k.)) Lee S. Slaalov (LS-7118)Ralph Stone (RS-4488)james P. Bonner (jB-0629)SHALOV STONE (4.: BONNER 4 Agi
70 West 36' Street. Suite 1404New York. New York 10018(212) 268-2727Fax (212) 244-2402
Attorneys for Plaintiff
UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK
MARK VARLJEN, on behalf of himself x Civil Action No.and all others similarly situated,
Plaintiff,
-against- x CLASS ACTION COMPLAINT
Hi. MEYERS. INC.; TOBIN SENEFELD. x _AMY M. BELL; WILLIAM MASUCCE xROBERT SE ITEDUCATE andMICHAEL BERGEN,
Defendants. x JURY TRIAL DEMANDED
Plaintiff makes the following allegations upon information and belief, except as to
allegations specifically pertaining to plaintiff and his counsel, based on the facts
alleged below, predicated upon the investigation undertaken by plaintiffs counsel, and plaintiff
believes that further substantial evidentiary support will exist for the allegations set forth below
after a reasonable opportunity for discovery.
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(k0
NATURE OF THE ACTION
1. This is a class action brought by plaintiff on behalf of himself and all other persons
who purchased the stock of Palomar Medical Technology, Inc. ("Palomar") at any time during
the period from April 29, 1996 through and including March 26, 1997 (the "Class Period"), and
who suffered damages as a result of such purchases. Throughout the Class Period, the price of
Palomar common stock was artificially inflated as a result of the manipulative efforts of
defendant H.J. Meyers, Inc. ("H.J. Meyers"), a notorious penny stock brokerage and "bucket
shop" that regulatory authorities in Massachusetts recently shut down. As a result of the efforts
of H.J. Meyers and its agents and employees, including the individuals named as defendants
here-in, H.J. Meyers was able to and did manipulate the price of Palomar stock, causing Palomar
stock to trade at artificially inflated prices. After regulatory authorities initiated investigations
concerning H.J. Meyers' conduct, and as pressure from those investigations increased (along with
increased publicity of the investigations) H.J. Meyers ceased manipulating the price of Palomar
stock, and, as a result, the price of Palomar stock has steadily declined to below $3.00 per share,
leaving investors who purchased Palomar stock at manipulation-inflated prices with substantial
damages.
2. H.J. Meyers perpetrated this stock manipulation through the combination of a variety
of deceptive devices and artifices, and boiler-room tactics. First, H.J. Meyers improperly
demanded that stockbrokers in its various stock brokerage offices throughout the country sell
Palomar stock to investors without regard to the propriety of Palomar as an investment for
customers. Such directives were systematic and endemic throughout the H.J. Meyers firm
-2-
,
(which maintains branch brokerage offices in 16 locations throughout the country). Amon g those
responsible for issuing such demands and carrying out the demands were defendants Masucci,
Setteducati, Senefeld and Bergen. By means of this artifice, H.J. Meyers regularly and
systematically disseminated demands to its brokers that they were required to identify new and
existing customers of H.J. Meyers to whom such brokers could forcefully and improperly
recommend the purchase of Palomar stock. Although various H.J. Meyers brokers utilized
differing techniques to encourage and solicit purchases of Palomar stock by H.J. Meyers
customers (including lying), the company-wide demand for such purchases resulted from a
systemic policy requiring brokers to actively recommend and solicit purchases of Palomar stock.
Second, H.J. Meyers systematically refused to execute customer orders to sell Palomar stock.
H.J. Meyers required its brokers to-discourag-e an-d-i-n many cases to outright refuse to allow
customers to execute sell orders relating to Palomar stock. Third, H.J. Meyers caused its
"research department" to issue favorable reports about Palomar without disclosing the
manipulative scheme. These reports were variously used by H.J. Meyers brokers in their efforts
to solicit purchases of Palomar stock. In addition_these research re_p_orts_vvere disseminated to
individuals not affiliated with H.J. Meyers in an effort to encourage widespread purchasing of
Palomar stock.
3. H.J. Meyers' motive was clear: to enhance its underwriting business by keeping the
prices of stocks of companies for which it performed underwriting business at artificially
elevated levels. As a result of H.J. Meyers' efforts, the stature of such companies was elevated,
and those companies were better able to use their stock as currency in transactions and generally
enjoyed enhanced reputations. In the case of Palomar, in particular, H.J. Meyers successfully
-3-
propped up the price of Palomar stock and in exchange received numerous lucrative underwriting
and investment banking engagements from Palomar, its principals, and their affiliates. H.J.
Meyers insiders also enjoyed substantial loans and other payments from Palomar as a result of or
relating to the conduct alleged herein. In addition, by keeping the price of Palomar stock above
$5.00 per share, H.J. Meyers was able to avoid having Palomar stock be considered a highly
speculative "penny stock". H.J. Meyers actively sought to dispel the notion that it was a penny
stock brokerage in its efforts at attracting new brokerage and new underwriting and investment
banking clients. Also, by propping up stocks that H.J. Meyers' "research department"
recommended -- purportedly on the basis of financial analysis -- H.J. Meyers sought to establish
its "research department" personnel as credible securities analysts in an effort to bolster an
overall image of legitimacy. Finally, by artificially inflating the price of Palomar, H.J. Meyers
was able to generate larger commissions for itself and higher volumes of commissions through
its portrayal as a legitimate brokerage operation.
JURISDICTION AND VENUE
4. The claims asserted herein arise under and pursuant to Sections 9(a), 9(e) and 10(b) of
the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. §§ 78i(a), 78i(e) and
78j(b)] and Rule 10b-5 promulgated under Section 10(b) by the Securities and Exchange
Commission ("SEC") [17 C.F.R. 240.10b-5].
5. This Court has jurisdiction of this action pursuant to Section 27 of the Exchange Act,
as amended [15 U.S.C. § 78aa[ and 28 U.S.C. §§1331 and 1337.
6. Venue is properly laid in this District pursuant to Section 27 of the Exchange Act and
28 U.S.C. § 1391(b) and (c). Many of the acts and conduct complained of, including
-4-
orchestration of a firm-wide manipulation of Palomar stock by H.J. Meyers throu gh its various
branch brokerage offices around the country, emanated from and occurred in substantial part in
this District. H.J. Meyers maintained a fully staffed brokerage office in New York City at all
relevant times. and conducted many of the acts complained of herein in this district.
7. In connection with the acts and conduct alleged in this Complaint, defendants, directly
or indirectly, used the means and instrumentalities of interstate commerce, including the mails
and telephonic communications and the facilities of the NASDAQ National Market System, a
national securities exchange.
PARTIES
8. Plaintiff Mark Varljen, as set forth in the accompanying certification, purchased
Palomar common stock at art-ificially inflated prices during the Class Period, and has been
damaged thereby.
9. Defendant H.J. Meyers & Co., Inc. ("Hi. Meyers") is a private corporation with its
principal executive offices located at 1895 Mount Hope Avenue, Rochester, New York 14620.
H.J. Meyers purports to be a full service securities brokerage firm and investment banking firm.
and maintains branch brokerage offices in 16 locations throughout the country, including a major
office in New York City at 180 Maiden Lane, New York, New York.
10. Defendant Tobin Senefeld ("Senefeld") is a registered securities broker presently
employed by the firm of Morgan Keegan in its Louisville. Kentucky office. During most if not
all of the Class Period herein, defendant Senefeld was the Branch Manager for the Boston,
Massachusetts office of H.J. Meyers. At all relevant times, defendant Senefeld engaged in
conduct under the auspices of and acted on behalf of H.J. Meyers. Defendant Senefeld
-5-
PLAINTIFF'S CLASS AcTION ALLEGATIONS
15. Plaintiff brings this action as a class action pursuant to Federal Rules of Civil
Procedure 23(a) and 23(b)(3) on behalf of himself and on behalf of a class (the "Class") of
persons who purchased or otherwise acquired Palomar securities during the period from April 29,
1996 through and including March 26, 1997 (the "Class Period"), and were damaged thereby.
Excluded from the Class are the defendants herein; the directors and officers of H.J. Meyers; any
corporation, firm, partnership, trust or other person affiliated with any of the
foregoing; and the legal representatives, agents, heirs, successors-in-interest or assigns of any
excluded person.
16. The members of the Class are so numerous that joinder of all members is
impracticable. As of July 30, 1997, Palomar reported-that it—had 33,119,000 shares of common
stock outstanding, and, throughout the Class Period, the common stock of Palomar was actively
traded on the NASDAQ National Market System, an efficient market. The precise number of
Class members is unknown to plaintiff at this time but Class members are believed to number in
the thousands.
17. Plaintiff will fairly and adequately represent and protect the interests of the members
of the Class. Plaintiff has retained competent counsel experienced in class action litigation under
the federal securities laws to further ensure such protection and intend to prosecute this action
vigorously.
18. Plaintiffs claims are typical of the claims of the other members of the Class because
plaintiff and all the Class members' damages arise from and were caused by the same series of
manipulative acts undertaken by or chargeable to defendants. Plaintiff does not have interests
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'
antagonistic to, or in conflict with, the Class.
19. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. As the dama ges suffered by individual class members may be
relatively small, the expense and burden of individual litigation make it virtually impossible for
most class members individually to seek redress for the wrongful conduct alleged. Plaintiff
knows of no difficulty that will be encountered in the management of this litigation that would
preclude its maintenance as a class action.
20. Common questions of law and fact exist as to all members of the Class and
predominate over any questions affecting solely individual members of the Class. Among the
questions of taw and fact common to the Class are:
(a)AVhetthe federal securities laws were violated by defendant's acts as alleged
herein;
(b) Whether defendants participated directly or indirectly in the concerted action
or common course of conduct complained of herein;
(c) Whether the market price of Palomar common stock during the Class Period
was artificially inflated due to manipulative conduct of defendants complained of herein; and
(d) The extent of injuries sustained by members of the Class and the appropriate
measure of damages.
21. The names and addresses of the record owners of the shares of Palomar's common
stock purchased during the Class Period are available from Palomar and/or its transfer agent.
Notice can be provided to such record owners by a combination of published notice and first
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class mail using techniques and forms of notice similar to those customarily used in class actions
arising under the federal securities taws.
ALLEGATIONS OF WRONGDOING
22. During the relevant period, and as described further below, defendant H.J. Meyers
acted through a variety of related fraudulent and deceitful schemes that were intended, among
other things, to insure the success of H.J. Meyers initial public offerings, to artificially inflate
and maintain the market price of Palomar stock, and to make it appear that there was significant
market demand for Palomar stock, when, in fact, there was not. To date, plaintiff has identified
the following schemes carried out with that purpose and/or effect.
Manipulative Boiler-Room Solicitations
23. During the relevant period, H.J. Meyers- actively encouraged and required its
stockbrokers to solicit purchases of Palomar stock without regard to the propriety of such
purchases for individual clients and without regard to the true value of Palomar stock, utilizing
boiler-room stock brokerage tactics. The purpose of H.J. Meyers' conduct was to create the
impression of an established market and continuing demand for Palomar stock, to make Palomar
appear to be a more established company with significant trading volumes on most trading days,
and to make H.J. Meyers appear to be a more established underwriting and stock brokerage firm
both through the underwriting and market-making support of non-penny stock issues.
24. By compelling or otherwise encouraging the purchase of Palomar stock as part of a
systematic firm-wide scheme. H.J. Meyers's active and improper solicitation had the purpose and
effect of increasing the trading volume and trading prices of Palomar stock. This conduct served
-9-
defendant's purposes by leading to greater commission-generating trading activity, as well as
promoting interest in Palomar stock where it was inappropriate.
25. In particular, defendants Masucci, Setteducati, Senefeld and Bergen, on behalf of
defendant H.J. Meyers, with the full knowledge and under the directive of defendant H.J.
Meyers, in their capacities as senior-level supervisory managers, issued directives and orders to
stockbrokers within the firm, which stockbrokers reported directly to them and were responsible
to them, requiring them to actively solicit purchases of Palomar stock during the Class Period.
H.J. Meyers, Masucci, Setteducati, Senefeld and Bergen actively and intentionally, knowingly or
recklessly engaged in such conduct notwithstanding the impropriety of it.
(a) Throughout the Class Period, defendant Senefeld, under the direct demands of
defend-ants Masucci, Satteducati, and Bergen, issued such directives to brokers in N.J. Meyers'
Boston office. Among other things, defendant Senefeld issued such orders to brokers after the
market close on numerous occasions, as brokers were preparing to go home for the day.
Defendant Senefeld issued pronouncements requiring such brokers to obtain at least two orders
each to purchase sto_c_k,_ which orders were to be solicited from clients before the brokers left
work that day and were to be executed at the opening of the next trading session. At the times
that defendant Senefeld issued such directives, defendant Senefeld. at the instance of supervisors
at H.J. Meyers, including defendants Setteducati. Masucci and Bergen, actively promoted or
otherwise demanded that such purchase orders be filled with purchases of Palomar stock.
(b) Throughout the Class Period, defendants Masucei, Satteducati and Bergen
established and enforced sales quotas which they imposed on branch managers, including
defendant Senefeld. Through these sales quotas, defendants Bergen and Setteducati established
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'
certain amounts of stock trading that brokers were required to produce on a daily, weekly and
monthly basis. For example. defendant Bergen required defendant Senefeld to achieve certain
daily sales goals with respect to Palomar stock on numerous occasions in 1996, including in July
1996. Defendant Senefeld, in turn, required the brokers in the Boston office of H.J. Meyers,
which he managed and over which he had supervisory authority, to solicit certain amounts of
client purchases of Palomar stock. Similar sales quotas were established throughout the H.J.
Meyers firm in its branch brokerage offices across the country. At all relevant times, these sales
quotas were wholly improper.
Fraudulent Accounts OBened For Pureose Of Bu in Palomar
26. Defendants' wrongful conduct included the opening of accounts and the execution of
trades involving the subject stock which-were wholly improper. Defendants solicited and opened
new accounts for people who had no intention to make legitimate investments. For example.
accounts were opened in the Boston office of H.J. Meyers in or about July 1996 on behalf of
Amit Shah and a -Mr. Tapariah" who, it turns out, were students at Bentley College — who
lent their names to the scheme. Solicited and encouraged to open accounts at H.J. Meyers for the
purpose of purchasing Palomar stock, these college students did not intend to pay for the stock,
but only opened the accounts at the insistence of a broker at H.J. Meyers, and did so (a) without
the accounts first being capitalized with client funds, (b) without the "clients' credit histories
being examined, and (c) on condition that they purchase Palomar stock. These accounts were
opened with the supervisory approval of defendants Senefeld and Bergen, each of whom knew or
recklessly disregarded that such accounts were opened solely for the fraudulent purpose of
purchasing Palomar stock without an expectation of actually paying for it.
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,
27. At least seven thousand shares of Palomar stock were purchased for these accounts
at approximately $13.00 per share in or about July 1996. Defendant Senefeld encouraged this
form of misconduct as a means for achieving office sales quotas relating to Palomar stock.
Defendant Senefeld was taught to utilize this fraudulent practice by defendant Bergen.
Numerous other such fraudulent trading accounts opened solely for the purpose of purchasing
Palomar stock exist throughout the H.J. Meyers system.
Refusals To Sell
28. In addition to the illegal sales efforts of H.J. Meyers, H.J. Meyers also artificially
propped up the price of Palomar stock by refusing to execute and otherwise actively discouraging
the execution of orders to sell Palomar stock. These efforts improperly restrained investor
—selling, caused the supply of Palomar stock in the marketplace to be understated, caused the
demand for Palomar stock in the marketplace to be overstated, and, as a result, caused the price
of Palomar stock to be artificially inflated.
29. KJ. Meyers knew or recklessly disregarded that the foregoing activities would affect
the market price of Palomar stock by artificially inflating it.
30. In particular, H.J. Meyers supervisory personnel -- including defendants Senefeld,
Bergen and Setteducati -- refused to permit order tickets for the sale of Palomar stock to be
executed. In the Boston office, for example, and typical of other offices, all order tickets which
were filled out in connection with any purchase or sale of securities required the branch office
manager's signature. Thus, with respect to clients of H.J. Meyers's Boston office who sought to
sell their Palomar stock, before being executed, an order to sell Palomar stock required the the
approval of defendant Senefeld. On numerous occasions throughout the Class Period, defendant
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Senefeld refused to approve sales of Palomar stock. In addition, defendant Senefeld instructed
brokers whose clients sought to sell Palomar stock to advise their clients against such activity and
to engage in pressure tactics designed to discourage such sales.
H.J. Meyers-Sponsored "Research"
31. In a further effort to lend credibility to the manipulation of Palomar stock, H.J.
Meyers sponsored "research" about Palomar. "Research" is a term used to refer to reports
written by securities analysts about companies for the benefit of investors. Major brokerage
firms provide research so that their investor-customers may make better-informed investment
decisions. The quality of research is typically measured by the performance of stocks subject to
research analysis. To the extent a stock that a brokerage "recommends" performs well, the
brokerage enjoys an enhanced-reputation for providing its clients with timely analysis.
32. At all relevant times, defendant Bell was employed by H.J. Meyers in a capacity
involving her authoring or otherwise lending her name to "research" reports about Palomar
recommending that investors purchase Palomar stock. H.J. Meyers and defendant Bell issued
reports about Palomar recommending that investors "BUY" or "STRONG BUY" Palomar stock
on at least the following occasions: June 1996, October 9, 1996, and March 19, 1997. Each such
report was materially false and misleading because each failed to disclose that the price of
Palomar stock was artificially inflated by the systemic, firm-wide manipulative schemes and
artifices employed by defendants as described herein. Defendant Bell knew or recklessly
disregarded that Hi. . Meyers was involved in the systematic manipulation of Palomar stock as
alleged herein.
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The Manipulation Is Exposed
33. The scheme alleged herein collapsed on or about April 15, 1997, when pressure from
then-recently initiated regulatory investigations of H.J. Meyers' Boston office increased
dramatically, forcing H.J. Meyers to abandon its manipulative efforts. At or about the same time,
H.J. Meyers' misbehavior came to light in a series of articles in The Boston Herald.
34. When the scheme finally unraveled, the market price of Palomar stock fell
dramatically. For example, on March 26, 1997, the price of Palomar closed at 5 3/4 per share,
having eroded more than three points (or 36%) from the $9.00 per share range only two months
earlier. Subsequent disclosures about H.J. Meyers and the additional unrestrained selling of
Palomar stock, no longer artificially withheld, caused the price of Palomar stock to decline
further still, with the stock consistently trading below $300-per share since-June 1997.
35. (a) On April 15. 1997, The Boston Herald printed an article revealing many of the
abuses complained of herein. For instance, the article discloses:
Tobin Senefeld, head of Meyers' Boston office until last month.came from Hibbard, Brown & Co. That New York-based firm wasa refuge for many First Jersey brokers and was barred from retailsales in 1994 by the National Association of Securities Dealers.
Senefeld has since been subpoenaed by state investigators andmoved to a lower-profile position in the office, people familiarwith the situation say. Brokers who have worked for him areshedding no tears.
Some complain that he kicked chairs out from under brokers andforced them to stand and make cold calls for hours. They could notsit, or go home, before selling enough stock to satisfy him.
"I don't care who you have to call. Get on the phone and sell that(expletive) stock," Senefeld, 29, would holler, one broker recalls.He carried a baseball bat around the office for fun, many say.
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'
(b) The "(expletive) stock" referred to above was, on numerous occasions.
Palomar.
(c) The article continued:
Rochester bosses are said to put few boundaries on how managersmotivate brokers. Their chief goal, former managers say, is tocreate demand for the small stocks that H.J. Meyers takes public.
* * *
Former brokers say Meyers managers didn't give them the fullstory about the companies they were touting. Without adequatedisclosure, customers made uninformed buying decisions, thebrokers said.
"They were shoving product down our throat," said a formermanager who toed the line for a few years but ultimately left indisgust. "Web were being hammered on a regular basis to sell stock--not because-it-was good for customers."
* * *
Verbal abuse and intimidation come in almost daily doses, onmorning conference calls with two of Villa's top lieutenants.national sales manager William Masucci and Executive VicePresident Robert Setteducati.
Both have paid fines to securities regulators. On morning calls,they bully managers into agreeing to sell certain house stocks.people who've heard the calls say. They threaten the jobs ofmanagers who object. They send faxes three times a day to officesdeemed "upside-down," meaning they've let customers sell toomuch Meyers stock.
Said one former manager, "The managers would start every singleday with an hour meeting on how to beat the living (expletive) outof the brokers."
* * *
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-Ten thousand shares or 10 o'clock," is a common manager'sedict, former insiders say, meaning brokers had to fill a quota of10,000 shares or work the phones until 10 p.m.
When customers want to sell stocks, not buy, one of Meyers'darkest traits emerges, fonner brokers say.
Meyers brokers are told to dissuade customers from selling,whether their shares are up or down. ... H.J. Meyers brokers saythey routinely talk customers out of plans to sell shares, to avoidmanagement's wrath and the fines.
36. Multiple articles in The Boston Herald the next day, April 16, 1997, disclosed that
Palomar was among the stocks being so manipulated by defendants, with one unidentified broker
declaring that for 3 1/2 months, Palomar was the only stock he was "allowed to sell." A separate
article in The Boston Herald that day also discussed the many abusive sales tactics undertaken by
defendants:
Former branch staffers recount horrific tales of Executive VicePresident Robert Setteducati's foul-mouthed threats on morningconference calls to managers. His boyish nickname, Bobby, andhis squeaky voice belied his demeanor, they say.
"I don't give a (expletive) what you guys do. I don't give a flying(expletive) about your customers. Get that stock done," he barkedon one of many mornings, says a former insider who listened in onconference calls for months.
William Massuci, Meyers' national sales manager, tried hard to beeveryone's friend, people who've worked for him say. He'd treatassociates to dinner, and had an affable personality.
But when Massuci came into the Boston office of H.J. Meyers,brokers were required to stand at attention behind their desks.Some say they were called into intimidating one-on-one meetingswith Massuci. Then, behind closed doors, he would scold them fornot selling enough Meyers stocks. He would also slap brokers with550 or S100 fines for letting customers sell Meyers stocks.
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-Massuci was in Chicago a lot, says one broker who recently quithis job.
37. On Thursday, June 26. 1997, Meyers permanently closed its Boston. Massachusetts
office. The decision was sudden. and brokers at work that day were simply told to leave.
38. A June 28, 1997 article in The Boston Herald reported that Jim Fox, who was for a
brief period up to that time the manager of the Boston office of H.J. Meyers, had complained
about the sales practices of H.J. Meyers, which caused its customers to lose money on their
investments with the firm.
39. A June 28, 1997, report in the Boston Globe likewise reported that the regulatory
investigations had been prompted by investor complaints about H.J. Meyers selling practices. In
particular, the Globe reported that:
According to those familiar with the investigation, a number of investors havecomplained to the state about Meyers' operation. They say the firm's brokerspressured them into buying stocks that they didn't want, then refused to let themsell when the stock lost value.
40. On June 30, 1997, it was reported that Meyers had advised all of its brokers in all in
of its offices that they refrain from selling stocks to Massachusetts residents. Accordin g to press
reports, this decision impacted at least 5,600 residents of Massachusetts.
41. The confluence of the various manipulative acts and omissions undertaken by
defendants alleged herein had the effect of exaggerating, overstating and inflating the market
demand for and market price of Palomar stock throughout the Class Period.
Unusually Close Relationship Between Palomar and H.J. Meyers
42, Palomar and H.J. Meyers enjoyed an unusually close relationship. In addition to the
underwriting relationship which existed between them, and which produced lucrative
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'
underwriting fees for H.J. Meyers, Palomar has engaged in substantial related party transactions
on favorable terms with a director of Hi. Meyers (although Palomar's filings conceal the identity
of this H.J. Meyers director) as explained in Palomar's quarterly report on Form 10QSB\A-1 for
the quarterly period ended March 31, 1996:
The Company has a $500,000 equity investment in a privately held technologycompany. A director of the Company's underwriter, H.J. Meyers is also a directorof the investee company. During the three months ended March 31, 1996, theCompany loaned this director unsecured notes totaling $1,057,500 in connectionwith the exercise of stock warrants. The notes bear interest at 7.75% per annumand are due on demand. The Company also loaned this director $500,000 duringthe three months ended March 31, 1996, under the same terms as the notesdescribed above.
43. In addition to this vaguely disclosed relationship, which ultimately resulted in at least
approximately $3.5 million in lucrative loans-an-d-other-benefits to this undisclosed "director-of
the Company's underwriter-, H.J. Meyers participated in financing and underwriting activities
relating to Palomar.
44. Palomar's then-President, Chief Executive Officer and Chairman of the Board —
Steven Georgiev — who recently resigned from all but his Board position at the Company,
frequently visited the Boston office of H.J. Meyers.
Defendants Roles In The Manipulation
45. II.J. Meyers was the creator, architect, and central hub of an elaborate scheme to
artificially inflate and maintain the market price of Palomar stock purchased by plaintiff and the
other members of the Class. Hi. Meyers and the other defendants were involved in all aspects of
the illegal conduct from the date of its inception through the time when Palomar stock began its
exceptional descent in or about March 1997.
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,
46. Each of the defendants is sued herein as a direct participant in the scheme alleged.
H.j. Meyers, through its representatives, had knowledge of and participated in the scheme, in
particular, in the deceptive transactions which gave the appearance that there was interest in the
marketplace for Palomar stock, and thus inflated and maintained the price of Palomar stock at an
artificial level. Moreover, H.J. Meyers's compliance personnel knew or should have known that
H.J. Meyers was involved in the conduct complained of herein. Notwithstanding all of this
knowledge, H.J. Meyers continued to engage in the wrongful conduct alleged herein throughout
the Class Period.
47. Each of the individuals named as defendants herein was a senior- or executive-level
employee of H.J. Meyers, with full supervisory authority over numerous other individuals
involved-in-the manipulative schemes and artifices to defraud alleged herein. Each of these
individuals had the power to refrain from engaging in the wrongful conduct alleged herein and
each failed to exercise same.
CLAIMS FOR RELIEF
COUNT I
[Against All Defendants For Violations
Of Sections 9(a) and 9(e) Of The Exchange Act]
48. Plaintiff repeats and realleges each and every allegation contained above.
49. This claim is brought against all defendants with respect to the entire Class Period
and on behalf of the Class.
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50. Defendants, directly and indirectly, by the use of means or instrumentalities of
interstate commerce and/or of the mails, engaged and participated in a continuous course of
manipulative conduct to artificially raise and maintain the artificially inflated market price of the
Palomar stock during the Class Period. As detailed above, defendants employed devices.
schemes and artifices to defraud and engaged in acts, practices, and a course of conduct as
alleged herein to manipulate and misrepresent to investors the value of and demand for Palomar
stock, which operated as a fraud and deceit upon the purchasers of Palomar stock during the
Class Period. Among other things,
(a) Defendants effected, along with others, a series of transactions in Palomar
stock, which is registered on a national securities exchange, creating actual or apparent active
trading in such security or raising or depressing the price of such security, for the purpose of
inducing the purchase or sale of such security by others;
(b) induced the purchase of Palomar stock by the circulation of or dissemination
in the ordinary course of business of information to the effect that the price of any such security
will or is likely to rise because of market operations conducted for the purpose of raising or
depressing the prices of Palomar stock; and/or
(c) made, for the purpose of inducing purchases of Palomar stock, statements
which, at the time they were made and in light of the circumstances under which they were made,
were false or misleading with respect to material facts, and which defendants knew or had
reasonable ground to believe was so false or misleading.
51. At the time of the course of conduct alleged above, plaintiff and the other members
of the Class purchased Palomar stock which was affected by the conduct alleged herein.
52. By virtue of the foregoing, defendants have violated Sections 9(a) and 9(0 of the
Exchange Act.
53. Plaintiff and other members of the Class have been damaged by defendants'
violations as described in this Count and seek recovery for the damages caused thereby.
COUNT II
[Against All Defendants For Violation
Of Section 10(b) Of The Exchange Act]
54. Plaintiff repeats and realleges each and every allegation contained above.
55. This claim is brought against all defendants with respect to the entire Class Period
and on behalf of the Class.
56. Defendants, directly and indirectly, by the use of means or instrumentalities of
interstate commerce and/or of the mails, engaged and participated in a continuous course of
manipulative conduct to artificially raise and maintain the artificially inflated market price of the
Palomar stock during the Class Period. Defendants employed devices, schemes and artifices to
defraud and engaged in acts, practices, and a course or conduct as alleged herein to manipulate
and misrepresent to investors the value of and demand for Palomar stock, which operated as a
fraud and deceit upon the purchasers of Palomar stock during the Class Period.
57. At the time of the course of conduct alleged above, plaintiff and the other members
of the Class were ignorant of the nature of the scheme. Plaintiff and the class members could not
in the exercise of reasonable diligence have known the actual facts. In reliance on the integrity of
the market price of these securities, plaintiff and other members of the Class were induced to and
did purchase Palomar stock at artificially inflated prices. Had plaintiff and other members of the
Class known the truth, they would not have taken such action.
58. Defendant H.J. Meyers. with knowledge or reckless disregard of the fraudulent
nature of the conduct complained of herein, caused and permitted the actions alleged to have
occurred.
59. By virtue of the foregoing, defendants have violated Section 10(b) of the Exchange
Act. and Rule 10b-5 promulgated thereunder.
60. Plaintiff and other members of the Class have been damaged by defendants'
violations as described in this Count and seek recovery for the damages caused thereby.
COUNT III
[Agai-nst-All Defendants For Common Law Fraud And Deceit]
61. Plaintiff repeats and realleges each and every allegation contained above.
62. Plaintiff brings this Count, based on common law claims for fraud and deceit,
pursuant to the Court's supplemental jurisdiction, and the claims asserted herein arise out of the
same nucleus of operative facts as those alleged under Counts I and II.
63. For the purpose of inducing public investors, including plaintiff and other members
of the Class, to purchase Palomar stock, and with intent to deceive such investors, the defendant
employed a scheme and conspiracy to defraud as alleged herein.
64. Plaintiff and other members of the Class, at the time of said unlawful and fraudulent
conduct, were ignorant of the nature of these actions and of this conduct, and believed them to be
bona fide. In reliance upon the integrity of the market and securities offering process, and in
ignorance of the true facts, plaintiff and other Class members were induced to and did purchase
Palomar stock at inflated and artificial prices. Had plaintiff and the other members of the Class
known the true facts, they would not have taken such action.
65. By reason of the foregoing conduct by defendants, plaintiff and each of the members
of the Class have suffered damages.
PRAYER FOR RELIEF
WHEREFORE, plaintiff, on his own behalf and on behalf of the Class, prays for
judgment as follows:
A. declaring this action to be a class action properly maintained pursuant to Rule 23(a)
and (b)(3) of the Federal Rules of Civil Procedure;
B. awarding plaintiff and the other members of the Class damages as provided by law;
C. awarding plaintiff and other members of the Class their costs and expenses of this
litigation, including reasonable attorneys' fees, accountants fees and experts' fees and other costs
and disbursements; and
D. awarding plaintiff and other members of the Class such other and further relief as may
be just and proper under the circumstances.
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JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: September 11, 1997
SHALOV STONE & BONER
By-:24.LAAR/l Lee S. Shalov (LS-7118)Ralph M. Stone (RS-4488)James P. Bonner (JB-0629)
70 West 36th StreetSuite 1404New York, New York 10018(212) 268-2727Fax (212) 244-2402
Attorneys for Plaintiff
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