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Azurix Corporation Securities Litigation 00-CV-03493-Consolidated

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Azurix Corporation Securities Litigation 00-CV-03493-Consolidated e^ 6 N ITED L U STATES DISTRICT COURT s^d^ o ^ SOUTHEIZN DISTRICT ( TEXAS H 01iSTO N DIVISION APR ° 200; ^ In Re., AZ(.1 IX CORP. SECURITIES LITI GATION Master File No. H-QO-3493 This Doc um ent Relates Toe ALL ACTIONS } CONSOLIDATED AND AMENDEDCLASS ACTION COMPLAINT TO THE HONORABLE UNITED STATES DISTRICT COURT JUDGE: COME NOW, Plaintiffs, individually and on behalf of all other persons similarly situated by their undersigned attorneys, for their Consolidated and Class Action Amended Complaint, allege upon personal knowledge as to themselves and their own acts, and upon information and belief as to all other matters, based upon, inter cilia, the investigation made, by and through their attorneys, review of the public filings of Azurix Corp. ("Azurix" or the "Company") and Enron Corp. ("Enron") with the Securities and Exchange Commission (the "SEC"), press releases , news articles, and interviews with former employees of the Company. NATU RE OF ACT ION 1. Plaintiffs bring this action as a class action on behalf of themselves and all persons and entities, except defendants and certain related parties, who purchased the common stock of Azurix on the open market or pursuant to the Company's initial public offering during, the period June 9, 1999 through and including August 8, 2000 (the "Class Period"), to recover damages caused by defendants' violations of the federal securities laws. During the Class Period, defendants disseminated to the investing public materially false and misleading statements in public filings and press releases concerning the Company" s privatization strategy, acquisitions, financial condition, and future prospects. As a result of these statements, the market price ofthe Company°s common stock was artificially inflated during the Class Period. 2. In a registration statement and prospectus filed with the SEC on June 9,1999, and June 11, 1999, respectively, pursuant to its Initial Public Offering (the "1PO") and in numerous press releases and financial statements, Azurix touted its ability to take advantage of the growing trend of privatization and outsourcing of government-owned water and wastewater assets and services. 3. The Company also repeatedly vaunted its successful bid for an interest in a long-term water and wastewater concession in Buenos Aires, Argentina (the `Buenos Aires Concession"). The Buenos Aires Concession, Azurix's second biggest asset after the Wessex water unit ("Wessex"), cost $438.6 million, a small part of which was financed by the IPO proceeds. 4. Further, the registration statement and prospectus specifically stated that defendants "`carefully reviewed" and conducted "due diligence" on prospective projects. However, it was not disclosed until much. after the IPO that the books and records of the Buenos Aires Concession were incomplete and certain assets were never "transferred" to Azurix, both events materially impairing the financial condition of Azurix, 5. In addition, defendants failed to disclose the extent of the water quality remed,iation costs involved with the Company's performance under the Buenos Aires Concession agreement, which skyrocketed during the Class Period, and which caused a material adverse impact on the financial condition of Azurix. 2 6. On November 4,1999, after the close of tradinthe Company announced in a press release that it would. miss fourth quarter analysts' expectations and that it would be altering its previously advertised business strategy ofpursuing large water privatization contracts by placing greater emphasis on privately negotiated transactions. Upon the re lease ofthis news, the Company's stock fell approximately 40%, dropping from $12.8125 per share to $7.775 per share. Defendants failed to disclose, however, that the shift of Azurix's business strategy was in reaction to the cancellation and postponement of major privatization contracts in the second half of 1999. 7. On March 30, 2000, defendants filed the Company's annual report on Form 10-K for the year ended December 31, 1999 (the "1999 10-K"). In the 1999 10-K, while discussing the causes of a $32.4 million fourth quarter restructuring charge, defendants stated that during the "second half of 1999" a number of large privatization projects had, in fact, been canceled or postponed. The $32.4 million charge was almost three times as large as the Company's net income for the quarter. Notwithstanding this belated disclosure, defendants still continued to misrepresent that Azurix was making "steady progress" with respect to its existing businesses. 9. The 199910-K also disclosed that the Buenos Aires Concession had been, and was, suffering from various problems since the day Azurix assumed operations. Such difficulties included incomplete customer accounts and related billing difficulties. Defendants failed, however, to disclose additional existing problems at the Buenos Aires Concession concerning poor water quality and tariff disputes. 9. Despite the foregoing, defendants sought to offset negative news with rosy prospects . For example, on May 8, 2000, defendants painted an unrealistic picture of Azuri x`s future by stating, "Azurix continues to make steady progress toward the Company's objectives to maximize 3 the returns on our existing businesses" in the same press release in which the Company reported a 29% decline in first quarter 2000 earnings. 10. On August 8, 2000, the end of the Class Period, Azu.rix announced its financial results for the second quarter of 2000. The Company announced a charge of $5.4 million caused by problems and expenses relating to poor water quality in Bahia Blanca, Argentina -- which charge amounted to a staggering 87% ofAzurix's $6.2 million of net income for the quarter. The Company also reported that: i) earnings per diluted share had fallen approximately 75% from $.19 cents for the second quarter of 1999 to $.05 cents for the second quarter of 2000; and ii) net income had fallen approximately 70% from $11.4 million in the first quarter of 2000 to $6.2 million for the second quarter of 2000. Defendants also stated that, inter alia , slow growth in Argentina would cause the Company to lower its earnings forecast for the year 2000 from the prior target of $310- $340 million to $270-$290 mil lion. After the August 8, 2000 announcement, Azurix" s share price fell 12%, or $1 5/64, to $7 1/4 on extremely heavy volume. Azurix stock traded during the Class Period as high as $23.875 per share. 11. On August 25, 2000, Azurix announced that its Chairman and CEO, defendant Rebecca Mark, resigned fron the Company, as well as from the board of directors of Enron, which owned thirty-four percent of Azurix common stock. 12. On December 16, 2000, Enron agreed to buy Azurix ' s publicly traded shares for approximately $325 million, taking the Company private at $8.375 per share (prior to the takeover announcement Azurix shares were trading at a mere $3.50 per share) only eighteen months after the Company's 1110. An article in the Houston Chronicle published on the day of the takeover announcement stated that. "Azurix has been struggling almost since its inception. Its business plan 4 was to acquire and operate or manage public water and wastewater facilities that are being privatized worldwide. But the company was never able to compete effectively in bidding for water systems against ... huge multinational rivals . ." Defendants' ill-conceived privatization plan and the endemic problems at the Buenos Aires Concession together caused the slow but continuous collapse of the Company. 13. On January 22, 2001, Azurix announced that it would write off $470 million as an "asset impairment" charge related to its investment in the Buenos Aires Concession. This amount constituted $30 million more than the Company's initial investment in the Concession. JUMSDICTION AND VENUE 14. Plaintiffs bring this action pursuant to Sections 11, 12(a)(2), and 15 of the Securities Act of 1.933 (the "Securities Act"), 15 U.S.C. §§ 77k, 771(2), and 77(o), and Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 (the `Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t, and Rule I.Ob-5,17 C.F.R. § 240.1 Ob-5 promulgated under Section 10(b) by the SEC. 15. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), Section 27 ofthe Exchange Act, 15 U.S.C. § 78aa; and 28 U.S.C. §§ 1331, 1337. 16. Venue is proper in this District pursuant to Section 22 ofthe Securities Act, 15 U.S.C. § 78v, Section 27 of the Exchange Act; 15 U.S.C. § 78aa, and 28 U.S.C. §§ 1391(b) and (c). The Company's corporate headquarters are located in this District. Thus, many of the acts giving rise to the violations complained of herein, including the dissemination of false and misleading information, occurred and had their primary effects in this District. 5 17. In connection with the acts, transactions and conduct alleged herein, defendants used the means and instrumentalities of interstate commerce, including the United States mails, interstate telephone communications and the facilities of national securities exchanges and markets. THE PARTIE S 18. Lead Plaintiffs MilledEloward Investments, Inc., Masoud Faisal, M. Al Fuhaid, and Walter Wooten purchased shares ofAzurix common stock during the Class Period, and were damaged thereby. 19. Defendant Azurix is a Delaware corporation that maintains its principal executive offices at 333 Clay Street, Suite 1000, Houston, Texas 77002. During the Class Period, Azurix stock traded on the New York Stock Exchange ("NYSE") under the symbol "AZX." The Company maintains a website at "www. azurix.com," where the Company's SEC. filings, conference calls, and press releases may be found. Azurix is a global water company engaged in the business of owning, operating, and managing water and wastewater assets, providing water and wastewater related services and developing and managing water resources.
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