UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA TAMPA DIVISION 3 C ID ._. ' . i u U .1 C ~F1_'.. ,IDA In re Sykes Enterprises , Inc . Securities Case No . 8:00-CV-2 lj26EORittA Litigation CONSOLIDATED AMENDED CLASS ACTION COMPLAINT This Matters Pertains to All Cases JURY TRIAL DEMANDED Lead Plaintiffs , the Florida State Board of Administration ("FSBA") and the Louisiana State Employees' Retirement System ("LASERS"), by and through their respective undersigned counsel, based on the investigation of their counsel, allege, for their complaint, as follows: SUMMARY OF THE ACTION Lead Plaintiffs FSBA and LASERS bring this action as a class action on behalf of themselves and all other persons who purchased the common stock of Sykes Enterprises, Inc. ("Sykes" or the "Company") on the open market during the period commencing July 27, 1998 through and including September 18, 2000 (the "Class Period") . 2. This action arises out of a series of false statements of revenue and earning s by Defendant Sykes that materially misled the investing public regarding the success of its business operations. As described more fully below, the Defendants in this case were enamored with Sykes' "unbroken streak" of meeting or exceeding the consensus expectations of Wall Street analysts in each reporting period since the Company's initial public offering ("IPO") in 1996 -- a boast that pervaded the Company's public statements, contributed significantly to the steadily rising price of Sykes' common stock throughout the Class Period, and helped fuel a series of corporate acquisitions for which Sykes' inflated stock was the consideration. By mid-1998, however, when the Defendants began to face the prospect of failing to meet those Wall Street estimates -- and the concomitant likelihood that the Company's stock price would be punished for that failure -- they began to emplo y G]~ a variety of improper means intended to ensure that Sykes would match analyst estimates b y materially inflating revenue, earnings, and earnings per share . Among other things, the Defendants a. backdated the Company's receipt of millions of dollars in revenue in order to ensure that a previous quarter -- which would have otherwise been the first reporting period since Sykes' IPO to disappoint Wall Street expectations -- appeared to match those expectations to the penny; b. despite clear Generally Accepted Accounting P rinciples ("GAAP") rules to the contrary, improperly booked millions of dollars in revenue that was expressly contingent on the occurrence of future events that might not (and, in fact, did not) occur when compli ance with GAAP would have resulted in an earnings shortfall ; c. concealed the contingent nature of certain revenues in a side agreement to a sales contract that made no reference to the side agreement or the contingency ; d. filed statements of operations with the Securities and Exchange Commission ("SEC") that failed to disclose the existence of a contingency to the repo rting of all revenue purpo rtedly received in the pertinent transaction ; and e. recognized in the first reporting period all revenues anticipated from certain contracts for services, even though, pursu ant to GAAP, recognition of much of such revenue should have been deferred to subsequent periods over the life ofthe contract. 3 . Using these and other accounting gimmicks, Sykes was able to extend its vaunted unbroken streak of meeting or exceeding Wall Street for almost two additional years. In the market place, where the true basis for the Company' s continuing "success" was kept hidden from unsuspecting investors , Sykes' stock steadily rose from approximately $17 per share at the beginning of the Class Period to as high as $52.25 just days before the first corrective disclosures . Using its artificially inflated stock as currency for acquisitions , Sykes continued to expand its operations by completing three acquisitions during the Class Period using over almost 1 .6 million shares of stock . The individual Defendants either knew or were extremely reckless in not knowing , that the maneuvers undertaken to "meet the Street" were in violation of GAAP and served to deceive the investing public . 4. The Defendants' scheme to artificially maintain Sykes' stock price began to unravel in February 2000, when Sykes announced that it was required to restate two reportin g periods (the second and third quarters of 1999) due to improper revenue recognition practices . The full extent of Sykes' overstated revenue and earnings was not revealed until September 18, 2000 , 2 however, when the Company acknowledged that it would also have to restate year end 1998 results . Following that disclosure, the common stock of Sykes, which traded as high as $52 .25 per share during the Class Period, fell to a low of less than $4 .50 per share. 5 . Under GAAP, restatement of previously issued financial statements is the most serious step, reserved only for situations in which no lesser remedy is available . Indeed, under Statement of Financial Accounting Standard No. 16, Prior Period Adjustments, and Accounting Principles Board Opinion No . 20, Accounting Changes, restatements are only permitted -- and are required -- for material accounting errors or irregularities that existed at the time the financial statements were prepared. By virtue of the conduct described more fully below, these errors and irregularities were not mere oversights, but rather part of a scheme to deceive Lead Plaintiffs, the Class and the investing public about the true state of Sykes' growth in revenue and earnings . JURISDICTION AND VENUE 6. The claims alleged herein arise under Sections 10(b) and 20 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t, and Rule lOb-5, 17 C.F.R. § 240.1 Ob-5 promulgated thereunder. 7. The jurisdiction of this Court is based on Section 27 of the Exchange Act, 1 5 U.S.C. § 78aa and 28 U .S.C. § 1331 (federal question jurisdiction). Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28 U.S.C. § 1391(b). Many of the acts alleged herein, including dissemination of the misleading statements at issue to the investing public, occurred in substantial part in this District. Sykes maintains its principal place of business in the Middle District of Florida . 9. In connection with the acts and conduct alleged herein, Defendants, directly o r indirectly, 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 . 3 THE PARTIES Plaintiffs 10. Plaintiff FSBA is a public pension fund established for the benefit of the employees of the State of Florida, with constitutional and statutory authority under Florida law for the investment and reinvestment of the Florida Retirement System Trust Funds . During the Class Period, FSBA purchased shares of common stock of Sykes, and suffered damages as a result of the violations of the federal securities laws alleged herein. 11 . Plaintiff LASERS is a public pension fund established for the benefit o f employees of the State of Louisiana. During the Class Period, LASERS purchased shares of Sykes' common stock, and suffered damages as a result of the violations of the federal securities laws alleged herein. 12. By Order dated September 14, 2000, the Court appointed FSBA and LASER S as Lead Plaintiffs to prosecute this action . 13. The following additional non-lead Plaintiffs purchased Sykes' common stock on the open market, suffered damages as a result of the violations of the federal securities laws alleged herein, and have filed complaints against Defendants : Katherine Piven, James V . Biglan, Pond Equities, Richard Miller, Charles J . Piven, Benjamin Piven, Ken Northcross, Kevin Feller, Clair A . Cardina, David Ehrenfeld, Linda Decker, James McGrath, Thomas Kalkowski, John F. Wilkes and James Jacobs. Defendants 14. Defendant Sykes is a publicly-traded corporation organized under the laws ofth e State of Florida, with its principal executive offices at 100 North Tampa Street, Suite 3900, Tampa, Florida. Founded in 1977, Sykes describes itself as a "diverse information technologies company" that provides "a variety of computer-related outsourcing services to Fortune 500 fins ." Among those services are "third party hardware and software technical support, helpdesk services, systems consulting, systems integration, diagnostic software, e-commerce solutions, documentation development and foreign language translation and localization." As of September 2000, Sykes operated 39 technical call centers , 4 9 e-commerce centers, and 25 branch offices located in 15 countries . In 1996, Sykes, pursuant to an initial public offering of common stock, began publicly trading on the NASDAQ National Market under the symbol "SYKE ." As of December 31,1999, Sykes had approximately 42,734,000 shares of common stock outstanding. 15 . Defendant John L. Sykes ("John Sykes") is the Company's founder and Chairman who, until recently, also served as Chief Executive Officer . He controls approximately 40% of the publicly-held shares of the Company. John Sykes signed the Annual Reports on Forms 10-K for the fiscal years ending December 31, 1998 (the "1998 Form 10-K") and December 31, 1999 (the "1999 Form 10-K") filed by Sykes with the SEC on March 29, 1999 and March 24, 2000, respectively . 16. Defendant David L . Grimes ("Grimes") joined Sykes in December 1998 as President and Chief Operating Officer, after approximately fourteen years in various management positions at a major publicly-held telecommunications company . On July 27, 2000, Grimes replaced John Sykes as the Company's Chief Executive Officer . Grimes signed the 1998 and 1999 Forms 10-K filed by Sykes with the SEC in March 1999 and 2000, respectively . Defendant Grimes is named as a Defendant herein only for damages arising from the period from February 8, 1999 through September 18, 2000. 17. Defendant Scott J. Bendert ("Bendert") was, at all times relevant to this complaint , Senior Vice President and Chief Financial Officer of Sykes.