James F. Marshall, Esq. (SBN 126030)

JUDICIAL WATCH, INC.                                       

2540 Huntington Drive, Suite 201

San Marino, CA  91108-2601

Telephone:     (626) 287-4540

Facsimile:      (626) 237-2003

 

Attorneys for Plaintiffs

 

 

 

                                                    UNITED STATES DISTRICT COURT

                                                  CENTRAL DISTRICT OF CALIFORNIA

                                                                 WESTERN DIVISION

 

HOWARD B. THOMPSON, individually and as the trustee of the Charlotte A. Thompson Irrevocable Trust; MARK ONTIVEROS;  STAN W. CASTEEL; SHARON BRADY;

PAUL F. RINGHEISER, JR.; SANDRA RINGHEISER; PAUL REINGHEISER, III,

 

Plaintiffs,

 

v.

 

LI KA-SHING; GARY K. WINNICK; LODWRICK M. COOK; JOHN M. SCANLON; DAVID L. LEE; DAN J. COHRS; JAMES C. GORTON; THOMAS J. CASEY; JOSEPH P. CLAYTON; DAVID A. WALSH; ABBOT L. BROWN; BARRY PORTER; JOSEPH P. PERRONE; ROBERT ANNUNZIATA; WILLIAM S. COHEN; ANDERSEN; ANDERSEN WORLDWIDE; ARTHUR ANDERSEN, LLP; TERRY MCAULIFFE; ANNE BINGAMAN; JEFF BINGAMAN; WILLIAM JEFFERSON CLINTON; and DOES 1-10, inclusive,

 

Defendants.            ______________________________________

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Civ. No.

 

COMPLAINT;

 

DEMAND FOR JURY TRIAL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Plaintiffs, by the undersigned counsel, aver on personal knowledge as to themselves and their own acts, and on information and belief (based on the investigation of their counsel) as to all other matters (as to which averments they believe that substantial evidentiary support will exist after a reasonable opportunity for further investigation and discovery) as follows:

 

                                                           NATURE OF THE ACTION                      

 

1.                  This action arises from the huge fraud against many of the shareholders of GCL, potential investors in securities issued by GCL, and the integrity of the securities market, and from other and related unlawful, unfair, and fraudulent acts and practices that were perpetrated by directors, officers, affiliated persons, and accountants of Global Crossing Ltd. (“GCL”), directly or indirectly, with the assistance of corrupt elected and appointed public officials.

 

2.                  GCL is not a defendant herein because GCL filed a Chapter 11 petition on or about January 28, 2002, in the U.S. Bankruptcy Court for the Southern District of New York, whereupon an automatic stay was imposed under 11 U.S.C. § 362.  On information and belief, GCL is a foreign, Bermuda corporation with its principal executive offices located at 360 North Crescent Drive, Beverly Hills, or elsewhere in Los Angeles County, California.  GCL is a public telecommunications company.  In its first Annual Report for 1998, Defendant Gary K. Winnick, a GCL founder, described the company as follows: “We are building the world’s first seamless fiber optic network – connecting oceans, continents, and cities of the world and setting new world standards in bandwidth capacity, technology, and pricing.  Global Crossing is creating a global information highway for use by all who live on the planet.”

 

                                                                      JURISDICTION

 

3.                  Jurisdiction exists under 28 U.S.C. § 1332 because the parties are of diverse citizenship and the amount in controversy, including punitive and exemplary damages, exceeds $75,000.00, exclusive of interest and costs.  On information and belief, punitive and exemplary damages are highly likely to be awarded in amounts over $75,000.00 due to the egregiousness of the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth in detail below.

 

                                                                             VENUE

 

4.                  Venue is proper in this district under 28 U.S.C. § 1391(a)(2) because a substantial part of the events or omissions giving rise to the claims occurred here.

 

                                                                         PLAINTIFFS

 

5.                  Plaintiff Howard B. Thompson (“THOMPSON”) is a citizen of and domiciled in Florida and at relevant times bought or sold GCL securities.  Due to the egregiously unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below, THOMPSON seeks and expects to recover, in addition to compensatory damages, over $75,000.00 in punitive and exemplary damages.  THOMPSON brings this action individually and as trustee of the Charlotte A. Thompson Irrevocable Trust.

 

6.                  Plaintiff Mark Ontiveros (“ONTIVEROS”) is a citizen of and domiciled in Missouri and at relevant times bought or sold GCL securities.  Due to the egregiously unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below, ONTIVEROS seeks and expects to recover, in addition to compensatory damages, over $75,000.00 in punitive and exemplary damages.

 

7.                  Plaintiff Stan W. Casteel (“CASTEEL”) is a citizen of and domiciled in Missouri and at relevant times bought or sold GCL securities.  Due to the egregiously unlawful, unfair, and fraudulent acts, omissions, and schemes below, CASTEEL seeks and expects to recover, in addition to compensatory damages, over $75,000.00 in punitive and exemplary damages.

8.                  Plaintiff Sharon Brady (“BRADY”) is a citizen of and domiciled in Texas and at relevant times bought or sold GCL securities.  Due to the egregiously unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below, BRADY seeks and expects to recover, in addition to compensatory damages, over $75,000.00 in punitive and exemplary damages.

 

9.                  Plaintiff Paul F. Ringheiser, Jr. (“RINGHEISER JR.”) is a citizen of and domiciled in Pennsylvania and at relevant times bought or sold GCL securities.  Due to the egregiously unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below, RINGHEISER JR. seeks and expects to recover, in addition to compensatory damages, over $75,000.00 in punitive and exemplary damages.

 

10.              Plaintiff Sandra Ringheiser (“S. RINGHEISER”) is a citizen of and domiciled in Pennsylvania, REINGHEISER JR.’s wife, and at relevant times bought or sold GCL securities jointly with RINGHEISER JR.  Due to the egregiously unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below, S. RINGHEISER seeks and expects to recover, in addition to compensatory damages, over $75,000.00 in punitive and exemplary damages.

 

11.              Plaintiff Paul Ringheiser, III (“RINGHEISER III”) is a citizen of and domiciled in Pennsylvania, the son of RINGHEISER JR. and S. RINGHEISER, and at relevant times bought or sold GCL securities jointly with RINGHEISER JR.  Due to the egregiously unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below, RINGHEISER III seeks and expects to recover, in addition to compensatory damages, over $75,000.00 in punitive and exemplary damages.

 

                                            DIRECTOR AND OFFICER DEFENDANTS

 

12.             On information and belief, at all relevant times Defendant Li Ka-shing (“LI”) was and is a citizen of and domiciled in the People’s Republic of China and, more specifically, Hong Kong.  On information and belief, LI is reported and suspected by the U.S. government and others to be an agent or other operative of the communist Chinese government and military.  LI is sued herein as a direct or indirect participant, aider and abettor, and co-conspirator in certain unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

13.             On information and belief, at all relevant times the entity known as Asia Global Crossing, Ltd. (“AGCL”) was and is a GCL affiliate, had and has directors and officers in common with GCL, shared and shares offices with GCL, and was and is owned, directly or indirectly, in part by GCL and certain directors and officers named below, and in part by LI and Hutchison Whampoa, Ltd., a foreign company owned or controlled by LI (“HUTCHISON”).  On information and belief, as a result of LI’s great wealth and his ownership and control of HUTCHISON, at all relevant times LI was and is a de facto control person of AGCL and has close personal and business relationships with certain directors and officers named below.

 

14.             On information and belief, at all relevant times Defendant Gary K. Winnick (“WINNICK”) was and is a citizen of and domiciled in California, a resident of Los Angeles County, a founder, director, and co-chairman of the board of directors of GCL, and by far the most dominant owner and control person affiliated with GCL and its affiliated companies.  On information and belief, WINNICK is the former business colleague of “junk bond king” and convicted felon Michael Milken.  On information and belief, at relevant times WINNICK has been an officer, director, control person, and/or shareholder of AGCL.  WINNICK is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.   

 

15.              On information and belief, at all relevant times Defendant Lodwrick M. Cook (“COOK”) was and is a citizen of and domiciled in California, a resident of Los Angeles County, and a director and co-chairman of the board of directors of GCL.  On information and belief, at relevant times COOK has been an officer, director, control person, and/or shareholder of AGCL.  COOK is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.   

 

16.              On information and belief, at all relevant times Defendant John M. Scanlon (“SCANLON”) was and is a citizen of and domiciled in California, a director of GCL, vice-chairman of the board of directors of GCL, or chief executive officer of GCL.  On information and belief, at relevant times SCANLON has been an officer, director, control person, and/or shareholder of AGCL. SCANLON is sued as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

17.              On information and belief, at all relevant times Defendant David L. Lee (“LEE”) was and is a citizen of and domiciled in California, a resident of Los Angeles County, and a founder, director, the president, and/or chief executive officer of GCL.  On information and belief, at relevant times LEE has been an officer, director, control person, and/or shareholder of AGCL. LEE is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.   

 

18.              On information and belief, at all relevant times Defendant Dan J. Cohrs (“COHRS”) was and is a citizen of and domiciled in California, a resident of Los Angeles County, and the chief financial officer and senior vice president of GCL.  On information and belief, at relevant times COHRS has been an officer, director, control person, or shareholder of AGCL.  COHRS is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

19.              On information and belief, at all relevant times Defendant James C. Gorton (“GORTON”) was and is a citizen of and domiciled in California, a resident of Los Angeles County, and the general counsel, corporate secretary, and a senior vice-president of GCL. On information and belief, at relevant times GORTON has been an officer, director, control person, or shareholder of AGCL. GORTON is sued as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

20.              On information and belief, at all relevant times Defendant Thomas J. Casey (“CASEY”) was and is a citizen of and domiciled in California, a resident of Los Angeles County, an attorney with extensive experience in corporate and telecommunications law, and the vice-chairman of the board of directors or the managing director of GCL.  On information and belief, CASEY used to be a partner in the Washington, DC office of Skadden, Arps, Slate, Meagher & Flom, LLP and the co-head of its telecommunications and media legal group.  On information and belief, at relevant times CASEY has been an officer, director, control person, and/or shareholder of AGCL.  CASEY is sued as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

21.              On information and belief, at all relevant times Defendant Joseph P. Clayton (“CLAYTON”) was and is a citizen of and domiciled in New York, a director of GCL, and the president and chief executive officer of Global Crossing North America – an affiliate of GCL controlled by GCL. On information and belief, at relevant times CLAYTON has been an officer, director, control person, and/or shareholder of AGCL. CLAYTON is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

22.              On information and belief, at all relevant times Defendant David A. Walsh (“WALSH”) was and is a citizen of and domiciled in California, a resident of Los Angeles County, the president and chief operating officer of GCL, and/or an executive vice president of GCL for marketing and sales.  On information and belief, at relevant times WALSH has been an officer, director, control person, and/or shareholder of AGCL.  WALSH is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

23.              On information and belief, at all relevant times Defendant Abbot L. Brown (“BROWN”) was and is a citizen of and domiciled in California, a resident of Los Angeles County, and a founder, senior vice-president, and/or director of GCL. On information and belief, at relevant times BROWN has been an officer, director, control person, or shareholder of AGCL.  BROWN is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

24.              On information and belief, at all relevant times Defendant Barry Porter (“PORTER”) was and is a citizen of and domiciled in California, a resident of Los Angeles County, and a founder, senior vice-president for corporate development, or director of GCL. On information and belief, at relevant times PORTER has been an officer, director, control person, and/or shareholder of AGCL. PORTER is sued as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

25.              On information and belief, at all relevant times Defendant Joseph P. Perrone (“PERRONE”) was and is a citizen of and domiciled in New Jersey and a certified public accountant licensed in New York.  On information and belief, before joining GCL’s senior management team, PERRONE was a partner in Arthur Andersen, LLP, Andersen, LLP, and/or Andersen Worldwide, and the chief audit partner for GCL engagements.    On information and belief, on or about May 1, 2000, PERRONE joined GCL as senior vice-president for finance.  On information and belief, in December 2000, PERRONE was promoted to executive vice-president for finance.  On information and belief, at relevant times PERRONE has been an officer, director, control person, and/or shareholder of AGCL.  PERRONE is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below, in his capacities both as an Arthur Andersen certified public accountant/auditor and later as a member of GCL’s senior management.

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26.             On information and belief, at all relevant times Defendant Robert Annunziata (“ANNUNZIATA”)  was and is a citizen of and domiciled in California, a resident of Los Angeles County, and a chief executive officer or director of GCL.  On information and belief, at relevant times ANNUNZIATA has been an officer, director, control person, and/or shareholder of AGCL.  ANNUNZIATA is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

27.             On information and belief, at all relevant times William S. Cohen (“COHEN”) was and is a citizen of and domiciled in Washington, D.C.  On information and belief, COHEN was the United States Secretary of Defense from 1997 to 2001, and was a director of GCL and AGCL at relevant times from April 2001 to a date currently unknown.  On information and belief, COHEN founded The Cohen Group in 2001 and at all times since then has been and is its owner, chairman, and chief executive officer.   On information and belief, as set forth fully below, COHEN joined himself to the agreement, combination, and conspiracy among the Director and Officer Defendants by inter alia participating in, aiding and abetting, substantially assisting, and/or otherwise furthering (a) the conspiracy to “pump and dump” GCL stock; (b) the conspiracy to corrupt public officials into ignoring the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below; and/or (c) the conspiracy to corrupt government and Pentagon officials into awarding GCL or its affiliates a sensitive U.S. military contract worth approximately $450 million (the “Contract”) despite obvious national security problems in the possible transfer of sensitive technology and information as well as unauthorized access to a sensitive U.S. military telecommunications network (the “Network”) to foreign entities and foreign individuals (including inter alia LI, HUTCHISON, AGCL, and/or K1 Ventures Ltd. (“K1")).  COHEN is sued as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

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28.              Defendants LI, WINNICK, COOK, SCANLON, LEE, COHRS, GORTON, CASEY, CLAYTON, WALSH, BROWN, PORTER, PERRONE, ANNUNZIATA, and COHEN are collectively called the “Director and Officer Defendants” below.

 

29.              On information and belief, starting on a date currently unknown, GCL began to suffer a slowdown in revenues and cash generation.  On information and belief, the Director and Officer Defendants were very concerned about the expectations of the financial analysts that covered GCL, and the culture within GCL and among the Director and Officer Defendants was such that meeting or exceeding such expectations was one of GCL’s highest priorities.  On information and belief, intense pressure to meet or exceed the expectations of financial analysts was exerted by the Director and Officer Defendants, especially WINNICK. On information and belief, the Director and Officer Defendants were especially concerned that if GCL did not meet or exceed such expectations, its stock price would fall and the Director and Officer Defendants’ personal holdings of GCL stock, stock options, related rights, and/or other forms of executive compensation would be devalued or reduced.  Moreover, on information and belief, the Director and Officer Defendants were concerned that the value of their GCL stock, stock options, related rights, and/or other executive compensation would be detrimentally impacted if GCL violated financial covenants with its banks, and the Director and Officer Defendants knew or suspected that if GCL’s financial statements accurately reflected its financial condition, then GCL would be in danger of violating its financial covenants.  Based in part on the pressures caused by these concerns, the Officer and Director defendants embarked on a scheme to artificially inflate and enhance the price of GCL stock by misrepresenting GCL’s performance and financial condition.

 

30.              On information and belief, on dates currently unknown, as a result inter alia of the foregoing corporate culture of GCL and the pressures on and the self-interests of the Director and Officer Defendants, the Director and Officer Defendants secretly entered into an agreement, combination, and conspiracy with each other and the other defendants to commit, aid, abet, participate in, conceal, and further the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below, with the intent to mislead GCL shareholders, potential investors, and the securities market as to GCL’s true financial condition, all for the purpose of artificially inflating and enhancing the market price of GCL’s stock and enriching themselves.

 

31.              On information and belief, on dates currently unknown, as a result inter alia of the foregoing corporate culture of GCL and the pressures on and self-interest of the Director and Officer Defendants, the Director and Officer Defendants secretly entered into an agreement, combination, and conspiracy with each other and the other defendants to secure the Contract through contributions, gratuities, and lucrative job offers to elected and appointed government and Pentagon officials, with the intent to increase GCL’s income and enrich themselves.

 

32.              On information and belief, on dates currently unknown, as a result inter alia of the foregoing corporate culture of GCL and the pressures on and self-interests of the Director and Officer Defendants, the Director and Officer Defendants secretly entered into an agreement, combination, and conspiracy with each other to enrich themselves from the sale of GCL, key affiliates or business lines, or key assets, after the inevitable collapse of GCL upon discovery of the massive ongoing financial fraud, to foreign business entities in which WINNICK and LI and other Director and Officer Defendants had secretly or otherwise acquired, directly or indirectly, equity or creditor interests. On information and belief, these foreign entities include inter alia HUTCHISON, AGCL, K1, and/or other foreign entities currently unknown, which are affiliates of each other, WINNICK, and LI, and under substantially common ownership and control.

 

                                                        ACCOUNTANT DEFENDANTS

 

33.              On information and belief, Defendant Andersen is a citizen of Illinois and either a partnership or other type of unincorporated association consisting of member firms within “the Andersen global client service network.”  On information and belief, Andersen promotes itself as a single, integrated, full-service, professional business enterprise comprising “one firm” with “one voice” and a “shared heritage and common values and vision.”  On information and belief, Anderson does business and is found in Los Angeles County, California, and is one of the most sophisticated international accounting, auditing, financial, and management consulting firms in the United States and the world, with expertise in all areas of GCL’s business.  Before GCL’s recent bankruptcy and the Enron debacle, Andersen enjoyed an excellent reputation; Andersen’s involvement with auditing, SEC filings, and securities offerings bestowed the imprimatur of legitimacy, confidence, and stability on its many clients, including GCL and Enron.  Andersen is sued as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.  Plaintiffs will seek leave of court to amend this pleading to name constituent members of Andersen after discovery into the exact nature of Andersen, its members, alter ego issues, and sham transaction issues.

 

34.              On information and belief, Defendant Andersen Worldwide is a citizen of Illinois and either a corporation, partnership, or other unincorporated association comprised of member firms in “the Andersen global client service network.”  On information and belief, Andersen Worldwide promotes itself as a single, integrated, full-service, professional business enterprise comprising “one firm” with “one voice” and a “shared heritage and common values and vision.”  On information and belief, Anderson Worldwide does business and is found in Los Angeles County, California, and is one of the most sophisticated international accounting, auditing, financial, and management consulting firms in the United States and the world, with expertise in all areas of GCL’s business.  Before GCL’s recent bankruptcy and the Enron debacle, Andersen Worldwide enjoyed an excellent reputation; Andersen Worldwide’s involvement with auditing, SEC filings, and securities offerings bestowed the imprimatur of legitimacy, confidence, and stability on its clients, including inter alia GCL and Enron.  Andersen Worldwide is sued as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.  Plaintiffs will seek leave of court to amend this pleading to name constituent members of Andersen Worldwide after discovery into the nature of Andersen Worldwide, its members, alter ego issues, and sham transaction issues.

35.             On information and belief, Defendant Arthur Anderson, LLP is a citizen of Illinois, a limited liability partnership, and a member of “the Andersen global client service network,” does business and is found in Los Angeles County, California, and is one of the most sophisticated international accounting, auditing, financial, and management consulting firms in the United States and the world, with expertise in all areas of GCL’s business.  On information and belief, Andersen Worldwide describes and promotes itself as a single, integrated, full-service, professional business enterprise comprising “one firm” with “one voice” and a “shared heritage and common values and vision.”  Before GCL’s recent bankruptcy and the Enron debacle, Arthur Andersen, LLP enjoyed an excellent reputation; Arthur Andersen, LLP’s involvement with auditing, SEC filings, and securities offerings bestowed the imprimatur of legitimacy, confidence, and stability on its clients, including GCL and Enron.  Arthur Andersen, LLP is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

36.              On information and belief, Andersen, Andersen Worldwide, and Arthur Andersen, LLP are alter egos of each other in that they now and at all relevant times (a) held themselves out to the public as a single, integrated, full-service, professional business enterprise comprising “one firm” with “one voice” and a “shared heritage and common values and vision”; (b) totally dominated and controlled each other’s assets, operations, policies, procedures, strategies, and tactics; (c) failed to observe corporate formalities; and (d) used and commingled the assets, facilities, employees, and business opportunities of each other, as if those assets, facilities, employees, and business opportunities were their own – all to such an extent that any adherence to the fiction of the separate legal existence of such defendants distinct from each other would be inequitable, would permit egregious wrongdoers to abuse a corporate, limited liability partnership, and/or similar privilege of limited liability, if any, and would promote injustice by allowing these defendants to evade liability or veil assets that should be attachable.

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37.              For convenience, given the foregoing relationships, Defendants Andersen, Andersen Worldwide, and Arthur Andersen, LLP are collectively called “AA” below.

 

38.              On information and belief, on dates and during a period that is currently unknown, AA made strategic business decisions to transform itself from a traditional, independent, and objective accounting and auditing firm, with acknowledged responsibilities to the public, into a aggressive, pro-active, pro-client, advisory firm committed to promoting client success through value creation. On information and belief, AA’s model of client success through value creation was stated by three AA partners, on behalf of AA, in Cracking the Value Code: How Successful Businesses Are Creating Wealth in the New Economy (2000), and summarized as follows:

 

Value creation – that is, future value captured in the form of increased market capitalization – is how successful businesses are creating value in the New Economy....

In the pages that follow, you will find a new set of tools that we have developed to help you create value in the New Economy [i.e. increased market capitalization].  It is called Value Dynamics, and it is based, in part, on an intensive three-year, 10,000-company research project by professionals at Arthur Andersen.

 

 

39.              On information and belief, on or about January 10, 2001, AA appointed Joseph F. Berardino to be its chief executive officer.  In a press release announcing his appointment, AA described its collective “Cracking the Value Code” vision as follows:

 

Arthur Andersen’s vision is to be the partner for success in the new economy.  The firm helps clients find new ways to create, manage and measure value in the rapidly changing global economy.  With world-class skills in assurance, tax, consulting and corporate finance, Arthur Andersen has more than 77,000 people in 84 countries who are united by a single worldwide operating structure that fosters inventiveness, knowledge sharing and a focus on client success.

 

40.              On information and belief, the unlawful, unfair, and fraudulent acts, omissions, and schemes of the Director and Officer Defendants artificially to inflate and enhance the price of GCL’s stock was substantially the result of AA’s aggressive, pro-active, pro-client business strategy and management-consulting philosophy of fostering “inventiveness” and promoting client success through value creation as measured by increased market capitalization.  On information and belief, if AA had performed the more traditional roles of independent and objective accountant and auditor, then the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below would not have occurred or would have been exposed much earlier.

 

41.              On information and belief, PERRONE was AA’s chief audit partner for GCL from 1997 until about May 1, 2000, when he joined GCL in a senior financial management position.  The GCL press release announcing PERRONE’s move to GCL stated in part:

 

Joe Perrone has been in charge of our [GCL’s] relationship with Arthur Andersen since before our IPO. He has a financial understanding of our company and our industry which is second to none.  Joe is a recognized leader in communications, financial reporting, and accounting. He will help us quickly install the financial reporting and administrative controls necessary for the most exciting company in telecommunications to be the best run company in its industry.

 

 

42.              At the present time, Plaintiffs do not know the name of the new AA audit partner who took over as AA’s chief audit partner for GCL when PERRONE left AA to join GCL in or about May 2000.  Plaintiffs refer to said unknown person as Defendant Doe 1.  Plaintiffs will seek leave of court to amend this pleading to allege the exact name and capacity of said fictitiously named defendant when that information will have been ascertained.

 

43.              Defendants AA and Doe 1 are collectively identified as the “Accountant Defendants” below.  PERRONE is listed among the Director and Officer Defendants supra because he joined their conspiracy and is a member of GCL’s senior management team.

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44.              On information and belief, at all relevant times an extremely close relationship has existed between the Accountant Defendants, on the one hand, and GCL and the Director and Officer Defendants, on the other, at a business level and/or on a personal and social level.  On the business level, on information and belief, this very close relationship resulted in inter alia GCL’s recruitment, employment, and promotion of PERRONE.  Moreover, on information and belief, GCL engaged the Accountant Defendants repeatedly or continuously to provide “independent” accounting services, audits, financial and management-consulting services, tax services, examination and review of SEC filings, and reviews of financial statements included in SEC filings, including audited and unaudited information, and GCL’s annual reports.  On information and belief, at all relevant times the Accountant Defendants performed the foregoing myriad of services consistently with AA’s overriding vision of finding new ways to create, manage, and measure value, with a strong emphasis on fostering inventiveness and promoting client success.  On information and belief, as a result of AA’s aggressive pro-client vision, at all relevant times conflicts of interest existed (a) between AA and GCL; (b) between the different internal service divisions of AA; and (c) among members, partners, and principals of AA.  On information and belief, the Accountant Defendants knowingly and wilfully failed and refused to eliminate their manifold and obvious conflicts of interest because of multi-million dollar audit, accounting, tax, financial, management-consulting, or other fees which AA and its members, partners, and principals bent over backwards to keep.  On information and belief, at all relevant times the Accountant Defendants abandoned their independence and objectivity in dealing with GCL and the Director and Officer Defendants and allowed themselves to become actively involved in the adoption and use of “hollow swap” and “roundtripping” transactions and materially false, incomplete, misleading, and fraudulent reporting and disclosure thereof.

 

45.               On information and belief, by reason of their services to GCL, the Accountant Defendants were in constant or frequent contact with GCL and Director and Officer Defendants and had continuous or frequent access to and detailed knowledge of GCL’s corporate, business, and financial information, including inter alia all material facts about the “hollow swap” and “roundtripping” transactions and the materially false, incomplete, misleading, and fraudulent reporting and disclosure thereof, all of which is central to the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

46.              On information and belief, while the Accountant Defendants were engaged by GCL and providing accounting, auditing, financial, management-consulting, and other services bearing on GCL’s “hollow swap” and “roundtripping” transactions with other businesses in the telecommunication industry, AA was engaged by and provided similar services to one or more of the other parties to the same transactions, including inter alia Qwest and/or Emergia, 360 Networks, ChinaNet.com, Epik, Velocita, Flag Telecom, Telecom New Zealand, Nortel, Techtel, Versatel, Dacom, or others that are currently unknown.  On information and belief, the Accountant Defendants counseled or approved inconsistent accounting and reporting of the same or substantially equivalent transactions based largely on how the treatment that was used for each client would affect that client’s securities prices and total market capitalization.

 

47.              On information and belief, as a result of (a) the Accountant Defendants’ expertise (b) their extensive and diverse services to GCL, (c) their close working relationship with GCL, (d) their constant or frequent interaction with GCL, (e) their detailed knowledge of and constant or frequent access to relevant records and information, (f) PERRONE’s personal involvement on both sides of the AA-GCL relationship, (g) the Accountant Defendants’ many conflicts of interest, (h) their knowing and wilful failure and refusal to eliminate their many conflicts of interest, and (i) AA’s position on both sides of certain “hollow swap” and “roundtripping” transactions, at all relevant times the Accountant Defendants knew or recklessly failed and refused to learn that they were direct participants, aiders and abettors, and co-conspirators in a massive scheme to mislead and defraud GCL’s shareholders, potential investors, and the securities market as to inter alia GCL’s financial position and the value of its stock.

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48.             On information and belief, the Accountant Defendants received multi-million dollar accounting, audit, financial, management consulting, tax, and advisory fees from GCL before the GCL bankruptcy and, in order to continue such fees, did knowingly or recklessly compromise themselves to the point of being direct participants, aiders and abettors, and co-conspirators in a massive scheme to mislead and defraud shareholders, potential investors, and the securities market as to inter alia GCL’s financial position and the value of its stock.

 

49.              On information and belief, on dates that are currently unknown, the Accountant Defendants secretly entered into an agreement, combination, and conspiracy with the Director and Officer Defendants to commit, aid, abet, participate in, and further the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below – i.e. the conspiracy artificially to inflate and enhance GCL’s income and the market price of GCL’s stock – with the intent to keep GCL as a client and continue reaping multi-million dollar fees for years to come.

 

                                                                CORRUPT OFFICIALS

 

50.              On information and belief, Defendant Terry McAuliffe (“MCAULIFFE”) is a citizen of and domiciled in Virginia.  On information and belief, MCAULIFFE was formerly the chief fundraiser for former President William Jefferson Clinton (“CLINTON”) and was intimately involved in fundraising scandals that plagued the CLINTON administration.  On information and belief, MCAULIFFE is currently the chairman of the Democrat National Committee (“DNC”).  On information and belief, as CLINTON’s chief fundraiser and as DNC chairman, at all relevant times MCAULIFFE was and is well-positioned to control, direct, and distribute campaign financing, contributions, favors, “walking around” money, political payoffs, or gratuities, to exert tremendous de facto influence over the Democrat Party and its elected and appointed Democrat officials at the state and federal levels, and to help donors, contributors, and others to procure special access to elected and appointed Democrat government officials and favorable treatment and favors through campaign contributions, favors, political payoffs, or gratuities.  On information and belief, as set forth below, MCAULIFFE knowingly and willingly joined himself, for his own personal profit, to the agreement, combination, and conspiracy among the Director and Officer Defendants to inflate and enhance artificially GCL’s income and the market price of GCL’s stock.  On information and belief, MCAULIFFE knowingly and willingly joined himself, for personal profit, to the agreement, combination, and conspiracy among the Director and Officer Defendants to secure the Contract by contributing or paying gratuities or outright bribes to government officials (including inter alia CLINTON).  On information and belief, in exchange for a political payoff or gratuity that was ultimately worth approximately $18 million to him, MCAULIFFE knowingly arranged, participated in, aided and abetted, and substantially assisted WINNICK’s payment of a $1 million gratuity to CLINTON in exchange for official actions, favorable treatment, and favors from CLINTON, in violation inter alia of 18 U.S.C. §§ 201, 371, and 600.   Accordingly, MCAULIFFE is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

51.              On information and belief, Defendant Anne Bingaman (“A. BINGAMAN”) is a citizen of and domiciled in New Mexico and/or Washington, D.C., and is married to the long-time U.S. Senator from New Mexico, Defendant Jeff Bingaman (“J. BINGAMAN”).  On information and belief, at all relevant times J. BINGAMAN was and is the chairman or ranking minority member of powerful Senate Committees.  A. BINGAMAN was an Assistant U.S. Attorney General for Antitrust from 1993 until 1996.  On information and belief, in or about October 1998, WINNICK, COOK, and GCL retained A. BINGAMAN on behalf of GCL to lobby directly, and to exploit J. BINGAMAN’s influence with, the Federal Communications Commission (“FCC”), the White House Council of Economic Advisors, the National Economic Council, and/or the U.S. Trade Representative, and paid her at least $2.5 million during the first half of 1999.  On information and belief, as set forth more fully below, A. BINGAMAN and J. BINGAMAN knowingly and willingly joined themselves to the agreement, combination, and conspiracy among the Director and Officer Defendants to inflate and enhance artificially GCL’s income and the market for GCL’s stock.  A. BINGAMAN and J. BINGAMAN are sued as direct or indirect participants, aiders and abettors, and co-conspirators in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

52.              On information and belief, a substantial portion of the unlawful, unfair, and/or fraudulent acts alleged against COHEN in this pleading were being planned and/or occurred while he was the Secretary of Defense and, therefore, COHEN could just as well be listed as a Corrupt Official as a Director and Officer Defendant.  COHEN is listed as the latter because he was most recently a director of GCL and AGCL and, on information and belief, joined the conspiracy of the Director and Officer Defendants.

 

53.             On information and belief, Defendant CLINTON is a citizen of and domiciled in New York and was President of the United States from January 1993 until January 2001.  On information and belief, as set forth more fully below, on a date currently unknown during his Presidency, CLINTON joined the agreement, combination, and conspiracy among the Director and Officer Defendants by inter alia accepting a $1 million gratuity from WINNICK, GCL, and other Director and Officer Defendants, as a $1 million “donation” to his Presidential Library, in exchange for official actions, favorable treatment, and favors by the federal government in (a) ignoring the “pump and dump”of GCL’s stock; (b) ignoring the corruption of Pentagon officials into awarding the Contract; and (c) awarding the Contract to GCL or its affiliates despite grave national security problems in the possible transfer of technology, information, and unauthorized access to the Network to foreign entities and individuals (including inter alia LI, HUTCHISON, AGCL, and/or K1).  CLINTON is sued herein as a direct participant, aider and abettor, and co-conspirator in the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.

 

54.              MCAULIFFE, A. BINGAMAN, J. BINGAMAN, and CLINTON are collectively called the “Corrupt Officials” below.

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55.              On information and belief, on dates currently unknown, the Corrupt Officials secretly entered into an agreement, combination, and conspiracy with each other, the Director and Officer Defendants, or the Accountant Defendants, to arrange, participate in, aid and abet, substantially assist, further, or conceal the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below and the concealment thereof, with the intent to requite large campaign contributions and other contributions and/or gratuities from WINNICK, GCL, AA, and certain of their directors, officers, partners, principals, and/or members, with major official actions, favorable treatment, and favors in violation inter alia of 18 U.S.C. §§ 201, 371, and 600.

 

56.              On information and belief, the Corrupt Officials have knowingly participated in, aided and abetted, substantially assisted, and furthered the unlawful, unfair, and fraudulent acts, practices, and concealment by GCL, the Director and Officer Defendants, and the Accountant Defendants, and bestowed illegal favors and favorable treatment on them, by inter alia ignoring “hollow swap” and “roundtripping” transactions described below, the material overstatement of income and understatement of liabilities, conflicts of interest in regard to the foregoing matters, and conflicts of interest of Accountant Defendants in performing internal accounting, external auditing, financial, and management consulting for one and the same client; by opposing or defeating legislation and regulations that would have exposed or stopped the unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below; and/or by delaying civil, criminal, administrative, and Congressional inquiries, hearings, investigations, and enforcement actions, adopting a “hands off” approach, and refusing to take sides or to pursue blame as between their major campaign contributors, until it was politically impossible to continue doing so.

 

                                                                  DOE DEFENDANTS

 

57.             On information and belief, Defendant Does 1 through 10 are past or present affiliates, control persons, directors, officers, managing agents, or other agents or employees of GCL or AA,  or past or present government or Pentagon officials, elected and appointed, whose names are currently unknown, but who knowingly committed, aided and abetted, participated in, substantially assisted, furthered, or concealed unlawful, unfair, and fraudulent acts, omissions, and schemes set forth below.   On information and belief, no Doe Defendant is a citizen of or domiciled in Florida, Missouri, Pennsylvania, or Texas.  Plaintiffs will seek leave to identify the Doe Defendants by their exact names and capacities when that information is ascertained.

 

                        “HOLLOW SWAP” AND “ROUNDTRIPPING” TRANSACTIONS

 

58.              On information and belief, the phrase “hollow swap” as used with respect to the  telecommunications industry refers to a sham transaction where two entities purportedly sell each other -- i.e. exchange -- essentially equal rights to network-use capacity on each other’s telecom networks (often called “indefeasible rights of use,” or “IRU’s”), at essentially the same time, and for essentially the same amount of “cash,” although the purported cash elements cancel each other out and either never change hands or do so in a net amount much less than specified in the accounting for the transaction.  Moreover, each party’s IRU rights against the other are offset by IRU liabilities to the other party.  The “swap” is said to be “hollow” because it is a sham that adds no genuine net cash, income, or value to either side.  On information and belief, a “hollow swap” is often described as “roundtripping” because the purported cash payments are, in essence, artificial accounting entries that offset and cancel each other out.  For this reason, “hollow swaps” and “roundtripping” transactions are most properly treated as sham nonmonetary transactions for accounting, auditing, and financial reporting purposes.  For the sake of brevity, “hollow swaps” and “roundtripping” shall be called simply “swaps” below.

 

59.              On information and belief, GCL accounted for and reported swaps so as to claim the full amount of the purported income immediately, as soon as the swap was made, while amortizing, deferring, and/or otherwise obscuring the offsetting liability to the other swap party, so as to create the false, misleading, and fraudulent impression of creating substantial income.

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60.              On information and belief, as set forth more fully below, the Director and Officer Defendants intentionally, willfully, or recklessly used or approved the use of swaps for the purpose of artificially inflating and enhancing reported income and related financial data without full and fair disclosure, and the Accountant Defendants intentionally, willfully, or recklessly aided and abetted, participated in, and substantially assisted and furthered the foregoing unlawful, unfair, and fraudulent acts and practices as knowing co-conspirators.

 

                    OVERVIEW OF UNLAWFUL, UNFAIR, AND FRAUDULENT SCHEMES

 

61.              On information and belief, GCL was formed in 1997, and the founders of GCL included inter alia WINNICK, LEE, BROWN, and PORTER.  On information and belief, at all relevant times GCL placed key business operations into subsidiary or affiliated entities that are wholly owned or completely controlled and dominated by GCL and its core group of senior management personnel, among whom WINNICK is the most influential and powerful member.

 

62.             On Information and belief, starting on a date currently unknown but around the 1997 formation of GCL, and on dates currently unknown but around the time each Director and Officer Defendant joined GCL, each Director and Officer Defendant entered into an agreement, combination, and conspiracy with each other to “pump and dump” GCL’s stock for personal gain, by (a) using swaps artificially to inflate and enhance the price of GCL’s stock; (b) selling their own stock holdings to unsuspecting buyers at fraudulently inflated prices; (c) inducing and otherwise causing unwitting shareholders and investors to hold and not sell GCL securities; (d) improperly freezing 401(k) retirement accounts of employees to stop them from selling and depressing the market for GCL securities; (e) making or paying contributions, political payoffs, gratuities, and offering lucrative jobs on retirement to elected and appointed government and Pentagon officials in exchange for official action, favorable treatment, and favors, including inter alia the Contract; (d) maneuvering secretly, for personal gain, using foreign entities and individuals (including inter alia HUTCHISON, AGCL, K1, and/or LI), to sell the bankrupt GCL, key affiliates, or key assets (including inter alia the Contract); and (e) showering MCAULIFFE ($18 million), A. BINGAMAN and J. BINGAMAN ($2.52 million), CLINTON (at least $1 million), COHEN ($500,000 and directorships), and other Corrupt Officials with contributions, political payoffs, lucrative job offers, or gratuities, in exchange for ignoring financial fraud and serious national security issues and awarding the Contract, administrative licenses or approvals, or favors equivalent to exemptions from government regulation and oversight (collectively, the “SCHEME”).

 

63.              On information and belief, as a result inter alia of (a) the Accountant Defendants’ expertise, (b) their vast array of accounting, audit, financial, management consulting, and other services to GCL, (c) their close working relationship with GCL, (d) their constant or frequent interaction with GCL, (e) their detailed knowledge of and constant or frequent access to all relevant records and information, (f) PERRONE’s direct personal involvement on both sides of the AA-GCL relationship, and (g) AA’s position on both sides of certain swaps, at all relevant times the Accountant Defendants knew or recklessly failed and refused to learn the workings of the SCHEME; joined the conspiracy of the Director and Officer Defendants to “pump and dump” GCL securities; and intentionally, wilfully, or recklessly participated in, aided and abetted, substantially assisted, furthered, and concealed the SCHEME as co-conspirators.

 

64.              On information and belief, using the Accountant Defendants’ services, and with the Corrupt Officials’ assistance, the Director and Officer Defendants artificially inflated and enhanced the market price of GCL’s stock by inter alia (a) accounting for swaps to conceal millions in liabilities and keep them off GCL’s financial statements; (b) using and accounting for swaps, and using accounting practices that the Accountant Defendants knew were unlawful and fraudulent, to overstate materially GCL’s income; (c) concealing that swaps were being used as accounting shams; and (d) concealing material facts, making materially incomplete and misleading representations, and making material misrepresentations in financial statements,

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annual reports, SEC filings, public information packages, press releases, and communications with shareholders, investors, news media, securities analysts, and others currently unknown.

 

65.              On information and belief, the Director and Officer Defendants secretly used their inside information about the SCHEME and GCL’s true financial condition to reap illicit profits of the SCHEME by selling their GCL holdings to unsuspecting purchasers at opportune times through a series of securities transactions, many in California, including inter alia the following estimates:

 

 

INSIDER

 

SHARES SOLD

 

PROCEEDS ($)

 

Annunziata

 

81,576

 

5,118,894

 

Brown

 

740,661

 

46,476,478

 

Casey

 

243,919

 

8,998,907

 

Clayton

 

545,382

 

16,678,535

 

Cohrs

 

282,495

 

7,627,045

 

Cook

 

1,319,971

 

35,806,692

 

Gorton

 

466,916

 

13,796,536

 

Lee

 

2,454,006

 

118,020,710

 

Porter

 

1,826,983

 

77,485,017

 

Scanlon

 

796,631

 

24,573,536

 

Walsh

 

672,789

 

8,678,978

 

Winnick

 

24,305,908

 

860,237,000

 

         TOTAL:

 

33,737,237

 

$1,223,498,328

 

 

66.              On information and belief, the Director and Officer Defendants, the Accountant Defendants, and/or the Corrupt Officials have engaged in additional securities transactions, both inside and outside California, for their own personal gain and profit, using inside information as to GCL’s true, undisclosed financial condition, in addition to the approximately $1.2 billion in insider transactions estimated and summarized in the preceding paragraph.

67.             On information and belief, in addition to the scheme to “pump and dump” GCL securities, the Director and Officer Defendants and former directors, officers, or managing agents of GCL – whose exact identities have been intentionally concealed through the use of foreign entities, de facto agents, and arrangements – have secretly maneuvered, for personal gain, through foreign entities and individuals (including inter alia HUTCHISON, AGCL, K1, and LI), to sell and indirectly acquire or otherwise obtain control over the bankrupt GCL, key affiliates, or key assets (including inter alia the Contract) and access to the Network. 

 

68.              On information and belief, commencing on a date currently unknown before or during the CLINTON Administration, and continuing for years through the most recent federal election cycle up to and including the current Bush Administration, the Director and Officer Defendants and the Accountant Defendants undertook separate but overlapping and widespread political action to evade government regulation and oversight by regularly paying campaign and other contributions or gratuities to the Corrupt Officials or other government officials perceived to have political power to assist GCL in evading regulation and oversight or selling off the bankrupt corporation, key affiliates, or key assets (including inter alia the Contract) to corrupt foreign interests.  On information and belief, the Director and Officer Defendants and the Accountant Defendants made, or caused GCL to make, such payments with the intent to influence the official acts of, or to obtain favors and favorable treatment from, the Corrupt Officials, in violation inter alia of 18 U.S.C. §§ 201, 371, and 600.  On information and belief, the Corrupt Officials acted as was requested or expected, due to the contributions or gratuities, thereby engaging in unlawful acts or committing lawful acts in an unlawful manner.

 

69.                         On information and belief, starting on dates currently unknown before or during the Clinton Administration, and continuing through the most recent federal election cycle and into the current Bush Administration, in violation inter alia of 18 U.S.C. §§ 201, 371, and 600, the Corrupt Officials joined the conspiracy with the Director and Officer Defendants and the Accountant Defendants -- all major campaign contributors -- by inter alia ignoring the swaps, the material understatement of liabilities and overstatement of income, and conflicts of interest in the foregoing and the provision of internal accounting, external auditing, management consulting, financial, and other services to one and the same client; by opposing and defeating legislation and regulations that would have earlier exposed or stopped the SCHEME; or by delaying civil, criminal, administrative, and Congressional inquiries, hearings, investigations, and enforcement actions, adopting a “hands off” approach, and refusing to take sides or pursue blame as between major contributors, until it was politically impossible to continue doing so.

 

70.              On information and belief, the most egregious known illegal contribution and gratuity by any defendant was the $1 million payment by WINNICK, GCL, COOK, or other Director and Officer Defendants, arranged by MCAULIFFE, to CLINTON.  On information and belief, this $1 million payment was a gratuity to induce CLINTON and his officials (including inter alia COHEN) to ignore, not just the financial fraud perpetrated by the Director and Officer Defendants and the Accounting Defendants, but also the acquisition of the bankrupt GCL, key affiliates, or key assets (including the Contract) by foreign entities and individuals connected to the Chinese government and military.  On information and belief, CLINTON’s acceptance of this $1 million gratuity was part of his pattern and practice of taking illegal contributions from, allowing illegal or imprudent transfers of sensitive nuclear, satellite, and military technology to, and refusing to pursue competent criminal prosecutions against, communist Chinese interests and agents.

 

                                                 SPECIFIC CHRONOLOGY OF EVENTS

 

71.              On information and belief, the SCHEME was initiated around the 1997 formation of GCL, during the CLINTON Administration.  On information and belief, the SCHEME had its origins, in part, in the widespread perception that CLINTON, his officials, and other elected and appointed government personnel were extremely corrupt and willing to take gratuities.

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72.              On information and belief, one of the earliest acts of the Director and Officer Defendants in furtherance of the SCHEME was to engage former President George H. Bush ostensibly to deliver a speech on behalf of GCL in Tokyo in 1998, for which he was paid not his normal $80,000.00 speaker’s fee, but GCL securities that ultimately grew in value to as much as $14 million.  On information and belief, using inside information from the Director and Officer Defendants, former President Bush sold some or all his GCL securities for a profit many times larger than his normal speaker’s fee.  On information and belief, in exchange for the foregoing, former President Bush performed favors for GCL and the Director and Officer Defendants by contacting government officials to request official action, favorable treatment, and favors.

 

73.              On information and belief, according to the Center for Responsive Politics, GCL paid at least $3.5 million in cash contributions (i.e. separate and apart from gifts of securities) to Democrat and Republican politicians and their political parties from 1998 through 2001.  On information and belief, the Director and Officer Defendants caused GCL to make such large cash contributions in order to buy official action, favorable treatment, and favors from corrupt government officials and their party functionaries, including inter alia MCAULIFFE, A. BINGAMAN, J. BINGAMAN, CLINTON, other Corrupt Officials, and COHEN.

 

74.              On information and belief, AA made extensive contributions to Democrat and Republican politicians and their political parties from the early 1990's through 2001.  On information and belief, AA made such large payments in order to buy official action, favorable treatment, and favors from the Corrupt Officials.

 

75.              On information and belief, from about 1997 into 2002, as a quid pro quo for large campaign contributions or gratuities, and as a result of special access granted to top government officials, GCL, certain Director and Officer Defendants, and certain Accountant Defendants were granted favors and favorable treatment that enabled them inter alia to evade substantial government regulation and oversight and to perpetuate, enlarge, and profit from the SCHEME. 


76.             On information and belief, from about 1997 and into 2002, as a quid pro quo for campaign contributions or gratuities, the Corrupt Officials granted favors and favorable treatment to GCL, Director and Officer Defendants, and Accountant Defendants by inter alia ignoring the swaps, the material overstatement of income and understatement of liabilities, the conflicts of interest in the foregoing, or the conflicts of interest of Accountant Defendants in doing internal accounting, external auditing, and financial and management consulting for one and the same client; by opposing and defeating bills and regulations that would have exposed or stopped the SCHEME earlier; or by delaying civil, criminal, administrative, and Congressional inquiries, investigations, hearings, and enforcement actions against, and adopting a “hand’s off” approach toward, GCL and the defendants, until politically impossible to continue doing so.

 

77.              On information and belief, from the 1990's into 2001, as a quid pro quo for large campaign contributions or gratuities, the Corrupt Officials granted favors and favorable treatment to the Accountant Defendants by inter alia ignoring their “inventiveness,” approval of sham transactions to “create value” for clients (including inter alia the use of swaps by GCL and other telecom clients), approval of material understatement of liabilities and overstatement of income, and conflicts of interest in performing internal accounting, external auditing, financial, and management consulting for one and the same client; by opposing and defeating legislation and regulations contrary to such accounting practices or conflicts of interest; by introducing, supporting, advancing, defending, and voting for legislation or regulations that would facilitate the SCHEME and make it harder for Accountant Defendants to be held liable in private legal actions, including inter alia the Private Securities Litigation Reform Act and certain amendments to the Racketeer Influenced and Corrupt Organizations Act; or by delaying civil, criminal, administrative, and Congressional inquiries, hearings, investigations, and enforcement actions against the Accountant Defendants and their clients, including inter alia GCL, until politically impossible to continue doing so, and then only because of the similar scandal that was already enveloping AA and another of its major clients, Enron Corp.

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78.              On information and belief, as a result of the foregoing political corruption from the 1990's into 2002, the Director and Officer Defendants and the Accountant Defendants were materially enabled and aided and substantially assisted to implement, perpetuate, enlarge, profit from, conceal, and avoid liability for the SCHEME.  On information and belief, the SCHEME would have been impossible, or could not have grown, continued, succeeded, gone undetected, and been ignored by federal officials for as many years as it was, without the affirmative acts and omissions knowingly committed by the Corrupt Officials in furtherance of the SCHEME.

 

79.              On information and belief, commencing shortly after the formation of GCL in or about 1997, the Defendant and Officer Defendants started using and thereafter repeatedly used many multi-million dollar swaps to inflate and enhance artificially GCL’s income and related financial data, without generating any real net income or value for GCL or its shareholders.

 

80.              The accounting profession has understood for decades, if not centuries, that reciprocal nonmonetary transactions such as swaps, when evaluated for their true economic substance, can be and often are sham transactions, are easily abused to inflate artificially and fraudulently the income and financial position and market capitalization of a company, and require special procedures and substantive safeguards to avoid materially false, incomplete, misleading, and fraudulent financial statements and the resulting deception of shareholders, potential investors, creditors, and the securities market.  Accordingly, in 1973, the Accounting Principles Board (“APB”) – the predecessor to the Financial Accounting Standards Board (“FASB”) – issued APB Opinion No. 29 on Nonmonetary Transactions, a true and correct copy of which is attached hereto as Exhibit “A” and incorporated by reference.  On information and belief, APB Opinion No. 29 is part of Generally Accepted Accounting Practices (“GAAP”).

 

81.             On several occasions subsequent to the issuance of APB Opinion No. 29 in 1973, the FASB has promulgated additional guidance to assist in the application of APB Opinion No. 29. These additional promulgations include inter alia Emerging Issues Task Force (“EITF”) Nos. 87-29, 98-3, 99-17, and 01-2.  On information and belief, EITF Nos. 87-29, 98-3, 99-17, and 01-2 are part of Generally Accepted Accounting Practices (“GAAP”).

 

82.             On information and belief, pursuant to APB Opinion No. 29 and EITF Nos. 87-29, 98-3, 99-17, and/or 01-2, a reciprocal exchange transaction must not be treated as an income-generating event when the transaction is an exchange (a) of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the exchange parties; (b) of a productive asset not held for sale in the ordinary course of business for a similar productive asset or equivalent interest in the same or similar productive asset; (c) of assets the fair values of which are not determinable within reasonable limits; (d) that is not essentially the culmination of an earnings process; (e) that is a foregoing transaction with the added element of one or more monetary components, or “boot”; or (f) is otherwise a sham event.  The foregoing accounting restrictions on exchange transactions are called the “SHAM RESTRICTIONS” below.  On information and belief, the swaps violated the SHAM RESTRICTIONS and were sham transactions.

 

83.              On information and belief, on dates unknown in 1997, prior to the initial public offering of GCL stock, WINNICK, COOK, and other Director and Officer Defendants hired MCAULIFFE as a consultant to advise them on how to use campaign contributions, gratuities, political payoffs, lucrative job offers, consulting contracts, or other economic strategies to obtain special access, influence, official action, favorable treatment, and favors from elected and appointed government and Pentagon officials.  On information and belief, MCAULIFFE was compensated, in part, with $100,000 worth of GCL stock options or other GCL securities.  On information and belief, MCAULIFFE, WINNICK, COOK, and other Director and Officer Defendants stated, understood, or expected that MCAULIFFE would earn millions on his stock options after GCL went public.  On information and belief, WINNICK, COOK, and other Director and Officer Defendants agreed to make MCAULIFFE rich in this manner because of

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his close relationship with CLINTON, with the intent that MCAULIFFE would repay his special treatment by arranging a meeting for WINNICK with then-President CLINTON.

 

84.              The Accountant Defendants audited GCL’s financial statements for the period from March 19, 1997 (date of inception), to December 31, 1997 (the “1997 Financials”), and issued unqualified audit reports approving the 1997 Financials (the “1997 Audit Reports”).

 

85.              On information and belief, the 1997 Financials included, but failed to disclose fully and fairly, the material results of substantial swaps.  On information and belief, the 1997 Financials were materially false, incomplete, misleading, and fraudulent as a result of including, and as a result of failing to disclose fully and fairly, the swaps included in the 1997 Financials and that they violated the SHAM RESTRICTIONS.

 

86.              On information and belief, the 1997 Financials and the 1997 Audit Reports were included in several GCL public filings with the U.S. Securities Exchange Commission (“SEC”) – including annual reports, securities registration statements, and prospectuses -- and were very widely disseminated not only to the SEC, but also, with the knowledge, approval, and consent of defendants (except Corrupt Officials), to GCL shareholders, potential investors, securities analysts, the news media, and others who affect the securities market.

 

87.              On information and belief, the Director and Officer Defendants and Accountant Defendants collaborated throughout and worked together closely in preparing, filing, and/or disseminating the 1997 Financials and the 1997 Audit Reports, and knew their contents.

 

88.             On information and belief, the Director and Officer Defendants and Accountant Defendants knew or recklessly failed to learn that the 1997 Financials, the 1997 Audit Reports, and the SEC filings containing the foregoing were materially false, incomplete, misleading, and deceptive because these disclosure documents failed to disclose fully and fairly that GCL was improperly using swaps to overstate its income and understate its liabilities materially, all in violation of the SHAM RESTRICTIONS.

 

89.              On information and belief, with knowledge or reckless failure to learn that the 1997 Financials, 1997 Audit Reports, and related SEC filings were materially false, incomplete, misleading, and deceptive, the Director and Officer Defendants and Accountant Defendants intentionally, wilfully, or recklessly continued to lend their good names and professional services to further the SCHEME, without resigning, blowing the whistle, or raising a red flag.

 

90.              The Accountant Defendants audited GCL’s financial statements for the fiscal year ended December 31, 1998 (the “1998 Financials”), and issued one or more unqualified audit reports in early 1999 approving the 1998 Financials (the “1998 Audit Reports”).

 

91.             On information and belief, the 1998 Financials included, but failed to disclose fully and fairly, the material results of substantial swaps.  On information and belief, the 1998 Financials were materially false, incomplete, misleading, and fraudulent as a result of including, and as a result of failing to disclose fully and fairly, the swaps included in the 1998 Financials and that they violated the SHAM RESTRICTIONS.

 

92.              On information and belief, the 1998 Financials and the 1998 Audit Reports were included in several GCL public filings with the SEC  – including annual reports, securities registration statements, and prospectuses -- and were very widely disseminated not only to the SEC, but also, with the knowledge, approval, and consent of defendants (except Corrupt Officials), to GCL shareholders, potential investors, securities analysts, the news media, and others who affect the securities market.

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93.              On information and belief, the Director and Officer Defendants and Accountant Defendants collaborated throughout and worked together closely in preparing, filing, and/or disseminating the 1998 Financials and the 1998 Audit Reports, and knew their contents.

 

94.             On information and belief, the Director and Officer Defendants and Accountant Defendants knew or recklessly failed to learn that the 1998 Financials, the 1998 Audit Reports, and the SEC filings containing the foregoing were materially false, incomplete, misleading, and deceptive because these disclosure documents failed to disclose fully and fairly that GCL was improperly using swaps to overstate its income and understate its liabilities materially, all in violation of the SHAM RESTRICTIONS

 

95.              On information and belief, with knowledge or reckless failure to learn that the 1998 Financials, 1998 Audit Reports, and related SEC filings were materially false, incomplete, misleading, and deceptive, the Director and Officer Defendants and Accountant Defendants intentionally, wilfully, or recklessly continued to lend their good names and professional services to further the SCHEME, without resigning, blowing the whistle, or raising a red flag.

 

96.              On information and belief, in or about October 1998, WINNICK, COOK, and GCL hired A. BINGAMAN to lobby the FCC, the White House Council of Economic Advisors, the National Economic Council, the U.S. Trade Representative, and the U.S. Senate against the granting of an FCC License to a consortium including AT&T, WorldCom, and Sprint to build a transoceanic cable between the US and Japan in direct competition with GCL.  On information and belief, WINNICK, COOK, and GCL hired A. BINGAMAN as a lobbyist because of her relationship with her U.S. Senator husband (J. BINGAMAN), his influence and powerful committee positions, and her ability to parlay her contacts and his influence and positions into special access, favors, and favorable treatment from the FCC and others with influence over the FCC.  On information and belief, A. BINGAMAN and/or J. BINGAMAN persuaded several U.S. Senators and/or other officials to urge the FCC to delay the license.

97.             On information and belief, on or about February 10, 1999, PERRONE and AA prepared a written memorandum on the subject of “Accounting for Nonmonetary Exchanges” to address special procedures and substantive safeguards that were necessary for GCL’s swaps not to be sham transactions in light of APB Opinion No. 29 and EITF 87-29 (the “2/10/99 AA Memo”).  On information and belief, a true and correct copy of the 2/10/99 AA Memo as it was later disseminated by Roy L. Olofson is attached hereto as Exhibit “B” and incorporated by reference.  On information and belief, at all relevant times, the principles and information in the 2/10/99 AA Memo were widely known and understood among the Accountant Defendants, and it was disseminated among and understood by the Director and Officer Defendants.

 

98.             On information and belief, at all relevant time the Director and Officer Defendants and the Accountant Defendants gave at most lip service to the procedures and safeguards in the 2/10/99 AA Memo.  On information and belief, many or all of the swaps that occurred after the 2/10/99 AA Memo ignored the procedures and safeguards outlined therein, violated the SHAM RESTRICTIONS, and were sham transactions intended to inflate and enhance GCL’s income and related financial data artificially and fraudulently.  On information and belief, the Director and Officer Defendants and the Accountant Defendants knew or recklessly failed and refused to learn that swaps after the 2/10/99 AA Memo ignored the procedures and safeguards outlined therein, violated the SHAM RESTRICTIONS, and were sham transactions intended to inflate and enhance GCL’s income and related financial data artificially and fraudulently.

 

99.              On information and belief, on a date or dates currently unknown during 1999, the Director and Officer Defendants and the Accountant Defendants, in concert and conspiracy with each other, adopted changes to their accounting and financial reporting practices for the swaps.  On information and belief, the Director and Officer Defendants and the Accountant Defendants, in concert and conspiracy, came up with a new stratagem to report GCL’s financial results in two ways: according to (1) GAAP and (2) a new “Cash Revenues” category.  On information and belief, this artifice was adopted so as to enable the Director and Officer Defendants to report Cash Revenues in violation of the SHAM RESTRICTIONS.  On information and belief, the Director and Officer Defendants attempted to justify the new, dual reporting system on the ground that it facilitated the comparison of “apples to apples” with revenue figures from prior periods, while failing to disclose and concealing that the prior revenue figures were artificially and fraudulently inflated.  On information and belief, the Director and Officer Defendants intended by this new stratagem to mislead shareholders, investors, and the public into believing that the new “Cash Revenue” category included the same revenues that had previously been included in GAAP revenue in prior periods.  On information and belief, this was false because the Director and Officer Defendants had been characterizing swaps as “Cash Revenue” in violation of the SHAM RESTRICTIONS. On information and belief, this accounting and reporting scheme created the false impression that GCL’s revenues were substantially higher than they were.

 

100.          On information and belief, on several occasions during 1999 subsequent to the audit of the 1998 Financials, the Director and Officer Defendants and Accountant Defendants collaborated and worked together closely in preparing, reviewing, approving, filing, and/or disseminating unaudited quarterly GCL financial statements (the “1999 Quarterly Statements”).

 

101.         On information and belief, the 1999 Quarterly Statements included, but failed to disclose fully and fairly, the material results of substantial swaps.  On information and belief, the 1999 Quarterly Statements were materially false, incomplete, misleading, and fraudulent as a result of including, and as a result of failing to disclose fully and fairly, the swaps included in the 1999 Quarterly Statements and that they violated the SHAM RESTRICTIONS.

 

102.          On information and belief, the 1999 Quarterly Statements were included in several GCL public filings with the SEC  – including quarterly reports, securities registration statements, and/or prospectuses -- and were very widely disseminated not only to the SEC, but also, with the knowledge, approval, and consent of defendants (except Corrupt Officials), to GCL shareholders, potential investors, securities analysts, the news media, and others who affect the securities market.

 

103.          On information and belief, the Director and Officer Defendants and Accountant Defendants collaborated throughout and worked together closely in preparing, filing, and/or disseminating the 1999 Quarterly Statements, and knew their contents.

 

104.         On information and belief, the Director and Officer Defendants and Accountant Defendants knew or recklessly failed to learn that the 1999 Quarterly Statements and the SEC filings containing the foregoing were materially false, incomplete, misleading, and deceptive because these disclosure documents failed to disclose fully and fairly that GCL was improperly using swaps to overstate its income and understate its liabilities materially, all in violation of the SHAM RESTRICTIONS.

 

105.          On information and belief, with knowledge or reckless failure to learn that the 1999 Quarterly Statements and related SEC filings were materially false, incomplete, misleading, and deceptive, the Director and Officer Defendants and Accountant Defendants intentionally, wilfully, or recklessly continued to lend their good names and professional services to further the SCHEME, without resigning, blowing the whistle, or raising a red flag.

 

106.         On information and belief, on dates currently unknown in 1999, MCAULIFFE exercised his GCL stock options, sold the stock, or otherwise made a profit of $18 million from the GCL stock options which he had obtained two years earlier.  On information and belief, this profit was the intended political payoff, or gratuity, for arranging special access to then-President CLINTON and official actions, favorable treatment, and favors from the Corrupt Officials.  On information and belief, this profit also resulted from the use of swaps to inflate GCL’s earnings artificially and fraudulently in violation of the SHAM RESTRICTIONS.

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107.          On information and belief, on dates currently unknown in 1999, as a quid pro quo for new wealth received from WINNICK, COOK, and other Director and Officer Defendants, MCAULIFFE arranged for WINNICK to meet and play golf with then-President CLINTON.

 

108.          On information and belief, on a date currently unknown in 1999, WINNICK met and played golf with CLINTON.  On information and belief, during their meeting and golf game in 1999, WINNICK and CLINTON discussed official action, favorable treatment, and favors that CLINTON would extend, directly or indirectly, in exchange for a large gratuity or donation to CLINTON’s Presidential Library.  On information and belief, during their meeting and golf game, or afterward, WINNICK and CLINTON agreed that WINNICK, COOK, other Director and Officer Defendants, or GCL would inter alia “donate” $1 million to CLINTON’s Presidential Library, in exchange for which CLINTON would see to it, directly or indirectly, that (a) his Administration would ignore the scheme to “pump and dump” GCL stock; (b) the Pentagon would award the Contract to GCL; and (c) the government would ignore national security problems in regard to the possible sale of GCL, key affiliates, or key assets (including inter alia the Contract) to foreign entities or individuals such as HUTCHISON, AGCL, K1, or LI.  In so agreeing, CLINTON joined himself to the conspiracy among the Director and Officer Defendants (separately joined by the Accountant Defendants) to “pump and dump” GCL stock, to obtain the Contract through political corruption, and to enrich themselves secretly by selling off GCL, key affiliates, or key assets to foreign entities and/or individuals.

 

109.         On or about September 8, 1999, RINGHEISER JR. bought 75 shares of GCL stock jointly with RINGHEISER III at $24.56 per share, for a total purchase price (including commission) of $1,903.36.  RINGHEISER JR. and RINGHEISER III still own these shares.

 

110.          On or about November 17, 1999, COHEN gave the keynote address at the GCL annual dinner in London.  On information and belief, at the time of this speech, COHEN was in negotiations or shortly afterward entered into negotiations for GCL and AGCL directorships and a $500,000 payment in exchange for official action, favorable treatment, favors, or efforts to obtain official action, favorable treatment, or favors from other government officials through campaign contributions, political payoffs, lucrative jobs after retirement, or other gratuities.

 

111.         On or about December 12, 1999, RINGHEISER JR. bought 42 shares of GCL stock jointly with S. RINGHEISER at $47.158 per share, for a total purchase price (including commission) of $1,985.89.  RINGHEISER JR. and S. RINGHEISER still own these shares.

 

112.         On or about January 14, 2000, BRADY bought 100 shares of GCL stock at $52 & 3/16 per share, for a total purchase price (including commission) of $5,248.70.  BRADY still owns these shares.

 

113.          The Accountant Defendants audited GCL’s financial statements for the fiscal year ended December 31, 1999 (the “1999 Financials”), and issued one or more unqualified audit reports in early 2000 approving the 1999 Financials (the “1999 Audit Reports”).

 

114.         On information and belief, the 1999 Financials included, but failed to disclose fully and fairly, the material results of substantial swaps.  On information and belief, the 1999 Financials were materially false, incomplete, misleading, and fraudulent as a result of including, and as a result of failing to disclose fully and fairly, the swaps included in the 1998 Financials and that they violated the SHAM RESTRICTIONS.

 

115.          On information and belief, the 1999 Financials and the 1999 Audit Reports were included in several GCL public filings with the SEC  – including annual reports, securities registration statements, and prospectuses -- and were very widely disseminated not only to the SEC, but also, with the knowledge, approval, and consent of defendants (except Corrupt Officials), to GCL shareholders, potential investors, securities analysts, the news media, and others who affect the securities market.

116.          On information and belief, the Director and Officer Defendants and Accountant Defendants collaborated throughout and worked together closely in preparing, filing, and/or disseminating the 1999 Financials and the 1999 Audit Reports, and knew their contents.

 

117.         On information and belief, the Director and Officer Defendants and Accountant Defendants knew or recklessly failed to learn that the 1999 Financials, the 1999 Audit Reports, and the SEC filings containing the foregoing were materially false, incomplete, misleading, and deceptive because these disclosure documents failed to disclose fully and fairly that GCL was improperly using swaps to overstate its income and understate its liabilities materially, all in violation of the SHAM RESTRICTIONS.

 

118.          On information and belief, with knowledge or reckless failure to learn that the 1999 Financials, 1999 Audit Reports, and related SEC filings were materially false, incomplete, misleading, and deceptive, the Director and Officer Defendants and Accountant Defendants intentionally, wilfully, or recklessly continued to lend their good names and professional services to further the SCHEME, without resigning, blowing the whistle, or raising a red flag.

 

119.          On information and belief, on several occasions during 2000 subsequent to the audit of the 1999 Financials, the Director and Officer Defendants and Accountant Defendants collaborated and worked together closely in preparing, reviewing, approving, filing, and/or disseminating unaudited quarterly GCL financial statements (the “2000 Quarterly Statements”).

 

120.         On information and belief, the 2000 Quarterly Statements included, but failed to disclose fully and fairly, the material results of substantial swaps.  On information and belief, the 2000 Quarterly Statements were materially false, incomplete, misleading, and fraudulent as a result of including, and as a result of failing to disclose fully and fairly, the swaps included in the 2000 Quarterly Statements and that they violated the SHAM RESTRICTIONS.

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121.          On information and belief, the 2000 Quarterly Statements were included in several GCL public filings with the SEC  – including quarterly reports, securities registration statements, and/or prospectuses -- and were very widely disseminated not only to the SEC, but also, with the knowledge, approval, and consent of defendants (except Corrupt Officials), to GCL shareholders, potential investors, securities analysts, the news media, and others who affect the securities market.

 

122.          On information and belief, the Director and Officer Defendants and Accountant Defendants collaborated throughout and worked together closely in preparing, filing, and/or disseminating the 2000 Quarterly Statements, and knew their contents.

 

123.         On information and belief, the Director and Officer Defendants and Accountant Defendants knew or recklessly failed to learn that the 2000 Quarterly Statements and the SEC filings containing the foregoing were materially false, incomplete, misleading, and deceptive because these disclosure documents failed to disclose fully and fairly that GCL was improperly using swaps to overstate its income and understate its liabilities materially, all in violation of the SHAM RESTRICTIONS.

 

124.          On information and belief, with knowledge or reckless failure to learn that the 2000 Quarterly Statements and related SEC filings were materially false, incomplete, misleading, and deceptive, the Director and Officer Defendants and Accountant Defendants intentionally, wilfully, or recklessly continued to lend their good names and professional services to further the SCHEME, without resigning, blowing the whistle, or raising a red flag.

 

125.         On or about August 1, 2000, ONTIVEROS bought 1000 shares of GCL stock at $24.625 per share, for a total purchase price (including commission) of $24,634.99.  ONTIVEROS still owns these shares.

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126.          On or about December 11, 2000, THOMPSON individually bought 1000 shares of GCL stock through his IRA rollover account at $18.50 per share, for a total purchase price (including commission) of $18,512.00.  THOMPSON still holds these shares in that account.

 

127.          On or about December 29, 2000, THOMPSON individually bought 1000 shares of GCL stock through his IRA rollover account at $14.625 per share, for a total purchase price (including commission) of $14,637.00.  THOMPSON still holds these shares in that account.

 

128.         On or about February 12, 2001, THOMPSON individually bought 500 shares of GCL stock through his IRA rollover account at $20.00 per share, for a total purchase price (including commission) of $10,015.00.  THOMPSON still holds these shares in that account.

 

129.         On or about March 19, 2001, THOMPSON individually bought 500 shares of GCL stock through his IRA rollover account at $14.67 per share, for a total purchase price (including commission) of $7,347.00.  THOMPSON still holds these shares in that account.

 

130.          The Accountant Defendants audited GCL’s financial statements for the fiscal year ended December 31, 2000 (the “2000 Financials”), and issued one or more unqualified audit reports in early 2001 approving the 2000 Financials (the “2000 Audit Reports”).

 

131.         On information and belief, the 2000 Financials included, but failed to disclose fully and fairly, the material results of substantial swaps.  On information and belief, the 2000 Financials were materially false, incomplete, misleading, and fraudulent as a result of including, and as a result of failing to disclose fully and fairly, the swaps included in the 2000 Financials and that they violated the SHAM RESTRICTIONS.

 

132.          On information and belief, the 2000 Financials and the 2000 Audit Reports were included in several GCL public filings with the SEC  – including an annual report, securities registration statements, and/or prospectuses -- and were very widely disseminated not only to the SEC, but also, with the knowledge, approval, and consent of the defendants (except the Corrupt Officials), to GCL shareholders, potential investors, securities analysts, the news media, and others who affect the securities market.

 

133.          On information and belief, the Director and Officer Defendants and Accountant Defendants collaborated throughout and worked together closely in preparing, filing, and/or disseminating the 2000 Financials and the 2000 Audit Reports, and knew their contents.

 

134.         On information and belief, the Director and Officer Defendants and Accountant Defendants knew or recklessly failed to learn that the 2000 Financials, the 2000 Audit Reports, and the SEC filings containing the foregoing were materially false, incomplete, misleading, and deceptive because these disclosure documents failed to disclose fully and fairly that GCL was improperly using swaps to overstate its income and understate its liabilities materially, all in violation of the SHAM RESTRICTIONS.

 

135.          On information and belief, with knowledge or reckless failure to learn that the 2000 Financials, 2000 Audit Reports, and related SEC filings were materially false, incomplete, misleading, and deceptive, the Director and Officer Defendants and Accountant Defendants intentionally, wilfully, or recklessly continued to lend their good names and professional services to further the SCHEME, without resigning, blowing the whistle, or raising a red flag.

 

136.          After his stint as Secretary of Defense, COHEN announced that he had formed The Cohen Group.  On information and belief, COHEN’s purpose in forming The Cohen Group was and is to trade off his many government contacts and to peddle influence for his clients.

 

137.         On information and belief, COHEN joined the boards of directors of GCL and AGCL in April 2001.  On information and belief, the Director and Officer Defendants gave COHEN these directorships as a quid pro quo for official action, favorable treatment, and/or favors from COHEN while he was Secretary of Defense relating to the Contract which would soon be awarded to GCL, and for COHEN’s ongoing substantial assistance in attempting to influence and corrupt government and Pentagon officials with campaign contributions, political payoffs, lucrative jobs after retirement, or other gratuities relating to the Contract. 

 

138.         On information and belief, on dates currently unknown during 2001, as a quid pro quo for corrupt acts, favorable treatment, and favors concerning inter alia the Contract, GCL or Director and Officer Defendants paid $500,000, directly or indirectly, to COHEN, The Cohen Group, or entities controlled by COHEN, as a political payoff or gratuity for corrupt acts as Defense Secretary or his later participation in the corruption of government officials over the Contract.  On information and belief, COHEN denies and is concealing the $500,000 payment.

 

139.         On information and belief, WINNICK, COOK, COHEN, and the Director and Officer Defendants succeeded in securing official actions, favorable treatment, and favors through contributions, political payoffs, lucrative job offers, or other gratuities – including inter alia large payments to or for MCAULIFFE ($18 million), A. BINGAMAN and J. BINGAMAN ($2.52 million), CLINTON ($1 million), and COHEN ($500,000 and two directorships) – inasmuch as (a) the scheme to “pump and dump” GCL’s stock through the use of swaps in violation of the SHAM RESTRICTIONS was ignored by federal regulators; (b) the Pentagon improperly awarded the Contract to GCL despite major national security problems involving HUTCHISON, LI, AGCL, and the communist Chinese government and military, lack of security clearances among employees of GCL and AGCL, and procedural irregularities in granting special treatment to GCL’s bid; and/or (c) the federal government has ignored that HUTCHISON, LI, AGCL, or the communist Chinese government or military may gain access to the Network through the sale of GCL, key affiliates, or key assets to foreigners.

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140.          On information and belief, on several occasions during 2001 subsequent to the audit of the 2000 Financials, the Director and Officer Defendants and Accountant Defendants collaborated and worked together closely in preparing, reviewing, approving, filing, and/or disseminating unaudited quarterly GCL financial statements (the “2001 Quarterly Statements”).

 

141.         On information and belief, the 2001 Quarterly Statements included, but failed to disclose fully and fairly, the material results of substantial swaps.  On information and belief, the 2001 Quarterly Statements were materially false, incomplete, misleading, and fraudulent as a result of including, and as a result of failing to disclose fully and fairly, the swaps included in the 2001 Quarterly Statements and that they violated the SHAM RESTRICTIONS.

 

142.          On information and belief, the 2001 Quarterly Statements were included in several GCL public filings with the SEC  – including an annual report, securities registration statements, and/or prospectuses -- and were very widely disseminated not only to the SEC, but also, with the knowledge, approval, and consent of defendants (except Corrupt Officials), to GCL shareholders, potential investors, securities analysts, the news media, and others who affect the securities market.

 

143.          On information and belief, the Director and Officer Defendants and Accountant Defendants collaborated throughout and worked together closely in preparing, filing, and/or disseminating the 2001 Quarterly Statements, and knew their contents.

 

144.         On information and belief, the Director and Officer Defendants and Accountant Defendants knew or recklessly failed to learn that the 2001 Quarterly Statements and the SEC filings containing the foregoing were materially false, incomplete, misleading, and deceptive because these disclosure documents failed to disclose fully and fairly that GCL was improperly using swaps to overstate its income and understate its liabilities materially, all in violation of the SHAM RESTRICTIONS.

145.          On information and belief, with knowledge or reckless failure to learn that the 2001 Quarterly Statements and related SEC filings were materially false, incomplete, misleading, and deceptive, the Director and Officer Defendants and Accountant Defendants intentionally, wilfully, or recklessly continued to lend their good names and professional services to further the SCHEME, without resigning, blowing the whistle, or raising a red flag.

 

146.         On information and belief, GCL’s swaps artificially inflated and enhanced GCL’s income and related financial data by at least several hundred million dollars, possibly billions, from 1997 through 2001.  On information and belief, at no relevant time did GCL, the Director and Officer Defendants, or the Accountant Defendants fully and fairly disclose the sham nature of the swaps, the artificial inflation and enhancement of financial results caused thereby, or the violations of the SHAM RESTRICTIONS.  On information and belief, from the materially false, incomplete, misleading, and fraudulent data that was recently disclosed in the news media about GCL’s transactions with other telecommunications companies, an average reasonable investor could not have understood the true nature of the swaps, the artificial inflation and enhancement of GCL’s reported financial results caused thereby, or the violations of the SHAM RESTRICTIONS; and no other sources of information from which Plaintiffs could have obtained such an understanding were available to Plaintiffs at any relevant time.

 

147.         On or about June 18, 2001, ONTIVEROS made three purchases of GCL stock totaling 2400 shares at $7.58 per share, for a total purchase price (including commission) of $18,192.00. ONTIVEROS still owns these shares.

 

148.         On or about June 18, 2001, THOMPSON, in his capacity as trustee for the Charlotte A. Thompson Irrevocable Trust, made two purchases of GCL stock totaling 2000 shares at $7.65 per share, for a total purchase price (including commission) of $15,317.00. THOMPSON still owns these shares in his capacity as trustee.

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149.         On or about June 22, 2001, THOMPSON individually bought 5000 shares of GCL stock through his IRA rollover account at $8.75 per share, for a total purchase price (including commission) over $43,759.00.  THOMPSON still holds these shares in that account.

 

150.         On or about July 2, 2001, CASTEEL bought 2000 shares of GCL stock at $9.34 per share, for a total purchase price (including commission) of $18,695.00.  CASTEEL still owns these shares.

 

151.          On information and belief, in addition to inflating and enhancing artificially GCL’s income and related financial data, the Director and Officer Defendants acted in concert and conspiracy on several occasions, in quarterly conference calls or other oral communications with securities analysts, the public, investors, and others, to make affirmative denials that GCL had engaged in swaps in the prior quarter.  On information and belief, for example, on or about August 1, 2001, CASEY and COHRS held a telephone conference call with the investing public to discuss GCL’s results during the second quarter of 2001, during which they misrepresented that no swaps had occurred in the prior quarter when in fact substantial swaps had occurred.  On information and belief, at all relevant times CASEY and COHRS made said misrepresentations in concert and conspiracy with WINNICK and other Director and Officer Defendants, knowing that their statements were false and intending to deceive, defraud, and conceal.  On information and belief, at relevant times the Accountant Defendants knew or recklessly failed and refused to learn that the Director and Officer Defendants made the foregoing misrepresentations, but the Accountant Defendants intentionally, wilfully, or recklessly continued to serve GCL and allow their good names, services, and work product to further the SCHEME, without resigning, blowing the whistle, or raising a red flag.

 

152.          On information and belief, on or about August 3, 2001, COHRS read an internet article at http://www.thestreet.com/_yahoo/markets/detox/1509860.html, entitled “Numbers Grumbles Shear 8% Off Qwest.”  On information and belief, a true and correct copy of this article as it existed on the internet as of March 8, 2002, is attached hereto as Exhibit “C” and incorporated by reference for identification purposes only.  On information and belief, COHRS printed copies of this article, distributed it within GCL, and brought it to the attention of other Director and Officer Defendants, including inter alia CASEY, PERRONE, and WINNICK, because the article drew attention to Qwest’s misleading swap accounting practices, which were similar to GCL’s misleading swap accounting.  On information and belief, COHRS also sent an email to CASEY, PERRONE, and others to alert them to this article and to give them a succinct commentary, stating: “This story says that Qwest is booking sales type lease revenue as GAAP revenue and not breaking it out.  At least we get credit for breaking it out.  The bad news is that this is raising visibility on the swap issue.”  On information and belief, a true and correct copy of the foregoing email from COHRS to other Officer and Director Defendants is attached hereto as Exhibit “D” and incorporated by reference for identification purposes only.

 

153.         On information and belief, COHRS’s fear of visibility of the “swap issue” reflects his concern that a possible investigation of Qwest’s accounting practices would reveal inter alia that Qwest and GCL had swapped approximately $100 million of capacity in each of the first two quarters of 2001, some of which had not even been defined at the time of the purported sale; that each company accounted for the transactions differently despite having the same firm of outside auditors (AA); and that further investigation could lead to the conclusion that these transactions were non-monetary network capacity exchanges that should not have been booked as revenue.  In other words, on information and belief, COHRS feared that securities analysts, investors, and the public would learn that GCL was using swaps to give the false impression of generating large cash revenues when in fact the swaps did not materially increase GCL’s cash position in any material sense and violated the SHAM RESTRICTIONS.  On information and belief, GCL was treating the payments to Qwest as a capital expenditure and reporting none of the expense (or at most a very small part) in the current period.  On information and belief, to the extent any expense was reported, it was reported so as to give a false impression that these

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Qwest transactions were generating many millions of dollars in revenues when in fact GCL’s cash position had not materially changed.  These are classic cases of sham transactions.

 

154.          On information and belief, on and after August 3, 2001, the Director and Officer Defendants and the Accountant Defendants had extensive discussions about what, if anything, they and GCL should do in response to the 8/3/2001 article, given that the article was expected to draw attention to and might ultimately lead to exposure of GCL’s swaps and the materially false, incomplete, misleading, and fraudulent accounting, reporting, and concealment thereof.

 

155.          On information and belief, at all relevant times Roy L. Olofson was employed by an affiliate of GCL, Global Crossing Development Company, as vice president for finance.  On information and belief, at all relevant times Mr. Olofson and his employer shared office space with GCL in Beverly Hills, California, and were intimately involved day-to-day with all aspects of GCL’s accounting and financial reporting, including inter alia accounting transactions, the preparation of financial statements, the preparation of SEC filings, budgets, the selection and implementation of financial information systems, and providing insight and guidance regarding accounting matters relating to mergers and acquisitions, new business cases, and other issues.

 

156.          On information and belief, on or about August 6, 2001, Mr. Olofson submitted a letter to GORTON, as General Counsel and Chief Ethics Officer, about recent accounting and financial reporting matters of GCL and ACGL.  On information and belief, a true and correct copy of Mr. Olofson’s 8/6/01 letter, as exhibited to the Complaint in his separate action against GCL, is attached hereto as Exhibit “E” and incorporated by reference for identification.  Mr. Olofson stated “concern[] that investors and commercial bankers may have been intentionally misled about these companies’ reported [income and financial data] during the three quarters ended June 30, 2001.”  Mr. Olofson addressed inter alia the swaps and the materially false, misleading, incomplete, and fraudulent accounting, reporting, and concealment thereof.

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157.          On information and belief, due to its seriousness, Mr. Olofson’s 8/6/01 letter was quickly disseminated among the Director and Officer Defendants and Accountant Defendants and was analyzed and discussed at length by them all.  On information and belief, given the totality of their subsequent conduct, the Director and Officer Defendants and the Accounting Defendants decided, in concert and conspiracy, to sweep Mr. Olofson’s letter under the rug, to intimidate him into silence or active participation in the conspiracy, and to continue concealing the serious accounting and financial reporting problems and fraud identified by Mr. Olofson.

 

158.          On information and belief, as part of their cover-up and concealment, the Director and Officer Defendants, in concert and conspiracy with each other, acting through GORTON, provided a letter to Mr. Olofson on or about August 7, 2001, pretending to take his concerns seriously, and demanding that he “continue to treat the subject matter in a confidential manner, in compliance with your [Mr. Olofson’s] obligations as a member of management.”  On information and belief, a true and correct copy of GORTON’s 8/7/01 letter to Mr. Olofson, as exhibited to the Complaint in his separate action against GCL, is attached hereto as Exhibit “F” and incorporated by reference for identification purposes only.    On information and belief, the Director and Officer Defendants did not take Mr. Olofson’s letter seriously (except as a threat to the SCHEME and their enrichment), but rather were trying to sweep Mr. Olofson’s letter under the rug, to intimidate him into silence or active participation in the conspiracy, and to continue concealing the serious accounting and financial reporting problems and fraud in question.

 

159.          On information and belief, in response to Mr. Olofson’s attempt to blow the whistle on fraudulent accounting and financial reporting with respect to the swaps and related financial data, and in an attempt to conceal and continue the SCHEME, the Director and Officer Defendants embarked upon a pattern of threats, intimidation, and character attacks against Mr. Olofson, ultimately terminating him and widely defaming him as a disgruntled “extortionist.”

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160.          On information and belief, according to a published report in the Los Angeles Times for February 22, 2002, the Director and Officer Defendants hired the prestigious New York law firm of Simpson Thacher & Bartlett (the “Simpson Firm”) in August 2001 to perform a perfunctory review of Mr. Olofson’s charges about swaps and related issues.  On information and belief, the Simpson Firm came to the conclusion that in the spring of 2001 the Director and Officer Defendants had fully discussed those issues in board meetings, and that the Accountant Defendants had signed off on the accounting and financial reporting practices in question.  On information and belief, in effect, the Simpson Firm confirmed that the Director and Officer Defendants and the Accountant Defendants were aware of and approved the suspect accounting and financial reporting practices, but the Simpson Firm never bothered to consider and opine whether the practices were materially false, incomplete, misleading, or fraudulent, i.e. illegal.

 

161.         On or about August 17, 2001, THOMPSON individually made two purchases of GCL stock totaling 775 shares – 700 shares at $4.98 per share, another 75 shares at $4.90 per share – for a total purchase price (including commission) over $3,853.50. THOMPSON still owns these shares.

 

162.         On information and belief, on or about October 4, 2001, the Director and Officer Defendants announced through a GCL press release and a GCL Form 8-K filing with the SEC that GCL and AGCL were in preliminary merger discussions.  On information and belief, one of several purposes for any such discussions or for the announcement of the preliminary talks was to distract public attention away from the SCHEME and to continue artificially inflating and enhancing the market price of GCL’s securities.  On information and belief, at the time of the announcement of merger talks, WINNICK, other Director and Officer Defendants, LI, and HUTCHISON were substantial shareholders or had substantial options to purchase AGCL stock and stood to benefit from such a merger.  Moreover, on information and belief, HUTCHISON and LI also stood to obtain de facto control of or access to the Network.

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163.         On or about October 11, 2001, THOMPSON individually bought 10,000 shares of GCL stock through his IRA rollover account at $0.83 per share, for a total purchase price (including commission) over $8,300.00.  THOMPSON still holds these shares in that account.

 

164.          On information and belief, on or about November 5, 2001, the Director and Officer Defendants announced through a GCL press release and a GCL Form 8-K filing with the SEC that GCL and AGCL had ended merger discussions.  On information and belief, one of several reasons that any such discussions were terminated was that WINNICK, other Director and Officer Defendants, LI, and HUTCHISON wanted to structure any transaction for control over GCL or its assets in a manner that would be more lucrative to them.  On information and belief, when the termination of merger talks was announced, WINNICK, other Director and Officer Defendants, LI, HUTCHISON, and/or affiliated persons were exploring alternative ways for HUTCHISON and LI to obtain de facto control of or access to the Network, while allowing WINNICK, other Director and Officer Defendants, former directors and officers, and/or affiliated persons to profit secretly, directly or indirectly, through undisclosed interests in foreign entities and individuals – in effect putting WINNICK and other Director and Officer Defendants and/or affiliated persons on both sides of the transaction.  On information and belief, the foreign entities and individual at issue include inter alia HUTCHISON, LI, K1, Temasek Holdings (“TEMASEK”), Singapore Technologies Telemedia (“SINGAPORE”), and/or WINNICK’s private investment firm, Pacific Capital Group Ltd. (“PCG”).  The exact arrangements among these persons and WINNICK and other Director and Officer Defendants are currently unknown because they were created overseas, in secret, fraudulently concealed at relevant times, and have never been fully and fairly disclosed.

 

165.         On or about November 20, 2001, CASTEEL bought 1000 shares of GCL stock at $1.75 per share, for a total purchase price (including commission) of $1,765.00.

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166.         On or about November 11, 2001, RINGHEISER III bought another 82 shares of GCL stock at $1.10 per share, for a total purchase price (including commission) of $97.20.

 

167.         On or about November 26, 2001, CASTEEL bought 1000 shares of GCL stock at $1.70 per share, for a total purchase price (including commission) of $1,715.00.

 

168.          On information and belief, from on or about December 14, 2001, to on or about January 18, 2002, while many of them were selling off some of their own GCL securities, the Director and Officer Defendants manipulated and misused the 401(k) of GCL’s employees to freeze all purchases and sales in the 401(k) right before the GCL bankruptcy.  On information and belief, the Director and Officer Defendants did so to reduce selling activity by others and support the market price so that certain Director and Officer Defendants who had not already sold off their GCL securities could do so at higher prices than would have been possible if all GCL employees had been able to sell off their holdings.  On information and belief, the Director and Officer Defendants fraudulently breached their fiduciary duties to the 401(k) beneficiaries in this manner in furtherance of the SCHEME in order to enrich themselves.

 

169.         On or about December 28, 2001, CASTEEL sold 2000 shares of GCL stock at $0.60 per share, for a total sale price (net commission) of $1,184.98.  Subsequent to this sale transaction, CASTEEL still owns 2000 shares of GCL stock.

 

170.          GCL filed a Chapter 11 bankruptcy petition on or about January 28, 2002, in the U.S. Bankruptcy Court for the Southern District of New York.  Concurrently with the filing of the bankruptcy petition, the Director and Officer Defendants announced, through a GCL press release and a Form 8-K filing with the SEC, their tentative agreement for HUTCHISON and SINGAPORE to make a $750 million cash investment in GCL in exchange for a majority stake in the company.  On information and belief, as of the filing of the bankruptcy petition, the assets of GCL had a liquidation value of several billion dollars – i.e. much more than $750 million.

171.          On information and belief, WINNICK and other Director and Officer Defendants agreed among themselves to enter into the tentative $750 million deal with LI, HUTCHISON, and SINGAPORE and simultaneously to place GCL into voluntary bankruptcy for the purpose inter alia of (a) eliminating GCL shareholders; (b) minimizing creditor claims; (c) effectively selling GCL and its assets for a fraction of liquidation value; (d) reaping huge secret profits, directly or indirectly, through concealed equity interests in, or concealed arrangements with, the foreign entity purchasers and/or their control persons, including inter alia LI; and (e) enabling HUTCHISON and LI to get de facto control of, or access to, the Network.  On information and belief, these foreign entities, control persons, and/or indirect means for reaping secret profits were inter alia LI, HUTCHISON, K1, TEMASEK, SINGAPORE, and/or PCG.  The exact arrangements among these persons and WINNICK, other Director and Officer Defendants, and/or affiliated persons are currently unknown because they were created overseas, in secret, and fraudulently concealed at relevant times, and have never been fully and fairly disclosed.

 

172.          On information and belief, in early February 2002, WINNICK and CLINTON met in person in or near New Orleans, Louisiana, under cover of Super Bowl festivities, to confer and get their stories straight inter alia about the SCHEME and their involvement in it, the $1 million payment for CLINTON’s benefit to his Presidential Library, the resulting favorable treatment and favors extended by CLINTON, directly or indirectly, to GCL and for the benefit of the Director and Officer Defendants, including inter alia the Contract, and/or related issues currently enveloped in the secrecy of their conspiracy and concealment.

 

173.          The foregoing unlawful, unfair, and fraudulent acts, practices, and omissions were conducted in secret, fraudulently concealed, and were discovered only after GCL’s bankruptcy – less than one year prior to the commencement of this action.

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                                                           FIRST CLAIM FOR RELIEF

                                                 (Common Law Fraud and Civil Conspiracy,

                                                                 against All Defendants)

 

174.          Plaintiffs hereby fully incorporate by reference all allegations set forth in preceding Paragraphs 1 through 173 as if fully set forth at this point.

 

175.         On information and belief, as set forth above, the Director and Officer Defendants made material misrepresentations about GCL’s financial condition, the value of GCL’s stock and other securities, and related financial matters, by reporting sham income from swaps as income, overstating GCL’s income, and understating GCL’s liabilities, all in violation of the SHAM RESTRICTIONS.  On information and belief, the exact amount of such sham income, overstatement of income, and understatement of liabilities is currently unknown because the swaps and violations of the SHAM RESTRICTIONS were never fully and fairly disclosed.

 

176.           The Director and Officer Defendants made the foregoing misrepresentations in and in connection with inter alia the following communications and SEC filings:

 

(1)               GCL’s Annual Reports to Shareholders for 1998, 1999, and 2000;

 

(2)               GCL’s 10-K annual reports for 1998, 1999, and 2000;

 

(3)               GCL’s 10-Q quarterly reports in 1998, 1999, 2000, and 2001;

 

(4)               GCL’s Registration Statements, Prospectuses, and Amendments, filed with the SEC and widely disseminated in 1998, 1999, 2000, and 2001;

 

(5)               GCL’s press releases relating to the foregoing; and

(6)               Telephone conferences with securities analysts, shareholders, and news media in connection with the foregoing.

 

177.          On information and belief, the Director and Officer Defendants, acting in concert and conspiracy with the Accountant Defendants and the Corrupt Officials, made the foregoing misrepresentations to investors and shareholders (including inter alia Plaintiffs), news media, securities analysts, and other participants in the securities market, directly or indirectly, by filing and disseminating the documents and conducting the telephone conferences set forth above.

 

178.          On information and belief, the Director and Officer Defendants concealed material facts necessary in order to make their statements made, in light of the circumstances under which they were made, not misleading, with respect to GCL’s financial condition and the value of GCL’s securities -- e.g. the use of swaps as sham transactions, material overstatement of income, material understatement of liabilities, and violations of the SHAM RESTRICTIONS. On information and belief, the exact amount of such sham income, overstatement of income, and understatement of liabilities is currently unknown because the swaps and violations of the SHAM RESTRICTIONS were never fully and fairly disclosed.

 

179.           The Director and Officer Defendants made the foregoing concealment of material facts in and in connection with inter alia the following communications and SEC filings:

 

(1)               GCL’s Annual Reports to Shareholders for 1998, 1999, and 2000;

 

(2)               GCL’s 10-K annual reports for 1998, 1999, and 2000;

 

(3)               GCL’s 10-Q quarterly reports in 1998, 1999, 2000, and 2001;

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(4)               GCL’s Registration Statements, Prospectuses, and Amendments, filed with the SEC and widely disseminated in 1998, 1999, 2000, and 2001;

 

(5)               GCL’s press releases relating to all the foregoing; and

 

(6)               Telephone conferences with securities analysts, shareholders, and news media in connection with the foregoing.

 

180.          On information and belief, the Director and Officer Defendants, acting in concert and conspiracy with the Accountant Defendants and the Corrupt Officials, made the foregoing concealment of material facts from investors and shareholders (including inter alia Plaintiffs), news media, securities analysts, and other market participants, directly or indirectly, by omitting such material facts from the documents and the telephone conferences set forth above.

 

181.          On information and belief, the Director and Officer Defendants, acting in concert and conspiracy with the Accountant Defendants and the Corrupt Officials, made the foregoing misrepresentations and concealment of material facts intentionally, knowingly, or recklessly.

 

182.          On information and belief, the Director and Officer Defendants, in concert and conspiracy with the Accountant Defendants and Corrupt Officials, as set forth above, intended, should have foreseen, and had reason to expect that the foregoing misrepresentations and the foregoing concealment of material facts (a) would be relied on by all investors and shareholders of GCL (including inter alia Plaintiffs); (b) would influence and manipulate the entire market for GCL stock; (c) would artificially inflate the price paid by all investors and shareholders in all purchases thereof; and (d) would likewise artificially inflate the monies received by the Director and Officer Defendants in all sales thereof, starting on a date currently unknown but no later than GCL’s initial public offering, and continuing for as long as possible into 2001.

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183.          On information and belief, the foregoing misrepresentations and concealment of material fact by the Director and Officer Defendants, the Accountant Defendants, and the Corrupt Officials, acting in concert and conspiracy with each other, did in fact induce reliance by investors and shareholders, manipulate and influence the entire market for GCL’s stock, and artificially inflated the market price paid by investors and shareholders in all purchases and the monies received by the Director and Officer Defendants in all sales thereof, starting on a date currently unknown but no later than GCL’s initial public offering, and continuing into 2001.

 

184.          Plaintiffs reasonably and justifiably relied on the foregoing misrepresentations and concealment of material fact, the integrity of the securities market, and the absence of a fraud on the securities market in purchasing GCL’s stock, as set forth in detail above.

 

185.          As a direct and proximate result of the misrepresentations and concealment of material fact set forth above, Plaintiffs suffered injury and damages in that they were defrauded into buying GCL stock at artificially inflated prices and lost some or all of  their investments.

 

186.          On information and belief, the foregoing fraud against investors and shareholders would not have been possible, or would not have grown and continued and been as successful and remained undetected for as many years as it was, without the affirmative acts and omissions knowingly committed by the Corrupt Officials, set forth above, in furtherance of the SCHEME.

 

187.          On information and belief, in all respects set forth above, the Director and Officer Defendants, the Accountant Defendants, the Corrupt Officials, the Doe Defendants, and each of them, acted fraudulently, intentionally, despicably, maliciously, and oppressively.  Therefore, Plaintiffs are entitled to an award of punitive and exemplary damages against Defendants.

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                                                        SECOND CLAIM FOR RELIEF

                                                     (Common Law Fraud and Conspiracy

                                                                 against all Defendants)

 

188.          Plaintiffs hereby fully incorporate by reference all allegations set forth in preceding Paragraphs 1 through 187 as if fully set forth at this point.

 

189.          On information and belief, at all relevant times, when the Accountant Defendants were providing accounting, auditing, financial, management consulting, tax, and other services to GCL, the Accountant Defendants knew, or recklessly failed and refused to learn, that GCL and the Director and Officer Defendants were employing substantial swaps to generate sham income, materially overstating income, and materially understating liabilities, all in violation of the SHAM RESTRICTIONS.  On information and belief, the exact amount of the sham income, overstatement of income, and understatement of liabilities is currently unknown because the swaps and violations of the SHAM RESTRICTIONS have not been fully and fairly disclosed.

 

190.          On information and belief, at all relevant times, the Accountant Defendants had sufficient information to understand, and either knew or recklessly failed and refused to learn, that the Director and Officer Defendants were using swaps in violation of the SHAM RESTRICTIONS, materially overstating income, and materially understating liabilities in order to commit financial, securities, and related fraud.

 

191.           On information and belief, at all relevant times, notwithstanding their knowledge or information of the Director and Officer Defendants’ unlawful, unfair, and fraudulent acts and practices, the Accountant Defendants knowingly or recklessly misrepresented in audit reports that GCL’s financial statements for the partial year ended December 31, 1997, and for the full years ended December 31, 1998, December 31, 1999, and December 31, 2000, presented fairly, in all material respects, the financial position of GCL and its subsidiaries, the results of their operations, and their cash flows for each of those periods, in conformity with U.S. GAAP.  On information and belief, the Accounting Defendants consented to the use of the foregoing audit reports in and in connection with inter alia the following communications and SEC filings:

 

(1)               GCL’s Annual Reports to Shareholders for 1998, 1999, and 2000;

 

(2)               GCL’s 10-K annual reports for 1998, 1999, and 2000;

 

(3)               GCL’s Registration Statements, Prospectuses, and Amendments, filed with the SEC and widely disseminated in 1998, 1999, 2000, and 2001; and

 

(4)               Other communications with securities analysts, investors, and the media.

 

192.          On information and belief, the Accountant Defendants, acting in concert and conspiracy with the Director and Officer Defendants and Corrupt Officials, made the foregoing misrepresentations to investors and shareholders (including Plaintiffs), news media, securities analysts, and other participants in the securities market, directly or indirectly, by consenting to the filing and dissemination of their 1997, 1998, 1999, and 2000 audit reports.

 

193.          On information and belief, the Accountant Defendants, acting in concert and conspiracy with the Director and Officer Defendants and Corrupt Officials, made the foregoing misrepresentations intentionally, knowingly, or recklessly.

 

194.          On information and belief, the Accountant Defendants intended, should have foreseen, and had reason to expect that the foregoing misrepresentations (a) would be relied on by all investors and shareholders of GCL (including Plaintiffs); (b) would influence and manipulate the entire market for GCL stock; (c) would artificially inflate the price paid by all investors and shareholders in all purchases thereof; and (d) would artificially inflate the monies received by the Director and Officer Defendants in all sales thereof, starting on a date currently unknown but no later than GCL’s initial public offering, and continuing into 2001.

 

195.          On information and belief, the foregoing misrepresentations by the Accountant Defendants did induce reliance by investors and shareholders (including inter alia Plaintiffs), manipulate and influence the entire market for GCL’s stock, and artificially inflated the market price paid by investors and shareholders in all purchases thereof and the monies received by the Director and Officer Defendants in all sales thereof, starting on a date currently unknown but no later than GCL’s initial public offering, and continuing into 2001.

 

196.          Plaintiffs reasonably and justifiably relied on the foregoing misrepresentations, the integrity of the securities market, and the absence of a fraud on the securities market in deciding to purchase GCL’s stock, as set forth in detail above.

 

197.          As a direct and proximate result of the foregoing misrepresentations, Plaintiffs suffered injury and damages in that they were defrauded into buying GCL stock at artificially inflated prices and lost some or all of  their investments.

 

198.          On information and belief, the foregoing fraud against investors and shareholders would not have been possible, or would not have grown and continued and been as successful and remained undetected for as many years as it was, without the affirmative acts and omissions knowingly committed by the Corrupt Officials, set forth above, in furtherance of the SCHEME.

 

199.          On information and belief, in all respects set forth above, the Director and Officer Defendants, the Accountant Defendants, the Corrupt Officials, the Doe Defendants, and each of them, acted fraudulently, intentionally, despicably, maliciously, and oppressively.  Therefore, Plaintiffs are entitled to an award of punitive and exemplary damages against Defendants.

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                                                          THIRD CLAIM FOR RELIEF

                                        (Violations of Corp. Code §§ 25400(d), 25403, 25500,

                                                                 against All Defendants)

 

200.          Plaintiffs hereby fully incorporate by reference all allegations set forth in preceding Paragraphs 1 through 199 as if fully set forth at this point.

 

201.          On information and belief, GCL and the Director and Officer Defendants were at all relevant times persons selling and/or offering to sell GCL stock and other securities, within the meaning of California Corporations Code Section 25400(d).

 

202.          On information and belief, GCL and the Director and Officer Defendants made material statements which were, at the time and in the light of the circumstances under which they were made, false or misleading as to GCL’s financial condition, the value of GCL’s stock, and related financial matters, in that GCL and the Director and Officer Defendants reported sham swap income as income in violation of the SHAM RESTRICTIONS, overstated GCL’s income, understated its liabilities, and omitted to state fully and fairly that they were doing so.  On information and belief, the exact amount of such sham income, overstatement of income, and understatement of liabilities is currently unknown because the swaps and violations of the SHAM RESTRICTIONS were never fully and fairly disclosed.

 

203.          On information and belief, at all relevant times GCL and the Director and Officer Defendants made the foregoing false and misleading statements while knowing or recklessly failing and refusing to learn that said statements were false and misleading.

 

204.          On information and belief, at all relevant times GCL and the Director and Officer Defendants made the foregoing false and misleading statements for the purpose of inducing others, including inter alia Plaintiffs, to purchase GCL stock.

205.           On information and belief, at all relevant times GCL and the Director and Officer Defendants made the foregoing false and misleading statements in and in connection with inter alia the following communications and SEC filings:

 

(1)               GCL’s Registration Statements, Prospectuses, and Amendments, filed with the SEC and widely disseminated in 1998, 1999, 2000, and 2001;

 

(2)               GCL’s Annual Reports to Shareholders for 1998, 1999, and 2000;

 

(3)               GCL’s 10-K annual reports for 1998, 1999, and 2000;

 

(4)               GCL’s 10-Q quarterly reports in 1998, 1999, 2000, and 2001;

 

(5)               GCL’s press releases relating to the foregoing; and

 

(6)               Telephone conferences with securities analysts, shareholders, and news media in connection with the foregoing.

 

206.          On information and belief, pursuant to California Corporations Code Section 25403(a), the Director and Officer Defendants were at all relevant time persons who (a) knew that the foregoing statements about GCL’s financial position and the value of GCL’s stock were false and misleading; (b) directly or indirectly controlled and induced GCL to violate California Corporations Code Section 25400(d) as set forth above; and, hence, (c) are deemed to be in violation of Section 25400(d) to the same extent as GCL, jointly and severally.

 

207.           On information and belief, knowing of the Director and Officer Defendants’ unlawful acts, the Accountant Defendants knowingly made false or misleading statements in audit reports that GCL financial statements for the partial year ended December 31, 1997, and for the full years ended December 31, 1998, December 31, 1999, and December 31, 2000, presented fairly, in all material respects, the financial position of GCL and its subsidiaries, the results of their operations, and their cash flow for each of those periods, in conformity with U.S. GAAP.  On information and belief, the Accounting Defendants consented to the use of the audit reports in and in connection with inter alia the following communications and SEC filings:

 

(1)               GCL’s Annual Reports to Shareholders for 1998, 1999, and 2000;

 

(2)               GCL’s 10-K annual reports for 1998, 1999, and 2000;

 

(3)               GCL’s Registration Statements, Prospectuses, and Amendments, filed with the SEC and widely disseminated in 1998, 1999, 2000, and 2001; and

 

(4)               Other communications with securities analysts, investors, and the media.

 

208.          On information and belief, pursuant to California Corporations Code Section 25403(b), by making false and misleading statements in audit reports and consenting to their use in the foregoing communications and SEC filings, the Accountant Defendants knowingly gave substantial assistance to GCL and the Director and Officer Defendants to facilitate violations of Corporations Code Section 25400(d) and are deemed to be in violation of Section 25400(d) to the same extent as GCL and the Director and Officer Defendants, jointly and severally.

 

209.          On information and belief, the foregoing violations of California Corporations Code Section 25400(d) would not have been possible, or would not have been repeated and continued and been as successful and remained undetected for as many years as they were, without the assistance provided by the Corrupt Officials in furtherance of the SCHEME.

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210.          On information and belief, pursuant to California Corporations Code Section 25403(b), by engaging in the corrupt and unlawful acts set forth above, the Corrupt Officials knowingly gave substantial assistance to GCL, the Director and Officer Defendants, and/or the Accountant Defendants to facilitate or ignore their violations of Corporations Code Section 25400(d), and are deemed to be in violation of Section 25400(d) to the same extent as GCL, the Director and Officer Defendants, and the Accountant Defendants, jointly and severally.

 

211.          On information and belief, as set forth above, Plaintiffs purchased GCL stock at prices that were at all relevant times affected by the foregoing acts and transactions by GCL, the Director and Officer Defendants, the Accountant Defendants, and the Corrupt Officials in violation of California Corporations Code Section 25500.  Thus, Plaintiffs demand damages from the Director and Officer Defendants, the Accountant Defendants, and the Corrupt Officials, in the amount authorized by California Corporations Code Section 25500.

 

212.          On information and belief, in the conduct set forth above, at all relevant times the Director and Officer Defendants, the Accountant Defendants, and the Corrupt Officials were acting fraudulently, intentionally, despicably, maliciously, oppressively, with conscious disregard for the rights of investors and shareholders (including Plaintiffs).  Therefore, Plaintiffs are entitled to and demand an award of punitive and exemplary damages against Defendants.

 

                                                        FOURTH CLAIM FOR RELIEF

                          (Violations of Bus. & Prof. Code § 17200 et seq. and Civil Conspiracy,

                                                                 against All Defendants)

 

213.          Plaintiffs hereby fully incorporate by reference all allegations set forth in preceding Paragraphs 1 through 212 as if fully set forth at this point.

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214.          Pursuant to Business and Professions Code Section 17204, Plaintiffs bring this Claim for Relief both for themselves and for the benefit of the general public.

 

215.         On information and belief, the Director and Officer Defendants, the Accountant Defendants, and the Corrupt Officials, acting in concert and conspiracy, committed the foregoing acts with the intent of (a) using swaps artificially to inflate and enhance the price of GCL’s stock; (b) selling stock holdings to unsuspecting buyers at fraudulently inflated prices; (c) inducing and otherwise causing unwitting shareholders and investors to hold and not sell GCL stock; (d) improperly freezing 401(k) accounts of employees to stop them from selling and depressing the market for GCL securities; (e) making or paying contributions, political payoffs, gratuities, or offering lucrative jobs upon retirement to elected and appointed government and Pentagon officials in exchange for official actions, favorable treatment, and favors, including inter alia the Contract; (d) secretly maneuvering, for personal gain, through foreign entities and foreign individuals (including inter alia LI, HUTCHISON, AGCL, K1, TEMASEK, or SINGAPORE), to sell the bankrupt GCL, key affiliates, or key assets (including inter alia the Contract); and (e) covering MCAULIFFE ($18 million), A. BINGAMAN and J. BINGAMAN ($2.52 million), CLINTON (at least $1 million), COHEN ($500,000 and GCL and AGCL directorships), and other Corrupt Officials with a blanket of contributions, political payoffs, lucrative job offers, or other gratuities, in exchange for ignoring fraud and grave national security issues and awarding military contracts, licenses or approvals, or favors tantamount to exemptions from regulation and oversight.

 

216.          It is an unlawful, unfair, and fraudulent business act or practice for anyone selling, offering for sale, purchasing, or offering to purchase a security, to make, for the purpose of inducing the purchase or sale of such security by others, any statement which was, at the time and in the light of the circumstances under which it was made, false or misleading with respect to a material fact, or which omitted to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading, and which such person had reasonable ground to believe was so false or misleading.

 

217.          It is an unlawful, unfair, and fraudulent business act or practice to use swaps artificially to inflate and enhance reported income and related financial data without full and fair disclosure, in violation of the SHAM RESTRICTIONS.

 

218.          It is an unlawful, unfair, and fraudulent business act or practice knowingly to sell, or offer to sell, securities to unsuspecting buyers at market prices that have been artificially inflated, enhanced, and manipulated without full and fair disclosure.

 

219.          It is an unlawful, unfair, and fraudulent business act or practice knowingly to induce or otherwise cause unwitting shareholders to hold and not sell stock in a company by causing artificially inflated and enhanced financial information about the company to be widely disseminated to them and others without full and fair disclosure.

 

220.          It is an unlawful, unfair, and fraudulent business act or practice for corporate officers or directors knowingly to engineer an illegal freeze of their employees’ 401(k) accounts in order to support an artificially and fraudulently inflated market price for their company’s stock and thereby maximize the extent to which third-party purchasers of the company’s stock are defrauded.

 

221.          It is an unlawful, unfair, and fraudulent business act or practice knowingly to make or to attempt to make or pay contributions, political payoffs, gratuities, or post-retirement job offers to elected and appointed government officials in exchange for their official action, favors, or favorable treatment, including inter alia military contracts, in violation of state or federal law.

 

222.          It is an unlawful, unfair, and fraudulent business act or practice for elected or appointed government officials to accept or seek contributions, political payoffs, gratuities, or post-retirement job offers in exchange for official action, favors, or favorable treatment, including military contracts, in violation of state or federal law.

 

223.          It is an unlawful, unfair, and fraudulent business act or practice for corporate officers or directors knowingly and secretly to maneuver, for personal profit, to bankrupt their corporation, wipe out existing shareholder equity, and sell control of the bankrupt corporation, its key affiliates, or its key assets to foreign entities or individuals with whom the officers or directors have undisclosed arrangements from which they stand to profit.

 

224.          It is an unlawful, unfair, and fraudulent business act or practice for officers or directors of a corporation with principal executive offices in California, for personal profit, knowingly to help operatives of the communist Chinese government and military to acquire control over or access to the Network

 

225.          It is an unlawful, unfair, and fraudulent business act or practice for officers or directors of a corporation with principal executive offices in California, for personal profit, to attempt to evade or circumvent federal security clearance requirements for obtaining control over or access to the Network

 

226.          It is an unlawful, unfair, and fraudulent business act or practice to enter into a conspiracy to perform or to assist others to perform, directly or indirectly, any of the foregoing unlawful, unfair, and fraudulent business acts or practices.

 

227.          It is an unlawful, unfair, and fraudulent business act or practice to attempt to perform or to attempt to assist others to perform, directly or indirectly, any of the foregoing unlawful, unfair, and fraudulent business acts or practices.

 

228.          It is an unlawful, unfair, and fraudulent business act or practice knowingly to participate in, aid and abet, substantially assist, or actively further any of the foregoing unlawful, unfair, and fraudulent business acts or practices.

 

229.          It is an unlawful, unfair, and fraudulent business act or practice knowingly to conceal, to conspire to conceal, to attempt to conceal, or to participate in, aid and abet, substantially assist, or actively further the concealment of any of the foregoing unlawful, unfair, and fraudulent business acts or practices.

 

230.          On information and belief, as alleged above, the Director and Officer Defendants, the Accountant Defendants, and the Corrupt Officials have engaged, are engaging, or are proposing to engage in some or all unlawful, unfair, or fraudulent business acts or practices set forth above and specifically identified in the preceding paragraphs of this Claim for Relief.

 

231.          On information and belief, at this time a substantial risk exists that some or all the foregoing unlawful, unfair, and fraudulent business acts or practices will be committed again in the future because, on information and belief, (a) some or all Director and Officer Defendants are still directors or officers of GCL and still seek to close the proposed sweetheart deal with inter alia LI, HUTCHISON, K1, TEMASEK, SINGAPORE, or PCG; (b) the Accountant Defendants are still GCL’s accountants, auditors, and financial or management consultants and will probably continue to conceal their involvement as direct participants, aiders and abetters, and co-conspirators in the SCHEME; (c) the Corrupt Officials still have the wealth, power, or influence with which to corrupt others and perpetuate the concealment of their involvement in the SCHEME; and (d) the general public still faces the danger that the proposed sweetheart deal with inter alia LI, HUTCHISON, K1, TEMASEK, SINGAPORE, or PCG will go through and the communist Chinese government and military, or their agents, will obtain indirect control of or access to the Network.  Therefore, injunctive relief is required to prevent future injury.

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232.          In their capacity as a private attorney general bringing suit on behalf of the general public, Plaintiffs are seeking to expose and ensure that the Director and Officer Defendants, the Accountant Defendants, and the Corrupt Officials never again commit the unlawful, unfair, and fraudulent acts and practices set forth above.  Plaintiffs will thereby confer a significant benefit on the general public and a large class of persons.  The necessity and financial burden of this private enforcement action for the public good are such as to make an award of attorneys’ fees appropriate.  On information and belief, such fees should not in the interest of justice be paid out of monetary amounts to be disgorged by Defendants, jointly and severally.  Thus, Plaintiffs are entitled to attorneys’ fees under California Code of Civil Procedure Section 1021.5.

 

                                                                PRAYER FOR RELIEF

 

WHEREFORE, Plaintiffs pray for the following relief:

 

1.                  For judgment in favor of Plaintiffs against all Defendants, jointly and severally;

 

2.                  For general damages, according to proof at trial;

 

3.                  For consequential damages, according to proof at trial;

 

4.                  For exemplary and punitive damages, according to proof at trial;

 

5.                  For all other damages permitted by law, according to proof at trial;

 

6.                  For attorneys’ fees;

 

7.                  For costs of court;

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8.                  For all other costs and expenses permitted by law; and

 

9.                  For all other and further relief that the Court deems just and proper.

 

Dated: May 6, 2002                                         Respectfully Submitted,                        

JUDICIAL WATCH, INC.

 

 

By: ________________________________                                                                                      James F. Marshall, Esq.

Attorneys for Plaintiffs

 

                                                          DEMAND FOR JURY TRIAL

 

Plaintiffs hereby demand trial by jury.

 

Dated: May 6, 2002                                         Respectfully Submitted,                        

JUDICIAL WATCH, INC.

 

 

By: ________________________________                                                                                      James F. Marshall, Esq.

Attorneys for Plaintiffs