`'z'I'• UNITED STATES DISTRICT COURT

':SOUTHERN DISTRICT OF NEW YORK

^•:.. ..:':,r•- i-;v t^ SET:'

andf!yy' f e,,bAvID' PECARSKY OVERALL SUPPLY,

-.': INCORPORATED, On Behalf of'Themselves and All Others SimilarlySituated,

Civil 'Action No

Plaintiffs (RPP),

v.s

JACK BANKS, aka JACQIJES BENQUESUS

LARRY WELTMAN • and GAMING LOTTERY

CORPORATION,Defendants x

MOVANTS ' MEMORANDUM OF LAW IN SUPPORT OF THEIR

MOTION TO BE APPOINTED-LEAD PLAINTIFFS AND FOR.

THE APPOINTMENT OF PLAINTIFFS '.-CO'-LEAD COUNSEL '

MILBERG WEISS BERSHAD HYNES

& LERACHLLPOne Pennsylvania: PlazaNew York,.. New York '.10119 = 016 5 • `••(212) 594-53.0.0

WOLF ' POPPER :.ROSS WOLF .& JONES , LLP.

845 `Third Avenue

New York, NY. 10.022

(212) 759-4600

LOWEY, DANNENBERG, BEMPORAD &SELINGER , - P .,C . .

The GatewayOne North Lexington AvenueWhite Plains,' NY 10601

(914) .'997-0. 500

Attorneys for Movants and Plaintiffs

f .^

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VT441"It ,w

TABLE OF CONTENTS

RiY •:" Pfijf'FS^'tr^. .l: .'Y • . P age

TABLE OF AUTHORITIES

PRELIM INARY STATEMENT 2

I. INTRODUCTION ........... ...... .............:....2

NATURE OF-THE-ACTION ... ..... .. ...:........ 3

ARGUMENT ......... ........... .. .............. 4

I.:i PROPOSED LEAD PLAINTIFFS SHOULD-.BE APPOINTED-.

LEAD PLAINTIFF ...... ..: 4

A. The Procedure Required By The PrivateSecurities Litigation Reform'Actof 1995. 4

;'.'.: -;'... '... B. Plaintiffs Satisfy The "Lead Plaintiff": -Requirements' Of The Act

1. Proposed Lead Plaintiffs Have CompliedWith The Act And Are Entitled To BeAppointed Lead Plaintiffs ..................... -7

2. The Proposed Lead Plaintiffs.-HaveThe Requisite Financial -InterestIn The Relief Sought By The Class 8

3. Proposed Lead Plairitiffs •.Otherwise Satisfy Rule 23 :. ........ .8

'• `''-;' .; :`: = '." C. Counsel Selected By the .Proposed LeadPlaintiffs Is Extensively Experienced

y;:°_ ,,; ;' ;:. ;'• And Should Be Appointed: As Lead Plaintiffs'.{? ,'.=:{ ^,•.'i,.,,

Lead Counsel ...... .. ............ 10

;CONCLUSION ................... ............... .... : .•'1

thy.:; •F {•.. a,

Its •.-

,... `

}` f : -

`

s:"[

•''. }. TABLE OF AUTHORITIES'

CASES

In re Crazy Eddie Sec. Litia .

135 F.R.D. 39, 40-41 .(E.D.N, Y. 1991). . . . . . . . . _ . . 9

In re Drexel Burnham Lambert-Group, Inc'.960 F.2d 285, 291 (2d Cir. 1992).. 9

ora-,Bilt' Corn. v. Chase Manhattan Corp89 F.R.D. 87 (S.D.N.Y. 1981). 9

Genden v. Merrill Lynch, Pierce, Fenner & Smith, Inc. ,114 F.R.D. 48, 53 (S.D.N.Y. 1987) 10'

`' Gerber v. Computer Assoc. Int'1; Inc.':

[Current Transfer Binder] Fed. Sec. L:, Rep.

(CCH) 98,722 9'.

' '' 't '•Inc . et al . ,et al. v. FTP Software .Greebel96 Civ. 10544 (D. Mass. August 1S,...1996) . . . , . . . . . .6 . .

STATUTES

Private 'Securities Litigation Reform Act 'of 1995

§21D . . . . . . .•'7

Sections 10.(b) and 20 (a) • of the. Securities . ExchangeAct of 1934 . . . . . . . . ... . . . . .. . . .. . . . . 2

'.`' - .in.;.:y jai • .....

00.. -. 1 .la irt:f,,l

PREL IMINARY STATEMENT

Plaintiffs David Pecarsky and Overall Supply, tic . and

movants Jason Shannon, Joseph Shannon, Joel Bowen, Kevin S.

t,;5 r "''Malakouti, Michael Giamboi, Charles Young, Richard W. Cohen and14

:.;:.-Chad Niegel, respectfully submit 'this 'memorandum of law in;

....support of their motion for appointment to serve as lead.

plaintiffs-in these securities' class action lawsuits.

(collectively, the "proposed Lead Plaintiffs!' or the "Gaming

Lottery Plaintiffs Group"), pursuant to §'21D(a) (3) (B) of the

Securities Exchange Act of 1934 (."Exchange Act") , as ainende^! by

the Private Securities Litigation Reform •Act. of 1995 (the ct.")

'•• . to approve their selection of :Milb.ergWeiss. Bershad. ones &and

:`Lerach LLP; Wolf Popper Ross Wolf &• Jones,' LLP; and Lowey,

Dannenberg,. Bemporad & Selinger,. P. C., as-Co-Lead Counsel JUL the

'' proposed putative Class.

INTRODUCTION ...

Pending before this Court is a securities frati. class

action-against the Gaining Lottery Corporation ( "Gaming'-Lo tte:Ly

n

"

or the "Compay") and certain of its directors and officers. ]'he.

:instant lawsuit alleges that the defendants violated Sections

10(b) and 20(a) of the SecuritiesExchange.Act of 1934 '(the

'.'Exchange Act"), as well as Rule ' 10b-'5. promulgated the]- 10er by

the Securities and.Exchange Commission the "SEC") The

plaintiffs in two other related securities, fraud 'class actions,

( G•iamboi, et a l. v. Bank s, et al. , No. .96-0924D, filed June 13,

1996; and Cohen, et al. v. Banks, et al. ;. No. 96-1043,..'f.iled July

az2

r ^"`,'=.• 8, 19.96) , pending in the Western District of-Washington, have

'`.:.•- :, '. stipulated to the transfer of these actions to.this Court and

be moving for consolidated. proceedings herewith. Pla'i.rit:iffs

in those actions join in' this application for appointment as lead

plaintiffs pursuant to the provisions, of the Act.

Collectively, the proposed : lead plaintiffs pure)^iLed

more than 25,000 shares of Gaming:-Lottery common stock' during the

Class Period (as defined below)".. The Group collectively suffe.red

estimated recoverable losses exceeding' $1.77,000 as a ru:Li- o

tt'' the alleged fraudulent conduct of defendants. As discussed

below, the proposed bead Plaintiffs have satisfied t.h e

requirements of the Act and, therefore, should be appointed as

lead plaintiffs in these actions: In.addition, the pro se-1. Lead

;.Plaintiffs seek the appointment of their attorneys to s"i:ve as

co-lead counsel for the class subject to. the Court's approv,_I:L

NATURE OF THE ACTION I.

This is a securities fraud class action on behalf of

all persons and entities who:•purchase.d-the common stocl,,:

'defendant Gaming Lottery between February 1, 1995 and May 23,

1996 (the "Class Period") Named as defendants are Gaming

.:Lottery Corporation, Jack. Banks and Larry Weitman. Gaming

Lottery.is a company that manufactures--and supplies products t.o

the lottery,' parimutuel, bingo.:..and `charitable gaining ma _ is ..

'The following description" of the -nature of the action''represents a summary of allegations made in the Pecarsky complaintfiled with this Court.

L, .. .3. <^ .t, ►

lam' ..

The Company and its subsidiaries operate from four' plan in the

M1'.:

.... United States and one plant in Canada..'

Plaintiffs' claims herein arise from an allegedly

.,'':' fraudulent scheme and course of business devised by defendants

that defrauded purchasers of-Gaming.Lottery common stock-through

defendants' 'false and misleading, statements about the C. -)any,

its businesses, and'its future prospects. Plaintiffs have

alleged that throughout the Class Period, Gaming Lottery taa.sely

announced that it had completed certain acquisitions -- n^)jne:.ly-

' Qne with Specialty Manufacturing:'-=. when' it had not done so 'acid

when the defendants knew that the - required approval. for "!ich

acquisition was not -likely.

Moreover, defendants issued financial. statements Whichch

reported revenue on a consolidated-basis from all its alleged

". . ' subsidiaries, inc:ludi:ng Specialty 'Manufacturing and Pririt i n,_:j

: Associates. . Since the acquisition ..of Specialty Manufacturing had

,.• .: ,.. not been completed, reporting its revenue'.-and-earnings on ,a

consolidated basis 'with the Company was a. violation of •'Gerie'l-ally

Accepted Accounting Principles ("GAAP".) As a result,. the

'Company's publicly reported financial statements were mate>>--iaJ.ly

"' :.overstated throughout.the Class. 'Pe'riod. The Company also made

<:= projections regarding the increase in' value of the Co

m

p

,

q;j.. s

ock • and its growth, which were at l'east reckless when made,

given the defendants' knowledge that the-Specialty Manufacturing

acquisition was not completed. These projections were also made

without any reasonable basis' to'.' believe that the relevant gaming

,.,^ ,.:.. officials would continue to be:;;deceived .about defendant failure-•"

4

^• 'a11^

-;-`:to, obtain approval to ac uire and oPerate SP.cialt.q e y

Manufacturing, and that additional acquisitions would :be ..ap' roved '

:and/or at least not revoked once officials learned the ith.

;......'.:.. about Gaming Lottery's falsification of its.li.censing

applications. As a result of the foregoing, it is claimed that

the common stock. of Gaming Lottery was. artificially infaVe(1 in

value at all relevant times and that class member purchaser; c) L

those shares. were injured thereby:..

ARGUMENT

I'. PROPOSED LEAD PLAINTIFF' S SHOULD BE APPOINTED LEAD PLAINTIFF

A The Procedure Required By The Private SecuritiesLitigation Reform Act of 1995

On December 22, :1995; %'Congress enacted the Pr•ivat:'

Securities Litigation Reform-, ct...of .1995. The Act has

:.,,".:,::. •:':.., ,:, established a procedure which governs the appointment ofa Lead

Plaintiff in "each action arising under the. Exchan e Act] thatwtr.i, y

is brought as a plaintiff class action pursuant to the Federal

Rules' of Civil Procedure." §§21D (a). (1). and 21D (a) (3) (E) , 1:5

U S,C. § 78u-4 (a) (1) and (a) (3).(B) (i) (We.st 1996)

First, the plaintiff" who -files the. initial action must

publish a notice to the class, • within 20 days of filing the

action, informing class members of their right to file a mol:ior.n

nfor appointmet as ead plaintiff. §21D.(a) (3) (A) (i) , 15 TJ.SC.

- . § 78u-4(a)(3) (A) (i) Plaintiffs Pecarsky. and Overall Supply,

. ^I.nc : ("Overall'') caused the notice to-be published on ;7n-i. y- 26,

1.996. See Mirs%y Aff. at Ex. B. Within .60 days after-.

.publication of that notice, any person or r.oupof persons who

5:' .

.•.

•11^ ; aremembers of the proposed class may" apply to the court o be

as Lead Plaintiff, whether or not they have previously

s r1•!filed a complaint in the action. §21D(a). (3)-(A) and (B), 15

U.'s.C. § 78u-4 (a) (3) (A) and (B)

.: ..: Second, the Act provides that within 90 days after

publication ofthe notice, the:.Court. shall consider any 'Lion

made by a class member and shall appoint as' Lead Plain.t.:iris the

member or members of the class that the court determines to be

most capable of adequately representing the interests of <:l%^s4

.members.. §21D(a) (3) (B) , 15 U.,S.C. § 78u-.4(a) (3) (B) In

determining the "most adequate , plaintiff , " the Act• prow s :

[T]he court shall adopt a presumption that the most adequate,:_^:: :•::' . ' :: plaintiff in any private action, arising under this it1CC -s

the person or group of persons that --

(aa) has either filed -the complaint or made a mo ic;nin response. to a notice. .

(bb) in. the determination-of the court, has the larcE^stfinancial interest in . the :relief 'sought by the (::lass;and

(cc) otherwise satisfies the .requirements of Rule 23of the. Federal Rules-of Civil Procedure.

§§21D(a) (3)(B) (iii), 15 U.S.C. § '78u-:4 (a) ,(3) (B) (iii) See

generally GieebeJ- et al. v. FTP.S'oftware'' Inc. et al. , 96 Civ.

10544 (D. Mass. August 15, 1990 (Attached hereto as_ Exhibit A)

6

pgga.

6 = •B. Plaintiffs Satisfy The "Lead Plaintiff" Requirements

Of The Act

1. Proposed Lead Plaintiffs Have Complied With TheAct And Are Entitled . To Be . Appointed LeaPlaintiffs

Plaintiffs Pecarslc and Overall filed the coin:] paint in

.this action, timely published-the required. notice', and have now

'moved this Court, with the other proposed -Lead plaintiff_;_; - all

of whom are class members - -to be appointed. as a group of ].lead

".: ^ Plaintif f s in, this case. The-time period in which' clan iembers

may move to be appointed Lead Plaintiffs ends on Septeinbe:r 2 4 ,

1996. To the best of the proposed Lead Plaintiff-s' knowledcle, no

other class member has filed a competing application to be

.appointed Lead Plaintiff. Accordingly, the Gaming Lottery

.....-......-Plaintiffs have met the requirement's, of . §21D.(a) .(3) -(B) , U . S, C.

78u-4 (a) (3) (B), and are entitled.to'represent the proposed

class in this action.

The members of the Gaming Lottery Group are quali7: i cif

to represent the class. Plaintiffs . Pecarsky. and Overall have-

:signed and filed their' respective: certifications-stating that-

each has reviewed the Complaint •n .this action, has authu.ted

its filing and is willing to serve as a representative-pas=t on

behalf of the class. The other..proposed Lead Plaintiffs also ar---:

willing to serve as representative parties on behalf of the.

class. In addition, the members of. the Gaming Lottery Group have

.:..selected and retained competent'' and. experienced -counsel t o

represent them and have also executed appropriate cert fi•cations :'.

in.- this case or in the related federal proceedings in the

7

yti- kiM ^ {1^iiIt:K4-k •...

;ry Washington District Court, copies.of which are attached to the

irsky, Affidavit at Exhibit D:` Therefore., this Court s'izld

appoint the members of the Gaming Lottery Group, movants.herein,

r :*r,;:, ,• as Lead Plaintiffs in accordance with §21D(a) (3) (B) -' 15 U . S . C.

78u-4(a)(3)(9).

2. The Proposed Lead . Plaintiffs Have The RequisiteFinancial Interest . In The .'Relief Sought By TheClass

During the proposed Class. Period, , as evidenced by. the

accompanying signed certifications,. the proposed Lead Plaintiffs

purchased in excess of 25,000 sharesof Gaming Lottery cc _: n

..stock at prices artificially. inflated by'.defendants' false and

misleading statements and were: injured.thereby.'..'In the igregate.:-

they have a significanticant financial interest in this case, l^av:ing

suffered estimated recoverable.losses in excess of $ 7'1,000. ro

....'the best. of their- knowledge, no-other class mernber or

...has moved to be Lead Plaintiff i i these cases.. Therefore, ;:.lie

proposed Lead Plaintiffs satisfy all of the Act.'s prere.11i_sites

> for" appointment as Lead Plaintiffs in--this action and shuu:t(! be

appointed Lead Plaintiffs pursuant', to §2i-D.(a) (3) (B)', 15 U. S. C.

.t,.' .§. 78u-4(a)(3) (B).

3. Proposed Lead Plaintiffs

J Otherwise Satisfy Rule 23 -~'

Moreover, the proposed ,Lead .Pla•ipt ffs otherwise s i•sfy :.• a. s s ^:. :' i, , __: ^

.:'.: Rule 23 because just like all other class members: (1) they

purchased Gaining Lottery stock : during the Class P.eri od, (2) at

a .: .prices artificially inflated by the false and misleading

..statements issued by defendants;' and (3.) 'were damaged by the

y, 9:' 8

is1^ W,

galleged fraud. Thus, their claims are..typical of those of ether

'' - -class members. The proposed Lead Plaintiffs are also adequaterye ., .. %:-.'; •'. .•:'•.. ,Y. . _;

.. .. .. -. .. ,. r .

-representatives of the class. They have taken significan^t'steps

which demonstrate they have and-will protect the interests of the

::,class: plaintiffs Pecarsky and overall filed-the Complaint in

'this action and published the noti-ce to the class. Other mcmhers

of the Gaming Lottery 'Group have either initiated suits in

-,. --.Washington' or executed certifications affirming -their InLe:rest in

.participating as. plaintiffs in this action. The proposed L'c:ad

Plaintiffs have also retained competent and experienced.. counsel

in these actions to prosecute these claims:'

Thus, the Proposed Lead Plaintiffs rp ima facie satisfy

Abe` ; . the commonality, typicality and. adequacy requ o.F"IWLe 23

.:: '•• See - Gerber v. Computer Assocs. Int' 1, Inc. , ' [1995 Transfer

:.:Binder] Fed. Sec. L. Rep. (CCH) ¶ 98,722,, at 92,399 (E.D_I1.Y

.:Apr. 7, 1995) (quoting Dura-Bilt Corp. v: 'Chas e Manhatt an Corp.,

89 F.R.D. 87 (S_1_N.Y. 1981)"'("If 'common questions predominate

over individual questions, the. requirement of co.mmonal$ ^7 is•:,,^

,.satisfied.") In re Drexel Burnham-Lambert Group, Inc.,. 960 F. 2d

,285, 291 (2d Cir. 1992) (typicality. requirement. is satisfied if

claims "arise [] from the same course of events, and" each class

;';'member makes similar legal arguments to prove the. defendant's

liability. ") See also In re .Crazy Eddie Sec Litig , 7- .F.R..:D,.

39, 40-41 (E.U.N.Y. 1991) And, to demonstrate adequacy of

-representation, it i s sufficient to show that the p].ai.nti fs'

.-.,'attorneys are qualified , experienced `and ,generally able to

;..conduct the litigation, and that the plaintiffs do not:,have.

iriterests•-antagonistic. to' that ':o.f• the class. See In r e T) rexel

TO a: Burnham. Lambert Group, Inc. , 960 F.2d at 291; Genden v: Mei_r_i11

Lynch, Pierce, Fenner & Smith, Inc 114 F.R.D..48, 53 (S.D.N.Y.

'1987).

• C. Counsel . Selected By'the Proposed Lead Plaintiffs isExtensively Experienced And Should Be Appointer As.LeadPlaintiffs ' Lead ' Counsel

..Pursuant to §21D(a) (3) (B) (v) , members of the Gaming. 7.-,ol-.t.ery

Group shall, subject to court approval, select and retain cou.nsel

to represent the class. 15 U.S.C. § 78u-4(a) (93) (B) (v) M(--)' ng

class 'members have selected and retained Milberg Weiss.:Bershad

Hynes & Leracb LLP,- Wolf -Popper.. Ross .Wolf & Jones.,' LLP; Id.

Lowey, Dannenbery, Beinporad & Se_tinger, P. C. to represent the

F;...;; . class as Co-Lead Counsel. these firms have extensive e;{pea::i.enr:e

in successfully prosecuting securities fraud. actions and aa:(. well-

known to this Court. See Mirsky Aff. , :Ex's. D-'F. Accordittcj )

the-Proposed Lead Plaintiffs ,hereby request, ...in .additio:o' their

appointment as Lad Plaintiffs, that ,Milberg Weiss Beisli td. ):.tunes

& Lerach LLP, Wolf Popper Ross.Wolf & Jones,.LLP, and Lowey,

Dannenbe.rg, Bemporad & Selinger,.PC.be appointed Co-Lead

Counsel for the plaintiffs and class:'

10

CONCLUSION

Fnr al l of -ha ahnvra raa..r)nc 1-h,- mamhar^ of 1-h (anti nc

Lottery. Group, respectfully submit. that their motion to be

sg,t x.r^ 4.'L.", appointed as Lead Plaintiffs should be. approved and the counsel

they selected and retained should be appointed Co-Lead counsel

for all plaintiffs and class members in, connection with tl-ie$e

roceedings.

w:• :,'-.;, Dated September, 24, 1996

MILBERG WEISS BERSHAD HYNES

LERACH LL)P

.,. III-C/) • / ^ 2 1_Mi sky .;d^M 4504 )

Steven G. Schu1 an (.07T.2561)x^f,.1... „ ... ' .R 1 h M St (RS ,1 A cloa p oneJoan T. Brown (JB 7604).

One Pennsylvania P lazzNew York, NY 10119

(2'12) 594-5300

Attorneys 'for The GamingLottery Plaintif fs Group

:Other Plaintiffs Counsel:

Lester L. Levy (.LL 9956)Robert Finkel (RF 2373)

WOLF POPPER ROSS WOLF & JONES,. LLP-845-Third AvenueNew York, NY 10022

Richard Bemporad (RB 8778)

Neil Selinger ( NS 9389).

David C. Harrison (DH '3834)

I;OWEY, DANNENBERG, BEMPORAD &SELINGER, P.C.

The GatewayOne North Lexington AvenueWhite Plains, NY' 10601(914) 997-0500

qtr. ,; CERTIFICATE OF SERVICE

I hereby certify that copies of the [PROPOSED] ORDER GRANTING

MOVANTS' MOTION TO BE APPOINTED LEAD PLAINTIFFS PURSUANT TO SECTION

s...';:. 1D (a) (3) (B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND FOR

APPOINTMENT. OF LEAD PLAINTIFFS' CO-LEAD COUNSEL, AFFIDAVIT OF

:.SHARON- LEVINE.MIRSKY IN SUPPORT`,.OFMOVANTS' . MOTION TO BE PPOINTED

.

'LEAD ; PLAINTIFFS AND. TO APPOINT, CO-LEAD COUNSEL, NOTICE OF MOTION

AND MOTION OF MOVANTS TO BE..APPOINTED. LEAD PLAINTIFFS AND TO

. -APPOINT- CO-,LEAD ,COUNSEL and MOVANTS' MEMORANDUM .OF ' LAW IN SUPPORT

OF THEIR MOTION TO BE APPOINTED LEAD PLAINTIFFS- AND FOR THEAPPOINTMENT OF PLAINTIFFS' CO-LEAD.-COUNSEL were served by hand on

Proskauer Rose Goetz & Mendelsohn -LLP

1585 Broadway..New York, NY 10.0.36'...

^^_. :•_ •..^' _...•. ^' .. . = .- , , . fi'b'. r

counsel. forGamingLottery.Corporation