Larry Romine, Et Al. V. Compuserve Corporation, Et Al. 96-CV-717-First
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• , K - • PM/ UNITED STATES DISTRICT COttt - SOUTHERN DISTRICT OF OHIO EASTERN DIVISION L..e. LARRY ROMINE, at al., on behalf : Ca P.,::.C2.-i.9.5.t7.1-Zu3. of themselves and all others e KinnearY) similarly situated, (Mag. Judge Xing) Plaintiffs, V. coMPUSERVE CORPORATION, et al., (Jury Trial Demanded) Defendants. FIRST AMENDED AND CONSOUDATED CLASS ACTION_COMPLAINT Plaintiffs, by their attorneys, allege the following upon information and belief (based, inter alia, upon a review and analysis of documents filed with the Securities and Exchange commission, press releases, reports of securities analysts, news reports, and the investigation conducted by and. through Plaintiffs' counsel), except as to the allegations specifically pertaining to p laintiffs and their counsel. Plaintiffs believe that further substantial evidentiary support for the allegations set forth below will be available after a reasonable opportunity for discovery, NATURE OF ACTION 1. This is a securities class action arising in connection with an initial public offering of common stock (the "Initial Public Offering" or "IPO"), by CompuServe Corporation ("CompuServe" or the "Company") at $30,00 per share pursuant to a registration (1(2 statement (the "Registration Statement") and a prospectus (the "Prospectus") that were filed with the Securities and Exchange Commission (the "SEC") and became effective on or about April 18, 1996. The IPO raised $552,000,000 from the sale of 18,400,000 shares of CompuServe common stock at $30 per share. 2. Formerly a wholly-owned subsidiary of H&R Block, Inc. ("H&R Block"), CompuServe provides computer-based interactive services and data communications and is involved in the develop- ment of consumer on-line and Internet access services. The Company operates primarily through two divisions: "Interactive Services" which offers worldwide on-line and Internet access services for consumers; and ',Network Services" which provides worldwide network access, management and applications, and Internet services to businesses. (Prospectus at 3) 3. The Registration statement and Prospectus was false and/or misleading in at least the following respects. The Prospectus glowingly described CompuServe's proprietary software as its cornerstone. But, shortly after selling over 18 million shares of stock to the public at $30 per share, CompuServe announced a fundamental shift in its core business to becoming an Internet service provider using standard software protocols as opposed to its proprietary software. Consistent with this change, which was not disclosed until after the Offering, CompuServe recently announced the discontinuance of one of its showcase software services and an associated after-tax charge of $4.9 million. -2- 4. Defendants failed in the Prospectus to inform investors that, contrary to the impressive statements in the Prospectus, the Company had experienced serious adverse business trends which were likely to materially impact its continuing operations. Defendants failed to disclose that increasing levels of cancellations and declining enrollment of now subscribers had and would likely continue to erode the Company's subscriber base; that the Company was under severe competitive pressure due to increasing use of cheaper direct access Internet services; and that there were serious problems, including design flaws, with the Company's new online service, WOWIsm 5. Defendants failed to disclose that CompuServe intended to substantially abandon its core business as an online proprietary content provider to become an open technology service provider to the world Wide Web (the "Red Dog Plan"). CompuServe was about to embark upon a strategy whereby access to its content would be open to Internet users, who did not even have to pay CompuServe, thus compounding CompuServe's business decline in the months preceding the Initial Public Offering and ensuring the business would continue to suffer as CompuServe went head to head with many, many competitors on the World Wide Web. such a significant change in the nature of its business was not something that could be developed in a month. Rather, while the industry has developed rapidly, such a drastic change in direction would have taken substantially longer to plan and initiate and thus was known to Defendants at the time of the IPO. -3- _ • 6. As the truth about CompuServe's business became known to the marketplace, the price of the Company's stock fell precipitous- ly, and the Plaintiff and the other members of the investing public suffered damages. CompuServe shares now trade for about one third of the IPO price of $30.00, an aggregate market loss of over $350 million. aURISDICTION_AND VENUE 7. The claims asserted herein arise under and pursuant to Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the ', securities Act") [15 U.S.C. 5577k, 77(a)(2) and 7703. 8. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §51331 and 1337 and Section 22 of the Securities Act [15 U.S.C. 577v]. 9. Venue is proper in this District pursuant to Section 22 of the Securities Act, 28 u.s.c. 51391(b). Defendant CompuServe, the issuer, maintains its principal place of business in this District and the acts complained of in this action, including the preparation, issuance and dissemination of materially false and misleading information to the investing public, occurred in substantial part in this District. 10. In connection with the acts alleged in this Complaint, Defendants, directly or indirectly, used the mails and the means and instrumentalities of interstate commerce, including telephonic communications. , -4- _ _ PARTIES Plaintiffs 11. Plaintiff Larry Romine purchased 200 shares of CompuServe common stock on April 19, 1996 at $30.00 per share and has been damaged thereby. 12. Plaintiff Elaine F. Mason, as Executrix for the Estate of Allan Mason, purchased 1,000 shares of CompuServe common stock on April 19, 1996 at $35.25 share and has been damaged thereby. 13. Plaintiffs Steven P. Ewing and Connie S. Ewing jointly purchased 300 shares of CompuServe common stock on April 19, 1996 at $35 per share and have been damaged thereby. 14. Plaintiffs Jere Settle and Linda Settle, joint tenants, purchased 100 shares of CompuServe common stock on April 18, 1996 at $30 per share and have been damaged thereby. 15. Plaintiff Dori Newell purchased 300 shares of CompuServe common stock on May 28, 1996 at $25,50 per share and has been damaged thereby. 16. Plaintiff Vincent Scorese purchased 500 shares of CompuServe common stock on June 4, 1996 at $27.25 per share and has been damaged thereby. 17. Plaintiff Heather Kennedy purchased 100 shares of CompuServe common stock on June 5, 1996 at $26,375 per share and has been damaged thereby. 18. Plaintiff Electa N. Savage purchased 200 shares of CompuServe common stock on May 9, 1996 at $26,75 per share and 300 -5- _ shares of Compuserve common stock on May 24, 1996 at $23,25 per share and has been damaged thereby. 19. Plaintiff Harry Savage purchased 500 shares of CompuServe common stock on May 8, 1996 at $26.00 per share, 300 shares of . CompuServe common stock on May 24, 1996 at $23.50 per share and 300 shares of CompuServe common stock at $23.375 per share and has been damaged thereby. 20, Plaintiff Allan Hepp per purchased 500 shares of CompuServe common stock on May 21, 1996 at $27.25 per share and has been damaged thereby. 21. Plaintiff Guido sodige purchased 1,000 shares of CompuServe common stock on May 7, 1996 at $27.50 per share and has been damaged thereby. 22. Plaintiff James A. Acker purchased 400 shares of CompuServe common stock on may 31 7 1996 at $24.00 per share and 500 shares of compuServe common stock on June 5, 1996 at $24.125 per share and was damaged thereby. 23. Plaintiff cyndi Scott purchased 400 shares of CompuServe common stock on April 19, 1996 at $34.25 per share and was damaged thereby. 24. Plaintiff Jeffrey Lynn purchased 2,000 shares of CompuServe common stock on April 19, 1996 at $34.50 per share and was damaged thereby. 25. Plaintiff Hunt McKenzie purchased 75 shares of compuserve common stock on May 8, 1996 at $26 1/4 per share and was damaged thereby. -6- 26. Plaintiff Scott Dinhofer purchased 100 shares of compuServe common stock on April 19, 1996 at $34 1/4 per share and was damaged thereby. 27. plaintiff Paul McCormack purchased 200 *hares of CompuServe common stock on April 19, 1996 at $35 1/4 per share and was damaged thereby. 28. Plaintiff Rosemary Mize purchased 300 shares of CompuServe common stock on April 19, 1996 at $35 1/8 per share and was damaged thereby. 29. Plaintiff James Schwartz purchased 900 shares of Compuserve common stock on April 19, 1996 at $30 per share, 1,000 shares of CompuServe common stock on May 22, 1996 at $25 5/8, and 600 shares of CompuServe common stock on May 28, 1996 at $23 per share, and was damaged thereby. 30. Plaintiff 1070125 Ontario, Ltd. purchased 2,800 shares of CompuServe common stock on April 19, 1996 at $35.00 per share and was damaged thereby. 31. Plaintiff Philip Silverglate purchased 2,000 shares of compuServe common stock on June 6, 1996 at $25 1/8 per share and 2,000 shares of CompuServe common stock on June 7, 1996 at $27 3/8 and was damaged thereby. 32. Plaintiff Aimee P. Katz purchased 200 shares of CompuServe common stock on April 19, 1996 at $35.00 per share and was damaged thereby. -7- i 1 . 33. Plaintiff Tishrei Trading purchased 100 shares of CompuServe common stock on June 11, 1996 at $25.50 per share and was damaged thereby.