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increased supply of nurses available for staffing assignments, without a matching increase in
demand for those services. CW6 said this was the context in which STAT Medical was
functioning at the time of the Medical Staffing acquisition.
145. To provide further context, CW6 states that in about April of 2001, about six
months before the strike, STAT Medical's revenues reached a maximum of approximately $475
thousand per week, and then began to decline.
146. In an effort to regain its footing, Medical Staffing moved its Portland, Oregon
office operations to STAT Medical's Portland office and used Medical Staffing's Portland
branch office for recruiting only, cutting staff and personnel.
147. This, however, did not solve the problem. As a result, Medical Staffing closed its
Portland, Oregon office - in 2002. CW 1 states that Stacey managed the closure of the Portland,
Oregon office. CW1 knows that Stacey managed the closure because, by that time, Stacey's title
changed to Vice President of Per Diem Operations and Stacey had an office at the Company's
headquarters in Boca Raton, where CW I worked.
148. In addition to the foregoing, CW1 states that at the same time Medical Staffing
experienced significant losses resulting from the STAT Medical acquisition, Medical Staffing
experienced a significant decline in its overall business, as described above. CWI states that
many of the reasons for Medical Staffing's overall decline were the same as the problems with
the STAT Medical acquisition. For example, CWI states that Medical Staffing attempted to
dictate terms to its clients via the Company's corporate headquarters in Boca Raton, and that
such a practice ignored the special local relationships that are required to run a medical staffing
company - the relationship between the branch offices and the clients they service.
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(4) After the IPO, Medical Staffing Continues to Manipulate its Budget
149. As described earlier, in late October or early November of every year, Medical
Staffing began preparing its budgets, forecasts, and financial projections for the upcoming year.
In particular, numerous Confidential Witnesses were involved with the 2003 budget planning.
(a) The 2003 Budget Process
150. CW10 states that Medical Staffing's corporate office in Boca Raton solicited a
first round of the 2003 budget/forecast numbers from the Company's branch offices. CW2
recalls that at the beginning of the 2003 budget process, CW2 received an Excel spreadsheet
showing the 2003 budget targets CW2 was required to meet. CW2 states that each Excel
spreadsheet arrived accompanied by a "large e-mail" with detailed instructions for completing
the spreadsheet. CW2 received his/her spreadsheet directly from Jeffrey Jacobson ("Jacobson"),
a Medical Staffing Executive Vice President in charge of the Allied Division, CW2's supervisor.
CW2 states that CW2 knew from personal experience that Jacobson received the spreadsheet
from Adamson, to whom Jacobson reported directly.
151. CW2 states that the budget packages "stopped" at the regional level and that the
Regional Managers did the work to complete the budget spreadsheets. CW2 describes that
he/she was "shocked" to see that for each month of 2003, CW2 would have to show a 17%
increase in top line revenue over the actual results for the commensurate month in 2002.
Moreover, the budget targets required no increase in expenses, so the revenue increase targets
translated directly into increased profit targets.
152. CW2 states that the 2003 budget targets were the same for each of the 22 Allied
branch offices under CW2's responsibility requiring a 17% increase in top line revenue month-
to-month over 2002. In addition, CW2 states that all other Allied Regional Managers faced the
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exact same targets. In short, CW2 characterized the 2003 budget targets as "excessive" and
"unjustifiable" in relation to the numbers that the branch offices were actually achieving.
153. As part of the budget forecasting process, CW2 states that based on initial input
from the branch offices, Adamson would meet with several high-ranking Medical Staffing
officers and employees to decide on budget targets. According to CW2, these persons included
Osman, Little, and the head of the accounting department, Mike Messagno ("Messagno").
154. According to CW2, after Adamson, Little, Osman, and Messagno determined the
2003 budget targets, Adamson sent an e-mail to Osman asking him to set up the budget meeting
with the Executive Vice Presidents, including Stacey and Jacobson, who both reported directly to
Adamson. CW2 is aware of this procedure because CW2 received an e-mail regarding that
process which was forwarded to CW2.
155. One such person who attended the budget forecasting meetings was CW 1. In
fact, CW1 attended every meeting concerning Medical Staffing's 2003 budget. The meetings
took place in the boardroom on the second floor of Medical Staffing's corporate headquarters in
Boca Raton, Florida. The participants included everyone at the Vice President level and above,
including Adamson and Little. At the meetings, an Executive Vice President for each region
made a presentation of the projections for the branch office locations in his/her region to the
attendees, including Adamson and Little.
156. CW2 describes a similar process. After completing the budget Excel
spreadsheets, CW2 brought them to a budget meeting at Medical Staffing's Boca Raton
headquarters in early 2003. At the budget meeting, CW2 states that each Regional Manager
"presented" its completed budget to Adamson and Little, Executive Vice President Stacey, and
Jacobson, among others.
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157. While unable to cite exact figures, CW1 recalls that Adamson required the 2003
budget targets to exceed the 2002 actual results by "an overwhelming amount." Each of the
Executive Vice President presenters was familiar with their markets and, according to CW 1, they
each fold Adamson that they could not achieve his targets and showed him figures of exactly
what numbers they could reasonably expect to achieve.
158. CW2 describes that in almost every case, the budget presentations were rejected
by Adamson, who told several presenters (Regional Managers or Executive Vice Presidents) to
"go back downstairs" to an office with a computer and "fix the numbers." By "fixing the
numbers," CW2 states that Adamson meant the numbers should be changed to arrive at the
targets set by Adamson. CW2 states that everyone had to "fix" their numbers, even though they
knew they could not actually make A damson's targets.
159. CW2 states that the Regional Managers "fought" for their numbers because they
knew their own markets and Adamson and Little did not, but that Adamson "insisted" that the
numbers be changed.
160. Specifically, CW2 recalls Defendant Adamson requiring the unjustified changes
and that his justification was "this is what I need to fake to the stock market." CW2 states that
Adamson "insisted" that the Regional Managers and Executive Vice Presidents "give him the
numbers he wanted." CW2 quotes Defendant Adamson as saying, "Now that we are public,
everything is about what we take to the market."
161. In response to Adamson's outrageous budget numbers demand, CW2 told
Adamson that CW2 could not achieve the targets he set. Adamson's response: "get more
business." CW2 continued to stand up to Adamson, arguing that in CW2's region Medical
Staffing already had 95% of the business, so there was little room for growth. Adamson replied,
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telling CW2 to cut the fees paid to Medical Staffing workers engaged to fill staffing assignments.
CW2 told Adamson that offering lower fees would make it impossible to keep the staff necessary
to fill the assignments - they would simply go to higher paying competitors. Adamson's
response: "increase the price charged to customers." CW2 told Adamson that such a response
would lead to a loss of business as competitors could come in and take it away with lower
pricing plans. CW2's recalls that none of CW2's concerns made any difference, as Adamson
was adamant about his numbers so that the Company could report "growth" to Wall Street.
162. The 2003 budget was not the only time Adamson insisted on unrealistic targets.
CW2 recalls that in June of 2000, there was a "re-forecast" for the last half of 2000, which
continued in the September-October 2000 timeframe with the budget for 2001. CW2 referred to
the process as the "same routine." The "same routine" involved unrealistically high,
unjustifiable numbers. Specifically, CW1 states that it was Adamson's "M.O." to manipulate the
budget forecasts every year and that there were always discrepancies between Medical Staffing's
internal budget numbers and what it reported to investors and the public.
163. Like CW2, CW1 states that in January 2003, CW1 was present at a budget
meeting with Adamson in which Adamson directed the Regional Vice Presidents to "give him
2% more margin" over and above the results actually achieved in January 2003. CW 1 recalls
that Adamson said explicitly that he needed the extra 2% in the Company's forecasts for the
ensuing months beginning February 2003 to report to Wall Street and the investing public.
164. Like CWI and CW2, CWIO (Medical Staffing's Western Regional Director) was
forced by Adamson to create false financial figures. Specifically, CW 10 states that he/she went
to the Company's Boca Raton headquarters to present the budget numbers CW 10 collected from
the branch offices in his/her region. CW 10 recalls, however, that the presentation was just a
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"formality" because corporate management knew the numbers that it wanted and would
eventually get them.
165. CW 10 states that after presenting his/her 2003 budget information, Adamson
informed him/her that his/her numbers were inadequate and that CW 10 must increase the
numbers to conform to the targets of corporate management. CW 10 specifically recalls this
conversation taking place and recalls being required to go to a computer at the Company's
headquarters and make arbitrary changes to his/her budget numbers on an Excel spreadsheet.
Ultimately, CW 10 made the changes and presented them in final form to Little.
166. CW 10 was then required to deliver to his/her branch office managers the
budget/forecast numbers that conformed to the corporate targets imposed by the Company.
CW1O characterized the targets as "overblown" and "impossible to meet." CW1O recalls
conversations with his/her branch office managers in which many complained that they thought
they had gotten agreement on the first round of numbers, which were based on an understanding
of market conditions in the local markets. The branch office managers told CW 10 that they
could not make the revised numbers and that they were very demoralized because their incentive
compensation depended on making the numbers.
167. Like the other Confidential Witnesses, CW 11 states that the budget/forecasting
process produced extremely unrealistic numbers that were without factual support. CW1 I
confirms that Adamson insisted that each Regional Director submit numbers that Adamson and
Little had preconceived. CW 11 gives the following example. For the 2003 budget/forecast,
Adamson knew that Tenet, a large client of Medical Staffing, had cut Medical Staffing's hourly
billing rate from $56 to $46, a cut of approximately 18%. Nevertheless, Adamson expected
branch offices doing business with Tenet to post budget/forecast numbers for 2003 that exceeded
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the 2002 numbers by 15% or more - a wholly unrealistic amount.
168. CW1 1 confirmed that Adamson and Little refused to listen to what the Regional
Directors were saying about their financial prospects and insisted that the Regional Directors
capitulate to their demands. In addition, CWI 1 said that any deviation from Adamson's
demands would have resulted in the loss of CWI l's employment with Medical Staffing.
(b) Medical Staffing's Failure to Achieve 2003 Targets
169. As a result of the concerns expressed to Adamson by the Confidential Witnesses
and many others, Medical Staffing failed to make its targets for First Quarter 2003. CW2
believes the Company could have achieved some growth, but that, as described above,
Adamson's unrealistic targets made meeting forecasts impossible. CW4 confirms that during
2003, until CW4 left in July, in no month did Medical Staffing succeed in making its budget
numbers.
170. In particular, in January of 2003, CWI states that Adamson would send scathing
e-mails because he was disappointed with the reported actual performance of the Company and
that there were frequent conference calls during which they discussed the Company's poor
financial performance.
171. By the end of January of 2003, CWI states that Adamson was telling his
executive staff on those conference calls, "You're not giving me what you said you would,"
referring to the budget targets Adamson forced his executives to adopt. CWI specifically recalls
a Thursday at the end of January 2003 when the final January numbers came out and Adamson
was very disappointed with the actual results. CW I states that Adamson directed CW I and
Stacey to call each of the Company's Vice Presidents and go over the numbers, branch office by
branch office, to determine what could be done to "turn them around." CW I describes the
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conversations as "painful," because there was no positive result that could come from the calls -
Adamson was operating under performance goals that everyone knew were unrealistic,
unattainable, and unsupported by actual data.
172. CWI states that the facts underlying each conversation with the Vice Presidents
were the same - that the 2003 targets were grossly overstated. The calls centered on how
Medical Staffing's hospital clients would not pay higher fees to Medical Staffing and that the
nurses would not take lower fees as well. Put simply, CW1 states that it all stemmed from the
unrealistic budget targets that Adamson "had to have to satisfy Wall Street," even though CW1
knew the medical staffing market had changed and that the Company was facing severe margin
compression.
173. CW1 states that after these unpleasant conversations, CW1 and Stacey would
report back to Adamson in meetings in Adanison's office and tell Adamson and Little what the
Vice Presidents were saying. CWI called this process "walking the green mile," referring to the
green carpeted hallway from CW1 's office to Adamson's. CWI states that even at this time,
Adamson was adamant and would say things such as, "This is unacceptable. . . find a way to fix
it." CW I knew that "find a way to fix it" meant "get me the numbers I want."
174. Thus, with the 2003 budget, CW2 states that Medical Staffing went through the
"same routine." The budget targets were unrealistically high and the Company failed to make its
numbers for January and February of 2003. CW2 said the 2003 actual results were "so far off
the budget" and "horrendous," that they caused Medical Staffing to make a re-forecast of its
numbers in early March of 2003. Because of the failure to make the March and April 2003
numbers, the Company made another re-forecast in May of 2003. CW2 states that Medical
Staffing made a re-forecast every two months in 2003 because the targets were missed every
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month.
175. As a result of missing targets, CW2 states that with every re-forecast, Adamson
would put CW2 and CW2's peers through the "same routine." CW2 and others would present
their re-forecasts, based on their assessments of their markets and Adamson would reject them,
claiming they were "ridiculous." CW2 and others would try to reason with Adamson, but he
would say that he had to have his inflated numbers to take them to the stockholders and the
market.
176. Medical Staffing's budget manipulations did not end with the close of the Class
Period. CW3 states that he/she "wrote the Allied Services budget for the last two quarters of
2003 and the entire year forecast for 2004." CW3 said that Medical Staffing's top management
in the Boca Raton corporate headquarters determined the budget targets or goals. These targets
were established in a process that began in August of the year preceding the subject year of the
budget, with the submission of "forecasts" or projections by each branch office manager. The
submissions from each branch office went first to the Regional Manager for that office and then
to the Area Vice President, who submitted them to the corporate office. At the corporate office,
Medical Staffing's "Executive Committee" reviewed these submissions. The so-called
Executive Committee included the Regional Vice-Presidents, Executive Vice Presidents and the
"Corporate Finance Team," which included Adamson, Little, and Osman. The Executive
Committee reviewed the preliminary submissions and approved them or "kicked" them back for
revision. CW3 says these submissions were virtually always returned for upward revision - to
make the projections higher to support higher budget targets.
177. CW3 recalls the August 2003 South Florida regional budget meeting with CW3's
direct report Executive Vice President, Pat Layton ("Layton"). The meetings took place over a
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three-day period and nine branch office managers participated. CW3 said this group "got their
forecast numbers together" and submitted them, but the numbers were rejected as being too low.
CW3 states that the group then "reworked" the numbers to conform to the projections demanded
by the Executive Committee and resubmitted them.
178. Although CW3 could not recall the exact numbers, CW3 said the 2004 budget
targets his/her group was required to justify were "very, very high," as the targets for each month
exceeded the 2003 actual numbers for each month, by a year-over-year increase of
approximately 17%.
(5) Medical Staffing's Undisclosed Collection Difficulties
179. In May of 2003, CW9 joined Medical Staffing's Collections staff. When CW9
joined the Collections staff, he/she participated in Medical Staffing's organized "drive" to clear
its books of "stale" accounts receivable, some of which dated back to 1999. CW9 stated that the
accounts had not been collected because it was a matter of "nothing being done."
180. Thus, CW9 states that Medical Staffing created an incentive program during the
June and July 2003 timeframe and that the program was aimed at resolving all accounts
receivable dated prior to January of 2003. Thus, although some of CW9's experiences occurred
after the close of the Class Period, CW9 is able to provide detailed information about Medical
Staffing's accounts receivable problem during the Class Period - his/her experiences are relevant
to Class Period conduct.
181. CW9 states that Medical Staffing would "resolve" its accounts receivable in one
of three ways: collected, adjusted-off, or written-off as uncollectable. As part of this process,
CW9 states the Cash Applications staff prepared credit memoranda to write-off the invoices for
accounts determined to be uncollectable.
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182. CW9 participated in Medical Staffing's accounts receivable drive, and his/her
target was to "clean up" $1.5 million in pre-2003 accounts receivable. Had CW9 achieved
that $1.5 million goal, he/she would have qualified for a $5,000 bonus. CW9 states he/she
missed the $1.5 million target by $150 and received a bonus of $1,500.
183. At the same time CW9 worked on the Accounts Receivable Drive, CW9 had to
collect all of his/her current accounts receivable within the 30-day limit. CW9 states that
Medical Staffing's policy was that invoices were due and payable within 30 days of the invoice
date. That meant that customers were supposed to pay within 21 days of receipt of invoice,
because the invoices were dated on Mondays, sent by Fridays, and received early in the
following week. CW9 adds that some customers received specific exceptions to this policy and
faced 60-day or 90-day payment periods.
184. CW9 states that in the July to August 2003 timeframe, Johnny Carson ("Carson")
became Medical Staffing's Accounts Receivable Director. When Carson joined Medical
Staffing, CW9 states that approximately 50% of all the accounts receivable in the Healthworks
system (previously described by CW 1) were more than 60 days old. As a result, CW9 states that
Medical Staffing's "numbers were [and previously had been] inflated" because some of the
accounts were uncollectable. CW9 states that Carson created another bonus plan designed to
eliminate the overdue accounts receivable.
185. The bonus plan involved approximately 20 collectors, including CW9, whose goal
was to reduce the number of 60-day-plus overdue accounts receivable by 10% or more each
month. CW9 states that each collector was given a portfolio of about $4 to $8 million, with
roughly equal proportions of 60-day-plus overdue accounts and regular 30-day accounts. The
10% figure was calculated by taking into account the 60-day-plus receivables on the books and
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the receivables that were prevented from rolling over into the 60-day-plus category. The
collectors who achieved this monthly goal received a $1,000 bonus. CW9 states that some of the
accounts receivable were "very old," between four and 12 months overdue.
186. Similarly, CW7 states that some clients of CW7's New Mexico branch office did
not pay within the 30-day receivable period, and that some of the delinquent accounts belonged
to large clients. Generally, CW7, like CW9, states that "collections were a problem" and that
two clients alone (Mission Manor Nursing Home and Addus) were more than $180,000 in
arrears, but that Medical Staffing continued to do business with them. CW7 emphasized that the
thrice-weekly reporting reflected billings, not collections, which made the numbers "look good
on paper" even though the Company was not making any money. Further, CW7 stated that the
branch offices were responsible for sales, but were not allowed to get involved in the collections
process.
(6) Medical Staffing's Questionable Regulatory Practices & Nurse Hirin2
187. Each nurse or other health care professional who performs an assignment for
Medical Staffing at a hospital or other health care facility, the so-called "health care delivery
organization," must have certain credentials qualifying them to engage in the assignment. These
credentials include a state license, competency exams, continuing education units (CEUs), CPR
card, advanced resuscitation skill certificate, criminal background check, drug screening, annual
TB screening, and an annual physical. Compliance with these requirements is monitored by at
least two regulatory agencies: (I) the Joint Commission for Accreditation of Health Care
Organizations ("JAACHO"); and (2) the Agency for Health Care Administration ("AHCA").
These regulatory boards require health care delivery organizations, such as hospitals, to confirm
that each field associate (e.g., nurse) passes the regulatory requirements. In turn, the health care
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delivery organizations, i.e., Medical Staffing's customers, require Medical Staffing, along with
all other third party provider agencies, to meet those regulatory requirements as a condition for
keeping a contract to provide staffing.
188. Medical Staffing frequently did not do an acceptable job of meeting the JAACHO
and AHCA regulatory requirements in all instances.
189. For example, CW3 described that Medical Staffing failed to meet the regulatory
standards at a facility in Miami, Florida (the "Miami Facility"). The Miami Facility is the largest
trauma center in Miami, owned by a County trust, and located in the Liberty City section of
Miami. CW3 stated that the Miami Facility put Medical Staffing on probation for sending a
nursing professional without a license to a staffing assignment. As a result of Medical Staffing's
failure to comply with the regulatory requirements of JAACHO and AHCA, CW3 states that
Medical Staffing lost almost all of its nursing services business with that hospital, causing a
severe 90% loss of revenue that was not regained at the time CW3 left Medical Staffing.
190. In addition, because of Medical Staffing's "questionable record," CW3 states that
hospitals were unwilling to accept Medical Staffing "attestation" that its field associates
possessed the requisite certification. Instead, hospitals required Medical Staffing to submit the
actual findings, particularly regarding the field associates' health information.
191. As a result of hospitals requiring Medical Staffing to submit field associates'
health information, CW3 states that Medical Staffing violated the Health Insurance Portability
and Accountability Act of 1996 ("HIPPA"). Specifically, Medical Staffing submitted its field
associates health information in violation of HIPPA prohibitions enacted to protect the privacy of
field associates as patients.
192. Concerned that Medical Staffing was violating federal law as a result of its
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certification compliance problems, CW3 wrote several memoranda about the violations and sent
them to Medical Staffing Executive Vice Presidents Layton and Stacey. With each memoranda
CW3 sent, CW3 encouraged Layton and Stacey to share them with Adamson.
193. Further, CW3 had a conference call with Layton and Stacey regarding Medical
Staffing's HIPPA violations. At the conclusion of the call, Layton and Stacey instructed CW3 to
stop "creating policy" for Medical Staffing.
194. In addition, CW7 describes how Medical Staffing's Albuquerque, New Mexico
branch office encountered compliance problems. CW7 said that the Albuquerque branch did not
keep files as required by the state of New Mexico and JAACHO, as described above. CW7
states that he/she reported this fact to the Medical Staffing Compliance Hotline, a Regional
Manager, and CW7's District Manager, Barbara Salazar ("Salazar"). CW7 recalls that Salazar
directed CW7 to continue using the nurses that were not in compliance.
195. In addition to failing to meet some regulatory guidelines, Medical Staffing rarely
interviewed the nurses it hired, despite, as described below, touting itself as doing so and stating
that the Company's practice of interviewing each nurse it hired as a competitive advantage that
set it apart from other medical staffing companies. For example, CW 1 and CW 11 state that
Medical Staffing did not interview each applicant in person by a local branch manger. In fact,
Medical Staffing's standard practice was not to conduct interviews. As described by CW 1, a
high-ranking Company Vice President deeply involved in Medical Staffing's per diem and de
novo programs, Medical Staffing interviewed, on average, approximately one-third of its
applicants. As described by CWI I, the Company's Managing Director of Florida, Medical
Staffing simply did employ the personnel necessary to conduct substantive applicant interviews.
CWI I states that prospective nurses were simply recruited, often just hired away from a
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competitor (a practice confirmed by other Confidential Witnesses), and were told to fill out the
required paperwork - without formal job interviews.
(7) The Failure of Medical Staffing's Dc Novo Strategy and Branch Office Closin2s
196. Similar to CW1, CW4 states that Medical Staffing's de novo strategy contained
"serious flaws." First, CW4 states that the $2 per hour wage premium that Medical Staffing
frequently offered to attract nurses and "buy the business" ended up cutting Medical Staffing's
gross margin on nursing staffing (the difference between the amount that Medical Staffing billed
its customers and the amount that Medical Staffing paid the nurses who filled the staffing
assignments) by about 5% to 8%.
197. CW4 states that it took several months for Medical Staffing's competitors to
understand Medical Staffing's tactics and to understand why Medical Staffing was able to
increase sales volume in the face of a slowing market (i.e., figure out that Medical Staffing was
sacrificing gross margin to "buy the business"). When they did respond, CW4 states that
Medical Staffing's competitors simply adjusted the fees they paid to nurses and were able to
regain market share.
198. Several Confidential Witnesses stated that Medical Staffing's de novo expansion
strategy failed because of the Company's inability to recognize the importance of the
relationships between the branch office personnel and their customers. Specifically, CW4 states
that Medical Staffing failed to make the necessary investments in human capital and that because
Medical Staffing did not have an established, committed customer base at its newly opened de
novo offices, Medical Staffing lost business. Instead of having a committed customer base,
Medical Staffing's customers were "transitory," according to CW4.
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199. As described above, CWI confirms that Medical Staffing knew little about its
branch office managers and that Adamson and Little recognized that the Company had
management problems over its branch offices - they discussed it at the Monday Management
Meetings. Rather than investing in human capital, Medical Staffing attempted to manage from
its corporate headquarters in Boca Raton, Florida. CW9 and CW1O confirm the problems
between Medical Staffing and its clients.
200. CWI states that Medical Staffing's de novo strategy failed and that the failure
became most evident in late 2002 and very early 2003, although the problems leading up to its
failure had been known and kept secret for a long period of time. In order to maintain
appearances of growth, CW 1 states that Medical Staffing was secretly closing de novo branch
offices at the same time that it was opening new de novo offices in other locations. CW4
confirms CW1 's outlook, recalling that the de novo offices were "ready to be closed on the day
they opened."
201. CWJ states that actual de novo office closings began in early 2003, even though
Medical Staffing did not begin to report such closings until May of 2003. In fact, CWJ was
responsible for coordinating the first round of de novo branch office closings, which was not
publicly disclosed until May of 2003. CWJ states that the first round of closings was planned
at least four months earlier, in late January 2003 - at the same time Medical Staffing was
upwardly revising its earnings guidance for 2003.
202. In order to further maintain the appearance of prosperity, CWI states that the high
level management of Medical Staffing was "sworn to secrecy" so that there would be absolutely
no leaks to the public about the office closings.
203. Specifically, CW I states that Defendant Adamson gave a "directive" to close the
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de novo offices at a meeting in January 2003 around a table in Defendant Adamson's office (the
"Secret Office Closure Meeting"). CW4 confirms that the decision to close de novo offices was
made in January of 2003. Other participants in the Secret Office Closure Meeting including
Little, Stacey, Christin Marcello ("Marcello"), the then and current Chief Information Officer,
the then and current head of Human Resources, and Osman.
204. At the Secret Office Closure Meeting in January 2003, Osman "ran the numbers"
identifying the branch offices that were operating below budget targets. Then, Adamson gave
the directive to close each branch for which expenses could not be cut enough to show a profit.
CW1 states that by this time (January 2003), Adamson had begun to accept his executives'
position that revenue of de novo branch offices simply could not be increased as hospitals
refused to pay more. CW4 confirms that the decision and plan to close the de novo branches was
based on forecasts of declining business.
205. During the Secret Office Closure Meeting, Adamson provided attendees with the
aggregate dollar expenditure ceiling for the entire group of offices that were operating below the
budget targets. This group of offices exceeded 40 branches and approximated two thirds of the
branch offices then in operation. CW1 states that by January 2003, the business was "headed
south, fast."
206. As detailed above, CW3 began work at Medical Staffing in April of 2003. At that
time, CW3 states that plans for closing 40 branch offices had been completed. Specifically,
CW3 recalled that, based on conversations with others, the planning had been done for
approximately eight weeks - dating back to approximately February of 2003.
207. CW3, Medical Staffing's South Florida Regional Manager for Allied Medical
Services, confirms that the Adamson and Little knew about the branch office closings and the
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downfall of Medical Staffing's business in early 2003.
C. FALSE AND MISLEADING STATEMENTS
208. In addition to the false and misleading statements identified below, Plaintiff
incorporates by reference the statements made in the Registration Statement and Prospectus for
purpose of the Exchange Act claims. As previously stated, Plaintiff does not incorporate any
allegations of scienter into his Securities Act claims.
209. Following the completion of the Company's IPO, Medical Staffing announced
"record results" in a press release on May 13, 2002. For the period ended March 31, 2002, the
Company reported record revenues of $103.2 million for the first quarter of 2002, an increase of
46% over revenue for the same period in the prior year of $70.5 million. The Company reported
net income of $2.8 million, or $0.13 per diluted share, for the first quarter of 2002 compared to a
net income of $1.9 million, or $0.07 per diluted share for the prior year first quarter, an increase
of 47%. Earnings before interest, taxes, depreciation, and amortization ("EBITDA"), a key
measure used by management to evaluate the Company's operations, increased to $9.6 million
for the first quarter of 2002 from $7.3 million for the first quarter of 2001. Income available to
common stockholders for the first quarter of 2002, which reflected accrued dividends on the
Company's previously outstanding convertible preferred stock, which were converted into shares
of common stock in connection with the Company's IPO, was $0.3 million, or $0.02 per diluted
share.
210. Commenting on these results, Defendant Adamson stated:
We are very pleased with the strength of our first quarter 2002 results which reflect our significant organic growth[.] . . . The success of our de novo program and same store growth resulted in organic revenue growth of 41% during the first quarter of 2002 over the same period In the prior year. Over 90% of our organic revenue growth was the
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result of an increase in volume, with the balance coming from price increases and a shift in mix toward higher billing staffing specialties.
211. On May 30, 2002, the Company filed its quarterly report with the SEC on Form
10-Q. The Company's Form lO-Q was signed by Defendants Adamson and Little and
reaffirmed the Company's previously announced financial results.
212. The statements identified in ¶1209-21 1 were false and misleading when made
because:
(a) the Company's "de novo" program was not succeeding and was, in fact,
not generating the "high growth," "rapid EBITDA profitability," or "significant return on
investment," which the Prospectus stated. In fact, the "de novo" program was in shambles and
the Company's de novo offices were no longer actually producing or actually projected to
generate positive EBITDA within six months of operation;
(b) the Company had no plan as to where its de novo offices should open;
(c) the Company's thrice-weekly reporting demonstrated that the de novo
offices were always struggling - consistently operating approximately 50% below their expected
budget projections/forecasts;
(d) Medical Staffing was witnessing significant changes in the per diem
market that negatively impacted Medical Staffing's growth prospects and overall performance;
(e) the Company's "de novo" program was teetering on the brink of
suspension, if not termination altogether;
(f) Medical Staffing deliberately manipulated its budget projections and
forecasts to create the appearance of growth, despite the fact that the Company's de novo offices
were not performing up to expectations;
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(g) instead of benefiting from seasonal fluctuation, the Company would
actually be adversely impacted by seasonality; and
(h) the Company's South Florida operations were suffering from adverse
growth rates and seasonality.
213. On July 30, 2002, the Company announced in a press release its financial results
for the period ended June 30, 2002. Medical Staffing reported "record revenues" of $1 15.5
million for the second quarter of 2002, an increase of 39% over revenues of $83.2 million for the
second quarter of 2001. Net income was $5.1 million, or $0.17 per diluted share, for the second
quarter of 2002, an increase of 173% compared with net income of $1.9 million, or $0.07 per
diluted share, for the prior year second quarter. The $0.17 income per diluted share exceeded the
consensus analysts' estimate of $0.16 per diluted share. EBITDA increase to $11.3 million for
the second quarter of 2002 from $8.0 million for the second quarter of 2001, an increase of4l%.
214. The Company also issued the following guidance, touting its "on track" de novo
openings as part of the key to its success:
2002 and 2003 Revenue and Earnings Guidance
The Company expects full-year 2002 revenue to grow to $480 million, or approximately 42% over 2001, and expects to generate net income of $20 million, or $0.68 to $0.70 per diluted share. EBITDA for 2002 is expected to reach $45 to $46 million. In addition, the Company is on track to open that targeted 40 de novo branches for the year.
For the third quarter of 2002, the Company expects earnings to be $0.18 to $0.19 per diluted share on revenue ranging from $125 to $130 million. EBITDA for the third quarter of 2002 is expected to reach $12 million.
For 2003, the Company expects full-year revenue to increase to $590 to $600 million, and expects to generate net income of $30 to $31 million, or $0.90 to $0.92 per diluted share. EBITDA for 2003 is expected to grow to $59 to $60 million.
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215. Discussing acquisitions (which included the STAT Medical acquisition), the
Company stated:
The Company completed three acquisitions in July for a combined cash purchase price of approximately $16 million. All three transactions were completed in early July and did not contribute to the results of the second quarter. The Company expects the acquisitions to generate annualized revenue in excess of $20 million and annualized EBITDA in excess of $2 million.
216. Commenting on these results, Adamson stated:
We continue to experience strong demand for our staffing services[.] As our strong results suggest, demand for temporary staffing
healthcare staff is very robust and there continues to be a significant imbalance between supply and demand. Despite the efforts noted by certain of our hospital customers to tightly manage temporary staffing, these hospital companies have reported that temporary staffing expenditures have continued to increase, albeit with one company noting a slower rate of growth. Many of our other customers have embraced temporary staffing as a way to control overall labor costs. We believe this is reflected in the overall healthcare staffing market growth substantially exceeding that quoted by these hospital companies and, of course, in our own growth, which substantially exceeds even the market growth rate.
217. Following this announcement, shares of Medical Staffing common stock rose
approximately 1.3% or $0.26 per share, to close at $19.9 per share.
218. The statements identified in 1"213-216 were false and misleading when made for
the reasons stated in 1212. In addition, the Company, Adamson, and Little knew that demand
was not robust and that Medical Staffing was not "growing" in excess of the market growth rate.
To the contrary, Medical Staffing manipulated its financial numbers to create an illusion of
growth, all while facing severe margin compression and poor financial results, as reflected in the
thrice-weekly reporting.
219. On August 7, 2002, Medical Staffing issued a press release wherein it announced
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that "it was 'very comfortable' with the earnings guidance it had reported in its second quarter
earnings release issued on July 30, 2002." Commenting on the Company's guidance, Defendant
Adamson stated:
We remain very comfortable with the guidance we gave the investment community on July 30th. At that time, we projected that full-year 2002 revenue would grow to $480 million, or approximately 42% over 2001, and that net income would increase to $20 million, or $0.68 to $0.70 per diluted share. EBITDA for 2002 is expected to reach $45 to $46 million. In addition, the Company is on track to open the targeted 40 de novo branches for the year. For the third quarter of 2002, the Company expects earnings to be $0.18 to $0.19 per diluted share on revenue ranging from $125 to $130 million. EBITDA for the third quarter of 2002 is expected to reach $12 million. For 2003, the Company expects full-year revenue to increase to $590 to $600 million, and expects to generate net income of $30 to $31 million, or $0.90 to $0.92 per diluted share. EBITDA for 2003 is expected to grow to $59 to $60 million.
• . We note that one of the leading providers of travel nurse services commented today that demand for travel nurses was less than expected in certain markets during the second quarter. They went on to say that hospital clients who were experiencing lower patient census were transitioning their needs for temporary staffing to per diem providers. Our company did in fact see an increase in demand for per diem nurses in those marketplaces during the second quarter and demand has continued to be strong going into the third quarter. We expect that the value we add to the healthcare delivery system will directly translate into increase value for our shareholders.
220. On August 14, 2002, the Company filed its quarterly report with the SEC on Form
l0-Q (the 112Q 2002 Form l0-Q"). The Company's 2Q 2002 Form l0-Q was signed by
Defendants Adamson and Little and reaffirmed the Company's previously announced financial
results. Regarding its 2Q 2002 results, the Company stated:
Our service revenues for the three months ended June 30, 2002 increased $32.3 million, or 39%, form 83.2 million for the three months ended July I, 2002 to $115.5 million for the three months ended June 30, 2002. The majority of the increase in revenues for the three months ended June 30, 2002 was attributable to a $26.5 million, or 44%, increase in our per diem nurse staffing revenues from $59.9 million for the tFree months ended July
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1, 2001 to $86.4 millions for the three months ended June 30, 2002. Of this increase, $22.9 million, or 87%, was the result of year over year organic growth. The remaining increase of our per diem nurse staffing revenues of $3.5 million, or 13%, came from our 2001 acquisition.
221. In addition, the Company described its recent acquisitions in more detail:
In July 2002, the Company acquired certain assets of three per diem nursing companies, STAT Medical Services, Inc., Medical Staffing Services, Inc., and Pro Med, Inc., for an aggregate cash purchase consideration of approximately $16 million.
222. The statements identified in 111219-221 were false and misleading when made for
the reasons stated in 1212. Medical Staffing could not have been "comfortable" with its earnings
guidance, when it is clear from the statements of several Confidential Witnesses that Medical
Staffing's earnings projections were arbitrary and severely manipulated by Adamson and Little
in order to provide positive numbers to Wall Street and investors. In addition, the Company was
fully aware that demand for nurse staffing had dramatically changed and that it was experiencing
severe gross margin compression. Further, the Company failed to disclose the reasons behind
the STAT Medical acquisition (the poor performance of de novo offices in that region) or the
problems that immediately manifested after the acquisition.
223. On October 8, 2002, Medical Staffing issued a press release in which Adamson
stated, "We remain confident that the Company's earnings will be in line with previously issued
guidance."
224. Following this announcement, shares of Medical Staffing common stock rose
approximately 6.5% or $0.62 per share, to close at $9.98 per share.
225. The statement identified in 111223 was false and misleading when made for the
reasons stated in 1212. Medical Staffing could not have been "confident" with its earnings
guidance, when it is clear from the statements of several Confidential Witnesses that Medical
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Staffing's earnings projections were arbitrary and severely manipulated by Adamson and Little
in order to provide positive numbers to Wall Street and investors.
226. On October 29, 2002, Medical Staffing issued a press release announcing its
"record" financial results for the third quarter of 2002. The Company reported record revenues
of $127.5 million for the third quarter of 2002, which was an increase of 35% over revenue of
$94.3 million for the third quarter of 2001. Net income increased 215% to $6.1 million, or $0.19
per diluted share, for the third quarter of 2002 compared with net income of $1.9 million, or
$0.07 per diluted share, for the prior year third quarter. EBITDA increased 44% to $12.3 million
for the third quarter of 2002 from $8.6 million for the third quarter of 2001. More than 82% of
quarter-over-quarter revenue growth was attributable to organic sources.
227. Commenting on the Company's purported "record" results, Defendant Adamson
stated:
Demand for temporary nurse staffing services, and per diem nurses in particular, remains very strong. I am especially pleased to note that our earnings continue to grow at a higher rate than our top line, which demonstrates the scalability and operating leverage of our business model. Our growth rate continues to exceed the growth rate of the overall market as well as that of our publicly traded competitors in the per diem nurse staffing industry. Hours worked by our licensed nursing professionals in the third quarter of 2002 increased over 30% over the prior year quarter with nearly 75% of the growth being organic.
Medical Staffing Network also continued to open new locations at a brisk pace, adding ten de novo offices during the third quarter. The new office additions bring the total new office openings to 31 for the year. We continued to drive the unparalleled success of our de novo program In an efficient and disciplined manner, which solidifies our position as the fastest growing company in the per diem nurse staffing industry[.]
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228. Additionally, the Company also increased 2003 guidance, as follows:
Increased Earnings Guidance for 2003
For the fourth quarter of 2002, the company expects net income per diluted share to be $0.20 per diluted share, on revenue growth ranging from 41% to 44% over the prior year. Adjusted EBITDA is expected to increase 45% to 50% over the same period in 2001.
Combined with quarterly results previously reported, the company expects full year 2002 net income per diluted share to increase to $0.70. Total year 2002 revenue is expected to range from $480 to $483 million, an increase of 40% to 41% over 2001.
The Company is increasing its guidance for 2003 and now expects net income per diluted share to range between $0.91 and $0.93 on revenue growth ranging from 23% to 26% as compared to 2002. Adjusted EBITDA for 2003 is expected to increase 30% to 32% over 2002.
229. Following this announcement, shares of Medical Staffing common stock rose 3%
or $0.38 per share, to close at $12.98 per share.
230. The statements identified in 111226-228 were false and misleading when made for
the reasons stated in 1212. As detailed by the Confidential Witnesses, Medical Staffing had no
reasonable basis for increasing its earnings guidance, as it is clear that Medical Staffing's
earnings projections and guidance were arbitrary and severely manipulated by Adamson and
Little in order to provide positive numbers to Wall Street and investors. In addition, the
statements failed to disclose that Medical Staffing was experiencing a decrease in demand from
its clients, along with the impacts of severe margin compression, which was known to the
Company, Adamson, and Little.
231. On October 30, 2002, Medical Staffing, through Adamson and Little, hosted an
earnings conference call regarding its third quarter "record" results and confirming its increased
guidance for 2003 (the "3Q 2002 Conference Call"). During the 3Q 2002 Conference Call,
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Adamson and Little repeatedly touted Medical Staffing's success. For example, Adamson said:
We believe that we can continue to expand our market leading positions through superior same-store growth, our successful diversification into other healthcare staffing services, and our unparalleled success in opening new offices on a scale that is unmatched in this industry."
232. Regarding a question concerning the efforts of Medical Staffing's clients to assert
affirmative control over Medical Staffing's billing rates, Little replied:
[W]e've very much taken the view that the service that we provide is absolutely essential to the hospital industry and we have made very significant efforts and have had very significant successes in explaining to hospitals how we can better partner with them to proactively manage their expenditure in this very sensitive environment, where expenditure in temporary nurses is very much a high profile issue for all of the publicly traded and non-profit facilities.
233. Regarding seasonal business, Adamson stated:
We haven't seen any seasonal variances that we hadn't anticipated. Obviously in the Southeast, for some belt states, this is the seasonal low census point before the winter season starts with the snow bird migration, but the volume of business that we see in those market places are very consistent with our projections, there has not been [sic] under what we've projected it to be.
234. Following the 3Q 2002 Conference Call, shares of Medical Staffing common
stock rose 2.8% or $0.36 per share, to close at $13.34 per share.
235. On November 11, 2002, the Company filed its quarterly report with the SEC on
Form 10-Q (the "3Q 2002 Form l0-Q"). The Company's 3Q 2002 Form 10-Q was signed by
Defendants Adamson and Little and reaffirmed the Company's previously announced financial
results.
236. The statements identified in ¶231-233 and 235 were false and misleading when
made for the reasons stated in 1212. Medical Staffing was not expanding its "market-leading"
positions and was facing extreme gross margin compression and price dictation by its customers,
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as detailed by the Confidential Witnesses.
237. On January 31, 2003, Medical Staffing filed a Form 8-K and a related press
release announcing that Medical Staffing was taking a one-time charge of approximately $3.8
million due to the bankruptcy of one of its clients. Calming investors' concerns and commenting
on the medical staffing industry, Adamson stated, "Demand for temporary healthcare staff
remains robust, and absent this one time charge taken in the fourth quarter, our business
remains on target to meet our previously disclosed earnings expectations."
238. The statement identified in ¶11237 was false and misleading when made for the
reasons stated in T212. The descriptions of the Confidential Witnesses make it clear that demand
for Medical Staffing was not "robust" and that the Company was facing severe margin
compression, as well as significant difficulty with the performance of its de novo offices.
239. On February 18, 2003, Medical Staffing issued a press release announcing its
fourth quarter and year-end financial results for the period ended, December 29, 2002. The
Company reported record revenues of $137.2 million for the fourth quarter of 2002, which was
an increase of 44.6% over revenues of $94.9 million for the fourth quarter of 2001. Net income
increased to $3.9 million, or $0.13 per diluted share, for the fourth quarter of 2002 compared
with a net loss attributable to common stockholders of $8.8 million, or $4.09 per diluted share,
for the prior year fourth quarter. Net income for the fourth quarter of 2002 increased to $6.2
million, or $0.20 per diluted share. EBITDA, a non-GAAP measure, increased to $9.2 million
for the fourth quarter of 2002 from $8.6 million for the fourth quarter of 2001. Excluding the
$3.8 million charge, fourth quarter 2002 EBITDA was $12.9 million.
240. Commenting on these results, Defendant Adamson stated:
We are pleased to report record revenues for the fourth quarter of 2002
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and a 41% increase in full year 2002 revenues over 2001. Of particular note is the fact that over 80% of our year-over-year revenue growth came from organic sources. Our growth has been driven by our continued consolidation of market share in the highly fragmented $5 billion nurse per diem industry together with our successful diversification into allied healthcare staffing specialties. Medical Staffing Network Holdings is the largest provider in the nurse per diem industry and has significant long-term growth opportunities as it continues to aggregate market share. Based on our success to date with our de novo and product line diversification programs, the Company further expanded its organic growth initiatives in the Company further expanded its organic growth initiatives in the second half of 2002. We made significant investments in our travel nurse division, allied branch-in-branch program as well as rolling out new product specialties within our core allied healthcare staffing division. As a result of this investment, revenue from our branch-in-branch operations almost tripled in the fourth quarter of 2002 as compared with the fourth quarter of 2001, and fourth quarter 2002 revenue for our travel nursing division is up over 50% over last years fourth quarter.
Consistent with our previous organic growth initiatives, particularly our highly successful de novo program, these programs result in near-dilution of earnings but provide the Company with the capacity to sustain an above market growth rate. The outcome of our successes in consolidating per diem marketing share and diversifying our product lines short term Is reflected in our guidance for revenues for the first quarter of 2003, representing a year-over-year increase of 38% to 42%. We believe this growth rate is the strongest in our industry. We continue to believe that the $5 billion per diem nurse market provides the best long-term growth opportunity within the overall healthcare staffing industry.
While reviewing the various growth opportunities available to the Company, we have recently made the decision to discontinue our physician staffing operation, which contributed less than 1% of our company-wide revenues and did not offer us a meaningful organic growth opportunity. The costs associated with the closure of this service line have been reflected in our first quarters' earnings guidance.
241. For the year ended December 29, 2002, revenues increased 41.0% to $483.5
million from $343.0 million for the year ended December 30, 2001. Net income increased in
2002 to $17.9 million, or $0.62 per diluted share, from a net loss attributable to common
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stockholders of $3.1 million, or $0.49 per diluted share, in 2001. Excluding the $3.8 million
pretax charge, net income for 2002 increased to $20.1 million, or $0.70 per diluted share. In
2001, excluding the aforementioned special charges, the Company would have had net income of
$9.4 million, or $0.34 per diluted share. EBITDA increased 30.7% to $42.4 million in 2002
from $32.4 million in the prior year. Excluding the $3.8 million charge, full year 2002 EBITDA
was $46.2 million.
242. Additionally, the Company stated:
2003 Earnings Guidance
For 2003, the Company expects full year net income per diluted share to be $0.91 to $0.93 on an increase in revenues of 28% to 30% to $620 to $630 million. The Company currently plans to open 20 new de novo branches and add 40 to 45 allied branch-in-branch operations during 2003.
For the first quarter of 2003, the Company expects revenues to increase 38% to 42% to $142 to $147 million and expects to generate $0.17 to $0.18 per diluted share, an increase of 30% to 38% over the same period in 2002.
[Commented Defendant Adamson,] [t]he growth outlined in our 2003 earnings guidance is the result of our continued commitment to investment in multiple growth initiatives. Our guidance for revenues for the first quarter of 2003 represents a year-over-year increase of 38% to 42%, or 41/o to 7% sequentially. Our first quarter guidance of $0.17 to $0.18 per diluted share, while a 30% to 38% increase over the same period in the prior year, is a sequential quarter decline from earnings per share of $0.20 (before the charge, as the Company believes this is a more useful measure of quarter-over-quarter performance) in the fourth quarter of 2002 and is reflective of the near-term dilution from our new growth initiatives discussed above and the costs associated with the closure of our physician stalling business unit. Medical Staffing Network Holdings has had favorable experience from investing in growth opportunities, and, while we regret the near-term dilutive impact on earnings from these Initiatives, our experience suggests that the return, In the form of higher than market growth rates, is an excellent outcome.
243. According to the Company's February 18, 2003 announcement, Medical Staffing
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opened 10 de novo offices during the fourth quarter of 2002, bringing the total new office
openings to 40 for the year. Commenting on this, Defendant Adamson stated: "We successfully
achieved our target of opening 40 new per diem locations during 2002. These offices are
projected to contribute significantly to our 2003 organic growth. In addition, the Company
successfully opened 19 allied branch-in-branch operations and further expanded the range of
services offered by its allied staffing group[.]"
244. Following this announcement, shares of Medical Staffing common stock rose
2.2% or $0.20 per share, to close at $9.31 per share.
245. The investment community clearly bought into Medical Staffing's rhetoric.
Commenting on Medical Staffing's earnings announcement, analysts from Deutsche Bank-North
America stated on February 19, 2003 (prior to the conference call) that:
[Medical Staffing] continues to post very solid operating results and deliver on its growth initiatives, unaffected by the poor macroeconomic environment. The Company has not witnessed the same erosion in volumes or pricing that has been reported recently by competitors within the travel nurse domain. Citing muted demand from hospitals for travel nurses, both AMN Healthcare I and Cross Country (J have recently reduced guidance for 2003. . . [Medical Staffing] has not reduced its 2003 financial targets and we take that to mean that the company is not suffering from the same adverse demand trends currently afflicting the travel nurse providers. This fact seems to confirm our longstanding belief that the per diem model is the more attractive of the two models.
246. In addition, on February 19, 2003, Medical Staffing, through Anderson and Little,
hosted an earnings conference call to address its fourth quarter 2002 results. During that call,
Adamson stated:
There has been a great deal of speculation recently of whether the rate at which increasing demand for temporary nurses is moderating or not. I'd like to point to our revenue growth and suggest that MSN has positioned itself to sustain superior growth rates regardless of the possibility of any short-term fluctuations in demand.
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Our track record of success and our large scale de novo growth initiative encouraged us to further invest in opportunities in future revenue growths. In addition to continuing to target 20 new nurse per diem staffing locations during 2003, MSN will be stepping up its investment in its branch in branch project.
247. During the Q4 2002 Conference Call, Van Brady of Presidio Management posed
the following question:
I think it would be helpful to all of us if we could get a fix on what kind of organic growth in the per diem nursing business you've included in the forecast that you made. One of the things that I guess I'm a little perplexed at, Bob, you said that growth constrained only by the ability to add nurses to the labor pool, yet if you look at the 45-plus that you've added to the forecast for 2003 from the acquisitions that you've enumerated in the earnings release and then considering that you're forecasting between 620 and 630, let's say 625 for purposes of my discussion, if you take that 45 million out of it, that would leave the business presently constituted at 580 million by my calculations, which actually is less than the analysts who are predicting around 600 million for the year.
So is that - are we seeing a slowing of the per diem nursing business, and if so, maybe you could give us what kind of organic growth you see for that business in the current year, and then talk about the conditions, some of the two travel companies have said that - particularly [C]ross [C]ountry, it was on a conference call just before you did, said that they thought there would be some substitution for Travel Nurses by per diem nurses, but the conditions that are affecting their business are going to affect everybody's business.
Adamson replied, in pertinent part:
Our organic growth for 2003 in our projections is in the range of 20 to 25%, which I think is a pretty healthy organic growth rate. Overall growth, 38 to 42%. Yeah, we hare the comments coming our of the two large Travel Nurse Industries, the two Travel Nurse companies. 1 guess we're trying to rationalize how they could go from a year ago or less than a year ago saying that they had five orders for every nurse that they had available to now finding themselves in a situation where demand is a problem... that would suggest that demand has fallen off
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by some 80%. And our results obviously would suggest that the market has not gone that soft.
248. Adamson further stated:
So, we're seeing very healthy results. We understand that clients are hesitant to make those 13-week commitments [to hire travel nurses], but we think that's [a] very healthy opportunity to sell those clients more per diem services.
249. Following the Q4 2002 Conference Call, shares of Medical Staffing common
stock gained approximately 5% or $0.46 per share, to close at $9.77 per share.
250. As reported by analysts from Deutsche Bank-North America, after the conference
call: "During its 4Q02 conference call with investors, [Medical Staffing] gave an upbeat
assessment of current business trends and long-term prospects."
251. The statements identified in 111239-243 and 246-248 were false and misleading
when made for the reasons stated in 1212. In addition, at the time of these statements, Medical
Staffing and the Individual Defendants knew that Medical Staffing would be closing numerous
branch offices. As detailed by the Confidential Witnesses, the decision to close the branch
offices was made in January of 2003. Furthermore, the Confidential Witnesses make clear that
Medical Staffing's budget forecasts and earnings estimates were wholly false and fabricated, and
that Medical Staffing failed to achieve any of its budget targets during 2003. Contrary to
Adamson's statements, demand had sharply fallen off and the Company, Adamson, and Little
knew it.
252. On March 28, 2003, the Company tiled its annual report with the SEC on Form
10-K (the "2002 Form 10-K"). The Company's 2002 Form 10-K was signed by each of the
Individual Defendants and reaffirmed its previously announced financial results.
253. Commenting on de novo office growth, the 2002 Form 10-K stated:
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Branches that we have opened since our inception, as opposed to branches acquired from third parties, which we call our "de novo" branches, generated rapid revenue growth and typically achieved positive EBITDA, a non-GAAP measure consisting of net income (loss) excluding net interest, taxes, depreciation, amortization, loss on early extinguishments of debt and recapitalization expenses, within six months of operation. We opened 30 de novo branches in 2000, 64 de novo branches in 2001 and 40 de novo branches in 2002.
254. Regarding employment qualification standards, the 2002 Form 10-K stated:
All of our per diem healthcare professions undergo a rigorous screening process which includes requirements such as a minimum of one year of related work experience and the successful completion of written tests specific to the area of specialty. Each applicant is then interviewed in person by a local branch manager. This sets us apart from our competitors who often do not conduct face-to-face interviews. We also check prior work references, confirm the validity of the applicant's professional license(s) and screen the applicant for any criminal activity and drug abuse. All of these standards comply with or exceed those requires by OSHA (Occupational Safety & Health Administration) and JCAHO (Joint Commission on Accreditation of Healthcare Organizations).
255. The statements identified in 111252-254 were false and misleading when made for
the reasons stated in 1212. In addition, at the time of these statements, Medical Staffing and the
Individual Defendants knew that Medical Staffing would be closing numerous branch offices.
As detailed by the Confidential Witnesses, the decision to close the branch offices was made in
January of 2003. Furthermore, the Confidential Witnesses make clear that Medical Staffing's
budget forecasts and earnings estimates were wholly false and fabricated, and that Medical
Staffing failed to achieve any of its budget targets during 2003.
256. Also, the statements were false and misleading when made because, as described
by CWI and CWI I, Medical Staffing did not interview each applicant in person by a local
branch manger. Thus, Medical Staffing's hiring procedures did not set them apart from
competitors who did not conduct face-to-face interviews. In fact, Medical Staffing's standard
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practice was not to conduct interviews.
257. More importantly, the statements identified in ¶J252-254 were false and
misleading when made because, as described by CW3 and CW7, Medical Staffing violated
federal licensing regulations to such an extent that it impaired contracts and contractual relations
with its clients.
258. In addition, Medical Staffing's financial statements failed to disclose its
contingent liabilities and significant risks and uncertainties in conformity with GAAP.
259. GAAP requires that financial statements disclose contingencies when it is at least
reasonably possible (e.g., a greater than slight chance) that a loss may have been incurred.
FASB's Statement of Financial Accounting Standards No. 5, 110. The disclosure shall indicate
the nature of the contingency and shall give an estimate of the possible loss, a range of loss, or
state that such an estimate cannot be made.
260. The SEC considers the disclosure of loss contingencies to be so important to an
informed investment decision that it issued Article 10-01 of Regulation S-X [17 C.F.R. § 210.10-
01], which provides that disclosures in interim period financial statements may be abbreviated
and need not duplicate the disclosure contained in the most recent audited financial statements,
except that "where material contingencies exist, disclosure of such matters shall be provided
even though a significant change since year end may not have occurred."
261. In addition, GAAP requires that financial statements disclose significant risks and
uncertainties associated with an entity's. American Institute of Certified Public Accountant's
Statement of Position No. 94-6.
262. In violation of GAAP, Medical Staffing's Class Period financial statements
improperly failed to disclose the true risks and uncertainties associated with its de novo program
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and the reasonably possibility that the Company's de novo program may be suspended or
terminated because its de novo offices consistently operated at approximately 50% below their
expected budget projections and forecasts.
THE TRUTH BEGINS TO EMERGE
263. On May 12, 2003, Medical Staffing announced record revenues for the first
quarter of 2003. The Company reported record revenues of $144.4 million for the first quarter of
2003, which is an increase of 39.9% over revenues of $103.2 million for the first quarter of 2002.
Net income increased to $5.2 million, or $0.17 per diluted share, for the first quarter of 2003
compared with $2.8 million, or $0.13 per diluted share, for the prior year first quarter.
Commenting on these results, Defendant Adamson stated:
Our record revenue for the quarter is reflective of the strength of the MSN brand, the quality of the services we provide to our clients, the superior employment opportunities and benefit programs offered to our healthcare staff and, of course, our diversified growth initiatives. Our ability to post materially higher revenue growth rates than our competitors is partially a function of the better operating dynamics of the per diem staffing sector and the fact that we are also benefiting from the continued maturation of our de novo and branch-in-branch (BIB) programs. We remain confident that, over time, our significant investment in and the near-term dilutive effect of our growth initiatives will be offset by our ability to grow our market share even during difficult market conditions.
Demand for temporary nurses is currently going through a period of contraction as hospitals are experiencing flat to declining admission rates and are placing greater reliance on full-time staff overtime and Increase nurse patient loads. We believe that the underlying factors that contribute to the growing national shortage of qualified healthcare professionals, particularly registered nurses, will result in sustainable long-term growth for our industry. However, as we work through this softer market, we do have the benefit of being a well diversified healthcare staffing company and, perhaps most importantly, MSN continues to gain market share in its core business, the estimated $7 billion per diem nurse staffing segment.
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I am pleased to announce that we have completed our full target of BiB sites for 2003 during the first four months of the year. We achieved the opening of 44 BIB sites by redirecting resources from our nurse de novo management team. There is a great deal of upside potential in further expansion of our de novo activity, but we have decided to put new office openings on hold until we see market conditions strengthen. In an effort to provide our services more cost effectively, the Company has enhanced its IT platform to network together client and employee databases in contiguous markets. Additionally, we recently launched our MSNIVisa Direct Pay Debit Card that enables our per diem healthcare professionals to have their earnings electronically transferred on to a Visa label debit card on a daily basis, eliminating the requirement of visiting the local office to collect a paycheck. These enhancements enable us to expand the geographical coverage areas of our per diem offices. As a result, we will be able to service current markets with fewer brick and mortar sites. The Company will take a charge in the second quarter for this restructuring. We have not yet finalized our restructuring plan, so the exact amount of the charge is uncertain. We expect that it will be material to net income for the second quarter, but we do not expect it to result in a loss for the quarter or to adversely impact that operating results of any subsequent quarter. We further expect this restructuring to improve the operating results that would otherwise have been generated in the second half of 2003 and beyond.
While we are confident that the long-term fundamentals for the healthcare staffing industry remain intact, market factors have reduced visibility for future earnings. Due to this reduced visibility, we are withdrawing our prior annual guidance for the year ending December 28, 2003. We plan to have our restructuring plan finalized by the end of May and will provide further information as to the charges related to the plan and our earnings guidance for the second quarter and full year 2003 at that time.
264. Following this announcement, shares of Medical Staffing common stock fell
11.73% or $1.01 per share, to close at $7.60 per share.
265. On May 13, 2003, Medical Staffing, through Adamson and Little, hosted an
earnings conference call to discuss the Company's IQ 2003 results (the "IQ 2003 Conference
Call"). Discussing Medical Staffing's decision to halt its de novo program, Adamson stated:
There is no accurate means by which we're able to determine when the
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current market conditions are likely to reverse and therefore in an effort to adjust our infrastructure to the lower demand environment our industry is experiencing, we plan to halt further openings and restructure our operations.
We expect the restructuring to be completed in the next four weeks. The exact amount of the restructuring charge has not been finalized. We expect the charge will be material to the net income for the second quarter, but we do not expect it to result in a loss for the quarter nor do we anticipated [sic] it to adversely impact the operating results for any subsequent quarter.
Due to the restructuring, we're withdrawing our prior annual guidance for the year ended December 28, 2003. We will provide further information as to the changes related to the plan and our earnings guidance for the second quarter and the full year 2003 once the restructuring plan is complete.
No, I don't want to mischaracterize the nature of the restructuring. We're not targeting to have a centralized business model to be successful in the per diem world. You have to have brick and mortar signs, you have to be in the communities that you service, you have to see the nurses who work for you in [sic] a very frequent basis... So, we're dependent on those satellite locations. But I don't think you'll see the day that any labor or human resource business that's per diem based doesn't do so through brick and mortar locations. We're merely tweaking our model to cut back on the necessity of satellite locations.
266. In response to a question addressing Medical Staffing's gross margin, Adamson
responded:
Yeah, there's definitely been contracting in growth margin in general In our industry over the past six months or long Isici for some companies. I don't think that the margin compression is going to turn around this year. I think they - the clients are going through a very intensive effort, very focused effort to use less staffing agencies.
267. The Defendants' May 13, 2003 statements and announcements only partially
revealed the truth about the Defendants' fraud detailed in this Complaint. On May 13, 2004,
Defendants minimized the Company's situation and did not fully "come clean" to investors,
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citing recent declines in demand and gross margin, rather than informing investors that the
decision had been made to close numerous branch offices because of the failure of the de novo
program and about the rapid decline in the Company's business that had been occurring since
prior to the IPO, which was detailed three times a week to Adamson and Little in the thrice-
weekly reports. In fact, Defendants did not "drop the other shoe" and more fully reveal
the Company's significant problems to investors until June 16, 2003, when the Company
announced it would be shutting down numerous branch offices, lowering its 2003 financial
guidance, and indefinitely suspending its de novo and allied branch-in-branch programs.
268. On June 16, 2003, the Company announced the "Completion of Restructuring
Plan, Issue[d] New Guidance, and Name[d] New President and Chief Operating Officer." More
specifically, the Medical Staffing stated:
As a result, the Company expects to report second quarter 2003 income from continuing operations per diluted share of $0.02 (including of the restructuring charges but exclusive of the loss from the discontinued physicians staffing) on revenues of $136 to $137 million. For full year 2003, the Company expects to report income from continuing operations of $0.43 to $0.46 (inclusive of the restructuring charges but exclusive of the loss from the discontinued physicians staffing) on revenues of $555 to $570 million. The Company also announced the appointment of Greg Guckes as President and Chief Operating Officer.
Restructuring Plan
Under the restructuring plan, the Company closed 13 satellite per diem recruitment locations and 16 per diem branches on May 21, 2003. Market-specific plans have been implemented to transfer the businesses from closed branches to other Medical Staffing Network locations. As a result of an intensive effort to demonstrate continued commitment to clients and nursing staff, to date the Company has exceeded its original expectation of retaining 50% of the revenues generated from the closed branches.
In commenting on the restructuring. Robert J. Adamson, Chairman and Chief Executive Officer of Medical Staffing Network Holdings, Inc.,
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stated, "The decision to close certain branches was driven by weaker demand and pricing pressure. We may increase our presence in certain of these markets when demand rebounds. Our client base is currently focused on alternative sources for nurse staffing capacity, such as increased overtime from their full-time staff, higher patient loads, an increased focus on recruitment and retention of full-time, facility-based employees.
"In addition to closing certain branch locations, we reduced the number of full-time staff in our branch locations and corporate office by approximately 5%. This adjustment is our infrastructure is also in response to a contraction in demand for temporary healthcare professionals and continued pressure on gross margins.
"Despite the overall contraction in the healthcare staffing industry, Medical Staffing Network has continued to show volume growth through the first half of 2003. We continue to gain market share. The principal challenge facing the Company today is pricing pressure, driven by weaker demand, resulting in gross margin erosion. The Company believes that the 300 basis point margin erosion that it has experienced in the past six months will be only partially recovered until the overall industry environment improves. The Company can not accurately predict when market conditions will change and gross margins will Improve."
Mr. Adamson continued, "At this time, the only region in which our second quarter revenues are materially declining from first quarter levels Is the South Florida market. The South Florida marketplace Is subject to significant seasonality fluctuations. However, the seasonal nature of this market has been masked in the last few years by the significant growth in demand. MSN continues to be the dominant provider of per diem nurse staffing services In this market."
As previously announced, the Company has made a decision to suspend further de novo or allied branch-In-branch development for the current year. This decision will reduce the Company's previous revenue projections for the balance of 2003. The Company will evaluate reactivating its growth initiatives when management is comfortable that demand and price pressure issues have sufficiently recovered from present levels.
Second Quarter Results
The Company's second quarter results will be impacted by a restructuring cost of approximately $800,000 and a loss from
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discontinued operations, net of taxes, of approximately $400,000 relating to the cessation of physicians staffing. The restructuring will yield improved operating income in subsequent quarters, as it is expected to decrease quarterly selling, general and administrative expenses by approximately $1 million. Further, second quarter results will reflect reduced gross margins as the Company absorbed the impact of increased compensation and benefit costs of its healthcare employees in an environment where bill rate increases were minimal.
New President and Chief Operating Officer
The Company also announced that Greg Guckes has joined the executive management team as President and Chief Operating Officer and will be reporting to Mr. Adamson.
Commenting on the appointment, Mr. Adamson said, "I am pleased to announce that, after an extensive six-month search, we have been successful in identifying an extremely qualified, talented, and charismatic individual to serve as President and Chief Operating Officer. Greg has spent his entire 25-year career in the healthcare sector, with executive management responsibilities in sales, marketing and operations. Most recently, he was Executive Vice President and Chief Operating Officer for American Medical Response, a leading provider of emergency and non-emergency ambulance services with over 200 locations across the country.
"Greg has extensive expertise in successfully managing multi-state healthcare operations and dealing with the challenges of growing a business towards the billion dollar revenue mark. I look forward to working with Greg in continuing to build Medical Staffing Network into one of the leading healthcare staffing companies in the country."
269. News of these events shocked the market, resulting in shares of Medical Staffing
falling 16.27%, or $1.44 per share, to close at $7.41 per share on June 17, 2003.
270. On June 16, 2003, Medical Staffing, through Adamson and Little, hosted a
conference call (the "Restructuring Conference Call"). During the Restructuring Conference
Call, Adamson commented on the de novo office closings:
As previously announced, the company has made a decision to suspend further de novo and allied branch and Isici branch development for the current year. This decision will reduce the company's previous revenue projections for the balance of 2003. The company will evaluate
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reactivating these growth initiatives when management is comfortable that demand and price pressures have significantly recovered from present levels.
• . . we expect to report second quarter income from continuing operations per diluted share of $0.02, inclusive of the restructuring charges, but exclusive of the loss from the discontinued physicians staffing business on revenues of $136m to $137m. For the full year 2003, we expect to report income from continuing operations of $0.43 to $0.46, inclusive of the restructuring charges but exclusive of the loss from the discontinued physician staffing business on revenues of $555m to $570m.
271. Commenting on pricing pressures, Adamson stated, "There's generally just a
push back on all price increases, and that's come right out of our top-line, and obviously
right out of our gross margin."
272. Commenting on the locations of the de novo office closures, Adamson provided
limited detail, saying it was "very spread out over the country."
UNDISCLOSED ADVERSE FACTS
273. The market for Medical Staffing's common stock was open, well-developed and
efficient at all relevant times. As a result of these materially false and misleading statements and
failures to disclose, Medical Staffing's common stock traded at artificially inflated prices during
the Class Period. Plaintiff and other members of the Class purchased or otherwise acquired
Medical Staffing common stock relying upon the integrity of the market price of Medical
Staffing's common stock and market information relating to Medical Staffing, and have been
damaged thereby.
274. During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of Medical Staffing's common stock, by publicly issuing false and
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misleading statements and omitting to disclose material facts necessary to make Defendants'
statements, as set forth herein, not false and misleading. Said statements and omissions were
materially false and misleading in that they failed to disclose material adverse information and
misrepresented the truth about the Company, its business, and its operations, as alleged herein.
275. At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false or misleading
statements about Medical Staffing's business, prospects, and operations. These material
misstatements and omissions had the cause and effect of creating in the market an unrealistically
positive assessment of Medical Staffing's business, prospects, and operations, thus causing the
Company's common stock to be overvalued and artificially inflated at all relevant times.
Defendants' materially false and misleading statements during the Class Period resulted in
Plaintiff and other members of the Class purchasing the Company's common stock at artificially
inflated prices, thus causing the damages complained of herein.
ADDITIONAL SCIENTER ALLEGATIONS
276. As alleged herein, Defendants acted with scienter in that they knew or recklessly
disregarded that the public documents and statements issued or disseminated in the name of the
Company were materially false and misleading. In addition to the numerous allegations of
scienter throughout the Complaint, the Confidential Witnesses detail how Adamson and Little
specifically discussed the Company's rapid decline before, during, and after the IPO (1l 17-
119), how Adamson severely manipulated Medical Staffing's budget and forced Company
executives to "fix" their budget forecasts, threatening to fire them if they did not comply with his
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demands, and how Adamson insisted on inflated numbers and would "demand" more margin
because he "needed" to take increased numbers to Wall Street, saying things such as, "Now that
we are public, everything is about what we take to the market." (1150-178).
APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE MARKET DOCTRINE
277. At all relevant times, the market for Medical Staffing's publicly traded securities
was an efficient market for the following reasons, among others:
a. Medical Staffing's stock met the requirements for listing and was listed
and actively traded on the NYSE, a highly efficient and automated market;
b. as a regulated issuer, Medical Staffing filed periodic public reports with
the SEC, including reports on Form S-3;
C. Medical Staffing communicated with public investors via established
market communication mechanisms, including through regular disseminations of press releases
on the national circuits of major newswire services and through other wide-ranging public
disclosures, such as communications with the financial press and other similar reporting services;
and
d. Medical Staffing was followed by several securities analysts and
employed by major brokerage firms who wrote reports that were distributed to the sales force
and certain customers of their respective brokerage firms. Each of these reports was publicly
available and entered the public marketplace.
278. As a result, the market for Medical Staffing's publicly traded securities promptly
digested current information regarding Medical Staffing from all publicly-available sources and
reflected such information in Medical Staffing's stock price. Under these circumstances, all
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purchasers of Medical Staffing's publicly traded securities during the Class Period suffered
similar injury through their purchase of Medical Staffing's publicly traded securities at
artificially inflated prices and a presumption of reliance applies.
NO SAFE HARBOR
279. The federal statutory safe harbor provided for forward-looking statements under
certain circumstances does not apply to any of the allegedly false statements pleaded in this
Complaint. Many of the specific statements pleaded herein were not identified as "forward
looking statements" when made. To the extent there were any forward-looking statements, there
were no meaningful cautionary statements identifying important factors that could cause actual
results to differ materially from those in the purportedly forward-looking statements. In
addition, pursuant to Section 27A of the Securities Act, there is no safe harbor for forward-
looking statements made in connection with an initial public offering; any of the Company's
forward-looking statements in its Registration Statement and Prospectus receive no safe harbor
protection.
280. Alternatively, to the extent that the statutory safe harbor does apply to any
forward-looking statements pleaded herein, Defendants are liable for those false forward-looking
statements because at the time each of those forward-looking statements was made, the particular
speaker knew that the particular forward-looking statement was false, and/or the forward-looking
statement was authorized and/or approved by an executive officer of Medical Staffing who knew
that those statements were false when made. Moreover, to the extent that Defendants issued any
disclosures designed to "warn" or "caution" investors of certain "risks," those disclosures were
also false and misleading because they did not disclose that Defendants were actually engaging
in the very actions about which they purportedly warned and/or had actual knowledge of material
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adverse facts undermining such disclosures.
281. In addition, to the extent that Defendants issued any disclosures designed to
"warn" or "caution" investors of certain "risks," those disclosures remained fixed even as the
risks they purported to warn of changed. Defendants left both their forecasts and cautions as is
throughout the Class Period.
COUNT III
FOR VIOLATIONS OF SECTION 10(B) OF THE EXCHANGE ACT AND RULE 1OB-5 PROMULGATED THEREUNDER AGAINST
MEDICAL STAFFING, ADAMSON, AND LITTLE
282. Plaintiff repeats and realleges the allegations set forth above as though fully set
forth herein. This claim is asserted against all Medical Staffing, Adamson, and Little.
283. During the Class Period, Medical Staffing, Adamson, and Little, and each of
them, carried out a plan, scheme, and course of conduct which was intended to and, throughout
the Class Period, did: (i) deceive the investing public, Plaintiffs and other Class members, as
alleged herein; (ii) artificially inflate and maintain the market price of Medical Staffing's
publicly traded securities; and (iii) cause Plaintiffs and other members of the Class to purchase
Medical Staffing's publicly traded securities at artificially inflated prices. In furtherance of this
unlawful scheme, plan, and course of conduct, Medical Staffing, Adamson, and Little, and each
of them, took the actions set forth herein.
284. These Defendants: (i) employed devices, schemes, and artifices to defraud; (ii)
made untrue statements of material fact and/or omitted to state material facts necessary to make
the statements not misleading; and (iii) engaged in acts, practices, and a course of business that
operated as a fraud and deceit upon the purchasers of the Company's securities in an effort to
maintain artificially high market prices for Medical Staffing's securities in violation of Section
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10(b) of the Exchange Act and Rule 1 Ob-5. These Defendants were primary participants in the
wrongful and illegal conduct charged herein. Adamson and Little are also sued as controlling
persons of Medical Staffing, as alleged below.
285. In addition to the duties of full disclosure imposed on Defendants as a result of
their making of affirmative statements and reports, or participating in the making of affirmative
statements and reports to the investing public, they each had a duty to promptly disseminate
truthful information that would be material to investors in compliance with the integrated
disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R. § 210.01 et
seq.) and S-K (17 C.F.R. §229.10 et seq.) and other SEC regulations, including accurate and
truthful information with respect to the Company's operations, financial condition and
performance so that the market prices of the Company's publicly traded securities would be
based on truthful, complete and accurate information.
286. Medical Staffing, Adamson, and Little, individually and in concert, directly and
indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails,
engaged and participated in a continuous course of conduct to conceal adverse material
information about the business, business practices, performance, operations and future prospects
of Medical Staffing as specified herein.
287. These Defendants each employed devices, schemes and artifices to defraud, while
in possession of material adverse non-public information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of Medical Staffing's value
and performance and continued "substantial growth," which included the making of, or the
participation in the making of, untrue statements of material facts and omitting to state material
facts necessary in order to make the statements made about Medical Staffing and its business
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operations and future prospects in the light of the circumstances under which they were made,
not misleading, as set forth more particularly herein, and engaged in transactions, practices and a
course of business which operated as a fraud and deceit upon the purchasers of Medical
Staffing's securities during the Class Period.
288. Each of the Defendants' primary liability, and Adamson and Little's controlling
person liability, arises from the following facts: a) Adamson and Little were high-level
executives and/or directors at the Company during the Class Period; b) Adamson and Little, by
virtue of their responsibilities and activities as senior executive officers and/or directors of the
Company, were privy to and participated in the creation, development and reporting of the
Company's internal budgets, plans, projections and/or reports; c) Adamson and Little enjoyed
significant personal contact and familiarity with each other and were advised of and had access
to other members of the Company's management team, internal reports, and other data and
information about the Company's financial condition and performance at all relevant times; and
d) Adamson and Little were aware of the Company's dissemination of information to the
investing public which each knew or recklessly disregarded was materially false and misleading.
289. Each of these Defendants had actual knowledge of the misrepresentations and
omissions of material facts set forth herein, or acted with reckless disregard for the truth in that
each failed to ascertain and to disclose such facts, even though such facts were available to each
of them. Such Defendants' material misrepresentations and/or omissions were done knowingly
or recklessly and for the purpose and effect of concealing Medical Staffing's operating condition,
business practices and future business prospects from the investing public and supporting the
artificially inflated price of its securities. As demonstrated by Defendants' overstatements and
misstatements of the Company's financial condition and performance throughout the Class
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Period, each of the Defendants, if he did not have actual knowledge of the misrepresentations
and omissions alleged, was reckless in failing to obtain such knowledge by deliberately
refraining from taking those steps necessary to discover whether those statements were false or
misleading.
290. As a result of the dissemination of the materially false and misleading information
and failure to disclose material facts, as set forth above, the market prices of Medical Staffing's
securities were artificially inflated during the Class Period. In ignorance of the fact that market
prices of Medical Staffing's publicly traded securities were artificially inflated, and relying
directly or indirectly on the false and misleading statements made by Defendants, or upon the
integrity of the market in which the securities trade, and/or on the absence of material adverse
information that was known to or recklessly disregarded by Defendants but not disclosed in
public statements by Defendants during the Class Period, Plaintiffs and the other members of the
Class acquired Medical Staffing securities during the Class Period at artificially high prices and
were damaged thereby.
291. At the time of said misrepresentations and omissions, Plaintiffs and other
members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiffs
and the other members of the Class and the marketplace known of the true performance, business
practices, future prospects and intrinsic value of Medical Staffing, which were not disclosed by
Defendants, Plaintiffs and other members of the Class would not have purchased or otherwise
acquired their Medical Staffing publicly traded securities during the Class Period, or, if they had
acquired such securities during the Class Period, they would not have done so at the artificially
inflated prices which they paid.
292. By virtue of the foregoing, Medical Staffing, Adamson, and Little each violated
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Section 10(b) of the Exchange Act, and Rule 1Ob-5 promulgated thereunder.
293. As a direct and proximate result of Defendants' wrongful conduct, Plaintiffs and
the other members of the Class suffered damages in connection with their respective purchases
and sales of the Company's securities during the Class Period.
COUNT IV
FOR VIOLATIONS OF SECTION 20(A) OF THE EXCHANGE ACT AGAINST THE INDIVIDUAL DEFENDANTS
294. Plaintiff repeats and reiterates the allegations as set forth above as if set forth fully
herein. This claim is asserted against Adamson and Little.
295. Adamson and Little acted as controlling persons of Medical Staffing within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
positions with the Company, participation in and/or awareness of the Company's operations
and/or intimate knowledge of the Company's actual performance, Adamson and Little each had
the power to influence and control and did influence and control, directly or indirectly, the
decision-making of the Company, including the content and dissemination of the various
statements which Plaintiffs contend are false and misleading. Adamson and Little were provided
with or had unlimited access to copies of the Company's reports, press releases, public filings
and other statements alleged by Plaintiffs to be misleading prior to and/or shortly after these
statements were issued and had the ability to prevent the issuance of the statements or cause the
statements to be corrected.
296. In addition, Adamson and Little had direct involvement in the day-to-day
operations of the Company and, therefore, are presumed to have had the power to control or
influence the particular transactions giving rise to the securities violations as alleged herein, and
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exercised the same.
297. As set forth above, Medical Staffing, Adamson, and Little each violated Section
10(b) and Rule 1 Ob-5 by their acts and omissions as alleged in this Complaint. By virtue of their
controlling positions, Adamson and Little are liable pursuant to Section 20(a) of the Exchange
Act. As a direct and proximate result of Defendants' wrongful conduct, Plaintiffs and other
members of the Class suffered damages in connection with their purchases of the Company's
securities during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, on their own behalf and on behalf of the Class, pray for relief
and judgment, as follows:
a. Declaring that this action is a proper class action, and certifying Plaintiffs as class
representatives pursuant to Rule 23 of the Federal Rules of Civil Procedure and
Plaintiffs' counsel as Lead Counsel;
b. Awarding compensatory damages in favor of Plaintiffs and the other Class
members against all Defendants, jointly and severally, for all damages sustained
as a result of Defendants' wrongdoing, in an amount to be proven at trial,
including interest thereon;
C. Awarding Plaintiffs and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees; and
d. Such other and further relief as the Court deems appropriate.
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JURY TRIAL DEMANDED
Plaintiffs hereby demand a trial by jury.
DATED: September 1, 2004
LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP
Z4, ' "(- /I lou.W4, Jack Reise Florida Bar No. 058149 jreise@lerachlaw.com Robert J. Robbins Florida Bar No. 0572233 rrobbins@lerachlaw.com 197 South Federal Highway, Suite 200 Boca Raton, Florida 33432 Telephone: 561-750-3000 Facsimile: 561-750-3364
all
Case 9:04-cv-80158-WPD Document 24 Entered on FLSD Docket 09/07/2004 Page 97 of 97
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing was furnished to the
following by United States Mail on the following, on this 1St day of September, 2004.
Stanley Howard Wakshlag Brian Paul Miller Akerman Senterfitt & Eidson SunTrust International Center 1 S.E. 3rd Avenue 28th Floor Miami, Florida 33131-1714
Steven W. Greiner Wilikie Farr & Gallagher 787 Seventh Avenue New York, New York 10019-6099
e,4,4 ~- za".' Robert Robbin6'
97