ORIGINAL

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

V SHEET METAL WORKERS ' LOCAL UNION evil Action No. U 1344 NO. 19 PENSION FUND, AFA MANAGEMENT PARTNERS, LP, AGROCOM, INC., SERGIO DI CLASS ACTION GIACOMO, SILVANA DE SANTIS, MARIA GIOVANNA SILVESTRINI, and LE CURE JURY TRIAL DEMANDED CLINICHE MODERNE S.R.L., on Behalf of Themselves and All Others Similarly Situated,

Plaintiffs,

vs.

ERNST & YOUNG LLP, STEPHEN A. GAROFALO, NICHOLAS M. TANZI, GERARD BENEDETTO, JOHN KLUGE, and STUART SUBOTNICK,

Defendants.

X

CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS

Plaintiffs, individually and on behalf of all other persons similarly situated, allege upon

personal knowledge as to themselves and their own acts, and upon information and belief as to

all other matters, based upon, inter alia, the investigation made by and through their attorneys,

which investigation included, without limitation, review and analysis of various public

statements, including documents filed with the Securities and Exchange Commission ("SEC"), news and media reports, press releases, and reports by securities analysts. Except as alleged

herein, the underlying information concerning defendants' misconduct and the particulars thereof

are not available to plaintiffs and the public and lie within the possession and control of

defendants and other insiders. Based upon the facts already uncovered and alleged herein, plaintiffs believe that after a reasonable opportunity for discovery, substantial additional evidentiary support for the allegations set forth herein will be shown to exist.

NATURE OF THE ACTION

Plaintiffs bring this class action for violations of the Securities Exchange Act of

1934, 15 U.S.C. § 78 et sM. (the "Exchange Act"), against Ernst & Young LLP ("E&Y") and certain senior officers and directors of Metromedia Fiber Network, Inc. ("Metromedia," "MFN," or the "Company") named herein (collectively, the "Individual Defendants"), on behalf of a proposed class of persons (the "Class") who purchased or otherwise acquired Metromedia common stock between March 5, 2001 and April 24, 2002, inclusive (the "Class Period"), and were damaged thereby.

As alleged in detail below, during the Class Period, the Individual Defendants knowingly and/or recklessly caused MFN to issue to the investing public materially false and misleading financial statements, press releases, and SEC filings that materially misstated, inter alia, Metromedia's assets, revenues, expenses and net losses in violation of the federal securities laws. Among other things, although the value of MFN's highly touted fiber optic network and goodwill recorded in connection with its acquisitions of.AboveNet Communications, Inc.

("AboveNet") and SiteSmith, Inc., the Company's internet subsidiaries, had declined substantially given, inter alia, the oversupply of fiber in the industry and the precipitous decline in the value of telecom and internet companies, including MFN, that occurred beginning in early

2000, defendants failed to write down the value of these assets to fair market value as required by Generally Accepted Accounting Principles ("GAAP"). As a result, the value of MFN' s assets was materially overstated and its expenses and net losses were materially understated throughout the Class Period.

1781501 -2- In addition, throughout the Class Period, MFN's revenue was artificially inflated

by amounts derived from swap transactions with its competitors in the telecommunications

industry . Pursuant to these arrangements , which became pervasive in the industry as growth

slowed beginning in the late 1990s, telecom companies , including MFN, contracted to lease each

other roughly equivalent amounts of "dark" or "unlit" fiber. (So-called "dark" fiber is fiber-optic

cable without any of the electronic or optronic equipment necessary to use the fiber for

transmission.) Although these transactions generated no actual revenue for either company,

revenue was nonetheless recognized by the contracting parties in violation of GAAP, thereby

creating or sustaining the illusion of continuing revenue growth when, in fact, there was none.

4. Thus, contrary to defendants repeated representations to the contrary throughout

the Class Period, Metromedia' s financial statements , which were included in the Company's

SEC filings, did not fairly present in all material respects the Company's financial position in

accordance with GAAP. In failing to file financial statements with the SEC which conformed to

the requirements of GAAP, defendants disseminated financial statements which were presumptively misleading and inaccurate.

Further, on March 5 , 2001, defendant E&Y issued an unqualified audit opinion on

MFN's consolidated financial statements for the year ended December 31, 2000, falsely representing, among other things, that those financial statements had been prepared in

accordance with GAAP, and that its audit had been conducted in accordance with Generally

Accepted Auditing Standards ("GAAS"). In fact, as alleged herein, in order to maintain its

longstanding and lucrative relationship with MFN, E&Y turned a blind eye to numerous red

flags evidencing that the Company's internal controls were virtually non-existent and that its

financial statements were materially false and misleading and were not fairly presented in all

1781501 -3- material respects in accordance with GAAP. In particular, E&Y was aware or recklessly disregarded that the value of telecom and internet companies, including MFN, had declined precipitously during 2000 and 2001. Nevertheless, E&Y issued an unqualified audit opinion on

MFN's year end 2000 financial statements, which reflected materially inflated values for MFN's network assets and the goodwill related to the AboveNet acquisition. After the Class Period,

$2.4 billion in goodwill related to the AboveNet and SiteSmith acquisitions and $2.8 billion of network assets were belatedly written off by the Company.

6. Investors did not begin to learn the truth about MFN's financial condition and results until April 17, 2002 when, contrary to all its prior pronouncements summarized above and detailed herein, MFN issued a press release announcing that prior period financial statements issued during the Class Period would need to be restated . As a result of this announcement, trading in MFN's shares was suspended pending further information from the Company.

7. Then, on April 23, 2002, MFN issued a press release reporting "preliminary restatements of its previously reported results for the first three quarters of 2001 and preliminary results for the fourth quarter and year-ended December 31, 2001." According to the press release, the preliminary restatements for each of the first three quarters of 2001 "involved revenue/sales credit recognition, timing of expense recognition and non-cash lease accounting and purchase accounting issues." Further, the preliminary results reported in the press release for the fourth quarter and year ended December 31, 2001, included a write down of between $3.9 billion and $4.3 billion with respect to the value of the Company's network and goodwill assets.

The release emphasized that the foregoing results were preliminary and might be subject to additional charges. On May 20, 2002, MFN filed for bankruptcy. In June 2002, in response to

1781501 -4- the Company"s announcement that it would restate results for the first three quarters of 2001, the

SEC initiated an investigation of MFN.

8. On September 8, 2003, MFN emerged from bankruptcy as AboveNet, Inc. Class members' shares of MFN are now worthless.

JURISDICTION AND VENUE

9. The claims asserted herein arise under and are brought pursuant to Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and the rules and regulations promulgated thereunder by the SEC, including Rule lOb-5, 17 C.F.R. § 240. lOb-5

10. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. §§ 1331 and 1337 and Section 27 of the Exchange Act, 15 U.S.C . § 78aa.

11. Venue is proper in this District pursuant to Section 27 of the Exchange Act, 15

U.S.C. § 78aa, and 28 U.S.C. § 1391(b). At all relevant times, Metromedia and E&Y maintained their principal places of business in this District and many of the acts and practices complained of herein occurred in substantial part in this District.

12. In connection with the acts alleged in this complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the national securities markets.

THE PARTIES

Plaintiffs

13. Sheet Metal Workers' Local Union No. 19 Pension Fund ("Sheet Metal

Workers") purchased Metromedia common stock during the Class Period at prices that were artificially inflated by defendants' misrepresentations and omissions and suffered damages

178t501 - 5 - thereby. Attached hereto as Exhibit A is Sheet Metal Workers' certification pursuant to 15

U.S.C. § 78u-4(a)(2) detailing its transactions in MFN common stock during the Class Period.

14. AFA Management Partners, LP ("AFA Management") purchased Metromedia common stock during the Class Period at prices that were artificially inflated by defendants' misrepresentations and omissions and suffered damages thereby. Attached hereto as Exhibit B is

AFA Managements' certification pursuant to 15 U.S.C. § 78u-4(a)(2) detailing its transactions in

MFN common stock during the Class Period.

15. Agrocom, Inc. ("Agrocom") purchased Metromedia common stock during the

Class Period at prices that were artificially inflated by defendants' misrepresentations and omissions and suffered damages thereby. Attached hereto as Exhibit C is Agrocom's certification pursuant to 15 U.S.C. § 78u-4(a)(2) detailing its transactions in MFN common stock during the Class Period.

16. Sergio Di Giacomo ("Di Giacomo") purchased Metromedia common stock during the Class Period at prices that were artificially inflated by defendants' misrepresentations and omissions and suffered damages thereby. Attached hereto as Exhibit D is Di Giacomo's certification pursuant to 15 U.S.C. § 78u-4(a)(2) detailing his transactions in MFN common stock during the Class Period.

17. Silvana De Santis ("De Santis") purchased Metromedia common stock during the

Class Period at prices that were artificially inflated by defendants' misrepresentations and omissions and suffered damages thereby. Attached hereto as Exhibit E is De Santis's certification pursuant to 15 U.S.C. § 78u-4(a)(2) detailing her transactions in MFN common stock during the Class Period.

1781501 -6- 18. Maria Giovanna Silvestrini ("Silvestrini") purchased Metromedia common stock during the Class Period at prices that were artificially inflated by defendants' misrepresentations and omissions and suffered damages thereby. Attached hereto as Exhibit F is Silvestrini's certification pursuant to 15 U.S.C. § 78u-4(a)(2) detailing her transactions in MFN common stock during the Class Period.

19. Le Cure Cliniche Moderne S.R.L. ("Le Cure Cliniche") purchased Metromedia common stock during the Class Period at prices that were artificially inflated by defendants' misrepresentations and omissions and suffered damages thereby. Attached hereto as Exhibit G is

Le Cure Cliniche' s certification pursuant to 15 U.S.C. § 78u-4(a)(2) detailing its transactions in

MFN common stock during the Class Period.

Defendants

20. (a) Defendant E&Y is a firm of certified public accountants with offices located nationwide, including New York, New York. E&Y audited MFN's materially false and misleading financial statements for the year ended December 31, 2000 and issued a materially false and misleading audit opinion dated March 5, 2001 on those financial statements.

Additionally, E&Y consented to the use of its unqualified audit opinion on MFN'S December

31, 2000 10-K report, filed with the SEC during the Class Period. Further, E&Y performed required quarterly reviews of the financial information contained in MFN's Form 10-Q filings during 2000 and 2001. E&Y thus participated in the scheme, plan and common course of conduct described herein.

(b) During the Class Period, while providing MFN with purportedly

"independent" accounting and auditing services, E&Y personnel were present at the Company's offices and had access to and knowledge of MFN's confidential corporate, financial and business information. As a result of its longstanding relationship with MFN (E&Y had been MFN's

1781501 -7- auditor since September 1996), E&Y knew or recklessly disregarded the true facts as alleged herein concerning the financial condition and results of MFN that were concealed from the investing public. Effective December 2001, MFN dismissed E&Y as its auditors.

21. Defendant Stephen A. Garofalo ("Garofalo") founded Metromedia in April 1993.

Garofalo was, at all relevant times, the Company's chairman of the board. He also served as the

Company's chief executive officer from October 1996 to September 2001. Garofalo signed

Metromedia's Form 10-K for the year ended December 31, 2000, which was filed with the SEC during the Class Period.

22. Defendant Nicholas M. Tanzi ("Tanzi") was, at relevant times, Metromedia's president, chief operating officer, and a director of the Company. He also served as the

Company's senior vice president from August 1999 to January 2000 and as vice president of sales from August 1997 to January 2000. Tanzi was named chief executive officer in September

2001. Just two months later, he resigned from the Company, effective November 30, 2001.

Tanzi signed Metromedia's Form 10-K for the year ended December 31, 2000, which was filed with the SEC during the Class Period. During the Class Period, shortly after MFN reported its materially false and misleading results for the fourth quarter and year ended December 31, 2000,

Tanzi sold 300,000 shares of Metromedia common stock that he owned at artificially inflated prices for gross proceeds of more than $2 million.

23. Defendant Gerard Benedetto ("Benedetto") was, at relevant times, the Company's chief financial officer and senior vice president. On October 10, 2001, MFN announced that

Benedetto was leaving MFN "to pursue other options." Benedetto signed Metromedia's Form l 0-K for the year ended December 31, 2000, and its Form 10-Q for the quarters ended March 31,

2001 and June 30, 2001, which were filed with the SEC during the Class Period.

1781501 - 8 - 24. Defendant John Kluge ("Kluge") was, at all relevant times, a director of the

Company. He became a director of Metromedia in July 1997. Kluge signed Metromedia's Form

10-K for the year ended December 31, 2000, which was filed with the SEC during the Class

Period. In addition, Kluge has been the president and chairman of Metromedia Company and its predecessor-in-interest, Metromedia, Inc., MFN's controlling shareholder, for more than five years. The Company's Form 10-K for the year ended December 31, 2000 states:

We benefit from the support of our controlling stockholder, Metromedia Company.... Metromedia Company and its partners [John Kluge and Stuart Subotnick] own all of our outstanding shares of class B common stock.... Our class B common stock is entitled to 10 votes per share and to vote separately to elect at least 75% of the members of the Board of Directors. As of December 31, 2000, Metromedia Company and its partners [John Kluge and Stuart Subotnick] own and control more than a majority of such outstanding voting power.

The Company' s Form 10 -K also states that Kluge "bring [ s] extensive communications industry expertise and corporate governance experience."

25. Defendant Stuart Subotnick ("Subotnick") was, at all relevant times, a director of the Company. He became a director of Metromedia in July 1997 and serves on the executive committee of the Board. Subotnick signed Metromedia's Form l 0-K for the year ended

December 31, 2000, which was filed with the SEC during the Class Period. In addition,

Subotnick has served as executive vice president of Metromedia Company, and its predecessor- in-interest, Metromedia, Inc., MFN's controlling shareholder, for more than five years. The

Company's Form 10-K for the year ended December 31, 2000 states that Subotnick "bring[s] extensive communications industry expertise and corporate governance experience."

26. Defendants Garofalo, Tanzi, Benedetto, Kluge and Subotnick are collectively referred to herein as the "Individual Defendants."

178150 1 -9- 27. It is appropriate to treat the Individual Defendants as a group for pleading purposes and to presume that the materially false, misleading and incomplete information conveyed in the Company's public filings, press releases and other publications as alleged herein are the collective actions of the narrowly defined group of defendants identified above.

Individual Defendants were involved in drafting, producing, reviewing and/or disseminating the materially false and misleading statements and information alleged herein, were aware, or recklessly disregarded, that materially false and misleading statements were being issued regarding the Company, and approved or ratified these statements, in violation of the federal securities laws.

28. Because of their board memberships and/or executive and managerial positions with Metromedia, each of the Individual Defendants had access to the adverse non-public information about the business, finances, markets, and present and future business prospects of

Metromedia particularized herein via access to internal corporate documents, conversations or communications with corporate officers or employees , attendance at management and/or board of directors' meetings and committees thereof and/or via reports and other information provided to them in connection therewith.

29. The statements made by the Individual Defendants, as particularized below, were materially false and misleading when made. The true financial and operating condition of the

Company, which was known or recklessly disregarded by the Individual Defendants, remained concealed from the investing public throughout the Class Period. The Individual Defendants, who were under a duty to disclose those facts, instead misrepresented or concealed them during the relevant period herein. As officers and directors, and controlling persons, of a publicly held company whose common stock was, and is, registered with the SEC pursuant to the Exchange

178150 1 - 10 - Act, and was traded on the NASDAQ, and governed by the provisions of the federal securities

laws, the Individual Defendants each had a duty to promptly disseminate accurate and truthful

information with respect to Metromedia's financial condition and performance, growth,

operations, financial statements, business, earnings and business prospects, and to correct any

previously-issued statements that had become materially misleading or untrue, so that the market

price of the Company's publicly traded common stock would be based upon truthful and

accurate information. The Individual Defendants' misrepresentations and omissions during the

Class Period violated these specific requirements and obligations.

30. The Individual Defendants, because of their positions of control and authority as

officers and/or directors of the Company, were able to and did control the content of the various

SEC filings, press releases and other public statements pertaining to the Company issued during

the Class Period. Each Individual Defendant was provided with copies of the documents alleged

herein to be materially misleading prior to or shortly after their issuance and/or had the ability

and/or opportunity to prevent their issuance or cause them to be corrected. Because of their

positions and access to material non-public information, each of the Individual Defendants knew

or recklessly disregarded that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the representations concerning the Company's

financial condition and results, among other representations, were then materially false and misleading. Accordingly, each of the Individual Defendants is responsible for the accuracy of the public reports and releases detailed herein and is therefore primarily liable for the

representations contained therein.

31. Each of the Individual Defendants is liable as a direct participant in a fraudulent

scheme and course of business that operated as a fraud or deceit on purchasers or acquirers of

1781501 - 11 - Metromedia common stock during the Class Period by disseminating materially false and misleading statements and/or concealing material adverse facts. The scheme: (i) deceived the investing public regarding Metromedia's business, operations, financial condition and results and the intrinsic value of Metromedia common stock; (ii) enabled defendant Tanzi to sell 300,000 of

Metromedia common stock that he owned at artificially inflated prices for gross proceeds of

$2,224,013.68; and (iii) caused plaintiffs and other members of the Class to purchase or otherwise acquire Metromedia common stock at artificially inflated prices.

CLASS ACTION ALLEGATIONS

32. Plaintiffs bring this action as a class action pursuant to Federal Rules of Civil

Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all persons and entities that purchased or otherwise acquired Metromedia common stock between March 5, 2001 and April

24, 2002, inclusive, and were damaged thereby. Excluded from the Class are defendants, members of the Individual Defendants' families, any entity in which any defendant has a controlling interest or is a parent or subsidiary of or is controlled by the Company, and the officers, directors, affiliates, legal representatives, heirs, predecessors, successors, or assigns of any of the defendants.

33. The members of the Class are so numerous that joinder of all members is impracticable. Throughout the Class Period, Metromedia common stock was actively traded on the NASDAQ. As of March 19, 2001, the Company had more than 541 million shares of its class A common stock outstanding. While the exact number of Class members is unknown to plaintiffs at this time and can only be ascertained through appropriate discovery, plaintiffs believe that there are hundreds, if not thousands, of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by

1781501 - 12 - Metromedia or its transfer agent and maybe notified of the pendency of this action by mail,

using the form of notice similar to that customarily used in securities class actions.

34. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the 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 statements made by defendants to the investing public

during the Class Period misrepresented and/or omitted material facts about the business,

operations, operational trends, financial condition, financial statements, present and future

business prospects , and/or management of Metromedia;

(c) Whether defendants acted knowingly or recklessly in issuing

materially false and misleading statements;

(d) Whether the market price of Metromedia common stock during the

Class Period was artificially inflated due to the material nondisclosures and/or

misrepresentations complained of herein; and

(e) Whether the members of the Class have sustained damages, and, if

so, what is the appropriate measure of damages.

35. Plaintiffs' claims are typical of the claims of the other members of the Class as plaintiffs and the other members of the Class sustained damages arising out of defendants'

wrongful conduct in violation of federal law that is complained of herein.

36. Plaintiffs will fairly and adequately protect the interests of the members of the

Class, and have retained counsel competent and experienced in class and securities litigation.

1781501 -13- Plaintiffs have no interests antagonistic to or in conflict with those of the other members of the

Class.

37. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members of the Class is impracticable.

Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for 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.

SUBSTANTIVE ALLEGATIONS

Background

38. In its Form 10-K for the year ended December 31, 2000 (the "Form 10-K"),

Metromedia described itself as providing "dedicated fiber optic infrastructure and high performance internet connectivity" for "communications carrier, corporate and government customers in the United States and Europe." In lay-person terms, Metromedia built or contracted to acquire fiber optic ducts in various cities in North America and Europe. A fiber optic duct is

PVC pipe that has been laid underground - usually beneath a metropolitan area. After building or otherwise acquiring fiber optic ducts, Metromedia "pulls" dark fiber through the ducts and connects customers to a network. The Company's business plan called for the construction of a

"network consist[ing] of approximately 3.6 million fiber miles across 67 cities in North America and Europe." In addition, through the acquisitions of AboveNet and SiteSmith, in September

1999 and February 2001, respectively, the Company also purported to provide "fast and efficient

IP connectivity" and "Internet infrastructure management services."

39. By early 2000, however, the telecommunications industry was in the midst of a long downward spiral from which it has never recovered. According to a May 2002 report titled

1781501 - 14 - Broadband: A 21" Century Technology and Productivity Strategy, assembled by Senator Joseph

Liebennan's staff:

[D]uring the second half of 2000....the telecommunications sector began to wobble. Large long-distance companies experienced losses of market capitalization. Instead of increasing, capital spending was cut by 5% in 2000. New companies, such as Covad and PSI, declared bankruptcy. Providers of infrastructure, such as Lucent and Corning, found that customer orders simply stopped leading to massive losses and layoffs. The related technology sector, which had grown closer to telecommunications as long-haul fiber networks carried increasing amounts of data traffic, suffered in telecom's wake. A telecom boom turned into a telecom recession.

40. In particular, a severe oversupply of fiber optic capacity existed and there was

nowhere near enough customer demand for the millions of miles of fiber the industry had laid

down. A June 18, 2001 Wall Street Journal article entitled. "How the Fiber Barons Plunged the

Nation Into a Telecom Glut," reported that 39 million miles of fiber-optic cable crisscrossed the

United States at that time, but only 2.6% was in use, and "[m]uch of it may remain in the dark

forever."

41. As a result, prices for fiber optic capacity were falling at alarming rates. An

article in The Wall Street Journal, dated February 21, 2001, reported that inventories in the

telecom industry rose more than 50% in the fourth quarter of 2000 "as sales growth slowed to a

crawl." According to a May 1, 2001 Goldman Sachs report titled, Telecom Services: Global

Bandwidth Infrastructure, bandwidth prices fell globally an average of 42% between 1999 and

2000.

42. The value of telecom and internet stocks was negatively impacted as well. In

early March 2000, the Nasdaq Telecom Index peaked at 1230.06. By mid-April 2000, this index

had fallen over 33% to below 800. By the end of 2000, it had fallen to 463.44, a 62% drop from

its March 2000 high. During 2001, the index continued its steep slide as set forth below:

1781501 - 15 - % Decline from Nasdaq Telecom Index March 2000 IQ01 328.08 73% 2Q01 311.62 75% 3Q01 203.10 83%

43. The price of MFN common stock fell precipitously as well from a high of $50.56 on March 28, 2000 to just $10.13 on December 29, 2000. The price continued to slide throughout 2001 and on April 24, 2002, the last day of the Class Period, the stock closed at

$0.04.

44. By late 2000, MFN was desperate to obtain substantial additional capital to complete construction of its fiber optic network and fund its business. On January 8, 2001,

Metromedia announced that it had obtained a commitment from Citicorp for a fully underwritten credit facility for $350 million, Nevertheless, as described more fully herein, by the beginning of the Class Period, as defendants knew or recklessly disregarded, MFN was already a substantially impaired company, and defendants resorted to a host of improper accounting methods to prop up the price of MVIFN's common stock and to conceal the truth concerning the Company' s financial condition and results from the market.

Undisclosed Adverse Information

(A) MFN's Failure to Write-down the Value of Impaired Assets

45. Defendants caused MFN to overstate the Company's Class Period financial condition and results by failing to recognize billions of dollars in impairment charges related to

MFN's tangible network assets and goodwill recorded in connection with the AboveNet and

SiteSmith acquisitions in violation of GAAP. As a result, MFN' s assets were materially overstated and its expenses, EBITDA loss and net losses were materially understated.

1781501 - 16- 46. By the beginning of the Class Period, as defendants knew or recklessly disregarded, events had already occur-red which required the write down of these assets. As set

forth above, during 2000, the market capitalization of telecom companies fell precipitously, and

MFN was no exception. Indeed, by the end of 2000, similar telecom companies were rapidly

falling into bankruptcy, including NETtel Communications, Inc. (10/16/00); Zyan

Communications, Inc. (12/4/00); Fastpoint Communications (12/5/00); Flashcom, Inc. (12/8/00);

Northpoint Communication (1/16/01); e.Spire Communications (3/22/01); Winston

Communications (4/18/01); Viatel Inc. (5/2/01); Teligent Inc. (5/21/01); and PSINet Inc.

(6/11/01). Thus, defendants knew or recklessly disregarded that the $2.6 billion in goodwill recorded in connection with the SiteSmith (Si billion) and AboveNet ($1.6 billion) acquisitions was substantially impaired and should have been written down substantially in 2000 and early

2001.

47. Further, defendants knew or recklessly disregarded that because bandwidth prices were declining throughout 2000 and 2001 at rates far exceeding any reduction in MFN's costs, the value of the network the Company was building was actually declining so quickly that network assets were impaired at the time of, or even prior to, their completion.

48. Although defendants were well aware of the foregoing events requiring a substantial write down of MFN's network and goodwill assets, defendants failed to disclose these material facts until April 23, 2002, when MFN announced a "preliminary" impairment charge of between $3.9 billion and $4.3 billion to be recorded in the fourth quarter of 2001.

Subsequently , in the AboveNet Form 8-K filed on September 30, 2003, AboveNet disclosed that it had written off $2.4 billion of goodwill relating to the AboveNet and SiteSmith acquisitions and $2.8 billion of tangible network assets. In truth, much of this charge should have been

1781501 -17- recorded by year end 2000 given falling fiber prices, oversupply of fiber optic capacity and the

general downward spiral of the telecommunications and internet industries.

(B) MFN's Improper Recognition of Revenue From Fiber Swaps

49. As demand for fiber dried up, telecom companies were unable to maintain the

same level of revenues, let alone revenue growth, that they had reported throughout the 1990s.

As a result, many telecom companies, including MFN, began improperly recognizing revenue

from so-called swap transactions with one another, i.e., the purchase and simultaneous sale of

roughly equivalent amounts of fiber optic capacity at prices well above the actual fair market

value of the exchanged assets.

50. Prior to the Class Period, MFN had entered into swap transactions with at least

the following competitors:

(a) Reciprocal fiber exchange agreement dated February 23, 1998 with

IXC Internet Services, Inc. (now known as Broadwing Communications Services, Inc.

"Broadwing") for a term of eighteen years to exchange dark fiber in each other's routes valued at

$500,000 per year;

(b) Reciprocal fiber exchange agreement dated April 22, 1998 with

Sprint Canada (formerly known as Call -Net/fONOROLA) for a term of eighteen years to

exchange dark fiber in each other's routes valued at $750,000 per year;

(c) Reciprocal fiber exchange agreement dated February 19, 1999 with

Viatel Circe Assets Ltd. and Viatel Global Communications Ltd. (collectively, "Viatel") for a term of twenty years to exchange dark fiber in each other's routes valued at $7,495,000 per year;

(d) Reciprocal fiber exchange agreement dated June 30, 1999 with

Enron Communications Inc. ("Enron") for a term of twenty years to exchange dark fiber in each

other's routes valued at $2 ,777,000 per year;

1781501 - is- (e) Reciprocal fiber exchange agreement dated September 16, 1999 with Williams Communications, Inc. ("Williams") for a term of twenty years to exchange 86,612 fiber miles in each other' s routes at a price of $8.33 per month per fiber mile;

(f) Reciprocal fiber exchange agreement dated June 30, 2000 with

Qwest Communications Corp. ("Qwest") for a term of twenty years to exchange dark fiber in

MFN's system for capacity in Qwest's system valued at $66.7 million over the term of the lease;

(g) Reciprocal fiber exchange agreement dated October 20, 2000 with

Broadwing for a term of twenty-four months to exchange dark fiber in MFN's routes for capacity on Broadwing's routes valued at $600,000; and

(h) Reciprocal fiber exchange agreements dated September 29, 2000 and September 28, 2001 with Cable and Wireless UK Services Limited ("C&W") for a term of twenty years to exchange cable capacity and fiber valued at $6,000,000.

51. Under GAAP, when two competitors simply swap assets as in this case, dark fiber for dark fiber, neither party can record any revenue. As a former vice president of Global

Crossing, Roy Olofson, acknowledged at a Congressional hearing held on September 24, 2002:

An exchange of similar network capacity is the equivalent of trading a blue truck for a red trick, it shouldn't boost a company's revenue.

52. Nevertheless, for fiber leased to counterparties to the swap agreements, MFN ratably recorded revenue over the life of the swap contracts, thereby inflating the Company's revenues and understating its EBITDA loss (earnings before interest, income taxes, depreciation, and amortization), a financial metric that MFN and other telecom companies regularly touted to the market. Further, for fiber leased from counterparties, MFN capitalized amounts due as network assets on its balance sheet and subsequently recognized the expense through depreciation of the network assets over the term of the contracts, typically 20 years. EBITDA

1781501 _19- was thus not affected by these expenditures. For both amounts due to and from counterparties, the swap transactions had only a positive impact on EBITDA.

53. MFN's publicly issued financial statements during the Class Period reflected at least the following amounts of "revenue" from swap transactions with its competitors in violation of GAAP:

Company Date 2000 1Q2001 2Q2001 3Q2001

Qwest 6/30/00 $ 90,000 $ 670,000 $ 617,000

Broadwing 2/23/98 $ 600,000 $ 170,000 $ 177,000 $ 306,000

Williams 9/16/99 $3,017,000 $1,222,000 51,424,000 $1,168,000

Enron 6/15/99 $ 567,000 $ 291,000 $ 306,000 $ 304,000

Sprint, Canada 4/22/98 $ 645,000 $ 188,000 $ 188,000 $ 188,000

Viatel 2/19/99 $3,782,000 $ 939,000 $ 939,000 $ 939,000

Cable & 9/29/00 $ 659,000 5 197,000 $ 276,000 $ 277,000 Wireless

MCI 10/99 5 577,826 5 46,875 $ 46,875 Worldcom

Total $9,270,000 $3,674,826 $4,026,875 $3,799,000

Materially False and Misleading Statements and Omissions during the Class Period

(A) March 8, 2001 Press Release and December 31, 2000 Form 10-K

54. On March 8, 2001, Metromedia issued a press release announcing its financial results for the fourth quarter and fiscal year ended December 31, 2000 (the "March 8 Press

Release" ). According to the March 8 Press Release , revenues for the fourth quarter ended

December 31, 2000 increased 136% to $61 million compared with $25.9 million for the quarter ended December 31, 1999. Selling, general and administrative expenses were a reported $53.9 million in the fourth quarter. In addition , the Company reported an EBITDA loss for the quarter

1781501 -20- of $48.5 million, as compared with $54 million in the year earlier period. Net loss for the quarter was a reported $134.8 million. The Company also reaffirmed its previously announced guidance for $475 million in revenue and a normalized EBITDA' loss of between $155 million to $145 million in 2001. The March 8 Press Release stated that MFN expected to be EBITDA positive in

2003.

55. According to the March 8 Press Release, revenues for the year ended December

31, 2000 were a reported $188.2 million, an increase of 15% over the prior year. Selling, general and administrative expenses were a reported $149.2 million. The Company reported a net loss for the year of $407.2 million. MFN's balance sheet as of December 31, 2000, included in the

March 8 Press Release, reflected network assets (fiber optic transmission network and related equipment) of $3.0 billion and intangible assets, primarily goodwill related to the AboveNet acquisition, of $1.6 billion.

56. Defendant Tanzi commented on the Company's fourth quarter and year-end 2000 results stating, in pertinent part, as follows:

Metromedia Fiber Network continues to grow its revenue significantly quarter over quarter, underscoring the enthusiasm with which the marketplace is embracing our value proposition.

57. On March 30, 2001, Metromedia filed its Form 10-K for the year ended

December 31, 2000 (the "Form 10-K") with the SEC, which was signed by defendants Garofalo,

Tanzi, Benedetto, Kluge and Subotnick, among others. The Form 10-K included (i) MFN's financial statements and results for the year ended December 31, 2000, previously announced on

1 Normalized EBITDA is a "non-GAAP financial measure". A non-GAAP financial measure is defined by the SEC as a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that excludes or includes amounts defined by GAAP. In MFN's case, non-cash compensation has been excluded from the EBITDA calculation.

1781501 - 21 - March 8, 2001, and (ii) E&Y's audit opinion dated March 5, 2001 on those financial statements, which represented that E&Y had conducted its audit of MFN's 2000 financial statements in accordance with GAAS, and that those financial statements were fairly presented in all material respects in accordance with GAAP. In addition, the Form 10-K attributed the 150% increase in revenue from $75.2 million in 1999 to $188.2 million in 2000 to "higher revenues associated with commencement of service to an increased total number of customers and the inclusion of

AboveNet's revenue," which was acquired in September 1999.

58. Further, with respect to the SiteSmith acquisition in February 2001, the Form 10-

K stated that:

The Company has recorded the acquisition using the purchase method of accounting. The excess of the purchase price over the fair values of the net assets acquired was approximately $1.0 billion and has preliminarily been allocated to goodwill pending final determination of certain intangible assets.

59. In addition, the Form 10-K included the following disclosure concerning MFN's accounting policy with respect to goodwill:

The Company assesses the recoverability of its goodwill and intangible assets by determining whether the amortization of the unamortized balance over its remaining life can be recovered through forecasted cash flows. If undiscounted forecasted cash flows indicate that the unamortized amounts will not be recovered, an adjustment will be made to reduce the net amounts to an amount consistent with forecasted future cash flows discounted at the Company's incremental borrowing rate. Cash flow forecasts are based on trends of historical performance and management's estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. The Company has identified no such impairment indicators.

60. The statements contained in ¶¶ 54-59 above were materially false and misleading when made because, as particularized in ¶¶ 38-53, 87-125, they misrepresented and/or omitted the following materially adverse facts which then existed and were known to or recklessly

1781501 -22- disregarded by defendants, disclosure of which was necessary to make the statements, made not false and/or misleading including, inter alia:

(a) The Company's financial statements were not fairly presented in all material respects in accordance with GAAP. To the contrary, the Company's financial statements violated GAAP in numerous respects as detailed in ¶¶ 87-116 herein;

(b) E&Y had not conducted its audit of MFN's financial statements for the year ended December 31, 2000 in accordance with GAAS. In fact, E&Y's audit violated

GAAS in numerous respects as detailed in Jill 117-125 herein;

(c) MFN' s reported revenue was materially overstated and its reported

EBITDA loss and net loss were materially understated as detailed in ¶¶ 49-53 and ¶¶ 102-107 as a result of swap transactions . Thus, the reported increase in revenue for the year 2000 was due, in part, to the Company's fraudulent recognition of revenue from swap transactions, which was not disclosed;

(d) MFN's reported network and intangible assets were materially overstated and its SG&A expenses , EBITDA loss and net loss were materially understated as detailed in ¶¶ 38-48 and ¶¶ 93-101 due to its failure to write down the value of its network assets and goodwill related to the AboveNet acquisition, which were substantially impaired;

(e) MFN's pronouncement that it expected to be EBITDA positive in

2003 lacked any reasonable basis because it was based on unreasonable and improper assumptions with respect to revenue growth, including material amounts of revenue from swap transactions, and the failure to write down the value of MFN's impaired network assets and goodwill as required by GAAP; and

1781501 - 23 - (f) The Company had not assessed the recoverability of goodwill related to the AboveNet acquisition as stated in the Form 10-K or had knowingly or recklessly disregarded the results of that assessment. As detailed in ¶¶ 38-48 and ¶¶ 93-101, any assessment of the recoverability of goodwill performed at this time would have revealed substantial impairment due to the significant decline in bandwidth prices and the overall decline in value of telecom and internet companies, including MFN, beginning in early 2000.

(B) March 12, 2001 and April 30, 2001 Press Releases and March 31, 2001 Form 10-Q

61. On March 12, 2001, MFN issued a press release which provided a quarterly breakdown of defendants' guidance for revenue and normalized EBITDA loss for 2001 as follows:

REVENUE GUIDANCE NORMALIZED EBITDA LOSS GUIDANCE Ql 2001 $74 million $55 million Q2 2001 $99 million $45 million Q3 2001 $138 million $31 million Q4 2000 $164 million $19 million

62. On April 30, 2001, Metromedia issued a press release announcing its financial results for the first quarter of 2001, the period ended March 31, 2001 (the "April 30 Press

Release"). The April 30 Press Release reported that MFN had revenues of $77 million for the first quarter of 2001, an increase of 141 % over the first quarter of 2000. This exceeded the

Company's previously issued guidance of $74 million in revenue for the first quarter. Selling, general and administrative expenses for the first quarter were a reported $62.2 million. The

Company reported a normalized EBITDA loss of $50.4 million in the first quarter of 2001, compared with a loss of $31.3 million in the year earlier period. The normalized EBITDA loss of $50.4 million reported for the first quarter of 2001 was lower than the Company's previously issued guidance of a loss of $55 million. Net loss for the first quarter was a reported $148.3

178150 1 -24- million. The release also reaffirmed the Company's previously issued guidance for revenues of

$99 million and a normalized EBITDA loss of $45 million for the second quarter of 2001. The

Company reiterated that it expected to be EBITDA positive in 2003 . MFN's balance sheet as of

March 31, 2001, included in the April 30 Press Release, reflected network assets of $3.4 billion

and intangible assets, primarily goodwill related to the AboveNet and SiteSmith acquisitions, of

$2.6 billion.

63. The April 30 Press Release quoted defendant Tanzi as stating:

We are very pleased with the results.... We continue to meet or exceed our revenue targets, underscoring the uniqueness of our value proposition.

64. On May 15, 2001, Metromedia filed with the SEC its Form 10-Q for the first

quarter of 2001, the period ended March 31, 2001, signed by defendant Benedetto (the "1Q01

Form 10-Q"), which included MFN's financial statements and results for the three months ended

March 31, 2001, previously announced on April 30, 2001. In addition, the 1Q01 Form 10-Q represented that "[t]he Company believes that all adjustments of a normal recurring nature that are necessary for a fair presentation of the results of the interim periods presented in this report have been made." Further, the 1 Q01 Form 10-Q represented that the increase in revenue for the three months ended March 31, 2001, compared with the three months ended March 31, 2000,

"reflected higher revenues associated with commencement of service to an increased total number of customers and the inclusion of SiteSmith's revenues for the period from February 8,

2001 (acquisitions date) through March 31, 2001." With respect to the SiteSmith acquisition, the

1Q01 Form 10-Q stated:

All acquisitions have been accounted for under the purchase method.-The excess of purchase price over the fair values of the net assets acquired was approximately $1.0 billion and has been recorded as goodwill, which is being amortized over ten years.

1781501 - 25 - 65. The statements contained in ¶¶ 61-64 above were materially false and misleading when made because, as particularized in ¶¶ 38-53, 87-125, they misrepresented and/or omitted the following materially adverse facts which then existed and were known to or recklessly disregarded by defendants, disclosure of which was necessary to make the statements made not false and/or misleading including , inter cilia:

(a) The Company's financial statements were not fairly presented in all material respects in accordance with GAAP. To the contrary, the Company' s financial statements violated GAAP in numerous respects as detailed in ¶01 87-116 herein;

(b) MFN's reported revenue was overstated and its reported EBITDA loss and net loss were materially understated as detailed in ¶¶ 49-53) and ¶¶ 102-107 as a result of swap transactions. Thus, the reported increase in revenue for the first quarter of 2001 was due, in part, to the Company's fraudulent recognition of revenue from swap transactions which was not disclosed;

(c) MFN's reported network and intangible assets were materially overstated and its SG&A expenses, EBITDA loss and net loss were materially understated as detailed in ¶¶ 38-48 and ¶¶ 93-101 due to its failure to write down the value of its network assets and goodwill related to the AboveNet and SiteSmith acquisitions, which were substantially impaired;

(d) MFN's pronouncement that it expected to be EBITDA positive in

2003 lacked any reasonable basis because it was based on unreasonable and improper assumptions with respect to revenue growth, including material amounts of revenue from swap transactions , and the failure to write down the value of MFN's impaired assets and goodwill as required by GAAP; and

1781501 -26- (e) The Company had not assessed the recoverability of goodwill related to the AboveNet and SiteSmith acquisitions or had knowingly or recklessly disregarded the results of that assessment. As detailed in ¶¶ 38-48 and ¶jj 93-101, any assessment of the recoverability of goodwill performed at this time would have revealed substantial impairment due to the significant decline in bandwidth prices and the overall decline in value of telecom and internet companies, including MFN, beginning in early 2000.

(C) June 18, 2001 and August 15, 2001 Press Releases and the 2Q01 Form 10-Q

66. On June 18, 2001, MFN issued a press release announcing revised revenue guidance for 2001. The release stated in pertinent part:

As a result of general economic weakness and the market downturn, the Company has experienced some softness in its Internet infrastructure business , primarily from a decline in business from dot.com customers. Therefore, the Company has revised its quarterly and year 2001 revenue guidance downward. Despite the revision, the Company 's expectedfirst half revenues are only slightly below previously issued first half revenue guidance. In addition, due to ongoing expense reductions and cost controls, EBITDA guidance remains unchanged,

67. For the year, the Company issued revised revenue guidance of between $400 million and $420 million. The Company' s normalized EBITDA guidance remained unchanged at a loss of between $155 million and $145 million. It also provided the following revised quarterly breakdown of revenue and normalized EBITDA loss for 2001:

NEW REVENUE GUIDANCE NEW NORMALIZED EBITDA GUIDANCE Q2 2001 $89 - $91 million $45 - $48 million Q3 2001 $ 107 - 115 million $ 31 - $35 million Q4 2001 $127 - 137 million $ 19 - $22 million

68. On August 15, 2001, MFN issued a press release announcing its results for the second quarter ended June 30, 2001 (the "August 15 Press Release"). The press release reported

1781501 -27- that revenues for the quarter had increased 112% to $91.7 million, a record high, compared with

$43.3 million for the year earlier period, and exceeded the Company's previously issued guidance of $89 - $91 million. For the six months ended June 30, 2001, MFN reported revenue of $168.6 million, an increase of 124.1 % over the year earlier period. Selling, general and administrative expenses were a reported $59.7 million and $121.9 million for the quarter and six months ended June 30, 2001, respectively. In addition, the Company reported a normalized

EBITDA loss of $45 million for the second quarter, at the low end of the previously issued guidance of $45 - $48 million. Net loss for the quarter and six months ended June 30, 2001 was

$205.2 million and $353.5 million, respectively. MFN's balance sheet as of June 30, 2001 reflected network assets of $3.7 billion and intangible assets, primarily goodwill related to the

AboveNet and SiteSmith acquisitions , of $2.6 billion.

69. On or about August 15, 2001, MFN filed its Form 10-Q for the quarter ended

June 30, 2001 (the "2Q01 Form 10-Q") with the SEC, which was signed by defendant Benedetto, which included MFN's financial statements and results for the six months ended June 30, 2001, previously announced on August 15, 2001. In addition, the 2Q01 Form 10-Q reported that MFN had recognized an EBITDA loss of $126.0 million for the six months ended June 30, 2001. The

2Q01 Form 10-Q also represented that "[t]he Company believes that all adjustments of a normal recurring nature that are necessary for a fair presentation of the results of the interim periods presented in this report have been made." Further, the 2Q01 Form 10-Q represented that the increase in revenue in the second quarter of 2001 over the same period the previous year

"reflect[ed] higher revenues associated with commencement of service to an increased total number of customers and the inclusion of SiteSmith ' s revenue [s]." With respect to the SiteSmith acquisition, the 2Q01 Form 10-Q stated:

1781501 -28- All acquisitions have been accounted for under the purchase method.-The excess of purchase price over the fair value of the net assets acquired was approximately $1.0 billion and has been recorded as goodwill, which is being amortized over ten years.

70. The statements contained in 111166-69 above were materially false and misleading when made because as particularized in ¶¶ 38-53, 87-125, they misrepresented and/or omitted the following materially adverse facts which then existed and were known to or recklessly disregarded by defendants, disclosure of which was necessary to make the statements made not false and/or misleading including, inter alia:

(a) The Company's financial statements were not fairly presented in all material respects in accordance with GAAP. To the contrary, the Company ' s financial statements violated GAAP in numerous respects as detailed in ¶¶ 87-116 herein;

(b) MFN's reported revenue was overstated and its reported EBITDA loss and net loss were materially understated as detailed in ¶¶ 49-53 and 1111102-107 as a result of swap transactions . Thus, the reported increase in revenue for the second quarter of 2001 was due, in part, to the Company's fi audulent recognition of revenue fromn swap transactions, which was not disclosed;

(c) MFN' s reported assets were materially overstated and its SG&A expenses, EBITDA loss and net loss were materially understated as detailed in 111138-48 and

¶¶ 93-101 due to its failure to timely write down the value of its network assets and goodwill related to the AboveNet and SiteSmith acquisitions, which were substantially impaired;

(d) The Company had not assessed the recoverability of goodwill related to the AboveNet and SiteSmith acquisitions or had knowingly or recklessly disregarded the results of that assessment. As detailed in ¶¶ 38-48 and ¶¶ 93-101, any assessment of the recoverability of goodwill performed at this time would have revealed substantial impairment

1781501 -29- due to the significant decline in bandwidth prices and the overall decline in value of telecom and internet companies , including MFN, beginning in early 2000.

(D) October 2, 2001 and November 7, 2001 Press Releases and the 3Q01 Form 10-Q

71. On October 2, 2001, MFN issued a press release (the "October 2, 2001 Press

Release") announcing, inter alia, that it expected to be EBITDA positive in 2002, one year ahead of previous guidance, and that it was revising its quarterly and year 2001 revenue guidance downward as follows:

Revised Revenue Guidance Revised Normalized EBITDA Loss Guidance Q3 2001 $91 - $93 million $31 - $35 million Q4 2001 $ 100 - $103 million $3 - $9 million

The October 2 Press Release also announced that defendant Tanzi had replaced defendant

Garofalo as chief executive officer.

72. On October 10, 2001, MFN issued a press release announcing that defendant

Benedetto was leaving the Company "to pursue other options ." Although the press release stated that Benedetto would stay on until January 2002 to assist with the transition, the Company announced that Randall R. Lay ("Lay") had been named Senior Vice President and Chief

Financial Officer effective immediately.

73. On November 7, 2001, MFN issued a press release (the "November 7, 2001 Press

Release") announcing its results for the third quarter ended September 30, 2001. The press release reported that revenues in the third quarter increased 76% to $91.5 million, compared to

$51.9 million reported for the quarter ended September 30, 2000, within the range of the

Company's previously announced guidance. For the nine months ended September 30, 2001, the

Company reported revenue of $260.2 million, an increase of 105% over the same period the

previous year. Selling, general and administrative expense was a reported $63.1 million and

1781501 -30- $185.1 million for the quarter and nine months ended September 30, 2001, respectively. Further, the Company reported improvement in its normalized EBITDA loss for the third quarter to S35 million from $37.6 million in the year earlier period. The reported normalized EBITDA loss for the third quarter was within the range of the Company's revised guidance of a normalized

EBITDA loss of between $31 million and $35 million. For the nine months ended September

30, 2001, the Company reported a normalized EBITDA loss of 5130.4 million. Net loss was a reported $242.1 million and $595.7 million for the quarter and nine months ended September 30,

2001, respectively. The Company reaffirmed its previously announced revenue and EBITDA loss guidance for the fourth quarter of 2001 and its belief that it would become EBITDA positive in 2002 "due to continued cost reductions and expense controls." MFN's balance sheet as of

September 30, 2001 reflected network assets of $4.0 billion and intangible assets, primarily goodwill related to the AboveNet and SiteSmith acquisitions, of $2.6 billion.

74. On or about November 14, 2001, MFN filed its Form 10-Q for the quarter ended

September 30, 2001 (the "3Q01 Form 10-Q") with the SEC, which included MFN's financial statements and results for the nine months ended September 3U, 2001, previously announced on

November 7, 2001. In addition, the 3Q01 Form 10-Q represented that "[t]he Company believes that all adjustments of a normal recurring nature that are necessary for a fair presentation of the results of the interim periods presented in this report have been made." The 3Q01 Form 10-Q also represented that the increase in revenue in the third quarter of 2001 over the year earlier period was due to "an increased total number of customers and the inclusion of SiteSmith's revenue[s]..." With respect to the SiteSmith acquisition, the 3Q01 Form 10-Q stated:

All acquisitions have been accounted for under the purchase method .... The excess of the purchase price over the fair value of the net assets acquired was approximately $1.0 billion and has

1781501 -31 - been recorded as goodwill, which is being amortized over ten years.

75. The statements contained in ¶¶ 71, 73-74 above were materially false and misleading when made because, as particularized in ¶¶ 38-53, 87-125, they misrepresented and/or omitted the following materially adverse facts which then existed and were known to or recklessly disregarded by defendants, disclosure of which was necessary to make the statements made not false and/or misleading including, inter alia:

(a) The Company's financial statements were not fairly presented in all material respects in accordance with GAAP. To the contrary, the Company 's financial statements violated GAAP in numerous respects as detailed in ¶¶ 87-116 herein;

(b) MFN's reported revenue was overstated and its reported EBITDA loss and net loss were materially understated as detailed in `[ill 49-53 and ¶¶ 102-107, as a result of swap transactions. Thus, the reported increase in revenue for the third quarter of 2001 was due, in part, to the Company's fraudulent recognition of revenue from swap transactions, which was not disclosed;

(c) MFN's reported assets were materially overstated and its SG&A expenses , EBITDA loss and net loss were materially understated as detailed in Jill 38-48 and

¶ll 93-101 due to its failure to write down the value of its network assets and goodwill related to the AboveNet and SiteSmith acquisitions, which were substantially impaired;

(d) MFN's pronouncement that it expected to be EBITDA positive in

2002 lacked any reasonable basis because it was based on unreasonable and improper

assumptions with respect to revenue growth, including material amounts of revenue from swap

transactions , and the failure to write down the value of MFN's impaired assets and goodwill as

required by GAAP; and

1781501 -32- (e) The Company had not assessed the recoverability of goodwill or had knowingly or recklessly disregarded the results of that assessment. As detailed in 1[1138-48

and ¶¶ 93-101, any assessment of the recoverability of goodwill performed at this time would

have revealed substantial impairment due to the significant decline in bandwidth prices and the

overall decline in value of telecom and internet companies, including MFN, beginning in early

2000.

76. On November 21, 2001, MFN issued a press release announcing that defendant

Tanzi was resigning from the Company effective November 31, 2001 "for personal reasons."

Mark Spagnolo ("Spagnolo"), MFN's chief operating officer, was named to succeed Tanzi as

chief executive officer.

77. On December 4, 2001, MFN filed a Form 8-K with the SEC stating the E&Y's

appointment as MFN' s principal accountant had been terminated and that KPMG had been

engaged to replace E&Y.

(E) January 7, 2002 Press Release

78. On January 7, 2002, MFN issued a press release providing guidance for the year

2002 and reaffirming previously issued guidance for the fourth quarter of 2001.

For 2002, the Company provided revenue guidance in the range of $510 million to $535 million.

In addition, the Company stated that it expected to become EBITDA positive for the quarter

ended March 31, 2002, and for the year 2002, expected normalized EBITDA to be in the range

of $75 million to $90 million.

79. The statements contained in ¶ 78 above were materially false and misleading

when made because, as particularized in ¶¶ 38-53 and ¶¶ 93-107, they misrepresented and/or

omitted to disclose that this guidance was based on unreasonable assumptions with respect to

1781501 - 33 - revenue growth, including material amounts of revenue from swap transactions, and the failure to write down the value of MFN's impaired network assets and goodwill as required by GAAP.

The Truth Begins To Emerge

80. On March 18, 2002, MFN issued a press release announcing that it had deferred payment of approximately $30 million of interest due on convertible notes held by Verizon

Communications, Inc. and was withdrawing its previously announced revenue and normalized

EBITDA guidance for the quarter ended December 31, 2001 and for the year ending December

31, 2002, as well as its guidance that it would be normalized EBITDA positive for the quarter ending March 31, 2002. The press release stated that MFN was "unable to provide revised guidance at this time." The press release also stated that if MFN was not able to successfully restructure its indebtedness, it might be required to file for protection under Chapter 11 of the

U.S. Bankruptcy Code.

81. On April 1, 2002, MFN issued a press release announcing that the board of directors had appointed John W. Gerdelman as president and chief executive officer and Robert

F. Doherty as executive vice president , finance and administration . The release also stated that the Company was in default with respect to its indebtedness and reiterated that it would be required to file for bankruptcy protection if it was not successful in restructuring its debt. MFN also announced that it had delayed the filing of its Form 10-K for the year ended December 31,

2001 "due to current issues surrounding the Company."

82. On April 17, 2002, MFN issued a press release announcing that the filing of its

2001 Form 10-K would be further delayed and that it was reexamining its reported operating results for each of the quarterly periods in 2001 with the assistance of KPMG, who had replaced

E&Y as the Company's auditors effective December 2001. The release stated that:

1781501 -34- MFN has identified issues relating to a number of adjustments that it believes will be necessary for such quarterly periods and is working to determine the nature and amount of such adjustments. As a result, MFN expects to restate its quarterly results for each of the first three quarters of the fiscal year ended December 31, 2001. MFN has also been informed by KMPG LLP that they were not able to review the quarterly data that is expected to be included in the Annual Report in accordance with professional standards because MFN's internal control structure and policies and procedures for the preparation of interim financial information did not provide an adequate basis for them to complete such a review.

Trading in MFN's stock was suspended as a result of this announcement pending further information from the Company.

83. On April 23, 2002, after the close of the market, MFN issued a press release announcing "preliminary" restated results for the first three quarters of 2001 and "preliminary" results for the fourth quarter and year ended December 31, 2001 (the "April 23 Press Release")

The press release stated in pertinent part:

As previously announced, the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2001 with the Securities and Exchange Commission was delayed beyond the intended filing date of April 16, 2002, which was the extended due date for the filing of the report pursuant to SEC rules. As also previously announced, the Company is reexamining its reported operating results for each of the quarterly periods included in the fiscal year ended December 31, 2001 with the assistance of KPMG LLP, who was appointed as MFN's auditors effective December 2001, and as a result, the Company expects to restate its quarterly results for each of the first three quarters of the fiscal year ended December 31, 2001. These restatements involved revenue/sales credit recognition, timing of the expense recognition and non-cash lease accounting and purchase accounting issues.

84. The April 23, Press Release contained the following "preliminary" restated results for the first three quarters of 2001:

March 31, 2001 June 30, 2001 September 30, 2001 As Reported As Restated As Reported As Restated As Reported As Restated

1781501 - 35 - Revenue $ 77 million $75-$77 $91.7 million $79-$81 $91.5 $86-$89 million million million million _ Loss from $134.8 $137-$143 $154.5 $171-$178 $178.6 $2054213 operating million million million million million million (excluding impairment charge) Net Loss $148.3 $150-$156 $205.2 $222-$230 $242.1 $262-$277 million million million million million million

85. The release also disclosed for the first time that the Company expected to record a

write down of between $3.9 billion and $4.3 billion in 2001 due to the impairment of its network

and other intangible assets. The press release reiterated that the "financial results [were]

preliminary and may be subject to additional changes." Including this charge, the Company's

net loss for the year ended December 31, 2001, was projected to be in the range of $4.9 - $5.4

billion.

86. On May 20, 2002, MFN announced that it and most of its domestic subsidiaries

had filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

Metromedia ' s Violations of Generally Accepted Accounting Principles

87. At all relevant times during the Class Period, Metromedia represented that its

financial statements were prepared in accordance with GAAP. GAAP are those principles recognized by the accounting profession as the conventions, rules, and procedures necessary to

define accepted accounting practice at a particular time. As set forth in Financial Accounting

Standards Board ("FASB") Statement of Concepts ("Concepts Statement") No. 1, one ofthe

fundamental objectives of financial reporting is that it provide accurate and useful information concerning an entity. Concepts Statement No. 1 provides, in pertinent part:

Financial statements are a central feature of financial reporting. They are the principal means of communicating accounting information to those outside an enterprise.... Financial reporting

1781501 -36- should provide information that is useful to present and potential investors and creditors and others in making rational investment, credit, and similar decisions.

88. Regulation S-X [17 C.F.R. § 210.4-01( a)(1)] states that financial statements filed

with the SEC that are not prepared in conformity with GAAP are presumed to be misleading and

inaccurate.

89. Management is responsible for preparing financial statements that conform with

GAAP. As noted by the AICPA professional standards:

[F]inancial statements are management's responsibility .... [M]anagement is responsible for adopting sound accounting policies and for establishing and maintaining internal control that will, among other things, record, process, summarize, and report transactions (as well as events and conditions) consistent with management's assertions embodied in the financial statements. The entity's transactions and the related assets, liabilities and equity are within the direct knowledge and control of management .... Thus, the fair presentation of financial statements in conformity with Generally Accepted Accounting Principles is an implicit and integral part of management's responsibility.

90. Moreover, pursuant to § 13(b)(2) of the 1934 Act, MFN was required to "(A) make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and (B) devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization;

[and] (ii) transactions are recorded as necessary... to permit preparation of financial statements in conformity with generally accepted accounting principles ..." 15 U.S.C. § 78m(b)(2)

91. As set forth more fully below, the representations that Metromedia's financial statements during the Class Period were prepared in accordance with GAAP were materially false and misleading because defendants knew, or recklessly disregarded, that the Company

1781501 -37- issued financial statements which materially overstated MFN's revenues and assets and materially understated the Company' s expenses and losses by, inter alia:

• improperly failing to timely record required write downs for impairment in the value of MFN's goodwill assets related to the AboveNet and SiteSmith acquisitions in 1999 and 2001, respectively, of approximately $2.4 billion;

• improperly failing to timely record required write downs for impairment in the value of MFN's tangible network assets, of approximately $2.8 billion;

• improperly recognizing millions of dollars in revenue in connection with swap transactions; and

• improperly failing to adequately reserve for uncollectible receivables.

92. Due to these accounting improprieties , MFN presented its financial results in a manner which violated GAAP including, but not limited to, the following fundamental accounting principles:

(a) The principle that interim financial reporting should be based upon the same accounting principles and practices used to prepare annual financial statements was violated (APB No. 21, ¶10);

(b) The principle that financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit and similar decisions was violated (FASB Statement of Concepts No. 1, ¶34);

(c) The principle that financial reporting should provide information about the economic resources of an enterprise, the claims to those resources, and effects of transactions, events and circumstances that change resources and claims to those resources was violated (FASB Statement of Concepts No. 1, ¶40);

1781501 -38- (d) The principle that financial reporting should provide information

about how management of an enterprise has discharged it stewardship responsibility to owners

(stockholders) for the use of enterprise resources entrusted to it was violated. To the extent that management offers securities of the enterprise to the public, it voluntarily accepts wider responsibilities for accountability to prospective investors and the public in general (FASB

Statement of Concepts No. 1, ¶50);

(e) The principle that financial reporting should provide information

about an enterprise's financial performance during a period was violated. Investors and creditors

often use information about the past to help in assessing the prospects of an enterprise (FASB

Statement of Concepts No. 1, ¶42);

(f) The principle that financial reporting should be reliable in that it represents what it purports to represent was violated. That information should be reliable as well as relevant is a notion that is central to accounting (FASB Statement of Concepts No. 2, ¶1[58-

59);

(g) The principle of completeness, which means that nothing is left out of the information that maybe necessary to insure that it validly represents underlying events and conditions was violated (FASB. Statement of Concepts No. 2, 179); and

(h) The principle that conservatism be used as a prudent reaction to uncertainty to try to ensure that uncertainties and risks inherent in business situations are adequately considered was violated. The best way to avoid injury to investors is to try to ensure that what is reported represents what it purports to represent (FASB Statement of Concepts No.

2, ¶¶95, 97).

(A) MFN Failed To Timely Write Down Its Impaired Network Assets And Goodwill

1781501 -39- 93. MFN' s Class Period financial results were materially overstated because the

Company failed to timely recognize billions of dollars in impairment charges related to its

network assets and goodwill in violation of GAAP and its own disclosed policies. After the end

of Class Period, the Company recorded and disclosed an impairment charge of $5.2 billion to

write down goodwill and fiber optic transmission network and related equipment.

94. The requirement to assess for impairment whenever events or changes in

circumstances indicate that the carrying value of an asset may not be recoverable is a long-

standing accounting principle, which was well known to defendants. See Statement of Financial

Accounting Standards No. 121 ("SFAS 121 "), Accounting for the Impairment of Long-Lived

Assets and for Long-Lived Assets to Be Disposed Of (March 1995). Indeed, MFN's Form 10-K

for the year ended December 31, 2000 stated that:

The Company assesses the recoverability of its goodwill and intangible assets by determining whether the amortization of the unamortized balance over its remaining life can be recovered through forecasted cash flows . If undiscounted forecasted cash flows indicate that the unamortized amounts will not be recovered, an adjustment will be made to reduce the net amounts to an amount consistent with forecasted future cash flows discounted at the Company's incremental borrowing rate. Cash flow forecasts are based on trends of historical performance and management's estimate of future performance , giving consideration to existing and anticipated competitive and economic conditions. The Company has identified no such impairment indicators.

95. Thus, MFN's publicly disclosed accounting policy strictly adhered to SFAS 121, which requires that long-lived assets, in MFN's case network assets and goodwill, be reviewed for impairment "whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable." According to SFAS 121, the following are examples of events that indicate that the carrying amount of an asset has become impaired:

A significant decrease in the market value of an asset;

1781501 -40- A significant change in the extent or manner in which an asset is used or a significant physical change in an asset;

A significant adverse change in the business climate that could affect the value of an asset; and

A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an asset used for the purpose of producing revenue.

96. SFAS 121 requires a charge to income whenever the fair value of long-lived assets has deteriorated below the carrying value of the assets on a company's books. Moreover,

GAAP provides that an estimated loss from a loss contingency "shall be accrued by a charge to income" if: (i) information available prior to issuance of the financial statements indicated that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements; and (ii) the amount of the loss can be reasonably estimated. See SFAS No.

5, Accounting for Contingencies (July 1975), ¶ 8.

97. As set forth more fully above, defendants knew or recklessly disregarded the following events or changes in circumstances that occurred throughout 2000 and 2001 , which indicated that the carrying amount of MFN's tangible network assets, goodwill and other long- lived assets was not recoverable:

(i) Throughout 2000 and 2001, MFN had no ability to grow its revenue, as the pricing environment was depressed due to overcapacity in the marketplace and strong competition;

(ii) Many of MFN 's competitors and customers were either badly wounded or had filed for bankruptcy as a result of their debt-laden balance sheets and inability to generate cash flow; and

1791501 -41- (iii) During 2000 and 2001, telecom and internet companies , including MFN, experienced significant losses of market capitalization. For example, the stock prices of telecom giants AT&T, Sprint and WorldCom declined by two-thirds during 2000. MFN's stock price fell precipitously as well. MFN's common stock was trading above $30 per share when AboveNet was acquired in September 1999, and reached a high of $50.56 on March 28, 2000. Thereafter,

MFN's stock price declined to just $10.13 on December 29, 2000, dropped to $5.48 per share by the end of the first quarter of 2001, and fell to just $2.04 by the close of the second quarter. The price continued to slide throughout 2001 and on April 24, 2002, the last day of the Class Period, the stock closed at $0.04.

98. The above factors, which were known to or recklessly disregarded by defendants, should have triggered a reassessment of the recoverability of the AboveNet and SiteSmith goodwill and whether the Company's network assets had become impaired. Each of these factors was an indicator of impairment in that amortization of the unamortized balance of goodwill related to the AboveNet and SiteSmith acquisitions would not be recovered through forecasted future cash flows and should have been written off. The value of the Company's network assets also were significantly impaired for the above reasons and should have been written down as well.

99. Each of the Individual Defendants named herein was, throughout the Class

Period, extremely knowledgeable about the business of developing, selling and maintaining bandwidth. Thus, throughout the Class Period, the Individual Defendants were well aware or recklessly disregarded that there was a tremendous over-supply of bandwidth along the major routes which they, as well as their competitors, serviced and that there was little demand. E&Y, which touted its expertise with respect to the telecom industry, was fully cognizant of these facts

t781501 -42- as well. Nevertheless, in violation of SFAS 121 and MFN's own disclosed policy, defendants failed to assess whether MFN's tangible network assets and goodwill should be written down in value, or knowingly or recklessly disregarded the results of such an assessment.

100. MFN's financial statements issued during the Class Period reflected the following amounts of network and intangible assets (including goodwill):

(in Millions) Year End 2000 Q1 2000 Q2 2001 Q3 2001 Fiber optic transmission network and related equipment, net $2,958 $3,417 $3,720 $4,039 Intangibles, net $1,579 $2,592 $2,582 $2,563

Total $4,537 $6,0 09 $6,302 $6,602

101. The true value of MFN's network assets and goodwill during the Class Period was only a fraction of the values reported throughout the Class Period. In 2003, the Company disclosed that it had belatedly recorded an impairment charge of $2.4 billion related to goodwill with respect to the AboveNet and SiteSmith acquisitions acquired in September 1999 and

February 2001 respectively, as well as a $2.8 billion impairment charge related to tangible network assets. However, given the events of 2000 and early 2001, an impairment charge with respect to the $1.4 billion of AboveNet goodwill should have been taken at year end 2000. and the $1 billion of SiteSmith goodwill should have been written off no later than the first or second quarter of 2001. Moreover, no less than half of the $2.8 billion impairment charge with respect to MFN' s network assets should have been taken at year end 2000 given the calamitous events of that year. If these charges had been timely recorded, MFN's reported assets would have been a fraction of the values reported in the Company's financial statements issued during the Class

Period and the Company's already substantial losses would have increased exponentially. In short, the fact that MFN was not a viable company would have been clear.

1781501 -43- (B) MFN's Improper Recognition of Revenue on Swap Transactions

102. MFN also violated GAAP by recognizing revenue on swap transactions with its

competitors. As set forth above, MFN entered into a series of transactions during the Class

Period pursuant to which MFN swapped roughly equivalent amounts of fiber with certain of its

competitors. Although these transactions did not result in any legitimate revenue which MFN

could recognize pursuant to GAAP, MFN improperly recorded over $20 million in revenue in connection with these swap transactions.

103. As virtually equivalent exchanges of network capacity that involved little or no monetary assets, the swap transactions were non-monetary transactions subject to Accounting

Principles Board ("APB") Opinion No. 29 ("APB 29"), Accounting for Non-Monetary

Transactions (September 1973). Under APB No. 29, revenue should not be recorded in connection with a non-monetary exchange transaction when, as in this case, the transaction is simply an exchange of assets held for sale by competitors. A simple exchange of assets such as this does not create revenue under GAAP. GAAP requires that revenue must be earned and must be realizable prior to recognition. See FASB Concept Statement No. 5 (December 1984),111183-

84.

104. Since May of 1973, when it was first issued, APB No. 29 has provided the only guidance under GAAP as to how to properly account for nonmonetary transactions in financial statements. APB No. 29, ¶3.a. defines nonmonetary assets and liabilities as "assets and liabilities other than monetary ones. Examples are inventories; investments in common stocks; property, plant and equipment." Dark fiber is an example of a nonmonetary asset. APB No. 29,

17 explains that: "Many nonmonetary transactions are exchanges of nonmonetary assets or services with another entity," i.e. swaps.

178150 1 -44- 105. When accounting for fiber swaps, APB No. 29, ¶21 provides: "If the exchange is

not essentially the culmination of an earning process, accounting for an exchange of a

nonmonetary asset between an enterprise and another entity should be based on the recorded

amount (after reduction, if appropriate, for an indicated impairment of value) of the nonmonetary

asset relinquished." ¶21 goes on to state that: "The Board believes that the following two types

of nonmonetary exchange transactions do not culminate an earning process: a. An exchange of a

product or property held for sale in the ordinary course of business [i.e., inventory] for a product

or property to be sold in the same line of business to facilitate sales to customers other than the

parties to the exchange...

106. The swap transactions discussed herein did not represent the culmination of the

earnings process because (1) the companies engaging in the swaps were competitors in the same line of business; and (2) the companies were exchanging the same product -- dark fiber for dark fiber. Since a fiber swap transaction is simply an exchange of assets that do not represent the culmination of the earning process, no revenue or cost should be recorded in connection with the transaction.

107. That defendants intentionally or recklessly violated GAAP by causing and/or allowing MFN to account for its swap transactions as separate purchases and sales of dark fiber and, as a consequence, knowingly inflating the Company's revenue and EBIDTA, is supported by the fact that although GAAP requires that all swaps be disclosed in detail in the footnotes to the Company's financial statements, defendants did not do so. APB No. 29, ¶ 28 unambiguously states that "[a]n enterprise that engages in one or more nonmonetary transactions during a period should disclose in financial statements for the period the nature of the transactions, the basis of accounting for the assets transferred, and gains or losses recognized on transfers." In addition,

1781501 -45- SFAS No. 95, Statement of Cash Flows ("SFAS 95"), requires that information about all investing and financing activities of a company that affect recognized assets or liabilities but that do not result in cash receipts or payments, such as nonmonetary asset exchanges, be disclosed in the footnotes to the financial statements. See SFAS 95 ¶ 32.

(C) Defendants Improperly Failed to Timely Write Down Uncollectible Receivables

108. MFN also violated GAAP by failing to timely write down uncollectible receivables, despite the fact that the Company was experiencing a significant deterioration in the quality of its receivables. Moreover, defendants failed to implement a consistent methodology for the determination of whether receivables were no longer fully or partially collectible.

109. Accounting Research Bulletin No. 43, Restatement and Revision of Accounting

Research Bulletins ("ARB") (June 1953) Chapter 3, Section 9 provides that the objective of providing for reserves against receivables is to assure that, "[a]ccounts receivable net of allowances for uncollectible accounts ... are effectively stated as the amount of cash estimated as realizable ." GAAP provides that an estimated loss from a loss contingency , such as the collectibility of receivables, "shall be accrued by a charge to income" if: (i) information available prior to issuance of the financial statements indicated that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements; and (ii) the amount of the loss can be reasonably estimated. SFAS No. 5¶ 8. Losses from uncollectible receivables shall be accrued when both conditions in paragraph 8 are met. Those conditions may be considered in relation to individual receivables or in relation to groups of similar types of receivables. If the conditions are met, accrual shall be made even though the particular receivables that are uncollectible may not be identifiable. SFAS No. 5, ¶ 22.

178150 1 -46- 110. SFAS No. 5 also 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. 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.

l l 1. The SEC considers the disclosure of loss contingencies to be so important to an informed investment decision that it promulgated Regulation S-X, 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." 17 C.F.R. § 210.10-01. APB Opinion No. 28,

Interim Financial Reporting (May 1973) 1: 17 provides in pertinent part:

The amounts of certain costs and expenses are frequently subjected to year-end adjustments even though they can be reasonably approximated at interim dates. To the extent possible such adjustments should be estimated and the estimated costs and expenses assigned to interim periods so that the interim periods bear a reasonable portion of the anticipated annual amount.

112. Throughout the Class Period, MFN violated GAAP and SEC rules by failing to timely record additional provisions for uncollectible receivables in its financial statements thereby overstating the Company's assets and understating its expenses and net losses. MFN's reported accounts receivable increased steadily from $72.2 million in 1999, to $111.2 million in

2000 to $169.4 million at September 30, 2001. Moreover, a substantial percentage of these amounts were owed by telecom and internet companies that were in dire financial straits.

113. Despite these facts, the Company's financial statements during the Class Period failed to reflect the risk of uncollectibility through reserves or charges against income as required by GAAP. Instead, the Company's reported results included an allowance for doubtful accounts

1781501 -47- which was grossly inadequate, a mere $7.1 million in 2000, as it did not reflect the true level of uncollectible receivables on the Company's books. According to workpapers prepared by the

Company's outside auditors after the Class Period, MFN was required to take a $30.6 million charge to income for uncollectible receivables.

(D) Internal Control Deficiencies

114. In addition to the foregoing improper accounting practices, the Company also suffered from a chronic and systematic breakdown of its internal accounting controls, which rendered MFN's financial reporting inherently unreliable and inaccurate , resulting in materially false and misleading financial statements. For example:

(a) The methodology employed to assess impairment of network assets, goodwill and reserve for uncollectible receivables was inadequate and in direct contravention of established GAAP;

(b) There was insufficient internal review to oversee the accounting and disclosure in SEC filings for swaps and impairment of network assets and goodwill;

(c) The oversight of international operations, particularly with respect to Europe and Asia was wholly insufficient resulting in overvalued assets and improper revenue recognition; and

(d) The review of integration issues and accounting of acquired companies, particularly AboveNet and SitcSmith was grossly inadequate.

115. Under the federal securities laws, Section 13(b)(2) of the Exchange Act, public companies are required to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP. Adequate financial controls and systems are of paramount importance to the financial reporting process.

1781501 -48- 1 16. As KPMG informed MFN when it replaced E &Y as MFN's outside auditors in

December 2001, however, the Company's internal controls were so deficient that KPMG was

unable to review the quarterly data that was expected to be included in the Company's Form 10-

K for the year ended December 31, 2001, as disclosed in the April 17, 2002 press release, "in

accordance with professional standards because MFN's internal control structure and policies

and procedures for the preparation of interim financial information did not provide an

adequate basisfor them to complete such a review."

DEFENDANT E&Y'S PARTICIPATION IN THE FRAUD

117. Defendant E&Y is a worldwide firm of certified public accountants, auditors and

consultants . Through its New York, New York office, E&Y served as MFN's auditor and

principal accounting firm prior to and throughout the Class Period. According to a Proxy filed

by MFN, on or about April 14, 1998, "[i]n September 1996, the Company decided to engage a

`big six' accounting firm and engaged Ernst & Young LLP ('Ernst & Young') to serve as its

independent auditors."

118. By the inception. of the Class Period, E&Y was acting as both auditor and

business consultant to MFN and was providing an extensive array of services to the Company

through which it became involved in many aspects of the Company's business. Among other

things, during the Class Period, E&Y audited MFN's financial statements for the year ended

December 31, 2000, performed quarterly reviews for fiscal years 2000 and 2001, provided tax planning and consulting. E&Y is required to perform quarterly reviews of MFN's financial

statements, as required by the SEC, and under Statement of Auditing Standard No. 71, ("SAS

No. 71 ") Interim Financial Information (May 1992). These activities generated in excess of

$1.17 million in aggregate fees for E&Y during fiscal 2000. Of this amount, only $350,000, just

30%, was attributable to E&Y's audit of MFN's year end 2000 financial statements and quarterly

1781501 -49- reviews. E&Y's receipt of these significant non-audit fees impaired its independence and

objectivity with respect to its audit of MFN's year-end 2000 financial statements and its reviews

of the Company's quarterly financial statements for the first three quarters of 2001. Because the

compensation of E&Y partners is related to the fees produced by the clients for whom they are

responsible, the E&Y partners on the MFN engagement had a direct financial motive to ensure

the retention of MFN as an E&Y client and thereby ensure the continuation of millions of dollars

in annual fees. Moreover, E&Y's professional status was enhanced by its relationship with a

high-flying telecom company such as MFN. Thus, it was a high priority for E&Y to keep MFN

as a client so that E&Y could continue to benefit financially.

119. As a result of its longstanding relationship with MFN and the myriad of services it

rendered to the Company, E&Y's personnel were regularly present at MFN's corporate head-

quarters. E&Y had continual access to, and had knowledge of, MFN's confidential corporate

financial and business information through conversations with employees of MFN and through

review of MFN's non-public documents. In addition, E&Y personnel had the opportunity to

observe and review the Company's business and accounting practices, and to test the Company's

internal and publicly reported financial statements, as well as the Company's internal controls

and structures.

120. As MFN's purportedly independent auditor, E&Y was required to audit the

Company's financial statements in accordance with GAAS2, and report the results of its audit to

MFN, its board of directors, its audit committee and the members of the investing public,

2 GAAS, as approved and adopted by the American Institute of Certified Public Accountants ("AICPA"), relate to the conduct of individual audit engagements . Statements on Auditing Standards ( codifi ed and referred to as AU §_ are recognized by the AICPA as the interpretation of GAAS).

1781501 -50- including plaintiffs and the other members of the Class. The SEC has stressed the importance of meaningful audits being performed by independent accountants:

[T]he capital formation process depends in large part on the confidence of investors in financial reporting. An investor's willingness to commit his capital to an impersonal market is dependent on the availability of accurate, material and timely information regarding the corporations in which he has invested or proposes to invest. The quality of information disseminated in the securities markets and the continuing conviction of individual investors that such information is reliable are thus key to the formation and effective allocation of capital. Accordingly, the audit function must he meaningfully performed and the accountants' independence not compromised. (Emphasis added.)

Relationships Between Registrants and Independent Accountants , SEC Accounting Series

Release No. 296, 1981 SEC LEXIS 858 (Aug. 20, 1981).

121. With knowledge of MFN's true financial condition, or in reckless disregard thereof, however, E&Y certified the materially false and misleading financial statements of MFN described above and provided the following false and misleading Independent Auditors' Report, dated March 5, 2001, on those financial statements , which was included in the Company's Form

10-K for the year ended December 31, 2000:

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of Metromedia Fiber Network, Inc.

We have audited the accompanying consolidated balance sheets of Metromedia Fiber Network, Inc. and Subsidiaries (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the index at Item 14(a). These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

1781501 - 51 - We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Metromedia Fiber Network, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the financial statements , in 1999 the Company implemented the provisions of FASB Interpretation No. 43 "Real Estate Sales" with respect to certain leases.

Ernst & Young LLP New York, New York March 5, 2001

122. E&Y's March 5, 2001 audit report was materially false and misleading because as

E&Y knew, or recklessly disregarded, MFN's financial statements for the year ended December

31, 2000, did not present fairly, in all material respects , the financial position of MFN. To the contrary, as E&Y knew or recklessly disregarded, MFN's year end 2000 financial statements were materially misstated and violated GAAP in numerous respects as detailed above. In particular, E&Y knew or recklessly disregarded that MFN used a myriad of improper accounting practices to falsely inflate its reported revenues and assets and understate its expenses and net losses during the Class Period. Among other things, E&Y knew or recklessly disregarded that:

18150 1 -52- (a) MFN was improperly recognizing material amounts of revenue

from swap transactions in violation of GAAP;

(b) The carrying value of the Company's tangible network assets and

goodwill related to the AboveNet and SiteSmith acquisitions was significantly impaired and

should have been written down substantially. A global study released on March 19, 2001 by

E&Y and Cap Gemini E&Y titled Business Redefined: Connecting Content, Applications, and

Customers , stated in pertinent part: "Revenue from data transmission is growing 18 percent per

year, but that growth rate is beginning to slow and the prices are falling so rapidly that network

operators are experiencing declining returns on their network investments." (Emphasis added);

and

(c) MFN had not taken a charge or established an adequate reserve for

uncollectible receivables.

123. E&Y's March 5, 2001 audit report also falsely represented that its audit was

conducted in accordance with GAAS . This statement was materially false and misleading in that

the audit conducted by E&Y was knowingly or recklessly not performed in accordance with

GAAS in at least the following respects:

(a) E&Y violated GAAS Standard of Reporting No. 1, which requires

an auditor's report to state whether the financial statements are presented in accordance with

GAAP. E&Y's March 5, 2001 audit opinion falsely represented that MFN's year end 2000 financial statements were fairly presented in all material respects in conformity with GAAP when they were not for the reasons set forth above;

(b) E&Y violated GAAS Standard of Reporting No. 4, which requires that, when an opinion on the financial statements as a whole cannot be expressed, the reasons

1781501 - 53 - must be stated. Inasmuch as MFN's internal controls were so deficient that the Company could

not produce financial information that could be reviewed in accordance with professional

standards, E&Y should have stated that no opinion could be issued by it on MFN's year end

2000 financial statements or issued an adverse opinion stating that the 2000 financial statements were not fairly presented in all material respects in accordance with GAAP. E&Y also failed to

require MFN to restate its 2000 financial statements (or to withdraw its unqualified opinion) and

allowed MFN to make materially false and misleading representations regarding the Company's

financial condition and results to investors during the Class Period. The failure to make such a

qualification, correction, modification and/or withdrawal was a violation of GAAS, including the

Fourth Standard of Reporting;

(c) E&Y violated GAAS General Standard No. 2 that requires that an

independence in mental attitude is to be maintained by the auditor in all matters related to the assignment. As set forth above, E&Y's receipt of substantial non-audit related consulting fees

from MFN compromised its independence and objectivity with respect to its audit of MFN's year

end 2000 financial statements and its reviews of the Company's financial information included in MFN's quarterly filings on Form 10-Q during 2000 and 2001;

(d) E&Y violated GAAS General Standard No. 3, which requires that due professional care must be exercised by the auditor in the performance of the audit and the preparation of the report;

(e) E&Y violated GAAS Standard of Field Work No. 2, which requires the auditor to make a proper study of existing internal controls to determine whether reliance thereon is justified, and if such controls are not reliable, to expand the nature and scope

of the auditing procedures to be applied. The standard provides that "[a] sufficient

1781501 -54- understanding of internal control is to be obtained to plan the audit and to determine the nature, timing, and extent of tests to be performed." AU § 150.02 GAAS requires an auditor to assess three initial risk factors in order to obtain an understanding of internal control sufficient to plan the audit. An auditor must evaluate (i) "control risk," i.e., whether a misstatement will be prevented or detected on a timely basis by the entity's internal control; (ii) "inherent risk," i.e., whether the possibility exists that there will be a misstatement due to lack of internal controls; and (iii) "detection risk," i.e., whether the auditor will detect the material misstatement. AU §

319.46. E&Y's audit methodology purported to assess internal controls and risk in accordance with the foregoing provisions of GAAS. According to information available at E&Y's website:

The Ernst & Young Global Audit Methodology is a risk-based approach that focuses on the drivers of the business, the associated risks, and the potential effects on financial statement accounts.

As part of our audit, we gain an understanding of the factors that could affect your operations and business risks, including stakeholder needs, industry trends, evolving standards, competitive strategy, and market developments. We also identify and test internal controls, over the financial accounting and reporting processes, including information technology (IT) controls. This understanding of the business and controls provides the basis for our audit risk assessments and audit plan. Our balanced approach focuses more audit effort on complex, higher-risk areas than on those with lower risk. Our understanding of the business also enables our engagement team to bring relevant business insights to you and your organization.

Due to its longstanding relationship with MFN, including its work in connection with its audit of

MFN's year end 200 financial statements, E&Y either knew or recklessly disregarded facts that evidenced significant weaknesses and deficiencies in MFN's internal control structure and the existence of numerous factors giving rise to a substantial risk of misstatement, and failed to adequately plan its audit or expand its auditing procedures accordingly. As the new auditors, it did not take KPMG long to note glaring inadequacies in the Company's accounting procedures

1781501 - 55 - and internal controls. (See ¶ 82) Among other things, E&Y was aware or recklessly disregarded that (i) MFN had improperly accounted for, inter alia, swap transactions in an effort to inflate reported revenues and EBITDA; (ii) MFN operated in a declining industry beset by falling prices, increasing numbers of business failures and declining customer demand; and (iii) MFN was desperate to obtain additional financing to fund its business. Each of these factors is a known risk factor indicating the potential for misstatement . See, AU § 316.

(f) E&Y violated Standard of Fieldwork No. 3, which requires an auditor to obtain "sufficient competent evidential matter ... to afford a reasonable basis for an opinion regarding the financial statements under audit" as to "the fairness with which they present, in all material respects, financial position, results of operations, and its cash flows in conformity with generally accepted accounting principles." AU §§ 110, 150. The risk associated with an audit determines the nature and extent of the evidentiary matter that must be obtained to assure the auditor that the financial statements are free from material error. As described above, E&Y knew or recklessly disregarded that, due to MFN's internal control deficiencies, E&Y could not obtain sufficient competent evidential matter to afford a reasonable basis for issuing an opinion that MFN's year end 2000 financial statements were fairly presented in all material respects in accordance with GAAP.

124. E&Y's failure to comply with GAAS and E&Y's performance on the MFN audit rose to the level of recklessness and/or knowing fraud. Indeed, according to minutes of a special meeting of the audit committee of MFN's board held on January 22, 2002, in response to a question from the audit committee as to the reason E&Y had been replaced, Silvia Kessel, an executive vice president and board member stated "that there was dissatisfaction with the audit work that had been performed by E&Y." In addition, Randall Lay, MFN's chief financial

178150 1 - 56 - officer, stated that "he was surprised that E&Y's management letters were not very

comprehensive, and in that regard was not satisfied with [E&Y's] performance."

125. In addition to issuing the audit report referred to above, as required by SEC rules,

E&Y reviewed MFN's materially false and misleading quarterly reports for the first three quarters of 2001 issued during the Class Period as required under SAS No. 71. Although E&Y was aware of the fraudulent accounting practices and material internal control deficiencies described above, E&Y allowed MFN to issue quarterly reports during the Class Period that failed to reflect the true value of MFN's network assets, goodwill, accounts receivable and its actual revenue and expenses.

DEFENDANTS' MATERIALLY FALSE AND MISLEADING STATEMENTS AND OMISSIONS WERE THE CAUSE OF THE DAMAGES SUFFERED BY PLAINTIFFS AND THE CLASS

126. The market for Metromedia's securities was open, well-developed and efficient at all relevant times. As a result of these materially false and misleading statements and failures to disclose, Metromedia's securities traded at artificially inflated prices during the Class Period.

Plaintiffs and other members of the Class purchased or otherwise acquired Metromedia securities in reliance upon the integrity of the market price of Metromedia's securities and market information relating to Metromedia, and have been damaged thereby.

127. During the Class Period, defendants materially misled the investing public, thereby inflating the price of Metromedia's securities, by publicly issuing false and 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 operations , as alleged herein.

1781501 -57- 128. As described herein, during the Class Period, defendants made or caused to be made a series of materially false or misleading statements about Metromedia's financial condition, business, prospects and operations. These material misstatements and omissions had the cause and effect of creating in the market an unrealistically positive assessment of

Metromedia and its financial condition, business, prospects and operations, thus causing the

Company's securities to be overvalued and artificially inflated at all relevant times. MFN stock was also inflated as a result of the GAAP violations discussed herein. If MFN had timely written down its goodwill and assets, and reported lower revenues and greater losses as required under

GAAP, the Company's stock price would have gone down materially at that time. Defendants' materially false and misleading statements and omissions during the Class Period resulted in plaintiffs and the other members of the Class purchasing the Company's securities at artificially- inflated prices. But for Defendants' material misstatements and omissions, Plaintiffs and the

Class would not have entered into the detrimental securities transactions. Defendants knew that they were causing MFN common stock to be overvalued and that the price of Metromedia common stock would eventually recede to reflect the actual value of the securities thereby injuring plaintiffs and the Class. The losses suffered by Plaintiffs and the Class were foreseeable consequence of Defendants' misstatements and omissions. The material misrepresentations and omissions particularized in this Complaint directly or proximately caused or were a substantial contributing cause of the damages sustained by plaintiffs and the other members of the Class.

ADDITIONAL FACTS OR CIRCUMSTANCES THAT DEMONSTRATE THAT THE DEFENDANTS ACTED WITH SCIENTER

129. As particularized in ¶¶ 87-116 above, MFN's financial statements issued during the Class Period were materially false and misleading in numerous respects. In addition, as

1781501 - 58 - defendants knew or recklessly disregarded MFN lacked adequate internal controls necessary to prepare financial statements in accordance with GAAP.

130. As alleged herein, defendants acted with scienter in that defendants knew or recklessly disregarded that the public documents and statements issued or disseminated in the name of the Company were materially false and misleading; knew or recklessly disregarded that such statements or documents would be issued or disseminated to the investing public; and knowingly and substantially participated or acquiesced in the issuance or dissemination of such statements or documents as primary violations of the federal securities laws. As set forth elsewhere herein in detail, defendants, by virtue of their receipt of information reflecting the true facts regarding Metromedia, their control over, and/or receipt and/or modification of

Metromedia ' s allegedly materially misleading misstatements and/or their associations with the

Company which made them privy to confidential proprietary information concerning

Metromedia, were active and culpable participants in the fraudulent scheme alleged herein.

Defendants knew and/or recklessly disregarded the falsity and misleading nature of the information which they caused to be disseminated to the investing public. The ongoing fraudulent scheme described herein could not have been perpetrated during the Class Period without the knowledge and complicity or, at least, the reckless disregard of the personnel at the highest levels of the Company, including the Individual Defendants.

131. In order to protect its chances of receiving the $350 million in funding from

Citicorp that MFN desperately needed in order to stay afloat, and pursuant to the terms of its agreement with Citicorp, MFN was required to maintain its assets , earnings and its stock price at levels comparable to those when the credit facility was negotiated. The Company recognized that it could not maintain its assets, earnings or stock price without violating GAAP. Because

178150t -59- the financing was critical to MFN, it violated GAAP in an attempt to get the full $350 million financing possible under the credit facility.

132. Each defendant possessed substantial motives for misrepresenting Metromedia's financial status, operations, and future prospects throughout the Class Period. As set forth more fully above, defendant E&Y earned substantial fees for auditing and consulting work performed for MFN. In addition, within weeks of the issuance of MFN's materially false and misleading financial statements and results for the year ended December 31, 2000, defendant Tanzi, directly or indirectly, disposed of 300,000 shares of MFN stock that he owned, 50% of his total holdings exclusive of exercisable options, for gross proceeds of $2,224,013.68, thereby benefiting from the artificial inflation in Metromedia's stock price the fraudulent scheme had created.

NICHOLAS M. TANZI

DATE OF SALE NUMBER OF SHARES PRICE PROCEEDS 3/12/01 500 $7.5937 $3,796.85 3/12/01 1,100 $7.625 $8,387.50 3/12/01 25,000 $7.50 $187,500.00 3/12/01 23,400 $7.4687 $174,767.58 3/13/01 10,000 $7.3125 $73,125.00 3/13/01 15,000 $7.1562 $107,343.00 3/13/01 12,500 $6.9375 $86,718.75 3/13/01 12,500 $6. 8750 $85 ,937.50 3/14/01 25,000 $7.4375 $185,937.50 3/14/01 25,000 $8.00 $200,000.00 3/15/01 5,000 $8.25 $41,250.00 3/15/01 5,000 $8.1563 $40,781.50 3/15/01 5,000 $8.3125 $41,562.50 3/15/01 35,000 $8.1250 $284,375.00 3/16/01 7,000 $7.25 $50,750.00

1781501 -60- 3/16/01 28,000 $7.00 $196,000.00 3/16/01 5,000 $6.9375 $34,687.50 3/16/01 5,000 $7.0313 $35,156.50 3/16/01 5,000 86.875 $34,375.00 3/19/01 20,000 $7.0625 $140,000.00 3/19/01 20,000 $7.0625 $141,250.00 3/19/01 10,000 $7.312 $70,312.00 TOTAL $2,224,013.68

APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE

133. Pursuant to its claims under Section 10(b) of the Exchange Act and Rule I Ob-5 thereunder, plaintiffs will rely, in part, upon the presumption of reliance established by the fraud- on-the-market doctrine such that:

(a) During the Class Period, defendants made public misrepresentations or failed to disclose material facts required to be disclosed in order to make statements made not materially false and misleading;

(b) The omissions and misrepresentations were material;

(c) The securities of the Company traded in an open and efficient market;

(d) The misrepresentations and omissions alleged would tend to induce a reasonable investor to misjudge the value of the Company's securities; and

(e) Plaintiffs and the other members of the Class purchased

Metromedia. common stock between the time defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without knowledge of the omitted or misrepresented facts.

178150 1 - 61 - 134. At all relevant times, the market for Metromedia's common stock was an efficient market for the following reasons, among others:

(a) Metromedia's stock met the requirements for listing, and was listed and actively traded on the NASDAQ, a highly efficient and automated market;

(b) As a regulated issuer, Metromedia filed periodic public reports with the SEC and the National Association of Securities Dealers;

(c) Metromedia regularly communicated with public investors via established market communication mechanisms, including through regular dissemination 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) Metromedia was followed by several securities analysts employed by major brokerage firms who wrote reports which 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.

135. As a result of the foregoing , the market for Metromedia ' s common stock promptly digested current information regarding Metromedia from all publicly available sources and reflected such information in Metromedia's stock price. Under these circumstances, all purchasers of Metromedia's common stock during the Class Period suffered similar injury through their purchase of Metromedia's common stock at artificially inflated prices, and a presumption of reliance applies.

INAPPLICABILITY OF STATUTORY SAFE HARBOR

136. The 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.

1781501 -62- The statements alleged to be false and misleading herein all relate to then-existing facts and conditions. Moreover, the specific statements pleaded herein were not identified as "forward- looking statements" when made. To the extent that any of the statements identified herein as materially false and misleading are held by the Court to be forward-looking statements, there were no meaningful cautionary statements identifying important then-present factors that could, and indeed did, cause actual results to differ materially from those in the purportedly forward- looking statements. Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein, defendants are liable for those materially 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 or director of Metromedia who knew that those statements were false when made.

COUNT I

Violations Of Section 10(b) Of The Exchange Act And Rule I Ob-5 Promulgated Thereunder Against All Defendants

137. Plaintiffs repeat and reallege each and every allegation contained in the foregoing paragraphs as if fully set forth herein.

138. This Count is asserted against all defendants for violations of Section 10(b) of the

Exchange Act and Rule I Oh-5 promulgated thereunder.

139. During the Class Period, defendants carried out a plan, scheme and course of conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing public, including plaintiffs and other Class members , as alleged herein ; and (ii) cause plaintiffs and other members of the Class to purchase Metromedia's common stock at artificially inflated

1781501 - 63 - prices. In furtherance of this unlawful scheme, plan and course of conduct, defendant E&Y and the Individual Defendants, and each of them, took the actions set forth herein.

140. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of the Company's common stock in an effort to maintain artificially high market prices for Metromedia's common stock in violation of

Section 10(b) of the Exchange Act and Rule I Ob-5. All defendants are sued either as primary participants in the wrongful and illegal conduct charged herein or as controlling persons as alleged below.

141. Defendants, 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, operations and future prospects of Metromedia as specified herein.

142. Defendants 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 Metromedia'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 Metromedia and its business 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

1781501 -64- course of business which operated as a fraud and deceit upon the purchasers of Metromedia

common stock during the Class Period.

143. Each defendant's primary liability arises from one or more of the following facts:

(i) the Individual Defendants were high-level executives and/or directors at the Company during

the Class Period and members of the Company's management team or had control thereof;(ii)

each of the Individual Defendants, by virtue of his responsibilities and activities as a senior

officer and/or director of the Company was privy to and participated in the creation,

development and reporting of the Company's internal budgets, plans, projections and/or reports;

(iii) each of the Individual Defendants enjoyed significant personal contact and familiarity with

the other defendants and was 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

finances, operations, and sales at all relevant times; (iv) E&Y, as a result of its longstanding

relationship with MFN, had unfettered access to confidential, non-public information about the

Company's business, financial condition and results at all relevant times, and (v) each of the

defendants was aware of the Company's dissemination of information to the investing public which they knew or recklessly disregarded was materially false and misleading.

144. 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 they failed to ascertain and to disclose such facts, even though such facts were available to them. Defendants' material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing Metromedia's financial condition and results and future business prospects from the investing public and supporting the artificially inflated price of its common stock. Defendants, if they did not have actual knowledge of the misrepresentations and

178150_1 - 65 - omissions alleged, were reckless in failing to obtain such knowledge by deliberately refraining from taking those steps necessary to discover whether those statements were false or misleading.

145. 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 price of Metromedia's common stock was artificially inflated during the Class Period. In ignorance of the fact that market prices of Metromedia's publicly-traded common stock 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 as required in public statements by defendants during the Class Period, plaintiffs and the other members of the Class acquired Metromedia common stock during the Class Period at artificially high prices and were damaged thereby.

146. At the time of said misrepresentations and omissions, plaintiffs and the 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 the truth regarding Metromedia's financial condition and results, which was not disclosed by defendants, plaintiffs and the other members of the Class would not have purchased or otherwise acquired their Metromedia common stock, or, if they had purchased such securities during the Class Period, they would not have done so at the artificially inflated prices which they paid. Defendants knew that they were causing the securities to be overvalued and that the price of Metromedia common stock would eventually recede to reflect the actual value of the securities thereby injuring plaintiffs and the

Class.

178101 -66- 147. By virtue of the foregoing, defendants have violated Section 10(b) of the

Exchange Act, and Rule IOb-5 promulgated thereunder.

148. 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 common stock during the Class Period.

COUNT II

Violations Of Section 20(a) Of The Exchange Act Against The Individual Defendants

149. Plaintiffs repeat and reallege each and every allegation contained above as if fully set forth herein.

150. MFN violated Section 10(b) of the Exchange Act and Rule I Ob-5 promulgated thereunder by issuing materially false and misleading statements, press releases and SEC filings during the Class Period. The Individual Defendants acted as controlling persons of Metromedia within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions, and their ownership and contractual rights, participation in and/or awareness of the Company's operations and/or intimate knowledge of the false and misleading statements tiled by the Company with the SEC and disseminated to the investing public, 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 various statements which plaintiffs contend are false and misleading. The

Individual Defendants 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.

1781501 -67- 151. In particular, each of the Individual Defendants had direct and supervisory involvement in the day-to-day operations of the Company and, therefore, is presumed to have had the power to control or influence the particular transactions giving rise to the securities violations as alleged herein, and exercised the same.

152. By virtue of their positions as controlling persons of MFN, the Individual

Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of MFN's and the Individual Defendants' wrongful conduct, plaintiffs and other members of the Class suffered damages in connection with their purchases of the Company's common stock during the Class Period.

WHEREFORE , plaintiffs, individually and on behalf of the Class, prays for relief and judgment, as follows:

(a) Declaring this action is a proper class action and certifying plaintiffs, among others, as a class representative under Rule 23 of the Federal Rules of Civil

Procedure;

(b) Declaring and determining that defendants violated the federal securities laws by reason of their conduct as alleged herein;

(c) 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;

(d) Awarding plaintiffs and the Class the fees and expenses incurred in this action, including reasonable allowance of fees for plaintiffs' attorneys and experts; and

(e) Granting such other and further relief as the Court may deem just and proper.

178150 1 -68- JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

Dated: February 17, 2004 MILBERG WEISS BERSHAD HYNES & LERACH LLP )ccl__^ Deborah Clark-Weintraub (DW-6877) Kim E. Levy (KL-6996) Lili R. Sabo (LS-0370) One Pennsylvania Plaza - 49th Floor New York, New York 10119 (212) 594-5300 (212) 868-1229 (fax)

GOODKIND LABATON RUDOFF & SUCHAROW LLP 547__^- /^ 'Acci Edward Labaton (EL-2947) Louis Gottlieb (LG-9169) David J. Goldsmith (DG-7388) 100 Park Avenue New York, New York 10017-5563) (212) 907-0700 (212) 818-0477 (fax)

Counsel for Plaintiffs

1781501 -69-