United States District Court, S.D. Florida. Sandy KATZ, on behalf of herself and all others similarly situated, Plaintiff, V. CARNIVAL CORPORATION , Micky M. Arison, Howard S. Frank, Gerald R. Cahill, and Robert H. Dickinson, Defendants. No. 00-0731-Civ-Moore. November 6, 2000.

Plaintiffs' Consolidated Amended Class Action Complaint

Lead Plaintiffs make the following allegations, except as to allegations specifically pertaining to them and their counsel, based upon the investigation undertaken by plaintiffs' counsel, which investigation included analysis of publicly-available news articles and reports, public filings, press releases and other matters of public record, interviews with factual sources including former high-level Carnival employees and passengers, and reliance upon professional accounting consultants. Plaintiffs believe that further substantial evidentiary support will exist for the allegations set forth below after a reasonable opportunity for discovery.

NATURE OF THE ACTION

1. This is a class action on behalf of all purchasers of the common stock of Carnival Corporation ("Carnival" or the "Company") between July 28, 1998 and February 28, 2000 inclusive, (the "Class Period"), seeking to pursue remedies under the Securities Exchange Act of 1934 (the "Exchange Act"). 2. As hereinafter alleged, during the Class Period, Carnival, and the Individual Defendants (Arison, Frank, Cahill and Dickinson), each of whom is an executive officer, and/or director and controlling person of Carnival, knowingly and/or recklessly failed to disclose the Company's severe and pervasive safety, maintenance and regulatory problems associated with its Carnival Cruise Line Ships. Defendants' fraudulent scheme and deceptive course of business artificially inflated and maintained the trading price of Carnival securities during the Class Period and thereby injured members of the Class.

JURISDICTION AND VENUE

3. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. 1331, 1337 and 1367 and Section 27 of the Exchange Act ( 15 U. S.C. § 78aa) . 4. This action arises under Sections 10(b) and 20 (a) of the Exchange Act ( 15 U .S.C. 78j(b) and 78t a and Rule 10b-5 promulgated thereunder ( 17 C.F. R. § 240.10b-5) . 5. Venue is proper in this District pursuant to Section 27 of the Exchange Act ( 15 U.S.C. 78aa and 28 U.S.C. § 1391(b) and (c) . Substantial acts in furtherance of the alleged fraud and/or its effects have occurred within this District and Carnival maintains its principal executive offices in this District. 6. In connection with the acts and omissions alleged in this complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including , but not limited to, the mails, interstate telephone communications , and the facilities of the national securities markets.

PARTIES

7. Lead Plaintiffs, The International Brotherhood of Electrical Workers, Local 98; Jan de Rie; and Alec Vinocur, appointed by the Court by Order dated September 6, 2000, purchased Carnival common stock during the Class Period, as set forth in the certifications accompanying their Lead Plaintiff Motion, which are incorporated herein by reference, and were damaged thereby. 8. Defendant Carnival is incorporated under the laws of the Republic of Panama, and maintains its principal place of business at 3655 N.W. 87th Avenue, Miami, Florida. 9. The Individual Defendants, at all times relevant to this action, served in the capacities listed below and received substantial compensation:

Name Position

Micky Arison Chairman of the Board of Directors and Chief Executive

Officer.

Robert H. President and Chief Operating Officer.

Dickinson

Howard S. Frank Vice Chairman of the Board of Directors and Chief Opera ting Officer since January 1998.

Gerald R. Cahill Chief Financial Officer and Accounting Officer.

10. The Individual Defendants, as senior officers and/or directors of Carnival were controlling persons of the Company. Each exercised his power and influence to cause Carnival to engage in the fraudulent practices complained of herein, while receiving substantial compensation for their roles. For example, defendant Arison received $4.85 million in salary for fiscal year 1998, and was the highest paid corporate executive in South Florida according to a May 23, 1999 article in the Sun-Sentinel. 11. Each of the defendants is liable as a participant in a fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of Carnival common stock, by disseminating materially false and misleading statements and/or concealing material adverse facts. The scheme: (i) deceived the investing public regarding Carnival's business, its finances and the intrinsic value of Carnival common stock; and (ii) caused lead plaintiffs and other members of the Class to purchase Carnival common stock at artificially inflated prices.

PLAINTIFFS' CLASS ACTION ALLEGATIONS

12. Lead Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and (b)( 3) on behalf of a Class, consisting of all persons who purchased or otherwise acquired Carnival common stock between July 28, 1998 and February 28, 2000 , inclusive (the "Class Period "), and who were damaged thereby . Excluded from the Class are defendants, members of the immediate family of each of the Individual Defendants , any subsidiary or affiliate of Carnival and the directors, officers and employees of Carnival or its subsidiaries or affiliates, or any entity in which any excluded person has a controlling interest, and the legal representatives, heirs, successors and assigns of any excluded person. 13. The members of the Class are so numerous that joinder of all members is impracticable . While the exact number of Class members is unknown to plaintiffs at this time and can only be ascertained through appropriate discovery , plaintiffs believe that there are thousands of members of the Class located throughout the United States. As of July 14, 1999 , there were reportedly more than 613 million shares of Carnival common stock outstanding. Throughout the Class Period, Carnival common stock was actively traded on the NYSE. Record owners and other members of the Class may be identified from records maintained by Carnival and/or its transfer agents and may be notified of the pendency of this action by mail, using a form of notice similar to that customarily used in securities class actions. 14. Plaintiffs' claims are typical of the claims of the other members of the Class as all members of the Class were similarly affected by defendants' wrongful conduct in violation of federal law that is complained of herein. 15. Plaintiffs will fairly and adequately protect the interests of the members of the Class and have retained counsel competent and experienced in class and securities litigation. 16. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are: (i) whether the federal securities laws were violated by defendants' acts and omissions as alleged herein; (ii) whether defendants participated in and pursued the common course of conduct complained of herein; (iii) whether documents, press releases, and other statements disseminated to the investing public and the Company's shareholders during the Class Period misrepresented material facts about the business, finances, financial condition and prospects of Carnival; (iv) whether statements made by defendants to the investing public during the Class Period misrepresented and/or omitted to disclose material facts about the business, finances, value, performance and prospects of Carnival; (v) whether the market price of Carnival common stock during the Class Period was artificially inflated due to the material misrepresentations and failures to correct the material misrepresentations complained of herein; and (vi) to what extent the members of the Class have sustained damages and the proper measure of damages. 17. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this suit as a class action.

GENERAL BACKGROUND

18. Carnival describes itself as the world's largest multiple-night cruise company based on the number of passengers carried, revenues generated, and available capacity. The Company offers a range of cruise brands serving the contemporary cruise market through Carnival Cruise Lines, Holland America, the Cunard Line, Seabourn Cruise Line, and Windstar Cruises. The Company serves the cruise market with 43 ships, 13 of which constitute the "Carnival Cruise Line" segment (the "Carnival Ships"). All of the Carnival Ships were designed by and built for Carnival, including 12 SuperLiners, which are among the largest in the cruise industry. Nine of the Carnival Ships operate in the Carribean during all or a portion of the year and two Carnival Ships call on ports on the Mexican Riviera year round. Carnival Ships also offer cruises to Alaska, Canada, the Hawaiian Islands, the Bahamas and the Panama Canal. 19. Carnival's rapid acquisitions of Holland America, Windstar, Cunard and Seabourn, as well as several affiliated cruise operations, gave Carnival a leading position in the cruise line industry, in which Carnival was perceived as being able to offer everything from discount to luxury cruise packages. In addition to acquisitions, the Company announced agreements to construct several additional cruise ships, which, as stated in the Company's annual report on Form 10-K filed on February 25, 1999, would increase passenger capacity from 39,466 to 56,858, or by 44.1% by the summer of 2003. 20. The Company's explosive growth resulted in an increase in passenger capacity from 23,995 at November 30, 1994 to 39,466 at November 30, 1998 . In conjunction with the Company's rapid growth , the Company's reported earnings and revenues also increased dramatically . Against this backdrop of positive business developments , Carnival ' s stock quickly rose in price . On February 23, 1999, Carnival traded at over $46 per share, subsequently rising to over $52 per share in April , 1999. Carnival ' s expansion and its ability to continue that expansion were clearly significant to the market and were reflected in the Company' s escalating stock price. 21. To continue its ambitious growth plans, however, the Company needed to minimize costs and assure its compliance with all applicable maritime regulations, as any significant regulatory problems could stall or block the Company's expansion efforts. Moreover, increased regulatory scrutiny would likely increase the Company 's costs and thereby negatively impact the Company's cost structure and materially, adversely impact sales on its cruises . Rather than address both concerns, however, Carnival sought to limit costs at the expense of maintenance and safety compliance, resulting in an abysmal maintenance record and the disasters at sea detailed herein - - while the Company maintained the appearance of being a safe cruise line and marketed its Carnival Ships as the "FunShips." 22. Carnival, incorporated in Panama, registers its ships under the flags of either Liberia or Panama . By sailing under these "flags of convenience ," Carnival enjoys certain benefits including the avoidance of United States income tax and labor laws. In 1989 , Carnival's gross revenues exceeded $ 1 billion for the first time, and continued to grow each year. Carnival ' s inexorable growth stemmed from, labor efficiencies as well as growth through acquisitions which were facilitated by the Company' s "strict adherence to the cost discipline " as noted in its 1999 Annual Report to Shareholders and its emphasis on the "bottom line ." A Miami New Times article dated February 3, 2000 entitled : "The Deep Blue Greed "; The Arison Clan Built Carnival Into a Money Machine By Cleverly Avoiding Tax Laws," noted that: [T]hey [ Carnival ] achieved productivity through high -intensity effort, getting cabin attendants and food -and-beverage people to help do everything from moving baggage and loading ship's stores to polishing brass... Also helping the bottom line: Employees often worked 60 to 70 hours per week, were paid subminimum wages, and received minimal benefits. 23. Carnival took its otherwise legitimate emphasis on growth through cost-savings to an extreme . For example, a complaint filed against Carnival by an injured seaman from El Salvador, Alfredo Henriquez, alleged that he was injured when he fell down a flight of stairs while carrying a too-heavy load of plates. He failed to report the accident, because of Carnival ' s policy of requiring seamen to pay for the plates they break. 24. Defendants ' emphasis on the bottom-line at the expense of basic safety and maintenance was also reinforced through the Company' s Management Incentive Program ("MIP") which paid certain management- level employees bonuses based on the amount of cost savings they were able to generate . Carnival 's pursuit of( in its own words to shareholders in its 1999 Annual Report) a "cost-conscious" corporate culture to increase profit margins, included hiring unqualified or dangerous employees, paying extremely low wages (well below U . S. minimum wages), demanding round-the-clock working hours, interfering with criminal investigations concerning sexual assaults by Carnival crew members, failing to conduct shipboard inspections to determine the reliability of ship equipment, and shortening or skipping altogether, regular dry dock repair schedules. Predictably , the atmosphere created by defendants' policies resulted in disastrous incidents to the Carnival fleet: • In July 1998, the MS Ecstasy caught fire after workmen were welding in the ship's laundry room - - without obtaining the necessary permits and supervision. Later investigation by the National Transportation Safety Board , ("NTSB") revealed that the crew failed to properly clean and remove lint build up from the vents in the laundry area; • On September 20, 1999, a fire broke out in the Tropicale ' s engine room . The cruise was characterized by passengers as the "cruise from hell." Raw sewage flooded the hallways and passengers were left without water, plumbing , electricity and air conditioning; • In July 1999, defendants were ordered by a Miami court to reveal in discovery in a civil action in that, contrary to defendants' earlier representations that crime was not a problem on Carnival ships and only a "handful" of sexually related crimes was alleged per year--from 1993 to 1998, 108 passengers and crew members reported being victims of serious sexual misconduct including rape, while onboard Carnival ships; • On December 28, 1999 numerous passengers taking a "Millennium Cruise" aboard the Paradise were adrift at sea for hours without electricity when the engines lost power; • Less than two weeks later, on January 12, 2000, Carnival experienced yet another shipboard fire on the Celebration, resulting in additional cancellations, refunds and discounts to passengers. 25. The truth finally began to emerge when, on February 14, 2000, the Company revealed that although it was the busiest cruise season of the year, sales were lagging and cruise bookings were trailing the Company's projected capacity, a circumstance which could create pressure on pricing. Defendants also revealed that the Company's earnings outlook beyond the first quarter of fiscal year 2000 was "uncertain." 26. On February 15, 2000, Carnival experienced the "straw that broke the camel's back." The Company revealed that due to yet another mechanical failure, this time on the cruise ship Destiny, passengers were adrift in the Atlantic without engine power. The Company revealed that it would take a charge of $3 to $4 million dollars. 27. Investors reacted to the news on February 17, 2000 after the Destiny debacle. The price of Carnival stock fell to $31 per share on February 18, 2000, on trading volume of nearly 4 million shares. On February 23, 2000, the stock hit its new 52-week low of $29.06 per share, a dramatic drop from the stock's Class Period high of over $52 per share on April 9, 1999. 28. On February 28, 2000, defendants filed an annual report on Form 10-K which revealed that the Company had recognized over $11.4 million in income through Carnival's accounting for penalties associated with delayed finalization of ships under contract. In response to the disclosure, the stock declined even further, reaching 26 7/8 after the 10-K was filed. 29. In truth, and the Company was unable to operate safely and in compliance with applicable regulations while still generating "record" financial growth. Nonetheless, defendants falsely downplayed the incidents as "highly unusual" and issued a self- congratulatory statement that the Company responded "superbly" to the catastrophes aboard its ships as a result of its "stringent" safety measures. In addition, as detailed below, defendants also fraudulently recognized income to meet Wall Street expectations, by failing to properly record adjustments to the cost of acquired vessels. No longer trusting Carnival's characterization of its mechanical and other operating defects as "highly unusual," one an analyst summarized the stock drop after the Destiny episode and the Company's revelation of slow customer bookings stating: "I think investors are getting tired of these 'one-time' events" as detailed below in ¶132. 30. While the investing public incurred significant losses, defendants, well aware of the lack of internal controls and pervasive maintenance problems which would hamper Carnival's growth, rid themselves of over 300,000 shares of Carnival stock, generating proceeds of over $15 million at prices as high as $48 per share, well above Carnival's stock price after the truth was revealed.

SUBSTANTIVE ALLEGATIONS

31. In July 1998, the Carnival ship MS Ecstasy caught fire shortly after it left the Port of Miami after workmen had been welding in the ship's laundry room. The Class Period commences on July 28, 1998. On that date, Carnival issued a press release announcing the effect of several "one-time events" in the third quarter of fiscal year 1998. The Company revealed that the return to service of the MS Ecstasy would be delayed for several more weeks as a result of a detailed damage assessment by shipyard technical experts. The impact on the Company's earnings, including lost revenue from the ship being out of service, was estimated at approximately $24 million. 32. Defendant Frank, however, assured investors that the fire was nothing for the investing public to be concerned about, stating in a press release dated July 28, 1998: [N]otwithstanding the delayed re-entry of the Ecstasy into service, the company still expects to meet Wall Street earnings estimates for the year... the Ecstasy event has had no discernible impact on booking patterns for other Carnival ships. 33. Frank further stated in this press release that he "expects the event will have no long-term effect on Carnival's business", and concluded, " '[b]usiness is quite strong and 1998 will be our best year ever. ' " 34. In response to defendant Frank's assurances that the Ecstasy fire was an isolated incident that was not symptomatic of any decline in the Company's overall "booking patterns," the price of Carnival securities rose from $37.50 on July 28, 1998, to $38.45 on July 29, 1998. In fact, the Company's statements detailed above in 1132 and 33 were materially false and misleading for the following reasons: (a) Far from having no "discernible impact on booking pattens" defendants knew that the Ecstasy disaster was a symptom of Carnival's mounting technical problems with its aging fleet. Defendants knew at the time but did not disclose that the Company would continue to suffer problems with its fleet of ships in virtually every operating area from plumbing and engine failure to electrical and air conditioning problems. According to numerous former Carnival employees, including employees in the Guest Relations Department, a former Chief Steward and a former Director of Loss Prevention, the problems stemmed from Carnival's poor maintenance and upkeep of its vessels in dry dock. Carnival serviced its vessels in dry-dock (maintenance of a ship when it is taken out of the water) in several ports including Mobile, Alabama, Newport News, Virginia, and Baltimore, Maryland, among others. Nevertheless, the defendants attempted to create the impression that the Ecstasy fire was an isolated one-time event that would not affect is customer bookings (and hence its revenues); (b) Carnival's failure to maintain its ships in dry-dock stemmed from two basic problems. First, according to a manager for Atlantic Marine, a drydock facility used by Carnival in Mobile, Alabama, Carnival ships come into drydock once a year, usually in December or January. Carnival allowed only six to eight days in drydock, whereas competitors such as Royal Carribean allowed twelve days for a similar sized vessel. In most instances, the amount of time Carnival allotted for repair and maintenance in drydock was inadequate. Ships were quickly moved out of drydock so that they could be called into active service as soon as possible to receive waiting passengers in various ports, including Miami; (c) According to one former employee, formerly employed as a Chief Steward, the maximum amount of time Carnival allowed a ship to remain in drydock was nine days. The actual work of maintaining and repairing the ship was rarely completed during that period; (d) Carnival also sought to cut costs in the maintenance of its vessels by hiring cheap labor to do work in drydock. According to a former employee who worked as a Chief Steward and was a Carnival employee for over 20 years, Carnival hired workers outside of the United States for example, from Uruguay and other South American countries to do drydock work instead of Americans. These workers included plumbers, carpenters and electricians. When a Carnival ship is in drydock, it is considered to be on U.S. soil and hence subject to U.S. Immigration laws. The South American workers recruited by Carnival were reported to United States immigration authorities as actual crew members even though they were only temporary workers. Carnival managers were so focused on "strict adherence" to cost-consciousness that they often falsified immigration documents to indicate that these temporary workers - - who they hired at significantly reduced prices compared to American workers - - were permanent crew members who did not require temporary work visas; (e) Indeed, as detailed below, the Company's cost cutting measures in hiring employees created numerous safety and maintenance problems for the Company. The Company was not subject to United States labor laws, and thus did not need to abide by minimum wage or maximum work restrictions. Carnival's use and abuse of its foreign labor force has been well documented in the press and led to increased safety incidents and sexual misconduct on-board; (f) According to a former Carnival employee who worked for the Company for over two decades and was a Chief Steward Supervisor reporting to Brendan Corrigan, Vice President of Operations for Carnival, the fire aboard the Ecstasy began when a couple of Italian crewmen were welding in the laundry room. They started a small fire and tried to douse it with a bucket of water instead of a fire extinguisher. As a result, flames spread into the exhaust system. There was no fire patrol standing by, as there should have been. The SMS (Safety Management System) requires that a "Hot-Work" permit be issued and properly signed by an Engineering Officer before any welding work is commenced. The chief engineer is required to request the permit from the staff captain, who in turn sends a fire patrol as a standby. In the case of the Ecstasy fire, no "Hot- Work" permit was issued, in direct violation of an SMS requirement; (g) The NTSB record of the Ecstasy fire revealed that two crew members -- including an officer on duty on the bridge, tested positive for drug use; (h) As reported in an October 21, 1998 article in the Sun-Sentinel, ship operators failed to maintain the Ecstasy's ventilation systems in a manner designed to prevent hazards and federal safety officials attributed lint build-up in the laundry room ventilation systems for fueling the fire; (i) Carnival managers had even more incentive to cut corners and sacrifice safety in favor of the "bottom line" by virtue of the Company's Management Incentive Program ("MIP"). According to a former employee familiar with Carnival's compensation program and Director of Health, Safety and Environmental Protection, the MIP rewarded certain operations managers for their efforts at reducing costs and ensuring that profits remained at levels which had been forecasted at the beginning of the fiscal year. The MIP awards a certain number of points based on an employee's title and position and years of service with Carnival, to which a monetary amount is attached. In 1999, Carnival managers received one point, Directors were awarded two points, staff vice presidents three points, and vice presidents and senior vice presidents were awarded more directly by Dickinson. In 1999, the amount awarded per point was approximately $17,000 per point. However, because Carnival's profits did not reach the forecasted level, Carnival management was only awarded $14,000 of the $17,000. (j) The employees included in the MIP program were responsible for Carnival's Operations Department, including Michael Zonis, Senior Vice President of Operations and Brendan Corrigan, Vice President of Operations. Both were responsible for and approved safety and maintenance measures. According to a former employee who worked as Carnival's Chief Steward, because the MIP program was designed to reward managers who saved money for the Company, these individuals had the incentive to, and did sacrifice the amount of money spent to properly maintain Carnival's fleet. (Indeed, because these individuals were not responsible for sales and marketing--and thus adding directly to Carnival's revenues--their only tangible contribution to Carnival's profit margin was in slashing costs). Senior managers, by virtue of their direct personal financial incentive were aware of the cost-savings goal and its effect on the Company's profitability at all times. Accordingly, in order to receive the maximum award under the MIP, managers were encouraged to keep a tight control of the budget and reduce operating expenses - - which was carried out at Carnival to the extreme of sacrificing minimal safety standards. Indeed, the MIP resulted in a lack of proper attention to technical and safety issues and especially preventive maintenance not receiving the proper attention; (k) According to a former Carnival employee who worked as Carnival's Director of Loss Prevention, senior shipboard personnel tried to minimize costs by reducing maintenance and repair items or work. Shoreside engineers seldom visited ships that were based in outlying ports from the Miami area - - a problem compounded by the fact that the fleet's older ships, which required increased maintenance, were moved to the outports. Maintenance crews did just enough so that the ships appeared, superficially, in good repair; (I) According to a former employee who worked as Chief Steward, constant requests to senior management for extended time in drydock or wetdock to properly complete the work items as initially scheduled in the work requests were rejected in favor of maintaining schedules and timely departures. Work in the shipyards was routinely rushed with many items either being deleted from the work lists in order to create a superficial appearance of safety - - or work items continued after the yard period so the ship could depart on time; (m) According to Carnival's former Director of Health, Safety and Environmental Protection, many times workers were still repairing work list items en route to Miami or other homeports in order to keep on schedule - - despite the necessity for in-dock maintenance; (n) According to a former Guest Relations Department employee, constant pressure by upper management including the individual defendants to keep costs low was unrealistic given that many of Carnival's ships were getting older and needed more time, effort and money to maintain a high level of operability. For example, the following ships in Carnival's fleet due to their age required additional preventive maintenance which Carnival failed to provide [FN1]:

FN1. Dates of construction obtained from Carnival's 10-K filed February 25, 1999.

------Ecstasy 1991 ------Fantasy 1990 ------Celebration 1987 ------Jubilee 1986 ------Holiday 1985 ------Tropicale 1982 ------

35. On September 4, 1998, defendants publicly commented in a press release Carnival's adherence to safety procedures. Defendants attributed the July 20 fire aboard the Ecstasy as the result of an "accidental spark during the set-up process [from welders] which ignited the blaze." Defendant Dickinson commented that he was "not surprised" by the report, stating, "[w]ithin 24 hours, we were fairly confident of the source of the fire despite the initial denials from the welders, there was plenty of evidence to support our claim." 36. In the September 4, 1998 press release, Dickinson added that "Carnival has sent directives to the other ships in its fleet reinforcing strict adherence to the company's established safety procedures... lilt was an accident caused by human error." Dickinson said that it is important to use an event such as this as a learning opportunity and the company expects to learn much from the Ecstasy fire, he praised the Ecstasy's captain and crew for their efforts in extinguishing the blaze, stating: Although it wasn't evident from the visuals being broadcast on television, the Ecstasy's firefighting team did a tremendous job fighting the fire from inside the ship. According to Dickinson, while tugboats helped cool the affected exterior area of the ship, the fire was extinguished by Carnival firefighters who, after cooling the interior starboard area, went through the fire door out onto the mooring deck and extinguished the blaze. 37. Dickinson attributed the Company's "tremendous" response to the fire to "sophisticated fire detection and suppression systems and extensive firefighting training - - which includes weekly emergency preparedness drills and quarterly exercises for the U.S. Coast Guard -- [which] played a major role in containing the fire to a localized area." 38. The statements detailed above in ¶36 and ¶37 were materially false and misleading. Indeed, the Company's response to the Ecstasy fire was anything but "tremendous." A newsreel clip from West Palm Beach Channel 5 showed a petty officer leaning over the back rail of the ship spraying water while the ship was on fire. The spray of water was going directly into the ocean, rather than minimizing the fire. In fact, according to a former Carnival Fire Chief, there was no emergency response team in place at the time of the Ecstasy fire. 39. In addition, the statements were false and misleading because, according to a former employee in charge of Guest Relations, drydock was sometimes skipped altogether, and the ship would only go to "wetdock" (cleaning of the ship while the ship was in water). The Company's maintenance and safety problems were compounded by the crew's language barriers. Carnival staff officers and captains are largely Italian most of whom speak very broken English. Carnival's other staff or "line employees" are Central or South American and Asian who speak little if any English. According to this former employee, the chief complaint from cruise passengers was that plumbing, electrical and air conditioning problems could not be fixed while the ship was at sea. 40. By virtue of Dickinson's role as head of Carnival's Quality Control Committee, he regularly visited Carnival ships and spoke with crew members. He also was kept abreast of ships' operational problems because he received regular reports, including captains' meetings reports and captains' logs, from Brendan Corrigan, the Vice President of Operations. Moreover, customer complaints were so frequent that, according to a former Guest Relations employee, the Guest Relations Department compiled a monthly chart detailing the ships' technical and operational malfunctions with included corresponding columns detailing what was given to complaining customers - - from refunds to discounts and free future cruises. 41. On October 15, 1998, defendants filed a quarterly report on Form 10-Q for the period ending August 31, 1998, signed by defendants Frank and Cahill. With respect to the Ecstasy disaster, defendants stated: In July 1998, a fire broke out on the mooring deck on Carnival Cruise Line's Ecstasy. There were no serious injuries to passengers or crew, however there was damage to the ship's aft section. The time necessary to complete repairs to the Ecstasy resulted in the ship being out of service for six weeks during the third quarter of 1998. The Ecstasy fire resulted in a reduction in earnings of approximately $18.4 million in the third quarter of 1998. This reduction was comprised of lost revenue, net of related variable expenses, of $1 1.1 million, and costs associated with repairs to the ship, passenger handling and various other costs, net of estimated insurance recoveries, of $7.3 million. The costs of $7.3 million were included in other expenses. 42. The quarterly report stated, with respect to costs and expenses: Operating expenses increased $187.6 million, or 18.3%. Cruise operating costs increased by $164.3 million, or 18.2% to $1.07 billion in the first nine months of 1998 from $902.8 million in the comparable 1997 period. Approximately $94 million of the cruise operating costs increase is due to the acquisition and consolidation of Cunard and Seabourn. 43. The Company also touted its "increased capacity" and accordingly, increased revenues, in the 10-Q, stating: Average capacity for the Company's cruise brands... is expected to increase 11.4% in the fourth quarter of fiscal 1998, as compared to the same period in fiscal 1997... The increase in total revenues ... resulted from an increase of 8.2% in total revenue per passenger cruise day and a 2.7% increase in capacity. 44. On October 15, 1998, Carnival stock traded at $25.50 per share, and rapidly increased to over $31 per share on October 20, 1998, after the quarterly report was disseminated to the marketplace. 45. The statements detailed in Carnival's quarterly report were materially false and misleading, because: (a) According to a former on-board revenue accountant employed by Carnival, the Company routinely pays cash bribes in foreign ports, particularly to customs officers. According to this former employee, Carnival ships have a limited amount of hours to spend in a local port, and custom officials can tie up a ship at port for several hours prior to clearing the ship for departure. The payments are made in cash with U.S. dollars, and are normally made by the Chief Purser or by the Hotel Manager. The payments, such as one made to officials in Cozumel, Mexico, are expensed as port charges along with the customary legitimate port charges. The bribes paid by Carnival were undisclosed and masked as legitimate expenses. (The bribes may have violated the Foreign Corrupt Practices Act). The inclusion of bribes as proper expenses was a material misstatement contained in Carnival's financial statements disseminated to the investing public. Pursuant to SEC Staff Accounting Bulletin 99, amounts paid by companies for illegal activities - - even if in small amounts - - may be material to the marketplace; (b) According to a former employee who worked as Chief Steward, Carnival routinely removed crew members and put them in Miami hotels in order to increase the number of available berths for passengers on board - - to maintain and increase the much touted "capacity" levels of Carnival ships; 46. On November 17, 1998, an article entitled "Sexual Assaults Sully Playgrounds on the Sea; Cruise Crime, Shrouds of Silence", was published by the New York Times. The article detailed several sexual assaults on passengers by crew members. The article reported that a federal grand jury was investigating whether Carnival helped a ship's officer accused of rape get out of the U.S.- - noting that in 1995, a Florida appeals court found that Carnival dismissed a crew member for refusing to lie to protect the company in a civil suit. Charles Harris, the former Chief of Security for Carnival stated with respect to on-board sexual assaults: "[y]ou don't notify the FBI, you don't notify anybody... [e]ven when I knew there was a crime I was supposed to go in there and do everything in the world to get Carnival to look innocent." 47. Carnival Vice President Tim Gallagher commented on the allegations in the New York Times article, stating in the article that Carnival "reacts promptly and thoroughly any time there is an allegation of sexual misconduct involving passengers or crew members". Gallagher stated: " '[w]e have more than 1.5 million guests a year, and it is impossible that there would not be a huge public outcry if there were any kind of serious crime problem.' " According to Gallagher, only "a handful of assaults occur each year" on-board Carnival ships. 48. The foregoing statement issued by Carnival was false and misleading, as defendants well knew. At this time, in 1998, Carnival's internal policy was not to fully and thoroughly investigate allegations of sexual assault and misconduct aboard its ships. For example, the Company's policy was to contact a passenger after a sexual assault complaint had been made to determine what the passenger's wishes were with respect to notifying law enforcement authorities. Carnival typically sent a form letter was to complaining passengers. The following form letter produced by Carnival's executive offices located at 3655 NW 87 Avenue, Miami, Florida 33178-2428, in connection with a private action brought in Miami-Dade County alleging that Carnival failed to use reasonable care to provide and maintain a safe work place, shows that Carnival only reported to sexual crimes - - including rape - - to law enforcement only if the passenger consented. Dear Ms. [complaining passenger]: Based on your report to the Captain of the [name of ship], we understand that you may have experienced a problem with [name of crew member assailant] on August 13, 1998 onboard the [name of ship]. Carnival would like assist you in anyway possible. Please note that if you intend to make a report to the authorities, Carnival will cooperate fully with the investigative authorities. Please note, however that Carnival will not do anything against your wishes regarding making a report to the authorities. (Bracketed language supplied, emphasis added). 49. In addition, Gallagher's statement that only a handful of assaults occur each year was patently false, as the Company well knew. At the time Gallagher made the statement in 1998, the Company had a total of 108 serious complaints of sexual assault, battery and rape lodged against it, during the period of 1993-1998. This information was only revealed by the Company, however, in 1999, after a Miami court compelled production of the information to an interrogatory propounded to Carnival in the Cathy Weiland action (Jane Doe v. Carnival Cruise Lines, Case No. 99-2766, 11th Judicial Circuit, Dade County). Carnival (with Tim Gallagher listed as the press "contact") issued a press release on July 28, 1999 disclosing the existence of 108 allegations of sexual misconduct over the five year period 1993- 1998 ( In its original answers to the interrogatories, Carnival only disclosed 62 incidents and later disclosed the 108 complaint figure "to clarify the nature of its disclosures of alleged sexual misconduct over a five year period". 50. In the Weiland action , Carnival was ultimately compelled to particularize the nature of the 108 instances of reported sexual misconduct aboard its vessels from 1993 to 1998. Carnival ' s particularized summary accompanying its interrogatory response, provided to plaintiffs in the Weiland action shows that the complaints of sexual misconduct by both passengers and crew members, included serious and criminal allegations of sexual assault and rape. 51. Company spokesman Gallagher intentionally lied or was reckless in his assertion that the Company was only subject to a "handful " of sexual misconduct allegations as the Company's judicial admissions in the Weiland case have shown. Carnival intentionally covered up the true extent of its passenger complaints in order to avoid negative publicity and a consequent loss of customer bookings. In response to then -current articles about sexual misconduct aboard cruise lines, Carnival disseminated misleading information about the extent and nature of the allegations of sexual assault aboard its cruise ships. Carnival ' s false denials of the magnitude of sexual assaults aboard its vessels coincided with its equity offering of common stock, as set forth below. 52. Defendants' statement that Carnival reacts "promptly and thoroughly" to allegations of sexual misconduct was also false and misleading because: According to a February 3, 2000 article in the Miami New Times entitled "Carnival? Try Criminal : What Happens When A Female Passenger Is Assaulted On A Cruise Ship? Not Much " a passenger aboard the Fascination on July 23, 1998, reported being raped aboard the ship by a Carnival cabin steward . She reported the crime immediately to ship personnel , who questioned the steward . She was given tranquilizers prescribed by the ship's doctors to "keep her quiet" for the rest of the trip . When the victim spoke to American officials about the rape , they told her the outlook for prosecution was not promising since witnesses had not been interviewed , valuable evidence was not gathered and the crime scene was not preserved. Carnival , meanwhile , flew the cabin steward back to his homeland, Costa Rica , for what they termed "medical leave"; (b) According to the article , despite 22 accusations of forcible rape, not one person was successfully prosecuted , the article noted that Carnival was accused of thwarting investigations to protect itself from civil lawsuits and damaging publicity; (c) Charles Harris, Carnival ' s former Head of Security, stated in the article, "[ h]ow do you expect to get a conviction when you ' re starting four or five days late, the evidence is cold, and suspects disappear?" According to Harris, the faulty investigations are " 'by design . If they wanted [these cases probed ] they could do it;' " (d) In at least five lawsuits against Carnival , the Company helped at least five employees accused of rape to leave the country; fought to keep a waiter accused of attacking a Minnesota woman from being sued; fired nurse Cathy Wieland after she cooperated with the FBI ; and "bungled " the evidence in the Weiland case in order to cut short the investigation; (e) As reported in the Miami New Times article , the security force aboard Carnival ships was understaffed and underpaid, consisting of between five or six guards who spoke little English and were paid about $400 per month; (f) According to Harris, reports of crimes " 'rarely made it off the bridge ... [ n]othing could happen onboard that ship without the captain 's approval .. [ h]e could close an investigation for reasons that had nothing to do with the merits of the case and often did.' " The Company paid the captains bonuses for each successful trip, according to Harris, which created little incentive for them to tell the truth or continue an investigation; (g) The article reported that Carnival ' s current security chiefs include a former hotel guard from India , and a former ship's carpenter and teacher from Honduras , because "[c]orporate doesn 't want an aggressive law-enforcement team." 53. On December 16, 1998, Carnival issued a press release announcing that the Company had been added to Standard and Poor's 500 Composite Stock Price Index. As a result of the inclusion on the S&P 500, and "increased demand" for Carnival shares, the Company announced its intention to sell up to 17 million shares of its common stock, for approximately $725 million. The proceeds were to be used for the Company's business expansion and shipbuilding program. On December 16, 1998, defendants filed a prospectus on Form S-3 for the sale of the shares. On December 22, 1998, defendants announced the completion of the equity offering of shares, priced at $42 15/16 per share. 54. In or about January 1999, defendants disseminated Carnival's Annual Report to shareholders. The Report noted that fiscal 1998 was one of the best years in Carnival's history, and stated: "[f]iscal 1998 was also a year in which we passed a number of company and industry milestones and positioned ourselves for long-term growth." In the Report, defendant Arison discussed the Ecstasy fire, stating: In July, we had a fire on the mooring deck of Carnival Cruise Lines' MS Ecstasy as it was leaving the port of Miami on a cruise. Captain Sattori and his well trained crew responded swiftly to protect our guests and contain the damage. In the wake of the fire, our entire management team moved immediately and proactively to address safety concerns, accommodate our passengers in hotels, offer refunds, protect travel agency commissions and provide incentives on future cruises. I'd like to congratulate all of our people on their superb responsiveness and decisive action. Their efforts helped minimize the effect the incident could have had on our guests and our business. 55. The Report also emphasized Carnival's focus on cost-cutting measurements under a heading "WE ARE THE MOST EFFICIENT CRUISE OPERATION IN THE INDUSTRY": Carnival started the cruise business in the 1970s with just one ship, and we made every nickel count. Many of our people have grown up with Carnival, and a cost-conscious culture permeates the company even today. Everything we do is with a sharp focus on delivering quality products in the most efficient and costeffective manner. This focus has resulted in an increase in operating margins from 23 percent in 1990 to 27 percent in 1998. 56. The Report also noted that cost-cutting is in fact the "discipline that defines Carnival", stating: "a strict adherence to the cost discipline that defines Carnival, and an overall market recovery helped our share price regain and surpass its former levels." 57. A July 20, 1998 article in the Sun-Sentinel quoted Carnival officials as stating that the fire would have no long-term effect on Carnival's business. Dickinson stated: "I don't even expect a ripple" in future sales. 58. Defendants' statements in 154, that the Ecstasy's "well-trained crew responded swiftly to protect our guests and contain the damage. In the wake of the fire, our entire management team moved immediately and proactively to address safety concerns" were intended to, and did, convey the impression that the Ecstasy fire was an isolated act of God which Carnival was well-equipped to rapidly respond to. As detailed above, the Ecstasy fire was only one of Carnival's many "incidents" which reflected the Company's emphasis on operating margins while sacrificing minimal maintenance - - and which ultimately resulted in the company's decline in bookings as the public learned of one shipboard catastrophe after another - amounting to much more than a "ripple" in sales. 59. In addition, as further detailed in 134(a)-(n), above, the crew's response to the Ecstasy fire was anything but "superb." According to a 1998 article entitled "Agony on the Ecstasy" published on abcnews.com, passengers aboard the cruise complained about smoke coming through their vents and saw television coverage of the fire from their cabins long before the first announcement telling them to move to upper decks was made. One passenger said that an hour and a half passed between the time she saw the smoke and the first fire alarm. Coast Guard Lieutenant Dennis Seehoaus said that when the Coast Guard radioed the ship after seeing billowing smoke, the Ecstasy's crew initially said it was dealing with a "small fire" and did not need any help. Dale Palmer, a passenger on the ship from South Carolina, stated that she told a steward at 4:40 p.m. that smoke was entering her cabin through the air-conditioning duct, and the steward came to see it for himself. Ms. Palmer refuted the Company's public statements describing the fire as having started later, stating, "I'm disturbed to see the president of Carnival on TV stating the fire started [later] when I know better. I reported it." 60. According to the article described above, some passengers were not even told to get their life vests, and life boats were never lowered. A former employee in Carnival's Guest Relations Department reported that when the fire occurred, the foreign workers - - a majority of whom could not speak English at all - - panicked and could not communicate with each other due to language barriers. 61. On February 25, 1999, the Company filed its annual report on Form 10-K for the year ended November 30, 1998, signed by all of the Individual Defendants. 62. With respect to safety, the Company stated under the heading "Governmental Regulations": ...The Company's ships that call on United States ports are subject to inspection by the United States Coast Guard for compliance with the Convention for the Safety of Life at Sea and by the United States Public Health Service for sanitary standards. The Company is also regulated by the Federal Maritime Commission ("FMC"), which, among other things, certifies the Company on the basis of its ability to meet obligations to passengers for refunds in case of nonperformance. The Company believes it is in compliance with all material regulations applicable to its ships and has all the necessary licenses to conduct its businesses. 63. The Company further stated: The ISM [International Safety Management Code] provides an international standard for the safe management and operation of ships and for pollution prevention. The ISM Code became mandatory for passenger vessel operators, such as the Company, on July 1, 1998. All of the Company's majority owned Cruise Operations and Affiliated Cruise Operations have obtained the required certificates demonstrating compliance with the ISM Code. 64. The Company's statements detailed in 1162-63, above, were materially false and misleading. Contrary to defendants' statements that the Company was in compliance with all applicable safety regulations, Carnival routinely and recklessly disregarded pervasive problems with the Company's maintenance procedures which resulted in: (a) the September 20, 1999 fire aboard the Tropicale; (b) the engine problems aboard the Paradise during its "Millennium" cruise; (c) the January 12, 2000 fire aboard the Celebration; and (d) mechanical malfunctions aboard the Destiny. 65. At the time of issuance of the statements detailed above, defendants knew and/or recklessly disregarded that inter alia: (a) the Carnival Ships suffered from severe and pervasive operational difficulties which resulted in cruise cancellations and refunds as well as serious incidents; and (b) defendants knew or recklessly disregarded that Carnival's pervasive safety problems included over 108 sexual assaults of passengers by crew members aboard its ships in a five-year period, which resulted in the firing of 49 crew members. 66. Defendants' statements that they were in compliance with the ISM Code were materially false and misleading, because, according to Carnival's former Director of Health, Safety and Environmental Protection, defendants were in constant violation of Item number 10.3 of the ISM Code, which requires that the Company "establish procedures in the SMS to identify equipment and technical systems the sudden operational failure of which may result in hazardous situations." According to the former Director, Company inspections were not clearly detailed in reports to the Company relating to the ships' condition. The Company did not receive the following items from the technical department: (a) Non-conformities of maintenance items were not reported promptly, if at all, with finite periods of time set for rectification; (b) routine inspection reports were not maintained and defects with corrective actions not checked; (c) critical systems and equipment including standby equipment were not identified and tested regularly with documentation. 67. In fact, according to an October 18, 1999 Coast Guard Report, the Tropicale was in violation of numerous provisions of the ISM Code. For example, the report identified 12 deficiencies on-board the Tropicale which presented significant safety issues, such as: uncertified personnel, inoperable fire doors, improperly stored chemicals and inoperable sanitation systems. 68. After a later sailing on the Tropicale, the Coast Guard cited Carnival for employing improperly certified workers including a ship engineer and two seamen. Rather than rectify the problem, Carnival contacted the government of Liberia, where the ship is registered, and procured waivers for the crewmen. 69. Defendants' annual report on Form 10-K was also false and misleading because the report failed to disclose that the Company improperly recognized income from late penalties charged to ship builders - - rather than accounting for the penalties as a reduction in the cost of building the ship. Prior to the Class Period, defendants described the accounting for ship building costs. The Company's Form 10-K for the fiscal year ended November 30, 1997 ("the November 30, 1997 Form 10-K") which was filed with the SEC on February 27, 1998, stated that vessels were built pursuant to a "contracted price" and that: "The Company capitalizes interest on vessels and other capital projects during the construction period." Moreover, the November 30, 1997 Form 10-K referred to the estimated cost of new vessels; not to a contractually fixed cost. 70. The Company's Form 10-K for the fiscal year ended November 30, 1998 filed on February 25, 1999, stated that vessels were built pursuant to a "contracted price" and that: "The Company capitalizes interest on vessels and other capital projects during the construction period." Moreover, the November 30, 1998 Form 10-K noted that, during construction, the precise cost of a vessel was unknown and was therefore, only, estimated. In this regard, the November 30, 1998 Form 10-K stated that: Estimated total [vessel] cost is the total cost of the completed vessel and includes the contract price with the shipyard, design and engineering fees, estimated capitalized interest, various owner supplied items and construction oversight costs. Once completed (as represented in the Company's financial statements) the vessels were stated at cost. 71. Because defendants did not publicly disclose any changes to the accounting policies described above, investors considered them to be of continuing applicability. As stated in APB Opinion No. 28, "there is a presumption that users of summarized interim financial data will have read the latest published annual report, including the financial disclosures required by generally accepted accounting principles and management's commentary concerning the annual financial results, and that the summarized interim data will be viewed in that context." Accordingly, throughout the Class Period, the investment community was led to believe that the precise cost of the Company's vessels was unknown until their construction was complete and they were delivered to the Company; that these vessels were stated at cost, as determined at the time of delivery. 72. The cost of any long-term construction project is affected by change orders and negotiated price adjustments. The Company never represented that contractor price concessions, rebates, penalties or other downward cost adjustments would be recorded as income by the Company. And, in discussing delivery of vessels, the Company never disclosed the fact that any such price concessions (including late delivery penalties) were imposed upon the construction contractor or that such price concessions, if exacted, would be recognized as income as opposed to vessel cost adjustments. 73. Indeed, both the pre-Class Period November 30, 1997 Form 10-K and the November 30, 1998 Form 10-K filed on February 25, 1999, stated that "there is no assurance that ships under contract for construction will be delivered on schedule" and the November 30, 1998 Form 10-K stated that, "no assurances can be made that the vessels under construction will be introduced into service by the expected service dates" without mentioning that late delivery of vessels would result in the recognition of income. In addition, each and every filing with the SEC on Form 10-K and Form 10-Q during the Class Period contained a safe harbor statement which stated, "unknown risks, uncertainties and other factors, which may cause the actual results, performances or achievements of the Company to be materially different from any future results, performances or achievements expressed or implied... include delivery of new vessels on schedule and at the contracted price" without disclosing that late delivery of vessels would result in the assessment of charges that would serve to increase income as opposed to decreasing vessel costs. 74. This income recognition policy was required to have been disclosed in observance of APB Opinion No. 22, Disclosure of Accounting Policies, which states: Disclosure of accounting policies should identify and describe the accounting principles followed by the reporting entity and the methods of applying those principles that materially affect the determination of financial position, changes in financial position, or results of operations. In general, the disclosure should encompass important judgments as to appropriateness of principles relating to recognition of revenue and allocation of asset costs to current and future periods; in particular, it should encompass those accounting principles and methods that involve any of the following: (a) A selection from existing acceptable alternatives; (b) Principles and methods peculiar to the industry in which the reporting entity operates, even if such principles and methods are predominantly followed in that industry; (c) Unusual or innovative applications of generally accepted accounting principles (and, as applicable, of principles and methods peculiar to the industry in which the reporting entity operates). 75. According to APB No. 22, "[e]xamples of disclosures by a business entity commonly required with respect to accounting policies would include, among others, those relating to... recognition of profit on long-term construction-type contracts..." 76. The Company's above noted financial statements were silent with regard to the Company's purported policy of recognizing revenue in connection with the acquisition of vessels, leaving the investment community to believe that no such unusual or innovative accounting policy was in effect. 77. In addition, GAAP (FASB Statement No. 5, Accounting For Contingencies) defines "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain" as a "gain contingency." This GAAP states, with respect to the accounting for a gain contingency, (in paragraph 17) that: "Adequate disclosure shall be made of contingencies that might result in gains, but care shall be exercised to avoid misleading implications as to the likelihood of realization." 78. Even if price concessions attributed to delayed delivery of the Volendam and Carnival Triumph (two new ships) were appropriately treated as income, defendants failed to cause any of the Company's filings with the SEC on Form 10-Q and Form 10-K to disclose the existence of any such gain contingency in compliance with GAAP. 79. The above led the investment community to believe that, as of commencement of the Class Period, the: (a) Company was not subject to a gain contingency. (b) Company did not have an accounting policy which included the recognition of revenue based upon downward adjustments to the acquisition cost of vessels. (c) The Company's balance sheet presented the Company's vessels at their acquisition cost. 80. After the Company's 10-K was disseminated, the price of Carnival common stock, which was trading at about $37 per share as a result of the July 1998 fire aboard the Cruise Ship Ecstasy, rose to over $45 per share. 81. On March 18, 1999, the Company issued a press release reporting "record" first quarter earnings. Carnival reported net income of $157.8 million on revenues of $748.3 million for its first quarter ended February 28, 1999, compared to net income of $109.9 million for the same quarter in 1998. Earnings per share increased 44% in the first quarter of 1999 as compared to the first quarter of 1998. The Company characterized the quarter as the "31st consecutive quarter in which Carnival reported year-over-year earnings improvement." 82. On March 22, 1999, defendants issued a press release revealing that Carnival was among the "top performers in the S&P 500" according to Business Week magazine. Arison again reiterated the Company's emphasis on strict cost controls, stating "Carnival has been able to achieve its success by providing quality cruise vacations to millions of consumers each year while maintaining an eye on the bottom line and a return to our shareholders." 83. On April 13, 1999, the Company filed a quarterly report on Form 10-Q signed by defendant Frank. 84. On May 10, 1999, defendants caused the Company to issue a press release which announced a delay in the delivery of the Volendam, stating that: The new ship, the Volendam, under construction at the Fincantieri shipyard in Merghera, Italy, was originally scheduled to enter service on Aug. 24, 1999, and is now expected to enter service Nov. 12, 1999. In response to the Volendam delay, Holland America announced a variety of itinerary changes within its existing fleet, including the repositioning of the Maasdam from Europe to New York. These redeployments will serve to accommodate passengers scheduled on canceled Volendam sailings and at the same time accommodate those on altered itineraries. Holland America will be compensated by Fincantieri for the delays. As a result, the company does not anticipate any impact on its 1999 earnings, according to Micky Arison, Carnival Corporation chairman and CEO. 85. This May 10, 1999 press release led the investment community to believe that no lost passenger revenue would result from the delayed delivery and that expenses incurred by the Company in connection with the delayed delivery would be absorbed by Fincantieri. This press release provided no indication that a profit would be generated as a result of the delivery delay and, in fact, boldly represented that: "Carnival Corporation Expects No Impact On Earnings To Result From Delay In Delivery Of New Ship For Its Holland America Unit." 86. On June 17, 1999, the Company issued a press release announcing "record" second quarter earnings. Carnival reported net income of $203.3 million on revenues of $796.1 million for its second quarter ended May 31, 1999, compared to net income of $160.6 million on revenues of $661.4 million for the same quarter in 1998. For the second quarter, revenues increased 20% and earnings per share increased 22% over the comparable quarter in 1998. The press release attributed the earnings growth in the second quarter to a 6.6% increase in capacity resulting largely from the introduction of the cruise ship Paradise. 87. Commenting on the results, defendant Arison stated: "The introduction of Carnival Cruise Lines' new ships, the Paradise and the Elation, the first new 70,000 gross registered ton cruise ship operating out of Los Angeles, has further increased the demand for the company's cruise products in those markets. It is the introduction of innovative new ships like these that has allowed us to deliver eight consecutive years of quarterly earnings growth." 88. Defendants knew or recklessly disregarded that Carnival could not sustain "eight consecutive years of quarterly earnings growth" while minimizing costs and ignoring maintenance and safety issues. As a result of the incidents caused by defendants' knowing or reckless disregard of compliance and regulatory issues, the Company's future expansion and financial growth would ultimately suffer. 89. On June 25, 1999, defendants caused the Company to issue a press release captioned "Delay Expected In Delivery Of New Cruise Ship For Carnival Corporation's Carnival Cruise Lines Unit; No Earnings Impact Anticipated." This press release announced a delay in the delivery of the Carnival Triumph, stating that: The delay is not expected to impact earnings. However, it has forced the cancellation of a variety of pre-inaugural events in New York for travel agents as well as the ship's first two consumer cruises, both of which are four-day voyages from New York to Canada. The ship is now expected to make its maiden voyage on July 27. Results from final sea trials earlier this week and a subsequent drydock at Italian ship-yard Fincantieri which constructed the ship indicate that the bearing on one or the vessel's shafts is overheating and must be replaced. Furthermore, although only one shaft bearing is problematic, both shafts utilize the same type of bearing so it was decided to takethe most prudent course of action and replace both. Carnival Cruise Lines will be compensated by Fincantieri for the delays. "Although replacing both bearings will lengthen the delay, we feel it is important to take a conservative approach to ensure we don't have a problem in the future," said Bob Dickinson, Carnival president. "Other than this one technical issue, the ship is completely ready for delivery and has been for some time now...." 90. This press release led the investment community to believe that a minimal passenger revenue loss would result from the delayed delivery and that expenses incurred by the Company in connection with the delayed delivery would be absorbed by Fincantieri. This press release provided no indication that a profit would be generated as a result of the delivery delay and, in fact, represented that there was: "No Earnings Impact Anticipated." 91. The Company's financial results for the second quarter, for the period ending May 31, 1999, were repeated in the Company's quarterly report on Form 10-Q signed by defendant Frank which was filed on July 14, 1999. The quarterly report was materially false and misleading in that it did not: (a) Discuss the delayed vessel deliveries described above in 184 and ¶89 (b) State that the delayed delivery of the Carnival Triumph and the Volendam would result in the recognition of income. (c) Disclose the existence of a gain contingency required pursuant to the mandates of FASB Statement No. 5. (d) Provide revenue recognition disclosures with regard to profit on long-term construction-type contracts or other unusual or innovative applications of GAAP as mandated by APB Opinion No. 22. 92. These factors further served to lead the investment community to believe that minimal passenger bookings were lost as a result of the delayed vessel deliveries; that expenses incurred by the Company in connection with the delayed delivery would be absorbed by Fincantieri; and that there was no earnings impact. 93. On July 28, 1999, defendants issued a press release in connection with the Weiland case discussed above. Defendants were ordered by the Court to release information revealing the number of sexual misconduct allegations on its ships over the prior five years - which totaled 108. Defendants revealed that there were 22 allegations of rape, 16 of which were made by passengers, the others by crew members. Commenting on the allegations of misconduct by crew members, defendant Dickinson stated: Though this represents less than four passenger allegations a year, even one allegation is one too many. We take all reasonable precautions and measures to provide the safest possible environment for our guests. 94. An attorney representing Carnival, Curtis Mase, represented that someone is 100 times safer on a Carnival ship than in a similar U.S. sized city, stating: "[t]hese figures alone should tell you that "Carnival ships provide one of the safest vacation environments anywhere in the world. Nevertheless, the company continues to take measures to improve upon its already strong safety record." 95. The July 28, 1999 press release also represented that Carnival had instituted a "zero tolerance policy on reporting alleged crime." Mase stated that Carnival, as the industry leader, "has for many years taken a proactive role in providing programs that train crew members to deal with guests and their fellow shipboard workers in a courteous and professional manner." These "programs", according to the press release, include specialized workshops to educate crew on proper and improper relationships, sexual harassment, as well as various service and hospitality training classes. 96. Defendants' statements that "[w]e take all reasonable precautions and measures to provide the safest possible environment for our guests" and that the Company "continues to take measures to improve upon its already strong safety record" were materially false and misleading for the reasons detailed above in ¶48, and because: (a) According to Carnival's former Chief of Security, Carnival did not have any inhouse training for security officers, did not conduct background checks on employees and "just wanted bodies" to fill the positions; (b) according to Carnival's former Chief of Security, any of the crew members used several aliases, and if they were fired from one Carnival ship they would simply "reappear" on another Carnival ship for employment due to Carnival's virtually non- existent screening policies. 97. Similarly, defendants' statements that Carnival has a "zero tolerance policy on reporting alleged crime" and has taken a "proactive" approach towards stemming sexual misconduct for years was false and misleading. As detailed above, in 148, Carnival's policy was to report crimes only if the victim chose, not every time a crime was alleged. In fact, not only would Carnival limit the crimes reported to law enforcement based on a victim's preference, but the Company actively limited further investigation into alleged sexual misconduct by: offering passengers "bribes" such as upgraded cabins or amenities; delaying investigations, and sending the accused to his native country prior to the commencement of an investigation on U.S. soil. For example, a nurse on the August, 1998 cruise ship Imagination (referred to in pending litigation as Jane Doe) alleged that she was raped by fellow crew member Yurij Senes. On the day before the Imagination docked, August 14, 1998, the company came up with two reasons to fire Senes: He drank wine before work and showed up late. By the time the ship reached the Port of Miami, Senes's termination notice had already been signed by the captain. Once Senes was fired, his visa automatically expired. On the morning of August 14, 1998, Carnival corporate security agent Kenneth Bissonette boarded the Imagination and interviewed the victim and Senes. Jane Doe told Bissonette that she wanted to go to Jackson Memorial's Rape Treatment Center and get medical attention, then meet with the FBI. According to a February 3, 2000 article in the Miami New Times compiled from documents and deposition testimony in the Jane Doe civil litigation: By then Carnival higher-ups were exchanging a flurry of phone calls. After interviewing Jane, Bissonette called Robert Beh, vice president of surveillance and security. Beh in turn called Brendan Corrigan, vice president of operations. Bissonette, Beh and Corrigan all phoned the Carnival agent who was holding Senes. Over at the hospital, FBI agents ... interviewed Jane. At 2:15 p.m. they called Bissonette and said they wanted to talk to Senes. No problem, Bisonette said. He passed the request on to his superiors. But the company had already booked Senes a seat on the 5:00 p.m. British Airways flight back to Italy. Although agents tried to set up a meeting at a U.S. customs office at the airport, the Carnival employees say they became confused. They held Senes at the departure gate. When FBI agents didn't arrive, the Carnival guards allowed Senes to board. 98. According to a deposition given by Brendan Corrigan, in the Jane Doe v. Carnival et. al., case, on October 27, 1999, he was well aware that the FBI wanted what flight Senes was on and nonetheless authorized a guard to put Senes on a plane going to Italy. Corrigan. Dep. Tr. At 29-32, dated October 27, 1999. 99. According to a deposition given by Dickinson in connection with the Jane Doe v. Carnival et. al. case on September 7, 1999, he discussed the Weiland case and likely resulting negative publicity with defendant Arison. Dickinson Dep. Tr. at 23, dated September 7, 1999. The following testimony indicates that, contrary to defendants' statements that Carnival took "all reasonable precautions" to ensure passenger safety, defendants in fact did not change any of their policies after the repeated shipboard rapes were revealed:

[Plaintiffs .. "[M]y question is whether or not anybody at Carnival has

attorney]: gone back to analyze whether or not there are ways in whi ch this kind [sexually criminal] personality could be ferret ed out?

[Dickinson]: There may have been. I don't micromanage the company. I'm j ust telling you that I'm not aware of it.

[Plaintiffs Would it be fair to say that as far as Carnival's hiring attorney]: practices are concerned, that nothing has changed as a re suit of this case or the facts and circumstances surrounding i t?

[ Dickinson ]: Not that I' m aware of.

Id. at 61 (emphasis added). 100. Defendants' representations that Carnival took "all reasonable precautions" to ensure passenger safety were also false and misleading because Carnival's screening policies for employees were often non-existent. According to deposition testimony in the Jane Doe case given by Robert Beh, Carnival's Vice President of Surveillance and Security, background information - - including criminal history - - was often totally unavailable for employees coming from certain parts of Central and South America. Beh Dep. Tr. at 18, dated September 1, 1999. 101. In response to defendants' court mandated disclosures regarding the true number of crimes onboard Carnival ships - - which the public realized was much more than a mere "handful" -- the price of Carnival stock dropped from nearly $50 per share on July 28, 1999 to $47.875 on July 29, 1999, and sank to $42.50 per share on August 5, 1999, after the news of the magnitude of the crime problem at Carnival was disseminated to the marketplace. However, investors were still unaware of the full extent of Carnival's blatant disregard for safety and operational issues - - causing the stock to continue to trade at artificially inflated levels. 102. On September 20, 1999, a fire broke out in the Carnival Ship Tropicale's engine room. The Company revealed that although the ship was left without propulsion, "all of the other ship's functions [were] fully operational." The cruise was characterized by passengers in a September 22, 1999 article disseminated by the Associated Press, as the "cruise from hell." Passengers complained of raw sewage in the hallways and in their cabins, no water in cabin sinks, toilets and showers, and foul water coming from bathroom fixtures. 103. As reported in a September 23, 1999 article in the St. Petersburg Times, passengers were "afraid for their lives because nobody knew what was going on." The ship's swimming pools were empty. Passengers who had sewage on cabin floors the first day of the voyage were not moved, and slept with their doors open because there was no air conditioning. Then, on Sunday night, several days after leaving Tampa, black smoke billowed from the rear of the ship as the crew spent at least five hours putting out a fire in the engine room. Passengers were ordered to their "muster stations" near the lifeboats, then made to wait, with little or no information for 12 hours or more. The article reported that: After the fire, conditions only got worse. The ship tried to outrun Tropical Storm Harvey but with only one working engine, it couldn't reach half its top speed of 22 knots. As the ship was tossed in roiling seas, many passengers ... threw up. With toilets not working, they retched or went to the bathroom in sinks, showers, and garbage bags. Supplies of bottled water ran out, and what came out of the tap was discolored. Passengers were told to drink and wash with dark grey water. According to a spokeswoman for the Company, Jennifer De La Cruz, the ship "was certainly in a condition to sail, and we could not have predicted what happened... the ship had just spent a week in dry dock for general maintenance and had been certified as seaworthy by an independent inspection service." 104. According to a September 23, 1999 article in the Tampa Tribune, passengers' e- mails and telephone calls were censored, and the ship's air conditioning systems failed. A spokesperson for the Company attributed the sewage problems to "debris inadvertently left in the plumbing system which was not discovered until the ship left port." The Company characterized the fire as "an extremely unusual situation." 105. Defendants' statements in 11103 and 104 above, that the fire was "extremely unusual" the ship was "certainly" in condition to sail and had "just spent a week in dry dock" were false and misleading. As detailed above, the fire was not "unusual" but was a regularly manifested symptom of the Company's cost-cutting measures which sacrificed safety. Similarly, as defendants knew or recklessly disregarded, the "dry dock" which purportedly ensured the safe sailing of the vessel was woefully inadequate because: (a) According to Carnival's former Director of Health, Safety and Environmental Protection, senior shipboard personnel tried to minimize costs by reducing maintenance and repair items or work - - in order to benefit personally and directly through the Company's Management Incentive Program. Shoreside engineers seldom visited ships that were based in outlying ports from the Miami area - - a problem compounded by the fact that the fleet's older ships, which required increased maintenance, were moved to the outports. Maintenance crews do just enough so ships looked, superficially, in good repair; (b) According to a former Chief Steward employed by Carnival, constant requests to senior management for extended time in drydock or wetdock to properly complete the work items as initially scheduled in the work requests were rejected in favor of maintaining schedules and timely departures. Work in the shipyards was routinely rushed with many items either being deleted from the work lists in order to create a superficial appearance of safety - - or work items continued after the yard period so the ship could depart on time; (c) Many times workers were still repairing work list items en route to Miami or other homeports in order to keep on schedule - - despite the necessity for in-dock maintenance; (d) According to interviews of passengers aboard the Tropicale reported seeing crew members hurriedly nailing fire extinguishers to the walls as the Coast Guard was boarding the ship. There was debris in the lifeboats including broken boards with nails in them, paint cans, and turpentine, and the seats in the lifeboats were not assembled. When the Coast Guard was on its way, the crew cleaned out the lifeboats, put on white jackets and gloves, gave out free drinks, and a band began playing music. A videotape aired on Dateline NBC showed crew members painting the ship's spout to cover up the black soot from the fire; (e) During the fire drill before the ship embarked, it was evident, according to a Tropicale passenger, that the crew members were not trained in emergency procedures - - they did not even know which muster stations passengers were supposed to report to; (f) According to an investigator hired by the Coast Guard, 95% of the Tropicale passengers reported that they were given no instructions for what should be done in the event of a fire; 84% of the passengers reported that no passenger accountability was taken at the muster stations during the fire. 106. As reported in the article described above, a day before the fire on the Tropicale, six crew members left the ship when it docked in Cozumel without returning, stating that the ship was unsafe and refusing to reboard. A passenger requesting a life jacket for a baby was told there were no infant life jackets on board. Additionally, passengers reported that the Coast Guard was only called at the insistence of angry passengers, and that prior to the Coast Guard's arrival, crew members hastily mounted fire extinguishers and repaired lifeboats in order to satisfy Coast Guard inspectors. In fact, passengers reported in a September 23, 1999 article in the St. Petersburg Times that conditions aboard the ship only seemed to improve when Coast Guard inspectors arrived by helicopter, smoke damage was painted over, the bars reopened and bands began playing again. 107. As a result of the problems aboard the Tropicale, Carnival was forced to cancel five voyages scheduled aboard the Tropicale in order to perform mandated repairs, and to issue refunds, future cruise discounts, shipboard credits and special transportation arrangements for the over 1,700 passengers aboard the Tropicale. 108. On October 14, 1999, the Company filed its quarterly report on Form 10-Q for the period ending August 31, 1999, signed by defendant Frank. The Company reported an increase in total revenues of $432.8 million, or 19.0% due to an increase in cruise revenues resulting from increased capacity. With respect to the Tropicale debacle, the Company stated: In September 1999, the Carnival ship Tropicale had a small engine room fire which resulted in no injuries to any guests or crew. The Company has canceled six voyages of the Tropicale while the vessel undergoes repairs. Three of these cruises will be operated by Carnival's Imagination, which will postpone its scheduled October 1999 drydock until January 2000. In September 1999, the Company announced that management estimated that the one-time negative impact of the above described events on the Company's 1999 fourth quarter earnings will be approximately one cent per share. 109. The Company's Form 10-Q for the fiscal quarter ended August 31, 1999 ("the August 31, 1999 Form 10-Q") stated that the Triumph was introduced into service in July 1999 and that the Volendam was expected to be placed into service in November 1999. In addition, it stated that: "Other income in the third quarter of 1999 of $10.0 million primarily relates to the compensation received from the shipyard related to the delayed deliveries of the Volendam and Carnival Triumph, net of certain related expenses." 110. The August 31, 1999 Form 10-Q contained no elaboration regarding the Company's apparent $10 million profit ("compensation... net of certain related expenses"). In addition, there was no explanation of the Company's accounting and no disclosure of any further gain contingency associated with the "delayed deliveries of the Volendam and Carnival Triumph." The absence of "adequate disclosure" caused the Company's improper revenue recognition to go unnoticed. 111. Because the Company was largely exempt from tax, the approximately $10 million of additional income which the Company recognized, served to increase "other income" and net income by substantially a like amount. "Other income" for the quarter increased from approximately $45,000 to approximately $10 million and net income for the quarter increased by approximately 2.5%. 112. On October 19, 1999, defendants issued a press release announcing that the Company had exercised an option to purchase the remaining 32% interest in the Cunard Line Limited - - which Carnival already owned 68% of. Carnival announced it would purchase the 32% interest for approximately 3.2 million shares of Carnival stock and $76.5 million in cash. 113. On December 28, 1999, numerous passengers taking a "Millennium Cruise" aboard the Carnival ship Paradise scheduled to stop at several stops in the Carribean, were forced to disembark in the Bahamas and fly to Miami. Due to "engine problems", the Paradise was only able to make 80 percent of its normal speed, missing its scheduled Carribean stops. As a result of the ship's mechanical failures, the New York Daily News revealed on January 19, 2000, that about 1,600 Paradise passengers were filing a class- action lawsuit seeking compensatory damages. 114. According to a January 8, 2000 article in the Los Angeles Times, the Millennium Cruise was plagued with problems from delays, missed port calls, to rude staff and plumbing problems "that filled their cabins with foul odors." One passenger described the cruise as "disgusting" because the toilets were nonfunctional. Other passengers complained of yellow water coming out of the faucets, and water dripping from the ceiling. In response to "hundreds" of complaints during the cruise, a crew member announced over the loudspeaker that passengers should consider the cruise a "camping trip." 115. In fact, the problems on the Paradise were typical manifestations of Carnival's pervasive neglect of minimal precautionary safety measures in favor of "a strict adherence to cost-consciousness." According to a former Safety Manager at Carnival, during the Paradise's guaranteed one year dry-dock before the ship's first voyage, the ship's "Apizod" engines were not opened and inspected by either the Company or the engine manufacturers. Accordingly, shipboard engineers had no knowledge of the proper maintenance procedures, or the status of the seals or pods necessary for proper functioning of the engines. 116. The problems aboard the Paradise's disastrous "Millennium Cruise" were also much worse - - and more potentially dangerous - - than Carnival represented. According to passengers who were onboard the Paradise, including a passenger who was a maritime engineer, the Paradise has 6 main diesel generators, 2 of which are used to power the ship's propulsion and steering systems. On the Paradise, only one of the systems was operable. Indeed, while defendants represented that the ship maintained 80% of its power, only 50% of the propulsion and steering system was operable. The Paradise is powered by port and starboard electric motors driven propellers, each of which can be turned to steer the vessel. The vessel has no rudder. As a result of the problems on the Paradise, the ship only had use of one motor to both steer and propel the fully loaded vessel. Accordingly, if the seas were choppy or if the ship had to complete any kind of quick turns or emergency maneuvering, the Paradise would have lacked engine capacity to function - - resulting in potentially deadly results for passengers on board the "Millennium Cruise." 117. Less than two weeks later, on January 12, 2000, Carnival announced over the PR Newswire that it had experienced yet another shipboard fire. The Celebration, a Carnival ship leaving from New Orleans carrying 1,586 guests and 667 crew on a seven-day voyage to the Carribean, reported a fire in an auxiliary generator. The ship was adrift for over six hours and was temporarily without running water, toilets, electricity or air conditioning. As a result Carnival was forced to cancel the Celebration's next cruise departure, and again issue refunds and discounts. In connection with the Celebration fire, Carnival estimated a reduction in first quarter 2000 earnings of one to two cents per share. Carnival also canceled the Celebration's January 16, 2000 voyage from New Orleans, giving passengers scheduled for that trip full refunds and a free seven-day cruise. 118. Financial analysts following Carnival believed management's repeated representations that these events were "highly unusual" and would have "no long-term impact" on Carnival's business. For example, a January 13, 2000 report issued by analyst Beth Burson of ABN Amro Inc., issued an "outperform" rating for Carnival securities, noting that: • Carnival quantified the earnings impact of the recent ship fire aboard the Carnival Celebration as roughly $0.01 to $0.02 per share; • As such, we are reducing our 1Q EPS estimate by a penny to $0.29 which is $0.02 below the current consensus estimate of $0.31; • Since we generally view such events as one-time expenses, we would use any further weakness in the stock as a buying opportunity. 119. On or about January 24, 2000, defendants disseminated the 1999 Annual Report to Shareholders to all Carnival record shareholders. In a section entitled "Ensuring Passenger Safety", the Report stated: As our ships annually transport a population equivalent to that of a large American city, the reality is that crime will occur. Though FBI statistics indicate that an individual is more than 100 times safer aboard a Carnival ship than in a similar U.S. sized city, we consider even one incident aboard our ships as one too many. Therefore, we are sharply focused on taking all necessary precautions and measures to provide the safest possible environment for our guests and crews. In fulfilling this commitment, we have instituted a policy of zero tolerance for employees or guests engaging in sexual or criminal misconduct. We have intensified screening of our shipboard personnel, expanded crew- training programs, stepped up security measures aboard our ships and continued to implement state-of-the-art systems to monitor access to ships while in port. We have also taken a leadership position in an industry-wide initiative to report to the FBI any crimes committed aboard ships that call at American ports or involve American citizens. We believe that these actions will help reduce the rare instances of crime aboard our ships, further enhance the reputation of cruising as a carefree vacation, and strengthen the confidence of the public in cruising as a safe and secure vacation option. 120. With respect to the Company's environmental practices, the Report stated: Our industry has also faced increased scrutiny of its environmental positions. At Carnival, we have rededicated ourselves to preserving the pristine waters in which we cruise, adopting a long-term view of our role in the stewardship of our environment. In so doing, we have retrofitted a number of our vessels with some of today's most advanced environmental control systems. We have strengthened both our solid and liquid waste management practices to ensure that we not only conform to, but exceed, regulatory requirements. We have also directed the environmental officers ashore and aboard each of our ships to diligently supervise our environmental activities to ensure complete compliance with the highest environmental standards of our industry. 121. The Report added: "[o]ur relationships with 29,000 travel agents in the U.S. and Canada are the strongest in our business, and our safety and environmental initiatives are among the most stringent in any industry." 122. The Report again emphasized Carnival's emphasis on the "bottom line" stating: "[w]hether discussing our brands, our selection, or our service, quality is a key word at Carnival. This is a direct reflection of our corporate culture, which strongly emphasizes the importance of ensuring quality in everything we do. Indeed, our success has been based on our ability to provide superior quality cruise vacations to millions of guests each year, while maintaining a focus on the bottom line and on delivering healthy returns to our shareholders." 123. In a section of the Report discussing the Company's growth, the Report stated: "[t]he growth in the Company's revenues during the last three fiscal years has primarily been a function of the expansion of its fleet capacity and its ability to obtain higher net revenue yields (net revenue available berth) than in previous years." 124. The Company's statements in its Annual Report to Shareholders were materially false and misleading for inter alia the reasons detailed above in 1 134 (a)-(n), 45 (a)-(b), 48, 52 (a)-(g), 59, and 66, and for the following reasons: (a) The Company's statement that Carnival's safety and environmental initiatives are among the most stringent in any industry was far from the truth. According to the Company's former Chief of Security, there was a very lax atmosphere at Carnival regarding safety issues. For example, on numerous occasions a ship would need to leave port late at night and staff would board the ship intoxicated and still be responsible for conducting safety checks; (b) Carnival's former Chief of Security reported that crew members would frequently check equipment for safety while they were intoxicated, or would regularly overload the ship with cargo to the extent that they were unable to conduct safety checks on ship equipment. Carnival would also use unqualified and low paid employees to conduct maintenance repairs to avoid paying the cost of a skilled technician; (c) According to a former employee in Carnival's Guest Relations Department, the older ships were plagued with problems with plumbing and air conditioning. Even the Destiny, although it was a newer ship, experienced constant flooding problems. In fact, there were so many maintenance problems on Carnival's ships that the Guest Relations department created a monthly chart for each ship detailing the problems and what compensation could be given to complaining customers; (d) Instead of focusing employees on ensuring that Carnival ships met "stringent" safety and environmental standards, Carnival management was encouraged to adhere to stringent cost-cutting measures regardless of the impact on passenger safety - - rewarding employees who saved costs for the Company in the form of bonus points awarded through the MIP program. This incentive program was often carried to illogical extremes. For example, according to a former Assistant Steward, the ship captains would often turn off one of the ship's stabilizers in order to save gas costs, increasing the impact of turbulent seas and endangering passengers; (e) According to the former Chief Steward, rather than keeping crew on Carnival ships while at port in Miami to work on much needed repairs and maintenance, in order to save costs, carpenters would be taken off ships and told to work on projects at the Company's Miami headquarters. These crew members did not have visas to work on land, and were not permitted to work off the ship. On one occasion, crew members were told to do electrical work and other maintenance on Vice President Michael Zonis's house in Aventura, Florida, rather than performing onboard maintenance. 125. Similarly, defendants' statements in the Annual Report that "[a]t Carnival, we have rededicated ourselves to preserving the pristine waters in which we cruise, adopting a long-term view of our role in the stewardship of our environment"; that Carnival had strengthened its solid and liquid waste practices to "exceed regulatory requirements" and had "directed the environmental officers ashore and aboard each of our ships to diligently supervise our environmental activities to ensure complete compliance with the highest environmental standards of our industry", were materially false and misleading because: (a) The Company did not "direct" officers to diligently supervise environmental activities. Rather, by virtue of crew members' exceedingly low salaries and the incentive to earn additional income through the MIP program, crew members were encouraged to do anything possible to cut costs in favor of operating margins, even at the expense of safety and environmental protection; and (b) According to an October 17, 2000 article in the Sun-Sentinel, on Aug. 22, 2000, Carnival received a subpoena from a grand jury sitting in the U.S. District Court for the Southern District of Florida asking the cruise line operator to produce documents and records concerning environmental matters in connection with the improper dumping of waste in Alaskan waters, and violations of air quality standards. 126. Defendants' statements regarding Carnival's "zero tolerance policy" toward crime and increased screening of shipboard personnel were false and misleading, and were intended to convey the impression that Carnival had taken significant steps to control sexual misconduct by its crew members. To the contrary, as revealed in 148, above, Carnival's policy was only to report crimes it the victim insisted, and as late as September, 1999, defendant Dickinson admitted with regard to the Company's hiring and screening practices that "nothing" had changed.

THE TRUTH IS PARTIALLY REVEALED

127. On February 14, 2000, defendant Cahill revealed that despite the advent of Carnival's peak cruise selling season, (referred to in the industry as "wave" selling season), sales were lagging. According to a report issued by Bank of America Securities analyst J. Cogan, berth sales were "not so positive". The Company revealed that bookings were trailing Carnival's projected capacity, and that pricing trends were "softer" than expected. 128. In response to the news of lagging Carnival cruise sales in what is typically the cruise industry's prime season, Carnival stock price dropped from $40.375 on February 11, 2000, to close at $35.50 on February 14, 2000, on unusually large trading volume of 2.6 million, more than twice the typical number of shares. 129. On February 15, 2000, the Company revealed that the Cruise liner Destiny, carrying more than 4,000 passengers, was adrift in the Atlantic off the Turks and Caicos Islands after a technical problem crippled its engines. According to Carnival, the ship was "experiencing a problem with its two cyclo-converters, which control the transmission of electrical power to the ship's propulsion motors." As a result, the Destiny was forced to cancel its Carribean port stops and return to port in Miami, necessitating further passenger refunds and charges to earnings. 130. In response to news of yet another shipboard disaster evidencing Carnival's widespread operational deficiencies, the stock price dropped from $34 a share on February 15, 2000, to $31.87 on February 16, 2000, on unusually large volume of 5,904,000 shares. 131. On February 17, 2000, analysts reduced first-quarter and fiscal year 2000 estimates for Carnival after the Company disclosed that its earnings would be affected by additional cruise cancellations on the Destiny. The Company reported that the cancellation would result in an approximately one-cent per share reduction, or between $3-$4 million. In a February 17, 2000 analyst report issued by Deutsche Banc Alex Brown, the stock price decline was attributed in part to the Company's repeated "technical" problems. 132. An analyst report issued by Sally Wallick of Legg Mason reduced Carnival's earnings estimates noting that "a series of incidents that have disrupted cruises" resulted in charges. The report reduced first quarter earnings estimates after the Destiny cruise cancellation, noting that "this is the second estimate reduction during the quarter. In January, we lowered our estimate $0.02 per share as a result of a fire on one of Carnival's cruise ships." 133. A February 17, 2000 article entitled "Stock of Carnival is Still Taking On Water" in the Los Angeles Times, noted that "Carnival shareholders appear to be jumping overboard." The article described Carnival's stock as down 33% in year 2000. The article stated: The cruise ship Destiny began returning to the Company's home port in Miami on Wednesday, a day after the mechanical problem left the nearly 3,000 passengers stranded in the Atlantic. The Destiny's breakdown is the latest in a series of problems at sea for Carnival. The article quoted analyst David Anders of Credit Suisse First Boston Inc., as stating, "I think investors are getting tired of these 'one-time' events." (Emphasis supplied). 134. A February 17, 2000 analyst report issued by Bear Stearns analyst Joseph Buckley reduced Carnival's earnings estimates due to the problems with the Destiny and the Paradise. The report noted: The recent frequency of ship operating problems is worrisome because media attention could negatively impact demand. The Destiny cruise was aborted after the ship was forced to operate at about half speed due to mechanical problems. Passenger comfort and safety were reportedly not an issue and it is unclear if the next scheduled cruise (to depart this Sunday) for the ship will proceed. Reimbursement and repair costs, however, will shave a penny from first quarter results. This is the third ship operating problem this quarter. The financial impact is not our primary concern. The publicity can be potentially more damaging to demand. (Emphasis supplied). 135. In response, the price of Carnival common stock dropped yet again, falling to $31 per share on February 18, 2000, on trading volume of nearly 4 million shares. On February 23, 2000, the stock hit its new 52-week low of $29.06 per share, a dramatic drop from the stock's Class Period high of over $52 per share on April 9, 1999. 136. On or about February 28, 2000, defendants caused the Company to file its fiscal 1999 Form 10-K with the SEC ("the November 30, 1999 Form 10-K"). This document, while noting that the Carnival Triumph was placed into service in July 1999 and that the Holland America's Volendam was placed in service in November 1999, stated: Other income in 1999 of $29.4 million primarily relates to $21.4 million of compensation received from the shipyard related to the late deliveries of the Volendam and Carnival Triumph, net of certain related expenses, collection of $4.5 million of insurance proceeds, recognition of $2.3 million of ship lease transaction income and $13.6 million of other non-recurring gains. 137. Because the Company was largely exempt from tax, the approximately $11.1 million of additional income which the Company recognized served to increase "other income" and net income by substantially a like amount. "Other income" for the quarter increased from approximately $270,000 to approximately $11.4 million and net income for the quarter increased by approximately 4.6%. 138. With the filing of this document, the investment community first learned that an additional $11.4 million of "other income" had been recognized upon the Company's acquisition of vessels, bringing the total of such income to $21.4 million. In recognition of the Company's creative income recognition practice, the price of the Company's stock dropped from a price of approximately $29 to $26 7/8 and continued to drop further in the days that followed.

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

139. At all relevant times, the market for Carnival common stock was an efficient market for the following reasons, among others: - Carnival common stock met the requirements for listing, and was listed and actively traded, on the New York Stock Exchange, a highly efficient market; - As a regulated issuer, Carnival filed periodic public reports with the SEC and the NASD; - Carnival stock was followed by securities analysts employed by major brokerage firms who wrote reports which were distributed to the sales force and certain customers of their respective brokerage firms. Each of these reports was publicly available and entered the public marketplace. - Carnival regularly issued press releases which were carried by national newswires. Each of these releases was publicly available and entered the public marketplace. 140. As a result, the market for Carnival securities promptly digested current information with respect to Carnival from all publicly-available sources and reflected such information in Carnival's stock price. Under these circumstances, all purchasers of Carnival common stock during the Class Period suffered similar injury through their purchase of stock at artificially inflated prices and a presumption of reliance applies.

NO SAFE HARBOR

141. The statutory safe harbor provided for forward - looking statements under certain circumstances does not apply to any of the allegedly false statements pleaded in this complaint . The specific statements pleaded herein were not identified as "forward- looking statements" when made . Nor was it stated with respect to any of the statements forming the basis of this complaint that actual results "could differ materially from those projected ." To the extent there were any forward - looking statements, there were no meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the purportedly forward - looking statements. Alternatively, to the extent that the statutory safe harbor does apply to any forward- looking statements pleaded herein, defendants are liable for those false forwardlooking statements because at the time each of those forward - looking was made the particular speaker knew that the particular forward - looking statement was false, and/or the forward-looking statement was authorized and/or approved by an executive officer of Carnival who knew that those statements were false when made.

SCIENTER ALLEGATIONS

142. As alleged herein, defendants acted with scienter in that defendants knew that the public documents and statements, issued or disseminated by or in the name of the Company were materially false and misleading; knew or recklessly disregarded that such statements or documents would be issued or disseminated to the investing public; and knowingly and substantially participated or acquiesced in the issuance or dissemination of such statements or documents as primary violators of the federal securities laws. As set forth elsewhere herein in detail, defendants, by virtue of their receipt of information reflecting the true facts regarding Carnival and its business practices, their control over and/or receipt of Carnival's allegedly materially misleading misstatements and/or their associations with the Company which made them privy to confidential proprietary information concerning Carnival were active and culpable participants in the fraudulent scheme alleged herein. Defendants knew and/or recklessly disregarded the falsity and misleading nature of the information which they caused to be disseminated to the investing public. This case does not involve allegations of false forwardlooking statements or projections but instead involves false statements concerning the Company's business, finances and operations. The ongoing fraudulent scheme described in this complaint could not have been perpetrated over a substantial period of time, as has occurred, without the knowledge and complicity of the personnel at the highest level of the Company, including the Individual Defendants. 143. The Individual Defendants engaged in such a scheme to inflate the price of Carnival common stock in order to: (i) protect and enhance their executive positions and the substantial compensation and prestige they obtained thereby; (ii) enhance the value of their personal holdings of Carnival common stock and options; and (iii) permit profitable insider sales by Carnival insiders; (iv) consummate the acquisitions detailed herein with, in part, Carnival stock. 144. In contrast to the hot market for Carnival common stock, defendants did not share the positive outlook for the Company. During the Class Period, defendants sold over 35,000 shares of Carnival stock, generating proceeds of over $15 million at prices reaching over $48 per share, well above Carnival's stock price after the truth was revealed. 145. For example, defendant Dickinson sold 37,500 shares of Carnival stock between November 3, 1998 and November 5, 1998 at prices ranging from $32 to $33 per share, generating proceeds of over $1,200,000. On January 8, 1999, Dickinson sold an additional 30,000 shares at prices ranging from $45.94 per share to $45.88 per share, generating proceeds of nearly $1,400,000. Dickinson sold an additional 40,000 shares on December 21, 1999, at prices ranging from $45.55 to $45.81, generating proceeds of $1,822,361. In total, Dickinson sold over 100,000 shares or nearly a third of his holdings, generating millions of dollars. Dickinson's trades were unusual in both timing and amount. Dickinson sold thousands of shares in November, 1998, shortly before the Company assured investors that Carnival passengers and crew were only subject to "a handful" of sexual assaults per year. Indeed, Dickinson sold his shares well before the negative news concerning the magnitude of sexual crimes on Carnival ships was revealed - - at prices near the stock's Class Period high of $52 per share, and significantly higher than Carnival stock's trading price on February 28, 2000. 146. On August 25, 1999, defendant Cahill sold 37,4000 shares of Carnival stock at $46.63 per share, generating proceeds of $1,743,962. Defendant Howard sold 240,000 shares between July 20 and July 21, 1999, at prices ranging from $48.13 to $48.31 per share at prices near Carnival's Class Period high, generating proceeds of $11,576,142 - - after Carnival had been ordered by the court in the Weiland case to reveal the true number of allegations of sexual misconduct aboard Carnival ships but only seven days before that information was publicly revealed resulting in a decline in Carnival's stock price. 147. Defendants were also motivated to conceal the truth regarding Carnival's pervasive safety problems in order to consummate the equity offering of over $725 million worth of Carnival stock, priced at $42 15/16 per share. The proceeds of the offering were earmarked for, in part, the Company's expansion program - - including the intended acquisition in early 2000, for over $1 billion, of Norwegian Cruise Lines, Inc., one of the Company's largest competitors, which ultimately failed, and the intended acquisition of Fairfield Communities Inc., a time-share resort operator. On February 25, 2000, due to the dive in Carnival's stock price, the Fairfield deal - a stock swap - was abandoned according to defendant Howard Frank because of Carnival's depressed stock price. 148. In addition, as reported in an October 19, 1999 press release, defendants were motivated to conceal the truth from the investing public in order to purchase the remaining 32% of the Cunard Line, which Carnival already owned 68% of, with 3.2 million shares of Carnival stock and cash. 149. Moreover, defendant Arison as the Company's Chief Executive Officer was a "hands- on" manager and could only have been ignorant of the Company's flagrant safety violations through severe recklessness. As reported in a February 3, 2000 Miami New Times article, Arison is a "walk-around manager, he watches the ships, he watches where they're built, the ports." In addition, according to a former Safety Manager, Arison regularly went on board Carnival vessels during the class period. 150. Similarly, defendant Dickinson - - who reported directly to Arison - - was kept abreast of the ships' operational problems by virtue of captains' meetings reports, and captains' logs detailing ship board problems which he received from Vice President Brendan Corrigan, according to the former Safety Manager. He was also the head of Carnival's Quality Control Committee, and regularly visited Carnival ships to assure concerned crew members that any problems would be fixed.

FIRST CLAIM

(Violations Of Section 10(b) Of The Exchange Act And Rule 10b-5 Promulgated Thereunder Against All Defendants) 151. Lead Plaintiffs repeat and reallege each and every allegation contained above. 152. Each of the defendants: (a) knew or recklessly disregarded material adverse nonpublic information about Carnival's financial results and then existing business conditions, which was not disclosed; and (b) participated in drafting, reviewing and/or approving the misleading statements, releases, reports and other public representations of and about Carnival. 153. During the Class Period, defendants, with knowledge of or reckless disregard for the truth, disseminated or approved the false statements specified above, which were misleading in that they contained misrepresentations and failed to disclose material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. 154. Defendants have violated § 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder in that they: (a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material facts or omitted to state material facts necessary in order to make statements made, in light of the circumstances under which they were made, not misleading; or (c) engaged in acts, practices and a course of business that operated as a fraud or deceit upon the purchasers of Carnival stock during the Class Period. 155. Lead Plaintiffs and the Class have suffered damage in that, in reliance on the integrity of the market, they paid artificially inflated prices for Carnival stock. Lead Plaintiffs and the Class would not have purchased Carnival stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants' false and misleading statements.

SECOND CLAIM

(Violation Of Section 20(a) Of The Exchange Act Against Individuals Defendants)

156. Lead Plaintiffs repeat and reallege each and every allegation contained above. 157. The Individual Defendants acted as controlling persons of Carnival within the meaning of Section 20(a) of the Exchange Act. By reason of their senior executive and/or Board positions they had the power and authority to cause Carnival to engage in the wrongful conduct complained of herein. 158. By reason of such wrongful conduct, Carnival and the Individual Defendants are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result of these defendants' wrongful conduct, lead plaintiffs and the other members of the Class suffered damages in connection with their purchases of Carnival stock during the Class Period.. WHEREFORE, plaintiffs pray for relief and judgment, as follows: i) Determining that this action is a proper class action; ii) Awarding compensatory damages in favor of lead plaintiffs and the other Class members against all defendants, jointly and severally, for all damages sustained as a result of defendants' wrongdoing, in an amount to be proven at trial, including interest thereon; iii) Awarding lead plaintiffs and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and iv) Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Lead Plaintiffs hereby demand a trial by jury. END OF DOCUMENT