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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
SOUTHERN DIVISION
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______________, individually and
on behalf of all others similarly
situated,
Plaintiff,
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vs.
SKILLED HEALTHCARE
GROUP, INC., BOYD
HENDRICKSON, JOHN E. KING,
and DEVASIS GHOSE,
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Defendants.
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No. _______________
CLASS ACTION COMPLAINT
FOR VIOLATION OF THE
FEDERAL SECURITIES LAWS
JURY TRIAL DEMANDED
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Plaintiff _______ , individually and on behalf of all other persons
similarly situated, by his undersigned attorneys, for his complaint against
defendants, alleges the following based upon personal knowledge as to
himself and his own acts, and information and belief as to all other matters,
based upon, inter alia, the investigation conducted by and through his
attorneys, which included, among other things, a review of the defendants’
public documents, conference calls and announcements made by defendants,
United States Securities and Exchange Commission (“SEC”) filings, wire
and press releases published by and regarding Skilled Healthcare Group,
Inc., (“SKH”, or the “Company”), securities analysts’ reports and advisories
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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about the Company, and information readily obtainable on the Internet.
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Plaintiff believes that substantial evidentiary support will exist for the
3
allegations set forth herein after a reasonable opportunity for discovery.
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NATURE OF THE ACTION
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6
1.
This is a federal securities class action on behalf of two classes:
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(1) all persons other than defendants who purchased the Class A common
8
stock of SKH pursuant and/or traceable to the Company’s Registration
9
Statement and Prospectus issued in connection with the Company’s Initial
10
Public Offering (the “IPO”) on May 14, 2007, including purchasers through
11
August 5, 2008, seeking to recover damages caused by defendants’
12
violations of federal securities laws and to pursue remedies under the
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Securities Act of 1933 (the “Securities Act”); and (2) all persons other than
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defendants who purchased the Class A common stock of SKH between May
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14, 2007 and June 9, 2009, inclusive for violations of the federal securities
16
laws and to pursue remedies under the Securities Exchange Act of 1934
17
(“Exchange Act”).
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JURISDICTION AND VENUE
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2.
The claims asserted herein arise under and pursuant to Sections
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11 and 15 of the Securities Act (15 U.S.C. §§ 77k and 77(o)) and Sections
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10(b) and 20(a) of the Exchange Act, (15 U.S.C. §78j(b) and 78t(a)), and
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Rule 10b-5 promulgated thereunder (17 C.F.R. §240.10b-5).
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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3.
This Court has jurisdiction over the subject matter of this action
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pursuant to Section 22(a) of the Securities Act, 15 U.S.C. §77v(a), Section
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27 of the Exchange Act (15 U.S.C. §78aa) and 28 U.S.C. § 1331.
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4.
Venue is proper in this Judicial District pursuant to Section
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22(a) of the Securities Act, 15 U.S.C. § 77v(a), Section 27 of the Exchange
6
Act (15 U.S.C. §78aa), and 28 U.S.C. § 1391(b).
7
5.
In connection with the acts, conduct and other wrongs alleged
8
in this complaint, defendants, directly or indirectly, used the means and
9
instrumentalities of interstate commerce, including but not limited to, the
10
United States mails, interstate telephone communications and the facilities
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of the national securities exchange.
PARTIES
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13
6.
Plaintiff ______, as set forth in the accompanying certification,
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incorporated by reference herein, purchased SK stock pursuant to or
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traceable to the Company’s IPO and was economically damaged thereby.
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7.
Defendant SKH is a Delaware corporation with its principal
17
place of business located in Foothill Ranch, CA 92610. SKH provides
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integrated long-term healthcare services in the United States through certain
19
facilities it manages and/or owns. During the Class Period the Company’s
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Class A common stock was listed on the New York Stock Exchange under
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ticker “SKH.”
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8.
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Defendant Boyd Hendrickson (“Hendrickson”) was and is at all
relevant times the Chairman and CEO of the Company.
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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9.
Defendant John E. King (“King”) served as the Company’s
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CFO and Treasurer from the beginning of the Class Period until his
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departure from the Company on or about March 2008.
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10.
CFO from March 2008 to present.
11.
Hendrickson, King and Ghose are collectively referred to
hereinafter as the “Individual Defendants.”
PLAINTIFF’S CLASS ACTION ALLEGATIONS
8
9
Defendant Devasis Ghose (“Ghose”) was and is the Company’s
12.
Plaintiff brings this action on behalf of himself and two classes:
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(1) all persons other than defendants who purchased the Class A common
11
stock of SKH pursuant and/or traceable to the Company’s Registration
12
Statement and Prospectus issued in connection with the Company’s IPO on
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May 14, 2007, including purchasers through August 5, 2008, seeking to
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recover damages caused by defendants’ violations of Sections 11 and 15 of
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the Securities Act (the “Securities Act Class”); and (2) all persons other than
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defendants who purchased the Class A common stock of SKH between May
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14, 2007 and June 9, 2009, inclusive, for violations of Sections 10(b) and
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20(a) of the Exchange Act and Rule 10b-5 thereunder (“Exchange Act
19
Class”). Both Classes are referred to as the “Class.”
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13.
The members of the Class are so numerous that joinder of all
21
members is impracticable.
Approximately 16 million shares of the
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Company’s common stock were sold in the IPO. The precise number of the
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Class members is unknown to Plaintiff at this time but it is believed to be in
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the thousands.
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maintained by SKH or its transfer agent and may be notified of the pendency
Members of the Class may be identified from records
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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of this action by mail, using a form of notice customarily used in securities
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class actions.
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14.
Plaintiff’s claims are typical of the claims of the members of
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the Class, as all members of the Class are similarly affected by defendants’
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wrongful conduct in violation of federal law that is complained of herein.
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15.
Plaintiff will fairly and adequately protect the interests of the
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members of the Class and has retained counsel competent and experienced
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in class and securities litigation.
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16.
Common questions of law and fact exist as to all members of
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the Class and predominate over any questions solely affecting individual
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members of the Class. Among the questions of law and fact common to the
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Class are:
(a)
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14
whether the provisions of the Securities, and Exchange
Acts were violated by defendants' acts as alleged herein;
(b)
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whether documents, including the
Registration
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Statement and Prospectus, press releases, and public statements issued
17
by
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misrepresented material facts about the Company and its business;
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and
defendants
(c)
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to
the
investing
public
committed
and/or
the extent to which members of the Class have sustained
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damages, and the proper measure of damages.
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17.
A class action is superior to all other available methods for the
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fair and efficient adjudication of this controversy since joinder of all
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members is impracticable.
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individual Class members may be relatively small, the expense and burden
Furthermore, as the damages suffered by
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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of individual litigation make it impossible for members of the Class to
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redress individually the wrongs done to them. There will be no difficulty in
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the management of this action as a class action.
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SUBSTANTIVE ALLEGATIONS
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COUNT I
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Against SKH, Hendrickson, and King For Violation of
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Section 11 of the Securities Act on
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Behalf of the Securities Act Class
18.
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Plaintiff incorporates by reference each and every allegation
10
contained above, as if fully set forth herein only to the extent, however, that
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such allegations do not allege fraud, scienter or intent of the defendants to
12
defraud Plaintiff or members of the Securities Act Class.
19.
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This Count is asserted against Defendants SKH, Hendrickson
and King (“Count I Defendants”).
20.
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This Count is predicated upon Count I Defendants’ strict
16
liability for making false and misleading statements of material fact in the
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Registration Statement/Prospectus issued in connection with the Company’s
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IPO.
21.
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At the end of 2006 and continuing through the first quarter of
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the 2007, the Company prepared to commence an initial public offering of
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its Class A common stock, by filing drafts of registration statements with the
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SEC.
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22.
On May 10, 2007, the Company filed with the SEC its sixth
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amended registration statement with the SEC on Form S-1/A.
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Registration Statements contained, among other things, a Prospectus.
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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The
23.
1
On May 14, 2007 at 1:15 p.m. the SEC declared the
2
Registration Statement effective. The Registration Statement was signed by
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Defendants Hendrickson and King.
24.
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On May 16, 2007 the Company filed its final Prospectus with
5
the SEC in connection with the Company’s IPO, which involved the sale
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16,666,666 shares of Class A common stock of the Company for $15.50 per
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share. Of that, 8,333,333 shares were offered by the Company and the
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balance was offered by certain selling shareholders, which included
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numerous members of the Company’s management. Total proceeds from
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the IPO were approximately $258 million. Net of fees, the Company and
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selling shareholders each received approximately $120 million.
25.
12
Certain representations made in the Company’s Registration
13
Statement and Prospectus in connection with the IPO were false or
14
misleading, because (a) the financial statements in the Registration
15
Statement and Prospectus, which included, among other things, the
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Company’s results for the First Quarter of 2007 and Fiscal Year 2006,
17
including the Company’s net income and accounts receivable for those
18
periods and interim quarterly information were false and violated Generally
19
Accepted Accounting Principles; and (b) Defendants misrepresented the
20
Company’s internal controls on financial reporting.
26.
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The foregoing matters, all of which existed at the time of the
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IPO, were partially revealed by the Company in an announcement it issued
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on June 9, 2009 after market close. The announcement states in relevant
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part:
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Skilled Healthcare Group Announces Expected Financial
Restatement Related to Accounts Receivable Reserves
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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FOOTHILL RANCH, Calif. — (BUSINESS WIRE) — June 9,
2009 — Skilled Healthcare Group, Inc. (NYSE: SKH) today
announced that, based on a preliminary review by management,
the Company expects to restate its consolidated financial
statements for the quarterly and annual periods from January 1,
2006 through March 31, 2009. As a result, the Audit Committee
of the Board of Directors today has concluded that investors
should no longer rely on the Company’s historical financial
statements nor the reports of Ernst & Young LLP, the
Company’s independent registered public accounting firm, for
those affected periods.
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The expected restatement relates to understated reserves for
accounts receivables in each of the affected quarters. Based on
the Company’s preliminary analysis, the Company expects that
the correction of the understatement is likely to require
cumulative charges against after-tax earnings in the aggregate
amount of between $8 million and $9 million over the affected
periods. The actual amounts of the adjustments to be made in
each of the affected periods are being determined by
management. The adjustments will be audited by year and
reviewed by quarter by Ernst & Young LLP.
Management identified the errors through an internal review of
its reserves for accounts receivable. The errors appear to have
resulted from improper dating of accounts receivables by a
former employee who appears to have acted in ways that were
inconsistent with the Company’s accounting policies and
practices. With the oversight of the Audit Committee, the
Company has initiated a special investigation with respect to
the areas in which the former employee was involved, as well
as a review of what steps, if any, may be appropriate to ensure
future compliance with the Company’s accounting policies and
practices relating to accounts receivable reserves.
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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The Company will file its restated financial statements with the
Securities and Exchange Commission as soon as practicable
following completion of the Audit Committee’s investigation.
The Company is updating its 2009 full year guidance solely to
reflect the correction in its accounts receivable reserves. The
Company now expects full year EBITDA to be between $121
million and $126 million and EBITDAR to be between $140
million and $145 million. Earnings per diluted share are
expected to be between $1.02 and $1.08. EBITDA and
EBITDAR reflect the non-GAAP adjustments to net income
that are detailed in the table below, which reconciles forecasted
net income to forecasted EBITDA and EBITDAR.
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27.
The June 9, 2009 announcement caused the Company’s stock to
fall from a prior closing price of $8.34 to $7.58, or 9.11% on June 10, 2009.
28.
Plaintiff and other members of the Securities Act Class
13
acquired their SKH stock without knowledge of the untruths and/or
14
omissions alleged herein. Plaintiffs and other members of this Class were
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thus damaged by Count I Defendants’ negligence or misconduct by the
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misstatements and omissions of material fact in the aforementioned
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Registration Statement/Prospectus. As a direct and proximate result of the
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Count I Defendants’ negligent or wrongful conduct, the price of SKH’s
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Class A common stock sold in the IPO was artificially inflated and Plaintiff
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and the Securities Act Class suffered substantial damages pursuant to or
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traceable to their purchase of SKH Class A common stock.
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29.
Each of the Count I Defendants, caused to be issued and
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participated in the issuance of the misstatements and omissions of material
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fact to the investing public. By reasons of the conduct alleged herein, each
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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Count I Defendant violated, and/or controlled a person who violated Section
2
11 of the Securities Act.
3
30.
SKH is the issuer of the stock sold via the Registration
4
Statement and Prospectus. As issuer of stock, the Company is strictly liable
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to Plaintiff and the Securities Act Class for the material misstatements and
6
omissions therein.
7
31.
Count I Defendants owed to the purchasers of the stock
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obtained through the Registration Statement and Prospectus the duty to
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make a reasonable and diligent investigation of the statements contained in
10
the Registration Statement and Prospectus at the time they became effective
11
to ensure that such statements were true and correct and that there was no
12
omission of material facts required to be stated in order to make the
13
statements contained therein not misleading.
14
32.
None of the Count I Defendants made a reasonable
15
investigation or possessed reasonable grounds for the belief that the
16
statements contained in the Registration Statement and Prospectus were true
17
or that there was no omission of material facts necessary to make the
18
statements made therein not misleading.
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33.
This action is brought within one year after discovery of the
20
untrue statements and omissions in and from the Registration Statement and
21
Prospectus that should have been made and/or corrected through the exercise
22
of reasonable diligence, and within three years of the effective date of the
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Registration Statement and Prospectus.
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25
34.
By virtue of the foregoing, Plaintiff and the other members of
the Securities Act Class are entitled to damages under Section 11 as
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measured by the provisions of the Section 11(e), from the defendants and
2
each of them, jointly and severally.
COUNT II
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4
Against Hendrickson and King For
5
Violation of Section 15 of the Securities Act
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on Behalf of the Securities Act Class
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10
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15
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35.
Plaintiff incorporates by reference each and every allegation
contained above, as if fully set forth herein only to the extent, however, that
such allegations do not allege fraud, scienter or intent of the defendants to
defraud Plaintiff or members of the Securities Act Class.
36.
This Count is asserted against Defendants Hendrickson and
King (“Count II Defendants”) on behalf of the Securities Act Class.
37.
For the reasons set forth above in Count I, above, SKH is liable
to the Plaintiff and the members of the Securities Act Class who purchased
SKH Class A common stock in the IPO based on the untrue statements and
omissions of material fact contained in the Registration Statement and
Prospectus, pursuant to Section 11 of the Securities Act, and were damaged
thereby.
38.
The Count II Defendants were control persons of SKH by
virtue of, among other things, their positions as senior officers of the
Company, and they were in positions to control and did control, the
misstatements and omissions contained in the Registration Statement and
Prospectus.
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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30
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39.
None of the Count I Defendants made reasonable investigation
2
or possessed reasonable grounds for the belief that the statements contained
3
in the Registration Statement and Prospectus were accurate and complete in
4
all material respects. Had they exercised reasonable care, they could have
5
known of the material misstatements and omissions alleged herein.
6
40.
This claim was brought within one year after the discovery of
7
the untrue statements and omissions in the Registration Statement and
8
Prospectus and within three years after SKH common stock was sold to the
9
Class in connection with the IPO.
10
41.
By reason of the misconduct alleged herein, for which SKH is
11
primarily liable, as set forth above, the Count II Defendants are jointly and
12
severally liable with and to the same extent as SKH pursuant to Section 15
13
of the Securities Act.
COUNT III
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15
16
Against All Defendants For Violation of
Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated
17
Thereunder On Behalf of the Exchange Act Class
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25
26
42.
Plaintiffs repeated and re-alleges each and every allegation
contained above as if fully set forth herein.
43.
This Count is asserted against Defendants SKH, Hendrickson,
and Ghose (as used in this Count, collectively “Defendants” or “Exchange
Act Defendants”).
44.
During the Exchange Act Class Period, Defendants carried out
a plan, scheme and course of conduct which was intended to and, throughout
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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the Class Period, did: (1) deceive the investing public, including Plaintiff
2
and other Exchange Act Class members, as alleged herein; and (2) cause
3
Plaintiff and other members of the Exchange Act Class to purchase SKH’s
4
common stock at artificially inflated prices. In furtherance of this unlawful
5
scheme, plan and course of conduct, Defendants, and each of them, took the
6
actions set forth herein.
7
45.
Defendants (a) employed devices, schemes, and artifices to
8
defraud; (b) made untrue statements of material fact and/or omitted to state
9
material facts necessary to make the statements not misleading; and
10
(c) engaged in acts, practices, and a course of business that operated as a
11
fraud and deceit upon the purchasers of the Company’s common stock in an
12
effort to maintain artificially high market prices for SKH’s common stock
13
in violation of Section 10(b) of the Exchange Act and Rule 10b-5
14
thereunder.
15
46.
Defendants, individually and in concert, directly and indirectly,
16
by the use, means or instrumentalities of interstate commerce and/or of the
17
mails, engaged and participated in a continuous course of conduct to conceal
18
adverse material information about the business, operations and future
19
prospects of SKH as specified herein.
20
47.
These Defendants employed devices, schemes and artifices to
21
defraud while in possession of material adverse non-public information and
22
engaged in acts, practices, and a course of conduct as alleged herein in an
23
effort to assure investors of SKH value and performance and continued
24
substantial growth, which included the making of, or participation in the
25
making of, untrue statements of material facts and omitting to state material
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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facts necessary in order to make the statements made about SKH and its
2
business operations and future prospects in the light of the circumstances
3
under which they were made, not misleading, as set forth more particularly
4
herein, and engaging in transactions, practices and a course of business that
5
operated as a fraud and deceit upon the purchasers of SKH Class A common
6
stock during the Exchange Act Class Period.
7
FALSE AND MISLEADING STATEMENTS
8
9
48.
On August 7, 2007 SKH issued a press release announcing the
Company’s Q2 ended June 30, 2007 financial results.
The Company
10
announced net loss of $1.553 million before accretion on preferred stock and
11
$4.136 million net loss with the accretion.
12
49.
On August 9, 2007 the Company filed with the SEC its Q2
13
2007 financial statements on Form 10-Q. The 10-Q repeated and reiterated
14
the Company’s press announcement. The 10-Q was certified pursuant to the
15
Sarbanes-Oxley Act of 2002 (“SOX”) by defendants King and Hendrickson
16
attesting to the accuracy of the 10-Q.
17
50.
On November 6, 2007 the Company issued a press release
18
announcing its financial results for Q3 ended September 30, 2009. The
19
Company reported net income of $6.864 million.
20
51.
On November 9, 2007 the Company filed with the SEC its Q3
21
2007 financial statements on Form 10-Q. The 10-Q repeated and reiterated
22
the Company’s press announcement. Defendants King and Hendrickson
23
signed SOX certifications attesting to the accuracy of the 10-Q.
24
25
52.
In an 8-K filed with the SEC on November 30, 2007, the
Company announced that defendant King and the Company mutually agreed
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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to terminate King’s continued employment as the Company’s CFO and
2
Treasurer effective in March 2008 and that defendant Ghose would replace
3
King as CFO.
4
53.
On February 29, 2008 the Company filed its annual report for
5
the fiscal year ended December 31, 2007 with the SEC on Form 10-K. For
6
FY 2007 the Company reported net income of $17.149 million excluding
7
accretion on preferred stock and $9.795 million of net income with
8
accretion. Defendants King and Hendrickson signed SOX certifications
9
attesting to the accuracy of the 10-Q.
10
54.
On May 6, 2008 the Company issued a press release
11
announcing its Q1 ended March 31, 2008 results. The Company reported
12
net income of $8.444 million.
13
55.
On May 7, 2008 the Company filed with the SEC its Q1 2008
14
financial statements on Form 10-Q. The 10-Q repeated and reiterated the
15
Company’s press announcement.
16
signed SOX certifications attesting to the accuracy of the 10-Q.
17
56.
Defendants Ghose and Hendrickson
On August 5, 2008 the Company issued a press release
18
announcing its Q2 2008 financial results.
19
income of $8.924 million. That same day the Company filed with the SEC
20
its Q2 2008 results on Form 10-Q. Defendants Ghose and Hendrickson
21
signed SOX certifications attesting to the accuracy of the 10-Q.
22
57.
The Company reported net
On November 6, 2008 the Company issued a press release
23
announcing its Q3 2008 financial results.
The Company reported net
24
income of $9.576 million. That same day the Company filed with the SEC
25
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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30
31
1
its Q3 2008 results on Form 10-Q. Defendants Ghose and Hendrickson
2
signed SOX certifications attesting to the accuracy of the 10-Q.
3
58.
On February 10, 2009 the Company issued a press release
4
announcing its fiscal year 2008 financial results. The Company reported
5
$37.209 million of net income for FY 2008. Defendants Ghose and
6
Hendrickson signed SOX certifications attesting to the accuracy of the 10-K.
7
59.
On May 5, 2009the Company issued a press release announcing
8
its financial results for Q1 2009. The Company reported net income of
9
$10.867 million. That same day the Company filed with the SEC its Q1
10
2009 results on Form 10-Q. Defendants Ghose and Hendrickson signed SOX
11
certifications attesting to the accuracy of the 10-Q.
12
THE TRUTH BEGINS TO EMERGE
13
60.
On June 9, 2009, after market close, the Company issued a
14
press release announcing that its historical financial statements for the
15
annual and quarterly periods from January 1, 2006 through March 31, 2008
16
can no longer be relied upon as a result of errors identified by the Company.
17
The announcement states in relevant part:
18
19
20
21
22
23
24
25
Skilled Healthcare Group Announces Expected Financial
Restatement Related to Accounts Receivable Reserves
FOOTHILL RANCH, Calif. — (BUSINESS WIRE) — June 9,
2009 — Skilled Healthcare Group, Inc. (NYSE: SKH) today
announced that, based on a preliminary review by management,
the Company expects to restate its consolidated financial
statements for the quarterly and annual periods from January 1,
2006 through March 31, 2009. As a result, the Audit Committee
of the Board of Directors today has concluded that investors
should no longer rely on the Company’s historical financial
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CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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30
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1
2
3
4
5
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7
8
9
10
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25
26
statements nor the reports of Ernst & Young LLP, the
Company’s independent registered public accounting firm, for
those affected periods.
The expected restatement relates to understated reserves for
accounts receivables in each of the affected quarters. Based on
the Company’s preliminary analysis, the Company expects that
the correction of the understatement is likely to require
cumulative charges against after-tax earnings in the aggregate
amount of between $8 million and $9 million over the affected
periods. The actual amounts of the adjustments to be made in
each of the affected periods are being determined by
management. The adjustments will be audited by year and
reviewed by quarter by Ernst & Young LLP.
Management identified the errors through an internal review of
its reserves for accounts receivable. The errors appear to have
resulted from improper dating of accounts receivables by a
former employee who appears to have acted in ways that were
inconsistent with the Company’s accounting policies and
practices. With the oversight of the Audit Committee, the
Company has initiated a special investigation with respect to
the areas in which the former employee was involved, as well
as a review of what steps, if any, may be appropriate to ensure
future compliance with the Company’s accounting policies and
practices relating to accounts receivable reserves.
The Company will file its restated financial statements with the
Securities and Exchange Commission as soon as practicable
following completion of the Audit Committee’s investigation.
The Company is updating its 2009 full year guidance solely to
reflect the correction in its accounts receivable reserves. The
Company now expects full year EBITDA to be between $121
million and $126 million and EBITDAR to be between $140
million and $145 million. Earnings per diluted share are
expected to be between $1.02 and $1.08. EBITDA and
EBITDAR reflect the non-GAAP adjustments to net income
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that are detailed in the table below, which reconciles forecasted
net income to forecasted EBITDA and EBITDAR.
1
2
3
4
5
6
7
8
9
10
11
12
61.
The June 9, 2009 caused the Company’s stock to fall from a
prior closing price of $8.34 to $7.58, or 9.11%, on June 10, 2009.
62.
Had Plaintiff and the Exchange Act Class been aware of this
adverse information they would no have purchased the Company’s securities
at all or would not have purchases such securities at the artificially inflated
prices at which they did.
APPLICABILITY OF THE PRESUMPTION OF RELIANCE:
FRAUD-ON-THE-MARKET DOCTRINE
63.
At all relevant times, the market for SKH’s common stock was
an efficient market for the following reasons, among others:
13
14
(a)
SKH’s stock met the requirements for listing, and was listed
15
16
17
18
and actively traded on the NYSE, a highly efficient and automated market;
(b)
During the class period, on average, several hundreds of thousands
of shares of SKH stock were traded on a weekly basis, demonstrating a very
19
20
active and broad market for SKH stock and permitting a very strong presumption
21
of an efficient market;
22
23
24
(c)
As a regulated issuer, SKH filed with the SEC periodic public
reports during the Class Period;
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1
2
3
(d)
established
SKH regularly communicated with public investors via
market
communication
mechanisms,
including
regular
disseminations of press releases on the national circuits of major
4
5
newswire services and other wide-ranging public disclosures, such as
6
communications with the financial press and other similar reporting
7
8
9
10
services;
(e)
SKH was followed by several securities analysts employed
by major brokerage firms who wrote reports that were distributed to the
11
12
sales force and certain customers of their respective brokerage firms
13
during the Class Period. Each of these reports was publicly available and
14
15
16
17
entered the public marketplace;
(f)
Numerous NASD member firms were active market-makers in
SKH stock at all times during the Class Period; and
18
19
20
(g)
Unexpected material news about SKH was rapidly reflected in
and incorporated into the Company’s stock price during the Class Period.
21
22
64.
As a result of the foregoing, the market for SKH’s common
23
stock promptly digested current information regarding SKH from all
24
publicly available sources and reflected such information in SKH’s stock
25
price. Under these circumstances, all purchasers of SKH’s common stock
26
during the Class Period suffered similar injury through their purchase of
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1
SKH’s common stock at artificially inflated prices, and a presumption of
2
reliance applies.
3
4
NO SAFE HARBOR
5
6
65.
The statutory safe harbor provided for forward-looking statements
7
under certain circumstances does not apply to any of the allegedly false statements
8
pleaded in this Complaint. Many of the specific statements pleaded herein were
9
not identified as “forward-looking statements” when made. To the extent there
10
were any forward-looking statements, there were no meaningful cautionary
11
statements identifying important factors that could cause actual results to differ
12
materially from those in the purportedly forward-looking statements.
13
Alternatively, to the extent that the statutory safe harbor does apply to any
14
forward-looking statements pleaded herein, Defendants are liable for those false
15
forward-looking statements because at the time each of those forward-looking
16
statements was made, the particular speaker knew that the particular forward-
17
looking statement was false, and/or the forward-looking statement was authorized
18
and/or approved by an executive officer of SKH who knew that those statements
19
were false when made.
20
66.
Defendants had actual knowledge of the misrepresentations and
21
omissions of material facts set forth herein, or acted with reckless disregard
22
for the truth in that they failed to ascertain and to disclose such facts, even
23
though such facts were available to them.
24
misrepresentations and/or omissions were done knowingly or recklessly and
25
for the purpose and effect of concealing from the investing public SKH’s
26
operating condition and future business prospects and supporting the
Such Defendants’ material
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1
artificially inflated price of its common stock.
2
Defendants’ overstatements and misstatements of the Company’s financial
3
condition throughout the Class Period, Defendants, if they did not have
4
actual knowledge of the misrepresentations and omissions alleged, were
5
reckless in failing to obtain such knowledge by deliberately refraining from
6
taking those steps necessary to discover whether those statements were false
7
or misleading.
8
67.
As demonstrated by
As a result of the dissemination of the materially false and
9
misleading information and failure to disclose material facts, as set forth
10
above, the market price of SKH’s common stock was artificially inflated
11
during the Class Period. In ignorance of the fact that market prices of
12
SKH’s publicly-traded common stock were artificially inflated, and relying
13
directly or indirectly on the false and misleading statements made by
14
defendants, or upon the integrity of the market in which the common stock
15
trades, and/or on the absence of material adverse information that was
16
known to or recklessly disregarded by Defendants but not disclosed in public
17
statements by Defendants during the Class Period, Plaintiff and the other
18
members of the Exchange Act Class acquired SKH common stock during
19
the Class Period at artificially high prices and were or will be damaged
20
thereby.
21
22
23
24
68.
By virtue of the foregoing, Defendants have violated Section
10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder.
69.
As a direct and proximate result of Defendants’ wrongful
conduct, Plaintiff and the other members of the Exchange Act Class suffered
25
26
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1
damages in connection with their respective purchases and sales of the
2
Company’s common stock during the Class Period.
3
70.
This action was filed within two years of discovery of the fraud
4
and within five years of each plaintiff’s purchases of securities giving rise to
5
the cause of action.
COUNT IV
6
7
Against All Individual Defendants For
8
Violation of Section 20(a) of the Exchange Act
9
on Behalf of the Exchange Act Class
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
71.
Plaintiffs repeated and re-alleges each and every allegation
contained above as if fully set forth herein.
72.
This Count is asserted against Defendants Hendrickson and
Ghose (as used in this Count, collectively “Individual Defendants”).
73.
The Individual Defendants acted as controlling persons of SKH
within the meaning of Section 20(a) of the Exchange Act as alleged herein.
By virtue of their high-level positions, agency, and their ownership and
contractual rights, participation in and/or awareness of the Company’s
operations and/or intimate knowledge of the false financial statements filed
by the Company with the SEC and disseminated to the investing public, the
Individual Defendants had the power to influence and control, and did
influence and control, directly or indirectly, the decision-making of the
Company, including the content and dissemination of the various statements
that Plaintiff contends are false and misleading. The Individual Defendants
were provided with or had unlimited access to copies of the Company’s
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1
reports, press releases, public filings and other statements alleged by
2
Plaintiff to have been misleading prior to and/or shortly after these
3
statements were issued and had the ability to prevent the issuance of the
4
statements or to cause the statements to be corrected.
5
74.
In particular, each of these Defendants had direct and
6
supervisory involvement in the day-to-day operations of the Company and,
7
therefore, is presumed to have had the power to control or influence the
8
particular transactions giving rise to the securities violations as alleged
9
herein, and exercised the same.
10
75.
As set forth above, SKH and the Defendants each violated
11
Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this
12
Complaint.
13
76.
By virtue of their positions as controlling persons, the
14
Individual Defendants are liable pursuant to Section 20(a) of the Exchange
15
Act. As a direct and proximate result of Defendants’ wrongful conduct,
16
Plaintiff and other members of the Class suffered damages in connection
17
with their purchases of the Company’s common stock during the Class
18
Period.
19
77.
This action was filed within two years of discovery of the fraud
20
and within five years of each plaintiff’s purchases of securities giving rise to
21
the cause of action.
22
23
WHEREFORE, Plaintiff prays for the relief and judgment, as
follows:
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25
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(a)
1
2
3
Determining that this action is a proper class action,
designating Plaintiff as Lead Plaintiff and certifying Plaintiff as a class
representative under Rule 23 of the Federal Rules of Civil Procedure and
4
5
Plaintiff’s counsel as Lead Counsel;
6
(b) Awarding compensatory damages in favor of Plaintiff and
7
8
9
10
the other Class members against all Defendants, jointly and severally, for all
damages sustained as a result of Defendants’ wrongdoing, in an amount to
be proven at trial, including interest thereon;
11
(c) Awarding plaintiff and the Class their reasonable costs and
12
13
expenses incurred in this action, including counsel fees and expert fees; and
14
(d) Such other and further relief as the Court may deem just
15
16
17
and proper.
JURY TRIAL DEMANDED
18
19
Plaintiff hereby demands a trial by jury.
20
21
22
23
Dated: ____ __, 2009
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