MIS S .ARLINGTOr AYE NV 845+15 Thomas J Hall (NSB #...
Transcript of MIS S .ARLINGTOr AYE NV 845+15 Thomas J Hall (NSB #...
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THOMAS J. HALLCOUNSELOR AT LAWMIS S .ARLINGTOr AY E
RENO , NV 845+15
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Thomas J . Hall (NSB # 0675 )LAW OFFICES OF THOMAS J . HALL305 South Arlington AvenuePost Office Box 3948Reno, Nevada 89505Telephone : 775-348-7011Facsimile : 775-348-721 1
Plaintiffs' Liaison Counse l
Laurence D . KingKAPLAN FOX & KILSHEIMER LLP555 Montgomery Street, Suite 1501San Francisco , California 94111Telephone : 415-772-4700Facsimile : 415-772-4707
Frederic S . FoxChristine M . FoxJeffrey P. CampisiKAPLAN FOX & KILSHEIMER LLP805 Third Avenue, 22nd Floo rNew York, New York 10022Telephone : 212-687-1980Facsimile : 212-687-771 4
Samuel H . RudmanRussell J . GunyanGELLER RUDMAN PLL C200 Broadhollow Road , Suite 406Melville , New York 11747Telephone : 631-367-7100Facsimile : 631-367-1173
Plaintiffs ' Co-Lead Counsel
[Additional counsel on signature page ]
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
IN RE AMERCO SECURITIES LITIGATION
This Document Relates To :ALL ACTIONS
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Master File No. CV-N-03-0050-ECR (RAM) I
SECOND AMENDED CONSOLIDATEDCLASS ACTION COMPLAINT FORVIOLATIONS OF THE FEDERALSECURITIES LAW
JURY TRIAL DEMANDE D
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
3 0 S.ARUNGTON AVERENO , NV MM S
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TABLE OF CONTENT S
I. NATURE OF THE CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1
II . JURISDICTION AND VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1
III . CLAIMS AGAINST DEFENDANTS UNDER SECTIONS 11 , 12, AND 15 OF THESECURITIES ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A . SECURITIES ACT PLAINTIFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
B . SECURITIES ACT DEFENDANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
C . OVERVIEW OF SECURITIES ACT CLAIM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
D . FALSE AND MISLEADING JANUARY 2000 REGISTRATION STATEMENT . . 6
1 . PwC's False Consent Letter For January 2000 Registration Statement) . . . . . . . . .
COUNT I (Against Defendants Edward Shoen , James Shoen, Horton , Dodds , Carty, Bayer,
Herrera , Brogan, Grogan and PwC For Violations Of § 11 Of The Securities Act) . . . . . . . . . . . . . .
COUNT II (Against Defendants Edward Shoen , James Shoen and Horton For Violations Of §
12(1) and (2) Of The Securities Act) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I
COUNT III (Against Defendants Edward Shoen , James Shoen , Horton , Dodds , Carty, Bayer,
Herrera , Brogan and Grogan For Violations Of § 15 Of The Securities Act) . . . . . . . . . . . . . . . . . . . . . . 1 3
IV. CLAIMS AGAINST DEFENDANTS EDWARD SHOEN, JAMES SHOEN, MARK SHOEN,HORTON, DODDS, CARTY, BAYER, HERRERA, BROGAN, GROGAN, U-HAUL,REPUBLIC WEST, AMOROSO AND PWC UNDER SECTIONS i 0(b) AND RULEI0(b)-5 AND AGAINST EDWARD SHOEN, JAMES SHOEN, MARK SHOEN,HORTON, DODDS, CARTY, BAYER, HERRERA, BROGAN, GROGAN, ANDAMOROSO UNDER SECTION 20(a) OF THE EXCHANGE ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,;
A . EXCHANGE ACT PLAINTIFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5
B . EXCHANGE ACT DEFENDANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5
C. OVERVIEW OF THE EXCHANGE ACT CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6
D . SUMMARY OF EXCHANGE ACT CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8
E . AMERCO RESTATES ITS HISTORICAL FINANCIAL RESULTS . . . . . . . . . . . . . . . . . . . . . 2 3
1 . Origins of the SAC SPEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2 . Edward Shoen Seizes Control of AMERCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3 . AMERCO Incurs Damages Of More Than $460 Million Due to Certain . . . . . . . .
Individual Defendants ' Wrongful Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4. Defendants Failure To Consolidate the SAC SPEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5 . The 2002 SAC SPE Restatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOt1NSELORAT LAWany S.ARL1NGTON AV E
RENO , NV 89505
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6. Defendants Fail To Disclose The Company's Potential or Actual Violation ofIts Debt Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
F . DEFENDANTS MATERIALLY MISREPRESENTED THE OPERATINGRESULTS AND FINANCIAL CONDITION OF THE COMPANY'S INSURANCEOPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3
1 . Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2. AMERCO' s Insurance Loss Reserves , The ADOI Determination And The . . .
2003 Restatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5
G . MATERIALLY FALSE AND MISLEADING STATEMENTS DURING THECLASS PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
H . AMERCO CONSOLIDATES THE SAC SPE' S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I . POST-CLASS PERIOD EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
J. AMERCO'S FALSE AND MISLEADING FINANCIAL STATEMENTS ANDDISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1 . AMERCO' s Improper Failure To Consolidate Special Purpose Entities . . . . . . 80
2 . Amerco's Improper Failure To Record Fully-Developed Insurance Reserves
And Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
3 . AMERCO's Improper Failure To Disclose Contingent Liabilities And . . . . . . . . . .
Significant Risks And Uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3
4. AMERCO's Improper Accounting For Its Limited Partnership Investment . 95
5 . AMERCO's Understatement of General and Administrative Expenses . . . . . . . 98
6. AMERCO's Other Improper Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 0
K. PwC'S ROLE IN THE FRAUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0
L . CONTROL PERSON LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1
M . ADDITIONAL SCIENTER FOR COUNT IV ONLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1
N . APPLICABILITY OF PRESUMPTION OF RELIANCE : FRAUD-ON-THE-MARKET DOCTRINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3
0 . NO SAFE HARBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3
P. CLASS ACTION ALLEGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2
COUNT IV (Against All Defendants For Violations Of § 10(b ) Of The Exchange Act And Rules
lOb-5(b ) and (a ) and (c)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2
I ISECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW305 S.ARLSNGTON AVE
RENO, NV 89505
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COUNT V (Against The Individual Defendants For Violation Of Section 20(a) Of The Exchange
Act) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2
I v. PRAYER FOR RELIEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2
illSECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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rIIOMAS J . HALLCOL SSELOR AT LAW3u5 S .AFLUNGTO1 AY E
RE'O,NVR,%
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Plaintiffs, individually and on behalf of all other persons and entities similarly situated, b y
their undersigned counsel , make the following allegations, which are based upon the investigation
conducted by counsel, which included , among other things, a review of the public announcements
made by defendants , Securities and Exchange Commission ("SEC") filings , press releases and
media reports regarding AMERCO ("AMERCO" or the "Company"), a review of the allegations
contained in the complaint and in other pleadings in the action AMERCO v.
PriceWaterhouseCoopers, LLP, Case No . CV 2003 -011032, Superior Court of Arizona, Maricopa
County (the "AMERCO vs . PwC Action"), a review of the pleadings , deposition transcripts and
exhibits in the action entitled Republic Western Insurance Company v . Richard I Turoff, et al, (the
"TuroffAction") and interviews with witnesses .
I. NATURE OF THE CLAIM S
1 . This is a securities class action brought under Sections 11, 12 and 15 of the
Securities Act of 1933 ( the "Securities Act"), 15 U.S .C . §§77k, 771 and 77o, and Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S .C . §§78j(b), and 78t ( a), and
the rules and regulations promulgated thereunder by the SEC, including Rule IOb-5, 17 C .F.R.
§240.1 Ob-5 .
2 . Plaintiffs' Securities Act claims are contained in Section III of this complaint .
Plaintiffs' Exchange Act claims are contained in Section IV . The Securities Act claims contained i
Section III expressly do not incorporate any of the allegations contained in Section IV, includin g
allegations of scienter and fraud .
II. JURISDICTION AND VENUE
3 . This Court has jurisdiction over the subject matter of this action pursuant to Section
22(a) of the Securities Act (15 U.S .C . § 77v(a)) and Section 27 of the Exchange Act (15 U.S .C. §
78aa ) as well as 28 U.S .C . §§1331, 1337 and 1367 .
4 . The claims asserted arise under Sections 11, 12 and 15 of the Securities Act (1 5
U .S .C. §§ 77k , 771 and 77o ) and Sections 10(b) and 20(a) of the Exchange Act (15 U .S .C . §§78j(b)
and 78t(a)) and Rule I Ob- 5 promulgated thereunder (17 C .F .R. §240 . l Ob-5) .
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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TIIVIIAS J . HALLCOUNSELOR AT LAWS is S .ARLUNGTON AV E
RENO , MV 89VIS
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5 . Venue is proper in this District pursuant to Section 22(a) of the Securities Act (1 5
U .S .C . § 77v) and 27 of the Exchange Act (15 U .S .C. § 78aa) and Section 27 of the Exchange Ac t
(15 U .S .C . § 78aa) and 28 U .S .C . §1391(b) and (c). Substantial acts in furtherance of the alleged
fraud and/or its effects have occurred within this District and AMERCO maintains a principal offic e
in Reno, Nevada.
6. In connection with the facts and omissions alleged in this Complaint, defendants ,
directly or indirectly, used the means and instrumentalities of interstate commerce, including, but
not limited to, the mails, interstate telephone communications, and the facilities of the nationa l
securities markets .
III. CLAIMS AGAINST DEFENDANTS UNDER SECTIONS11, 12, AND 15 OF THE SECURITIES AC T
7. These claims are brought against AMERCO's executives and directors who signed
the Registration Statement and Prospectus for the offering of Senior Notes (described below) an d
against PricewaterhouseCoopers LLP ("PwC") AMERCO' s outside auditor from 1978 to July 2002 .
A. SECURITIES ACT PLAINTIF F
8 . Plaintiff IG Holdings, Inc . ("IG Holdings") purchased AMERCO 8 . 8% Senior Note s
due 2005 traceable to an offering by AMERCO at artificially inflated prices during the Class Period
and was damaged thereby. IG Holdings' certification has been previously filed in this litigation and .
is hereby incorporated by reference . The AMERCO Senior Notes purchased by IG Holdings, Inc .
were offered pursuant to the Company's January 2000 Registration Statement (defined below at
T26).
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l1IOMAS J . HALL
(Ol ]SELOR AT LAW
3u5 S .ARLINGTON AVE
RENO, NV W5415
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SECURITIES ACT DEFENDANTS '
9. Defendant Edward J. ("Joe") Shoen ("Edward Shoen") is and was, at all relevan t
times , Chairman of the Board of Directors and President of AMERCO, and a member of its
I I Executive Finance Committee. In addition, at certain times relevant to this action, Edward Shoe n
served as a director and/or chairman of Rep West .
10. Defendant James P . Shoen ("James Shoen") has served on the Company's Board o f
Directors since 1986, as Executive Vice President of U-Haul from 1990 to November 2000, an d
served previously as Vice President of AMERCO from 1989 to November 2000 .
11 . Defendant Gary B . Horton ("Horton") is the Company Treasurer, and signe d
AMERCO's SEC filings during the Class Period as its principal financial and accounting officer .
He is also Assistant Treasurer to U-Haul .
12 . Defendant John M. Dodds ("Dodds") has served as a Director of the Company sinc e
1987, as a Director of U-Haul since 1990, and served in various executive capacities wit h
AMERCO until 1994 . Dodds also serves on the Board's Audit Committee .
13 . Defendant William E . Carty ("Carty") has been a Director of the Company sinc e
1987 and a Director of U-Haul since 1986. Carty has been associated with the Company since
1946, and is the uncle of Joe, Mark and James Shoen .
14 . Defendant Charles J . Bayer ("Bayer") has served on the AMERCO Board of
Directors since 1990, and served as the President of AMERCO 's real estate arm (which engaged in
transactions with the AMERCO' s special purpose entities , as described below) from 1990 unti l
2000.
AMERCO is a holding company for U-Haul International , Inc. ("U-Haul"), AMERCO RealEstate Company ("AREC"), Republic Western Insurance Company ("RepWest") and Oxford LifeInsurance Company ("Oxford") . AMERCO has four industry segments , represented by moving andstorage operations (U-Haul), real estate (AREC or "Real Estate "), property and casualty insurance(RepWest) and life insurance (Oxford) . AMERCO is not currently a defendant in this actionbecause it is still subject to the jurisdiction of the bankruptcy court as a result of having filed forbankruptcy protection in June 2003 .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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TI[O\IAS J. HALL((} NSELOR AT LAWMO.; S .kRIANGTON ANT
RENO, NV KI%AS
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15 . Defendant Richard Herrera ("Herrera") served as a Director of the Company fro m
1991 to 2000, with the exception of the latter half of 1997 . He has been associated with the
Company since 1988, and was Vice President of Marketing, Retail Sales for U-Haul until he left the l
Company in June 2001 .
16 . Defendant John P . Brogan ("Brogan") has served as a Director of the Company since l
1998, and also served on the Board 's Audit Committee.
17 . Defendant James J . Grogan ("Grogan") has served as a Director of the Company
since 1998, and also served on the Board's Audit Committee .
18 . Defendant PriceWaterhouseCoopers , LLP is a firm of certified public accountants
that audited AMERCO's financial statements from 1978 to July 2002 and issued materially false
and misleading opinions on AMERCO's fiscal year-end financial statements dated March 31, 1997,
1998, 1999, 2000, 2001, and 2002. PwC consented to AMERCO's use of its opinions in SEC
filings and in the Registration Statement for the offering of AMERCO Senior Notes to the public .
In those opinions, PwC certified that it had audited the Company's financial statements in
accordance with Generally Accepted Auditing Standards ("GAAS"), and that, in its opinion, the
financial statements "present fairly, in all material respects, the financial position of AMERCO and
its subsidiaries . . . . in conformity with generally accepted accounting principles ." On March 4,
1999, PwC issued a Consent Letter, included as part of the Registration Statement for AMERCO's
Senior Notes, which consented to the use of PwC's name and audit opinions, consented to its
designation as an expert, and its association with the yearly financial statements included within .
19 . Defendants Edward Shoen, James Shoen, Horton, Dodds, Carty, Bayer, Herrera ,
Brogan, Grogan, and PwC, together, are referred to herein as the "Securities Act Defendants".
C. OVERVIEW OF SECURITIES ACT CLAI M
20. During the Class Period, the Securities Act Defendants issued $200 million o f
publicly traded 8 .8% Senior Notes due 2005 for sale to the public in a note offering in February
2000 .
21 . The Section 1 i claim is brought on behalf of persons who purchased the 8 . 8% Sen i
Notes of defendant AMERCO pursuant to a note offering in February 2000 . This claim alleges that4
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
3115 S .ARL( .GTON M YRENO , N V "W5
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the Registration Statement and Prospectus issued in connection with the offering misrepresented
and omitted material facts in that, inter alia, the financial statements incorporated therein were
materially false and misleading in violation of Generally Accepted Accounting Principles
("GAAP") .
22 . Indeed, AMERCO has now admitted that it improperly accounted for transaction s
with certain special purpose entities ("SPEs"), including SAC Holdings Corporation ("SAC SPEs") ,
and failed to disclose to investors that the SAC SPEs were not separate companies from AMERCO ,
but rather, were controlled entities that were designed, among other things, to exclude hundreds o f
millions of dollars of associated liabilities from AMERCO' s balance sheet. Further , the Company
has restated AMERCO' s historical financial results for fiscal years 1999 and 2000 ended March 31 ,
1999 and March 31, 2000, among other years, to include the SAC SPEs in AMERCO' s
consolidated financial statements .
23 . The financial statements contained in the offering documents for the February 2000
note offering, including those for the years ended March 31, 1996, March 31, 1997, March 31,
1998, and March 31, 1999 were expertised by PwC . AMERCO has now admitted that its financial
statements for the year ended March 31, 1999 materially overstated net earnings by approximately
$25 million, or 65%, and materially understated liabilities by approximately $113 million .
24 . But PWC did not just audit the fiscal year -end financial statements of AMERCO, as
set forth below, before the January 2000 Registration Statement was issued, PwC performed a
subsequent events review of the Company's interim financials . PwC also reviewed the offering
documents, including all factual portions of the Registration Statement and Prospectus and
consented to its association with the representations made in these documents and their designation
as experts. PwC's Consent Letter (attached as an exhibit to the January 2000 Registration
Statement) effectively represented that PwC was not aware of any violation of GAAP in the
Company's audited financials for the years ended March 31, 1999 and March 31, 1998 and was not
aware of any material changes in the previously audited financials .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLUOC'SELOR AT LAWWN S.ARLI !NGTQN AV E
RENO, NV $9545
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25 . This Count alleges only that the January 2000 Registration Statement misrepresented )
I and omitted material facts . There is no allegation with respect to Counts I, II, or III that any of th e
Securities Act Defendants acted with scienter .
I D. FALSE AND MISLEADING JANUARY 2000 REGISTRATION STATEMENT
26 . On or about February 4, 2000, AMERCO issued $200 million of publicly trade d
8 .8% Senior Notes due February 4, 2005 (the "AMERCO Senior Notes") . The offering was
pursuant to the filing by AMERCO with the SEC of a Prospectus Supplement (filed on January 28,
2000), a Preliminary Prospectus (filed on January 21, 2000) and a Registration Statement and
Prospectus (filed on March 19, 1999) (collectively the "January 2000 Registration Statement") .
27 . The January 2000 Registration Statement was executed and signed by defendant s
Edward Shoen, Horton, James Shoen, Carty, Dodds, Bayer, Herrera, Brogan and Grogan .
28 . In the January 2000 Registration Statement, the Securities Act Defendants2 set fort h
financial information that purported to be an accurate report and fair presentation of AMERCO' s
financial results for the fiscal years ended March 31, 1999, 1998 and 1997 and the Company' s
financial results for the quarters ended June 30, 1999 and September 30, 1999 . The January 2000
Registration Statement reported that for the quarter ended June 30, 1999, the Company ha d
recorded total revenues of $439 .6 million and net earnings of $42 .3 million . For the quarter ended
September 30, 1999, the January 2000 Registration Statement reported that the Company ha d
recorded total revenues of $462 .9 million and net earnings of $42 . 1 million . In addition, the
January 2000 Registration Statement incorporated by reference the 1999 Form 10-K and th e
financial statements consolidated in the 1999 Form 10-K. The January 2000 Registration Statement
also incorporated by reference the Second Quarter 2000 Form 10-Q . The January 2000 Registrati
2 As set forth in' 19, the "Securities Act Defendants" includes the signators of the January2000 Registration Statement (set forth above) and PwC .
6
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOM A S J . HALLCUE NSELOR A T LAW
3415 S .ARLINGTON AV ERENO, NV 8951
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Statement described the Company's moving and storage operations but made no disclosure of th e
relationship between AMERCO and the SAC SPEs .
29. The financial results reported in the January 2000 Registration Statement and the
description of AMERCO' s moving and storage operations as repo rted in the Registration Statement
were materially false and misleading because they materially overstated the Company's net incom e
and materially understated the Company 's liabilities . In addition, they failed to inform investors ,
among other things, that the SAC SPEs were not separate economic entities from AMERCO, bu t
were completely controlled by AMERCO and artificially kept hundreds of millions of dollars o f
associated liabilities off AMERCO 's balance sheet and millions of dollars of operating losses fro m
being reported to investors .
1 . PwC's False Consent Letter For the January 2000 Registration Statemen t
30 . With respect to the Company's results for the quarters ended June 30, 1998 ,
September 30, 1998 and December 31, 1998, PwC was required to and did conduct a subsequen t
events review whereby it reviewed the Company's financials for these interim periods and
consented to its association with the March 31, 1998 financial statements , upon which PWC had
issued a clean opinion dated June 26, 1998, concluding that there were no material violations o f
GAAP with the interim and fiscal year end results included in the Prospectus .
31 . The Registration Statement issued in connection with the notes offering, filed March
19, 1999, incorporated AMERCO's financial results for the year ended March 31, 1998 an d
contained a Consent Letter signed by PwC dated March 4, 1999, which stated :
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus constitutingpart of this Registration Statement on Form S-3 of our report dated June 26, 1998appearing on page 30 of AMERCO's Annual Report on Form 10-K for the yearended March 31, 1998 . We also consent to the application of such report to theFinancial Statement Schedules for the three years ended March 31, 1998 listed unde r
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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T[IONMAS J. HALLCOUNSELOR AT LAW31C S .ARLIN GTON AV E
RENO, NV 39-415
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Item 14(a) of AMERCO 's Annual Repo rt on Form 10-K for the year ended March31, 1998 when such schedules are read in conjunction with the financial statements
referred to in our report . The audits referred to in such repo rt also included theseFinancial Statement Schedules . We also consent to the reference to us under the
heading "Expe rts" in such Prospectus .
PricewaterhouseCoopers LLPMarch 4, 199 9Phoenix, Arizona
32 . This consent effectively represented that PwC was not aware of any materia l
violation of GAAP in the unaudited interim financial statements repo rted subsequent to the audited
financial statements for March 31, 1998, including the results for the fiscal quarters ended June 30 ,
1998, September 30, 1998, and December 31, 1998 . According to GAAS, as set forth in AU
§711 .13, if an auditor is aware that unaudited interim fin ancial statements included in a registratio n
statement are not in conformity with GAAP, the auditor should insist on appropriate revision or
revise the audit report to disclose the violation . Thus, PwC's Consent Letter and failure to revise it s
audit report was an affirmative statement that PwC was unaware of any GAAP violation in the
interim and fiscal year-end financial statements. Accordingly, PwC's consent was false and
misleading and in violation of GAAS .
33 . Furthermore, the Prospectus Supplement dated January 27, 2000 included th e
Consolidated Financial Statements as of and for the fiscal years ended March 31, 1999, 1998 an d
1997 for AMERCO . PWC's report of independent accountants dated June 24, 1999 was included
therein, which stated :
To the Board of Directors and Stockholders of AMERCO
In our opinion, the accompanying consolidated balance sheets and the relatedconsolidated statements of earnings, or changes in stockholders equity, ofcomprehensive income and of cash flows present fairly, in all material respects, thefinancial position of AMERCO and its subsidiaries at March 31, 1999 and 1998, andthe results of their operations and their cash flows for each of the three years in theperiod ended March 31, 1999, in conformity with generally accepted accountingprinciples . These financial statements are the responsibility of the Company' s
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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T1-I0 IAS J . HALL .COUNSELOR AT LAW3114 S .ARLI!VCTOP AV E
RENO, NV 89585
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management ; our responsibility is to express an opinion on these financial statementsbased on our audits . We conducted our audits of these statements in accordance withgenerally accepted auditing standards which require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are freeof material misstatement . An audit includes, examining on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation . We believe that our auditsprovided a reasonable basis for the opinion expressed above .
As discussed in Note 1 to the consolidated financial statements, the Companyimplemented Statement of Financial Accounting Standards No . 133, "Accountingfor Derivative Instruments and Hedging Activities," in fiscal 1999 .
PricewaterhouseCoopers LLPPhoenix, ArizonaJune 24, 1999
The PWC report was false and misleading as the financial statements did not present fairly, in al l
material respects, the financial position of AMERCO and the results of their operations as of and fo
the years ended March 31, 1999 an d 1998 . As set forth herein, AMERCO restated its financi
statements for the year ended March 31, 1999 acknowledging that liabilities were material l
understated by $113 million, stockholders' equity was materially overstated by $72 million, or 1 3
and net earnings were materially overstated by $25 million or 65% . As a result, the financi
statements contained in AMERCO' s Prospectus Supplement dated January 27, 2000
materially false and misleading and did not comply with GAAP .
COUNT I
(Against Defendants Edward Shoen, James Shoen, Horton, Dodds,Carty, Bayer, Herrera, Brogan, Grogan and PwC For Violations
Of § 11 Of The Securities Act )
34 . Plaintiffs repeat and reallege each and every allegation contained above as if fully s
forth herein, except that, for purposes of this claim, plaintiffs expressly exclude and disclaim an y
allegation that could be construed as alleging or sounding in fraud or intentional or reckles s
misconduct .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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IIIOd1AS a . HALL('OCSSELOR AT LAW
305 S ..AKLINGTON AV ERENO, NV W)5 15
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35 . Defendants Edward Shoen , James Shoen , Horton, Dodds, Carty, Bayer , Herrera,
Brogan, and Grogan were officers and/or directors of AMERCO at the time the January 2000
Registration Statement became effective and with their consent were identified as such in the
Registration Statement . In addition, these defendants all signed the January 2000 Registration
Statement or authorized it to be signed on their behalf .
36 . The January 2000 Registration Statement reported AMERCO's financial results fo r
the fiscal years ended March 31, 1999, 1998 and 1997 and the Company's financial results for th e
quarters ended June 30, 1999 and September 30, 1999 .
37 . The Registration Statement contained misrepresentations of material facts and
omitted material facts required to be stated in order to make the statements contained therein no t
misleading. As such, the Securities Act Defendants are liable to plaintiff and the class .
The Registration Statement contained untrue statements of material fact concerning AMERCO '
business and fi nancials , as evidenced by the Company' s restatement, on August 25, 2003, where i
AMERCO restated its full year and interim quarterly results for the fiscal years 1999-2002, and i.
opening retained earnings balances for years prior to 1999 . As set forth herein, AMERC
restated its financial statements for fiscal year ended March 31, 1999 acknowledging that liabiliti e
were materially understated by $113 million, stockholders' equity was materially overstated by $
million , or 13%, and net earnings were materially overstated by $25 million or 65%.
38 . Moreover, the Company's financial results for the fiscal year ended March 31, 1998 ,
also included in the January 2000 Registration Statement , were also materially false and misleading
because they materially overstated the Company 's net earnings and materially understated the
Company' s liabilities and failed to inform investors that the SAC SPEs were not separate entities
from AMERCO, but were designed to keep associated liabilities off AMERCO' s balance sheet .
39 . Companies are required to restate their financial results when reported financia l
results are materially false and the Securities Act Defendants had access to correct financia l
information at the time the financial statements were issued . Therefore, because AMERCO restated
1 0SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAVA
3115 N .ARLINGTON AY ERE NO , NV !305+15
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financial results for, among other periods, fiscal 1999, that were included in the January 200 0
Registration Statement, AMERCO has admitted that its financial results contained untru e
I statements of material fact when issued which were not the results of errors in estimation o r
judgment and that the Company had access to the correct financial information at the time of filing .
40 . Indeed, AMERCO has now admitted that "the restatement to consolidate the SA C
entities did, in fact, materially impact earnings ." Verified Complaint, in AMERCO vs, PwC Action,
¶99 . Moreover, defendant PwC has stated that Mark Shoen "did not satisfy the criteria as an
independent third party at inception [of the SAC SPEs] and subsequent ." Therefore, the SAC
SPE's should have been consolidated into the financials Amerco reported in the January 2000
Registration Statement . AMERCO has also admitted that the Company's previously reported
financial results for 2002, 2001, 2000, 1999 and an undetermined number of years prior to 1999,
materially misrepresented the operating results and financial condition of the Company's insurance
operations .
41 . The January 2000 Registration Statement contained and/or incorporated by referenc e
untrue statements of material facts concerning AMERCO as detailed above, including financial
statements that had been audited by defendant PwC and as to which PwC issued an unqualified
audit opinion. PwC also consented to the use of these financial statements in the January 2000
Registration Statement . Accordingly, PwC is also liable to Plaintiff IG Holdings and the Class
pursuant to § 11 of the Securities Act .
42. Plaintiff IG Holdings purchased AMERCO Senior Notes traceable to an offering .
The AMERCO Senior Notes were offered pursuant to the January 2000 Registration Statement .
43 . Plaintiff IG Holdings did not know, and in the exercise of reasonable diligence ,
could not have known of the misstatements and omissions in the January 2000 Registration
Statement.
44. Plaintiff IG Holdings has sustained damages as a result of the misstatements and
omissions in the January 2000 Registration Statement, for which it is entitled to compensation .
45 . Plaintiff IG Holdings filed within one year after the discovery of the untrue
statements and omissions, and/or within two years after the discovery of facts constituting th e
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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T 1 1OMAS J . HALL(OLNSFLOR AT LAV.
UI S,ARLiNGTON AV ERENO, NV R')5I
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I violation . Plaintiff IG Holdings also has brought this action within five years after the offering of
I the AMERCO Senior Notes .
46 . Plaintiff and other class members were damaged by the Securities Act Defendants '
misconduct and by the material misstatements and omissions of the aforementioned Prospectus .
47 . None of the misrepresentations or omissions alleged here were forward lookin g
statements but, rather, concerned existing facts . Moreover, the defendants named in this count did
not properly identify any of these statements as forward-looking statements and did not disclos e
information, known to them, that undermined the validity of those statements .
48 . The Securities Act Defendants utilized national securities exchanges, the mails ,
telephones and other instruments of interstate commerce in the offering and sale of AMERC O
securities .
49. By reason of the foregoing, the Securities Act Defendants have violated Section 1 1
of the Securities Act.
COUNT II
(Against Defendants Edward Shoen, James Shoenand Horton For Violations Of § 12(1) and (2) Of The Securities Act )
50 . Plaintiffs repeat and reallege each and every allegation contained in the precedin g
paragraphs as if fully set forth herein, except that, for purposes of this claim, plaintiffs expressly
exclude and disclaim any allegation that could be construed as alleging or sounding in fraud o r
intentional or reckless misconduct .
51 . By means of the January 2000 Registration Statement, and by using the means an d
instruments of interstate commerce and of the mails, defendants Edward Shoen, James Shoen and
Horton, offered and sold the AMERCO securities to plaintiff IG Holdings and members of the
Class . As previously set forth herein, the January 2000 Registration Statement included untrue
statements of material facts and omitted to state material facts necessary in order to make the
statements, in light of the circumstances under which they were made, not misleading .
52. In connection with and in furtherance of the note offering and pursuant to a plan o f
distribution, the January 2000 Registration Statement was widely distributed to approximatel y
1 2
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALL(O! SELOR AT LAW
115 $.ARL4\GT OV AN F
RY NO, NV "%I',
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several hundred or more individuals and/or entities, who then engaged in trades of AMERCO note s
during the Class Period . Thus, the offering was a public offering.
53 . The offering consisted of a new issue of debt securities .
54 . Plaintiff IG Holdings and members of the Class, who purchased the AMERC O
Senior Notes, did so based upon the January 2000 Registration Statement .
55 . Plaintiff IG Holdings and members of the Class did not know of the omissions and
j misrepresentations described above when they purchased their AMERCO Senior Notes
56 . Plaintiff IG Holdings filed suit within one year after the discovery of the omission s
and misstatements or after such discovery should have been made by the exercise of reasonable
diligence and within five years after sale of the AMERCO Senior Notes .
57 . By virtue of the foregoing, the defendants Edward Shoen, James Shoen, and Horto n
have violated Sections 12(1) and (2) of the 1933 Act .
COUNT III
(Against Defendants Edward Shoen , James Shoen, Horton , Dodds,Carty, Bayer , Herrera , Brogan and Grogan For Violation s
Of § 15 Of The Securities Act )
58 . Plaintiffs repeat and re - allege each and every allegation contained above as if fully
set forth herein except that, for purposes of this claim, plaintiffs expressly exclude and disclaim any
allegation that could be construed as alleging or sounding in fraud or intentional or reckles s
misconduct .
59 . Defendants Edward Shoen, James Shoen, Horton , Dodds , Carty, Bayer, Herrera,
Brogan and Grogan at all relevant times participated in the operation and management of the
Company, and conducted and participated, directly and indirectly, in the conduct of AMERCO' s
business affairs .
60 . As officers and directors of a publicly owned company, these defendants had a dut y
to disseminate accurate and truthful information with respect to AMERCO' s financial condition an d
results of operations .
13
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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I THOMAS J . HALLCOUNSELOR AT LAW
3L5 S.AKL. SNGTON AV ExE"lo, ~v e950
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61 . Because of their positions of control and authority as senior officers and directors o f
AMERCO, these defendants were able to , and did , control the contents of the January 200 0
Registration Statement which contained materially false financial information . These defendants
therefore were "controlling persons" of AMERCO within the meaning of Section 15 of th e
Securities Act .
62 . Plaintiff IG Holdings purchased AMERCO Senior Notes traceable to an offering .
The offering of the AMERCO Senior Notes was conducted pursuant to the January 2000
Registration Statement .
63 . The January 2000 Registration Statement, at the time it became effective , contained
material misrepresentations of fact and omitted facts necessary to make the facts stated therein not
misleading. The facts misstated and omitted would have been material to a reasonable person
reviewing the January 2000 Registration Statement .
64 . Plaintiff IG Holdings did not know, and in the exercise of reasonable diligence ,
could not have known of the misstatements and omissions in the January 2000 Registratio n
Statement .
65 . Plaintiff IG Holdings has sustained damages as a result of the misstatements and
omissions of the January 2000 Registration Statement , for which it is entitled to compensation .
66 . Plaintiff IG Holdings filed suit within one year after the discovery of the untru e
statements and omissions, and/or within two years after the discovery of facts constituting th e
violation . Plaintiff IG Holdings filed suit within five years after the offering of the AMERC O
Senior Notes .
67 . None of the misrepresentations or omissions alleged here were forward looking
statements but, rather, concerned existing facts . Moreover, these defendants did not properl y
identify any of these statements as forward -looking statements and did not disclose information ,
known to them, that undermined the validity of those statements .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOh1 .4S J . HALLCOUNSELOR AT LAW
305 S .ARLINGTON AV ERVNO,\YW) 5
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IV. CLAIMS AGAINST DEFENDANTS EDWARD SHOEN, JAMES SHOEN, MARKSHOEN, NORTON, DODDS, CARTY, BAYER, HERRERA, BROGAN, GROGAN, U-
HAUL, REPUBLIC WEST, AMOROSO AND PWC UNDER SECTIONS 10(b) AND RULE10(b)-5 AND AGAINST EDWARD SHOEN, JAMES SHOEN, MARK SHOEN, HORTON,DODDS, CARTY, BAYER, HERRERA, BROGAN, GROGAN, AND AMOROSO UNDER
SECTION 20(a) OF THE EXCHANGE ACT
68. The remaining counts of this Complaint are brought under Section 10(b) and 20(a) o
the Exchange Act and Rule I Ob-5 promulgated thereunder on behalf of all persons and entities
(other than defendants and others as set forth in paragraph 364), who purchased or acquired
AMERCO securities during the period between February 12, 1998 and September 26, 2002 (the
"Class Period"), inclusive, to recover damages resulting from a massive fraud perpetrated by
defendants during the Class Period . The defendants are Edward Shoen, James Shoen, Mark Shoen,
Horton, Dodds, Carty, Bayer, Herrera, Brogan, Grogan, U-Haul, Republic West, Richard Amoroso,
and PwC (collectively the "Exchange Act Defendants" or "defendants" .) .
A. EXCHANGE ACT PLAINTIF F
69 . Plaintiff Robert Speckert ("Speckert") purchased the securities of AMERCO a t
artificially inflated prices during the Class Period and has been damaged thereby . Speckert is a
member of the "Sayers Group" which was previously appointed by the Court to serve as Lead
Plaintiff in this action . Speckert's certification has been previously filed in this litigation and is
hereby incorporated by reference.
B. EXCHANGE ACT DEFENDANTS
70. Paragraphs 9-18 are incorporated herein by reference for defendants Edward Shoen,
James Shoen, Horton, Dodds, Carty, Bayer, Herrera, Brogan, Grogan, and PwC .
71 . Defendant U-Haul is a Nevada corporation with its principal place of business a t
2727 N . Central Avenue Phoenix, Arizona . At all times relevant to this action U-Haul was a wholl ,
owned subsidiary of AMERCO, conducting the Company ' s moving and storage business .
72 . Defendant Republic Western Insurance Company is an Arizona corporation with it s
principal place of business at 2721 N . Central Avenue, Phoenix, Arizona . At all times relevant t o
this action RepWest conducted the Company's property and casualty insurance business .
1 5SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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IROAIAS .1 . HALLCOUNSELOR AT LAW3 LS S . ARLINGTON AV E
RENO . NV "%S
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73 . Defendant Mark V . Shoen ("Mark Shoen") is and was, at all relevant times ,
President of Phoenix Operations of U-Haul . Mark Shoen also served as an AMERCO Directo r
from 1990-1997 . Mark Shoen is and was, at all relevant times, President at SAC Holding
Corporation, and most if not all of the SAC Self-Storage Corporations .
74. Defendant Richard M . Amoroso ("Amoroso") has served as President of RepWes t
since August 2000. Prior to that time, from 1993 until February 2000, Amoroso was Assistan t
General Counsel of U-Haul .
75 . Defendants Edward Shoen, Mark Shoen, James Shoen, Horton, Dodds, Carty, Bayer ,
Herrera, Brogan, Grogan and Amoroso together, are referred to herein as the "Individual
Defendants" (and are referred to collectively with U-Haul and RepWest as the "AMERCO
Defendants") . Certain of Individual Defendants were officers and/or directors of AMERCO at the
time the false and misleading statements and/or omissions were made and are liable as direct
participants in the wrongs complained of herein .
C. OVERVIEW OF THE EXCHANGE ACT CLAIM S
76 . During the Class Period, certain of the defendants made misrepresentations an d
omissions concerning, inter alia :
(a) The financial position of AMERCO : Defendants falsely described th e
Company's operations by materially misrepresenting transactions with the SAC SPEs and failing t
disclose to investors that the SAC SPEs were not separate economic companies from AMERCO,
but rather were controlled entities that were designed , among other things, to hide hundreds of
millions of dollars of associated liabilities from AMERCO's balance sheet . In fact , the AMERCO
Defendants have now admitted that the SAC SPEs financial information was required to be
consolidated with AMERCO and have restated AMERCO 's historical financial results for fiscal
year 2001, 2000 and interim periods of fiscal 2002 to include the SAC SPEs in AMERCO's
consolidated financial statements for a fair presentation in conformity with GAAP .
(b) AMERCO's insurance policy loss reserves and earnings : Defendant s
falsely stated that the Company 's loss reserves with respect to insurance policies issued by th e
Company were adequate . In fact, AMERCO has now admitted that its loss reserves were materiall y
1 6
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
30; S_ARLINGTON AV ERENO, NV WoS
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understated and have restated AMERCO' s historical financial results during 2003 to reflect mor e
than $125 million in additional insurance policy loss reserves - $56 million in 2002, $56 million i n
2001 and $13 million in years prior to 2001 . Furthermore, in direct contradiction of the Company's
public statements during the Class Period, the current president of AMERCO's RepWest insurance
unit -- defendant Amoroso, admitted in a sworn deposition that Rep West had been "grossly under-
reserved ." Specifically, Amoroso testified that as early as 1997, the AMERCO Defendants and
defendant PwC knew or with deliberate recklessness disregarded that AMERCO had improperly
recorded loss reserve adjustments that overstated the Company's earnings by tens of millions of
dollars . Amoroso's testimony stated in pertinent part :
I believe it was not the appropriate thing to do . . .I think if you backthat out, as it should have been done, you would have had at least oneof those three years, `97 through `99, probably two of them would nothave been profitable .
(c) AMERCO's failure to report on its debt covenants : Defendants failed to
disclose that AMERCO was in a liquidity crisis and might be forced into bankruptcy .
(d) AMERCO' s use of other manipulative accounting practices : Defendants
falsely described the Company's accounting policies for deferring and capitalizing certain general
and administrative costs ("G & A Costs") . In fact, the AMERCO Defendants have now admitted
that AMERCO's capitalized G & A Costs were materially overstated and have restated AMERCO's
historical financial results to reflect the expensing of more than $32 million in improperly deferred
G & A costs - $1 million in 2002 and $31 million in years prior to 2001 . The AMERCO
Defendants materially overstated earnings in a variety of other ways, including (i) by at least $10 .8
million for improperly recorded inventory adjustments and shrinkage costs ; (ii) by at least $4 .8
million for improperly recorded gains on fixed asset dispositions ; (iii) by at least $4 .3 million for
failure to record leased asset expenditures ; (iv) by at least $3 .6 for the failure to record property tax
expenses; and (v) by at least $2 .4 million for the failure to record real estate asset value impairment ;
(e) AMERCO's equity investments : Defendants falsely described th e
Company's investment in a certain real estate limited partnership . In fact, defendants have now
admitted that losses associated with the limited partnership were materially understated and restate d
1 7
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOI \SELOR ATLAW
305 S .ARLINGTO1 AV ERENO, NV 915115
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AMERCO's historical financial statements during 2003 to reflect more than $26 million in
additional losses that pursuant to GAAP should have been reported as follows : $10 million in 2002 ,
$8 million in 2001 and $8 million in years prior to 2001 ; and
(f) AMERCO' s compliance with generally accepted accounting principles :
Defendants falsely stated that the financial statements filed with the SEC and otherwise
disseminated to investors had been prepared in accordance with GAAP, causing investors to plac e
reliance on the financial information contained therein . As a result of the defendants' materiall y
false and misleading statements during the Class Period, the price of AMERCO securities was
artificially inflated .
D. SUMMARY OF EXCHANGE ACT CLAIM S
77 . The Class Period starts on February 12, 1998, the date AMERCO announced it s
third-quarter fiscal 1998 results , and ends on September 26, 2002, the date AMERCO restated its
financial results for its fiscal year ended March 31, 2002 . Since the end of the Class Period,
AMERCO has restated its financial results for the fiscal years 2002, 2001, 2000, and 1999 .
78 . AMERCO investors have witnessed a parade of financial restatements , a plethora of
amended SEC filings (and at least two missed filings), litigation between the Company and its
auditor of over 24 years, a near delisting of AMERCO shares, AMERCO's default on a $130
million debt payment, and AMERCO's Chapter 11 bankruptcy filing . The multiple restatements o f
AMERCO's historical financial results - four at last count - resulted in the unearthing of over $160
million of heretofore hidden losses and in excess of $384 million dollars of additional debt . Indeed,
when the dust had settled, AMERCO investors saw over $144 million of earnings reported between
1999 and 2002 evaporate, only to be replaced by more than $16 million of losses . In addition to the
hidden losses and debt, AMERCO investors found their equity in the Company had declined by an
astounding $287 million or 38% when certain fictional real estate "sales" between the Company anc
the SAC SPEs were unwound, and all other adjustments were recorded for the financial statement s
to comply with GAAP .
79. It was only the prospect of a falling out between the AMERCO Defendants and Pw C
(the Company' s auditor for over 24 years) that caused AMERCO to begin to belatedly file restated1 8
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOL ASELOR AT LAWit5 S .nCLI..CNGTOK hV C
REND, NV W)
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SEC reports in March 2002 - after not filing a single periodic SEC report that disclosed the true
financial condition of the Company since the initial start-up of the SAC SPEs (shortly after April
1994) . Between 1994 and 2002, investors were left without the disclosures and other protections
mandated by the federal securities laws . All investors could hope to do during this period was to
attempt to piece together incomplete pieces of information from the cryptic, incomplete an d
misleading disclosures in the Company's Registration Statements, and periodic Form 10-K and 10-
Q filings .
80. AMERCO's hand was forced again during 2003 when the Company's October 200 2
debt default led to an examination of the Company' s insurance loss reserves by state insurance
regulators . The examiners found that AMERCO had understated its loss reserves (and overstate d
the Company's earnings) by more than $120 million as of March 31, 2002 . 3
81 . This matter does not consist of a mere failure to record certain accountin g
adjustments to comply with GAAP . Rather , it involves defendants ' knowing or deliberatel y
reckless failure to disclose material information about AMERCO' s financial condition that inve
needed in order to make meaningful investment decisions about AMERCO securities and an
accounting fraud of such magnitude that AMERCO's reported earnings for 2001 of $12,965,000
and for 2002 of $2,721,000 turned into net losses of $42,110,000 and $47,440,000, respectively .
Namely, defendants manipulated AMERCO's reported earnings through a host of schemes and
devices in order to make it appear that the Company's operating units were profitable . The SEC
already commenced an investigation into the Company's accounting practices .
82. As discussed below, defendants failed to provide investors a variety of materia l
information about AMERCO's financial condition, including a number of undisclosed materia l
accounting irregularities . The number of accounting adjustments as well as the dollar amount o f
3 The AMERCO Defendants have not completely abandoned their fraudulent prior practices .For example, AMERCO's description of the 2003 restatement to AMERCO's 2002, 2001 and priorfinancial statements loss reserve adjustment stated, "To accrue for fully-developed actuaria lestimates of the Company's insurance reserves" and makes no mention of the findings in the stateinsurance examiner's report .
1 9
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LA%3u$ S . ARLINGTON AV E
RENO , NV K9Sp5
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adjustments is itself evidence of a far reaching scheme to conceal AMERCO' s true financial
condition. This information included the following :
(a) Defendants ' failure to consolidate the SAC SPEs :
83 . Until mid-2002, in conscious or deliberately reckless disregard of SPE "independen t
ownership" requirements clearly defined by GAAP, defendants accounted for the SAC SPEs owned
by defendant Mark Shoen, a major AMERCO shareholder, officer and related party, as separat e
companies from AMERCO . This allowed defend ants to falsely improve the Company's borrowin g
capacity, lower its borrowing costs and artificially improve its financial ratios, thereby rendering t
Company's financial statements materially false and misleading . Defendants further misrepresent
the economic substance of the transactions between AMERCO and the SAC SPEs by recording
more than $80 million in fictitious gains related to assets transferred by AMERCO to the SAC
SPEs. These phony "gains on sales" were recorded as a component of AMERCO's stockholders'
equity, artificially inflating the Company's equity, and lowering its critical debt-to-equity ratio,
which aided defendants in masking the decline in the Company's financial soundness . The SAC
SPEs were used as an artificial vehicle and did not exist as separate entities or outside o f
AMERCO' s offices.
84 . Moreover, defendants failed to disclose the material adverse changes the SAC SPE s
would cause AMERCO's balance sheet . Due to AMERCO's "off-balance-sheet" treatment of the
SAC SPEs, the Company had accumulated more than $376 million in unreported debt by March 31,
2001 . By March 31, 2003, the SAC debt had increased to more than $589 million . As the
Company's debt was increasing dramatically, stockholders' equity was declining precipitously . At
the start of the Class Period, AMERCO reported stockholders' equity of more than $638 million ;
however, by March 31, 2003, stockholders' equity had declined to only $327 million . These
adverse trends were masked by defendants' fraudulent scheme . When the true facts related to the
Company's off-balance-sheet SPEs and earnings manipulations were revealed, AMERCO's more
than $145 million in reported profits during the Class Period suddenly turned into losses of more
than $15 million . Subsequently, the Company's operating results have continued to decline as
AMERCO reported additional losses of $25 million during fiscal 2003 .20
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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II1O%1AS J . HALL
COUNSELOR T LAW305 S . ARLINCTON AV E
RENO, NV hNS
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(b) Defendants ' failure to record insurance loss reserves :
85 . During the Class Period, defendants knowingly or with deliberate recklessness faile d
to record insurance losses which had already been incurred and subsequently paid by RepWest
under policies issued to AMERCO for general and automobile liability losses related to the
Company's moving and storage business . The policies issued by RepWest carried large loss
deductibles (as high as 95%) which required AMERCO and its subsidiaries, primarily U-Haul, to
record the losses in their financial statements . However, in violation of GAAP and the Company's
publicly stated policies, AMERCO and U-Haul failed to record such losses . This caused the
Company's earnings to be overstated by more than $125 million during the Class Period, according
to findings by the Arizona Department of Insurance ("ADOI") . As a result, the Company's
financial statements were materially false and misleading throughout the Class Period .
86. Moreover, Richard J . Turoff, former Vice President of Underwriting and Marketin g
at RepWest during the Class Period, stated in a letter to state insurance regulators dated August 2,
2002, that AMERCO and certain of its executives "failed to properly record charges" against
AMERCO's 2000 profit, which had the effect of reducing the RepWest's operating loss by more
than $19 million. Turoff stated that defendants wanted to minimize losses at Rep West because
AMERCO was preparing a $350 million public debt offering at that time. He also stated that
RepWest had been downgraded by rating agencies a year before when it had reported a loss and
noted that an additional downgrade would have raised AMERCO's borrowing costs .
{c) AMERCO failed to disclose the reality of its debt situation and the possibility o f
bankruptcy :
87 . At the time of the Company 's July 17, 2002 restatement, defendants represented tha t
AMERCO was in compliance with all its debt coven ants . Just three months later, on October 15 ,
2002, the Company defaulted on a $130 million debt payment . Between July and October 2002 ,
defendants repeatedly misled investors concerning the Company's actual or potential violation of it s
debt covenants.
88 . The Company failed to timely disclose it was in default on all debt covenants relate d
to more than $1 .2 billion of its outstanding debt , and its lenders could force it into bankruptcy .2 1
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOL NSELOR AT LAW
30 5 S.ARLINGTON AVERENO, NV 8950$
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89 . Beginning in February 2002, AMERCO could not timely present its lenders with
reliable and representative consolidated financial statements for the third qua rter-ended December
31, 2001 . During this time , its lenders would no longer rely upon AMERCO' s financial statements
to determine its financial condition . During this time, AMERCO failed to disclose that it s
negotiations with lenders were increasingly difficult due to: (a) significantly increased borrowing
costs; and (b) additional capital requirements being imposed by state regulators on AMERCO's
insurance subsidiaries , with resulting further negative borrowing costs.
(d) Defendants ' failure to record losses incurred by AMERCO' s limited
partnership investment :
90 . Contrary to numerous periodic disclosures in AMERCO's Class Period SEC filings,
defendants failed to properly account for the Company's investment in a real estate limited
partnership - Private Mini Storage Reality, LP. At all relevant times , the Company maintained a
significantly greater than 20% equity interest in the limited pa rtnership which, according to GAAP,
required AMERCO to apply "equity accounting" rules and most impo rtantly , to record AMERCO's
proportionate share of the limited partnership 's operating losses. In violation of GAAP and the
Company' s own accounting policies, defendants failed to record over $26 million in limited
partnership operating losses during the Class Period , rendering the Company 's financial statements
materially false and misleading .
(e) Defendants ' use of numerous other manipulative accounting practices :
91 . Defendants have now admitted that AMERCO engaged in accounting practices tha t
were based on a knowing or deliberately reckless disregard of facts in existence at the time the
Company's financial statements were originally published . In addition to the aforementioned
violations of GAAP and the Company ' s publicly stated accounting policies, these additional
improprieties materially overstated the Company ' s reported earnings : (i) by at least $31 million for
improperly deferred G & A expenses ; (ii) by at least $ 10.8 million for improperly recorded
inventory adjustments and shrinkage costs ; (iii) by at least $4 .8 million for improperly recorded
gains on fixed asset dispositions ; (iv) by at least $4 .3 million for failure to record leased asset
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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I11OM .AS J . HALLCOUNSELOR AT LAW
SUS S . ARL .INGTON A N ERENO , NV 89N
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expenditures ; (v) by at least $3 .6 for the failure to record property tax expenses ; and (vi) by at least
$2 .4 million for the failure to record real estate asset value impairment .
E. AMERCO RESTATES ITS HISTORICAL FINANCIAL RESULTS
1 . Origins of the SAC SPE s
92 . Purportedly, in 1993, AMERCO was seeking to expand its moving and storage
business, which required the Company to obtain significant amounts of financing related to th e
purchase of real estate assets . According to AMERCO, its lenders preferred that AMERCO see k
methods of funding these real estate transactions "off balance sheet ." In a recent action filed by
AMERCO against PwC, its former auditor, AMERCO described the Company's motives fo r
entering into the SAC SPE transactions as follows :
In 1993, [AMERCO] was aggressively pursuing the expansionof its self-storage business . Committed to grow its operations,[AMERCO] chose to both enter licenses with third-parties andacquire real property upon which to build self storage facilities . Theacquisition-build formula presented obstacles, however, as[AMERCO'sJ lenders preferred and historically granted financingbased upon the characteristics of [AMERCO's] primary assets, thatis, trucks and trailers. [AMERCO's] experience was that its capitalcreditors recognized a fundamental distinction between the three-to-five-year depreciable life of trucks and trailers and the primary assetof the self-storage business , real estate having a 20-30 year life .Lenders and ratings agenciesfavor a separate legal entity to be theowner and borrower on real estate .
In recognition of these considerations , [AMERCO] sought tolegitimately expand its self-storage business through lawful strategiesthat did not require [AMERCO] to carry the real estate on its balancesheet. [Emphasis added .]
93 . Markedly absent from this discussion of AMERCO' s motives for entering into the
SAC SPE transactions, however, is that during this same time frame - 1993 to 1994 - certain of the
AMERCO Defendants incurred a $460 million judgment entered against them in a legal action that
resulted from Edward Shoen's takeover of AMERCO in the late 1980s . The facts surrounding the
ensuing battle for control of AMERCO, and resulting $460 million judgment against defendant
Edward Shoen, and other officers and directors of AMERCO, is highly pertinent to the AMERCO
Defendants' motive for carrying out and perpetuating the fraudulent activities alleged herein .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAWSUS S. ARL1NGTON AVE
RENO, NV %9SS5
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Among other things, by hiding hundreds of millions of dollars in debt in the off-balance-sheet SAC
SPEs, the defendants were able to artificially improve AMERCO's earnings, cost of borrowings and
financial ratios, thus allowing the Company to obtain the additional financing needed to fund the
damage award. If the AMERCO Defendants had not engaged in their fraudulent scheme, then they
stood to lose control of the Company, and AMERCO's bankruptcy would have occurred years
earlier .
2. Edward Shoen Seizes Control of AMERCO
94 . The "U-Haul" moving and equipment rental business was founded in 1945 by
Leonard S . Shoen . In 1969, AMERCO was formed as a holding company for the Company' s
various operating segments with Leonard Shoen as the sole shareholder . Currently, U-Haul ,
AMERCO, RepWest and Oxford Life comprise AMERCO's primary operating subsidiaries .
95 . Over a period of time, Leonard Shoen transferred most of his AMERCO stock to hi s
children. By 1986, 95% of AMERCO outstanding voting stock was owned or controlled by th e
Shoen children, with no single family member or group comprising majority ownership .
96 . In November 1986, a tenuous alliance of AMERCO shareholders comprised o f
Shoen family-members, including defendant Edward Shoen and Leonard Shoen's eldest son ,
Samuel Shoen, ousted Leonard Shoen and forced him into retirement . The takeover resulted in
Edward Shoen's appointment as AMERCO's Chairman of the Board and Samuel Schoen's serving
as a director and president of the Company . By February of 1987, however, Edward Shoen had
forced Samuel Shoen to resign his position as president and Edward Shoen assumed that position
himself. Samuel Shoen was subsequently ousted from AMERCO's board in September 1987 . The
falling out among the Shoen brothers was well documented, including press reports of the Shoens
exchanging blows and accusations during board of directors meetings . From September 1987
forward, AMERCO shareholders, owning approximately 95% of the voting stock of the Company,
were split into two camps : the "directors' group" led by Edward Shoen, and including certain other
Individual Defendants, and the "dissident stockholders' group," led by Samuel Shoen . Neither
group controlled a majority of AMERCO outstanding stock .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALL('OlNSELOR AT LAW3115 S. ARLINGTON AV E
RENO, NV i49VK
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97 . In July 1988 Edward Shoen, reacting to rumors that the dissident stockholders '
was planning a sale of AMERCO, took steps to consolidate his control of the Company . On July
24, 1988, the five Shoen siblings in the directors' group, including Individual Defendants Edward
and James Shoen, entered into a voting trust agreement that required their shares be voted as a blocl
opposing any sale of the Company. Then on July 25, 1988, AMERCO's board adopted a key
employee stock purchase plan (the "stock plan") whereby AMERCO sold treasury shares to certain
officers and directors, including Edward and James Shoen . AMERCO's board also granted voting
proxies over all shares issued under the stock plan to Edward Shoen . As a result, the shares
purchased under the stock plan and the shares subject to the voting trust provided the directors'
group with a 50 .2% majority ownership of the Company .
98 . To further consolidate his control over the Company and further impede the dissid e
stockholders' group's ability to sell the Company, Edward Shoen caused the board to amend th e
Company's by-laws, granting AMERCO a right of first refusal on any sale of AMERCO commo n
stock. The Company's amended by-laws stated in pertinent part as follows :
In case any holder of shares of the corporation's common stock, $0 .25par value, and Series A Common Stock, $0 .25 par value (collectively,the "Common Stock") shall wish to make any sale, transfer or otherdisposition of all or any part of the Common Stock held by him, heshall first notify the Secretary of the corporation in writingdesignating the number of shares of Common Stock which he desiresto dispose of, the name(s) of the person(s) to whom such shares are tobe disposed of, and the bona fide cash price at which such shares areto be disposed of.
The corporation shall have a period of 30 calendar days following thedate of its receipt of such notice to determine whether it wishes topurchase such shares at the price stated therein .
3. AMERCO Incurs Damages Of More Than $460 Million Due to CertainIndividual Defendants ' Wrongful Action s
99. Subsequently, unsuccessful efforts by the dissident stockholders' group to appoint
additional directors to AMERCO' s board and amend the Company ' s by-laws to protect the rights o
existing shareholders led to a protracted litigation.
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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T110MASJ . HALLCOUNSELOR AT LASS
355 S .ARLINGTON AV L
R£ha .NV X'15115
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100 . On August 2, 1988, the dissident stockholders' group filed an action in the Superior
Court of the State of Arizona in and for the County of Maricopa entitled Samuel W. Shoen, M D., et
al. v. Edward .J. Shoen, et at, No. CV88-20139 (the "Shoen Action") .4 Plaintiffs in the Shoe n
Action alleged, among other things, that certain of the individual plaintiffs were wrongfull y
excluded from sitting on the Company's Board of Directors in 1988 through the sale of Company
common stock to certain key employees . The plaintiffs also alleged various breaches of fiduciar y
duty and other unlawful conduct by the director defendants and sought equitable relief,
compensatory damages, and punitive damages .
101 . As the litigation progressed , plaintiffs' claims for equitable relief, which include d
demands for representation on AMERCO's board, were dismissed . In February 1992, plaintiffs
filed their fourth amended complaint in the action, alleging, among other things, that the director
defendants' actions had caused plaintiffs' AMERCO common stock to become virtually worthless
due to its lack of marketability, among other things . Therefore, under Nevada law - AMERCO's
state of incorporation - plaintiffs' remedy contemplated a theory of damages based on the "sale" of
plaintiffs' AMERCO common stock to the director defendants at pre-1988 values .
102 . On October 7, 1994, a jury awarded plaintiffs in the Schoen Action $1 .47 billion i n
compensatory damages against the director defendants and $70 million dollars in punitive damages
against Edward Schoen individually for "hatred and ill will and the deliberate and evil intent to
injure plaintiffs ." On February 2, 1995, the court reduced the compensatory damage award to
$461 .8 million and separately reduced the punitive damage award to $7 million . According to the
Company's 1998 Form 10-K, during fiscal 1996 and 1997, AMERCO settled claims for
indemnification made by the director defendants and exercised its right of first refusal on the sales
of plaintiffs' shares to the director defendants by funding more than $494 million in stock purchase
costs and damages .
4 Plaintiffs in the Schoen Action included : Samuel Shoen, Mary Anna Shoen-Eaton, CeliaShoen Hanlon, Katrina Shoen, Theresa Shoen and Leonard Shoen . Defendants included : EdwardShoen, James Shoen, Gary Horton, Paul Shoen, Aubrey Johnson, William Carty, John Dodds,Henry Martin and Henry DeShong .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
Spa S .XRL.S GTON AVERENO . NV 1 )5U5
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103 . It is clear that the structuring and initiation of transactions with the SAC SPEs
I mirrors the adverse developments in the Shoen Action as illustrated by the following time line o f
events :
1992 • Plaintiffs in the Schoen Action seek as a remedy to sell their shares ofAMERCO common stock to the director defendants .
1993 • In early 1993, defendants began planning strategies to account for real estate,and related debt , acquired in connection with the expansion of AMERCO' s self-storage business through "off balance sheet" entities .
• In December, 1993, defendants Edward , James and Mark Shoen, as jointowners, form the first two SAC SPEs - SAC Self Storage Corporation ("SAC")and TWO SAC Self Storage Corporation ("TWO SAC").
1994 • Preliminary rulings by the court in the Shoen Action support plaintiffs' remedyand set as a measure of damages the decline in the value of plaintiff's sharesfrom 1988 to their current value .
• During the six months ended June 30, 1994, the AMERCO Defendants initiatetransactions with the SAC SPEs, as a result , AMERCO " loaned" the SAC SPEs$32 .5 million dollars for the purchase of forty-four (44) self- storage properties .Twenty-four (24) of the properties were purchased from the Company .
• On October 7, 1994 , plaintiffs in the Shoen Action obtain a jury verdict of $1 .47billion.
• In December 1994, the AMERCO Defendants transfer sole ownership of theSAC SPEs to Mark Shoen , who was not a defendant in the Shoen Action .
104 . In fact, it was in contemplation of the impending verdict in the Shoen Action tha t
defendants embarked upon their fraudulent scheme to remove debt from AMERCO's books by any
means possible while at the same time shielding the Company's most valuable real estate assets
from the verdict . As detailed herein, beginning in the first or second quarter of fiscal 1995, the
Company entered into fictitious real estate sales transactions with the SAC SPEs that materially
misstated the Company's financial statements .
4. Defendants Failure To Consolidate the SAC SPE s
105 . As the AMERCO Defendants have now admitted, over the course of seven years -
from fiscal year 1995 through 2001 -- hundreds of millions of dollars of debt, related real estat e
assets, and millions in operating losses were secreted away in the SAC SPEs in order to facilitate
AMERCO's funding of the verdict in the Shoen Action . Furthermore, these fictitious transaction s
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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HIONLAS J . HALL(AMNSELOR AT LAW
3 0 5 SARVA TON AV ERENO "lv 9eui5
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were structured and executed for the primary benefit of defendants Edward, James and Mark Shoen,
and to the detriment of AMERCO public shareholders . Indeed, in a conference call with analyst s
on September 5, 2003, defendant Edward Schoen revealed that the most recent appraisal of the
Company's real estate assets, including the Company's self-storage facilities formerly accounted for
as assets of the unconsolidated SAC SPEs, stood at $1 .1 billion, or nearly two times their purchase
price (i .e., carrying value on the Company's books) . Much of this appreciation in value had been
secreted away in the SAC SPEs where it was held for the primary benefit of defendants Edward,
James and Mark Shoen to the detriment of AMERCO public shareholders .
106 . During the Class Period , defendants caused AMERCO to engage in transactions wi
SAC SPEs, which, as now admitted by the AMERCO Defendants, falsely improved AMERCO' s
financials and served to benefit AMERCO insiders to the detriment of AMERCO shareholders.
defendants failed to disclose the true nature and financial impact of the transactions to the public .
107 . Specifically, defendants failed to disclose that AMERCO' s resources were used to
identify, purchase, and/or develop self-storage properties, which AMERCO then sold to SAC SPEs
for inadequate consideration or caused SAC SPEs to buy . In this way, the defendants caused the
transfer of valuable Company assets and resources to defendants Edward, James, and Mark Shoen
for their personal benefit .
108 . While SAC SPEs received most of the rental revenues from the self-storage
properties ($111 million, $89 million, and $65 million in fiscal 2002, 2001, and 2000 respectively),
AMERCO continued to manage the properties, reporting related management fees from the SAC
SPEs . In effect, nothing changed from when the properties were owned by AMERCO, except that
the associated debt of the properties was transferred off of AMERCO's books, AMERCO reported
gains on the sale of the properties, and any future real estate appreciation was transferred to
Edward, James, and Mark Shoen .
109. SAC Holdings, owned and controlled by AMERCO insiders , thereby received
substantial benefit from transactions which otherwise served to falsely improve AMERCO' s
financials . For example, AMERCO improperly inflated its stockholders ' equity by $36 .0 million
and $36.8 million for fiscal years ended March 31, 1999 and 2001, respectively, by including as a28
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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110M .as .l . HALLCOUNSELOR AT LANK
30, S . ARLINGT ON AV IRENO . NV N95n5
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component of equity purported gains on sales of properties to SAC Holdings, a controlled entity .
As of December 31, 2001, AMERCO's stockholders' equity was overstated by a total of $81 . 7
million, or 14%, from improperly reporting gains on sales of prope rties to SAC Holdings .
110 . AMERCO' s sales to the SAC SPEs were financed by AMERCO itself as well as by
third-parties. The AMERCO Defendants caused AMERCO to accept promissory notes from the
SAC SPEs totaling approximately $400 million, much of which was unsecured . The AMERCO
Defendants kept substantial third-party debt off AMERCO's books by improperly failing t o
consolidate SAC Holdings (approximately $376 million in hidden debt in fiscal 2001) .
5. The 2002 SAC SPE Restatement
111 . According to AMERCO, in February 2002, PwC contacted the Company an d
requested a meeting to discuss "an issue" relating to the SAC SPEs . On February 5, 2002, nine
days before the deadline for filing AMERCO's third quarter fiscal 2002 Form 10-Q with the SEC,
PwC met with certain of defendants in Phoenix. During the meeting, PwC distributed a
memorandum which stated, among other things, that during December 2001, "as a result of Enron
publicity . . ." PwC conducted a further review of the SAC SPEs and determined that "it appears that
a mistake was made in the initial decision rendered in 1995 and a restatement may be necessary . "
112 . It is a matter of fact that the SAC SPEs clearly did not meet SPE requirements t o
remain outside AMERCO's reported financials because, among other things, Defendant Mark
Shoen was the 100% voting shareholder of the SAC SPEs and the SAC SPEs were completely
controlled by Amerco . PwC also stated in the February 5, 2002 PwC memorandum, that based on
regulations concerning related party transactions, Mark Shoen's ownership of the SAC SPEs, his
position in the company, and his familial relationship, Mark Shoen "did not satisfy the criteria as an
independent third party at inception [of the SAC SPEs] and subsequent . "
113 . According to the Company, it missed its February 14, 2002 filing date for its third
quarter fiscal 2002 Form 10 -Q because "despite diligent efforts, AMERCO could not complete the
preparation of the restated consolidated financial statements reflecting the SAC SPEs. " Instead,
on February 14, 2002, AMERCO filed a Form 12b-25, "Notification of Late Filing" with the SEC,
which extended the Form 10-Q deadline to February 19, 2002 . Amazingly , the Form 12b-25
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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T110MAS 1 HALLCOUNSELOR AT LAIR
3U5 S . ARL1 N GYON AVE
RENO . NV 895115
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makes no mention of the meeting with PwC or the impending restatement of the Company's
financial statements to consolidate the SAC SPEs as the reason for the Company's late filing . The
Form 12b-25 stated in pertinent part as follows :
. . . the company is trying to improve its disclosure of information inthe area of liquidity and capital resources . As such, the company istaking steps that the Securities and Exchange Commissio nrecommended, including compiling aggregated disclosure concerningits obligations and commitments to make future payments undercontracts, debt and lease agreements, and contingent commitments .As a result, it has taken longer to gather the necessary informationto prepare the quarterly report on Form 10-Q. [Emphasis added .]
114 . On February 19, 2002, AMERCO filed it third quarter fiscal 2002 Form 10-Q whic h
again failed to disclose the discussions with PwC or the impending restatement of AMERCO' s
historical financial results to consolidate the SAC SPEs.
115 . On March 4, 2002, AMERCO issued a press release announcing that NASDAQ had
notified the Company that its stock was subject to delisting because of the filing of its latest For m
10-Q without a review by PwC . The press release stated , "[t]he Company and
PricewaterhouseCoopers are working as expeditiously as possible to comply with Marketplace Rul e
4310 (c)(14) . "
116 . Then on March 28, 2002, AMERCO restated its historical financial results, markin g
the first of three major restatements during the Class Period and one thereafter by amending its third
quarter fiscal 2002 Form 10-Q . The amendment on Form 10-Q/A restated the interim financial
statements previously filed for the quarter, as well as for the year ended March 31, 2001 presented
therein, to reflect the consolidation of SAC SPEs with AMERCO and its consolidated subsidiaries .
The restatement revealed that AMERCO had approximately $306 million and $257 million in
previously unreported debt related to the SAC SPEs as of December 31, 2001 and March 31, 2001,
respectively. The restatement also revealed that AMERCO overstated its previously reported
stockholders' equity by $91 million and $80 million as of December 31, 2001 and March 31, 2001,
respectively. The Form 10-Q/A also disclosed that "AMERCO has no ownership interest in SAC ."
A press release issued by AMERCO on that same day included comments by defendant Horton ,
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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i IIO ..IAS J . HALLCOUNSELOR AT LAW
Sus S. .kRUNGZO'i EV E
RENO . NV A9VI5
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The presentation of a combination of the financials of AMERCO andSAC Holding does not affect the earnings or credit agreementcompliance of the Company ." [Emphasis added .]
117 . Then on July 17, 2002, AMERCO changed its historical financial results for the
second time in less than three months, with the filing of its 10-K for the year ended March 31, 2002 .
In that filing, AMERCO restated its fiscal years 2000 and 2001 to reflect consolidation of the SAC
I SPEs. The Company's 2002 10-K reported that as a result of the consolidation of the SAC SPEs, i
net income for fiscal 2001 was reduced by 92% . The Company reported that its fiscal 2001 net
income was actually $1 .0 million for the year ended March 31, 2001, not $13 .0 million as
previously reported, and $63 .2 million for the year ended March 31, 2000, not $65 .5 million as
previously reported . The Company also stated that its liabilities were actually $3 .1 billion for the
year ended March 31, 2001, not $2 .8 billion as originally reported. The amount of SAC SPE debt
had now grown to more than $373 million as of March 31, 2001, and liabilities were actually $2 . 8
billion for the year ended March 31, 2000, not $2 .5 billion as originally reported . The Company
stated its stockholders' equity was actually $512 .3 million for the year ended March 31, 2001, not
$615 .4 million as originally reported, and $532 .5 million for the year ended March 31, 2000, not
$585 .3 million as originally reported .
118. AMERCO has admitted that "the restatement to consolidate the SAC entities did, i n
fact, materially impact earnings ." Verified Complaint, at ¶ 99, Amerco vs. PwC Action .
119 . AMERCO reiterated in the 2002 Form 10-K that the Company's compliance with its
debt covenants was unaffected by the consolidation of the SAC Entitites and that the Company
remained in compliance with all of its respective covenants . Regarding the Company's financing
arrangements, the Form I OK disclosed that "subsequent to year-end, the Company executed "a $20
million revolver credit agreement" to fund "an existing agreement [that had] expired . "
120. On the same day, July 17, 2002, AMERCO announced it had dismissed defendant
PwC, its outside auditor since 1978 .
121 . Subsequently , on September 26, 2002, AMERCO restated its 2002 financial result s
in an amended 10-K for the year ended March 31, 2002, and restated its historical financial result s
for the third time in just six months . The Company reported that its interest expense was actually3 1
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUVSELOR AT LAW
3kM S . ARLIN GTON AV ERENO , NV N911 15
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$106.8 million, $109 .0 million, and $97 .2 million in fiscal years 2002, 2001, and 2000, respectively,
not $116 .3 million, $114 .6 million, and $99 .9 million in the same periods, as previously reported .
Moreover, the Company reported that net investment and interest income was actually $58 .1
million, $61 .5 million and $61 million in fiscal years 2002, 2001 and 2000, respectively, and not
$67 .6 million, $67 .1 million and $63 .7 million in the same period, as previously reported .
122 . Additiona ll y , the amended Form 10 -K noted that the July 17, 2002 Form 10- K
included material misrepresentations concerning the Company's ownership interest in the SA C
SPEs by failing to disclose that the Company's insurance subsidiaries, RepWest and Oxford, held
equity investments in several SAC sponsored entities .
6 . Defendants Fail To Disclose The Company' s Potential or Actual Violation of ItsDebt Covenant s
123 . As shown in detail below, defendants had many opportunities to disclose that, unde r
certain cross-default provisions of the Company's financing arrangements, AMERCO was or soon
would be in material violation of all its respective debt covenants due to the liquidity crisis
stemming from the March 2002 restatement of AMERCO's historical financial results . However,
for a period of at least six months following the consolidation of the SAC SPEs, the AMERCO
Defendants made no disclosure of this material adverse contingency . In fact, even after the
Company's October 2002 debt default had occurred, the AMERCO Defendants affirmatively
misled investors concerning the reason for its failure to file its second quarter fiscal 2002 Form 10-
124 . In both the amended Form 10-Q and the amended Form 10-K reports filed b y
AMERCO on September 26, 2002, the Company reiterated its compliance with all debt covenants .
In addition, the Company disclosed for the first time that the recently acquired $205 million
revolver credit agreement was conditioned on the Company obtaining "at least $150 million in
additional financing by October 8, 2002" - one week prior to the maturity of $100 million senior
notes and payment of $30 million interest under certain of AMERCO's senior debt obligations .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLfOUNSELOR AT LAWSOS S. ARLISGTO! AVE.
RENO, NV 995415
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125 . On September 27, 2002, the AMERCO Defendants issued a press releas e
announcing a Rule 144A private offering of $275 million in senior notes and, on September 30 ,
2002, announced that the Company had "launched its efforts" to complete the private offering .
126 . Then on October 15, 2002, the AMERCO Defendants issued a press releas e
announcing that AMERCO had "temporarily suspended" payment of its debt obligation :
As part of the Company's strategic plan it has elected to enter intonegotiations to restructure certain of its debt . While the Companyworks to recapitalize its balance sheet, it has elected to temporarilysuspend the October 15, 2002 payment of its [$100 million] Series1997-C Bond Backed Asset Trust. The Company also intends torefinance its [$205 million] 3 -year Credit Agreement. [Emphasisadded.]
Also on October 15, the AMERCO Defendants announced that AMERCO had retained Crossroads,
LLC as a financial advisor.
127 . On November 14, 2002, the Company was required to file its quarterly report o n
' Form 10-Q for the second quarter fiscal 2003 ended September 30, 2002 . However, instead of
filing its report, the Company filed a "Notice of Late Filing" on Form 12b-25 . The Form 12b-25,
signed by defendant Horton, stated that the reason for the delay was due "to management and the
accountants requiring additional time to internally verify data from the company's books an d
records . "
128 . The AMERCO Defendants' violations of the securities laws included filing a false
Form 12b-25, which failed to disclose the true reason for the Company' s late filing . Finally, on
November 18, 2002, the Company filed its required quarterly report. The Form 10-Q belatedly
disclosed that the Company's `temporary suspension ' of its debt payment was in fact a default
which, in turn, had triggered ce rtain cross -default provisions of the Company' s other financing
agreements . As a result, more than $1 . 2 billion of the Company's debt had become immediately
payable.
F. DEFENDANTS MATERIALLY MISREPRESENTED THE OPERATING RESULTSAND FINANCIAL CONDITION OF THE COMPANY'S INSURANCEOPERATIONS
1. Background
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J. HALL
CODSSELOR AT LAW1 S S.k RLI\GTO?i AY E
REND . N V 87505
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129. The Company's insurance operations are comprised of RepWest's property an d
casualty business and Oxford's life insurance business. During the Class Period, defendants
misrepresented and m anipulated the operating results and financial condition of the Company's
insurance operations in order to make it appear that they were operating profitably .
130 . In fact, the Company has now admitted that its previously reported financial result s
for 2002, 2001 and an undetermined number of years prior to 2001, materially misrepresented the
operating results and financial condition of the Company's insurance operations, among othe r
things .
131 . In particular, during the Class Period, defendants knowingly or with deliberate
recklessness understated AMERCO's insurance loss reserves (thereby overstating earnings) by at
least $125 million by failing to accrue loss reserves on a part of the Company's business -
Rep West's extension of general and automobile liability coverage to U-Haul , among others --
which the Company had been in engaged in since at least 1987 .
132 . Furthermore, as detailed herein , AMERCO' s insurance loss reserves were a materia l
component of the Company ' s balance sheet - averaging over 20 % of the Company ' s reported
liabilities during the Class Period . Therefore , defendants knew that by understating these reserves,
the Company ' s credit ratings, borrowing costs and financial ratios could be a rtificially improved . I
fact , Richard Turoff, former Vice President of Underwriting and Marketing at RepWest during the
Class Period , stated in a letter to state insurance regulators dated August 2, 2002, that defendants
had intentionally understated the Comp any ' s insurance losses in order to improve AMERCO's
credit rating prior to a public debt offering in October 2001, and in order to conceal losses at the
Company's U-Haul segment . Turoff also stated that Rep West improperly reclassified agents'
commissions in order to reduce expenses and thereby affect income . Moreover , defendants'
knowledge of AMERCO 's material understatement of its insurance reserves as early as 1997 has
been admitted by Richard Amoroso, the current president of RepWest, in deposition testimony
taken in the TuroffAction .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAWN S .ARLINCPON AV E
RENO, NV H9SO5
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2. AMERCO' s Insurance Loss Reserves, The ADOI Determination And The 2003Restatement
133 . On or about May 12, 2003, an article published by Associated Press Worldstream
stated that AMERCO confirmed that its new auditors, BDO Seidman, were reexamining th e
Company's fiscal 2002 and 2001 financial statements . In connection with the re-audit, th e
AMERCO Defendants misleadingly stated the Company's new auditor has identified prior period
adjustments related to insurance reserves at Rep West as well as other insurance company-related
adjustments.
134 . Unknown to investors, however, the Arizona Department of Insurance ("ADOI" )
was about to issue its report of the limited scope examination of RepWest as of December 31, 2002 .
The ADOI commenced its limited scope examination following the Company's debt default in
October 2002 . Because of the Company's default, the ADOI examination centered on Rep West's
credit exposure to AMERCO stemming from insurance policies issued by Rep West to AMERCO
and its subsidiaries, primarily U-Haul . Under the deductible provisions of these policies, RepWest
was responsible for the payment of all losses and then billed and collected the losses paid from
AMERCO . However, as documented in the ADOI report, defendants' knowing or deliberately
reckless actions during the Class Period resulted in RepWest reporting its loss reserves net of the
"receivable" from AMERCO for the loss payments while AMERCO and its subsidiaries, primarily
U-Haul, failed to accrue the offsetting loss reserves in their financial statements . As a result, the
reserves reported to investors were materially understated by more than $130 million during the
Class Period . The ADOI's report also indicated that RepWest's December 31, 2002 audited assets
were overstated by more than $65 million and its liabilities were understated by more than $73
million .
135 . Following the ADOI' s determination that RepWest had failed to record more than
$130 million in loss reserves in its financial statements and had overstated its assets by more tha n
$65 million , as reported to the SEC and regulators as of December 31, 2002, the ADOI set out i n
March 2003 to determine whether AMERCO had in fact accrued such loss reserves in its financia l
statements . Over the next three months, the AMERCO Defendants actively participated in a
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THOMAS J . HALL .('Ofi .VSELOR AT LA%N
3115 S .ARL(NGTON AV ERENO, NV w> i c
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campaign to stonewall the regulators by refusing to provide any information concerning th e
of loss reserves in AMERCO' s financial statements .
136. On March 17, 2003, the ADOI made a written request to AMERCO asking
AMERCO to confirm it had recorded ce rtain amounts due to RepWest for retrospective premiums ,
federal income taxes , and reserves for AMERCO' s deductible obligations under policies issued by
the Company. AMERCO was also asked to provide a reconciliation that would disclose how thes e
balances due to the company were reported in AMERCO' s financial statement filings with the
Securities and Exchange Commission as of its fiscal year end, March 31, 2002 , and as of December
31, 2002. AMERCO failed to adequately respond to the ADOI's March 20, 2003 request fo r
confirmation of balances .
137 . Upon the failure of AMERCO to provide written confirmation of its obligation to th e
Company, the ADOI issued an Order to the Company dated March 26, 2003 to produce such
records, books or other information papers in its possession or the possession of its affiliates that (1)
substantiate AMERCO's reserves for deductible obligations under policies issued by the Company
for the years 2000 through 2003 ; and (2) reconcile AMERCO's reserves for deductibles under
policies issued by the Company for the years 2000 to 2003 to AMERCO's financial statement filed
with the SEC as of March 31, 2002 and December 31, 2002 .
138 . In response to its letter of March 26, the ADOI received letters from AMERCO and
the Company dated March 31 and April 2, 2003, respectively, neither of which provided the
requested information. Therefore, under cover of a letter dated April 3, 2003, the ADOI issued a
subpoena to AMERCO for the required information . AMERCO's response to the subpoena is
included in a letter dated April 22, 2003 and related attachments . Follow up meetings with
AMERCO were held on April 22 and 25, 2003 . Neither the letter nor the follow up meetings with
AMERCO provided the required information . With respect to the deductible policies, AMERCO
was unwilling to confirm that itsfinancial obligations were adequately recognized in AMERCO's
financial statements.
139 . On May 17, 2003, the ADOI issued its examination report of RepWest as of
December 31, 2002 . During this entire period (March 2003 to May 2003), defendants made no3 6
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
Soo S . ARLINGTOS AV E
RENO . NV M,%5
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public disclosures of the ADOI's findings or the Company's failure to comply with ADOI's
requests for information concerning the Company's insurance loss reserves .
140 . Shortly thereafter on June 20, 2003, AMERCO filed a voluntary bankruptcy petition
Chapter 11 in the United States Bankruptcy Court, District of Nevada (Case No . 0352103) .
AMERCO Real Estate Company filed a voluntary petition for relief under Chapter 11 on August
13, 2003 . AMERCO's other subsidiaries were not included in either of the filings .
141 . On August 25, 2003, AMERCO restated its full year and interim quarterly results for
the fiscal years 2002, 2001 and its opening retained earnings balances for year prior to 2001 . The
Company's fiscal 2003 Form 10-K summarized this restatement as follows : 5
Net Income Net Income April 1, 2000Fiscal 2002 Fiscal 2001 Retained
(in thousands) Earnings
As reported $2,721 $1,012 $738,805
Adjustments to net income/(loss) :
Insurance reserves (55,570) (56,225) (13,320)
Investments in Private Mini (9,729) (8,392) (8,132)
Capitalized G&A costs (900) ---- (31,749)
Accrued property taxes ---- ---- (3,600)
Fixed assets 3,846 (4,829) ----
Cash surrender value (3,943) 636 3,307
Impairment of real estate investments (2,366) ---- ----
Other (860) 800 (5,156)
Pretax adjustments (69,522) (68,040) (58,650)
Income tax benefit 19,361 24,918 41,492
As restated : (47A40) $(42,110) $721,647
5 This restatement excludes the effect of the Company's previous restatement whichpurportedly accounted for the SAC entries .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LA W
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THOMAS J . HALLCOUNSELOR AT L .A%%
S415 S . ARLINGTON AV ERENO . NV 895113
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142. In the fourth major restatement of the Company 's historical financial results ,
AMERCO reported in its fiscal 2003 Form I OK that it actually incurred losses of $42 .1 million for
the year ended March 31, 2001, and not earnings of $1 .0 million as previously reported, and losses
of $47.4 million for the year ended March 31, 2002, not earnings of $2 .7 million as previously
reported. The Company also reported that assets decreased by $39 million from $3 .638 billion
previously reported to $3 .599 billion while liabilities increased by $27 .2 million from $3 .126 billion
previously reported to $3 .153 as of March 31, 2001 and that assets decreased by $41 million from
$3 .773 billion previously reported to $3 .732 billion as of March 31, 2002 while liabilities increased
by $77 million from $3 .274 previously reported to $3 .351 as of March 31, 2002 . The Company
also reported as of March 31, 2001 and stockholders' equity was actually $446.4 million and not
$512.3 million as previously reported, and $381 .5 million for the year ended March 31, 2002, not
$499 .1 million as previously reported.
G. MATERIALLY FALSE AND MISLEADING STATEMENTS DURING THE CLASSPERIO D
143 . The Class Period starts on February 12, 1998, the date AMERCO filed its quarterl y
report on Form 10-Q announcing its results for the third quarter fiscal 1998, ended December 31,
1997 . AMERCO reported a net loss of $ 15 million compared to a net loss of $10 million for the
prior year . The Company also reported liabilities of $2.2 billion and stockholders' equity of $638 .1
million . The report, signed by defendant Gary B. Horton , included the following disclosure related
to SAC Holdings :
During the nine months ended December 31, 1997, a subsidiary heldvarious senior and junior notes with SAC Holding Corporation and itssubsidiaries (SAC Holdings). The voting common stock of SACHoldings is held by Mark V . Shoen, a major stockholder of theCompany .
The Company's subsidiary received principal payments of $3,725,000and interest payments of $5,014,000 from SAC Holdings during theperiod .
The Company currently manages the properties owned by SACHoldings pursuant to a management agreement, under which theCompany receives a management fee equal to 6% of the grossreceipts from the properties. The Company received managementfees of $1,387,000 during the nine months ended December 31, 1997 .
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TUIQnt .AS J . HALLCOESSELOR AT LAW
3U S .ARLIM TOSI AVERENO . NV "915
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The management fee percentage is consistent with the fees receivedby the Company for other properties managed by the Company .
144 . As of December 31, 1997, the Company reported that its reserve for insurance
benefits and losses was $493 million or 22 .2% of AMERCO's reported liabilities, includin g
Rep West accruals for policy liabilities of $361 .1 million. AMERCO also reported that RepWest's
net income for the nine months ended December 31, 19976 was $1 .8 million compared to $9 .0
million for the prior year . In addition, the Form 10-Q represented that the financial statements
presented therein had been prepared in accordance with GAAP :
The Company believes that all necessary adjustments have beenincluded in the amounts stated below to present fairly, and inaccordance with generally accepted accounting principles, theselected quarterly information when read in conjunction with theconsolidated financial statements of the Company .
145 . On June 29, 1998, AMERCO filed its annual report on Form 10-K for its fiscal year
1998, ending March 31, 1998 . AMERCO reported net earnings of $35 million compared to $5 2
million for the prior year. The Company also reported liabilities of $2 .3 billion and stockholders '
equity of $595 .1 million . The report, signed by defendants Edward J . Shoen, Gary B . Horton,
William E . Carty, James P . Shoen , Richard J . Herrera and Charles J . Bayer , included the following
representations related to SAC Holdings :
During fiscal 1998, a subsidiary of the Company held various seniorand junior notes with SAC Holding Corporation and its subsidiaries(SAC Holdings) . The voting common stock of SAC Holdings is heldby Mark V. Shoen, a major stockholder of the Company .
The Company's subsidiary received principal payments of $1,047,000and interest payments of $6,847,000 from SAC Holdings during fiscal1998 . The note receivable balance outstanding at March 31, 199 8was, in the aggregate, $66,111,000 bearing interest rates ranging from8 .37% to 13 .0%.
During fiscal 1998, a subsidiary of the Company funded the purchaseof properties and construction costs for SAC Holdings ofapproximately $24,574,000 . Three of the properties were purchase d
0 AMERCO' s consolidated financial statements include fin ancial statements for theCompany' s insurance subsidiaries on a one-quarter lag . The period end dates used herein refer tothe Company' s consolidated financial statement repo rting date .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LA'ti
Sus S . ARL .INGTON AV ERENO , NV "4i5
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from the Company at a purchase price equal to the Company'sacquisition cost plus capitalized costs which approximated fair marketvalue . In March 1998, SAC Holdings sold three of the properties toan outside party and reduced the Company's receivable by$2,814,000.
The Company currently manages the properties owned by SACHoldings pursuant to a management agreement, under which theCompany receives a management fee equal to 6% of the grossreceipts from the properties. The Company received managementfees of $1,860,000 during fiscal 1998 . The management feepercentage is consistent with the fees received by the Company forother properties managed by the Company.
Management believes that the foregoing transactions wereconsummated on terms equivalent to those that prevail in arm's-length transactions .
146 . As of March 31, 1998, the Company reported that its reserve for insurance policy
benefits and losses was $592.6 million, or 25 .5% of AMERCO's liabilities, including RepWest
accruals for policy liabilities of $389.6 million. The Company also reported that RepWest's net
income for fiscal 1998 was $1 .3 million compared to $12 .8 million for the prior year . In addition,
the 1998 Form 10-K included the following representations concerning the adequacy of RepWest's
reserve for insurance benefits and losses, stating in pertinent part :
The liability for unpaid claims and unpaid claims expenses representsestimates of the amount necessary to settle all claims as of thestatement date . Both unreported claims and incurred but not reportedclaims are included in the liability . [Rep West] updates the liabilityestimate as additional facts regarding claim costs become available .These estimates are subject to uncertainty and variation due tonumerous factors including, but not limited to, court decisions,economic conditions and public attitudes . In estimating reserves, noattempt is made to isolate inflation from the combined effect of otherfactors including inflation . Unpaid losses and unpaid loss expensesare not discounted .
[Rep West's] unpaid loss and loss expenses are certified annually byan independent actuarial consulting firm as required by stateregulation.
147 . The 1998 Form 10-K further represented that the financial statements presented
therein had been prepared in accord ance with GAAP :
The Company believes that all necessary adjustments have beenincluded in the amounts stated below to present fairly, and inaccordance with generally accepted accounting principles, the
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THOMAS J. HALLCOUNSELOR AT LAW
315 S. ARL GTO`i A\RENO , NV 8950,
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selected quarterly information when read in conjunction with theconsolidated financial statements incorporated herein by reference .
148 . The statements referenced above in ¶1143-147 were each materially false an d
misleading when made because they failed to disclose and/or misrepresented the following advers e
facts :
(a) that defendants were using AMERCO 's resources to identify, purchase ,
and/or develop the self-storage faci lities which Amerco was selling to the SAC SPEs for inadequate
consideration or causing the SAC SPEs to buy;
(b) that the SAC SPEs had incurred hundreds of millions of dollars of third-party
debt relating to AMERCO's purported "sales" of properties to SAC SPEs ;
(c) that defendants had artificially inflated AMERCO's stockholders' equity b y
including in the Company's statement of financial condition "paper" gains on sales of properties to
the SAC SPEs;
(d) that the SAC SPEs were not separate economic entities from AMERCO, but
were completely controlled by AMERCO and were used to artificially keep hundreds of millions o f
dollars of associated liabilities off AMERCO' s balance sheet and millions of dollars of operating
losses from being reported to investors ;
(e) that the majority owner of the SAC SPEs, defendant Mark Schoen, lacke d
"independence" as de fined in EITF 90 - 15, in that he : (i) failed to make a substantive capital
investment in the SAC SPEs; (ii) did not possess substantive control over the SAC SPEs; and (iii)
did not possess the substantive risks and rewards of ownership over the assets of the SAC SPEs . As
a result , GAAP required that the SAC SPEs be consolidated with AMERCO financial statements fo :
all purposes ;
(f) that the Company's reported assets and liabilities were understated by
hundreds of millions of dollars and the Company's stockholders' equity was overstated by tens o f
millions of dollars as a result of defendants' failure to consolidate the SAC SPEs with AMERCO' s
financial statements ;
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . FIALLCOUNSELOR AT LAW}05 S.ARL1NGT0 N AV E
RENO, NV B950S
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(g) that the Company' s reserves for insurance policy benefits and losses, were
materially understated by in excess of tens of millions of dollars, as a result of defendants' failure to I
accrue for losses incurred in connection with certain general and automobile liability policies ;
(h) that the Company's net earnings and stockholders' equity was materiall y
overstated due to defendants' failure to properly account for equity losses arising from th e
Company's investment in certain real estate limited partnerships, including Private Mini Storage
Realty, L .P ., among others ;
(i) that the Company's periodic operating expenses, including certain genera l
and administrative expenses were materially understated due to : (i) defendants' improper
capitalization of such expenses, (ii) defendants' failure to accrue for certain property tax expenses
related to the Company's real estate properties and, (iii) defendants' failure to amortize such
capitalized expenses, among other things; and
(j) as a result of the foregoing, the financial statements contained in th e
Company's Form 10-Q for the period ended December 31, 1997 and the Company's Form 10-K fo r
the period ended March 31, 1998 were not prepared in accordance with GAAP and were therefore
materially false and misleading, as detailed below at ¶¶231-323 . Moreover, AMERCO has now
restated its financial statements, admitting that the SAC SPEs should have been consolidated al l
along and that material amounts of expenses were not included in its originally issued financia l
statements .
149. On August 7, 1998 , AMERCO filed its quarterly report on Form 10-Q for its first
quarter fiscal 1999, ended June 30, 1998 . AMERCO reported net earnings of $31 million compared
to $29 million for the prior year . The Company also reported liabilities of $2 .4 billion and
stockholders' equity of $618 .2 million . The report, signed by defendant Gary B . Horton, included
the following representations related to SAC Holdings :
During the three months ended June 30, 1998, a subsidiary heldvarious senior and junior notes with SAC Holding Corporation and itssubsidiaries (SAC Holdings) . The voting common stock of SACHoldings is held by Mark V . Shoen, a major stockholder of theCompany.
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THOMAS J. I{ALLCOC NSELOR .AT LAW
3 41 5 S. ARLINGTON AVERENO . NV 10J505
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The Company 's subsidiary received interest payments of $1,794,000from SAC Holdings during the quarter .
The Company currently manages the propert ies owned by SACHoldings pursuant to a management agreement , under which theCompany receives a management fee equal to 6% of the grossreceipts from the properties . The Company received managementfees of $520,000 during the three months ended June 30, 1998 . Themanagement fee percentage is consistent with the fees received by theCompany for other properties managed by the Company .
150. As of June 30, 1998, AMERCO's reported reserve for insurance benefits and losse s
I was $586.7 million or 24.8% of AMERCO's reported liabilities, including RepWest accruals fo r
policy liabilities of $380 .6 million. The Company also reported that RepWest's net income for th e
first quarter of fiscal 1999 was $1 .6 million compared to $3 .5 million for the prior year . The Form
10-Q represented that the financial statements presented therein had been prepared in accordance
with GAAP :
The Company believes that all necessary adjustments have beenincluded in the amounts stated below to present fairly, and inaccordance with generally accepted accounting principles, theselected quarterly information when read in conjunction with theconsolidated financial statements incorporated herein by reference .
151 . On November 9, 1998 , AMERCO filed its quarterly report on Form 10-Q for th e
second quarter fiscal 1999, ended September 30, 1998. AMERCO reported net earnings of $42
million compared to $35 million for the prior year . The Company also reported liabilities of $2 . 3
I billion and stockholders' equity of $628 .1 million. The report, signed by defendant Gary B . Horto
included the following representations related to SAC Holdings :
During the six months ended September 30, 1998, a subsidiary heldvarious senior and junior notes with SAC Holding Corporation and itssubsidiaries (SAC Holdings). The voting common stock of SACHoldings is held by Mark V . Shoen, a major stockholder of theCompany .
The Company's subsidiary received interest payments of $4,167,000from SAC Holdings during the six months ended September 30, 1998 .
The Company currently manages the properties owned by SACHoldings pursuant to a management agreement, under which theCompany receives a management fee equal to 6% of the grossreceipts from the properties . The Company received managementfees of $1,074,000 during the six months ended September 30, 1998 .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOM AS J . HALL,COt SSELOR AT LAW
Su[ S .ARLINGTON XV ERENO . NV 8 51
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The management fee percentage is consistent with the fees receivedby the Company for other properties managed by the Company .
As of September 30, 1998 , a subsidiary of the Company funded thepurchase of eleven prope rties by SAC Holdings for approximately$6,708,000.
152. As of September 30, 1998, the Company's reported reserve for insurance benefit s
and losses was $567 . 0 million or 24 .6 % of the Company 's reported liabilities, including RepWest
accruals for policy liabilities of $380 .6 million. The Company also reported that RepWest's net
income for the six months ended September 30, 1999 was $4 .6 million compared to $4 .1 million f
the prior year. The Form 10-Q further represented that the financial statements presented therein
had been prepared in accordance with GAAP :
The Company believes that all necessary adjustments have beenincluded in the amounts stated below to present fairly, and inaccordance with generally accepted accounting principles, theselected quarterly information when read in conjunction with theconsolidated financial statements incorporated herein by reference .
153 . On February 12, 1999 , AMERCO filed its quarterly report on Form 10-Q for th e
third quarter fiscal 1999, ended December 31, 1998 . AMERCO reported net earnings of $2 .5
million compared to a net loss of $15 million for the prior year . The Company also reported
liabilities $2.4 billion and stockholders' equity of $621 .8 million. The report, signed by defendant
Gary B. Horton, included the following representations related to SAC Holdings :
During the nine months ended December 31, 1998, a subsidiary of theCompany held various senior and junior notes with SAC HoldingCorporation and its subsidiaries (SAC Holdings) . The votingcommon stock of SAC Holdings is held by Mark V . Shoen, a majorstockholder of the Company .
The Company's subsidiary received interest payments of $5,988,000from SAC Holdings during the nine months ended December 31,1998.
The Company currently manages the properties owned by SACHoldings pursuant to a management agreement, under which theCompany receives a management fee equal to 6% of the grossreceipts from the properties. The Company received managementfees of $1,620,000 during the nine months ended December 31, 1998.The management fee percentage is consistent with the fees receivedby the Company for other properties managed by the Company .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J. HALL {COUNSELOR AT LA W
355 5.ARLINGTON AVERENO , N V" 45
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As of December 31, 1998 , a subsidiary of the Company funded thepurchase of nineteen prope rties by SAC Holdings for approximately$18,112,000 .
In December 1998, the Company completed the sale of twenty-sixstorage prope rties to Six SAC Self-Storage Corporation , a subsidiaryof SAC Holding Corporation , for $99 , 685,000 . The Companyreceived cash and notes from the sale . The gain was recorded on thebalance sheet .
154. As of Decenber 31, 1998, the Company's reported reserve for insurance benefits and
losses was $570.6 million or 24 .0 % of AMERCO's reported liabilities, including RepWest accrual s
for policy liabilities of $360 .7 million. AMERCO also reported that RepWest's net income for the
nine months ended December 31, 1998 was $9 .6 million compared to $1 .8 million for the prior
year. The Form 10-Q further represented that the financial statements presented therein had been
prepared in accordance with GAAP :
The Company believes that all necessary adjustments have beenincluded in the amounts stated below to present fairly, and inaccordance with generally accepted accounting principles, theselected quarterly information when read in conjunction with theconsolidated financial statements incorporated herein by reference .
155 . On June 25, 1999, AMERCO filed its annual report on Form 10-K for fiscal year
1999, ended March 31, 1999 . AMERCO reported net earnings of $63 million compared to $3 5
million for the prior year . The Company also repo rted liabilities of $2 .5 billion and stockholders '
equity of $616.0 million. The report, signed by defendants Edward J . Shoen, Gary B . Horton,
William E . Carty, James P . Shoen , Richard J . Herrera and Charles J . Bayer , included the following
representations related to SAC Holdings :
During fiscal 1999, a subsidiary of U-Haul held various senior andjunior notes with SAC Holding Corporation and its subsidiaries (SACHoldings) . The voting common stock of SAC Holdings is held byMark V . Shoen, a major stockholder of AMERCO . U-Haul'ssubsidiary received interest income of $8,022,000, $6,847,000 and$6,281,000 from SAC Holdings during fiscal years 1999, 1998 and1997, respectively . No principal payments were received duringfiscal year 1999. Principal payments of $1,047,000 and $436,000were received during fiscal year 1998 and 1997, respectively . Thenote receivable balance outstanding was, in the aggregate,$179,819,000 and $66,111,000 at March 31, 1999 and 1998,respectively, bearing interest rates ranging from 8 .37% to 13 .0%.Notes receivable from SAC Holdings includes $526,000 at March 31,1999 which is secured by land and buildings at various locations .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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[IIOAIAS J . HAL LCOIN SELOR AT LAW
lag S. ARU GTON AYE-- - ' ~RENO , NV 2P)505 ,
1During fiscal years 1999, 1998 and 1997, a subsidiary of U-Hau l
2 funded the purchase of properties and construction costs for SA CHoldings of $26,116,000, $24,574,000 and $43,125,000, respectively .
3In December 1998, U-Haul and [AMERCO's] Real Estate complete d
4 the sale of twenty-six storage properties to Six Sac Self-Storag eCorporation, a subsidiary of SAC Holdings, for $99,685,000 .
5 [AMERCO's] Real Estate received cash and notes from the sale . Thegain is reflected in the Consolidated Statements of Changes i n
6 Stockholders' Equity .
7U-Haul currently manages the properties owned by SAC Holding s
8 under a management agreement, whereby U-Haul receives amanagement fee equal to 6% of the gross receipts from the properties .
9 Management fees of $2,483,000, $1,860,000 and $1,632,000 wer ereceived during fiscal years 1999, 1998 and 1997, respectively . The
10 6% fee is consistent with the fees received by U-Haul for othe r
11properties managed by U-Haul .
Management believes that the foregoing transactions wer e12 consummated on terms equivalent to those that prevail in arm's -
length transactions .13
156 . As of March 31, 1999, the Company's reported reserve for insurance benefits and14
losses was $546 .6 million, or 22 .1 % of AMERCO's reported liabilities, including RepWest accruals15
for policy liabilities of $349 .6 million, or 14% of AMERCO's reported liabilities . For fiscal 1999 ,16
AMERCO reported that RepWest's net was $13 .1 million compared to $1 .2 million for the prior17
year. In addition, the 1999 Form 10-K included the following representations concerning th e18
adequacy of RepWest's reserve for insurance benefits and losses :19
[RepWest's] liability for reported and unreported losses is based on20 company historical and industry averages. Unpaid loss adjustment
expenses are based on historical ratios of loss adjustment expense s21 paid to losses paid . The liability for unpaid claims and unpaid
claims expenses represents estimates of the amount necessary to22 settle all claims as of the statement date. Both reported and
unreported losses are included in the liability . Republic updates the23 liability estimate as additional facts regarding claim costs becom e
available. These estimates are subject to uncertainty and variatio n24 due to numerous factors. In estimating reserves, no attempt is made
to isolate inflation from the combined effect of other factors includin g25 inflation. Unpaid losses and unpaid loss expenses are not discounted .
[Emphasis added .]26
157 . The 1999 Form 10-K further represented that the quarterly financial statement s27
presented therein had been prepared in accordance with GAAP :28
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF TH EFEDERAL SECURITIES LAW
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TIIOMAS J . HALLCOU NSELOR .AT LAV
345 S . ARLINGTON AV ERENO, NV $05lIS
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AMERCO believes that all necessary adjustments have been includedin the amounts stated below to present fairly, and in accordance withgenerally accepted accounting principles, the selected quarterl yinformation when read in conjunction with the consolidated financialstatements incorporated herein by reference .
158 . The statements referenced in ¶¶149-157 were materially false and misleading for th e
reasons set forth in ¶148(a) through (i) .
159 . In addition, the Company' s financial statements filed with the SEC on Forms 10- Q
for the quarters ended June 30, 1998, September 30, 1998 and December 31, 1998 and Form 10- K
for the year ended March 31, 1999, were not prepared in accordance with GAAP and were th
materially false and misleading, as detailed below at ¶¶231-323 .
160 . On August 10, 1999, AMERCO filed its quarterly report on Form 10 -Q for the first
quarter fiscal 2000, ended June 30, 1999. AMERCO reported net earnings of $42 million com p
I to $31 million for the prior year . The Company also reported liabilities of $2 .5 billion and
I stockholders' equity of $651 million. The report, signed by defendant Gary B . Horton, included th e
following disclosure relating to SAC Holdings:
During the quarter ended June 30, 1999, a subsidiary of U-Haul heldvarious senior and junior notes with SAC Holding Corporation and itssubsidiaries (SAC Holdings) . The voting common stock of SACHoldings is held by Mark V . Shoen, a major stockholder ofAMERCO .
U-Haul's subsidiary received interest payments of $2,902,000 and$1,794,000 from SAC Holdings during the quarter ended June 30,1999 and 1998, respectively .
U-Haul currently manages the prope rties owned by SAC Holdingspursuant to a management agreement , under which U-Haul receives amanagement fee equal to 6% of the gross receipts from the properties .Management fees of $ 1,035,000 and $520 , 000 were received duringthe quarter ended June 30, 1999 and 1998, respectively . Themanagement fee percentage is consistent with the fees received by U-Haul for other prope rties managed by U-Haul .
During the quarter ended June 30, 1999, a subsidiary of AMERCOfunded through a note receivable the purchase of prope rties andconstruction costs for SAC Holdings of approximately $ 11,511,000.
In December 1998, U-Haul and [AMERCO's] Real Estatecompleted the sale of twenty-six storage properties to Six SAC Self-Storage Corporation, a subsidiary of SAC Holding Corporation, for$99,685, 000. [AMERCO 's] Real Estate received cash and notesfrom the sale. The gain was reflected in the Consolidated Statement
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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I NOh1AS J . HALLCOUNSELOR AT LA%%3I S .ARLINGTQN AVE
RENO . NV 895105
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of Changes in Stockholders ' Equity at March 31, 1999. [Emphasisadded.]
161 . As of June 30, 1999 , the Company's repo rted reserve for insurance bene fits and
losses was $539.3 million or 21 .5% of AMERCO's reported liabilities, including RepWest accruals
for policies liabilities of $341 .8 million, or 13 .6% of AMERCO's reported liabilities . For the first
quarter, fiscal 2000 the Company reported that RepWest's net income was $1 .4 million compared tc
$1 .6 million for the prior year . In addition, the Form 10-Q represented that the financial statement s
presented therein had been prepared in accordance with GAAP :
AMERCO believes that all necessary adjustments have been includedin the amounts stated below to present fairly, and in accordance withgenerally accepted accounting principles [the selected quarterl yinformation when read in conjunction with the consolidated financialstatements incorporated herein by reference] .
162 . On November 8, 1999, AMERCO filed its quarterly report on Form 10-Q for the
second quarter fiscal 2000, ended September 30, 1999 . AMERCO reported net earnings of $42 .1
million compared to $42 .2 million for the prior year . The Company also reported liabilities of $2 .5
billion and stockholders' equity of $664 .1 million . The report, signed by defendant Gary B . Hortor
included the following disclosure relating to SAC Holdings :
During the six months ended September 30, 1999, a subsidiary of U-Haul held various senior and junior notes with SAC HoldingCorporation and its subsidiaries (SAC Holdings) . The votingcommon stock of SAC Holdings is held by Mark V . Shoen, a majorstockholder of AMERCO . U-Haul's subsidiary received interestpayments of $8,610,000 from SAC Holdings during the six monthsended September 30, 1999 . The terms of the notes receivable withSAC Holdings are consistent with the terms of notes receivables heldby U-Haul for other properties owned by unrelated parties andmanaged by U-Haul .
U-Haul currently manages the properties owned by SAC Holdingspursuant to a management agreement, under which U-Haul receives amanagement fee equal to 6% of the gross receipts from the properties .Management fees of $2,269,000 and $1,074,000 were received duringthe six months ended September 30, 1999 and 1998, respectively .The management fee percentage is consistent with the fees receivedby U-Haul for other properties owned by unrelated parties andmanaged by U-Haul .
During the six months ended September 30, 1999, a subsidiary ofAMERCO funded through a note receivable the purchase ofproperties and construction costs for SAC Holdings of approximatel y
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELORAT LA" II
3115 S. ARLINGTON A\`ERENO, NV H)545
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$21,580,000 .
Management believes that the foregoing transactions wereconsummated on terms equivalent to those that prevail in arm's-length transactions .
163 . As of September 30, 1999, the Company 's reported reserve for insurance benefits
and losses was $529 .1 million or 21 .5% of AMERCO's reported liabilities, including RepWest
accruals for policy liabilities of $328 .1 million. For the second quarter fiscal 2000, AMERCO
reported that RepWest's net income was $2 million compared to $3 million for the same period last
year. In addition, the Form 10-Q represented that the financial statements presented therein had
been prepared in accordance with GAAP :
AMERCO believes that all necessary adjustments have been includedin the amounts stated below to present fairly, and in accordance withgenerally accepted accounting principles, its results .
164 . On or about February 4, 2000, AMERCO issued $200,000,000 of publicly trade d
8 .8% Senior Notes due February 4, 2005 . The offering was pursuant to the filing by AMERC O
with the SEC of a Prospectus Supplement (filed on January 28, 2000), a Preliminary Prospectus
(filed on January 21, 2000 ) and a Registration Statement (filed on March 19, 1999).
165 . The January 2000 Registration Statement was executed and signed by, among others ,
defendants Edward Shoen, Horton , James Shoen, Carty, Dodds , Bayer , Herrera , Brogan and
Grogan .
166 . In the January 2000 Registration Statement , the AMERCO Defendants set forth
financial information that purported to be an accurate report of its financial results . The January
2000 Registration Statement reported AMERCO's financial results for the fiscal years ended March
31, 1999, 1998 and 1997 and the Company's financial results for the quarters ended June 30, 1999
and September 30, 1999. The January 2000 Registration Statement reported that for the quarter
ended June 30, 1999 the Company had recorded total revenues of $439 .4 million and net earnings
of $42 .3 million for the same period last year . For the quarter ended September 30, 1999, the
January 2000 Registration Statement reported that the Company had recorded total revenues of
$462 .6 million and net earnings of $42 .1 million . In addition, the January 2000 Registratio n
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLC'OL .SELOR AT LAW
3u[ S,ARI GTO'V AV ERENO . N V 97 1a
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Statement incorporated by reference the 1999 Form 10-K and the financial statements consolidated
I I in the 1999 Form 10-K . The January 2000 Registration Statement also incorporated by reference
the Second Quarter 2000 Form 10-Q. The January 2000 Registration Statement described the
Company 's moving and storage operations but made no direct mention of the relationship between
AMERCO and the SAC SPEs .
167 . On February 10, 2000, AMERCO filed its quarterly report on Form 10-Q for th e
third quarter fiscal 2000, ended December 31, 1999 . AMERCO reported a net loss of $9 millio n
compared to net earnings of $2 million for the prior year . The Company also reported liabilities of
$2 .4 billion and stockholders' equity of $648 .3 million. The report, signed by defendant Gary B .
Horton, included the following disclosure relating to SAC Holdings :
During the nine months ended December 31, 1999, subsidiaries ofAMERCO held various senior and junior notes with SAC HoldingCorporation and its subsidiaries (SAC Holdings) . The votingcommon stock of SAC Holdings is held by Mark V . Shoen, a majorstockholder of AMERCO .
AMERCO's subsidiaries received interest payments of $14,783,000and principal payments of $29,456,000 from SAC Holdings duringthe nine months ended December 31, 1999 . The terms of the notesreceivable with SAC Holdings are consistent with the terms of notesreceivable held by U-Haul for other properties owned by unrelatedparties and managed by U-Haul .
U-Haul currently manages the properties owned by SAC Holdingspursuant to a management agreement, under which U-Haul receives amanagement fee equal to 6% of the gross receipts from the properties .Management fees of $3,348,000 and $1,620,000 were received duringthe nine months ended December 31, 1999 and 1998, respectively .The management fee percentage is consistent with the fees receivedby U-Haul for other properties owned by unrelated parties andmanaged by U-Haul .
During the nine months ended December 31, 1999, a subsidiary ofAMERCO funded through a note receivable the purchase ofproperties and construction costs for SAC Holdings of approximately$37,948,000 .
Management believes that the foregoing transactions wereconsummated on terms equivalent to those that prevail in arm's-length transactions .
50SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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TUJOMAS J . HAIL(OL SSELOR AT LAW
30, ". ARLINGTON AV ERENO , NV W)51I
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168 . As of December 31, 1999, the Company's reported reserve for insurance benefit s
and losses was $517.4 million or 21 .1% of AMERCO's reported liabilities, including RepWest
accruals for policy liabilities of $324 .2 million. For the second quarter fiscal 2000, AMERCO
reported that RepWest's net income was $2 .9 million compared to $5 .1 million for the prior year .
In addition, the Form 10-Q represented that the financial statements presented therein had bee n
prepared in accordance with GAAP :
AMERCO believes that all necessary adjustments have been includedin the amounts stated below to present fairly, and in accordance withgenerally accepted accounting principles , its results .
169 . On June 29, 2000, AMERCO filed its annual repo rt on form 10-K for the fiscal yea r
2000, ended March 31, 2000 . AMERCO reported net earnings of $65 million compared to $63
million for the prior year. The Company also reported liabilities of $2 .5 billion and stockholders'
equity of $585 .3 million. The report, signed by defendants Edward J . Shoen, Gary B . Horton,
William E. Carty, James P . Shoen, Richard J . Herrera, Charles J . Bayer, John M . Dodds, James J .
Grogen and John P . Brogan, included the following disclosure relating to SAC Holdings :
During fiscal year 2000, subsidiaries of AMERCO held various seniorand junior notes with SAC Holding Corporation and its subsidiaries(SAC Holdings) . The voting common stock of SAC Holdings is heldby Mark V . Shoen, a major stockholder of AMERCO . AMERCO'ssubsidiaries received interest income of $20,111,000, $8,022,000 and$6,847,000 from SAC Holdings during fiscal years 2000, 1999, and1998, respectively . Principal payments of $105,689,000 zero, and$1,047,000 were received during fiscal years 2000, 1999, and 1998,respectively. The note receivable balance outstanding was, in theaggregate, $153,067,000 and $179,819,000 at March 31, 2000 and1999, respectively, bearing interest rates ranging from 8 .37% to 13%.The principal balance is due in full at maturity and interest is payablequarterly . Notes receivable from SAC Holdings include $547,000 atMarch 31, 2000 which is secured by land and buildings at variouslocations. The terms of the notes receivable are consistent with theterms of notes receivable held by U-Haul for other properties ownedby unrelated parties and managed by U-Haul .
During fiscal years 2000, 1999 and 1998, a subsidiary of AMERCOfunded through notes receivable the purchase of properties andconstruction costs for SAC Holdings of $44,934,000, $26,116,000and $24,574,000, respectively .
In December 1998, U-haul and [AMERCO 's] Real Estate completedthe sale of twenty-six storage properties to Six SAC Self-Storage
siSECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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I 110M AS J . HALLCOUNSELOR AT LAW
3U5 S . ARL1NGTON AV ERENO . NV "915
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Corporation , a subsidiary of SAC Holdings, for $ 99,685,000.[AMERCO 's] Real Estate received cash and notes from the sale . Thegain is reflected in the Consolidated Statements of Changes inStockholders ' Equity .
U-Haul currently manages the properties owned by SAC Holdingsunder a management agreement, whereby U-Haul receives amanagement fee equal to 6% of the gross receipts from the properties .Management fees of $4,482,000, $2,483,000, and $1,860,000 werereceived during fiscal years 2000, 1999, and 1998 respectively . The6% fee is consistent with the fees received by U-haul for otherproperties owned by unrelated parties and managed by U-Haul .
Management believes that the foregoing transactions wereconsummated on terms equivalent to those that prevail in arm's-length transactions .
170 . As of March 31, 2000, the Company repo rted that its reserve for insurance policy
benefits and losses was $461 .6 million, or 18.2% of AMERCO's total liabilities, including Reput e
accruals for policy liabilities of $339.2 million . For fiscal 2000, AMERCO reported that RepWest '
net income was $5 .3 million compared to $13 .1 million for the prior year . The 2000 Form 10- K
I I included the following representations concerning RepWest's business activities and the adequacy
of the RepWest' s reserve for insurance benefits and losses :
Republic's business activities consist of three basic areas : U-Haul,direct and assumed reinsurance underwriting. U-Haul underwritingsinclude coverage for U-Haul customers, independent dealers andemployees of AMERCO. For the year ended December 31, 1999,approximately 18 .3% of Republic's written premiums resulted fromU-Haul underwriting activities. Republic's direct underwriting isdone through company-employed underwriters and selected generalagents. The products provided include liability coverage for rentalvehicle lessees, storage rental properties, coverage for commercialmultiple peril, nonstandard auto, mobile homes and excess workers'compensation. Republic's assumed reinsurance underwriting is donevia broker markets . In an effort to decrease risk, Republic has enteredinto various catastrophe cover policies to limit its exposure .
The liability for reported and unreported losses is based on bothRepublic's historical and industry averages . Unpaid loss adjustmentexpenses are based on historical ratios of loss adjustment expensespaid to losses paid . The liability for unpaid claims and unpaid claimsexpenses is based on estimates of the amount necessary to settle allclaims as of the statement date . Both reported and unreported lossesare included in the liability . Republic updates the liability estimate asadditional facts regarding claim costs become available . Theseestimates are subject to uncertainty and variation due to numerousfactors. In estimating reserves, no attempt is made to isolate inflatio n
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLUOLNSELOR AT LAW
Soy $ . ARLINCTON A\' ERENO . NV 0104U5
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from the combined effect of other factors including inflation . Unpaidlosses and unpaid loss expenses are not discounted .
171 . The 2000 Form 10-K further represented that the quarterly financial statement s
presented therein had been prepared in accordance with GAAP :
AMERCO believes that all necessary adjustments have been includedin the amounts stated below to present fairly, and in accordance withgenerally accepted accounting principles, the selected quarterlyinformation when read in conjunction with the consolidated financialstatements incorporated herein by reference .
172 . The statements referenced in ¶1160-171 were materially false and misleading for the
reasons set forth in J 148(a) through (i) .
173 . In addition, the Company's financial statements filed with the SEC on Forms 10- Q
for the quarters ended June 30, 1999, September 30, 1999 and December 31, 1999 and Form 10- K
for the year ended March 31, 2000, and including the financial statements incorporated by referenc e
and presented in the Company's January 2000 Registration Statement were not prepared i n
I accordance with GAAP and were therefore materially false and misleading , as detailed below a t
¶¶231-323 . Moreover, AMERCO has now admi tted its financial statements overstated th e
Company's net earnings by more than 65%, 85%, 1843%, 427% during fiscal 1999, 2000, 200 1
and 2002, respectively (see chart at 1234) .
174. On August 11, 2000, AMERCO filed its quarterly report on Form 10-Q for the firs t
quarter fiscal 2001, ended June 30, 2000 . AMERCO reported net earnings of $38 million compare
to $42 million for the prior year . The Company also reported liabilities of $2 .6 billion and
stockholder's equity of $652 .8 million. The report, signed by defendant Gary B . Horton, included
the following disclosure relating to SAC Holdings :
During the quarter ended June 30, 2000, subsidiaries of AMERCOheld various senior and junior notes with SAC Holding Corporationand its subsidiaries (SAC Holdings) . The voting common stock ofSAC Holdings is held by Mark V. Shoen, a major stockholder ofAMERCO . AMERCO's subsidiaries received interest payments of$5,418,000 and principal payments of 447,000 from SAC Holdingsduring the quarter ended June 30, 2000 . The terms of the notesreceivable with SAC Holdings are consistent with the terms of notesreceivable held by U-Haul for other properties owned by unrelatedparties and managed by U-Haul .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOM AS J . HALLCOL'1SELOR AT LAW30, S. ARLINGTON At E
RENO . NV 89561
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During the qua rter ended June 30, 2000, a subsidiary of AMERCOfunded through a note receivable the purchase of properties andconstruction costs for SAC Holdings of approximately $107,829,000 .
U-Haul currently manages the properties owned by SAC Holdingspursuant to a management agreement, under which U-Haul receives amanagement fee equal to 6% of the gross receipts from the properties .Management fees of $1,104,000 and $1,035,000 were received duringthe quarters ended June 30, 2000 and 1999, respectively . Themanagement fee percentage is consistent with the fees received by U-Haul for other properties owned by unrelated parties and managed byU-Haul .
In June 2000, [AMERCO's] Real Estate completed the sale of twenty-four storage properties to Twelve SAC Self-Storage Corporation,Thirteen SAC Self-Storage Corporation and Fourteen SAC Self-Storage Corporation, subsidiaries of SAC Holding Corporation, for$98,351,000 . [AMERCO's] Real Estate received cash and notes fromthe sale. The gain is reflected in the Consolidated Statement ofChanges in Stockholders' Equity .
Management believes that the foregoing transactions wereconsummated on terms equivalent to those that prevail in arm's-length transactions .
175 . As of June 30 , 2000, AMERCO' s reported reserve for insurance benefits and losse s
was $555 . 3 million or 21 .7% of AMERCO' s repo rted liabilities , including RepWest accruals for
policy liabilities of $338 .4 million. For the first quarter fiscal 2001, the Company reported that
RepWest's net income was $1 .5 million compared to $1 .4 million for the prior year . In addition,
j I the Form 10-Q represented that the financial statements presented therein had been prepared i n
accordance with GAAP :
AMERCO believes that all necessary adjustments have been includedin the amounts stated below to present fairly, and in accordance withgenerally accepted accounting principles , its results .
176 . On November 13, 2000, AMERCO filed its quarterly report on Form 10-Q for th e
second quarter fiscal 2001, ended September 30, 2000 . AMERCO reported net earnings of $4 1
million compared to $42 million for the prior year . The Company also reported liabilities of $2 . 6
billion and stockholders' equity of $680 .9 million . The report, signed by defendant Gary B .
included the following disclosure relating to SAC Holdings :
During the six months ended September 30, 2000, subsidiaries ofAMERCO held various senior and junior notes with SAC HoldingCorporation and its subsidiaries (SAC Holdings) . The voting
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THO.MASJ . HALLCOLN. LORATLAW
3uS S. ARLINGTON AV ERENO, NV H95U
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common stock of SAC Holdings is held by Mark V . Shoen, a majorstockholder of AMERCO . AMERCO's subsidiaries received interestpayments of $15,431,564 and principal payments of $71,591 fromSAC Holdings during the six month ended September 30, 2000 . Theterms of the notes with SAC Holdings are consistent with the terms ofnotes held by U-Haul for other properties owned by unrelated partiesand managed by U-Haul . These amounts are reflected in Investments,other of the condensed consolidated balance sheet .
During the six months ended September 30, 2000, a subsidiary ofAMERCO funded through a note the purchase of properties andconstruction costs for SAC Holdings of approximately $ 141,087,000 .This amount is reflected in Investments , other of the condensedconsolidated balance sheet .
U-Haul currently manages the properties owned by SAC Holdingspursuant to a management agreement, under which U-Haul receives amanagement fee equal to 6% of the gross receipts from the properties .Management fees of $2,690,000 and $2,269,000 were received duringthe six months ended September 30, 2000 and 1999, respectively .The management fee percentage is consistent with the fees receivedby U-Haul for other properties owned by unrelated parties andmanaged by U-Haul .
In June 2000 , [AMERCO' s] Real Estate completed the sale of twenty-four storage properties to Twelve SAC Self-Storage Corporation,Thirteen SAC Self-Storage Corporation and Fourteen SAC Self-Storage Corporation , subsidiaries of SAC Holding Corporation, for$98,351,000 . [AMERCO' s] Real Estate received cash and notes fromthe sale . The gain is reflected in the equity section of the condensedconsolidated balance sheet .
Management believes that the foregoing transactions wereconsummated on terms equivalent to those that prevail in arm's-length transactions .
177. As of September 30, 2000, AMERCO' s reserve for insurance benefits and losse s
$553 .7 million or 21 .7% of AMERCO's reported liabilities, including RepWest accruals for policy
liabilities of $325 million . For the second quarter fiscal 2001, the Company reported that
RepWest's net loss was $0.2 million compared to net earnings of $2 million for the prior year . In
addition, the Form 10-Q represented that the financial statements presented therein had been
prepared in accordance with GAAP :
In the opinion of management, all adjustments necessary for a fairpresentation of such condensed financial statements have beenincluded.
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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TIIOMAS J . HALL(Ot %SELOR AT LAW
Sus S .N RL1NGTON AV ERENO . NV 895I5
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178 . On February 10, 2001 , AMERCO fi led its quarterly report on Form I0 -Q for the
third quarter fiscal 2001, ended December 31, 2000. On August 10, 2001, AMERCO filed an
amended quarterly report for the same period on Form 10-Q/A. In the Form 10-Q/A, the Company
reported a net loss of $21 million compared to a net loss of $9 million for the prior year . The
Company also reported liabilities of $2 .6 billion and stockholders' equity of $660 .4 million. The
report, signed by defendant Gary B . Horton, included the following disclosure relating to SAC
Holdings :
During the nine months ended December 31, 2000, subsidiaries ofAMERCO held various senior and junior notes with SAC HoldingCorporation and its subsidiaries (SAC Holdings) . The votingcommons stock of SAC Holdings is held by Mark V . Shoen, a majorstockholder of AMERCO. AMERCO's subsidiaries received interestpayments of $26,318,000 and principal payments of $795,000 fromSAC Holdings during the nine months ended December 31, 2000 .The terms of the notes with SAC Holdings are consistent with theterms of notes held by U-Haul for other properties owned byunrelated parties and managed by U-Haul . These amounts arereflected in Investments, other of the condensed consolidated balancesheet. During the nine months ended December 31, 2000, asubsidiary of AMERCO funded through a note the purchase ofproperties and construction costs for SAC Holdings of approximately$182,576,000 . This amount is reflected in Investments, other of thecondensed consolidated balance sheet .
U-Haul currently managed the properties owned by SAC Holdingspursuant to a management agreement, under which U-Haul receives amanagement fee equal to 6% of the gross receipts from the properties .Management fees of $4,523,000 and $3,348,000 were received duringthe nine months ended December 31, 2000 and 1999, respectively .The management percentage is consistent with the fees received byU-Haul for other properties owned by unrelated parties and managedby U-Haul .
In June 2000, [AMERCO's] Real Estate completed the sale of twenty-four storage properties to Twelve SAC Self-Storage Corporation,Thirteen SAC Self Storage Corporation and Fourteen SAC Self-Storage Corporation, subsidiaries of SAC Holding Corporation, for$98,351,000 . [AMERCO's] Real Estate received cash and notes fromthe sale. The gain is reflected in the equity section of the condensedconsolidated balance sheet .
Management believes that the foregoing transactions wereconsummated on terms equivalent to those that prevail in arm's-length transactions .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
355 S .A U G'LON AV E
RENO, NV 89-46
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179 . As of December 31, 2000 , the Company ' s reported reserve for insurance bene fi ts
and losses was $547 . 1 million or 20 .9% of AMERCO' s reported liabilities, including RepWest
accruals for policy liabilities of $309.9 million . For the third quarter fiscal 2001 , the Company
reported that RepWest ' s net loss was $4 .4 million compared to net income of $2 .9 million for the
same period last year. In addition , the Form 10-QIA represented that the financial statements
included therein had been prepared in accordance with GAAP:
In the opinion of management, all adjustments necessary for a fairpresentation of such condensed financial statements have beenincluded .
180 . On July 2, 2001, AMERCO filed its Form 10-K for the fiscal year 2001 ende d
31, 2001 . AMERCO reported net earnings of $13 million compared to $65 million for the prior
year. The Company also reported liabilities of $2 .8 billion and stockholders' equity of $615 .4. The
report, signed by defendants Edward J . Shoen, Gary B . Horton, William E . Carty, James P . Shoen,
Charles J . Bayer, John M. Dodds, James J . Grogan and John P. Brogan, included the following
representations related to SAC Holdings :
During fiscal year 2001, subsidiaries of AMERCO held various seniorand junior notes with SAC Holding Corporation and its subsidiaries(SAC Holdings) . The voting common stock of SAC Holdings is heldby Mark V . Shoen, a major stockholder of AMERCO. AMERCO'ssubsidiaries received interest payments of $27,592,000, $20,111,000and $8,022,000 from SAC Holdings during fiscal years 2001, 2000and 1999, respectively. Principal payments of $97,953,000,$105,689,000 and zero were received during fiscal years 2001, 2000and 1999, respectively. The note receivable balance outstanding was,in the aggregate, $251,021,000 and $154,528,000 at March 31, 2001and 2000, respectively, bearing interest rates ranging from 8 .37% to13 .0%. The principal balance is due in full at maturity and interest ispayable quarterly . The terms of the notes receivable are consistentwith the terms of notes receivable held by U-Haul for other propertiesowned by unrelated parties and managed by U-Haul .
During fiscal years 2001, 2000 and 1999, a subsidiary of AMERCOfunded through notes receivable the purchase of properties andconstruction costs for SAC Holdings of $187,595,000, $44,934,000and $26,116,000, respectively .
In June 2000, [AMERCO' s] Real Estate completed the sale of twenty-four storage properties to Twelve SAC Self-Storage Corporation,Thirteen SAC Self-Storage Corporation and Fourteen SAC Self-Storage Corporation, subsidiaries of SAC Holding Corporation, fo r
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR ATLAW
7u5 S A 1NG"SO'v AV £RENO . NV 1954 5
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$98,3 51,000 . [AMERCO's] Real Estate received cash and notes fromthe sale. The gain is reflected of consolidated statements of changesin stockholders' equity .
In December 1998, U -Haul and [AMERCO 's] Real Estate completedthe sale of twenty-six storage properties to Six SAC Self-StorageCorporation , a subsidiary of SAC Holdings , for $99,685,000.[AMERCO 's] Real Estate received cash and notes from the sale . Thegain is reflected of consolidated statements of changes instockholders' equity .
U-Haul currently manages the properties owned by SAC Holdingsunder a management agreement, whereby U-Haul receives amanagement fee equal to 6% of the gross receipts from the properties .Management fees of $6,243,000, $4,482,000 and $2,483,000 werereceived during fiscal years 2001, 2000 and 1999, respectively . The6% fee is consistent with the fees received by U-Haul for otherproperties owned by unrelated parties and managed by U-Haul .
Management believes that the foregoing transactions wereconsummated on terms equivalent to those that prevail in arm's-length transactions .
181 . As of March 31, 2001, the Company's reported reserve for insurance policy benefit s
I and losses was $668 . 8 million , or 24 .2% of AMERCO' s total liabilities , including RepWest
accruals for policy liabilities of $372 .3 million . For fiscal 2001, the Company repo rted that
RepWest' s net loss was $19 .4 million compared to net income of $5 .3 million for the prior year . In
addition , the 1998 Form 10-K included the following representations related to the adequacy of the
RepWest 's reserve for insurance benefits and losses :
The liability for reported and unreported losses is based on bothRepublic's historical and industry averages . Unpaid loss adjustmentexpenses are based on historical ratios of loss adjustment expensespaid to losses paid. The liability for unpaid claims and unpaid claimsexpenses is based on estimates of the amount necessary to settle allclaims as of the statement date . Both reported and unreported lossesare included in the liability . Republic updates the liability estimate asadditional facts regarding claim costs become available . Theseestimates are subject to uncertainty and variation due to numerousfactors. In estimating reserves, no attempt is made to isolate inflationfrom the combined effect of other factors including inflation . Unpaidlosses and unpaid loss expenses are not discounted .
182 . The 2001 Form 10-K represented that the quarterly financial statements presente d
therein had been prepared in accordance with GAAP :
AMERCO believes that all necessary adjustments have been includedin the amounts stated below to present fairly, and in accordance with
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW 11
3u5 ,ARLINGTON AY HRENO , NV 095115
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generally accepted accounting principles, the selected quarterlyinformation when read in conjunction with the consolidated financialstatements incorporated herein by reference .
183 . The statements referenced in ¶¶173-182 were materially false and misleading for th e
reasons set forth in ¶148(a) through (i) .
184 . In addition, the Company's financial statements filed with the SEC on Forms 10- Q
for the quarter ended June 30, 2000, September 30, 2000 and December 31, 2000 and Form 10-K
for the year ended March 31, 2001, were not prepared in accordance with GAAP and were therefore
materially false and misleading, as detailed below at ¶¶231-323 . Moreover, AMERCO has now
admitted its financial statements overstated the Company's net earnings by more than 65%, 85%,
1843%, 427% during fiscal 1999, 2000, 2001 and 2002, respectively (see chart at ¶234) .
185 . On August 10, 2001, AMERCO filed its quarterly report on Form 10-Q for the firs t
quarter fiscal 2002, ended June 30, 2001 . In the Form 10-Q, the Company reported net earnings of
$25 million, as compared to $38 million for the prior year . The Company also reported liabilities o
$2.8 billion and shareholder's equity of $647 .1 million. The original Form 10-Q, filed August 10,
2001, signed by defendant Gary B. Horton, included the following disclosure relating to SA C
Holdings :
During the quarter ended June 30, 2001, subsidiaries of AMERCOheld various senior and junior notes issued by SAC HoldingCorporation and its subsidiaries (SAC Holdings) . The votingcommon stock of SAC Holdings is held by Mark V . Shoen, a majorstockholder of AMERCO. AMERCO's subsidiaries received interestpayments of $5,702,000 from SAC Holdings during the quarter endedJune 30, 2001 . The terms of the notes receivable with SAC Holdingsare consistent with the terms of notes receivable held by U-Haul forother properties owned by unrelated parties and managed by U-Haul .
During the quarter ended June 30, 2001, a subsidiary of AMERCOfunded through a note receivable the purchase of properties andconstruction costs for SAC Holdings of approximately $17,661,000 .
U-Haul currently manages the properties owned by SAC Holdingspursuant to a management agreement, under which U-Haul receives amanagement fee equal to 6% of the gross receipts from the properties .Management fees of $1,717,000 and $1,104,000 were received duringthe quarters ended June 30, 2001 and 2000, respectively . Themanagement fee percentage is consistent with the fees received by U-Haul for other properties owned by unrelated parties and managed b y
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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T11OYIAS J. HALLCOUNSELOR AT LAW
30 S S . ARLINGTON AV ERENO, NV 39505
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U-Haul .
In June 2000 , [AMERCO' s] Real Estate completed the sale of twenty-four storage properties to Twelve SAC Self-Storage Corporation,Thirteen SAC Self-Storage Corporation and Fourteen SAC Self-Storage Corporation, subsidiaries of SAC Holding Corporation, for$98,351,000 . [AMERCO 's] Real Estate received cash and notes fromthe sale . The gain is reflected in the Consolidated Statement ofChanges in Stockholders ' Equity.
Management believes that the foregoing transactions wereconsummated on terms equivalent to those that prevail in arm's-length transactions .
186 . As of June 30, 2001, the Company reported that its reserve for insurance benefits
losses was $677 .9 million or 24 .6% of AMERCO's reported liabilities, including RepWest's
accruals for policy liabilities of $384.6 million. For the first quarter fiscal 2002, the Company
reported that RepWest's net loss was $3 .6 million compared to net income of $1 .5 million for prior
year. In addition, the Form 10-Q report represented that the financial statements presented therein
had been prepared in accordance with GAAP :
In the opinion of management, all adjustments necessary for a fairpresentation of such financial statements have been included .
187 . On October 5, 2001, AMERCO filed with SEC a prospectus supplement as part of a
previously filed registration statement utilizing a "shelf' registration process under which the
Company offered to sell to the public up to $350 million in debt securities . The registration
statement, including the prospectus and prospectus supplement was filed with the SEC on or abou t
February 21, 2001, and signed by defendants Edward Shoen, James Shoen, Horton, Dodds, Carty,
Bayer, Herrera, Brogan and Grogan . The Registration Statement incorporated by reference the
Company's financial statements as of March 31, 2001, 2000 and 1999 and for each of the fiscal
quarters in the three-year period ended March 31, 2001, as filed with the SEC on Form 10-K .
188 . On November 14, 2001, AMERCO filed its quarterly report on Form l0-Q for the
second quarter of fiscal 2002, ended September 30, 2001 . In the Form I0-Q, the Company reported J
net earnings of $42 million compared to $41 million for the prior year . The Company also reported
liabilities of $2 . 8 billion and shareholders ' equity of $671 million . The original Form 10-Q, file d
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . IIALLCOUNSELOR AT LA%%3u5 S .ARLINGTON AVE
RENO , NV "4A
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November 14, 2001, signed by defendant Gary B . Horton, included the following disclosure relat i
I to SAC Holdings :
During the six months ended September 30, 2001, subsidiaries ofAMERCO held various senior and junior notes with SAC HoldingCorporation and its subsidiaries (SAC Holdings) . The votingcommon stock of SAC Holdings is held by Mark V . Shoen, a majorstockholder of AMERCO . AMERCO's subsidiaries received interestpayments of $16,253,308 and principal payments of $32,249,767from SAC Holdings during the six months ended September 30, 2001 .The terms of the notes with SAC Holdings are consistent with theterms of notes held by U-Haul for other properties owned byunrelated parties and managed by U-Haul . These amounts arereflected in Investments, other of the condensed consolidated balancesheet .
During the six months ended September 30, 2001, a subsidiary ofAMERCO funded through a note the purchase of properties andconstruction costs for SAC Holdings of approximately $20,699,000 .This amount is reflected in Investments, other of the condensedconsolidated balance sheet .
U-Haul currently manages the properties owned by SAC Holdingspursuant to a management agreement, under which U-Haul receives amanagement fee equal to 6% of the gross receipts from the properties .Management fees of $3,756,000 and $2,690,000 were received duringthe six months ended September 30, 2001 and 2000, respectively .The management fee percentage is consistent with the fees receivedby U-Haul for other properties owned by unrelated parties andmanaged by U-Haul .
In August 2001 , [AMERCO's] Real Estate completed the sale of onestorage prope rty to SAC Holdings, for $341,000 . [AMERCO' s] RealEstate received notes from the sale . The gain is reflected in the equitysection of the condensed consolidated balance sheet .
In June 2000 , [AMERCO' s] Real Estate completed the sale of twenty-four storage properties to Twelve SAC Self-Storage Corporation,Thirteen SAC Self-Storage Corporation and Fou rteen SAC Self-Storage Corporation, subsidiaries of SAC Holding Corporation, for$98,351,000 . [AMERCO' s] Real Estate received cash and notes fromthe sale . The gain is reflected in the equity section of the condensedconsolidated balance sheet .
In September 2001, the Company purchased nine storage propertiesfrom Five SAC Self-Storage Corporation, a subsidiary of SACHoldings at a purchase price of $35 .2 million, which approximatesfair value . These properties were not previously owned by theconsolidated company.
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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711OMAS J . HALLCOUNSELOR AT LAW
5175 S .ARI.I'.`GTON AV ERENO. NV "-wi<
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Management believes that the foregoing transactions wereconsummated on terms equivalent to those that prevail in arm's-length transactions .
189 . As of September 30, 2001, the Company reported that its reserve for insuranc e
benefits and losses was $686.7 million or 24 .9% of AMERCO's reported liabilities, including
RepWest accruals for policy losses of $381 .4 million. For the second quarter of fiscal 2002, the
Company reported that RepWest's net loss was $8 .6 million compared to a net loss of $0 .2 million
for prior year . In addition, the Form 10-Q represented that the financial statements presented
therein had been prepared in accordance with GAAP :
AMERCO believes that all necessary adjustments have been includedin the amounts stated below to present fairly, and in accordance withgenerally accepted accounting principles, its results .
190 . On February 14, 2002, AMERCO missed the required fi ling date for its Form 10-Q
for the third quarter of fiscal 2002, ended December 31, 2001, and instead AMERCO filed a
"Notification of Late Filing" on Form 12b-25, extending the filing date for its quarterly report to
February 19, 2002 . Defendants misleadingly stated that the filing was delayed due to
implementation of expanded SEC capital and liquidity disclosure recommendations . The Form
12b-25, signed by defendant Horton, stated in pertinent part as follows :
. . . the company is trying to improve its disclosure of information inthe area of liquidity and capital resources. As such, the company istaking steps that the Securities and Exchange Commissio nrecommended, including compiling aggregated disclosure concerningits obligations and commitments to make future payments undercontracts, debt and lease agreements, and contingent commitments .As a result, it has taken longer to gather the necessary informationto prepare the quarterly report on Form 10-Q . [Emphasis added .]
191 . On February 19, 2002, AMERCO filed its quarterly report on Form 10-Q for th e
third quarter of fiscal 2002, ended December 31, 2001 . In the Form 10-Q, the Company reported a
net loss of $20 million compared to a net loss of $21 million for the prior year . The Company also
reported liabilities of $2 .8 billion and stockholders' equity of $662 .8 million. The Form 10-Q ,
signed by defendant Gary B . Horton, included the following disclosure relating to SAC Holdings :
During the nine months ended December 31, 2001 , subsidiaries ofAMERCO held various senior and junior notes with SAC HoldingCorporation and its subsidiaries (SAC Holdings) . The votingcommon stock of SAC Holdings is held by Mark V. Shoen, a major
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
30 S,ARLUNGTON AV CRENO, NV 89415
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stockholder of AMERCO . AMERCO's subsidiaries received interestpayments of $20,899,000 and principal payments of $33,952,000from SAC Holdings during the nine months ended December 31,2001 . The terms of the notes with SAC Holdings are similar to theterms of notes held by U-Haul for other properties owned byunrelated parties and managed by U-Haul . These amounts arereflected in Investments, other of the condensed consolidated balancesheet .
During the nine months ended December 31, 2001, a subsidiary ofAMERCO funded through a note the purchase of properties andconstruction costs for SAC Holdings of approximately $33,279,000 .The amount is reflected in Investments, other of the condensedconsolidated balance sheet .
U-Haul currently manages the self-storage properties owned by SACHoldings pursuant to a management agreement, under which U-Haulreceives a management fee equal to 6% of the gross receipts from theproperties . Management fees of $5,495,000 and $4,523,000 werereceived during the nine months ended December 31, 2001 and 2000,respectively. The management fee percentage is consistent with thefees received by U-Haul for other properties owned by unrelatedparties and managed by U-Haul .
In December 2001, [AMERCO's] Real Estate completed the sale offourteen storage properties to Eighteen SAC Self-StorageCorporation, subsidiary of SAC Holding Corporation, for$43,782,000 . [AMERCO's] Real Estate received cash and notes fromthe sale . The gain is reflected in the equity section of the condensedconsolidated balance sheet .
In August 2001, [AMERCO's] Real Estate completed the sale of onestorage property to SAC Holdings, for $530,000. [AMERCO's] RealEstate received notes from the sale .
In June 2000, [AMERCO's] Real Estate completed the sale of twenty-four storage properties to Twelve SAC Self-Storage Corporation,Thirteen SAC Self-Storage Corporation and Fourteen SAC Self-Storage Corporation, subsidiaries of SAC Holding Corporation, for$98,351,000. [AMERCO's] Real Estate received cash and notes fromthe sale . The gain is reflected in the equity section of the condensedconsolidated balance sheet .
In September 2001, the Company purchased nine storage propertiesfrom Five SAC Self-Storage Corporation, a subsidiary of SACHoldings at a purchase price of $35 .2 million for fair value . Theseproperties were not previously owned by the consolidated company .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS 1 HALLCOUNSELOR AT LAMSNS S .ARLLNC VON AVE
RENO, NV 19 .41,
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Management believes that the foregoing transactions wereconsummated on terms equivalent to those that prevail in arm's-length transactions .
192 . As of December 31, 2001, the Company reported that its reserve for policy benefit s
and losses of $705 .7 million , or 25 .0% of AMERCO' s reported liabilities, including RepWest
accruals for policy liabilities of $406. 1 million . For the third quarter fi scal 2002, the Company
reported that RepWest' s net loss was $8 .3 million compared to a net loss of $4 .2 million for the
prior year. In addition the Form 10-Q represented that the financial statements presented therein
had been prepared in accordance with GAAP:
AMERCO believes that all necessary adjustments have been includedin the amounts stated below to present fairly, and in accordance withgenerally accepted accounting principles, its results .
193 . The statements referenced in ¶¶184-192 were materially false and misleading for th e
reasons set forth in ¶148(a) through (i) .
194 . In addition, the Company's financial statements filed with the SEC on Forms 10- Q
for the quarter ended June 3 0, 2001, September 3 0, 2001 and December 31, 2001 and Form 10-K
for the year ended March 31, 2001, were not prepared in accordance with GAAP and were therefor
materially false and misleading, as detailed below at ¶¶231-323 . Moreover, AMERCO has now
admitted its financial statements overstated the Company's net earnings by more than 65%, 85%,
1843%, 427% during fiscal 1999, 2000, 2001 and 2002, respectively (see chart at ¶234) .
H. AMERCO CONSOLIDATES THE SAC SPE' S
195 . On March 28, 2002 AMERCO filed an amended Form 10-Q/A for the third fisca l
quarter of fiscal 2002, ended December 31, 2001 . In the Form 10-Q/A, AMERCO restated its
historical financial results for the quarter ended December 31, 2001, as well as for the year ended
March 31, 2001 presented therein, to reflect for the first time the consolidation of the SAC SPEs
with AMERCO and its consolidated subsidiaries . The restated financial statements presented in the
Form 10-Q/A failed to reflect material adverse changes in the Company's previously reported
earnings as a result of the SAC SPE consolidation, and, in fact, failed to disclose millions of dollars
in operating losses incurred by the SAC SPEs during fiscal year 2002 and 2001 . The restatement
did, however, reveal that AMERCO had approximately $306 million and $257 million in previousl y64
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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TFIO :NAS J . HALLCOUNSELOR AT LAP.
3I S.ARUNGTON AV E
RENO , N V g} 4.5
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unreported debt related to the SAC SPEs as of December 31, 2001 and March 31, 2001,
respectively. The restatement also revealed that AMERCO overstated its previously reported
stockholders' equity by $91 million and $80 million as of December 31, 2001 and March 31, 2001,
respectively. The following table summarizes the impact of the restatement :
Quarter Ended December 31, 2001 Year Ended March 31, 2001(in thousands)
(As Reported) (As Restated) (As Reported) (As Restated)
Assets $3,491,346 $3,665,906 $3,384,064 $3,523,907
Liabilities $2,828,579 $3,094,755 $2,768,698 $2,988,577
Stockholders' $662,767 $571,151 $615,366 $535,330equity
Net Income $ (20,212) $ (20,212) $12,965 $ 12,96 5
196 . On July 17, 2002, AMERCO disseminated it second restatement for its fiscal years
2001 and 2000, this time including, the operating losses of the SAC SPEs during the respective
period presented . The fiscal 2002 Form 10-K reported that as a result of the change in accounting
for the Company's transactions with the SAC SPEs, AMERCO restated its financial results by the
following amounts :
Year Ended March 31, 2001(in thousands )
(As Reported) (As Restated)
Assets $3,384,064 $3,638,439
Liabilities $2,768,698 $3,126,175
Stockholders' $615,366 $512,264equity
Net income $12,965 $1,012
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF TH EFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
MIS S .ARLINGTON AV ERENO, NV 89415
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Year Ended March 31, 2000(in thousands)
Stockholders'equity
(As Reported)
$3,125,22 5
$2,539,93 1
$585,294
(As Restated)
$3,291,292
$2,758,83 8
$532,454
Net income $65,491 $63,184
197. In their restatement, AMERCO reported that net income was actually $ 1 .0 million
for the year ended March 31, 2001, not $13 .0 million as previously reported, and $63 .2 million for
the year ended March 31, 2000, not $65 .5 million as previously reported . The Company also
reported that its liabilities were actually $3 .1 billion for the year ended March 31, 2001, not $2 .8
billion as previously reported, and $2 .8 billion for the year ended March 31, 2000, not $2 .5 billion
as previously reported . The Company reported its stockholders' equity was actually $512 .3 millio n
for the year ended March 31, 2001 , not $615 .4 million as originally reported, and $532 .5 million
the year ended March 31, 2000, not $585 .3 million as originally reported.
198 . On the same day, July 17, 2002, AMERCO announced it had dismissed PwC, its
auditors of 24 years. On August 8, 2002, AMERCO announced it had selected BDO Seidman as it s
new auditor.
199 . On July 26, 2002, AMERCO filed a proxy statement in which it indicated for the
first time that the defendants also had begun to facilitate the SAC SPEs' entry into U-Haul's core
business of truck and trailer rentals .
200 . On August 27, 2002 , Knight-Ridder Tribune Business News published an a rticle
commenting on the consolidation of SAC Holdings. The article stated:
"They' ve been using a special purpose entity to cover theirfinancials ," said Jay Taparia , a Chicago-based financial analyst whosefirm reviewed AMERCO' s financial statements at the Tribune'srequest .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J. BALLCOLNSELOR AT LAW35 S.A RL%NGTON AV E
REN 0, NV 10505
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"The reality is, the most likely scenario is that the audit companymade them consolidate (financial statements) . . . they didn't want to doit . . . they didn't like it so they fired them . "
"Reading AMERCO's annual financial statements from 1998through 2001, investors never would have known what SAC Holdingis," Taparia said. "They would have seen the company's financialsthat did not reflect the excess debt of the company as a result of itsreal-estate holdings," he said .
Commenting on SAC Holding's notes receivable issued by AMERCO, analyst Taparia was quoted
as saying :
It's a debt on SAC's balance sheet , but if it' s a debt on SAC's balancesheet it ' s an asset on AMERCO's . AMERCO can immediatelyrecognize the gain on the sale of the land on its income statement,boosting net income, as well as making a return on its assets andequity higher by not showing the land or debt on its balance sheet .
"SAC Holding, in effect, is not a separate company, but is a specialpurpose entity that has debt associated liabilities off AMERCO'sbalance sheet," Taparia said .
201 . On August 18, 2002 , AMERCO filed its quarterly report on Form 10-Q for the first
quarter of fiscal 2003, ended June 30, 2002 . On September 26, 2002, the Company amended its
second quarter filing to "reflect the reclassification of interest income and expense to properly
reflect elimination entries[ . . .]" and to restate the interim results presented therein to reflect the SAC
SPE consolidation . In the amended Form 10-Q, signed by defendant Gary B . Horton, the Company
reported revenues of $545 .4 million, as compared to $540.7 million for the prior year and net
earnings of $40 .5 million, as compared to net earnings of $20 .9 million for the prior year . The
Company also reported liabilities of $3 .2 billion, as compared to $3 .3 billion as of March 31, 2002
and that its reserve for insurance benefits and losses was $735 .8 million or 22.8% of AMERCO' s
total reported liabilities as of March 31, 2002 .
202 . The original and amended Form 10-Q also disclosed that the Company's propert y
and casualty insurance subsidiary, Rep West, reported a net loss of $1 .8 million for the first quarter
of fiscal 2003 compared to a net loss $3 .6 million for the same period last year . The report further67
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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'I " IIOMAS J . }TALLCOUNSELOR AT LAW
3uS S .ARLNGTON AV ERENO , NV "MiS
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represented that Rep West's total liabilities were $605 . 6 million including its reserve for policy
benefits and losses of $474.1 million as of June 30, 2002 . The report also stated :
The condensed consolidated balance sheet as of June 30, 2002 and therelated condensed consolidated statements of earnings,comprehensive income, and cash flows for the quarters ended June30, 2002 and 2001 are unaudited . In our opinion, all adjustmentsnecessary for a fair presentation of such condensed consolidatedfinancial statements have been included .
203 . On September 18, 2002, RepWest issued a press release announcing that it had
completed commutation of treaty, which effectively removed the largest remaining piece of non-
standard automobile reinsurance from RepWest's books . The press release stated in pertinent part :
The commutation was negotiated in a manner that was satisfactoryto both parties and will result in a multi -million dollar pre-tax gainfor Republic Western . "As we have stated previously, we are out ofthe non-standard auto business and intend to stay out," declare dAmoroso. "The commutation of the Cascade National treaty isfurther proof of our commitment to move away from this line ofbusiness as quickly as possible . This is part of our overall businessstrategy for returning Republic Western to profitability . "
Republic Western is in the process ofcompleting a turn -around ofits financial results. The Company expects to report a profit forcalendar year 2002. [Emphasis added.]
204. On September 23, 2002, a shareholders' derivative action was filed against certain o
the Individual Defendants . The suit alleged AMERCO had subsidized the transfer of self-storage
facilities to SAC Holdings, owned and controlled by AMERCO insider Mark Shoen , in three ways :
(1) existing self-storage facilities owned by AMERCO were sold to SAC SPEs; (2) self-storage
facilities owned by third parties were identified by AMERCO and then purchased by SAC SPEs ;
and (3 ) AMERCO had identified raw land and developed it into self-storage facilities which were
then sold to SAC SPEs . The suit claimed the prices SAC paid for the facilities were unfairly low
because they failed to account for : (a) the increase in value which a new self-storage facility
experiences when it is "leased up" by the developer , AMERCO ; (b) the goodwill associated with
use of the U-Haul trade name, and (c) the location of the storage facilities near U-Haul Centers,
where potential self-storage customers go to pick-up and drop-off moving vehicles ; and (d) the
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J. HALLCOI NSELOR AT LAW1(I S. ARLINGTON AY£
RENO . NV %1511 5
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resources AMERCO used in locating , purchasing , developing , and leasing the facilities on behalf of
the SAC SPEs .
205 . On September 26, 2002, AMERCO restated its 2002 financial results in an amende d
10-K for the year ended March 31, 2002, and again restated its 2001 and 2000 financials . Regarding
the restatement, the Company reported that interest expense was actually $106 .8 million, $109 .0
million, and $97 .2 million in fiscal years 2002, 2001, and 2000, respectively, not $116 .3 million,
$114 .6 million, and $99 .9 million in the same periods, as previously reported . Moreover, the
Company reported that net investment and interest income was actually $58 .1 million, $61 .5 million
and $61 million in fiscal years 2002, 2001 and 2000, respectively, and not $67 .6 million, $67 .1
million and $63 .7 million in the same period, as previously reported .
206 . As a result of the defendants' false and misleading statements during the Class
Period , AMERCO' s stock price was artificially inflated , averaging approximately $ 18 per share . In
the weeks following the above-mentioned restatements and default, AMERCO's share price fell t o
less than $5 .
207. In its 2002 Form 10-K/A AMERCO reported revenues of $2 .06 bi ll ion , as compared
to $1 .88 billion for the prior year and net earnings of $2 .7 million, as compared to $1 .0 million for
the prior year. The Company also reported liabilities of $3 .3 billion, as compared to $3 .1 billion for
the prior year. The report was signed by defendants Edward J . Shoen, Gary B . Horton, William E .
Carty, James P . Shoen, Charles J . Bayer, John M . Dodds, James J . Grogan and John P . Brogan .
208 . As of March 31, 2002, the Company reported that its reserve for insurance polic y
benefits and losses was $729 .3 million, or 22 .3% of AMERCO's total liabilities . The Company's
property and casualty insurance subsidiary, RepWest, reported loss reserves of $459 .9 million, or
14% of AMERCO's total liabilities as of March 31, 2002 . In addition, the 2002 Form 10-KIA
included the following description of RepWest's business activities and representations concerning
the adequacy of the RepWest's' reserve for insurance benefits and losses :
Rep West's business activities consist of three basic areas : U-Haul,direct and assumed reinsurance underwriting . U-Haul underwritingsinclude coverage for U-Haul customers, independent dealers, fleetowners and employees of AMERCO . For the year ended December31, 2001, approximately 19 .6% of RepWest's written premium s
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW31 S .ARLWGTON AV E
RENO , NV 151
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resulted from U-Haul underwriting activities.
RepWest's direct underwriting is done through Company-employedunderwriters and selected general agents . The products providedinclude liability coverage for rental vehicle lessees, storage rentalproperties, coverage for commercial multiple peril, commercial auto,mobile homes and excess workers' compensation .
RepWest's assumed reinsurance underwriting is done via brokermarkets . In an effort to decrease risk, RepWest has entered intovarious catastrophe cover policies to limit its exposure .
The liability for reported and unreported losses is based on bothRepWest's historical and industry averages . Unpaid loss adjustmentexpenses are based on historical ratios of loss adjustment expensespaid to losses paid . The liability for unpaid losses and loss adjustmentexpenses is based on estimates of the amount necessary to settle allclaims as of the statement date . Both reported and unreported lossesare included in the liability. RepWest updates the liability estimate asadditional facts regarding claim costs become available . Theseestimates are subject to uncertainty and variation due to numerousfactors . In estimating reserves, no attempt is made to isolate inflationfrom the combined effect of other factors including inflation . Unpaidlosses and loss adjustment expense are not discounted .
The report also disclosed for the first time RepWest's treatment of ce rtain commission expenses
which defendants improperly capitalized during and prior to fiscal 2001 :
Operating expenses, before intercompany eliminations, were $78 .7million, $56.7 million and $35 .0 million for the years endedDecember 31, 2001, 2000 and 1999, respectively . The increase isdue to a change in estimate on an aggregate stop loss treaty inwhich Rep West had originally recorded the treaty as if it would becommuted. Estimates in 2001 have changed and the treaty will notbe commuted. The original amount was a reduction to commissionsof $17.7 million of which Rep West had to recognize back throughcommissions in 2001 . [Emphasis added .]
Based upon the deposition testimony of Richard Amoroso, President of RepWest, this transaction
was a correction of an error by the Company for the improper reduction of commission expenses in
1997 to 1999 for the treaty commutation . This reduction of commission expenses in prior years and
subsequent correction in 2001, caused a material misstatement of AMERCO's financial statements,
and should have been reported as a prior period adjustment (correction of an error) and not as a
change in estimate .
209 . In the immediate aftermath of the SAC SPE consolidation, the Company began t o
experience severe and continuing credit problems . For example, the Company was unable to renew70
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF TH E
FEDERAL SECURITIES LAW
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THOMAS J . HAL LCOUNSELOR AT LA W
3115 S .ARL1NGTON AV E
RENO, NN, 119411$
1 certain revolving credit arrangements unless it conceded to a condition that the Company obtai n
2 additional long-term financing prior to a scheduled debt pay down in mid-October . The Form-1 0-K
3 made no meaningful disclosures of the Company ' s imminent liquidity crisis and in fact reiterate d
4 prior comments by defend ants that the Company was currently in compliance with all of its deb t
5 covenants . The Form 10-K/A stated in pertinent part as follows :
6 At March 31, 2002 , AMERCO had a revolving credit loan (long -term ) available from participating banks under an agreement, whic h
7 provided for a credit line of $400 ,000,000 through June 30, 2002 .Depending on the form of borrowing elected, interest will be based on
8 the London Interbank Offering Rate (LIBOR), prime rate , the federalfunds effective rate, or rates determined by a competitive bid . LIBOR
9 loans include a spread based upon the senior debt rates of AMERCO .Facility fees paid are based upon the amount of credit line . As o f
10 March 31, 2002, loans outstanding under the revolving credit lin etotaled $283,000 ,000. The revolver was refinanced in June 2002 .
1 1
12On June 28 , 2002, AMERCO entered into an agreement replacing an
13 existing revolver agreement with a 3 year revolver for $205,000,000 .The interest rate is based on a spread over LIBOR that will be
14 determined over the term of the agreement . Such agreement, asamended , requires that the Company obtain an additional $15 0
15 million in financings by October 8, 2002 . Management is in theprocess of obtaining such fin ancings and believes that funding wil l
16 occur on or before October 8, 2002 .
17 ** *
18 Certain of AMERCO's credit agreements contain restrictive fin ancialand other coven ants, including , among others, covenants with respec t
19 to incurring additional indebtedness , maintaining ce rtain financia lratios and placing certain additional liens on its prope rties and assets .
20 At March 31, 2002, AMERCO was in compliance with thes ecovenants. [Emphasis added .]
2 1
22 210 . The 2002 Form 10-K/A represented that the financial statements presented therei n
23 had been prepared in accordance with GAAP :
24 AMERCO believes that all necessary adjustments have been include din the amounts stated below to present fairly , and in accordance with
25 generally accepted accounting principles, the selected qua rterlyinformation when read in conjunction with the consolidated financia l
26 statements incorporated herein by reference .
27 211 . The statements referenced in ¶¶195-210 were materia lly false and misleading for th e
28 following reasons :7 1
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FEDERAL SECURITIES LAW
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THOMAS J. HALLCOt \SELOR AT LAW
30, S.ARL1NGTON AV ERENO , NV 9954 15
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(a) the Company's reserves for insurance policy benefits and losses, wer e
understated by tens of millions of dollars, resulting from defendants' failure to accrue for losse s
incurred in connection with certain general and automobile liability policies ;
(b) the Company's net earnings and stockholders' equity were materiall y
overstated due to defendants' failure to properly account for equity losses arising from th e
Company' s investment in ce rtain real estate limited partnerships , including Private Mini Storag e
Realty, L.P ., among others :
(c) the Company' s periodic operating expenses , including certain general and
administrative expenses, were materially understated due to : (i) defendants' improper capitalizatio n
of such expenses, (ii) defendants' failure to accrue for certain property tax expenses related to th e
Company's real estate properties and, (iii) defendants' failure to amortize such capitalized
(d) the Company was facing a liquidity crisis and would soon be illiquid and, i n
addition, that the Company had violated or in all likelihood would soon violate its debt covenants ;
and
(e) as a result of the foregoing, the financial statements contained in th e
Company's Form 10-K and Form 10-KIA for the period ended March 31, 2002 and Form i0-Q for
the period ended June 30, 2002 were not prepared in accordance with GAAP and were therefore
materially false and misleading, as detailed below at ¶¶231-323 . Moreover, AMERCO has now
admitted its financial statements overstated the Company 's net earnings by more than 65%, 85%,
1843%, 427% during fiscal 1999, 2000, 2001 and 2002, respectively (see chart at ¶234) .
1. POST-CLASS PERIOD EVENT S
212 . On September 27, 2002, AMERCO issued a press release announcing a Rule 144A
private offering of $275 million in senior notes and on September 30, 2002 announced that it ha d
"launched its efforts" to complete the private offering .
213 . On October 10, 2002 Fitch lowered its credit rating on AMERCO followed b y
Standard & Poor's cutting AMERCO's credit rating to "junk" status, October 4, 2002 .
214 . On October 10, 2002 , AMERCO announced it was postponing its planned $27 5
million debt offering .72
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
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THOMAS J. IIALLCOL ASELOR AT LAW3115 S. ARLINGTON AV'E
RENO . NV 895I)5
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215 . Then on October 15, 2002, the AMERCO Defendants issued a press releas e
announcing that AMERCO has "temporarily suspended" payment of its debt obligation :
As part of the Company's strategic plan it has elected to enter intonegotiations to restructure certain of its debt . While the Companyworks to recapitalize its balance sheet, it has elected to temporarilysuspend the October 15, 2002 payment of its [$100 million] Series1997-C Bond Backed Asset Trust. The Company also intends torefinance its [$205 million] 3 -year Credit Agreement. [Emphasisadded .]
Also on the October 15, 2002, the defendants announced that AMERCO had retained Crossroads ,
LLC as a financial advisor .
216 . Three days later on October 18, 2002, RepWest and Oxford issued joint press release )
announcing that they would report a profit for the quarter ended September 30, 2002 .
217. On October 25, 2002, another shareholders ' derivative action was filed against
certain of the defendants . Among other things, the suit alleged that defendants Brogan and Grogan
served on the Board's Compensation Committee which has not paid the Shoen Brothers a direc t
bonus since 1995, the year the Shoen Brothers began transferring significant AMERCO assets to
SAC SPEs .
218 . On November 14, 2002, the Company was required to file its quarterly report o n
Form 10-Q for the second quarter fiscal 2003 ended September 30, 2002 . However, instead of
filing its report, the Company filed a "Notice of Late Filing on Form 12b-25 . The Form 12b-25,
signed by defendant Horton stated that the reason for the delay was due to "to management and th e
accountants requiring additional time to internally verify data from the company's books and
records." [Emphasis added . ]
219 . On November 18, 2002 , AMERCO filed its quarterly report on Form 10-Q for th e
second quarter of fiscal 2003, ended September 30, 2002 . On February 18, 2003, the Company
amended its filing on Form 10-Q/A, in both the original and amended Form 10-Q, signed by
defendant Gary B . Horton, the Company reported revenues of $562 .6 million, as compared to
$571 .2 million for the prior year and net earnings of $37 .3 million, as compared to net earnings of
$32.5 million for the prior year . The Company also reported liabilities of $3 .1 billion, as compared
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
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T1 1O3lAS J . HALLCOUNSELOR AT LAW 11
305 S . ARLIN GTON AV ERENO.NV E9S11[
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to $3 .3 billion as of March 31, 2002 and that its reserve for insurance benefits and losses wa s
$703 .3 million or 22 .7% of AMERCO' s total reported liabilities as of September 30, 2001 .
220 . The original and amended Form 10-Q also disclosed that the Company's property
and casualty insurance subsidiary, RepWest, reported a net loss of $1 .5 million for the first and
second quarter of fiscal 2003 compared to a net loss $12 .3 million for the same period last year .
The report further represented that RepWest's total liabilities were $577 .0 million including its
reserve for policy benefits and losses of $460 .3 million as of September 30, 2002 . The Form 10-Q
also represented that the financial statements included therein had been prepared in accordance wit h
GAAP :
The condensed consolidated balance sheet as of September 30, 2002and the related condensed consolidated statements of earnings,comprehensive income, and cash flows for the quarters endedSeptember 30, 2002 and 2001 are unaudited . In our opinion, alladjustments necessary for a fair presentation of such condensedconsolidated financial statements have been included .
221 . On January 7, 2003, AMERCO received a subpoena issued by the SEC in connect i
with a formal investigation into the Company's accounting and financial reporting practices .
222. On February 14, 2003, AMERCO filed its quarterly repo rt on Form 10-Q for th e
third quarter of fiscal 2003 , ended December 31, 2002. In the Form 10-Q, signed by defendant
Gary B . Horton, the Company reported revenues of $451 .9 million , as compared to $463 .2 million
for the prior year and a net loss of $35 .5 mi llion , as compared to a net loss of $28 .3 million for the
prior year. The Company also reported liabilities of $3 .2 billion, as compared to $3 .3 billion and
stockholders' equity of $662 .7.
223 . As of December 31, 2002, the Company reported that its reserve for insurance
benefits and losses was $705 .7 million or 24 .9% of AMERCO's total reported liabilities . The Form
10-Q also disclosed that the Company's property and casualty insurance subsidiary, RepWest,
reported a net loss of $2 .9 million for the first, second and third quarter of fiscal 2003 compared to a
net loss $20.4 million for the same period last year . The report further represented that RepWest's
total liabilities were $551 .5 million including its reserve for policy benefits and losses of $495 .3
million as of September 30, 2002 . The report also stated :74
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
305 S . ARLINGTO? AV ERENO , NV 99505
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The condensed consolidated balance sheet as of December 31, 2002and the related condensed consolidated statements of earnings,comprehensive income, and cash flows for the quarters endedDecember 31, 2002 and 2001 are unaudited. In our opinion, alladjustments necessary for a fair presentation of such condensedconsolidated financial statements have been included .
224 . On or about May 12, 2003, an article published by Associated Press Worldstrea m
stated that AMERCO confirmed that its new auditors were reexamining the Company ' s fi scal 2002
~ I and 2001 financial statements . The article stated in pertinent part as follows :
In connection with the re-audit, BDO Seidman, the company's newauditor, has identified prior period adjustments related to insurancereserves at Reno-based AMERCO and its subsidiary, Republi cWestern Insurance Co., as well as other insurance company-relatedadjustments, AMERCO said in a statement .
AMERCO said final adjustments and any resulting financialrestatements will be reported in late June for the fiscal year that endsMarch 31, 2003 .
225 . On June 20, 2003, AMERCO filed a voluntary petition for relief under Chapter 11 in
the United States Bankruptcy Court, District of Nevada (the "Bankruptcy Court") (Case No .
0352103) . AMERCO Real Estate Company filed a voluntary petition for relief under Chapter 1 1
August 13, 2003 . AMERCO' s other subsidiaries were not included in either of the filings .
226 . On August 25, 2003, AMERCO restated its financial statements and interim
quarterly results for the fiscal years 2001 and 2002 .
227 . In this restatement, AMERCO reported in its 2003 Form IOK that it actually in c
losses of $42.1 million for the year ended March 31, 2001, and not earnings of $1 .0 million as
previously reported, and losses of $47.4 million for the year ended March 31, 2002, not earnings of
$2 .7 million as previously reported . The Company also reported that assets decreased by $39 .0
million from $3 .638 billion previously reported to $3 .599 billion while liabilities increased by $27
million from $3 .126 billion previously reported to $3 .153 as of March 31, 2001 and that assets
decreased by $41 million from $3 .773 billion previously reported to $3 .732 billion as of March 31,
2002 while liabilities increased by $77 million from $3 .274 previously reported to $3 .351 as of
March 31, 2002 . The Company also reported as of March 31, 2001 and stockholders' equity wa s
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THOMAS J, HALLCOL f .SELOR AT LAWtut S .ARLItiC' O1 AV E
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actually $446 .4 million and not $512 .3 million as previously reported, and $381 .5 million for the
year ended March 31, 2002, not $499 .1 million as previously reported.
228 . According to AMERCO's 10-K for the year end March 31, 2004, the restatement ,
and the resulting lack of clarity regarding operating results and financial condition of AMERCO,
contributed substantially and directly to a series of significant developments adversely impacting
the Company' s access to capital .
229 . The restatement resulted in a material decrease in reported net worth and a
corresponding increase in its reported leverage ratios .
230 . During a September 5, 2003 conference call with analysts, defendant Edward Shoe n
commented on the major components of the restatement as follows :
In performing the reaudit of 2002 and 2001, the Company's outsideauditors BDO and the Company found items that had been accountedfor incorrectly . The largest item was insurance reserves . Thereserves are noncash in nature but they do have a negative impact onearnings . The necessary accounting entries have been made .
The other major restatement amount was the treatment of the PrivateMini Storage limited partnership interests . This is a $34 million issue .The company through its insurance subsidiaries had an equity stake inprivate Mini Storage Realty, LP. Private Mini is a self-storagecompany that operates throughout Texas and the southeast .AMERCO had a limited partnership interest in Private Mini . Underthe equity method of accounting, the Company should have beenrecognizing its share of the Private Mini losses as a reduction in ourinvestment . We have made the appropriate accounting entries .Further, beginning with the September I OQ Private Mini StorageRealty, LP will be consolidated with Storage Acquisition Corp . in ourfinancial presentation .
J. AMERCO'S FALSE AND MISLEADING FINANCIAL STATEMENTS ANDDISCLOSURES
231 . During the Class Period, AMERCO represented that the financial statements i t
issued to investors were each prepared in accordance with GAAP, which is recognized by the
accounting profession and the SEC as the uniform rules , conventions and procedures necessary t o
define accepted accounting practice at a particular time .7 These representations were materially
7 Regulation S-X, in 17 C.F.R. § 210 .4-01(a)(1), states that financial statements filed with theSEC that are not prepared in compliance with GAAP are presumed to be misleading and inaccurate .
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THOMAS J. HALT .( 01 .SELOR AT LAW
3115 S.ARLI N GTON AV ERENO, NV 995,05
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false and misleading because defendants knowingly or with deliberate recklessness employed
and/or turned a blind-eye towards numerous improper accounting practices, which materially
inflated and misrepresented the Company's financial performance during, at least, fiscal 1999,
2000, 2001 and 2002 .8 Indeed, AMERCO's fnancial reporting is now the subject of an SEC
investigation.
232 . AMERCO has now admi tted that during the Class Period it improperly failed to : (1 )
record fully-developed insurance reserves ; (2) record losses relating to the Company's investments
in Private Mini Storage Realty, L .P . ; (3) write-down improperly deferred general and administrative
expenses ; (4) consolidate Special Purpose Entities that it controlled and possessed the substantive
rewards of ownership of the assets and obligated for the liabilities of such entities ; (5) disclose
contingent liabilities and material risks and uncertainties ; and (6) properly account for a myriad of
other transactions .
233 . As a result, AMERCO has now restated its financial statements for, at least , thefou
year period for fiscal years 1999 through 2002 . Indeed, GAAP provides that only previously issued
financial statements which are materially misstated as a result of an oversight or a misuse of facts
that existed at the time are to be retroactively restated . See, e.g., Accounting Principles Board
("APB") Opinion No . 20, APB Opinion No. 9 and the AICPA's Statement on Auditing Standards
("SAS") No. 53 . Accordingly, Amerco has now admitted that its financial statements during the
Class Period were materially false and misleading due to an oversight or a misuse of facts that
existed at the time such statements were issued .
8 AMERCO' s fiscal 1999 , 2000 , 2001 and 2002 years ended on March 31 of that year .
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THOMAS J . HALLCOUNSELOR AT LAW
34 5 S. ARL.INGTON AVERENO . NV 8 94I
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234. As set forth herein, these accounting manipulations overstated the Company's net
earnings by more than 65%, 85%, 1843%, 427% during fiscal 1999, 2000, 2001 and 2002 ,
respectively .
Summary of Financial Restatement (000's)For the years ended March 31 ,
2002 2001 2000 1999
Reported Restated Reported Restated Reported Restated Reported Restated
Liabilities $3,274,349 $3,350,783 $2,768,698 $3,153,304 $2,539,931 $2,776,135 $2,471,478 $2,584,000
Equity $499,106 $381,524 $615,366 $446,354 $585,294 $504,749 $616,025 $543,739
NetEarnings(loss) $2,721 $(47,440) $12,965 $(42,410) $65,491 $35,479 $62,509 $37,842
235 . As the SEC's Staff Accounting Bulletin ("SAB") No . 999 provides :
Evaluation of materiality requires a registrant and its auditor toconsider all the relevant circumstances, and the staff believes thatthere are numerous circumstances in which misstatements below 5%could well be material . Qualitativefactors may cause misstatementsof quantitatively small amounts to be material; as stated in theauditing literature :
As a result of the interaction of quantitative and qualitativeconsiderations in materiality judgments, misstatements of relativelysmall amounts that come to the auditor's attention could have amaterial effect on the financial statements .
Among the considerations that may well render material aquantitatively small misstatement of a financial statement item are :
• whether the misstatement arises from an item capable ofprecise measurement or whether it arises from an estimateand, if so, the degree of imprecision inherent in the estimat e
• whether the misstatement masks a change in earnings orother trends
• whether the misstatement hides a failure to meet analysts'consensus expectationsfor the enterprise
9 17 C.F .R. Part 211 .
78SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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T11OMAS J . HALLCOUNSELOR AT LAW3u5 S.ARLINGTON AV E
RENO, NV 19505
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• whether the misstatement changes a loss into income or viceversa
• whether the misstatement concerns a segment or otherportion ofthe registrant's business that has been identifiedas playing a significant role in the registrant 's operations orprofitability
• whether the misstatement affects the registrant's compliancewith regulatory requirements
• whether the misstatement affects the registrant' s compliancewith loan covenants or other contractual requirement s
• whether the misstatement has the effect of increasingmanagement ' s compensation , for example, by satisfyingrequirements for the award of bonuses or other forms ofincentive compensation
• whether the misstatement involves concealment of anunlawful transaction.
This is not an exhaustive list of the circumstances that may affect themateriality of a quantitatively small misstatement . [Footnotesdeleted, emphasis in bold added] .
236 . Indeed, AMERCO has now admitted that it employed numerous improper
accounting practices. Not coincidentally, each of these practices increased AMERCO's reported
results. In violation of the mandate of § 13 of the Securities Exchange Act of 1934, the Company
has had a long history of poor documentation, inadequate accounting and internal control policies
and procedures . In addition, PwC utterly failed to perform its role as an auditor, as defined by the
GAAS and SEC .
237. Indeed, GAAP, in Concepts Statement No. 2 provides that accounting information i s
not useful if it is unreliable and that reliable accounting information must be verifiable an d
neutral, 1 ° In addition , GAAP, in Concepts Statement No . 2, provides that the convention of
to Concepts Statement No . 2, ¶¶ 59 and 81, provides that reliable information "is a notionthat is central to accounting."
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THOMAS J . HALLCOL',NSELOR AT LAW
30, S .ARL1MCTO? AN ERENO . NV WJ505
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conservatism - meaning prudence - is to be applied in financial accounting and reporting, and i n
FASB's Concepts Statement No . 1, states that the role of "financial reporting requires it to provid e
evenhanded, neutral, or unbiased information ."
238 . AMERCO' s ongoing pattern of improper accounting caused it to issue financial
statements during the Class Period that were not neutral, conservative or unbiased; but rather
manipulated to present AMERCO's financial position and results of operations in a materiall y
inflated and completely biased manner .
1 . AMERCO' s Improper Failure To Consolidate Special Purpose Entitie s
239 . Prior to and during the Class Period, AMERCO's self-storage business was th e
Company's primary growth opportunity . Accordingly, AMERCO began aggressively expanding its
self-storage business . At the same time, full service gas stations where U-Haul rented its equipment
began to vanish. These factors forced AMERCO to purchase properties from which it could rent
equipment and locate self-storage facilities.
240. AMERCO' s ability to make these necessary real estate purchases, however, was
constrained because the significant amounts of financing needed to acquire such propertie s
adversely effected its credit ratings, cost of debt and, ultimately, its ability to make the necessar y
property acquisitions .
241 . Confronted with these realities , defendants endeavored to remove such real property
acquisitions and associated fin ancing from AMERCO' s financial statements by transferring them to
entities controlled by Mark V. Shoen, a U-Haul Executive Officer and 13% shareholder and director
of AMERCO . The Company treated the entities receiving these assets as "special purpose entities"
that would not have to be included in AMERCO' s financial statements under GAAP .
242 . In form , the asset transfers were structured by defendants such that AMERCO "sold"
the properties to the SPEs in exchange for a note receivable . In substance, however, the
"purchasers" of the transferred assets (i .e ., the SPEs) were alter-egos of AMERCO .
243 . Indeed, defendants' strategy was a deliberate violation of a most basic tenent o f
GAAP which holds that the substance of the arrangement , rather than its legal form, shoul d
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THOMAS J. HALLCOIF NSE LOR AT LAW,]l!S S.ARLINGTON AVE
RENO, NV 8954 1 5
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determine the accounting treatment . See, e .g., Concept Statement No . 2, ¶ 160, ABP Opinion No .
21, ¶ 12, AICPA Accounting Interpretation ("AIN") of APB Opinion No . 25, # 1 .
244 . Defendants intended that, as a result of the SPE transactions, AMERCO's balanc e
sheet would show a reduction in its debt, and more favorable financial leverage ratios, credit rating s
and earnings .
245 . Emerging Issues Task Force ("EITF") Topic D-14, Transactions Involving Specia l
Purpose Entities, addresses whether, under GAAP, transfers of assets to SPEs should be treated as
sales and whether or not it is appropriate for sponsoring companies to consolidate the financial
statements of SPEs . For non-consolidation and sales recognition by the sponsor or transferor to be
appropriate, the majority owner of the SPE must have the following characteristics : (a) be an
independent third -party who has made a substantive capital investment in the SPE ; (b) have control
of the SPE; and (c ) have substantive risks and rewards of ownership of the assets of the SPE.
246 . Moreover, non-consolidation and sales recognition are not appropriate by the
sponsor or transferor when: (a) the majority owner of the SPE makes only a nominal capital
investment ; (b) the activities of the SPE are virtually all on the sponsor's or transferor's behalf ; and
(c) the substantive risks and rewards of the assets or the debt of the SPE rest directly or indirectly
with the sponsor or transferor .
247. AMERCO failed, in numerous respects , to comply with the guidance set forth in
EITF Topic D-14 in accounting for its asset transfers to the SAC SPEs during the Class Period .
248 . First, the majority owner of the SAC SPEs was not "independent" of AMERCO . In
fact, the majority owner of those entities, Mark V. Shoen, was a U-Haul Exectuive Officer and a
13% shareholder and Director of AMERCO at the time of the transfers. As a result, AMERCO did
not transfer its assets to a SPE whose majority owner was "an independent third-party," as required
by EITF Topic D-14 . t 1
I 1 GAAP, in Article 3A-02 of Regulation S-X, otherwise provides that "[t]here is apresumption that consolidated [financial ] statements are more meaningful than separate statementsand are usually necessary for fair presentation when one entity directly or indirectly has acontrolling interest in another entity ." 17 C .F .R. § 3A-02 .
8 1SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
341t S . ARLSYGTO AYERENO . NV K"05
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249 . Second, AMERCO's loan agreements with the SAC SPEs provided that AMERC O
would receive 90% of all of the excess cash flow (as defined) and 90% of the gains from future
sales from the properties that AMERCO "sold" to such SPEs . As such, the substantive rewards of
ownership of the assets transferred to the SPEs remained with AMERCO and the majority owner of
the SPEs, Mark V . Shoen, did not effectively enjoy the benefit ensuing from any gains on the assets
transferred by AMERCO to the SAC SPEs . As a result, AMERCO, and not Mark V . Shoen,
possessed the substantive rewards of assets owned by the SAC SPEs .
250 . As a result of the foregoing, GAAP required that AMERCO consolidate the financial )
statements of the SAC SPEs with its own during the Class Period and AMERCO was preclude d
under GAAP from treating the transfer of its real estate assets to the SAC SPEs as sales .
251 . In connection with the Amerco vs. PwC Action, PwC alleges that Mark Shoen an d
Edward Shoen, among others, had actual knowledge that the owner of the SAC SPEs were required
to maintain a contribution of capital to the SAC SPEs valued at 3% of the SAC SPEs' assets,
registered to the SAC SPEs ; and that certain Amerco officers engaged in a pattern of fraudulent
conduct to misrepresent to the public that the accounting requirements for the SAC SPEs had been
satisfied, when in fact they had not . PwC Complaint for Common Law Fraud, at ¶¶ 2-4, 1 8
[AMERCO vs . PwC Action] .
252 . PwC states that it informed AMERCO on December 2, 1994, that the stoc k
contributed to the SAC SPEs had to be registered to the entities, not to Mark Shoen . PwC
Complaint, at ¶ 18(a) . PwC further states that Mark Shoen and Edward Shoen fraudulently
represented this had been done when it had not. PwC Complaint, at ¶ 18 (a)-(e) . PwC states that
despite Mark Shoen's and Edward Shoen's "knowledge of the 3% outside capital contribution
requirement and registration requirement, defendants created at least twenty (20) additional SAC
entities (SACS 6-27) without ever complying with the requirements . . ." PwC Complaint, at ¶ 18
(a)-(e) .
253 . In addition, PwC states that Mark Shoen, Edward Shoen, and James Shoen, amon g
others, had actual knowledge that the economic benefit of the SAC SPEs had to flow to someon e
I other than AMERCO. PwC Complaint, at ¶ 23 . These defendants fraudulently represented to th e82
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAK
3Il5 S,ARV I NGTON AV E
RENO . NV NY4ri
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public that they had complied with this requirement because the economic benefits of the SAC
SPEs was to be distributed to a charitable trust to award scholarships to the college -age children of
AMERCO' s employees . Id. In reality , according to Defendant PwC, "the stock was never
registered and the trust never received proceeds in accordance with the intended purpose ." Id. at ¶4.
Defendant PwC has admitted that "in truth and fact , no distributions were made to the trust ." Id. at
¶23-
254 . In fact, AMERCO was otherwise precluded under GAAP from treating its real estat e
transfers to the SAC entities as sales and not consolidating the financial statements of the SPEs with
its own during the Class Period . GAAP, in EITF Issue No . 90-15, provides that in order for an
independent third party's capital investment to be deemed to be "substantive," the independent third
party must make an equity investment of, at least, three percent in the SPE .
255 . AMERCO has now admitted that Mark V . Shoen's investment in the SAC SPEs di d
not satisfy this minimum equity investment criterion and, as a result, the financial statements of th e
SAC SPEs were otherwise required to be consolidated with those of AMERCO . Indeed, GAAP, in
EITF Issue No . 96-21, provides additional guidance concerning the three percent minimum equity
I I investment criterion . For example, EITF Issue No . 96-21 provides that if three percent minimum
equity investment is breached, then, absent an additional equity contribution by the independen t
third party that satisfies the three percent minimum equity investment criterion, the SPEs woul d
need to be consolidated .
256. During the Class Period, the SAC SPEs made payments to Mark V . Shoen that
reduced his equity investment in such SPEs to less than the required three percent level, a s
AMERCO has now admitted . Thus, Mark V . Shoen did not make a sufficiently large equit y
investment in the SAC SPEs to be considered "substantive " as required by GAAP.
257 . As a result of the foregoing , AMERCO was required by GAAP to consolidate the
financial statements of the SAC SPEs with its own and AMERCO was required to eliminate any
income or gains on transactions between itself and the SAC SPEs during the Class Period .
258 . Indeed , defendants knew or recklessl y disregarded that AMERCO' s financial
reporting of the SAC SPEs was required to be consolidated with its financial statements because ,83
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
31S S .ARLINGTON .VtRENO . NN'89NI
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during the Class Period, defendant PwC consulted with three of four other "Big 5" accounting firm
about the propriety of AMERCO's accounting for the SAC SPEs . Each of such firms concluded
Mark V . Shoen was not an independent third-party nor did he satisfy the "substantive" equity
investment criterion required by GAAP .
259 . Nonetheless, AMERCO failed to timely correct its improper accounting for the SAC
SPEs. Indeed, it was only after the SEC concluded that the financial statements of the SAC SPEs
needed to be consolidated with those of AMERCO did the Company provide corrective disclosure
of its accounting for the SAC SPEs .
260 . As a result of AMERCO's improper accounting for the SAC SPEs, the Company's
reported financial disclosures were materially false and misleading, as AMERCO has now admitted .
Indeed, AMERCO's pre-tax income during fiscal 2000 and 2001 was overstated by approximately
8% and 250%, respectively, as a result of AMERCO's improper accounting for the SAC SPEs
alone.
261 . AMERCO also materially misstated the following financial information as a result of
its improper accounting for the SAC SPEs during the Class Period :
Year Ended Originally Percent OverMarch 31, 2001 Reported (0005) Restated (ooos) (Under) Stated
Notes and Loans Payable $1,156,848 $1,543,367 (25 .0)%
Liabilities $2,768,698 $3,126,175 (11 .4)%
Shareholders' Equity $615,366 $512,264 20 .1 %
Debt to Equity Ratio12 4.5 6.1 (26.3)%
Earnings to Fixed Charges 1 .13 1.02 10.8%Ratio
Year Ended Originally Percent Over
12 Debt to Equity ratio is a measure used in the analysis of financial statements to show theamount of protection available to creditors . A high ratio usually indicates that the business has ahigh degree of risk . Joel G. Siegel & Jae K. Shim, Barron's, Dictionary of Accounting Terms,(2ded. 1995), page 113 .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . WALLCOUNSELOR AT LAW
30 S .ARLWGTON AV E
RENO , NV BSSU5
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March 31, 2000 13 Reported (oaos) Restated (ooos) (Under) Stated
Cash Flow From Operations $237,657 $137,391 73 .0%
Notes and Loans Payable $1,137,840 $1,368,616 (16 .9)%
Liabilities $2,539,931 $2,758,838 (7 .9)%
Shareholders' Equity $585,294 $532,454 9 .9 %
Debt to Equity Ratio 4.34 5.18 (16.3)%
Earnings to Fixed Charges 1 .71 1.02 67.7%Ratio
262 . In addition to the above, AMERCO grossly understated its reported Commitments
and Contingent Liabilities as reported in audited financial statements during the Class Period .
263 . AMERCO's interim financial statements during the Class Period as a result of it s
improper accounting for the SAC SPEs were similarly misstated . For example :
Fiscal 2002 September December[Percent Over/(Under) Stated] June 2001 Quarter 2001 Quaqpr 2001 u rt r
Net Earnings 19.6% 16.6% N/A
Net Loss N/A N/A (17 .8)%
Notes and Loans Payable (19.4)% (20.3)% (19.2)%
Liabilities (8.3)% (8.5)% (8.6)%
Shareholders' Equityl4 14.1% 13.5% 29.4%
Debt to Equity Ratio (19.7)% (19.4)% (29.4)%
Fiscal 2001 15 September December
13 AMERCO's improper accounting for the SAC SPEs is actually larger than that reflected inthis chart as the figures herein include unrelated positive audit adjustments that AMERCOimproperly failed to record when it originally reported fiscal 2000 results .
14 The extent to which AMERCO's restated Shareholders' Equity was overstated during theClass Period is actually more than what is reflected in this chart since AMERCO subsequently"adjusted" its restated fiscal 2002 interim financial statements .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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111GMAS J . HALLCOUNSELOR AT LASS
305 S .ARLI TON AV ERENO . NV B75O5
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[Percent Over/(Under) Stated] June 2000 Quarter 2000 Quarter 2000 Quarter
Net Earnings 4.6% 6.1% N/A
Net Loss N/A N/A (17.0)%
2 . Amerco's Improper Failure To Record Fully-Developed Insurance ReservesAnd Expenses
264. GAAP requires that financial statements record loss contingencies as a charge to
income when: information existing at the date of the financial statements indicates that it is probable
that an asset has been impaired or a liability has been incurred, and the amount of such loss can be
reasonably estimated . FASB's Statement of Financial Accounting Standards ("SFAS") No . 5, ¶ 8 .
265 . In addition, the American Institute of Certified Public Accountants ("AICPA"), in
1990, issued an audit and accounting guide for property and liability insurance companies
(hereinafter referred to as "AAG-PLI"). The AAG-PLI provides property and liability insurance
organizations with specific guidance in applying GAAP in the accounting and financial reporting of
its services . The AAG-PLI provides that the cost of insurance claims, which are the major costs
incurred by property and insurance companies, should be accrued as insured events occur .
266 . Since insurance companies frequently pay claims after the end of a particular
accounting period and a fundamental precept of accounting requires that expenses be matched with
their related revenues, insurance companies are required to establish a liability to account for the
cost of claims incurred by it during an accounting period which remain unpaid at the end of the
accounting period .
267 . GAAP also requires that entities be conservative in response to uncertainty in
accounting for transactions. As a result, insurance companies frequently add contingency reserves
15 AMERCO has not restated its fiscal 2001 interim balance sheets . Accordingly, Plaintiffs areunable to assert the extent to which the Company's reported Notes and Loans payable, Liabilities,Shareholders' Equity and Debt to Equity ratio were misstated .
86
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LA%%
Mil, S.ARLINCTON AVERENO , NV "'W,
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to their insurance reserve calculation to minimize the likelihood that the cost of insurance claims i n
a given accounting period may be understated .
268 . During the Class Period , AMERCO' s audited financial statements included it s
accounting policy for its insurance reserves :
Liabilities for policy benefits payable on traditional life and certainannuity policies are established in amounts adequate to meetestimated future obligations on policies in force . These liabilities arecomputed using mortality and withdrawal assumptions, which arebased upon recognized actuarial tables and contain margins foradverse deviation . At December 31, 2001, interest assumptions usedto compute policy benefits payable range from 2 .5% to 9.25%.
The liability for annuity contracts, which are accounted for asinvestment contract deposits, consists of contract account balancesthat accrue to the benefit of the policyholders, excluding surrendercharges . Carrying value of investment contract deposits were$572,793,000 and $522,207,000 at December 31, 2001 and 2000,respectively.
Liabilities for health and disability and other policy claims andbenefits payable represent estimates of payments to be made oninsurance claims for reported losses and estimates of losses incurre dbut not yet reported . These estimates are based on past claimsexperience and consider current claim trends .
RepWest's liability for reported and unreported losses is based onRepWest's historical and industry averages . The liability for unpaidloss adjustment expenses is based on historical ratios of lossadjustment expenses paid to losses paid. Amounts recoverable fromreinsurers on unpaid losses are estimated in a manner consistent withthe claim liability associated with the reinsured policy . Adjustmentsto the liability for unpaid losses and loss expenses as well as amountsrecoverable from reinsurers on unpaid losses are charged or creditedto expense in periods in which they are made .
269. As described below, during the Class Period, RepWest experienced severe
difficulties with its computer information systems . These difficulties were exacerbated by
RepWest's lack of adequate claims processing controls and procedures . As a result, RepWest's
insurance claims were not timely processed and the Company accumulated a significant backlog of
claims . These facts, which were known or with deliberate recklessness disregarded by defendants,
rendered the Company's insurance claim expense and insurance payable calculations inaccurate and
inherently unreliable .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
3u$ S. ARLINGTON AV ERENO, NV 87565
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270 . For example, a former RepWest underwriter from 1996 through 2002 stated tha t
when RepWest began to write non-standard automobile policies, claim processing became a
"nightmare. " The former RepWest underwriter said that the Claims Department was "backlogged
for months" and "many" claims were left unprocessed indefinitely . This former underwriter
stated that both her immediate supervisor and Defendant Amoroso knew of RepWest's claim s
processing problems .
271 . These representations are confirmed by other former RepWest employees . For
example, a former RepWest Claims adjuster from 1995 through 2003 stated that adjusters wer e
inundated with claims after Rep West began to write non-standard auto policies . Asa result ,
Rep West was "overloaded" with unprocessed claims that were "sitting for months at a time. " In
addition, the former claims adjuster stated Rep West experienced "massive" delays in processing
"first party claims. "1 6
272 . In addition , a former RepWest claims processing agent from 1999 through 2003 als o
stated that RepWest had a significant backlog of unprocessed claims . This former RepWest
employee stated that RepWest's systems, including its "Image Right" claims processor, led to
delays in processing claims .
273 . In an attempt to inflate earnings so that AMERCO could procure much neede d
financing at favorable prices and satisfy RepWest capital maintenance requirements , AMERCO
falsified its publicly issued financial statements when it understated insurance expense by mor e
than $125 million during the Class Period.
274. Defendants knew or with deliberate recklessness disregarded that AMERCO violated
GAAP by failing to adequately reserve for unpaid claims thereby materially inflating the
Company's profitability during the Class Period because : (1) RepWest 's system of internal control,
including its claims processing system , was grossly inadequate ; and (2) RepWest failed to timel y
16 The former claims adjuster stated that claims associated with U-Haul equipment wereinternally referred to as "first party claims ."
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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"THOMAS J . HALLCOLNSELOR AT LAW
3015 S.ARLINGTON AV ERENO, NV 89515
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and accurately process reported claims . As a result, RepWest could not responsibly calculate IBN R
claims because the recent claims data filed by insured members was wholly unreliable .
275 . In his deposition, Richard Amoroso testified that AMERCO's understated insuranc e
expense during the Class Period was not the result of an incorrect estimate of its insurance
I liabilities. In his capacity as President and Chief Financial Officer of RepWest, Amoroso testified
that at least prior to August 2000 "reserve deficiencies" existed in the excess worker's comp and U-
Haul business auto and general liability program . Furthermore, Amoroso testified :
During my entire tenure [subsequent to August 2000], thetransportation TIS trucking program was unreserved . Nonstandardauto was unreserved. Assumed reinsurance was grosslyunderreserved. It may have been others . There were probably someother smaller programs .
In its Addendum to Report of Examination as of December 31, 2000 the ADOI stated that ,
The Company's loss and LAE reserves as of September 30, 2001were determined to be understated by $44,969,000 . The reservedeficiencies are primarly a result of assumed reinsurance programsand the excess workers' compensation line of business .
GAAP, in APB Opinion No . 20, prohibits corrections to accounting estimates , such as insurance
liabilities , to be made via a restatement of previously issued financial statements . Rather , changes
to accounting estimates are required to be made prospectively in financial statements . Here,
however, AMERCO restated its Class Period financial statements thereby admitting that what gave
rise to its understated insurance liabilities during the Class Period was not erroneous accounting
estimates , but rather was a result of an improper accounting of information in the possession of the
AMERCO Defendants when the Company issued its false and misleading financial statements .
276 . During the summer of 2002, the ADOI issued an examination report on RepWes t
covering the period January 1, 1998 to December 31, 2000 . The report explains that RepWest
wrote property and casualty insur ance for members of the AMERCO group. The repo rt also
indicates that policies issued to AMERCO provide general liability and automobile liabilit y
coverage .
277 . Prior to policy year 1999, AMERCO self-insured the first $25,000 of general
liability losses and retained additional risk through an annual aggregate deductible on general89
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
3a5 S .ARL'NGTON AV ERENO, NV 895415
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liability and automobile liability losses . The aggregate deductible amounted to $32 .5 million for
policy year 1998 and $31 . 0 million for policy year 1997. For policy years 1999 and 2000,
AMERCO had a 95% deductible for all general and automobile liability losses incurred .
278 . The 2002 ADOI report stated :
These large deductibles are unusual and present a material exposureto the Company's financial statement . The examination has estimatedthat the liability for future deducible payments that the Company willneed to collect from AMERCO in future years for deductible o nlosses already incurred as of December 31, 2000 to be at least$50, 000, 000 . [Emphasis Added ]
279. Accordingly, by the summer of 2002, at least, defendants were on notice that the
ADOI estimated AMERCO' s liabilities for already incurred deductible losses to have been at least
11 $50 million . The failure of AMERCO to record these losses in its financial statements during th e
Class Period, as it has now admitted, after notification by the ADOI, evidences defendants' inten t
deceive investors .
280. After the ADOI issued its report covering the period January 1, 1998 to Decembe r
31, 2000 during the summer of 2002, the ADOI again contacted RepWest. In fact, on March 17,
and 20, 2003, the ADOI requested that AMERCO confirm that it had recorded certain amounts due
to the RepWest for, among other things, AMERCO' s deductible obligations under policies issued
by RepWest. The ADOI also asked AMERCO to provide a reconciliation that would disclose how
these amounts due RepWest were reported in AMERCO' s financial statements filed with the SEC
for the year ended March 31, 2002 and the quarter ended December 31,2002 .
281 . AMERCO failed to adequately respond to the ADOI' s March 2003 requests , and, as
a result, the ADOI issued an order to the Company dated March 26, 2003 to "produce such records,
books or other information papers in its possession or the possession of its affiliates that (1)
substantiate AMERCO's reserves for deductible obligations under policies issued by [RepWest] for
the years 2000 through 2003 ; and (2) reconcile AMERCO's reserves for deductibles under policies
issued by the Company for the years 2000 to 2003 to AMERCO's financial statement filed with the
SEC as of March 31, 2002 and December 31, 2002 . "
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THOMAS J, HALLCOUNSELOR AT LAW 11
305 5 .ARLl\GTON AV ERENO, NV 395ns
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282. In response, the ADOI received letters from AMERCO and RepWest dated Marc h
31 and April 2, 2003, respectively, neither of which provided the requested information .
Accordingly, on April 3, 2003, the ADOI issued a subpoena to AMERCO for the required
information. AMERCO's response to the subpoena included a letter dated April 22, 2003 and
related attachments. Follow-up meetings with AMERCO were held on April 22 and 25, 2003 .
Neither the letter nor the follow up meetings with AMERCO provided the information the ADO I
sought .
283 . Thereafter, the ADOI issued a report dated May 1, 2003 which stated, in pertinen t
part, "With respect to the high deductible policies and retrospective premiums receivable ,
AMERCO was unable or unwilling to confirm that its financial obligations to the Company were
adequately recognized in AMERCO's financial statements. "
284 . Such report also disclosed :
[RepWest] has issued business auto and general liability policies ($0to $250,000) to AMERCO with policy years ending March 31, 2000,March 31, 2001 and March 31, 2002, each of which contain a 95%deductible obligation by AMERCO on incurred losses . . . .
At inception of this insurance program, AMERCO prepaid a portionof its estimated deductible obligation over the policy period and[RepWest] held the funds for use in paying claims. However, as ofDecember 31, 2002, the Company held funds of only $5 .7 million tosecure AMERCO's deductible obligation for policy years endingMarch 2000, 2001 and 2002 . Deductibles under the business autopolicy effective April 1, 2002 are not prepaid, but rather, are billedAMERCO as the losses are paid .
In addition to the high deductibles contained in the business auto andgeneral liability policies, commercial umbrella liability policies issuedby [RepWest] to AMERCO contain "corridor deductibles" that have asimilar financial effect. . . . The umbrella policies with corrido rdeductible are another type of high deductible policy issued toAMERCO .
Although the high deductible policies, including the corridordeductible, shift the underwriting risk to AMERCO, they expose[RepWest] to credit risk based on AMERCO's ability to pay thedeductibles . During the examination, the Company prepared anexposure analysis that indicated its credit risk to AMERCO forunfunded deductibles was approximately $120.4 million. As indicatedabove, the Company held only $5.7 million in prepaid funds provided
9 1SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOCNSELORAT LAW
3115 S.ARL1NGTON AViRENO , NV "915
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by AMERCO to secure this exposure, for a net unfunded creditexposure of $114. 4 million . . . .
Under the insurance holding company systems act , the ADOI soughtto confirm with AMERCO, that AMERCO's filed financial statementsincluded sufficient provisionfor the underwriting risk that had beenshifted from the company 's balance sheet to AMERCO. Pursuant to asubpoena issued by the ADOI on April 3, 2003 , AMERCO provideddocumentation that its ledger as of December 31, 2002, included anaccrual for insurance liabilities payable to [Rep West] in theapproximate net amount of $41 . 1 million. This amount, compared tothe net policy deductible exposure of $114 .4 million , appears toindicate that AMERCO has failed to accrue $ 73 .3 million of lossesincurred under these policies . [Emphasis Added]
285 . Despite the foregoing, in a September 5, 2003 conference call, defendant Edwar d
Shoen deceptively stated : "In performing the re-audit in 2002 and 2001, the Company' s outside
auditors BDO and the company found items that had been accounted for incorrectly . The largest
items were insurance reserves . "
286 . Indeed, AMERCO deliberately and egregiously failed to record losses incurre d
its insurance polices in order to create the false impression that it was in compliance with loan
covenant and regulatory capital requirements and to facilitate the procurement of much needed
additional financing , as defendants knew or with deliberate recklessness disregarded . AMERCO' s
attempt to stonewall the ADOI' s processes evidences its intent to deceive investors during the Class
Period .
287 . AMERCO materially misstated its operating results as a result of its improper
accounting for its incurred insurance losses during the Class Period as noted in the chart below :
Restated (ooos)Originally (to reflect incurre d
Pre-Tax Earnings Reported moos) insurance losses only) Change (0 ogs )9
For the Year Ended March 31, 2002 $4,979 $(50,591) $(55,570)
For the Year Ended March 31, 2001 $23,998 $(32,227) $(56,255)
288 . In fact, as a result of its improper accounting for its incurred insurance losses alone ,
AMERCO understated its pre-tax income by more than $125 million during the Class Period, or a n
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THOMAS J, HALLCOL SELORAT LAW
30$ S.ARLINGTON AVERLNO .N V R9 41 5
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amount equal to approximately 20% of AMERCO undistributed earnings from its inception throug h
March 31, 1997 .
3. AMERCO 's Improper Failure To Disclose Contingent Liabilities AndSignificant Risks And Uncertainties
289 . Defendants' attempt to mislead investors during the Class Period is otherwise
evidenced by the failure of AMERCO 's financial statement to disclose its contingent liabilities i n
conformity with GAAP .
290 . GAAP requires that financial statements disclose contingencies when it is at leas t
reasonably possible (e .g., a greater than slight chance) that a loss may have been incurred. SFA S
No. 5, X10 . The disclosure shall indicate the nature of the contingency and shall give an estimate o f
the possible loss, a range of loss, or state that such an estimate cannot be made . Id
291 . The SEC considers the disclosure of loss contingencies to be so important to an
informed investment decision that it issued Article 10-01 of Regulation S-X [17 C.F .R. § 210.10-
01 ], which provides that disclosures in interim period financial statements may be abbreviated and
need not duplicate the disclosure contained in the most recent audited financial statements , except
"where material contingencies exist , disclosure of such matters shall be provided even though a
signi ficant change since year end may not have occurred . "
292 . In addition, GAAP requires that financial statements disclose significant risks an d
uncertainties associated in an entities ' business. American Institute of Certified Public Accountant '
Statement of Position No. 94-6 .
293 . In violation of GAAP, AMERCO's Class Period financial statements improperl y
failed to disclose numerous significant risks and uncertainties .
294. For example, the ADOI's examination report issued in the summer of 2002 stated :
Examination of accounts and records revealed significant reinsurancedata integrity and overall internal control problems . Many of theproblems resulted in the Company having to engage in a significantamount of research in an effort to provide support for the data andtransactions that are recorded in its general ledger and ultimatelyreported in the Annual Statement and other regulatory filings . Ageneral failure to obtain required regulatory approval of certaintransaction and agreements was also noted. The Company's lack ofan adequate internal control structure contributed to these problem s
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THOMAS J. HALLCO(.-NSELOR AT LAW 11
SOS S. ARLINGTON AVERESO.W l19S115
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and errors .
Problems and recommendations that are generally discussed in thisReport of Examination have been addressed in more detail with theCompany's Management .
295 . Ronald Grey, RepWest's President and Chairman of the Board from 1997 to 2000 ,
confirmed RepWest' s internal control and operational deficiencies . Grey testified that Rep West
"constantly" experienced problems with its computers and software and "was in the stone age from
a data processing standpoint. Grey further testified that Rep West's data processing system was
"totally obsolete " and adversely "affected the ability of the Company to do everything from daily
chores, communicating with one another, to obtaining current information . "
296. Concerning Rep West's actuarial reserves, the ADOI's report stated :
The actuarial assumptions utilized by the Company and the resultingaccount balances were reviewed for this examination by R . GlennTaylor, A.C.A.S ., M .A .A .A ., associated with the firm Taylor-Walker& Associates, Inc ., the examination actuary . Based upon the analysisperformed by the examination actuary, the loss and LAE reserveliability balances reflected in the financial statements of this Report ofExamination are $50,43 7, 000 or 14.9% greater then the amountreported by the Company in its filed 2000 Annual Statement . TheExamination actuary certified that the actuarial amounts reported inthis Report of Examination are computed in accordance wit hreserving standards and practices prescribed by the State of Arizonaand made reasonable provisions for all unpaid loss and loss expenseobligation under the terms of the Company's policies and agreementson a net of reinsurance basis . [Emphasis added. ]
297 . The ADOI report also stated :
The Company is a party to a partnership agreement in connection withits investment in [Private Mini Storage Realty, LLP] . The partnershipagreement includes a mandatory additional funding provision ,whereby, the general partner (50% controlled by AMERCO) may atits sole discretion require mandatory additional capital contributionsto be made by the limited partners, including the Company . Themandatory additional funding provision is not capped in any wayand essentially allows for the potential for an unlimited amount ofcapital to be required from the Company . [Emphasis added. ]
298 . In addition , in its March 31, 2002 audited financial statements , AMERCO disclosed
that, on June 28 , 2002, it entered into an "agreement replacing an existing revolver agreement wit h
I a 3 year revolver for $205,000,000 ." AMERCO deceptively failed to disclose, however, that a
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THOMAS 1. HALL(OC NSELOR AT LAWSUS S ARLINGTON AVE
RENO , NV 99'W5
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condition precedent to such agreement required AMERCO to obtain an additional $ 150 million in
financing before October 8, 2002 .
299 . Defendants knew or with deliberate recklessness disregarded that AMERCO' s
disclosure in its Class Period financial statements failed to disclose numerous material contingen t
liabilities and risks and uncertainties in violation of GAAP .
4. AMERCO' s Improper Accounting For Its Limited Partnership Investmen t
300. AMERCO' s Class Pe riod financial statements were also materially false and
misleading because the Company failed to timely record losses ensuing from its investments, as it
has now admitted . AMERCO has now restated its financial results for fiscal 2002, 2001 and prior
years acknowledging that its failure to include losses from PMSR of $9.7 million , $8 .4 million and
$8 .1 million, respectively , caused its financial statements originally issued to be materially false an
misleading .
301 . In its audited financial statements for the year ended March 31, 1999, filed with th e
SEC on Form 10-K, AMERCO disclosed:
In February 1997, AMERCO, through its insurance subsidiaries,invested in the equity of a limited partnership in a Texas-based self-storage corporation . Republic invested $13,500,000 in exchange for a38% limited partnership and Oxford invested $11,000,000 inexchange for a 31% limited partnership . U-Haul is a 50% owner of acorporation which is a general partner in the Texas-based self-storagecorporation . AMERCO has a $10,000,000 note receivable from thecorporation .
302 . AMERCO expanded such disclosure in its audited financial statements for the yea r
ended March 31, 2000, filed with the SEC on Form 10-K, as follows :
In February 1997, AMERCO, through its insurance subsidiaries,invested in the equity of a limited partnership in a Texas-based self-storage corporation. Republic invested $13,500,000 and has a 22%limited partnership interest and Oxford invested $11,000,000 and hasa 27% limited partnership interest. U-Haul is a 50% owner of acorporation which is a general partner in the Texas-based self storagecorporation. AMERCO has a $10,000,000 note receivable fromPMSI Investors L .L.C., a 30% limited partner in the corporation .During 1997, the corporation secured a line of credit in the amount of$225,000,000 with a financing institution . Under the terms of thiscredit facility, AMERCO entered into a support party agreement withthe corporation whereby upon default or noncompliance with deb t
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1110NIAS .I . HALLCOUNSELOR AT LAW3115 S. ARLINGTON M
RENO, NV B95IIS
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covenants by the corporation, AMERCO assumes responsibilityfulfulling all obligations related to this credit facility .
303 . In its audited financial statements for the year ended March 31, 2001, filed with th e
SEC on Form 10-K, AMERCO disclosed :
In February 1997, AMERCO, through its insurance subsidiaries,invested in the equity of a limited partnership in a Texas-based self-storage corporation. RepWest invested $13,500,000 and has a 38%limited partnership interest and Oxford invested $11,000,000 and hasa 27% limited partnership interest . U-Haul is a 50% owner of acorporation which is a general partner in the Texas-based self-storagecorporation. AMERCO has a $10,000,000 note receivable fromPMSI Investors L .L.C ., a 30% limited partner in the corporation .During 1997, the corporation secured a line of credit in the amount of$225,000,000 with a financing institution . Under the terms of thiscredit facility, AMERCO entered into a support party agreement withthe corporation whereby upon default or noncompliance with debtcovenants by the corporation, AMERCO assumes responsibility infulfilling all obligations related to this credit facility .
304. Similarly, AMERCO' s audited financial statements for the year ended March 31 ,
2002, filed with the SEC on Form 10-K disclosed :
In February 1997, AMERCO, through its insurance subsidiaries,invested in the equity of a limited partnership in a Texas-based self-storage corporation . Rep West invested $13,500,000 and has a 38%limited partnership interest and Oxford invested $1 1,000,000 andhas a 27% limitedpartnership interest. U -Haul is a 50% owner of acorporation , which is a general partner in the Texas -based self-storage corporation . AMERCO has no operating control of theTexas-based self-storage corporation and the minority holders havesubstantial participation rights . During 1997, the corporation secureda line of credit in the amount of $225, 000,000 with a financinginstitution. Under the terms of this credit facility, AMERCO enteredinto a supportparty agreement with the corporation whereby upondefault or noncompliance with debt covenants by the corporation,AMERCO assumes responsibility in fu filling all obligations relatedto this creditfacility. At March 31, 2002, there was no default onnon-compliance under the terms of the credit facility . [EmphasisAdded]
305 . These disclosures misled investors by leaving them to assume that AMERCO' s
limited partnership investment in Private Mini Storage Reality, L.P. ("PMSR") was accounted for i
accordance with GAAP .
306 . GAAP, in APB Opinion No . 18, requires that an investment in the common stock o f
an unconsolidated subsidiary be accounted for using the equity method if the investor ha s
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THOMAS J . HALLCOUNSELOR AT LAW
SITS S .ARLINGTON AV ERENO, NV KRIS
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significant influence over the investee's operating and financial policies . Pursuant to APB Opinion
No . 18, an investor that owns 20% or more of the voting stock of an investee is presumed to hav e
the ability to exercise significant influence over the investee.
307 . Under the equity method, an investor recognizes its share of the ea rnings or losses of
an investee. APN Opinion No . 18, ¶10 . APB Opinion No . 18 also provides that :
Financial statements of an investor should disclose parenthetically, innotes to financial statements, or in separate statements or schedules(1) the name of each investee and percentage of ownership ofcommon stock, (2) the accounting policies of the investor withrespect to investments in common stock, and (3) the difference, i f 1
3 any, between the amount at which an investment is carried and th eamount of underlying equity in net assets and the accountingtreatment of the difference .
13 Disclosure should include the names of any significantinvestee corporations in which the investor holds 20% or moreof the voting stock but the common stock is not accounted foron the equity method, together with the reasons why the equitymethod is not considered appropriate, and the names of anysignificant investee corporations in which the investor holdsless than 20% of the voting stock and the common stock isaccounted for on the equity method, together with the reasonswhy the equity method is considered appropriate . [EmphasisAdded]
308 . Despite revisions to the financial disclosure statement concerning PMSR during th e
Class Period , AMERCO' s audited financial statements nonetheless failed to provided the disclosure
required by GAAP and the SEC's accounting rules and regulations . Accordingly, investors were
unable to assess the appropriateness or the risks associated with AMERCO 's accounting for PMSR .
Without such disclosure , investors were led to believe that AMERCO 's Class Period financial
statements included its proportionate share of PMSR's losses, when they did not, as PwC and the
Individual Defendants knew or recklessly ignored .
309 . In fact, during the Cl ass Period , GAAS specifically provided, in Statement on
Auditing Standards ("SAS") No . 81, that:'7
17 SAS No. 81, effective for audits beginning on or after January 1 , 1997, was superceded bySAS No. 92 for fi scal years beginning after June 30, 2001 . SAS No . 92 , ¶.57 carries forward therequirements cited in SAS No . 81 .
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THOMAS J . HALLCOUNSELOR AT LAN'
3 41 5 S .ARLWGTON AV ERENO , N V 89415
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The auditor should obtain evidence about the appropriateness of theaccounting method adopted for investments in common stock of aninvestee . Inquiry should be made of the investor ' s management as to(a) whether the investor has the ability to exercise significantinfluence over the operating and financial policies of the investeeunder the criteria set forth in paragraph 17 of APB Opinion 18 and (b)the attendant circumstances that serve as a basis for management'sconclusion . The auditor should evaluate the information received onthe basis of facts otherwise obtained by him or her in the course of theaudit .
If an investor accounts for an investment in an investee contrary tothe applicable presumption contained in paragraph 17 of APBOpinion 18, the auditor should obtain sufficient competentevidential matter about whether that presumption has beenovercome and whether appropriate disclosure is made regarding thereasons for not accounting for the investment in keeping with thepresumption . [Emphasis Added, Footnotes Deleted ]
310 . Defendants have now admi tted that AMERCO's financial statements during th e
Class Period were materially false and misleading when issued due to its failure to recognize equity
method losses relating to the Company's investment in PMSR . Indeed, this improper accounting
practice alone overstated the Company's earnings from operations by approximately 10% and 8%
during fiscal 2001 and 2002, respectively .
5 . AMERCO' s Understatement of General and Administrative Expense s
311 . In its audited financial statements for the year ended March 31, 1999, AMERCO
disclosed its policy of accounting for deferred policy acquisition costs :
Commissions and other costs which vary with and are primarilyrelated to the production of new business, have been deferred . Oxford- costs are amortized in relation to revenue such that profits arerealized as a level percentage of revenue . Republic - costs areamortized over the related contract period which generally do notexceed one year. [Emphasis Added ]
312 . This representation was materially false and misleading as RepWest improperl y
failed to amortize deferred cost into earnings in accordance with its publicly stated accountin g
policy .
313 . Indeed , GAAP, APB Opinion No . 22, ¶7, provides that the usefulness of financial
statements in making economic decisions depends significantly upon the user 's understanding of the
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THOMAS J . HALLCOUNSELOR AT LAW
111 5 S .ARLINGTON AV CRENO, NV SSNIS
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accounting policies followed by a company. In fact, GAAP states that information about the
accounting policies adopted by a reporting company is "essential" for financial statement users .
APB Opinion No . 22, ¶ 8 .
314. Nonetheless, AMERCO improperly failed to comply with its publicly state d
accounting policy and GAAP, as the Company has now admitted . As a result of this false and
misleading accounting practice alone, AMERCO 's pre-tax earnings during the Class Period were
overstated by more than $32.6 million, an amount represents more than 50 % ofAMERCO's pre-
tax earnings during each of the years ended March 31, 2000 and 1999 .18
315 . For example, certain of such unrecognized expenses were associated with sale s
commissions due to RepWest's insurance agents . During 2000, RepWest recorded commissions
paid to its sales agent, Robert Moreno . Subsequently, RepWest recorded an entry to reverse
approximately $1 .5 million of such previously recorded commissions, ostensibly because the
commissions RepWest paid Moreno were for insurance in excess of a 12-month limitation .
However, Richard Turoff, then a RepWest Vice President of Underwriting and Marketing, waived
the annual cap, and authorized Moreno to write additional business . Thereafter, RepWest received
and retained the premiums for the business generated by Moreno in excess of the annual limit, and
RepWest commenced an unsuccessful legal action to recover approximate $1 .5 million in
commissions it paid to Moreno .
316 . RepWest' s entry to reverse the commissions paid to Moreno , violated AMERCO' s
publicly-disclosed accounting policy and violated GAAP, because AMERCO was recognizing a
gain contingency precluded by SFAS No . 5 .
317 . The FASB, in SFAS No . 5, ¶ 17 provides that :
a. Contingencies that might result in gains usually are notreflected in the accounts since to do so might be to recognize revenueprior to its realization .
19 On information and belief, the majority of such expenses were required to have beenrecognized during the years ended March 31, 2000 and 1999 .
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THOMAS J . EIALLCOUNSELOR AT LAW
3*5 S . ARLINGTON AV ERENO , NV W) 5
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b . Adequate disclosure shall be made of contingencies that mightresult in gains, but care shall be exercised to avoid misleadingimplications as to the likelihood of realization .
318. Indeed, the SEC recently sanctioned Oxford Health Plans for recording a gai n
contingency related to the outcome of a lawsuit concerning a refund Oxford believed it was due fo r
amounts paid into an allegedly overfunded malpractice insurance pool .
319. Defendants were motivated not to reverse such expenses during the years ende d
March 31, 2000 and 1999 because AMERCO was preparing for a $350 million debt offering at tha t
time .
6. AMERCO's Other Improper Accounting
320. Defendants' efforts to deceive investors are further evidenced by other improper
accounting practices employed by AMERCO during the Class Period . In each case, these practices
had one common objective - they eliminated or deferred current period expenses which, in turn,
inflated AMERCO's earnings . The Company has now admitted that it had understated its expenses
relating to, among other things, vehicle, equipment and/or real estate depreciation ; inventory
shrinkage, asset impairments, and unrecognized expenses associated with assets leased by the
Company because AMERCO, without any reasonable basis, deemed to be reimbursable by the
various lessors with which it transacted .
321 . In addition to the materialfinancial misstatements ensuing from the AMERCO's
improper accounting noted in detail above , AMERCO has now admitted that during the Clas s
Period it also :
• improperly recorded "adjustments" to inventory totaling $8 . 8 million upo n
the conversion of the Company' s computer system ;
• improperly failed to record $ 1 .4 million of inventory shrinkage ;
• improperly failed to record leased asset expenditures totaling $4 .3 million;
• improperly failed to record property taxes totaling $3 .6 million;
• improperly failed to record a total of $4 .8 million in net depreciation expense
and gains and losses on the disposition of fixed assets during fiscal 2002 ;
100SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCO(' .SELOR AT LAW
311 S S .ARLINGTON AV ERENO . NV 895 45
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0 improperly failed to record $2 .4 million in impairments in the value of its rea l
estate investments ;
• improperly failed to record "other miscellaneous adjustments" which reduce d
income by $5 .2 million.
322 . As a result of the foregoing accounting improprieties , AMERCO presented its
financial results during the Cl ass Period in a manner which violated numerous provisions of GAAP :
(a) The concept that financial reporting should provide information that is usefu l
to present and potential investors and creditors and other users in making rational investment, credi t
and similar decisions (Concepts Statement No. 1, ¶ 34) ;
(b) The concept that financial reporting should provide information about th e
economic resources of an enterprise, the claims to those resources, and the effects of transactions ,
events and circumstances that change resources and claims to those resources (Concepts Statemen t
No. 1, ¶ 40) ;
(c) The concept that financial reporting should provide information about how
management of an enterprise has discharged its stewardship responsibility to owners (stockholders)
for the use of enterprise resources entrusted to it . To the extent that management offers securities of
the enterprise to the public, it voluntarily accepts wider responsibilities for accountability t o
prospective investors and to the public in general (Concepts Statement No . 1, ¶ 50) ;
(d) The concept that financial reporting should provide information about an
enterprise's financial performance during a period. Investors and creditors often use information
about the past to help in assessing the prospects of an enterprise . Thus, although investment and
credit decisions reflect investors' expectations about future enterprise performance, thos e
expectations are commonly based at least partly on evaluations of past enterprise performance
(Concepts Statement No . 1, ¶ 42);
(e) The concept that financial reporting should be reliable in that it represent s
what it purports to represent . That information should be reliable as well as relevant is a notion tha t
is central to accounting (Concepts Statement No. 2, ¶¶ 58-59) ;
10 1SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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I FIOM9AN J . HALL(Ot N sELOR AT LAW
3U5 1-ARU M 1ON AV E
RENO , NV W415
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(f) The concept of completeness, which means that nothing is left out of the
information that may be necessary to ensure that it validly represents underlying events an d
conditions (Concepts Statement No. 2, ¶ 79); and
(g) The concept that conservatism be used as a prudent reaction to uncertainty t o
try to ensure that uncertainties and risks inherent in business situations are adequately considered .
The best way to avoid injury to investors is to try to ensure that what is reported represents what i t
purports to represent (Concepts Statement No. 2, ¶¶ 95, 97) .
323 . The Company 's Class Period Forms 10-K and I0 -Q filed with the SEC were also
materially false and misleading in that they failed to disclose known trends, demands,
commitments, events, and uncertainties that were reasonably likely to have a materially adverse
effect on the Company's liquidity, net sales, revenues and income from continuing operations, as
required by Item 303 of Regulation S-K .
K. PwC'S ROLE IN THE FRAUD
324 . Plaintiffs incorporate by reference all allegations above insofar as they relate to
PwC's materially false and misleading audit opinions on AMERCO's March 31, 1998, 1999, 2000 ,
2001 and 2002 fiscal year end financial statements as if fully set forth herein .
325 . AMERCO was a longstanding and significant client of PwC and a major source of
income for PwC's Phoenix, Arizona office. In fact, during the Class Period, the fees paid by
AMERCO to PwC approximated $5 million .
326 . As a result of its relationship with AMERCO and the nature of the auditing an d
consulting services rendered to the Company, PwC's personnel were regularly present at
AMERCO's corporate headquarters throughout the year and had continual access to, and
knowledge of, AMERCO's confidential corporate financial and business information throug h
conversations with employees of AMERCO and through review of AMERCO's non-public
documents . In fact, since at least 1991, PwC audit partner Teri M . Hulse worked on AMERCO's
audit engagement. Furthermore, in the AMERCO vs. PwC Action, AMERCO has acknowledged
that PwC was intimately familiar with the AMERCO organization, the familial relationship betwt
various directors, officers and shareholders, and defendants' desire to expand the self-storag e102
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW30 S.ARLINGTON AVE
RENO, NV Wy 1I5
1 business without adversely impacting AMERCO's balance sheet or results of operations from real
2 estate ownership .
3 327. Moreover, PwC had access to AMERCO's internal accounting records . PwC
4 therefore knew of or with deliberate recklessness disregarded the following adverse fact s
5 concerning AMERCO that rendered the Company's reported financial results during the Clas s
6 Period, including the Company's 1998, 1999, 2000, 2001 and 2002 year end financial statement s
7 and PwC's unqualified audit opinion thereon, materially false and misleading : (1) AMERCO failed
8 to consolidate the financial statements SAC SPEs and record more than $16 million in losses
9 ensuing from such entities during the Class Period; (2) AMERCO failed to record more than $125
10 million in insurance reserves during the Class Period; (3) AMERCO failed to record more than $26
11 million losses relating to the Company's investments in Private Mini Storage Realty, L .P. during
12 the Class Period; (4) AMERCO failed to record more than $32 million in general and administrativ(
13 expenses during the Class Period ; and (5) AMERCO failed to record more than $12 million in
14 expenses from numerous other transactions during the Class Period .
15 328. AMERCO's improper accounting detailed above, materially misstated its financial
16 position and operating results during the Class Period . In fact, as a result of the Company's
17 improper accounting noted above, PwC allowed defendants to overstate AMERCO's pre-tax
18 earnings during the Class Period by more than $210 million .
19 329. In addition, AMERCO's financial statements also improperly failed to disclos e
20 significant risks and uncertainties during the Class Period, as detailed herein . Only after AMERCO
21 dismissed PwC did the Company disclose that :
22 [F]or the Company's two most recent fiscal years and through July17, 2002, there have occurred none of the "reportable events" listed in
23 Item 304(a)(1)(v)(A-D) of Regulation S-K. However, PwC ha sindicated to the Company that some material weaknesses exist in
24 certain aspects of the Company's internal controls that were notedduring PwC's audits of the Company's financial statements for the
25 fiscal years ended March 31, 2001 and 2002 . PwC recommendedexamination and augmentation, as appropriate, of certain aspects of
26 the Company's internal control procedures, including the following :
27 (1) Responsibility for each general ledger account should b eassigned to an appropriate person, reconciliations (particularly with
28 respect to intercompany accounts with SAC Holdings, inventory, and10 3
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS ], HALLCOLNSCLOR AT LAW345 S. ARLINGTON AVE
RENO. NV 89505
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fixed assets) should be performed on a monthly basis, and thefinancial reporting manager should ensure that all accounts withvariances at month-end are investigated and corrected within anappropriate timeframe ;
(2) The internal control structure and monitoring process ofmanagement should be strengthened to help detect misstated accountbalances on a timely basis. Corrections of items should be made on atimely basis, as well, to ensure proper quarterly and annual reporting ;
(3) Access to the general ledger should be limited to a few selectindividuals, with the appropriate level of authority, who do notpossess incompatible job responsibilities . Further, journal entriesshould be reviewed and approved to ensure that each adjustment issupported by appropriate documentation and that each entry has beenreflected on the subsidiary ledger, if applicable ;
(4) Controls relating to inventory costing, including LIFO reservecalculations, manufacturing and overhead costs, and retention ofrecords should be improved ; and
(5) Position vacancies should be filled in a timely manner withcompetent personnel . Documentation of job responsibilities,processes, etc . should be prepared to ensure efficient and accurateknowledge transfer. In addition, cross training of employees andfunctions should occur to strengthen the control environment and tominimize disruptions in the event of employee turnover .
330 . Nonetheless, PwC, a global accounting firm that claims to provide "exceptional audi t
service," knowingly, or with deliberate recklessness, repeatedly issued false unqualified audi t
opinions regarding AMERCO during the Class Period.
1 . PwC Conceptualized , Orchestrated and Structured the Creation of the SACSPEs
331 . In regard to the creation of the SAC SPEs, which served to illegally and falsel y
improve AMERCO's reported financials while benefiting AMERCO insiders, PwC
"conceptualized , orchestrated and structured the creation of the [SAC SPEs]," as alleged b y
AMERCO and U-Haul . See AMERCO and U-Haul's Response in Opposition to PwC's Amended
Motion to Dismiss the Complaint for Failure to State Claims, filed August 21, 2003 in the Amerco
vs. PwC Action, at § I(A) . Moreover, Mark Shoen did not satisfy the criteria as an independent
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J. HAL LCOUNSELOR AT LA W
34$ S .ARLINGTONAV£RENO , NV 8951
1 third party at inception [of the SAC SPEs] and subsequent, as alleged by PwC . PwC Complaint for
2 Common Law Fraud, ¶ 18 .
3 332. PwC's intimate involvement in the conceptualization and formation of the SA C
4 entities included : (a) providing advice on how to structure the transactions; (b) reviewing
5 transaction terms ; (c) reviewing transaction agreements ; and (d) providing technical consultation o n
6 GAAP matters . Verified Complaint, Amerco vs. PwC Action, ¶42 . PwC partners, including the
7 audit engagement partner, an SPE technical specialist partner and a concurring partner, and staf f
8 examined the transactions . Id.
9 333 . The creation of the SAC SPE, developed, validated and audited by PwC, facilitate d
10 AMERCO's expansion in the self-storage sector without corresponding real estate implications on
11 AMERCO's balance sheet .
12 334 . PwC issued four audit opinions (dated June 26, 1998 on AMERCO's 1998 and 199 7
13 financial statements; dated June 24, 1999 on AMERCO's 1999 financial statements ; dated June 26 ,
14 2000 on AMERCO's 2000 financial statements ; and dated June 29, 2001 on AMERCO's 200 1
15 financial statements) which stated that AMERCO's financial statements were presented i n
16 conformity with GAAP and that PwC's audit was performed in accordance with GAAS :
17 In our opinion, the accompanying balance sheets and the relate dconsolidated statements of earning, of changes in stockholders '
18 equity, of comprehensive [ ] and of cash flows present fairly, in al lmaterial respects, the financial position of AMERCO and it s
19 subsidiaries at March 31, [ ] and [ ], and the results of their operation sand their cash flows for each of the three years in the period ende d
20 March 31, [ ], in conformity with accounting principles generall yaccepted in the United States of America . These financial statement s
21 are the responsibility of the Company's management ; ourresponsibility is to express an opinion on these financial statement s
22 based on our audits. We conducted our audits of these statements i naccordance with auditing standards generally accepted in the Unite d
23 States of America, which require that we plan and perform the audi tto obtain reasonable assurance about whether the financial statement s
24 are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in th e
25 consolidated financial statements, assessing the accounting principle sused and significant estimates made by management, and evaluatin g
26 the overall financial statement presentation . We believe that ouraudits provide a reasonable basis for our opinion .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF TH E
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
30S S.ARLINGTON AV ERENO . NV 89 .%5
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335 . PwC issued its audit opinion , dated July 12, 2002, on AMERCO's 2002 financia l
statements , which stated that such financial statements were presented in conformity with GAAP
and that PwC' s audit was performed in accordance with GAAS :
In our opinion , based on our audits and the repo rt of other auditors,the accompanying consolidated balance sheets and the relatedconsolidated statements of ea rnings , changes in stockholders ' equity,comprehensive income and cash flows present fairly , in all materialrespects, the financial position of AMERCO and its subsidiaries andSAC Holding Corporations and its subsidiaries (collectively, the"Company") at March 31 , 2002 and March 31, 2001 , and the resultsof their operations and their cash fl ows for each of the three years inthe period ended March 31, 2002 in conformity with account ingprinciples generally accepted in the United States of America. Thesefinancial statements are the responsibility of the Company'smanagement ; our responsibility is to express an opinion on thesefinancial statements based on our audits . We did not audit thefinancial statements of SAC Holding Corporations, as of and for theyear ended March 31, 2001, whose results are consolidated withAMERCO' s, which statements reflect total assets of $ 520 .1 million asof March 31, 2001, and total revenues of $104 . 8 million , for the yearended March 31, 2001 . Those statements were audited by otherauditors whose repo rt thereon has been furnished to us , and ouropinion expressed herein , insofar as it relates to the amounts includedfor SAC Holding Corporation, is based solely on the report of theother auditors . We conducted our audits of these statements inaccordance with auditing standards generally accepted in the UnitedStates of America, which require that we plan and perform the auditto obtain reasonable assurance about whether the financial statementsare free of material misstatement . An audit includes examining, on atest basis , evidence supporting the amounts and disclosures in thefinancial statements , assessing the accounting p rinciples used andsignificant estimates made by management, and evaluating the overallfinancial statement presentation . We believe that our audits and thereport of other auditors provide a reasonable basis for our opinion .
The accompanying financial statements of AMERCO and itssubsidiaries have been restated at March 31, 2001 and for each of thetwo years in the period ended March 31, 2001, to consolidate thefinancial statements of SAC Holding Corporation, an affiliated entity .
336 . As alleged in the AMERCO vs. PwC Action, the failure to consolidate the SA C
entities in the AMERCO financial statements was not in compliance with GAAP, yet PwC, armed
with the facts that Mark V . Shoen was the SAC shareholder , and a major stockholder and officer of
AMERCO, stated that voting common stock of the original SAC entities qualified pursuant to
GAAP were to be excluded from AMERCO ' s financial statements . PwC knowingly or with
deliberate recklessness overlooked or ignored the SAC shareholder ' s lack of independence, the106
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW3a5 S . ARLSNGTON AV E
RENO, NV 89W5
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related-party nature of those transactions, economic substance over legal form and the requirement s
of GAAP and fair presentation . Verified Complaint at ¶¶43, 51, 55 .
337 . Amazingly, in a memorandum dated February 5, 2002 from Teri Hulse of PwC t o
AMERCO, for its audits of AMERCO's March 31, 2000 and 2001 financial statements, PwC di d
not consider or perform any procedures to determine the appropriateness of excluding hundreds o f
millions of SAC liabilities and assets , and millions of losses from AMERCO's financial statements ,
even though PwC purports to be an expert in GAAP and GAAS . Verified Complaint at ¶ 49 ,
AMERCO vs . PwC Action .
338. As alleged in the AMERCO vs. PwC Action, " from March 31, 1995 through
December 31, 2001, PwC had nearly sixty (60) opportunities to examine the accounting for the
SAC entities ." Verified Complaint at ¶ 59, AMERCO vs . PwC Action . In addition, PwC
specifically reviewed the SAC SPEs in 1999, again giving the scheme its stamp of approval . Id.,
W. Also, PwC's auditor in charge of the AMERCO account, Terri Hulse stated on April 4, 2002
that PwC had reviewed and approved the SAC SPEs in 1994, 1995, and 1998 and that the failure to
comply with special-purpose entity rules was the fault of PwC, who deserved to take "a lot of heat
for it." Verified Complaint at ¶ 80 , AMERCO vs. PwC Action .
339 . In December 1998, PwC "discovered that Mark V . Shoen had failed to contribute
capital in an amount equal to at least 3% of the cost of [an SAC SPE' s] newly acquired real estate . "
PwC Complaint for Common Law Fraud , at ¶ 18(d ), AMERCO vs. PwC Action .
340. As explained by Terri Hulse in the February 5, 2002 letter, notwithstanding the
requirement of a 3% equity capital investment, PwC knew that Mark Shoen had the financial ability
to make these contributions, but based on advice from PwC, he did not believe that is was
necessary .
341 . Because PwC knew of the 3% equity requirement and had an alleged 6 0
opportunities to examine the accounting treatment of the SAC entities, PwC was knowingly or
delibertately reckless in permitting AMERCO to keep the SAC entities off the balance sheet .
Moreover, if PwC relied on false representation of Edward Shoen, Mark Shoen and the SAC entiti
and did not take exception to the accounting treatment of the SAC entities (a defense asserted b y107
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J. HALLCOUNSELOR AT LAW
305 S .ARLINGTON AV ERENO . NV 843)5
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PwC in the Amerco vs. PwC Action), knowing of the 3% equity requirement and having ampl e
opportunity to examine the accounting treatment , PwC knowingly or with deliberate re cklessness ,
failed to perform any audit at all .
342 . Additionally, AMERCO engaged PwC as its independent auditor and allowed PwC
to falsely represent it was independent, even though both PwC and defendants knew that Pw C
"lacked independence insofar as it conceptualized and designed the SAC structure and transactions ,
and, thus , was essentially auditing its own work ." Verified Complaint, at ¶61, AMERCO vs. PwC
Action .
343 . The accounting principles violated were neither complex nor difficult to understan d
because when a different consultant reviewed PwC's accounting treatment of the SAC entities in
December 2001, that consultant identified the 3% test as being the only factor as to whether or no t
to consolidate, and, in a matter of weeks, it was determined that a restatement may be necessary, a s
demonstrated in the letter of Terri Hulse dated February 5, 2002 . Verified Complaint, at ¶¶49-57 ,
AMERCO vs . PwC Action .
2. PwC Intentionally and/or was Deliberately Reckless in Understating RepWestInsurance Reserves
344 . PwC 's conduct in its audit of RepWest 's insurance reserves is even more egregious .
AMERCO has now recorded in excess of $125 million of losses that should have been repo rted in
its financial statements issued during the Class Period . The ADOI, in its examination of RepWest
for 2000, found a $50 million understatement of RepWest's reserves , after PwC purportedl y
examined RepWest's financial statements . Thereafter , for 2002 the ADOI found a $73 million
understatement of Rep West's reserves , and an overstatement of its net worth of $138 mi llion.
These amounts indicate that these are not minor differences in judgment, but rather deliberately
reckless or intentional understatements of Rep West's reserves . At a minimum , PwC knew that
RepWest' s reserves were at least $9 .5 million and $ 12 .5 million lower than insurance rese rves
deemed necessary by RepWest' s consulting actuary as of December 31, 2000 and 1999 ,
respectively . But PwC did not require Rep West to record these minimum adjustments .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
365 SARLINGTON AV CRENO , NY 89505
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345 . PwC' s 2000 RepWest workpapers also make reference to a prior period adjustmen t
of about $6.5 million to account for an arbitration decision in February 2000 . This so called "prior
period adjustment" was run through 2000's operating results, These workpapers also discuss that
RepWest's reserves for the excess workers' compensation program were inadequate for a period of
time prior to 1997 due to a practice of discounting some reserves and using a $100 case reserve in
many situations where a much lesser reserve should have been carried . According to PwC ,
Rep West made a concerted effort from April 1997 through 2000 to bring these reserves up to
appropriate levels, with these actions creating an appearance of a substantial adverse development .
So PwC was aware of Rep West's inappropriate reserves for this line of business and allowed
Rep West to make these adjustments over several years resuling in misstated financial statements
throughout the class period .
346. PwC was also aware of the ownership structure of PMSR and of the fact that
RepWest owned approximately 30% of PMSR and Oxford owned approximately 25% of PMSR .
PwC, based on their expertise in GAAP and GAAS, knew or with deliberate recklessness
disregarded that AMERCO was required to reveal the losses being incurred by PMSR by the equity
method of accounting .
347 . PwC turned a b lind eye to AMERCO' s improper accounting and disclosure s
described herein and issued a false, unqualified audit opinions on AMERCO' s 1998, 1999, 2000,
2001 and 2002 annual financial statements , even though PwC knew or with deliberate recklessness
disregarded that : (a) AMERCO' s financial statements had not been prepared in conformity with
GAAP and did not present fairly, in all material respects , the financial position of AMERCO and
its subsidiaries and SAC Holding Corporations and subsidiaries as of March 31, 1998, 1999, 2000,
2001 and 2002 , and the results of their operations and cash flow for the years ended March 31,
1998, 1999 , 2000 , 2001 and 2002 ; and (b) PwC had not audited AMERCO' s 1998 , 1999, 2000,
2001 and 2002 financial statements in accordance with GAAS .
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THOMAS J . HALLCOUNSELOR AT LAW
305 S.ARLINGTON AVERENO, NV 89505
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3. PwC's GAAS Violations
348 . Among other things, PwC knew or with deliberate recklessness disregarded tha t
AMERCO' s 2001 and 2000 financial statements violated numerous provisions of GAAP and were
materially false and misleading as set forth in paragraphs 231-323 above .
349 . In certifying AMERCO's 1998, 1999, 2000, 2001 and 2002 annual financia l
statements , PwC also falsely represented that its examination was made in accordance with GAAS .
This statement was materially false and misleading in that the audits conducted by PwC wer e
knowingly or with deliberate recklessness not performed in accordance with GAAS in the followin
respects :
(1) PwC violated GAAS Standard of Reporting No. I that requires the audi t
report to state whether the financial statements are presented in accordance with GAAP . PwC's
opinion falsely represented that AMERCO's 1998, 1999, 2000, 2001 and 2002 annual financial
statements were presented in conformity with GAAP when they were not for the numerous reasons
herein alleged .
(2) PwC violated GAAS Standard of Reporting No. 4 which requires that, whe n
an overall opinion on the financial statements as a whole cannot be expressed, the reasons therefore
are to be stated . PwC was required to have stated that no opinion could be issued by it on
AMERCO' s 1998 , 1999, 2000, 2001 and 2002 financial statements or issued an adverse opinion
stating that the 1998 , 1999, 2000, 2001 and 2002 financial statements were not fairly presented .
(3) PwC violated GAAS General Standard No . 2 which requires that
independence in mental attitude is to be maintained by the auditor in all matters related to the
assignment. To be independent, the auditor must be intellectually honest ; to be recognized as
independent, the auditor must be free from any obligation to or interest in the client, its manage
or owners . For example, an independent auditor auditing a company of which he was also a
director might be intellectually honest, but it is unlikely that the public would accept him a s
independent since he would be in effect auditing decisions which he had a part in making.19 AU
1 9 U .S . auditing standards are codified by the AICPA in sections with "AU" citations .11 0
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THOMAS J . HALLCOUNSELOR AT LAW
N15 S .ARLINGTON AV ERENO , NV 8954]5
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§ 220.03 . In its capacity as an accounting firm that provides "Global Assurance and Busines s
Advisory Services ," PwC advanced the utilization of special purpose entities that AMERCO used to
transfer its real estate assets off its balance sheet in an attempt to avoid recording debt associated of
such assets . In so doing , PwC provided AMERCO with guidelines on the SPE off-balance sheet
structuring and consulted with AMERCO on the technical GAAP matters concerning the SP E
transactions. In fact, in 1995, PwC had a national "SPE technical specialist partner" examinatio n
I the SAC SPE transactions. Subsequently, PwC "audited" the decisions which "it had a part i n
making ." In so doing , PwC was not independent as contemplated under GAAS and was preclude d
from rendering an opinion on AMERCO 's financial statements during the Class Period. AU
§504 .09.
(4) PwC violated GAAS General Standard No. 3 that requires that due
professional care must be exercised by the auditor in the performance of the audit and the
preparation of the report . Among other things , PwC did not timely seek or obtain a required
consent of Ernst & Young ("E&Y") when it rendered its opinions on AMERCO' s annual financial
statements during the Class Period . As noted above , PwC's audit opinion dated July 12 , 2002 on
AMERCO' s 2002 financial statements stated that financial statements of SAC Holding
Corporations , as of and for the year ended March 31, 2001, " were audited by other auditors whose
report thereon has been fu rnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for SAC Holding Corporation , is based solely on the repo rt of the other auditors ."
GAAS, as provided by AU § 543, required that PwC :
(a) Obtain a representation from the other auditor [E&Y] that heis independent under the requirements of the American Institute ofCertified Public Accountants and, if appropriate, the requirements ofthe Securities and Exchange Commission (SEC) .
(b) Ascertain through communication with E&Y that :
(i) That he [E&Y] is aware that the financial statements ofthe component which he is to audit are to be includedin the financial statements on which the principalauditor [PwC] will report and that the other auditor'sreport [E&Y] thereon will be relied upon (and, whereapplicable, referred to) by the principal auditor [PwC] ;and,
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THOMAS J . HALLCOUNSELOR AT LAW
3uS S.ARLLNGTON AV ERENO, NNV 89SQ
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(ii) That a review will be made of matters affectingelimination of intercompany transactions and accountsand, if appropriate in the circumstances, the uniformityof accounting practices among the componentsincluded in the financial statements ."
In gross violation of AU § 543 and General Auditing Standard No . 3, PwC failed to comply with
the auditing standards noted above. In fact, PwC did not even seek a consent from E& Y to make
reference to E&Y' s report in PwC's audit opinion on AMERCO 's annual 2002 and 2001 financial
statements until July 22, 2003, five days after AMERCO's 2002 Form 10-K containing PwC's
opinion was fled with the SEC. On July 26, 2002, nine days after AMERCO filed its 2002 Form
10-K with the SEC, E&Y refused to consent to PwC's request . As a result, in September 2002,
I AMERCO filed an amended 2002 Form 10-K with the SEC . Such amended Form 10-K included
PwC's audit opinion dated September 24, 2002 and deleted the improper and unauthorized
I I reference to "other auditors" in the original Form 10-K :
In our opinion, the accompanying consolidated balance sheet and therelated consolidated statements of earnings, changes in stockholders'equity, comprehensive income and cash flows present fairly, in allmaterial respects, the financial position of AMERCO and itssubsidiaries, SAC Holding Corporation and its subsidiaries, and SACHolding Corporation II and its subsidiaries (collectively, the"Company") at March 31, 2002, and the results of their operationsand their cash flows for the year then ended in conformity withaccounting principles generally accepted in the United States ofAmerica. Further, in our opinion, the accompanying consolidatedbalance sheet and the related consolidated statements of earnings,changes in stockholders' equity, comprehensive income and cashflows present fairly, in all material respects, the financial position ofAMERCO and its subsidiaries and SAC Holding Corporation and itssubsidiaries at March 31, 2001 and the results of their operations andtheir cash flows for each of the two years in the period ended March31, 2001, in conformity with accounting principles generally acceptedin the United States of America. In addition, in our opinion, theFinancial Statement Schedules listed in the index appearing underItem 14(a)3 appearing on page F-1 present fairly, in all materialrespects, the information set forth therein when read in conjunctionwith the related consolidated financial statements . These financialstatements and schedules are the responsibility of the Company'smanagement ; our responsibility is to express an opinion on thesefinancial statements and schedules based on our audits . Weconducted our audits of these statements in accordance with auditingstandards generally accepted in the United States of America, whichrequire that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement . An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements ,
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THOMAS J . HALLCOUNSELOR AT LAW
3115 S.ARLINGTON AV ERENO . NV 119505
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assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation . We believe that our audits provide a reasonable basisfor our opinion .
The accompanying financial statements of the Company have beenrestated at March 31, 2001 and for each of the two years in the periodended March 31, 2001, to consolidate the financial statements of SACHolding Corporation and its subsidiaries, an affiliated entity .
Our audit was conducted for the purpose of forming an opinion on theconsolidated financial statements taken as a whole . TheConsolidating Balance Sheets and Statements of Earnings Scheduleand the Summary of Earnings of Independent Trailer Fleetsinformation included on pages F-41 through F-46 of this Form 10-Kis presented for purposes of additional analysis of the consolidatedfinancial statements rather than to present the financial position andresults of operations of the individual companies or the earnings ofthe independent fleets . Accordingly, we do not express an opinion onthe financial position, results of operations of the individualcompanies, or on the earnings of the independent trailer fleets .However, such information has been subjected to the auditingprocedures applied in the audit of the consolidated financialstatements and, in our opinion, is fairly stated in all material respectsin relation to the consolidated financial statements taken as a whole .
(5) In an apparent attempt to shield itself from liability, PwC egregiousl y
I violated AU § 561 and allowed investors to rely on its July 12, 2002 audit opinion on AMERCO' s
12002 and 2001 financial statements , even after July 16, 2002 when it learned that E&Y refused to
I allow PwC to rely on E&Y's audit of SAC Holdings Corporations' 2001 financial statements . PwC
led investors to believe that it issued a clean audit opinion in the financial statements of SA C
Holdings Corporations, which represented $520 .1 million, or more than 15%, of AMERCO's
March 31, 2001 total assets in its July 2002 Form 10-K when it did not . GAAS, in AU §561,
provides that if an auditor's report would have been affected by information known at the time o f
his report and it is likely that persons relying on the audited financial statements would attach
importance to such information then the auditor should take action to prevent future reliance on his
report and advise his client to make appropriate disclosure of the newly discovered facts and their
impact on the financial statements to persons who are known to be currently relying or who are
likely to rely on the financial statements and the related auditor's report . AU §561 provides tha t
when the effect on the financial statements of the information cannot be determined without a11 3
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THOMAS J. HALLCOUNSEL OR AT LAW
3I5 S .ARLINGTON AVERENO, NV 89505
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prolonged investigation, appropriate disclosure would consist of notification by the client to persons
who are known to be relying or who are likely to rely on the financial statements and the related
report that they should not be relied upon, and that revised financial statements and auditor's report
will be issued upon completion of an investigation . If applicable, the client should be advised to
discuss with the Securities and Exchange Commission, stock exchanges, and appropriate regulatory
agencies the disclosure to be made or other measures to be taken in the circumstances . If the client
refuses to make the disclosures specified, the auditor is required to notify each member of the Board
of Directors of such refusal and of the fact that, in the absence of disclosure by the client, the
auditor is required, among other things, to notify the regulatory agencies having jurisdiction over
the client that the auditor's report should no longer be relied upon . In gross violation of GAAS,
PwC permitted investors to rely on its July 12, 2002 audit opinion on AMERCO's 2002 and 2001
financial statements after it learned on July 16, 2002 that E&Y refused to allow PwC to rely on
E&Y's audit of SAC Holdings Corporations' 2001 financial statements . In so doing, PwC mislead
investors into believing that PwC issued a clean audit opinion on SAC Holdings Corporations
financial statements when it did not .
(6) PwC violated SAS . No 82 in that it failed to adequately consider the risk that
the financial statements of AMERCO were free from material misstatement , whether caused b y
I I errors or fraud . PwC knew or with deliberate recklessness ignored numerous events and condition s
that occurred or existed at AMERCO during the Class period , which events and conditions are
specifically identified in SAS No . 82 as being "risk factors relating to misstatements arising from
fraudulent financial reporting ." This risk factors include, but are not limited to :
• An excessive interest by management in maintaining or increasing th e
entity's stock price or earnings trend through the use of unusually aggressive accounting practices ;
• A failure by management to display and communicate an appropriat e
attitude regarding internal control and the financial reporting process ;
• Management displaying a significant disregard for regulatory
authorities ;
11 4SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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TIIOMAS J. HALLCOUNSELOR AT LAW
3 41 5 S .ARLINGTON AVERENO, NV E9 .D5
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• Management continuing to employ an ineffective accounting ,
information technology, or inte rnal auditing staff; and
• Significant related-party transactions not in the ordinary course o f
business or with related entities not audited or audited by another firm .
(7) PwC violated GAAS and the standards set forth in SAS No . 1 and SAS No .
53 by, among other things, failing to adequately plan its audit and properly supervise the work of
assistants and to establish and carry out procedures reasonably designed to search for and detect the
existence of errors and irregularities which would have a material effect upon the financial
statements . PwC knew, or with deliberate recklessness ignored , that it failed to adequately plan its
audits or supervise its staff in a manner to designed to reasonably detect the multitude of improper
accounting practices , undisclosed financial information , and related party transactions as noted
herein .
(8) GAAS Standard of Field Work No . 2 requires the auditor to make a proper
study of existing internal controls, including accounting, financial and managerial controls, to
determine whether reliance thereon was justified , and if such controls are not reliable , to expand the
nature and scope of the auditing procedures to be applied . The standard provides that a sufficient
understanding of an entity's internal control structure be obtained to adequately plan the audit and to
determine the nature , timing and extent of tests to be performed . AU § 150 .02 . In all audits, the
auditor should perform procedures to obtain a sufficient understanding of three elements of an
entity 's internal control structure : the control environment , the accounting system , and control
procedures . AU §319 .02 . The control environment , which includes management ' s integrity and
ethical values , is the foundation of inte rnal control and provides discipline , structure and sets the
tone of an organization . After obtaining an understanding of an entity's inte rnal control structure,
the auditor assesses the entity ' s control risk . AU §319 .02 . Control risk is the risk that a material
misstatement in an assertion by management contained in a company ' s financial statements will not
be prevented or detected on a timely basis by an entity's internal control structure policies or
procedures . AU §319.29 . The ultimate purpose of assessing control risk is to aid the auditor in
evaluating the risk that material misstatements exist in the financial statements . AU §319 .61 . In thl! 5
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THOMAS J. HALLCOUNSELOR AT LAW
3o 5 S .ARLINCTON AVERENO, NVt9 O5
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course of auditing AMERCO's 2001 and 2000 financial statements , PwC either knew or with
deliberate recklessness disregarded facts which evidenced that it either failed to sufficientl y
understand AMERCO's internal control structure and/or it disregarded weaknesses and deficiencies
in AMERCO's internal control structure, and failed to adequately plan its audit or expand its
auditing procedures . In fact, RepWest's President and Chairman of the Board from 1997 to 2000
testified that RepWest "constantly" experienced problems with its computers and software and that
RepWest's data processing system was "totally obsolete" and adversely "affected the ability of the
Company to do everything from daily chores, communicating with one another, to obtaining current
information ." In addition, the ADOI noted "examination of accounts and records reveale d
signi fi cant reinsurance data integrity and overall internal control problems . . . . The Company's lack
of adequate inte rnal control structure contributed to these problems and errors ." PwC was required
by GAAS to sufficiently understand AMERCO' s internal control structure to adequately plan its
audit and to determine the nature , timing and extent of tests to be performed .
(9) PwC violated Standard of Field Work No . 3, which requires sufficient
competent evidential matter to be obtained through inspection, observation, inquiries and
confirmations to afford a reasonable basis for an opinion regarding the financial statements under
audit. PwC knew or with deliberate recklessness disregarded that it did obtain sufficient competent
evidential matter concerning the myriad of material transactions the AMERCO has now admitted
overstated its pre-tax income by more than $200 million during the Class Period .
(10) PwC violated the requirements of Section I OA of the Securities Exchange
Act which requires auditors of public companies to design procedures to identify related pa rty
transactions . PwC also violated AU §334, which requires auditors to identify, examine and
determine that financial statements disclose related party transactions .
(11) PwC violated auditing standard AU §508 .41 which requires auditors to issue
a qualified or adverse opinion when an inappropriate when the financial statements (including
related footnotes ) contain inadequate disclosure . As noted above , AMERCO' s financial statements
during the Class Period improperly failed to comply with GAAP when they failed to disclose the
material contingencies and significant risks and unce rtainties noted herein .11 6
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THOMAS J. HALLCOUNSELOR AT LAW
305 S. ARLINGTON AV ERENO . NV 895M5
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350 . PwC also violated the AICPA' s Statement of Position ("SOP") 92 -4, Auditing
I Insurance Entities ' Loss Reserves , which was issued by the AICPA to supplement the AAG-PLI .
I Pursuant to SOP 92-4 :
The historical experience of an insurance entity is generally theprimary source of information on which loss reserve estimates arebased ; therefore, the creation of reliable data bases, within aninsurance company, is extremely critical to the determination of lossreserve estimates . When evaluating loss reserves, the auditor shouldconsider the reliability of the historical information generated by theinsurance company .
. . . After identifying the relevant data, the auditor should obtain anunderstanding of the controls related to the completeness, accuracy,and classification of the loss data; assess control risk for assertionsabout loss reserves ; and determine the nature, timing and extent ofsubstantive tests that will be performed for these assertions . Becauseclaim data and characteristics such as dates and type of loss cansignificantly influence reserve estimation, the auditor should test thecompleteness, accuracy, and classification of the claim loss data .
• Verify that data used by the loss reserve specialist isappropriately summarized and classified from thecompany's claims data base .
• Employ procedures for ensuring that data actually usedby the loss reserve specialist is complete and accurate .
• Verify that the Company ' s historical claims data fromits own data bases , including changes and trends in thedata is relevant, reliable and sufficient .
• Determine whether changes in the speed of thesettlement of claims may lead to assumptions that paiddevelopment levels will be lower in the future, or mayindicate changes in the company's procedures forprocessing claims that could lead to increaseddevelopment in the future .
• Determine whether there has been a change in acompany's practices and procedures relating torecording and settling claims .
• Determine whether there has been a change in acompany's underwriting practices such as new orincreased use in managing general agents .
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THOMAS J. HALLCOUNSELOR AT LAW
305 S.ARLINGTON AV ERENO , NV 19505
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• Determine whether there has been a new or changedpolicy forms or coverages .
• Evaluate whether reported (incurred) loss developmentprojection methods assume that a company'sexperience in estimating case-basis reserves will berepeated in the future .
• Determine whether new lines of business and classesof business within lines may cause other factors tobecome significant to the assumptions .
As noted herein, during the summer of 2002, the ADOI estimated AMERCO's liabilities for
already incurred deductible losses (i.e ., case-based losses) have been , at least, $50 million .
Nonetheless, AMERCO failed to record these losses in its audited financial statements after
notification by the ADOI, as PwC knew or recklessly ignored .
351 . PwC's opinions, which represented that AMERCO's annual 1998, 1999, 2000, 200 1
and 2002 financial statements were presented in conformity with GAAP, were materially false and
misleading because PwC knew or with deliberate recklessness disregarded that such financial
statements violated countless principles of fair reporting and GAAP. In the course of rendering its
unqualified audit certification on AMERCO's annual 1998, 1999, 2000, 2001 and 2002 financial
statements, PwC knew it was required to adhere to each of the herein described standards and
principles of GAAS, including the requirement that the financial statements comply in all material
respects with GAAP . PwC, in issuing its unqualified opinion, knew or with deliberate recklessness
disregarded that by doing so it was engaging in gross departures from GAAS in numerous respects,
thus making its opinions false, and issued such certification knowing or recklessly disregarding that
GAAS had been violated .
352 . As a result of its failure to accurately report on AMERCO' s annual 1998, 1999 ,
2000, 2001 and 2002 financial statements , PwC utterly failed in its role as an auditor as defined b y
the SEC . SEC Accounting Series Release No . 296 , Relationships Between Registrants an d
Independent Accountants, Securities Act Release No . 6341, Exchange Act Release No . 18044 ,
states in part :
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THOMAS J. HALLCOUNSELOR AT LAW
305 5.ARLINGTON AV ERENO, NV 89'0S -
1 Moreover, the capital formation process depends in large part on theconfidence of investors in financial reporting . An investor' s
2 willingness to commit his capital to an impersonal market isdependent on the availability of accurate, material and timely
3 information regarding the corporations in which he has invested orproposes to invest. The quality of information disseminated in the
4 securities markets and the continuing conviction of individualinvestors that such information is reliable are thus key to th e
5 formation and effective allocation of capital . Accordingly, the auditfunction must be meaningfully performed and the accountants '
6 independence not compromised. The auditor must be free to decidequestions against his client's interests if his independent professional
7 judgment compels that result . [Emphasis added . ]
8 L. CONTROL PERSON LIABILIT Y
9 353. Individual Defendants are liable as direct participants in, and co-conspirators with
10 respect to the wrongs complained of herein . In addition, the Individual Defendants, by reason of
11 their positions with AMERCO, and/or ownership of AMERCO securities, were controlling persons
12 of the Company and had the power and influence, and exercised the same, to cause AMERCO to
13 engage in the conduct complained of herein . They controlled AMERCO's public dissemination of
14 false and misleading information during the Class Period .
15 M . ADDITIONAL SCIENTER FOR COUNT IV ONL Y
16 354. The Individual Defendants knew of or recklessly disregarded adverse, non-public
17 information about AMERCO's business and operations as well as its finances and present an d
18 future business prospects . Their executive positions provided them with access to internal corporate
19 documents and information, and allowed them to have conversations and meetings with othe r
20 corporate officers and employees . The Individual Defendants attended management and/or Board
21 of Directors' meetings and committees thereof, and received internal reports and other information
22 in connection therewith .
23 355 . Defendants caused the artificial inflation of the price of AMERCO stock by, inter
24 alia, issuing materially false and misleading financial statements to the public . These statements
25 and documents portrayed a false picture of AMERCO's business and operations and misrepresented
26 and/or failed to disclose material, adverse facts concerning AMERCO's management, businesses,
27 revenues, earnings, financial condition and future prospects .
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THOMAS J. HALLCOUNSELOR AT LAW
3 l15 S .ARLINGTON AVERENO. NV "96
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356 . Defendants' false representations and material omissions were made with scienter in
I that: defendants knew, or with deliberate recklessness disregarded that the Class Period SEC f l i
were materially false and misleading as described above ; knew or were deliberately reckless in not
knowing that the false financial results would be issued or disseminated to the investing public ; and
knowingly and substantially participated in the preparation and/or issuance or dissemination of suc h
I statements or documents . The following demonstrates that defendants made the misrepresentation s
knowingly or with a deliberately reckless disregard for the truth :
(a) AMERCO' s restated finances , as reported in the Restatement Form 10-K and the
Amended 2002 Form 10-K, were material to the Company's finances as a whole and of such a
considerable magnitude that the misleading and false accounting was almost certainly the result of
deliberate action and not the result of innocent error . The Company's 2002 net income, 2001 net
income, and beginning retained earnings were adjusted by $50 .2 million, $43 .1 million, and $17 .2
million, respectively, after tax as a result of the following restatement adjustments : (a) To accrue for
fully-developed actuarial estimates of the Company's insurance reserves ; (b) To recognized equity-
method losses relating to the Company's investments in PMSR; (c)To write-down unamortized
capitalized G&A Costs ; (d) To adjust property tax under-accruals ; (e) To correct net depreciation
expense and gains and losses on the disposition of fixed assets ; (f) To record changes in the cash
surrender value of life insurance in the proper periods ; (g) To record impairment of real estate in the
proper periods; (h) Other miscellaneous adjustments ; and (i) To record the income tax effects of the
restatement adjustments .
(b) Companies are required to restate their financial results in the event reporte d
financial results are materially false and the Company had access to correct financial information at
the time of filing. Therefore, because AMERCO restated its financial results, the Company is
admitting its initial financial results were materially false and not the result of an error in estimation
or judgment and that the Company had access to correct financial information at the time of filing ;
(c) Defendants Edward Shoen , James Shoen , Mark Shoen , Gary Horton, Richard
Herrera and Richard M . Amoroso were at all relevant times senior executives within AMERCO an d
by their senior position had access to information conce rning AMERCO' s business and finances;120
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
3155 S .ARLINGTON AV ERENO . NV 89MS
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(d) Defendants Mark Shoen partly owned and controlled the SAC SPEs and a s
such personally profited from the transactions between the SAC SPEs and AMERCO .
(e) Defendant Richard M. Amoroso admitted under oath that RepWest' s
insurance reserves during 1997 to 1999 were "grossly under reserved" and that "based on the fac t
{ that from 1997 to 1999 there was a reserve adjustment for commutation fund of $17 .8 million that
was taken through earnings . I believe it was not the appropriate thing to do ." Further, Amoroso
acknowledged that if the required reserve adjustments had been recorded "you would find that the
company [RepWest] overall wasn't profitable ." The accounting improprieties acknowledged by
Amoroso did not stop there as he further admitted :
Q. In what line of business were there reserve deficiencies thatexisted that were corrected under your tenure?
A. Excess Worker's Comp. was one . The U-Haul business autoand general liability was another. During my entire tenure, thetransportation TIS trucking program was unreserved . Nonstandardauto was under reserved. Assumed reinsurance was grossly underreserved . It may have been others . There were probably some othersmaller programs I don't' recall .
357. In addition , during the Class Period prior to the disclosure of the adverse facts
alleged herein, defendants issued $200 million of publicly traded 8 .8% Senior Notes for sale to th e
public .
358 . The purpose, effect and motive of defendants' actions were to, inter alia : (a) decei
the investing public, including Plaintiffs and members of the Class ; (b) artificially inflate and
maintain the market price of AMERCO securities during the Class Period ; (c) cause Plaintiffs and
members of the Class to purchase AMERCO securities at artificially inflated prices during the Clas s
Period; and (d) personally benefit certain AMERCO insiders .
359. Each Individual Defendant was a direct, necessary and substantial participant in th e
scheme and common course of conduct complained of herein .
360. The magnitude and pervasiveness of AMERCO' s restatement adjustments , including
the fact that AMERCO Defendants were the principals in the SAC and PMSR transactions, that
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
305 S.ARLINGTON AV ERENO, NV SMS
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defendant Gary B . Horton signed AMERCO' s SEC filings as the Principal Financial and
Accounting Officer, defendant Edward Shoen signed AMERCO's SEC filings with knowledge of
the related party nature of these transactions , and the obvious nature of the related pa rty transactions
and proper accounting therefore all demonstrate that defendants acted with scienter . In fact, in
AMERCO's Verified Complaint in the AMERCO vs. PwC Action, AMERCO acknowledges that :
(1) "It should have been obvious to PWC and its involved partners in at least February 200 2
that consolidation of the SAC entities would impact AMERCO' s earnings . It is obvious that SAC
had operational activity outside of AMERCO in the form of third party debt and associated interest
charges and depreciation of property and equipment," an d
(2) "Despite the fact that the SAC Shareholder, a major stockholder and officer o f
AMERCO, held the voting common stock of the original SAC entities as well as SAC Holding,
PwC reported, pursuant to audits conducted by defendant Hulse, that the SAC entities qualified
under GAAP for exclusion from the AMERCO financial statements . This was clearly an error and
not in compliance with GAAP." If these errors should have been "obvious" to their outside audit
firm, as AMERCO acknowledges, then AMERCO Defendants' level of knowledge can only be the
same or more, since they were the direct beneficiaries of, participants in, and architects of the SPEs .
The AMERCO Defendants have the responsibility for the Company's financial reports including,
but not limited to, (a) that the financial statements present in all material respects the financial
condition and results of operations of the issuer; (b) the establishment and maintenance of an
adequate system of internal controls ; (c) the accounting principles selected have general acceptance
and are appropriate in the circumstances ; (d) the financial statements are informative of matters that
may affect their use, understanding and interpretation, and that the financial statements reflect the
underlying transactions and events based on their economic substance . (Foreign Corrupt Practices
Act; Sarbanes-Oxley Act of 2002, Section 302 ; Statement on Auditing Standards ("SAS") No . 69 ;
Committee of Sponsoring Organizations of the Treadway Commission - Internal Control -
Integrated Framework ; SAS No. 1) .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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THOMAS J . HALLCOUNSELOR AT LAW
305 S .ARLIN G TON AVERENO, NV 80505
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N. APPLICABILITY OF PRESUMPTION OF RELIANCE : FRA UD-ON-THE-MARKET DOCTRIN E
361 . At all relevant times, the market for AMERCO securities was an efficient market fo r
the following reasons , among others :
a. AMERCO securities met the requirements for public listing , and were listed
and actively traded on the Nasdaq, a highly efficient market ;
b . As a regulated issuer , AMERCO filed periodic public reports with the SEC ;
c. AMERCO stock was followed by securities analysts and news reporters who
wrote reports which were publicly available and entered the public marketplace . AMERC O
regularly issued press releases which were carried by national news wires . Each of these releases
was publicly available and entered the public marketplace .
362 . As a result , the market for AMERCO securities promptly digested curren t
information with respect to AMERCO from all publicly available sources and reflected such
information in AMERCO stock price . Under these circumstances, all purchasers of AMERCO
securities during the Class Period suffered similar injury through their purchase of stock at
artificially inflated prices and a presumption of reliance applies .
0. NO SAFE HARBO R
363 . The statutory safe harbor provided for forward-looking statements under certai n
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint .
The vast majority of the specific statements pleaded herein were not "forward-looking statements"
but were "hard" statements . To the extent that the statutory safe harbor does apply to any forward-
looking statements pleaded herein, defendants are liable for those false forward-looking statement
because at the time each of those forward-looking statements were made the particular speaker
knew that the particular forward-looking statement was false, and/or the forward-looking statement
was authorized and/or approved by an executive officer of AMERCO who knew that those
statements were false when made .
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SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
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THOMAS J . HALLCOUNSELOR AT LAW
J0 S.ARLINGTON AVERENO, NV MAX;
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CLASS ACTION ALLEGATION S
364 . Plaintiffs bring this action on their behalf and as a class action pursuant to Rul e
23(b)(3) of the Federal Rules of Civil Procedure, on behalf of a class consisting of all persons and
entities (other than defendants and the members of their immediately families, their heirs,
successors and assigns) who purchased or acquired AMERCO securities during the period between
February 12, 1998 and September 26, 2002, inclusive .
365 . Members of the Class are so numerous that joinder of all members is impracticable .
366. While the exact number of Class members is unknown to plaintiffs at this time an d
can only be ascertained through appropriate discovery, plaintiffs believe that there are hundreds, i f
not thousands , of Class members who purchased AMERCO securities in the open market at
artificially inflated prices during the Class Period .
367 . Plaintiffs' claims are typical of the claims of the other members of the Class .
Plaintiffs and the other members of the Class have sustained damages because of defendants'
unlawful activities alleged herein . Plaintiffs have retained counsel competent and experienced in
class and securities litigation and intends to prosecute this action vigorously . The interests of the
Class will be fairly and adequately protected by plaintiffs . Plaintiffs have no interests which are
contrary to or in conflict with those of the Class which plaintiffs seek to represent .
368 . A class action is superior to all other available methods for the fair and efficien t
adjudication of this controversy . Plaintiffs know of no difficulty to be encountered in the
management of this action that would preclude its maintenance as a class action .
369 . 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 defendants violated the federal securities laws ;
(b) whether defendants participated in and pursued the common course o f
conduct complained of herein ;
(c) whether documents , filings, releases and financial statements disseminated to
the investing public omitted and/or misrepresented material facts about AMERCO;124
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THOMAS J . HALLCOUNSELOR AT LAW
305 SARLINGTON AVERENO . N V 99SOS
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(d) whether the market price of AMERCO securities were artificially inflate d
throughout the Class Period due to the nondisclosures and/or misrepresentations complained o f
herein;
(e) whether defendants acted knowingly, willfully or recklessly in omitting to
state and/or misrepresenting material facts ; and
(f) whether the members of the Class have sustained damages as a result of
defendants' misconduct and, if so, the proper measure of such damages.
COUNT IV
(Against All Defendants For Violations Of § 10(b)Of The Exchange Act And Rules 10b-5(b) and ( a) and (c))
370 . Plaintiffs repeat and reallege each and every allegation contained in the abov e
paragraphs , as if fully set fo rth herein , except for paragraphs 25, 34, 50, and 58 .
371 . This claim is asserted against all defendants . The allegations regarding the note
offering are incorporated herein, except as to defendants U-Haul, RepWest , Mark Shoen, an d
Amoroso .
372 . Defendants carried out a plan, scheme and course of conduct which was intended t o
and did : (a) deceive the investing public, including plaintiffs and other Class members, as alleged
herein ; (b) artificially inflate and maintain the market price of AMERCO securities ; and (c) cause
members of the Class to acquire AMERCO securities at artificially inflated prices . In furtherance
of this unlawful scheme, plan and course of conduct, defendants took the actions set forth herein .
373 . Defendants (a) employed devices , schemes , and artifices to defraud; (b) made untrue
statements of material fact and/or omitted to state material facts necessary to make the statements
made not misleading; and (c) engaged in acts, practices and a course of business which operated as
a fraud and deceit upon the acquirers of AMERCO securities in an effort to maintain artificially
high market prices for AMERCO securities in violation of Section 10(b) of the Exchange Act and
Rule IOb-5 .
374. In addition to the duties of full disclosure imposed on defendants as a result of thei r
making of affirmative statements and reports, or participation in the making of affirmative125
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THOMAS J . HALLCOUNSELOR AT LAW
3a'; S .ARLINCTON AV ERENO . NV 69415
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statements and reports to the investing public, defendants had a duty to promptly disseminate
truthful information that would be material to investors in compliance with the integrated disclosure
provisions of the SEC as embodied in SEC Regulation S-X (17 C .F .R. §210 .01 et seq.) and S-K (17
C.F .R. §229 .10 et seq .) and other SEC regulations, including accurate and truthful information with
respect to the Company's operations and performance so that the market prices of the Company's
publicly traded securities would be based on truthful, complete and accurate information .
375 . Defendants, directly and indirectly, by the use of means and instrumentalities of
interstate commerce and/or of the mails , engaged and participated in a continuous course of conduct
to conceal adverse, material information about the Company's financial results, business, operations
and future outlook as specified herein. Defendants employed devices, schemes and artifices t o
defraud, while in possession of material, adverse, non-public information and engaged in acts,
practices and a course of conduct as alleged herein in an effort to assure open market purchasers of
AMERCO securities concerning the value of AMERCO, which included the making of, or the
participation in the making of, untrue statements of material facts and omitting to state material
facts necessary in order to make the statements made about the Company's business operations in
the light of the circumstances under which they were made, not misleading, as set forth more
particularly herein, and engaged in transactions, practices and a course of business which operated
as a fraud and deceit upon the market for AMERCO securities .
376. Defendants had actual knowledge of the misrepresentations and omissions of
material facts set forth herein, or acted with a deliberately reckless disregard for the truth in tha t
they failed to ascertain and to disclose such facts, even though such facts were available to them .
377 . As a result of the dissemination of the materially false and misleading informatio n
and failure to disclose material facts, as set forth above, the market price of AMERCO securities
was artificially inflated throughout the Class Period . In ignorance of the fact that the market price
of AMERCO securities were artificially inflated, and relying directly or indirectly on the false and
misleading statements made by defendants, or upon the integrity of the market in which the
securities trade, and the truth of any representations made to appropriate agencies and to the
investing public, at the times at which any statements were made, and/or on the absence of materia l126
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
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TI10MAS J . HALLCOI NSELORAT LAW
305 S .ARLIVGTON AV ERENO , NV 84'O5
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adverse information that was known or with deliberate recklessness disregarded by defendants bu t
not disclosed in public statements by defendants, plaintiffs and the other members of the clas s
purchased or acquired AMERCO securities at artificially high prices and were damaged thereby .
378 . At the time of said misrepresentations and omissions, plaintiffs and the othe r
members of the class were ignorant of their falsity, and believed them to be true . Had plaintiffs and
the other members of the class and the marketplace known of the true nature of the operations of the
Company and the noncompliance with federal law, which were not disclosed by defendants ,
plaintiffs and the other members of the class would not have purchased or acquired their AMERCO
securities or, if they had purchased or acquired such securities, they would not have done so at th e
artificially inflated prices which they paid .
379 . By virtue of the foregoing, defendants have violated Section 10(b) of the Exchang e
Act, and Rules lOb-5(b), (a) and (c) promulgated thereunder .
380 . As a direct and proximate result of defendants' wrongful conduct, plaintiffs and th e
other members of the class suffered damages in connection with their acquisition of AMERCO
securities.
COUNT V
(Against The Individual Defendants For ViolationOf Section 20(a) Of The Exchange Act)
381 . Plaintiffs repeat and reallege each and every allegation contained in the abov e
paragraphs , as if fully set forth herein except for paragraphs 25, 34, 50, and 58 .
382 . This claim is asserted against each of the Individual Defendants .
383 . The Individual Defendants acted as controlling persons of AMERCO within th e
meaning of Section 20(a) of the Exchange Act as alleged herein . They controlled the content an d
dissemination of the various statements which Plaintiffs contends are false and misleading.
384 . As set forth above, AMERCO violated Section 10(b) and Rule I Ob-5 by its acts and
omissions as alleged in this Complaint . By virtue of their positions as controlling persons o f
AMERCO, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act . As
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THOMAS J . HALLCOUNSELOR AT LAW
30S S .ARLINGTON AV ERENO , NV 89S~
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a direct and proximate result of their wrongful conduct plaintiffs and the other members of the class
suffered damages in connection with their acquisition of AMERCO securities .
V. PRAYER FOR RELIEF
(a) Determining that this action is a proper class action, and certifying plaintiffs as class
representatives under Rule 23 of the Federal Rules of Civil Procedure ;
(b) Awarding compensatory damages in favor of plaintiffs and the other Class members
against all defendants for all damages sustained as a result of defendants' wrongdoing, in an amoun
to be proven at trial, including interest thereon ;
(c) Awarding plaintiffs and the Class their reasonable costs and expenses incurred in thi
Action, including counsel fees and expert fees ; and
(d) Such other and further relief as the Court may deem just and proper .
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28THOMAS J. HALL
ATTORNEY ANDDUNSELOR AT LAWSOUTH ARLINGTON
AVENUE
Plaintiffs demand a trial by jury .
DATED : July 30, 2004
By:
JURY DEMAND
Thomas J . Hall (N # 0675 )LAW OFFICES OF THOMAS J. HALL305 South Arlington Avenu ePost Office Box 3948Reno , Nevada 89505Telephone: 775-348-7011Facsimile : 775-348-721 1
Plaintiffs' Liaison Counse l
Laurence D . KingKAPLAN FOX & KILSHEIMER LLP555 Montgomery Street , Suite 1501San Francisco , California 94111Telephone: 415-772-4700Facsimile : 415-772-470 7
Frederic S . FoxChristine M . FoxJeffrey P. CampisiKAPLAN FOX & KILSHEIMER LLP805 Third Avenue, 22''d FloorNew York, New York 10022Telephone : 212-687-1980Facsimile : 212-687-771 4
Samuel H . RudmanRussell J . GunyanGELLER RUDMAN PLLC200 Broadhollow Road , Suite 406Melville, New York 11747Telephone : 631-367-7100Facsimi le : 631-367-117 3
Plaintiffs ' Co-Lead Counse l
Lynda J. GrantGOODKIND LABATON RUDOFF& SUCHAROW LLP100 Park AvenueNew York , NY 10017-5563Telephone: 212-907-0700Facsimile : 212-818-047 7
Attorney for Plaintiffs
SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAW
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CERTIFICATE OF SERVICE
I certify that I am an employee of the Law Offices of Thomas J . Hall, and that pursuant toFRCVP 4, I did place in the U .S . Mail , postage prepaid , a true and correct copy of the SecondAmended Consolidated Class Action Complaint for Violations of the Federal Securities law,addressed to the following :
LAXALT & NOMURA, LTD .Daniel Hayward, Esq .50 West Liberty Street, Suite 700Reno, Nevada 8950 1Telephone : 775-322-1170
MARSHALL HILL CASSAS & deLIPKAURew R . Goodenow, Esq .333 Holcomb Avenue, Suite 300Reno, Nevada 89505-279 0
MCDONALD CARANO WILSON, LLP .Pat Lundvall, Esq .241 Ridge StreetReno , Nevada 8950 1
LAW OFFICES OF WAYNE A. SHAFFERWayne A . Shaffer, Esq .419 Flint StreetReno , Nevada 8950 1
HALE LANE PEEK DENNISON & HOWARDTimothy A . Lukas, Esq .5441 Kietzke Lane, Suite 200Reno, Nevada 8950 1
Additionally, I did send a true and correct copy of the Second Amended Consolidated ClassAction Complaint for Violations of the Federal Securities law via Federal Express addressed tothe following :
MARISCAL, WEEKS, McINTYRE & FREIDLANDER, P .A.Gary 1 . Birnbaum, Esq.Russell Piccoli, Esq .2901 North Central Avenue, Suite 200Phoenix, AZ 85012
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IRELL & MANELLA, LLPDavid Siegel, Esq .Daniel P. Lefler, Esq .1800 Avenue of the Stars, Suite 900Los Angeles, California 90067
MORRISON & FOERSTER, LLPJack W. Londen, Esq .Lawrence R. Katzin, Esq .425 Market StreetSan Francisco, California 9410 5
PILLSBURY WINTHROP, LLPWalter J . Robinson, Esq .Theodore K. Bell, Esq.2475 Hanover StreetPalo Alto, California 94304-11 4
O'MELVENY & MEYERS, LLPRobert C . Vanderet, Esq .Linda J . Smith, Esq.James M. Pearl400 South Hope Stree tLos Angeles, California 90071-289 9
DATED July 30, 2004 Laura eters
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