In Re: CyberShop Securities Litigation 00-CV-01993 ...securities.stanford.edu/filings-documents/1013/... · Case2:00-cv-0199IP Document20 Filed 04/2'01 Page4of 39 owned2,563,878 shares

Case 2:00-cv-01 3-JAP Document 20

Robert J. Berg, Esq. (RB-8542)BERNSTEIN LIEBHARD & LIFSHITZ, LLP

2050 Center Avenue, Suite 200

Fort Lee, New Jersey 07024

(201) 592-3201

Mel E. Lifshitz, Esq.Timothy J. MacFall, Esq.BERNSTEIN LIEBHARD & LIFSHITZ, LLP

10 East 40th Street, 22"a FloorNew York, New York 10016

(212) 779-1414

Lead Counsel for Plaintiff and the Class

(Additional Counsel on signature page)

Filed 6/2001 Page 1 of 39

FILED

T8.3 MWI LCI*

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

IN RE CYBERSHOP.COMSECURITIES LITIGATION

THIS DOCUMENT RELATES TO:ALL ACTIONS

Civil Action No. 00-1993 (AJL)

CONSOLIDATED AMENDED

CLASS ACTION COMPLAINT

Jury Trial Demanded

1. Plaintiff, by and through its attorneys, alleges the following upon information

and belief, except as to those allegations concerning Plaintiff, which allegations are alleged upon

personal knowledge. Plaintiff also bases its Complaint on the investigation by Plaintiff's attorneys,

which investigation included, among other things, a review of United States Securities and

Exchange Commission ("SEC") filings by Cybershop.com, Inc., formerly known as Cybershop

International, Inc., and now known as GSV, Inc. ("Cybershop" or the "Company"), as well as

reports and advisories by and about the Company, press releases and other public statements issued

by the Company and the Individual Defendants (as defined below) and media reports about the

• Case 2:00-cv-01993-JAP Document 20 FiledW6/2001 Page 2 of 39

Company. Except as alleged herein, the underlying information concerningdefendants' misconduct,

and the particulars thereof, are not available to Plaintiff and the public and lie within the possession

and control of defendants and other CyberShop insiders . Based on the evidence already developed,

Plaintiffbelieves that additional substantial evidentiary support will exist for the allegations set forth

herein after a reasonable opportunity for discovery.

NATURE OF THE ACTION

2. This is a securities class action brought on behalf of all persons who

purchased or otherwise acquired the common stock of Cybershop (the "Class") between October

26, 1999 and February 24, 2000, inclusive (the "Class Period), against the Company and certain of

its officers and directors for violations of the Securities Exchange Act of 1934 (" 1934 Act").

JURISDICTION AND VENUE

3. This action arises under Sections 10(b) and 20(a) ofthe Securities ,Exchange

Act of 1934 (the "Exchange Act"), 15 U.S.C. §78 , et seq . and Rule lOb-5 promulgated thereunder

by the SEC, 17 C.F.R. 240.1Ob-5.

4. Jurisdiction is conferred upon this Court by Section 27 ofthe Exchange Act,

15 U.S.C. §78aa and 28 U.S.C. § 1331 (federal question jurisdiction). This Court has personal

jurisdiction of defendants pursuant to Section 27 of the Exchange Act, 15 U.S.C. §78aa.

5. Venue is proper in this District because defendant Cybershop has its principal

place of business in this District and many of the acts and transactions constituting the violations

of law herein complained of occurred within this District, including the preparation and

dissemination of materially false and misleading financial statements, corporate documents, and

press releases.

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6. In connection with the acts alleged herein, defendants, directly or indirectly,

used the means and instrumentalities of interstate commerce, including the United States mails and

facilities of a national securities exchange.

PARTIES

7. PlaintiffFU Investment Company purchased the common stock ofCybershop

at artificially inflated prices during the Class Period, as set forth in the Certification attached to its

Motion for Appointment as Lead Plaintiff and incorporated herein by reference, and was damaged

thereby., By Order of this Court dated March 27, 2001, FU Investment Company was appointed as

Lead Plaintiff in this case.

8. Defendant Cybershop is a Delaware corporation which maintains its principal

executive offices at 116 Newark Avenue, Jersey City, New Jersey . In its Report on Form 10-Q/A

for the quarter ended September 30, 1999, filed with the SEC on February 24, 2000, Cybershop

described itself as an online and direct to consumer retailer . At the end of the Class Period,

Cybershop divested . its retail business . The flagship "store," which was located online at

www.cybershop.com (CyberShop) offered discounted designer and brand-name apparel , electronics,

home accessories, toys, gifts and watches all at closeout prices. electronics. net, the Company's joint

venture with Tops Appliance City ("Tops"), located online at www. electronics .net, offered a broad

assortment of consumer electronics, appliances and home office equipment for sale online.

9. Defendant Jeffrey S. Tauber ("Tauber") is, and all times relevant hereto was,

the Chairman, Chief Executive Officer, President, Principal Executive Officer, and Director of

Cybershop. During the Class Period, Tauber signed the quarterly Reports on 10-Q filed by the

Company with the SEC and issued statements on behalf of the Company . Beginning in March 1998

and through 1999, Tauber received a salary of $ 250,000 per year. As of April 29, 1999, Tauber

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owned 2,563,878 shares of Cybershop common stock, including 759,515 shares held directly by

Tauber, 522,424 shares held in the name of the Jeffrey S. Tauber Grantor Retained Annuity Trust

(Kevin S . Miller and Jane Tauber Trustees), and 1,281 ,939 shares held in the name ofTauber's wife,

Jane S. Tauber. During the Class Period, Tauber and his wife sold 675,000 shares of Cybershop

common stock, or more than 26% of their combined holdings, for proceeds in excess of $7 million.

Thus, during the Class Period the proceeds the Taubers received from the insider sales was

approximately 28 times the salary defendant Tauber received in 1999. Tauber and his wife had one

prior sale of 100,000 shares of Cybershop common stock in 1998.

10. Defendant Ian S . Phillips ("Phillips") was, at all times relevant hereto, a

director of the Company and the ChiefExecutive Officer ofMG Acquisition Corp., a wholly-owned

subsidiary of the Company. During the Class Period Phillips sold 40,000 shares of Cybershop

common stock, reaping proceeds of $480,000. Phillips had no prior Cybershop stock sales.

11. Defendant Jeffrey Liest ("Liest") was the Company's Senior Vice President

and ChiefOperating Officer from February 1999, and the Company's ChiefFinancial Officer from

April 1999 until his resignation in April 2000.

12. Defendants Tauber, Phillips, and Liest may hereinafter be referred to as the

"Individual Defendants."

13. The Individual Defendants, as officers and/or directors of Cybershop, had a

duty, because ofthe positions they held, to disseminate complete, accurate and truthful information

regarding Cybershop' s business operations . The Individual Defendants had a duty to correct

promptly any public statements issued by Cybershop which had become false and misleading.

Because of their positions, their ability to exercise power and influence with respect to Cybershop's

course of conduct, and their access to material inside information about Cybershop, the Individual

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Defendants were, at the time of the wrongs alleged herein, controlling persons of Cybershop within

the meaning of Section 20(a) of the Exchange Act.

CLASS ACTION ALLEGATIONS

14. Plaintiff brings this action as a class action pursuant to Federal Rules ofCivil

Procedure 23(a) and 23(b)(3) on behalf of itself and a class consisting of all persons who purchased

Cybershop common stock during the period from October 26, 1999 through February 24, 2000,

inclusive, and who suffered damages thereby. Excluded from the Class are defendants, members

of the immediate families of the Individual Defendant, any entity in which any defendant has a

controlling interest or is a parent or subsidiary of or is controlled by the Company, and the officers,

directors, employees, affiliates, legal representatives, heirs, predecessors, successors, and assigns

of any of the defendants.

15. The members of the Class are so numerous that joinder of all members is

impracticable. Although the exact number of Class members is unknown at this time and can only

be ascertained from books and records maintained by Cybershop and/or its agents , plaintiffbelieves

there are thousands ofmembers ofthe Class who traded during the Class Period, As ofNovember

5, 1999, there were 9,398,012 shares of Cybershop common stock outstanding.

16. The members of the Class are located throughout the United States. The

names and addresses ofthe record owners ofthe shares ofcommon stock purchased during the Class

Period are available from Cybershop and/or its transfer agent(s). Notice can be provided to

purchasers of Cybershop common stock by a combination of published notice and first class mail

using the form of notice similar to that customarily used in securities class actions.

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17. There are questions of law and fact common to the Class that predominate

over questions affecting any individual member of the Class. Among the questions of law and fact

common to the Class are whether:

(a) the federal securities laws were violated by defendants' acts and

omissions as alleged herein;

(b) Cybershop issued materially false and misleading statements

during the Class Period;

(c) the Individual Defendants issued materially false and

misleading statements during the Class Period;

(d) the Individual Defendants caused Cybershop to issue false and misleading

statements during the Class Period;

(e) defendants acted knowingly or recklessly in issuing false and

misleading statements;

(f) the market prices of Cybershop securities during the Class Period

were artificially inflated because of defendants' wrongful conduct

complained of herein; and

(g) the members of the Class have sustained damages as a result of defendants'

wrongful conduct alleged herein and, if so, the proper measure of damages.

18. Plaintiff's claims are typical of the claims of the members of the Class as

plaintiff and members of the Class sustained damages arising out of defendants' wrongful conduct

in violation of federal law as complained of herein.

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19. Plaintiffwill fairly and adequately protect the interests ofthe members ofthe

Class and has retained counsel competent and experienced in class action securities litigation.

Plaintiff has no interests antagonistic to or in conflict with those of the Class.

20. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy since joinder of all members of the Class is impracticable.

Furthermore, because the damages suffered by individual Class members may be relatively small,

the expense and burden of individual litigation make it virtually impossible for the Class members

individually to redress the wrongs done to them. Plaintiff envisions no difficulty in the management

of this action as a class action.

FRAUD-ON-THE-MARKET ALLEGATIONS

21. With regard to its allegations arising under Section 10(b) and Rule lOb-5,

plaintiff intends to rely on the fraud-on-the-market doctrine, which during the Class Period involved

the existence of an efficient market for Cybershop common stock. In that connection, brokers

nationwide had immediate access to press releases and trading information about Cybershop through

computer and news wire systems. These systems displayed, within minutes of the release or

transaction taking place, pertinent information and the most recent trades and prices.

22. Plaintiffwill rely, in part, upon the presumption ofreliance established by the

fraud-on-the-market doctrine in that during the Class Period:

(1) Defendants made public misrepresentations or failed to disclose facts during

the Class Period;

(2) The omissions and misrepresentations of fact were material;

(3) Cybershop met the requirements for listing, and was listed on the NASDAQ

National Market System, a highly efficient market;

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(4) As a regulated issuer, Cybershop filed periodic public reports with the SEC;

(5) Cybershop's trading volume, during the Class Period, was substantial, thereby

reflecting numerous trades each day;

(6) The misrepresentations alleged herein would tend to induce a reasonable

investor to misjudge the value of Cybershop's common stock;

(7) Plaintiff and the members ofthe Class purchased their common stock during

the Class Period without knowledge of the omitted or misrepresented facts; and

(8) Cybershop was followed by various analysts employed by brokerage firms

who wrote reports that were distributed to the sales force and certain customers of their respective

brokerage firms and which were available to the public through various automated data retrieval

services. Thus, each of these reports was publicly available and entered the public marketplace. .

23. Based upon the foregoing, plaintiff and the members ofthe Class are entitled

to a presumption of reliance upon the integrity of the market for their Section 10(b) claims.

BACKGROUND

24. In its quarterly report filed with the SEC on Form 10-Q, dated August 13,

1999, the Company described itself as:

an online and direct to consumer retailer. The flagship store locatedat www.eybershop.com offers discounted designer and brand-nameapparel, electronics, home accessories, toys, gifts and watches all atcloseout prices, electronics.net, the Company's joint venture withTops Appliance City (Tops), located at www.electronies.net, offersa broad assortment of consumer electronics, appliances and homeoffice equipment for sale online.

25. In that 10-Q, Cybershop reported significant changes in its operations,

including a shift in its sales strategy to focus on offering discounted brand name merchandise:

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Beginning in the first quarter ofthe current year, the Company beganimplementing several operating initiatives at its flagship store,cybershop.com, designed to better serve its customers and streamlineits operations. The Company has completed a shift in itsmerchandising strategy to focus on offering off-price brandedmerchandise such as that found in outlets and traditional discountretailers. The Company initiated a significant overhaul of itsinfrastructure, migrating its web-based order processing onto a newplatform, redesigning the web site and integrating it with a new orderfulfillment system. The transition to an inventory-based model wascompleted in the second quarter with the development of a newdistribution and fulfillment center. In addition, the Companylaunched two new online auction sites. With this initiative, theCompany introduced the excitement ofthe online auction experienceto all its customers, complementing its existing product offerings.The initiative also offers the Company a new way to attractcustomers, learn more about their shopping preferences and providean effective mechanism to manage excess inventory.

26. Effective June 1, 1999 the Company acquired all of the outstanding common

stock of The Magellan Group., Inc. ("Magellan "), which the Company described as an online and

direct response retailer ofhigh quality personal care, home and health related products, in exchange

for 1,000,000 shares of the Company's common stock and $5,000,000 in cash. During the second

quarter of 1999, the Company began operating its Tools for Living division (formerly Magellan).

Tools for Living, like Magellan, offered high quality merchandise in the personal care , health and

home accessories categories, promoted through direct response print media campaigns in national

consumer magazines and through its website www.toolsforliving.com.

27. During the third and fourth quarters of 1999, the Company made a series of

announcements which were intended to, and did, convey, the impression that Cybershop was

successfully positioning itself as the premier online name-brand discount retailer.

28. On September 16, 1999, Cybershop announced that it had signed exclusive

online distribution agreements with "key designer apparel brands." The Company stated that

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"Cybershop. corn is leveraging its experience as traditional merchants and its position as a pioneer

in e-commerce, to purchase close-outs and over stocks directly from America's most prestigious

manufacturers."

29. Commenting on the agreements, defendant Tauber was quoted as stating

"[j]ust as T.J. Maxx and Marshalls ... have become the dominant brick and mortar retailer [sic] for

off-price brands, we are positioning Cybershop.com as the key internet destination to purchase

designer apparel and home furnishings . . . . "

30. On September 21, 1999, the Company announced that it had secured

additional distribution for its auction site on Lycos, Excite@Horne and MSN. The Company stated

""[a]uctions have been an exciting feature, attracting thousands of new customers and registrants

to CyberShop.com and electronics.Net who register to bid and win top quality, branded consumer

electronics...."

31. Commenting on the distribution arrangement, defendant Tauber was quoted

as stating "[a]uctions have been an exciting way for us to acquire new customers for both

CyberShop. com and electronics.Net ... This new distribution from Lycos, MSN and Excite has

given a real boost to our traffic and demand for auctions."

32. On September 23, 1999, the Company announced that it had entered into an

agreement with LookSmart to be featured in RewardMall, LookSmart's online shopping mall.

According to Cybershop's press release, the Company would be prominently featured in the apparel,

accessories, and electronics areas of RewardMall. Commenting on this agreement, defendant

Tauber was quoted as stating "[s]ecuring this key area will help to position us as the premier place

to shop for branded discount merchandise and our broad selection of consumer electronics.... We

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believe our positioning with LookSmart in their RewardMall combined with their significant growth

in traffic will be an important contributor to our traffic growth into the fourth quarter."

33. On September 30, 1999, the Company completed a private placement of

equity securities raising gross proceeds of$5.1 million. As part ofthe financing the Company issued

a class of warrants that provided the investors with the right to receive additional shares if the price

of the Company's stock trades below certain levels.

34. On October 4, 1999, Cybershop announced that its partner in the

electronic .Net joint venture, Tops, had decided to discontinue selling consumer electronics in order

to focus on selling higher-margin appliances. The Company stated that electronics.Net would have

access to Top's inventory through the balance ofthe year, but that it was seeking alternative supply

arrangements. Cybershop stated that "it is not believed that this decision by Tops will have a

detrimental impact on the operating results of CyberShop.com."

35. On October 21, 1999, Cybershop announced that it has signed an expanded

agreement with Yahoo! to include the Company's products in the Yahoo! Shopping lirectory.. .

Underscoring the purported significance of the agreement , the Company stated that:

CyberShop.com is quickly establishing itself as one of the leadingsites for designer apparel and other brand name merchandise at deepdiscount prices. With this deal, CyberShop.com will be wellpositioned to capitalize on the upcoming holiday season, whichaccording to Jupiter Communications, an internet research firm, isestimated to generate $6 billion in online sales.

36. Defendant Tauber was quoted as stating:

CyberShop.com has been growing rapidly with our last quarterrevenues increasing over 270%. over the June quarter ended 1998.This agreement with Yahoo! will further enable us to continuedriving top line growth and bringing our deep merchandise mix tomillions of additional online shoppers.... This deal highlights ourongoing strategy to become the premier destination on the Web for

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brand name merchandise while providing a fast and convenientshopping experience.

SUBSTANTIVE ALLEGATIONS

37, On October 26,1999, Cybershop issued apress release over the PRNewswire

headlined "CyberShop.com(R) Third Quarter Net Sales Increase Over 450% from the Prior Year

with Strong Product Gross Margins of 34%." The press release continued:

CyberShop.com Reports Unique Visits Grew by 82% Over Previous

Quarter

JERSEY CITY, N.J., Oct. 26/PRNewswire/ -- CyberShop. com(R),Inc. (NASDAQ: CYSP), a leading online retailer(htip://www.cybershop.com) ofbrand name merchandise , announcedtoday that its net sales of $2,788,000 for the third quarter of 1999,were up 458% from $500 ,000 in the third quarter of 1998 and up35% from $2,067,000 in the second quarter of 1999. Gross marginsfor the quarter improved to 34% ofnet sales from 30% in the secondquarter of 1999.

CyberShop.com experienced similar growth in unique visitor traffic,which increased to approximately 2 million, up 82% from 1.1 millionin the second quarter of 1999. At the same time, CyberShop.comcontinued to maintain its focus on operating. margins by generating$3.43 of revenue for each dollar spent on marketing in the thirdquarter of 1999.

CyberShop.com reported a third quarter pro forma net loss beforemerger and acquisition related costs of $1,412,000, or ($0.16) pershare compared to a net loss of $1,153,000 or ($0.15) per share in thethird quarter of 1998. Third quarter net loss, including merger andacquisition related costs, was $2,162,000 or ($0.25) per share.

"We are excited about the exceptional growth that CyberShop.comhas already experienced in 1999," said Jeff Tauber, CEO andChairman of the Board. "A number of successfully executedmerchandising and marketing initiatives have helped us achieve rapidgrowth over the last three quarters. We are now gearing up for theupcoming holiday season with a host of online and offline initiativesto promote a number of hot products."

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During the third quarter, CyberShop.com's customer count increasedto 396,144. CyberShop.com processed approximately 15,000 orderswith an $186 average order size. In preparation for the holidayseason, CyberShop.com is carrying thousands of products and over150 top brands, and has boosted its fulfillment and customer servicecapacity to process many more orders in preparation for the fourthquarter.

38. The foregoing statements and financial results set forth above were materially

false and misleading and lacked any reasonable basis because, as defendants knew or recklessly

disregarded, and failed to disclose to the investing public, product sales by the Company's

CyberShop.com. division during the third quarter of.1999 actually declined 28 percent from the

same period a year earlier. The tremendous 450% net sales increase reported in the press release

was, in fact, primarily the result ofrevenues generated by the Company's Tools for Living division,

formerly known as Magellan, which the Company had acquired in June 1999. Of the $2,067,000

in third quarter revenues reported by the Company, Tools for Living generated third quarter 1999

revenues of $1,926,000. Additionally, the Company' s joint venture with Tops (which had been

terminated due to Tops' change in business strategy) had generated third quarter 1999 revenues of

$504,000.

39. Similarly, defendant Tauber's statements, that "[a] number of successfully

executed merchandising and marketing initiatives have helped us achieve rapid growth over the last

three quarters. We are now gearing up for the upcoming holiday season with a host of online and

offline initiative to promote a number of hot products," was materially false and misleading.

Defendant Tauber knew, or recklessly disregarded, that revenues for the CyberShop.com division

had actually declined and that the increase in third quarter revenues was driven primarily by

Cybershop's Tools for Living division. Therefore, the merchandising and marketing initiatives

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referenced by Tauber had nothing to do with the Company's "rapid growth over the last three

quarters."

40. Because most e-tailers were not operating at a profit at that time, revenues

were the primary indicator used by the market to gauge the performance ofmost Internet companies.

A year-over-year decline in quarterly revenue for an Internet retailing venture was almost unheard

of in 1999, when Internet commerce grew rapidly. Had the market known the truth concerning the

source of the Company's third quarter 1999 revenues, the price of its common stock would have

been adversely impacted because it would have demonstrated the fundamental weakness in the

Company's core operations. Only on February 24, 2000, in an amended Report on Form 10-Q for

the quarter ended September 30, 1999, filed with the SEC, did the defendants finally disclose the

truth concerning its third quarter 1999 revenues, reporting that "Revenues attributable to CyberShop

for the third quarter of 1999 totaled $358,000 as compared to $500,000 for the same period of

1998."

41. Against the backdrop of the Company's false and misleading third quarter

1999 revenue announcement, Cybershop continued issuing press releases announcing favorable

developments in an attempt to underscore the Company's position for the upcoming 1999 holiday

season.

42. In November 4, 1999, Cybershop announced that it had extended its

relationship with America Online ("AOL") to be featured in the auctions and outlets department of

Shop@AOL. The Company reported that under the terms of its agreement with AOL, it would have

"gold tenant" status in the auctions and outlets categories. It further stated that CyberShop's

merchandise would be prominently rotated on the department front screen and would be available

through AOL search. According to the Company, this would give Cybershop access to more than

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18 million registered members ofAOL, in addition to the millions ofother consumers through added

presence on AOL.com, Compuserve. com and Netcenter.com shopping portals.

43. In connection with the AOL agreement, defendant Tauber was quoted as

stating "[w]e have had tremendous success with AOL customers over the past four years and are

excited to continue serving millions of AOL users across their portfolio of interactive services...

Having gold tenant status in the auctions and outlets department will provide us tremendous

exposure ...."

44. On November 5, 1999, the Company announced that it had implemented

Business Evolution's @Once Service Center to enhance its customer service capabilities. According

to the Company, the @Once Service Center enabled the Company to qualify and prioritize incoming

emails according to urgency and ensure that all customer questions are answered in the most

effective manner . Cybershop claimed that this would allow its service representatives to process

queries more effectively and spend more time converting visitors to buyers.

45. On November 5, 1999, Cybershop issued a press release over the PR

Newswire in which defendants summarized an interview defendant Tauber gave to The Wall Street

Reporter. The press release quoted Tauber as saying the key to success "is to listen to your

customers, the changes on the Internet are very rapid. When we started. this business we were a full

price retailer , today CyberShop. com is an off-price retailer competing against TJX [the publicly-

traded parent ofTJ Max and Marshall's] ... providing consumers a better way to buy brand name

apparel at deep discounts. The new business model has been in place for a little more than two

quarters with great success. In the second quarter we did roughly $2 million with a 30% gross

margin, which is four times last year, and in our third quarter we did $3 million with a 34% gross

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margin. The 34% gross margin could be double that of the next online retailer." The press release

continued:

Jeff Tauber explains that CyberShop.com reaches its customers

through what he calls "a triple whammy. First, we reach customersthrough online ads with portal deals such as Yahoo!, AOL, Microsoftand Inktomi, Second, we do off-line print ads, primarily inmagazines, such as People, Time, Newsweek, Parade, Ladies HomeJournal, and Better Homes and Garden. The third component is wordof mouth and we do a great deal of email marketing, public relationsand affiliate programs."

When asked about future acquisitions, Jeff Tauber said "We made avery important acquisition in June with Toolsforliving.com and we'will continue to look for more acquisitions. We have two criteria foracquisitions. First, does it add a product category that we don'tcurrently have on our sites. Second, is it a company that financiallyhas done a great job since we don't want to acquire a company thathas huge cash burn rates because we want to move towardsprofitability as quickly as possible."

Jeff Tauber thinks the big challenge going forward will be the fourthquarter. He says, "the fourth quarter can represent over 50% of our

business and we are very focused on making sure that our systems are

robust enough to handle traffic, our marketing plans are in place, andwe picked the right products. Right now we are expecting an

enormous fourth quarter and its very exciting. We are not only

leveraging our expertise picking toys, we will run Pokemon and SegaDreamcast, we also have some great apparel items and a china pattern

from Spode. We are ready."

What should investors look for when investing in CyberShop.com?

Jeff explains "One of the most critical elements when looking at anonline retailer is gross margin; you can't acquire customers at any

cost. We are very focused on gross margin because we believe

ultimately that gross margin is the way we will reach profitability.

Investors also have to look at marketing dollars spent. Last quarter

we generated $3.40 ofrevenue for every marketing dollar spent. We

believe we have one of the best executed sites, its simple, its easy to

find products and checkout. And of course we have a management

team with over 100 years of merchandising experience. We are

going after a big market segment. Off-price retail business is a $27

billion industry and we believe we are poised to capture a big portion

of that business online."

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46. The foregoing statements, including defendant Tauber's statement that the

new business model has been in place for a little more than two quarters and has met with great

success, were materially false and misleading because as defendants knew, or recklessly

disregarded, the Company's CyberShop.com division had actually experienced a decline in

revenues in the third quarter of 1999 as compared to the same period a year earlier . Likewise,

Tauber's expectations for "an enormous fourth quarter," and his statement that the Company was

"poised to capture a big portion of [the off-price retail business] online were materially false and

misleading and lacked any reasonable basis because, as defendants knew, or recklessly disregarded,

sales of CyberShop.com's core business, actually declined 28 percent from a year earlier.

47. As a result ofdefendants' positive statements about Cybershop's third quarter

1999 financial results, operations and prospects in the Company's October 26, 1999 and November

5, 1999 press releases , the price of Cybershop common stock soared, rising from a price of $6.625

per share on October 25, 1999 to as high as $14.75 per share on November 29, 1999.

48. On November 9, 1999, the Company announced that it had entered into an

agreement with Merrill Lynch to feature Cybershop' s online stores on Merrill Lynch's eShopping

channel . The Company stated "[s]ince the beginning ofthe fourth quarter, CyberShop .com had been

aggressively building marketing relationships with a number of key shopping channels including

America Online, Yahoo! Shopping, Microsoft's eShop and Inktomi in preparation for this holiday

selling season."

49. With respect to the Merrill Lynch agreement, defendant Tauber was quoted

as stating "Merril] Lynch clients and employees from around the world now have access to

CyberShop. com's apparel and electronics merchandise ." Tauber continued, "[w]e are very excited

about this deal and believe Merrill's eshopping customers will have a higher propensity to transact

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and to shop online, driving our top line growth and increasing margins by lowering our customer

acquisition costs."

50. On November 12, 1999, Cybershop filed its report for the third quarter 1999

with the SEC on Form 10-Q. The Form 10-Q was signed by defendant Tauber. In that report, the

Company repeated the materially false and misleading statements concerning revenue growth as it

made in its October 26, 1999 press release:

Results of Operations Three Months Ended September 30, 1999compared to Three Months Ended September 30, 1998.

Revenues: Revenue is comprised of sales of products , net of returns,outbound shipping and handling charges, advertising and vendor set-up fees . Total revenues increased 458% in the third quarter, or$2,288,000 , to $2,788,000 as compared to $500,000 in the thirdquarter of 1998. This increase was primarily attributable to greatermarketing efforts, an expanded customer base, repeat purchases fromexisting customers , acquisitions , and strong sales of four products,which represented approximately 45% of total revenues in the threemonths ended September 30, 1999. Advertising and set-up feesdecreased by 73%, or $22,000, to $8 ,000 in the third quarter of 1999from $30,000 in the third quarter of 1998, as a result of a decrease inemphasis on this revenue stream and an increased focus on theCompany's merchandising strategies.

51. The foregoing statements were materially false and misleading because, as

defendants knew, or recklessly disregarded, it gave the impression that "greater marketing efforts,

an expanded customer base, and repeat purchases from existing customers" had a greater impact on

the increased revenues than the Company's acquisition activities. In fact, as was ultimately

disclosed, more than half of revenues generated in the third quarter 1999 came from the Magellan

Group, Inc., which the Company had acquired in June 1999. Moreover, as the Company later

disclosed, Cybershop's core business actually experienced a 28% decline in revenues in the 1999

third quarter as compared to the same period the preceding year.

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. Case 2:00-cv-019 JAP Document 20 Filed 0412001 Page 19 of 39

52. On November 15, 1999, Cybershop announced that it had signed an

agreement with Women, com, under which its merchandise would be prominently featured under the

fashion, beauty, and electronics categories and would be advertised in various Hearst and Rodale

Interactive Publications, including Cosmopolitan, Good Housekeeping, and Marie Claire. In

addition, the Company would receive preferred rotation within the Women.com Networks, including

the Fashion and Beauty Channel, Home Channel and Sex and Romance Channel.

53. On November 22, 1999, Cybershop announced . that it had launched an

aggressive print ad for the holiday season in such publications as Time, Newsweek, USA Today

Weekend, Parade, LA Times Sunday Magazine, Ladies Home Journal, Popular Mechanics, Better

Homes and Gardens, and US News and World Report. Commenting on the. campaign, defendant

Tauber was quoted as stating "[t]he print ads will allow us to reach millions of consumers to

uniquely feature our hot holiday products ... We believe we have the right combination of online

and offline marketing to promote our merchandise and our brand for this holiday season...."

54. The foregoing statement was materially false and misleading, however,

because as defendant Tauber knew, or recklessly disregarded, the Company's CyberShop.com

division had experienced a substantial decline in revenues during the third quarter of 1999, and the

division's poor financial performance was continuing throughout the fourth quarter. Defendant

Tauber therefore lacked any reasonable basis for his statement that the Company had the right

combination of online and offline marketing to generate substantial revenues in its CyberShop.com

division during the holiday season.

55. On November 24,1999, Cybershop announced that it had been named to the

"elite" list, The Internet 500, the first annual ranking of the nation 's largest Internet firms based on

online revenues.

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Case 2:00-cv-0199 JAP Document 20 Filed 04/9001 Page 20 of 39

56. On November 26,1999, Cybershop announced that it was selected by ON24,

Inc. (which the Company described as the streaming media network for investors) as among the elite

Network Economy stocks to own. It further reported that ON24, Inc. picked the Company as a "core

holding" for investors based on anticipated growth during the holiday season. Among the other

stocks selected were AT&T, Qwest Communications , Yahoo!, Intel , AOL, Cisco, Amazon, Ebay,

and Adaptec . The Company stated that it was picked by ON24's Editor in Chief as the "racing horse

stock pick," citing that the stock was well off its 52 week high and "clearly going to benefit from

the onset of the Christmas selling season."

57. Commenting on the selection of the Company by ON24, defendant Tauber

was quoted as stating : "[w]e are excited our stock has been chosen by ON24. com and believe it

further illustrates the strength of our company ... We are well prepared for the holiday season and

believe it will clearly differentiate us as the leader in our segment of online retail."

58. The foregoing statement by defendant .Tauber was materially false and

misleading , however, because defendant Tauber knew, or recklessly disregarded, that at the time he

made the statement the Company's core business revenues were actually declining. Based on the

Company' s actual third quarter financial results , Tauber had no reasonable basis for his belief that

the holiday season would differentiate Cybershop as the leader in its segment of online retail. In

addition, defendants knew, or recklessly disregarded, that ON24's selection ofCybershop was based,

in substantial part, on defendants' materially false and misleading statements concerning the

purported success ofthe Company' s online retail business , CyberShop .com, and defendants ' failure

to disclose that its core business had actually experienced a 28% decline in revenues in the third

quarter of 1999 compared to the same period the prior year.

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Case 2:00-cv-0199

if

Document 20 Filed 04/001 Page 21 of 39i

59. OnDecember 8, 1999, the Company completed a private placement ofequity

securities, raising gross proceeds of $6.0 million. The financing involved the issuance of 528,634

shares ofcommon stock at $11.3 5 per share and warrants to purchase an aggregate of237, 886 shares

of common stock at an exercise price of $12.00 per share. As part of the financing another class of

warrants was issued ("December adjustable common stock warrants "). The December adjustable

common stock warrants provide the investors with the right to receive additional shares if the price

of the Company's stock trades below certain levels. In February 2000, 613,486 shares of common

stock were issued by the Company to the investors upon exercise of all of the December adjustable

common stock warrants.

60. Following the announcement of several other initiatives, including free

shipping on orders for the holidays, on December 23, 1999, the Company issued a press release. in

which it reported that "[e]arly financial data is encouraging, indicating year over year revenue

growth and healthy gross margins. According to a recent Business Week article (December 27,

1999), 'E-Tailers with high gross margins are likely to survive the cyberwars.'°' Defendant Tauber

was quoted as stating "[w] a are very pleased with our performance to date and our ability to increase

our margins throughout the year ... Our infrastructure was well prepared for the added volume, our

web servers, fulfillment operations, and customer service all rose to the occasion."


defendants knew, or recklessly disregarded, the Company was not, in fact, experiencing revenue

growth on a year-to-year basis. As defendants would ultimately disclose, approximately 75% ofthe

Company's 1999 revenues were generated by the Company's Tools for Living division (formerly

Magellan), which the Company did not acquire until June 1999. Revenues for the Company's core

business were actually in substantial decline on a year over year basis. In fact, the Company would

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Case 2:00-cv-0199' Document 20 Filed 04/21601 Page 22 of 39

ultimately disclose that revenues from its core business, CyberShop.com, declined by almost 50%

on a year to year basis, from $4,827,000 in 1998 to $2,898,000 inl999 . Irrespective of its gross

margins, the Company's CyberShop.com division was generating only half the sales as compared

to the same period the prior year.

62. On February 1, 2000, the Company announced its unaudited financial results

for the fourth quarter of 1999, reporting revenues of approximately $4.2 million for the quarter and

net revenues of $10 million for the year 1999, doubling revenues from 1998. Touting an increase

in gross margins, to 32% from 23% for the same period in 1998, the Company reported that it

expected operating losses to decline approximately 30% for the quarter as compared to the same

period in the prior year.

63. Commenting on these results, defendant Tauber was quoted as stating "[w}e

are pleased with our financial performance and believe our balanced approach in growing our

business towards profitability versus growth at any cost will allow us to build a more sustainable

business model long term ...." Tauber also was quoted as stating that "[w]e believe that growth at

any cost is unsustainable for any dot com, and are very pleased with the way our marketing drove

traffic and sales for the holiday selling season ... Ultimately, we were able to show significant top

line growth while not sacrificing the bottom line."


defendants knew, or recklessly disregarded, the increase in revenues for 1999 was primarily

attributable to its Tools for Living division, which contributed $5,298,000 or 75% of total revenues

in 1999, and also to the growth of electronics.net which contributed $1,721,000 or 25% of total

revenues in 1999. In fact, the Company's revenues from its Cybershop.com business was

$2,898,000 in 1999 as compared to $4,827,000. Thus, instead of increasing on a year to year basis,

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Case 2:00-cv-01 QQA-JAP Document 20 Filed 0/2001 Page 23 of 39

the 1999 revenues from the Company's core business actually declined approximately 50%.

Moreover, defendant Tauber's statement that "[w]e are very pleased with our financial performance

and believe our balanced approach in growing our business towards profitability" in the context of

the Company purportedly being "the leading online off-price retailer of designer apparel, home

furnishings and electronics" was materially false and misleading since the Company had determined

to abandon its e-tailing operations because its CyberShop.com operations were faltering so badly

and its holiday sales were disappointing.

65. Indeed, on February 10, 2000, the Company issued a press release over the

Business Wire announcing its exit from the e-tailing business by closing its e-tailing sites

CyberShop.com and electronics.net and selling the retail assets of these operations. Instead, the

Company stated that it would launch an Internet incubator through Grove Street Ventures, Inc.

("Grove Street") and Cybershop would provide Grove Street with management resources,

equipment, facilities, and financial resources, including initial seed capital, to attract and develop

start-up Internet companies. Defendants did not disclose, however, that the reason for the divestiture

ofthese operations was that CyberShop,com had dismal financial results during the third and fourth

quarters of 1999, and that the Company had not found a replacement for Tops as its joint venture

partner in electronics.net.

66. On February 24, 2000, the Company disclosed for the first time, in its

amended quarterly report on Form 10-Q/A for the quarter ended September 30, 1999, that sales of

CyberShop.com, the basic venture , actually had declined 28 percent from a year earlier . A year-

over-year decline in quarterly revenue for an Internet retailing venture was almost unheard of in

1999, when Internet shopping grew rapidly. In the Form 10-Q/A for the quarter ended September

30, 1999, the defendants finally disclosed in the section entitled "Results of Operations - Three

-23-


Months Ended September 30, 1999 compared to Three Months Ended September 30, 1998," that

"Revenues attributable to CyberShop for the third quarter of 1999 totaled $3 58,000 as compared to

$500,000 for the same period of 1998."

67. As a consequence of the materially false and misleading statements

disseminated by defendants , the price of Cybershop common stock was artificially inflated during

the Class Period. Upon disclosure of the foregoing information, Cybershop common stock closed

at $3.9375 per share on February 24, 2000. The stock had been as high as $14.75 per share on

October 29, 1999.

68. On February 29, 2000, the New York Times published an article entitled "Can

Cybershop Explain This To Investors?" Describing events at Cybershop, the article, in pertinent

part, reported:

In searching for winners in the electronic retailing business, profitsare hard to find. So investors have focused on revenue, figuring thatrising sales are a sign of success.

So it was no surprise that the stock price of Cybershop.com lifted offafter it reported that its sales soared 458 percent in the third quarterfrom the comparable period a year earlier. The stock, around $6 ashare before the announcement, climbed to a high of $14.25 on Nov.29 amid great optimism over the holiday shopping season.

That zooming revenue figure, however, may have concealed morethan it revealed. Sales of Cybershop.com, the basic venture, actuallydeclined 28 percent from a year earlier. But that fact was disclosedonly months later, long after some insiders had sold shares. Thecompany's reported revenue increase in the quarter came from anacquisition and from a joint venture that was facing problems causedby a change of strategy by the venture partner, Tops Appliance City,which has since filed for bankruptcy protection.

A year-over-year decline in quarterly revenue for an Internet retailingventure was almost unheard of in 1999, as Internet shopping grewrapidly, and a report of such a fall in its basic business might havecaused the company's stock price to fall. But the sales decline was not

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Case 2:00-cv-019 JAP Document 20 Filed 04 2001 Page 25 of 39

disclosed in the quarterly report filed by Cybershop.com on Nov. 12,nor was it mentioned in the company's news release.

With the stock price rising in November, in the absence of public

knowledge ofthe falling revenue at the company's flagship operation,insiders led by the company's chairman and chief executive, JeffreyTauber, sold $7.9 million worth of stock, at prices ranging from $10

to $14 a share, with most of the money going to Mr. Tauber and hisfamily.

After that run-up, the stock's price spent most of December slowly

declining as investors were informed that the insiders had sold. But

it was not until last Thursday that the company, in an amendedquarterly report to the Securities and Exchange Commission,

disclosed that revenue of its flagship business fell in the third quarter..

Mr. Tauber did not return a phone call seeking comment yesterday,

nor did any other officer of the company. In Nasdaq trading

yesterday, the stock closed at $4.875, less than half the price received

by insiders in November.

On Feb . 1, the company -- describing itself as "the leading online off-

price retailer of designer apparel , home furnishings and electronics,"

reported revenue of $4.2 million for the final quarter of 1999 and

quoted Mr. Tauber as saying he was "very pleased with our financial

performance."

The release said gross margins -- the difference between what the

company paid for inventory and what it realized when it sold the

goods -- was 32 percent, "among the highest of any publicly traded

e-tailers."

69. The price of Cybershop's common stock fell even further following the

publication of the above-referenced article, dropping from a close of $4.875 per share on February

28, 2000, the day before the publication of the article , to a close of $3.9375 per share on February

29, 2000, the day the article was published, and even further, to close at $2.9375 per share on March

1, 2000.

-25-


70. On March 30, 2000, the full extent of the deteriorating financial condition of

the Company's core business, as well as the reason for its divestiture, was fully disclosed when the

Company filed its annual report for 1999 with the SEC on Form 10-K. In that report, the Company

disclosed that three quarters of the Company' s annual revenues were generated by its Tools for

Living business (formerly Magellan , Inc., which was acquired in June 1999):

Total revenues increased by 2992% or $6,792,000, from $227,000 in1998 to $7,019,000 in 1999. This increase was primarily attributableto the acquisition of Magellan and the establishment of the Tools forLiving division which contributed $5,298,000 or 75% of totalrevenues in 1999, and also to the growth of electronics.net whichbegan operations in the fourth quarter of 1998 and represented all ofthe revenues for that year. Electronics.net contributed $1,721,000 or25% of total revenues in 1999.

The Company also disclosed that:

The operating results ofthe Cybershop.com division are reflected asdiscontinued operations and an estimated loss on disposal of$435,000 has been recorded. Total revenues applicable to theCybershop.com division during 1999, 1998 and 1997 were$2,898,000, $4,827,000, and $1,495,000, respectively.

71. The Company has continued to post losses since divestiture of its.

CyberShop .com and electronic .Net divisions. On June 21, 2000, the Company was notified by

NASDAQ that it faced delisting for failure to maintain a $1 per share minimum bid price for its

common stock for ten consecutive trading days. In August 2000, the Company's shareholders

approved, and the Company implemented, a reverse five-for-one stock split. On April 20, 2001, the

Company's stock closed at $0.375 per post-split share.

SCIENTER ALLEGATIONS

72. As alleged herein, defendants acted with scienter in that defendants knew or

recklessly disregarded that the public documents and statements issued or disseminated in the name

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Case 2:00-cv-019 JAP Document 20 Filed 0/2001 Page 27 of 39

of the Company were materially false and misleading; knew or recklessly disregarded that such

statements or documents would be issued or disseminated to the investing public; and knowingly

and substantially participated or acquiesced in the issuance or dissemination of such statements or

documents as primary violations of the federal securities laws.

73. As set forth elsewhere herein in detail , the Individual Defendants, by virtue

oftheir receipt ofinformation reflecting the true facts regarding Cybershop and/or their control over .

the Company, which made them privy to confidential proprietary information concerning

Cybershop, participated in the fraudulent scheme alleged herein.

74. - Defendants were motivated to engage in the scheme to artificially inflate the

price of Cybershop' s common stock in order to: (i) protect and enhance their executive positions

and the substantial compensation and prestige they obtained thereby; and (ii) enhance the value of

their personal Cybershop common stock and stock options , allowing for profitable insider sales and

purchases. In particular, defendants Tauber and Phillips were able to profitably sell shares of

Cybershop common stock on November 11, 1999 through November 26, 1999 at artificially inflated

prices ranging from $10.00 to $10.61 per share. Additionally, Linda Wiatrowski, CyberShop.com's

Vice President-General Merchandise Manager, also exercised warrants to purchase, and then sold,

20,000 shares of Cybershop common stock on November 29, 1999.

75. The foregoing defendants and Company insider engaged in the following

transactions in Cybershop common stock during the Class Period:

Date Name Shares Sold Sales Price Proceed

11/11/99 Jeffrey S. Tauber and 200,000 $10.00/share $ 2,000,000Jane S. Tauber

11/26/99 Jeffrey S. Tauber and 475,000 $10.61/share $ 5,039,750Jane S. Tauber

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Case 2:00-cv-0199P Document 20 Filed 04/2*01 Page 28 of 39

TotalShares Sold

TotalProceeds

675,000 $ 7,039,750

11/22/99 Ian S. Phillips 10,000 $10.50/share $ 105,000

11/26/99 Ian S. Phillips 20,000 $10.50-$13.00/share

$ 235,000

11/29/99 Ian S. Phillips 10,000 $14.00/share $ 140,000

TotalShares Sold

TotalProceeds

40,000 $ 480,000

11/29/99 Linda Wiatrowski 20,000 $13.47/share $ 269,400

TotalShares Sold

TotalProceeds

20,000 $ 269,400

76. Thus, the proceeds from the Taubers' insider sales , $7,039,750, were more

than 28 times the annual salary defendant Tauber received in1999. Moreover, these massive sales

of more than 26% of the Taubers' aggregate Cybershop holdings, occurred during a fifteen-day

period half way through Cybershop's fourth quarter. The Taubers had only one prior sale of

Cybershop common stock, 100,000 shares in 1998. Thus, the size and the timing of the Taubers'

transactions in the Company's stock were highly unusual because it occurred after defendants knew,

or should have known, that revenues from the Company' s core business , the CyberShop.com

division, had not increased 452% in the third quarter of 1999 compared to the same period in 1998

as reported, but that revenues from that division had actually declined 28% in the 1999 third quarter

on a year-to-year basis.

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Case 2:00-cv-019

1W

AP Document 20 Filed 042001 Page 29 of 39

77. Likewise, the timing ofdefendant Phillips ' sale of40,000 shares ofCybershop

common stock for proceeds of $480,000 was highly unusual because it occurred after defendants

knew, or should have known, that revenues from the Company's core business, the CyberShop.com

division, had not increased 452% in.the third quarter of 1999 compared to the.same period in 1998

as reported, but that revenues from that division had actually declined 28% in the 1999 third quarter

on a year-to-year basis. In addition, Phillips had no prior sales of the Company's stock.

78. Similarly, the insider sales by Linda Wiatrowski, support a strong inference

of scienter. Although she is not named as a defendant, as Vice President-General Merchandise

Manager for Cybershop, Wiatrowski was in a position to know the state ofthe Company's quarterly

sales in its CyberShop.com division. Wiatrowski had not previously sold, nor exercised options in

order to sell, Cybershop common stock. The proceeds from these insider sales was more than twice

Wiatrowski' s 1998 annual salary of $132,000.

79. Additionally, defendants were motivated to artificially inflate the price of

Cybershop common stock during the Class Period in order to avoid the penalties under the terms

of the December 1999 private placement. As alleged above, under the terms of that placement,

warrants were issued which would provide the investors with the right to receive additional shares

of Cybershop common stock if the price of the stock trades below certain levels. In November

1999, 43,668 shares of common stock were issued by the Company to the investors upon exercise

of all of the adjustable common stock warrants that were issued in connection with the September

1991 private placement. Thereafter, defendants engaged in the course of wrongful scheme to

artificially inflate the price of the Company's common stock, inter alia, in order to avoid issuing

additional shares of stock under the terms of the December private placement.

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Case 2:00-cv-019 AP Document 20 Filed 04$2001 Page 30 of 39

NO STATUTORY SAFE HARBOR

80. The statutory safe harbor provided for forward-looking statements under

certain circumstances does not apply to any of the allegedly false forward-looking statements

pleaded in this Complaint, because none of the statements pleaded herein were identified as

"forward-looking statements" when made, Nor did meaningful cautionary statements identifying

important factors that could cause actual results to differ materially from those in the forward-

looking statements accompany those forward-looking statements. To the extent that the statutory

safe harbor does apply to any forward-looking statements pleaded herein, defendants are liable for

those false forward-looking statements, because at the time each of those forward-looking

statements was made the speaker actually knew the forward-looking statement was false and/or the

forward-looking statement was authorized and/or approved by an executive officer of Cybershop,

who actually knew that those statements were false when made.

FIRST CLAIMSection 10(b) Of The Exchange Act And

Rule 10b-5 Promulgated Thereunder (Against All Defendants)

81. Plaintiff repeats and realleges each and every allegation set forth above, as

if set forth herein.

82. Defendants, individually and in concert, directly and indirectly, by the use of

means or instrumentalities of interstate commerce and/or of the mails, engaged and participated in

a continuous course of conduct that operated as a fraud and deceit upon plaintiff and the other

members of the Class; made various untrue and/or misleading statements of material facts and

omitted to state material facts necessary in order to make the statements made, in light of the

circumstances under which they were made, not misleading; and employed devices and artifices to

defraud in connection with the purchase and sale of securities. During the Class Period, defendants,

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Case•2:00-cv-0199 P Document 20 Filed 04/2)01 Page 31 of 39

W

with knowledge of, or in reckless disregard for the truth, disseminated or approved the false

statements specified above, which were misleading in that they contained misrepresentations and

failed to disclose material facts necessary in order to make the statements made, in light of the

circumstances under which they were made , not misleading.

83. At all relevant times, the material misrepresentations and omissions

particularized herein directly or proximately caused the damages sustained by plaintiff and the other

members of the Class.

84. Information showing that defendants acted knowingly or with reckless

disregard of the truth is peculiarly within defendants' knowledge and control. As directors and/or

senior corporate officers of Cybershop, the Individual Defendants had knowledge ofthe details of

the Company's business and prospects. Plaintiff, who purchased shares ofCybershop common stock

on the open market, does not have knowledge of the details of Cybershop's internal corporate

affairs.

85. As a result of the dissemination of the materially false and misleading

information and failure to disclose material facts, as set forth above, the market price of the

Company's common stock was artificially inflated during the Class Period. In ignorance of the

materially false and misleading nature of the reports and statements described above, plaintiff and

the other members of the Class relied to their damage on the statements described above and/or on

the integrity ofthe market price ofthe Company's common stock as reflecting the completeness and

accuracy of the information disseminated by the Company in connection with their purchases ofthe

Company's securities.

86. At the time of said misrepresentations and omissions, plaintiff and the other

members of the Class were ignorant of their falsity, and believed them to be true. Plaintiff and the

-31-

`Case 2:00-cv-0190

AP Document 20 Filed 04/001 Page 32 of 39

other members ofthe Class could not, in the exercise of reasonable diligence, have known the actual

facts. Had plaintiff and the other members ofthe Class known the truth, they would not have taken

such action.

87. The market for Cybershop common stock was open, well developed, and .

efficient at all relevant times. As a result of these materially false and misleading statements and

failures to disclose the full truth about Cybershop's results of operations and financial condition,

Cybershop common stock traded at artificially inflated prices during the Class Period, until the time

the adverse information referred to above was finally provided and digested by the securities

markets. Plaintiff and other members of the Class purchased or otherwise acquired Cybershop

securities, relying upon the integrity of the market price ofCybershop stock and market information

relating to Cybershop, or in the alternative, upon defendants' false and misleading statements, and

in ignorance of the adverse, undisclosed information known to defendants, and have been damaged

thereby.

88. Plaintiff and other members of the Class have suffered substantial damages

as a result of their purchases of Cybershop's common stock.

89. By virtue of the foregoing, defendants have violated Section 10(b) of the

Exchange Act, and Rule I Ob-5 promulgated thereunder.

SECOND CLAIM

Section 20(a) Of The Exchange Act (Against The Individual Defendants)

90. Plaintiffrepeats and realleges each of the foregoing paragraphs as iffully set

forth herein.

91. The Individual Defendants acted as a controlling persons ofCybershop within

the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level

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r

Case 2:00-cv-019JAP Document 20 Filed 04#2001 Page 33 of 39

positions, participation in, and/or awareness ofthe Company's operations and/or intimate knowledge

of the Company's financial condition, operations, and prospects, 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 which

plaintiff contends are false and misleading. The Individual Defendants were provided with or had

unlimited access to copies of the Company's reports, press releases, public filings, and other

statements alleged by plaintiff to be misleading prior to and/or shortly after these statements were

issued and had the ability to prevent the issuance of the statements or cause the statements to be

corrected.

92. In particular, the Individual Defendants had direct and supervisory

involvement in the day-to-day operations ofthe Company and therefore, are presumed to have had

the power to control or influence the particular transactions giving rise to the securities violations

as alleged herein , and exercised the same.

93. As set forth above in the First Claim, Cybershop violated Section 10(b) and

Rule I Ob-5 by its acts and omissions as alleged in this Complaint. By virtue of their positions as

controlling persons, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange

Act. As a direct and proximate result of defendants' wrongful conduct, plaintiff and other members

ofthe Class suffered damages in connection with their purchases ofthe Company's securities during

the Class Period.

WHEREFORE, plaintiff, on behalf of himself and the other members of the Class,

prays for judgment as follows:

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Case 2:00-cv-01o3-JAP Document 20 Filed 0/2001 Page 34 of 3934 ,

1. Declaring this action to be a proper class action maintainable pursuant to Rule

23 of the Fed. R. Civ . P. and declaring Lead Plaintiff to be a proper Class representative and Lead

Counsel to be Class Counsel;

2. Awarding plaintiff and the other members of the Class damages suffered as a

result of the wrongs complained of herein together with appropriate interest;

3. Awarding plaintiff and the other members of the Class their costs and expenses

of this litigation, including reasonable attorneys' fees and experts fees and other costs and

disbursements: and

4. Awarding plaintiff and the other members of the Class such other and further

relief as may be just and proper under the circumstances.

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Case 2:00-cv-019 AP Document 20 Filed 04/001 Page 35 of 39

JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.

Dated: Fort Lee, New Jersey

April 26, 2001

Respectfully submitted,

& LIFSHITZ, LLP

Fobert J. B , Esq. ( 42)050 Cente A^en , S ite 200

Fort Lee, New J sey 024(201) 592-3201(201) 461-9598 (fax)


Of Counsel

Mel E. Lifshitz, Esq.Timothy J. MacFall, Esq.BERNSTEIN LIEBHARD & LIFSHITZ, LLP10 East 401h Street , 22nd FloorNew York, New York 10016(212) 779-1414

LITE DEPALMA GREENBERG& RIVAS, LLP

Allyn Z. Lite, Esq.Joseph DePalma, Esq.Two Gateway Center, 12th FloorNewark, New Jersey 07102

(973) 623-3000

ABBEY & GARDY, LLPMark C. Gardy, Esq.212 East 39th StreetNew York, New York 1.0016(212) 889-3700

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Case 2:00-cv-019 JAP Document 20 Filed 04#2001 Page 36 of 396

WEISS & YOURMANJoseph H. Weiss, Esq.551 Fifth Avenue, Suite 1600New York, New York 10176(212) 682-3025

LAW OFFICES OF JAMES V. BASHIAN,P.C.James V. Bashian, Esq.500 Fifth AvenueNew York, New York 10010(212) 981-4110

COHEN MILSTEIN HAUSFELDTOLL, P.L.L.C.

1100 New York Avenue, N.W.Suite 500, West TowerWashington, DC 20005(202) 408-4600

STULL STULL & BRODYJules Brody, Esq.6 East 45th StreetNew York, New York 10017(212) 877-7230

LAW OFFICE OF WALLACE A.SHOWMAN, P.C.

Wallace A. Showman, Esq.1350 Avenue of the Americas29th FloorNew York, New York 10019(212) 333-2322

SCHIFFRIN & BARROWAY, LLPAndrew Barroway, Esq.Three Bala Plaza EastBala Cynwyd, Pennsylvania 19004(610) 667-7706

BERMAN, DEVALERIO & PEASE, LLPJeffrey C. Block, Esq.One Liberty SquareBoston, Massachusetts 02109(617) 542-8300

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'Case 2 : 00-cv-019 AP Document 20 Filed 04/4001 Page 37 of 39

BERNSTEIN LITOWITZ BERGER& GROSSMAN

285 Avenue of the AmericasNew York, New York 10019(212) 554-1400

MILBERG, WEISS, BERSHAD HYNES& LERACH LLP

One Penn Plaza, 49th FloorNew York, New York 10019(212) 594-5300

LEVY & LEVY245 Park Avenue, 39th FloorNew York, New York 10167

Attorneys for Plaintiffs

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Case 2:00-cv-019 AP Document 20 Filed 04/001 Page 38 of 39

Robert J. Berg, Esq. (RB-8542)BERNSTEIN LIEBHARD & LIFSHITZ, LLP2050 Center Avenue, Suite 200Fort Lee, New Jersey 07024(201) 592-3201

Mel E. Lifshitz, Esq.Timothy J. MacFall, Esq.BERNSTEIN LIEBHARD & LIFSHITZ, LLP10 East 401h Street, 22°d FloorNew York, New York 10016(212) 779-1414


UNITED STATES DISTRICT COURTDISTRICT OF NEW JERSEY

IN RE CYBERSHOP.COMSECURITIES LITIGATION Civil Action No. 00-1993 (AJL)

THIS DOCUMENT RELATES TO:ALL ACTIONS

CERTIFICATE OF SERVICE

1, Timothy J. MacFall, hereby certify that on the 25th day of April 2001, I caused

a true and correct copy of the foregoing Consolidated Amended Class Action Complaint via Fed

• Case 2:00-cv-0199 4P Document 20 Filed 04/ 001

Ex overnight delivery upon:

Irwin Warren, Esq.WEIL GOTSHAL & MANGES767 Fifth AvenueNew York, New York 10153(212) 310-8000

Counsel for Defendants

Dated : April 25, 2001

Page 39 of 39

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In Re: CyberShop Securities Litigation 00-CV-01993 ...securities.stanford.edu/filings-documents/1013/... · Case2:00-cv-0199IP Document20 Filed 04/2'01 Page4of 39 owned2,563,878 shares

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