Thomas J. Hall (NSB LAW OFFICES OF THOMAS J . HALL 2 305 South Arlington Avenue# 0675) ORIGiI'1iL Post Office Box 3948 3 Reno, Nevada 89505 Telephone : 775-348-7011 4 Facsimile : 775-348-721 1
5 Plaintiffs' Liaison Counsel U.S. DISTRICT CDU~ ` DISTRICT OF NEVAD. 6 Laurence D. King RECEIVED KAPLAN FOX & KILSHEIMER P 7 555 Montgomery Street, Suite 1501 San Francisco , California 9411 1 NOV 2 1 8 Telephone : 415-772-4700 L -~j Facsimile: 415-772-4707 CLE RK, U .J. O;z I i CT COURT 9
10 Frederic S . Fox Shelley Thompson 1 1 KAPLAN FOX & KILSHEIMER LLP 805 Third Avenue, 22nd Floor I F {'° 1 2 New York, New York 10022 P~FO Telephone : 212-687-1980 /~~ 1 3 Facsimile : 212-687-7714 3 14 Samuel H. Rudman y U S, f David Rosenfeld 15 CAULEY GELLER BOWMAN COATES & RUDMAN, LLP r C( 200 Broadhollow Road, Suite 406 ` 16 Melville, New York 11747 Telephone: 631-367-7100 17 Facsimile: 631-367-1173
18 Plaintiffs' Co-Lead Counsel
1 9 [Additional counsel on signature page]
20
21 UNITED STATES DISTRICT COURT 22 DISTRICT OF NEVADA
23 Master File No . CV-N-03-0050-ECR (VPC )
24 IN RE AMERCO SECURITIES LITIGATIO N AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR 2 5 VIOLATIONS OF THE FEDERAL SECURITIES LAW 26 This Document Relates To : ALL ACTIONS JURY TRIAL DEMANDED 27 28
THOMAS J . HALL ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SUS SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 Plaintiffs, individually and on behalf of all other persons and entities similarly situated, b y
2 their undersigned counsel, make the following allegations , which are based upon the investigation
3 conducted by counsel, which included, among other things, a review of the public announcements
4 made by defendants, Securities and Exchange Commission ("SEC") filings , press releases and
5 media reports regarding AMERCO ("AMERCO" or the "Company"), review of the allegations
6 contained in the complaint captioned AMERCO v. Price Waterhouse Coopers, LLP (the "PwC
7 Action"), review of deposition transcripts and exhibits in the action entitled Republic Western
8 Insurance Company v. Richard I Turo, ff, et al, (the "Turoff Action") and interviews with witnesses .
9 1. NATURE OF THE CLAIM S
10 1 . Plaintiffs bring this class action on behalf of themselves and all persons and entities ,
11 other than defendants, who purchased the securities of AMERCO between February 12, 1998 and
12 September 26, 2002 (the "Class Period") .
13 2 . AMERCO is a holding company for defendant U-Haul International , Inc . ("U-
14 Haul"), AMERCO Real Estate Company ("AREC"), defendant Republic Western Insurance
15 Company ("RepWest") and Oxford Life Insurance Company ("Oxford") . AMERCO has four
16 industry segments, represented by moving and storage operations (U-Haul), real estate (AREC or
17 "Real Estate"), property and casualty insurance (RepWest) and life insurance (Oxford) .
18 3 . As more fully described below, during the Class Period, certain of the defendant s
19 made misrepresentations and omissions concerning, inter alia :
20 (a) The financial position of AMERCO: The AMERCO Defendants (defined
21 hereafter) and defendant Price WaterhouseCoopers ("PwC") falsely described the Company's
22 operations by materially misrepresenting transactions with certain special purpose entities ("SPEs")
23 - the "SAC SPEs" - and failing to disclose to investors that the SAC SPEs were not separate
24 companies from AMERCO, but rather were controlled entities that were designed, among other
25 things to exclude hundreds of millions of dollars of associated liabilities from AMERCO's balance
26 sheet. In fact, the AMERCO Defendants have now admitted that the SAC SPEs were not separate
27 companies and have restated AMERCO's historical financial results for fiscal year 2001, 2000 an d 28
THOMAS J. HAL L ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 6'S SOUTH ARLIN GTON AVENUE SECURITIES LAW 1 interim periods of fiscal 2002 to include the SAC SPEs in AMERCO's consolidated financial
2 statements.
3 (b) AMERCO' s insurance policy loss reserves and earnings : The AMERC O
4 Defendants falsely stated that the Company's loss reserves with respect to insurance policies issued
5 by the Company were adequate . In fact, defendants have now admitted that AMERCO's loss
6 reserves were materially understated and have restated AMERCO's historical financial results
7 during 2003 to reflect more than $125 million in additional insurance policy loss reserves - $56 8 million in 2002, $56 million in 2001 and $13 million in years prior to 2001 . Furthermore, in direct
9 contradiction of the Company's public statements during the Class Period, the current president of
10 AMERCO's RepWest insurance unit - defendant Amoroso, admitted in a sworn deposition that
11 RepWest had been "grossly under-reserved ." Specifically, Amoroso said that as early as 1997, the
12 AMERCO Defendants and defendant PwC knew or deliberately recklessly disregarded that
13 AMERCO had improperly recorded loss reserve adjustments that overstated the Company's
14 earnings by tens of millions of dollars. Amoroso's testimony stated in pertinent part :
15 I believe it was not the appropriate thing to do . . .I think if you back that out, as it should have been done, you would have had at least one 16 of those three years, `97 through `99, probably two of them would not have been profitable. 17
18 (c) AMERCO's failure to report on its debt covenants : Defendants failed to
19 disclose that AMERCO was in a liquidity crisis and might be forced into bankruptcy .
20 (d) AMERCO 's use of other manipulative accounting practices : The
21 AMERCO Defendants falsely described the Company's accounting policies for deferring and
22 capitalizing certain general and administrative costs ("G & A Costs") . In fact, the AMERCO
23 Defendants have now admitted that AMERCO's capitalized G & A Costs were materially
24 overstated and restated AMERCO's historical financial results to reflect the expensing of more than
25 $32 million in improperly deferred G & A Costs -- $1 million in 2002 and $31million in years prior
26 to 2001 . Defendants materially overstated earnings in a variety of other ways, including (i) by at
27 least $10.8 million for improperly recorded inventory adjustments and shrinkage costs ; (ii) by at
28 least $4.8 million for improperly recorded gains on fixed asset dispositions ; (iii) by at least $4 .3
THOMAS J, HALL 2 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL US SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 million for failure to record leased asset expenditures ; (iv) by at least $3 .6 for the failure to record
2 property tax expenses; and (v) by at least $2.4 million for the failure to record real estate asset value
3 impairment ; and
4 (e) AMERCO' s equity investments : The AMERCO Defendants falsel y
5 described the Company's investment in a certain real estate limited partnership . In fact, defendants
6 have now admitted that losses associated with the limited partnership were materially understated
7 and restated AMERCO's historical financial statements during 2003 to reflect more than $26
8 million in additional losses that pursuant to GAAP should have been reported as follows : $10
9 million in 2002, $8 million in 2001 and $8 million in years prior to 2001 ;
10 (I) AMERCO's compliance with generally accepted accounting principles :
11 The AMERCO Defendants falsely stated that the financial statements filed with the SEC and
12 otherwise disseminated to investors had been prepared in accordance with generally accepte d
13 accounting principles ("GAAP") .
14 4. As a result of the defendants' materially false and misleading statements during the
15 Class Period, the price of AMERCO securities was artificially inflated.
16 II. JURISDICTION AND VENU E
17 5 . This Court has jurisdiction over the subject matter of this action pursuant to Sectio n 18 22(a) of the Securities Act of 1933 (the "Securities Act") (15 U.S .C . § 77v(a)) and Section 27 of the
19 Exchange Act of 1934 (the "Exchange Act") (15 U. S .C . § 78aa) as well as 28 U .S.C . §§1331, 1337
20 and 1367.
21 6. The claims asserted arise under Sections 11, 12 and 15 of the Securities Act (1 5
22 U .S .C. §§ 771(a)(2) and 77o) and Sections 10(b) and 20 (a) of the Exchange Act (15 U .S.C. §§78j(b) 23 and 78t(a)) and Rule IOb-5 promulgated thereunder (17 C .F.R. § 240.1Ob-5) .
24 7. Venue is proper in this District pursuant to Section 22(a) of the Securities Act and 27
25 of the Exchange Act (15 U.S .C . § 78aa) and Section 27 of the Exchange Act (15 U.S .C . §78aa) and
26 28 U .S.C . § 1391(b) and (c). Substantial acts in furtherance of the alleged fraud and/or its effects
27 have occurred within this District and AMERCO maintains a principal office in Reno, Nevada . 28
THOMAS J. HAL L 3 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL D5 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 8. In connection with the facts and omissions alleged in this Complaint, defendants ,
2 directly or indirectly, used the means and instrumentalities of interstate commerce, including, bu t
3 not limited to, the mails, interstate telephone communications, and the facilities of the nationa l
4 securities markets.
5 III. THE PARTIES
6 9 . Plaintiff Robert Speckert ("Speckert") purchased the securities of AMERCO at
7 artificially inflated prices during the Class Period and has been damaged thereby. Speckert is a
8 member of the "Sayers Group" which was previously appointed by the Court to serve as Lea d
9 Plaintiff in this action. Speckert's certification has been previously filed in this litigation and i s
10 hereby incorporated by reference .
11 10 . Plaintiff IG Holdings , Inc . ("IG Holdings") purchased AMERCO securities at
12 artificially inflated prices during the Class Period and was damaged thereby . IG Holdings '
13 certification has been previously filed in this litigation and is hereby incorporated by reference .
14 11 . AMERCO is a Nevada corporation with its principal place of business located at
15 1325 Airmotive Way, Suite 100, Reno, Nevada. AMERCO is not presently named a defendant in
16 this Complaint because it is currently in bankruptcy .
17 12 . Defendant U-Haul is a Nevada corporation with its principal place of business at
18 12727 N. Central Avenue Phoenix, Arizona . At all times relevant to this action U-Haul was a wholly
19 owned subsidiary of AMERCO, conducting the Company' s moving and storage business.
20 13 . Defendant Republic Western Insurance Company is an Arizona corporation with its
21 principal place of business at 2721 N . Central Avenue, Phoenix, Arizona. At all times relevant t o
22 this action RepWest conducted the Company's property and casualty insurance business.
23 14. Defendant Edward J . Shoen ("Edward Shoen") is and was, at all relevant times ,
24 Chairman of the Board of Directors and President of the Company, and member of its Executive
25 Finance Committee . In addition, at certain times relevant to this action, Edward Shoen served as a
26 director and/or chairman of RepWest .
27 15 . Defendant Mark V . Shoen ("Mark Shoen") is and was, at all relevant times ,
28 President of Phoenix Operations of U-Haul . Mark Shoen also served as an AMERCO Directo r
THOMAS J . HALL 4 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 7S SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 from 1990-1997. Mark Shoen is and was, at all relevant times, President at SAC Holding
2 Corporation, and most if not all of the SAC Self-Storage Corporations .
3 16. Defendant James P . Shoen ("James Shoen") has served on the Company's Board of
4 Directors since 1986, as Executive Vice President of U-Haul since 1990, and served previously a s
5 Vice President of AMERCO from 1989 to November of 2000 .
6 17. Defendant Gary B . Horton ("Horton") was, until his resignation on August 1, 2003 ,
7 the Company Treasurer, and signed AMERCO's SEC filings during the Class Period as its principal
8 financial and accounting officer .
9 18 . Defendant John M . Dodds ("Dodds") has served as a Director of the Company since
10 1987, as a Director of U-Haul since 1990, and served in various executive capacities with
11 AMERCO until 1994 . Dodds also served on the Board's Audit Committee .
12 19 . Defendant William E . Carty ("Carty") has been a Director of the Company sinc e
13 11987 and a Director of U-Haul since 1986 . Carty has been associated with the Company sinc e
14 1946, and is the uncle of Joe, Mark and James Shoen.
15 20. Defendant Charles J . Bayer ("Bayer") has served on the AMERCO Board o f
16 Directors since 1990, and served as the President of AMERCO' s real estate arm (which engaged i n
17 transactions with the SAC SPEs) from 1990 until 2000 .
18 21 . Defendant Richard Herrera ("Herrera") served as a Director of the Company from
19 1991 to 2000, with the exception of the latter half of 1997 . He has been associated with the
20 Company since 1988, and is currently Vice President of Marketing, Retail Sales for U-Haul .
21 22. Defendant John P . Brogan ("Brogan") has served as a Director of the Company since
22 1998, and also served on the Board's Audit Committee .
23 23 . Defendant James J . Grogan ("Grogan") has served as a Director of the Company
24 since 1998, and also served on the Board's Audit Committee .
25 24. Defendant Richard M. Amoroso ("Amoroso") has served as President of RepWes t
26 since August 2000 . Prior to that time, from 1993 until February 2000, Amoroso was Assistant
27 General Counsel of U-Haul . 28
THOMAS J . HALL 5 AT ORNEV AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 95 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 25 . Defendants Edward Shoen , Mark Shoen, James Shoen, Horton, Dodds, Carty, Bayer,
2 Herrera, Brogan, Grog an and Amoroso together, are referred to herein as the "Individual
3 Defendants" (and are referred to collectively with U-Haul and RepWest as the "AMERCO
4 Defendants"). Certain of defendants were officers and/or directors of AMERCO at the time the
5 false and misleading statements and/or omissions were made and are liable as direct particip ants in
6 the wrongs complained of herein .
7 26 . Defendant PriceWaterhouseCoopers, LLP is a firm of certified public accountants
8 that audited AMERCO's financial statements from 1978 to July 2002 and issued materially false
9 and misleading opinions on AMERCO's fiscal year-end financial statements dated March 31, 1998,
10 1999, 2000, 2001, and 2002 . PwC consented to AMERCO's use of PwC's opinions in SEC filings
11 and in registration statements for the offering of AMERCO debt and equity securities to the public .
12 PwC's participation in the making of the materially false and misleading statements and omissions
13 is alleged herein .
14 IV. CONTROL PERSON LIABILITY
15 27. Defendants are liable as direct participants in, and co-conspirators with respect to the
16 wrongs complained of herein . In addition, the Individual Defendants , by reason of their positions
17 with AMERCO, and/or ownership of AMERCO securities , were controlling persons of the
18 Company and had the power and influence , and exercised the same, to cause AMERCO to engage
19 in the conduct complained of herein . They controlled AMERCO 's public dissemination of false
20 and misleading information during the Class Period.
21 V. ADDITIONAL SCIENTER FOR COUNT IV ONLY
22 28. The Individual Defendants knew of or recklessly disregarded adverse, non-publi c
23 information about AMERCO's business and operations as well as its finances and present and
24 future business prospects . Their executive positions provided them with access to internal corporal
25 documents and information, and allowed them to have conversations and meetings with other
26 corporate officers and employees. The Individual Defendants attended management and/or Board
27 of Directors' meetings and committees thereof, and received internal reports and other information
28 in connection therewith .
THOMAS J . HALL 6 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL IS SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 29. Defendants caused the artificial inflation of the price of AMERCO stock by, inter
2 alia, issuing materially false and misleading financial statements to the public . These statement s
3 and documents portrayed a false picture of AMERCO's business and operations and misrepresented )
4 and/or failed to disclose material, adverse facts concerning AMERCO's management, businesses ,
5 revenues, earnings, financial condition and future prospects .
6 30 . Defendants' false representations and material omissions were made with scienter in
7 I that: defendants knew, or with deliberate recklessness disregarded that the Class Period SEC
8 Filings were materially false and misleading as described above ; knew or were deliberately reckless
9 in not knowing that the false financial results would be issued or disseminated to the investing
10 public ; and knowingly and substantially participated in the preparation and/or issuance or
11 dissemination of such statements or documents . The following demonstrates that defendants made
12 the misrepresentations knowingly or with a deliberately reckless disregard for the truth :
13 (a) AMERCO' s restated finances, as reported in the Restatement Form I O-K and
14 the Amended 2002 Form 10-K, were material to the Company's finances as a whole and of such a
15 considerable magnitude that the misleading and false accounting was almost certainly the result o f
16 deliberate action and not the result of innocent error ;
17 (b) Companies are required to restate their financial results in the event reporte d
18 financial results are materially false and the Company had access to correct financial information at
19 the time of filing . Therefore, because AMERCO restated its financial results, the Company is
20 admitting its initial financial results were materially false and not the result of an error in estimation
21 or judgment and that the Company had access to correct financial information at the time of filing ;
22 (c) Defendants Edward Shoen, James Shoen, Mark Shoen, Gary Horton, Richar d
23 Herrera and Richard M. Amoroso were at all relevant times senior executives within AMERCO and
24 by their senior position had access to information conce rning AMERCO 's business and finances;
25 and
26 (d) Defendants Mark Shoen partly owned and controlled the SAC SPEs and as
27 such personally pro fited from the transactions between the SAC SPEs and AMERCO . 28
THOMAS J. HAL L 7 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL oS SOUTH ARLINGTON AVENUE SECURITIES LAW 1 31 . In addition, during the Class Period prior to the disclosure of the adverse fact s
2 alleged herein, defendants offered more than $550 million of AMERCO debt securities for sale to
3 the public : (a) on or about February 4, 2000, AMERCO issued $200 million of publicly trade d
4 8 .8% Senior Notes; and (b) on or about October 5, 2001, AMERCO offered to the public up to $35 0
5 million in debt securities .
6 32. The purpose, effect and motive of defendants ' actions were to, inter alia : (a) decei
7 the investing public, including Plaintiffs and members of the Class ; (b) artificially inflate and
8 maintain the market price of AMERCO securities during the Class Period; (c) cause Plaintiffs and
9 members of the Class to purchase AMERCO securities at artificially inflated prices during the Cla
10 Period ; and (d) personally benefit ce rtain AMERCO insiders .
11 33 . Each Individual Defendant was a direct, necessary and substantial participant in th e
12 scheme and common course of conduct complained of herein .
13 34. The magnitude and pervasiveness of AMERCO' s restatement adjustments , including
14 the fact that AMERCO Defendants were the principals in the SAC and Private Mini Storage Realty,
15 L.P. ("PMSR") transactions, that defendant Gary B . Horton signed AMERCO's SEC filings as the
16 Principal Financial and Accounting Officer, defendant Edward Shoen signed AMERCO's SEC
17 filings with knowledge of the related party nature of these transactions, and the obvious nature of
18 the related party transactions and proper accounting therefore all demonstrate that defendants acted
19 with scienter. In fact, defendants, in AMERCO's verified complaint against PwC, acknowledge
20 that, "It should have been obvious to PWC and its involved partners in at least February 2002 that
21 consolidation of the SAC entities would impact AMERCO's earnings . It is obvious that SAC had
22 operational activity outside of AMERCO in the form of third party debt and associated interest
23 charges and depreciation of property and equipment." If these errors should have been "obvious" to
24 their outside audit firm, as defendants acknowledge, then defendants' level of knowledge can only
25 be the same or more, since they were the direct beneficiaries of, participants in, and architects of the
26 SPEs . Defendants have the responsibility for the Company's financial reports including, but not
27 limited to, (a) that the financial statements present in all material respects the financial condition
28 and results of operations of the issuer ; (b) the establishment and maintenance of an adequate syste m
THOMAS J . HAL L 8 A TT ORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL D5 SOUTH ARLINGTON AVENUE SECURITIES LAW 1 of internal controls ; (c) the accounting principles selected have general acceptance and are
2 appropriate in the circumstances ; (d) the financial statements are informative of matters that may
3 affect their use, understanding and interpretation, and that the financial statements reflect the
4 underlying transactions and events based on their economic substance. (Foreign Corrupt Practices
5 Act; Sarbanes-Oxley Act of 2002, Section 302 ; Statement on Auditing Standards ("SAS") No . 69;
6 Committee of Sponsoring Organizations of the Treadway Commission - Internal Control -
7 Integrated Framework ; SAS No. 1) .
8 35 . AMERCO's SEC Form 10-K for the fiscal year ended March 31, 2003 summarized
9 the Company's massive restatement, which excludes effect of the Company's previous restatement
10 to properly account for the SAC entities as follows :
11 Net Income Net Income April 1, 2002 Fiscal 2002 Fiscal 2001 Retained 12 (in thousands) Earnings
13 As reported $2,721 $1,012 $738,805
14 Adjustments to net income/(loss) :
1 5 Insurance reserves (a) (55,570) (56,225) (13,320)
1 6 Investments in Private Mini (b) (9,729) (8,392) (8,132)
1 7 Capitalized G&A costs (c) (900) ---- (31,749)
18 Accrued property taxes (d) ------(3,600)
19 Fixed assets (e) 3,846 (4,829) ----
20 Cash surrender value (f) (3,943) 636 3,307
2 1 Impairment of real estate investments (g) (2,366) ------
22 Other (h) (860) 800 (5,156) 23
24 Pretax adjustments (69,522) (68,040) (58,650) 25 Income tax benefit (i) 19,361 24,918 41,492
26 As restated: $(47,440) $(42,110) $721,64 7 2 7
28
THOMAS J. HALL 9 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 6 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 2002 net income, 2001 net income, and beginning retained earnings were adjusted by $50 .2 million,
2 $43 .1 million, and $17.2 million, respectively, after tax as a result of the following restatement
3 adjustments:
4 (a) To accrue for fully-developed actuarial estimates of the Company's insurance
5 reserves.
6 (b) To recognized equity-method losses relating to the Company' s investments in
7 Private Mini Storage Realty, L.P.
8 (c) To write-down unamortized capitalized G&A Costs.
9 (d) To adjust property tax under-accruals .
10 (e) To correct net depreciation expense and gains and losses on the disposition of fixe d
11 assets.
12 (f) To record changes in the cash surrender value of life insurance in the proper periods .
13 (g) To record impairment of real estate in the proper periods .
14 (h) Other miscellaneous adjustments .
15 (i) To record the income tax effects of the restatement adjustments .
16 VI. SUMMARY OF SUBSTANTIVE ALLEGATIONS
17 36. The Class Period starts on February 12, 1998, the date AMERCO announced its
18 third-quarter fiscal 1998 results, and ends on September 26, 2002, the date AMERCO restated it s
19 financial results for its fiscal year ended March 31, 2002 . On August 25, 2003, AMERCO issued a
20 further restatement of its historical financial results for the fiscal years 2002, and 2001 and an
21 undetermined number of years prior to 2001 .
22 37. By August 25, 2003, AMERCO i nvestors had witnessed a parade of financial
23 restatements, a plethora of amended SEC filings (and at least two missed filings), litigation between
24 the Company and its auditor of over 24 years, a near delisting of AMERCO shares, AMERCO's
25 default on a $130 million debt payment, and AMERCO's Chapter 11 bankruptcy filing. The
26 multiple restatements of AMERCO's historical financial results - four at last count - resulted in the
27 unearthing of over $160 million of heretofore hidden losses and a few hundred million dollars of
28 additional debt. Indeed, when the dust had settled, AMERCO investors saw over $145 million o f
THOMAS J . HAL L I 0 A TT ORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL O< SOUTH ARLINGTON AVENUE SECURITIES LAW 1 earnings reported between 1999 and 2002 evaporate, only to be replaced by more than $15 millio n
2 I of losses . In addition to the hidden losses and debt , AMERCO investors found their equity in the 3 Company had declined by an astounding $230 million or 38% when certain fictional real estat e
4 "sales" between the Company and the SAC SPEs were unwound.
5 38 . It was only the prospect of a falling out between the AMERCO Defendants and Pw C
6 (the Company's complaint auditor for over seven years in a pre-Enron environment) that caused
7 AMERCO to begin to belatedly file restated SEC reports in March 2002 - after not filing a single
8 periodic SEC report that disclosed the true financial condition of the Company since the initial start-
9 up of the SAC SPEs (shortly after April 1994) . This 8-year hiatus in meaningful financial reporting
10 left investors without the disclosures and other protections mandated by the federal securities laws .
11 All investors could hope to do during this period was to attempt to piece together incomplete pieces
12 of information from the cryptic, incomplete and misleading disclosures in the Company's
13 registration statements, and periodic Form 10-K and 10-Q filings .
14 39 . Similarly, AMERCO' s hand was forced again during 2003 when the Company' s
15 October 2002 debt default led to an examination of the Company' s insurance loss reserves by state
16 insurance regulators . The examiners found that AMERCO had understated its loss reserves (and
17 overstated the Company' s earnings) by more than $120 million as of March 31, 2002 . 1
18 40. This matter does not consist of a mere failure to record ce rtain accounting
19 adjustments to comply with GAAP. Rather, it involves defendants ' knowing or deliberately
20 reckless failure to disclose material information about AMERCO' s financial condition that investor :
21 needed in order to make meaningful investment decisions about AMERCO Securities and an
22 accounting fraud of such magnitude that Amerco 's reported earnings for 2001 of $1,012,000 and foi
23 2002 of $ 2,721,000 turned into net losses of $42, 110,000 and $47,440,000 . respectively. Namely,
24 defendants manipulated AMERCO' s reported earnings through a host of schemes and devices i n
25 1 Defendants have not completely abandoned their fraudulent prior practices . For example, 26 defendants' description of the 2003 restatement to AMERCO's 2002, 2001 and prior financial statements loss reserve adjustment stated, "To accrue for fully-developed actuarial estimates of the 27 Company's insurance reserves" and makes no mention of the findings in the state insurance examiner's report. 28
THOMAS J . HAL L I I A TT ORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 01, SOUTH ARLINGTON AVENUE SECURITIES LAW 1 order to make it appear that the Company 's operating units were profitable . The SEC has already
2 commenced an investigation into the Company's accounting practices .
3 41 . As discussed below, defendants failed to provide investors a variety of material
4 information about AMERCO' s financial condition , including a number of undisclosed material
5 accounting irregularities . This information included the following :
6 (a) Defendants' failure to consolidate the SAC SPEs :
7 42 . Until mid-2002, in conscious or deliberately reckless disregard of SPE "independen t
8 ownership" requirements clearly defined by GAAP, defendants accounted for the SAC SPEs owned
9 by defendants Mark Shoen, a major AMERCO shareholder, as separate companies from AMERCO .
10 This allowed defendants to falsely improve the Company's borrowing capacity, lower its borrowing 11 costs and artificially improve its financial ratios, thereby rendering the Company's financia l
12 statements materially false and misleading . Defendants further misrepresented the economic
13 substance of the transactions between AMERCO and the SAC SPEs by recording more than $80
14 million in fictitious gains related to assets transferred by AMERCO to the SAC SPEs . These phony
15 "gains on sales" were recorded as a component of AMERCO's stockholders' equity, artificially
16 inflating the Company's equity, and lowering its critical debt-to-equity ratio, which aided
17 defendants in masking the decline in the Company's financial soundness . The SAC SPEs were
18 fictitious and did not exist as separate or outside AMERCO's offices .
19 43 . Moreover, defendants failed to disclose the material adverse changes the SAC SPE s
20 would cause AMERCO' s balance sheet. Due to AMERCO' s "off-balance -sheet" treatment of the
21 SAC SPEs, the Company had accumulated more than $376 million in unreported debt by March 31,
22 2001 . By March 31, 2003, the SAC debt had increased to more than $589 million . As the
23 Company's debt was increasing dramatically, stockholders' equity was declining precipitously . At
24 the start of the Class Period, AMERCO reported stockholders' equity of more than $638 million;
25 however, by March 31, 2003, stockholders' equity had declined to only $327 million . These
26 adverse trends were masked by defendants' fraudulent scheme . When the true facts related to the
27 Company's off-balance-sheet SPEs and earnings manipulations were revealed, AMERCO's more
28 than $145 million in reported profits during the Class Period suddenly turned into a loss of mor e
THOMAS J . HALL 1 2 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL IS SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 I than $15 million. Subsequently, the Company's operating results have continued to decline a s
2 AMERCO reported additional losses of $25 million during fiscal 2003 .
3 (b) Defendants ' failure to record insurance loss reserves:
4 44. During the Class Period, defendants knowingly or recklessly failed to recor d
5 insurance losses which had already been incurred and paid by Rep West under policies issued to
6 AMERCO for general and automobile liability losses related to the Company ' s moving and storage
7 business . The policies issued by RepWest carried large loss deductibles (as high as 95%) which
8 required AMERCO and its subsidiaries, primarily U-Haul, to record the losses in their financial
9 statements . However, in violation of GAAP and the Company' s publicly stated policies , AMERCO
10 I and U-Haul failed to record such losses . This caused the Company's earnings to be overstated by
11 more than $125 million during the Class Period, according to findings by the Arizona Departmen t
12 of Insurance ("ADOI"). As a result, the Company ' s financial statements were materially false and
13 misleading throughout the Class Period.
14 45 . Moreover, one former executive of defendant RepWest stated, in a letter to state
15 insurance regulators, that defendants "failed to properly record charges" against its 2000 profit,
16 which had the effect of reducing the RepWest's operating loss by more than $19 million. The
17 former executive stated in the letter that defendants wanted to minimize losses at Rep West because
18 AMERCO was preparing a $350 million public debt offering at that time . The former executive
19 stated that Rep West had been downgraded by rating agencies a year before when it had reported a
20 loss and noted that an additional downgrade would have raised AMERCO's borrowing costs .
21 (c) AMERCO failed to disclose the reality of its debt situation and the possibility o f
22 bankruptcy:
23 46. At the time of the Company's July 17, 2002 restatement, the defendants represente d
24 that AMERCO was in compliance with all its debt covenants . Just three months later, on Octobe r
25 15, 2002, the Company defaulted on a $130 million debt payment. Between July and October 2002 ,
26 defendants repeatedly misled investors concerning the Company's actual or potential violation of it s
27 debt covenants . 28
THOMAS J. HAL L 1 3 ATTORNEY AND -OUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTON AVENUE SECURITIES LAW 1 47 . The Company failed to timely disclose it was in default on all debt covenants related
2 to more than $1 .2 billion of its outstanding debt, and its lenders could force it into bankruptcy .
3 48 . Beginning in February 2002, AMERCO could not timely present its lenders wit h
4 competent, consolidated financial statements for the third quarter-ended December 31, 2001 .
5 During this time , its lenders would no longer rely upon AMERCO' s financial statements to
6 determine its financial condition . During this time , AMERCO failed to disclose that its negotiatio n
7 with lenders were increasingly difficult due to : (a) significantly increased borrowing costs ; and (b)
8 additional capital requirements being imposed by state regulators on AMERCO' s insurance
9 subsidiaries, with resulting fu rther negative borrowing costs.
10 (d) Defendants' failure to record losses incurred by AMERCO 's limited
11 partnership investment :
12 49. Contrary to numerous periodic disclosures in AMERCO's Class Period SEC filings ,
13 defendants failed to properly account for the Company's investment in a real estate limited
14 partnership - Private Mini Storage Reality, LP . At all relevant times, the Company maintained a
15 significantly greater than 20% equity interest in the limited partnership which, according to GAAP,
16 required AMERCO to apply "equity accounting" rules and most importantly, to record AMERCO's
17 proportionate share of the limited partnership 's operating losses . In violation of GAAP and the
18 Company's own accounting policies, defendants failed to record over $26 million in limited
19 partnership operating losses during the Class Period, rendering the Company's financial statements
20 materially false and misleading .
2 1 (e) Defendants' use of numerous other manipulative accounting practices
22 50 . Defendants have now admitted that AMERCO engaged in accounting practices that
23 were based on a knowing or deliberately reckless disregard of facts in existence at the time the
24 Company's financial statements were originally published . In addition to the aforementioned
25 violations of GAAP and the Company ' s publicly stated accounting policies, these additional
26 improprieties materially overstated the Company's reported ea rn ings : (i) by at least $31 million for
27 improperly deferred G & A expenses ; (ii) by at least $10. 8 million for improperly recorded
28 inventory adjustments and shrinkage costs ; (iii) by at least $4.8 million for improperly recorded
THOMAS J. HAL L 1 4 ATTORNEY AND COUNSELORAT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL DS SOUTH ARLINGTON AVENUE SECURITIES LAW gains on fixed asset dispositions; (iv) by at least $4 .3 million for failure to record leased asset
2 expenditures; (v) by at least $3 .6 for the failure to record property tax expenses ; and (vi) by at least
3 1 $2 .4 million for the failure to record real estate asset value impairment .
4 VII . AMERCO RESTATES ITS HISTORICAL FINANCIAL RESULT S
5 A. Origins of the SAC SPEs
6 51 . Purportedly, in 1993, AMERCO was seeking to expand its moving and storag e
7 business, which required the Company to obtain significant amounts of financing related to the
8 purchase of real estate assets. According to defendants, AMERCO's lenders preferred tha t 9 AMERCO seek methods of funding these real estate transactions "off balance sheet ." In a recent s 10 I action filed by AMERCO against its former auditor, defendants described the Company's motive 11 for entering into the SAC SPE transactions as follows :
12 In 1993, AMERCO was aggressively pursuing the expansion of its self-storage business . Committed to grow its operations, 13 AMERCO chose to both enter licenses with third-parties and acquire real property upon which to build self-storage facilities . The 14 acquisition-build formula presented obstacles, however, as AMERCO's lenders preferred and historically granted financing 15 based upon the characteristics of AMERCO's primary assets, that is, trucks and trailers. AMERCO's experience was that its capital 16 creditors recognized a fundamental distinction between the three-to- five-year depreciable life of trucks and trailers and the primary asset 17 of the self-storage business, real estate having a 20-30 year life . Lenders and ratings agencies favor a separate legal entity to be the 18 owner and borrower on real estate.
19 In recognition of these considerations, AMERCO sought to legitimately expand its self-storage business through lawful strategies 20 that did not require AMERCO to carry the real estate on its balance sheet . [Emphasis added . ] 21
22 52 . Markedly absent from defendants ' discussion of the motives they had for entering
23 into the SAC SPE transactions, however, is that during this same time frame - 1993 to 1994 --
24 certain of defendants incurred a $460 million judgment entered against them in a legal action that
25 resulted from Edward Shoen' s takeover of AMERCO in the late 1980s. The facts surrounding the
26 ensuing battle for control of AMERCO, and resulting $460 million judgment against defendan t
27 Edward Shoen, and other officers and directors of AMERCO, is highly pertinent to defendants'
28 motive for carrying out and perpetuating the fraudulent activities alleged herein . Among other
THOMAS J . HAL L 1 5 A TTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL OS SOUTH ARLINGTO N AVENUE SECURITIES LAW n
things, by hiding hundreds of millions of dollars in debt in the off-balance-sheet SAC SPEs, the
2 defendants were able to artificially improve AMERCO's earnings, cost of borrowings and financia l
3 ratios, thus allowing the Company to obtain the additional financing needed to fund the damag e
4 I award . If defendants had not engaged in their fraudulent scheme, then they stood to lose control of
5 the Company, and AMERCO's bankruptcy would have occurred years earlier.
6 53 . Indeed, the Defendants' structuring and initiation of transactions with the SAC
7 Entities mirrors the adverse developments in the Shoen Action as illustrated by the following time
8 line of events :
9 11992 • Plaintiffs in the Schoen Action seek as a remedy to sell their shares of AMERCO common stock to the director defendants . 10
11 1993 • In early 1993, defendants began planning strategies to account for real estate, and related debt, acquired in connection with the expansion of AMERCO' s self- 12 storage business through "off balance sheet" entities.
13 • In December, 1993, defendants Edward, James and Mark Shoen, as joint owners, form the first two SAC SPEs - SAC Self Storage Corporation ("SAC") 14 and TWO SAC Self Storage Corporation ("TWO SAC").
15 1994 • Preliminary rulings by the court in the Shoen Action support plaintiffs' remedy and set as a measure of damages the decline in the value of plaintiff's shares 16 from 1988 to their current value .
17 • During the six months ended June 30, 1994, defendants initiate transactions wii the SAC SPEs, as a result, AMERCO "loaned" the SAC SPEs $32.5 million 18 dollars for the purchase of forty-four (44) self-storage properties. Twenty-four (24) of the properties were purchased from the Company . 19 • On October 7, 1994, plaintiffs in the Shoen Action obtain a jury verdict of $1 .47 20 billion.
21 • In December 1994, defendants transfer sole ownership of the SAC SPEs to Mark Shoen, who was not a defendant in the Shoen Action . 22
23 54. In fact, it was in contemplation of the impending verdict in the Shoen Action that
24 defendants embarked upon their fraudulent scheme to remove debt from AMERCO' s books by any
25 means possible while at the same time shielding the Company's most valuable real estate assets
26 from the verdict. As detailed herein, beginning in the first or second quarter of fiscal 1995, the
27 Company entered into fictitious real estate sales transactions with the SAC SPEs that materially
28 I I misstated the Company' s financial statements .
THOMAS J. HAL L 16 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL H SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 B. Edward Shoen Seizes Control of AMERCO
2 55 . The "U-Haul" moving and equipment rental business was founded in 1945 b y
3 Leonard S . Shoen. In 1969, AMERCO was formed as a holding company for the Company' s
4 various operating segments with Leonard Shoen as the sole shareholder . Currently, U-Haul,
5 AMERCO, RepWest and Oxford Life comprise AMERCO 's primary operating subsidiaries .
6 56. Over a period, of time Leonard Shoen transferred most of his AMERCO stock to his
7 I children . By 1986, 95 % of AMERCO outstanding voting stock was owned or controlled by th e
8 Shoen children, with no single family member or group comprising majority ownership.
9 57 . In November 1986, a tenuous alliance of AMERCO shareholders comprised of
10 Shoen family-members, including defendants Edward Shoen and Leonard Shoen's eldest son,
11 Samuel Shoen, ousted Leonard Shoen and forced him into retirement . The takeover resulted in
12 Edward Shoen's appointment as AMERCO's Chairman of the Board and Samuel Schoen's serving
13 as a director and president of the Company . By February of 1987, however, Edward Shoen had
14 forced Samuel Shoen to resign his position as president and Edward Shoen assumed that position
15 himself. Samuel Shoen was subsequently ousted from AMERCO's board in September 1987 . The
16 falling out among the Shoen brothers was well documented, including press reports of the Shoens
17 exchanging blows and accusations during board of directors meetings . From September 1987
18 forward, AMERCO shareholders, owning approximately 95% of the voting stock of the Company,
19 were split into two camps : the "directors' group" led by Edward Shoen, and including certain other
20 Individual Defendants, and the "dissident stockholders' group," led by Samuel Shoen . Neither
21 group controlled a majority of AMERCO outstanding stock .
22 58. In July 1988 Edward Shoen, reacting to rumors that the dissident stockholders' gr o
23 was planning a sale of AMERCO, took steps to consolidate his control of the Company . On July
24 24, 1988, the five Shoen siblings in the directors' group, including Individual Defendants Edward
25 and James Shoen, entered into a voting trust agreement that required their shares be voted as a blocl
26 opposing any sale of the Company . Then on July 25, 1988, AMERCO's board adopted a key
27 employee stock purchase plan (the "stock plan") whereby AMERCO sold treasury shares to certain
28 officers and directors, including Edward and James Shoen . AMERCO's board also granted votin g
THOMAS J. HAL L 1 7 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 05 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 proxies over all shares issued under the stock plan to Edward Shoen . As a result, the share s
2 purchased under the stock plan and the shares subject to the voting trust provided the directors '
3 group with a 50 .2% majority ownership of the Company .
4 59 . To further consolidate his control over the Company and further impede the dissid e
5 I stockholders' group's ability to sell the Company, Edward Shoen caused the board to amend the
6 Company' s by-laws, granting AMERCO a right of first refusal on any sale of AMERCO commo n
7 stock. The Company's amended by-laws stated in pertinent part as follows :
8 In case any holder of shares of the corporation's common stock, $0 .25 par value, and Series A Common Stock, $0 .25 par value (collectively, 9 the "Common Stock") shall wish to make any sale, transfer or other disposition of all or any part of the Common Stock held by him, he 10 shall first notify the Secretary of the corporation in writing designating the number of shares of Common Stock which he desires 11 to dispose of, the name(s) of the person(s) to whom such shares are to be disposed of, and the bona fide cash price at which such shares are 12 to be disposed of.
13
14 The corporation shall have a period of 30 calendar days following the date of its receipt of such notice to determine whether it wishes to 15 purchase such shares at the price stated therein .
16 11 C. manes Of More Than'. )n Due to Certain In d ions 17
18 60 . Subsequently, unsuccessful efforts by the dissident stockholders' group to appoin t
1 9 additional directors to AMERCO' s board and amend the Company's by-laws to protect the rights o f
20 existing shareholders led to a protracted litigation.
21 61 . On August 2, 1988, the dissident stockholders' group filed an action in the Superio r
22 Court of the State of Arizona in and for the County of Maricopa entitled Samuel W. Shoen, M. D., e t
23 al. v. Edward J. Shoen, et al., No. CV88-20139 (the "Shoen Action") .2 Plaintiffs in the Shoe n
24 Action alleged, among other things, that certain of the individual plaintiffs were wrongfull y 25
26 2 Plaintiffs in the Schoen Action included : Samuel Shoen, Mary Anna Shoen-Eaton, Celia Shoen Hanlon, Katrina Shoen, Theresa Shoen and Leonard Shoen . Defendants included : Edward Shoen, 27 James Shoen, Gary Horton, Paul Shoen, Aubrey Johnson, William Carty, John Dodds, Henr y Martin and Henry DeShong . 28
THOMAS J . HAL L 1 8 A TT ORNEY AN D COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL OS SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 excluded from sitting on the Company's Board of Directors in 1988 through the sale of Company
2 common stock to certain key employees. The plaintiffs also alleged various breaches of fiduciary
3 duty and other unlawful conduct by the director defendants and sought equitable relief ,
4 compensatory damages, and punitive damages.
5 62 . As the litigation progressed, plaintiffs' claims for equitable relief, which include d
6 demands for representation on AMERCO's board, were dismissed. In February 1992, plaintiffs
7 filed their fourth amended complaint in the action, alleging, among other things, that the director
8 defendants' actions had caused plaintiffs' AMERCO common stock to become virtually worthless
9 due to its lack of marketability, among other things . Therefore, under Nevada law - AMERCO's
10 state of incorporation - plaintiffs' remedy contemplated a theory of damages based on the "sale" of
11 plaintiffs' AMERCO common stock to the director defendants at pre-1988 values .
12 63 . On October 7, 1994, a jury awarded plaintiffs in the Schoen Action $1 .47 billion in
13 compensatory damages against the director defendants and $70 million dollars in punitive damages
14 against Edward Schoen individually for "hatred and ill will and the deliberate and evil intent to
15 injure plaintiffs ." On February 2, 1995, the court reduced the compensatory damage award to
16 $461 .8 million and separately reduced the punitive damage award to $7 million . According to the
17 Company's 1998 Form 10-K, during fiscal 1996 and 1997, AMERCO settled claims for
18 indemnification made by the director defendants and exercised its right of first refusal on the sales
19 of plaintiffs' shares to the director defendants by funding more than $494 million in stock purchas e
20 costs and damages.
21 D. Defendants Failure To Consolidate the SAC SPEs
22 64. As defendants have now admitted, over the course of seven years - from fiscal year
23 1995 through 2001 - hundreds of millions of debt, related real estate assets, and millions in
24 operating losses were secreted away in the SAC SPEs in order to facilitate AMERCO's funding of
25 the verdict in the Shoen Action . Furthermore, these fictitious transactions were structured an d
26 executed for the primary benefit of defendants Edward, James and Mark Shoen, and to the
27 detriment of AMERCO public shareholders . Indeed, in a conference call with analysts o n
28 September 5, 2003, defendant Edward Schoen revealed that the most recent appraisal of th e
THOMAS J. HAL L 1 9 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 75 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 Company's real estate assets, including the Company's self-storage facilities formerly accounted fi
2 as assets of the unconsolidated SAC SPEs, stood at $1 .1 billion, or nearly two times their purchase
3 price (i.e., carrying value on the Company's books) . Much of this appreciation in value had been
4 secreted away in the SAC SPEs where it was held for the primary benefit of defendants Edward,
5 James and Mark Shoen to the detriment of AMERCO public shareholders .
6 65 . During the Class Period , defendants caused AMERCO to engage in transactions wit h 7 SAC SPEs, which, as now admitted by defendants, falsely improved AMERCO's financials an d
8 served to benefit AMERCO insiders to the detriment of AMERCO shareholders . The defendants
9 failed to disclose the true nature and financial impact of the transactions to the public .
10 66 . Specifically , defendants failed to disclose that AMERCO's resources were used to
11 identify, purchase, and/or develop self-storage properties , which AMERCO then sold to SAC SPE s
12 for inadequate consideration or caused SAC SPEs to buy . In this way, the defendants caused th e
13 transfer of valuable Company assets and resources to defendants Edward, James, and Mark Shoe n
14 for their personal benefit.
15 67 . While SAC SPEs received most of the rental revenues from the self-storage
16 properties ($111 million, $89 million, and $65 million in fiscal 2002, 2001, and 2000 respectively),
17 AMERCO continued to manage the properties, reporting related management fees from the SAC
18 SPEs. In effect, nothing changed from when the properties were owned by AMERCO, except that
19 the associated debt of the properties was transferred off of AMERCO's books, AMERCO reported
20 gains on the sale of the properties, and any future real estate appreciation was transferred to
21 Edward, James, and Mark Shoen .
22 68. SAC Holdings, owned and controlled by AMERCO insiders, thereby received
23 substantial benefit from transactions which otherwise served to falsely improve AMERCO's
24 financials. For example, AMERCO improperly inflated its stockholders' equity by $36.0 million
25 and $36 .8 million for fiscal years ended March 31, 1999 and 2001, respectively, by including as a
26 component of equity purported gains on sales of properties to SAC Holdings, a controlled entity .
27 As of December 31, 2001, AMERCO's stockholders' equity was overstated by a total of $81 .7
28 million, or 14%, from improperly reporting gains on sales of properties to SAC Holdings .
THOMAS J . HALL 20 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 69. AMERCO's sales to the SAC SPEs were financed by AMERCO itself as well as
2 third-parties. The defendants caused AMERCO to accept promissory notes from the SAC SPEs
3 totaling approximately $400 million, much of which was unsecured . The defendants kept
4 substantial third-party debt off AMERCO's books by improperly failing to consolidate SAC
5 Holdings (approximately $376 million in hidden debt in fiscal 2001) .
6 E. The 2002 SAC SPE Restatement
7 70. According to defendants, in February 2002, PwC contacted AMERCO and requested f
8 a meeting to discuss "an issue" relating to the SAC SPEs . On February 5, 2002, nine days before
9 the deadline for filing AMERCO's third quarter fiscal 2002 Form 10-Q with the SEC, PwC met
10 with certain of defendants in Phoenix . During the meeting, PwC distributed a memorandum which
11 stated, among other things, that during December 2001, "as a result of Enron publicity . . ." PwC
12 conducted a further review of the SAC SPEs and determined that "it appears that a mistake was
13 made in the initial decision rendered in 1995 and a restatement may be necessary ."
14 71 . According to defendants, AMERCO missed its February 14, 2002 filing date for it s
15 third quarter fiscal 2002 Form i 0-Q because "despite diligent efforts, AMERCO could not
16 complete the preparation of the restated consolidated financial statements reflecting the SAC
17 SPEs." Instead, on February 14, 2002, AMERCO filed a Form 12b-25, "Notification of Late
18 Filing" with the SEC, which extended the Form 10-Q deadline to February 19, 2002 . Interestingly,
19 the Form 12b-25 makes no mention of the meeting with PWC or the impending restatement of
20 the Company's financial statements to consolidate the SAC SPEs as the reason for the Company's
21 late filing. The Form 12b-25 stated in pertinent part as follows :
22 .. . the company is trying to improve its disclosure of information in the area of liquidity and capital resources. As such, the company is 23 taking steps that the Securities and Exchange Commissio n recommended, including compiling aggregated disclosure concerning 24 its obligations and commitments to make future payments under contracts, debt and lease agreements, and contingent commitments . 25 As a result, it has taken longer to gather the necessary information to prepare the quarterly report on Form 10-Q. [Emphasis added.] 26
27 28
THOMAS J . HALL 2 1 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )5 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 72 . On February 19, 2002, AMERCO filed it third quarter fiscal 2002 Form 10-Q which
2 again failed to disclose the discussions with PwC or the impending restatement of AMERCO' s
3 historical financial results to consolidate the SAC SPEs.
4 73 . On March 4, 2002, AMERCO issued a press release announcing that NASDAQ had
5 notified the Company that its stock was subject to delisting because of the filing of its latest For m
6 10-Q without a review by PwC . The press release stated, "[t]he Company and
7 PricewaterhouseCoopers are working as expeditiously as possible to comply with Marketplace Rul e
8 4310 (c)(14)."
9 74 . Then on March 28, 2002, AMERCO restated its historicalfinancial results,
10 marking the first of three major restatements during the Class Period and one thereafter by
11 amending its third quarter fiscal 2002 Form 10-Q. The amendment on Form 10-Q/A restated the
12 interim financial statements previously filed for the quarter, as well as for the year ended March 31,
13 2001 presented therein, to reflect the consolidation of SAC SPEs with AMERCO and its
14 consolidated subsidiaries. The restatement revealed that AMERCO had approximately $306
15 million and $257 million in previously unreported debt related to the SAC SPEs as of December
16 31, 2001 and March 31, 2001, respectively. The restatement also revealed that AMERCO
17 overstated its previously reported stockholders' equity by $91 million and $80 million as of
18 December 31, 2001 and March 31, 2001, respectively . The Form 10-Q/A also disclosed that
19 "AMERCO has no ownership interest in SAC ." A press release issued by AMERCO on that same
20 day included comments by defendant Horton ,
21 The presentation of a combination of the financials of AMERCO and SAC Holding does not effect the earnings or credit agreement 22 compliance of the Company ." [Emphasis added.]
23 75 . Then on July 17, 2002, AMERCO changed its historical financial results for the
24 second time in less than three months , with the filing of its 10-K for the year ended March 31 ,
25 2002 . In that filing, AMERCO restated its fiscal years 2000 and 2001 to reflect consolidation of
26 the SAC SPEs . The Company's 2002 10-K reported that as a result of the consolidation of the SA C
27 SPEs, its net income for fiscal 2001 was reduced by 92%. The Company reported that its fiscal
28 2001 net income was actually $1.0 millionfor the year ended March 31, 2001, not $13.0 million
THOMAS J. HAL L 22 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL H SOUTH ARLINGTON AVENUE SECURITIES LAW 1_*~
1 as previously reported, and $63 .2 million for the year ended March 31, 2000, not $65 .5 million as
2 previously reported . The Company also stated that its liabilities were actually $3 .1 billion for the
3 year ended March 31, 2001, not $2 .8 billion as originally reported . The amount of SAC SPE debt
4 had now grown to more than $373 million as of March 31, 2001, and liabilities were actually $2 .8
5 billion for the year ended March 31, 2000, not $2 .5 billion as originally reported . The Company
6 stated its stockholders' equity was actually $512.3 million for the year ended March 31, 2001, not
7 $615 .4 million as originally reported, and $532 .5 million for the year ended March 31, 2000, not
8 $585 .3 million as originally reported .
9 76. Defendants reiterated in the 2002 Form 10-K that the Company's compliance wit h
10 its debt covenants was unaffected by the consolidation of the SAC Entitites and that the Company
11 remained in compliance with all of its respective covenants. Regarding the Company's financing
12 arrangements the Form I OK disclosed that "subsequent to year-end, the Company executed "a $205
13 million revolver credit agreement" to fund "an existing agreement [that had] expired . "
14 77 . On the same day, July 17, 2002, AMERCO announced it had dismissed defendant
15 PwC, its outside auditor since 1978 .
16 78 . Subsequently, on September 26, 2002, AMERCO restated its 2002 financial result s
17 in an amended 10-K for the year ended March 31, 2002, and restated its historical financial results
18 for the third time in just six months . The Company reported that its interest expense was actually
19 $106.8 million, $109.0 million, and $97 .2 million in fiscal years 2002, 2001, and 2000, respectively,
20 not $116.3 million, $114.6 million, and $99 .9 million in the same periods, as previously reported .
21 Moreover, the Company reported that net investment and interest income was actually $58 .1
22 million, $61 .5 million and $61 million in fiscal years 2002, 2001 and 2000, respectively, and not
23 $67.6 million, $67 .1 million and $63 .7 million in the same period, as previously reported.
24 79. Additionally, the amended Form 10-K noted that the July 17, 2002 Form 10- K
25 included material misrepresentations concerning the Company's ownership interest in the SAC
26 SPEs by failing to disclose that the Company's insurance subsidiaries, RepWest and Oxford, hel d
27 equity investments in several SAC sponsored entities.
28
THOMAS J . HALL 23 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 55 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 F. Defendants Fail To Disclose The Company's Potential or Actual Violation of Its Debt Covenants 2
3 80. As shown in detail below, defendants had many opportunities to disclose that, unde r
4 certain cross-default provisions of the Company's financing arrangements, AMERCO was or soon
5 would be in material violation of all its respective debt covenants due to the liquidity crisis
6 stemming from the March 2002 restatement of AMERCO's historical financial results . However,
7 for a period of at least six months following the consolidation of the SAC SPEs, defendants made
8 no disclosure of this material adverse contingency . In fact, even after the Company's October 2002
9 debt default had occurred, defendants affirmatively misled investors concerning the reason for it s
10 failure to file its second quarter fiscal 2002 Form 10-Q .
11 81 . In both the amended Form 10-Q and the amended Form 10-K reports filed b y
12 AMERCO on September 26, 2002, the Company reiterated its compliance with all debt covenants .
13 In addition, defendants disclosed for the first time that the recently acquired $205 million revolver
14 credit agreement was conditioned on the Company obtaining "at least $150 million in additional
15 financing by October 8, 2002" - one week prior to the maturity of $100 million senior notes and
16 payment of $30 million interest under certain of AMERCO's senior debt obligations .
17 82 . On September 27, 2002, the AMERCO Defendants issued a press release
18 announcing a Rule 144A private offering of $275 million in senior notes and, on September 30 ,
19 2002, announced that the Company had "launched its efforts" to complete the private offering .
20 83 . Then on October 15, 2002, the AMERCO Defendants issued a press releas e
21 announcing that AMERCO had "temporarily suspended" payment of its debt obligation :
22 As part of the Company's strategic plan it has elected to enter into negotiations to restructure certain of its debt . While the Company 23 works to recapitalize its balance sheet, it has elected to temporarily suspend the October 15, 2002 payment of its [$100 million] Series 24 1997-C Bond Backed Asset Trust. The Company also intends to refinance its [$205 million] 3 -year Credit Agreement . [Emphasis 25 added. ]
26 Also on October 15, the defendants announced that AMERCO had retained Crossroads, LLC as a
27 I financial advisor. 28
THOMAS J . HALL 24 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL lS SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 84. On November 14, 2002, the Company was required to file its quarterly report o n
2 Form 10-Q for the second quarter fiscal 2003 ended September 30, 2002 . However, instead of
3 filing its report, the Company filed a "Notice of Late Filing" on Form 12b-25 . The Form 12b-25,
4 signed by defendant Horton, stated that the reason for the delay was due "to management and the
5 accountants requiring additional time to internally verify data from the company's books and
6 records."
7 85 . Defendants' violations of the securities laws included filing a false Form 12b-25 ,
8 which failed to disclose the true reason for the Company's late filing . Finally, on November 18,
9 2002, the Company filed its required quarterly report . The Form 10-Q belatedly disclosed that the
10 Company's `temporary suspension' of its debt payment was in fact a default which, in turn, had
11 triggered certain cross-default provisions of the Company's other financing agreements . As a
12 result, more than $1 .2 billion of the Company's debt had become immediately payable .
13 VIII. DEFENDANTS MATERIALLY MISREPRESENTED THE OPERATING RESULTS AND FINANCIAL CONDITION OF THE COMPANY' S 14 INSURANCE OPERATIONS
15 11A. Background
16 86. The Company' s insurance operations are comprised of RepWest's property an d
17 casualty business and Oxford's life insurance business . During the Class Period, defendant s
18 misrepresented and manipulated the operating results and financial condition of the Company's
19 insurance operations in order to make it appear that they were operating profitably .
20 87. In fact, defendants have now admitted that the Company's previously reporte d
21 financial results for 2002, 2001 and an undetermined number of years prior to 2001, materiall y
22 misrepresented the operating results and financial condition of the Company' s insurance operations ,
23 among other things.
24 88 . In particular, during the Class Period, defendants knowingly or with deliberate
25 recklessness understated AMERCO's insurance loss reserves (thereby overstating earnings) by at
26 least $125 million by failing to accrue loss reserves on a part of the Company's business -
27 Rep West's extension of general and automobile liability coverage to U-Haul, among others -
28 which the Company had been in engaged in since at least 1987 .
THOMAS J . HALL 2 5 ATTOK Ey AND :OUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 89. Furthermore, as detailed herein, AMERCO 's insurance loss reserves were a materia l
2 component of the Company's balance sheet - averaging over 20% of the Company's reported
3 liabilities during the Class Period . Therefore defendants knew that by understating these reserves,
4 the Company's credit ratings, borrowing costs and financial ratios could be artificially improved . In
5 fact, a former RepWest executive, employed by the Company during the Class Period, stated in a
6 letter to state insurance regulators that defendants had intentionally understated the Company's
7 insurance losses in order to improve AMERCO's credit rating prior to a public debt offering in
8 October 2001, and in order to conceal losses RepWest's U-Haul segment. The former Rep West
9 executive also stated that Rep West improperly reclassified agents' commissions in order to reduce
10 expenses and thereby affect income. Moreover, defendants knowledge of AMERCO's material
11 understatement of its insurance reserves as early as 1997 has been admitted by the current president
12 of Rep West in deposition testimony taken in another matter .
13 B. AMERCO's Insurance Loss Reserves The ADOI Determination And The 2003 Restatement 14
15 90. On or about May 12, 2003, an article published by Associated Press Worldstream
16 stated that AMERCO confirmed that its new auditors, BDO Seidman, were reexamining the
17 Company's fiscal 2002 and 2001 financial statements. In connection with the re-audit, the
18 AMERCO Defendants misleadingly stated the Company 's new auditor, has identified prior perio d
19 adjustments related to insurance reserves at Rep West as well as other insurance company-related
20 adjustments.
21 91 . Unknown to investors, however, the Arizona Department of Insurance ("ADOI")
22 was about to issue its report of the limited scope examination of RepWest as of December 31, 2002 .
23 The ADOI commenced its limited scope examination following the Company's debt default in
24 October 2002. Because of the Company's default, the ADOI examination centered on RepWest's
25 credit exposure to AMERCO stemming from insurance policies issued by Rep West to AMERCO
26 and its subsidiaries, primarily U-Haul . Under the deductible provisions of these policies, Rep West
27 was responsible for the payment of all losses and then billed and collected the losses paid from
28 AMERCO. However, as documented in the ADO! report, defendants knowing or deliberat e
THOMAS J. HAL L 26 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 95 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 reckless actions during the Class Period resulted in RepWest reporting its loss reserves net of the
2 "receivable" from AMERCO for the loss payments while AMERCO and its subsidiaries, primarily
3 U-Haul, failed to accrue the offsetting loss reserves in their financial statements . As a result, the
4 reserves reported to investors were materially understated by more than $130 million during th e
5 Class Period. The ADOI 's report also indicated that Rep West's December 31, 2002 audited assets
6 were overstated by more than $65 million and its liabilities were understated by more than $7 3
7 million.
8 92 . Following the ADOI' s determination that RepWest had netted more than $13 0
9 million in loss reserves in its financial statements and had overstated its assets by more than $65
10 million and understated its liabilities by more than $73 million, as reported to the SEC and
11 regulators as of December 31, 2002, the ADOI set out in March 2003 to determine whether
12 defendants had in fact accrued such loss reserves in AMERCO's financial statements . Over the
13 next three months defendants actively participated in a campaign to stonewall the regulators by
14 refusing to provide any information concerning the accruals of loss reserves in AMERCO's
15 financial statements .
16 93 . On March 17, 2003, the ADOI made a written request to AMERCO asking
17 AMERCO to confirm it had recorded certain amounts due to RepWest for retrospective premiums,
18 federal income taxes, and reserves for AMERCO's deductible obligations under policies issued by
19 the Company. AMERCO was also asked to provide a reconciliation that would disclose how these
20 balances due to the company were reported in AMERCO's financial statement filings with th e
21 Securities and Exchange Commission as of its fiscal year end, March 31, 2002, and as of December
22 31, 2002 . AMERCO failed to adequately respond to the ADOI's March 20, 2003 request for
23 confirmation of balances.
24 94. Upon the failure of AMERCO to provide written confirmation of its obligation to th e
25 Company, the ADOI issued an Order to the Company dated March 26, 2003 to produce such
26 records, books or other information papers in its possession or the possession of its affiliates that (1)
27 substantiate AMERCO's reserves for deductible obligations under policies issued by the Company
28 for the years 2000 through 2003 ; and (2) reconcile AMERCO's reserves for deductibles unde r
THOMAS J. HALL 27 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL D5 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 policies issued by the Company for the years 2000 to 2003 to AMERCO' s financial statement filed
2 with the SEC as of March 31, 2002 and December 31, 2002 .
3 95 . In response to its letter of March 26, the ADOI received letters from AMERCO an d
4 the Company dated March 31 and April 2, 2003, respectively, neither of which provided the
5 requested information. Therefore, under cover of a letter dated April 3, 2003, the ADOI issued a
6 subpoena to AMERCO for the require information . AMERCO's response to the subpoena is
7 included in a letter dated April 22, 2003 and related attachments . Follow up meetings with
8 AMERCO were held on April 22 and 25, 2003 . Neither the letter nor the follow up meetings with
9 AMERCO provided the required information . With respect to the deductible policies, AMERCO
10 was unwilling to confirm that itsfinancial obligations were adequately recognized in AMERCO's
11 cial statements.
12 96. On May 17, 2003, the ADOI issued its examination report of RepWest as of
13 December 31, 2002. During this entire period (March 2003 to May 2003), defendants made n o
14 public disclosures of the ADOI' s findings or the Company ' s failure to comply with ADOI' s
15 requests for information concerning the Company's insurance loss reserves .
16 97 . Shortly thereafter on June 20, 2003, AMERCO filed a voluntary bankruptcy petition
17 Chapter 11 in the United States Bankruptcy Court, District of Nevada (Case No . 0352103) .
18 AMERCO Real Estate Company filed a voluntary petition for relief under Chapter 11 on Augus t
19 13, 2003 . AMERCO 's other subsidiaries were not included in either of the filings.
20 98. Then on August 25, 2003, AMERCO restated its full year and interim quarterl y
21 results for the fiscal years 2002, 2001 and its opening retained earnings balances for year prior to
22 2001 . The Company's fiscal 2003 Form 10-K summarized the restatement as follows :
23 Net Income Net Income April 1, 2000 Fiscal 2002 Fiscal 2001 Retained 24 (in thousands) Earnings
25 As reported $2,721 $1,012 $738,805
26 Adjustments to net income/(loss) :
27 Insurance reserves (55,570) (56,225) (13,320) 28
THOMAS J. HAL L 2 8 ATTORNEY AND -OL'NSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 05 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 Investments in Private Mini (9,729) (8,392) (8,132)
2 Capitalized G&A costs (900) ---- (31,749)
3 Accrued property taxes ------(3,600)
4 Fixed assets 3,846 (4,829) ----
5 Cash surrender value (3,943) 636 3,307
6 Impairment of real estate investments (2,366) ------
7 Other (860) 800 (5,156 )
8
9 Pretax adjustments (69,522) (68,040) (58,650)
1 0 Income tax benefit 19,361 24,918 41,492
As restated: $ (47,440) $ (42,110) $721,647 12
13 99 . In the fourth major restatement of the Company's historical financial results,
14 AMERCO reported in its fiscal 2003 Form I OK that it actually incurred losses of $42 .1 million for
15 the year ended March 31, 2001, and not earnings of $1 .0 million as previously reported, and losses
1 6 of $47 .4 million for the year ended March 31, 2002, not earnings of $2 .7 million as previously
17 reported . The Company also reported that assets decreased by $38 .7 million from $3 .638 billion
18 previously reported to $3 .599 billion while liabilities increased by $27.2 million from $3 .126 billion
1 9 previously reported to $3 .153 as of March 31, 2001 and that assets decreased by $41 .2 million from
20 $3 .773 billion previously reported to $3 .732 billion as of March 31, 2002 while liabilities increased
21 by $76 .4 million from $3 .274 previously reported to $3 .351 as of March 31, 2002 . The Company
22 also reported as of March 31, 2001 and stockholders' equity was actually $446 .4 million and not
2 3 $512 .3 million as previously reported, and $381 .5 million for the year ended March 31, 2002, not
24 $499 .1 million as previously reported . 2 5 2 6
27
28
THOMAS J . HALL 29 ATTORNEY AND :OUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTO N AVENUE SECURITIES LAW IX. MATERIALLY FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIO D 2
3 100. The Class Period starts on February 12, 1998, the date AMERCO filed its quarterl y
4 report on Form 10-Q announcing its results for the third quarter fiscal 1998, ended December 31 ,
5 1997 . AMERCO reported a net loss of $ 15 million compared to a net loss of $10 million for th e
6 prior year. The Company also reported liabilities of $2 .2 billion and stockholders' equity of $638 . 1
7 I million. The report, signed by defendant Gary B . Horton, included the following disclosure relate d
8 to SAC Holdings :
9 During the nine months ended December 31, 1997, a subsidiary held various senior and junior notes with SAC Holding Corporation and its 10 subsidiaries (SAC Holdings). The voting common stock of SA C Holdings is held by Mark V . Shoen, a major stockholder of the 11 Company.
12 The Company's subsidiary received principal payments of $3,725,000 and interest payments of $5,014,000 from SAC Holdings during the 13 period.
14 The Company currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which the 15 Company receives a management fee equal to 6% of the gross receipts from the properties . The Company received management 16 fees of $1,387,000 during the nine months ended December 31, 1997 . The management fee percentage is consistent with the fees received 17 by the Company for other properties managed by the Company .
18 101 . As of December 31, 1997, the Company reported that its reserve for insuranc e
19 I benefits and losses was $493 million or 22.2% of AMERCO' s reported liabilities, including
20 RepWest accruals for policy liabilities of $361 .1 million. AMERCO also reported that Rep West' s
21 net income for the nine months ended December 31, 19973 was $1 .8 million compared to $9 .0
22 million for the prior year. In addition, the Form 10-Q represented that the financial statement s
23 presented therein had been prepared in accordance with GAAP :
24 The Company believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in 25 accordance with generally accepted accounting principles, th e 26 3 AMERCO's consolidated fi nancial statements include financial statements for the Company's 27 insurance subsidiaries on a one -quarter lag. The period end dates used herein refer to the Company's consolidated fi nancial statement repo rting date . 28
THOMAS .. HAL L 30 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL D5 SOUTH ! ARLINGTON AVENUE SECURITIES LAW selected quarterly information when read in conjunction with the consolidated financial statements of the Company . 2
3 102 . On June 29, 1998, AMERCO filed its annual report on Form 10-K for its fiscal yea r
4 1998, ending March 31, 1998 . AMERCO reported net earnings of $ 35 million compared to $52
5 million for the prior year. The Company also reported liabilities of $2 .3 billion and stockholders '
6 equity of $595 .1 million. The report, signed by defendants Edward J . Shoen, Gary B. Horton ,
7 William E. Carty, James P. Shoen, Richard J . Herrera and Charles J. Bayer, included the followin g
8 representations related to SAC Holdings :
9 During fiscal 1998, a subsidiary of the Company held various senior and junior notes with SAC Holding Corporation and its subsidiaries 10 (SAC Holdings) . The voting common stock of SAC Holdings is held by Mark V. Shoen, a major stockholder of the Company . 11
12 The Company's subsidiary received principal payments of $1,047,000 and interest payments of $6,847,000 from SAC Holdings during fiscal 13 1998 . The note receivable balance outstanding at March 31, 199 8 was, in the aggregate, $66,111,000 bearing interest rates ranging from 14 8 .37% to 13 .0%.
15 During fiscal 1998, a subsidiary of the Company funded the purchase of properties and construction costs for SAC Holdings of 16 approximately $24,574,000 . Three of the properties were purchased from the Company at a purchase price equal to the Company's 17 acquisition cost plus capitalized costs which approximated fair market value. In March 1998, SAC Holdings sold three of the properties to 18 an outside party and reduced the Company's receivable by $2,814,000. 19
20 The Company currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which the 21 Company receives a management fee equal to 6% of the gross receipts from the properties . The Company received management 22 fees of $1,860,000 during fiscal 1998 . The management fee percentage is consistent with the fees received by the Company for 23 other properties managed by the Company.
24 Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's- 25 length transactions .
26 103 . As of March 31, 1998, the Company reported that its reserve for insurance policy
27 benefits and losses was $592 .6 million, or 25 .5% of AMERCO' s liabilities, including RepWest
28 accruals for policy liabilities of $389.6 million. The Company also reported that Rep West's ne t
THOMAS J . HAL L 3 1 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )5 SOUTH ARLINGTO N AVENUE SECURITIES LAW r-~
income for fiscal 1998 was $1 .3 million compared to $12 .8 million for the prior year . In addition,
2 1 the 1998 Form 10-K included the following representations concerning the adequacy of RepWest' s
3 I reserve for insurance benefits and losses, stating in pertinent part : 4 The liability for unpaid claims and unpaid claims expenses represents estimates of the amount necessary to settle all claims as of the 5 statement date . Both unreported claims and incurred but not reported claims are included in the liability . [RepWest] updates the liability 6 estimate as additional facts regarding claim costs become available . These estimates are subject to uncertainty and variation due to 7 numerous factors including, but not limited to, court decisions, economic conditions and public attitudes . In estimating reserves, no 8 attempt is made to isolate inflation from the combined effect of other factors including inflation . Unpaid losses and unpaid loss expenses 9 are not discounted .
10 [RepWest`s] unpaid loss and loss expenses are certified annually by an independent actuarial consulting firm as required by state 11 regulation .
12 104 . The 1998 Form 10-K further represented that the financial statements presente d
13 therein had been prepared in accordance with GAAP :
14 The Company believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in 15 accordance with generally accepted accounting principles, the selected quarterly information when read in conjunction with the 16 consolidated financial statements incorporated herein by reference .
17 105 . The statements referenced above in J J 100-103 were each materially false and
18 misleading when made because they failed to disclose and/or misrepresented the following advers e
19 facts :
20 (a) that defendants were using AMERCO' s resources to identify, purchase,
21 and/or develop the self-storage facilities which Amerco was selling to SAC SPEs for inadequat e
22 consideration or causing SAC SPEs to buy;
23 (b) that the SAC SPEs had incurred hundreds of millions of dollars of third-part y
24 debt relating to AMERCO' s purported "sales" of properties to SAC SPEs;
25 (c) that defendants had artificially inflated AMERCO's stockholders' equity b y
26 including in the Company's statement of financial condition "paper" gains on sales of properties to
27 SAC SPEs; 28
THOMAS J. HAL L 32 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL IS SOUTH ARLINGTON AVENUE SECURITIES LAW 1 (d) that the SAC SPEs were not separate economic entities from AMERCO, but
2 were completely controlled by AMERCO and artificially kept hundreds of millions of dollars o f
3 associated liabilities off AMERCO's balance sheet and millions of dollars of operating losses fro m
4 being reported to investors ;
5 (e) that the majority owner of the SAC SPEs, defendant Mark Schoen, lacke d
6 "independence" as defined in EITF 90-15, in that he : (i) failed to make a substantive capital
7 investment in the SAC SPEs ; (ii) did not possess substantive control over the SAC SPEs ; and (iii)
8 did not possess the substantive risks and rewards of ownership over the assets of the SAC SPEs . As
9 a result, GAAP required that the SAC SPEs be consolidated with AMERCO financial statements f o
10 all purposes;
11 (f) that the Company's reported assets and liabilities were understated by
12 hundreds of millions of dollars and the Company's stockholders' equity was overstated by tens o f
13 millions of dollars as a result of defendants ' failure to consolidate the SAC SPEs with AMERCO' s
14 financial statements;
15 (g) that the Company' s reserves for insurance policy benefits and losses, were
16 understated by tens of millions of dollars, as a result of defendants' failure to accrue for losse s
17 incurred in connection with certain general and automobile liability policies ;
18 (h) that the Company' s net earnings and stockholders' equity was materially
19 overstated due to defendants' failure to properly account for equity losses arising from th e
20 Company's investment in certain real estate limited partnerships, including Private Mini Storag e
21 Realty, L.P ., among others ;
22 (i) that the Company's periodic operating expenses, including certain genera l
23 and administrative expenses were materially understated due to : (i) defendants' improper
24 capitalization of such expenses, (ii) defendants' failure to accrue for certain property tax expenses
25 related to the Company's real estate properties and, (iii) defendants' failure to amortize such
26 capitalized expenses, among other things; and
27 (j) as a result of the foregoing, the financial statements contained in th e
28 Company's Form 10-Q for the period ended December 31, 1997 and the Company's Form 10-K fo r
THOMA S J. HAL L 3 3 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 7 5 SOUTH ARLINGTON AVENUE SECURITIES LAW 1 the period ended March 31, 1998 were not prepared in accordance with GAAP and were therefor e
2 materially false and misleading, as detailed below at ¶¶ 186-275 . Moreover, AMERCO has now
3 restated its financial statements, admitting the SAC SPEs should have been consolidated all along .
4 106. On August 7, 1998, AMERCO filed its quarterly report on Form 10-Q for its firs t
5 quarter fiscal 1999, ended June 30, 1998 . AMERCO reported net earnings of $31 million compare
6 to $29 million for the prior year. The Company also reported liabilities of $2 .4 billion and
7 stockholders' equity of $618 .2 million . The report, signed by defendant Gary B . Horton, included
8 the following representations related to SAC Holdings :
9 During the three months ended June 30, 1998, a subsidiary held various senior and junior notes with SAC Holding Corporation and its 10 subsidiaries (SAC Holdings). The voting common stock of SAC Holdings is held by Mark V . Shoen, a major stockholder of the 11 Company .
12 The Company' s subsidiary received interest payments of $1,794,000 from SAC Holdings during the quarter. 13
14 The Company currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which the 15 Company receives a management fee equal to 6% of the gross receipts from the properties . The Company received management 16 fees of $520,000 during the three months ended June 30, 1998 . The management fee percentage is consistent with the fees received by the 17 Company for other properties managed by the Company .
18 107 . As of June 30, 1998, AMERCO's reported reserve for insurance benefits and losse s
19 was $586 .7 million or 24.8% of AMERCO's reported liabilities, including RepWest accruals for
20 policy liabilities of $380 .6 million . The Company also reported that RepWest's net income for the
21 first quarter of fiscal 1999 was $1 .6 million compared to $3 .5 million for the prior year . The Form
22 10-Q represented that the financial statements presented therein had been prepared in accordance
23 with GAAP :
24 The Company believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in 25 accordance with generally accepted accounting principles, the selected quarterly information when read in conjunction with the 26 consolidated financial statements incorporated herein by reference .
27 108 . On November 9, 1998, AMERCO filed its quarterly report on Form 10-Q for th e
28 second quarter fiscal 1999, ended September 30, 1998. AMERCO reported net earnings of $42
THOMAS J. HAL L 34 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL H SOUTH ARLINGTON AVENUE SECURITIES LAW million compared to $35 million for the prior year. The Company also reported liabilities of $2 . 3
2 billion and stockholders ' equity of $628. 1 million. The report, signed by defendant Gary B . Horton,
3 included the following representations related to SAC Holdings :
4 During the six months ended September 30, 1998, a subsidiary held various senior and junior notes with SAC Holding Corporation and its 5 subsidiaries (SAC Holdings) . The voting common stock of SAC Holdings is held by Mark V . Shoen, a major stockholder of the 6 Company.
7 The Company' s subsidiary received interest payments of $4,167,000 from SAC Holdings during the six months ended September 30, 1998. 8
9 The Company currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which the 10 Company receives a management fee equal to 6% of the gross receipts from the properties . The Company received management 11 fees of $1,074,000 during the six months ended September 30, 1998 . The management fee percentage is consistent with the fees received 12 by the Company for other properties managed by the Company .
13 As of September 30, 1998, a subsidiary of the Company funded the purchase of eleven properties by SAC Holdings for approximately 14 $6,708,000 .
15 109 . As of September 30, 1998 , the Company's reported reserve for insurance benefits
16 and losses was $567. 0 million or 24.6 % of the Company's reported liabilities, including RepWes t
17 accruals for policy liabilities of $380.6 million. The Company also reported that RepWest's net
18 income for the six months ended September 30, 1999 was $4 .6 million compared to $4 .1 million for
19 the prior year . The Form 10-Q further represented that the financial statements presented therei n
20 had been prepared in accordance with GAAP:
21 The Company believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in 22 accordance with generally accepted accounting principles, the selected quarterly information when read in conjunction with the 23 consolidated financial statements incorporated herein by reference .
24 110 . On February 12, 1999, AMERCO filed its quarterly report on Form 10-Q for th e
25 third quarter fiscal 1999, ended December 31, 1998 . AMERCO reported net earnings of $2 . 5
26 million compared to a net loss of $15 million for the prior year. The Company also reported
27 liabilities $ 2.4 billion and stockholders' equity of $621 . 8 million. The report, signed by defendan t
28 Gary B . Horton, included the following representations related to SAC Holdings :
THOMAS J . HAL L 35 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL JS SOUTH ARLINGTO N AVENUE SECURITIES LAW During the nine months ended December 31, 1998, a subsidiary of the Company held various senior and junior notes with SAC Holding 2 Corporation and its subsidiaries (SAC Holdings) . The voting common stock of SAC Holdings is held by Mark V . Shoen, a major 3 stockholder of the Company .
4 The Company's subsidiary received interest payments of $5,988,000 from SAC Holdings during the nine months ended December 31, 5 1998 .
6 The Company currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which the 7 Company receives a management fee equal to 6% of the gross receipts from the properties . The Company received management 8 fees of $1,620,000 during the nine months ended December 31, 1998 . The management fee percentage is consistent with the fees received 9 by the Company for other properties managed by the Company .
10 As of December 31, 1998, a subsidiary of the Company funded the purchase of nineteen properties by SAC Holdings for approximately 11 $18,112,000.
12 In December 1998, the Company completed the sale of twenty-six storage properties to Six SAC Self-Storage Corporation , a subsidiary 13 of SAC Holding Corporation, for $99,685,000 . The Company received cash and notes from the sale . The gain was recorded on the 14 balance sheet.
15 111 . As of Decenber 31, 1998, the Company's reported reserve for insurance benefits and
16 losses was $570.6 million or 24 .0 % of AMERCO' s reported liabilities , including RepWest
17 for policy liabilities of $360 .7 million. AMERCO also reported that Rep West's net income for th e
18 I I nine months ended December 31, 1998 was $9 .6 million compared to $1 .8 million for the prior
19 year. The Form 10-Q further represented that the financial statements presented therein had bee n
20 prepared in accordance with GAAP :
21 The Company believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in 22 accordance with generally accepted accounting principles, the selected quarterly information when read in conj unction with the 23 consolidated financial statements incorporated herein by reference .
24 112 . On June 25, 1999, AMERCO filed its annual report on Form 10-K for fiscal year
25 1999, ended March 31, 1999 . AMERCO reported net earnings of $63 million compared to $3 5
26 million for the prior year . The Company also reported liabilities of $2 .5 billion and stockholders '
27 equity of $616.0 million. The report, signed by defendants Edward J . Shoen, Gary B . Horton,
28
THOMAS J. HAL L 3 6 ATTORNEY AND _O1NSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTON AVENUE SECURITIES LAW William E . Carty, James P . Shoen, Richard J . Herrera and Charles J . Bayer, included the following
2 representations related to SAC Holdings :
3 During fiscal 1999, a subsidiary of U-Haul held various senior and junior notes with SAC Holding Corporation and its subsidiaries (SAC 4 Holdings). The voting common stock of SAC Holdings is held by Mark V. Shoen, a major stockholder of AMERCO . U-Haul's 5 subsidiary received interest income of $8,022,000, $6,847,000 and $6,281,000 from SAC Holdings during fiscal years 1999, 1998 and 6 1997, respectively. No principal payments were received during fiscal year 1999 . Principal payments of $1,047,000 and $436,000 7 were received during fiscal year 1998 and 1997, respectively . The note receivable balance outstanding was, in the aggregate, 8 $179,819,000 and $66,111,000 at March 31, 1999 and 1998, respectively, bearing interest rates ranging from 8 .37% to 13 .0%. 9 Notes receivable from SAC Holdings includes $526,000 at March 31, 1999 which is secured by land and buildings at various locations . 10
11 During fiscal years 1999, 1998 and 1997, a subsidiary of U-Haul funded the purchase of prope rties and construction costs for SAC 12 Holdings of $26,116,000, $24,574,000 and $43,125 ,000, respectively.
13 In December 1998, U-Haul and [AMERCO's] Real Estate completed the sale of twenty-six storage properties to Six Sac Self-Storage 14 Corporation, a subsidiary of SAC Holdings, for $99,685,000 . [AMERCO's] Real Estate received cash and notes from the sale . The 15 gain is reflected in the Consolidated Statements of Changes in Stockholders' Equity . 16
17 U-Haul currently manages the properties owned by SAC Holdings under a management agreement, whereby U-Haul receives a 18 management fee equal to 6% of the gross receipts from the properties . Management fees of $2,483,000, $1,860,000 and $1,632,000 were 19 received during fiscal years 1999, 1998 and 1997, respectively . The 6% fee is consistent with the fees received by U-Haul for other 20 properties managed by U-Haul .
21 Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's- 22 length transactions .
23 113 . As of March 31, 1999, the Company' s reported reserve for insurance benefits an d
24 losses was $546 .6 million, or 22 .1% of AMERCO's reported liabilities, including RepWest accrual
25 for policy liabilities of $349 .6 million, or 16% of AMERCO's reported liabilities . For fiscal 1999,
26 AMERCO reported that RepWest's net was $13 .1 million compared to $1 .2 million for the prior
27 year. In addition, the 1999 Form 10-K included the following representations concerning the
28 adequacy of RepWest's reserve for insurance benefits and losses :
THOMAS J . HAL L 37 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )5 SOUTH ARLINGTO N AVENUE SECURITIES LAW [RepWest's] liability for reported and unreported losses is based on company historical and industry averages . Unpaid loss adjustment 2 expenses are based on historical ratios of loss adjustment expenses paid to losses paid. The liabilityfor unpaid claims and unpaid 3 claims expenses represents estimates of the amount necessary to settle all claims as of the statement date. Both reported and 4 unreported losses are included in the liability . Republic updates the liability estimate as additional facts regarding claim costs become 5 available . These estimates are subject to uncertainty and variation due to numerous factors . In estimating reserves, no attempt is made 6 to isolate inflation from the combined effect of other factors including inflation. Unpaid losses and unpaid loss expenses are not discounted . 7 [Emphasis added.]
8 114 . The 1999 Form 10-K further represented that the quarterly financial statements
9 presented therein had been prepared in accordance with GAAP:
10 AMERCO believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with 11 generally accepted accounting principles, the selected quarterl y information when read in conjunction with the consolidated financial 12 statements incorporated herein by reference .
13 115 . The statements referenced in ¶¶ 106-114 were materially false and misleading for th e
14 reasons set forth in ¶ 105 (a) through (i) .
15 116. In addition, the Company' s financial statements filed with the SEC on Forms 10- Q
16 for the quarters ended June 30, 1998, September 30, 1998 and December 31, 1998 and Form 10- K
17 for the year ended March 31, 1999, were not prepared in accordance with GAAP and were therefor e
18 materially false and misleading, as detailed below at ¶¶ 186-275 .
19 117 . On August 10, 1999, AMERCO filed its quarterly report on Form 10-Q for the firs t
20 quarter fiscal 2000, ended June 30, 1999 . AMERCO reported net earnings of $42 million compare d
21 to $31 million for the prior year . The Company also reported liabilities of $2 .5 billion and
22 I I stockholders' equity of $651 million. The report, signed by defendant Gary B . Horton, included the
23 following disclosure relating to SAC Holdings :
24 During the quarter ended June 30, 1999, a subsidiary of U-Haul held various senior and junior notes with SAC Holding Corporation and its 25 subsidiaries (SAC Holdings) . The voting common stock of SAC Holdings is held by Mark V . Shoen, a major stockholder of 26 AMERCO.
27 U-Haul ' s subsidiary received interest payments of $2,902 ,000 and $1,794,000 from SAC Holdings during the quarter ended June 30, 28 1999 and 1998, respectively.
THOMAS J . HAL L 3 8 ATTORN EY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL ]S SOUTH ARLINGTON AVENUE SECURITIES LAW U-Haul currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which U-Haul receives a 2 management fee equal to 6% of the gross receipts from the properties . Management fees of $1,035,000 and $520,000 were received during 3 the quarter ended June 30, 1999 and 1998, respectively . The management fee percentage is consistent with the fees received by U- 4 Haul for other properties managed by U-Haul .
5 During the quarter ended June 30, 1999, a subsidiary of AMERCO funded through a note receivable the purchase of properties and 6 construction costs for SAC Holdings of approximately $11,511,000 .
7 In December 1998, U-Haul and [AMERCO'sJ Real Estate completed the sale of twenty-six storage properties to Six SAC Self- 8 Storage Corporation , a subsidiary of SAC Holding Corporation, for $99,685,000. [AMERCO 's] Real Estate received cash and notes 9 from the sale. The gain was reflected in the Consolidated Statement of Changes in Stockholders ' Equity at March 31, 1999. [Emphasis 10 added. ]
11 118. As of June 30, 1999, the Company's reported reserve for insurance benefits and
12 losses was $539 .3 million or 21 .5% of AMERCO's reported liabilities, including RepWest accrual s
13 for policies liabilities of $341 . 8 million, or 13 .6% of AMERCO's reported liabilities. For the first
14 quarter, fiscal 2000 the Company reported that RepWest's net income was $1 .4 million compared
15 1 $1 .6 million for the prior year . In addition, the Form 10-Q represented that the financial statement s
16 presented therein had been prepared in accordance with GAAP:
17 AMERCO believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with 18 generally accepted accounting principles [the selected quarterl y information when read in conjunction with the consolidated financial 19 statements incorporated herein by reference] .
20 119 . On November 8, 1999, AMERCO filed its quarterly report on Form 10-Q for the
21 second quarter fiscal 2000, ended September 30, 1999. AMERCO reported net earnings of $42 . 1
22 million compared to $42 .2 million for the prior year. The Company also reported liabilities of $2 . 5
23 billion and stockholders' equity of $664 .1 million. The report, signed by defendant Gary B . Horton,
24 included the following disclosure relating to SAC Holdings :
25 During the six months ended September 30, 1999, a subsidiary of U- Haul held various senior and junior notes with SAC Holding 26 Corporation and its subsidiaries (SAC Holdings) . The voting common stock of SAC Holdings is held by Mark V . Shoen, a major 27 stockholder of AMERCO . U-Haul's subsidiary received interest payments of $8,610,000 from SAC Holdings during the six months 28 ended September 30, 1999 . The terms of the notes receivable wit h
THOMAS J . HAL L 3 9 ATTORNEY AND :OUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTO N AVENUE SECURITIES LAW SAC Holdings are consistent with the terms of notes receivables held by U-Haul for other properties owned by unrelated parties and 2 managed by U-Haul .
3 U-Haul currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which U-Haul receives a 4 management fee equal to 6% of the gross receipts from the properties . Management fees of $2,269,000 and $1,074,000 were received during 5 the six months ended September 30, 1999 and 1998, respectively . The management fee percentage is consistent with the fees received 6 by U-Haul for other properties owned by unrelated parties and managed by U-Haul . 7
8 During the six months ended September 30, 1999, a subsidiary of AMERCO funded through a note receivable the purchase of 9 propert ies and construction costs for SAC Holdings of approximately $21,580,000 . 10
11 Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's- 12 length transactions.
13 120. As of September 30, 1999, the Company's reported reserve for insurance benefits
14 and losses was $529. 1 million or 21 .5% of AMERCO's reported liabilities , including Rep West
15 accruals for policy liabilities of $328 .1 million. For the second quarter fiscal 2000, AMERCO
16 reported that RepWest's net income was $2 million compared to $3 million for the same period last
17 year. In addition, the Form 10-Q represented that the financial statements presented therein had
18 been prepared in accordance with GAAP :
19 AMERCO believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with 20 generally accepted accounting principles, its results .
21 121 . On or about February 4, 2000, AMERCO issued $200,000,000 of publicly trade d
22 118 .8% Senior Notes due February 4, 2005 (the "AMERCO Senior Notes") (the "Offering") The
23 Offering was pursuant to the filing by AMERCO with the SEC of a Prospectus Supplement (file d
24 on January 28, 2000), a Preliminary Prospectus (filed on January 21, 2000) and a Registratio n
25 Statement (filed on March 19, 1999) (collectively the "January 2000 Registration Statement") .
26 122 . The January 2000 Registration Statement was executed and signed by, among others ,
27 defendants Edward Shoen, Horton, James Shoen, Carty, Dodds, Bayer, Herrera, Brogan and
28 Grogan .
THOMAS J . HALL 40 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL IS SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 123 . In the January 2000 Registration Statement, defendant set forth financial informatio n
2 that purported to be an accurate report of AMERCO's financial results . The January 2000
3 Registration Statement reported AMERCO's financial results for the fiscal years ended March 31, 4 1999, 1998 and 1997 and the Company's financial results for the quarters ended June 30, 1999 and
5 September 30, 1999 . The January 2000 Registration Statement reported that for the quarter ended
6 June 30, 1999 the Company had recorded total revenues of $439 .4 million and net earnings of $42 .3
7 million for the same period last year . For the quarter ended September 30, 1999, the January 2000
8 Registration Statement reported that the Company had recorded total revenues of $462 .6 million
9 and net earnings of $42.1 million. In addition, the January 2000 Registration Statement
10 incorporated by reference the 1999 Form 10-K and the financial statements consolidated in the 199(
11 Form 10-K. The January 2000 Registration Statement also incorporated by reference the Second
12 Quarter 2000 Form 10-Q . The January 2000 Registration Statement described the Company's
13 moving and storage operations but made no direct mention of the relationship between AMERC O
14 and the SAC SPEs .
15 124 . On February 10, 2000 , AMERCO filed its quarterly report on Form 10-Q for the
16 third quarter fiscal 2000, ended December 31, 1999 . AMERCO reported a net loss of $9 million
17 compared to net earnings of $2 million for the prior year . The Company also reported liabilities of
18 $2.4 billion and stockholders' equity of $648 .3 million . The report, signed by defendant Gary B .
19 Horton, included the following disclosure relating to SAC Holdings :
20 During the nine months ended December 31, 1999, subsidiaries of AMERCO held various senior and junior notes with SAC Holding 21 Corporation and its subsidiaries (SAC Holdings) . The voting common stock of SAC Holdings is held by Mark V . Shoen, a major 22 stockholder of AMERCO .
23 AMERCO's subsidiaries received interest payments of $14,783,000 and principal payments of $29,456,000 from SAC Holdings during 24 the nine months ended December 31, 1999 . The terms of the notes receivable with SAC Holdings are consistent with the terms of notes 25 receivable held by U-Haul for other properties owned by unrelated parties and managed by U-Haul. 26
27 U-Haul currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which U-Haul receives a 28 management fee equal to 6% of the gross receipts from the properties .
THOMAS J . HALL 4 1 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTO N AVENUE SECURITIES LAW ~1 -
Management fees of $3,348,000 and $1,620,000 were received during the nine months ended December 31, 1999 and 1998, respectively . 2 The management fee percentage is consistent with the fees received by U-Haul for other properties owned by unrelated parties and 3 managed by U-Haul .
4 During the nine months ended December 31, 1999, a subsidiary of AMERCO funded through a note receivable the purchase of 5 properties and construction costs for SAC Holdings of approximately $37,948,000. 6
7 Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's- 8 length transactions.
9 125 . As of December 31, 1999, the Company's reported reserve for insurance benefits
10 I and losses was $517 .4 million or 18 .7% of AMERCO's reported liabilities, including RepWest
11 accruals for policy liabilities of $324 .2 million. For the second quarter fiscal 2000, AMERCO
12 reported that RepWest's net income was $2 .9 million compared to $5 .1 million for the prior year.
13 In addition, the Form 10-Q represented that the financial statements presented therein had been
14 prepared in accordance with GAAP :
15 AMERCO believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with 16 generally accepted accounting principles, its results .
17 126 . On June 29, 2000, AMERCO fi led its annual report on form IO-K for the fiscal yea r
18 2000, ended March 31, 2000 . AMERCO reported net earnings of $65 million compared to $63
19 million for the prior year . The Company also reported liabilities of $2 .5 billion and stockholders'
20 equity of $585 .3 million. The report, signed by defendants Edward J . Shoen, Gary B . Horton,
21 William E . Carty, James P . Shoen, Richard J. Herrera, Charles J . Bayer, John M . Dodds, James J .
22 Grogen and John P. Brogan, included the following disclosure relating to SAC Holdings :
23 During fiscal year 2000, subsidiaries of AMERCO held various senior and junior notes with SAC Holding Corporation and its subsidiaries 24 (SAC Holdings) . The voting common stock of SAC Holdings is held by Mark V. Shoen, a major stockholder of AMERCO . AMERCO's 25 subsidiaries received interest income of $20,111,000, $8,022,000 and $6,847,000 from SAC Holdings during fiscal years 2000, 1999, and 26 1998, respectively. Principal payments of $105,689,000 zero, and $1,047,000 were received during fiscal years 2000, 1999, and 1998, 27 respectively. The note receivable balance outstanding was, in the aggregate, $153,067,000 and $179,819,000 at March 31, 2000 and 28 1999, respectively, bearing interest rates ranging from 8 .37% to 13%.
THOMAS J . HALL 42 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLAT IONS OF THE FEDERAL i,' SOUTH ARLINGTO N AVENUE SECURITIES LAW The principal balance is due in full at maturity and interest is payable quarterly. Notes receivable from SAC Holdings include $547,000 at 2 March 31, 2000 which is secured by land and buildings at various locations . The terms of the notes receivable are consistent with the 3 terms of notes receivable held by U-Haul for other properties owned by unrelated parties and managed by U-Haul . 4
5 During fiscal years 2000, 1999 and 1998, a subsidiary of AMERCO funded through notes receivable the purchase of prope rties and 6 construction costs for SAC Holdings of $44,934,000, $26,116,000 and $24,574,000, respectively. 7
8 In December 1998, U-haul and [AMERCO's] Real Estate completed the sale of twenty-six storage properties to Six SAC Self-Storage 9 Corporation, a subsidiary of SAC Holdings, for $99,685,000 . [AMERCO's] Real Estate received cash and notes from the sale . The 10 gain is reflected in the Consolidated Statements of Changes in Stockholders' Equity . 11
12 U-Haul currently manages the properties owned by SAC Holdings under a management agreement, whereby U-Haul receives a 13 management fee equal to 6% of the gross receipts from the properties . Management fees of $4,482,000, $2,483,000, and $1,860,000 were 14 received during fiscal years 2000, 1999, and 1998 respectively . The 6% fee is consistent with the fees received by U-haul for other 15 properties owned by unrelated parties and managed by U-Haul .
16 Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's- 17 length transactions .
18 127 . As of March 31, 2000, the Company reported that its reserve for insurance polic y
19 benefits and losses was $461 .6 million, or 18.2% of AMERCO's total liabilities, including RepW e
20 I I accruals for policy liabilities of $339 . 2 million. For fiscal 2000, AMERCO reported that RepWest '
21 I I net income was $5 .3 million compared to $13 .1 million for the prior year. The 2000 Form 10- K 22 included the following representations conce rning Rep West's business activities and the adequac y
23 of the RepWest's reserve for insurance benefits and losses :
24 Republic's business activities consist of three basic areas : U-Haul, direct and assumed reinsurance underwriting . U-Haul underwritings 25 include coverage for U-Haul customers, independent dealers and employees of AMERCO . For the year ended December 31, 1999, 26 approximately 18 .3% of Republic's written premiums resulted from U-Haul underwriting activities . Republic's direct underwriting is 27 done through company-employed underwriters and selected general agents . The products provided include liability coverage for rental 28 vehicle lessees, storage rental properties, coverage for commercia l
THOMAS J. HAL L 43 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 75 SOUTH ARLINGTON AVENUE SECURITIES LAW multiple peril, nonstandard auto, mobile homes and excess workers' compensation. Republic's assumed reinsurance underwriting is done 2 via broker markets . In an effort to decrease risk, Republic has entered into various catastrophe cover policies to limit its exposure . 3
4 The liability for reported and unreported losses is based on both Republic's historical and industry averages . Unpaid loss adjustment 5 expenses are based on historical ratios of loss adjustment expenses paid to losses paid. The liability for unpaid claims and unpaid claims 6 expenses is based on estimates of the amount necessary to settle all claims as of the statement date. Both reported and unreported losses 7 are included in the liability. Republic updates the liability estimate as additional facts regarding claim costs become available . These 8 estimates are subject to uncertainty and variation due to numerous factors . In estimating reserves, no attempt is made to isolate inflation 9 from the combined effect of other factors including inflation . Unpaid losses and unpaid loss expenses are not discounted . 10
11 128 . The 2000 Form 10-K further represented that the quarterly financial statements
12 presented therein had been prepared in accord ance with GAAP :
13 AMERCO believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with 14 generally accepted accounting principles, the selected quarterly information when read in conjunction with the consolidated financial 15 statements incorporated herein by reference .
16 129. The statements referenced in ¶¶ 117-128 were materially false and misleading for th e
17 reasons set forth in ¶ 105 (a) through (i).
18 130 . In addition, the Company's financial statements filed with the SEC on Forms 10- Q
19 for the quarters ended June 30, 1999, September 30, 1999 and December 31, 1999 and Form 10- K
20 for the year ended March 31, 2000, and including the financial statements incorporated by referenc e
21 and presented in the Company's January 2000 Registration Statement were not prepared i n
22 I I accordance with GAAP and were therefore materially false and misleading, as detailed below at ¶¶
23 186-275 . Moreover, AMERCO has now restated its financial statements (see chart at ¶ 153, 258) ,
24 thereby admitting that its financial statements were materially false and misleading when issued .
25 131 . On August 11, 2000, AMERCO filed its quarterly report on Form 10-Q for the firs t
26 quarter fiscal 2001, ended June 30, 2000 . AMERCO reported net earnings of $38 million com
27 to $42 million for the prior year . The Company also reported liabilities of $2.6 billion and 28
THOMAS J . HAL L 44 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTON AVENUE SECURITIES LAW stockholder's equity of $652 .8 million. The report, signed by defendant Gary B . Horton, included
2 the following disclosure relating to SAC Holdings :
3 During the quarter ended June 30, 2000, subsidiaries of AMERCO held various senior and junior notes with SAC Holding Corporation and its subsidiaries (SAC Holdings) . The voting common stock of 411 SAC Holdings is held by Mark V . Shoen, a major stockholder of 5 AMERCO . AMERCO's subsidiaries received interest payments of $5,418,000 and principal payments of 447,000 from SAC Holdings 6 during the quarter ended June 30, 2000 . The terms of the notes receivable with SAC Holdings are consistent with the terms of notes 7 receivable held by U-Haul for other properties owned by unrelated parties and managed by U-Haul . 8
9 During the quarter ended June 30 , 2000, a subsidiary of AMERCO funded through a note receivable the purchase of prope rties and 10 construction costs for SAC Holdings of approximately $ 107,829,000 .
11 U-Haul currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which U-Haul receives a 12 management fee equal to 6% of the gross receipts from the properties . Management fees of $1,104,000 and $1,035,000 were received during 13 the quarters ended June 30, 2000 and 1999, respectively. The management fee percentage is consistent with the fees received by U- 14 Haul for other properties owned by unrelated parties and managed by U-Haul . 15
16 In June 2000, [AMERCO's] Real Estate completed the sale of twenty- four storage properties to Twelve SAC Self-Storage Corporation, 17 Thirteen SAC Self-Storage Corporation and Fourteen SAC Self- Storage Corporation, subsidiaries of SAC Holding Corporation, for 18 $98,351 ,000. [AMERCO 's] Real Estate received cash and notes from the sale. The gain is refl ected in the Consolidated Statement of 19 Changes in Stockholders' Equity.
20 Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's- 21 length transactions .
22 132 . As of June 30, 2000 , AMERCO' s reported reserve for insurance benefits and losse s
23 I was $555 . 3 mil lion or 21 .7% of AMERCO' s reported liabilities , including RepWest accruals for 24 policy liabilities of $338 .4 million. For the first quarter fiscal 2001, the Company reported that
25 RepWest' s net income was $1 .5 million compared to $1 .4 million for the prior year . In addition,
26 the Form 10-Q represented that the financial statements presented therein had been prepared i n
27 accordance with GAAP:
28
THOMAS J . HAL L 45 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 75 SOUTH ARLINGTO N AVENUE SECURITIES LAW AMERCO believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with 2 generally accepted accounting principles , its results.
3 133 . On November 13, 2000, AMERCO filed its quarterly report on Form 10-Q for th e
4 second quarter fiscal 2001, ended September 30, 2000 . AMERCO reported net earnings of $4 1
5 million compared to $42 million for the prior year . The Company also reported liabilities of $2 .6
6 billion and stockholders' equity of $680 .9 million. The report, signed by defendant Gary B . Ho
7 included the following disclosure relating to SAC Holdings :
8 During the six months ended September 30, 2000, subsidiaries of AMERCO held various senior and junior notes with SAC Holding 9 Corporation and its subsidiaries (SAC Holdings) . The voting common stock of SAC Holdings is held by Mark V . Shoen, a major 10 stockholder of AMERCO . AMERCO's subsidiaries received interest payments of $15,431,564 and principal payments of $71,591 from 11 SAC Holdings during the six month ended September 30, 2000 . The terms of the notes with SAC Holdings are consistent with the terms of 12 notes held by U-Haul for other properties owned by unrelated parties and managed by U-Haul. These amounts are reflected in Investments, 13 other of the condensed consolidated balance sheet.
14 During the six months ended September 30, 2000, a subsidiary of AMERCO funded through a note the purchase of properties and 15 construction costs for SAC Holdings of approximately $141,087,000 . This amount is reflected in Investments, other of the condensed 16 consolidated balance sheet.
17 U-Haul currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which U-Haul receives a 18 management fee equal to 6% of the gross receipts from the properties . Management fees of $2,690,000 and $2,269,000 were received during 19 the six months ended September 30, 2000 and 1999, respectively . The management fee percentage is consistent with the fees received 20 by U-Haul for other properties owned by unrelated parties and managed by U-Haul . 21
22 In June 2000, [AMERCO's] Real Estate completed the sale of twenty- four storage properties to Twelve SAC Self-Storage Corporation, 23 Thirteen SAC Self-Storage Corporation and Fourteen SAC Self- Storage Corporation, subsidiaries of SAC Holding Corporation, for 24 $98,351,000. [AMERCO's] Real Estate received cash and notes from the sale. The gain is reflected in the equity section of the condensed 25 consolidated balance sheet.
26 Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's- 27 length transactions .
28
THOMAS J . HAL L 46 ATTORNEY AND -OUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL r5 SOUTH ARLINGTO N AVENGE SECURITIES LAW 101-
134. As of September 30, 2000, AMERCO's reserve for insurance benefits and losse s
2 1$553 .7 million or 21 .7% of AMERCO 's reported liabilities, including RepWest accruals for policy
3 liabilities of $325 million. For the second quarter fiscal 2001, the Company reported that
4 RepWest's net loss was $0 .2 million compared to net earnings of $2 million for the prior year . In
5 addition, the Form 10-Q represented that the financial statements presented therein had been
6 prepared in accordance with GAAP :
7 In the opinion of management, all adjustments necessary for a fair presentation of such condensed financial statements have been 8 included.
9 135 . On February 10, 2001, AMERCO filed its quarterly report on Form 10-Q for th e
10 third quarter fiscal 2001, ended December 31, 2000. On August 10, 2001, AMERCO filed an
11 amended quarterly report for the same period on Form 10-Q/A . In the Form I0-Q/A, the Company
12 reported a net loss of $21 million compared to a net loss of $9 million for the prior year . The
13 Company also reported liabilities of $2 .6 billion and stockholders' equity of $660 .4 million . The
14 report, signed by defendant Gary B . Horton, included the following disclosure relating to SAC
15 Holdings :
16 During the nine months ended December 31, 2000, subsidiaries of AMERCO held various senior and junior notes with SAC Holding 17 Corporation and its subsidiaries (SAC Holdings) . The voting commons stock of SAC Holdings is held by Mark V . Shoen, a major 18 stockholder of AMERCO . AMERCO's subsidiaries received interest payments of $26,318,000 and principal payments of $795,000 from 19 SAC Holdings during the nine months ended December 31, 2000 . The terms of the notes with SAC Holdings are consistent with the 20 terms of notes held by U-Haul for other properties owned by unrelated parties and managed by U-Haul. These amounts are 21 reflected in Investments, other of the condensed consolidated balance sheet. During the nine months ended December 31, 2000, a 22 subsidiary of AMERCO funded through a note the purchase of properties and construction costs for SAC Holdings of approximately 23 $182,576,000. This amount is reflected in Investments, other of the condensed consolidated balance sheet. 24
25 U-Haul currently managed the properties owned by SAC Holdings pursuant to a management agreement, under which U-Haul receives a 26 management fee equal to 6% of the gross receipts from the properties . Management fees of $4,523,000 and $3,348,000 were received during 27 the nine months ended December 31, 2000 and 1999, respectively . The management percentage is consistent with the fees received by 28 U-Haul for other properties owned by unrelated parties and manage d
THOMAS J . HAL L 47 A TT ORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTO N AVENUE SECURITIES LAW by U-Haul.
2 In June 2000, [AMERCO's] Real Estate completed the sale of twenty- 3 four storage properties to Twelve SAC Self-Storage Corporation, Thirteen SAC Self-Storage Corporation and Fourteen SAC Self- 4 Storage Corporation, subsidiaries of SAC Holding Corporation, for $98,351,000 . [AMERCO's] Real Estate received cash and notes from 5 the sale. The gain is reflected in the equity section of the condensed consolidated balance sheet . 6
7 Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's- 8 length transactions.
9 136 . As of December 31, 2000, the Company's reported reserve for insurance benefit s
10 I and losses was $547 .1 million or 20 .1% of AMERCO's reported liabilities, including RepWes t
11 accruals for policy liabilities of $309.9 million. For the third quarter fiscal 2001, the Company
12 reported that RepWest's net loss was $4 .4 million compared to net income of $2.9 million for the
13 same period last year. In addition, the Form 10-Q/A represented that the financial statements
14 included therein had been prepared in accordance with GAAP :
15 In the opinion of management, all adjustments necessary for a fair presentation of such condensed financial statements have been 16 included.
17 137 . On July 2, 2001, AMERCO filed its Form 10-K for the fiscal year 2001 ende d
18 31, 2001 . AMERCO reported net earnings of $13 million compared to $65 million for the prior
19 year. The Company also reported liabilities of $2 .8 billion and stockholders' equity of $615 .4 . The
20 report, signed by defendants Edward J . Shoen, Gary B . Horton, William E . Carty, James P . Shoen,
21 Charles J. Bayer, John M. Dodds, James J. Grogan and John P. Brogan, included the following
22 representations related to SAC Holdings :
23 During fiscal year 2001, subsidiaries of AMERCO held various senior and junior notes with SAC Holding Corporation and its subsidiaries 24 (SAC Holdings). The voting common stock of SAC Holdings is held by Mark V. Shoen, a major stockholder of AMERCO . AMERCO's 25 subsidiaries received interest payments of $27,592,000, $20,111,000 and $8,022,000 from SAC Holdings during fiscal years 2001, 2000 26 and 1999, respectively. Principal payments of $97,953,000, $105,689,000 and zero were received during fiscal years 2001, 2000 27 and 1999, respectively. The note receivable balance outstanding was, in the aggregate, $251,021,000 and $154,528,000 at March 31, 2001 28 and 2000, respectively, bearing interest rates ranging from 8 .37% to
THOMAS J . HALL 48 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTON AVENUE SECURITIES LAW 13 .0% . The principal balance is due in full at maturity and interest is payable quarterly . The terms of the notes receivable are consistent 2 with the terms of notes receivable held by U-Haul for other properties owned by unrelated parties and managed by U-Haul . 3
4 During fiscal years 2001 , 2000 and 1999, a subsidiary of AMERCO funded through notes receivable the purchase of properties and 5 construction costs for SAC Holdings of $187,595 ,000, $44, 934,000 and $26 , 116,000 , respectively. 6
7 In June 2000 , [AMERCO' s] Real Estate completed the sale of twenty- four storage properties to Twelve SAC Self-Storage Corporation, 8 Thirteen SAC Self-Storage Corporation and Fourteen SAC Self- Storage Corporation, subsidiaries of SAC Holding Corporation, for 9 $98,351 ,000. [AMERCO's] Real Estate received cash and notes from the sale. The gain is reflected of consolidated statements of changes 10 in stockholders' equity .
11 In December 1998, U-Haul and [AMERCO's] Real Estate completed the sale of twenty-six storage properties to Six SAC Self-Storage 12 Corporation, a subsidiary of SAC Holdings, for $99,685,000 . [AMERCO's] Real Estate received cash and notes from the sale. The 13 gain is reflected of consolidated statements of changes in stockholders' equity. 14
15 U-Haul currently manages the properties owned by SAC Holdings under a management agreement, whereby U-Haul receives a 16 management fee equal to 6% of the gross receipts from the properties . Management fees of $6,243,000, $4,482,000 and $2,483,000 were 17 received during fiscal years 2001, 2000 and 1999, respectively . The 6% fee is consistent with the fees received by U-Haul for other 18 properties owned by unrelated parties and managed by U-Haul .
19 Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's- 20 length transactions .
21 138 . As of March 31, 2001, the Company 's reported reserve for insurance policy benefits
22 and losses was $668.8 million, or 24 .2% of AMERCO's total liabilities, including RepWest
23 accruals for policy liabilities of $372.3 million. For fiscal 2001, the Company reported that
24 RepWest's net loss was $19 .4 million compared to net income of $5 .3 million for the prior year . In
25 addition, the 1998 Form 10-K included the following representations related to the adequacy of the
26 RepWest's reserve for insurance benefits and losses :
27 The liability for reported and unreported losses is based on both Republic's historical and industry averages . Unpaid loss adjustment 28 expenses are based on historical ratios of loss adjustment expense s
THOMAS J . HAL L 49 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL US SOUTH ARLINGTO N AVENUE SECURITIES LAW paid to losses paid . The liability for unpaid claims and unpaid claims expenses is based on estimates of the amount necessary to settle all 2 claims as of the statement date . Both reported and unreported losses are included in the liability. Republic updates the liability estimate as 3 additional facts regarding claim costs become available . These estimates are subject to uncertainty and variation due to numerous 4 factors. In estimating reserves, no attempt is made to isolate inflation from the combined effect of other factors including inflation . Unpaid 5 losses and unpaid loss expenses are not discounted .
6 139. The 2001 Form 10-K represented that the quarterly financial statements presente d
7 therein had been prepared in accordance with GAAP :
8 AMERCO believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with 9 generally accepted accounting principles, the selected quarterly information when read in conjunction with the consolidated financial 10 statements incorporated herein by reference.
11 140 . The statements referenced in ¶¶ 131-139 were materially false and misleading for th e
12 reasons set forth in ¶ 105 (a) through (i).
13 141 . In addition, the Company' s financial statements filed with the SEC on Forms 10-Q
14 for the quarter ended June 30, 2000, September 30, 2000 and December 31, 2000 and Form 10- K
15 for the year ended March 31, 2001, were not prepared in accordance with GAAP and were therefore
16 materially false and misleading, as detailed below at ¶¶ 186-275 . Moreover, AMERCO has now
17 restated its financial statements (see charts at ¶ 152, 153, 189, 217, 260), thereby admitting that it s
18 financial statements were materially false and misleading when issued .
19 142 . On August 10, 2001, AMERCO filed its quarterly report on Form 10-Q for the firs t
20 quarter fiscal 2002, ended June 30, 2001 . In the Form 10-Q, the Company reported net earnings of
21 $25 million, as compared to $38 million for the prior year . The Company also reported liabilities o
22 $2.8 billion and shareholder's equity of $647 .1 million . The original Form 10-Q, filed August 10,
23 2001, signed by defendant Gary B . Horton, included the following disclosure relating to SAC
24 Holdings :
25 During the quarter ended June 30, 2001 , subsidiaries of AMERCO held various senior and junior notes issued by SAC Holding 26 Corporation and its subsidiaries (SAC Holdings) . The voting common stock of SAC Holdings is held by Mark V . Shoen, a major 27 stockholder of AMERCO . AMERCO' s subsidiaries received interest payments of $5,702,000 from SAC Holdings during the quarter ended 28 June 30 , 2001 . The terms of the notes receivable with SAC Holdings
THOMAS J. HALL 50 ATTORNEY ANP COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL RA SOUTH ARLINGTO N AVENUE SECURITIES LAW are consistent with the terms of notes receivable held by U-Haul for other properties owned by unrelated parties and managed by U-Haul . 2
3 During the quarter ended June 30, 2001, a subsidiary of AMERCO funded through a note receivable the purchase of properties and 4 construction costs for SAC Holdings of approximately $ 17,661,000.
5 U-Haul currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which U-Haul receives a 6 management fee equal to 6% of the gross receipts from the properties . Management fees of $1,717,000 and $1,104,000 were received during 7 the quarters ended June 30, 2001 and 2000, respectively . The management fee percentage is consistent with the fees received by U- 8 Haul for other properties owned by unrelated parties and managed by U-Haul . 9
10 In June 2000, [AMERCO's] Real Estate completed the sale of twenty- four storage properties to Twelve SAC Self-Storage Corporation, 11 Thirteen SAC Self Storage Corporation and Fourteen SAC Self- Storage Corporation, subsidiaries of SAC Holding Corporation, for 12 $98,351,000. [AMERCO's] Real Estate received cash and notes from the sale. The gain is reflected in the Consolidated Statement of 13 Changes in Stockholders' Equity .
14 Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's- 15 length transactions.
16 143 . As of June 30, 2001 , the Comp any reported that its reserve for insurance benefit s
17 losses was $677.9 million or 24 .6% of AMERCO's reported liabilities, including RepWest's
18 accruals for policy liabilities of $384.6 million. For the first quarter fiscal 2002, the Company
19 reported that Rep West's net loss was $3 .6 million compared to net income of $1 .5 million for prior
20 year. In addition, the Form 10-Q report represented that the financial statements presented therein
21 had been prepared in accordance with GAAP :
22 In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included . 23
24 144 . On October 5, 2001, AMERCO filed with SEC a prospectus supplement as part of a
25 previously filed registration statement utilizing a "shelf' registration process under which the
26 Company offered to sell to the public up to $350 million in debt securities . The registration
27 statement, including the prospectus and prospectus supplement (the "October 2001 Registration
28 Statement"), was filed with the SEC in February 2001, and signed by defendants Edward Shoen ,
THOMAS J . HAL L 5 1 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTO N AVENUE SECURITIES LAW James Shoen, Horton, Dodds, Carty, Bayer, Herrera, Brogan and Grogan. The October 200 1
2 Registration Statement incorporated by reference the Company's financial statements as of Marc h
3 31, 2000 and 1999 and for each of the fiscal years in the three-year period ended March 31, 2000 ,
4 filed with the SEC on Form 10-K .
5 145 . On November 14, 2001, AMERCO filed its quarterly report on Form 10-Q for th e
6 second quarter of fiscal 2002, ended September 30, 2001 . In the Form 10-Q, the Company reporte d
7 net earnings of $42 million compared to $41 million for the prior year . The Company also reported
8 liabilities of $2 .8 billion and shareholders' equity of $671 million . The original Form 10-Q, filed
9 I November 14, 2001, signed by defendant Gary B . Horton, included the following disclosure
10 to SAC Holdings:
11 During the six months ended September 30, 2001, subsidiaries of AMERCO held various senior and junior notes with SAC Holding 12 Corporation and its subsidiaries (SAC Holdings) . The voting common stock of SAC Holdings is held by Mark V . Shoen, a major 13 stockholder of AMERCO . AMERCO's subsidiaries received interest payments of $16,253,308 and principal payments of $32,249,767 14 from SAC Holdings during the six months ended September 30, 2001 . The terms of the notes with SAC Holdings are consistent with the 15 terms of notes held by U-Haul for other properties owned by unrelated parties and managed by U-Haul. These amounts are 16 reflected in Investments, other of the condensed consolidated balance sheet. 17
18 During the six months ended September 30, 2001, a subsidiary of AMERCO funded through a note the purchase of properties and 19 construction costs for SAC Holdings of approximately $20,699,000 . This amount is reflected in Investments, other of the condensed 20 consolidated balance sheet.
21 U-Haul currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which U-Haul receives a 22 management fee equal to 6% of the gross receipts from the properties . Management fees of $3,756,000 and $2,690,000 were received during 23 the six months ended September 30, 2001 and 2000, respectively . The management fee percentage is consistent with the fees received 24 by U-Haul for other properties owned by unrelated parties and managed by U-Haul . 25
26 In August 2001, [AMERCO 's] Real Estate completed the sale of one storage property to SAC Holdings, for $341,000 . [AMERCO' s] Real 27 Estate received notes from the sale . The gain is reflected in the equity section of the condensed consolidated bal ance sheet. 28
THOMAS J. HAL L 52 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL iS SOUTH ARLINGTON AVENUE SECURITIES LAW In June 2000, [AMERCO's] Real Estate completed the sale of twenty- four storage properties to Twelve SAC Self-Storage Corporation, 2 Thirteen SAC Self-Storage Corporation and Fourteen SAC Self- Storage Corporation, subsidiaries of SAC Holding Corporation, for 3 $98,351,000 . [AMERCO's] Real Estate received cash and notes from the sale. The gain is reflected in the equity section of the condensed 4 consolidated balance sheet.
5 In September 2001, the Company purchased nine storage properties from Five SAC Self-Storage Corporation, a subsidiary of SAC 6 Holdings at a purchase price of $35 .2 million, which approximates fair value . These properties were not previously owned by the 7 consolidated company .
8 Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's- 9 length transactions.
10 146. As of September 30, 2001, the Company reported that its reserve for insuranc e
11 benefits and losses was $686 .7 million or 24 .9% of AMERCO's reported liabilities, including
12 RepWest accruals for policy losses of $381 .4 million. For the second quarter of fiscal 2002, the
13 Company reported that RepWest's net loss was $8.6 million compared to a net loss of $0 .2 million
14 for prior year. In addition, the Form 10-Q represented that the financial statements presented
15 therein had been prepared in accordance with GAAP :
16 AMERCO believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with 17 generally accepted accounting principles, its results .
18 147 . On February 14, 2002, AMERCO missed the required filing date for AMERCO' s
19 third quarter fiscal 2002, ended December 31, 2001 Form I0-Q, and instead AMERCO filed a
20 "Notification of Late Filing" on Form 12b-25, extending the filing date for its quarterly report to
21 February 19, 2002. Defendants misleadingly stated that the filing was delayed due to
22 implementation of expanded SEC capital and liquidity disclosure recommendations . The Form
23 12b-25, signed by defendant Horton, stated in pertinent part as follows :
24 ... the company is trying to improve its disclosure of information in the area of liquidity and capital resources. As such, the company is 25 taking steps that the Securities and Exchange Commissio n recommended, including compiling aggregated disclosure concerning 26 its obligations and commitments to make future payments under contracts, debt and lease agreements, and contingent commitments . 27 As a result, it has taken longer to gather the necessary information to prepare the quarterly report on Form 10-Q. [Emphasis added. ] 28
THOMAS J. HAL L 5 3 ATTORN EY AND :OUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTO N AVENUE SECURITIES LAW 148 . On February 19, 2002, AMERCO filed its quarterly report on Form 10-Q for the
2 third quarter of fiscal 2002, ended December 31, 2001 . In the Form 10-Q, the Company reported a
3 net loss of $20 million compared to a net loss of $21 million for the prior year . The Company als o
4 reported liabilities of $2 .8 billion and stockholders' equity of $662 .8 million. The Form 10-Q ,
5 signed by defendant Gary B . Horton, included the following disclosure relating to SAC Holdings :
6 During the nine months ended December 31, 2001, subsidiaries of AMERCO held various senior and junior notes with SAC Holding 7 Corporation and its subsidiaries (SAC Holdings). The voting common stock of SAC Holdings is held by Mark V . Shoen, a major 8 stockholder of AMERCO . AMERCO's subsidiaries received interest payments of $20,899,000 and principal payments of $33,952,000 9 from SAC Holdings during the nine months ended December 31, 2001 . The terms of the notes with SAC Holdings are similar to the 10 terms of notes held by U-Haul for other properties owned by unrelated parties and managed by U-Haul. These amounts are 11 reflected in Investments, other of the condensed consolidated balance sheet. 12
13 During the nine months ended December 31, 2001, a subsidiary of AMERCO funded through a note the purchase of properties and 14 construction costs for SAC Holdings of approximately $33,279,000 . The amount is reflected in Investments, other of the condensed 15 consolidated balance sheet.
16 U-Haul currently manages the self-storage properties owned by SAC Holdings pursuant to a management agreement, under which U-Haul 17 receives a management fee equal to 6% of the gross receipts from the properties . Management fees of $5,495,000 and $4,523,000 were 18 received during the nine months ended December 31, 2001 and 2000, respectively. The management fee percentage is consistent with the 19 fees received by U-Haul for other properties owned by unrelated parties and managed by U-Haul. 20
21 In December 2001, [AMERCO' s] Real Estate completed the sale of fourteen storage properties to Eighteen SAC Self- Storage 22 Corporation, subsidiary of SAC Holding Corporation, for $43,782,000. [AMERCO' s] Real Estate received cash and notes from 23 the sale . The gain is reflected in the equity section of the condensed consolidated balance sheet . 24
25 In August 2001, [AMERCO's] Real Estate completed the sale of one storage property to SAC Holdings, for $530,000 . [AMERCO's] Real 26 Estate received notes from the sale .
27 In June 2000, [AMERCO 's] Real Estate completed the sale of twenty- four storage properties to Twelve SAC Self-Storage Corporation, 28 Thirteen SAC Self-Storage Corporation and Fourteen SAC Self-
THOMAS J. HAL L 54 ATTORNEY AND :OUNSELORAT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL IS SOUTH ARLINGTON AVENUE SECURITIES LAW 1 Storage Corporation, subsidiaries of SAC Holding Corporation, for $98,351,000 . [AMERCO's] Real Estate received cash and notes from 2 the sale. The gain is reflected in the equity section of the condensed consolidated balance sheet. 3
4 In September 2001, the Company purchased nine storage properties from Five SAC Self-Storage Corporation, a subsidiary of SAC 5 Holdings at a purchase price of $35 .2 million for fair value . These properties were not previously owned by the consolidated company . 6
7 Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's- 8 length transactions.
9 149. As of December 31, 2001, the Company reported that its reserve for policy benefit s
10 and losses of $705 .7 million, or 25 .0% of AMERCO's reported liabilities, including RepWest
11 accruals for policy liabilities of $406.1 million. For the third quarter fiscal 2002, the Company
12 reported that RepWest's net loss was $8.3 million compared to a net loss of $4 .2 million for the
13 prior year. In addition the Form I O-Q represented that the financial statements presented therein
14 had been prepared in accordance with GAAP :
15 AMERCO believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with 16 generally accepted accounting principles , its results .
17 150 . The statements referenced in ¶¶ 142-149 were materially false and misleading for th e
18 reasons set forth in ¶ 105 (a) through (i).
19 151 . In addition, the Company' s financial statements filed with the SEC on Forms I 0- Q
20 for the quarter ended June 30, 2001, September 30, 2001 and December 31, 2001 and Form 10-K
21 for the year ended March 31, 2001, were not prepared in accordance with GAAP and were therefore
22 materially false and misleading , as detailed below at ¶¶ 186-275 . Moreover, AMERCO has now
23 restated its financial statements (see chart at ¶ 152, 153, 189, 217, 260), thereby admitting that its
24 financial statements were materially false and misleading when issued .
25 X. AMERCO CONSOLIDATES THE SAC SPES
26 152 . On March 28, 2002 AMERCO filed an amended Form 10-QIA for the third fisca l
27 quarter 2002, ended December 31, 2001 . In the Form 10-Q/A, AMERCO restated its historical
28 financial results for the quarter ended December 31, 2001, as well as for the year ended March 31 ,
THOMAS J. HAL L 55 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL DS SOUTH ARLINGTON AVENUE SECURITIES LAW 1 2001 presented therein, to reflect the consolidation of SAC SPEs with AMERCO and its
2 consolidated subsidiaries. The restated financial statements presented in the Form 10-Q/A failed to
3 reflect material adverse changes in the Company's previously reported earnings as a result of the
4 SAC SPE consolidation, and, in fact, failed to disclose millions of dollars in operating losses
5 incurred by the SAC SPEs during fiscal year 2002 and 2001 . The restatement did, however, reveal
6 that AMERCO had approximately $306 million and $257 million in previously unreported debt
7 related to the SAC SPEs as of December 31, 2001 and March 31, 2001, respectively . The
8 restatement also revealed that AMERCO overstated its previously reported stockholders' equity by
9 $91 million and $80 million as of December 31, 2001 and March 31, 2001, respectively . The
10 following table summarizes the impact of the restatement :
11 December 31, 2001 March 31, 2001 (in thousands 12 (As Reported) (As Restated) (As Reported) (As Restated)
13 Assets $3,491,346 $3,665,906 $3,384,064 $3,523,907
14 Liabilities $2,828,579 $3,094,755 $2,768,698 $2,988,577
15 Stockholders' $662,767 $571,151 $615,366 $535,330 equity 16
17
1 8 153 . On July 17, 2002, AMERCO restated its historical financial results, for its fiscal
19 years 2001 and 2000, this time including the operating losses of the SAC SPEs during the respective 20 period presented . The fiscal 2002 Form 10-K reported that as a result of the change in accounting
21 for the Company's transactions with SAC SPEs, AMERCO restated its financial results by the
22 following amounts : 23
24 Year Ended March 31, 2001 (in thousands) 25 (As Reported) (As Restated) 26 Assets $3,384,064 $3,638,439 27 Liabilities $2,768,698 $3,126,17 5 28
THOMAS J . HALL 56 ATPORNIKY AND =OLINSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTO N AVENUI SECURITIES LAW 1 Stockholders' $615,366 $512,264 equity 2 Net income $12,965 $1,01 2 3
4 Year Ended March 31, 2000 (in thousands) 5 (As Reported) (As Restated ) 6
7 Assets $3,125,225 $3,291,292
8 Liabilities $2,539,931 $2,758,838
9 Stockholders' $585,294 $532,454 equity 10 Net income $65,491 $63,184 11
12 154 . In the restatement, AMERCO reported that net income was actually $ 1 .0 million for
13 the year ended March 31, 2001, not $13 .0 million as previously reported, and $63 .2 million for the
14 year ended March 31, 2000, not $65 .5 million as previously reported. The Company also stated thai
15 its liabilities were actually $3 .1 billion for the year ended March 31, 2001, not $2 .8 billion as
16 previously reported, and $2 .8 billion for the year ended March 31, 2000, not $2 .5 billion as
17 previously reported . The Company stated it stockholders' equity was actually $512 .3 million for
18 the year ended March 31, 2001, not $615 .4 million as originally reported, and $532 .5 million for the
19 year ended March 31, 2000, not $585 .3 million as originally reported.
20 155 . On the same day, July 17, 2002, AMERCO announced it had dismissed PwC, its
21 auditors of 24 years. On August 8, 2002, AMERCO announced it had selected BDO Seidman as it s
22 new auditors. 23 156 . On July 26, 2002, AMERCO filed a proxy statement in which it indicated for the
24 first time that the defendants had also begun to facilitate SAC SPEs' entry into U-Haul's core
25 business of truck and trailer rentals.
26 157 . On August 27, 2002, Knight-Ridder Tribune Business News published an article 2 7 commenting on the consolidation of SAC Holdings. The article stated : 28
THOMAS J. HAL L 5 7 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 75 SOUTH ARLINGTON AVENUE SECURITIES LAW 1 "They've been using a special purpose entity to cover their financials," said Jay Taparia, a Chicago-based financial analyst whose 2 firm reviewed AMERCO' s financial statements at the Tribune's request . 3
4
5 "The reality is, the most likely scenario is that the audit company made them consolidate (financial statements) . . . they didn't want to do 6 it. . . they didn't like it so they fired them ."
7
8 "Reading AMERCO's annual financial statements from 1998 through 2001, investors never would have known what SAC Holding 9 is," Taparia said. "They would have seen the company's financials that did not reflect the excess debt of the company as a result of its 10 real-estate holdings," he said .
11
12 Commenting on SAC Holding's notes receivable issued by AMERCO, analyst Taparia was quote d
13 as saying :
14 It's a debt on SAC's balance sheet, but if it's a debt on SAC's balance sheet it's an asset on AMERCO's . AMERCO can immediately 15 recognize the gain on the sale of the land on its income statement, boosting net income, as well as making a return on its assets and 16 equity higher by not showing the land or debt on its balance sheet .
17 "SAC Holding, in effect, is not a separate company, but is a special purpose entity that has debt associated liabilities off AMERCO's 18 balance sheet," Taparia said .
19 158 . On August 18, 2002, AMERCO filed its quarterly report on Form 10-Q for the first
20 quarter of fiscal 2003, ended June 30, 2002 . On September 26, 2002, the Company amended it s
21 second quarter filing to "reflect the reclassification of interest income and expense to properly
22 reflect elimination entries[. . .]" and to restate the interim results presented therein to reflect the SA C
23 SPE consolidation. In the amended Form 10-Q, signed by defendant Gary B . Horton, the Company
24 reported revenues of $545 .4 million, as compared to $40.7 million for the prior year and net
25 earnings of $40.5 million, as compared to net earnings of $20 .9 million for the prior year . The
26 Company also reported liabilities of $3 .2 billion, as compared to $3 .3 billion as of March 31, 2002
27 and that its reserve for insurance benefits and losses was $735 .8 million or 22 .8% of AMERCO's
28 total reported liabilities as of December 31, 2001 .
THOMAS J . HALL 58 ATTORNEY AN D R AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTON AVENUE SECURITIES LAW T~,
1 159. The original and amended Form 10-Q also disclosed that the Company's prope rty
2 and casualty insurance subsidiary, RepWest, reported a net loss of $1 .8 million for the first quarter
3 of fiscal 2003 compared to a net loss $3 .6 million for the same period last year. The report further
4 represented that RepWest's total liabilities were $605 .6 million including its reserve for policy
5 benefits and losses of $474 .1 million as of June 30, 2002 . The report also stated :
6 The condensed consolidated balance sheet as of June 30, 2002 and the related condensed consolidated statements of earnings, 7 comprehensive income, and cash flows for the quarters ended June 30, 2002 and 2001 are unaudited . In our opinion, all adjustments 8 necessary for a fair presentation of such condensed consolidated financial statements have been included . 9
10 160. On September 18, 2002, RepWest issued a press release announcing that it ha d
11 completed commutation of treaty, which effectively removed the largest remaining piece of non-
12 standard automobile reinsurance from RepWest's books . The press release stated in pertinent part :
13 The commutation was negotiated in a manner that was satisfactory to both parties and will result in a multi-million dollar pre-tax gain 14 for Republic Western. "As we have stated previously, we are out of the non-standard auto business and intend to stay out," declare d 15 Amoroso . "The commutation of the Cascade National treaty is further proof of our commitment to move away from this line of 16 business as quickly as possible . This is part of our overall business strategy for returning Republic Western to profitability . " 17
18 Republic Western is in the process ofcompleting a turn -around of its financial results. The Company expects to report a profit for 19 calendar year 2002. [Emphasis added.]
20 161 . On September 23, 2002, a shareholders' derivative action was filed against certain
21 the Individual Defendants . The suit alleged AMERCO had subsidized the transfer of self-storage
22 facilities to SAC Holdings, owned and controlled by AMERCO insider Mark Shoen, in three ways :
23 (1) existing self-storage facilities owned by AMERCO were sold to SAC SPEs ; (2) self-storage
24 facilities owned by third parties were identified by AMERCO and then purchased by SAC SPEs ;
25 and (3) AMERCO had identified raw land and developed it into self-storage facilities which were
26 then sold to SAC SPEs . The suit claimed the prices SAC paid for the facilities were unfairly low
27 because they failed to account for: (a) the increase in value which a new self-storage facility
28 experiences when it is "leased up" by the developer, AMERCO ; (b) the goodwill associated with
THOMAS J . HAL L 5 9 ATTORNEY AND "OUNSELDA AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL YS SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 use of the U-Haul trade name, and (c) the location of the storage facilities near U-Haul Centers ,
2 where potential self-storage customers go to pick-up and drop-off moving vehicles ; and (d) the
3 resources AMERCO used in locating, purchasing, developing, and leasing the facilities on behalf o
4 the SAC SPEs.
5 162 . On September 26, 2002, AMERCO restated its 2002 financial results in an amende d
6 10-K for the year ended March 31, 2002, and again restated its 2001 and 2000 financials . Regarding
7 the restatement, the Company reported that interest expense was actually $106 .8 million, $109.0
8 million, and $97 .2 million in fiscal years 2002, 2001, and 2000, respectively, not $116 .3 million,
9 $114.6 million, and $99.9 million in the same periods, as previously reported . Moreover, the
10 Company reported that net investment and interest income was actually $58 .1 million, $61 .5 million
11 and $61 million in fiscal years 2002, 2001 and 2000, respectively, and not $67 .6 million, $67 .1
12 million and $63 .7 million in the same period, as previously reported .
13 163 . As a result of the defendants' false and misleading statements during the Class
14 Period, AMERCO' s stock price was artificially inflated , averaging approximately $ 18 per share. In
15 the weeks following the above-mentioned restatements and default, AMERCO's share price fell to
16 less than $5 .
17 164. In its 2002 Form 10-K/A AMERCO reported revenues of $2.06 billion, as compared
18 to $1 .88 billion for the prior year and net earnings of $2.7 million, as compared to $1 .0 million for
19 the prior year. The Company also reported liabilities of $3 .3 billion, as compared to $3 .1 billion for
20 the prior year. The report was signed by defendants Edward J . Shoen, Gary B . Horton, William E .
21 Carty, James P. Shoen, Charles J . Bayer, John M . Dodds, James J . Grogan and John P . Brogan .
22 165 . As of March 31, 2002, the Company reported that its reserve for insur ance policy
23 benefits and losses was $729.3 million, or 22 .3% of AMERCO's total liabilities . The Company's
24 property and casualty insurance subsidiary, RepWest, reported loss reserves of $459 .9 million, or
25 14% of AMERCO's total liabilities as of March 31, 2002 . In addition, the 2002 Form 10-K/A
26 included the following description of RepWest's business activities and representations concerning
27 the adequacy of the RepWest's' reserve for insurance benefits and losses :
28
THOMAS J. HAL L 60 ATTORNEY AND .OUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 5 SOUTH ARLINGTON AVENUE SECURITIES LAW RepWest' s business activities consist of three basic areas : U-Haul, direct and assumed reinsurance underwriting . U-Haul underwritings 2 include coverage for U-Haul customers, independent dealers, fleet owners and employees of AMERCO . For the year ended December 3 31, 2001, approximately 19 .6% of RepWest' s written premiums resulted from U-Haul underwriting activities . 4
5 RepWest's direct underwriting is done through Company-employed underwriters and selected general agents . The products provided 6 include liability coverage for rental vehicle lessees, storage rental properties, coverage for commercial multiple peril, commercial auto, 7 mobile homes and excess workers' compensation.
8 RepWest's assumed reinsurance underwriting is done via broker markets . In an effort to decrease risk, RepWest has entered into 9 various catastrophe cover policies to limit its exposure .
10 The liability for reported and unreported losses is based on bot h Rep West's historical and industry averages . Unpaid loss adjustment 11 expenses are based on historical ratios of loss adjustment expenses paid to losses paid . The liability for unpaid losses and loss adjustment 12 expenses is based on estimates of the amount necessary to settle all claims as of the statement date. Both reported and unreported losses 13 are included in the liability. RepWest updates the liability estimate as additional facts regarding claim costs become available . These 14 estimates are subject to uncertainty and variation due to numerous factors. In estimating reserves, no attempt is made to isolate inflation 15 from the combined effect of other factors including inflation . Unpaid losses and loss adjustment expense are not discounted . 16
17 The report also disclosed for the first time RepWest' s treatment of certain commission expenses
18 which defendants improperly capitalized during and prior to fiscal 2001 :
19 Operating expenses, before intercompany eliminations, were $78 .7 million, $56.7 million and $35 .0 million for the years ended 20 December 31, 2001, 2000 and 1999, respectively . The increase is due to a change in estimate on an aggregate stop loss treaty in 21 which Rep West had originally recorded the treaty as if it would be commuted. Estimates in 2001 have changed and the treaty will not 22 be commuted. The original amount was a reduction to commissions of $17.7 million of which Rep West had to recognize back through 23 commissions in 2001. [Emphasis added.]
24 Based upon the deposition testimony of Richard Amoroso, President of RepWest, this transaction
25 was a correction of an error by the Company for the improper reduction of commission expenses in
26 1997 to 1999 for the treaty commutation . This reduction of commission expenses in prior years and
27 subsequent correction in 2001, caused a material misstatement of AMERCO's financial statements , 28
THOMAS J . HALL 6 1 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )5 SOUTH ARLINGTO N AVENUE SECURITIES LAW and should have been reported as a prior period adjustment (correction of an error) and not as a
2 change in estimate .
3 166. In the immediate aftermath of the SAC SPE consolidation, the Company began t o
4 experience severe and continuing credit problems. For example, the Company was unable to renew
5 certain revolving credit arrangements unless it conceded to a condition that the Company obtain
6 additional long-term financing prior to a scheduled debt pay down in mid-October . The Form- 10-K
7 made no meaningful disclosures of the Company's imminent liquidity crisis and in fact reiterated
8 prior comments by defendants that the Company was currently in compliance with all of its deb t
9 I I covenants. The Form 10-K/A stated in pertinent part as follows:
10 At March 31, 2002, AMERCO had a revolving credit loan (long- term) available from participating banks under an agreement, which 11 provided for a credit line of $400,000,000 through June 30, 2002 . Depending on the form of borrowing elected, interest will be based on 12 the London Interbank Offering Rate (LIBOR), prime rate, the federal funds effective rate, or rates determined by a competitive bid . LIBOR 13 loans include a spread based upon the senior debt rates of AMERCO . Facility fees paid are based upon the amount of credit line . As of 14 March 31, 2002, loans outstanding under the revolving credit line totaled $283,000,000 . The revolver was refinanced in June 2002 . 15
16
17 On June 28, 2002, AMERCO entered into an agreement replacing an existing revolver agreement with a 3 year revolver for $205,000,000 . 18 The interest rate is based on a spread over LIBOR that will b e determined over the term of the agreement . Such agreement, as 19 amended, requires that the Company obtain an additional $150 million in financings by October 8, 2002 . Management is in the 20 process of obtaining such financings and believes that funding will occur on or before October 8, 2002 . 21
22
23 Certain of AMERCO' s credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect 24 to incurring additional indebtedness, maintaining certain financial ratios and placing certain additional liens on its prope rties and assets. 25 At March 31, 2002, AMERCO was in compliance with these covenants. [Emphasis added. ] 26
27 167 . The 2002 Form 10-K/A represented that the financial statements presented therei n
28 had been prepared in accordance with GAAP :
THOMAS J. HALL 62 ATTORNEY AND ~O1NSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 05 SOUTH ARLINGTO N AVENUE SECURITIES LAW .00 t
1 AMERCO believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with 2 generally accepted accounting principles, the selected quarterly information when read in conjunction with the consolidated financial 3 statements incorporated herein by reference .
4 168 . The statements referenced in ¶¶ 152-167 were materially false and misleading fo r
5 following reasons:
6 (a) that the Company' s reserves for insur ance policy benefits and losses, were
7 understated by tens of millions of dollars, resulting from defendants' failure to accrue for losses
8 incurred in connection with certain general and automobile liability policies ;
9 (b) that the Company' s net earnings and stockholders ' equity were materially
10 overstated due to defendants' failure to properly account for equity losses arising from th e
11 Company' s investment in certain real estate limited partnerships, including Private Mini Storage
12 Realty, L.P ., among others :
13 (c) that the Company's periodic operating expenses, including certain general
14 and administrative expenses, were materially understated due to : (i) defendants' improper
15 capitalization of such expenses, (ii) defendants' failure to accrue for certain property tax expense s
16 related to the Company' s real estate properties and, (iii) defendants' failure to amortize such
17 capitalized expenses;
18 (d) that the Company was facing a liquidity crisis and would soon be illiquid
19 and, in addition, that the Company had violated or in all likelihood would soon violate its debt
20 covenants; and
21 (e) as a result of the foregoing, the financial statements contained in the
22 Company's Form 10-K and Form 10-K/A for the period ended March 31, 2002 and Form 10-Q for
23 the period ended June 30, 2002 were not prepared in accordance with GAAP and were therefore
24 materially false and misleading, as detailed below at ¶¶ 186-275 . Moreover, AMERCO has now
25 restated its financial statements (see charts at ¶ 35, 153, 189, 217, 260), thereby admitting that its
26 financial statements were materially false and misleading when issued .
27 28
THOMAS J. HAL L 6 3 ATTORNEY AND =OUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTON AVENUE SECURITIES LAW 1 XI. POST-CLASS PERIOD EVENTS
2 169. On September 27, 2002, defendants issued a press release announcing a Rule 144A
3 private offering of $275 million in senior notes and on September 30, 2002 announced that it had
4 "launched its efforts" to complete the private offering .
5 170 . On October 4, 2002, Standard & Poor's cut AMERCO' s credit rating to "junk"
6 I status . Fitch followed by lowering its credit rating on AMERCO on October 8, 2002 .
7 171, On October 10, 2002, AMERCO announced it was postponing its planned $27 5
8 million debt offering.
9 172 . Then on October 15, 2002, defendants issued a press release announcing tha t
10 AMERCO has "temporarily suspended" payment of its debt obligation :
11 As part of the Company's strategic plan it has elected to enter into negotiations to restructure certain of its debt . While the Company 12 works to recapitalize its balance sheet, it has elected to temporarily suspend the October 15, 2002 payment of its [$100 million] Series 13 1997-C Bond Backed Asset Trust. The Company also intends to refinance its ($205 million] 3 -year Credit Agreement. [Emphasis 14 added. ]
15 Also on the October 15, 2002, the defendants announced that AMERCO had retained Crossroads,
16 I LLC as a financial advisor.
17 173 . Three days later on October 18, 2002, RepWest and Oxford issued joint press releas e
18 announcing that they will report a profit for the quarter ended September 30, 2002.
19 174 . On October 25, 2002, another shareholders ' derivative action was filed against
20 certain of the defendants . Among other things, the suit alleged that defendants Brogan and Grogan
21 served on the Board's Compensation Committee which has not paid the Shoen Brothers a direc t
22 bonus since 1995, the year the Shoen Brothers began transferring significant AMERCO assets t o
23 SAC SPEs.
24 175 . On November 14, 2002, the Company was required to file its quarterly report o n
25 Form 10-Q for the second quarter fiscal 2003 ended September 30, 2002 . However, instead of
26 filing its report, the Company filed a "Notice of Late Filing on Form 12b-25 . The Form 12b-25 ,
2 7 signed by defendant Horton stated that the reason for the delay was due to "to management and th 28
THOMAS J. HAL L 64 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 05 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 accountants requiring additional time to internally verify data from the company's books an d
2 I records." [Emphasis added .] 3 176. On November 18, 2002, AMERCO filed its quarterly report on Form 10-Q for th e
4 second quarter of fiscal 2003, ended September 30, 2002 . On February 18, 2003, the Company
5 amended its filing on Form 10-QIA, in both the original and amended Form 10-Q, signed by
6 defendant Gary B. Horton, the Company reported revenues of $562 .6 million, as compared to
7 $571 .2 million for the prior year and net earnings of $35 .7 million, as compared to net earnings of
8 $32.5 million for the prior year . The Company also reported liabilities of $3 .1 billion, as compared
9 to $3 .3 billion as of March 31, 2002 and that its reserve for insurance benefits and losses wa s
10 $703 .3 million or 22 .7% of AMERCO' s total reported liabilities as of September 30, 2001 .
11 177 . The original and amended Form 10-Q also disclosed that the Company's property
12 and casualty insurance subsidiary , RepWest, reported a net loss of $1 .5 million for the first and
13 second quarter of fiscal 2003 compared to a net loss $12 . 3 million for the same period last year .
14 The report further represented that RepWest's total liabilities were $577.0 million including its
15 reserve for policy benefits and losses of $460 .3 million as of September 30, 2002 . The Form 10-Q
16 also represented that the financial statements included therein had been prepared in accordance with
17 GAAP:
18 The condensed consolidated balance sheet as of September 30, 2002 and the related condensed consolidated statements of earnings, 19 comprehensive income, and cash flows for the quarters ended September 30, 2002 and 2001 are unaudited . In our opinion, all 20 adjustments necessary for a fair presentation of such condensed consolidated financial statements have been included . 2 1
22 178 . On January 7, 2003, AMERCO received a subpoena issued by the SEC in c
23 with a formal, investigation into the Company' s accounting and financial reporting practices.
24 179 . On February 14, 2003, AMERCO filed its quarterly repo rt on Form 10-Q for the
25 third quarter of fiscal 2003, ended December 31, 2002 . In the Form 10-Q, signed by defendant
26 Gary B . Horton, the Company reported revenues of $451 .9 million, as compared to $463 .2 million
27 for the prior year and a net loss of $35 .5 million, as compared to a net loss of $28.3 million for the
28
THOMAS J . HAL L 65 ATTORNEY AND 7OUNSELORAT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL YS SOUTH ARLINGTON AVENUE SECURITIES LAW 1 prior year. The Company also reported liabilities of $3 .2 billion, as compared to $3 .3 billion and
2 stockholders' equity of $662 .7.
3 180. As of December 31, 2002, the Company reported that its reserve for insuranc e
4 benefits and losses was $705 .7 million or 24 .9% of AMERCO's total reported liabilities . The Form
5 10-Q also disclosed that the Company's property and casualty insurance subsidiary, RepWest,
6 reported a net loss of $2 .9 million for the first, second and third quarter of fiscal 2003 compared to a
7 net loss $20.4 million for the same period last year. The report further represented that RepWest's
8 total liabilities were $551 .5 million including its reserve for policy benefits and losses of $495 .3
9 million as of September 30, 2002 . The report also stated :
10 The condensed consolidated balance sheet as of December 31, 2002 and the related condensed consolidated statements of earnings, 11 comprehensive income, and cash flows for the quarters ended December 31, 2002 and 2001 are unaudited . In our opinion, all 12 adjustments necessary for a fair presentation of such condensed consolidated financial statements have been included . 13
14 181 . On or about May 12, 2003, an article published by Associated Press Worldstrea m
15 stated that AMERCO confirmed that its new auditors were reexamining the Company's fiscal 200 2
16 and 2001 financial statements . The article stated in pertinent part as follows :
17 In connection with the re-audit, BDO Seidman, the company's new auditor, has identified prior period adjustments related to insurance 18 reserves at Reno-based AMERCO and its subsidiary, Republi c Western Insurance Co., as well as other insurance company-related 19 adjustments, AMERCO said in a statement .
20 AMERCO said final adjustments and any resulting financial restatements will be reported in late June for the fiscal year that ends 21 March 31, 2003 .
22 182 . On June 20 , 2003, AMERCO filed a voluntary petition for relief under Chapter 11 i n
23 the United States Bankruptcy Court, District of Nevada (the "Bankruptcy Court") (Case No .
24 0352103). AMERCO Real Estate Company filed a voluntary petition for relief under Chapter 1 1
25 August 13 , 2003 . AMERCO' s other subsidiaries were not included in either of the filings .
26 183 . On August 25, 2003, AMERCO restated its financial statements and interi m
27 quarterly results for the fiscal years 2001 and 2002 . 28
THOMAS J . HAL L 66 ATTORNEY AND 'OUNSULOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )S SOUTH ARLINGTO N AVENUE SECURITIES LAW 184. In its latest restatement, AMERCO reported in its 2003 Form I OK that it actually
2 incurred losses of $42 .1 million for the year ended March 31, 2001, and not earnings of $1 .0 milli
3 as previously reported, and losses of $47 .4 million for the year ended March 31, 2002, not earnings
4 I of $2 .7 million as previously reported . The Company also reported that assets decreased by $38. 7
5 I million from $3 .638 billion previously reported to $3 .599 billion while liabilities increased by $27 .2
6 I million from $3 .126 billion previously reported to $3 .153 as of March 31, 2001 and that assets
7 decreased by $41 .2 million from $3 .773 billion previously reported to $3 .732 billion as of March
8 31, 2002 while liabilities increased by $76 .4 million from $3 .274 previously reported to $3 .351 as
9 I of March 31, 2002 . The Company also reported as of March 31, 2001 and stockholders' equity was
10 actually $446 .4 million and not $512 .3 million as previously reported, and $381 .5 million for the
11 year ended March 31, 2002, not $499 .1 million as previously reported.
12 185 . During a September 5, 2003 conference call with analysts, defendant Edward Shoe n
13 commented on the major components of the restatement as follows :
14 In performing the reaudit of 2002 and 2001, the Company's outside auditors BDO and the Company found items that had been accounted 15 for incorrectly. The largest item was insurance reserves . The reserves are noncash in nature but they do have a negative impact on 16 earnings. The necessary accounting entries have been made .
17 The other major restatement amount was the treatment of the Private Mini Storage limited partnership interests. This is a $34 million issue . 18 The company through its insurance subsidiaries had an equity stake in private Mini Storage Realty, LP . Private Mini is a self-storage 19 company that operates throughout Texas and the southeast . AMERCO had a limited partnership interest in Private Mini . Under 20 the equity method of accounting, the Company should have been recognizing its share of the Private Mini losses as a reduction in our 21 investment. We have made the appropriate accounting entries . Further, beginning with the September I OQ Private Mini Storage 22 Realty, LP will be consolidated with Storage Acquisition Corp . in our financial presentation . 23
24 XII. AMERCO'S FALSE AND MISLEADING FINANCIAL STATEMENTS AND DISCLOSURE S 25
26 186 . During the Class Period, AMERCO represented that the financial statements i t
27 issued to investors were each prepared in accordance with GAAP, which is recognized by the
28 accounting profession and the Securities and Exchange Commission ("SEC") as the uniform rules ,
THOMAS J. HAL L 67 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL US SOUTH ARLINGTON AVENUE SECURITIES LAW 1 conventions and procedures necessary to define accepted accounting practice at a particular time .4
2 These representations were materially false and misleading because defendants knowingly or with
3 deliberate recklessness employed and/or turned a blind-eye towards numerous improper accounting
4 practices, which materially inflated and misrepresented the Company's financial performanc e
5 during, at least, fiscal 1999, 2000, 2001 and 2002.5 Indeed, AMERCO's financial reporting is now
6 the subject of an SEC investigation.
7 187 . AMERCO has now admitted that during the Class Period it improperly failed to : (1 )
8 record fully-developed insurance reserves; (2) record losses relating to the Company's investments
9 in Private Mini Storage Realty, L.P . ; (3) write-down improperly deferred general and administrative
10 expenses ; (4) consolidate Special Purpose Entities that it controlled and possessed the substantive
11 rewards of ownership of the assets and obligated for the liabilities of such entities ; (5) disclose
12 contingent liabilities and material risks and uncertainties ; and (6) properly account for a myriad of
13 other transactions .
14 188 . As a result, AMERCO has now restated its financial statements for, at least, thefo
15 year period for fiscal years 1999 through 2002 . Indeed, GAAP provides that only previously issued
16 financial statements which are materially misstated as a result of an oversight or a misuse of facts
17 that existed at the time are to be retroactively restated . See, e.g., Accounting Principles Board
18 ("APB") Opinion No . 20, APB Opinion No . 9 and the AICPA's Statement on Auditing Standards
19 ("SAS") No . 53 . Accordingly, Amerco has now admitted that its financial statements during the
20 Class Period were materially false and misleading due to an oversight or a misuse of facts that
21 existed at the time such statements were issued.
22 189 . These accounting manipulations overstated the Company's earnings fro m
23 operations by more than 17 %, 21 %, 136%, 165% during fiscal 1999, 2000, 2001 and 2002,
24
25
26 4 Regulation S-X, in 17 C .F.R. § 210 .4-01(a)(1), states that financial statements filed with the SEC that are not prepared in compliance with GAAP are presumed to be misleading and inaccurate . 27 5 AMERCO' s fiscal 1999, 2000, 2001 and 2002 years ended on March 31 of that year . 28
THOMAS J . HAL L 68 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 respectively. In addition, Amerco interim financial statements issued during the Class Period were
2 similarly misstated. For example :
3 Reported Earnings Restated Earnings (Loss) (Loss) Percent Over 4 Quarter Ended From Operations (ooos) From Operations (ooos) (Under) Stated
5 June 30, 2001 $59,329 $32,161 84 .5 % 6 September 30, 2001 $85,112 $61,510 38 .4 % 71' December 31, 2001 $ (12,253) $(31,657) (258.3)% 8 March 31, 2002 $33,568 $(19,879) N/A 9 June 30, 2002 $89,615 $63,597 40.9 % 10 September 30, 2002 $91,473 $62,869 45 .5 % 11 December 31, 2002 $14,263 (6,722) N/A 12 13
14 190 . As the SEC's Staff Accounting Bulletin ("SAB") No . 996 provides :
15 Evaluation of materiality requires a registrant and its auditor to consider all the relevant circumstances, and the staff believes that 1 6 there are numerous circumstances in which misstatements below 5% could well be material . Qualitativefactors may cause misstatements 17 of quantitatively small amounts to be material; as stated in the auditing literature : 18
19 As a result of the interaction of quantitative and qualitative considerations in materiality judgments, misstatements of relatively 20 small amounts that come to the auditor's attention could have a material effect on the financial statements . 21 Among the considerations that may well render material a 22 quantitatively small misstatement of a financial statement item are : 23 • whether the misstatement arises from an item capable of 24 precise measurement or whether it arises from an estimate and, if so, the degree of imprecision inherent in the estimat e 25
26
2 7 b 17 C .F.R . Part 211 . 28
THOMAS J. HALL 69 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 05 SOUTH ARLINGTO N AVENUE SECURITIES LAW • whether the misstatement masks a change in earnings or other trends 2
3 • whether the misstatement hides a failure to meet analysts' consensus expectations for the enterpris e 4
5 • whether the misstatement changes a loss into income or vice versa 6
7 • whether the misstatement concerns a segment or other portion of the registrant's business that has been identified 8 as playing a significant role in the registrant 's operations or profitability 9
10 • whether the misstatement affects the registrant's compliance with regulatory requirements 11
12 • whether the misstatement affects the registrant' s compliance with loan covenants or other contractual requirement s 13
14 • whether the misstatement has the effect of increasing management's compensation, for example, by satisfying 15 requirements for the award of bonuses or other forms of incentive compensation 16
17 • whether the misstatement involves concealment of an unlawful transaction. 18
19 This is not an exhaustive list of the circumstances that may affect the materiality of a quantitatively small misstatement. [Footnotes 20 deleted, emphasis in bold added] .
21 191 . Indeed, AMERCO has now admitted that it employed numerous improper
22 accounting practices . Not coincidentally, each of these practices increased AMERCO 's reported
23 I results. In violation of the mandate of § 13 of the Securities Exchange Act of 1934, the Company 24 has had a long history of poor documentation, inadequate accounting and internal control policie s
25 and procedures. In addition, PwC utterly failed to perform its role as an auditor, as defined by the
26 GAAS and SEC.
27 192 . Indeed, GAAP, in Concepts Statement No . 2 provides that accounting information is
28 not useful if it is unreliable and that reliable accounting information must be verifiable and
THOMAS J . HAL L 70 ATTORNEY AND "OUNSCLOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTON AVENUE SECURITIES LAW T~
1 neutral.7 In addition, GAAP, in Concepts Statement No . 2, provides that the convention of
2 conservatism - meaning prudence - is to be applied in financial accounting and reporting, and in
3 FASB's Concepts Statement No . 1, states that the role of "financial reporting requires it to provide
4 evenhanded, neutral, or unbiased information ."
5 193 . AMERCO' s ongoing pattern of improper accounting caused it to issue financial
6 statements during the Class Period that were not neutral, conservative or unbiased ; but rather
7 manipulated to present AMERCO's financial position and results of operations in a materially
8 inflated and completely biased manner.
9 A. Amerco ' s Improper Failure To Record Fully-Developed Insurance Reserves And Expenses 10
11 194 . GAAP requires that financial statements record loss contingencies as a charge t o
12 income when: information existing at the date of the financial statements indicates that it is probablf
13 that an asset has been impaired or a liability has been incurred, and the amount of such loss can b e
14 reasonably estimated . FASB's Statement of Financial Accounting Standards ("SFAS") No . 5, ¶ 8 .
15 195 . In addition, the American Institute of Cert ified Public Accountants ("AICPA"), in
16 1990, issued an audit and accounting guide for property and liability insurance comp anies
17 (hereinafter referred to as "AAG-PLI") . The AAG-PLI provides property and liability insurance
18 organizations with specific guid ance in applying GAAP in the accounting and financial reporting of
19 its services. The AAG-PLI provides that the cost of insurance claims, which are the major costs
20 incurred by property and insurance companies , should be accrued as insured events occur .
21 196 . Since insurance companies frequently pay claims after the end of a particula r
22 accounting period and a fundamental precept of accounting requires that expenses be matched with
23 their related revenues, insurance companies are required to establish a liability to account for th e
24 cost of claims incurred by it during an accounting period which remain unpaid at the end of th e
25 accounting period. 26
27 7 Concepts Statement No. 2, ¶¶ 59 and 81, provides that reliable information "is a notion that is central to accounting. " 28
THOMAS J. HAL L 7 1 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL H SOUTH ARLINGTO N AVENUE SECURITIES LAW 197. GAAP also requires that entities be conse rvative in response to uncertainty in
2 accounting for transactions . As a result, insurance companies frequently add contingency reserve s
3 to their insurance reserve calculation to minimize the likelihood that the cost of insurance claims i n
4 a given accounting period may be understated .
5 198 . During the Class Period, AMERCO's audited financial statements included it s
6 accounting policy for its insurance reserves : 7 Liabilities for policy benefits payable on traditional life and certain annuity policies are established in amounts adequate to meet 8 estimated future obligations on policies in force . These liabilities are computed using mortality and withdrawal assumptions, which are 9 based upon recognized actuarial tables and contain margins for adverse deviation. At December 31, 2001, interest assumptions used 10 to compute policy benefits payable range from 2 .5% to 9.25%.
11 The liability for annuity contracts, which are accounted for as investment contract deposits, consists of contract account balances 12 that accrue to the benefit of the policyholders, excluding surrender charges. Carrying value of investment contract deposits were 13 $572,793,000 and $522,207,000 at December 31, 2001 and 2000, respectively. 14
15 Liabilities for health and disability and other policy claims and benefits payable represent estimates of payments to be made on 16 insurance claims for reported losses and estimates of losses incurred but not yet reported . These estimates are based on past claims 17 experience and consider current claim trends.
18 RepWest's liability for reported and unreported losses is based on RepWest's historical and industry averages . The liability for unpaid 19 loss adjustment expenses is based on historical ratios of loss adjustment expenses paid to losses paid . Amounts recoverable from 20 reinsurers on unpaid losses are estimated in a manner consistent with the claim liability associated with the reinsured policy . Adjustments 21 to the liability for unpaid losses and loss expenses as well as amounts recoverable from reinsurers on unpaid losses are charged or credited 22 to expense in periods in which they are made .
23 199 . As described below, during the Class Period, RepWest experienced sever e
24 difficulties with its computer information systems . These difficulties were exacerbated b y
25 RepWest's lack of adequate claims processing controls and procedures . As a result, RepWest' s
26 insurance claims were not timely processed and the Company accumulated a significant backlog o f
27 I I claims . These facts, which were known or recklessly disregarded by defendants, rendered the
28
THOMAS J . HALL 72 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 Company's insurance claim expense and insurance payable calculations inaccurate and inherently
2 I unreliable .
3 200 . For example, a former Rep West underwriter from 1996 through 2002 stated tha t
4 when RepWest began to write non-standard automobile, claim processing became a "nightmare."
5 The former RepWest underwriter said that the Claims Department was "backloggedfor months"
6 and "many" claims were left unprocessed indefinitely. This former underwriter stated that both
7 her immediate supervisor and Defendant Amoroso knew of RepWest 's claims processing problems .
8 201 . These representations are confirmed by other former Rep West employees. For
9 example, a former Rep West Claims adjuster from 1995 through 2003 stated that adjusters were
10 inundated with claims after Rep West began to write non-standard auto policies. Asa result,
11 Rep West was "overloaded" with unprocessed claims that were "sitting for months at a time." In
12 addition, the former claims adjuster stated Rep West experienced "massive" delays in processing
13 'first party claims. "8
14 202 . In addition, a former RepWest claims processing agent from 1999 through 2003 als o
15 stated that RepWest had a significant backlog of unprocessed claims . This former RepWest
16 employee stated that RepWest's systems, including its "Image Right" claims processor, led to
17 delays in processing claims.
18 203 . In an attempt to inflate earnings so that AMERCO could procure much needed
19 financing at favorable prices and satisfy RepWest capital maintenance requirements , AMERCO
20 falsified its publicly issued financial statements when it understated insurance expense by more
21 than $125 million during the Class Period.
22 204 . Defendants knew or with deliberate recklessness disregarded that AMERC O
23 GAAP by failing to adequately reserve for unpaid claims thereby materially inflating th e
24 Company's profitability during the Class Period because : (1) RepWest's system of internal control ,
25 including its claims processing system, was grossly inadequate ; and (2) RepWest failed to timely
26
27 8 The former claims adjuster stated that claims associated with U-Haul equipment were internally referred to as "first party claims ." 28
THOMAS J . HAL L 73 ATTORNEY AND :OUNS ELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 6 SOUTH ARLINGTO N AVENUE SECURITIES LAW and accurately process reported claims . As a result, RepWest could not responsibly calculate IBNR
2 claims because the recent claims data filed by insured members was wholly unreliable .
3 205 . AMERCO has admitted that its understated insurance expense during the Class
4 Period was not the result of an incorrect estimate of its insurance liabilities . Amoroso in his
5 capacity as President and Chief Financial Officer of Rep West testified under oath that at least
6 prior to August 2000 "reserve deficiencies" existed in the excess worker 's comp and U-Haul
7 business auto and general liability program . Furthermore, Amoroso admitted:
8 During my entire tenure [subsequent to August 2000], the transportation TIS trucking program was unreserved. Nonstandard 9 auto was unreserved. Assumed reinsurance was grossly underreserved. It may have been others . There were probably some 10 other smaller programs. 11 In its Addendum to Report of Examination as of December 31, 2000 the ADOI stated that ,
12 The Company's loss and LAE reserves as of September 30, 2001 were determined to be understated by $44, 969,000 . The reserve 13 deficiencies are primarly a result of assumed reinsurance programs and the excess workers' compensation line of business. 14
15 GAAP, in APB Opinion No . 20, prohibits corrections to accounting estimates, such as insurance
16 liabilities, to be made via a restatement of previously issued financial statements. Rather, changes
17 to accounting estimates are required to be made prospectively in financial statements . Here,
18 however, AMERCO restated its Class Period financial statements thereby admitting that what gave
19 rise to its understated insurance liabilities during the Class Period was not erroneous accounting
20 estimates, but rather was a result of an improper accounting of information in the possession of
21 AMERCO when the Company issued its false and misleading fin ancial statements.
22 206 . During the summer of 2002, the ADOI issued an examination report on RepWest
23 covering the period January 1, 1998 to December 31, 2000 . The report explains that RepWes t
24 wrote property and casualty insurance for members of the AMERCO group . The report also
25 indicates that policies issued to AMERCO provide general liability and automobile liabilit y
26 coverage .
27 207 . Prior to policy year 1999, AMERCO self-insured the first $25,000 of general
28 liability losses and retained additional risk through an annual aggregate deductible on general
THOMAS I HALL 74 A TTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL }5 SOUTH ARLINGTO N AVENUE SECURITIES LAW '"1
1 liability and automobile liability losses . The aggregate deductible amounted to $32 .5 million for
2 policy year 1998 and $31 .0 million for policy year 1997 . For policy years 1999 and 2000,
3 AMERCO had a 95% deductible for all general and automobile liability losses incurred .
4 208 . The 2002 ADOI report stated:
5 These large deductibles are unusual and present a material exposure to the Company's financial statement . The examination has estimated 6 that the liability for future deducible payments that the Company will need to collect from AMERCO in future years for deductible o n 7 losses already incurred as of December 31, 2000 to be at least $50,000,000. [Emphasis Added] 8
9 209 . Accordingly, by the summer of 2002, at least, defendants were on notice that th e
10 ADOI estimated AMERCO's liabilities for already incurred deductible losses to have been at least
11 1 $50 million. The failure of AMERCO to record these losses in its financial statements during th e
12 Class Period, as it has now admitted, after notification by the ADOI, evidences defendants' inten t
13 deceive investors.
14 210. After the ADOI issued its report covering the period January 1, 1998 to Decembe r
15 31, 2000 during the summer of 2002, the ADOI again contacted RepWest . In fact, on March 17,
16 and 20, 2003, the ADOI requested that AMERCO confirm that it had recorded certain amounts due
17 to the RepWest for, among other things, AMERCO's deductible obligations under policies issued
18 by RepWest. The ADOI also asked AMERCO to provide a reconciliation that would disclose how
19 these amounts due RepWest were reported in AMERCO's financial statements filed with the SE C
20 for the year ended March 31, 2002 and the quarter ended December 31,2002 .
21 211 . AMERCO failed to adequately respond to the ADOI's March 2003 requests, and, as
22 a result, the ADOI issued an order to the Company dated March 26, 2003 to "produce such records,
23 books or other information papers in its possession or the possession of its affiliates that (1)
24 substantiate AMERCO's reserves for deductible obligations under policies issued by [RepWest] for
25 the years 2000 through 2003 ; and (2) reconcile AMERCO's reserves for deductibles under policies
26 issued by the Company for the years 2000 to 2003 to AMERCO's financial statement filed with the
27 Securities and Exchange Commission as of March 31, 2002 and December 31, 2002 . "
28
THOMAS J. HAL L 75 ATTORNEY AND =OUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL A SOUTH ARLINGTON AVENUE SECURITIES LAW t1
212 . In response, the ADO! received letters from AMERCO and Rep West dated Marc h 2 1 31 and April 2, 2003, respectively, neither of which provided the requested information . 3 Accordingly, on April 3, 2003, the ADOI issued a subpoena to AMERCO for the requir e
4 j information. AMERCO' s response to the subpoena included a letter dated April 22, 2003 and
5 I related attachments . Follow up meetings with AMERCO were held on April 22 and 25, 2003 . 6 Neither the letter nor the follow up meetings with AMERCO provided the information the ADOI
7 sought .
8 213 . Thereafter, the ADOI issued a report dated May 1, 2003 which stated, in pertinent
9 part, "With respect to the high deductible policies and retrospective premiums receivable,
10 AMERCO was unable or unwilling to confirm that itsfinancial obligations to the Company were
11 adequately recognized in AMERCO's financial statements. "
12 214 . Such report also disclosed :
13 [RepWest] has issued business auto and general liability policies ($0 to $250,000) to AMERCO with policy years ending March 31, 2000, 14 March 31, 2001 and March 31, 2002, each of which contain a 95% deductible obligation by AMERCO on incurred losses. . . . 15
16 At inception of this insurance program, AMERCO prepaid a portion of its estimated deductible obligation over the policy period and 17 [RepWest] held the funds for use in paying claims . However, as of December 31, 2002, the Company held funds of only $5 .7 million to 18 secure AMERCO's deductible obligation for policy years ending March 2000, 2001 and 2002 . Deductibles under the business auto 19 policy effective April 1, 2002 are not prepaid, but rather, are billed AMERCO as the losses are paid . 20
21 In addition to the high deductibles contained in the business auto and general liability policies, commercial umbrella liability policies issued 22 by [RepWest] to AMERCO contain "corridor deductibles" that have a similar financial effect . . .. The umbrella policies with corridor 23 deductible are another type of high deductible policy issued to AMERCO . 24
25 Although the high deductible policies, including the corridor deductible, shift the underwriting risk to AMERCO, they expose 26 [RepWest] to credit risk based on AMERCO's ability to pay the deductibles . During the examination, the Company prepared an 27 exposure analysis that indicated its credit risk to AMERCO for unfunded deductibles was approximately $120.4 million. As 28 indicated above, the Company held only $5.7 million in prepaid
THOMAS J. HAL L 76 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 0 SOUTH ARLINGTO N AVENUE SECURITIES LAW funds provided by AMERCO to secure this exposure, for a net unfunded credit exposure of $114. 4 million. ... 2
3 Under the insurance holding company systems act, the ADOI sought to confirm with AMERCO, that AMERCO's filed financial 4 statements included sufficientprovision for the underwriting risk that had been shifted from the company's balance sheet to 5 AMERCO. Pursuant to a subpoena issued by the ADOI on April 3, 2003, AMERCO provided documentation that its ledger as of 6 December 31, 2002, included an accrual for insurance liabilities payable to [Rep West] in the approximate net amount of $41.1 7 million. This amount, compared to the net policy deductible exposure of $114 .4 million, appears to indicate that AMERCO has 8 failed to accrue $ 73.3 million of losses incurred under these policies. [Emphasis Added ] 9
10 215 . Despite the foregoing, defendants, in a September 5, 2003 conference call, defendant
11 Edward Shoen deceptively stated : "In performing the re-audit in 2002 and 2001, the Company' s
12 I outside auditors BDO and the company found items that had been accounted for incorrectly. The
13 largest items were insurance reserves."
14 216 . Indeed, AMERCO deliberately and egregiously failed to record losses incurre d
15 its insurance polices in order to create the false impression that it was in compli ance with loan
16 covenant and regulatory capital requirements and to facilitate the procurement of much needed
17 additional financing, as defendants knew or with deliberate recklessness disregarded . Defendants
18 attempt to stonewall the ADOI' s processes evidences their intent to deceive investors during th e
19 Class Period.
20 217 . AMERCO materially misstated its operating results as a result of its improper
21 accounting for its incurred insurance losses during the Class Period as noted in the chart below: 22 Originally 23 Pre-Tax Earnings Re ort d ooos Restated ooos Change jows)
24 For the Year Ended March 31, 2002 $4,979 $(50,591) $(55,570 )
25 For the Year Ended March 31, 2001 $23,998 $(32,227) $(56,255) 26
27
28
THOMAS J . HAL L 77 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )S SOUTH ARLINGTO N AVENUE SECURITIES LAW 218 . In fact, as a result of its improper accounting for its incurred insurance losses alone ,
2 I AMERCO understated its pre-tax income by more than $ 125 million during the Class Period, or an
3 amount equal to approximately 20% of AMERCO undistributed earnings from its inception through
4 March 31, 1997 .
5 XIII. AMERCO' S IMPROPER ACCOUNTING FOR ITS LIMITED PARTNERSHIP INVESTMENT 6
7 219. AMERCO' s Class Period financial statements were also materially false and
8 misleading because the Company failed to timely record losses ensuing from its investments, as i t
9 has now admitted. AMERCO has now restated its financi al results for fiscal 2002, 2001 and prior
10 years acknowledging that its failure to include losses from PMSR of $9.7 million, $ 8 .4 million and
11 $8 .1 million, respectively , cause its financial statements originally issued to be materia lly false and
12 misleading. In yet another way, AMERCO' s Class Period financial statements were materially
13 distorted, presented in violation of GAAP, the rules and regulations of the SEC, and deceived
14 investors about the Company's true financial condition and operating performance.
15 220 . In its audited financial statements for the year ended March 31, 1999, filed with th e
16 SEC on Form 10-K, AMERCO disclosed :
17 In February 1997, AMERCO, through its insurance subsidiaries, invested in the equity of a limited partnership in a Texas-based self- 18 storage corporation. Republic invested $13,500,000 in exchange for a 38% limited partnership and Oxford invested $11,000,000 in 19 exchange for a 31 % limited partnership . U-Haul is a 50% owner of a corporation which is a general partner in the Texas-based self- 20 storage corporation . AMERCO has a $10,000,000 note receivable from the corporation. [Emphasis Added] 21
22 221 . AMERCO expanded such disclosure in its audited financial statements for the year
23 ended March 31, 2000, filed with the SEC on Form 10-K, as follows :
24 In February 1997, AMERCO, through its insurance subsidiaries, invested in the equity of a limited partnership in a Texas-based self- 25 storage corporation. Republic invested $13,500,000 and has a 22% limited partnership interest and Oxford invested $11,000,000 and has 26 a 27% limited partnership interest. U-Haul is a 50% owner of a corporation which is a general partner in the Texas-based self- 27 storage corporation . AMERCO has a $10,000,000 note receivable from PMSI Investors L .L .C ., a 30% limited partner in the corporation. 28 During 1997, the corporation secured a line of credit in the amount o f
THOMAS J . HALL 78 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 05 SOUTH ARLINGTON AVENUE SECURITIES LAW $225,000,000 with a financing institution . Under the terms of this credit facility, AMERCO entered into a support party agreement 2 with the corporation whereby upon default or noncompliance with debt covenants by the corporation, AMERCO assumes responsibility 3 fulfulling all obligations related to this credit facility. [Emphasis Added] 4
5 222 . In its audited financial statements for the year ended March 31, 2001, filed with th e 6 SEC on Form 10-K, AMERCO disclosed:
7 In February 1997, AMERCO, through its insurance subsidiaries, invested in the equity of a limited partnership in a Texas-based self- 8 storage corporation. Rep West invested $13,500,000 and has a 38% limited partnership interest and Oxford invested $11,000,000 and 9 has a 27% limited partnership interest. U-Haul is a 50% owner of a corporation which is a general partner in the Texas-based self- 10 storage corporation . AMERCO has a $10,000,000 note receivable from PMSI Investors L.L.C., a 30% limited partner in the 11 corporation. During 1997, the corporation secured a line of credit in the amount of $225,000,000 with a financing institution . Under the 12 terms of this credit facility, AMERCO entered into a support party agreement with the corporation whereby upon default or 13 noncompliance with debt covenants by the corporation, AMERCO assumes responsibility in fulfilling all obligations related to this 14 credit facility. [Emphasis Added]
15 223 . Similarly, AMERCO' s audited financial statements for the year ended March 31 ,
16 2002, filed with the SEC on Form 10-K disclosed :
17 In February 1997, AMERCO, through its insurance subsidiaries, invested in the equity of a limited partnership in a Texas-based self- 18 storage corporation. Rep West invested $13,500,000 and has a 38% limited partnership interest and Oxford invested $11,000,000 and 19 has a 27% limited partnership interest. U-Haul is a 50% owner of a corporation, which is a general partner in the Texas-based self- 20 storage corporation . AMERCO has no operating control of the Texas-based self-storage corporation and the minority holders have 21 substantial participation rights . During 1997, the corporation secured a line of credit in the amount of $225,000,000 with a financing 22 institution. Under the terms of this credit facility, AMERCO entered into a support party agreement with the corporation whereby upon 23 default or noncompliance with debt covenants by the corporation, AMERCO assumes responsibility in fulfilling all obligations related 24 to this creditfacility. At March 31, 2002, there was no default on non-compliance under the terms of the credit facility . [Emphasis 25 Added]
26 224 . These disclosures misled investors by leaving them to assume that AMERCO' s
27 limited partnership investment in Private Mini Storage Reality, L .P . ("PMSR") was accounted fo r
28 accordance with GAAP .
THOMAS J. HAL L 79 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 0 SOUTH ARLINGTON AVENUE SECURITIES LAW 225 . GAAP, in APB Opinion No . 18, requires that an investment in the common stock of
2 an unconsolidated subsidiary be accounted for using the equity method if the investor has
3 significant influence over the investee's operating and financial policies . Pursuant to APB Opinion
4 No. 18, an investor that owns 20% or more of the voting stock of an investee is presumed to hav e
5 the ability to exercise significant influence over the investee .
6 226 . Under the equity method, an investor recognizes its share of the earnings or losses of
7 I an investee. APN Opinion No. 18, ¶10 . APB Opinion No . 18 also provides that : 8 Financial statements of an investor should disclose parenthetically, in notes to financial statements, or in separate statements or schedules 9 (1) the name of each investee and percentage of ownership of common stock, (2) the accounting policies of the investor with 10 respect to investments in common stock, 13 and (3) the difference, if any, between the amount at which an investment is carried and the 11 amount of underlying equity in net assets and the accounting treatment of the difference . 12
13 13 Disclosure should include the names of any significant investee corporations in which the investor holds 20% or 14 more of the voting stock, but the common stock is not accountedfor on the equity method, together with the 15 reasons why the equity method is not considered appropriate, and the names of any significant investee corporations in 16 which the investor holds less than 20% of the voting stock and the common stock is accounted for on the equity method, 17 together with the reasons why the equity method is considered appropriate . [Emphasis Added] 18
19 227 . Despite revisions to the financial disclosure statement concerning PMSR during th e
20 Class Period, AMERCO's audited financial statements nonetheless failed to provided the disclosur(
21 required by GAAP and the SEC's accounting rules and regulations . Accordingly, investors were
22 unable to assess the appropriateness or the risks associated with AMERCO's accounting for PMSR
23 Without such disclosure, investors were led to believe that AMERCO's Class Period financia l
24 I statements included its proportionate share of PMSR's losses, when they did not, as PwC and th e
25 Individual Defendants knew or recklessly ignored .
26 27
28
THOMAS J . HALL 80 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )5 SOUTH ARLINGTO N AVENUE SECURITIES LAW 228 . In fact, during the Class Period, GAAS specifically provided, in Statement o n
2 Auditing Standards ("SAS") No. 81, that : 9
3 The auditor should obtain evidence about the appropriateness of the accounting method adopted for investments in common stock of an 4 investee. Inquiry should be made of the investor's management as to (a) whether the investor has the ability to exercise significant 5 influence over the operating and financial policies of the investee under the criteria set forth in paragraph 17 of APB Opinion 18 and (b) 6 the attendant circumstances that serve as a basis for management's conclusion. The auditor should evaluate the information received on 7 the basis of facts otherwise obtained by him or her in the course of the audit. 8
9 If an investor accountsfor an investment in an investee contrary to the applicable presumption contained in paragraph 17 of APB 10 Opinion 18, the auditor should obtain sufficient competent evidential matter about whether that presumption has been 11 overcome and whether appropriate disclosure is made regarding the reasons for not accountingfor the investment in keeping with the 12 presumption. [Emphasis Added, Footnotes Deleted ]
13 229. Defendants have now admitted that AMERCO's financial statements during th e
14 Class Period were materially false and misleading when issued due to its failure to recognize equity-
15 method losses relating to the Company's investment in PMSR . Indeed, this improper accounting
16 practice alone overstated the Company's earnings from operations by approximately 10% and 8%
17 during fiscal 2001 and 2002, respectively.
18 XIV. AMERCO'S UNDERSTATEMENT OF GENERAL AND ADMINISTRATIVE EXPENSES 19
20 230 . In its audited financial statements for the year ended March 31, 1999, AMERCO
21 disclosed its policy of accounting for deferred policy acquisition costs :
22 Commissions and other costs which vary with and are primarily related to the production of new business, have been deferred . Oxford 23 - costs are amortized in relation to revenue such that profits are realized as a level percentage of revenue . Republic - costs are 24 amortized over the related contract period which generally do not exceed one year. [Emphasis Added ] 25 26 ' SAS No. 81, effective for audits beginning on or after January 1, 1997, was superceded by SAS 27 No. 92 for fiscal years beginning after June 30, 2001 . SAS No. 92, ¶.57 carries forward the requirements cited in SAS No . 81 . 28 THOMAS d. HALL 8 1 ATTORNEY AND 'OUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 5 SOUTH ARLINGTO N AVENUE SECURITIES LAW n
1 231 . This representation was materially false and misleading as RepWest improperly
2 failed to amortize deferred cost into earnings in accordance with its publicly stated accounting
3 policy .
4 232 . Indeed, GAAP, APB Opinion No . 22, ¶7, provides that the usefulness of financial
5 statements in making economic decisions depends significantly upon the user 's understanding of
6 the accounting policies followed by a company. In fact, GAAP states that information about the
7 accounting policies adopted by a reporting company is "essential" for financial statement users.
8 APB Opinion No. 22, ¶ 8 .
9 233 . Nonetheless, AMERCO improperly failed to comply with its publicly stated
10 accounting policy and GAAP, as the Company has now admitted . As a result of this false and
11 misleading accounting practice alone, AMERCO's pre-tax earnings during the Class Period were
12 overstated by more than $32. 6 million, an amount represents more than 50% of AMERCO's pre-
13 tax earnings during each of the years ended March 31, 2000 and 1999.10
14 234 . For example, certain of such unrecognized expenses were associated with sale s
15 commissions due to Rep West's insurance agents. During 2000, RepWest recorded commissions
16 paid to its sales agent, Robert Moreno. Subsequently, RepWest recorded an entry to reverse
17 approximately $ 1 .5 million of such previously recorded commissions , ostensibly because the
18 commissions Rep West paid Moreno were for insurance in excess of a 12-month limitation .
19 However, Richard Turoff, a then RepWest Vice President of Underwriting and Marketing, waived
20 the annual cap, and authorized Moreno to write additional business . Thereafter, RepWest received
21 and retained the premiums for the business generated by Moreno in excess of the annual limit, and
22 RepWest commenced an unsuccessful legal action to recover approximate $ 1 .5 million in
23 commissions it paid to Moreno . 24
25
26
27 10 On information and belief, the majority of such expenses were required to have been recognized during the years ended March 31, 2000 and 1999 . 28
THOMAS J . HAL L 82 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )5 SOUTH ARLINGTON AVENUE SECURITIES LAW 235 . RepWest's entry to reverse the commissions paid to Moreno , violated AMERCO' s
2 publicly-disclosed accounting policy and violated GAAP, because AMERCO was recognizing a
3 gain contingency precluded by SFAS No. 5 .
4 236 . The FASB, in SFAS No . 5, ¶ 17 provides that :
5 a. Contingencies that might result in gains usually are not reflected in the accounts since to do so might be to recognize revenue 6 prior to its realization .
7 b. Adequate disclosure shall be made of contingencies that might result in gains, but care shall be exercised to avoid misleading 8 implications as to the likelihood of realization .
9 237. Indeed, the SEC recently sanctioned Oxford Health Plans for recording a gai n
10 contingency related to the outcome of a lawsuit concerning a refund Oxford believed it was due for
11 amounts paid into an allegedly overfunded malpractice insurance pool .
12 238 . Defendants were motivated not to reverse such expenses during the years ende d
13 March 31, 2000 and 1999 because AMERCO was preparing for a $350 million debt offering at tha t
14 time.
15 A. AMERCO's Improper Failure To Consolidate Special Purpose Entities
16 239 . Prior to and during the Class Period, AMERCO' s self-storage business was the
17 Company's primary growth opportunity . Accordingly, AMERCO began aggressively expanding its
18 self-storage business. At the same time, full service gas stations where U-Haul rented its equipment
19 began to vanish . These factors forced AMERCO to purchase properties from which it could rent
20 equipment and locate self-storage facilities .
21 240 . AMERCO' s ability to make these necessary real estate purch ases, however, was
22 constrained because the significant amounts of financing needed to acquire such propertie s
23 adversely effected its credit ratings, cost of debt and, ultimately, its ability to make the necessar y
24 property acquisitions.
25 241 . Confronted with these realities, defendants endeavored to remove such real propert y
26 acquisitions and associated financing from AMERCO financial statements by transferring them t o
27 entities controlled by Mark V . Shoen, a U-Haul Executive Officer and 13% shareholder and di
28
THOMAS J . HAL L 83 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTON AVENUE SECURITIES LAW 1 I of AMERCO . The Company treated the entities receiving these assets as "special purpose entities"
2 that would not have to be included in AMERCO' s financial statements under GAAP .
3 242 . In form, the asset transfers were structured by defendants such that AMERCO "sold"
4 the properties to the SPEs in exchange for a note receivable . In substance, however, the
5 "purchasers" of the transferred assets (i .e ., the SPEs) were alter-egos of AMERCO.
6 243 . Indeed, defendants' strategy was a deliberate violation of a most basic tenent of
7 GAAP which holds that the substance of the arrangement , rather than its legal form, should
8 determine the accounting treatment. See, e.g., Concept Statement No . 2, ¶ 160, ABP Opinion No .
9 21, ¶ 12, AICPA Accounting Interpretation ("AIN") of APB Opinion No . 25, #1 .
10 244. Defendants intended that, as a result of the SPE transactions, AMERCO's balance
11 sheet would show a reduction in its debt, and more favorable financial leverage ratios, credit rating s
12 and earnings .
13 245. Emerging Issues Task Force ("EITF") Topic D-14, Transactions Involving Specia l
14 Purpose Entities, addresses whether, under GAAP, transfers of assets to SPEs should be treated as
15 sales and whether or not it is appropriate for sponsoring companies to consolidate the financia l
16 I statements of SPEs. For non-consolidation and sales recognition by the sponsor or transferor to b e
17 appropriate, the majority owner of the SPE must have the following characteristics : (a) be an
18 independent third-party who has made a substantive capital investment in the SPE ; (b) have control
19 of the SPE ; and (c) have substantive risks and rewards of ownership of the assets of the SPE .
20 246 . Moreover, non-consolidation and sales recognition are not appropriate by the
21 sponsor or transferor when : (a) the majority owner of the SPE makes only a nominal capital
22 investment; (b) the activities of the SPE are virtually all on the sponsor's or transferor's behalf ; and
23 (c) the substantive risks and rewards of the assets or the debt of the SPE rest directly or indirectly
24 with the sponsor or transferor .
25 247 . AMERCO failed, in numerous respects, to comply with the guidance set fo rth in
26 EITF Topic D-14 in accounting for its asset transfers to the SAC SPEs during the Class Period.
27 248 . First, the majority owner of the SAC SPEs was not "independent" of AMERCO . In
28 fact, the majority owner of such entities, Mark V . Shoen, was a U-Haul Exectuive Officer and a
THOMAS J. HAL L 84 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL I5 SOUTH ARLINGTON AVENUE SECURITIES LAW 1 13% shareholder and Director of AMERCO at the time of the transfers. As a result, AMERCO did
2 not transfer its assets to a SPE whose majority owner was "an independent third-party," as require d
3 by EITF Topic D-14 . "
4 249 . Second, AMERCO' s loan agreements with the SAC SPEs provided that AMERC O
5 would receive 90% of all of the excess cash flow (as defined) and 90% of the gains from future
6 sales from the properties that AMERCO "sold" to such SPEs . As such, the substantive rewards of
7 ownership of the assets transferred to the SPEs remained with AMERCO and the majority owner of
8 the SPEs, Mark V . Shoen, did not effectively enjoy the benefit ensuing from any gains on the assets
9 transferred by AMERCO to the SAC SPEs . As a result, AMERCO, and not Mark V . Shoen,
10 possessed the substantive rewards of assets owned by the SAC SPEs .
11 250 . As a result of the foregoing, GAAP required that AMERCO consolidate the financial
12 statements of the SAC SPEs with its own during the Class Period and AMERCO was precluded
13 under GAAP from treating the transfer of its real estate assets to the SAC SPEs as sales .
14 251 . In fact, AMERCO was otherwise preluded under GAAP from treating its real estate
15 transfers to the SAC entities as sales and not consolidating the financial statements of the SPEs with
16 its own during the Class Period . GAAP, in EITF Issue No . 90-15, provides that in order for an
17 independent third party ' s capital investment to be deemed to be "substantive," the independent third
18 party must make an equity investment of, at least, three percent in the SPE .
19 252 . AMERCO has now admitted that Mark V . Shoen's investment in the SAC SPEs di d
20 not satisfy this minimum equity investment criterion and, as a result, the financial statements of the
21 SAC SPEs were otherwise required to be consolidated with those of AMERCO . Indeed, GAAP, in
22 EITF Issue No. 96-21, provides additional guidance concerning the three percent minimum equity
23 investment criterion. For example, EITF Issue No. 96-21 provides that if three percent minimum
24 equity investment is breached, then, absent an additional equity contribution by the independen t
25
26 "1 GAAP, in Article 3A-02 of Regulation S-X, otherwise provides that "[t]here is a presumption that consolidated [financial] statements are more meaningful than separate statements and are 27 usually necessary for fair presentation when one entity directly or indirectly has a controlling interest in another entity." 17 C .F.R. § 3A-02 . 28
THOMAS J . HAL L 85 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 05 SOUTH ARLINGTO N AVENUE SECURITIES LAW '`1
1 third party that satisfies the three percent minimum equity investment criterion, the SPEs woul d
2 need to be consolidated .
3 253 . During the Class Period, the SAC SPEs made payments to Mark V . Shoen that
4 reduced his equity investment in such SPEs to less than the required three percent level, a s
5 I AMERCO has now admitted. Thus, Mark V . Shoen did not make a sufficiently large equity
6 investment in the SAC SPEs to be considered "substantive" as required by GAAP.
7 254. As a result of the foregoing, AMERCO was required by GAAP to consolidate th e
8 financial statements of the SAC SPEs with its own and AMERCO was required to eliminate any
9 income or gains on transactions between itself and the SAC SPEs during the Class Period .
10 255 . Indeed, defendants knew or recklessly disregarded that AMERCO' s financial
11 reporting of the SAC SPEs was required to be consolidated with its financial statements because,
12 during the Class Period, defendant PwC consulted with three of four other "Big 5" accounting firm
13 about the propriety of AMERCO's accounting for the SAC SPEs . Each of such firms concluded
14 Mark V. Shoen was not an independent third-party nor did he satisfy the "substantive" equity
15 investment criterion required by GAAP.
16 256. Nonetheless, AMERCO failed to timely correct its improper accounting for the SA C
17 SPEs. Indeed, it was only after the SEC concluded that the financial statements of the SAC SPEs 18 needed to be consolidated with those of AMERCO did the Company provide corrective disclosur e
19 of its accounting for the SAC SPEs.
20 257 . As a result of AMERCO' s improper accounting for the SAC SPEs, the Company' s
21 reported financial disclosures were materially false and misleading, as AMERCO has now admitted .
22 Indeed, AMERCO's pre-tax income during fiscal 2000 and 2001 was overstated by approximatel y
23 8% and 250%, respectively, as a result of AMERCO's improper accounting for the SAC SPEs
24 alone.
25 258 . AMERCO also materially misstated the following financial information as a resul t
26 its improper accounting for the SAC SPEs during the Class Period :
27
28
THOMAS J . HALL 86 A TTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )5 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1
2
3 Originally Percent Over 4 March 31, 2001 Reported (000s) Restated (ooos) (Under) Stated
5 Notes and Loans Payable $1,156,848 $1,543,367 (25 .0)%
6 Liabilities $2,768,698 $35126,175 (11 .4)%
7 Shareholders' Equity $615,366 $512,264 20 .1 %
8 Debt to Equity Ratio'2 4 .5 6 .1 (26 .3)%
9 Earnings to Fixed Charges 1 .13 1 .02 10 .8% Ratio 10 Originally Percent Over 1 1 March 31, 2000" Reported (ooos) Restated (ooos) (Under) Stated 12 Cash Flow From Operations $237,657 $137,391 73 .0 % 13 Notes and Loans Payable $1,137,840 $1,368,616 (16 .9)% 14 Liabilities $2,539,931 $2,758,838 (7 .9)% 15 Shareholders' Equity $585,294 $532,454 9 .9 % 1 6 Debt to Equity Ratio 4 .34 5 .18 (16 .3)% 17 Earnings to Fixed Charges 1 .71 1 .02 67 .7% Ratio 18
19
20 259 . In addition to the above, AMERCO grossly understated its reported Commitments . 21 and Contingent Liabilities as reported in audited financial statements during the Class Period
22
23
24 12 Debt to Equity ratio is a measure used in the analysis of financial statements to show the amount of protection available to creditors . A high ratio usually indicates that the business has a high 25 degree of risk. Joel G . Siegel & Jae K. Shim, Barron's, Dictionary of Accounting Terms,(2d ed . 1995), page 113 . 26 13 AMERCO's improper accounting for the SAC SPEs is actually larger than that reflected in this 27 chart as the figures herein include unrelated positive audit adjustments that AMERCO improperly failed to record when it originally reported fiscal 2000 results . 28
THOMAS J . HALL 87 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )5 SOUTH ARLINGTO N AVENUE SECURITIES LAW i 260 . AMERCO's interim financial statements during the Class Period as a result of its
2 improper accounting for the SAC SPEs were similarly misstated . For example : 3
4 5
6 Fiscal 2002 September December [Percent Over/(Under) Stated] June 2001 Ouarter 2001 Ouarter 2001 Ouarter 7 Net Earnings 19.6% 16.6% N/A 8 Net Loss N/A N/A (17 .8)%
9 Notes and Loans Payable (19 .4)% (20-3)% (19 .2)%
10 Liabilities (8 .3)% (8 .5)% (8.6)% 11 Shareholders' Equity'4 14 .1% 13 .5% 29.4%
12 Debt to Equity Ratio (19 .7)% (19.4)% (29.4)% 13
14 Fiscal 200115 September December 15 [Percent Over/(Under) Stated] June 2000 Quarter 2000 Quarter 2000 Quarter 1 6 A 17 Net Earnings 4 .6% 6 .1% N/
18 Net Loss N/A N/A (17 .0)%
19
20
21
22
23
24 14 The extent to which AMERCO's restated Shareholders' Equity was overstated during the Class 25 Period is actually more than what is reflected in this chart since AMERCO subsequently "adjusted" its restated fiscal 2002 interim financial statements . 26 15 AMERCO has not restated its fiscal 2001 interim balance sheets . Accordingly, Plaintiffs are 2 7 unable to assert the extent to which the Company's reported Notes and Loans payable, Liabilities, Shareholders' Equity and Debt to Equity ratio were misstated . 28
THOMAS J. HALL 88 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL D5 SOUTH ARLINGTON AVENUE SECURITIES LAW 1
2 B. 's I roper Fa To Disclose Con ilities And S tainties 3 261 . Defendants attempt to mislead investors during the Class Period is otherwis e 4 evidenced by the failure of AMERCO' s financial statement to disclose its contingent liabilities in 5 conformity with GAAP. 6 262 . GAAP requires that financial statements disclose contingencies when it is at leas t 7 reasonably possible (e.g., a greater than slight chance) that a loss may have been incurred. SFAS 8 No . 5, ¶10. The disclosure shall indicate the nature of the contingency and shall give an estimate of 9 the possible loss, a range of loss, or state that such an estimate cannot be made . Id. 10 263 . The SEC considers the disclosure of loss contingencies to be so important to a n 11 informed investment decision that it issued Article 10-01 of Regulation S-X [17 C .F .R. § 210.10- 12 01 ], which provides that disclosures in interim period financial statements may be abbreviated and 13 need not duplicate the disclosure contained in the most recent audited financial statements, except 14 "where material contingencies exist, disclosure of such matters shall be provided even though a 15 significant change since year end may not have occurred . " 16 264 . In addition, GAAP requires that financial statements disclose signi ficant risks and 17 uncertainties associated in an entities ' business. American Institute of Certified Public Accountant': 18 Statement of Position No. 94-6. 19 265 . In violation of GAAP, AMERCO's Class Period financial statements improperly 20 failed to disclose numerous significant risks and uncertainties . 21 266 . For example, the ADOI's examination report issued in the summer of 2002 stated : 22 Examination of accounts and records revealed significant 23 reinsurance data integrity and overall internal control problems . Many of the problems resulted in the Company having to engage in 24 a significant amount of research in an effort to provide support for the data and transactions that are recorded in its general ledger and 25 ultimately reported in the Annual Statement and other regulatory filings. A general failure to obtain required regulatory approval of 26 certain transaction and agreements was also noted. The Company's lack of an adequate internal control structure contributed to these 27 problems and errors.
28
THOMAS J . HAL L 89 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 1S SOUTH ARLINGTO N AVENUE SECURITIES LAW r\
Problems and recommendations that are generally discussed in this Report of Examination have been addressed in more detail with the 2 Company's Management .
3 267 . Ronald Grey, RepWest's President and Chairman of the Board from 1997 to 2000 ,
4 confirmed RepWest's internal control and operational deficiencies . Grey testified that Rep West
5 "constantly" experienced problems with its computers and software and "was in the stone ag e
6 a data processing standpoint. Grey further testified that Rep West's data processing system
7 was "totally obsolete " and adversely "affected the ability of the Company to do everything from
8 daily chores, communicating with one another, to obtaining current information. "
9 268 . Concerning RepWest' s actuarial reserves , the ADOI's report stated :
10 The actuarial assumptions utilized by the Company and the resulting account balances were reviewed for this examination by R . Glenn 11 Taylor, A.C.A.S ., M.A.A.A ., associated with the firm Taylor-Walker & Associates, Inc., the examination actuary . Based upon the analysis 12 performed by the examination actuary, the loss and LAE reserve liability balances reflected in the financial statements of this Report 13 of Examination are $50,437,000 or 14.9% greater then the amount reported by the Company in its filed 2000 Annual Statement. The 14 Examination actuary certified that the actuarial amounts repo rted in this Report of Examination are computed in accordance with 15 reserving standards and practices prescribed by the State of Arizona and made reasonable provisions for a ll unpaid loss and loss expense 16 obligation under the terms of the Company' s policies and agreements on a net of reinsurance basis . [Emphasis added . ] 17
18 269 . The ADOI report also stated:
19 The Company is a party to a partnership agreement in connection with its investment in [Private Mini Storage Realty, LLP] . The partnership 20 agreement includes a mandatory additional funding provision , whereby, the general partner (50% controlled by AMERCO) may at 21 its sole discretion require mandatory additional capital contributions to be made by the limited partners, including the Company . The 22 mandatory additional funding provision is not capped in any way and essentially allows for the potentialfor an unlimited amount of 23 capital to be required from the Company. [Emphasis added . ]
24 270 . In addition, in its March 31, 2002 audited financial statements, AMERCO disclose d
25 that, on June 28, 2002, it entered into an "agreement replacing an existing revolver agreement wit h
26 a 3 year revolver for $205,000,000." AMERCO deceptively failed to disclose, however, that a
27 condition precedent to such agreement required AMERCO to obtain an additional $ 150 million in
28 financing before October 8, 2002 . THOMAS J . HALL 90 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )5 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 271 . Defendants knew or with deliberate recklessness disregarded that AMERCO' s
2 disclosure in its Class Period financial statements failed to disclose numerous material contingen t
3 liabilities and risks and uncertainties in violation of GAAP .
4 C. AMERCO's Other Improper Accounting
5 272 . Defendants' efforts to deceive investors are further evidenced by other imprope r
6 accounting practices employed by AMERCO during the Class Period . In each case, these practices
7 had one common objective - they eliminated or deferred current period expenses which, in turn,
8 inflated AMERCO's earnings . The Company has now admitted that it had understated its expenses
9 relating to, among other things, vehicle, equipment and/or real estate depreciation ; inventory
10 shrinkage, asset impairments, and unrecognized expenses associated with assets leased by the 11 Company because AMERCO, without any reasonable basis, deemed to be reimbursable by the
12 various lessors with which it transacted .
13 273 . In addition to the materialfinancial misstatements ensuing from the AMERCO's
14 improper accounting noted in detail above , AMERCO has now admitted that during the Class
15 Period it also :
16 • improperly recorded "adjustments" to inventory totaling $8 .8 million upon
17 the conversion of the Company's computer system ;
18 • improperly failed to record $1 .4 million of inventory shrinkage ;
19 • improperly failed to record leased asset expenditures totaling $4 .3 million;
20 • improperly failed to record property taxes totaling $3 .6 million;
21 • improperly failed to record a total of $4 .8 million in net depreciation expense 22 and gains and losses on the disposition of fixed assets during fiscal 2002 ;
23 • improperly failed to record $2 .4 million in impairments in the value of its
24 estate investments ;
25 • improperly failed to record "other miscellaneous adjustments" which reduce d
26 income by $5 .2 million.
27 274 . As a result of the foregoing accounting improprieties, AMERCO presented it s
28 financial results during the Class Period in a manner which violated numerous provisions of GAAP :
THOMAS J . HAL L 9 1 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL }S SOUTH ARLINGTO N AVENUE SECURITIES LAW /1
1 (a) The concept that financial repo rting should provide information that is useful
2 to present and potential investors and creditors and other users in making rational investment, credi t
3 and similar decisions (Concepts Statement No . 1, ¶ 34);
4 (b) The concept that financial repo rting should provide information about the
5 economic resources of an enterprise, the claims to those resources, and the effects of transactions ,
6 events and circumstances that change resources and claims to those resources (Concepts Statement
7 No . 1, ¶ 40) ;
8 (c) The concept that financial reporting should provide information about how
9 management of an enterprise has discharged its stewardship responsibility to owners (stockholders)
10 for the use of enterprise resources entrusted to it. To the extent that management offers securities o
11 the enterprise to the public, it voluntarily accepts wider responsibilities for accountability t o
12 prospective investors and to the public in general (Concepts Statement No . 1, ¶ 50);
13 (d) The concept that financial reporting should provide information about a n
14 enterprise's financial performance during a period. Investors and creditors often use information
15 about the past to help in assessing the prospects of an enterprise . Thus, although investment and
16 credit decisions reflect investors' expectations about future enterprise performance, thos e
17 expectations are commonly based at least partly on evaluations of past enterprise performance
18 (Concepts Statement No . 1, ¶ 42);
19 (e) The concept that financial repo rting should be reliable in that it represents
20 what it purports to represent. That information should be reliable as well as relevant is a notion that
21 is central to accounting (Concepts Statement No. 2, 1158-59) ;
22 (f) The concept of completeness, which means that nothing is left out of th e
23 information that may be necessary to ensure that it validly represents underlying events and
24 conditions (Concepts Statement No. 2, ¶ 79); and
25 (g) The concept that conservatism be used as a prudent reaction to uncertainty to
26 try to ensure that uncertainties and risks inherent in business situations are adequately considered . 27 The best way to avoid injury to investors is to try to ensure that what is reported represents what i t
28 purports to represent (Concepts Statement No . 2, ¶¶ 95, 97) .
THOMAS J . HAL L 92 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTON AVENUE SECURITIES LAW 1 275 . The Company' s Class Period Forms 10-K and 10-Q filed with the SEC were also
2 materially false and misleading in that they failed to disclose known trends, demands,
3 commitments, events, and uncertainties that were reasonably likely to have a materially adverse
4 effect on the Company's liquidity, net sales, revenues and income from continuing operations, as
5 required by Item 303 of Regulation S-K.
6 XV. PWC' S ROLE IN THE FRAUD
7 276. Plaintiffs incorporate by reference all allegations above insofar as they relate to
8 PwC's materially false and misleading audit opinions on AMERCO's March 31, 1998, 1999, 2000 ,
9 2001 and 2002 fiscal year end financial statements as if fully set forth herein .
10 277 . AMERCO was a longstanding and significant client of PwC and a major source o f
11 income for PwC's Phoenix, Arizona office . In fact, during the Class Period, the fees paid by
12 AMERCO to PwC approximated $5 million.
13 278 . As a result of its relationship with AMERCO and the nature of the auditing and
14 consulting services rendered to the Company , PwC's personnel were regularly present at
15 AMERCO' s corporate headquarters throughout the year and had continual access to, and
16 knowledge of, AMERCO' s confidential corporate financial and business information throug h
17 conversations with employees of AMERCO and through review of AMERCO' s non-public
18 documents. In fact, since at least 1991, PwC audit partner Teri M . Hulse worked on AMERCO's
19 audit engagement. Furthermore , defendants have acknowledged in the PwC Action that PwC was
20 intimately familiar with the AMERCO organization, the familial relationship between various
21 directors, officers and shareholders , and defendants' desire to expand the self-storage business
22 without adversely impacting AMERCO's balance sheet or results of operations from real estate
23 ownership .
24 279 . Moreover, PwC had access to AMERCO' s internal accounting records. PwC
25 therefore knew of or with deliberate recklessness disregarded the following adverse facts
26 concerning AMERCO that rendered the Company's reported financial results during the Class
27 Period, including the Company's 1998, 1999, 2000, 2001 and 2002 year end financial statements
28 and PwC's unqualified audit opinion thereon, materially false and misleading : (1) AMERCO faile d
THOMAS J . HALL 93 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 1 5 SOUTH ARLINGTO N AVENUE SECURITIES LAW to record more than $125 million in insurance reserves during the Class Period ; (2) AMERCO
2 failed to record more than $26 million losses relating to the Company 's investments in Private Mini
3 Storage Realty, L . P. during the Class Period ; (3) AMERCO failed to record more than $32 million
4 in general and administrative expenses during the Class Period ; (4) AMERCO failed to consolidate
5 I the financial statements SAC SPEs and record more than $16 million in losses ensuing from such
6 entities during the Class Period ; and (5) AMERCO failed to record more than $12 million in
7 expenses from numerous other transactions during the Class Period .
8 280 . AMERCO's improper accounting detailed above, materially misstated its financial
9 position and operating results during the Class Period . In fact, as a result of the Company's
10 improper accounting noted above, PwC allowed defendants to overstate AMERCO's pre-tax
11 earnings during the Class Period by more than $210 million.
12 281 . In addition, AMERCO' s financial statements also improperly failed to disclos e
13 significant risks and unce rtainties during the Class Period, as detailed herein. Only after AMERCO
14 dismissed PwC did the Company disclose that :
15 [F]or the Company ' s two most recent fiscal years and through July 17, 2002, there have occurred none of the "reportable events" listed in 16 Item 304(a)(1)(v)(A-D) of Regulation S-K. However, PwC has indicated to the Company that some material weaknesses exist in 17 certain aspects of the Company 's internal controls that were noted during PwC's audits of the Company ' s financial statements for the 18 fiscal years ended March 31, 2001 and 2002 . PwC recommended examination and augmentation , as appropriate, of certain aspects of 19 the Company ' s internal control procedures, including the following :
20 (1) Responsibility for each general ledger account should be assigned to an appropriate person, reconciliations (particularly with 21 respect to intercompany accounts with SAC Holdings, inventory, and fixed assets) should be performed on a monthly basis, and the 22 financial reporting manager should ensure that all accounts with variances at month-end are investigated and corrected within an 23 appropriate timeframe;
24 (2) The internal control structure and monitoring process of management should be strengthened to help detect misstated account 25 balances on a timely basis. Corrections of items should be made on a timely basis, as well , to ensure proper quarterly and annual repo rting; 26
27 (3) Access to the general ledger should be limited to a few select individuals, with the appropriate level of authority, who do not 28 possess incompatible job responsibilities . Further, journal entries
THOMAS J. HAL L 94 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTON AVENUE SECURITIES LAW should be reviewed and approved to ensure that each adjustment is supported by appropriate documentation and that each entry has been 2 reflected on the subsidiary ledger, if applicable ;
3 (4) Controls relating to inventory costing, including LIFO reserve 4 calculations, manufacturing and overhead costs, and retention of records should be improved ; and 5 (5) Position vacancies should be filled in a timely manner with 6 competent personnel. Documentation of job responsibilities, processes, etc . should be prepared to ensure efficient and accurate 7 knowledge transfer. In addition, cross training of employees and functions should occur to strengthen the control environment and to 8 minimize disruptions in the event of employee turnover .
9 282 . Nonetheless, PwC, a global CPA firm that claims to provide "exceptional audit 10 service," knowingly, or with deliberate recklessness, repeatedly issued false unqualified audi t 11 opinions during the Class Period. 12 283 . PwC issued four audit opinions (dated June 26, 1998 on AMERCO's 1998 and 199 7 13 financial statements; dated june 24, 1999 on AMERCO 's 1999 and 1998 financial statements ; dated 14 June 26, 2000 on AMERCO' s 2000 and 1999 financial statements ; and dated June 29, 2001 on 15 AMERCO' s 2001 and 2000 financial statements) which stated that AMERCO's financial 16 statements were presented in conformity with GAAP and that PwC ' s audit was performed in 17 accordance with GAAS : 18 In our opinion, the accompanying balance sheets and the related 19 consolidated statements of earning, of changes in stockholders' equity, of comprehensive [ ] and of cash flows present fairly, in all 20 material respects, the financial position of AMERCO and its subsidiaries at March 31, [ ] and [ ], and the results of their operations 21 and their cash flows for each of the three years in the period ended March 31, [ ], in conformity with accounting principles generally 22 accepted in the United States of America. These financial statements are the responsibility of the Company's management ; our 23 responsibility is to express an opinion on these financial statements based on our audits . We conducted our audits of these statements in 24 accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit 25 to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a 26 test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles 27 used and significant estimates made by management, and evaluating the overall financial statement presentation . We believe that our 28
THOMAS J. HAL L 95 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 05 SOUTH ARLINGTON AVENUE SECURITIES LAW audits provide a reasonable basis for our opinion .
2 284. PwC issued its audit opinion, dated July 12, 2002, on AMERCO's 2002 and 200 1 3 financial statements, which stated that such AMERCO financial statements were presented in 4 conformity with GAAP and that PwC' s audit was performed in accordance with GAAS : 5 In our opinion, based on our audits and the report of other auditors, 6 the accompanying consolidated balance sheets and the related consolidated statements of earnings, changes in stockholders' equity, 7 comprehensive income and cash flows present fairly, in all material respects, the financial position of AMERCO and its subsidiaries and 8 SAC Holding Corporations and its subsidiaries (collectively, the "Company") at March 31, 2002 and March 31, 2001, and the results 9 of their operations and their cash flows for each of the three years in the period ended March 31, 2002 in conformity with accounting 10 principles generally accepted in the United States of America . These financial statements are the responsibility of the Company's 11 management; our responsibility is to express an opinion on these financial statements based on our audits . We did not audit the 12 financial statements of SAC Holding Corporations, as of and for the year ended March 31, 2001, whose results are consolidated with 13 AMERCO's, which statements reflect total assets of $520.1 million as of March 31, 2001, and total revenues of $104.8 million, for the year 14 ended March 31, 2001 . Those statements were audited by other auditors whose report thereon has been furnished to us, and our 15 opinion expressed herein, insofar as it relates to the amounts included for SAC Holding Corporation, is based solely on the report of the 16 other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United 17 States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 18 are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 19 financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall 20 financial statement presentation . We believe that our audits and the report of other auditors provide a reasonable basis for our opinion . 21 The accompanying financial statements of AMERCO and its 22 subsidiaries have been restated at March 31, 2001 and for each of the two years in the period ended March 31, 2001, to consolidate the 23 financial statements of SAC Holding Corporation, an affiliated entity . 24 285 . Defendants themselves acknowledge, in the PwC Action, that the consolidation o f 25 the SAC entities in the AMERCO financial statements was not in compliance with GAAP," yet 26 PwC, armed with the facts that Mark V . Shoen was the SAC shareholder, and a major stockholder 27 and officer of AMERCO, stated that voting common stock of the original SAC entities quali fied 28
THOMAS J . HALL 96 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )S SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 pursuant to GAAP were to be excluded from AMERCO's financial statements . PwC knowingly or
2 with deliberate recklessness overlooked or ignored the SAC shareholder's lack of independence,
3 related party nature of those transactions, economic substance over legal form and the requirements
4 of GAAP and fair presentation. Amazingly, in a memorandum dated February 5, 2002 from Teri
5 Hulse of PwC to AMERCO, PwC acknowledged that for its audits of AMERCO's March 31, 2000
6 and 2001 financial statements, PwC did not consider or perform any procedures to determine the
7 appropriateness of excluding hundreds of millions of SAC liabilities and assets, and millions of
8 losses from AMERCO's financial statements, even though PwC purports to be an expert in GAA P
9 and GAAS .
10 286. Moreover, PwC falsely represented that it was independent with respect t o
11 AMERCO. Additionally, AMERCO engaged PwC as its independent auditor and allowed PwC to
12 falsely represent it was independent, even though both PwC and defendants knew that PwC "lacked
13 independence insofar as it conceptualized and designed the SAC structure and transactions, and ,
14 thus, was essentially auditing its own work ."
15 287 . PwC' s conduct in its audit of Rep West's insurance reserves is even more egregious .
16 AMERCO has now recorded in excess of $125 million of losses that should have been reported in
17 its financial statements issued during the Class Period . The ADOI, in its examination of RepWest
18 for 2000, found a $50 million understatement of RepWest's reserves, after PwC purportedl y
19 examined RepWest's financial statements . Thereafter, for 2002 the ADOI found a $73 million
20 understatement of RepWest's reserves, and an overstatement of its net worth of $138 million .
21 These amounts indicate that these are not minor differences in judgment, but rather deliberately
22 reckless or intentional understatements of RepWest's reserves . At a minimum, PwC knew that
23 RepWest's reserves were at least $9 .5 million and $12 .5 million lower than insurance reserves
24 deemed necessary by RepWest's consulting actuary as of December 31, 2000 and 1999,
25 respectively. But PwC did not require RepWest to record these minimum adjustments .
26 288 . PwC's 2000 RepWest workpapers also make reference to a prior period adjustment
27 of about $6 .5 million to account for an arbitration decision in February 2000 . This so called "prio r
28 period adjustment" was run through 2000's operating results . These workpapers also discuss that
THOMAS J . HALL 97 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )5 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 RepWest's reserves for the excess workers' compensation program were inadequate for a period of
2 time prior to 1997 due to a practice of discounting some reserves and using a $100 case reserve in
3 many situations where a much lesser reserve should have been carried . According to PwC,
4 RepWest made a concerted effort from April 1997 through 2000 to bring these reserves up to
5 appropriate levels, with these actions creating an appearance of a substantial adverse development .
6 So PwC was aware of RepWest's inappropriate reserves for this line of business and allowe d
7 Rep West to make these adjustments over several years resuling in misstated financial statements
8 throughout the class period .
9 289. PwC was also aware of the ownership structure of PMSR and of the fact tha t
10 RepWest owned approximately 30% and Oxford owned approximately 25% of the partnership .
11 PwC based on their expertise in GAAP and GAAS knew or with deliberate recklessness disregard(
12 that AMERCO was required to reveal the losses being incurred by PMSR by the equity method o f
13 accounting.
14 290 . PwC turned a blind eye to AMERCO' s improper accounting and disclosures
15 described herein and issued a false, unqualified audit opinions on AMERCO's 1998, 1999, 2000,
16 2001 and 2002 annual financial statements, even though PwC knew or with deliberate recklessness
17 disregarded that: (a) AMERCO's financial statements had not been prepared in conformity with
18 GAAP and did not present fairly, in all material respects, the financial position of AMERCO and
19 its subsidiaries and SAC Holding Corporations and subsidiaries as of March 31, 1998, 1999, 2000,
20 2001 and 2002, and the results of their operations and cash flow for the years ended March 31,
21 1998, 1999, 2000, 2001 and 2002 ; and (b) PwC had not audited AMERCO's 1998, 1999, 2000,
22 2001 and 2002 financial statements in accordance with GAAS .
23 291 . Among other things, PwC knew or with deliberate recklessness disregarded tha t
24 AMERCO's 2001 and 2000 financial statements violated numerous provisions of GAAP and were
25 materially false and misleading as set forth in paragraphs 186-275 above .
26 292 . In certifying AMERCO' s 1998, 1999, 2000, 2001 and 2002 annual financial
27 statements, PwC also falsely represented that its examination was made in accordance with GAAS .
28 This statement was materially false and misleading in that the audits conducted by PwC were
THOMAS J. HAL L 98 ATTORNEY AND -OUNSELORAT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 6 SOUTH ARLINGTON AVENUE SECURITIES LAW 1 knowingly or with deliberate recklessness not performed in accord ance with GAAS in the folio
2 respects:
3 (1) PwC violated GAAS Standard of Reporting No . I that requires the audit
4 report to state whether the financial statements are presented in accord ance with GAAP . PwC' s
5 opinion falsely represented that AMERCO's 1998, 1999, 2000, 2001 and 2002 annual financial
6 statements were presented in conformity with GAAP when they were not for the numerous reason s
7 herein alleged .
8 (2) PwC violated GAAS Standard of Reporting No. 4 which requires that, when
9 an overall opinion on the financial statements as a whole cannot be expressed, the reasons therefore
10 are to be stated . PwC was required to have stated that no opinion could be issued by it on
11 AMERCO's 1998, 1999, 2000, 2001 and 2002 financial statements or issued an adverse opinion
12 stating that the 1998, 1999, 2000, 2001 and 2002 financial statements were not fairly presented .
13 (3) PwC violated GAAS General Standard No . 2 which requires that
14 independence in mental attitude is to be maintained by the auditor in all matters related to the
15 assignment. To be independent, the auditor must be intellectually honest ; to be recognized as
16 independent, the auditor must be free from any obligation to or interest in the client, its manaj
17 or owners. For example, an independent auditor auditing a company of which he was also a
18 director might be intellectually honest, but it is unlikely that the public would accept him a s
19 independent since he would be in effect auditing decisions which he had a part in making.16 AU
20 § 220 .03 . In its capacity as a CPA firm that provides "Global Assurance and Business Advisory
21 Services," PwC advanced the utilization of special purpose entities that AMERCO used to transfer
22 its real estate assets off its balance sheet in an attempt to avoid recording debt associated of such
23 assets. In so doing, PwC provided AMERCO with guidelines on the SPE off-balance sheet
24 structuring and consulted with AMERCO on the technical GAAP matters concerning the SPE
25 transactions. In fact, in 1995, PwC had a national "SPE technical specialist partner" examinatio n
26 the SAC SPE transactions . Subsequently, PwC "audited" the decisions which " it had a part in
27 16 U .S . auditing standards are codified by the AICPA in sections with "AU" citations . 28
THOMAS J. HAL L 99 ATTORNEY AND 'OUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL !S SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 making." In so doing, PwC was not independent as contemplated under GAAS and was precluded
2 from rendering an opinion on AMERCO' s financial statements during the Class Period . AU
3 §504 .09 .
4 (4) PwC violated GAAS General Standard No. 3 that requires that due
5 professional care must be exercised by the auditor in the performance of the audit and the
6 preparation of the report . Among other things, PwC did not timely seek or obtain a require d
7 I consent of Ernst & Young ("E&Y") when it rendered its opinions on AMERCO's annual financial 8 statements during the Class Period . As noted above, PwC's audit opinion dated July 12, 2002 on
9 AMERCO's 2002 and 2001 financial statements stated that financial statements of SAC Holding
10 Corporations, as of and for the year ended March 31, 2001, " were audited by other auditors whose 11 report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the
12 amounts included for SAC Holding Corporation, is based solely on the report of the other auditors ."
13 GAAS, as provided by AU §543, required that PwC :
14 (a) Obtain a representation from the other auditor [E&Y] that he is independent under the requirements of the American Institute of 15 Certified Public Accountants and, if appropriate , the requirements of the Securities and Exchange Commission (SEC) . 16 17 (b) Ascertain through communication with E&Y that:
18 (i) That he [E&Y] is aware that the financial statements of the component which he is to audit are to be included 19 in the financial statements on which the principal auditor [PwC] will report and that the other auditor's 20 report [E&Y] thereon will be relied upon (and, where applicable, referred to) by the principal auditor [PwC] ; 21 and,
22 (ii) That a review will be made of matters affecting elimination of intercompany transactions and accounts 23 and, if appropriate in the circumstances, the uniformity of accounting practices among the components 24 included in the financial statements . "
25 In gross violation of AU § 543 and General Auditing Standard No . 3, PwC failed to comply with
26 the auditing standards noted above . In fact, PwC did not even seek a consent from E& Y to make
27 reference to E&Y's report in PwC's audit opinion on AMERCO's annual 2002 and 2001 financial
28 statements until July 22, 2003, five days after AMERCO's 2002 Form IO-K containing PwC' s
THOMAS J . HAL L 100 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )5 SOUTH ARLINGTON AVENUE SECURITIES LAW opinion was filed with the SEC. On July 26, 2002, nine days after AMERCO filed its 2002 Form
2 10-K with the SEC, E&Y refused to consent to PwC's request . As a result, in September 2002,
3 AMERCO filed an amended 2002 Form 10-K with the SEC . Such amended Form 10-K included
4 PwC's audit opinion dated September 24, 2002 and deleted the improper and unauthorized
5 reference to "other auditors" in the original Form 10-K :
6 In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of earnings, changes in stockholders' 7 equity, comprehensive income and cash flows present fairly, in all material respects, the financial position of AMERCO and its 8 subsidiaries, SAC Holding Corporation and its subsidiaries, and SAC Holding Corporation II and its subsidiaries (collectively, the 9 "Company") at March 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with 10 accounting principles generally accepted in the United States of America. Further, in our opinion, the accompanying consolidated 11 balance sheet and the related consolidated statements of earnings, changes in stockholders' equity, comprehensive income and cash 12 flows present fairly, in all material respects, the financial position of AMERCO and its subsidiaries and SAC Holding Corporation and its 13 subsidiaries at March 31, 2001 and the results of their operations and their cash flows for each of the two years in the period ended March 14 31, 2001, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the 15 Financial Statement Schedules listed in the index appearing under Item 14(a)3 appearing on page F-1 present fairly, in all material 16 respects, the information set forth therein when read in conjunction with the related consolidated financial statements . These financial 17 statements and schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these 18 financial statements and schedules based on our audits . We conducted our audits of these statements in accordance with auditing 19 standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable 20 assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence 21 supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates 22 made by management, and evaluating the overall financial statement presentation . We believe that our audits provide a reasonable basis 23 for our opinion.
24 The accompanying financial statements of the Company have been restated at March 31, 2001 and for each of the two years in the period 25 ended March 31, 2001, to consolidate the financial statements of SAC Holding Corporation and its subsidiaries, an affiliated entity . 26
27 Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole . The 28 Consolidating Balance Sheets and Statements of Earnings Schedul e
THOMAS J . HAL L 10 1 ATTORNEY AND -OUNSELORAT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 and the Summary of Earnings of Independent Trailer Fleets information included on pages F-41 through F-46 of this Form 10-K 2 is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position and 3 results of operations of the individual companies or the ea rnings of the independent fleets . Accordingly, we do not express an opinion on 4 the financial position, results of operations of the individual companies, or on the earnings of the independent trailer fleets . 5 However, such information has been subjected to the auditing procedures applied in the audit of the consolidated financial 6 statements and, in our opinion , is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole. 7
8 (5) In an apparent attempt to shield itself from liability, PwC egregiously violated AU
9 §561 and allowed investors to rely on its July 12, 2002 audit opinion on AMERCO's 2002 and 2001
10 financial statements, even after July 16, 2002 when it learned that E&Y refused to allow PwC to 11 rely on E&Y's audit of SAC Holdings Corporations' 2001 financial statements . PwC led investors
12 to believe that it issued a clean audit opinion in the financial statements of SAC Holdings
13 Corporations, which represented $520.1 million, or more than 15%, of AMERCO's March 31, 2001
14 total assets in its July 2002 Form 10-K when it did not . GAAS, in AU §561, provides that if an
15 auditor's report would have been affected by information had it be known to the at the time date of
16 his report and it is likely that persons relying on the audited financial statements would attach
17 importance to such information then the auditor should take action to prevent future reliance on his
18 report and advise his client to make appropriate disclosure of the newly discovered facts and their
19 impact on the financial statements to persons who are known to be currently relying or who are
20 likely to rely on the financial statements and the related auditor's report . AU §561 provides that
21 when the effect on the financial statements of the information cannot be determined without a
22 prolonged investigation, appropriate disclosure would consist of notification by the client to persons
23 who are known to be relying or who are likely to rely on the financial statements and the related
24 report that they should not be relied upon, and that revised financial statements and auditor's report
25 will be issued upon completion of an investigation . If applicable, the client should be advised to
26 discuss with the Securities and Exchange Commission, stock exchanges, and appropriate regulatory
27 agencies the disclosure to be made or other measures to be taken in the circumstances . If the client
28 refuses to make the disclosures specified, the auditor is required to notify each member of the Boar d
THOMASI HALL 102 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 75 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 of Directors of such refusal and of the fact that, in the absence of disclosure by the client, the
2 auditor is required, among other things, to notify the regulatory agencies having jurisdiction over
3 the client that the auditor's report should no longer be relied upon . In gross violation of GAAS,
4 PwC permitted investors to rely on its July 12, 2002 audit opinion on AMERCO's 2002 and 2001
5 financial statements after it learned on July 16, 2002 that E&Y refused to allow PwC to rely on
6 E&Y's audit of SAC Holdings Corporations' 2001 financial statements . In so doing, PwC mislead
7 investors into believing that PwC issued a clean audit opinion on SAC Holdings Corporations
8 financial statements when it did not.
9 (6) PwC violated SAS . No 82 in that it failed to adequately consider the risk that
10 the financial statements of AMERCO were free from material misstatement , whether caused b y 11 errors or fraud . PwC knew or with deliberate recklessness ignored numerous events and condition s
12 i that occurred or existed at AMERCO during the Class period, which events and conditions are
13 specifically identified in SAS No . 82 as being "risk factors relating to misstatements arising from
14 fraudulent financial repo rting." This risk factors include, but are not limited to :
15 • An excessive interest by management in maintaining or increasing the 16 entity's stock price or earnings trend through the use of unusually aggressive accounting practices ;
17 • A failure by management to display and communicate an appropriat e
18 attitude regarding internal control and the financial reporting process ;
19 • Management displaying a significant disregard for regulatory
20 authorities ;
21 • Management continuing to employ an ineffective accounting,
22 information technology, or internal auditing staff; and
23 • Significant related-party transactions not in the ordinary course o f
24 business or with related entities not audited or audited by another firm .
25 (7) PwC violated GAAS and the standards set forth in SAS No. 1 and SAS No .
26 53 by, among other things, failing to adequately plan its audit and properly supervise the work o f
27 assistants and to establish and carry out procedures reasonably designed to search for and detect the
28 existence of errors and irregularities which would have a material effect upon the financia l
THOMAS J . HALL 103 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )5 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 I statements. PwC knew, or with deliberate recklessness ignored, that it failed to adequately plan it s
2 audits or supervise its staff in a manner to designed to reasonably detect the multitude of improper
3 accounting practices, undisclosed financial information, and related party transactions as noted
4 herein.
5 (8) GAAS Standard of Field Work No . 2 requires the auditor to make a prope r
6 study of existing internal controls, including accounting, financial and managerial controls, to
7 determine whether reliance thereon was justified, and if such controls are not reliable, to expand the
8 nature and scope of the auditing procedures to be applied. The standard provides that a sufficient
9 understanding of an entity's internal control structure be obtained to adequately plan the audit and to
10 determine the nature, timing and extent of tests to be performed . AU § 150 .02. In all audits, the 11 auditor should perform procedures to obtain a sufficient understanding of three elements of an
12 entity's internal control structure : the control environment, the accounting system, and control
13 procedures. AU §319 .02 . The control environment, which includes management's integrity and
14 ethical values, is the foundation of internal control and provides discipline, structure and sets the
15 tone of an organization. After obtaining an understanding of an entity's internal control structure,
16 the auditor assesses the entity's control risk . AU §319 .02 . Control risk is the risk that a material
17 misstatement in an assertion by management contained in a company's financial statements will not
18 be prevented or detected on a timely basis by an entity's internal control structure policies or
19 procedures . AU §319 .29 . The ultimate purpose of assessing control risk is to aid the auditor in
20 evaluating the risk that material misstatements exist in the financial statements . AU §319.61 . In the
21 course of auditing AMERCO's 2001 and 2000 financial statements, PwC either knew or with
22 deliberate recklessness disregarded facts which evidenced that it either failed to sufficiently
23 understand AMERCO's internal control structure and/or it disregarded weaknesses and deficiencies
24 in AMERCO's internal control structure, and failed to adequately plan its audit or expand its
25 auditing procedures . In fact, Rep West's President and Chairman of the Board from 1997 to 2000
26 testified that RepWest "constantly" experienced problems with its computers and software and that
27 Rep West's data processing system was "totally obsolete" and adversely "affected the ability of the
28 Company to do everything from daily chores, communicating with one another, to obtaining curren t
THOMAS J . HALL 104 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 1 5 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 information." In addition, the ADOI noted "examination of accounts and records reveale d
2 significant reinsurance data integrity and overall internal control problems . . . . The Company's lack
3 of adequate inte rnal control structure contributed to these problems and errors ." PwC was required
4 by GAAS to sufficiently understand AMERCO' s internal control structure to adequately plan its
5 audit and to determine the nature , timing and extent of tests to be performed .
6 (9) PwC violated Standard of Field Work No . 3, which requires sufficient
7 competent evidential matter to be obtained through inspection, observation, inquiries and
8 confirmations to afford a reasonable basis for an opinion regarding the financial statements under
9 audit. PwC knew or with deliberate recklessness disregarded that it did obtain sufficient competent
10 evidential matter concerning the myriad of material transactions the AMERCO has now admitted
11 overstated its pre-tax income by more than $200 million during the Class Period .
12 (10) PwC violated the requirements of Section 1 OA of the Securities Exchang e
13 Act which requires auditors of public comp anies to design procedures to identify related party
14 transactions. PwC also violated AU §334, which requires auditors to identify, examine and
15 determine that financial statements disclose related party transactions .
16 (11) PwC violated auditing standard AU §508 .41 which requires auditors to issue
17 a qualified or adverse opinion when an inappropriate when the financial statements (including
18 related footnotes ) contain inadequate disclosure . As noted above, AMERCO' s financial statements
19 during the Class Period improperly failed to comply with GAAP when they failed to disclose the
20 material contingencies and significant risks and unce rtainties noted herein .
21 293 . PwC also violated the AICPA' s Statement of Position ("SOP") 92-4, Auditing
22 Insurance Entities' Loss Reserves , which was issued by the AICPA to supplement the AAG-PLI.
23 Pursuant to SOP 92-4 :
24 The historical experience of an insurance entity is generally the primary source of information on which loss reserve estimates are 25 based; therefore, the creation of reliable data bases, within an insurance company, is extremely critical to the determination of loss 26 reserve estimates. When evaluating loss reserves, the auditor should consider the reliability of the historical information generated by the 27 insurance company .
28
THOMAS J . HAL L 105 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL >S SOUTH ARLINGTO N AVENUE SECURITIES LAW . . . After identifying the relevant data, the auditor should obtain an understanding of the controls related to the completeness, accuracy, 2 and classification of the loss data; assess control risk for assertions about loss reserves; and determine the nature, timing and extent of 3 substantive tests that will be performed for these assertions . Because claim data and characteristics such as dates and type of loss can 4 significantly influence reserve estimation, the auditor should test the completeness, accuracy, and classification of the claim loss data . 5 • Verify that data used by the loss reserve specialist is 6 appropriately summarized and classified from the company's claims data base. 7 • Employ procedures for ensuring that data actually used 8 by the loss reserve specialist is complete and accurate . 9 • Verify that the Company ' s historical claims data from 10 its own data bases, including changes and trends in the data is relevant, reliable and sufficient . 11 • Determine whether changes in the speed of the 12 settlement of claims may lead to assumptions that paid development levels will be lower in the future, or may 13 indicate changes in the company's procedures for processing claims that could lead to increased 14 development in the future .
15 • Determine whether there has been a change in a 16 company's practices and procedures relating to recording and settling claims . 17 • Determine whether there has been a change in a 18 company's underwriting practices such as new or increased use in managing general agents . 19 • Determine whether there has been a new or changed 20 policy forms or coverages . 21 • Evaluate whether reported (incurred) loss development 22 projection methods assume that a company's experience in estimating case-basis reserves will be 23 repeated in the future.
24 • Determine whether new lines of business and classes 25 of business within lines may cause other factors to become significant to the assumptions . 26 As noted herein, during the summer of 2002, the ADOI estimated AMERCO's liabilities for 27 already incurred deductible losses (i.e ., case-based losses) have been, at least, $50 million. 28
THOMAS J . HALL 1 06 A TTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 05 SOUTH ARLINGTO N AVENUE SECURITIES LAW Nonetheless, AMERCO failed to record these losses in its audited financial statements after
2 notification by the ADOI, as PwC knew or recklessly ignored.
3 294. PwC's opinions, which represented that AMERCO' s annual 1998 , 1999, 2000, 200 1
4 and 2002 financial statements were presented in conformity with GAAP, were materially false and
5 misleading because PwC knew or with deliberate recklessness disregarded that such financial
6 statements violated countless principles of fair repo rting and GAAP. In the course of rendering its
7 unqualified audit certification on AMERCO' s annual 1998, 1999, 2000, 2001 and 2002 financial
8 statements , PwC knew it was required to adhere to each of the herein described standards and
9 principles of GAAS, including the requirement that the financial statements comply in all material
10 respects with GAAP . PwC, in issuing its unqualified opinion, knew or with deliberate recklessness
11 disregarded that by doing so it was engaging in gross departures from GAAS in numerous respects,
12 thus making its opinions false, and issued such certification knowing or recklessly disregarding that
13 GAAS had been violated .
14 295 . As a result of its failure to accurately report on AMERCO's annual 1998, 1999,
15 2000, 2001 and 2002 financial statements, PwC utterly failed in its role as an auditor as defined by
16 the SEC . SEC Accounting Series Release No . 296, Relationships Between Registrants an d
17 Independent Accountants, Securities Act Release No . 6341, Exchange Act Release No . 18044, 18 I I states in part :
19 Moreover, the capital formation process depends in large part on the confidence of investors in financial reporting . An investor's 20 willingness to commit his capital to an impersonal market is dependent on the availability of accurate, material and timely 21 information regarding the corporations in which he has invested or proposes to invest . The quality of information disseminated in the 22 securities markets and the continuing conviction of individual investors that such information is reliable are thus key to the 23 formation and effective allocation of capital. Accordingly, the audit function must be meaningfully performed and the accountants' 24 independence not compromised. The auditor must be free to decide questions against his client's interests if his independent professional 25 judgment compels that result . [Emphasis added.] 26
27
28
THOMAS J. HAL L 107 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL a5 SOUTH ARLINGTON AVENUE SECURITIES LAW -1'N
1 XVI . APPLICABILITY OF PRESUMPTION OF RELIANCE : FRAUD-ON-THE-MARKET DOCTRIN E 2
3 296 . At all relevant times, the market for AMERCO securities was an efficient market for
4 the following reasons, among others:
5 a. AMERCO securities met the requirements for public listing, and were listed
6 and actively traded on the Nasdaq, a highly efficient market ;
7 b. As a regulated issuer, AMERCO filed periodic public reports with the SEC ;
8 c . AMERCO stock was followed by securities analysts and news reporters who
9 wrote reports which were publicly available and entered the public marketplace . AMERCO
10 regularly issued press releases which were carried by national news wires. Each of these release s
11 was publicly available and entered the public marketplace .
12 297 . As a result, the market for AMERCO securities promptly digested current
13 information with respect to AMERCO from all publicly available sources and reflected such
14 information in AMERCO stock price . Under these circumstances, all purchasers of AMERCO
15 securities during the Class Period suffered similar injury through their purchase of stock at
16 artificially inflated prices and a presumption of reliance applies .
17 XVII. NO SAFE HARBOR
18 298 . The statutory safe harbor provided for forward-looking statements under certai n
19 circumstances does not apply to any of the allegedly false statements pleaded in this Complaint .
20 The vast majority of the speci fic statements pleaded herein were not "forward-looking statements"
21 but were "hard" statements . To the extent that the statutory safe harbor does apply to any forward-
22 looking statements pleaded herein , defendants are liable for those false forward-looking statement
23 because at the time each of those forward-looking statements were made the particular speaker
24 knew that the pa rticular forward -looking statement was false, and/or the forward-looking statement
25 was authorized and/or approved by an executive officer of AMERCO who knew that those
26 statements were false when made. 27
28
THOMAS J. HAL L 108 ATTORNEY AND MUNSELORAT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 05 SOUTH ARLINGTON AVENUE SECURITIES LAW 1 XVIII. CLASS ACTION ALLEGATION S
2 299 . Plaintiffs bring this action on its behalf and as a class action pursuant to Rul e
3 23(b)(3) of the Federal Rules of Civil Procedure , on behalf of a class consisting of all persons and
4 entities (other than defendants and the members of their immediately families , their heirs,
5 successors and assigns) who purchased or acquired AMERCO securities during the period between
6 February 12, 1998 and September 26, 2002, inclusive.
7 300 . Members of the Class are so numerous that joinder of all members is impracticable .
8 301 . While the exact number of Class members is unknown to plaintiffs at this time an d
9 can only be ascertained through appropriate discovery, plaintiffs believe that there are hundreds, i f
10 not thousands, of Class members who purchased AMERCO securities in the open market at
11 artificially inflated prices during the Class Period.
12 302 . Plaintiffs' claims are typical of the claims of the other members of the Class .
13 Plaintiffs and the other members of the Class have sustained damages because of defendants'
14 unlawful activities alleged herein . Plaintiffs have retained counsel competent and experienced in
15 class and securities litigation and intends to prosecute this action vigorously . The interests of the
16 Class will be fairly and adequately protected by plaintiffs . Plaintiffs have no interests which are
17 contrary to or in conflict with those of the Class which plaintiffs seek to represent .
18 303 . A class action is superior to all other available methods for the fair and efficien t
19 adjudication of this controversy . Plaintiffs know of no difficulty to be encountered in th e
20 management of this action that would preclude its maintenance as a class action .
21 304 . Common questions of law and fact exist as to all members of the Class and
22 predominate over any questions solely affecting individual members of the Class . Among the
23 questions of law and fact common to the Class are :
24 (a) whether defendants violated the federal securities laws ;
25 (b) whether defendants participated in and pursued the common course o f
26 conduct complained of herein ;
27 (c) whether documents, filings, releases and financial statements disseminated t o
28 the investing public omitted and/or misrepresented material facts about AMERCO ;
THOMAS J . HAL L 109 ATTORNEY AND 'OUNSELORAT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL IS SOUTH ARLINGTON AVENUE SECURITIES LAW 1 (d) whether the market price of AMERCO stock was artificially inflated
2 throughout the Class Period due to the nondisclosures and/or misrepresentations complained o f
3 herein;
4 (e) whether defendants acted knowingly, willfully or recklessly in omitting t o
5 state and/or misrepresenting material facts ; and
6 (f) whether the members of the Class have sustained damages as a result of
7 defendants' misconduct and, if so, the proper measure of such damages . 8 XIX. CLAIMS FOR RELIEF
9 COUNT I
10 (Against Defendants Edward Shoen, Mark Shoen, James Shoen, Horton, Dodds, Carty, Bayer, Herrera, Brogan, Grogan and PwC For Violation s 11 Of § 11 Of The Securities Act)
12 305 . Plaintiffs repeat and reallege each and every allegation contained above as if fully
13 forth herein, except that, for purposes of this claim, plaintiffs expressly exclude and disclaim an y
14 allegation that could be construed as alleging or sounding in fraud or intentional or reckles s
15 misconduct.
16 306 . The Defendants Edward Shoen, Mark Shoen, James Shoen, Horton, Dodds, Carty ,
17 Bayer, Herrera, Brogan, and Grogan were officers and/or directors of AMERCO at the time the
18 January 2000 Registration Statement and the October 2001 Registration Statement ("collectively,
19 the "Registration Statements ') became effective and with their consent were identified as such in
20 the Registration Statements . In addition, these defendants (except Mark Shoen) all signed the
21 Registration Statements or authorized it to be signed on their behalf .
22 307 . These Defendants are liable under § 11 of the Securities Act for the material
23 misrepresentations or omissions contained in the Registration Statements . They did not make a
24 reasonable investigation and did not possess reasonable grounds for believing that certain
25 statements made in the Registration Statements were true, the Registration Statements did not omit
26 any material fact, and the Registration Statements were not materially misleading .
27 308 . The Registration Statements also contained and/or incorporated by reference certai n
28 false and misleading financial statements of AMERCO as detailed above, which financia l
THOMAS J. HALL 11 0 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 statements had been audited by defendant PwC and as to which PwC issued an unqualified audi t
2 opinion. PwC also consented to the use of these financial statements in the Registration Statements . !
3 Accordingly, PwC is also liable to Plaintiff IG Holdings and the Class pursuant to § 11 of th e
4 I Securities Act.
5 309. Plaintiff IG Holdings purchased the AMERCO Senior Notes traceable to an offering .
6 The AMERCO Senior Notes were offered pursuant to one of the Registration Statements . Plaintiff
7 IG Holdings acquired the AMERCO Senior Notes relying upon the untrue statements and
8 representations in the Registration Statements .
9 310 . The Registration Statements , at the time they became effective, contained materia l
10 misrepresentations of fact and omitted facts necessary to make the facts stated therein not
11 misleading. The facts misstated and omitted would have been material to a reasonable perso n
12 reviewing the Registration Statements .
13 311 . Plaintiff IG Holdings did not know, and in the exercise of reasonable diligence ,
14 could not have known of the misstatements and omissions in the Registration Statements .
15 312 . Plaintiff IG Holdings has sustained damages as a result of the misstatements and
16 omissions in the Registration Statements, for which it is entitled to compensation .
17 313 . Plaintiff IG Holdings filed within one year after the discovery of the untru e
18 statements and omissions , and/or within two years after the discovery of facts constituting the
19 violation. Plaintiff IG Holdings also has brought this action within five years after the offering o f
20 the AMERCO Senior Notes .
21 314 . None of the misrepresentations or omissions alleged here were forward lookin g
22 statements but, rather, concerned existing facts . Moreover, the defendants named in this count di d
23 not properly identify any of these statements as forward -looking statements and did not disclose
24 information, known to them, that undermined the validity of those statements .
25
26
27 28
THOMAS J . HAL L ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL )5 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 COUNT II
2 (Against Defendants Edward Shoen, Mark Shoen, James Shoen and Horton For Violations Of § 12 Of The Securities Act) 3
4 315 . Plaintiffs repeat and reallege each and every allegation contained in the precedin g
5 paragraphs as if fully set forth herein, except that, for purposes of this claim, plaintiffs expressly
6 exclude and disclaim any allegation that could be construed as alleging or sounding in fraud o r
7 intentional or reckless misconduct.
8 316 . By means of the Registration Statements, and by using the means and instruments o f
9 interstate commerce and of the mails, defendants sued in this count through a public offering,
10 offered and sold the AMERCO Senior Notes to plaintiff IG Holdings and members of the Class . As 11 previously set forth herein, the Registration Statements negligently included untrue statements of
12 material facts and negligently omitted to state material facts necessary in order to make the
13 statements, in light of the circumstances under which they were made, not misleading .
14 317. In connection with and in furtherance of the offerings to which they pertained ,
15 pursuant to a plan of distribution, the Registration Statements were widely distributed to
16 approximately several hundred or more individuals and/or entities, who then engaged in trades o f
17 the AMERCO Senior Notes in the Class Period . Thus, the offerings were a public offering . The
18 Registration Statements were also prospectuses for purposes of the 1933 Act .
19 318 . The offerings consisted of a new issue of securities, to wit : the AMERCO Senior 20 Notes.
21 319 . Plaintiff IG Holdings and members of the Class, who purchased the AMERC O
22 Senior Notes, did so based on the Registration Statements .
23 320 . Plaintiff IG Holdings and members of the Class did not know of the omissions and
24 misrepresentations described above when they purchased their AMERCO Senior Notes .
25 321 . Plaintiff IG Holdings filed suit within one year after the discovery of the omission s
26 and misstatements or after such discovery should have been made by the exercise of reasonabl e
27 diligence and within five years after sale of the AMERCO Senior Notes . 28
THOMAS J. HAL L 112 ATTORNEY AND -OUNSE LORATLAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTON AVENUE SECURITIES LAW 1 322 . By virtue of the foregoing, the defendant named in this count have violated Sections
2 12(1) and (2) of the 1933 Act .
3 COUNT III
4 (Against The Individual Defendants For Violations Of § 15 Of The Securities Act) 5
6 323 . Plaintiffs repeat and re-allege each and every allegation contained above as if fully
7 set forth herein.
8 324. The Individual Defendants at all relevant times part icipated in the operation and
9 management of the Company, and conducted and participated, directly and indirectly, in th e
10 conduct of AMERCO' s business affairs .
11 325 . As officers and directors of a publicly owned company, the Individual Defendant s
12 had a duty to disseminate accurate and truthful information with respect to AMERCO' s financial
13 condition and results of operations .
14 326 . Because of their positions of control and authority as senior officers and directors o f
15 AMERCO, the Individual Defendants were able to, and did, control the contents of the Registration
16 Statements which contained materially false financial information . The Individual Defendants
17 therefore were "controlling persons" of AMERCO within the meaning of Section 15 of the
18 Securities Act.
19 327 . Plaintiff IG Holdings purchased the AMERCO Senior Notes traceable to an offering .
20 The offerings of the AMERCO Senior Notes were conducted pursuant to the Registratio n
21 Statements. Plaintiff IG Holdings acquired the AMERCO Senior Notes relying upon the untru e
22 statements and misrepresentations made in the Registration Statements .
23 328 . The Registration Statements, at the time it became effective, contained materia l
24 misrepresentations of fact and omitted facts necessary to make the facts stated therein no t
25 misleading. The facts misstated and omitted would have been material to a reasonable perso n
26 reviewing the Registration Statements .
27 329 . Plaintiff IG Holdings did not know, and in the exercise of reasonable diligence ,
28 could not have known of the misstatements and omissions in the Registration Statements.
THOMAS J. HAL L 11 3 ATTORNEY AND :Ol1NSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTON AVENUE SECURITIES LAW l"1
1 330. Plaintiff IG Holdings has sustained damages as a result of the misstatements and
2 omissions of the Registration Statements , for which it is entitled to compensation .
3 331 . Plaintiff IG Holdings filed suit within one year after the discovery of the untrue
4 statements and omissions, and/or within two years after the discovery of facts constituting th e
5 I violation. Plaintiff IG Holdings filed suit within five years after the offering of the AMERCO
6 Senior Notes .
7 332. None of the misrepresentations or omissions alleged here were forward looking
8 statements but, rather, concerned existing facts . Moreover, defendants did not properly identify any
9 of these statements as forward-looking statements and did not disclose information, known to them ,
10 that undermined the validity of those statements .
11 COUNT IV
12 (Against All Defendants For Violations Of § 10(B) Of The Exchange Act And Rule 10b-5) 13
14 333 . Plaintiffs repeat and reallege each and every allegation contained in the above
15 paragraphs, as if fully set forth herein . This claim is asserted against all defendants.
16 334 . Defendants carried out a plan, scheme and course of conduct which was intended t o
17 and did: (a) deceive the investing public, including plaintiffs and other Class members, as alleged
18 herein; (b) artificially inflate and maintain the market price of AMERCO securities ; and (c) cause
19 members of the Class to acquire AMERCO securities at artificially inflated prices . In furtherance
20 of this unlawful scheme, plan and course of conduct, defendants took the actions set forth herein .
21 335 . Defendants (a) employed devices, schemes, and artifices to defraud; (b) made untrue
22 statements of material fact and/or omitted to state material facts necessary to make the statements
23 made not misleading; and (c) engaged in acts, practices and a course of business which operated as
24 a fraud and deceit upon the acquirers of AMERCO securities in an effort to maintain artificially
25 high market prices for AMERCO securities in violation of Section 10(b) of the Exchange Act and
26 Rule lOb-S.
27 336 . In addition to the duties of full disclosure imposed on defendants as a result of their
28 making of affirmative statements and reports, or participation in the making of affirmative THOMAS J . HAL L 11 4 ATTORNEY AND COUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 1S SOUTH ARLINGTON AVENUE SECURITIES LAW 1 statements and reports to the investing public, defendants had a duty to promptly disseminate
2 truthful information that would be material to investors in compliance with the integrated disclosure
3 provisions of the SEC as embodied in SEC Regulation S-X (17 C .F.R . §210 .01 et seq .) and S-K (17
4 C .F.R. §229.10 et seq .) and other SEC regulations, including accurate and truthful information with
5 respect to the Company's operations and performance so that the market prices of the Company's
6 publicly traded securities would be based on truthful, complete and accurate information .
7 337. Defendants, directly and indirectly, by the use of means and instrumentalities o f
8 interstate commerce and/or of the mails, engaged and participated in a continuous course of conduct
9 to conceal adverse, material information about the Company's financial results, business, operations
10 and future outlook as specified herein . Defendants employed devices, schemes and artifices to
11 defraud, while in possession of material, adverse, non-public information and engaged in acts,
12 practices and a course of conduct as alleged herein in an effort to assure open market purchasers of
13 AMERCO securities concerning the value of AMERCO, which included the making of, or the
14 participation in the making of, untrue statements of material facts and omitting to state material
15 facts necessary in order to make the statements made about the Company's business operations in
16 the light of the circumstances under which they were made, not misleading, as set forth more
17 particularly herein, and engaged in transactions, practices and a course of business which operated
18 as a fraud and deceit upon the market for AMERCO securities.
19 338 . Defendants had actual knowledge of the misrepresentations and omissions of
20 material facts set forth herein, or acted with a deliberately reckless disregard for the truth in that
21 they failed to ascertain and to disclose such facts, even though such facts were available to them .
22 339 . As a result of the dissemination of the materia lly false and misleading informatio n
23 and failure to disclose material facts, as set fo rth above, the market price of AMERCO securities
24 was artificiall y inflated throughout the Class Period . In ignorance of the fact that the market price
25 of AMERCO securities were artifi cially inflated, and relying directly or indirectly on the false and
26 misleading statements made by defendants , or upon the integrity of the market in which the
27 securities trade, and the truth of any representations made to appropriate agencies and to the
28 investing public, at the times at which any statements were made , and/or on the absence of material
THOMAS J. HAL L 11 5 ATTORNEY AND -OUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL FS SOUTH ARLINGTON AVENUE SECURITIES LAW 1 adverse information that was known or with deliberate recklessness disregarded by defendants but
2 not disclosed in public statements by defendants , plaintiffs and the other members of the class
3 purchased or acquired AMERCO securities at artificially high prices and were damaged thereby .
4 340 . At the time of said misrepresentations and omissions, plaintiffs and the other
5 members of the class were ignorant of their falsity, and believed them to be true . Had plaintiffs and
6 the other members of the class and the marketplace known of the true nature of the operations of the
7 Company and the noncompliance with federal law, which were not disclosed by defendants ,
8 plaintiffs and the other members of the class would not have purchased or acquired their AMERCO
9 securities or, if they had purchased or acquired such securities, they would not have done so at the
10 artificially inflated prices which they paid .
11 341 . By virtue of the foregoing, defendants have violated Section 10(b) of the Exchang e
12 Act, and Rule IOb-5 promulgated thereunder.
13 342. As a direct and proximate result of defendants ' wrongful conduct, plaintiffs and the
14 other members of the class suffered damages in connection with their acquisition of AMERCO
15 securities.
16 COUNT V
17 (Against The Individual Defendants For Violation Of Section 20(a) Of The Exchange Act ) 18
19 343 . Plaintiffs repeat and reallege each and every allegation contained in the abov e
20 paragraphs, as if fully set forth herein . This claim is asserted against each of the Individual
21 Defendants .
22 344 . The Individual Defendants acted as controlling persons of AMERCO within the
23 meaning of Section 20(a) of the Exchange Act as alleged herein . They controlled the content an d
24 dissemination of the various statements which Plaintiffs contends are false and misleading .
25 345 . As set forth above, AMERCO violated Section 10(b) and Rule lOb-5 by its acts and
26 omissions as alleged in this Complaint. By virtue of their positions as controlling persons of
27 AMERCO, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act. As
28
THOMAS J . HAL L 116 ATTORNEY AND COUN S ELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 15 SOUTH ARLINGTON AVENUE SECURITIES LAW 1 a direct and proximate result of their wrongful conduct plaintiffs and the other members of the class
2 suffered damages in connection with their acquisition of AMERCO securities .
3 XX. PRAYER FOR RELIEF
4 (a) Determining that this action is a proper class action, and certifying plaintiffs as class
5 representatives under Rule 23 of the Federal Rules of Civil Procedure ;
6 (b) Awarding compensatory damages in favor of plaintiffs and the other Class members
7 against all defendants for all damages sustained as a result of defendants' wrongdoing, in an am o
8 to be proven at trial, including interest thereon ;
9 (c) Awarding plaintiffs and the Class their reasonable costs and expenses incurred in thi
10 Action, including counsel fees and expert fees ; and
11 (d) Such other and further relief as the Court may deem just and proper .
12 JURY DEMAND
13 Plaintiff demands a trial by jury .
14 DATED : November 20, 2003
15 By : 16 Thomas J. Hall (NSB # 0675) LAW OFFICES OF THOMAS J . HALL 17 305 South Arlington Avenue Post Office Box 3948 18 Reno, Nevada 89505 Telephone : 775-348-7011 19 Facsimile: 775-348-721 1
20 Plaintiffs' Liaison Counse l
21 Laurence D . King KAPLAN FOX & KILSHEIMER LLP 22 555 Montgomery Street , Suite 1501 San Francisco, California 94111 23 Telephone : 415-772-470 0 Facsimile: 415-772-4707 24 Frederic S. Fox 25 Shelley Thompson KAPLAN FOX & KILSHEIMER LLP 26 805 Third Avenue, 22°a Floor New York, New York 10022 27 Telephone : 212-687-1980 Facsimile: 212-687-771 4 28
THOMAS J. HALL 117 ATTORNEY AND OUNSELOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL 5 SOUTH ARLINGTO N AVENUE SECURITIES LAW 1 Samuel H. Rudman David Rosenfeld 2 CAULEY GELLER BOWMAN COATES & RUDMAN, LLP 3 200 Broadhollow Road, Suite 406 Melville, New York 11747 4 Telephone : 631-367-7100 Facsimile : 631-367-1173 5 Plaintiffs' Co-Lead Counsel 6 Lynda J. Grant GOODKIND LABATON RUDOFF 7 & SUCHAROW LLP 100 Park Avenue 8 New York, NY 10017-5563 Telephone : 212-907-0700 9 Facsimile : 212-818-047 7
10 Attorney for Plaintiffs
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THOMAS J . HAL L 118 ATTORNEY AND 'OUNSLLOR AT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL IS SOUTH ARLINGTON AVENUE SECURITIES LAW 1 I, Adrianna D . Gutierrez, declare that I am over the age of eighteen ( 18) and not a party to
2 the within action. I am employed in the law firm of Kaplan Fox & Kilsheimer LLP, 55 5
3 Montgomery Street, San Francisco, California 94111 .
4 On November 21, 2003, I served the following document(s) :
5 AMENDED CONSOLIDATED CLASS ACTION COMPLAIN T FOR VIOLATIONS OF THE FEDERAL SECURITIES LA W 6
7 To the below parties :
8 Thomas J . Hall, NVSBN 0675 Lynda J . Grant LAW OFFICES OF THOMAS J. HALL GOODKIND LABATON RUDOF F 9 305 South Arlington Avenue & SUCHAROW LLP Post Office Box 3948 100 Park Avenue 10 Reno, NV 89505 New York, NY 10017-5563 Telephone: 775-348-7011 Telephone : 212-907-0700 1 1 Fax: 775-348-7211 Facsimile : 212-818-0477
12 Frederic S . Fox Samuel H. Rudman Shelley Thompson CAULEY GELLER BOWMAN COATES & 13 KAPLAN FOX & KILSHEIMER LLP RUDMAN, LLP 805 Third Avenue, 22nd Floor 200 Broadhollow Road 14 New York, NY 10022 Suite 40 6 Telephone : 212-687-1980 Melville, New York 11747 1 5 Fax : 212-687-7714 Telephone : 631-367-7100 Facsimile : 631-367-117 3 16 Laurence J . De Respino 17 Senior Asst. General Counsel UHAUL LEGAL DEPARTMEN T 18 2727 N . Central Avenue Phoenix, AZ 85004 19 Telephone : 602-263-698 3 Facsimile: 602-277-501 7 20
21 (BY FACSIMILE) I sent such document from facsimile machine on the above date . I certify that said transmission was completed and that all pages were received and that a repo rt was 22 generated by the facsimile machine which confirms said transmission and receipt .
23 (U.S . MAIL) I placed the sealed envelope(s) for collection and mailing by followin g ordinary business practices of Kaplan Fox Kilsheimer LLP . I am readily familiar with Kaplan Fo x 24 Kilsheimer LLP's practice for collecting and processing of correspondence for mailing with th e United States Postal Service, said practice being that, in the ordinary course of business, 2 5 correspondence with postage fully prepaid is deposited with the United States Postal Service th e same day as it is placed for collection . 26
27 (PERSONAL SERVICE) I caused personal delivery of the document(s) listed above the person(s) at the address(es) set forth below . 28
THOMAS J . HAL L 119 ATTORNEY AND :OUNSELORAT LAW AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERA L IS SOUTH ARLINGTON AVENUE SECURITIES LAW NOV-20-2003 THU 09 :05 PH KAP NN FOX & KILSHEIMER FAX NO . 4,724707 P. 02
1 XXX (BY OVERNIGHT DELIVERY) I placed the sealed envelope(s) or package(s) designated by the express service carrier for collection and overnight delivery by following the ordinary 2 business practices of Kaplan Fox Kilsheimer LLP . I am readily familiar with Kaplan Fox Ki l sheimer LLP's practice for collecting and processing of correspondence for overnight delivery, 3 said practice being that, in the ordinary course of business, correspondence for overnight delivery is deposited with delivery fees paid or provided for at the carrier's express service offices :for next-day 4 delivery the same day as the correspondence is placed for collection. I declare under penalty of perj ury under the laws of the United States of America and the State of. 5 California that the foregoing is true and correct .
6 Executed November 20, 2003, at San Francisco, California .
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28 10M AS J. HALL 120 I'rl'osu 'v AND Lrp9 0 .0 4 A'1 LAW +oIrni AlILrn6TON AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF HE FEDERAL SECURITIES LAW