LIT'E DEPALMA GREENBERG & WAS, LLCJoseph J. DePalma (JD-7697)Two Gateway Center, 12d FloorNewark, Ni 07102-500 3(973) 623-3000 FUI

SCH.IFFRIN BARROWAY, LLPRichard S . Schi#frin, Esq .Stuart L . Berman, Esq .Marc I . Willner, Esq .Three Bala Plaza East , Suite 400Bala Cynwyd, PA 19004(610) 667470 6

[Additional counsel on signature page]

Z@1 tMR 15 P 37 3l

MAR1S IAV

AT WILLIAMW ACLEIIK

UNITED STATES DI TRICT COURTDISTRICT OF NEW JERSEY

IN RE AREMIESSOFT CORPORATIONCORP. SECURITIES LITIGATION

}RBI"TAD STATES

TION NQ. 01-CV-

V 3Z_ 7-

FIRST AMENDED AND CONS LIDATED CLASS ACTION CaWIAMT& JURY DEMAND

Plaintiffs, by and through their attorneys , allege the following based upon, inter ate, the

investigation of their attorneys, including without limitation : (a) review and analysis of public

filings made by AremisSoft Corporation (" .AremisSofi ." or the "Company'") with the Securities and

Exchange Commission ("SEC") ; (b) review and analysis of securities analysts' reports concerning

ArernisSoft ; (c) review and analysis of press releases and other publications disseminated by or on

behalf of AremisSoft ; (d) review and analysis of news articles concerning AremisSoft, (e) review

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and analysis of Seca ' ' and Exchange Commission v . Ras i L cour o u and

Ar i S ft o . Civil Action No. 01-CV-8903 (S.D.N.Y. October 4, 2001) (the "SEC

Complaint") ; (f) interviews with current management of the Company; and (g) review and analysis .

of other publicly available information about AremisSoft .

SUMMARY OF THE CASE

1 _ Plaintiffs bring this class action for violations of the Securities Exchange Act o f

1934, 15 U . S.C. § 78 , et seMc ., (the "Exchange Act") against AremisSo ft ; forme' top executives of

AremisSoft, Lycourgos Kyprianou ("Kyprianou"), Roys Poyiadps ("Poyiadjis"), Noel R. Voice

("Voice'), Michael A. Tymvios ("Tymvios"), M.C. Mathews ("Mathews"), and Dr. Paul I . Bloom

("Bloom"); Scott E. Bartel ("Bartel"), the Company's outside counsel and defacto operating

officer of the Company (collectively the "Individual Defendants" and together with AremisSoft,

the "Arernis of Defendants"); Kurt Sedlmayer aflela Kurt Sedlrneyer ("Sedimayer"), a purpo rted

independent sales agent for ArernisSoft and a director of Spahn & Partners Finanz Consult

GMBH; and the Company 's independent auditor, PKF United Kingdom ("PKF") on behalf of a

proposed class of persons who purchased or acquired AremisSoft securities on the open market

or otherwise from April 22, 3 999 through and including July 27, 2001 (the "Class Period") and

were damaged thereby .

2 .. Plaintiff's also bring this class action for violations of the Securities Act of 1933, 1 5

1 ] .S .C . 77 el , (tile "Se .curitic Act") apainsi AtcirmisSoth Eyprianou ; Poyiadjis ; Voice ;

Bartel ; P}CF ; Roth Capital Partners , Inc . f/kia Cruttenden Roth, Inc- ("Roth Capital "), the lead

underw ri ter of the Company "s initial public offering ; Advert, Inc, ; C.E . Unterberg, Towbin; Value

Investing Partners ; BlueStone Capital Partners , L. .P . : JSG Capital Markets , LLC; John G . Kinnard

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•& Company, Incorporated; Pennsylvania Merchant Group; KM Stark Co ., Inc. ; Trautman,

Kramer & Company, Inc . ; First Security Van Kasper; and H.C. Wainwright & Co ., Inc. (together

with Roth Capital the "Underwriter Defendants") on behalf of a proposed sub-class of persons

who purchased AremisSoft common stock pursuant to the registration statement for the

Company' s initial public offering and were damaged thereby (the "§ 11 Sub-Class") .

3 . Prior to 1998, AremisSoft did business as LIB Global information Systems, B .V.

("LK Global"), a Netherlands corporation founded in 1978 by defendant Kyprianou . LI Global

derived the majority of its revenues from selling healthcare systems in the United Kingdom. In

October 1997, LK Global merged into Juno Acquisitions, a Nevada shell company , in order to

gain a U . S. listing, and subsequently changed its name to AremisSoft in 1998 .

4_ During the Class Period, the Aremis oft Defendants caused AremisSoft to issue

materially false and misleading statements regarding the Company's revenues and earnings, its

customers, the capacity of its Indian software development and support facility, the value of it s

customer contracts, and the cost of its acquisitions . These materially false and misleading

statements artificially inflated the price of the Company's stock throughout the Class Period .

5 . The Class Period begins on April 22, 1999, when AremisSoft , pursuant to a

registration statement and prospectus, sold 3 . 3 million shares ofAremisSoft common stock at

$5 .00 per share in an initial public offering which generated net proceeds of $12 .9 million for the

Company (the "IPO" or "Of3crinf-") . ))cfendant Rnth L'fipitai was the lead underwriter on the

IPO, receiving 2 .6 million shares of AremisSofl common stock and $1,040,000 in underwriting

fees. The other Underwriter Defendants received a Iotal of 700 . 000 shares and $280,000 in

underwriting fees in the IPO .

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6. In April 1999, the Company also issued a warrant to purchase 330,000 shares of

AremisSoft common stock with an exercise p rice of $7.50 per share to Roth Capital .

7. The Form 5-1/A registration statement filed with the SEC on April 22, 1999 and

signed by defendants Kyprianou and Poyiadjis (the "Registration Statement"), and the

accompanying Form 424B 1 final prospectus filed with the SEC on April 23, 1999 (the "Final

Prospectus" and together with the Registration Statement, the "Offering Documents"), contained

numerous false and misleading statements regarding the capacity of and number of employees

employed by the Company's software development and support facility in New Delhi, India,

These false and misleading statements were material to investors because AremisSoft used its

India facility as a selling point in the IFO, stating that it provided the Company with "significant

organizational efficiencies and cost advantages in software-development and support ."

8 . According to members of AremisSof's current management , the size and

development capacity of the New Dehli facility was substantially overstated in the Offerin g

Documents . In addition, the Offering Documents contained numerous false and misleading

statements concerning AremisSoft' s customers . For example, the Offering Documents

represented that the Company had 2,000 healthcare customers, when in reality the Company ha d

less than 300 at the time of the Offering. The Offering Documents also make reference to specifi c

customers who, at the time of the Ofering, were not customers of AremisSofl , All reference s

herein to "ArernisSofi's current management ." refer to those members of ihe Company's curren t

management familiar with the findings of the Company' s internal investigation which commence d

in August 2001 and included , inter olio, an examination of internal corporate documents ; a

forensic audit by Deloitte & Touche ("Deloitte") of the Company's accounting records; and

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interviews by the Company 's outside counsel and other Comp any representatives of former and

current AremisSoft employees, defendant Bartel, purported independent sales agents for the

Company, purported customers ofAremisSoft, and individuals who sold businesses t o

AremisSoft, among others.

9. Throughout 1999, the AremisSoft Defendants issued false and misleading pres s

releases and financial statements signed . by defendants Kyprianou, Poyiadjis, and Tymvios .

According to members of AremisSoft's current management, the conso lidated revenue and

earnings reported by the Company during 1999 were materially overstated due to the inclusion of

bogus revenues reported by the Company 's Emerging Markets Group ("EMC ), which is also

referred to by the Company as AremisSoft EE_ME.A, a wholly owned Cyprus-based subsidiary.

In reality, the EMG had little or no business , and thus, the Company' s reported 1999 year-end

revenues of approximately $73 .4 million were overstated by at least $38 million, or 52% .

10_ On December 16, 1999, AremisSoft issued a press release announcing it s

acquisition of E-nnovations .com PVT Ltd . ("E-nnovations .com"), a software development

company based in India, for a purported $14 .5 million in cash.

11 . In fact, E-nnovations . com was nothing more than a "roll-up" company that

defendant Mathews created by organizing the purchase by Aremis oft of five small Indian

software companies for less than $300,000 . According io a share purchase agreement dated

December 17. 1999 and attached as an exhibit to the Company's Form 8-K filed December 30 ,

1999, the pru-ported shareholder, ofE-nnovations .comix were represented by Spahn & Partners

Finanz Consult GM1311 ("Spahn") . The share purchase agreement , signed by defendant s

Kyprianou (on behalf of AremisSoil) and Sedlmayer on behalf of Spahn) represented that the

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shareholders ofE-nnovations .corn would tender 100% of the outstanding shares of E-

nnovations .com to AremisSoft on December 29, 1999 in exchange for $14,539,000 . -The share

purchase agreement stated that the $14,539,000 would be transferred to Spahn on behalf of the

purported shareholders of E-nnovations .com. However, according to the founders of the five

acquired companies, the shareholders of the acquired companies (there were no E-

nnovations .com shareholders) never received any funds from Spahn. Instead Aremis oft paid a

fraction of the publicly reported acquisition cost, totaling less than $300,000, directly to the

acquired companies .

12_ On December 17, 1999, AremisSoft issued a press release announcing "the signing

of a $37 .5 million agreement to automate the nationwide healthcare system of Bulgaria" (th e

"Bulgarian Contract") . According to the press release, the Bulgarian Contract was initiated by

the National Health Insurance Fund of Bulgaria ('WHIP) and would be "recognized over an 1 8

to 24 month installation period, beginning in January 2000." The Company's press release was

authored by defendant Bloom, who at that time was employed by defendant Roth Capital as a vice

president - technology analyst .

13_ The market' s reaction to the false and misleading statements concerning the

Bulgarian Contract and the purported E-nnovations .com acquisition was overwhelmingly

favorable, taking the Company's stock price from a close of $30 .00 per share on December 16 ,

1999 to aN high as $33 .5 6 rw.r share on December 17 . 1009 . In response to the Company's two

"defining" announcements, in a Roth Capital repon dated 1]cccmbex 17, 1999 , defendant Bloom

stated that Roth Capital had raised its "12-month price target on [AremzsSoft] stock to a still

conservative $50" and reiterated its "Strong. Buy" rmin .

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14, In May 2000, Bloom joined the Company as its senior vice president of corporate

development and continued to make false and misleading public statements regarding, inter gh,

the value of the Bulgarian Contract .

15. On March 15, 2000 while the price of the Company 's stock was artificially

inflated, AremisSoft filed a Form S-1/A registration statement for the intended We of 2,800,000

shares by the Company and 200,000 shares by a defendant Poyiadjis . This secondary offering was

never completed .

16_ On March 30, 2000, AremisSof filed its Form 10-K with the SEC for the yea r

ended December 31, 1999, in which the Company disclosed the following regarding its sale o f

certain of its Cyprus assets to GlobalSoft .cam:

In October 1999, we divested ourselves of our Cyprus operations in exchange forapproximately $2 .6 million in cash to be received in 2000 and approximately 9 .5%,or 4,000,000 shares, of GlobalSoft . corn, a recently organized Cyprus companyformed for the purpose of consolidating several Cyprus based software companies .Dr. Lycourgos K. Kypr'sanou, our chairman and chief executive officer, is thechairman of the board of GlobalSoft .com .

In the Company's 10-Q filed May 12, 2000 for the period ended March 31, 2000, the Compan y

stated that "[o]n April 27' [2000] Globalsoft's IPO was declared effective on the Cyprus stoc k

exchange giving AremisSoft's holding in Globalsoft_com a market value of approximately $11 0

million." GlobalSoWeom is listed on the Cyprus Stock Exchange as J . . K. GlobalSoft . According

to the Cyprus Stock Exchange, defendant yprianou is also the president of Global Soft, corn, a

fact never disclosed by AremisSoft . Since December 2000, at the latest, authorities in Cypru s

have been investigating GlohalSoft_corn for secu ri ties law violation s

17 . During 2000, the AremisSoft Defendants, as they had done in 1999, continued to

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overstate the Company 's financial results , As would be revealed by the Company on December 4 ,

2001, AremisSoft reported approximately $90 million in fictitious revenues to the investing public

during 2000, thereby overstating the Company's revenues by 73% and inflating its stock pric e

18_ $88 .5 million of the approximately $90 million in fictitious 2000 revenues wer e

generated by five independent sales agents or sales managers for AremisSofl who purportedly

sold the Company's products and services to customers throughout Europe . One or more of

these purported sales agents were headed by defendant Sedlmaycr .

19_ In 2000, the Company reported approximately $5 .4 million in bogus revenue on

the Bulgarian Contract alone . Under the Bulgarian Contract , AremisSoft reported an additional

Y $1-2 million in the first quarter of 2001, ended March 31, 2001 .

20. On January 9, 2001, the Company effected a 2-for-I stock split by paying a stoc k

dividend to all common stock holders of record as of December 28, 2000 and issuing one share of

common stock for each share of AremisSoft's common stock outstanding . The Company's stock

price which closed at $42.94 on January 8, 2001 , closed at $23 .69 on January 9, 2001 as a result

of the 2-for- 1 stock split .

21 . In April 2001, AremisSoft announced a plan to boost its stake in GlobalSoft .com

to a controlling 59 .5%. Defendant Bartel presented the plan to the Company's board of directors .

The plan contemplated AremisSofl s purchase of lobalSoft . com stock directly from

Global Soft .corn's nine largest investors , including Barrington Asses Management Limited, a

British Virgin islands corporation headed by defendant Sedl rnayer . According to GlobalSoft's

prospectus , the nine investors bought a majority control of GlobalSof1 's stock in late 1999 . In

June 2001, AremisSoft abruptly canceled its plans to acquire a larger stake in Global of .com _

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22, On May 17, 2001, articles in the New York Times and TheStreet . com raised

questions concerning the true value of the Bulgarian Contract, stating that, contrary to th e

Company's December 17, 1999 announcement and subsequent public representations reiterating

its $37.5 million value, the Bulgarian Contract had a guaranteed value of less than $4 million .

23 . Following the publication of these articles, trading in AremisSoft stock was halted

on May 17, 2001 before the Nasdaq stock market' s ("Nasdaq") opening, pending a statement

from the Company regarding the Bulgarian Contract- At 8 PM EDT on May 17, 2001 ,

AremisSoft issued a press release defending and standing by its prior statements concerning th e

Bulgarian Contract and its $37 .5 million value .

24 . The Company's May 17, 2001 press release stated that any public confusion

concerning the value of the Bulgarian Contract was caused by "a difference in nomenclature that

was used by various parties to describe the contract ." The press release also blamed short sellers

and misinformed reporters for disseminating inaccurate and misleading information about

AremisSoft and the Bulgarian Contract .

25, The May 17, 2001 press release also falsely stated that, under the Bulgarian

Contract, the Company had received to date total payments from the NHIF in excess of $ 7

million .26 . On May 18 .. 2001 _ when trading in AremisSof1 resumed, the price of its common

shack fell $1 .30 per share ; or ~9 ~'°4. ; ic. dose: at $11 .9 17rr .hare on volume of more than 9 . 5

million shares . Despite this decline, the price of ArerrusSoft 's common stock remained artificially

inflated due to the Aremis oft Defendants' continuinVV misrepre sentations regarding the true value

of the Bulgarian Contract, the amount of money received from the NII.lF in connection with the

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•Bulgarian Contract, the value of the Company's acquisitions, and the amount of revenue

generated by the Company's EMG, which the Company initially described as being based in India ,

and in later publications, as being based in Cyprus . The full extent of the AremisSoft Defendants '

rrmisrepresentations and fraudulent scheme would not be revealed until after the Class Period o n

December 4, 2001, when the Company admitted, } 1i that the Bulgarian Contract was worth

only $3.9 million, the Company had received only $1 .7 million under the Bulgarian Contract, not

over $7.1 million, and approximately $90 million of consolidated revenue reported by the EMG in

2000 could not be substantiated .

27. On July 24, 2001, the Company issued a press release stating that it had been

delayed in the preparation of its financial results for the 2001 second quarter ended June 30, 200 1

as a result of "numerous acquisitions and the increasing complexity and geographical diversity of

the business . "

28. Friday , July 27, 2001, the last day of the Class Pe riod , is the last day AremisSoft

traded on Nasdaq . On that day, the price of Arenvsoft common stock closed at $11 .19 per

share .

29. On Monday, July 30, 2001 at 9 AM EDT, Nasdaq halted trading in AremisSoft for

"news pending ." On July 31, 2001, Nasdaq announced that the trading halt status had been

changed to "additional information requested" from Arer isSoft .

30, On July 31, 200?, AremisSoft announced for the first sime that the Company wa s

cooperating with an SEC investigation into, among other things, the Bulgarian Contract . The

Company also announced that it had engaged its independent auditors PKF, formerly known as

Pannell Kerr Forster, to conduct a special review of the payments ArcmisSoft received i n

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•connection with the Bulgarian Contract . In connection therewith, PKF later advised AremisSoft

that it was only able to confirm the Company's receipt of $1 .7 million from the NHIF . The

Company further announced the resignation of defendant Kyprianou as Chairman and Co-Chief

Executive dicer ("CEO") and the resignation of defendant Tymvios as Chief Financial Office r

31 . On August 14, 2001, the Company announced the resignation of defendan t

Mathews, as President of the EMG, as well as the resignations of Alex Eapen, Senior Vice

President of India Software Development Facilities, and key controllers of the Company's India-

based Corporate accounting group . Further, defendant Poyiadjis stated :

The Company, in its effort to close the second quarter financial statements,provide its independent auditors PKF with additional information and respond tothe SEC investigation currently underway, is concerned that important financialdocuments relating to its emerging market business could be missing . TheCompany is vigorously pursuing the recapture of such information and has retainedDeloitte & Touche for its global forensic accounting capabilities to assistmanagement in this effort . However, the Company does not believe that it will bein position to file a timely report of Form 10-Q for its second quarter, and at thepresent time cannot estimate when it will be able to file the 10-Q .

32. On August 30, 2001, after a month long trading halt, AremisSoft was delisted

from Nasdaq , That same day , shares of AremisSoft began trading on the "Pink Sheets," an

unregulated over-the-counter market , and immediately fell from $11 .19 per share, the closing

price on Friday July 27, 200], to $ l per share with 16.5 mil lion shares changing hands .

AremisSoft common stock currently trades at below $1 on the Pink Sheets, a far cry from its

Class Period high of $48 .75 ($24.37 -- split adjusted price) reached on December 11, 2000 .

33 . During the Class Period while the price ofAremisSoft common stock was

artificially inflated by Defendants' material misrepresentations and omissions, defendant s

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Kyprianou and Poyiadjis sold millions of shares of AremisSoft stock through various offshor e

entities, earning more than $175 million in proceeds from the sales .

34 . During the Class Period : (i) defendant Bloom sold 37,000 shares ofAretnisSoft

common stock, or 100% of his AremisSoft holdings, for proceeds of approximately $1 .64 million ; .

(ii) defendant Voice sold 40,000 shares ofAremisSoft common stock, or 53% of his AremisSoft

holdings, for proceeds of $1,926,650; (iii) defendant Mathews sold 80,000 shares , or 100% of hi s

AremisSoft holdings, and later sold an additional 40,000 shares realized upon the exercise o f

options, for total Class Period proceeds of approximately $2 .4 million ; an (iv) defendant Tyravios

sold 30,000 shares for proceeds of at least $877,500 .

35 . After the Class Period, on September 28, 2001, ArernisSoft announced for the firs t

time that it had concluded , based on the findings of a forensic audit conducted by accountants

Deloitte that (i) there were financial and accounting irregularities relating to revenue recognition

in the Company's Cyprus-based EMG, and (ii) the Company's acquisitions of E-nnovations.com,

E-ChaRM India Pvt. Ltd ., and tenon International Ltd. were recorded at values materially

greater than the amounts actually paid by AremisSoft . The Company also stated that it expected

to restate its "previously released prior period financial statements" and that such restatements

would likely entail " substantial adjustments that could result in losses in prior periods . "

36. Following this disclosure, on Octobea ], 2001, the C ompany announced that

defendant Poviadjis, the CAE() of AremisSoft . had restpned for personal reasons .

37. On October 4, 2001, the SEC filed a civil fraud s uii against the Company,

Kyprinou, and Poyiadjis, alleging, inter alia, that (i ) most of the approximately $90 million i n

revenue reported by the Company's EMG for 2000 was based on purported sales to entities that

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either did not exist as operating businesses or did not purchase product from AremisSoft; (ii)

AremisSoft falsified its books and records to conceal that it was obtaining no cash from thes e

fictitious sales; (iii) AremisSoft overstated the cost of its E-nnovations .com, E-ChaR.M India Pvt.

Ltd., and Denon International Ltd ., acquisitions by at least $32,090,000, and (iv) AremisSof t

reported falsified operating histories for the acquired companies .

38. In a Form 8-K filed with the SEC on December 4, 2001, the Company admitted

that it was only awarded the first two phases of the Bulgarian Contract worth $3 .9 mill ion, and

stated that it was sti ll only able to substantiate $1 .7 million of the $7.1 million in revenue

recognized by the Company on the Bulgarian Contract in 2000. The Company also revealed for

the first time that it was unable to substantiate approximately $90 million of consolidated revenue

reported by the EMG in 2000 or the expenses associated with the EMG _ Additionally, the

Company concluded that its acquisitions ofE-nnovations .cnm, E-GhaRM India Pvt. Ltd., and

Denon International Ltd. were recorded at values "not substantiated by information developed i n

the [Company's internal] investigation . "

39_ On December 19, 2001, ArernisSoft filed another Form 8-K disclosing that the

Company's independent auditors PKF had notified the Company on December 7, 2001 that th e

auditor's reports on AremisSoft's financial statements for the years ended December 31, 1999 an d

2000 could no longei be associated with the Company s financial statements and that the

auditors ' reports were no longer valid .

40 . The Company also announced in the 1 e) -.ember 19, 2001 $-K that "[b]ecause the

financial information relating to its Emerging Markets Group and Cyprus corporate subsidiary i s

unknown and unavailable to the Company, the Company has not filed recent financial statements

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or restated prior period financial statements, and is unable to predict when, or if, it will be able t o

file such statements ."

41 . Despite the unavailability (Or nonexistence) of financial documents necessary to

corroborate the Company's reported financial results, PKF falsely represented in the Company' s

Forms 10-K for the years ended December 31, 1999 and 2000 that it had audited the Company' s

consolidated financial statements in accordance with generally accepted auditing standards or

"auditing standards generally accepted in the United States " ("GARS") and that such financial

statements fairly presented AremisSoft's financial condition and results of operations i n

conformity with "accounting principles generally accepted in the United States of America ."

("GAAP")-

42. P F, listed as the Company's accounting expert in the Offering Documents, als o

issued unqualified audit reports for the Company's financial statements for the years ende d

December 31, 1997 and 1998 .

43- In fact, PKF was not auditing approximately 75% of the Company's reported

revenues, instead relying on representations made by the Company's accountant in India, RK

Dhawan & Co .

JURISDICTION AND VENUE

44 . The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange

Act (15 U .S.C, §§78j(h) and 7#t(a) j, Sections 11, 12(a)2, and 15 of the Securities Act (15 U . U.S .C .

77k, 771 and 77o), and the rules and regulations promulgated thereunder by the SEC, including

Rule 10b-5, 17 C . .R . 240-10b-5 ,

45 . This Court has jurisdiction over the claims asserted in this Complaint pursuant t o

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•Section 22 of the Securities Act (15 U .S .C. § 77v), Section 27 of the Exchange Act (15 U .S.C .

§78aa), and 28 U , U.S .C . § 1331 _

46. Venue is proper in this district pursuant to Section 27 of the Exchange Act,

Section 22 ofthe Securities Act, and 28 U.S .C. § 1391(b), because during the Class Period

defendant AremisSofk maintained its principal place of business in this District and many of the

acts complained of, including the preparation and dissemination of materially false and misleadin g

statements, occurred in this district .

47. In connection with the conduct complained of herein, Defendants, directly o r

indirectly, used the means and instrumentalities of interstate commerce, including the mails and

interstate telephone communications, and the facilities of a national securities exchange .

THE PARTIES

48 . Lead Plaintiffs George D . Bjurman & Associates, Ralph DeLuca, Keystone

Trading Partners, and Andy Win (collectively "Lead Plaintiffs") purchased or acquired AremisSof t

securities on the open market or otherwise at artificially inflated prices during the Class Period, a s

set forth in their certifications previously filed with the Court on or about July 23, 2001, i n

connection with their motions for their appointment as Lead Plaintiffs, and were damaged thereby.

The Court designated these plaintiffs to serve as Lead Plaintiffs pursuant to an Order dated

August 27, 2001 . Additional piaintill 's include , Robert i,, Wisnovsky and Donald Campodonico ,

whose certifications pursuant to the federal secunlics . 1 5 ailached hereto, Lead Plaintiffs an d

plainti#fWisnovsky are collectively referred to herein as Plaintiffs .

49 . During the Class Period, Plaintiffs purchased or acquired AremisSoft securities on

the open market or otherwise without knowledge of the falsity of the Company 's reported

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rfinancial results and other public representations, as specified herein, and the fact that the price o f

the Company' s common stock was artificially inflated. During the Class Period, Plaintiffs directly

or indirectly relied upon AremisSoft's public reports, press releases, filings with the SEC and

other public statements, as more fully described below, and the fact that the Company' s common .

stock was fairly priced and/or upon the integrity of the market for its shares , As a result, Plaintiffs

have been damaged by the wrongful conduct alleged herein .

50. Defendant AremisSoft is a Delaware corporation that became a public ly traded

company after its initial public offering in April 1999, During the Class Period, defendant

AremisS oft maintained its U . S. headquarters at Sentry Office Plaza, 216 Haddon Avenue, Suite

607, Westmont,-New Jersey. As of April 25, 2001, the Company had 39,275,611 shares of

common stock outstanding . AremisSoft's common stock was actively traded on the Nasda q

under the ticker symbol "AREM" during the Class Period . Trading in AremisS oft stock was

suspended after July 27, 2001 due to the commencement of the SEC's investigation into the

veracity ofArernisSoft' s financial reporting. Effective August 30, 2001, AremisSoft was delisted

from Nasdaq for failure to timely file its Form 10-Q for the second quarter ended June 30, 2001 ,

among other reasons ,

51- According to the Company, AremisSoft develops, markets, implements, and

supports enterprise-wide applications software for rnid-si?-e corporations in the manufactu ring,

heallhcare, hospitality, and construction industrie s

52 . During the Class Period, defendant Kvprianou, the founder of AremisSoft, served

as the Company's chairman of the board of directors . CEO, until May 2000, and Co-CEO alon g

with defendant Po_yiadjis from February 2001, During the Class Period, Kyprianou, throug h

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entities he controlled, sold millions of shares of AremisSo ft stock, including at least 2 ,916,666

shares during November and December 2000 for proceeds of approximately $102 mill ion. On

July 31, 2001, the Company announced that Kyprianou had retired from his position as Chairman

and Co-CEO and as a member of the board of directors . Kyprianou took the position of

Founding Chairman of the Company, a non-executive advisory position . On September 28, 2001,

the Company announced that it had eliminated the position of Founding Chairman of AremisSof t

and severed all relations with Kyprianou. Kyprianou is a citizen of Cyprus and resides in that

nation.

53 . During the Class Period, defendant Poyiadjis served as a director, the CFO unti l

1 September 1999, the Company 's President until January 2001, CEO from May 2000, and Co-

CEO along with defendant Kyprianou from February 2001 . During the Class Period, Poyiadjis

sold mi ll ions of shares of A,remisSof stock, sometime through secret transactions, including at

least 2,162,953 shares between September and December 2000 . The SEC has determined tha t

Poyiadjis's stock proceeds of approximately $76 million were routed through a U.S. broker-

dealer and Swiss banks and ultimately deposited in a bank on the Isle of Man . On October 1 ,

2001, the Company announced that Poyiadjis resigned form the Company for persona] reasons .

Poyiadjis is a British citizen with a home in New York City.

54 . During the Class Period from June 1998 until February 2001, defendant Voice

served as a director of the Company and aS its Chief Operating Oficet In February 2001 ,

defendant Voice became the Company's president - Europe Group . Defendant Voice also serve d

as the Company's Secretary since October 1997, and from 1992 to) 997, he served as the senio r

vice president of administration of the Company 's United Kingdom operations Du ring

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November 6 and 7, 2000, defendant Voice sold 40,000 shares of Aremis oft common stock, or

53% of his AremisSoft holdings including options , for proceeds of $1,926,650. Voice's publicly

filed records of his transactions in AremisSoft securities appear to be incomplete .

55 . Defendant Tymvios served as the Company 's senior vice president - finance and

Chief Financial officer {"CFO") from September 1999 through July 31, 2001, when the Compan y

announced his resignation for health reasons . Defendant Tymvios became a member of th e

Company's board of directors in February 2001 . While serving as the Company's CFO, Tymvio s

was also a partner in the Cyprus accounting firm ofPatsalides & Tymvios which specialized in

setting up ofd shore accounts. During the Class Period, Tymvios sold at least 30,000 shares o f

4 AremisSoft common stock for proceeds of at least $877,500 . Tymvios' publicly filed records of

his transactions in AremisSoft securities appear to be incomplete .

56 . Since 1995, defendant Mathews served as the managing director of software

engineering of LK Global Software Enginee ring (India) Private Limited, one of AremisSoft' s

subsidiaries . Since October 1997, Mathews also served as the Company' s general manager of

group software development . From April 1999 to February 2001 , defendant Mathews served as a

director of the Company . In February 2001, Mathews became the President of the EMG. On

October 10, 2000, Mathews sold $0,000 shares of AremisSoft common stock, or 100% of hi s

AremisSoit holdings at that time, for proceeds of approximately $3 .72 million, and on May 4 ,

2001, Mathews sold an additional 407000 shares realized after the exercise of options fo r

proceeds of $672,400 . On August 14, 2001, AremisSoft announced that Mathews had resigne d

form the Company .

57. Defendant Bloom is the Company's senior vice president of corporat e

1s

development . He was hired by the Company in May 2000 . Prior to May 2000, Bloom worked

for defendant Roth Capital as a vice president - technology analyst . During November and

December 2000, Bloom sold 37,000 shares of AremisSoft common stock, or 1000/a of his

AremisSoft holdings, for proceeds of$1 .64 million .

58. During the Class Period, defendant Bartel, a partner of Bartel Eng & Schroede r

f/k/a Bartel Eng Linn & Schroeder, served as the Company's outside counsel . According to the

Company's current management, defendant Bartel also served as a defacto operating officer of

the Company at all relevant times by virtue of his role in carrying out the Company's business .

Defendant Bartel structured and helped broker the Company's acquisitions, including the

preparation and drafting of documents in connection therewith, made presentations to the

Company's board of directors regarding, inter aia, his diligence in analyzing prospects for

acquisition by Areniis oft, the proposal for Aremis,Sof to purchase a majority stake i n

Global oft .corn, and participated in drafting, producing, reviewing, and/or disseminating the false

and misleading statements alleged herein .

59. During the Class Period, defendant Sedlmayer acted as a purported account

manager for the Company, supposedly handling millions in European sales for the Company .

Sedlmayer also was the director of Spahn, the entity that purportedly received approximately

$14 .5 million from the Company on behalf of the pill poi Led shareholders of13- nnovations_com .

60 . Defendant PKF f/k/a Parnri cll Kerr a n d po'r'ter . an accounting firm headquartered

in London , served as the independeni auditor for Area -nisSofl during the Class Period . During the

Class Period, PKF issued unqualified audit opinions or) ArernisSoft' s consolidated financial

statements for the years ended December 31, 19971998, 1999, and 2000 . PKF's audit opinion s

19

• wfalsely represented that its audits of the Company's 1997 through 2000 financial statements were

conducted in accordance with GAAS and that AremisSoft 's financial statements fairly presented

the Company's financial condition and results of operations in conformity with GAAP . The audit

reports for 1997 and 1998 were included in the Company's Offering Documents . On January 18 ;

2002, the audit committee of the Company's board of directors recommended to the board of

directors of AremisSoft that it dismiss PKF as the Company 's independent public accountants,

which it later did on January 23, 2002 .

61. Defendant Roth Capital served as the lead underwriter for the Company's IPO and

received 2 .6 million shares . In connection with its services performed for the IPO, Roth Capita l

1 earned $1,040,000 in underwriting fees .

62- In addition to Roth Capital, defendants Advest, Inc . ; C .E. Unterberg, Towbin ;

Value Investing Partners ; Bluestone Capita] Partners , L .P ; ISG Capital Markets, LLC, John G.

Kinnard & Company, Incorporated ; Pennsylvania Merchant Group ; RM Stark Co ., Inc . ;

Trautman, Kramer & Company, Inc . ; First Security Van Kasper; and H.C. Wainwright & Co- ,

Inc. were underwriters for the Company's IPO . Advest, Inc ., C.E. Unterberg, Towbin, and Value

Investing Partners each received 100,000 shares, and the remaining eight underwriters eac h

received 50,000 shares of Aremis oft common stock . The three firms receiving 100,000 shares

each earned $40,000 in underwriting fees, while the eight firms receiving 50,000 shares each

received $20,00() in underwriting fees .

63 . It is appropriate to treat the Individual Defendants as a group for pleading

purposes and to presume that the false or misleading information conveyed in the Company' s

public filings, and statements in press releases and other publications, as alleged herein, is the

20

•collective action of this narrowly defined group of defendants . Each of the Individual Defendants .

by virtue of his executive , managerial, or directorship positions with the Company, directly

participated in the daily management of the Company, was directly involved in the day-to-da y

operations of the Company at the highest level, and was privy to confidential proprietar y

information concerning the Company and its business and operations, and revenue recognition

policies. The Individual Defendants were involved or participated in drafting, producing,

reviewing, and/or disseminating the false and misleading statements alleged herein ,

64. The statements made by the Individual Defendants , as outlined below, were

materially false and misleading when made . The true financial and operating condition of th e

Company, which was known or recklessly disregarded by the Individual Defendants , remained

concealed from the investing public . The Individual Defendants, who were under a duty t o

disclose those facts, instead misrepresented or concealed them during the relevant period herein .

65 . The Individual Defendants as officers and/or directors of a publicly-held company ,

had a duty to promptly disseminate truthful and accurate information with respect to AremisSof t

and to promptly correct any public statements issued by or on behalf of the Company that had

become false or misleading .

66 . The AremisSoft Defendants, Sedlmayer, and PKF knew or recklessly disregarded

that the misleading statements and omissions complained of herein would adversely affect the

integrity of the market for the Cornpaiw s stock and would cause the price of the Company' s

common stock to become artificially inflated, These defendants acted knowingly or in such a

reckless manner as to constitute a fraud and deceit upon Plaintifs _

21

~ wSUBSTANTIVE ALLEGATLQ

A. False & Misleading Statements in the Company 's IPO Documents

67. The Class Period begins on April 22, 1999, when AremisSoft, pursuant to the

Registration Statement and Final Prospectus, sold 3 .3 million shares of AremisSoft common stock

at $5 .00 per share in an initial public offering which generated over $15 million for the Company.

Defendant Roth Capital was the lead underwriter on the TO, receiving 2.6 mill ion shares and the

remaining Underwriter Defendants received a total of 700,000 shares of AremisSoft common

stock .

68. The Offering Documents contained numerous false and misleading statement s

regarding the capacity of and number of employees employed by the Company's softwar e

development and support facility in New Delhi, India (the "New Delhi Facility") . These Use and

misleading statements were material to investors because AremisSof used its New Dehli Facilit y

as a selling point in the IPO, stating that it provided the Company with "significant organizational

efficiencies and cost advantages in software-development and support" and that the Compan y

intended to achieve its business objectives, in part, by "leveraging the Company's cost-efficient

India operations ." According to AremisSoft' s current management, the size and development

capacity of the New Dehli Facility was materially overstated in the Offering documents.

69 Sppecificafly, the Offering Y3ocumeni si i ed that the C ompany 's New Delhi Facilit y

had 196 employees ,, and t lial a of 'April 2 . 1999. '160•,1• of the ('ornpany''s workforce was in India ,

According to ,AreniisSoft' s current management . at flit. rime of the Offer;ng, the number of

employees was far fewer than 186 and the percentage of company employees in India wa s

considerably less than 36% .

22

• r70, Throughout the Offering Documents, reference is made to the "Aremis

Architecture," purportedly a "three tiered, object-oriented software architecture, which achieves

economies of scale and cost reductions in the software development process by capitalizing on th e

common functional requirements of customers across a variety of industries ." Moreover, the

Offering Documents describe the Company's business plan to include "capitalizing on the

company' s investment in Aremis Archite}cture ." According to AremisSoft's current management,

if it existed, the Aremis Architecture was never implemented .

71- The Offering Documents also represented that the Company had licensed it s

software products to more than 5,000 customers, "comprised of approximately 450

manufacturing , 2,000 health care, 1,200 hospitality, 350 construction customers," and

"approximately 1,000 customers across a variety of industries in other countries, primarily i n

Cyprus and India ." According to AremisSoft's current management , at the time of the Offering,

the Company had nowhere near this level of business and had licensed its software products to far

fewer than 5,000 customers . As of April 2, 1999, the Company had no customers in India and

fewer than 300 healthcare customers, in stark contrast to the representation that the Company had

2,000 healthcare customers in the United Kingdom . Moreover, the Offering Documents included

a list of "representative customers as of April 2, 1999" in each of the Company' s purported

business areas . According to AremisSofi s current Iii u, ;s c.ai~ent , some of these purported

representative customers did not have any business. with .AreniisSofk at the time of the Ofrering .

For example, Birmingham N1ultifund and the Soutfiampion Mi .iltifund, purportedly two of the

Company's representative healthcare customers , were not u sing any of the company' s softwar e

products at the time of the Offering .

23

f r

72. The Offering Documents also included the fo llowing false and misleading

representations : "[t]he Company markets its software products primarily through its own sale s

force and provides product support worldwide through 14 offices in seven countries ;" "[t)he

Company currently has operations in the United Kingdom , United States, Argentina, Mexico ,

India, Ireland , and Cyprus and independent distributors in 14 additional countries ;" "[t]he

Company primarily sells its software products through an overall sales and marketing force of 270

employees in the United Kingdom, United States, Ireland, India, Cyprus, Mexico and Argentina ,

and indirectly in 12 additional countries ." According to AremisSoft's current management, th e

Company had fewer than 14 offices and far fewer than 270 employees in its overall sales an d

' marketing force, and did not have independent distributors in 14, or even 12 countries, in addition

to the United Kingdom, United States, Ireland, India, Cyprus, Mexico and Argentina .

73 . Throughout the Offering Documents, AremisSoft touted its three-phase d

acquisition strategy : 1) Pre-Acquisition, 2) Post-Acquisition Assimilation, and-3) Post-Acquisition

Product Rejuvenation. The Offering Documents described Phases II and III as follows :

During Phase II, the acquired business is integrated into the Company 's operations .The first step in Phase 11 of the acquisition process is to establish a satellite WANlink between the Company's software development and support faci lity in India andthe acquired business . A team within the India facility immediately assume sresponsibility within the acquired business for product development , finance andadministration through the WAN link . . . . During Phase III the Company beginsthe process offreiuvenating the acquired businesses ' products and transitioningthem to the Aremis Architectur e

The Offering Documents further stated :

During this period [1994- April 1999], the Company successfully acquired andintegrated the operations of eleven businesses , which were principally operating inthe United Kingdom . In each acquisition, the Company sought to reduceexpenses, rejuvenate the existing products of the acquired business and transition

24

rthe customers to products that utilize the Aremis Architecture .

These statements were materially false and misleading . As stated above, if it existed, the Aremi s

Architecture was never implemented . Further, according to AremisSoft 's current management,

Phases II and III of the purported three- phase acquisition strategy did not occur with the

companies acquired by AremisSoft, i .e., there was no WAN satellite link between the Company' s

software development and support facility in India, and AremisSoft did not rejuvenate the existing

products of the acquired businesses .

74_ In the Offering Documents, PKF, referred to as the Company's accounting expert,

made the following false and misleading representation-

We have audited the accompanying consolidated balance sheets of AremisSoftCorporation as of December 31, 199$ and 1997, and the related consolidatedstatements of operations, changes in stockholders' equity (deficit) and cash flowsfor each of the three years in the period ended December 31, 1998_ . _ .

We conducted our audits in accordance with auditing standards generally acceptedin the United States for financial statements as of December 31, 1998 and 1997and for the two years then ended and, in accordance with United Kingdomauditing standards .for financial statements for the year ended December 31, 1996which do not differ materially from auditing standards generally accepted in theUnited States . Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement . An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements . An audit alsoincludes assessing the accounting p rinciples used and significant estimates made bymanagement . as well as evaluating the overall financial statement presentation. Webelieve that Our audiuw provide a reasonable : or Our opinio n

In our opinion, the financial statements referrCct t above present fairly, in allmaterial respects, the consolidated financial position ofAremisSoft Corporation atDecember 31, 1998 and 1997, and the consul'idat ed results of its operations and itsconsolidated cash flows for each of the three years in the period ended December31, 1998, in conformity with accounting principles generally accepted in theUnited States,

25

75 . The Underwriter Defendants and defendant PKF failed to conduct the du e

diligence investigation of AremisSoft necessary to determine that the statements contained in th e

Offering Documents were true, or at least had some reasonable basis, and were not misleading .

By allowing their names to be used in connection with the IPO, these defendants gave the

investing public the false impression that AremisSoft was a legitimate company .

B. False & Misleading Statements Regarding the Bulgarian Contract

76. On December 17, 1999, AremisSoft issued a press release announcing "the signing

of a $37 . 5 million agreement to automate the nationwide healthcare system of Bulgaria" with the

NHS'. The press release added that `the contract will be recognized over an 18-24 month

installation period, beginning in January 2000 ." Defendant Kyprianou called the Bulgarian

Contract award "a tremendous achievement for AremisSoft and Bulgaria ." Defendant Poyiadjis,

who was listed as the contact person on the press release, added that the contract "represents a

stepping-stone for further expansion into emerging markets, a key initiative in our business

model ."

77. The Bulgarian Contract was also referenced in the Company 's Registration

Statement filed March 15, 2000 on Form S-I/A and in the Company' s annual report for the year

ended December 31, 1999 filed March 30, 2000 on Form 10-K (`°1999 10-K"), which again

falsely represented that t he value of 1 he 'Bulgarian € o~-,l i ~,ci was $37 .5 million . These SEC filings

also added for the first time "The contract is stri.icwr-cmrk in multiple phases and we anticipate

recognizing revenues frnnn the contract over a three veav period from the day of signing, with the

later phases subject to the availability of approximately $2(1 million in third party lease financing

made available to Bulgaria ' s general practitioners fOr the purchase of equipment and software t o

26

be installed in their offices ." Both the March 15, 2000 Registration Statement and the 1999 10-K

were signed by defendants Kyprianou , Poyiadjis, Tymvios, Mathews, and Voice .

78. The announced value of the Bulgarian Contract was extremely significant t o

investors, as it represented a material increase in revenues for future reporting periods ;

AremisSoft's reported revenues for the nine month period ended September 30, 1999 and for th e

full year 1999 were $25 .3 and $73,3 million, respectively.

79. In the Company's 10-K for the year ended December 31, 2000 filed on March 26,

2001 ("2000 10-K"), the AremisSoft Defendants made only a minimal statement with respect to

the Bulgarian Contract: "During 2000, we continued our performance under two significant

contracts in Bulgaria, one with a private company and the other with the Bulgarian National

Health Insurance Fund, commonly referred to as the NHUF. We have completed certain phases

under both contracts and continue to perform under the terms of each contract ." No further

details were provided . The 2000 10 -K was signed by defendants Kyprianou , Poyiadjis, and

Tymvios .

80. On a March 28, 2001 conference call from SCTCowen Securities Corp . Global tech

Conference in Cannes, France, defendant Bloom stated, "The $37 .5 million [contract] is the first

phase of a two to three hundred million dollar program which is multiple years, and that would b e

to install the systems you see here in all the different hospitals and l)haflflacies and labs,"

1 . At a meeting with analysis on .April 25, 2001, defendant T'oyiadfis stated that the

Bulgarian Contract had a value oi' $37 .5 million and that ArernisSofl' s revenues for the first

quarter of 2001 included approximately $2 million from the Bulgarian Contract .

82. On or about May 14, 2001, a short seller 's report raised questions about, in er alia ,

27

f wthe true value of the Bulgarian Contract. In reaction to this report, shares of Aremissoft stock

declined from $18.47 per share on May 14 to close at $14 .55 per share on May 15 on volume of

12.5 million shares, 12 times the average volume for the year and five times the trading volume o n

May 14 .

83. In an effort to thwart the decline in AremisSof's stock price, the Company issue d

a press release on May 15, 2001 announcing that defendant Poyiadjis had purchased 100,00 0

shares of the Company's stock. In the press release , defendant Poyiadjis stated, "we believe th e

shares of AremisSoft are undervalued in the marketplace due to the concerted activities o f

unscrupulous short sellers who have been spreading false and misleading information . . . . We

' remain highly optimistic about our business prospects . . . .' °

84. On May 16, 2001, A.rernisSoft issued another press release, including a 19 point

rebuttal "responding to the circulation of a specious anonymous `short report' and other spuriou s

and unsubstantiated rumors . . . ." The Company 's stock price declined to $13 .28 on heavy

volume .

85, A May 16, 2001 Real Mone + column by Herb Greenberg and a May 17, 200 1

article in the New York Times raised questions concerning the true value of the Bulgarian

Contract, stating that, contrary to the Company's December 17, 1999 announcement and

subsequent representations, the Bulgarian Contract had a guaranteed value of less than $4 million .

The RealMoncy column, which was republished on May I T 2001 in 'l heStreet .com, included

quotes from the NHIF and Bulgarian Ministry of Health ("Ministry of11ealth") officials who

stated that AremisSoft had only one contract with NHIF for $3 .75 million dollars . According to

Denitsa Sacheva, chief of staff of the Ministry of Health, the director of the N HIF, Dr. Boyko

28

Penkov, M.D . ("Penkov"), complained about AremisSoft's misrepresentation of the Bulgarian

Contract' s value in a May 2000 letter to AremisSoft .

86. The May 17, 2001 New York Times article quoted defendant Bloom who stated ,

"[w]e stand by our characterization of the contract . This is the biggest contract we've ever won . "

87. Nasdaq halted trading in Aremis aft prior to the opening of trading on May 17 ,

2001 after the Company's stock price declined 15.7% pre-open on the Island ECN, an after hours

trading exchange.

88. At 8PM EDT on May 17, 2001, AremisSoft defended its prior statements

concerning the Bulgarian Contract's $37.5 million value . Defendant Bloom was listed as the

contact person for the press release in which the Aremis oft Defendants stated that there was

public confusion regarding the value of the Bulgarian Contract because within NU.IF and

AremisSof .. "an internal nomenclature discussed the current contract in terms of multiple sub-

phases." In this regard, the press release stated :

[T]hese sub-phases are normally identified in Bulgaria as Phases 1 and II, and thenEll and IV, etc . Phase I and H of the contract based upon this nomenclature isvalued at approximately $3 .6 million and is frequently referred to as Phase I . . . .The most recent published information is p rimarily from persons at the BulgarianMinistry of Health and elsewhere who possibly do not have a full understanding ofthe contract .

The .AremisSolI Defendants further stated that the purportedly $37 . 5 million Bulgarian Contract

was simply "Phase I of a multi-phase project tha .~ i{ . inrk'nded to span multiple years and be valued

potentially in the several hundred million .dollar range.` ` and that Penkov issued a statement which

"substantiate[d] the content of the contract ." Penkov's statement was not published by th e

Company until May 18, 2001,

29

89. In addition, the Company disclosed for the first time in the May 17, 2001 press

release that certain subsequent phases of the Bulgarian Contract "may require competitive bidding

as part of the approval process" pursuant to Bulgarian law, however, they failed to specify what

amounts of the Bulgarian Contract might be subject to competitive bidding . Specifically this

press release stated :

The written contract signed by the NHIF at Section 1 .1 of the contractcontemplates multiple phases subject to conditions and approvals set -forth in thecontract and at Section 2(e) two additional phased programs contained in theattachments to the contract which are an "indivisible part of this Contract ." Thecontract further provides that certain phases must also be in compliance with theBulgarian Law for Public Offers which, in certain cases , may require competitivebidding for subsequent phases as part of the approval process . $29 million of thetotal $37 .5 million project are included in these attachments which like earlierphases are subject to similar conditions and future approvals . Of the $29 million,$20 mullion is subject to a third party lease financing arrangement which the NH Fmay guarantee . To date no competitive bidding has commenced and if competitivebidding is required for any future phase, the Company believes it will benefit fromits low cost India development center and history on the project. When thesystem is fully rolled out (which would include significant contracts to AremisSSoftor other parties in addition to the initial $37 .5 million contract) all of the healthcareproviders and institutions will have modern healthcare information systems - . , ,We believe that each phase subsequent to the initial $37 .5 million project will beawarded based upon a competitive bidding process.

90. On May 18, 2001, AremisSoft issued another press release attaching Penkov' s

statement . Although AremisSoft had claimed in the May 17, 2001 press release that Penkov's

statement substantiated the "content of the contract," Penkov's statement did not, in fact, support

that AreniisSofl had executed a $37 .5 million contract . According lo Penkov's statement,

AremisSoft had contracted to provide an intermediate system for $255,000, and Phases I and 2 of

an integrated software system for $3,686,000„ AremisSoft did not .hav€, a contract for Phases 3

and 4 of the project . With regard to Phases 3 and 4, Aremis oft was required to "participate i n

30

s wr[a] lender procedure according [to] the laws for Phase 3 and 4 in year 2001 and to offer a price

not higher than BGL : 8,400,00 which was a commitment required in the bid (IJSD : 4,375,000),"

The stock market responded with another sell off, closing at $11 .98 per share on volume of 9 .4

million. Thus, in four days, AremisSoft's market capital declined $254,408,000 ,

91 . On May 20, 2001, the N1 issued a press release which was reprinted on Ma y

21, 2001 by T.heStreet_com . In the press release, the NHW stated that its contract wit h

AremisSoft, including a $255,000 "interim information system," is for no more than a total of

$3 .94 million, and "the contract obliges AremisSoft to submit a bid if a bidding procedure is

announced for Phase 3 and 4 and to offer a price for those phases not higher than 8,400,000

BGL." With regard to two "annexes" to the Bulgarian Contract, potentially worth $29 million if

AremisSofk won a bidding procedure under Bulgarian law, the NTHIF stated : "Both annexes

expressly required confirmation from the NHIF during year 2000_ During 2000 NHIF has not

officially informed AremisSoft that it expressly confirms the annexes, which automatically

eliminates the possibility for their implementation ." The NHIF also stated that to date it had paid

AremisSoft only about $1 .7 million, not the $7 plus mi llion AremisSoft had claimed it had

received in its May 17, 2001 press release .

92_ AremisSoft issued another press release on May 22, 2001, again falsely describing

the Contract as one for $37 .5 million and blaming "irresponsible journalism aided and abetted by a

concerted effort by short- sellers to unjustifiably depress the price of the Company' s common

stock ." The Company specifically named TheSt.reet .com as "the source of the confusion in th e

marketplace" about the Bulgarian Contract, The Company provided no L esponse to the NHIF' s

claim that it had paid the Company only $1 .7 million on the Bulgarian Contract .

31

• ~s93- After its May 22 , 2001 press release, the Company refused to answer any

questions regarding the Bulgarian Contract . In fact, in a June 15, 2001 interview with Dow

donee . defendant Bloom explained the Company's silence, stating that the Company was "taking a

deliberate posture relative to answering press so as to minimize the potential for investor

confusion ."

94 . On or about July 5, 2001, AremisSoft filed a lawsuit in the U.S. District Court for

the Northern District of California against TheStreet .corn, Inc. and several hedge funds and

individuals alleging that the defendants acted in concert "to reduce the price of AremisSoft

common stock in order to facilitate the profitable covering of short sales by the defendants and

their affiliates ." On August 14, 2001, AremisSoft withdrew this lawsuit .

95 . The AremisSoft Defendants' statements during the Class Period regarding the

value of the Bulgarian Contract were materially false and misleading . The Bulgarian Contract

clearly provides that the Company was to receive 7,078,000 Bulgarian Leva ($3,686,000 U SD)

for completion of the first two phases of a four-phase program, Paragraph 1 .2 of the Bulgarian

Contract states that "the parties agree to start negotiations of Application Software - Integrated

Information System PI4ASE 3 and PHASE 4, which negotiation shall be in conformity with the

provisions of Law for Public Offers."

96 . I'lic Bul!arian Contract nowhere ~ .€ ~ iha A)cmisSofi had an agreement wit h

NHIF worth $37,5 million . In foci . the possibility of hein y able io submit a bid on po rt ions of the

project potentially worth 29 miffion was eliminated h4' Janualy 1 :, 2001 . yet the Company

persisted in representing th e. Bulgarian Contract' s 'value as $37 . 5 million and falsely blamed any

discrepancy on "differences in nomenclature ," the language barrier, and unscrupulous short-sellers

32

i M

and reporters.

97. As was ultimately admitted by the Company in an 8 -K filed with the SEC on

December 4, 2001, the Company was only awarded the first two phases of the Bulgaria n

Contract , worth only $3 . 9 million.

98. Thus the AremisSoft Defendants misrepresented the value of the Bulgarian

Contract by ten-fold in the December 17, 1999 press release, in SEC filings, and in other public

statements . The AremisSoft Defendants' statements defending the representations concerning the

Bulgarian Contract were also materially false and misleading .

C. AremisSoft Overstated Revenue From the Bulgarian Contract

99_ In the May 17, 2001 press release, the AremisSoft Defendants falsely stated :

AremisSoft has completed over $7 million worth of work against this contract .The Company recognizes revenue from this contract on a milestone basis, in whichit only recognizes revenue for the work that has been completed and accepted bythe NH F . During 2000, AremisSoft recognized approximately $7 mil lion relatingto this contract . The published contract states that work on an additional phase iscontingent upon acceptance of the prior work . To date AremisSo ft has receivedsigned acceptance on numerous modules of the project . As publicly stated,AremisSoft receives payment within a few days after a milestone has beenapproved by the NHIF with total payments to date in excess [of] $7 million.

(emphasis added)

100. In the Company's 2000 10-K, AremisSoft reported $123,609,000 in revenue s

which included $7 .1 million in revenue' supposedly ; i E ivcd from NHIF under the Bulgarian

Contract in 2000 . In a meeiiny with analysts on or a1mir April 25 . 2001, Poyiadjis claimed that

the Company had recognized an additional $2 million fi oni the Bulgarian Contract in the first

quarter of 2001 . The information concerning the $2 million in first quarter revenue under th e

Bulga rian Contract was echoed in a report by an analyst al William Blair Company , L.L.C .

33

t M

dated April 26, 2001 .

101 . On May 15, 2001, the Company filed its Form 10-Q for the period ended March

31, 2001 with the SEC (the `°2001 First Quarter 10»Q") . The Company reported that it had

$39,232,000 in revenues for the qua rter, which included the purported $2 million recognized

under the Bulgarian Contract . The 2001 First Quarter 10-Q was signed by defendants Poyiadjis

and Tymvios.

102. On July 31, 2001, AremisSoft announced that Ply' was able to confirm receipt of

only $1 .7 million from the 14141F under the Bulgarian Contract . The Company stated that it was

"°stif seeking additional documentation to confirm the receipt of an additional $5 .4 million in

revenue recognized by the Company in fiscal year 2000 ." The press release added that because

AremisSoft had been "unable over the last several days to contact executives who are most

knowledgeable about the NHIF contractual arrangements within its Indian-based Emerging

Markets group, it has been unable to provide PKF with the information it needs to complete its

review of the NHIF contract . "

103 . On August 14, 2001, the Company issued a press release in which defendant

Poyiadjis stated, in part,

The Company, in its effort to close the second quarter financial statements,provide its independent auditors PKF with additional information and respond tothe SEC investigation cur-rcntlvv underway, is concerned that imponant financialdocuments relating to its emerging market business could be Missing, TheCompany is vigorously pursuing the recapture of such information and has retainedi)eloitte & i ouche for its global forensic accounting capabilities to assistmanagement in this effort . However, the Company does not believe that it will bein position to file a timely report of Form 10-Q for its second quarter, and at thepresent time cannot estimate when it will be able to file the 10-Q .

104- In the August 14, 2001 press release , the Company also announced the resignation

34

sof defendant Mathews as President of the EMG, as well as the resignations of Alex Eapetn, Senior

Vice President of India Software Development Facilities, and key controllers of the Company' s

India-based Corporate accounting group .

105. In an 8-K filed December 19, 2001, the Company reported that it was still only

able to confirm receipt of only $1 . 7 mil lion from the NHIF under the Bulgarian Contact .

D. AremisSoft Overstated Revenues, Earnings, and Acquisition Co!U

1. Overstatement . of revenues and earnings in 1999 and 2000

106. Throughout 1999, the Company reported revenues and earnings that were

overstated due to the inclusion of at least $38 million in fictitious. revenues from the EMG.

107. On May 13, 1999, AremisSoft filed a Form 10-Q with the SEC for the period

ended March 31, 1999 ("1999 First Quarter l0-Q") . Defendants Kyprianou and Poyiadjis signed

the 1999 First Quarter 10-Q . In the 1999 First Quarter 10-Q, AremisSoft reported that it had

$13,112,000 in total revenues, net income of $803,000, and diluted net income per share of

$0.08,

108 . On July 28, 1999, Aremis$oft filed a Form 10-Q with the SEC for the period

ended June 30, 1999 ("1999 Second Quarter 10 -Q"). Defendants Kyprianou and Poyiadjis signed

the 1999 Second Quarter 10-Q . In the 1999 Second Quarter 10-Q, AremisSoft reported that it

had $16,742 .000 in iota] revcr7Ues, nii income of i-2 . and diluted net income per share of

$0 .20,

109 . On October 217 1999, AremisSofl flied a Form 10-Q with the SEC for the period

ended September 30, 1999 ('1999 Third Quarter 1 O-Q" ), Defendants Kyprianou and Tymvios

signed the 1999 Third Quarter I 0-Q . In the 2000 Third Quarter J 0-Q, AremisSof t reported that

35

it had $20,278,000 in total revenues, net income of $3,259,000, and diluted net income per share

of $0.24.

110. In its 1999 10-K, the Company reported revenues of $73,386,000, not income of

$13,280,000, and diluted earnings per share of $0.99 for the year ended December 31, 2000 .

According to the 2000 10-K, the company' s revenues were derived from customers in the

following areas : United Kingdom 35%, Rest of Europe 44%, United States 3% , Asia 5% and

Rest of World 13% ." The 1999 10-K was signed by defendants Kyprianou, Poyiadjis, Tymvios ,

Mathews, and Voice . According to the Company's current management , at least $38 million, or

52%, of the reported $73 .4 million in revenue was bogus .

111 . The AremisSoft Defendants ' reporting of fictitious revenues continued into 2000 .

On May 12, 2000, AremisS oft filed a Form O-Q with the SEC for the period ended March 31 ,

2000 ("2000 First Quarter 10-Q") . Defendants Kyprianou and Tymvios signed the 2000 Firs t

Quarter ] 0-Q. In the 2000 First Quarter 10-Q, AremisSoft reported that it had $21,517,000 i n

total revenues, net income of $2,495,000, and diluted net income per share of $0 .14 .

112_ On August 14, 2000, AremisSoft filed a Form 10-Q with the SEC for the perio d

ended June 30, 2000 C'2000 Second Quarter 10-Q") . Defendants Kyprianou and Tymvios signe d

the 2000 Second Quarter 10-Q . In the 2000 Second Quarter 10-Q, AremisSoft reported that i t

had $27,007 .00u in Iolal icvcnues_ net income of S ~ .. : 1 .000, and diluted net income per share of

$0.26 .

] ] 1 . On November 14, 2000, Are'nisSofi fled a Form I 0-Q with the SEC for th e

period ended September 30, 2000 ("2000 Third Quarter I0-Q") . Defendants Poyiadjis and

Tymvios signed the 2000 Third Quarter 10-Q . In the 2000 Third Quarter 10-Q, ArernisSoft

36

reported that it had $31,721,000 in total revenues, net income of $8,864,000, and diluted net

income per share of $0 .51 .

114_ In its 2000 10-K filed March 26, 2001, the Company reported revenues of

$123,609,000, net income of $32,702,000, and diluted earnings per share of $0.93 for the year

ended December 31, 2000. According to the 2000 10-K, the company' s revenues "were derived

from customers in the following areas : Europe 65%, North America (United States) 3%, Asia

14% and Rest of World 18%." The 2000 10-K was signed by defendants Kyprianou, Poyiadjis,

and Tymvios .

115_ In a September 28, 2001 press release the Company announced, inter h that the

Company had concluded, based on the findings of a forensic audit conducted by Deloitte, that

there were financial and accounting irregularities relating to revenue recognition in the Company' s

Cyprus-based EMG.

116. The following two paragraphs are based on information contained in the

declaration of Richard Rosenfeld, Senior Counsel with the Division of Enforcement of the SEC, i n

support of the SEC's application for a temporary restraining order freezing defendant Poyiadjis '

assets on the Isle of Man (the "Rosenfeld Declaration") .

117_ After the Company commenced its internal investigation and began cooperatin g

with the SEC in August 2001, aloe Cc717~17am representatives were unable to communicate wit h

virtually anyone in the EMG . One associate of the law firm of Davis Polk & Wardwell ("Davis

Polk"), counsel for AremisSoft, did speak briefly with defendant Mathews who informed th e

associate that defendants Kyprianou and Poyiadjis were fully informed of everything that occurre d

in the EMG and that anything Mathews knew, Kyprianou and Poyiadjis also knew .

37

•118. When the Company was suddenly unable to contact its EMG, it retained Deloitte .

to investigate and secure corporate documents from the EMG's offices in India . When Deloitte

inspected the AremisSoft facility in Bangalore, India, where the Company's corporate accountin g

offices were located, they concluded that the Company's financial records had been purged .

Deloitte was able to retrieve one box of partially destroyed accounting records from the trash.

These . accounting records indicated that during 2000, AremisSoft reported approximately $89

million in revenue from supposed customers of the EMC, including many companies located in

former Eastern Bloc countries, including Bulgaria . According to Davis Polk, the Company is only

able to substantiate the receipt of $1 .7 million, attributable to the Bulgarian Contract, out of the

$89 mil lion in revenue reported by the EMG and included in the approximately $ 123 million in

revenue reported by the Company for 2000 ,

119. For the same reasons it cannot corroborate the EMO revenues included in the

Company's consolidated revenues as reported by the Company in its financial statements fo r

2000, the Company' s current management is unable to corroborate the $38 m llion in revenues

reported by the EMG in 1999, and thus, the Company's financial statements for 1999 contain

material overstatements of the Company' s revenues and earnings .

120. According to the Company' s current management, during 2000, six purporte d

independent sales agents of AremisSof -- Orimix , Agroscrvices _ Poclw & Co . GmbH, Zen Trade .,

Gravitas, and Con-imp . -- accounted for $88 .5 million in sales to 37 customers . Zen Trade and

possibly one other sales agent are headed by defendant Sedlmayer, The Company's current

management was only able to contact representatives of two of the five purported sales agents,

Orimix and Agorservices, who both stated that they did not make any sales for AremisSoft . In

38

•fact, Orimix, a Croatian company, is a steel trader, and Agroservices, a company located i n

Monaco, is a meat supply company . Moreover, each of the purported customers that current

Company management was able to contact stated that they had not made purchases from any of

the sales agents or AremisSoft. For example, Team Vantage, a company that had purportedly

purchased $3,4 million in goods and services from AremisSoft, had never heard of Agroservices,

the listed sales agent, or AremisSoft. Many of the other customers were small businesses, such as

small hotels, for which the purchase of expensive software from AremisSoft, as reported, did not

make economic sense .

121 . In the Company's Form 8-K filed December 4, 2001, the Company announced that

it was "unable to substantiate the approximately $90 million of consolidated revenue reported by

the Emerging Markets Group ("EMG") in 2000 or the expenses associated with EMC or it s

Cyprus operations."

122, In the Company's Form 8-K filed December 19, 2001, the Company reiterated that

is was unable to substantiate the approximately $90 million of consolidated revenue reported b y

the EMG in 2000 and added that financial information relating to the EMG was unknown and

unavailable to the Company .

123 . Thus, the Company' s revenues for 2000, as reported in AremisSoft's Forms 10- Q

for the first, second, and third cqu.uane.r~ of 2000 and se-; d . (I00 ) 0-K, were overstated by as muc h

as $90 million or- 73`% .

2 . False & misleading statcnben1s regarding EMG acquisition s

124 . On December 30, 1999, AremisSofi filed a Form 8-K disclosing that on Decembe r

29, 1999, pursuant to a share purchase agreement dated December 17, 1999, the Compan y

39

wacquired all of the outstanding capital stock of E-nnovations.com, an Indian-based "software

solutions provider ," for $14 . 5 million in cash . The share purchase agreement, attached as a n

exhibit to the Form 8-K, was signed by defendant Kyprianou, on behalf of AremisSoft, defendant

Sedimayer, on behalf of Spahr , and George A.T., on behalf of E-nnovations .com . The share

purchase agreement stated that ArernisSoft was to transfer $14,539,000 to Spahn on behalf of E-

nnovations .corn's existing shareholders in exchange for the shareholder's E-nnovations .com

stock.

125 . The Company's 1999 1 O-K stated that the E-nnovations .com acquisition "is a key

strategic milestone in our development because it enables us to address the rapidly expanding

market opportunities brought about by the Internet. For over two years, we have partnered with

e-nnovations .com and have utilized their technological capabilities in several large projects ." The

1999 10-K also included E-nnovations .com's purported consolidated balance sheets, consolidated

statement of operations, and consolidated statements of cash flow going back to the year ended

December 31, 1997. Further, the 1999 10-K stated that E-nnovations .com had $3 .1 million in

revenues in 1999.

126. According to the SEC Complaint and in stark contrast to the AremisSoft

Defendants ' Class Peri od representations, "records obtained in India by AremisSoft' s accountant s

and other inibrmation slow that E-rinovalion s .com did not exist ungix .Area Ise oft created the

company in 1999 from five existing smaller companies .. The cost Of acquiring those companie s

was no more than $300,000," 1/48th of the amount repo rted by the Company as the cost ofE-

nnovations .com _

127. According to the Rosenfeld Declaration, E-nnovations .com was formed when

40

defendant Mathews bought five very small Indian software companies with less than $300,000 i n

AremisSoft funds, and rolled them up (combined them into a single entity) in anticipation of the

acquisition by ArenvsSoft. Documents recovered by Deloitte from the Company 's Bangalore,

India office indicate that AremisSoft overstated, or completely fabricated, the revenue s

purportedly generated by E-nnovations.com. Company counsel informed the SEC that present

management of the Company has concluded that the acquisition of E-nnovations .com was a sham .

128 . Moreover, according to the founders of the five acquired Indian companies, the

shareholders of the acquired companies never received any funds from Spahn. Instead

AremisSoft paid a fraction of E-nnovations .com's publicly represented acquisition cost directly t o

0 the acquired companies . Shares ofE-nnovations_com were never tendered to AremisSoft, as they

were never issued in the first place .

129. On December 19, 2000, AremisSoft filed a Form 8-K disclosing that on December

5, 2000, pursuant to a share purchase agreement dated November 28, 2000, the Company

acquired all of the outstanding capital stock of Indian-based E-ChaRM Pvt Ltd. ("E-ChaRM") for

$10.9 million in cash .

130. On January 10, 2001, AremisSofi filed a Form $-K disclosing that on December

29, 2000, the Company acquired all of the outstanding capital stock of Denon International Ltd .

("Denon "), a Dubai , U.A1.-based company, for $7 . 34 million in cas h

131 . In the 2000 10-K, the ArcmisSofl Defendants again stated that E-ChaRM an d

Denon were purchased in December 2000 for $10 .9 million and $7.34 million, respectively .

132. Like the statements regarding the price paid for E-nnovations .com, the statement s

regarding the purchase prices ofE-ChaRM and Denon were materially false and misleading .

41

• wAccording to the SEC Complaint and Rosenfeld Declaration, Company documents confirm that

E-ChaRM was formed when defendant Mathews bought two very small Indian software

companies for approximately $100,000 in AremisSoft funds, and merged them in anticipation of

the AremisSoft acquisition . Documents recovered by Deloitte from the Company's Bangalore,

India office, indicate that in its public disclosures AremisSoft overstated, or completely fabricated,

the revenues purportedly generated by E-ChaW . Again, Company counsel informed the SEC

that present management of the Company has concluded that the acquisition of 1-ChaRM was a

sham .

133 . AremisSoft's purported purchase ofDenon for $7.34 mil lion was a complete

sham . According to AremisSoft 's current management, Denon was an Aust rian shell corporation

that purportedly purchased the Vision Group LLC . ofDubai ("Vision!) in late January 2001 for

$250,000. In reality, neither AremisSoft nor Denon purchased Vision. T_n March 2001, the

former principals of Vision received $250,000 from defendant Mathews and signed an agreement

in July 2001 for the sale of Vision to Mathews, not AremisSoft . The Company received nothing

from the purported Denon acquisition .

134 . Thus, the AremisSoft Defendants overstated the value of the E-nnovations .corr ,

E-ChaRM, and Denon acquisitions by at least $32,090,000 .

135_ After being delisted from the Nasdaq on August 30, 2001 , AremisSoft issued a

press release on September 28, 2001 . In the press release, tilt. C. onnpammy, disclosed, ent r glia, that

it had " concluded that its acquisitions of E-nnovati ons . com, E -ChaRM India Pvt Ltd, and Denon

international Ltd, companies identified and evaluated by exec utives in the EMG, were recorded at

values not substantiated by information developed in the [inte rnals investigation (conducted by the

42

Company, its counsel, and Deloitte] . "

E. PKF's Complicity in the Fraud

136_ The 1999 and 2000 10-K include PKF's unqualified audit opinions which state that

the financial statements contained in the 1999 10-K and 2000 10-K present fairly , in all material

respects, the consolidated financial position of AremisSoft , and the consolidated results of its

operations and its consolidated cash flows for each of the three years in the period ended

December 31, 2000, in conformity with GAAP . in these audit opinions, P YT also represented

that its audits of the Company's fiscal 1999 and fiscal 2000 consolidated financial statements wer e

conducted in accordance with CGAAS .

137, PKF's unqualified audit opinions were materially false and misleading in that the

audits conducted by PKF were not performed in accordance with GAAS . PKF violated GRAS

by, among other things, failing to expand or otherwise properly conduct its audits with respect to

AremisSoft's revenue recognition and accounting for acquisitions . During the Class Period, PK F

was not auditing approximately 75% of the Company's reported revenues, instead relying on

representations made by the Company's accountant in India, RK Dhawan & Co .

138. GAAS, as approved and adopted by the American Institute of Certified Publi c

Accountants CAICPA"), governs the standards by which audits are to be performed and th e

responsibilities of the independent auditor, Ci S is divided into three groups : (1) general

standard , (2) s~andaids c~i fie.Irlu~ork, Gird (~ st kyc:icl k :• c~i kcporiin Under Rule 202 of th e

AICPA' s Professional Cock cif C.c7nduct . every nzemhe.z of the AIC'PA must comply with GAAS

in conducting audits ,

139, The (leneral Standards of GAA, require , among other things :

43

•a. that in all matters relating to the assignment, an independence in mental

attitude is to be maintained by the auditor and auditors ; and

b , that due professional care is to be exercised in the performance of the .

audit and the preparation of the report.

140 . The Standards of Fieldwork of GAAS require, among other things :

a. that there is to be a sufficient understanding of the existing internal

control as a basis for reliance thereon and for the determination of the nature, extent and timing o f

the audit tests which are to be performed; and

b. that sufficient competent evidential matter is to be obtained throug h

inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion

regarding the financial statements under audit .

141 . The Reporting Standards of GAAS require, among other things :

a. that the auditor's report shall state whether the financial statements are

presented in accordance with GAAP;

b , that the report shall identify those circumstances in which such principles

have not been consistently observed in the current period in relation to the preceding period; and

c. that informative disclosures in the financial statements are to be regarded

as reasonably adequate unless otherwise stated in the re port.

142 . Statements on Auditing Standards ( .`Sf1~`) are endorsed by the AI PA as th e

authoritative promulgation oifGAAS and are soy coin c also referred to by the term "AU" which

corresponds to Sections of the AJCPA's Professional Standards ,

143 . The controlling 63AA.S standard for examination and reporting of irregularities i s

44

~ rSAS No. 53, entitled "THE AUDITORS RESPONSIBILITY TO DETECT AND REPORT

ERRORS AND IRREGULARITIES ,," which states in relevant part :

[53 .03] The term irregularities refers to intentional misstatements oromissions of amounts or disclosures in financial statements .Irregularities include fraudulent financial reporting undertaken torender financial statements misleading, sometimes calledmanagement fraud . . ,

[53 .05] The auditor should assess the risk that errors andirregularities may cause the financial statements to contain amaterial misstatement . Based on that assessment, the auditorshould design the audit to provide reasonable assurance ofdetecting errors and irregularities that are material to the financialstatements . The auditor's responsibilities for detectingmisstatements resulting from illegal acts, as defined in SAS No . 54,Illegal Acts by Clients, having a direct and material effect on thedetermination of financial statement amounts is the same as that forother errors and irregularities .

Effect of Irregularities on the Audit Report. [53 .26] If the auditorhas concluded that the financial statements are materially effectedby an irregularity, the auditor should insist that the financial

statements be revised and, if they are not, express a qualified or anadverse opinion on the financial statements, disclosing allsubstantive reasons for his opinion .

[53 .33] Disclosure to the [SEC] may be necessary if, among othermatters, the auditor withdraws because the board of directors hasnot taken appropriate remedial action . Such failure may be areportable disagreement on Form 8-K .

144 . Had PKF conducted its audits in accordance with GAAS, it could not have issued

unqualified audit opinions with respect to AremisSoft's ]999 and 2000 financial statements a s

presented. PKF's representations that its audits of Aremis oft' s financials conformed to GAAS

were false and misleading for, inter alia, the following. reasons :

a_ PKF violated GAAS and the standards set forth in SAS No . 1 and SAS No . 82 by,

45

among other things, failing to adequately plan and supervise the work of its staff and to establish

and carry out procedures reasonably designed to search for and detect the existence of material

misstatements caused by error or fraud ;

b . PKF violated Standard of Reporting No . 4 which requires that, when an opinion

on the financial statements taken as a whole cannot be expressed, the reasons therefore must b e

stated. PKF should have stated that no opinion could be issued by it with respect to AremisSoft' s

fiscal 1999 and 2000 financial statements or issued an adverse opinion stating that those financial

statements were not fairly presented . The failure to make such qualification, correction,

modification and/or withdrawal, was a violation of GAS, including Standard of Reporting No .

4 .

c. PICF violated GAAS, including AU §316 .27, by failing to exercise required

professional skepticism in connection with its audits of AremisSoft's fi nancial statements .

Moreover, PKF failed to comply with AU §316 by knowingly or recklessly ignoring various re d

flags concerning the lack of integrity of AremisSoft' s management and ArernisSoft's lack of

internal controls and internal reporting protocols ;

d . PKF violated GAAS General Standard No . 3, which requires that due

professional care must be exercised by the auditor in the performance of the audit and th e

preparation of the report ,

e. J'hk violated Standard of Fieldwor} : Ni . which requires sufficient competent

evidential matter to be obtained Through inspectrnm_ cthservation, inquiries and confirmations to

afford a reasonable basis for an opinion regarding the financial statements under audit; and

145. PKF also failed to adhere to al. least the f«liowinp statements of Auditing

46

• wStandards.

a. SAS No. 31, which requires that an auditor obtain all corroborating information

necessary to support the financial statements being audited, including, checks, invoices, contracts,

minute ofmeetings , confirmations or other written representations by knowledge people, and

information obtained from independent sources ;

b. SAS No. 67, which requires that an auditor establish and perform a confirmation

process with third parties to verify information utilized in the audit ; and

c_ SAS No_ 19, which requires that an auditor not substitute client representation s

for audit procedures necessary to form a reasonable basis as to the opinion being given o n

financial statements .

146 . Under SAS No . 58, "[r]estrictions on the scope of his audit, whether imposed by

the client or by circumstances, such as . . . the inability to obtain sufficient competent evidential

matter . . . may require him to qualify his opinion or to disclaim an opinion . In such instances, the

reasons for the auditor's qualification of opinion or disclaimer of opinion should be described i n

his report ."

147. Thus, GRAS required PKF to express either a qualified or adverse opinion o n

AremisSot° s financial statements . The failure of PKF to do so , in light of the warnings raising

icd flags about the validity of the Company ' s financial statements , reflects its knowing or reckles s

conduct , rnakinV. i t liable Linde ; 'Section 10(b) .

148 Defendant PKF: by virtue of its positinx ; as independent auditor ofAremisSoft, had

access to key employees of the Company and continual access to and knowledge of AremisSoft' s

confidential corporate, financial, operating, and business information at all relevant times, PKF

47

M

knew or recklessly disregarded ArernisSoft' s true financial and operating condition, and

intentionally or recklessly failed to take steps which, as AremisSoft's auditor, it could and shoul d

have taken to fully and fairly disclose to the public . PKF falsely represented that its audits of

AremisSoft 's 1999 and 2000 financial statements had been conducted in accordance with GAAS

and wrongfully issued "clean" or unqualified opinions or certifications that those financia l

statements fairly presented AremisSaft' s financial condition and results of operations i n

conformity with GAP .

F. Additional Scienter AI1egations

149. Beginning no later than the Fall of 2000, during the period in which the

' AremisSoft Defendants and PKF disseminated the materially false and misleading information

described above, defendants Poyiadjis and Kyprianou, who at all times knew of the material

misstatements, sold millions of shares of AremisSoft securities through entities they controlled .

150, As officers and directors of a public company, defendants Poyiadjis and Kypriano u

are required to file forms with the SEC disclosing the purchase, sale, or other disposition of

AremisSoft stock in which they have a beneficial interest . Despite the incompleteness of the

Individual Defendants' filings and their extensive efforts to conceal their transactions, the SE C

through its investigation was able to piece together information regarding the Individual

Defendants' Class Period dispositions of Aren isSoft stock . The following paragraphs describing

these stock dispositions are based on ,SJ'.C; iiJin.s made by the .ren isSuii Defendants and on

information developed by the SEC and alleged in the SFC Complaint .

48

s w1. Poyiadjis 's AremisSoft stock transactions

a. Public disclosures regarding Poyiadjis 's AremisSoft holdings

151 . . According to AremisSoft's 1999 Form 10-K, as of March 14, 2000 defendan t

Poyiadjis beneficially owned 1,162,953 shares of AremisSoft common stock through Onyx

Capital, Inc . ("Onyx") a British Virgin Islands corporation for which Poyiadjis has sole voting and

investment power- Of these shares 200,000 were registered for sale in the Company's Form S-

1/A registration statement filed March 15, 2000 and effective March 20, 2000 ("Form .

According to a proxy statement filed on April 28, 2000, Poyiadjis again disclosed his ownership

of 1,162,953 shares as of April 20, 200, No forms were filed disclosing the sale of the 200,000

shares registered in the Form S-1/A .

152. On February 14, 2001, Poyiadjis filed a Form 5 disclosing that on September 9 ,

2000, for "°pre-immigration estate planning purposes" he had disposed "by gift" of 779,620 of the

shares held by Onyx. The same filing claimed that Poyiadjis owned no shares of AremisSoft stock

as of December 31, 2000 . No forms were filed disclosing the disposition of the remaining

183,333 shares held by Onyx and under Poyiadjis's control, assuming the 200,000 shares

registered for sale in the Form S-l/A were sold.

153_ The same February 14, 2001 Form 5 disclosed that Prime Growth, Inc. (`P rime

Growth"), another British Virgin Islands corporation controlled by Ioyiadjis, "gifted" 1,075,000

ArernisSof1 stock options on October J 'Y, 2000 and another 375,000 stock options on December

7, 2000. According to the 2000 10- , the 1,450,000 options gifted by Prime Growth went to

entities "in wli ch IPoyiadjisj has no voting, beneficial or pecuniary interest . "

154 . According to the 2000 10-K, as of Nlarch 8, 200], all of the 1,559,240 shares

49

a w"gifted" by Poyiadjis during 2000 had been sold by the donees . The 2000 10-K also disclosed

that of the 2,900,000 options gifted by Poyiadjis, 2,766,666 had been exercised for cash and sold

by the domes. The 2000 10 -K does not account for the remaining 133,334 nor does it disclose

when or at what price the donees sold the stock .

b. Information developed by the SEC regarding the sale ofPoyiadjis's AremisSoft stock

155. According to the SEC Complaint, stock transfer and trading records investigate d

by the SEC reveal that in September 2000, Poyiadjis sent a handwritten note to a transfer agent

requesting that restrictive legends be removed from the stock certificates for the stock held by

Onyx. Poyiadjis then directed the transfer of the Onyx held shares to his associate in Monaco .

Another of his associates in Monaco then assigned the shares to Brown Brothers Harriman &

Company ("Brown Brothers "), a New York broker- dealer, routing the stock certificates through

two Swiss banks.

156_ On October 3, 2000, Swiss bank Bordier et Cie (` Bordiee') forwarded to Brown

Brothers a certificate for 400,000 shares of AremisSoft stock which was deposited in the Bordier

account at Brown Brothers the next day . Brown Brothers sold these shares between October 19

and November 2, 2000 for proceeds of $14,299,637 .24, which was deposited in the Bordier

account at Brown Brothers

157. On or before October 17 . 2000, Poviadjis ' s associate in Monaco forwarded a stock

certificate for 379,620 shares of ArerrtisSo ft stock to Dominick Co. AG Privatbank ("Dominick"),

another Swiss hank Dominick caused these shares to be deposited in an account in its name at

Brown Brothers, from which they were then sold . Th . SEC: was unable to obtain record s

50

• wdetailing the disposition of the shares through Brown Brothers . However, based on proceed s

from the sale of the 400,000 share block at approximately $35 per share, the SEC estimates that

Poyiadjis realized approximately $13,286,700 from the sale of the block of 379,620 AremisSoft

shares .

158 . According to the SEC Complaint, the SEC has been able to account for the

disposition of 633,333 of the 1,450,000 options nominally owned and then "gifted" by Prime

Growth. The SEC has not been able to determine how the remaining 750,000 shares issued upo n

the exercised of the options were transferred and sold ,

159, On December 12, 2000, AremisSoft' s counsel wrote to Aremis oft 's transfer

agent stating that "options have been exercised by Drax Trading, Ltd ., as assignee for Prime

Growth, Inc ." AremisSoft' s counsel explained that the options were in two blocks of 133,33 3

and 500,000, advised the transfer agent to expect transfer instructions from Poyiadjis's associate ,

and stated that confirmation of the instructions could be obtained from Poyiadjis himself, A

notation on counsel 's letter indicated that Poyiadjis had been sent a copy of the letter. Poyiadjis

confirmed the instructions in a hand written letter to the transfer agent dated December 12, 2000 ,

Pursuant to these instructions, 633,333 AremisSoft shares issued upon the exercise of the option s

were transferred electronically to Brown Brothers in favor of a Bordier account at Brow n

Brothers through which the stock was sold

160. The SEC was not able to obi ain records showing the disposition of these share s

through Brown Brothers, however, based on proceeds realized from the sale of the 400,00 0

shares originally held by Onyx and sold by Brown Brothers between October 19 and November 2 ,

2000 at approximately $35 a share, the SEC estimates that Poyiadjis realized approximatel y

51

$22,166,655 from the sale of these blocks, totaling 633,333 shares .

161 . The SEC was unable to determine how or when the remaining 750,000 options

were exercised for stock and sold, but estimates that Poyiadjis received approximatel y

$26,250,000 from the sale.

162. Thus, according to the SEC Complaint, proceeds from the sale of AremisSo#t

stock nominally owned by Onyx and from the sale of the AremisSof shares issued upon the

exercise of the options nominally owned by Prime Growth total approximately $76,000,000 . Of

this amount, approximately $36,466,000 are known to have been derived from sales through a

Bordier account at Brown Brothers, and approximately $13,286,700 are known to have bee n

derived from sales through a Dominick account at Brown Brothers ,

i. Poyiadjis' s transfer of sale proceeds

163 . On July 27, 2001, Brown Brothers transferred $44,669,000 from a Bordier

account to Fleming We of Man Limited ("Fleming Bank") for deposit to an account in the name

of Olympus Capital Investments ("Olympus") . This account and one other in the name of Oracle

Capital, Inc- ("Oracle") were opened at Fleming Bank to receive these and other proceeds of

Poyiadjis's AremisSoft stock sales . Paragraphs 112-115 describe Poyiadjis's transfer of his

AremisSoft stock sale proceeds into his Fleming Bank accounts .

164 . On July 26, 2001, Dominick transferred $37,984,539 .9 to the Olympus account

at Fleming Bank .

165 . On July 26, 2001, another Swiss bank, UBS AG (Zurich) transferred $35,117,300

to the Oracle account at Fleming Bank .

166, On July 26, 2001, another Swiss bank, Hentsch Henchoz Et Cie (Lausanne) ,

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transferred $37,412,603 to the Oracle account at Fleming Bank .

167. On July 26, 2001, another bank in the Isle of Mar, Isle of Man Bank, transferred

$20,047,884.27 to the Oracle account at Fleming Bank . These funds had previously been

transferred to Isle of Man Bank from Dominick on July 9, 2001 ($10,009,218 .75) and from

Hentsch Henchoz Et Cie on July 9, 2001 ($ 10,008,593 .75) .

168_ Knowing that class action suits had been commenced against the AremisSof t

Defendants, Poyiadjis transferred the proceeds of his fraudulent sales of AremisSoft stock in an

attempt to hide the proceeds and put them beyond the reach of Plaintiffs and the Class .

2. Kyprianou's AremisSof stock transaction s

a. Public disclosures regarding Kyprianou's AremisSoft holdings

169. According to the 1999 10-, defendant Kyprianou beneficially owned 3,905,08 6

AremisSoft shares as of March 14, 2000. These shares were held by LK Global (Holdings), NV

("LIB Global Holdings"), a Netherlands corporation for which Kyprianou has sole voting an d

investment power .

170 . On February 14, 2001, Kyprianou filed a Form 5 disclosing that on July 8, 2000

LK Global Holdings "gifted" 3,187,790 AremisSoft shares to Aremis Holdings , Ltd. ('Aremis

Holdings") and 300,000 shares to AremisSoft Technology Ventures, Ltd . ("ArernisSoft

1'echnoigy") lay "tax and estate planning purposes . Aicnus holdings and AremisSoft Technolg y

are British Islands c,orpoial lons of which }.prima, it 1 1j( suit' director and officer . Their

principal busines ~77a17agin Kyprianou 's inveslrnen1 . According to the Form 5, as o f

December 31, 2000 LK Global Holdings held no AreimsSoft shares .- however no disclosure wa s

made regarding the disposition of The remaining 417,296 shares of the 3,905,086 shares held b y

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LK Global Holdings as of March 14, 2000 .

171 . The Form 5 also disclosed that on November 6, 2000 Aremis Holdings "gifted"

1 .6 million shares in two blocks of 800, 000 shares each. The donees of the Aremis oft shares

that had been nominally owned by Aremis Holdings are not identified in any public filings .

According to a Schedule 13D signed by Kyprianou and filed on November 21, 2000 , which also

disclosed the transfer of Kyprianou's ArernisSoft shares , Aremis Holding' s gift of the 1 ,600,000

shares of the Company's common stock was "without consideration to entities which are no t

controlled by Dr . Kyprianou ."

172. The Form 5 also states that on November 17, 2001 Kyprianou gifted a total of

1,075,000 AremisSoft stock options to Sincock Holdings Corporation ("Sincock"), another

British Islands corporation in which Kyprianou has a beneficial interest , and that he "gifted" an

additional 375,000 options to Sincock on November 22, 2000, The Form 5 also discloses that

between November 17, 2000 and December 7, 2000, Sincock "gifted" all 1,450,000 options fo r

"tax and estate planning purposes ." The donees of the options that had been nominally owned b y

Sincock are not identified in any public filings .

173, According to the 2000 10- , as of March 8, 2001, 2,633,33 2

of the 2,900,000 gifted options had been exercised for cash , and all of the 3.2 million shares gifted

and the 1,316,666 shares issued upon the exercise of gifted options had been sold by the donees ,

for a total of 2,916,b6b AremisSuf shares sold .

b. lid'ormation developed In the SEC regarding the sale ofHvprrisnouys AremicSofi s1nrk

174 . According to the SEC Complaint , transfer records show that on November 7,

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2000 Aremis Holdings transferred 800,000 AremisSoft shares to Lomond Finance, Inc .

("Lomond") and 800,000 shares to Inlay Group, Inc . ("Inlay"). The transaction was effected

through AremisSoft counsel .

175. On November 10, 2000, Inlay sold 400, 000 AremisSoft shares through Brown

Brothers and on November 17, 2000 Inlay sold the remaining 400,000 shares, also through

Brown Brothers . On November 27, 2000 Lomond sold 800,000 shares . The proceeds of these

sales were deposited in the Bordier account at Brown Brothers account, the same accoun t

through which some of Poyiadjis's AremisSoft stock was sold .

176_ On November 13, 2000, Poyiadjis assisted in the transfer of the stock held by Inlay

by providing a handwritten note authorizing the transfer agent to follow transfer instructions fro m

his associate.

177. The SEC was unable to obtain records showing the proceed amounts from the sale

of these 1 .6 million shares, but estimates that the sales proceeds totaled approximately $56 millio n

based on a sale price of $35 per share.

17$_ At least a portion of the shares issued upon the exercise of Sincock's options were

sold in a similar manner . On December 15, 2000 Aremis oft's counsel wrote to its transfer agen t

stating that "options have been exercised by Quantum Group Management, Ltd ., as assignee fo r

Sincock Holdings Corp ." Quantum [Jioup is a British Virgin Islands corporation . The letter

explains that the options are in two blocks of 26b .b66 and 3 0(),000, advises the transfer agent to

expect. transfer instructions from Poyiadjis' s associate , and states that confirmation of the

instructions can be obtained by Poyiadjis himself Poyiadjis had written a letter on December 7 ,

2000, consenting to the assignment of 1,075,000 options held by Sincock to Quantum Group_ I n

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• wthis letter, Poyaidjis gave an address for Quantum Group in Switzerland in care of his associate .

179_ On or about December 18, 200, 566,666 shares were delivered to Brown Brothers

for the same Bordier account used in the Prime Growth and Inlay transactions . The SEC

estimates that the proceeds from the sale of these 566,666 shares totaled approximately $19.8

million based on a sale price of $35 per share . Although the 2000 10-K states that 1,316,666

shares issued upon the exercise of gifted options were sold, the SEC has not yet obtained stock

sale records for the remaining 750,000 shares realized upon the exercise of the options . The SEC

estimates that proceeds from the sale of the 750,000 shares totaled approximately $26,250,000

based on a sale price of $35 per share .

180_ Thus, according to the SEC Complaint, proceeds from the sale of AremisSoft

stock nominally owned by Aremis Holdings and from the sale of the AremisSoft shares issued

upon the exercise of the options nominally owned by Sincock total approximately $102,050,000 .

3. Tymvios' AremisSoft stock transactions

191- On November 13, 2000, defendant Tymvios filed a Form 144 disclosing his

intention to sell 10,000 shares of AremisSoft common stock valued at approximately $457,500,

which , according to a Fonn 3 filed on November 15, 2000, represented 100% of his AremisSoft

holdings. The anticipated dale of sale listed on the Form 144 was November 13, 2000, the same

date as the fihrig . I ymvios ihcvei made a subsequent filing regarding the ultimate disposition of

1he 10,000 shares .. On March 1 .. 2001, 7 yrnvios filril , I otiii 5./A which disclosed that on October

9. 2000, he exercised 20.000 options for $6.00 per shai i . and sold the realized shares the same day

for a purported $21 a share. However, the closing price of AremisSoft common stock on

October 9, 2000 was $34 per share, so his proceeds could have been as high as S680,000-

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Tymvios disclosed that after the October 9, 2000 sale he had 20,000 shares of stock and 20,00 0

options remaining, holdings not reflected in his November 15, 2000 Form 3 . Thus, according to

his March 5, 2001 disclosure, on October 9, 2000, Tymvios sold 33 .3% of his ArerriisSof

holdings, including options, for proceeds of $420,000 . Notwithstanding his incomplete and

inconsistent disclosures, Tymvios sold at least 30,000 shares during the Class Period for proceeds

of at least $877,500, or $1,137, 500, if he sold the 20 ,000 shares on October 9, 2000 a t

AremisSoft's October 9, 2000 closing price of $34 per share rather than the stated $21 per share .

4. Bloom's AremisSoft stock transactions

182 . On November 15, 2000, defendant Bloom filed a Form 3 disclosing his ownership .

of 37,000 shares of AremisSoft common stock. According to a Form 4 filed December 7, 2000,

Bloom sold 5,000 shares on November 3, 2000 for $44 .25 per share and 7,900 shares on

November 15 for $43 .75 per share . According to his Form 4 filed January 8, 2001, Bloom sold

an additional 13,700 shares at $44 per share on December 5, 2000 and 10,400 shares for $46 per

share on December 6_ Thus, during the Class Period, Bloom sold 37,000, or 100% of hi s

Aremis ofl. holdings, for total proceeds of $1,648,075 .

5. Mathews AremisSoft stock transaction s

183 . On March 22, 2001, defendant Mathews filed a Form 5/A disclosing that on

October 10, 2000 he had exercised 6(j,()()O Aremi 6So9t uptions at $5 .43 and 20,000 options at

$2 .50 . Thai same day- Madrews sold all 80,000 rc '{~lirL i ;;Inures. ar 100% of his AremisSoft

holdings . for $21 . 56 per There . realizing $1 .724,800 in pi nceeds ] ]owcvcr , the closing price of

AremisSo ft cotrrmon stock on October 10, 2000 was S_f3 .63 per share, so his proceeds could

have been as high as $2,690,40 0 . On April 10, 2001, Malhews filed a Form 4 disclosing that he

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40had acquired 40,000 AremisSoft options bringing his option total to 120,000. On May 10, 2001,

Mathews filed a Form 4 disclosing that he had exercised 40,000 options for $2 .50 per share .

According to that disclosure, after he exercised the 40,000 options, Mathews had 80,000 option s

remaining. On July 9, 2001, Mathews filed a Form 4 disclosing that on May 4, 2001 he had sold

40,000 AremisSoft shares at $16 .81 per share for total proceeds of $672,400, The July 9, 200 1

disclosure did not disclose that Mathews held any options at that time , Thus, during the Clas s

Period , Mathews sold 120,000 AremisSoft shares for total proceeds of at least $2,397,200 .

6. Voice's AremisSoft stock transaction s

184. According to the Company's Proxy dated April 28, 2000, as of April 20, 200 0

4 Voice held 35 ,000 shares ofAremisSoft common stock and 60 ,000 AremisSoft options , 25,000

of which were exercisable at the end of 1999 . On December 11, 2000, Voice filed a Form 4

disclosing that on November 6, 2000 he exercised 10,000 options at $5 per share and sold th e

same on November 7, 2000 at $47 .45 per share for proceeds of $474,500 . In addition, Voic e

exercised 30,000 options on November 6, 2000 at $10.87 per share and sold the same o n

November 6, 2000 at $48 .40 per share for proceeds of $1,452,150 . According to the Form 4, as

of December 11, 2000, Voice held no Arenas oft common stock and only 35,000 options, whic h

included 25,000 options acquired on September 7, 2000 . Thus, according to his December 11 ,

2000 Form 4, Voice sold 40,000 Arcrn sSolt shares, or 53% of'his AremisSo ft holdings includin g

options, for total proceeds of 57 ,9207650 According to the C ompany 's 2001 Proxy filed Apri l

27, 2001, Voice held no AremisSofi securities as of March 8, 2001 .

INAPPLICABILITY OF STATUTORY SAFE BARBO R

185 . The statutory safe harbor provided for forward-looking statements under certai n

58

• r1 1circumstances does not apply to any of the allegedly false or misleading statements pleaded in this

Complaint. The statements alleged to be false and misleading herein all relate to then-existing

facts and conditions- In addition, to the extent certain of the statements alleged to be false may b e

characterized as forward-looking, there were no meaningful cautionary statements identifying

important facts that could cause actual results to differ materially from those in the purportedl y

forward-looking statements . Alternatively, to the extent that the statutory safe harbor does appl y

to any forward-looking statements pleaded herein, the AremisSoft Defendants are liable for thos e

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

was made, the particular speaker had actual knowledge that the particular forward-loolrin g

statements was false, and/or the forward-looking statement was authorized and/or approved by a n

executive officer of AremisSoft who knew that those statements were false when made ,

CLASS ACTION ALLEGATIONS ANDTHE FEA1 D-ON-THE-MARKET PRESUMPTION OF RELIANCE

186 . Plaintiffs bring this action as a class action, pursuant to Fed .R.Civ.P. 23(a) and

(b)(3), on behalf of a proposed class consisting of all persons who purchased or acquired

AremisSofi securities on the open market or otherwise from April 22, 1999 through and including

July 27, 2001 (the "Class Period") and were damaged thereby (the "Class") .

187. The following are excluded from the Class : (a) Defendants and their immediate

families ; (b) the current and former officers and directors ofAremisSoft and their immediate

families ; (c) the legal representatives, heirs, successors or assigns of all such parties ; and (d) any

entity in which Defendants have or had a controlling interest . Also specifically excluded from th e

Class are: R.K . Dhawan, Alex Eapen, Thomas David, Barington Asset Management Limited ,

59

wAlexander Payr, Capital G rowth Overseas Partners Inc ., Roger Meyer, Emerging Markets Capital

Ltd_, Bernard Tavel, Global Capital Management Ltd., Trevor Baines, Jupiter . Venture Capital

Ltd_, Erich Span (alkla Erich Spahn), Morgan Capital Partners Ltd ., Joharmes Zehethofer,

Momentum Equities Inc., Sergei Potaschov (a/k/a Sergei Potaschev), Palantine Asset

Management Ltd., Maria Aurora Carcia-Payr, Westminster International Securities Ltd ., Spahn &

Partners Finanz Consult Gmbh, George A.T., Still & Life Gmbh, Michael Poehn , Devon

International Ltd., Michael Swovoda, Olympus Capital Investment, Inc ., The Atlas Trust, Oracle

Capital Inc., The Trident Trust, Onyx Capital, Inc., LK Global (Holdings) NV, Arernis Holdings,

Ltd., Aremis oft Technology Ventures, Ltd ., Quantum Group Management, Ltd ., Sincock

Holdings Corporation, Lamond Finance, Inc ., LIB Globalsoft .com, Global Consolidator Ltd . ,

MDM Associates (and its successor, AJ. Gallagher), Orimix Exports, Agroservices, Poche an d

Co. GmbH, Zen Trade, Gravitas, Con-Imp, Assen Koinov (alkla Asen Koinov), Roumen

Antonov, and Inlay Group, Inc . and any persons or entities directly or indirectly controlling,

controlled or under common control, or any transferee, nominee or assignee of the foregoing .

188. 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 Plaintiffs at this time and

can only be ascertained through appropriate discovery, Plaintiff s believe that there are hundreds, i f

not thousands of Class members, The members of the Class can be identified from record s

rrramtarned h ArenusSofi and/o) its transfer agents, {girt an inc. notified of the pendency of thi s

action by mail, using a form of notice similar to that customarily used in securities class actions .

189 . As of April 25, 2001, the Company had 19,275,61) shares of common stoc k

outstanding . AremisSofl's common stock was actively traded on the Nasdaq under the ticker

60

symbol "AREM" during the Class Pe riod .

190, Plaintiffs' claims are typical of the claims of the members of the Class because all

Class members were similarly injured by the wrongful conduct alleged by Plaintiffs .

191 . Plaintiffs will fairly and adequately protect the interests of the members of th e

Class . . In that regard, Plaintiffs have retained counsel competent and experienced in class an d

secu rities litigation. Moreover, Plaintiffs have no interest that is contrary to or in conflict with

those of the Class members that Plaintiff seeks to represent.

192. Common questions of law and fact exist as to all members of the Class an d

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

questions of law and fact common to the Class are :

a. Whether the federal securities laws were violated by Defendants' acts , as alleged

herein;

b. Whether statements made by Defendants to the investing public during the Clas s

Period misrepresented or failed to disclose material facts concerning the business, operations ,

liabilities and financial condition of AremisSoft;

C, Whether the AremisSoft Defendants and PKF participated in and pursued the

common course of conduct complained of herein ;

d. Whether the ArenusSofi Defendants and play acted willfully, knowingly, o r

recklessly in omitting and/or misrepresent inz material facts ;

e. Whether the market price ofAremisSaft common stock was artificially inflated

during the Class Period due to the rnatenal omissions and/or misrepresentations complained o f

herein ;

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,t .r

f Whether Defendants ' misrepresentations and omissions were the cause of the

damages suffered by Plaintiffs .2nd the members of the Class ;

g. Whether the Individual Defendants "controlled" AremisSofft as that term is utilized

in § 20(a) of the Exchange Act and § 15 of the Securities Act; and

h. To what extent the members of the Class have sustained damages, and the prope r

measure of such damages .

193 . 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 . Furthermore,

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

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

individually the misconduct alleged by Plaintiffs .

194. Plaintiffs know of no difficulty which will be encountered in the management o f

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

195 . Plaintiffs and the members of the Class are entitled to the presumption of relianc e

upon Defendants' fraudulent misrepresentations and omissions that is provided by the fraud on

the market doctrine because , at all relevant times , the market for A.rernisSoft common stock was

efficient, i .e ., the market promptly digested information regarding AremisSoft' s operations an d

prospects from all publicly available sources and reflected such information in the price o f

AremisSoft common stoc k

196 . The following factors, among others. caused the market for AremisSof} common

stock to operate eficientiy :

a . During the Class Period, AremisSoft common stock mci the requirements for

62

listing, and was listed and actively traded on the Nasdaq, a highly efficient market ;

b- As a regulated issuer , Aremis oft filed periodic public reports with the SEC ;

c. AremisSoft regularly communicated with public investors via established market

communication mechanisms such as the regular dissemination of press releases on major news

wire services, regular communications with the financial and trade press and through meetings

with institutional investors and other major AremisSoft shareholders ;

d. AremisSoft was followed by several securities analysts employed by major

brokerage firms and institutional investors, including, William Blair & Company, L .L.C., SG

Cowen Securities Corp ., and defendant Roth Capital, who analyzed the Company' s operations

and prospects on a regular basis and who recommended the purchase or sale ofAremisSoft stock

on the basis of those analyses; and

e. as detailed herein, the price of AremisSoft common stock immediately reacted t o

the public disclosures concerning the Company-

COUNT I[Against the AremisSoft Defendants, Sed1mayer, and PKFUnder Section 10(h) of the Exchange Act and Rule Q S

197. Plaintiffs repeat and reallege each of the foregoing allegations as if fully set fort h

herein .

I9S . Plaintiffs bring this Count against I .U. Aa cnusSoii Delendants, Sedlmayer, and PKF

on behalf'of the (Ias i

199 During the Class Period, the AremisSol Defendants, Sedlinayer , and PKF ,

individually and in concert, engaged in a plan, scheme and course of conduct, pursuant to which

they knowingly and/or recklessly engaged in acts ., transactions, practices, and courses of busines s

63

which operated as a fraud upon Plaintiffs and other members of the Class _

200. The AremisSoft Defendants, Sedlmayer, and PKF perpetrated this fraudulent

scheme by making various representations that were false or which omitted material fact s

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

made, not misleading .

201 . The AremisSo ft Defendants, Sedlmayer, and PKF had actual knowledge that the

statements specifically alleged above were materially false and misleading and that additiona l

disclosures were necessary to correct the misleading effect of their statements . In the alternative ,

the AremisSoft Defendants, Sedimayer, and PKF acted with reckless disregard for the truth in that

they failed or refused to ascertain that their statements concerning the Company's business,

operations, and financial results lacked a reasonable basis when made .

202. As a direct and proximate result of the foregoing material misrepresentations an d

omissions, the market price of AremisSoft common stock was artificially inflated during the Class

Period .

203 . In ignorance of the materially misleading and/or incomplete nature of th e

AremisSofi Defendants ', Sedlmayer 's, and PI F 's Class Period representations and omissions ,

Plaintiffs and other members of the Class relied to their detriment upon the accuracy an d

completeness of thv° AremisSufi T)efendaiits', and PKFs statements and/or upon the

integrity and efticierncN Of-the m7rkci lOi MeniisScdI c'4731i117i ;)11 stoc k

204 Plaintiff's and the other members oflhf C- :iass would not have purchased o r

acquired l remis oft securities on the open market or otherwise at the market prices that

prevailed during the Class Period, if at all, had they been aware of the true facts concerning the

64

• wCompany's operations , financial results , and future prospects.

205 . The market price ofAremisSoft common stock declined dramatically upon the

public disclosure of the facts that had been concealed and misrepresented by the AremisSoft

Defendants, Sedlmayer, and PKF during the Class Period . Plaintiffs and other members of the

Class have therefore suffered substantial damages .

206. By reason of the foregoing, the AremisSoft Defendants, Sedlmayer, and PK F

knowingly or recklessly violated Section 10(b) of the Exchange Act and Rule IOb-5 promulgated

thereunder in that they- (a) employed devices, schemes and artifices to defraud ; (b) made material

misrepresentations of fact and failed to disclose material facts necessary in order to make their

statements, 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

Plaintiff and other members of the Class in connection with their purchases of AremisSoft

common stock during the Class Period .

COUNT It[Against the Individual Defendants

Under Section 20(a) of the Exchange Act

207. Plaintiffs repeat and reallege the foregoing allegations as if fully set forth herein .

208. Plaintiffs bring this Count against each of the Individual Defendants on behalf o f

the Class .

209_ The ) ndividual Defendants ., by'virtue of their positions wvi'i hin AremisSoft ,

ownership of ArernisSoft common stock.- and specific acts, were, at the time of the wrong s

alleged herein , controlling persons of AremisSofl. within the meaning of 20(a) of the Exchange

Act .

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210. Each of the Individual Defendants qualifies as a "controlling person" because . (a)

they had the power to cause AremisSoft to engage in the unlawful conduct complained of herein

and because they could have prevented the unlawful conduct that Plaintiffs allege; and (b) they

were knowing and culpable participants in the misconduct a lleged herein .

211 . Because the Individual Defendants were "controlling persons" of the Company and

of persons who are primarily liable to Plaintiffs and the Class under § 10(b) of the Exchange Act ,

the Individual Defendants, in addition to being primarily liable, are secondarily liable for those

primary violations pursuant to § 20(a) of the Exchange Act .

COUNT III[Against AremisSoft , Kyprianou , Poyiadjis, Pte', and the Underwriter Defendants

For Violations of Section 11 of The Securities Act]

212. Plaintiffs repeat and reallege the allegations contained in paragraphs 67 through 75

concerning the materially false and misleading statements contained in the Offering Documents .

213. Plaintiffs bring this Count against each of AremisSof, Kyprianou, Poyiadjis, PKF ,

and the Underwriter Defendants pursuant to section 11 of the Securities Act, 15 U .S.C. § 77k, on

behalf of a proposed sub-class of persons who purchased AremisSoft common stock pursuant to

the Registration Statement (the "§ 11 Sub-Class") .

214. The Offering Documents were inaccurate and misleading , contained untrue

statements of material facts, omitted to state other facts necessary to make the statements mad e

not misleading, and concealed and failed adequately to disclose material facts as described above .

215, AremisSofi, Kyprlanou, ?oyiadjis, PKF, and the Underwater Defendants were

responsible for the contents and dissemination of the Offering Documents .

a. Kyprianou and Poyiadjis, either personally or by attorney-in-fact, signed th e

66

Company's Registration Statement dated April 22, 1999 and all subsequent

amendments thereto. As such, Kyprianou and Poyiadjis are liable to Plaintiffs an d

the other members of the § 11 Sub-Class .

b. As issuer of the shares and registrant for the Ofering, AremisSoft is strictly liable

to Plaintiffs and the other members of the § 11 Sub- Class for the misstatements and

omissions contained in the Offering Documents.

C, As the accounting expert for the Offering, PKF made certain false and misleading

representations in the Offering Documents concerning the validity of the

Company's reported financial results and issued unqualified opinions on thos e

financial results, which represented that they had been prepared in conformity with

GAAP and that its audits had been conducted in accordance with GAAS . The

financial statements included in the Offering Documents were not prepared in

accordance with GAAP and PKF did not conduct its audits of those results in

accordance with GAAS. As such, PKF is liable to Plaintiffs and the other

members of the 11 ,Sub-Class .

d. As the underwriters of the Offering, the Underwriter Defendants owed to th e

purchasers of the shares of AremisSoft, including Plaintiffs and the other members

of the § l l Sub-C ass, the duty to make a reasonable and diligent investigation o f

the statements contained in the Of1'erinp Documents at the time they became

eftcctivi, to ensure that said staieilieiuls were true and that there was no omission

to state a material fact required to be stated in order to make the statement s

contained therein not materially false of ,-nisleading, As such, the Underwrite r

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Defendants are liable to Plaintiffs and the other members of § 11 Sub-Class .

216. AremisSoft, Kyprianou, Poyiadjis, PKF, and the Underwriter Defendants did not

make a reasonable investigation or possess reasonable grounds for the belief that the statements

contained in the Offering Documents were true and without omissions of any material fizts and

were not misleading .

217. AremisSoft, Kyprianou, Poyiadjis , PKF, and the Underwriter Defendants issued,

caused to be issued and participated in the issuance of materially Use or misleading written

statements to the investing public which were contained in the Offering Documents, whic h

misrepresented or failed to disclose, inter gi& the facts set forth above. By reasons of the

conduct herein alleged, these defendants violated, and/or controlled a person who violated,

section 1 1 of the Securities Act.

218. Plaintiffs and the other members of § 11 Sub-Class acquired shares of AremiisSoft

pursuant to the false and misleading Registration Statement and received. or were legally entitle d

to receive, a copy of the Final Prospectus .

219. Plaintiffs and the § 11 Sub-Class have sustained damages . The value ofAremisSoft

shares has declined substantially subsequent to and due to the Securities Act Defendants '

violations .

220. At the times they purchased AremisSofl shares , Plaintiffs and the other members of

* 1 l Sub-Class were without knowledge of the faces concerning the wrongful conduct allege d

herein and could not have reasonably discovered ihus facts prior to July 27 , 2001_ Less than one

year has elapsed from the time that plaintiffs discovered or reasonably could have discovered th e

lasts upon which this complaint is based to the leans that the first of these consolidated actions

P 'Y1

_ Ar 0 0

was filed . Less than three years have elapsed from the time that the securities upon which thi s

Count is brought were bona fide offered to the public to the time at which the first of thes e

consolidated actions was filed .

[Against Defendants Kyprianou, Poyiadjis , Voice, and BartelFor Violations of Section 15 of the Securities Act l

221 . Plaintiffs repeat and reallege the allegations contained in paragraphs 67 through 75

concerning the materially false and misleading statements contained in the Offering Documents.

222. Plaintiffs bring this Count against defendants Kyprianou, Poyiadjis, Voice, and

Bartel pursuant to section 15 of the Securities Act, 15 U . S .C . § 77o, on behalf of the § 11 Sub-

Class .

223 . At the time of the Offering, defendants Kyprianou, Poyiadjis, Voice , and Bartel

were control persons of AremisSoft by virtue of their positions as senior officers, or defacto

officers, ofAremisSoft and substantial AremisSoft holdings .

224. Defendants Kyprianou, Poyiadjis, Voice, and Bartel were culpable participants in

the violations of sections 11 of the Securities Act alleged in Count III above . Defendants

Kyprianou and Poyiadjis signed the Registration Statement, and Kyprianou, Poyiadjis, Voice, an d

Bartel participated in the process which allowed the Offering to be successfully completed .

225_ As a result of the foregoing . Plaintiffs and the other members of the §11 Sub-Clas s

suffered damages,

PRAYER FOR RELIE F

WHEREFORE, Plaintiffs, ❑n their own behalf and on behalf of the other members of th e

69

Class, pray for judgment as follows :

A Declaring this action to be a proper class action, and certifying the Lead

Plaintiff as the Class representative ;

B. Declaring and determining that the Defendants violated the federal

securities laws by reason of their conduct as alleged herein;

C . Awarding money damages against the Defendants in favor of the Plaintiffs

and the other members of the Class for all losses and injuries suffered as a result of the acts an d

transactions complained of herein, together with prejudgment interest on all of the aforesaid

damages which the Court shall award from the date of said wrongs to the date ofjudgment herei n

at a rate the Court shall fix;

D_ Awarding Plaintiffs their costs and expenses incurred in this action,

including reasonable attorneys', accountants', and experts' fees ; and

E. Awarding such other relief as may be just and proper

JURY TRIAL. DEMANDED

Plaintiffs hereby demand a trial by jury .

Dated : March 15, 2002LITE DEPALMA GREENBERG & RIVAS, LLC

se .k~j. : 'arriwo Gateway Center , 12'x' Floor

Newark, NJ 07102-500 1(973) 623-3000

Liaison Counsel for Plaintiffs

70

C IN & BARROWAY, LLPRichard S. Schiffirin, Esq .Stuart L. Berman, Esq.Marc I . Willner, Esq . .Three Bala Plaza East , Suite 400Bala Cynwyd, PA 1900 4(610) 667-7706

Lead Counsel for Plaintiffs

MILBERG WEISS BERSHADHYNES & LERACH, LLP

Melvyn I. Weiss, Esq.Francis Karam, Esq .Daniel Altman, EsqOne Pennsylvania PlazaNew York, NY 10119(212) 594-530 0

BERGER & MONTAGUE, P .C.Todd S . Collins, Esq .Jacob A . Goldberg, Esq.Douglas M . Risen, Esq .1622 Locust StreetPhiladelphia, PA 19103(215) 875-300 0

Executive Committee for Plaintiffs

KELLER ROHRBACK, LLPLynn Lincoln Sarko, Esq .Juli Desper, Esq ,1201 Third Ave ., Suite 3200Seattle, WA 98101-3052 .(206) 623-1901 )

THE 01 , SLLN 1 ./W FIRMHun Olsen, Esq .2121 K Strcc,. '\1 \ ;rSuite 800Washington , U . ( : 20037(703) 351-519 9

Attorneys for Plaintiffs

G_1L.it&U-O44310102\P1eeAings\First Amended Cvmplaint4 .wpd

71

~ e F 5

LITE DEPALMA GREENBERG & RIVAS, LLCAllyn Z. Lite (AL-6774 )Joseph J. DePalma (JD-7697)Two Gateway Center, 12th FloorNewark, New Jersey 07102(973) 623-300 0

Attorneys for Plaintiff

0

UNI'T'ED STATES DISTRICT COURTDISTRICT OF NEW JERSEY

IN RE ARENUSSOFT CORPORATION Civil Action No . 01 -cv-2486 (JAP)SECURITIES LITIGATION

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X I i L' DE AL A GREET BERG & RIVAS, LLC

Allyn Z. Lite (AL-6774)Joseph J . DePalrna (JD-7697)Two Gateway Center, 12" FloorNewark, New Jersey 07102(973) 623-3000

Attorneys for Plaintiff

IJ1VI1'ED STATES DISTRICT COURTDISTRICT OF N JERSEY

IN RE AREN SSOFT CORPORATION Civil Action No. 01 -cv-2486 (JAP)SECURITIES LITIGATION

CERTIFICATION OF PLAINTIFFDONALD CAMPODONICO

AP1"13ViT5~l L1~~/'f/4rA►J'1y•i~ir~~rrr . ~ _ 1 i

ECU ■ 1 * "fir LAWS V

I autho&e and retain Milberg Weiss Bershad Hynes & Lerach UP to No an action, 01 M, Orlda current action, under the federal securities "taws to recover damages and to seek relief q inyt,Ar s of Corporation . Miiberg We~n wit prosecute the ion on a contingent fee basis and .will ads all costs, and expenses. The AremisSofiRak on A&MO nt Provided tome isinto p t ted by reference.

First name: Donald .

Last name; Cu4*dozko

Addle s; '3339 Counnhryade Drive

Cikyt San Mateo

s r# ~ CA 03

!mot campY09t ►oo-comPhone : 650-349-44$ 1

I declare the folUowin as tQ the claims hssestedr or to be assarted; 'under the *ral ccurLialaws:

1 .1 have reviewed the AremisSoft complaint prepared by Milberg Weiss Bersbad ' ynes &Learach LLP whom I designate As my counsel in this action for all pwposes-

2. 1 did trot acquire ArnrnisSoft stock at the direction of plaintiffs counsel -or in order toparlicipazc in any private action undees'the federal secwiti laws.

3 . I am wi.flmg to serve as a lead plaintiff either individuaU.y or as part of a group . A leadplaintiff is a representative party who acts on beWf of other claw members in directing theaction, and whose duties may include testing at deposition and U W,

4, I will not accept any payment for serrvi as , representativc .party beyond my pro rats sl=4,of any recovery, 'accept reasonable costs uld expenses, such a-travel expenses and Iost wdirectly related to the class representation , as ordered or approved by t}te count pursuant zc 3-zA, .

5 . 1 have rout sought to serve or served as a representative party for a class in an tctirm unc h.-the federal securities laws within the past three years, except :

6-1 understarid ,that this, is not a claim farm, and that my ability to share in any recovery AS ;member of the class is unaffected by my derasior, to serve as a represents +ve parry .

3 02

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December 21, 1999 100 28;65

Sales : Daft Said Number of Shams. Sold S&Ik g Pric r per Share

I declare under penalty of perjury that the Ir f'armatlon entertd Is' yesaccurate :

By clicking on the button below, I intend to sign and rncute yesthis agreement;

Clicked to Retain Milberg Weiss