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Arlette Miller, Et Al. V. Lazard Ltd., Et Al. 05-CV-05630-Consolidated

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Arlette Miller, Et Al. V. Lazard Ltd., Et Al. 05-CV-05630-Consolidated UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK x ARLETTE MILLER, Individually and On Electronically Filed Behalfof All Others Similarly Situated , Plaintiff, Civil Action No . 1 :05-CV-5630 (VM) (ECF Case) vs. CONSOLIDATED AMENDED CLASS LAZARD LTD., BRUCE WASSERSTEIN, ACTION COMPLAINT FOR VIOLATION STEVEN J . GOLUB, WILLIAM M. LEWIS, OF THE FEDERAL SECURITIES LAW S MICHAEL J. CASTELLANO and GOLDMAN SACHS & CO., : JURY TRIAL DEMANDED Defendants . x Lead Plaintiffs Diana B . Lien, Charles F . Lin, and Edward Schonberg and Plaintiffs Lawrence O. Viands and Nanette Katz (collectively, "Plaintiffs"), by their undersigned attorneys, individually and on behalf of all others similarly situated, make the following allegations fo r their Consolidated Amended Class Action Complaint . These allegations are based on Plaintiffs ' personal knowledge as to themselves, and on information and belief derived from investigation s of their counsel as to all other matters. The investigations of counsel included, among other things: (a) review and analysis of filings made by Lazard Ltd ("Lazard" or the "Company") wit h the United States Securities and Exchange Commission ("SEC") ; (b) review and analysis o f press releases, public statements, news articles, securities analysts' reports and other publication s disseminated by or concerning Lazard; (c) interviews with former Lazard employees ; and (d) other publicly available information about Lazard. Most of the facts supporting the allegations contained herein are known only to the Defendants or are within their control . Plaintiffs believe that the ongoing investigations of their counsel will yield further information in support of the claims alleged herein . NATURE OF THE ACTION 1 . This is a class action on behalf of purchasers of the common stock of Lazard who purchased such securities pursuant and/or traceable to the Company's false and misleadin g Registration Statement and Prospectus declared effective on May 4, 2005, as amended (th e "Registration Statement/Prospectus"), issued in connection with the initial public offering of Lazard common stock (the "IPO"), together with those who purchased shares of Lazard commo n stock in the open market between May 4, 2005 and May 12, 2005, inclusive (the "Class Period") , seeking to pursue remedies under the Securities Act of 1933 (the "Securities Act") and th e Securities Exchange Act of 1934 (the "Exchange Act"). -1- 2. Lazard is an investment bank that was founded in New Orleans in 1848 . Currently based in New York City and with operations in Europe, North America, Asia, and Australia, Lazard operates primarily as a financial advisory and asset management firm . It provides services for mergers and acquisitions, restructurings, and various other corporate finance matters for corporate, partnership, institutional, government, and individual clients . Services include evaluating potential acquisition targets; providing valuation analyses ; evaluating and proposing financial and strategic alternatives ; and rendering opinions . In addition, Lazard provides investment management and advisory services to institutional clients, financial intermediaries, private clients, and investment vehicles worldwide . 3 . Prior to its IPO, Lazard was a family company. Indeed, until the IPO, descendents of the founding brothers owned approximately a one-third stake in the Company. 4. On May 5, 2005, Lazard went public via a group of securities offerings (th e "Offerings") that included the private offering of Equity Securities Units, a private offering of Lazard Group 7 .125 percent Senior Notes, a private placement of securities with IXIS - Corporate & Investment Bank, and the IPO. The Offerings were designed to end Lazard's connection to the founding family and in particular the Company's former Chairman, Michel David-Weill ("David-Weill"), a descendant of the Company's founders . Lazard's Chief Executive Officer, Defendant Bruce Wasserstein ("Wasserstein"), planned to use the proceeds from the Offerings to buy out David-Weill and other so-called "Historical Partners" (defined in the Registration Statement/Prospectus as "Eurazeo S .A., descendants and relations of our founders, several historical partners of our predecessor entities, several current and former managing directors and the other members of these classes") . -2- 5. Initially, David-Weill opposed Wasserstein's plan to take Lazard public, bu t ultimately yielded after Wasserstein promised that Lazard would buy out the 36 percent stak e held by David-Weill and the Historical Partners for more than $1 .6 billion, which Wasserstein planned to generate from the Offerings . Wasserstein also promised David-Weill that the transaction would be completed by the end of 2005 or he would quit. 6. Lazard planned to sell its Equity Securities Units at $25 per unit for an aggregat e price of $287 .5 million, and raise net proceeds of approximately $276 .5 million; Lazard's 7 .125 percent Senior Notes offering was expected to raise approximately $550 million ; and a private placement of Lazard securities with IXIS-Corporate Investment Bank would bring in approximately $200 million ($150 million in equity security units, and $50 million in commo n stock). 7. With the private securities offerings expected to raise approximately $1 .026 billion, the Defendants were left with a $775 million funding gap to be filled by the IPO . At an offering price $25 per share, the IPO was expected to raise gross proceeds of $854 .5 million, which would net the Company approximately $788 million, thus reaching the Defendants' goal of raising $1 .6 billion to complete the buy out of David-Weill and the Historical Partners (plu s an additional $200 million needed to complete the Company's restructuring and repay certain outstanding notes). However, if the IPO was priced at lower than $25 per share, Lazard woul d not net enough to complete the buy-out . At this time, given prevailing market forces, th e maximum price that Lazard could obtain in the IPO was $22 per share . A $22 price would leave Wasserstein and the other Defendants with a funding shortage of approximately $100 million and they would be unable to complete the buy-out of David-Weill and the Historical Partners . For this reason, despite knowing that the market would not support the $25 offering price , -3- Defendants pushed forward with the IPO of 34,183,162 shares of Lazard common stock at a price of $25 per share, on May 4, 2005 . 8. Prior to the IPO, Defendants were well aware that a $25 price was unrealistic and would not be supported by the market . To determine the initial price, the lead underwriter, Defendant Goldman Sachs & Co ("Goldman Sachs"), distributed preliminary prospectuses to it s clients and other potential purchasers of the IPO . The recipients of the preliminary prospectuses then provided Goldman Sachs with "indications of interest," which are essentially preliminar y orders reflecting the quantity and price at which they would be interested in acquiring shares i n the IPO. The indications of interest are highly objective and are then used to set the IPO's initial price. 9. Since this was a firm commitment underwriting, Goldman Sachs and the othe r underwriters were committed to purchasing certain amounts of stock. If the underwriters could not sell the shares of stock that they had committed to sell, they would be forced to keep th e unsold shares for themselves and absorb any associated losses. 10. Goldman Sachs' corporate finance department had developed indications o f interest that showed that the market would accept, at most, an IPO price between $21 and $2 2 per share - a fact that was communicated to Lazard. Despite knowing from the indications of interest and from the lackluster response to "road shows" and other marketing attempts that th e market would support at most a $22 offering price, Lazard and Wasserstein nonetheless insisted that the IPO be priced at $25 per share so that they could effectuate their plan to buy out th e remaining Lazard heirs . 11 . If the IPO took place, Wasserstein stood not only to gain control of Lazard fro m David-Weill and the other heirs but also to make a handsome personal profit . If the IPO were -4- completed at $25 per share, the value of the $30 million that Wasserstein had invested in th e Company only three years before would soar to $300 million . Additionally, Wasserstein woul d own 11 percent of the Company and be paid an annual salary of $4 .8 million for each of the thre e years following the IPO . Significantly, if the IPO could not be completed at $25 per share, the n Wasserstein would have to quit in accordance with his prior promise . 12. Goldman Sachs was largely unsuccessful in selling Lazard shares to its clients a t the $25 per share IPO price. Leading up to the IPO, Goldman Sachs was so unsuccessful in selling Lazard shares at $25 that it was forced to sell shares to hedge funds and other "flippers, " i.e., investors who would immediately sell their shares in the aftermarket once trading began . Even after selling shares to these flippers, Goldman Sachs was still stuck with millions of unsold shares. Indeed, in a Form 3 filed with the SEC on or about May 23, 2005, Goldman Sach s reported that it was only able to sell approximately 4 .2 million shares (approximately 40% of it s IPO allocation in the IPO) . Goldman Sachs knew that once Lazard shares began trading, the market price would plummet because there was no real demand to purchase Lazard shares at $2 5 per share. 13 . Once Lazard's stock began trading on May 5, 2005, Goldman Sachs was forced t o buy an unprecedented amount of Lazard stock in an attempt to create the false impression of strong demand. Specifically, on May 5, 2005, Goldman Sachs purchased more than 2 .4 million shares of Lazard stock in the open market at prices between $24 and $25 per share .
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