IN THE UNITED STATES DISTRICT COURT FOR THE NtU...

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FIN THE UNITED STATES DISTRICT COURT FOR THE

NORTHERN DISTRICT OF ALABAMA99 NtU 19 PM 12SOUTHERN DIVISION If ' F

PETER H . BURKE ;GREGORY L. HORN ;JEROME H. FIORELLA ;JERRY B . SCHILLECI ; andSOUND DEALS, INC . ,suing on behalf of themselves andall others similarly situated,

Plaintiffs,

vs .

HAROLD RUTTENBERG ;ERIC L. TYRA;PETER BERMAN ;COOPER EVANS ;PATRICK LLOYD ;NECHAEL P . LAZARUS ;DON-ALLEN RUTTENBERG ;RANDALL L . HAINES ;DAVID F . BELLET;BART STARR, SR . ;EDWARD S . CROFT, III ;WARREN C . SMITH, JR . ;HELEN ROCKEY ;JOHN A . BERG ;DELOITTE & TOUCHE LLP ;STEVEN H. BARRY ; andKAREN BAKER,

Defendants

JURY TRIAL DEMANDED

CIVIL ACTION NO .

CV-99-BU-3097-5

CLASS ACTION COMPLAIN T

Plaintiffs, by their undersigned counsel, for their Class Action Complaint, on thei r

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

to themselves and their own acts, and upon information and belief as to all other matters,

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, 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 29, below who purchased

common stock of Just For Feet, Inc . ("Just For Feet" or the "Company"), between April 1,

1997 and November 1, 1999 (the "Class Period") and who have suffered a loss .

2 . During the Class Period, defendants Harold Ruttenberg, Eric Tyra, Helen

Rockey and Deloitte & Touche, with the knowledge, assistance and participation ofthe 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 approximately 3 fiscal years, which materially : overstated

Just For Feet sales, profits and income; understated costs ; overstated accounts receivable,

inventories, equipment, fixed assets and stockholder's equity ; and understated significant

liabilities . The scheme also included the concealment ofthe material omitted facts described

herein .

3 . The fraudulent financial statements falsely portrayed Just For Feet as a

profitable company which had increasing sales, comparable store sales, earnings and ne t

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worth from the third quarter of fiscal year 1997 (fiscal year ended January 1998) through the

second quarter of fiscal year 1999 (fiscal year ended January 2000), when, in fact Just For

Feet earned, at best, marginal profits, if it did not suffer an operating loss for each of these

years . The market and class members were led to believe that Just For Feet had a

fundamentally sound business which generated substantial earnings which were increasing

from quarter to quarter and year to year both in the aggregate and on a same-store basis . As

a result of this fraud, the market prices of Just For Feet securities were materially and

artificially inflated during the Class Period . Thus, the market prices for Just For Feet

common stock ranged from a high of $29 .00 per share during the class period to a low of

$1 .25 per share just before the stock was delisted on November 2, 1999, when Just For Feet

announced its intention of seeking Chapter 11 bankruptcy protection .

4 . During the period September 24,1999, through November 2,1999, defendants

Harold Ruttenberg, Helen Rockey, Peter Berman, with the knowledge and participation of

the other defendants, violated their fiduciary responsibilities to the shareholders, who the

defendants all agreed to protect . On November 2, 1999, the Company' s securities holders

and the investment community were stunned by the announcement that Just For Feet did not

make its scheduled November 1, 1999, interest payment on the senior subordinated debt,

even though more than enough cash was on hand and/or available under the new revolving

credit facility to have made the payment on schedule . Instead, Just For Feet announced that

it intended to file for Chapter 11 protection, causing its common stock to be immediatel y

delisted and rendered worthless .

5. Just For Feet's 8-K registration statement related to the intended Chapter 11

bankruptcy filing, filed with the Securities and Exchange Commission (hereinafter the

"SEC") on November 3, 1999, indicates that Just For Feet intends to :

(a) give all equity of the company to the subordinated debt holders ;

(b) protect all employees with respect to stock options and pre-bankruptcy salaries ;

and

(c) leave all shareholders with worthless stock .

6 . Public statements made by Helen Rockey indicate that Just For Feet had

intended to file for Chapter 11 protection eight weeks earlier, but decided to complete th e

new revolving credit facility first . Even so, the defendants allowed investors to continu e

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, Defendant, Deloitte & Touche, L .L .P . ,

audited Just For Feet's financial statements . In failing to recognize and/or report Just For

Feet's false and fraudulent statements which materially overstated Just For Feet's sale s

profits and income, Deloitte & Touche, L .L.P. breached its duty to the shareholders and

either wantonly or fraudulently failed to comply with applicable auditing and accounting

standards .

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8. Additionally, some of the Defendants sold substantial amounts of Just For Fee t

stock during the Class Period at artificially inflated prices, with knowledge that Just For Feet

was materially inflating its sales, earnings and assets .

9 . All of the Defendants acting in their various capacities caused Just For Feet

stock to trade at artificially inflated prices during the Class Period by knowingly and

materially inflating Just For Feet's reported sales, profits, income, accounts receivable,

inventories, equipment, fixed assets, and shareholders' equity, and by significantly

understating costs and significant liabilities .

JURISDICTION AND VENUE

10 . 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 . § § 133 1

and 1337 ; and pursuant to principles of supplemental jurisdiction , 28 U.S.C. § 1367 .

11 . The claims herein arise under Section 10(b) of the Exch ange Act , 15 U.S.C .

§§ 78j(b) and Rule lOb-5, 17 C.F.R. 240 .10b-5, promulgated thereunder by the Securities

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

Section 20A of the Exchange Act, 15 U.S .C. § 78t-1 ; and state law fraud and professiona l

negligence .

12 . Venue is proper in this District pursuant to Section 27 of the Exchange Act, 1 5

U.S.C. § 78aa, and 28 U.S.C. 5 1391(b) . Many of the acts comprising the violations of law

complained of herein, including hatching and carrying out of the wrongful financial reportin g

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schemes, the preparation and dissemination ofprospectuses, registration statements, reports ,

press releases, and financial information to the investing public containing materially fals e

and misleading information, occurred in this District . At all relevant times, the executive

offices of Just For Feet were located at 7400 Cahaba Valley Road, Birmingham, Alabam a

35242, and its officers and directors who are defendants herein resided in this District . In

addition, each of the defendants transacted business in this District .

13 . In connection with the acts, conduct, combination and course of conduc t

alleged in this Complaint, the defendants directly and indirectly used the means an d

instrumentalities of interstate commerce, including the United States mails and interstat e

telephone communications, and the facilities of the national securities markets .

THE PARTIES

Plaintiffs

14. (a) Plaintiff Peter H. Burke, a resident of the State of Alabama, made the

following purchases of Just For Feet common stock : (i) 1,560 shares at $14 .4375 per share

on January 27, 1999 ; (ii) 6,000 shares at $5 .00 per share on July 26, 1999 ; and (iii) 4,35 0

shares at $3 .5611 per share on July 29, 1999 ;

(b) Plaintiff Gregory L . Horn , a resident of Shelby County, Alabama

purchased 4,350 shares of Just For Feet common stock between January 21, 1999 and Jul y

29, 1999, at an average per-share price of $9 .1596 ;

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(c) Plaintiff Jerome H. Fiorella, a resident of Shelby County, Alabama,

purchased 9,250 shares of Just For Feet common stock between January 22, 1999 an d

September 22, 1999, at an average per-share price of $8 .1947 ;

(d) Plaintiff Jerry B . Schilleci , a resident of Jefferson County, Alabama,

purchased 7,000 shares of Just For Feet common stock between August 17, 1999 an d

September 23, 1999, at an average per-share price of $3 .25 ;

(e) Plaintiff Sound Deals, Inc ., an Alabama corporation with its principa l

place of business located in Jefferson County, Alabama, purchased 3,500 shares of Just For

Feet common stock on January 29, 1999, at $15 .625 per share ;

Defendant s

15. Defendant HAROLD RUTTENBERG ("Ruttenberg"), who resides in thi s

District, was at all times relevant to this Class Period, Chairman of the Board, President ,

Chief Executive Officer, and/or a Director of the Company . Also, during the Class Period ,

as of April 12, 1999 when it was reflected in the Company' s 1999 proxy statement ,

Ruttenberg beneficially owned as much as 5,439,730 shares of Just For Feet stock or

approximately 17 .4% of the total then outstanding . His son's holdings are reported below .

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

perpetrating a fraud, Defendant 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 Forms 10-K and 10-

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Q, Annual Reports, Proxy Statements and Letters to Shareholders issued during the Clas s

Period .

16. Defendant ERIC L. TYRA ("Tyra"), who resides in this District , at all times

relevant to the Class Period, was the Executive Vice President, Chief Financial Officer an d

a director of the Company. As of April 12, 1999, when it was reflected in the Comp any' s

1999 proxy statement, Tyra beneficially owned as much as 92,000 . shares of Just For Fee t

stock or less than 1% of the total then outstanding. Tyra signed each of the Company' s

Forms 10-K and the letters to shareholders issued in connection with the Company's Annua l

Reports for 1997 through 1998 . Tyra also signed the Registration Statements listed hereafter

as a Chief Financial Officer of the Company .

17 . Defendant PETER BERMAN ("Berman"), who resides in this District, at all

times relevant to the Class Period, was Controller and a financial officer of the Compan y

who assisted Tyra and Ruttenberg in the fraudulent reporting of Just For Feet's financia l

condition. Berman was responsible for all accounting and data processing activities at Just

For Feet.

18 . Defendant COOPER EVANS ("Evans"), who resides in this District, at al l

times relevant to the Class Period, was Director of Financial Reporting who assisted Berman ,

Tyra and Ruttenberg in the fraudulent reporting ofJust For Feet's financial condition . Evans

was responsible for all financial data reported to third parties .

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19 . Defendant PATRICK LLOYD ("Lloyd"), who resides in this Distr ict, at al l

times relevant to the Class Period, was Accounting Manager of Just For Feet who assiste d

Berman, Tyra and Ruttenberg in the fraudulent reporting of Just For Feet's financia l

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

20. Defendants MICHAEL P . LAZARUS ("Lazarus"), RANDALL L . HAINE S

("Haines"), DAVID F . BELLET ("Bellet"), BART STARR, SR. ("Starr''), EDWARD S .

CROFT, III ("Croft"), WARREN C . SMITH, JR. ("Smith"), HELEN ROCKEY

("Rockey"), and JOHN A . BERG ("Berg") (together, the "Directors") were each a directo r

of the Company during the Class Period . On or about July 24, 1998, Defendant Bart Starr ,

Sr. sold 4,833 shares of Just For Feet and realized proceeds of approximately $118,408 .50 .

21 . Defendant DON-ALLEN RUTTENBERG ("Don-Allen"), an officer an d

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 Vic e

President of the Company, and the holder of 129,818 shares of the Company, s commo n

stock as of April 12, 1999 .

22. The Individual Defendants (Ruttenberg, Tyra, Berman, Evans , Lloyd, Lazarus ,

Haines, Bellet , Starr, Smith, Rockey, Berg , Don-Allen, Barry and Baker), by virtue of (a)

stock ownerships, (b) Company or external audit firm positions, (c) relationships with othe r

controlling persons, and (d) positions of knowledge, control and influence, were controllin g

persons (or members of a control group) of Just For Feet, within the meaning of Sectio n

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20(a) of the Exchange Act("Control Person Defendants") . Because of their positions of

control and authority as executive officers, directors and/or auditors of the Company, and

substantial ownership of Company stock, they were able to review and control the content s

of the various financial reports, financial statements, press releases and SEC filings of th e

Company . As officers, directors or auditors of a publicly held company, these Contro l

Person Defendants had a duty to promptly disseminate accurate and truthful information wit h

respect to the Company's operations, financial condition, earnings and profitability and futur e

business prospects so that the market price of Just For Feet securities would be based o n

truthful and accurate information .

23. Such Directors were responsible for supervision of the entire business an d

affairs of the Company and the activities of the individual defendant officers named herei n

as defendants, and for supervision of the Company' s financial reporting . Such Directors

were also signatories on, and/or required to sign, the Company's annual reports filed wit h

the SEC .

24. At all times relevant to the Class Period, Just for Feet has had an Audit

Committee consisting of outside directors . During a portion of the relevant Class Period ,

this Audit Committee was comprised of Defendants Lazarus and Haines, who, in tha t

capacity, had special responsibilities for recommending the Company' s outside auditors ,

reviewing with those auditors the scope and results of Company audits, monitoring the

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Company's financial and control procedures, monitoring non-audit services of the auditors ,

and reviewing all conflicts of interest .

25. Defendant DELOITTE & TOUCHE LLP ("Deloitte" or "Accountants") i s

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 auditor s

of Just For Feet . As auditors, Deloitte was required to perform its audit services accordin g

to Generally Accepted Auditing Standards (GAAS), which included Statements on Auditin g

Standards (SAS), issued by the American Institute of Certified Public Accountants (AICPA) .

26. Deloitte provided unqualified auditors' reports on the financial statements o f

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 Forms 10-K and Just For Feet's Annual

Reports publicly disseminated to members ofthis Class . In failing to recognize and/or report

the false and fraudulent misrepresentations in Just For Feet's financial statements, Deloitt e

breached its duties to the shareholders and either wantonly or fraudulently failed to compl y

with applicable auditing and accounting standards or any other reasonably accepte d

accounting practices .

27. Defendant, STEVEN H. BARRY ("Barry"), who resides in this district, was

at all times relevant to this Class Period, the Office Managing Partner of Deloitte' s

Birmingham office and the audit partner on the Deloitte audit of Just For Feet . Barry, as

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Office Managing Partner of the Deloitte audits, knew or should have known of the false an d

fraudulent misrepresentations in Just For Feet's financial statements . Barry either breached

his duty to the shareholders and either wantonly or fraudulently failed to comply with

applicable auditing and accounting standards or any other reasonably accepted accounting

practices which would have immediately alerted Barry, and subsequently, the shareholder s

that Just For Feet's financial statements materially overstated Just For Feet's sales, profits ,

income, accounts receivable, inventories, equipment, fixed assets, and stockholders' equity ,

and understated Just For Feet's costs and significant liabilities .

28. Defendant, KAREN BAKER ("Baker"), who resides in this district, at al l

times relevant to this Class Period, was Deloitte's Senior Manager in the audit of Just For

Feet . Baker, as Senior Manager of the Deloitte audits, knew or should have known of the

false and fraudulent misrepresentations in Just For Feet's financial statements . Baker either

breached her duty to the shareholders and either wantonly or fraudulently failed to compl y

with applicable auditing and accounting standards or any other reasonably accepte d

accounting practices which would have immediately alerted Baker, and subsequently, the

shareholders that Just For Feet's financial statements materially overstated Just For Feet' s

sales, profits, income, accounts receivable, inventories, equipment, fixed assets, an d

stockholders' equity, and understated Just For Feet's costs and significant liabilities .

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PLAINTIFFS' CLASS ALLEGATIONS

The Class

29 . Plaintiffs bring this action as a class action pursuant to Rules 23(a) an d

23(b)(3) of the Federal Rules of Civil Procedure on behalf of all persons and entities who

purchased Just For Feet common stock during the period from April 1, 1997 through

November 1, 1999, inclusive (the "Class Period") and who suffered damages as a result of

their purchases (the "Class") . Excluded from the Class are (1) defendants, (2) members o f

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 .

30. 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 share s

of common stock outstanding. Because of the common practice of publicly traded stoc k

being held in "street name," it is likely that the number of beneficial owners of Just For Fee t

stock during the Class Period is in the thousands . Throughout the Class Period, the stock wa s

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

the symbol "FEET . "

31 . 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 hav e

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retained counsel competent add experienced in class and securities litigation . Plaintiffs have

no interests that are adverse or antagonistic to the Class .

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

adjudication of this controversy . Since the damages suffered by many individual Clas s

members may be relatively small, the expense and burden of individual litigation makes i t

virtually impossible for the Class members individually to seek redress for the wrongfu l

conduct alleged .

33 . 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 investin g

public and the shareholders during the Class Period omitted and/or misrepresented materia l

facts about the business affairs, financial condition and future prospects of Just For Feet a s

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 prospect s

of Just For Feet ;

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

Period were artificially inflated due to the nondisclosures and/or misrepresentation s

complained of herein; and

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

the proper measure thereof.

34 . Plaintiffs know of no difficulty which will be encountered in the managemen t

of this litigation which would preclude its maintenance as a class action .

35 . The names and addresses of the record owners of the shares of Just For Fee t

common stock purchased during the Class Period are available from the Company's transfer

agent(s) . Notice can be provided to such record owners via first class mail using techniques

and a form of notice similar to those customarily used in class actions arising under th e

federal securities laws .

FACT S

36. The Company' s scheme to falsify its financial statements , initiated by

Ruttenberg, Tyra, and Berman , aided and abe tted by the Company' s internal financial and

bookkeeping staff, Deloitte & Touche' s management , Baker and Barry, involve s

manipulation ofvarious aspects ofthe Company's financial statement. Throughout the Class

Period, Just for Feet fraudulently overstated its revenues by :

(a) creating false billings for advertising and fixed asset costs to its vendors ;

(b) understating its cost of sales through use of acquisition accounting ;

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(c) improperly capitalizing inventory costs that should have been repo rted as

current expenses ;

(d) overstating ending inventory by not accounting for obsolete or missin g

inventory ;

(e) understating actual operating expenses by postponing incurred costs and

intentionally understating accruals ; and

(f) understating costs and expenses though fictitious postings to both inventory

and expense categories .

False Billings and Receivable s

37 . Just For Feet overstated its gross receipts, and/or understated its expenses by

accruing income and accounts receivable for cooperative advertising monies from its

vendors ; falsely accrued income and accounts receivable from various shoe vendors for

sharing of expenses for store fixtures and opening costs ; falsely accrued income and accounts

receivable for fictitious rebates from vendors providing advertising services, and falsely

accrued revenues and accounts receivable for bulk sales occurring after the end of fiscal

periods and then allocating those out to stores to provide the illusion of continuing

comparable store sales increases . 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 .

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Acquisition Accounting

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38 . Harold Ruttenberg, Eric Tyra and Peter Berman acted in concert to hide poo r

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

Stadium acquisition . These included providing inventory reserves greatly in excess of the

allowable amounts, then adjusting those reserves as needed to allow the Company to

continue to inflate earnings . Per the 1 O-Q for the quarter ended July 31, 1998 the defendant s

caused the company to show an estimate of inventory value for the inventory acquired from

Sneaker Stadium to be $36.4 million . In the 1 O-Q for the quarter ended October 31, 199 8

the amount was adjusted downward to $27 .6 million . Just For Feet was adjusting inventor y

downward by increasing its acquisition-related inventory reserve, with an offsetting increas e

to goodwill (which is being amortized over thirty years) . The defendants then offset cost o f

sales against the inventory reserves causing profit margins and net profits to be overstated .

This treatment effectively masked poor operational results by reducing cost of sales ,

postponing recognition of costs that should have been charged to income currently .

Inventory Costing

39. By the end of each fiscal year during the Class Period, Just For Feet overstate d

inventory by improperly capitalizing operating costs which should have been expensed in th e

current period. These costs included operating costs of the corporate headquarters and th e

stores administrative and sales costs in excess of the amounts properly allowable .

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Inventory Net Realizable Valu e

40 . By the end of each fiscal year during the Class Period, Just For Feet overstate d

inventory by failing to calculate its inventory using the lower of cost or market, and failin g

to adequately provide for obsolescence and inventory shrinkage .

Accounting for Store Fixture s

41 . Just For Feet entered into agreementswith certain vendors which had the effect

of overstating net income for the current period . Rather than donate the fixtures to new

stores, which is the standard industry practice, Just For Feet would have vendors remit

monies up front for the value of the store fixtures, and include that in current income . Then ,

Just For Feet would buy the fixtures (shelving, displays, etc .) from the vendors for the sam e

amount, capitalize the amount as an asset, and depreciate the asset over time.

42. All other major footwear companies were reporting lower earn ings during this

period due to a soft market for athletic shoes and clothing . But in a press release date d

November 23, 1998 defendant Harold Ruttenberg stated "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, whic h

are closing down for remodeling, provided only a marginal increase to profits for th e

quarter ." In the summer of 1998 both Venator ("Foot Locker", the number one athletic sho e

retailer) and Finish Line (an athletic shoe retailer of comparable size to Just for Feet) both

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issued warnings that their sales and earnings would be below expectations due to weaknes s

in. the market .

43. 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 a number of defendants wh o

actually sold securities at the inflated prices . The following defendants sold shares of th e

common stock of Just For Feet in the amounts, at the prices, and on the dates listed below :

Defendant Sales Date Shares Sold Per Share Pric e

Harold Ruttenberg 05/08/98 413,850 $14.25Michael P. Lazarus 05/08/98 593,549 $14.25Bart Starr, Sr. 07/24/98 4,833 $24.50

44. Prior to and throughout the Class Period, Just For Feet publicly reported

consistently positive and growth-oriented results its year-end financial reports as follow s

(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

45. In addition, throughout the Class Period, Just For Feet reported impressive

quarterly growth up until the last few quarters of reported financials . The reported result s

are as follows :

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Earnings Gross Net PerOuarte Sales Profit Income Share

IQ FY 96 $ 49,150 $20,753 $ 1,135 $ 0 .042Q FY 96 $ 58,379 $24,812 $ 2,930 $ 0 .103Q FY 96 $ 69,739 $29,439 $ 5,028 $ 0 .174Q FY 96 $ 79,129 $33,867 $ 4,826 $ 0 .16

IQ FY 97 $ 92,803 $39,002 $ 5,201 $ 0 .182Q FY 97 $112,369 $47,254 $ 4,805 $ 0.163Q FY 97 $131,033 $53,567 $ 5,376 $ 0.184Q FY 97 $142,433 $58,999 $ 6,021 $ 0.20

1Q FY 98 $151,921 $63,618 $ 5,816 $ 0 .192Q FY 98 $175,329 $75,516 $ 7,976 $ 0 .263Q FY 98 $226,008 $91,147 $10,040 $ 0 .184Q FY 98 $142,433 $58,999 $ 2,816 $ 0 .09

1Q FY 99 $220,985 $92,452 $ 2,799 $ 0 .092Q FY 99 $225,768 $67,866 $(25,933) $(0 .83 )

46. Further, the defendants highlighted Just For Feet's supposedly increasing sales,

profits, earnings and growth of business in textual portions of the Annual and Quarterly

reports to shareholders ; Forms 10-K and 10-Q ; and press releases that were issued during the

Class Period .

47. 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, and thus such inflated market prices were

as shown in the following weekly table :

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DateHigh/Ask

Low/Bid Close Volum e

11/07/97 17.25 15 16 .25 3,588,10011/14/97 17 .125 15 .625 16 1,896,70 011/21/97 18 16 17.8125 2,535,30011/28/97 17 .75 16.75 16.9375 1,000,00 012/05/97 17.3125 15 .875 16 1,243,50 012/12/97 16 14.3125 14 .5 1,591,40 012/19/97 14 .625 12.5 12.8125 2,375,40012/26/97 13 .375 12 .625 13 .125 685,80001/02/98 13 .625 12.375 13 .5 1,404,40 001/09/98 14.125 12.5 13 .625 1,229,80001/16/98 14 .3125 13 13 .5 770,30001/23/98 13 .5625 13.125 13 .4375 476,30001/30/98 14 .5 13 14.25 933,50002/06/98 16.5 14 .5 15 .4375 1,888,20002/13/98 15.625 14.5 15 .3125 2,031,90002/20/98 15 .625 14 .75 15 .25 1,771,30002/27/98 17.125 15 16 .9375 2,099,80003/06/98 18 .9375 15 .25 18 .5 3,596,20003/13/98 20.125 18 .25 19.875 3,412,30003/20/98 21.25 20 20.375 5,003,70003/27/98 20 .9843 18.375 20 .4375 3,194,60004/03/98 20.625 19.875 20.125 1,502,50004/10/98 20 .75 19.9375 20 .3125 967,20004/17/98 22.625 20.125 22.125 2,334,40004/24/98 23 .1875 20 .75 21 .125 1,590,20005/01/98 23.75 20.4375 23 .5625 1,344,60005/08/98 24.25 21 .875 22 1,542,30005/15/98 22.125 18.5 19.25 1,598,90005/22/98 22 .8125 19 22.125 2,173,20005/29/98 22 .75 20.9375 21 .9375 1,433,20006/05/98 23 .25 21 22 .5 1,812,00006/12/98 25 .8125 22.125 24.625 4,915,60006/19/98 26 .25 24.125 25 .0625 2,437,20006/26/98 28 .25 25.125 27.375 2,998,70007/03/98 28 .9375 27 28.5 1,033,80007/10/98 29 .125 26 .875 27.5 1,449,30007/17/98 27 .625 24 26.25 2,556,700

21

r

r) r0")

DateHigh/Ask

Low/Bid Close Volume

07/24/98 26.25 21 .75 22.5625 1,186,30 007/31/98 23.8125 21 23 .125 755,00 008/07/98 23 .5 16.5 19.25 4,464,30008/14/98 19.875 14.5 15 .5 5,813,80008/21/98 17.25 14.75 15.1875 5,703,60008/28/98 16 .125 12.75 14.6875 2,085,90009/04/98 15 .375 13 .875 14.4375 1,469,20009/11/98 15.3125 13.8125 14.6875 1,544,30 009/18/98 16 14.25 14.875 1,858,90 009/25/98 14.9375 12 .625 12.625 1,751,50 010/02/98 13.625 12.25 13 .5 1,500,90 010/09/98 14 11 .125 12.125 1,046,30 010/16/98 14.375 11 .875 14 1,367,50 010/23/98 16.5 13 .625 16.3125 2,339,90010/30/98 18.375 16 .125 16.9375 1,670,30 011/06/98 19.8125 16.8125 19.375 1,848,20011/13/98 20.375 18 18.375 1,268,40011/20/98 20.125 17 .875 19 .9062 1,254,90011/27/98 23 .0625 20.1875 22 .4375 2,180,10012/04/98 23 .625 18 18.625 3,062,30012/11/98 19.125 16.5 18 .0625 1,820,70 012/18/98 19 .5 17.375 17.625 1,776,40 012/25/98 18 13 .8125 15 .125 3,071,40001/01/99 17 .75 14.25 17.375 2,549,50001/08/99 19 .75 16 .25 18.875 3,459,90 001/15/99 19 .5 16.875 17.375 1,731,00 001/22/99 18 .375 12 14 8,646,30 001/29/99 15 .9375 13.625 15 5,195,90 002/05/99 15 .625 13 13 .8125 4,006,50002/12/99 14.125 13 13 .25 2,341,10002/19/99 13 .625 12.125 12 .1875 1,746,20 002/26/99 12 .5 9 .8125 10 .2187 5,365,80 003/05/99 12.125 10 .25 11 .875 3,084,90003/12/99 12.875 11 .75 12.25 2,053,50003/19/99 12 .4375 11 .5 11 .75 2,206,20003/26/99 12 10.3125 11 .9375 2,802,60004/02/99 13 .75 12 12.75 2,458,100

22

Date

High/

Ask

Low/

Bid Close Volume

04/09/99 13 .5 11 .0625 11 .25 1,627,00004/16/99 12.6875 11 12 .5 2,577,30004/23/99 13 11 .625 11.6875 1,869,80004/30/99 12.9375 11 .6875 12.625 2,277,90005/07/99 12.75 10 .1875 10.4375 4,858,10005/14/99 11 .375 10.25 11 .25 3,969,80005/21/99 11 .625 10 .1875 10.25 3,932,10005/28/99 10.8125 6 .9375 7 .625 7,515,90006/04/99 7.875 6 .1875 6.4375 4,086,20006/11/99 6.875 5 .9687 6.0625 3,546,90006/18/99 6.5 4 .8125 5 .75 9,310,20006/25/99 6.25 5 .625 6.0312 3,115,00007/02/99 6 .5625 5 .875 6.0312 2,078,30007/09/99 6.125 5 .5 5 .625 3,613,20007/16/99 6 5 .5625 5.625 1,227,70007/23/99 5.7187 5 .125 5.1718 1,597,40007/30/99 5.1875 3 .25 3 .6562 8,166,80008/06/99 4.375 3 .625 4.0312 3,547,80008/13/99 4.9375 3 .875 4.7812 2,883,60008/20/99 6.25 4.7812 5 .25 3,840,70008/27/99 5 .5 3 .9375 3 .9375 4,564,70009/03/99 4.1875 3 .9062 4.125 1,406,20009/10/99 4.125 3 .875 3 .9375 2,486,50009/17/99 3.9687 3 3 .0937 4,254,10009/24/99 3.3437 1 .4687 1 .5 20,953,10010/01/99 2 .625 1 .4687 2.0312 12,287,60010/08/99 2 .5 1 .9375 2.1562 3,105,40010/15/99 2.25 1 .875 1 .875 1,896,30010/22/99 1 .9375 1 .4687 1 .5312 3,250,30010/29/99 1 .5937 1 .25 1 .375 3,521,900

48 . Deloitte knew of and approved of all ofthe aforementioned accounting entries .

Additionally, Deloitte intentionally did not report to Just For Feet's Board of Director s

significant reportable conditions noted during the 1995 and 1996 audits . These reportable

23

conditions related directly to the types of irregular accounting entries noted above that le d

to the overstatement of net income during the Class Period . Additional weaknesses in th e

system of internal controls at Just For Feet identified by Deloitte during the 1995 and 199 6

audits showed a pattern of overstating inventory, investment and receivable values, as wel l

as overstating income and understating cost of sales and operating expenses .

49 . Deloitte provided independent auditors' reports on Just For Feet's financia l

statements for at least 1996 through 1998 and performed a review and "expertizing" of its

interim quarterly financial statements contained in each of the Prospectuses, Registration

Statements, Annual Reports and quarterly reports to shareholders, and 10K and l OQ reports

to the SEC . Deloitte represented that it had audited Just For Feet's financial statements "i n

accordance with generally accepted auditing standards" and that the financial statements

presented fairly, in all material respects, the financial position of Just For Feet at year en d

and the results of its operations and cash flows for each of those years in conformity wit h

generally accepted accounting principles . Deloitte's opinions were publicly disseminated an d

published in Just For Feet's Annual Reports and Forms 10-K for 1996, 1997 and 1998 .

Finally, Deloitte conducted interim reviews of Just For Feet's quarterly financial statement s

during the Class Period .

DELOITTE'S ROLE, CONDUCT AND DUTIE S

50 . Just For Feet was required by various securities laws to file periodic audite d

financial statements with the SEC that were intended to be relied on, and were relied on, b y

24

the investing public . As Just For Feet 's independent auditor, Deloi tte owed a duty to the

investing public 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 .

51 . In each Just For Feet audit report prepared by Deloi tte, Deloi tte presented its

opinion that the financial statements of Just For Feet presented fairly the financial condition

of Just For Feet in accordance with Generally Accepted Accounting Principles ("GAAP") .

Deloi tte fu rther represented that its opinion was based on an audit conducted in accord ance

with Generally Accepted Auditing Standards ("GAAS") . GAAS is comprised of auditing

standards approved by the American Institute of Certified Public Accountants (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 seq .) . GAAS and

GAAP represent only minimum standards .

52. 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

25

rIN

confirmations to afford a reasonable basis for its opinions of the financial statements unde r

audit, and (5 ) to repo rt any material weaknesses or repo rtable conditions noted to

management and the audit committee of the Board of Directors . As discussed more fully

below, Deloi tte 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 .

53 . Deloitte's failure to devise and implement an audit plan to detect management

fraud

(a) GAAS requires auditors to design an audit pl an 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 o f

red flags that auditors should look for in determining audit risk relating to misstatement s

arising from fraudulent fi nancial reporting (AU Section 316 .16-18), many of which wer e

present here, including :

(1) Risk factors relating to management 's characteristics and influence over the

control environment, including :

26

(a) Motivations for management to engage in fraudulent financia l

reporting :

A significant portion of management's total compensation was

represented by bonuses, stock options, or other incentives, the value of

which was contingent upon the entity achieving unduly aggressive

targets for operating results, financial position, or cash flow .

An excessive interest by management in maintaining or increasing th e

entity's stock price or earnings trend through the use of unusuall y

aggressive accounting practices .

A practice by management of committing to analysts, creditors, and

other third parties to achieve what appear to be unduly aggressive or

clearly unrealistic forecasts .

(b) Failures by management to display and communicate an appropriate

attitude regarding internal control and the financial reporting process :

Lack of an internal audit department .

Domination of management by Harold Ruttenberg without

compensating controls such as effective oversight by the board of

directors or audit committee .

Inadequate monitoring of significant controls .

27

Management failing to correct known reportable conditions on a timel y

basis .

Management setting unduly aggressive financial targets and

expectations for operating personnel .

Management displaying a significant disregard for regulatory

authorities .

(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 claim s

against the entity or its senior management alleging fraud or violations of securities laws wit h

specific reference to Just For Feet's departure from the standards of Generally Accepte d

Accounting Principles .

(2) Risk factors relating to industry conditions :

(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 obsolescenc e

28

• ~'"~ "'x"11

(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 o f

receivables, timing of revenue recognition, realizability of financia l

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 o f

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 .

(b) 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 &

29

Phelps Equity Research Company, rendered their opinion (1) that because of the way the

Company accounted for the opening of its sneaker 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 treatmen t

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 Defendant Deloitte (showing that Deloitte was fully

cognizant of the issue) . 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 selloff

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, us e

heightened professional scrutiny, and undertake additional tests 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 . In March 1997, for the first time, the Compan y

30

suddenly reversed its position and espoused the method of accounting which said the Duff

& Phelps analysts a year and a half previously stated was appropriate, but only after it s

insiders bailed out more than $50 million of their investment at high prices before the

restatement ofthe Company's 1996 operating figures, in the June 1996 offering above stated .

The Defendants knew (and the marketplace did not know) that the Individual Defendant s

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 that it was intentionally deferring

recognition of under the old amortization procedure, that by the end of the time for reporting

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 coul d

effectuate the mid-1996 bailout of $50 million at the expense of the public investors .

(c) Also, Just For Feet engaged in numerous related party transactions and

stock bonus rearrangements, referred to above. All of these related party and/o r

con flict of interest transactions are the sorts of red flags listed in AU Section 316 .16-1 8

that should have caused Deloitte to exercise greater professional scrutiny of Just Fo r

Feet's activities and financial reporting .

(d) Additionally, management of stores was decentralized or widely sprea d

out

(e) Deloitte either : (1) recklessly failed to recognize these numerous red flag s

and to devise an adequate audit that took into account those audit risks, or (2) if it ha d

31

l~"1 e "1

an adequate audit plan it recklessly failed to follow it, or (3) if it had an adequate pla n

and followed it, Deloitte ignored the results of its findings and recklessly issued it s

report .

54 . Deloitte's failure to properly supervise the personnel it assigned to conduct th e

audit

(a) GAAS requires that the audit be performed by persons having adequat e

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 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 . As a result, the Just For Feet

audits were recklessly performed .

55 . 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

(a) As part of its audit procedures, Deloitte was required to (but recklessl y

failed to) assess the risk of management misrepresentation by reviewing information about

risk factors and the internal control structure and the inventory accounting practices and stor e

opening expense practices of Just For Feet . For example , Just For Feet's board of directors ,

32

and especially its Audit Committee (which had only a single meeting in Fiscal Year 1998) ,

was not effective in constraining improper conduct by senior management . As the size ,

complexity and ownership characteristics of the company changed, the company's interna l

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 reasonabl e

assurances of accounting estimates . (SAS # 82, AU Section 316 .23) .

56 . Deloitte's failure to obtain sufficient evidential matter through inspection ,

observation, inquiries and confirmations to afford a reasonable basis for it s

opinions of the financial statements under audit

(a) GAAS provides that accounting data alone is insufficient to suppo rt an

opinion on financial statements . (SAS #'s 31 and 48, AU Section 326.16 .) Before renderin g

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 . )

(b) Deloitte recklessly failed to examine sufficient corroborating evidential

data as required by GAAS prior to rendering its opinions . Had it done so, it would hav e

discovered the fraud in the company's financial statements . For example, at Ruttenberg' s

33

rl~ e"IN

and Tyra's direction, Berman recorded receivables from manufacturers relating t o

cooperative advertising funds that were typically allocated to each new store opened .

Although the manufacturers were not contractually committed to provide these funds, Jus t

For Feet recorded these amounts, which were typically several hundred thousand dollars pe r

store, as revenue and receivable when each store opened . In 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 any

corroborating evidential data to support its opinion regarding the recording ofthese revenue s

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 (or lack thereof) fo r

existence of adjusting journal entries made by Berman , Tyra and Ruttenberg .

(c) Moreover, since the fraud was carried out by way ofnumerous adjusting

journal entries, many of which were extremely large, occurred at period 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 altogether to even examine the adjusting entries or, if it did examine the adjustin g

entries, it failed to make inquiries about those entries . In either event, Deloitte clearly faile d

to make any effort to obtain 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 th e

Company's "miscellaneous adjusting entries," which reflected many of the fraudulent

34

transactions . Moreover, these entries often were made only on the say-so of defendant s

Ruttenberg or Tyra, which constituted serious violations of internal controls . (SAS # 82, AU

Section 316) .

57. Although account ants claim that management fraud c an , in some

circumstances, be difficult to detect, in this case the fraud consisted of overstatements of

income and understatements of current expenses, among other things, that the Deloitte fir m

could readily identify, which were accomplished (in accounting terms) in a manne r

discoverable in the course of the Deloitte audits . Under these circumstances, Deloitte' s

failure to devise and carry out an audit plan that would discover and cause to be properl y

disclosed the fraud amounted to severe recklessness tantamount to willfulness .

58 . Deloitte's failure to report noted material weaknesses and reportable

conditions to the Audit Committee

(a) GAAS requires the communication of certain matters to the Audit

Committee or equivalent (SAS #61, AU section 380) . These matters include internal control

related matters such as material weaknesses and reportable conditions (SAS #'s 60 and 78 ,

AU section 325) .

(b) Deloitte failed to communicate to the Audit Committee reportabl e

conditions noted during the 1995 and 1996 year-end audits . These internal control

weaknesses related to controls that led to the accounting irregularities previously discussed .

35

(c) Deloitte also failed to report the existing of these same reportabl e

conditions as part of the 1997 and 1998 year-end audits . Gone uncorrected, the aggregate

of the uncorrected reportable conditions amounted to a material weakness in Just For Feet' s

system of internal controls .

59 . During the Class Period, Deloitte also conducted timely quarterly reviews of

Just For Feet's interim (quarterly) financial statements . Deloitte failed to follow appropriat e

professional standards in conducting these engagements , which, ifproperly followed, would

have uncovered the fraud .

60 . Deloitte also 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 ;

and

(b) failing to use "due professional care" in the performance of the audit i n

violation of SAS # 1, AU Section 230 ; and

(c) failing to prepare an appropriate audit plan in violation of SAS # 22, AU

Section 311 ; and

(d) failing to adequately supervise employees conducting the filed work in

violation of SAS # 22, AU Section 311 ; and

36

f~1

(d) failing to obtain sufficient competent evidential matter throug h

inspection, observation, inquiries and confirmations to afford a reasonable basis fo r

an opinion regarding the financial statements under audit in violation of SAS # 1, AU

Section 150 and SAS # 31, AU Section 326 ; and

(e) failing to devise (or to implement) an audit plan reasonably designe d

to find and repo rt on the irregularities described herein in violation of SAS # 53, A U

Section 316 .

CLAIMS FOR RELIE F

COUNT I

AGAINST THE INDIVIDUAL DEFENDANT SAND JUST FOR FEET FOR PRIMARY VIOLATIONS OF SECTION

10(b) OF THE EXCHANGE ACT AND RULE 10b-5

61 . Plaintiffs incorporated herein by reference and reallege each and every other

allegation contained in the paragraphs of this Complaint preceding Count I as if fully set i n

this count.

62 . This Count is asserted by plaintiffs and the Class against Just For Feet and th e

Individual Defendants and is based upon Section 10(b) of the Exchange Act, 15 U.S.C. § §

78j(b), and Rule lOb-5, 17 C .F .R. § 240 .10b-5, promulgated thereunder .

63 . During the Class Period, Just For Feet issued financial statements for the year s

ended January 1998 and 1999, respectively, that were published in the Company's reports o n

Form 10-K and in Annual Reports to Shareholders, that were signed or approved by th e

37

r)

Individual Defendants, and were the subject of press releases of the Company to the

securities marketplace and of information given by the Company to brokers and analysts, al l

in standard, uniform language for each such publication or dissemination . In addition, durin g

the Class Period, Just For Feet issued quarterly financial statements and Forms 10-Q, signe d

by defendants Ruttenberg and Tyra, which were reviewed and approved by the Board of

Directors before they were issued .

64 . As set forth above, during the Class Period, Ruttenberg and Tyra and the other

Individual Defendants engaged in a scheme to artificially inflate the profits, sales, earning s

and assets of the Company and to artificially understate its current costs, with the objective

of enhancing the value of their own stockholdings and being able to "cash in" on suc h

increased and artificially inflated values . As a result of this scheme, each of the financia l

statements , SEC filings, annual reports, and press releases issued by the Company during the

Class Period fraudulently misrepresented the actual financial condition ofthe Company . The

purpose and effect of these intentional misrepresentations was to induce plaintiffs and th e

Class to purchase Just For Feet securities at artificially inflated prices and to set the stage fo r

the Individual Defendants, as well as the Company, to sell shares into the marketplace at

artificially inflated prices .

65 . The Individual Defendants, as officers and directors ofthe Company, as signer s

of its annual reports on Form I OK, as signers of its registration statements for sale of stock ,

and in the case of Defendants Haines and Lazarus as members of the Audit Committee, an d

38

in the case of Ruttenberg and Tyra as signers of the quarterly reports as well as all th e

foregoing, had the direct responsibility to ensure that the financial statements were accurate .

These defendants either knew, or but for their severely reckless disregard for the truth, shoul d

have known that the financial statements were false . Further, by their silence and b y

encouraging a delay in disclosure of these important facts until the Spring of 1999, sai d

defendants furthered and continued the fraud on the investing public .

66. Among other things, defendants Lazarus (at all relevant times during the Clas s

Period), Haines and Starr were members of the Audit Committee of the Board . As members

of the Audit Committee, these directors had the following duties :

(a) to ensure that each of the financial statements issued by the Compan y

accurately reflected the true condition of the Company ;

(b) to inquire into the qualifications of the Company's independent audito r

and to review and approve the engagement letters ;

(c) to ensure that the audit examination was properly planned, supervised ,

executed and reviewed ;

(d) to ensure that the Company 's annual reports contained a fair an d

meaningful presentation of the information concerning the financial statements; and

(e) to review management 's' recommendations to assure the auditor' s

objectivity .

39

Moreover, defendants Lazarus and Haines failed in their duties to inquire of Ruttenberg o r

Tyra, the Company's chief accounting officers, regarding the preparation and verification o f

the information contained in the Company's financial statements .

67. Further, these defendants had relationships with Just For Feet that made them

privy to internal financial information and provided access such that they effectively were

not outside directors .

68 . The Individual Defendants' knowledge of the fraud is further demonstrated b y

their massive sales of stock at artificially inflated prices during the Class Period, as specifie d

herein.

69 . As a result of the foregoing, the market price of Just For Feet securities wa s

artificially inflated during the Class Period. In ignorance of the false and misleading nature

of the representations described above, plaintiffs and other members of the Class relied on

the integrity of the market and/or on the statements and reports of Just For Feet containing

the misleading information and were damaged thereby .

70 . 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 in thi s

Complaint . Plaintiffs and other members of the Class have suffered substantial damages a s

a result of their purchases of Just For Feet securities .

40

n.

COUNT II

AGAINST THE INDIVIDUAL DEFENDANTSAS MEMBERS OF CONTROLLING PERSONS GROUPS

FOR VIOLATIONS OF SECTION 20(a) OF THE EXCHANGE ACT


allegation contained in the paragraphs ofthis Complaint preceding Count I, together with th e

additional facts alleged in Count I itself, as if fully set in this count .

72. Plaintiffs assert this Count for violations of Section 20(a) of the Exchange Act ,

15 U.S .C. § 78t(a), on behalf of all members of the Class and against the Individua l

Defendants .

73 . The Individual Defendants were controlling persons of Just For Feet within

the meaning of Section 20 of the Exchange Act by reason of their management position s

and/or directorships and their business and social relationships among each other and thei r

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, thes e

defendants had the power and influence to control and, exercising such control, did caus e

Just For Feet to engage in or suffer the unlawful acts and conduct alleged herein .

74. Each of the Individual Defendants were 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

prospectuses, registration statements and SEC filings and the Company's other publi c

statements disseminated during the Class Period as detailed herein .

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75 . To the same extent that Just For Feet is or would be liable to plaintiffs and th e

Class, the Individual Defendants are also equally and jointly and severally liable to plaintiff s

and the Class .

COUNT II I

AGAINST DELOITTE FOR VIOLATIONS OF SECTION10(b) OF THE EXCHANGE ACT AND RULE 10b- 5


allegation contained in the paragraphs of this Complaint preceding Count I, as well as th e

additional factual allegations contained in Count I itself, as if fully set in this count .

77 . This Count is asserted against Deloitte and is based upon Section 10(b) of the

Exchange Act, 15 U .S .C . § 78j(b), and Rule lOb - 5 promulgated thereunder .

78. Each of the audit opinions Deloitte rendered during the Class Period included

the false representation that Deloitte conducted an audit of Just For Feet in accordance with

GAAS and had concluded that the financial statements fairly presented the financia l

condition of Just For Feet in conformity with GAAP . In fact, Just For Feet's annual financia l

statements were materially overstated, because the Company failed to make accounting

adjustments required for the fair and accurate presentation of its actual results of operations ,

including failing to properly record sales, expenses , earnings, assets and shareholder's equity ;

and Deloi tte did not conduct its audits in accordance with GAAS .

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tl~N

79 . Because of its position as the auditor of Just For Feet, Deloitte knew or

recklessly disregarded the material misrepresentations by Just For Feet in its financial

statements of the sales figures, expense figures and inflated earnings and net worth and asse t

values of Just For Feet . Deloitte made direct misrepresentations to the Class as a result o f

its issuance of false and misleading auditors' reports that accompanied Just For Feet's Form s

10-K and Annual Reports that it knew would be disseminated to the investing community .

80. Deloitte's severe recklessness is made manifest by its extreme departures from

those standards in connection with its year-end audits of the Company covering its fiscal

years 1998 and 1999, as described more fully above .

81 . Defendant Deloitte knew or recklessly disregarded the fact that the acts and

practices, misleading statements , and omissions described above would adversely affect th e

integrity of the market in Just For Feet securities and/or artificially inflate or maintain th e

price of such securities and/or would be relied upon by the Plaintiffs and Class to their

detriment . Had the adverse facts Deloitte concealed been disclosed, Just For Feet securitie s

would not have sold at the artificially inflated prices they did during the Class Period .

Deloitte, in publishing its audit report and audited financial statements of the Company, an d

in consenting to the same in the Registration Statements to carry out the sale of the stock ,

directly part icipated in the wrongdoing . Without Deloi tte's said consent and publication of

its audits, the stock could not have been sold and introduced into the marketplace in th e

Stock Offerings, and Deloitte's audit reports, substantiating the Company's claims of ever-

43

pm

increasing record earnings in recent years, were effectively themselves marketed to th e

investors and class members .

82. By reason of the foregoing, Deloitte, directly violated Section 10(b) of the

Exchange Act and Rule lOb-5 promulgated thereunder in that it (a) employed devices ,

schemes and artifices to defraud, (b) made untrue statements of material facts or omitted t o

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

circumstances under which they were made, not misleading, or (c) engaged in acts, practices

and a course of business which operated as a fraud and deceit upon plaintiffs and other

members of the Class in connection with their purchases of Just For Feet securities during

the Class Period .

83 . As a result of the foregoing, the market price of Just For Feet securities wa s

artificially inflated during the Class Period . In ignorance of the false and misleading nature

of the representations described above, plaintiffs and other members of the Class relied, to

their detriment, on Deloitte's representations and/or on the integrity of the market as to the

price and/or value of these securities . Plaintiffs and other members of the Class hav e

suffered substantial damages as a result of the wrongs herein alleged .

44

COUNT IV

AGAINST DELOITTE FOR PROFESSIONAL NEGLIGENC E


allegation contained in the paragraphs of this Complaint preceding Count I, as well as th e

additional facts set forth in Count I and in Count III above, as if fully set in this count .

85 . Defendant Deloitte owed plaintiffs and the Class a duty of reasonable care in

connection with their provision of information concerning the financial condition of Just Fo r

Feet during the Class Period and to fairly and accurately report the true earnings and

financial condition of the Company . Deloitte breached this duty knowingly, wantonly or

recklessly or at least negligently by including untrue statements of material facts and/or

omitting to state material 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 . Deloitte further knew and intended that plaintiffs, the Class, and the investing

public would rely upon the information provided by Deloitte concerning the financial

condition of Just For Feet in making their investment decision .

86. At the time of such misrepresentations and omissions of material facts,

plaintiffs were ignorant of their falsity and believed them to be true . Plaintiffs relied upon

the superior knowledge and expertise of Deloitte and justifiably relied to their detriment o n

the financial statements audited and certified by Deloitte . Had plaintiffs and the Class been

45

n

aware of the true facts, they would not have purchased Just For Feet securities at all, or at

the price actually paid .

87. Deloitte's conduct constitutes the making in a uniformly disseminated manne r

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 Deloitte, and in

reliance thereon, plaintiffs and the Class suffered damages in connection with their

purchases of Just For Feet securities .

COUNT V

AGAINST ALL DEFENDANTS FORCOMMON LAW FRAUD AND DECEI T

88. Plaintiffs incorporated herein by reference and reallege each and every other

allegation of fact contained in the preceding paragraphs of this Complaint as if fully set i n

this count .

89. The aforesaid misrepresentations and omissions by Defendants, as set forth

above, were made uniformly to the marketplace and the class members and constitute fraud

and deceit under applicable state law .

90. As a direct and proximate result of the fraud and deceit of Defendants ,

plaintiffs and the Class,'in reliance on said defendants' representations and in reliance on no t

knowing of the material omitted facts, suffered damages in connection with their purchase s

of Just For Feet securities .

46

PRAYER FOR RELIE F

WHEREFORE, plaintiffs demand judgment on their behalfand on behalf ofthe Clas s

(and any subclasses ) as follows :

A. Determining that the instant action is a proper class action maintainable unde r

Rule 23 of the Federal Rules of Civil Procedure, or, in the alternative, with respect to th e

common law claims, certifying all common issues of law and fact ;

B . Awarding plaintiffs and the Class compensatory and/or rescissionary damages

against each defendant, jointly and severally, in an amount to be determined at trial, togethe r

with prejudgment interest at the maximum rate allowable by law ;

C . Awarding plaintiffs and the Class and any Subclass on the common law fraud

count asserted above an amount ofpunitive 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 furthe r

relief as this Court may deem just and proper .

JURY DEMAND

Plaintiffs demand a trial by jury .

47

Dated : l Ith mber' I g ,1999

incent F . Kilborn, IIIOF COUNSEL FOR PLAINTIFF SAND MEMBERS OF THE CLASS :

Vincent F . Kilborn, III, Esq . [KIL 004]

KILBORN & ROEBUC K1810 Old Government StreetPost Office Box 66710Mobile, Alabama 36660Telephone: (334) 479-9010Facsimile : (334) 479-6747

Thomas L . KrebsJ. Michael Rediker, Esq . [RED 004 ]Thomas L . Krebs, Esq . [KRE 001]Patricia Diak, Esq. [DIA 005]RITCHIE & REDIKER, L .L .C .

312 North 23" StreetBirmingham, Alabama 35203Telephone: (205) 251-1288Facsimile: (205) 324-738 0

John W. Haley, Esq. [HAL 005]Bruce J . McKee, Esq. [MCK 010]HARE, WYNN, NEWELL & NEWTONThe Massey Building290 211` Street North, Suite 800Birmingham , Alabama 35203-3713Telephone : (205) 328-5330Facsimile : (205) 324-2165

Bruce J. Mc

David A. McDonald, Esq . [MCD 042]DAVID A . MCDONALD, ATTORNEY AT LAW

203 South Warren StreetMobile, Alabama 36602Telephone : (334) 434-0045Facsimile : (334) 434-0047

48

Serve Defendants by Certified Mail, Return Receipt Requested, As Follows :

Harold Ruttenberg Bart Starr, Sr .3421 Oak Canyon Drive 545 Bluebird LaneBirmingham, AL 35243-4810 Gadsden, AL 35903-441 1

Eric L. Tyra Edward S. Croft, III4985 Heather Pt. 1080 Alford Bend RoadBirmingham, AL 35242-3951 Gadsden, AL 35903-4504

Peter Berman Warren C. Smith, Jr .1010 Berrington Circle Thomas H. Lee CompanyBirmingham, AL 35242-5874 75 State Street, Suite 260 0

Boston, MA 0210 9Cooper Evans1325 Forest Ridge Court Helen RockeyBirmingham, AL 35226-3201 c/o Just For Feet, Inc .

7400 Cahaba Valley RoadPatrick Lloyd Birmingham, AL 352422216 Vesthaven Way Eas tBirmingham, AL 35216-2052 John A . Berg

109 Tumbleweed CourtMichael P . Lazarus Madison, AL 3575 8Weston Presidio Capital Management, L .P .343 Sonsome Street, Suite 1210 Steven H . BerrySan Francisco, CA 94104-1316 2101 Magnolia Way

Birmingham, AL 35243-2024Don-Allen Ruttenberg3625 S . Decatur Blvd . Karen BakerLas Vegas, NV 89103-5813 8064 Castlehill Road

Birmingham, AL 35242-722 6Randall L . Haine s5338 Greystone Way Deloitte & Touche, LL PBirmingham, AL 35242-7217 417 20' Street North #100 0

Birmingham, AL 35203-320 6David F . BelletCrown Advisors, Ltd .67 East Part Place, 8 '̀ FloorMorristown, NJ 07960

49

rl~ r)

PLAINTIFF'S CERTIFICATION OFSECURITIES FRAUD CLASS ACTION COMPLAIN T

I, Jerry B . Schilleci, hereby certify that the following is true and correct to the best of my

knowledge, information and belief:

1 . I have reviewed the foregoing complaint and have authorized its filing .

2 . I am willing to serve as a representative party on behalf of the class (the "Class")

as defined in the complaint, including testifying at a deposition and/or at trial, i f

necessary .

3 . My transactions in Just For Feet common stock during the Class Period (as

defined in the Complaint) are as follows :

TRANSACTION DATE PRICE PER SHARE QUANTITY

Purchase 8/17/99 5.000 3,500

Purchase 9/23/99 1.500 3,500

4. I did not purchase any of said secu rities at the direction of my counsel, nor in

order to participate in any private action arising under the federal secu rities laws .

5. During the three-year period preceding the date of my signing this certi fication, I

have not sought to serve, nor have I served, as a representative party on behalf of

a class in any private action brought under the federal securities laws .

6 . I will not accept any payment for serving as a representative party on behalf of a

class beyond my pro rata share of any recovery or settlement, except as ordered or

approved by the Court.

n

Signed under penalty of perjury this _18th day of November, 1999 .

PLAINTIFF'S CERTIFICATION OFSECURITIES FRAUD CLASS ACTION COMPLAIN T

I, Sound Deals, Inc ., by its President, Jerry B. Schilleci, hereby certify that the following

is true and correct to the best of my knowledge, information and belief :

1 . I have reviewed the foregoing complaint and have authorized its filing.

2 . 1 am willing to serve as a representative party on behalf of the class (the "Class")


necessary.

3 . My transactions in Just For Feet common stock du ring the Class Period (as

de fined in the Complaint) are as follows :


Purchase 1/29/99 15.625 3,500

4 . I did not purchase any of said securities at the direction of my counsel, nor in

order to part icipate in any p rivate action arising under the federal securities laws .

5 . During the three-year period preceding the date of my signing this certification, I


a class in any private action brought under the federal secu ri ties laws .


class beyond my pro rata share of any recovery or se ttlement, except as ordered or

approved by the Court .

Signed under penal ty of perjury this 18th day of November, 1999 .

ound eals, by its President,Jerry . Schilleci

PLAINTIFF'S CERTIFICATION OFSECURITIES FRAUD CLASS ACTION COMPLAINT

I, Jerome H . Fiorella, hereby certify that the following is true and correct to the best of

my knowledge, information and belief:




necessary.

3. My transactions in Just For Feet common stock during the Class Period (as

defined in the Complaint ) are as follows :


Purchase 9/22/99 1 .937 1,000

Purchase 8/2/99 3 .688 250

Purchase 7/27/99 4 .812 2,200

Purchase 6/15/99 5 .000 1,00 0

Purchase 6/11/99 6 .000 300

Purchase 6/10/99 6 .000 200

pale4asa- 6/7 191 6 • It3TPurchase 5/26/99 7 .750 300

Purchase 5/25/99 8 .937 500

Purchase 5/10/99 10 .500 500

Purchase 1/29/99 14.750 1,000

Purchase 1/25/99 14.500 1,000

Purchase 1/22/99 13.062 1,000

4. I did not purchase any of said securities at the direction of my counsel, nor in

order to participate in any private action arising under the federal securities laws .







Signed under penalty of perjury this 18th day of November, 1999 .

n

PLAINTIFF'S CERTIFICATION OFSECURITIES FRAUD CLASS ACTION COMPLAINT

I, Gregory L. Horn, hereby certify that the following is true and correct to the best of my

knowledge, information and belief:




necessary .

3 . My transactions in Just For Feet common stock during the Class Period (as

defined in the Complaint) are as follows :


Purchase 1/21/99 17.380 250

Purchase 1/22/99 14.313 250

Purchase 1/22/99 13 .813 250

Purchase 1/27/99 13 .813 300

Purchase 3/1/99 10.563 300

Purchase 3/1/99 10.440 500

Purchase 4/27/99 12.310 500

Purchase 5/25/99 8.970 500

Purchase 7/29/99 3.530 1500

4. I did not purchase any of said securities at the direction of my counsel, nor in

order to participate in any private action arising under the federal securities laws .




I will not accept any payment for serving as a representative party on behalf of a



Signed under penalty of perjury this 1 Sth day of November, 199

IN THE UNITED STATES DISTRICT COURT FOR THE NtU...

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