In re American Bank Note Holographics Sec. Litig.
| Decision Date | 06 April 2000 |
| Docket Number | No. 99 Civ. 0661 CM.,No. 99 Civ. 0412 CM.,99 Civ. 0412 CM.,99 Civ. 0661 CM. |
| Citation | 93 F.Supp.2d 424 |
| Parties | In re AMERICAN BANK NOTE HOLOGRAPHICS, INC. SECURITIES LITIGATION. In re American Banknote Corporation Securities Litigation. |
| Court | U.S. District Court — Southern District of New York |
Two putative plaintiff classes bring these consolidated actions against American Banknote Corporation ("ABN"), American Bank Note Holographics, Inc. ("Holographics"), their auditors, the underwriters of Holographics' public offering, and several former officers of both corporations, for claims arising under Sections 11, 12(a) and 15 of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77(k), 77(l) and 77(o); and Section 10(b) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission ("SEC"), 17 C.F.R. § 240.10b-5. Defendants Holographics, ABN, the Underwriters and individual defendants Weissman and Macchiarulo, move separately to dismiss all claims against them in the consolidated Holographics' Complaints pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, and the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4.1 ABN and individual defendants Weissman, Gentile and Gorman move to dismiss the ABN Complaint pursuant to Rules 9(b), 12(b)(6) and the PSLRA.
For the reasons stated below, Plaintiffs' claim against ABN under Section 11 of the Securities Act is dismissed. All other motions to dismiss the Holographics Complaint are denied. The motions to dismiss the ABN Complaint are also denied.
Plaintiffs in the consolidated action consist of two putative classes. The Holographics Plaintiffs were investors who purchased common stock issued by American Bank Note Holographics in connection with the Company's initial public offering ("IPO") on July 15, 1998, and/or in the open market during the period July 15, 1998 through February 1, 1999. The ABN Plaintiffs were shareholders of ABN who purchased shares in ABN during the period from May 2, 1996 through January 25, 1999.
The Holographics Plaintiffs have moved separately for class certification under Fed.R.Civ.P. 23(a) and 23(b)(3). Prior to imposition of the automatic stay, the Court had received no motion for class certification from the ABN Plaintiffs.
American Banknote Corporation ("ABN") is a Delaware holding company with subsidiaries in the United States and other countries. It conducts business in diverse fields, including transaction cards, which includes the production of stored value cards and so-called "smart cards"; transaction processing, which involves the servicing of third-party credit, debt, automated teller machines, and electronic benefit transactions, as well as loyalty and university card programs; and security printing, which involves the printing of, among other items, checks, money orders, passports, foreign currency, and stock and bond certificates.
American Bank Note Holographics ("Holographics") was a wholly-owned subsidiary of ABN, whose primary business was, and continues to be, the production of holographic materials for use in security printing. Holographics commenced an initial public offering on or around July 15, 1998. Subsequent to the IPO, ABN and Holographics continued their operations as separate entities.
Morris Weissman was the founder of ABN. He was at all relevant times the Chairman and CEO of both Holographics and ABN, although he resigned from Holographics on April 9, 1999. He continues to serve as Chairman and CEO of ABN. Joshua C. Cantor was at all relevant times President of Holographics. Richard P. Macchiarulo was at all relevant times Vice President of Finance, Chief Financial Officer, and Chief Accounting Officer of Holographics. Patrick J. Gentile was at all relevant times Vice President and Corporate Comptroller of ABN. John T. Gorman has been Executive Vice President and Chief Financial Officer of ABN since 1990.
Deloitte & Touche, LLP ("Deloitte") served as Holographics' independent public accountant prior to, during and subsequent to the IPO, and was retained by the Audit Committee of the Holographics board to investigate the financial improprieties at issue in this suit. Nationsbanc Montgomery Securities, LLC ("Nationsbanc") served as lead underwriter for the Holographics IPO;2 Lazard Freres, & Co., LLC ("Lazard"), Raymond James & Associates, Inc. ("Raymond James") and Salomon Smith Barney Holdings, Inc. ("Smith Barney") served as co-managers of the IPO (collectively, the "Underwriters").
The two actions here arise out of accounting irregularities in several quarters preceding the IPO that were discovered and disclosed by ABN and Holographics approximately six months after the Holographics IPO.
The following factual allegations in the consolidated Complaints are accepted as true for the purposes of this motion.
ABN is a holding company, which through several subsidiaries in the United States, Brazil, Australia and New Zealand, operates in a single industry — secured products and systems. It has three principal product lines: transaction cards and systems; printing services and document management; and security printing solutions. In ABN's Security Printing Solutions Group, the company designs and prints counterfeit-resistant documents, such as checks, passports, visas, birth certificates, Social Security cards, stock and bond certificates and currency.
Until July 1998, Holographics was a wholly owned subsidiary of ABN. During the fiscal years 1996 and 1997 and the first two quarters of 1998 (ending on June 30, 1998), the revenues of Holographics represented approximately 9.5% of ABN's total revenues. Holographics manufactures mass-produced holograms and holographic material for use in security and counterfeiting-protection applications, such as credit cards, and for non-secure uses such as magazine advertisements and specialized packaging.
In 1996 and 1997, ABN was highly leveraged, and was looking to expanding its foreign presence to grow sales. To fuel its growth and pay for overseas acquisitions, ABN issued a series of debt securities (junk bonds), including 10 3/8% Senior Notes due June 1, 2002 ("10 3/8 Notes") "secured by a pledge of all the issued and outstanding shares of capital stock" of ABN and its then wholly-owned subsidiary Holographics, as well as 65% of the shares of American Banknote Brazil (its Brazilian subsidiary). Through this offering, ABN raised approximately $126.5 million. (ABN Compl. ¶ 35.) Other ABN efforts at financing were less successful. For example, as a result of concerns over the volatility of the economy in Brazil, where ABN derived 40% of its total revenues, ABN was forced to postpone a November 1997 $225 million bond offering. By the end of 1997, ABN's long-term debt had reached $293 million, 43% of which represented the 10 3/8 Notes. (Id.)
During the period from May 1996 through January 1999, the Class Period alleged by the ABN Plaintiffs, ABN filed annual Form 10-K and quarterly Form 10-Q reports with the SEC as required. Each of the filings contained, among other things, a consolidated financial statement for ABN that combined the results of its subsidiaries. ABN issued press releases that coincided with each filing, which discussed or quoted from the financial statements. These financial statements included the financial reports of ABN's subsidiary, Holographics. In its form 10-K for fiscal year 1997, filed with the SEC on March 31, 1998, ABN admitted that its was highly leveraged; its long-term debt of approximately $293 million represented 84% of its total capitalization.
ABN viewed the spin-off and initial public offering of Holographics as a way to resolve its own debt problems. In a May 5, 1998 press release announcing the registration of the Holographics public offering, ABN noted that it intended to use a large portion of the proceeds to retire its senior secured debt, specifically, the 10 3/8 Notes. As ABN CEO Morris Weissman stated in the release:
On July 13, 1998, Holographics filed Amendment 4 to its Registration Statement. On July 15, 1998, it filed its final Prospectus. The final Registration Statement and Prospectus contained financial statements for the years ended December 31, 1996 and 1997, as reported from audited financial statements by Defendant Deloitte and the three-month periods ending March 31, 1997 and March 31, 1998, as reported from unaudited financial statements. In those financial statements, Holographics reported sales of $28,649,000 for the year ended December 31, 1996, as compared with sales of $30,915,000 for the year ended December 31, 1997. Net income was reported to be $4,820,000 for 1996 and $7,539,000 for 1997. In comparing year-end sales figures in the Registration Statement and Prospectus, Holographics stated:
Sales increased by $2.3 million, or 7.9%, from $28.6 million in 1996 to $30.9 million in 1997. The increase in sales was due primarily to an increase in sales volume of security holograms, including a $6.9 million order from a major customer which was received and completed in December 1997 and which goods were transferred to the Company's on-site secured facility. (Holographics Compl. ¶ 37.)
For the three-months ending March 31, 1997 and March 31, 1998,...
To continue reading
Request your trial
-
In re Venator Materials PLC Sec. Litig.
...with particularity. Schlotzsky's , 238 F.3d at 368–69 ; Melder , 27 F.3d at 1100 n. 6 ; In re American Bank Note Holographics, Inc. Securities Litigation , 93 F. Supp. 2d 424, 440 (S.D.N.Y. 2000). 307 F. Supp. 3d at 619 (citation form edited).i. Section 11Section 11 of the Securities Act, c......
-
In re Worldcom, Inc. Securities Litigation
...and can be liable as a "seller" for direct sales to the public for purposes of Section 12(a)(2). In re American Bank Note Holographics, Inc. Sec. Litig., 93 F.Supp.2d 424, 438-39 (S.D.N.Y.2000); cf. In re Deutsche Telekom AG Sec. Litig., No. 00 Civ. 9475(SHS), 2002 WL 244597, at *4-5 (S.D.N......
-
In re Plains All Am. Pipeline, L.P. Sec. Litig.
...be pleaded with particularity. Schlotzsky's , 238 F.3d at 368–69 ; Melder , 27 F.3d at 1100 n.6 ; In re Am. Bank Note Holographics, Inc. Sec. Litig. , 93 F.Supp.2d 424, 440 (S.D.N.Y. 2000).IV. AnalysisA. The Exchange Act ClaimsThe Second Amended Complaint alleges four categories of the defe......
-
IN RE THORNBURG MORTG., INC. SECURITIES LITIGATION
...Schaffer v. Evolving Systems, Inc., 29 F.Supp.2d 1213, 1225 (D.Colo. 1998), and In re American Bank Note Holographics Inc. Securities Litigation, 93 F.Supp.2d 424, 442 (S.D.N.Y.2000)). Most of the district court's finding no change in the law rely on a district court opinion that was filed ......
-
Class Certification In Securities Fraud Actions: A View From The Second Circuit
...12 and do not need to "trace" their purchases as they would for a Section 11 claim. In re Am. Bank Note Holographics, Inc. Sec. Litig., 93 F. Supp. 2d 424, 436 (S.D.N.Y. Standing Under Section 10(b) of the '34 Act. While the language of Section 10(b) and Rule 10b-5 does not specifically pro......