UNITED STATES DISTRICT COURT NORTHERN DISThICT OF OKLAHOMA TN RE WILLIAMS SECURITIES LITIGATION } Case No . 02-CV-72-H(M } Lead Case } Judge Sven Erik Holme s 1 JURY TRIAL DEMANDED CONSOLIDATED AMENDED COMPLAINT ~ar~[, t~l~rk m Uwt pub. p15tR{C'~ r'~ R. THOMAS SEYMOUR , OBA #?8 099 C. ROBERT BURTON , OBA #14195 SEYMOUR LAW FIRM 100 West 51h Street, Suite 550 Tulsa, Oklahoma 74102 Telephone: (918) 583-5791 SAMUEL P . SPORN NYBA #4444 JOEL P . LAITMAN NYBA #8177 CHRISTOPHER LOMETTI NBA #9124 JAY P. SALTZMAN NYBA #7335 ASHLEY KIM NY13A 90105 SCIIOENGOLD & SPORN, P .C . 19 Fulton St reet, Suite 406 New York, NY 10038 Telephone : (212) 964-0046 Co-Lead Counsel for Plaintiffs TABLE Q ' CONTENT S 1. NATURE OF THE ACTION . I A. Overview of The Allegations . 1 B. WMB's Conniving Culture of Concealriient . 1 D II. JUMSDICTION AND VENUE . 17 II. PARTIES TO THE LITIGATION . is A. Plaintiffs . 18 B. Defendants . 18 C. The Underwriter Defendants . 26 D. Definitions . 32 IV. CLASS ACTION ALLEGATIONS . 33 V. SUBSTANTIVE ALLEGATIONS . 36 A. An Overview of WMB Before and At the Start of the Class Period , 7-24-00 . 36 B . Material Misrepresentations and Omissions About WCCr . 4 1 1 . The Need to Build the Ne~ ork . 4 1 2. Building the Network Would Not Produce the Results Originally Planned . 42 3. The Meltdown of the Telecommunications Industry . 44 4. The Meltdown of the Price of WCG' s Common Stock . 47 5. WCG' s Inability to Stand on Its Own Two Financial Feet . 47 (a) WMB Had to Extend Unplanned Guarantees for WCG . 47 (b) WMB Had to Directly Prop Up WCG . 48 (c) WCG's Deteriorating Cash Position . 49 (d) WCG's Increasingly Large Losses . 5 1 (e) The 7-24-00 Announcement of WCG 's Eventual Separation Caused a C redit Downgrade of WCG . 56 (1) Moody's Downgraded 'CG's Credit Rating to "Junk" Status on 7-19 --01 . 56 (g) WCG's Sales of Assets . 56 6. WCG's Deteriorating Credit' Condition . 57 7. WMB's Dispatch of Bumgainer To Try to Right the Sinking Ship . 58 8. WMB's Material Misrepresentations and Omissions Concerning th e WCG Credit Exposure .. 59 I AWN (a) Omission of the $7$0 Million Guarantee of WCG, May - November 2001 . 59 (b) Omission of aNfafer'al Term of the $1 .4 Billion Guarantee o f WCG . 60 (c) The 1-29-02 Press Release and 1-30-02 8-K . 61 9. WMB's Control of the WCG_Board of Directors and Commandin g Stock Ownership Until 4-23'-01 . 63 C. EM&T Material Misrepresentations and Omissions . 63 1 . Background . : . 63 2. Materially Inflated Valuations of EM&T Contracts . 66 (a) The Contracts . 66 (b) The Internal Valuation Models . 69 (c) The Supposed Internal Controls . 7 1 (d) Lack of Independence of .The Risk Control Group- Bonuses . 73 (e) Lack of Independency of the Risk Control Group - Management Overrides o f the Risk Control, Group and Inflated Financial Results . 74 (f) Hobbs' Blind Eye.. .. 79 (g) SEC Filings : EM&'J Material Omissions and Misreprescntations Concernin g Valuations, Pre-20.02 . SO (i) WMB's Misleading Disclosures for Its EM&T Financial Results Fo r Second Quarter.. Ended June 30, 2000 . 80 (ii) WMB's Misleading Disclosures For Its EM&T Financial Results Fo r Third Q arfer Ending September 30, 2000 . 8 1 (iii) WMB .'S Misleading Disclosures For Its EM&T Financial Results for the Foiirtt 'Quarter Year Ended December 31, 2000 . 82 (iv) WMT3's Misleading Disclosures For Its EM&T Financial Results fo r the First Quarter Ended March 31, 2001 . 85 (v) WMB's Misleading Disclosures For Its EM&T Financial Results Fo r The Fui Quarter and Year Ended December 31, 2001 . 85 (h) SEC Filings : EM&T Material Misrepresentations and Omissions Concerning Valuations, 2002 .. 88 (1) 2002 L'nte Down . 88 (ii) Other 2002 Disclosures . 90 3 . Material Misrepresentations and. Omissions Concerning EM&T's Interest Rate Risk and Credit Defautt Risk . 9 1 (a) Interest Rate Risk . 92 (b) Credit Default Fisk . 94 (c) SEC Filings : EM&T_1VMaterial Omissions and Misrepresentations Concerning Interest Rate Risk and Credit Risk . 10 1 H 3_; . try ' . (i} WM$'s Misleading Disclosures for Its F,,\4&T Financial Results Concerning Interest Rate Risk and Credit Ris k For Second Quarter Ended June 3 0, 2000 . 101 (ii) WMS'sMisleading Disclosures Of EM&T Financial Results Concerning Interest Rate Risk and Credit Ris k For Its Third Quarter Ended September 30, 2000 . 103 (iii) WMB 's Mislr.ading Disclosures Of EM&T Financial Result s Concerning Interest Rate Risk and Credit Ris k For Its Year . Ended December 31, 2000 . 104 (iv) WMBs M sleading Disclosures Of EM&T Financial Results Concerning Interest Rate Risk and Credit Ris k For Its I"irsi: Quarter Ended March 31, 2001 . 104 (v) WMRs Misleading Disclosures Of BM&T Financial Results Concerning'Ir serest Rate Risk and Credit Risk For its Second Quarter Ended rune 30, 2001 . 105 (vi) WMB's,Misleading Disclosures For Its EM& T Financial Results concerning Interest Rate Risk an d Credit Risk. For Third Quarter Ended September 30, 2001 . 106 (vii) WMB's Misleading Disclosures For Its EM&T Financial Results Concerning Interest Rate Ris k and. Credit'Risk For the Year Ended December 31, 2001 . 107 Material Misrepresentations And Omissions Concerning "Discoun t Rate" . I1 1 (a) SEC Filings : EM&T Material Omissions and Misrepresentations Concerning "Discount Rate" ............ 114 [i} 1999 Annual Report . 11 4 5. Material Misrepresentations and Omissions Concerning WMB Conduct Affecting the California Energy Crisis. 11 5 6. Material Misrepresentations and Omissions Concerning Inflated Installed Capacity . 117 (a) SEC Filings: EIS&T Material Omissions and Misrepresentations Concerning Inflated Installed Capacity . 119 (i) WMB's Misleading Disclosures For Its Financia l Results Concerning Inflated Installed Capacity For Second Qgartex Ending June 30, 2001 . 119 D. Other WMS Material Misrepresentations and Omissions . 120 1 . Snow Goose,etal . 120 2. The Materiality of WMI3's Credit Ratings . 120 3, Materially False and Misleading Financial Statements . 121 E. WMB's Corporate "Reasons" For Nondisclosure of Material Matters Alleged Herein . 122 F. Personal Reasons of the WMB Management Defendants For Nondisclosur e of Material Matters Alleged Herein. .. 123 G. Material Misrepresentations and Omissions in the January, 2001 Stoo k Offering . 124 H. Material Misrepresentations and Omissions in the Notes Offering . 127 1. Material Misrepresentations and Omissions in the Barrett Resources Offering . 132 J. Material Misrepresentations and Omissions in the FELLNE PACS Offering . 137 K. Safe Harbor . .. 143 L. The Liability of Ernst & Young . 144 1 . General . 144 2. Ernst & Young Was Not an ."Independent " Auditor of WMB . 146 3. The Inadequacy of the Report on the 2000 WMB Financial Statements-Omission Of th e Fraudulent Inflation of BM&T Profits and Assets . ..