Katz, et al. v. Carnival Corporation, et al. 00-CV-731...

Case 1:00-cv-00731-KMM Document 1 Entered on FLSD Docket 02/29/2000 of 26

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

OOO731 SANDY KATZ on behalf of herself and all others similarly situated, CIV- DAVIS

Plaintiff,

MAGISTRATE JUDGE BRQW

CARNIVAL CORPORATION, MICKY ARISON, HOWARD S. FRANK, GERALD R. CAHILL CT

and ROBERT H. DICKINSON,

Defendants.

CLASS ACTION COMPLAINT

Plaintiff makes the following allegations upon information and belief, except as to

allegations specifically pertaining to plaintiff and her counsel, based on the facts alleged below.

which are predicated upon the investigation undertaken by plaintiffs counsel, which

investigation included analysis of publicly-available news articles and reports, public filings,

press releases and other matters of public record. Plaintiff believes that further substantial

evidentiary support will exist for the allegations set forth below after a reasonable opportunity for

discovery.

NATURE OF THE ACTION

1. This is a class action on behalf of all purchasers of the common stock of

Carnival Corporation ("Carnival" or the "Company") between February 25, 1999 and February

16, 2000 inclusive, (the "Class Period"), seeking to pursue remedies under the Securities

Exchange Act of 1934 (the "Exchange Act")

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As hereinafter alleged, during the Class Period, Carnival, and the

Individual Defendants (Arisohn, Frank, Cahill and Dickinson), each of whom is an executive

officer, and/or director and controlling person of Carnival, knowingly and/or recklessly failed to

disclose the Company's severe and pervasive safety, maintenance and regulatory problems

associated with its Carnival Cruise Line Ships. Defendants' fraudulent scheme and deceptive

course of business artificially inflated and maintained the trading price of Carnival securities

during the Class Period and thereby injured members of the Class.

Carnival's misrepresentations about its safety and maintenance practices

began as early as February 25, 1999, when, after a July 1998 fire aboard the Carnival Cruise Ship

Ecstasy dozens of passengers were treated for smoke inhalation and the Company incurred $15

million in damage, Carnival assured investors in its annual report on Form 10-K that the

Company complied with all applicable safety regulations. Thereafter, the Company continued to

experience incident after incident while the Company maintained the appearance of being a safe

cruise line and marketed its Carnival Cruise Line Ships as the "FunShips."

4. The truth finally began to emerge when, on February 14, 2000, the

Company revealed that although it was the busiest cruise season of the year, sales were lagging

and cruise bookings were trailing the Company's projected capacity, a circumstance which could

create pressure on pricing.

5. The next day, the Company revealed that due to yet another mechanical

failure, this time on the cruise ship Destiny, the Company would take a charge of $3 to $4 million

dollars. In truth, the Company's safety and regulatory compliance were at all times in disarray,

and the Company was unable to operate safely and in compliance with applicable regulations

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while still generating "record" financial growth. When these facts were finally perceived by the

investing public, due to public reports of the incidents, National Transportation Safety Board

Hearings, and other regulatory scrutiny, the Company's stock price declined precipitously.

6. Investor reaction to the news on February 17, 2000 was swift, and the

price of Carnival stock fell to $31 per share on February 18, 2000, on trading volume of nearly 4

million shares. On February 23, 2000, the stock hit its new 52-week low of $29.06 per share, a

dramatic drop from the stock's Class Period high of over $52 per share on April 9, 1999.

7. While the investing public incurred significant losses, defendants, privy to

the lack of internal controls and pervasive maintenance problems which would hamper Carnival's

growth, rid themselves of over 317,400 shares of Carnival stock, generating proceeds of over

$15,142,465, at prices ranging from $45.44 per share to $48.13 per share, well above Carnival's

stock price after the truth was revealed.

JURISDICTION AND VENUE

8. This Court has jurisdiction over the subject matter of this action pursuant

to 28 U.S.C. §§ 1331, 1337 and 1367 and Section 27 of the Exchange Act (15 U.S.C. § 78aa).

9. This action arises under Sections 10(b) and 20(a) of the Exchange Act (15

U.S.C. § § 78j(b) and 78t(a)) and Rule lOb-S promulgated thereunder (17 C.F.R. § 240.1Ob-5).

10. Venue is proper in this District pursuant to Section 27 of the Exchange Act

(15 U.S.C. § 78aa) and 28 U.S.C. § 1391(b) and (c). Substantial acts in furtherance of the

alleged fraud and/or its effects have occurred within this District and Carnival maintains its

principal executive offices in this District.

11. In connection with the acts and omissions alleged in this complaint,

defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

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including, but not limited to, the mails, interstate telephone communications, and the facilities of

the national securities markets.

PARTIES

12. Plaintiff Sandy Katz purchased Carnival common stock during the Class

Period, as set forth in the accompanying certification which is incorporated herein by reference,

and was damaged thereby.

13. Defendant Carnival is incorporated in the Republic of Panama, and

maintains its principal place of business at 3655 N.W. 87th Avenue, Miami, Florida.

14. The Individual Defendants, at all times relevant to this action, served in

the capacities listed below and received substantial compensation:

Name Position

Micky Arison Chairman of the Board of Directors and Chief Executive Officer.

Robert H. Dickinson

Howard S. Frank

Gerald R. Cahill

President and Chief Operating Officer.

Vice Chairman of the Board of Directors and Chief Operating Officer since January 1998.

Chief Financial Officer and Accounting Officer.

15. The Individual Defendants, as senior officers and/or directors of Carnival

were controlling persons of the Company. Each exercised his power and influence to cause

Carnival to engage in the fraudulent practices complained of herein, while receiving substantial

compensation for their roles. For example, defendant Arison receied $4.85 million in salary for

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fiscal year 1998, and was the highest paid corporate executive in South Florida according to a

May 23, 1999 article in the Sun-Sentinel.

16. Each of the defendants is liable as a participant in a fraudulent scheme and

course of business that operated as a fraud or deceit on purchasers of Carnival common stock, by

disseminating materially false and misleading statements and/or concealing material adverse

facts. The scheme: (i) deceived the investing public regarding Carnival's business, its finances

and the intrinsic value of Carnival common stock; and (ii) caused plaintiff and other members of

the Class to purchase Carnival common stock at artificially inflated prices.

PLAINTIFF'S CLASS ACTION ALLEGATIONS

17. Plaintiff brings this action as a class action pursuant to Federal Rule of

Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all persons who purchased or

otherwise acquired Carnival common stock between February 25, 1999 and February 16. 2000.

inclusive (the "Class Period"), and who were damaged thereby. Excluded from the Class are

defendants, members of the immediate family of each of the Individual Defendants, any

subsidiary or affiliate of Carnival and the directors, officers and employees of Carnival or its

subsidiaries or affiliates, or any entity in which any excluded person has a controlling interest,

and the legal representatives, heirs, successors and assigns of any excluded person.

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

impracticable. While the exact number of Class members is unknown to plaintiff at this time and

can only be ascertained through appropriate discovery, plaintiff believes that there are thousands

of members of the Class located throughout the United States. As of July 14, 1999, there were

reportedly more than 613 million shares of Carnival common stock outstanding. Throughout the

Class Period, Carnival common stock was actively traded on the NYSE. Record owners and

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other members of the Class may be identified from records maintained by Carnival and/or its

transfer agents and may be notified of the pendency of this action by mail, using a form of notice

similar to that customarily used in securities class actions.

19. Plaintiffs claims are typical of the claims of the other members of the

Class as all members of the Class were similarly affected by defendants' wrongful conduct in

violation of federal law and state law that is complained of herein.

20. Plaintiff will fairly and adequately protect the interests of the members of

the Class and have retained counsel competent and experienced in class and securities litigation.

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

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

the questions of law and fact common to the Class are:

(i) whether the federal securities laws were violated by defendants'

acts and omissions as alleged herein;

(ii) whether defendants participated in and pursued the common course

of conduct complained of herein;

(iii) whether documents, press releases, and other statements

disseminated to the investing public and the Company's shareholders during the Class Period

misrepresented material facts about the business, finances, financial condition and prospects of

Carnival;

(iv) whether statements made by defendants to the investing public

during the Class Period misrepresented and/or omitted to disclose material facts about the

business, finances, value, performance and prospects of Carnival;

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(v) whether the market price of Carnival common stock during the

Class Period was artificially inflated due to the material misrepresentations and failures to correct

the material misrepresentations complained of herein; and

(vi) to what extent the members of the Class have sustained damages

and the proper measure of damages.

22. A class action is superior to all other available methods for the fair and

efficient adjudication of this controversy since joinder of all members is impracticable. Further-

more, as the damages suffered by individual Class members may be relatively small, the expense

and burden of individual litigation make it impossible for members of the Class to individually

redress the wrongs done to them. There will be no difficulty in the management of this suit as a

class action.

GENERAL BACKGROUND

23. Carnival describes itself as the world's largest multiple-night cruise

company based on the number of passengers carried, revenues generated, and available capacity.

The Company offers a range of cruise brands serving the contemporary cruise market through

Carnival Cruise Lines, Holland America, the Cunard Line, Seabourn Cruise Line, and Windstar

Cruises. The Company serves the cruise market with 43 ships, 13 under the "Carnival Cruise

Line" name. The Carnival Cruise Line segment consists of 13 ships (the "Carnival Ships"). All

of the Carnival Ships were designed by and built for Carnival, including 12 SuperLiners, which

are among the largest in the cruise industry. Nine of the Carnival Ships operate in the Carribean

during all or a portion of the year and two Carnival Ships call on ports on the Mexican Riviera

year round. Carnival Ships also offer cruises to Alaska, Canada, the Hawaiian Islands, the

Bahamas and the Panama Canal.

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24. The rapid acquisitions of Holland America, Windstar, Cunard and

Seabourn, as well as several affiliated cruise operations, gave Carnival a leading position in the

cruise line industry, in which Carnival was perceived as being able to offer everything from

discount to luxury cruise packages.

25. In addition to acquisitions, the Company announced agreements to

construct several additional cruise ships, which, as stated in the Company's annual report on

Form 10-K filed on February 25, 1999, would increase passenger capacity from 39,466 to

56,858, or by 44.1% by the summer of 2003.

26. The Company's explosive growth resulted in an increase in passenger

capacity from 23,995 at November 30, 1994 to 39,466 at November 30, 1998. In conjunction

with the Company's rapid growth, the Company's reported earnings and revenues also increased

dramatically. Against this backdrop of positive business developments, Carnival's stock rose

precipitously in price. On February 23, 1999, Carnival traded at over $46 per share, subsequently

rising to over $52 per share in April, 1999. Carnival's expansion and its ability to continue that

expansion were clearly significant to the market and were reflected in the Company's escalating

stock price.

27. However, in order to continue the Company's ambitious growth plans, the

Company needed to minimize costs and assure that it was in compliance with all applicable

maritime regulations, as any significant regulatory problems could stall or block the Company's

expansion efforts. Moreover, increased regulatory scrutiny would likely increase the Company's

costs and thereby negatively impact the Company's cost structure and materially, adversely

impact sales on its cruises. Rather than address both concerns, however, Carnival sought to limit

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costs at the expense of maintenance and safety compliance, resulting in an abysmal maintenance

record and the incidents detailed herein.

28. During the Class Period, the Company's reckless disregard for widespread

maintenance problems would result in National Transportation Safety Board ("NTSB")

investigations, a U.S. Coast Guard investigation, and new reporting procedures from the

International Council of Cruise Lines ("lCd") spurred by increasing reports of sexual assaults on

board Carnival ships. In July 1998, the ship Ecstasy caught fire shortly after it left the Port of

Miami due to faulty repairs in the ship's laundry room, resulting in extensive NTSB hearings.

While the Company characterized this type of event as "highly unusual," the on-board disasters

during the Class Period strongly indicate otherwise.

29. At the end of the Class Period, in response to the repeated "incidents"

aboard Carnival's ships, the Company was forced to reveal that sales and bookings were down,

and the Company's earnings outlook beyond the first quarter of fiscal year 2000 was "uncertain."

SUBSTANTIVE ALLEGATIONS

30. The Class Period commences on February 25, 1999. On that date, the

Company filed its annual report on Form I 0-K for the year ended November 30, 1998, signed by

all of the Individual Defendants.

31. With respect to safety, the Company stated under the heading

"Governmental Regulations":

.The Company's ships that call on United States ports are subject to inspection by the United States Coast Guard for compliance with the Convention for the Safety of Life at Sea and by the United States Public Health Service for sanitary standards. The Company is also regulated by the Federal Maritime Commission ("FMC"), which, among other things, certifies the Company on the basis of its ability to meet obligations to passengers for refunds in case of

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nonperfonriance. The Company believes it is in compliance with all material regulations applicable to its ships and has all the necessary licenses to conduct its businesses.

32. The Company further stated:

The ISM [International Safety Management Code] provides an international standard for the safe management and operation of ships and for pollution prevention. The ISM Code became mandatory for passenger vessel operators, such as the Company, on July 1, 1998. All of the Company's majority owned Cruise Operations and Affiliated Cruise Operations have obtained the required certificates demonstrating compliance with the ISM Code.

33. After the Company's 10-K was disseminated, the price of Carnival

common stock, which was trading at about $37 per share as a result of the July 1998 fire aboard

the Cruise Ship Ecstasy, rose to over $45 per share.

34. On March 18, 1999, the Company issued a press release reporting "record"

first quarter earnings. Carnival reported net income of $157.8 million on revenues of $748.3

million for its first quarter ended February 28, 1999, compared to net income of $109.9 million

for the same quarter in 1998. Earnings per share increased 44% in the first quarter of 1999 as

compared to the first quarter of 1998. The Company characterized the quarter as the "31St

consecutive quarter in which Carnival reported year-over-year earnings improvement."

35. Commenting on the first quarter 1999 results, defendant Arison stated:

"Given the strength of 1998, a year in which there was unprecedented demand for cruises and the difficulty inherent in making comparisons to such an exceptional year, I am particularly happy that we were able to achieve a modest increase in net revenue yields with a 17 percent increase in capacity in the first quarter of 1999. The fact that we are able to fill this additional capacity tells me that our new ships are on target in providing the type of vacation experience our customers are seeking."

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36. Defendant Arison also attributed the increase in cruise capacity to the

introduction into service of the 2,044 passenger Elation in March, 1998, and the 2.044 passenger

Paradise in late November 1998. Arison noted that the Paradise had been particularly

successful, stating that 'the Paradise's popularity has exceeded our expectations."

37. On April 13, 1999, the Company filed a quarterly report on Form 10-Q

signed by defendant Frank, which reiterated the financial results announced above.

38. On April 20, 1999, in an article in the Miami Herald, defendant Arison

otiifl k00tl -C.h-. C .-. .L. - It ompany s teitilic financial performance, emphasizing the higher than

expected bookings on the new cruise ship Paradise, which had been sailing at 100% capacity.

39. The Company's statements detailed in 3 1-38, above, were materially

false and misleading. Contrary to defendants' statements that the Company was in compliance

with all applicable safety regulations, Carnival routinely and recklessly disregarded pervasive

problems with the Company's maintenance procedures which resulted in: (a) the September 20,

1999 fire aboard the Tropicale; (b) the engine problems aboard the Paradise during its

"Millenium" cruise; (c) the January 12, 2000 fire aboard the Celebration; and (d) mechanical

malfunctions aboard the Destiny.

40. At the time of issuance of the statements detailed above, defendants knew

and/or recklessly disregarded that:

(a) the Carnival Ships suffered from severe and pervasive operational

difficulties which resulted in cruise cancellations and refunds as well as serious incidents; and

(b) defendants knew or recklessly disregarded that Carnival's pervasive safety

problems included over 108 sexual assaults of passengers by crew members aboard its ships in a

five-year period, which resulted in the firing of 49 crew members;

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(c) the Company's operational difficulties were resulting in materially

softening sales and charges to earnings as reported on February 14, 2000;

41. On June 17, 1999, the Company issued a press release announcing

"record" second quarter earnings. Carnival reported net income of $203.3 million on revenues of

$796.1 million for its second quarter ended May 31, 1999, compared to net income of $160.6

million on revenues of $661.4 million for the same quarter in 1998. For the second quarter,

rcvcriues increased 20% and earnings per share increased 22% over the comparable quarter in

1998. The press release attributed the earnings growth in the second quarter to a 6.6% increase

in capacity resulting largely from the introduction of the cruise ship Paradise.

42. Commenting on the results, defendant Arison stated:

"The introduction of Carnival Cruise Lines' new ships, the Paradise and the Elation, the first new 70.000 gross registered ton cruise ship operating out of Los Angeles, has further increased the demand for the company's cruise products in those markets. It is the introduction of innovative new ships like these that has allowed us to deliver eight consecutive years of quarterly earnings growth."

43. The Company's financial results for the second quarter, for the period

ending May 31, 1999, were repeated in the Company's quarterly report on Form 10-Q signed by

defendant Frank which was filed on July 14, 1999.

44. Defendants knew or recklessly disregarded that Carnival could not sustain

"eight consecutive years of quarterly earnings growth" while minimizing costs and ignoring

maintenance and safety issues. As a result of the incidents caused by defendants' knowing or

reckless disregard of compliance and regulatory issues, the Company's future expansion and

financial growth would ultimately suffer.

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45. On September 20, 1999, a fire broke out in the Carnival Ship Tropicale's

engine room. The Company revealed that although the ship was left without propulsion, "all of

the other ship's functions [were] fully operational." The cruise was characterized by passengers

in a September 22, 1999 article disseminated by the Associated Press, as the "cruise from hell."

Passengers complained of raw sewage in the hallways and in their cabins, no water in cabin

sinks, toilets and showers, and foul water coming from bathroom fixtures.

46. According to a September 23, 1999 article in the Tampa Tribune,

passengers' emails and telephone calls were censored, and the ship's air conditioning systems

failed. A spokesperson for the Company attributed the sewage problems to "debris inadvertently

left in the plumbing system which was not discovered until the ship left port." The Company

characterized the fire as "an extremely unusual situation."

47. As reported in the article described above, a day before the fire on the

Tropicale, six crew members left the ship when it docked in Cozumel without returning, stating

that the ship was unsafe and refusing to reboard. A passenger requesting a life jacket for a baby

was told there were no infant life jackets on board. Additionally, passengers reported that the

Coast Guard was only called at the insistence of angry passengers, and that prior to the Coast

Guard's arrival, crew members hastily mounted fire extinguishers and repaired lifeboats in order

to satisfy Coast Guard inspectors. In fact, passengers reported in a September 23. 1999 article in

the Si. Petersburg Times that conditions aboard the ship only seemed to improve when Coast

Guard inspectors arrived by helicopter, smoke damage was painted over, the bars reopened and

bands began playing again.

48. As a result of the problems aboard the Tropicale, Carnival was forced to

cancel five voyages scheduled aboard the Tropicale as a result of mandated repairs, and to issue

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refunds, future cruise discounts, shipboard credits and special transportation arrangements for the

over 1.700 passengers aboard the Tropicale.

49. On October 14, 1999. the Company filed its quarterly report on Form 10-Q

for the period ending August 31, 1999, signed by defendant Frank. The Company reported an

increase in total revenues of $432.8 million, or 19.0% due to an increase in cruise revenues

resulting from increased capacity. With respect to the Tropic-ale debacle, the Company stated:

In September 1999, the Carnival ship Tropicale had a small engine room fire which resulted in no injuries to any guests or crew. The Company has canceled six voyages of the Tropicale while the vessel undergoes repairs. Three of these cruises will be operated by Carnival's Imagination, which will postpone its scheduled October 1999 drydock until January 2000. In September 1999, the Company announced that management estimated that the one-time negative impact of the above described events on the Company's 1999 fourth quarter earnings will be approximately one cent per share.

50. On December 28, 1999, numerous passengers taking a "Millennium

Cruise" aboard the Carnival ship Paradise scheduled to stop at several stops in the Carribean,

were forced to disembark in the Bahamas and fly to Miami. Due to "engine problems". the

Paradise was only able to make 80 percent of its normal speed, missing its scheduled Carribean

stops. As a result of the ship's mechanical failures, the New York Daily News revealed on

January 19, 2000, that about 1,600 Paradise passengers were tiling a class-action lawsuit seeking

compensatory damage.

51. Less than two weeks later, on January 12, 2000, Carnival announced over

the PR Newswire that it had experienced yet another shipboard fire. The Celebration, a Carnival

ship leaving from New Orleans carrying 1,586 guests and 667 crew on a seven-day voyage to the

Carribean, reported a fire in an auxiliary generator. As a result Carnival was forced to cancel the

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Celebration's next cruise departure, and again issue refunds and discounts. In connection with

the fire, Celebration estimated a reduction in first quarter 2000 earnings of one to two cents per

share.

52. As news of the disastrous cruises and the magnitude of the Company's

operational failures was disseminated to the market, the price of Carnival common stock declined

as investors began to suspect that Carnival's safety and operational deficiencies were more than

"isolated incidents" as the Company previously stated. On January 13, 2000, the stock traded at

$50 per share, falling steadily to reach $42.45 on January 25, 2000, as passenger complaints

regarding the safety and operations of the cruises were disseminated in the media. However, the

Company still failed to disclose the magnitude and severity of its operational deficiencies.

The Truth is Partially Revealed

53. On February 14, 2000, defendant Cahill revealed that despite the fact that

it was peak cruise selling season. (referred to in the industry as "wave" selling season), sales were

lagging. According to a report issued by Bank of America Securities analyst J. Cogan, berth

sales were "not so positive". The Company revealed that bookings were trailing Carnival's

projected capacity, and that pricing trends were "softer" than expected.

54. In response to the news of lagging Carnival cruise sales in what is typically

the cruise industry's prime season, Carnival stock dropped from $40375 on February 11, 2000. to

close at $35.50 on February 14, 2000, on unusually large trading volume of 2.6 million, more

than twice the typical number of shares. In a February 17, 2000 analyst report issued by

Deutsche Banc Alex Brown, the stock price decline was attributed in part to the Company's

repeated "technical" problems.

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55. The very next day. the Company revealed that the Cruise liner Destiny,

carrying more than 4.000 passengers, was adrift in the Atlantic off the Turks and Caicos Islands

after a technical problem crippled its engines. According to Carnival, the ship was "experiencing

a problem with its two cyclo-converters, which control the transmission of electrical power to the

ship's propulsion motors." As a result, the Destiny was forced to cancel its Carribean port stops

and return to port in Miami, necessitating further passenger refunds and charges to earnings.

56. In response to news of yet another shipboard disaster evidencing Carnival's

widespread operational deficiencies, the stock dropped from $34 a share on February 15, 2000. to

$31.87 on February 16, 2000, on unusually large volumes of 5,904,000 shares.

57. On February 17, 2000, analysts reduced first-quarter and fiscal year 2000

estimates for Carnival after the Company disclosed that its earnings would be affected by

additional cruise cancellations on the Destiny. The Company reported that the cancellation

would result in an approximately one-cent per share reduction, or between $344 million per

share.

58. In response, the price of Carnival common stock dropped yet again, falling

to $31 per share on February 18, 2000, on trading volume of nearly 4 million shares. On

February 23, 2000, the stock hit its new 52-week low of $29.06 per share, a dramatic drop from

the stock's Class Period high of over $52 per share on April 9, 1999.

59. On February 25, 2000, Carnival announced the cancellation of its plans to

acquire Fairfield Communities, Inc., a time-share resort operator, due to the dive in Carnival's

stock price. The deal - a stock swap - was abandoned according to defendant Howard Frank

because of Carnival's depressed stock price.

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60. The market for Carnival's common stock was open, well-developed and

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

failures to disclose, Carnival common stock traded at artificially inflated prices during the Class

Period until the time the fact that Carnival had engaged in the wrongful course of conduct

described herein was finally communicated to an understood by the securities markets. Plaintiff

and other members of the Class purchased or otherwise acquired Carnival common stock relying

upon the integrity of the market price of Carnival stock and market information relating to

Carnival and have been damaged [hereby.

61. During the Class Period, defendants materially misled the investing public,

thereby inflating the price of Carnival stock, by publicly issuing false and misleading statements

and omitting to disclose material facts necessary to make defendants' statements, as set forth

herein, not false and misleading. Said statements and omissions were materially false and

misleading in that they failed to disclose material adverse information and misrepresented the

truth about the Company, its business, finances and operations, including, inter alia:

that the Company's financial statements were not prepared in

accordance with generally accepted accounting principles and in accordance with the federal

securities laws and SEC regulations concerning fair reporting;

that the Company's seeming growth was the result of improper

accounting estimates; and

that the Company's estimates, projections and opinions as to its

expected revenues, earnings, income and value of its stock were lacking in reasonable basis at all

relevant times.

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

particularized in this Complaint directly or proximately caused or were a substantial contributing

cause of the damages sustained by plaintiff and other members of the Class. As described herein,

during the Class Period, defendants made or caused to be made a series of materially false or

misleading statements about Carnivals business, business practices and operations. These

material misstatements and omissions had the cause and effect of creating in the market an

unrealistically positive assessment of Carnival and its business, finances and operations, thus

causing the Company's comrnou stock to be overvalued and artificially inflated at all relevant

times. Defendants' materially false and misleading statements during the Class Period resulted in

plaintiff and other members of the Class purchasing the Company's common stock at an

artificially inflated price, thus causing the damages complained of herein.

APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE

63. At all relevant times, the market for Carnival common stock was an

efficient market for the following reasons, among others:

Carnival common stock met the requirements for listing, and was

listed and actively traded, on the New York Stock Exchange, a highly efficient market;

As a regulated issuer, Carnival filed periodic public reports with

the SEC and the NASD

Carnival stock was followed by securities analysts employed by

major brokerage firms who wrote reports which were distributed to the sales force and certain

customers of their respective brokerage firms. Each of these reports was publicly available and

entered the public marketplace.

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Carnival regularly issued press releases which were carried by

national newswires. Each of these releases was publicly available and entered the public

marketplace.

64. As a result, the market for Carnival securities promptly digested current

information with respect to Carnival from all publicly-available sources and reflected such

information in Carnival's stock price. Under these circumstances, all purchasers of Carnival

common stock during the Class Period suffered similar injury through their purchase of stock at

artificially inflated prices and a presuniptiun of reliance applies.

NO SAFE HARBOR

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

certain circumstances does not apply to any of the allegedly false statements pleaded in this

complaint. The specific statements pleaded herein were not identified as "forward-looking

statements" when made. Nor was it stated with respect to any of the statements forming the basis

of this complaint that actual results "could differ materially from those projected." To the extent

there were any forward-looking statements, there were no meaningful cautionary statements

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

purportedly forward-looking statements. Alternatively, to the extent that the statutory safe harbor

does apply to any forward-looking statements pleaded herein, defendants are liable for those false

forward-looking statements because at the time each of those forward-looking was made the

particular speaker knew that the particular forward-looking statement was false, and/or the

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

who knew that those statements were false when made.

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SCIENTER ALLEGATIONS

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

that the public documents and statements, issued or disseminated by or in the name of the

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

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

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

or documents as primary violators of the federal securities laws. As set forth elsewhere herein in

detai ll,deflendants,by Viitue of their receipt of information reflecting the true facts regarding

Carnival and its business practices, their control over and/or receipt of Carnival's allegedly

materially misleading misstatements and/or their associations with the Company which made

them privy to confidential proprietary information concerning Carnival were active and culpable

participants in the fraudulent scheme alleged herein. Defendants knew and/or recklessly

disregarded the falsity and misleading nature of the information which they caused to be

disseminated to the investing public. This case does not involve allegations of false forward-

looking statements or projections but instead involves false statements concerning the Company's

business, finances and operations. The ongoing fraudulent scheme described in this complaint

could not have been perpetrated over a substantial period of time, as has occurred, without the

knowledge and complicity of the personnel at the highest level of the Company, including the

Individual Defendants.

67. The Individual Defendants engaged in such a scheme to inflate the price of

Carnival common stock in order to: (i) protect and enhance their executive positions and the

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

personal holdings of Carnival common stock and options; (iii) permit the Company to

- 20 -


consummate several acquisitions during the Class Period on more favorable terms, and (iii)

permit profitable insider sales by Carnival insiders.

68. In contrast to the hot market for Carnival common stock, defendants did

not share the positive outlook for the Company. During the Class Period, defendants sold over

317,400 shares of Carnival stock, generating proceeds of over $15,142,465, at prices ranging

from $45.44 per share to $48.13 per share, well above Carnival's stock price after the truth was

revealed. Defendants stock sales were as follows:

DEFENDANT DICKINSON

DATE NUMBER OF PRICE PER PROCEEDS SHARES SHARE

12/21/99 40,000 $45.44445.81 $1,822,361

TOTAL 40.000 $45.44445.8 1 $1,822,361

DEFENDANT CAHILL


8/25/99 37,400 $46.63 $1,743,962

__7 TOTAL 37,400 —7 $46.63 $1,743,962

DEFENDANT HOWARD


7/21/99 78,300 $48.13-$48.25 $3,770,379

7/20/99 161,700 $48.13-$48.31 $7,805,763

TOTAL 240,000 $48.13-$48.31 $11,576,142 —J

- 21 -


FIRST CLAIM

(Violations Of Section 10(b) Of The Exchange Act And Rule lOb-S Promulgated Thereunder Against

All Defendants)

69. Plaintiff repeats and realleges each and every allegation contained above.

70. Each of the defendants: (a) knew or recklessly disregarded material

adverse non-public information about Carnival's financial results and then existing business

conditions, which was not disclosed; and (h) participated in drafting, reviewing and/or approving

the misleading statements, releases, reports and other public representations of and about

Carnival.

71. During the Class Period, defendants, with knowledge of or reckless

disregard for the truth, disseminated or approved the false statements specified above, which

were misleading in that they contained misrepresentations and failed to disclose material facts

necessary in order to make the statements made, in light of the circumstances under which they

were made, not misleading.

72. Defendants have violated § 10(h) of the Exchange Act and Rule lOb-5

promulgated thereunder in that they: (a) employed devices, schemes and artifices to defraud; (b)

made untrue statements of material facts or omitted to state material facts necessary in order to

make 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 that operated as a fraud or

deceit upon the purchasers of Carnival stock during the Class Period.

73. Plaintiff and the Class have suffered damage in that, in reliance on the

integrity of the market, they paid artificially inflated prices for Carnival stock. Plaintiff and the

- 22 -


Class would not have purchased Carnival stock at the prices they paid, or at all, if they had been

aware that the market prices had been artificially and falsely inflated by defendants false and

misleading statements.

SECOND CLAIM

(Violation Of Section 20(a) Of The Exchange Act Against Individuals Defendants)

74. Plaintiff repeats and realleges each and every allegation contained above.

75. The Individual Defendants acted as controlling persons of Carnival within

the meaning of Section 20(a) of the Exchange Act. By reason of their senior executive and/or

Board positions they had the power and authority to cause Carnival to engage in the wrongful

conduct complained of herein.

76. By reason of such wrongful conduct. Carnival and the Individual

Defendants are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result

of these defendants' wrongful conduct, plaintiff and the other members of the Class suffered

damages in connection with their purchases of Carnival stock during the Class Period..

WHEREFORE, plaintiff prays for relief and judgment, as follows:

i) Determining that this action is a proper class action and certifying plaintiff

as class representative under Rule 23 of the Federal Rules of Civil Procedure;

ii) Awarding compensatory damages in favor of plaintiff and the other Class

members against all defendants, jointly and severally, for all damages sustained as a result of

defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;

iii) Awarding plaintiff and the Class their reasonable costs and expenses incurred

in this action, including counsel fees and expert fees; and

- 23 -


iv) Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.

DATED: February 28, 2000

MILBERG WEISS I3ERS%IAD HYNES & LERACH LLP(

By: 7v Kefmh J. Vi (Fla. Bar No. 169668J' Maya Saxena (Fla. Bar No. 0095494)

5355 Town Center Road Suite 900 Boca Raton, Florida 33486 Tel: (561) 361-5000 Fax: (561) 367-8400

and

Steven G. Schulman Samuel H. Rudman One Pennsylvania Plaza 49th Floor New York, NY 10119 Tel: (212) 594-5300

LAW OFFICES OF MARC S. HENZEL Marc S. Henzel 210 West Washington Square 3rd Floor Philadelphia, PA 19106-3514 Tel: (215) 625-9999 Fax: (215) 440-9475

Attorneys for Plaintiff

- 24 -


CERTIFICATION OF NAMED PLAINTIFF PURSUANT TO FEDERAL SECtJR11S LAWS

Sandy Katz ("plaintiff") declares, as to the claims asserted under the Federal Securities

Laws, that:

1. Plaintiff has reviewed the complaint prepared by counsel and is willing to serve as

a lead or named plaintiff in the Action on the basis of the allegations in that complaint or a

substantively similar complaint or amended complaint to be filed.

2. Plaintiff did not purchase the Security that is the subject of the complaint at the

direction of plaintiff's counsel or in order to participate in any private action arising under the

Federal Securities Laws.

3. Plaintiff is willing to serve as a representative party on behalf of class, including

providing testimony at deposition and trial, if necessary.

4. Plaintiff has made no transaction(s) during the Class Period in the stock of

Carnival Corp. that are the subject of this action except those set forth below:

Security

Transaction

Date

Price

CCL

Purchased 200 shares 2/16/00

5. in the past three years, plaintiff has not sought to serve as a representative party on

behalf of class.

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

of a class beyond plaintiff's pro rata share of any recovery, except such reasonable costs and

expenses (including lost wages) directly relating to the representation of the Class as ordered or -

approved by the Court

7. 1 declare under penalty of perjury that the foregoing is true and correct. Executed

this 27th day of February 2000.

TOTAL P.3

12/96) Case 1:00-cv-00731-KMM Document 1 Entered on FLSD Docket 02/29/2000 of 26

5-44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or ether papers as required except as provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974. is requred (Cr the use

Clerk of Court for the purpose at initiating the Civil docket sheet. (SEE INSTRUCTIONS ON THE REVERSE OF THE FORM.)

PLAINTIFFS I DEFENDANTS

LNDY KATZ, on behalf of herself and all ICARNIVAL CORPORATIONQ° 71Q '40a 1 FRANK, IY hers similarly situated, GERALD R. CAFIILL and ROB IJVICDAV1$

Montgomery Cty. •) CCuNT' CF ES1OENCE CF FIRST USTEC PLAINTIF

1 (EXCEPT U.S. PLAINTIFF CASES)

COUNTY CF RESIDENCE OF ;:AST U5720

(IN U.S. PLAINTIFF CAW$ NOTE. IN LAND CONDEMNATION CASES. USE THE LOCATION OF TI-(E

TRACT OF LANC :NVOLVE O.

) rTCPNEYS ,FU NA1E ACOPESS ANC TELEPNCNE 11LMGER) ATTORNEYS IF KNOWN)

ftLBERG WEISS BERSHAD FLYNES & LERACH LLP 355 Town Center Road, Suite 900 io.a.-Rat-efl, FL 33486 (56 361-5000 CIRCLE COUNTY WHERE ACTION AROSE ACE. MCNPCE, BPCWARD, PALM SEACH, MARTIN. ST. WC:E. (NOlAN RIVER. OKECCN08 IGNL5

BASIS OF JURISDICTION IPLACE AN X N ONE 2Cx

i U.S.Government 0 3 Federal Question Plaintiff )Q()Q( (U S. Government Not a Party)

2 U S Government C 4 Diversity Defendant (Indicate Citizenship of Parties

in item Ill)

III. CITIZENSHIP OF PRINCIPAL PARTIES eAN X (For Diversity Cases Only) .0N*E OCx FOR CEEN

PTF DEF 2- pfl Citizen of This State C21 0 I lnccrporatedinnciptace 6 4

of Businese- This Stât

Citizen of Another State 0 2 0 2 Incorperateda, Prircip-,R 01ace S

of Susinesso Eenncther9tate

Citizen or Subject of a C 3 C 3 Foreign Nati S Foreign Country

DEF

05

05

I. ORIGIN (PLACE AN -X" (N ONE BOX ONLY) -- C Appeal tbDtnc1

Transferred from JuOgefitoTi ?9igina1 0 2 Removed from Remanded from C 4 Reinstated or 0 5 another district C & Multidistnct C i Magistrate

Proceeding State Court Appellate Court Reopened (specify) Litigation Judgment

I NATURE OF SUIT (PLACE AN IN ONE BOX ONLY)

- A CONTRACT A TORTS FORFEITURE/PENALTY A BANKRUPTCY i A OTHER STATUTES

- 110 ,surarrce PERSONAL INJURY PERSONAL INJURY 810 4r,C,JI1Lre 0 422 socea! 25 .50 '65 I 120 Marine C 310 .5,rIarre 0 362 'erscnal 'n1u!'/ - 60 620 Ctr'er 5

130 Miller 0 315 A'rO,at'e °•c '4cc MalCraC:!ce BC 625 Cru Se'ZL.!C 43 'Nllr1crwi

o 140 Neçoflaoe 11slrvr"ert Liacry C 365 ,rsonaI 4'IUry - of ' certy 21 USC 381 28 USC '67

iso very of overcayment I C 320 Assault LJOei & PrcOucI _aO,!,ty 60 830 _quor Laws

& Elfcrcemertl of .ucge11l I Siaccer C 365 Asestcs Personal 6 540 q I & r,.ce A PROPERTY RIGHTS

0 151 '4ec3ce Ac: = 330 ;;&dwal E''c.e!3 ' 11P"l BC 850 0,I,r,e °es

0 152 Re00ve' of DefaulTed Laor/ 80 660 CccvoaIc'al U. $20 CopyIlgIls

5:u0e: oar's = 340 Aar,114 PERSONAL PROPERTY Sale', 'earn 3t$I1

Etc 4eicrars. ' 345 marine "ec.cn C 340 13CCrarfr 0

0 153 2ve,2aven LaOlt'. = 371 full'

I Veteran Oerrefrts C 350 Vcror 'ien,c'e C 350 Direr nersenal A LABOR B SOCIAL SECURITY 160 ocrIncice's 5.15 C 355 '401cr Vemce 'cce Car'age

ISO Direr Ciac' - 0 315 5 'ocertv aiage C 710 Th' _3 3:a"oar:s 0 861 lA

195 Or'lac: 'cOy! dOlt. C 360 DIne' 'enson'a rr,.r', _4c ,lt A c' $62 3i l' 122 4

A REAL PROPERTY A CIVIL RIGHTS PRISONER PETITIONS .ac.fMç' caro-s

564 SSC - .tit (Iii 0 730 .jco MO,': ce:otrrc C 865 SI .4C5,c,

= 400 State aoocc-ert

= 410 Arimfust 430 Eanks arc 5arrng

97' 450 Comme,ce,ICC qa2meic

D 460 Deooclatror

0 470 Racketeer influenced 5110 COrruci Organizations

C 610 Seiecilve Se'.rce Crc.ctnes.

= 375 s!cr'e, al'e"5c 12 USC 3410

0 581 A .Cy,tyn3I Ac:s O 192 Et'cmo 514.U300'

: 393 .rc"r"e"a

= 694 !er;y A,cC3:C" C 895 :,o..n•. :1

rnTOn'at'cr' AC 0 900 ACOea! :e'crr— 1141011

Unter Euar AC5Z 0

O 950OnslnTulnorauiy t Slate Statutes

0 880 DIner Sta(utCrV .ScrorrS A OR B

: 210 _A'O ;ce'aiI" : 220 'orec:cs,. , e

: 230 'enlI ..4355 3 _-eCtrerl

J 230 brts 0 .4110 245 'brt P'00uC LIaoIirl

: 290 All Direr Real P10051W

• 441 Jo,. 8 510 'ACtc11S iacare 442 Se"e"ce Q 2'n;icjr'e"t

HABEAS CORPUS: C 443 0uSl!•r.. 8" 530 Dererat Ac:cltlnroCatIcns A7 536 ealr, Pe,,4I111

o 444 Vq!Iare 940 4a4104rt'r.0 3 DirerBE

440 DIne; Curl .Rlgnts 6I" 550 Dv Rgnts

BC $55 'IrSCn CcrCrtIon

- 1 2.S s.,'e AC. - C 740 5ar.uav _ac:r Ac: FEDERAL T

C 790 Direr .300' ..)rqaticrr

AC 191 Ernot Re' nc Sec.r'ly Ac:

C $70 'aaes iL.1 S '3rflTl or Celenaanti

C 871 PS - ThIIO PSIT1 25 USC 7509

VI CAUSE OF ACTION IC'S tnE US DvtL STATUTE NCER C.# YOU ARE °!L:NG AND WRITE BRIEF STATEMETCF CAUSE DO NCT CITE UP.ISDCTICNAL STATUTES UNLESS DIVERSITY;

Rule 10b-5; Section 27 of the Exchange Act

ENGTh CF TRIAL a_daya y,lrmaied for 110th sides to1 111 nItrIte case)

VU. REQUESTED IN CHECK IF THIS IS A CLASS ACTION COMPLAINT: XXINDER FR.0 P 23

VIIL RELATED CASE(S) (See instructions): .4LJCGE

IF ANY \ DATE ) J SIGNATURE PF A

2/28/00

DEMAND S

E" OF RECORD

I

CHECK YES only if demanded in Complaint

JURY DEMAND: XXXS C: NC

DOCKET NUMBER

FOR OFFICE USE ONLY

57 ECDP ._-__.-.-__ AMCUNT

APLV'NC F____________ MAC, .ILCGE

Katz, et al. v. Carnival Corporation, et al. 00-CV-731...

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Transcript of Katz, et al. v. Carnival Corporation, et al. 00-CV-731...