IN THE UNITED STATES DISTRICT COURT FOR THE' L" F CiNORTHERN DISTRICT OF ALABAMA 00 JUN IS PM 3: 2 7

SOUTHERN DIVISION

STATE OF WISCONSIN INVESTMENT N .D. OF ~~•L a. `AMABOARD, KENNETH D . BUSH,EDWARD E. EUBANK, JR., JOHNMICHAEL, et al., suing on behalf ofthemselves and all others similarly situated,

JURY TRIAL DEMANDEDPlaintiffs,

vs. CV 99-BU-3097-Sand

HAROLD RUTTENBERG; CV 99-BU-3129-SERIC L . TYRA ;PETER BERMANCOOPER EVANS ;PATRICK LLOYD ;DON-ALLEN RUTTENBERG ;MICHAEL LAZARUS ;HELEN ROCKEY ;SCOTT C . WYNNE ;RANDALL L. HAINES ;ADAM GILBURNE ;DELOITTE & TOUCHE LLP ;STEVEN H. BARRY ; andKAREN BAKER,

Defendants .

CONSOLIDATED CLASS ACTION COMPLAINT

Plaintiffs, by their undersigned counsel, for their Consolidated Class Action Complaint, o n

their own behalf and as representatives of those similarly situated, upon personal knowledge as to

themselves and their own acts, and based upon the investigation by their counsel which has included

review and analysis of public statements, publicly-filed documents, press releases and news articles,

analysts' statements, interviews of persons knowledgeable of the facts stated herein, and relevant

accounting rules and related literature, allege as follows :

NATURE OF THE ACTION

1 . This is a securities class action on behalf of all persons and entities (other than

Defendants and affiliated persons as defined in paragraph 37 below) who purchased common stock

of Just For Feet, Inc . ("Just For Feet" or the "Company") between May 5, 1997 and November 1,

1999 (the "Class Period") and who have suffered a loss .

2 . During the Class Period, defendants Harold Ruttenberg, Eric Tyra, Scott Wynne and

Deloitte & Touche, L .L.P . ("Deloitte"), with the knowledge, assistance and participation of the other

defendants, orchestrated a scheme to defraud public shareholders and purchasers of Just For Feet

securities. In sum, the scheme entailed publishing fraudulent and false financial statements for Just

For Feet for a minimum of three fiscal years, that materially overstated sales, profits and income ;

understated costs ; overstated accounts receivable, inventories, equipment, fixed assets and

stockholders' equity ; and understated significant liabilities . The scheme also included the

concealment of the material omitted facts described herein .

3 . The fraud concerns at least nine specific areas of accounting gimmicks, including :

(1) creating a fraudulent kickback scheme from its advertising agency in order to increase revenues ;

(2) creating false billings and receivables for booth assets donated by shoe manufacturers ; (3)

creating other false vendor billings and receivables ; (4) failing to write off bad debt; (5) failing to

book required loss reserves ; (6) understating its cost of sales through the improper use of acquisition

accounting ; (7) improperly capitalizing inventory costs and expenses that should have been reported

as current operating expenses ; (8) overstating ending inventory by not accounting or reserving for

obsolete or missing inventory and by arbitrarily writing up the costs of inventory that was transferred

between stores or divisions ; (9) overstating earnings and understating liabilities by improperly

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accounting for leaseholds. In addition, Just for Feet knowingly maintained woefully inadequate

accounting and inventory control systems .

4 . Through the use of false and fraudulent financial statements, Just For Feet was able

to convey the appearance of a profitable operating company when, in reality, Just For Feet was not

a viable concern . In fact, Just For Feet was principally supported by its credit lines which were only

available to it because of its fraudulently prepared financial statements.

5 . As a result of this fraud, the market prices of Just For Feet common stock (which

ranged from a high of $29 .00 per share during the Class Period to a low of $1 .25 per share) were

materially and artificially inflated throughout the Class Period .

6 . On November 2, 1999, Just For Feet announced its intention of seeking Chapter 1 1

bankruptcy protection . Public statements made by Just For Feet's president, Helen Rockey, indicate

that Just For Feet had intended to file for Chapter 11 protection eight weeks earlier, but decided to

complete a new revolving credit facility first . Nevertheless, the Defendants allowed investors to

continue trading Just For Feet securities, knowing that the common stock would be rendered

worthless in the near term by the Defendants' actions .

7 . At all times relevant to the Class Period, Deloitte served as independent auditors fo r

Just For Feet 's financial statements and issued unqualified opinions stating that they had performed

their duties in accord ance with Generally Accepted Auditing Standards ("GAAS") and that the

financial statements fairly presented the financial position and results of operations of Just for Feet

in accordance with Generally Accepted Accounting P rinciples ("GAAP") . In failing to recognize

and/or repo rt Just For Feet ' s false and fraudulent statements which materially overstated Just For

Feet's sales , profits and income, Deloi tte breached its duty to the shareholders . Deloitte ' s failure to

comply with GAAP and GAAS was knowing, intentional and fraudulent .

JURISDICTION AND VENU E

8 . This Court has jurisdiction of this action pursuant to Section 27 of the Securities

Exchange Act of 1934 (the "Exchange Act"), 15 U .S .C . § 78aa ; 28 U .S .C . §§ 1331 and 1337; and

pursuant to principles of supplemental jurisdiction, 28 U .S .C . § 1367 .

9 . The claims herein arise under Section 10(b) of the Exchange Act, 15 U .S .C . § 78j(b)

and Rule 10b-5, 17 C.F .R. 240.10b-5, promulgated thereunder by the Securities and Exchange

Commission (the "SEC"); Section 18 of the Exchange Act, 15 U .S .C. § 78r; Section 20(a) of the

Exchange Act, 15 U.S .C . § 78t(a) ; and state law fraud and professional negligence .

10. Venue is proper in this District pursuant to Section 27 ofthe Exchange Act, 15 U.S .C .

§ 78aa, and 28 U.S .C. § 1391(b) . Many of the acts comprising the violations of law complained of

herein, including devising and carrying out of the wrongful financial reporting schemes, and the

preparation and dissemination to the investing public of materially false and misleading financial

statements, reports to stockholders, press releases, and other information, occurred in this District .

At all relevant times, the executive offices of Just For Feet were located at 7400 Cahaba Valley

Road, Birmingham, Alabama 35242, and the majority ofits officers and directors who are defendants

herein resided in this District . At all relevant times, Deloitte maintained an office in this District .

In addition, each of the Defendants transacted business in this District .

11 . In connection with the acts, conduct, combination and course of conduct alleged in

this Complaint, the Defendants directly and indirectly used the means and instrumentalities o f

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interstate commerce, including the United States mails and interstate telephone communications, an d

the facilities of the national securities markets .

THE PARTIES

Plaintiffs

12 . Lead Plaintiff STATE OF WISCONSIN INVESTMENT BOARD ("SWIB") acts

in a fiduciary capacity as investment manager for the Wisconsin Public Employee Retirement

System. During the Class Period, SWIB purchased 4,163,000 shares of Just For Feet common stock

for an aggregate amount of $53,353,413 .04 and retained 2,391,000 shares of Just For Feet common

stock through the end of the Class Period .

13 . Lead Plaintiff KENNETH D. BUSH is an individual who purchased 23,200 shares

of Just For Feet common stock during the Class Period for an aggregate amount of $304,382, an d

retained all of those shares through the end of the Class Period.

14. Lead Plaintiff EDWARD E . EUBANK, JR. is an individual who purchased 15,67 8

shares of Just For Feet common stock during the Class Period for an aggregate amount of $179,719 ,

and retained 8,900 of those shares through the end of the Class Period .

15. Lead Plaintiff JOHN MICHAEL is an individual who purchased 116,800 shares of

Just For Feet common stock during the Class Period for an aggregate amount of $700,261, and

retained 20,200 shares of Just For Feet common stock through the end of the Class Period .

Defendants

16. Defendant HAROLD RUTTENBERG ("Ruttenberg"), who resides in this District ,

was at all times relevant to the Class Period, Chairman of the Board , President, Chief Executive

Officer, and/or a Director of the Company . According to the Company ' s 1999 proxy statement, as

of April 12, 1999 , Ruttenberg beneficially owned as much as 5,439,730 shares of Just For Feet

stock, or approximately 17 .4% of the total then outstanding shares of the Company . Furthermore,

during the Class Period, while in possession of material, adverse inside information and perpetrating

a fraud, Ruttenberg sold 413,850 shares of Just For Feet common stock on or about May 8, 1998,

and realized proceeds of approximately $5,897,362 .50, as described more fully below. Ruttenberg

signed each of the Company's Reports on Form 10-K and Form 10-Q, Annual Reports, Proxy

Statements and Letters to Shareholders issued during the Class Period, with the exception of the

Report on Form 10-Q that was filed with the SEC on September 27, 1999 . At all relevant times,

Ruttenberg was aware of, and actively and willingly participated in, the fraud at Just For Feet .

17. Defendant ERIC L. TYRA ("Tyra"), who resides in this District, is a former partner

of Deloitte who, at all times relevant to the Class Period, was the Executive Vice President, Chief

Financial Officer and a director of the Company . According to the Company's 1999 proxy

statement, as of April 12, 1999, Tyra beneficially owned as much as 92,000 shares of Just For Feet

stock . Tyra signed each of the Company's Reports on Form 10-K and the letters to shareholders

issued in connection with the Company's Annual Reports for the fiscal years ended January 1998

and January 1999, as well as each of the Company's Reports on Form 10-Q that were issued during

the Class Period, with the exception of the Report on Form 10-Q that was issued on September 27,

1999. At all relevant times, Tyra was aware of, and actively and willingly participated in, the fraud

at Just For Feet.

18 . Defendant PETER BERMAN ("Berman"), who resides in this District, was Just For

Feet's Controller and a financial officer of the Company at all times relevant to the Class Period .

Berman, along with Tyra and Ruttenberg, participated in the fraudulent reporting of Just For Feet's

financial condition . Bermanwas responsible for all accounting and data processing activities by Just

For Feet .

19 . Defendant COOPER EVANS ("Evans"), who resides in this District , was Just For

Feet's Director of Financial Reporting at all times relevant to the Class Pe riod. Evans, along with

Berman, Tyra and Ruttenberg , participated in the fraudulent report ing of Just For Feet 's financial

condition . Evans was responsible for all financial data repo rted to third parties .

20. Defendant PATRICK LLOYD ("Lloyd"), who resides in this District, was

Accounting M anager of Just For Feet at all times relev ant to the Class Period. Lloyd, along with

Berman, Tyra and Ruttenberg , part icipated in the fraudulent report ing of Just For Feet's financial

condition. Lloyd was responsible for all financial data reported to third part ies.

21 . Defendant MICHAEL LAZARUS ("Lazarus") was a director and a member of the

Audit Committee of the Board of Directors of Just For Feet during the Class Period . As a director,

Lazarus was responsible for supervision of the entire business and affairs of the Company and the

activities of the individual defendant officers named herein as defendants, and for supervision of the

Company' s financial reporting . Lazarus was a member of the Audit Committee and as such ha d

special responsibilities for recommending the Company' s outside auditors, reviewing with those

auditors the scope and results of Company audits, monitoring the Company's financial and control

procedures, monitoring non-audit services of the auditors, familiarizing himself with the financial

reports and accounting issues facing Just For Feet, and reviewing all conflicts of interest. Lazarus

signed the Reports on Form 10-K filed with the SEC for fiscal years ended January 1998 and Januar y

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1999. By no later than July 3, 1999, Lazarus was aware of the fraud at Just For Feet but took no

action to remedy it or warn the investing public about the fraud .

22. Defendant RANDALL L . HAINES ("Haines"), who resides in this District, was a

director and a member of the Audit Committee of the Board of Directors of Just For Feet during the

Class Period. Haines was also the president of Compass Bank-Birmingham, one of Just For Feet's

principal lenders, during the Class Period . As president of Compass Bank, Haines helped to arrange

the loan syndicate which was the major source of Just For Feet's credit ; arranged for Compass to

serve as documentation agent for the syndicate ; and arranged for Compass to serve as an issuing

lender for the Company's letters of credit backed by the loan syndicate . As a director of Just For

Feet, Haines was responsible for supervision of the entire business and affairs of the Company and

the activities of the individual defendant officers named herein as defendants, and for supervision

of the Company' s financial reporting . Haines was a member of the Audit Committee and as suc h

had special responsibilities for recommending the Company ' s outside auditors, reviewing with those

auditors the scope and results of Company audits, monitoring the Company's financial and control

procedures, monitoring non-audit services of the auditors, familiarizing himself with the financial

reports and accounting issues facing Just For Feet, and reviewing all conflicts of interest. Haines

signed the Reports on Form 10-K filed with the SEC for the fiscal years ended January 1998 and

January 1999 . By no later than August 18, 1999, Haines was aware of the fraud at Just For Feet but

took no action to remedy it or warn the investing public about the fraud . Instead, Haines kept quiet

about the fraud, allowing the Company to successfully complete a private offering in the spring of

1999 of approximately $200 million of senior subordinated notes, which directly benefitted Compass

Bank (of which Haines was president) because the proceeds of the offering were used to repay

outstanding loans from Compass Bank to Just For Feet .

23. Defendant HELEN ROCKEY ("Rockey"), who resides in this District, was

appointed president of Just For Feet in March 1999, and was elected a director of the Company on

June 1, 1999. She was responsible for supervision of the entire business and affairs of the Company

and the activities of the individual defendant officers named herein as defendants, and for

supervision of the Company's financial reporting . By no later than June 1999, Rockey was aware

of the fraud at Just for Feet but took no action to remedy it or to warn the investing public . Instead,

as alleged herein, she took steps to cover up the fraud . Rockey signed the Company's Report on

Form 10-Q filed with the SEC for the three-month period ended July 31, 1999 .

24. Defendant SCOTT C. WYNNE ("Wynne"), was an officer and employee of th e

Company throughout the Class Period . Since 1990, Wynne has served as Operations Manager of

the Company, and has been responsible for inventory control, distribution, management information

systems, and traffic . Wynne was elected Vice President - Store Operations in 1994, corporate

Secretary in 1995, and Vice President - Operations in February 1997 . At all relevant times, Wynne

knew about and actively directed and participated in the fraud at Just For Feet, including the

improper manipulation and falsification of inventory and accounting data .

25 . Defendant DON-ALLEN RUTTENBERG ("Don-Allen"), an officer and employee

of the Company for the past twelve years, is the son of Defendant Harold Ruttenberg, a member of

the Ruttenberg family controlling group of stockholders, a Vice President of the Company, and the

holder of 129,818 shares of the Company's common stock as of April 12, 1999 . From February

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1997 through February 1999, Don-Allen was the Company's Executive Vice President ofNew Store

Development . At all relevant times, Don-Allen was aware of, and actively participated in, the fraud

at Just For Feet.

26. Defendant ADAM GILBURNE ("Gilburne") has served as Executive Vice President

of the Company and President-Superstore Division since August 1997 . Gilburne was aware of, and

actively participated in, the inventory accounting frauds that were occurring at Just For Feet.

27. Defendant DELOITTE is an international accounting firm with offices located in

various cities throughout the world, including a location at 417 Twentieth Street North, Suite 10000 ,

Birmingham, Alabama . At all times relevant to the Class Period, Deloitte's Birmingham office

served as the auditors of Just For Feet . Upon information and belief, Just For Feet was one of the

largest clients of Deloitte's Birmingham office, accounting for a substantial percentage of that

office's revenues in 1998 and 1999 .

28. As Just For Feet's independent outside auditors, Deloitte assisted in the preparation

of Just For Feet's annual and quarterly financial statements, reviewed those fin ancial statements and

the text that accompanied them in the Company' s SEC filings, and audited the annual financial

statements and certified that they were prepared in compli ance with GAAP . Deloitte was also

responsible for, among other things , examining Just For Feet 's system of inte rnal controls to identify

any material weaknesses or reportable conditions which might impact the accuracy or reliability of

the Company ' s financial statements . Deloi tte was required to perform its audit se rvices according

to GAAS, which included Statements on Auditing St andards ("SAS") issued by the American

Institute of Certified Public Account ants ("AICPA"), and to issue an unquali fied opinion only if Just

For Feet's financial statements were fairly presented in accord ance with GAAP .

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29. Deloitte issued unqualified auditors' opinions on the financial statements of Just For

Feet for the fiscal years ended January 1998 and 1999, which were, with Deloitte's knowledge and

approval, included in Just For Feet's Reports on Form 10-K filed with the SEC and Just For Feet's

Annual Reports, all of which were publicly disseminated to members of the Class . In failing to

recognize and/or report the false and fraudulent misrepresentations in Just For Feet's financial

statements, Deloitte breached its duties to the shareholders, and either recklessly or fraudulently

failed to comply with GAAP and GAAS .

30. Defendant STEVEN H. BARRY ("Barry"), who resides in this District, was at al l

times relevant to this Class Period the Managing Partner of Deloitte's Birmingham office and the

audit partner on the Deloitte audit of Just For Feet. As such, Barry knew or should have known

(based, inter alia, on his extensive contacts with Company officers and personnel, his responsibility

under GAAS for the audit evaluation of Just For Feet's internal controls and accounting methods,

and his firm's audits of Just For Feet's financial statements, and his review and supervision related

to those audits) of the material fraudulent misrepresentations in Just For Feet's financial statements .

Barry either recklessly or intentionally failed to comply with GAAS in discharging his duties . Had

he complied with his professional responsibilities, he would have : (1) immediately alerted the

Company's Board of Directors and shareholders that Just For Feet's financial statements were

materially false and misleading due to materially overstated sales, profits, income, accounts

receivable, inventories, equipment, fixed assets, and stockholders' equity, and materially understated

costs and liabilities ; (2) refused to issue an unqualified opinion; and (3) depending upon the Board's

actions, taken appropriate action.

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31 . Defendant, KAREN BAKER ("Baker"), who resides in this District, was Deloitte's

Senior Manager assigned to the audit of Just For Feet from at least June 1997 through the end of the

Class Period. As Senior Manager for the Deloitte audits, Baker knew or should have known (based,

inter alia, on her extensive contacts with Company officers and personnel, her responsibility under

GAAS for the audit evaluation of Just For Feet's internal controls and accounting methods, her

review and supervision related to the audit of Just for Feet's financial statements, and her audit,

examination and testing of Just For Feet's financial statements) of the material fraudulent

misrepresentations in Just For Feet's financial statements . Baker either recklessly or intentionally

failed to comply with GAAS in discharging her duties . Had she complied with her professional

responsibilities, she would have : (1) immediately alerted the Company's Board of Directors and

shareholders that Just For Feet's financial statements were materially false and misleading due to

materially overstated sales, profits, income, accounts receivable, inventories, equipment, fixed assets,

and stockholders' equity, and materially understated costs and liabilities ; (2) refused to issue an

unqualified opinion; and (3) depending on the Board's actions, taken appropriate action .

32. Defendants Ruttenberg, Tyra, Wynne and Don-Allen, by virtue of their stoc k

ownership and/or positions of knowledge, control and influence, were controlling persons (or

members of a control group) of Just For Feet, within the meaning of Section 20(a) of the Exchange

Act ("Control Person Defendants") . Because of their positions of control and authority, they were

able to review and control the contents and cause the issuance of the various financial reports,

financial statements, press releases and SEC filings of the Company, and had the power and authority

to cause Just for Feet to engage in the conduct herein described . These Control Person Defendants

had a duty to promptly disseminate accurate and truthful information with respect to the Company' s

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operations, financial condition, earnings and profitability and future business prospects so that the

market related to Just For Feet would be based on timely, truthful and accurate information .

Non-Defendant Co-Conspirators

33. DAVID HERSKOVITS ("Herskovits"), is Deloitte's retail partner expert, and wa s

fully aware of the fraud that was taking place at Just For Feet but did nothing to alert the Board o f

Directors or the shareholders of the fraud .

34. JAY SWARTZ ("Swartz") is a partner in the Atlanta law firm of Smith, Gambrell

& Russell, LLP, who represented Just For Feet in securities matters and was fully aware of the

accounting fraud that was taking place at Just For Feet . He continued to supply legal counsel on

securities matters to Just For Feet, including the drafting of portions of the Company's Reports on

Form 10-K for the fiscal years ended January 31, 1998 and January 30, 1999, even though he knew

of the fraud .

35. JOHN A. BERG ("Berg") was elected a director of the Company on June 1, 1999 .

As a director, Berg was responsible for supervision ofthe entire business and affairs ofthe Company

and the activities of the individual defendant officers named herein as defend ants, and for

superv ision of the Company' s financial repo rt ing . Berg took no action to remedy the fraud at Just

For Feet or to warn the investing public about the fraud . Berg signed the Report on Form 10-Q filed

with the SEC for the three -month period ended July 31, 1999 .

36 . ROBERT WABLER ("Wabler") was the Chief Financial Officer of Just For Feet

until April 1997 . During his employment, Wabler was aware of, and actively participated in, the

fraud at Just For Feet .

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PLAINTIFFS ' CLASS ALLEGATION S

The Class

37. Plaintiffs bring this action as a class action pursuant to Rule 23 of the Federal Rules

of Civil Procedure on behalf of all persons and entities who purchased Just For Feet common stock

during the Class Period and who suffered damages as a result of their purchases (the "Class") .

Excluded from the Class are ( 1) Defendants , (2) members of the families of Defendants , (3) the

subsidiaries or affiliates of any Defendant, (4) any person or entity who is a shareholder , partner,

officer, director, employee or controlling person of any Defendant, (5) any entity in which any

Defendant has a controlling interest, and (6) the legal representatives , heirs, successors or assigns

of any such excluded person .

38. The members of the Class are so numerous that joinder of all members i s

impracticable. As of September 15, 1999 Just For Feet had approximately 31,210,980 shares of

common stock outstanding. Because of the common practice of publicly traded stock being held in

"street name," it is likely that the number of beneficial owners and purchasers of Just For Feet stock

during the Class Period is in the thousands . Throughout the Class Period, the stock was actively

traded on NASDAQ's National Market System, an efficient and open market, under the symbol

"FEET . "

39. Plaintiffs' claims are typical of the claims of the members of the Class . Plaintiffs will

fairly and adequately protect the interest of the members of the Class and have retained counsel

competent and experienced in class and securities litigation. Plaintiffs have no interests that are

adverse or antagonistic to the Class .

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40. A class action is superior to other available methods for the fair and efficien t

adjudication of this controversy. Since the damages suffered by many individual Class members

maybe relatively small, the expense and burden of individual litigation makes it virtually impossibl e

for the Class members individually to seek redress for the wrongful conduct alleged .

41 . Common questions of law and fact exist as to all members of the Class, and

predominate over any questions affecting solely individual members of the Class. Among the

questions of law and fact common to the Class are :

(a) Whether the federal securities laws and/ or state law were violated by Defendants' acts

as alleged herein;

(b) Whether the documents, releases, and statements disseminated to the investing publi c

and the shareholders during the Class Period omitted and/or misrepresented material facts about th e

business affairs, financial condition and future prospects of Just For Feet as particularized herein ;

(c) Whether Defendants acted willfully or recklessly in omitting to state and/o r

misrepresenting material facts about the financial condition, profitability and future prospects ofJust

For Feet;

(d) Whether the market prices of the Just For Feet common stock during the Class Perio d

were artificially inflated due to the nondisclosures an d/or misrepresentations complained of herein;

and

(e) Whether the members of the Class have sustained damages, and, if so, what is th e

proper measure thereof.

42. Plaintiffs know ofno difficulty which will be encountered in the management of thi s

litigation which would preclude its maintenance as a class action.

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43 . The names and addresses of the record owners of the shares of Just For Feet commo n

stock purchased during the Class Period are available from the Company's transfer agent(s) . Notice

can be provided to such record owners by first class mail.

FACTS

44. In order to materially overstate the Company's financial results and thereby

encourage investors to purchase Just For Feet securities, Defendants employed a number o f

accounting man ipulations , including :

a. creating fraudulent billing and kickback schemes from Just For Feet's advertising

agency in order to increase revenue ;

b. creating false billings and receivables for fixed assets donated by shoe manufacturers ;

c . creating false vendor billings and receivables ;

d. failing to write off bad debt;

C . failing to book required reserves for sales promotions and barter transactions ;

f. understating its cost of sales through the improper use of acquisition accounting ;

g . improperly capitalizing expenses that should have been reported as current operatin g

expenses ;

h. overstating ending inventory by not accounting or reserving for obsolete or missing

inventory, and by arbitrarily writing up the costs of inventory when it was transferred

between stores and divisions ;

i . improperly accounting for leaseholds in order to increase earnings and decrease

liabilities ; and

j . knowingly maintaining a woefully inadequate accounting system .

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45 . The Company' s scheme to falsify its financial statements was concocted and initiated

primarily by Ruttenberg and Wynne, and was implemented and facilitated by the Company's internal

financial and accounting staff, and its outside auditors, Deloitte, Baker and Barry .

46. The fraud at Just For Feet was well known among the Company 's management even

before the Class Period began . On March 6, 1997, Just For Feet's controller, Anthony Lones

("Lones") met with the Company's outside securities counsel, Swartz, and presented Swartz with

a list of accounting irregularities and problems at Just For Feet which amounted to about $5 million

in improper accounting entries or, as they were referred to internally at Just For Feet, "bads ." Lones

had similar conversations with Barry and Baker of Deloitte in early 1997 . In fact, Lones had a pre-

existing relationship with Barry because they had worked together at Deloitte for several years, and

Lones repeatedly informed Barry and Deloitte of his concerns about Just For Feet's accounting

methods and internal controls throughout the Class Period .

47 . Tyra joined Just For Feet as its Chief Financial Officer in May 1997, and on June 27,

1997, he met with Lones and Evans for the purpose of being briefed about open accounting and

internal control issues at Just For Feet . During that meeting, Tyra was informed of accounting

irregularities at the Company, including inaccurate and false accounting for Just For Feet's accounts

receivable, inventory capitalization and inventory discount accounting methods . In this meeting,

Tyra was informed, among other things, that Just For Feet overstated its revenue, and/or understate d

its expenses by falsely accruing revenue and accounts receivable for : (a) fictitious rebates from

vendors providing advertising services ; (b) various shoe vendors for sharing of expenses for store

fixtures and opening costs ; (c) cooperative advertising monies from its vendors ; and (d) bulk sales

occurring after the end of fiscal periods which were improperly allocated out to stores for those

17

periods to provide the illusion that those stores' sales had increased since the prior year . Rather than

rectifying these improper practices, Tyra (who had been granted numerous options to purchase Just

For Feet stock on May 1, 1997) became an active participant in the fraud at Just For Feet .

48 . Likewise, shortly after Rockey joined Just For Feet as its President in March 1999,

she was specifically informed of a number of fraudulent and improper accounting practices at Just

For Feet . For example on July 7, 1999, Berman wrote a "confidential" memo to Rockey in whic h

he recommended that the Company make a number of accounting adjustments if they had "the

opportunity to clean up our balance sheet at the end of [the quarter ended July 31, 1999] and not

carry forward problems into the future ." Many of those proposed adjustments related directly to

improper accounting practices alleged in this Complaint, including the need to establish reserves for

uncollectible receivables for co-op advertising and CheckCare claims, and the need to accrue an

obsolescence reserve for future special sales . Berman went on to say that the issues identified in his

memo had "in the past . . . been treated rather aggressively at [Just For Feet]" and that "[i]f we are

trying to do the right thing for the business in the future, we need to discuss taking our punishment

today ." Rockey did nothing to correct these problems and, as discussed below, took action to cover

them up instead .

Fraudulent Rebates from Advertising Agency For Sales Promotion s

49. At the June 27, 1997 meeting among Tyra, Evans and Lones, Tyra was informed that

Just For Feet had engaged in a scheme to inflate its revenues and "pay down" bogus receivables by

having its advertising agency Rogers Advertising ("Rogers") substantially overcharge for production

of commercials . Rogers, where Ruttenberg's daughter is employed, would then kick back or credit

most of the overpayment to Just For Feet, and Just For Feet would book that payment as rebat e

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revenue in order to show growth in revenue , or as a payment on existing receivables from earlier

fraudulent rebate revenue bookings from Rogers .

50. The fraudulent "rebates " were recorded as receivables and either ( 1) were reversed

during the following fiscal pe riod by reversing the prior year 's entry, or making ent ries in Just For

Feet ' s books which credited the Rogers receivable while debiting advert ising expense or accounts

payable to the advertising company, or (2) were not reversed but remained on Just For Feet 's books

as receivables , accumulating over time, even though Rogers denied any obligation to pay those

amounts and they could not be collected absent Rogers' overcharging for se rv ices . The adve rtising

rebate scheme w as, at a minimum , a method to inflate revenue growth.

51 . This scheme began in January 1997 . As the pressure to meet analysts' expectation s

and forecasts for Just For Feet's performance increased, the Company, acting through the Individual

Defendants, increased in each succeeding fiscal period both the amount of its advertising budgets

and the related rebates . Ruttenberg directed this rebate scheme and Evans and Lloyd, knowing that

the rebate bookkeeping entries were false and fraudulent, made them anyway . Lazarus was informed

of this scheme in August 1999, if not earlier, yet took no action to remedy it .

52. Ruttenberg estimated in advance the sums to be fraudulently rebated to Just For Feet

and reported as income over the Class Period, as follows :

19

BILLINGSGROSS

AMOUNT PURPORTE DBY GROSS PROFIT

PURPORTEDLY REBATE TO

YEARROGERS

COMMISSIONSEXPENSES TO RETAINED BY JUST FOR

TO JUSTROGERS

ROGERS FEETFOR FEET

1997 $20,000,000 $3,000,000 $822,000 $2,178,000 $806,000 $1,372,00 0

1998 $30,000,000 $4,500,000 $1,126,000 $3,374,000 $1,104,000 $2,270,00 0

1999 $45,000,000 $6,750,000 $1,543,000 $5,207,000 $1,512,000 $3,695,00 0

2000 $60,000,000 $9,000,000 $2,114,000 $6,886,000 $2,071,000 $4,815,00 0

53 . As time passed , however, the actual "rebates" exceeded these estimates . By August

of 1999, the fraudulent "rebates" from Rogers had grown to approximately $ 7 .5 million. In the

quarter ended July 31, 1999 alone , Just For Feet booked $1 .5 million in "rebates" from Rogers .

54. This scheme and the repo rting implication of these false and misleading accounting

entries in Just For Feet ' s books and records were made known to Tyra, Baker, Barry and Herskovits

by Lones no later th an June 1997, but were allowed to continue throughout the Class Period .

55 . The existence ofthese accounting irregularities was also made known to Swa rtz, Just

For Feet ' s securi ties attorney, by Lones in April of 1997 .

56. On Monday morning, August 16, 1999, when con fronted by Just For Feet employee s

who were unaware of the existence of the rebate scheme, Reed Rogers, the President of Rogers

Advertising, readily admitted that he had been overcharging Just For Feet for advertising . He

admitted that four recent television advertising spots for the first quarter of 1999 should have been

invoiced at about $6,000 per television spot, rather than the $60,000 to $65,000 reflected in the

invoice . He went on to admit that he had been overcharging the company by $250,000 each month

and, when asked why, said that is what Ruttenberg and Gilburne had told him to do . He also added

that the approximately $7.5 million in accounts receivable attributed to it on Just For Feet's books

20

had no basis and that the overcharging was being done to provide Rogers with the funds to "pay

down" those receivables in the form of "rebates" to Just For Feet .

57 . Lazarus was informed of this rebate scheme, and the fact that Just For Feet was being

overcharged by $250,000 per month in order for Rogers to "repay" fictitious receivables that had

resulted in previous overstatements of earnings, on August 16, 1999, if not earlier . The scheme was

also described in detail and discussed during an August 18, 1999 meeting of the Just For Feet Board

of Directors (excluding Ruttenberg and Rockey) . During that meeting, it was expressly stated to the

Board that the scheme was so far outside the bounds of proper accounting standards as to constitute

cause for serious concern. Upon information and belief, all of the Board members were aware of

this scheme well before August 1999 .

58. The invoices submitted by Rogers to Just For Feet for payment were so obviousl y

bogus that the Company's Vice President of Advertising, Steve Davis, refused to authorize them .

Instead, all advertising overcharges in invoices from Rogers were submitted to Gilburne and were

approved by Wynne, who was at all times aware of the existence of the rebate scheme . This scheme

to inflate earnings continued throughout the Class Period .

Accounting for Store Fixtures, Fictitious Booth Incom e

59. Just For Feet entered into agreements with certain vendors and, in some cases,

unilaterally imposed transactions upon vendors, which had the effect of overstating net income for

each period such agreements and/or transactions were entered or imposed . This scheme, in part

orchestrated by Deloitte, utilized fraudulent financial reporting that was in direct violation of APB

No. 29 (Accounting for Non-Monetary Transactions) .

21

60. When Just For Feet opened a new store, shoe manufacturers desiring to exploit new

markets for sales of their products and to receive the advertising benefits associated with a grand

opening of a new retail outlet would donate creative and expensive displays, or booths, for their

products in an attempt to maximize sales of their products . Some manufacturers treat their booths

as their property which is placed at the retailer's site for the retailer's use in selling the

manufacturer's products, rather than as an outright gift . Some manufacturers' displays, like

Timberland's, cost as much as $30,000.

61 . In 1996, Just For Feet's then CFO, Wabler, with the knowledge of (and acting upon

the advice of) Deloitte, instituted an arrangement with shoe manufacturers by means of which Just

For Feet was to treat these promotional donations as income based upon a series of fictitious and

misleading "exchanges for value," which were nothing more than fraudulent book entries .

62 . Rather than have its vendors donate the fixtures or booths displaying their products

for use in new stores , which is the st andard industry practice, Just For Feet purpo rted to "buy" the

booths ( shelving, racks , partitions , lighting, displays , etc .) from the vendors, capitalize the "purchase

p rice " as an asset, and then "depreciate " the asset over time . Then , Just For Feet would require that

the vendors remit the purchase price back to Just For Feet in the form of credits for co-op adve rtising

(adve rtising by Just For Feet that also incorporates a vendor's products, and for which the vendor

agrees to share the advert ising cost) . Just For Feet immediately booked these co-op advertising

monies or credits as revenue , even though they had not been "earned " by the placement of co-op

advert isements .

22

63. Moreover, with the assist ance of Rogers, Just For Feet also inflated the cost of the

co-op advertising , to "earn" more co-op dollars and credits from the vendors, separate and apart from

the booth accounting scheme .

64. The booth accounting scheme allowed Just For Feet to recognize as income the valu e

of the booths in the current period, but defer the equal amount of cost (since it was a wash sale) to

subsequent periods (because the costs were capitalized rather than expensed), thereby inflating net

income. This allowed the Company to show income in the current quarter, but also caused the

Company to incur unnecessary tax liabilities . No rational business person would use such an

accounting scheme, which caused it to incur unnecessary income tax liability, unless it was trying

to boost reported revenues and deceive the investing public .

65 . In some cases, Just For Feet booked the value of shoe manufacturer' booths as assets

(including booths the manufacturers had not intended to donate), and booked co-op advertising

income from those manufacturers, without even consulting them . In an after-the-fact attempt to

justify some of these entries, in the summer of 1999, Don-Allen met separately with representatives

of Reebok and Timberland, two of the vendors who had provided booths at Just For Feet's new store

grand openings . Don-Allen told each of them that Just For Feet had accrued booth receivables on

its books and that Just For Feet wanted co-op advertising credits from their respective companies .

Reebok and Timberland refused Don-Allen's request . The representatives of Timberland (whose

auditing firm is Deloitte) replied that they would not be a part of Just For Feet's booth accounting

scheme .

66. More troubling still, during the course of Just For Feet's bankruptcy case at least one

other shoe manufacturer (Reebok) has disputed Just For Feet's title to the manufacturer's booths ,

23

claiming that the booths were simply on loan to Just For Feet and that Just For Feet had no right to

record them as assets on the Company's books .

67. As of January 30, 1999, Don-Allen needed more than $40 million in credits from

manufacturers in order to clear-up outstanding accounting issues from the fiscal years ended January

1997, 1998 and 1999, including issues relating to booth accounting and co-op advertising . Although

many of those "receivables" were in dispute, Just For Feet did not book any reserves.

68. During a telephone conversation initiated by Don-Allen following one of the

meetings described above, Wynne explained the booth accounting scheme and remarked that

Deloitte had suggested that Just For Feet employ it .

69 . Just For Feet opened or converted approximately twenty-five (25) new superstore s

in fiscal year ended January 1998, and approximately fifty (50) new or converted superstores in

fiscal year ended January 1999 . Just For Feet opened or converted approximately twenty (20) new

specialty stores in fiscal year ended January 1998, and approximately fifty (50) new or converted

speciality stores in fiscal year ended January 1999 .

70. For fiscal year ended January 1998, Just For Feet recognized approximately $20

million in booth income which it never received . Absent this accounting scheme, Just For Feet' s

repo rted pre-tax income of $34 .2 million for that fiscal year would have been reduced by 60% to

about $14.2 million . Absent the rest of Just For Feet's accounting manipulations, if its financial

statements had been prepared in accordance with GAAP , Just For Feet would have reported a

substantial loss for the year.

24

71 . For fiscal year ended January 1999, Just For Feet recognized approximately $2 2

million in booth income which it never received. Without the fraudulent booth income, Just Fo r

Feet's reported pre-tax income of $43 .3 million for that fiscal year would have been reduced b y

about 50% to about $21 .3 million . Absent the rest of Just For Feet 's accounting manipulations, if

its financial statements had been prepared in accordance with GAAP, Just For Feet would have

reported a substantial loss for the year .

72 . For the quarter ended July 31, 1999, Just For Feet recognized approximately $5 . 9

million in fraudulent booth income . Without the fraudulent booth income, Just for Feet's reporte d

pre-tax loss of approximately $42 million for that quarter would have been increased by about 14 %

to a loss of about $48 million .

73. The fraudulent accounting entries relating to the boothaccounting scheme were made

by, or directed by, Tyra, Berman, Lloyd and Evans . Barry, Baker and Deloitte were informed of the

existence of this scheme by members of Just For Feet's finance department, including Lones and

Evans, in January 1997, and they were well aware of the magnitude of the amounts involved . The

scheme continued to operate at levels that materially distorted and misstated operating results

throughout the Class Period .

74. In June 1999, Rockey was apprised of the nature and magnitude of the boot h

accounting issues and did nothing to remedy the problem .

75. The Board of Directors of Just For Feet was informed of this booth accountin g

scheme on August 19, 1999, if not earlier, and did nothing to remedy the problem

25

76. On or about August 25, 1999, Rockey instructed employees of Just For Feet not to

speak with the Company's Audit Committee any further about the booth accounting problem or the

magnitude of the problem .

False Billings and Receivable s

77. During the Class Period, Just For Feet's accounts receivable were materially

overstated as a result of billings to vendors that were either wholly fictitious or were not properly

adjusted to provide for uncollectible amounts . In addition to the false advertising rebates and booth

accounting schemes described above, these misleading billings and receivables were, in part, the

result of. (a) bulk sales of outdated inventory to liquidation companies ; (b) cost offsets resulting

from Reebok mis-shipments; (c) the existence of an old uncollectible credit receivable from KPR

Sports which dated back to 1995 but had not been written off; (d) a $58,736 .73 credit receivable

from GSV, Inc . of Atlanta, Georgia from which Just For Feet had purchased Store # 7 in 1994 ; and

(e) Just For Feet's improper accounting for co-op advertising . These false billings and receivables

were discussed by Lones, Tyra and Cooper on June 27, 1997 .

78 . During the fiscal years ended January 1997 and 1998, Just For Feet shipped out-dated

shoe inventory to ELF, a liquidation company . By agreement, ELF was to pay Just For Feet $6 .00

per pair of shoes . In 1997, however, Just For Feet began to book the sale and receivable from ELF

at $8 .00 per pair instead of $6 .00, even though ELF had not agreed to the price increase . These

arbitrary and uncollectible increases by Just For Feet were made for the sole purpose of increasing

sales and receivables on the Company's books, and resulted in the addition of $65,000 in unfounded

and fraudulent receivables and revenue on Just For Feet's financial statements . In addition, as of

January 31, 1997 and July 31, 1997, Just For Feet had booked receivables for shoes that were no t

26

even shipped to ELF until after those dates, in violation of Financial Accounting Standards ("FAS")

Statement No. 48 (Revenue Recognition) . These issues were discussed among Lones, Cooper and

Tyra on June 26, 1997, and were made known to Deloitte during 1997 .

79. Just for Feet booked false and inflated credits for merchandise that was returned to

vendors ("RTVs") . For example, Just For Feet would accept trade-ins of used shoes from customers,

which it claimed would be donated to charity . Instead of donating all of the used shoes to charity,

Just For Feet would clean some of them up and return them to the vendors in exchange for credits .

This scheme was concocted and directed by Wynne . At times, Just For Feet booked credits for as

much as $10,000 or $100,000 per pair of returned shoes . In all, Just For Feet had over booked about

$900,000 in vendor credits by July 31, 1997 . When Deloitte looked at the issue in June 1999, it

found that for the fourth quarter of 1998 and the first quarter of 1999, approximately $600,000 of

Just For Feet's RTVs (a full one-third to one-half of all its RTVs) were in dispute and lacked

supporting authorization numbers .

80 . Just For Feet improperly recognized sales revenues for merchandise that was given

away pursuant to the Company's giveaway promotions . For example, Just For Feet offered a

promotion whereby a customer would receive a free tote bag with the purchase of shoes . Just For

Feet accounted for each giveaway as a sale, booking sales revenue equal to the arbitrary sales value

of each tote bag given away in order to show revenue growth, and to fraudulently increase store sales

figures and comparable store sales growth rates .

81 . Just For Feet booked inflated and unrealistic estimates of vendor receivables,

including receivables relating to co-op advertising (whereby Just For Feet and vendors would share

joint advertising costs), at year-end 1997 and throughout the Class Period . These estimates of co-op

27

receivables, which were supplied to the Company's accounts receivable department by Gilburne,

lacked both economic substance and any supporting documentation, such as any agreements with

the advertising companies or vendors . Moreover, no one at Just For Feet or Deloitte made any effort

then or in subsequent periods to compare the Company's actual receipts with the estimated

receivables, in violation of GAAS (including Statement on Auditing Standards No . 67) .

82 . Any discussions with vendors who were included in the receivables claimed by Just

For Feet were conducted after the making of the accounting entries, if at all, and vendors frequently

rejected Just For Feet's proposed receivables as incorrect and/or improper .

83. The false entries to Just For Feet's accounting journals were made by Evans and

Lloyd at the direction of Tyra, based upon estimates made by Gilburne and Don-Allen . Upon

information and belief, Deloitte failed to pursue and obtain confirmations for these entries .

84 . These false vendor billings and receivables were known to Defendants throughout

the Class Period .

Failure To Write-OffBad Debt

85. Just For Feet also understated operating expenses and overstated accounts receivable

by at least $500,000 relating to uncollectible amounts from CheckCare, its check validation vendor.

86. In 1997, Ruttenberg, Wynne, Tyra, Gilburne, Barry, Baker, Herskovits and Deloitte

were aware that Just For Feet was faced with the prospect of having to record bad debt expense

approximating $1 .2 million as a result of having failed to follow the procedures mandated by Just

For Feet's agreement with CheckCare Systems when accepting customer checks as payment for

merchandise sold at the Company's stores .

28

87. CheckCare Systems' guarantee of customer checks could only be invoked if Just For

Feet and its sales personnel followed and documented certain carefully described procedures, such

as customer presentment of a valid state driver's license and telephone number .

88 . As a result of Just For Feet's failure to adhere to the CheckCare procedures, in June

1997, the Company was faced with the prospect of having to book approximately $1 .2 million in

losses for which it had established no reserves, contrary to FAS 5 (Accounting for Contingencies) .

On June 27, 1997, Lones discussed the prospects for having to book these losses with Tyra and

Evans in Tyra's offices at Just For Feet's corporate headquarters in Birmingham, Alabama.

89. Additionally, Lones discussed the existence of the $1 .2 million in prospective losses

stemming from Just For Feet's failure to follow the CheckCare procedures with the Company's in-

house and outside counsel, including Swartz, as early as March 6, 1997 . Just For Feet's counsel

advised that the Company did not have a likelihood of recovering these amounts from CheckCare .

90. During the Summer of 1997, prior to the close of Just For Feet's second quarter

ending July 31, 1997, Just For Feet wrote off approximately one-half of the $1 .2 million of

CheckCare losses . However, following a negative newspaper article, Tyra directed Lones and Evans

to cease all write-offs of bad debt losses for the stated reason that Just For Feet's earnings reports

had been negatively impacted . The CheckCare receivables which the Company's management

considered to be uncollectible approximated $600,000 on July 7, 1999 . The failure to take the

balance of the write-offs violated GAAP's requirements with respect to the timing and recognition

of losses . The effect of the write-off of these receivables as bad debt were known to Deloitte,

Ruttenberg, Baker, Tyra, Wynne, Evans and Barry, all of whom acquiesced in Just For Feet's efforts

to protect earnings by continuing to keep the remaining bad debts on the books at full value .

29

91 . During the quarter ended October 31, 1997, Just For Feet reversed a sales tax payment

in the amount of $60,000 relating to the CheckCare bad debt losses, adding $60,000 back to income,

even though the bad debt loss had not yet been written off. This reversal, which violated GAAP, was

made against the express advice of Lones .

Failure To Book Required Reserves For Sales Promotions

92. During the last weekend in April 1999, Just For Feet, which was desperately

attempting to increase its revenues through increased sales, embarked upon a special promotion for

the sale of its goods in its Super Stores Division . Under this program, Just For Feet's Super Stores

Division offered a dollar-for-dollar rebate program for purchases of goods at Just For Feet . For

example, if a purchaser of Just For Feet goods spent $50.00 in a Just For Feet superstore, that

purchaser was entitled to receive a $50 .00 credit on any goods purchased at any Just For Feet store

after June 18, 1999 . The rebate offer was good from June 18, 1999 through December 31, 1999 .

93. Just For Feet realized approximately $20 million from this sales promotion an d

booked that sum during the first quarter of 1999 . Notwithstanding that for every dollar realized as

a result of this sales promotion Just For Feet also incurred a liability after June 18, 1999, only twenty

percent (20%) of the $20 million received from this sales promotion was reserved as a future

liability, in violation of FAS 5 (Accounting for Loss Contingencies) because the redemption rate of

the coupons from this sales promotion was quantifiably in excess of 80% .

94. Additionally, the June 18, 1999 effective date for the rebate was intentionally set to

occur after Just For Feet had reported its first quarter results to the SEC . The effect of this scheme

was to inflate first quarter fiscal 1999 results at the expense of the Company's historically strongest

sales season in July and August (the back-to-school season) .

30

95. On May 25, 1999, the Company's management scheduled telephone conference calls

with securities analysts and other interested parties for the purpose of discussing the financial results

of the Company for the quarter ended April 30, 1999 . The Company was represented in that

conference by Ruttenberg, Tyra and Rockey .

96. In describing the first quarter 1999 Super Stores Division's "dollar-for-dollar" sales

promotion manipulation, Ruttenberg boasted that :

(a) The Company's core business, its Super Stores Division, continued to excee d

management 's expectations ;

(b) The Company's Super Stores Division continued to take market share and was the

most differentiated and best formula for winning business in this competitive

business ;

(c) The Company would continue to invest in the Super Stores concept to ensure that

they would be the most dominant retailer of the future ; and

(d) Industry conditions remained difficult and challenging, but the Super Stores Division

again demonstrated the ability to continue to take market share, as well a s

experienced positive same store sales growth for the twenty-second consecutiv e

quarter.

97 . Following Ruttenberg's presentation, Tyra described Just For Feet's financial result s

as follows :

(a) For the first quarter ended May 1, 1999, sales were approximately $221 million, u p

45 .5% versus the first quarter of last year; and

31

(b) Operating income for the first quarter was $12 .7 million, before interest and taxes,

up 26 .2% over the $10.1 million for the first quarter of last year .

Tyra never disclosed the dollar-for-dollar rebate program or the effect that such a program would

have on Just For Feet's future quarters . Nor did Tyra disclose that, if the Company had established

appropriate reserves of 80% rather than 20% of the potential $20 million liability in connection with

the program, the additional $12 million in reserves would have wiped out virtually all of the

quarter's $12 .7 million in operating income .

98. In the question and answer session which followed these presentations, Ms . Dana

Cohen, of Donaldson, Lufkin & Jenrette, asked about the first quarter "buy one get one free"

program and its impact on the first quarter results . Ruttenberg responded that the program was part

of the Company's inventory reduction plan, worked very well, was held for one weekend only and,

while business was very good over that period, the program was not significant and did not

materially impact first quarter results . Unbeknownst to the analysts and stockholders on the call,

these representations were false when made, and Ruttenberg, Tyra and Rockey knew of their falsity .

99. In response to a subsequent question by Mark Freidman of Merrill Lynch, Ruttenberg

stated: (a) Our inventories will be at peak at the end of July for our back-to-school season ; and (b)

We have no plans to be playing around with our back-to-school business . Ruttenberg made these

representations despite his knowledge that the first quarter "dollar-for-dollar," or "buy one get one

free" program would likely hurt the back-to-school season .

100 . The understatement for the Company's first quarter 1999 sales promotion was not the

only instance of failing to properly reserve against income . Just For Feet's hallmark sales promotion

was "Buy at Just For Feet, where the thirteenth pair is free ." In fact, Just For Feet held a registere d

32

trademark for the slogan "Where the 13`h pair is free ." The Company did not, at any time, make any

allowance or reserve for the free thirteenth pair of shoes, despite claiming to have 2 .4 million

families enrolled in the program. Nor did the Company establish reserves for the redemption of gift

certificates or coupons offering discounts to customers in connection with other sales promotions .

This failure to establish reserves violated FAS 5 .

101 . The Company's failure to book appropriate reserves for gift certificates, promotions

and coupons was known to Defendants throughout the Class Period, and at the very least was

disclosed to the Board of Directors in August 1999 .

Failure To Book Required Reserves For Barter Transaction s

102 . Just For Feet also failed to book reserves or impairments relating to its "sales" to

barter exchanges . From time to time during the Class Period, Just For Feet "sold" its aged inventory

to "barter groups" in return for credits for an equivalent value of services to be rendered in the future

by members of the barter group. Just For Feet booked the value of the barter group receivable at the

actual original cost of the merchandise, plus 14%. During the Class Period, Just For Feet booked

barter group receivables of at least $5 million .

103 . Because of the limited ability to use the barter dollars, and because services obtained

with barter dollars were at full retail price, the services to be received by Just For Feet were worth

substantially less than the value booked by Just For Feet for the barter receivable or asset . In fact,

Just For Feet used very few of its barter credits, because it found that it could negotiate better prices

and terms by paying for services in cash rather than barter credits . These facts were commonly

known to the Company's senior management, and were specifically disclosed to the Board of

Directors in August 1999, if not earlier .

33

104 . Whenever the Company and its senior management needed to show an increase in

gross profit, they dumped some of the Company' s aged and essentially worthless inventory off to

the barter groups and booked the original merchandise costs, which included the 14% inventory cos t

capitalization, at full value as a viable receivable .

Misuse of Acquisition Accounting

105 . In June of 1998, Just For Feet announced its acquisition of Sneaker Stadium .

Ruttenberg , Tyra and Berm an, with the active assist ance of Wynne, Evans and Lloyd, embarked o n

a scheme to inflate Just For Feet's earnings by the manipulation of the value of Sneaker Stadium

inventory .

106 . On the date of the acquisition of Sneaker Stadium, Tyra and Berman, with the activ e

assistance of Wynne, Evans and Lloyd, established an inventory reserve of $10,583,897 against an

inventory balance of $46,973,783, thus reducing the net value of the newly acquired Sneaker

Stadium inventory to $36,389,886, or 77.5% of cost.

107. Ruttenberg , Tyra and Berman acted in concert to hide Just For Feet's poor

performance by improper use of acquisition accounting entries relating to the Sneaker Stadiu m

acquisition. These included providing inventory reserves greatly in excess of justifiable amounts ,

then releasing rese rves as needed to allow the Company to continue to inflate earn ings .

108. Per the 10-Q for the quarter ended July 31, 1998 the Defendants caused the Comp any

to show an estimate of inventory value for the inventory acquired from Sneaker Stadium to be $36 . 4

million. In the 10-Q for the quarter ended October 31, 1998, the amount was adjusted downward

to $27 .6 million pursuant to an overreaching application of Accounting Principles Board ("APB")

34

Statement No. 16 and FAS 38, which permit a one-year period of allocation of purchase price . As

a result, the inventory was now valued at 59% of its cost on the Company's books .

109 . Just For Feet was adjusting inventory downward by increasing its acquisition-related

inventory reserve, with an offsetting increase to goodwill (which was being amortized over the

years, which itself was an overreaching application of APB 17) . The Defendants then recognized

profit on the future sale of the undervalued inventory, causing profit margins and net profits to be

overstated . This treatment effectively masked poor operational results by reducing average cost of

sales and increasing operating income by the amount of the excessive inventory reserve .

110 . As Just For Feet was faced with the prospect of failing to meet securities analysts '

expectations for the third quarter ending October 1998, Defendants Tyra and Berman, with the active

assist ance of Defendants Wynne, Evans and Lloyd, added an additional $8,802,522 to the Sneaker

Stadium inventory reserves . The effect of these arbitrary write-downs of Sneaker Stadium's

inventory was to decrease the cost of goods sold and thereby increase income and earnings . By

means of this manipulative device, Just For Feet was able to meet or exceed the earnings

expectations of securities analysts and thus maintain or support the market price for the shares of

common stock of Just For Feet .

111 . As January 30, 1999 (the end of the fiscal year) neared, Just For Feet was again face d

with a prospective failure to meet securities analysts' earnings expectations and forecasts . In order

to increase earnings and thereby fulfill market expectations, Just For Feet, acting through Tyra and

Berman, and with the active assistance and participation of Wynne, Evans and Lloyd, added an

additional $2,503,650 to the acquisition inventory reserves for the Sneaker Stadium inventory, whic h

35

had been acquired six months earlier, and thereby were able to decrease the cost of goods sold and

thus increase income and earnings .

112 . The use of this manipulation of the Sneaker Stadium inventory reserves, which was

not disclosed to the investing public, enabled Just For Feet to again meet the securities analysts'

earnings forecasts and expectations with the result that the market price of the Just For Feet shares

of common stock was artificially supported by means of these misleading manipulations .

113 . In all, Just For Feet reserved a total of $21,890,069 as acquisition inventory reserves

for the Sneaker Stadium transaction, or 46.6% of its originally booked inventory costs, most or all

of which was unjustified . This scheme to manipulate the inventory costs of the Sneaker Stadium

acquisition had the effect of increasing earnings by as much as $21,890,069, or nearly half of the

Company's reported pre-tax earnings of $43 .3 million .

114 . This scheme was directed by Tyra and Berman, with the active assistance of Wynne,

Evans and Lloyd, and with the knowledge and support of Ruttenberg, Barry, Baker and Deloitte .

Improper Capitalization of Inventory Cost s

115 . By the end of each fiscal year during the Class Period, Just For Feet overstated

inventory by improperly capitalizing operating costs which should have been expensed in the current

period . These costs included operating costs of the corporate headquarters and the stores'

administrative and sales costs in excess of the amounts properly allowable under GAAP . By use of

this device, Just For Feet reduced operating expense by moving tens of millions of dollars into asset

categories such as capitalized inventory costs, thereby overstating inventory and earnings . This

scheme, and its impact upon Just For Feet's reported income and earnings, were discussed among

Lones, Wynne, Barry and Baker in June and July of 1997 .

36

116 . Notwithstanding Lones' adamant insistence that the accounting methods employe d

by Just For Feet were improper and misleading, Wynne and Deloitte, acting through Baker an d

Barry, directed Lones to utilize an accounting methodology which resulted in an even highe r

inventory capitalization.

117 . Just For Feet's improper methods of inventory capitalization, which blatantly violate d

Accounting Research Bulletin ("ARB") 43 (Inventory Pricing), were discussed with Evans and Tyr a

on June 27, 1997 in Tyra's office at the headquarters on 7400 Cahaba Valley Road .

118 . In short, the inventory cost capitalization practices were extraordinary and vastl y

exceeded industry practice . At Just For Feet, the costs of the acquisition of goods was capitalized

at a rate of fourteen percent (14%), which substantially exceeded industry norms . For example, if

Just For Feet purchased a pair of shoes from Nike, it added certain overhead costs to that purchase

price, i.e., cost of personnel in the buying department, freight costs, etc . When Just For Feet

accounted for the purchase of that $30 .00 pair of shoes, it showed the value of that purchase as

$30 .00 x 14%, or $34 .20 .

119. Because Just For Feet utilized the first-in first-out ("FIFO") method of inventor y

accounting, rather than the more widely utilized dollar-value last-in first-out ("LIFO") retail method ,

these improperly capitalized expenses remained in inventory (and thus offthe income statement) fo r

several reporting periods .

120 . The effect of the use of the 14% figure was to materially decrease operating expense s

and consequently increase the earnings of Just For Feet throughout the Class Period . No disclosure

was made that Just For Feet was using a capitalization rate far in excess of industry norms .

37

Overstatement of Inventory Net Realizable Value

121 . By the end of each fiscal year during the Class Period , Just For Feet overstated

inventory by failing to calculate its invento ry in accordance with ARB 43 (Invento ry Pricing) . Just

For Feet failed to properly value invento ry using the lower of cost or market as required by GAAP,

and failing to adequately provide for obsolescence and inventory sh rinkage , also as required by

GAAP .

122. As of May 1, 1999, Just For Feet maintained invento ry reserves of only $400,000,

ludicrously low for fashion retail inventories valued at $458 million. Additionally, there existed no

inventory aging policy at Just For Feet because the information in the Just For Feet invento ry

accounting system was totally unreliable .

123 . Just For Feet regularly transferred its invento ry from division to division and store

to store to inflate the value of its inventory assets . When inventory was transferred from one

division or store to another division or store, it was booked on the records of Just For Feet as "new"

inventory . Thus, when the Just For Feet Specialty Stores Division, which catered to a particularized

market, could not sell inventory, it was transferred to the Super Stores Division, which catered to

an altogether different market, and was picked up on the Super Stores Division's books at the

Specialty Stores' carrying cost (including the old 14% add-on), plus an additional 14% of the already

marked-up value. During July and August 1999 alone, Just For Feet transferred $20 million in

inventory from its Specialty Stores to its Super Stores .

38

124 . In fact, the inventory transferred was frequently obsolete , out of date and, given the

differences in the markets served by the two divisions, was likely to be sold out of the Super Stores

at huge discounts, if at all .

125 . In 1998 and 1999, the inventories at the Specialty Stores consisted largely of outdated

materials, i . e ., 1996 Olympic warm-ups, Houston Oilers jackets, etc ., which had been purchased by

Don-Allen Ruttenberg . In the Just For Feet corporate headquarters, such purchases became known

as "Don Deals . "

126 . The New Jersey warehouse of Just For Feet, which serviced all the northeaster n

United States , was the dumping ground for goods purchased by Just For Feet in "Don Deals ."

Notwithstanding that Just For Feet 's management knew that the invento ry stored at the New Jersey

warehouse was vi rtually worthless, Just For Feet valued that invento ry at its "cost," which was

inflated by a factor of 14% because of Just For Feet's improper inventory cost capitalization

practices , all in violation of GAAP . Just For Feet carried no reserves with respect to this inventory .

127. Many of the "Don Deals" were inventory that was purchased at inflated prices

(frequently to compensate vendors for their pa rticipation in prior accounting schemes by Just For

Feet), and then marked for sale at deep discounts . For example , Don-Allen purchased Dr. Martens

sandals for $23 .00 per pair, but when they hit the sales floor they were immediately marked for sale

at only $ 9 .00 per pair . However, Just For Feet continued to carry the invento ry of sandals on its

books at $23 .00, so it could defer recognition of any loss until the sandals were actually sold, thus

enabling it to spread the loss over future periods . This practice of marking down p rices on the retail

side (the store shelves ) but not on the inventory side (the warehouse or backrooms of stores), was

a standard practice at Just For Feet , and is in violation of the GAAP requirement that inventories be

39

valued at the lower of cost or market value . This practice had a material impact on Just For Feet's

reported earnings throughout the Class Period .

128 . Just For Feet also did not properly account for market enhancement discounts

provided by vendors . When vendors provided cost reductions or markdowns to Just For Feet, Just

For Feet would nevertheless enter and/or maintain the value of the inventory on its books at the

original cost (which was more than Just For Feet had paid), and would immediately recognize

income equal to the difference between the original cost and the price paid, net of discounts . This

allowed Just For Feet to recognize a portion of the income from this inventory immediately upon

receipt of the inventory from the vendors rather than upon sale to customers, thereby increasing

income immediately rather than deferring that income until the inventory was eventually sold to

customers . Because much ofthis inventory was slow-moving or unattractive, the Company in effect

created phantom income rather than reserving for the loss such inventory would likely entail .

129 . As of June 1999, the inventory overstatement at Just For Feet's Specialty Stores ha d

grown to at least $20 million . On a companywide basis, as of July 1, 1999, Just For Feet was

carrying more than $53 million in aged and impaired goods (including Don Deals) on its books at

full cost . These inventory problems were known to most all senior managers at Just For Feet, as well

as to Deloitte, who had been told of the GAAP violations as early as June 1997 .

Improper Accounting For Leaseholds

130 . Just For Feet treated all of its store leases as operating leases, regardless of whether

circumstances existed that would have required them to be capitalized under GAAP . Many of Just

For Feet 's leaseholds were fitted with build-outs and other costly improvements , yet the costs of

those improvements were never capitalized . By failing to capitalize its leases and leasehol d

40

improvements, Just For Feet was able to avoid the decrease in earnings in the early years of each

lease that would have resulted from the treatment of lease payments as interest payments . At the

same time, Just For Feet avoided having to create a liability on its balance sheet with respect to the

leases .

131 . In 1998, Just For Feet refurbished its store at Caesar's Palace in Las Vegas . Lones

informed Just For Feet management, as well as Baker, that proper accounting for this refurbishment

would require the Company to write off approximately $800,000 in prior leasehold improvements .

These write-offs were never taken . Upon information and belief, Just For Feet similarly failed to

write-off other leaseholds and improvements for stores that were refurbished or closed during the

Class Period.

Just For Feet's Woefully Inadequate Accounting And Management Information Systems

132 . The accounting and management information systems employed at Just For Feet were

woefully inadequate throughout the Class Period . The inadequate nature of the accounting system

permitted many "after-the-fact" manipulations of reported profits and earnings . The Defendants

could thus "adjust" Just For Feet's financial results, creating the illusion of sales, growth, and

valuable inventory and receivables, as well as the illusion of compliance with the financial covenants

in its loan agreements, thus misleading lenders and investors alike as to the Company's financial

condition. No disclosure to the investing public was ever made about the inadequacy of Just For

Feet's accounting system .

133 . As of July 1, 1999, there existed a 35% error rate on accounting for Just For Feet's

payables . That is, Just For Feet was unable to match invoices with shipments, and could only

account for 65% of the inventory generating its payables actually being delivered into inventory .

41

134, As of October 8,1999, the Company's books reflected $5 .6 million more in inventory

at the Specialty Stores than the physical inventory count had revealed. The Company's general

ledger showed an additional variance of approximately $7 million . Berman informed Rockey of

these facts in a memo dated October 17, 1999, in which he identified a number of inventory control

problems that might have caused the variance .

135 . Just For Feet's accounting system reported yearly same-store sales comparisons for

stores that were open less than one year. When this logical impossibility was brought to the attention

of senior management, the reply was simply that is what same store sales "would have looked like"

if the store had been open more than a year .

136 . Just For Feet's books did not have monthly "hard closes ." This enabled the

Company's management to make many after-the-fact alterations to the Company's books . The

inventory system employed at Just For Feet was particularly vulnerable to alteration, permitting

entries that had the effect of increasing the Company's apparent worth . Wynne (and Wabler before

him) regularly instructed Lloyd to physically and personally alter the Company's inventory figures

during the Class Period. Lloyd (and Wabler before him) effected these alterations of Just For Feet's

inventory numbers through a concealed computer backdoor on the Profits Computer System and its

successor system, the Island Pacific System . At times, the alterations made or directed by Wynne

and Wabler occurred as the original data was being entered .

137 . The existence of this undetectable access to both computerized inventory systems was

made known to Baker of Deloitte by the Company's accounting staff during the course of Deloitte's

annual internal control audit updates during the Class Period .

42

138 . During a telephone conference between Lones and Deloitte representatives Baker and

Barry while Lones was in Florida doing due diligence on the Athletic Attic acquisition, Deloitte was

again informed of the fact that the integrity of the Company's accounting systems was being

compromised by the alterations made through the concealed computer backdoor on the Profits

Computer System and the Island Pacific System . During this conference, Deloitte was asked to

assist Lones in putting an end to the backdoor alterations of the Company's historical inventory data .

Deloitte refused to do as requested . Deloitte was thus on direct notice of probable violations of

GAAP .

139 . Rather than promptly report the inadequacy of Just For Feet's accounting and

inventory systems to Just For Feet's Audit Committee, Deloitte sought to profit from Just For Feet's

inadequate systems by, on June 11, 1999, successfully bidding on a consulting project to cure the

many deficiencies in those systems, including the Company's inventory management problems and

its "accounts payable matching process . "

140 . On July 1, 1999, Deloitte provided Just For Feet with a report of its preliminar y

findings regarding the Company's inventory management and accounts payable matching problems .

Among other things, Deloitte found that during the third and fourth quarters of 1998, purchase orders

were not being entered into the Company's inventory management system, and "MIS lacked

attention to core system issues." Deloitte found that in the first quarter of 1999, "[p]oor inventory

controls continue[d] to result in increased likelihood of inventory shrinkage ." Deloitte also found

that procedures for the receipt of merchandise at the store level were "not rigorously or consistently

employed," that poor communication and numerous operational issues were causing errors i n

43

entering information into the inventory control system, that comprehensive procedures did not exis t

for the resolution of errors in the accounts payablematching process, and that RTV procedures were

"readily available but inconsistently followed. "

141 . Despite Deloitte's knowledge of significant problems with Just ForFeet's accountin g

and inventory control systems during the Class Period, these deficiencies were not noted in Just For

Feet's annual financial statements for which Deloitte issued unqualified opinions . Deloitte permitted

Just For Feet, in its Reports on Form 10-K (which had been reviewed by Deloitte), to expressly tout

the purported superiority of the Company's "sophisticated information systems," and particularl y

its inventory control systems, in violation of SAS 8, which would require Deloitte to notify th e

Company of the material misstatements and to seek legal advice concerning other steps to be taken .

For example, Just For Feet's Form 10-K for the fiscal year ended January 30, 1999, states :

We believe that we have sophisticated information systems that assistus in optimizing our superstore operations . Control of ourmerchandising activities is currently maintained by a fully integratedpoint-of-sale, inventory and management information system whichpermits management to monitor inventory and store operations on adaily or more frequent basis . Bar-coding of merchandise and the useof scanners at receiving and point-of-sale allows the inventories of allstores to be automatically adjusted and sales automatically logged ascustomers check out. Purchasing, tracking and receiving systemsassist in the efficient and timely distribution of merchandise to eachsuperstore . Systems are in place to permit review, on a daily or morefrequent basis, of sales information by store, category, vendor oremployee in order to focus on store needs and employee productivity .In-store information systems are linked in our superstores directly tothe corporate office.

Defendants' Efforts to Conceal Their Misconduc t

142 . In June 1999, Robert Oyster ("Oyster") joined Just For Feet as the President of it s

Superstores Division. Within a short time after his arrival, through discussions with other Just For

44

Feet employees, Oyster discovered a number of the improper accounting treatments being utilized

by Just For Feet's management . In an effort to do the honest and right thing, Oyster informed

management, including Rockey, of his concerns .

143 . Rockey assured Oyster that she would bring in Arthur Andersen to review th e

Company's accounting practices and internal controls and provide an independent opinion as to their

integrity and propriety. Rockey went so far as to request a proposal from Arthur Andersen in June

1999 to review Just For Feet's cash flow procedures and performance reporting . Rockey then

arranged for Oyster to meet with representatives of Arthur Andersen on August 2, 1999, but never

followed up any further.

144 . In an effort to prevent Oyster from digging any further into Just For Feet's accounting

schemes, Just For Feet management decided to deny Oyster access to any Company books or

financial records . Even when Oyster specifically requested on two occasions that Wynne provide

him with information about the Company's accounts receivable from Rogers, the information was

never supplied .

145 . On July 20, 1999, after Oyster had complained to Rockey about his lack of access t o

accounting information and his concerns about questionable accounting practices, Rockey asked

Oyster for a list of the "funky accounting issues" at Just For Feet. On or about July 26, 1999, Oyster

provided her with a list of his concerns, including the many questionable accounting practices

discussed above with respect to booth accounting, co-op advertising (including the recognition of

income before it is earned), market enhancement funds, insufficient inventory reserves, high

capitalization of inventory costs, lack of a viable inventory aging report, failure to mark down costs

of inventory when the retail price is marked down, possible inflation of inventory unit costs t o

45

provide vendors with the wherewithal to refund credits to Just For Feet on past overaccruals, failure

to accrue reserves for gift certificates and sales promotions ; distortion of accounts payable liability

due to inability to match accounts payable to receivers, gross-up of sales for giveaway promotions

to increase comparable sales growth figures, accounting for leases as operating leases rather than

capitalizing them, inability to use barter credits effectively, and accounts receivable from Rogers .

146 . On August 15, 1999, Rockey sent Lazarus an e-mail identifying a number of

accounting practices for discussion by the Audit Committee, all of which had been brought to her

attention by Oyster . These issues included the timing of recognition of co-op advertising income,

the lack of a sufficient inventory obsolescence reserve, the possible inaccuracy of the Company's

inventory aging, the taking of vendor deductions without vendors' consent, gross-ups of sales for

giveaways and promotions, and the possible need to reserve for unuseable barter trade credits .

Rockey stated that she was sure there were more accounting issues to be addressed, but that these

issues would be a good start . Tyra received a copy of this e-mail .

147 . On August 19, 1999, Oyster attended a meeting of Just For Feet's Board, excludin g

Ruttenberg and Rockey . During that meeting, Oyster provided the Board members with a detailed

description of what he considered to be improper accounting practices at Just For Feet . These

accounting practices included : the rebate scheme involving Rogers Advertising ; the lack of accruals

for gift certificates and promotions; the large number of unmatched accounts payable ; the gross-up

of sales for giveaways ; the carrying of useless trade credits on the books; booth accounting ;

overstatement of co-op receivables ; incorrect treatment of market enhancement funds ; and

insufficient inventory reserves . Oyster told the Board that he believed these practices to be so fa r

46

outside the bounds of acceptable accounting standards that they constituted cause for serious

concern.

148 . With respect to the Rogers scheme, Oyster informed the Board that at the end of the

last three fiscal years, Just For Feet had accrued inflated anticipated future rebates . He told them that

in January 1999, when Just For Feet wanted to increase its income for the fiscal year ended January

30, 1999, the Company booked as current income the anticipated rebates which would not be earned

until the next fiscal year, which, when added to the existing overaccrual balance, resulted in an

accounts receivable balance of $5 .3 million . Oyster informed the Board that Gilburne had told

Rogers to overbill Just For Feet by $250,000 per month in order to provide Rogers the cash he

needed to "pay back" Just For Feet for these accounts receivable, which totaled approximately $7 .5

million as of July 1999 . Oyster further informed the Board that, when asked about the collectibility

of these accounts receivable, Rogers had stated that he was not liable for those amounts, and that the

only way he could pay them off was by overbilling Just For Feet .

149 . With respect to the Company's failure to accrue for gift certificates, coupons and sale s

promotions (including the thirteenth pair free program), Oyster informed the Board that the Company

was pumping up its sales figures by recognizing revenues without any related costs or reserves when

coupons and certificates were issued, and would only recognize such costs when the certificates or

coupons were redeemed. Oyster informed the Board that the result was a $10 million overstatement

of income in the first quarter of 1999 .

150 . Oyster also informed the Board that the Company's sales of inventory to barter

exchanges in exchange for trade credits had originally been done to "juice" sales and income, but

that the trade credits received by Just For Feet could not be used effectively and were not worth th e

47

carrying value attributed to them on the Company's books . Oyster described this practice as stealing

from the future for the benefit of today.

151 . Within a few days after the August 18,1999 Board meeting, Oyster was informed that

he was being transferred to the Chief Operating Officer position, and that he was being sent to Just

For Feet's New Jersey warehouse to review inventory issues there . The reason for this transfer was

to prevent Oyster from discovering any more information about Just For Feet's improper accounting

practices, and to prevent him from blowing any more whistles on the Defendants .

152 . On August 23, 1999, Oyster was invited to participate in a telephonic meeting of the

Audit Committee scheduled for August 25, 1999 . During the morning of August 25th, however,

Rockey informed Oyster that his participation was no longer required .

153 . On or about September 27, 1999, Rockey summoned Oyster to a meeting for the

stated purpose ofdiscussing real estate issues with Berman . During that meeting, Berman attempte d

to silence Oyster about the Company's accounting issues, by threatening him with personal liability

in the event of a lawsuit .

Defendants' False and Misleading Statement s

154 . Prior to and throughout the Class Period, Just For Feet reported consistently positiv e

and growth-oriented results its year-end financial reports, as follows and as discussed more full y

below (amounts are in thousands except per share data, adjusted for stock splits) :

Earnings Gross Net PerYear Sales Profit Income Share

1996 $256,397 $108,871 $13,919 $ 0.501997 $478,638 $198,822 $21,403 $ 0.721998 $774,863 $322,533 $26,648 $ 0.87

48

Defendants also made a number of false statements, both during conference calls with securities

analysts and in the textual and financial statement portions of Just For Feet's annual and quarterly

reports to shareholders, Forms 10-K and 10-Q, and press releases that were issued during the Class

Period, regarding the Company's supposedly increasing sales, profits, earnings, and growth of

business . As a result of the accounting manipulations described above, however, those statements

were known to be materially false and misleading at the time they were made .

155 . On May 5, 1997, Just For Feet issued a press release announcing its financial result s

for the three-month period ended April 30, 1997. The press release stated that Just For Feet's

reported sales for the period were approximately $90 million, representing an 83 .2% increase over

the same three-month period in 1996 . The press release further stated that comparable store sales

for the Company's Superstores had increased 5 .0% for the quarter compared to the same quarter in

1996 . The press release quoted Ruttenberg as saying "I am very pleased to announce that Just For

Feet superstores posted a 5 .0% comparable store sales gain in the first quarter on top of the prior

three years' first quarter comparable sales increases of 42 .0%, 10 .0% and 12.0% for fiscal 1996,

1995 and 1994, respectively ." Ruttenberg also stated that "the Company did not experience any of

the industry sales softness reported by some of its competitors during the quarter . . ." The press

release's reports of Just For Feet's sales results were materially false and misleading because the

above-described accounting practices caused the Company's net sales to be materially overstated .

In addition, the statements regarding the Company's purported growth in comparable store sales

were also materially false and misleading because the press release failed to disclose that those

figures were based, in part, on fictitious prior period sales figures for stores that were not yet open,

and on improper accruals of revenue and accounts receivable for bulk sales occurring after the end

49

of the period which had been allocated out to stores to create the illusion of continuing growth in

comparable store sales . The market, which had not knowledge of the fraud, responded positively

to this press release, with trading volume on May 5, 1997 that was more than twice the volume of

May 2, 1997 (the preceding business day) . The market price of Just For Feet's stock jumped 13 .7%

in response to the press release, from a closing price of $18 1/8 on May 2, 1997, to a closing price

of $20 5/8 on May 5, 1997 .

156 . On June 12,1997, Just For Feet filed its Form 10-Q with the SEC for the three-month

period ended April 30, 1997 . That Form l O-Q, which was signed by Ruttenberg and Tyra, lists Just

For Feet's net income for the quarter as approximately $5 .2 million, or $0 .18 per share, representing

an increase of 62 .5% over reported net income for the quarter ended April 30, 1996. The Form 10-Q

also states that the value of Just For Feet's merchandise inventories was in excess of $140 million,

and that net sales had increased by 88 .7% (to $92.8 million) as compared to the quarter ended April

30, 1996 . In fact, these sales, income and inventory figures, among other figures in this Form 10-Q,

were materially overstated as a result of the accounting manipulations described above .

157 . On September 15, 1997, Just For Feet filed its Form 10-Q with the SEC for the three-

month period ended July 31, 1997 . That Form 10-Q, which was signed by Ruttenberg and Tyra, lists

Just For Feet's net income for the quarter as approximately $4 .8 million, or $0 .16 per share,

representing an increase of 64% over reported net income for the quarter ended July 31, 1996 . The

Form 10-Q also states that the value of Just For Feet's merchandise inventories was in excess of

$178 million, and that net sales had increased by 92 .5% (to $112 .4 million) as compared to the

quarter ended July 31, 1996 . In fact, these sales, income and inventory figures, among other figures

in this Form 10-Q, were materially overstated as a result of the accounting manipulations describe d

50

above. This Form 10-Q also states that the Company had achieved "positive comparable store sales

growth on an annual basis" in recent years, including growth of 4 .0% and 4 .5%, respectively, for the

three and six month periods ended July 31, 1997 . The 10-Q specifically states that "[t]he specialty

stores will not be included in the comparable store base until such stores have been owned and

operated by the Company for twelve full months ." What is not disclosed is that these positive

comparable store sales growth rates did include new superstores that had been open for less than

twelve months, and that the Company's management had fabricated comparable sales numbers for

those stores . The comparable store sales figures were also materially misstated as a result of

Defendants' false accrual of revenues and accounts receivable for bulk sales occurring after July 31,

1997, which were allocated out to stores to provide the illusion of continuing comparable store sales

increases .

158 . On December 12, 1997, Just For Feet filed its Form 10-Q with the SEC for the three-

month period ended October 31, 1997 . That Form 10-Q, which was signed by Ruttenberg and Tyra,

lists Just For Feet's net income for the quarter as approximately $5 .4 million, or $0 .18 per share,

representing an increase of approximately 7% over reported net income for the quarter ended

October 31, 1996 . The Form 10-Q also states that the value of Just For Feet's merchandise

inventories was in excess of $168 million, and that net sales had increased by 87 .9% (to $131

million) as compared to the quarter ended October 31, 1996 . In fact, these sales, income and

inventory figures, among other figures in this Form 10-Q, were materially overstated as a result of

the accounting manipulations described above . Additionally, like the 10-Q for the previous period,

this 10-Q reported comparable store sales growth without disclosing that these growth figures were

based, in part, upon information fabricated by Just For Feet management (including prior-period

51

sales figures for stores that were not open during those periods), and on falsely accrued revenues and

accounts receivable for bulk sales occurring after the end of the period .

159. On April 4, 1998, Just For Feet filed its Form 10-K with the SEC for the fiscal year

ended January 31, 1998 . The Form 10-K was signed by Ru ttenberg, Tyra, Lazarus, and Haines,

among other directors of Just For Feet, and contains a report by Deloitte stating that Deloi tte had

conducted an audit in accordance with GAAS, and had concluded that the fin ancial statements

contained in the 10-K "present fairly, in all material respects , the financial position of Just For Feet,

Inc . and subsidiaries" in accord ance with GAAP . As reported in those audited financial statements,

Just For Feet 's net income for the fiscal year was approximately $ 21 .4 million, or $ . 72 per share,

compared to approximately $ 14 million, or $ .50 per share, for the prior fiscal year . The 10-K reports

Just For Feet's net sales as approximately $479 million, representing an 86.7% increase over the

prior year. Just For Feet 's merchandise inventories are valued in excess of $206 million in the 10-

K's financial statements . These income, sales and inventory figures, among other figures in this

Form 10 - K, were materially overstated as a result of the accounting manipulations described above .

In addition, the 10-K falsely states that the Comp any's merchandise inventories "are valued at the

lower of cost (first-in, first-out method) or market" when, as desc ribed above, they were not.

160. On June 15, 1998, Just For Feet filed its Form 10 -Q with the SEC for the three-month

period ended April 30, 1998 . That Form I0-Q, which was signed by Ruttenberg and Tyra, lists Just

For Feet's net income for the quarter as approximately $ 5 .8 million, or $ 0 .19 per share , representing

an increase of about 11 .8% over reported net income for the quarter ended April 30,1997 . The Form

10-Q also states that the value of Just For Feet's merch andise inventories was nearly $212 million,

and that net sales had increased by approximately 63 .7% (to $151 .9 million) as compared to th e

52

quarter ended April 30,1997 . In fact, these sales, income and inventory figures, among other figures

in this Form 10-Q, were materially overstated as a result of the accounting manipulations described

above .

161 . On July 2, 1998, Just For Feet filed a Form 8-K with the SEC to announce that it ha d

consummated the acquisition of Sneaker Stadium, Inc . On July 28, 1998, Just For Feet filed an

amended Form 8-K which attached Sneaker Stadium's audited financial statements, and unaudited

pro forma combined financial statements of Just For Feet and Sneaker Stadium. Sneaker Stadium's

balance sheet as of February 1, 1998, valued the company's net inventories using the lower of cost

or market at approximately $49 million - a figure which included approximately $1 .9 million in

capitalized costs associated with purchasing and merchandising activities, and which was net of

reserves in the amount of $1,031,822 .

162 . On August 3, 1998, Just For Feet issued a press release reflecting Ruttenberg' s

announcement that day of "record consolidated net sales of $175,329,000 for the second quarter

ended July 31, 1998, representing a 56% increase over the second quarter consolidated net sales in

the prior year of $112,369,000." The press release stated that "[t]his represented the eighteenth

consecutive quarter of record consolidated net sales for the Company ." The press release quotes

Ruttenberg as saying "We are pleased with our sales results for the quarter particularly when

considering the 4%, 30% and 17% increases in comparable store sales for the second quarter of

1997, 1996 and 1995, respectively . Since becoming a public company in 1994, we have now

experienced eighteen consecutive quarters of positive increases in same store sales . . . ." The press

release stated that the superstores acquired from Sneaker Stadium would not be included in the

comparable store sales analysis until they had been operated as Just For Feet superstores for thirtee n

53

months, but failed to disclose that Just For Feet's comparable store sales figures included other stores

that had been open for less than one year, and for which the Company's management has simply

made up sales figures for the prior year . The comparable store sales figures were also materially

misstated as a result of Defendants' false accrual of revenues and accounts receivable for bulk sale s

occurring after July 31, 1998, which were allocated out to stores to create the illusion of continuing

growth in comparable store sales . The press release's glowing reports of Just For Feet's sales results

were also materially false and misleading because the above-described accounting practices caused

the Company's net sales to be materially overstated .

163 . On August 9, 1998, Just For Feet filed its Form 10-Q with the SEC for the three-

month period ended July 31, 1998 . That Form 10-Q, which was signed by Ruttenberg and Tyra, lists

Just For Feet's net income for the quarter as approximately $8 million, or $0 .25 per share on a

diluted basis, representing an increase of about 66% over reported net income for the quarter ended

July 31, 1997 . The Form 10-Q also states that the value of Just For Feet's merchandise inventories

was nearly $323 million, and that net sales had increased by approximately 56% (to $175 .3 million)

as compared to the quarter ended July 31, 1997 . In fact, these sales, income and inventory figures,

among other figures in this Form 10-Q, were materially overstated as a result of the accounting

manipulations described above . In addition, although Sneaker Stadium had valued its merchandise

inventories at $49 million, net of reserves of approximately $1 million, this 10-Q reflects that Just

For Feet had booked that inventory at a value of only about $36 .4 million, with a reserve of about

$10.6 million .

164 . On November 4, 1998, Just For Feet issued another press release announcing record

consolidated net sales, this time for the third quarter ended October 31, 1998 . The press release

54

states that net sales for the quarter were $226,008,000, which represented a 72 .5% increase over the

third quarter of the prior year. Ruttenberg is quoted as saying "We are pleased with our sales results

for the quarter particularly when considering the 4 .9%, 18 .5% and 16 .4% increases in comparable

store sales for the third quarter of 1997, 1996, and 1995 respectively ." These statements were

materially false and misleading because Defendants' accounting practices had caused the Company's

net sales to be materially overstated, and because Just For Feet failed to disclose that its comparable

store sales growth figures were based, in part, on sales figures fabricated by Just For Feet's

management for stores that had been open less than one year, and on improperly accrued revenues

and accounts receivable for bulk sales occurring after the end of the period .

165 . On November 23, 1998, Just For Feet issued a press release announcing "record

consolidated results for the third quarter ended October 31, 1998 ." This press release repeated the

same false and misleading statements that were made in the November 4, 1998 press release

regarding the Company's sales results for the quarter . In addition, it stated that Just For Feet's net

income for the quarter had "increased 86 .8% to a record $10,040,000 compared to net income of

$5,376,000 for the comparable quarter last year ." These statements were materially false and

misleading when made, because the accounting manipulations described above had caused Just For

Feet's net income and sales results to be materially overstated . In addition, the press release quotes

Ruttenberg as saying "Our operating results continue to improve as our margins increased over the

third quarter of last year in both the Just For Feet superstore and specialty store divisions . The

Sneaker Stadium stores acquired in July, which are closing down for remodeling, provided only a

marginal increase to profits for the quarter." During the same time period, all other major footwear

companies were reporting lower earnings during the Class Period due to a soft market for athleti c

55

shoes and clothing. In the summer of 1998, both Venator ("Foot Locker", the number one athletic

shoe retailer) and Finish Line (an athletic shoe retailer of comparable size to Just for Feet) issued

warnings that their sales and earnings would be below expectations due to weakness in the market .

In fact, Ruttenberg's statement was materially false and misleading, because he knew but did not

disclose that the apparent improvements in Just For Feet's operating results were not the result of

improvements in the Company's actual performance, but rather Defendants' creative and fraudulent

accounting .

166 . On December 15, 1998, Just For Feet filed its Form 10-Q with the SEC for the three-

month period ended October 31, 1998 . That Form 10-Q, which was signed by Ruttenberg and Tyra,

lists Just For Feet's net income for the quarter as approximately $10 million, or $0 .32 per share,

representing an increase of about 87% over reported net income for the quarter ended October 31,

1997 . The Form 10-Q also states that the value of Just For Feet's merchandise inventories was in

excess of $342 million, and that net sales had increased by approximately 72 .5% (to $226 million)

as compared to the quarter ended October 31, 1997 . In fact, these sales, income and inventory

figures, among other figures in this Form 10-Q, were materially overstated as a result of the

accounting manipulations described above . In addition, the 10-Q reflects a downward adjustment

of approximately $ 8 .8 million (from $36,390,000 to $27,587,000) in the estimated fair value of

Sneaker Stadium's merchandise inventories . The 10-Q does not disclose that this adjustment was

the result of an arbitrary increase in Just For Feet's acquisition-related inventory reserve, which

allowed Just For Feet to fraudulently reduce its cost of sales and thereby to claim material increases

in earnings and income .

56

167 . On January 21, 1999, Just For Feet issued a press release stating that quarterly

comparable store sales should exceed expectations for the fourth quarter ending January 30, 1999 .

The press release quotes Ruttenberg as stating "Our core business at Just For Feet superstores has

been strong during the current quarter with approximate increases in comparable superstore sales to

date in a range between 6 .0% - 7 .0% despite a very difficult environment in our industry . The

increase in comparable superstore sales shows our continued gain in market share over competitors ."

These statements were materially false and misleading, because Just For Feet knew but did not

disclose that the true reasons for its apparent increases in comparable store sales were Defendants'

accounting manipulations and management's fabrication of prior-year sales figures for stores that

had been open less than a year .

168. On February 2, 1999, Just For Feet issued a press release announcing "record

consolidated net sales of $221,605,000 for the fourth quarter ended January 30, 1999, representing

a 55 .6% increase over the fourth quarter consolidated net sales in the prior year of $142,433,000 ."

The press release further states that "Just For Feet consolidated comparable store sales for the fourth

quarter increased 3 .9%," and quotes Ruttenberg as saying: "Our core business at the Just For Feet

superstores was well above plan during the current quarter with an increase in comparable superstore

sales of 6 .2% despite a very difficult environment in our industry . The increase in comparable

superstore sales shows our continued gain in market share from competitors . This also marks the

twentieth consecutive quarter of positive consolidated comparable store sales for the Company ."

These statements were materially false and misleading, because Just For Feet knew but did not

disclose that the true reasons for its apparent increases in comparable store sales were Defendants '

57

accounting manipulations and management's fabrication of prior-year sales figures for stores that

had been open less than a year .

169 . On March 23, 1999, Just For Feet issued another press release which repeated most

of the statements in its February 2, 1999 press release . The March 2, 1999 press release also states

that "[for the year ended January 30, 1999, net earnings increased 24 .5% to a record $26,648,000

compared to net earnings of $21,403,000 for the comparable prior year period ." This statement was

materially false and misleading because Just For Feet's net earnings were materially overstated as

a result of the accounting practices described above.

170 . On April 30, 1999, Just For Feet filed its Form 10-K with the SEC for the fiscal year

ended January 30, 1999. The Form 10-K was signed by Ruttenberg, Tyra, Lazarus, and Haines,

among other directors of Just For Feet, and contains a report by Deloitte stating that Deloitte had

conducted an audit in accordance with GAAS, and had concluded that the financial statements

contained in the 10-K "present fairly, in all material respects, the financial position of Just For Feet,

Inc . and subsidiaries" in accordance with GAAP . As reported in those audited financial statements,

Just For Feet's net income for the fiscal year was approximately $26.6 million, or $ .87 per share on

an undiluted basis, compared to approximately $21 .4 million, or $ .72 per share, for the prior fiscal

year . The 10-K reports Just For Feet's net sales as approximately $775 million, representing a 62%

increase over the prior year . Just For Feet's merchandise inventories are valued at approximately

$400 million in the 10-K's financial statements . These income, sales and inventory figures, among

other figures in this Form 10-K were materially overstated as a result of the accounting

manipulations described above .

58

171 . On May 25, 1999, Just For Feet issued a press release announcing its financial results

for the first quarter ended May 1, 1999 . Ruttenberg is quoted as saying "We are pleased with our

sales results for the quarter particularly when considering the 4%, 30%, and 17% increases in

comparable store sales for the second quarter of 1997, 1996 and 1995, respectively . Since becoming

a public company, we have now experienced eighteen consecutive quarters of positive increases in

same store sales. The positive results in the current quarter were boosted by the strong performance

of the specialty stores division, which continues to perform above our plan . . . ." These statements

were materially false and misleading for the reasons described above.

172. On June 14, 1999, Just For Feet filed its Form 10-Q with the SEC for the three-mont h

period ended May 1, 1999 . That Form 10-Q, which was signed by Ruttenberg and Tyra, lists Just

For Feet's net income for the quarter as approximately $2 .8 million, or $0 .09 per share . The Form

10-Q also states that the value of Just For Feet's merchandise inventories was approximately $458

million, and that net sales had increased by approximately 45 .5% (to $221 million) as compared to

the quarter ended May 1, 1998 . In fact, these sales, income and inventory figures, among other

figures in this Form 10-Q, were materially overstated as a result of the accounting manipulations

described above .

173 . On September 27, 1999, Just For Feet filed its Form 10-Q with the SEC for the three-

month period ended July 31, 1999 . That Form 10-Q, which was signed by Rockey and Berman,

indicates that Just For Feet sustained a net loss of $25 .9 million, or $0 .83 per diluted share, for the

quarter . The Form 10-Q also states that the value of Just For Feet's merchandise inventories was

in excess of $463 million, and that net sales had increased by approximately 29% (to $225 .8 million)

as compared to the quarter ended July 31, 1998 . In fact, these sales, income (loss) and inventor y

59

figures, among other figures in this Form 10-Q, were materially overstated as a result of the

accounting manipulations described above . For the quarter ended July 31, 1999, the manipulations

relating to booth accounting, co-op advertising and Rogers Advertising alone had caused

overstatements of income of at least $12 million . Therefore, if the true facts had been disclosed, this

Form 10-Q would have reflected a net loss of $38 million or more, rather than $25 .9 million .

174 . On December 7, 1999, after the end of the Class Period, Just For Feet filed a For m

8-K with the SEC, announcing Deloitte's resignation as Just For Feet's auditors . In that Form 8-K,

Just For Feet disclosed, for the first time, that Deloitte had provided Just For Feet's management

with a management letter in or about early June 1999 which identified matters relating to the

Company's accounts payable system and vendor receivables that Deloitte considered to be

"reportable conditions ." As defined by Deloitte, "[r]eportable conditions involve matters coming

to the auditor's attention that, in his judgment, should be communicated to the audit committee

because they represent significant deficiencies in the design or operation of internal control, which

could adversely affect the organization's ability to record, process, summarize, and report financial

data consistent with the assertions of management in the financial statements ." The 8-K states that

management disagreed with Deloitte's characterization of the accounts payable and vendor

receivables matters as reportable conditions, and that the draft management letter was not provided

to Just For Feet's Board of Directors or Audit Committee .

175 . On January 3, 2000, Just For Feet filed an amendment to its December 7, 1999 Form

8-K filing with the SEC, which included a response from Deloitte to the statements in this initial

filing . Deloitte stated that it was never informed of any disagreement by Just For Feet's management

with Deloitte's identification of reportable conditions, and that Deloitte had made a number o f

60

unsuccessful attempts to discuss those matters with the Company's management . Deloitte further

states that, contrary to Just For Feet's statement in its initial December 7, 1999 Form 8-K, Deloitte

met with the Company's Audit Committee and discussed with them the reportable conditions that

were noted during Deloitte's audit of the Company's financial statements for the fiscal year ended

January 30, 1999 .

The Effects of Defendants' Fraudulent Misrepresentations and Accounting Manipulations .

176 . During the Class Period, in response to these positive statements (and because the

marketplace and Class members did not know the material undisclosed facts described herein), the

market prices for Just For Feet common stock were at all relevant times inflated over what they

would have been if truthful, complete and accurate information had been disseminated by or on

behalf of the Defendants .

177. The inflated profits and earnings of the Company had a commensurate effect on the

price of Just for Feet common stock, which in turn benefitted many of the Defendants, who owned

substantial amounts of Just for Feet securities, and several Defendants and Co-Conspirators who

actually sold securities at the inflated prices . The following individuals sold shares of the common

stock of Just For Feet in the amounts, at the prices, and on the dates listed below :

Defendant Sales Date Shares Sold

Harold Ruttenberg 05/08/98 413,850Adam J . Gilburne 05/06/98 100,000Adam J . Gilburne 05/26/99 100,000Bart Starr, Sr. 07/24/98 4,833

Per Share Pric e

$14 .25$15 .5 0$7.50

$24.5 0

61

Defendants' Misrepresentations And Accounting Schemes Fool Jus t

For Feet 's Lenders Into Providing The Credit Just For Feet Needed To Surviv e

178. During the Class Period , Just For Feet had negative cash flow from operations, an d

was totally dependent upon credit lines to make payroll and meet other operating expenses .

However, the banks that provided these credit lines to Just For Feet did so based on false and

misleading financial information which overstated Just ForFeet 's income, gross receipts, inventories

and receivables, and understated its expenses . Had the t rue facts been disclosed to these banks, and

had they been provided financial statements that complied with GAAP, they would have rescinded

or subst antially reduced Just For Feet 's lines of credit, and the demise of Just For Feet would have

occurred substantially sooner, precluding some or all of the losses incurred by persons who

purchased Just For Feet securities during the Class Period.

179. For example, from January 26, 1998 until December 10, 1998, Just For Feet had a

$40 million revolving line of credit pursuant to a promissory note to Compass Bank . As a condition

to that line of credit, the note provided that Just For Feet could not allow its Earnings Before Interest,

Tax, Depreciation, Amortization and Rentals ("EBITDAR") Coverage Ratio to fall below 2:1 as of

the end of any fiscal quarter. By fraudulently overstating its earnings, Just For Feet was able to

increase its EBITDAR Coverage Ratio (of which the numerator is earnings before interest, taxes,

depreciation, amortization and rentals) to keep that ratio above the limit required by the note . When

evaluated in light of the true facts, however, Just For Feet was in violation of this EBITDAR

Coverage Ratio loan covenant from the inception of the loan, and at all subsequent times during the

Class Period . Thus, absent Defendants' fraud, the lending community would have known by the

early Spring of 1998 that Just For Feet was in poor financial shape, and that its prospects fo r

62

recovery were not great . Just For Feet would therefore have lost its access to credit and been forced

to seek bankruptcy protection at least by the Spring of 1998, and the artificially inflated market for

Just For Feet's stock would have collapsed by that time .

180. Even assuming Compass Bank would not have rescinded Just For Feet's line of credi t

earlier, Just For Feet would have lost its access to credit by December 10, 1998 . On that date, Just

For Feet entered into a new Credit Agreement with Compass Bank as Documentation Agent and a

syndicate of other banks which Compass Bank had helped assemble . This Credit Agreement

provided Just For Feet with revolving lines of credit in an aggregate of up to $200 million, without

which Just For Feet would have been unable to continue to fund its operations . Under the terms of

the Credit Agreement, Just For Feet was required to comply with a number of financial covenants,

including covenants with respect to its Consolidated Leverage Ratio, Consolidated Fixed Charge

Coverage Ratio, Consolidated Tangible Net Worth, Consolidated Funded Debt to Capitalization

Ratio, and Capital Expenditures . Defendants' fraudulent accounting practices enabled Just For Feet

to maintain the appearance of compliance with each of these covenants, when in fact, if proper

accounting methods were applied and the true facts were disclosed, the banks would have known

that Just For Feet was in violation of many, if not all, of the covenants at the time the Credit

Agreement was executed . Therefore, even assuming Just For Feet had been able to continue as a

going concern despite its violation of its prior loan covenants, if the true facts had been disclosed,

Just For Feet would have been unable to obtain additional lines of credit and would have been forced

to shut down its operations by December 1998 .

181 . On July 27,1999, Just For Feet's December 10, 1998 Credit Agreement was amended

to provide, among other things, that the lenders would retroactively rescind any covenants unde r

63

which the Company was known (based upon its false reports) to have previously defaulted . While

this amendment may have cured Just For Feet 's defaults from the lenders' perspective and based

upon their own ignorance of the true facts, it did nothing to cure the fraud that had been visited upon

investors who had purchased Just For Feet's stock in reliance on the market p rice of that stock - a

p rice that was suppo rted by Just For Feet's access to credit, which was in turn suppo rted by Just For

Feet ' s fraudulent accounting practices .

182. The July 27 , 1999 amendment to the Credit Agreement fu rther provided that as Just

For Feet's "Eligible Inventory" decreased, so did its "Borrowing Base," or available credit . Just For

Feet's "Eligible Inventory" was defined as a percentage of the lower of the aggregate book value or

fair market value of Just For Feet's raw material and finished goods inventories, excluding (among

other things) inventory that was damaged, obsolete, slated for return to vendors, not saleable in the

ordinary course of business at prices approximating costs, or that was being held for discount and/or

liquidation . Also to be excluded from Eligible Inventory were any capitalized costs in excess of the

manufacturer's invoice cost . Defendants' machinations to create, maintain and conceal material

overstatements of inventories -- which caused Just For Feet's inventories to be inflated by

approximately $20 million as of June 1999 -- therefore enabled Just For Feet to obtain credit after

July 27, 1999, to which it would not have had access absent Defendants' fraud . This allowed Just

For Feet to maintain the illusion of financial well-being through the latter half of 1999, and to

continue to fraudulently induce investors to purchase Just For Feet's artificially inflated stock .

DELOITTE 'S ROLE, CONDUCT AND DUTIE S

183 . Deloitte knew of and approved of most, if not all , of the aforementioned accounting

entries, even though such entries were contrary to GAAP , and even though Deloitte had been

64

repeatedly warned of problems with Just For Feet's accounting and controls by conscientious Just

For Feet employees. Additionally, Deloitte intentionally did not report to Just For Feet's Board of

Directors significant reportable conditions noted during the 1995 and 1996 audits . Nor were the

numerous deficiencies in the Company's accounting systems, which Deloitte learned about in

discussions with Company employees, ever reported to the Company's Board of Directors or

particularly to the Audit Committee. These reportable conditions related directly to the types of

irregular accounting entries noted above that led to the overstatement of gross sales, inventories, net

income and net worth during the Class Period . Additional weaknesses in the system of internal

controls at Just For Feet identified by Deloitte during the 1995 and 1996 audits showed a pattern of

overstating inventory, investment and receivable values, as well as overstating income and

understating cost of sales and operating expenses .

184 . Deloitte provided independent auditors' reports on Just For Feet's financial statements

for at least the fiscal years ended January 1997, 1998 and 1999, and performed a review of Just For

Feet's quarterly financial statements contained in the Annual Reports and Quarterly Reports to

shareholders, and the Forms 10-K and 10-Q filed with the SEC, during the Class Period .

185 . Deloitte represented that it had audited Just For Feet's annual financial statements in

accordance with GAAS and that the financial statements presented fairly, in all material respects,

the financial position of Just For Feet at each respective year-end and the results of its operations and

cash flows for each of those years in conformity with GAAP .

186 . Deloitte's opinions were publicly disseminated and published in Just For Feet's annual

reports in the Reports on Form 10-K filed with the SEC for the fiscal years ending in January 1997 ,

65

1998 and 1999. Deloitte expressly consented to the inclusion of its opinions in these Reports on

Form 10-K, and understood that its opinions were to be an integral part of those Reports .

187 . Just For Feet was required by various securities laws to file periodic audited financial

statements with the SEC that were intended to be relied on, and were relied on, by the investing

public . As Just For Feet's independent auditor, Deloitte owed a duty to the investing public to

comply with the auditing standards of the AICPA, of which Deloitte is a member firm, and to use

due diligence to ensure that Just For Feet's financial statements fairly presented, in all material

respects, Just For Feet's financial position, results of operation, and cash flows .

188 . In each Just For Feet audit report prepared by Deloitte, Deloitte presented its opinion

that the financial statements of Just For Feet presented fairly the financial condition of Just For Feet

in accordance with GAAP . Deloitte further represented that its opinion was based on an audit

conducted in accordance with GAAS . GAAS is comprised of auditing standards approved by the

AICPA in effect at the time of the audit as well as the AICPA's Statements on Auditing Standards

("SAS") that interpret those standards . The auditing standards are codified in the AICPA

Codification of Statements on Accounting Standards . (AU Section 100, et §M.) . GAAS and GAAP

represent only minimum standards .

189 . GAAS required, among other things, that Deloitte : (1) devise and implement an audit

plan designed to detect management fraud (also referred to as "irregularities" in the accounting

literature), (2) properly supervise the personnel it assigned to conduct the audit, (3) obtain a

sufficient understanding of Just For Feet, its industry and its internal control structure to enable it

to determine the nature, timing and extent of audit testing required, (4) obtain sufficient evidential

matter through inspection, observation, inquiries and confirmations to afford a reasonable basis fo r

66

its opinions of the financial statements under audit, and (5) to report any material weaknesses or

reportable conditions noted to management and the audit committee of the Board of Directors . As

discussed more fully below, Deloitte not only failed to comply with GAAS, its departures from the

ordinary standards of care were so extreme that its actions were severely reckless and tantamount

to willful .

Deloitte's failure to devise and implement an audit plan to detect management frau d

190 . GAAS requires auditors to design an audit plan for each audit. Deloitte was under

an obligation to design its audit plans to provide reasonable assurance of detecting material

irregularities, including management fraud . (SAS # 82, AU Section 316) . In developing its audit

plan, GAAS required Deloitte to consider the so called "audit risk" that Deloitte might fail to

recognize that Just For Feet's financial statements were materially overstated as a result of

irregularities . (AU Section 312 .02, note 1 .) GAAS sets out a list of red flags that auditors should

look for in determining audit risk relating to misstatements arising from fraudulent financial

reporting (AU Section 316 .16-18), many of which were present here, including :

(1) Risk factors relating to management's characteristics and influence over the control

environment, including :

(a) Motivations for management to engage in fraudulent financial reporting :

(i) A significant portion of management's total compensation wasrepresented by bonuses, stock options, or other incentives, the valueof which was contingent upon the entity achieving unduly aggressivetargets for operating results, financial position, or cash flow .

(ii) An excessive interest by management in maintaining or increasing theentity's stock price or earnings trend through the use of unusuallyaggressive accounting practices .

67

(iii) A practice by management of committing to analysts, creditors, andother third parties to achieve what appear to be unduly aggressive orclearly unrealistic forecasts .

(b) Failures by management to display and communicate an appropriate attitude

regarding internal control and the financial reporting process, including :

(i) Lack of an internal audit department.

(ii) Domination of management by Ruttenberg without compensatingcontrols such as effective oversight by the Board of Directors orAudit Committee .

(iii) Inadequate monitoring of significant controls .

(iv) Management failing to correct known reportable conditions on atimely basis.

(v) Management setting unduly aggressive financial targets andexpectations for operating personnel .

(vi) Management displaying a significant disregard for regulatoryauthorities .

(vii) Management refusing to sign journal entries and auditor'smanagement representation letter .

(c) High turnover of senior management, counsel, or board members .

(d) Domineering management behavior in dealing with the auditor, especially

involving attempts to influence the scope of the auditor's work .

(e) Just For Feet's known history of securities law violations or claims against

the entity or its senior management alleging fraud or violations of securities laws

with specific reference to Just For Feet's departure from the standards of Generally

Accepted Accounting Principles.

(2) Risk factors relating to industry conditions :

68

(a) High degree of competition or market saturation, accompanied by declining

margins .

(b) Rapid changes in the industry, such as high vulnerability to rapidly changing

technology or rapid product obsolescence

(3) Risk factors relating to operating characteristics and financial stability :

(a) Inability to generate cash flows from operations while reporting earnings and

earnings growth.

(b) Assets, liabilities, revenues, or expenses based on significant estimates that

involve unusually subjective judgments or uncertainties, or that are subject to

potential significant change in the near term in a manner that may have a financially

disruptive effect on the entity-such as ultimate collectibility of receivables, timing

of revenue recognition, realizability of financial instruments based on the highly

subjective valuation of collateral or difficult-to-assess repayment sources, or

significant deferral of costs .

(c) Significant related-party transactions not in the ordinary course of business

or with related entities not audited or audited by another firm .

(d) Unusually rapid growth or profitability, especially compared with that of

other companies in the same industry .

(e) Unusually high dependence on debt or marginal ability to meet debt

repayment requirements; debt covenants that are difficult to maintain .

(f) Unrealistically aggressive sales or profitability incentive programs .

(g) Threat of imminent bankruptcy or foreclosure, or hostile takeover .

69

191 . Deloitte knew, or was reckless in not knowing, of those red flags . For example, in

August 1995, analysts N . Richard Nelson, Jr . and James 0. Roeder, of Duff & Phelps Equity

Research Company, rendered their opinion (1) that because of the way the Company accounted for

the opening of its superstores and inventory costs, the stock should be selling for 33% less, (2) that

the Company's true profits, adjusted to conform to accounting methods typically used by retailers,

were as much as one-third lower than the Company was reporting, and (3) that, after adjusting the

Company's accounting treatment of pre-opening and inventory handling costs, its 1994 profit was

18 cents a share versus the 27 cents per share as reported by the Company . These allegations by

Duff & Phelps, which concerned accounting matters, were rejected by the Company's management

at that time, allegedly on the basis of advice from Deloitte (showing that Deloitte was fully cognizant

of the issues) . The Company mounted a vigorous counterattack to discredit the Duff & Phelps

comments, enlisting the aid of other analysts and commentators, and even threatening to sue the

analysts, steps which had the effect of reversing a short-term sell off that occurred right after the

analysts' report became known to some investors . Such an episode and the short-term reaction of

the market (before the Company mounted its crisis-management steps and its investor-reassurance

plan) constituted red flags of the sort mentioned in AU Section 316 that should have caused Deloitte

to investigate further, use heightened professional scrutiny, and undertake additional tests to detect

the presence of management fraud and irregularities and to obtain additional evidential matter

supporting the reported financial figures and results before releasing its audit report and allowing

its dissemination to the marketplace for Just For Feet securities .

192 . In March 1997, for the first time, the Company suddenly reversed its position and

adopted the method of accounting which the Duff & Phelps analysts had previously stated was

70

appropriate, but only after its insiders sold more than $50 million of their investment at high prices

before the restatement of the Company's 1996 operating figures, in the June 1996 offering discussed

above. The Defendants knew (and the marketplace did not know) that the Individual Defendants

would be pushing the Company to open such a large volume of new locations and incur such a large

volume of 1996 pre-opening and related costs for which it was intentionally deferring recognition

under the old amortization procedure, that when it was time to report fiscal 1996 results, they would

have to restate the Company's earnings and profits to significantly lower numbers, but they

deliberately postponed such decision until they could effectuate the mid-1996 bailout of $50 million

at the expense of the public investors .

193 . Just For Feet engaged in numerous related party transactions and stock bonus

rearrangements, referred to above . These related party and/or conflict of interest transactions are

the sorts of red flags listed in AU Section 316 .16-18, and should have caused Deloitte to exercise

greater professional scrutiny of Just For Feet's activities and financial reporting .

194 . During the Class Period, Just For Feet generated fictitious comparable store sales

reports which compared store sales with prior periods during which those stores were not yet open .

Just For Feet fabricated sales figures for those prior periods based upon sheer speculation as to the

sales those stores would have achieved had they been open during those periods . Just For Feet also

bolstered its comparable store sales figures by allocating bulk sales that occurred after the relevant

periods to individual stores and including them in the comparable store sales analysis . Upon

information and belief, Deloitte was aware of these reckless and unfounded financial analyses by

Just For Feet management, which should have raised red flags and caused Deloitte to closely

examine Just For Feet's activities and financial reporting.

71

195 . In May of 1997, Barry and Baker requested that Just For Feet's Controller, Lones,

sign a management representation letter prepared by Deloitte . During telephone conversations with

Barry and Baker, including a taped conversation with Baker, Lones stated that neither he nor Just

For Feet's other controller would execute the management representation letter, because the

information therein was not accurate and the letter did not disclose problems and issues Lones knew

to exist at Just For Feet . Although Deloitte also knew that the management representation letter was

materially false and/or incomplete, Deloitte then presented the management representation letter to

Wabler, who was no longer employed by Just For Feet, for execution . Wabler executed the

management representation letter .

196 . In March of 1999, Cooper and Jerry Bard, Just For Feet's supervisor of account s

receivable, were asked in the presence of representatives of Deloitte to sign certain journal entries,

which request they refused . On other occasions in 1999, Cooper, Bard and Lloyd refused to sign

journal entries themselves, including but not limited to entries relating to co-op receivables and

acquisition accounting, because they believed those entries to be improper. Instead, they made those

entries with the notation that they were being made at the direction of Wynne or Tyra . Deloitte

reviewed these journal entries and accompanying notations .

197 . Refusal by Just For Feet employees to sign management representation letters and/or

journal entries should have been a screaming signal to Deloitte that there were major problems with

Just For Feet 's financial records . Independent auditors are required by AU Section 333 to obtain a

management representation letter , and the refusal of m anagement to execute such a letter constitutes

a scope limitation sufficient to preclude an unqualified opinion . Nevertheless, Deloitte failed to take

any action, and issued unqualified opinions on Just for Feet 's annual financial statements .

72

198. Deloitte either: (1) recklessly failed to recognize these numerous red flags and to plan

and implement an adequate audit that took into account those audit risks, or (2) if it had an adequate

audit plan it recklessly failed to follow it, or (3) if it had an adequate plan and followed it, Deloitte

ignored the results of its findings and recklessly issued its report .

Deloitte's failure to properly supervise the personnel it assigned to conduct the audi t

199 . GAAS requires that the audit be performed by persons having adequate technical

training (SAS # 1, AU 150 .02, General Standard # 1 and AU Section 210) . It also requires that the

auditor adequately supervise employees conducting the fieldwork (SAS # 22, AU Section 311) .

Deloitte failed to follow these required standards in its audits of Just for Feet's financial statements .

Deloitte also violated GAAS by : (1) failing to assign a sufficient number of accountants to perform

the field work required by the Just For Feet audits, (2) budgeting an insufficient amount of time in

which to conduct the audits and (3) assigning a staff accountant or accountants who were too

inexperienced . Barry, who was Deloitte's audit partner responsible for the Just For Feet audits, was

present at Just For Feet for an average of only two days per quarter . As a result, the Just For Feet

audits were recklessly performed .

Deloitte's failure to obtain a sufficient understanding of Just For Feet,its industry and its internal control structure to enable it to determine

the nature, timing and extent to testing required

200. As part of its audit procedures, Deloitte was required (but recklessly failed ) to asses s

the risk of management misrepresentation by reviewing information about risk factors, the internal

control structure, and the inventory accounting practices and store opening expense practices ofJust

For Feet . For example, Just For Feet's Board of Directors, and especially its Audit Committee

(which had only a single meeting in fiscal year 1998), was not effective in constraining improper

73

conduct by senior management . As the size, complexity and ownership characteristics of the

company changed, the company's internal controls or policies did not change to ensure that the

financial records were accurate . Management failed to generate or enforce policies and procedures

that provided reasonable assurances of accounting estimates (SAS # 82, AU Section 316 .23), and

Deloitte failed to design audit tests to obtain sufficient competent evidential matter upon which to

base its audit opinion .

Deloitte's failure to obtain sufficient evidential matter through inspection,observation, inquiries and confirmations to afford a

reasonable basis for its opinions of the financial statements under audi t

201 . GAAS provides that accounting data alone is insufficient to support an opinion on

financial statements . (SAS #'s 31 and 48, AU Section 326 .16 .) Before rendering an opinion, the

auditor must obtain "evidential matter" to support the financial statements . "Evidential matter"

consists of the underlying accounting data and all corroborating information available to the auditor .

(AU Section 326 .15 .) Corroborating evidential matter includes both documents obtained during the

field work (e .g., checks, invoices, contracts) and information obtained from inquiry, observation,

inspection and physical examination . (AU Section 326 .17) .

202 . Deloitte recklessly failed to examine sufficient corroborating evidential data a s

required by GAAS p rior to rendering its opinions . Had it done so, it would have discovered the

fraud in the comp any' s financial statements . For example , at the direction of Ru ttenberg and Tyra,

Bermanrecorded receivables from manufacturers relating to cooperative adve rtising funds that were

typically allocated to each new store opened . Although the manufacturers were not contractually

committed to provide these funds , Just For Feet recorded these amounts , which were typically

several hundred thous and dollars per store, as revenue and receivable when each store opened . In

74

connection with its audits, Deloitte was required to examine the corroborating evidential data for

both the revenue and receivables accounts . On information and belief, Deloitte failed to examine

my corroborating evidential data or obtain confirmations from the manufacturers to support its

opinion regarding the recording of these revenues and receivables prior to receipt of funds . Deloitte

failed to examine Just For Feet's support justifying the recording of these amounts, and failed to

examine support (and thus become aware that none existed) for adjusting journal entries made by

Berman, Tyra and Ruttenberg .

203. Since the fraud was perpetrated by the use of numerous adjusting journal entries ,

many of which were extremely large, occurred at fiscal year end and/or quarter end, and most of

which were without any support or justification, an examination of those entries (as required by

GAAS) would, by itself, have raised numerous red flags . Deloitte either failed to examine the

adjusting entries or failed to make inquiries or obtain third party confirmation regarding the validity

of those entries . In any event, Deloitte clearly failed to make any effort to obtain sufficient,

competent corroborating data to support the adjusting entries as required by GAAS . (SAS #'s 31,

48, and 80, AU Section 326 .16 .) In fact, Deloitte failed to audit the Company's "miscellaneous

adjusting entries," which reflected many of the fraudulent transactions . Moreover, these entries often

were made only based upon the instructions of Defendants Ruttenberg or Tyra, which constituted

management overrides and a "reportable" violation of internal controls . (SAS # 82, AU Section

316) .

75

Deloitte's failure to report noted material weaknessesand reportable conditions to the Audit Committe e

204 . GAAS requires the auditor to communicate certain matters to the Audit Committee

or equivalent (SAS #61, AU section 380) . These matters include material weaknesses and reportable

conditions in internal controls . (SAS #'s 60 and 78, AU Section 325) .

205 . Although Deloitte prepared a draft of a letter identifying reportable conditions note d

during its audit for the year ended January 1996, including improper inventory capitalization issues,

Deloitte never issued that letter in final form or presented it to the Audit Committee . Nor did

Deloitte otherwise communicate to the Audit Committee the reportable conditions noted during its

audits for the years ended January 1995, 1996 and 1997 . These reportable conditions related to

internal control weaknesses that led to the accounting irregularities previously discussed.

206. Deloitte also failed to report the existence of these same reportable conditions as par t

of the audits for the years ended January 1998 or 1999 . Deloitte has admitted that it was aware of

reportable conditions during its audit for the fiscal year ended January 30, 1999, but Just For Feet

has informed the SEC that Deloitte never discussed these reportable conditions with the Audit

Committee . The aggregate of the uncorrected reportable conditions amounted to a material

weakness in Just For Feet's system of internal controls . Deloitte's failure to detect and/or

communicate the material weaknesses in Just for Feet's internal controls was a violation of GAAS

that enabled the fraud to continue and intensify .

207 . During the Class Period, Deloitte conducted timely reviews of Just For Feet's

quarterly financial statements . Deloitte failed to follow appropriate professional standards in

conducting these reviews, which, if properly followed, would have uncovered the fraud.

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208 . Deloitte failed to comply with GAAS by, among other things :

(a) failing to maintain independence in mental attitude and failing to approach

the audit with the appropriate degree of "professional skepticism" in violation of SAS

# 1, AU 150 .02, General Standard # 1 and AU Section 220 ;

(b) failing to use "due professional care" in the performance of the audit in

violation of SAS # 1, AU Section 230 ;

(c) failing to prepare an appropriate audit plan in violation of SAS # 22, AU

Section 311 ;

(d) failing to adequately supervise employees conducting the field work in

violation of SAS # 22, AU Section 311 ;

(e) failing to obtain sufficient competent evidential matter through inspection,

observation, inquiries and confirmations to afford a reasonable basis for an opinion

regarding the financial statements under audit in violation of SAS # 1, AU Section

150 and SAS # 31, AU Section 326 ;

(f) failing to devise (or to implement) an audit plan reasonably designed to find

and report on the irregularities described herein in violation of SAS # 53, AU Section

316 ;

(g) failing to withdraw its prior attesting opinions for Just For Feet's financial

statements as required by Section 203 of the American Institute of Certified Public

Accountants Code of Professional Conduct (AICPA Professional Standards ET

203 .01) and AU 508 .14, once it knew or believed such opinions to be suspect and

when it was unable to correct them otherwise ;

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(h) failing to require Just for Feet to disclose its departures from GAAP, and/or

failing to qualify its opinions regarding the financial statements' compliance with

GAAP (SAS #1, AU Section 150), and/or failing to obtain restatements of those

financial statements ;

(i) failing to comply with the requirement to obtain a management representation

letter signed by those members of management whom the auditor believes are most

knowledgeable regarding the matters covered by the representations (AU Section

220.09) .

CLAIMS FOR RELIEF

COUNT I

AGAINST ALL DEFENDANTSFOR VIOLATIONS OF SECTION 10(b)

OF THE EXCHANGE ACT AND RULE 10b- 5

209. Plaintiffs incorporate herein by reference and reallege each and every allegation of

fact contained in the preceding paragraphs of this Complaint as if fully set fo rth in this count .

210. This Count is asserted by Plaintiffs and the Class against all Defendants and is based

upon Section 10(b) of the Exchange Act, 15 U .S .C . §§ 78j (b), and Rule IOb-5,17 C .F.R. § 240.1Ob-

5, promulgated thereunder .

211 . During the Class Period, each of the defendants part icipated in some or all of the

fraudulent activity desc ribed herein .

212. The fraudulent activity was a manipulative ordeceptive device in violation of Section

10(b) of the Exchange Act .

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213 . The fraudulent activity described above was also a device, scheme, or artifice t o

defraud, prohibited by Rule 1 Ob-5 .

214. Defendants engaged in the fraudulent activity described above knowingly an d

intentionally, or in such a reckless manner as to constitute a willful deceit and fraud upon Plaintiff s

and the Class . Defendants knowingly caused their reports and statements to contain misstatements

and omissions of material fact as alleged herein .

215. As a result of Defendants' fraudulent activity, the market price of Just For Fee t

securi ties was artificially inflated during the Class Period .

216. Were it not for Defendants' fraudulent activity, Just For Feet's lenders and th e

lending community at large would have known by the early Spring of 1998 that the Company's

financial condition was poor and that its prospects for recovery were slim, and Just For Feet would

have lost its ability to borrow the funds it needed to finance its operations . Thus, had the true facts

been disclosed, Just For Feet would have been forced to seek bankruptcy protection or otherwise

cease operations by the Spring of 1998, and there would have been no market for its securities .

217. In ignorance of the defendants' fraudulent activity or the false and misleading natur e

of the representations described above, Plaintiffs and other members of the Class, relying on the

integrity of the market and/or on the statements and reports of Just For Feet containing the

misleading information, purchased Just For Feet common stock at artificially inflated prices .

218 . The price of Just For Feet securities has declined materially upon the publi c

disclosure of the true facts which had been misrepresented or concealed as alleged herein.

219. Plaintiffs and other members of the Class have suffered substantial damages as a

result of their purchases of Just For Feet securities .

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COUNT II

AGAINST DEFENDANTS RUTTENBERG, TYRA,ROCKEY, LAZARUS, HAINES, AND WYNNE FOR

VIOLATIONS OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 10b-5

220. Plaintiffs incorporate herein by reference and reallege each and every allegation of

fact contained in the preceding paragraphs of this Complaint as if fully set forth in this count .

221 . This Count is asserted by Plaintiffs and the Class against defendants Ruttenberg,

Tyra, Rockey, Lazarus, Haines, and Wynne (the "Director and Officer Defendants") and is base d

upon Section 10(b) of the Exchange Act, 15 U .S .C . § 78j( b), and Rule lOb-5, 17 C .F .R. § 240.106-5 ,

promulgated thereunder .

222. As alleged herein, during the Class Period, the Director and Officer Defendant s

caused Just For Feet to disseminate financial statements and Forms 10-K and 10-Q to investors

which the Director and OfficerDefendants knew to contain materially false or misleading statement s

or omissions of fact .

223 . The dissemination of these false and misleading materials was a manipulative o r

deceptive device in violation of Section 10(b) of the Exchange Act .

224. The dissemination of these false and misleading materials was also a device, scheme ,

or artifice to defraud in violation of Rule IOb-5 .

225. As a result of the dissemination of these false and misleading materials, the marke t

price of Just For Feet securities was artificially inflated during the Class Period .

226. Were it not for Defendants' fraudulent activity, Just For Feet's lenders and th e

lending community at large would have known by the early Spring of 1998 that the Company's

financial condition was poor and that its prospects for recovery were slim, and Just For Feet woul d

80

have lost its ability to borrow the funds it needed to finance its operations . Thus, had the true fact s

been disclosed, Just For Feet would have been forced to seek bankruptcy protection or otherwis e

cease operations by the Spring of 1998, and there would have been no market for its securities .

227 . In ignorance of the defendants' fraudulent activity or the false an d misleading nature

of the representations described above, Plaintiffs and other members of the Class, relying on the

integrity of the market and/or on the statements and reports of Just For Feet containing the

misleading information, purchased Just For Feet common stock at artificially inflated prices .

228. The price of Just For Feet securities has declined materially upon the publi c

disclosure of the true facts which had been misrepresented or concealed as alleged herein.

229. Plaintiffs and other members of the Class have suffered substantial damages as a

result of their purchases of Just For Feet securities .

COUNT III

AGAINST DEFENDANTS RUTTENBERG, TYRA,WYNNE, AND DON-ALLEN, FOR VIOLATION S

OF SECTION 20(a) OF THE EXCHANGE ACT

230. Plaintiffs incorporate herein by reference and reallege each and every allegation o f

fact contained in the preceding paragraphs of this Complaint as if fully set forth in this count.

231 . Plaintiffs assert this Count for violations of Section 20(a) of the Exchange Act, 1 5

U.S.C. § 78t(a), on behalf of all members of the Class and against defendants Ruttenberg, Tyra ,

Wynne, and Don-Allen (the "Control Person Defendants") .

232. During the Class Period, Just For Feet participated in some or all of the fraudulen t

activity described herein .

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233. The fraudulent activity was amanipulative or deceptive device in violation of Section

10(b) of the Exchange Act.

234. The fraudulent activity described above was also a device, scheme, or artifice to

defraud, prohibited by Rule IOb-5 .

235. Just For Feet engaged in the fraudulent activity described above knowingly an d

intentionally, or in such a reckless manner as to constitute a willful deceit and fraud upon Plaintiffs

and the Class . Just For Feet knowingly caused its reports and statements to contain misstatements

and omissions of material fact as alleged herein .

236. As a result of Just For Feet ' s fraudulent activity , the market price of Just For Feet

securi ties was artificially inflated during the Class Period .

237. Were it not for Just For Feet's fraudulent activity, Just For Feet's lenders and th e

lending community at large would have known by the early Spring of 1998 that the Company's

financial condition was poor and that its prospects for recovery were slim, and Just For Feet would

have lost its ability to borrow the funds it needed to finance its operations . Thus, had the true facts

been disclosed, Just For Feet would have been forced to seek bankruptcy protection or otherwise

cease operations by the Spring of 1998, and there would have been no market for its securities .

238 . In ignorance of the defendants' fraudulent activity or the false and misleading natur e

of the representations described above, Plaintiffs and other members of the Class, relying on the

integrity of the market and/or on the statements and reports of Just For Feet containing the

misleading information, purchased Just For Feet common stock at artificially inflated prices .

239. The price of Just For Feet securities has declined materially upon the public

disclosure of the true facts which had been misrepresented or concealed as alleged herein.

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240. Plaintiffs and other members of the Class have suffered substantial damages as a

result of their purchases of Just For Feet securities .

241 . The Control Person Defend ants were controlling persons of Just For Feet within th e

meaning of Section 20 of the Exchange Act by reason of their management positions and/or

directorships and their business and social relationships with each other and their stock ownership

and their access to and holding of vital information and their participation in policymaking and key

decisions . By virtue of their positions and activities, the Control Person Defendants had the power

and influence to control Just For Feet and, exercising such control, did cause Just For Feet to engage

in or suffer the unlawful acts and conduct alleged herein .

242 . Each of the Control Person Defendants was in a position to control or influence th e

contents of, or otherwise cause corrective disclosures to have been made in, Just For Feet's SE C

filings and the Company's other public statements disseminated during the Class Period as detaile d

herein , yet failed to correct statements therein which they knew to be mate rially false or misleading.

243. To the same extent that Just For Feet is or would be liable to Plaintiffs and the Class ,

each of the Control Person Defendants is also equally and jointly and severally liable to Plaintiff s

and the Class .

COUNT IV

AGAINST DELOITTE, BAKER AND BARRY FOR VIOLATIONSOF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 10b-5

244. Plaintiffs incorporate herein by reference and reallege each and every allegation of

fact contained in the preceding paragraphs of this Complaint as if fully set forth in this count .

83

245 . This Count is asserted against Deloitte, Baker and Barry, and is based upon

Section 10(b) of the Exchange Act, 15 U .S .C . § 78j(b), and Rule lOb-5 promulgated thereunder .

246. Because of its position as the auditor of Just For Feet, Deloitte knew of or recklessl y

disregarded the material misrepresentations by Just For Feet in the financial statements of Just For

Feet . Deloitte made direct material misrepresentations to the Class as a result of its issuance of false

and misleading auditors' reports that accompanied Just For Feet's Forms 10-K and Annual Reports

that it knew would be disseminated to the investing community .

247. Deloitte, Baker and Barry knew or recklessly disregarded that the acts and practices ,

misleading statements , and omissions described above would adversely affect the integrity of th e

market in Just For Feet securities and/or artificially inflate or maintain the price of such securitie s

and/or would be relied upon by the Plaintiffs and Class to their detriment .

248. The severe recklessness of Deloitte, Baker and Barry is made manifest by thei r

extreme departures from the standards of GAAP and GAAS in connection with their year-end audit s

of the Company covering its fiscal years ended January 1998 and 1999, as described more full y

above .

249. The dissemination of these false and misleading materials was a manipulative o r

deceptive device in violation of Section 10(b) of the Exchange Act .

250. Thedissemination ofthese false and misleading materials was also a device , scheme,

or artifice to defraud in violation of Rule l Ob-5 .

251 . As a result of the dissemination of these false and misleading materials, the market

price of Just For Feet secu ri ties was artificially inflated during the Class Period .

84

252. Were it not for Defendants' fraudulent activity, Just For Feet's lenders and th e

lending community at large would have known by the early Spring of 1998 that the Company's

financial condition was poor and that its prospects for recovery were slim, and Just For Feet would

have lost its ability to borrow the funds it needed to finance its operations . Thus, had the true facts

been disclosed, Just For Feet would have been forced to seek bankruptcy protection or otherwise

cease operations by the Spring of 1998, and there would have been no market for its securities .

253 . In ignorance ofDeloitte's fraudulent activity or the false and misleading nature of th e

representations described above, Plaintiffs and other members of the Class, relying on the integrit y

of the market and/or on the statements and reports of Just For Feet containing the misleadin g

information, purchased Just For Feet common stock at artificially inflated prices .

254 . The price of Just For Feet securities has declined materially upon the publi c

disclosure of the true facts which had been misrepresented or concealed as alleged herein.

255. Plaintiffs and other members of the Class have suffered substantial damages as a

result of their purchases of Just For Feet securities .

COUNT V

AGAINST DELOITTE. BAKER AND BARRY FOR PROFESSIONAL NEGLIGENCE

256. Plaintiffs incorporate herein by reference and reallege each and every allegation o f

fact contained in the preceding paragraphs of this Complaint as if fully set forth in this count .

257. Deloitte, Baker and Barry (the "Deloitte Defendants") are in the business of auditing

financial statements ofpublic companies, issuing opinion letters concerning the financial statements

audited, and providing and certifying such information for the benefit of investors and others to us e

in their dealings with others .

85

258. As independent auditors of Just For Feet , the Deloitte Defendants had a duty to

examine the Company's financial statements in accordance with GAAS to determine , among other

things , whether they were presented in accord ance with GAAP . The Deloitte Defendants owed

Plaintiffs and the Class a duty of reasonable care in connection with the provision of information

concern ing the financial condition of Just For Feet during the Class Period , including Deloitte's

certifications that Just For Feet ' s financial statements fairly and accurately reported the Comp any's

financial condition and were in presented in accordance with GAAP . Further, the Deloitte

Defendants had a duty to disclose to m anagement, an d part icularly Just For Feet ' s Audit Committee,

any defects in the Company ' s system of internal controls .

259. The Deloitte Defendants breached these duties knowingly, wantonly, recklessly, o r

at least negligently, by including untrue statements of material facts and/or omitting to state mate rial

facts necessary in order to make the statements made, in light of the circumstances under which they

were made , not misleading in Just For Feet ' s financial statements , disseminated to Plaintiffs, the

Class and the investing public, throughout the Class Period. Among other things, the Deloitte

Defendants disregarded , in violation of GAAS, glaring irregularities in the Comp any's books and

records and system ofintemal controls, and falsely represented that they had audited the Company's

financial statements in accordance with GAAS and that those financial statements were presented

in accordance with GAAP .

260. The Deloitte Defendants knew and intended that Deloitte 's reports concerning the

Company's financial statements would be distributed to the Company ' s stockholders and that such

stockholders and the investing public would rely, and had a right to rely, upon the information

provided by Deloitte concerning the financial condition of Just For Feet in making their investmen t

86

decisions . The Deloitte Defendants knew and intended that Deloitte's certifications of Just For

Feet's annual financial statements would be included and constituted a material part of Just For

Feet's annual reports on Form 10-K filed with the SEC . In particular, the Deloitte Defendants

understood that a primary intent of Just For Feet was for the Deloitte Defendants' professional

services to benefit or influence Company stockholders, including Plaintiffs and the Class, as well

as the investing public at large, since one of the primary purposes of having an accounting firm

certify financial statements is to provide independent certification of the accuracy thereof to those

who must rely on those financial statements when deciding whether to transact in the company's

securities .

261 . At the very least, the Deloitte Defendants knew and intended that Just For Feet' s

stockholders at the time Deloitte's certifications were disseminated would rely thereon in deciding

whether to sell or hold their shares, or whether to purchase additional shares of Just For Feet . The

Deloitte Defendants made their misrepresentations and omissions with the specific intent to induce

Just For Feet's stockholders to refrain from selling their shares, and/or to purchase additional shares,

and thereby to maintain Just For Feet's artificially inflated stock price.

262 . At the time of such misrepresentations and omissions ofmaterial facts by the Deloitt e

Defendants, Plaintiffs were ignorant of their falsity and believed them to be true . Plaintiffs relied

upon the superior knowledge and expertise of the Deloitte Defendants and justifiably relied to their

detriment on the financial statements audited and certified by Deloitte, and an the unqualified

opinions issued by Deloitte in connection with Just For Feet's annual financial statements . Had

Plaintiffs and the Class been aware of the true facts, they would not have purchased Just For Feet

securities at all, or at the price actually paid .

87

263. Were it not for the Deloitte Defendants' fraudulent activity, Just For Feet's lenders

and the lending community at large would have known by the early Spring of 1998 that the

Company's financial condition was poor and that its prospects for recovery were slim, and Just For

Feet would have lost its ability to borrow the funds it needed to finance its operations . Thus, had

the true facts been disclosed, Just For Feet would have been forced to seek bankruptcy protection

or otherwise cease operations by the Spring of 1998, and there would have been no market for its

securities .

264. The Deloitte Defendants had a unique relationship with Just For Feet because Just

For Feet was one of the largest clients of Deloitte's Birmingham office, and because Just For Feet's

CFO was a former Deloitte partner . Deloitte conducted its audit without the independence required

under GAAS .

265 . The Deloitte Defendants' conduct constitutes the making in a uniformly disseminate d

manner of negligent misrepresentation (including negligent omissions to state facts in connection

with statements that were made) under applicable state law . As a direct and proximate result of the

uniformly disseminated negligent misrepresentations (omissions) by the Deloitte Defendants, and

in reliance thereon, Plaintiffs and the Class suffered damages in connection with their purchases of

Just For Feet securities .

COUNT VI

AGAINST ALL DEFENDANTS FORCOMMON LAW FRAUD AND DECEIT

266. Plaintiffs incorporate herein by reference and reallege each and every other allegation

of fact contained in the preceding paragraphs of this Complaint as if fully set forth in this count .

88

267. As alleged herein, Defendants employed a number of m anipulative accounting

practices and made material misrepresentations , or omitted to disclose material facts, to Plaintiffs ,

the Class members, and the investing public regarding Just For Feet's financial condition .

268. The aforesaid misrepresentations and omissions by Defendants were made uniformly

to the marketplace and the Class members and constitute fraud and deceit under applicable state law .

269. The aforesaid misrepresentations and omissions by Defendants were mad e

intentionally, or at a minimum recklessly, to induce reliance thereon by Plaintiffs and members o f

the Class when making investment decisions .

270. As a direct and proximate result of the fraud and deceit of Defendan ts , Plaintiffs and

the Class members, in reasonable reliance on Defendants' representations and in ignorance of th e

material omitted facts, suffered damages in connection with their purchases of Just For Fee t

securities .

271 . Were it not for Defendants ' fraudulent activity, Just For Feet's lenders and the

lending community at large would have known by the early Spring of 1998 that the Company's

financial condition was poor and that its prospects for recovery were slim, and Just For Feet would

have lost its ability to borrow the funds it needed to finance its operations . Thus, had the true facts

been disclosed, Just For Feet would have been forced to seek bankruptcy protection or otherwise

cease operations by the Spring of 1998, and there would have been no market for its securities .

89

COUNT VII

AGAINST DEFENDANTS RUTTENBERG, TYRA,HAINES, LAZARUS AND DELOITTE FO R

VIOLATIONS OF SECTION 18 OF THE EXCHANGE AC T

272. Plaintiffs incorporate herein by reference and reallege each and every allegation of

fact contained in the preceding paragraphs of this Complaint as if fully set forth in this count .

273 . This Count is asserted by Plaintiffs and the Class against defendants Ruttenberg,

Tyra, Haines , Lazarus and Deloitte, and is based upon Section 18 of the Exchange Act, 15 U .S .C .

§ 78r .

274. During the Class Period, Just For Feet issued financial statements on Forms 10-K fo r

the fiscal years ended January 1998 and 1999, respectively, that were signed or approved b y

defendants Ruttenberg, Tyra, Haines and Lazarus, and were filed with the SEC .

275. Those Forms 10-K contained materially false and misleading statements, and i n

particular false financial statements, as described earlier herein .

276. Those Forms 10-K also contained false and misleading certi fications by Deloitte a s

to the financial statements ' compliance with GAAP, and as to whether the fin ancial statements fairly

and accurately presented Just For Feet's financial condition.

277. Ruttenberg, Tyra, Haines, Lazarus and Deloitte knew or should have known by

exercising due diligence that the above-referenced Forms 10-K were false and misleading because

those defendants : (a) knew or had access to materially adverse non-public information about Just For

Feet's financial condition which was not disclosed ; (b) participated in drafting, reviewing, and/or

approving the materially misleading SEC filings ; and (c) had an obligation to inform themselves o f

90

the accounting policies and procedure of the Company, as well as the financial statements of the

Company .

278. Plaintiffs and the Class members relied on those Forms 10-K, and on the false an d

misleading statements therein, to their detriment .

279. Were it not for Defendants ' fraudulent activity, Just For Feet 's lenders and the

lending community at large would have known by the early Spring of 1998 that the Company's

financial condition was poor and that its prospects for recovery were slim, and Just For Feet would

have lost its ability to borrow the funds it needed to finance its operations . Thus, had the true facts

been disclosed, Just For Feet would have been forced to seek bankruptcy protection or otherwise

cease operations by the Spring of 1998, and there would have been no market for its securities .

280 . As a result of the foregoing, Plaintiffs and the Class members purchased Just For Fee t

securities at an artificially inflated price during the Class Period, in ignorance of the false an d

misleading nature of the representations described above, and were damaged thereby.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs demand judgment on their behalf and on behalf of the Class (an d

any subclasses ) as follows :

A. Determining that the instant action is a proper class action maintainable under Rule

23 of the Federal Rules of Civil Procedure, or, in the alternative, with respect to the common la w

claims and the § 18 claim, certifying all common issues of law and fact;

B. Awarding Plaintiffs and the Class compensatory and/or recessionary damages agains t

each Defendant, jointly and severally, in an amount to be determined at trial, together wit h

prejudgment interest at the maximum rate allowable by law;

91

C. Awarding Plaintiffs and the Class and any subclass on the common law fraud count

asserted above an amount of punitive or exemplary damages in an appropriate amount to accomplish

the purposes and aims of such damages, in an amount to be determined at trial under appropriate

procedures, jointly and severally against the Defendants who are determined at trial to have acted

with the requisite degree of scienter or mental state.

D . Awarding Plaintiffs and the Class the costs of this suit, including reasonabl e

attorneys' and accountants' and experts' fees and other disbursements ; and

E. Awarding Plaintiffs and the Class and any subclass such other and further relief a s

this Court may deem just and proper.

92

JURY DEMAND

Plaintiffs demand a trial by jury .

Dated: June 15, 2000Thomas L . Krebs

Stuart M. Grant

CO-LEAD COUNSEL FOR PLAINTIFFSAND MEMBERS OF THE CLASS :

J. Michael Rediker , Esq. [RED 0041

Thomas L. Krebs, Esq. [KRE 001 ]

Patricia Diak, Esq. [DIA 005]

RTTCHIE & REDIKER , L .L .C .312 No rth 231 StreetBirmingham, Alabama 35203Telephone: (205) 251-1288Facsimile: (205) 324-738 0

Stuart M . Grant, Esq .Megan D. McIntyre, Esq .Denise T. DiPersio, Esq .GRANT & EISENHoFER, P .A .1220 N. Market Street, Suite 500Wilmington, DE 19801Telephone: (302) 622-7000Facsimile: (302) 622-7100

M. Clay Ragsdale, Esq .LAW OFFICES OF M . CLAY RAGSDALE550 Farley Building1929 Third Avenue NorthBirmingham, AL 35203Telephone : (205) 251-4775Facsimile: (205) 251-4777

93

Serve Defendants by Certified Mail, Return Receipt Requested , As Follows :

Harold Ruttenberg Helen Rocke y3421 Oak Canyon Drive c/o Just For Feet, Inc .Birmingham, AL 35243-4810 7400 Cahaba Valley Road

Birmingham , AL 35242Eric L . Tyra4985 Heather Pt . Scott C . WynneBirmingham, AL 35242-3951 151 West Gree n

Birmingham , AL 3524 3Peter Berm an1010 Berrington Circle Adam GilburneBirmingham, AL 35242-5874 5104 Greystone Way

Birmingham , AL 3524 2Cooper Evans1325 Forest Ridge Court Steven H . BarryBirmingham, AL 35226-3201 2101 Magnolia Way

Birmingham , AL 35243-202 4Patrick Lloyd2216 Vesthaven Way East Karen Baker

Birmingham, AL 35216-2052 8064 Castlehill RoadBirmingham , AL 35242-722 6

Don-Allen Ruttenber g3625 S . Decatur Blvd . Deloitte & Touche, LLPLas Vegas, NV 89103- 5813 417 20' Street North #1000

Birmingham , AL 35203-320 6Randall L. Haines5338 Greystone WayBirmingham, AL 35242-721 7

Michael Lazarusc/o James W. Gewin, Esq .Bradley, Arant, Rose & White, LLP2001 Park Place, Suite 1400Birmingham, Alabama 35203-2736