saratoga advantage trust, et al. v. international coal...
TRANSCRIPT
UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF WEST VIRGINIA
AT CHARLESTON
SARATOGA ADVANTAGE TRUST and )THEODORE HYER, On Behalf of ) Civil Action No. 2:08-ev-0011Themselves and All Others Similarly )Situated, ) FIRST AMENDED CLASS ACTION
) COMPLAINT FOR VIOLATIONPlaintiffs, ) OF FEDERAL SECURITIES LAWS
vs. )))
ICG, INC. a/k/a INTERNATIONAL COAL ) DEMAND FOR JURY TRIALGROUP, INC., WILBUR L. ROSS, )BENNETT K. HATFIELD, WENDY L. )TERAMOTO, and WILLIAM D. )CAMPBELL, )
)Defendants. )
)
Lead Plaintiff Saratoga Advantage Trust, and co-plaintiff Theodore Hyer, by their
undersigned attorneys, individually and on behalf of the Class described below, makes the following
allegations in support of their First Amended Class Action Complaint based upon, inter alia, the
investigation of Plaintiffs' counsel, that included: an analysis of publicly available news articles,
press releases and reports, public filings, securities analysts' reports and advisories about ICG, Inc.,
a/lc/a International Coal Group, Inc. ("ICG" or the "Company"); press releases and other public
statements issued by, and media reports about the Company; and, the belief that substantial
additional support exists for the allegations set forth herein upon a reasonable opportunity for
discovery.
NATURE OF THE ACTION
1. This is a securities class action on behalf of all persons and entities who purchased
securities of ICG between April 28, 2005 and June 6, 2006, inclusive (the "Class Period"), against
ICG seeking to pursue remedies under the Securities Exchange Act of 1934 (the "Exchange Act")
[15 U.S.C. §§78j(b) and 78(a)], and Rule 10b-5 promulgated thereunder by the SEC [17 C.F.R.
§240.10b-5].
2. ICG is a leading producer of coal in Northern and Central Appalachia. With
approximately 25 coal mines and mining operations in West Virginia, Kentucky, Maryland and
ICG markets a broad range of low sulfur steam coal and metallurgical grade coal to a
customer base consisting largely of major electric utilities, as well as domestic and international
industrial customers.
3. During the Class Period, ICG and the Individual Defendants issued a series of false
and misleading statements in filings with the Securities and Exchange Commission ("SEC"), and
made materially incorrect public statements while issuing press releases and shareholder reports that
artificially inflated the price of the Company's stock prior to, and after, ICG's November 21, 2005
Reorganization and Stock Exchange (the "Reorganization") and the December 8, 2005 Initial Public
Offering of ICG common stock (the "IPO"). Indeed, it was only as a result of the Defendants' ability
to artificially inflate the Company's stock price that ICG was able to effectuate the Reorganization
and thereby acquire (via merger) the operations and assets of Anker Coal Group, Inc. ("Anker") and
CoalQuest Development LLC ("CoalQuest") to establish ICG as a significant actor in the U.S.
domestic coal production industry and raise capital through the IPO sufficient to retire burdensome
corporate debt.
4. Throughout the Class Period, the Defendants failed to disclose material adverse facts
and publicly issued false information in public filings and other statements to the investment
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community by misrepresenting the Company's coal production operations, woeful safety record and
historical environmental non-compliance. As a result, the Company's operations and financial
performance were deteriorating and Defendants' statements to the contrary in ICG's public filings
concerning the Company's current and future business prospects were false, lacking any reasonable
basis in fact, and made by Defendants in knowing disregard of the true facts.
5. Attributing lowered guidance by analysts in news services to the January 2, 2006 Sago
mine tragedy and other subsequent mine mishaps resulting from ICG' s woeful safety conditions and
maintenance record, the decrease in coal production caused ICG to lower its 2006 financial
projections after the close of trading on June 6, 2006, the end of the Class Period. On this news, the
price of ICG stock tumbled downward 16.5% to close at $7.10 per share on June 7, 2006 on
extremely heavy trading volume - a whopping 45.2% below the share price following the
Reorganization.
JURISDICTION AND VENUE
6. The claims asserted herein arise under §§10(b) and 20(a) of the Exchange Act [15
U.S.C. §§78j(b) and 78(a)], and Rule 10b-5 promulgated thereunder by the SEC [17 C.F.R.
§240.10b-5].
7. This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C.§§1331 and 1337 and § 27 of the Exchange Act [15 U.S.C. §78AA] .
8. Venue is proper in this District pursuant to § 27 of the Exchange Act, and 28 U.S.C.
§§1391(b). Substantial acts in furtherance of the alleged fraud, including the preparation and
dissemination of materially false and misleading information, occurred within this District.
9. In connection with the acts alleged herein, Defendants directly or indirectly, used the
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means and instrumentalities of interstate commerce, including but not limited to the U.S. mails,
interstate telephone communications, and the facilities of the national securities markets.
THE PARTIES
10. Plaintiffs, Saratoga Advantage Trust and Theodore Hyer (respectively, "Saratoga"
and "Hyer" or, jointly as "Plaintiffs"), purchased ICG securities during the Class Period and were
damaged thereby as set forth in their attached Certifications.
11. Defendant, ICG, Inc., a/k/a International Coal Group, Inc. ("ICG"), is a top tier
holding corporation which maintains its executive offices at 300 Corporate Centre Drive, Scott
Depot, West Virginia. ICG, by and through its subsidiaries, engages in the production, processing
and marketing of coal. The Company's stock is traded on an efficient market, the New York Stock
Exchange, under the ticker symbol "ICO."
12. Defendant Wilbur L. Ross, Jr. ("Ross") was at all relevant times Chairman of the
Board of Directors of ICG. In that position, Ross signed ICG's Form S-1 and Form S-4 Registration
Statements (and amendments thereto) pertaining to the Company's Reorganization and IPO public
filings (and amendments thereto), as well as the Company's 2005 Form 10-K issued on March 30,
2006, each of which contained false and misleading statements and/or omitted material information
necessary to render such statement not false and misleading, as hereinafter detailed. In addition,
since April 2000, Mr. Ross has also served as the Chairman and Chief Executive Officer ("CEO")
of WL Ross & Co. LLC, a merchant banking firm ("WL Ross"), and was the managing partner of
WLR Recovery Fund L.P. ("WLR I") and WLR Recovery Fund II, L.P. ("WLR II").
13. Pursuant to a contract dated as of October 1, 2004 between ICG and WL Ross, the
latter is paid a quarterly fee of $500,000 and reimbursed expenses in exchange for providing strategic
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and financial planning, investment management and administrative "advisory services" to ICG.
Collectively, WL Ross, WLR I and WLR II have owned and are believed to hold slightly more than
20.9 million shares of ICG stock (13.72% of all outstanding shares and ICG's largest shareholder
after the Company's Reorganization during the Class Period). Defendant Ross also exerted voting
and dispositive power over these ICG shares throughout the Class Period.
14. Defendant Ross also served as the executive managing director for Rothschild Inc.,
the U.S. affiliate of the Rothschild family merchant banking firm for approximately 26 years prior
to foiming WL Ross. In fact, WL Ross originated in 1997 as the Rothschild Recovery Fund, a fund
investing in the securities of distressed companies. In April 2000, Ross purchased the firm's
distressed investment section, recruited senior officers of Rothschild, Inc., and established WL Ross
& Co. as a "boutique" private equity firm looking for "opportunities" among distressed companies.
These opportunities generally involved companies in Chapter 11 bankruptcy proceedings having a
non-union work force and "guaranteed" health benefits to retired employees and their families that
could be eliminated through the bankruptcy process.
15. WL Ross now specializes in investing in distressed businesses throughout the world
on behalf of partnerships funded by major U.S. institutional investors. Since April 2000, the firm
has opened offices in New York City, Tokyo and Seoul and has sponsored more than $2.0 billion
in investment partnerships on behalf of domestic and foreign institutional investors. In recent years,
WL Ross received notoriety by acquiring Bethlehem Steel Corporation, LTV Steel Co., Weirton
Steel Corporation, and several smaller steel companies out of bankruptcy between 2002 and 2004,
and selling them as a "package" to Mittal Steel Co. of the Netherlands in early 2005 for a reported
11-fold profit.
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16. Defendant Bennett K. Hatfield ("Hatfield") at all relevant times served as President,
CEO and a director of ICG. In addition, during the Class Period defendant Hatfield was and/or
remains a manager of, inter alia, ICG Hazard, LLC, and ICG Illinois, LLC which entities directly
operated ICG's individual mines within their respective territories. Also during the Class Period
defendant Hatfield was and/or remains a director of ICG subsidiaries Vindex Energy Corporation
("Vindex") and Wolf Run Mining Company ("Wolf Run").
17. As a manager and/or officer of ICG's subsidiary operators of individual mining
operations, Hatfield received daily Section Foreman reports and weekly (and monthly) summaries
of, at least, that particular operator's coal production, equipment failures, worker accidents and
injuries, production downtime, MSHA safety citations and abatement efforts (and MSHA fine
assessments), and updated year-to-date comparisons of actual production vs. internal forecast. In
addition, as the President and CEO of ICG, Hatfield received weekly, monthly and quarterly report
summaries that contained this same infoimation for all of ICG's mining operations and which also
included budgetary and performance analysis of such operations broken down by division, mining
operator and/or individual mine.
18. Further, as a director of ICG, Hatfield (after being fully informed of the relevant
particulars) signed the Company's Form S-1 and Foini S-4 Registration Statements (and
amendments thereto), the Company's 2005 Form 10-K, and First Quarter 2006 Fomi 10-Q's issued
on May 12, 2006. Additionally, defendant Hatfield caused to be issued during the Class Period
certain press releases and public statements on ICG' s behalf which, together with its SEC filings,
contained false and misleading statements and/or omitted material information necessary to make
such statements not false and misleading as detailed herein.
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19. Defendant Wendy L. Teramoto ("Teramoto") served as a Director of ICG since
October 2004 and was ICG' s Secretary from October 2004 until April 2005, concurrent in time with
the Company's filing of its Form S-1 in connection with the Reorganization. Ms. Teramoto is also
a Senior Vice President at WL Ross and, prior to that, was a Vice President at WL Ross from April
2000 through July 2005. Prior to joining WL Ross, Ms. Teramoto worked at Rothschild Inc. with
defendant Ross. Defendant Terarnoto served as chairman of the board of Anker and was the sole
manager and CEO of CoalQuest at the time of their acquisitions pursuant to ICC s Reorganization.
20. In addition, during the Class Period defendant Teramoto was a manager of ICG East
Kentucky, LLC, ICG Hazard, LLC, ICG Hazard Land, LLC, ICG Knott County, LLC and ICG
Eastern, LLC. These entities directly operated ICG's individual mines within their respective
territories in Kentucky and Illinois during the Class Period. As a manager of ICG's subsidiary
operators o f individual mining operations, Ms. Teramoto received daily Section Foreman reports and
weekly (and monthly) summaries of that particular operator's coal production, equipment failures,
worker accidents and injuries, production downtime, MSHA safety citations and abatement efforts
(and MSHA fine assessments), and updated year-to-date comparisons of actual production vs.
internal forecast. In addition, as a director of ICG, Chairman of Anker Coal Group, and CEO of
Coal Quest Development, Teremoto received weekly, monthly and quarterly report summaries that
contained this same information for all of ICG' s mining operations that also included budgetary and
perfoiniance analysis of such operations broken down by division and mining operator.
21. Further, as a director of ICG, Ms. Teramoto, with knowledge and understanding of
the significance of the periodic management reports provided to her, signed the Company's Form
S-1 and Form S-4 Registration Statements (and amendments thereto), and its 2005 Form 10-K, each
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of which contained false and misleading statements and/or omitted material information necessary
to make such statements not be false and misleading as further detailed herein.
22. Defendant William D. Campbell ("Campbell") at all relevant times served as Vice
President and Treasurer of ICG, and was its designated principal accounting and financial officer in
the Company's SEC filings. In addition, during the Class Period defendant Campbell was a manager
(with defendant Teramoto) of ICG East Kentucky, LLC, ICG Hazard, LLC, ICG Hazard Land, LLC,
ICG Knott County, LLC and ICG Eastern, LLC, each of which entities directly operated ICG' s
individual mines within their respective territories.
23. As a manager/officer of ICG' s subsidiary operators of individual mining operations,
Campbell received daily Section Foreman reports and weekly (and monthly) summaries of the
mine's coal production, equipment failures, worker accidents and injuries, production downtime,
MSHA safety citations and abatement efforts (and MSHA fine assessments), and updated year-to-
date comparisons of actual production vs. internal forecast. In addition, as the designated principal
accounting and financial officer for ICG, Hatfield received weekly, monthly and quarterly report
summaries that contained this same information for all ofICG's mining operations and also included
budgetary and performance analysis of such operations broken down by division, mining operator
and coal processing facility. Defendant Campbell was also responsible for the preparation and
maintenance of ICG' s fiscal budgets for its mining operations and, in that role, received a continuous
stream of daily and weekly reporting of the financial results of mine operations and also received ad
hoc reporting of such operations through ICG' s officers in charge of mine operations and planning,
which during the Class Period, included Samuel R. Kitts (ICG's Senior Vice President, West
Virginia and Maryland Operations), William Scott Perkins (ICG' s Senior Vice President, Kentucky
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or Illinois) and Charles G. Snavely (who joined ICG as its Vice President, Planning and Acquisitions
in July 2005).
24. As a director of ICG, defendant Campbell also signed (with full knowledge and
understanding of the particulars therein) the Company's Form S-1 and Faun S-4 Registration
Statements (and amendments thereto), the Company's 2005 Foi in 10-K, and ICG' s First and Second
Quarter 2006 Form 10-Q' s issued on May 12, 2006 and August 10, 2006, respectively, each of which
contained false and misleading statements and/or omitted material information necessary to make
such statements not be false and misleading as further detailed herein
25. The individuals named as defendants above are sometimes referred to jointly herein
as the "Individual Defendants." At all times material hereto, each of the Individual Defendants was
an agent of the Company, and at all times acted within the course and scope of said agency.
26. Each of the Individual Defendants participated in the drafting, preparation, and/or
approval of various untrue and misleading statements contained in SEC Form S-1 and Form S-4
filings (and amendments thereto) in connection with ICG's Reorganization and IPO and other SEC
filings, press releases and other public statements issued during the Class Period and thereafter.
Because of their Board memberships, executive and managerial positions, and/or extensive holdings
of ICG securities, each of the Individual Defendants is responsible for ensuring the truth and
accuracy of the various statements contained in the Company's SEC filings, press release(s) and
other public statement(s), but failed to do so.
27. The Individual Defendants, because of their management positions, membership on
the ICG Board of Directors and/or their extensive ownership of ICG' s common stock, had the power
and influence to direct the management and activities of ICU and its employees. In addition,
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defendants Hatfield, Campbell and Teramoto, by virtue of their positions either with ICG or its
operating coal production subsidiaries, received daily coal production reports and weekly summary
reports reflecting the actual tonnage and composition of extracted coal, man-hours spent in coal
production, the frequency and duration of mine operation downtime due to equipment failure, mine
accidents or regulatory safety citations (and/or the abatement of such citations) on a per mine basis.
During the Class Period, this same information and a comparison of year-to-date actual to budget
operational analysis was routinely compiled and periodically reported to Hatfield and Campbell on
no less than a weekly basis on all mine operations, as well as to defendant Teramoto for those mines
on which she served as a manager of the ICG subsidiary operator. For example, ICG's Calvary,
Classic, Clean Energy, and Elk Hollow mines were directly operated by ICG Knott County, LLC,
and Terarnoto, with defendant Campbell, were managers of this business unit from, at least, May 13,
2005 through the end of the Class Period. In addition, each of the Individual Defendants received
periodic updated monthly reports and quarterly summaries of this same information in connection
with ICG's periodic Board meetings.
28. Accordingly, the Individual Defendants were able to, and did, control the contents
of the Company's SEC filings, press releases and other public statements as complained of herein.
Each Individual Defendant, as signatory to many of the Reorganization and IPO filings and ICG's
2005 Form 10-K filed with the SEC, was provided copies of the untrue and misleading documents
prior to their issuance and had the ability and opportunity to prevent their issuance or cause them to
be corrected, but failed to do so. The Individual Defendants were also involved in the drafting,
producing, reviewing, and/or disseminating of the false and misleading information detailed herein,
knew that such materially misleading statements were being issued by ICG, and/or approved or
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ratified these statements in violation of the federal securities laws. In addition, defendants Hatfield
and Campbell were signatories to the Company's First Quarter Form 10-Q filed with the SEC and
had the ability and opportunity to prevent its issuance or cause it to be corrected so as to not include
the untrue and misleading documents complained of herein prior to their issuance. Defendants' false
and misleading statements and omissions of fact consequently had the effect of, both on their own
and in the aggregate, artificially inflating the price of the common stock of ICG at times relevant to
this action.
THE COAL INDUSTRY
29. Coal constitutes over 25% of the world's primary source of energy. The United States
burns roughly 1 billion tons of coal every year and produces about 35% of the world's coal, having
more than 250 billion tons of recoverable coal reserves. In 2006, coal-fired plants generated
approximately 50% of the electricity produced in the United States.
30. The United States' trend in coal utilization has been rising for decades. Since 1950
through the present, both coal production and coal consumption in the United States have more than
doubled. More than half of the coal currently mined in the United States, however, comes from
surface mines in the Powder River Basin located in the western part of the country (primarily
Wyoming and Montana), while the Central and Northern Appalachian region accounts for
approximately one-third of U.S. coal operations, mainly from underground mines. The remaining
coal producing area in the U.S. is primarily the Illinois Basin, an area that includes Illinois, Indiana
and western Kentucky.
31. There are four major uses of coal in the U.S. Electric power generating plants burn
coal to make steam. The steam turns turbines which generate electricity. Electric utility companies
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consume about 90% of the coal mined in the U.S. Coal is used for certain industries, such as
concrete and paper production, and ingredients of coal, such as methanol and ethylene are used in
making plastics, tires, synthetic fibers, fertilizers, and medicines. Coal is also used for making steel.
It is baked in hot furnaces to make coke, which is used to smelt iron ore in the steelmaking process.
The carbon in coal gives steel the strength and versatility for products such as bridges, buildings, and
automobiles. Some coal is exported to Western Europe, Canada, and Japan.
32. There are four major types of coal. Coal is classified by hardness. The harder the
coal, the less moisture it contains and the more efficient it is as fuel. Lignite (softest coal) contains
a significant amount of moisture; it is brownish black and crumbles easily with its principal use
being the generation of electricity. Sub-bituminous (medium soft coal) has significantly less
moisture than lignite and is used to produce steam for electrical generation. Bituminous (medium
hard coal) contains very little moisture and is high heat value. It is also used to generate electricity
and to make coke for use in the steel industry. Anthracite (hardest coal) has a very high heat value,
burns slowly, and is primarily used as a home heating fuel alternative to oil.
THE COMPANY
33. Defendant ICG is currently a leading producer of coal in Northern and Central
Appalachia with over 660 million "short tons" of purported coal reserves in approximately 25 coal
mines and mining operations in West Virginia, Kentucky, Maryland and Illinois.' ICG markets a
broad range of sulfur steam and bituminous coal to customers consisting largely of electric utilities,
as well as domestic and international industrial customers. While the Company purportedly has
A "short" ton is equal to 2,000 pounds. A "long" or British ton is equal to 2,240 pounds. A metrictonne is approximately 2,205 pounds. The short ton was the unit of measure consistently used byICG in its SEC filings and thus is the measuring unit adopted for this First Amended Complaintunless otherwise noted.
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large reserves of high quality metallurgical coal — primarily used in steel production — its ability to
extract and sell coal from these deposits is seemingly very limited with only approximately 100,000
and 200,000 tons of metallurgical coal produced in 2005 and 2006, respectively.
34. In 2006, ICC s Central Appalachia mines purportedly produced 11.2 million tons of
coal, while its mines in Northern Appalachia purportedly produced 3.2 million tons of coal.
Approximately 95% of the coal shipped by these mines in 2006 was destined for electric utilities,
mostly in the eastern half of the United States, including Georgia Power Company, Duke Power and
Carolina Power & Light Company.
ROSS, WL ROSS AND THE FORMATION OF ICG
35. The creation of ICG resulted from defendant Ross' investment through WL Ross.
Ross is credited with the restructuring of more than $200 billion of bankrupt company assets
worldwide, and in 1998, Fortune Magazine dubbed him the "King of Bankruptcy."
36. Having no prior (or practical) experience in the coal industry, but with a history of
purchasing and consolidating distressed companies in industries other than coal, Ross commenced
his activities by buying an interest in the Anker Coal Group, Inc. and 18 of its consolidated
subsidiaries ("Anker") in September 1999. At the time, Anker owned rights to hefty, untapped coal
deposits. Ross gained sufficient control over Anker by April 2001 and installed himself as a director.
37. By late 2002, defendant Ross had accumulated a more substantial interest in Anker,
controlling $37.3 million in secured Anker debt and approximately 47 percent of its preferred stock.2
Ross was the largest shareholder and one of only four people to hold a seat on the company's board
of directors, using his position of control to oust Anker's management and install his own
2 Following the completion of ICG's Reorganization and 1130 only a small portion of this debtremained unpaid.
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management team which promptly placed Anker into bankruptcy to allow Ross to rid Anker of its
previously guaranteed health benefits to retired miners. Upon exiting bankruptcy in October 2003,
Ross installed defendant Teramoto as chairman of Anker's board and CEO of CoalQuest
Development, an Anker subsidiary.
38. Upon Anker emerging from bankruptcy in 2003, it projected increased production
from its West Virginia mines, including Sago. At that time, Anker purportedly owned and controlled
nearly 707 million tons of bituminous coal and held long term output contracts with several major
Eastern utilities. Anker, however, continued to lose money even as coal production at Sago and
other mines expanded throughout 2004. This was principally due to the lack of diversity of the
company's coal grade (almost exclusively bituminous), and the lack of economies of scale allowing
enhanced productivity. The WL Ross investment was accordingly at risk and to bolster Anker's
limited operations Ross needed to increase its operating mine base and coal reserves in order to
acquire additional coal reserves and fund ongoing (but unprofitable) operations. To do that,
defendant Ross needed to tap the capital markets by using a corporation that could be taken public
to restructure the operations of Anker/CoalQuest into a larger publicly traded entity.
39. To facilitate that goal, in May 2004, Ross (through his WL Ross investment vehicle)
and with a few other investors, formed ICG, Inc. for the purpose of acquiring the existing coal
reserves and mining operations of (bankrupt) Horizon Natural Resources Company, f/k/a AEI
Resources Holdings, Inc. ("Horizon"), but only after shedding the company's employee health care
benefits and environmental reclamation liabilities. Following ICG's inception, defendant Ross and
WL Ross' strategy has been to target and acquire coal producing properties and going concerns
located in the Appalachia and Illinois Basin that are union free, have limited reclamation liabilities
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and are substantially free of legacy liabilities. ICG's initial Form S-1 filed April 1, 2005 and
subsequent SEC filings made in connection with the Company's Reorganization and IPO
consistently touted this philosophy and often proclaimed that ICG had the lowest level of exposure
to these types of liabilities than any other publicly traded U.S. coal producer.'
40. To implement the intended acquisition of Horizon, on or about August 17, 2004, ICG
tendered a combined $290.0 million cash bid with A.T. Massey Coal Co. ("A.T. Massey") to acquire
Horizon's coal producing and transportation assets at a bankruptcy court auction, and its bid was
accepted and confiimed by the bankruptcy court on September 17, 2004. Pursuant to its agreement
with A.T. Massey, ICG agreed to fund $285 million of the cash bid and assume up to $5 million of
Horizon liabilities to cure the pre-sale defaults. The underlying Horizon coal leases and contracts
were thus assumed and then assigned to ICG. ICG also agreed to contribute a credit bid of second
lien Horizon bonds. ICG's credit bid included the cancellation of $482 million of Horizon bonds
in return for which the Horizon bondholders received the right to participate in the rights offering
to purchase ICG securities.
41. Following the acquisition of Horizon, and consistent with the rights provided to
Horizon bond holders, defendant Ross initiated the merger of the assets and mining operations of
ICG with Anker and its subsidiary, CoalQuest, which purportedly owned 377 million tons of coal
reserves as stated by ICG's subsequent SEC filing. Accordingly, on March 31, 2005, ICG entered
into business combination agreements with Anker and CoalQuest for a stock-for-stock transaction
by which Anker and CoalQuest shareholders would, collectively, receive stock in ICG, Inc., the
3 See, e.g., ICG's Form S-1 (initial reorganization registration statement) filed April 28, 2005("Foul' S-1") at pp. 1 and 3; Form 424B3 (the prospectus for ICG's corporate reorganization) filedNovember 21, 2005 at p. 1 ("Reorganization prospectus"); and Form 424B4 (initial public offering)filed December 8, 2005 ("IPO prospectus") at pp. 1 and 3.
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"new" holding company of its wholly-owned subsidiary, International Coal Group, Inc. ("old ICG")
that, in turn, would own Anker and CoalQuest as wholly-owned subsidiaries. At the time ICG's
initial Form S-1 was filed, defendant Ross owned a majority of Anker's stock, controlled its board,
and had used the controlling interest in Anker to have defendant Teramoto installed as the manager
and CEO of CoalQuest.
42. On April 28, 2005, ICG filed its Form S-1 with the SEC. Six (6) amendments were
thereafter filed to the initial Form S-1 prior to the actual Reorganization. While the initial Form S-1
contemplated that an immediate initial public offering to fund the "new ICG" would occur
immediately following the Company's reorganization and stock exchange, the transactions were
later bifurcated, and two separate prospectuses prepared and used: the Reorganization prospectus
through which ICG was reorganized and "old ICG" securities exchanged for shares in the new
corporation; and the IPO prospectus whereby 21 million shares of ICG common stock was publicly
sold to new investors.
43. The initial Form S-1 shares of "old ICG" would be swapped for shares of "new ICG"
in a one-for-one-tax-free exchange and Anker and CoalQuest shareholders were to receive,
collectively, "up to 22.5%" of the common stock of "new ICG." Also the directors and officers of
"old ICG" were to continue to serve in the same capacities for "new ICG," with the stock of this new
entity traded on the NYSE under the ticker symbol "ICO."
44. According to the Reorganization prospectus, the Company had previously obtained
sufficient irrevocable proxies from a majority of "old ICG" shareholders to consummate the
transaction. Thus, the only option for the shareholders opposing the Reorganization or the
contemplated IPO (which would dilute the percentage of their ownership interest in ICG), was to
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exercise their rights of appraisal. Pursuant to the terms of the Reorganization, Anker shareholders
collectively received 14,840,909 shares of ICG common stock and CoalQuest shareholders received
9,250,000 shares of ICG common stock, most of which was owned and/or controlled by defendant
Ross through WL Ross and their affiliates.
THE MATERIALLY FALSE AND MISLEADINGSTATEMENTS ISSUED DURING THE CLASS PERIOD
45. The Class Period commences on April 28, 2005, the date of the Company's filing of
a Form S-1 for the corporate reorganization of ICG and the initial public offering. The
Reorganization and IPO filings by ICG, as well as its subsequent SEC filings, press releases and
other statements disseminated to the public contained untrue material statements and omitted to state
other facts necessary to make the statements of said documents not misleading and further, and were
not prepared in accordance with controlling rules and regulations.
46. Generally, these documents and statements failed to disclose that ICG was at all times
relevant hereto subject to numerous, material safety violations as a result of chronic and consistent
failure to maintain mining operations in a safe manner as prescribed by law. These publicly
undisclosed conditions materially impacted the Company's coal production, financial results, and
coal processing operations in a negative and adverse manner. As alleged below, a number of the
Company's mines were cited for material and repeated safety violations well beyond the general or
ordinary safety issues typically arising as a result of coal mining operations. These extensive and
persistent violations exposed the Company to increased risk of substantial liability and concomitant
adverse financial consequences as a result of its deficient safety record. Equally material, the
repeated mine accidents and MSHA citations (which required ICG to expend substantial resources
on remediation) caused a foreseeable, substantial decline in coal production at a number of the
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Company's mines, including those identified below, that was not accurately or properly reported in
the Company results of operations as filed with the SEC, and caused ICUs financial reports to the
public to materially overstate coal production and understate operating expenses during the Class
Period.
47. For example, the April 28, 2005 Form S-1 and subsequent amendments and SEC
filings, including the November 2005 Reorganization and December IPO prospectuses, highlighted
the Company's safety record, representing that the Company has "recognized leadership in safety
and environmental stewardship" and noting that the Company's "focus on safety and environmental
performance" reduced the "likelihood of disruption or production at our mines "Specifically, the
April 28, 2005 Form S-1 and subsequent SEC fillings stated in pertinent part as follows:
Recognized leadership in safety and environmental stewardship.The injury incident rates at our mines throughout 2004, according to the Mine Safetyand Health Administration, or MSHA, were below industry averages. .. . Ourfocus on safety and environmental perfolmance results in the reduced likelihood ofdisruption of production at our mines, which leads to higher productivity andimproved financial performance.
See, e.g., Form S-1 at p. 74 (emphasis added).
48. Continuing on with its purported focus on workplace safety, the April 28, 2005 Form
S-1 and subsequent SEC filings also stated in pertinent part as follows:
Continue to focus on improving workplace safety and environmental compliance.We have maintained and plan to continue to maintain an excellent safety andenvironmental performance record. We continue to implement safety measures andenvironmental initiatives that are designed to promote safe operating practices andimproved environmental stewardship among our employees. Our ability to maintaina good safety and environmental record improves our productivity and lowers ouroverall cost structure as well as bolsters employee morale.
Id. at p. 4 (emphasis added).
49. Similarly, with respect to the safety of its business operations, the April 28, 2005
18
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Form S-1 and subsequent SEC filings asserted that the Company employs preventive maintenance
and rebuild programs to ensure that its equipment is modem and well maintained, stating in pertinent
part as follows:
The mobile equipment utilized at our mining operation is scheduled to be replacedon an on-going basis with new, more efficient units during the next five years. Eachyear we endeavor to replace the oldest units, thereby maintaining productivitywhile minimizing capital expenditures.
Id. at p. 82 (emphasis added).
50. This was untrue as minimizing capital expenditures was creating a productivity time
bomb resulting in safety-induced downtime and/or chronically downtimed equipment. The April 28,
2005 Form S-1 and subsequent SEC registration filings also contained a section entitled Industry
Data, which stated in pertinent part as follows:
Statements relating to our leadership in safety and environmental performance arebased on our receipt of numerous awards from state and federal agencies, includingawards from the Mine Safety and Health Administration, or MSHA, the principalfederal agency regulating health and safety in the coal mining industry, and the Officeof Surface Mining, the principal federal agency regulating environmentalperformance in the coal mining industry.
Id. at p. 34.
51. With respect to the Company's overall business strategy, the April 28, 2005 Form S-1
expressly stated in relevant part:
Maximize profitability through highly efficient and productive mining operations.We are continuing to evaluate and assess our current operations in order to maximizeoperating efficiency and returns on invested capital. We are focused on maintaininglow-cost, highly productive operations by continuing to invest substantial capital instate-of-the-art equipment and advanced technologies. We expect to internally fundapproximately $264 million of capital expenditures in the next two years. As we takeadvantage of planned expansion opportunities from 2007 through 2009, we expectto spend approximately $572 million on capital expenditures, which may requireexternal financing.
19
Id. at p. 3 (emphasis added).
52. In fact, ICG was then operating inefficiently, was not maintaining "low cost, highly
productive operations" and was not adequately investing in equipment and advanced technology.
This business strategy substantially mirrors that contained in ICU's Fifth Amendment to its Form
S-1 filed November 9, 2005 (the last substantive registration statement filing before the
Reorganization), stated the following:
OUR BUSINESS STRATEGYMaximize profitability through highly efficient and productive mining operations.We are continuing to evaluate and assess our current operations in order to maximizeoperating efficiency and returns on invested capital. We are focused on maintaininglow-cost, highly productive operations by continuing to invest substantial capitalin state-of-the-art equipment and advanced technologies. We expect to internallyfund approximately $304 million of capital expenditures in the next two years. As wetake advantage of planned expansion opportunities from 2007 through 2009principally as a result of the Anker and CoalQuest acquisitions, we expect to spendapproximately $627 million on capital expenditures, which may require externalfinancing.
ICG's 5th Amendment to Folin S-1, dated November 9, 2005 ("Form S-1/A5") at p. 4.
53. With respect to the Anker and CoalQuest acquisitions and purported positive effect
on 1CG's overall business strategy, the April 28, 2005 Form S-1 and subsequent SEC filings stated
in relevant part:
Through the acquisition of certain key assets from the bankruptcy estate of Horizonthe WLR investor group was able to acquire high quality reserves strategicallylocated in Appalachia and the Illinois Basin that are union free, have limitedreclamation liabilities and are substantially free of other legacy liabilities. Due toour initial capitalization, we were able to complete the acquisition without incurringa significant level of indebtedness. Following this offering, we expect to retiresubstantially all of our long term debt and will be strategically well-positioned.Consistent with the WLR investor group's strategy to consolidate profitable coalassets, the Anker acquisition further diversifies our reserves.
Form S-1 at p. 71 (emphasis added).
20
54. In fact, the above representations failed to disclose and omitted necessary information
revealing that the Defendants' purported "recapitalization" did not eliminate ICG's precarious
financial position and that certain coal assets were not available (or would have de minimis effect)
to ICG' s mining operations. The outlook for the Company's mine production provided for in the
April 28, 2005 Form S-1 and related SEC filings (including the Reorganization prospectus) was
positive, stating in pertinent part:
Spruce Fork Division — Anker West Virginia Mining Company
The Spruce Fork Division currently consists of two active underground mines:Spruce No. 1 and Sago located in Upshur County, West Virginia, near the town ofBuckhannon. The Spruce No. 1 Mine is extracting coal from the Upper Freeportseam and the Sago mine is extracting coal from the Middle Kittanning seam. Nearlyall of the reserves in the Spruce Fork Division are owned by ICG. The Spruce No.1 Mine opened in 1997 and we anticipate that its reserves will be depletedsometime during the third quarter of 2005. The Sago mine, which was originallyopened in 1999 as a contract mine, closed in 2002, and then reopened as a captiveoperation in the first quarter of 2004. Sago is expected to reach full production bythe fourth quarter of 2005.
• • •
We have projected that the Spruce Fork Division will produce approximately 1.3 million tons of coal in 2005. The Sago 3 mine, scheduled for production in 2007, isa replacement for the Spruce No. 1 Mine. The reserves at Spruce Fork havecharacteristics that make it marketable to both steam and metallurgical coalcustomers.
• • •
Sycamore Group
Sycamore Group consists of The Sycamore Group LLC and the Harrison Division.The Sycamore Group LLC is a joint venture between ICG and Emily Gibson CoalCompany. The joint venture operates one underground mine, the Sycamore No. 1Mine (a.k.a. the Fairfax No. 3 Mine), in Harrison County, West Virginia, . . . .Weexpect that ICG's 50% share of the 2005 production to be approximately 210,000tons, all of which is sold on a raw basis and shipped to Allegheny Power ServiceCorporation's Harrison Power Station by truck.
21
The Harrison Division consists of the Sycamore 2 Mine [alternatively referred to as"Sycamore No. 2 Mine" in other ICG filings], which is located in Harrison County,West Virginia, . . The planned annual production is expected to increase from approximately 430,000 tons in 2005 to over 1.2 million tons in 2006. The coalproduced from the Sycamore 2 Mine will be sold on a raw basis and shipped toAllegheny Power Service Corporation's Harrison Power Station by truck under a newlife of mine, total production coal supply agreement.
Id., at p. 86; accord, IPO prospectus at pp. 99-100 (emphasis added).
55. In fact, the estimated production for the Spruce Fork Division and Sycamore 2 Mine
lacked a rational basis and was specious, as the attributed production capacity was inconsistent with
the facts known to the defendants at that time and, thus, rendered these statements false and
misleading when made. Defendants also failed to disclose or otherwise omitted acknowledging that
ICG's mines were not operated in a safe manner, were repeatedly cited for numerous safety violations
by both federal and state agencies, resulting in substantial disruption to ICG's mining operations
exposing the Company to substantial liability and adverse financial consequences. Defendants,
therefore, had no reasonable basis to state that ICG had (i) mining operations that were "highly
efficient and productive;" (ii) an "excellent safety and environmental performance record;" (iii) a
"focus on safety and environmental performance;" and (iv) mining operations that were "highly
efficient and productive" when the opposite was true.
THE TRUTH REGARDINGICG's WOEFUL SAFETY RECORD COMES TO LIGHT
56. ICG was not operating its mines in a safe manner and was subject to numerous
material and repeated safety violations. Indeed, the safety violations, so egregious at certain of the
Company's mines, exposed the Company to the heightened risk that it would and did incur
substantial liability and/or adverse financial results as a result of its deficient and inadequate safety
and maintenance record.
22
The Role of MSHA
57. Section 103(a) of the federal Mine Act states that authorized representatives of the
U.S. Secretary of Labor shall make inspections of each underground mine in its entirety at least four
times a year (regular inspections) for the purposes of determining whether an imminent danger exists
and whether there is compliance with the mandatory health or safety standards or with any citation,
order or decision issued under the Mine Act.
58. The U.S. Mine Safety and Health Administration ("MSHA") is a federal agency that
administers the provisions of the Federal Mine Safety and Health Act of 1977 (Mine Act). It
enforces compliance with safety and health standards in order to eliminate fatal accidents, reduce
the frequency and severity of nonfatal accidents, minimize health hazards, and maintain standards
of safety and health conditions in U.S. coal mines.
59. Section 103(a) of the Mine Act authorized MSHA to make frequent inspections and
investigations for the purpose of (1) obtaining, utilizing and disseminating information relating to
health and safety conditions, the causes of accidents, and the causes of diseases and physical
impairments originating in mines, (2) gathering information with respect to mandatory health or
safety standards, (3) determining whether an imminent danger exists, and (4) determining whether
there is compliance with the mandatory health or safety standards or with any citation, order or
decision issued under the Mine Act or other requirements thereof.
60. In addition, pursuant to the Mine Act and the regulations promulgated thereunder,
coal mining companies are required to report to MSHA the date and circumstances of each mine
accident and employee injury or fatality, and the quarterly coal production data for each mine,
including tonnage of coal production (cleaned), average employee counts, and total man-hours
23
worked at each mine. This data, together with MSHA safety citations and other operational
information can be reviewed over the Internet through MSHA's Data Retrieval System accessible
at www.msha.gov/drs/drshome.htm . Lastly, the Mine Act and its regulations require that the record
operator of a coal mine accurately record and maintain a wide range of other information concerning
the mine's operation such as, identities and titles of all mine personnel, the submission and approval
of all mining permits and amendments thereto, any geological and mine engineering reports relating
to the mine, all mine plans (i.e., roof, ground and ventilation control plans) and any amendments
thereto, and the testing results of the characteristics and quality of extracted coal.
The Sago Mine Tragedy
61. On January 2, 2006, only weeks after ICG' s Reorganization and IPO, 12 miners were
killed and another seriously injured as a result of an underground explosion at the Sago mine owned
by ICG. The Sago mine is an underground facility in Upshur County, West Virginia, located near
the town of Buckhannon. At the time of the accident, the Sago mine was under the direct operational
and supervisory control of Wolf Run Mining Company, an ICG subsidiary of which Samuel R. Kitts
was the President and defendant Campbell was its Vice President and Treasurer.
62. While ICG considered Sago a "new" mine (developed in 1999, but closed in 2002
and then reopened in early 2004 amid growing global demand for coal-based energy), it was actually
part of a coal field once owned by Pittston Coal that included many worked-out areas. Cave-ins and
roof collapses were a chronic concern. Sago was a "gassy" mine and harbored large quantities of
potentially explosive methane. Further, miners at Sago were not only several hundred feet below
the surface, but had to travel horizontally several thousand feet to reach the "coal face" — the point
at which raw coal is harvested.
24
63. The aftermath of the Sago tragedy caused numerous facts to surface indicating that
the Company had a woeful safety record at numerous mines and that safety violations, mine
accidents, and government investigations were chronic and routinely caused costly disruptions in
ICG mining operations that had been concealed by ICG in its SEC filings, press releases and
shareholder reports.
64. For example, on January 4, 2006 a USA Today article that analyzed Sago's safety
record found the ICG mine had far more violations and accidents than other comparable mines. In
fact, Sago had 40 accidents in 2005 alone, compared to a maximum of 12 accidents at the mines used
in USA Today's analysis.
65. ICG attempted to calm the market's fears about its safety record and support the price
of ICG stock, releasing several positive press releases. On January 26, 2006, ICG filed a Form 8-K
which included a copy of the prepared statement entitled "International Coal Joins Senate Effort to
Improve Mine Safety" that defendant Hatfield presented to the U.S. Senate Committee on
Appropriations on January 23, 2006, in connection with its hearing on the Sago mine disaster. In
the statement, Hatfield provided assurances that ICG had been making safety improvements at Sago
since June 1, 2005, and "our Company has worked closely with federal and state regulators in an
effort to make this Mine as safe as possible." Hatfield also stated that the Sago mine disaster "will
lead to improvement throughout the industry" and assured the Senate that "[w]hile the tragic events
of January 2 confirm that we must be vigilant on mine safety, the safety record at the Sago Mine
demonstrates that our management team aggressively focused on mine safety and protecting our
people." In addition, the Company took steps in the Form 8-K (filed January 26, 2006, at p. 2) to
reassure the market that the Sago mine disaster and its resultant closure would have little, if any,
25
"material negative effect on ICG's financial condition or operations."
66. In the midst of a proliferation of news reports disclosing ICG's hundreds of safety
violations, ICG, repeatedly disavowed that these citations were likely to lead to serious accidents,
work stoppages or disruptions to the Company's financial condition or operations. Instead, ICG took
the offensive, proclaiming that its safety record was "excellent." For example, on February 1, 2006,
1CG "reaffirmed" to the investment community that each of its mines and shipping facilities would
"begin each shift with a special in-depth safety review." ICG also announced:
This procedure will include not only West Virginia operations, but also those inKentucky, Illinois and Maryland.
Mine managers will discuss safety issues presented in each o f the fatal accidents thathave occurred in West Virginia, which will include risks associated with roof and ribcontrol, belt fires, operating equipment in close proximity to gas wells - and willspecifically reinforce mine evacuation plans.
The Woeful Conditions at the Sago Mine Was a Known DisasterWaiting to Happen
67. At the time of the explosion, the Sago Mine was under the jurisdiction of MSHA's
Coal Mine Safety and Health (CMS &H) District 3 office, located in Morgantown, West Virginia.
MSHA' s practice is to conduct one complete safety and health inspection (regular inspection) each
quarter at each underground mine. A regular safety and health inspection was started on October 3,
2005, and was ongoing at the time of the explosion. The last underground MSHA presence at the
Sago Mine prior to the explosion was on December 21, 2005, during which the mine operator (Wolf
Run) was separately cited for safety violations for having its "travelways" (routes of mine ingress
and egress) cluttered with debris and failing to maintain firefighting equipment "in a usable and
operative condition." According to MSHA records, for the month of December 2005, the Sago mine
was cited for safety violations 14 times on at least 5 separate inspections, and also reflect that at least
26
4 incidents of mine roof failures occurred during that month.
68. Indeed, in 2005 alone, Sago was cited for over 200 violations of MSHA regulations,
including 21 times for build-up of toxic gas. MSHA employs a negligence scale to assess a mine
operator's culpability for allowing violations to occur. Sago mine violations were classified as
involving a "High" degree of negligence 8% of the time in 2005, almost three times higher than the
national average.
69. Additionally, a large number of the violations at Sago were documented as
"significant and substantial" ("S&S") by the MSHA. In determining whether a violation could
"significantly and substantially contribute to the cause and effect of amine safety or health hazard,"
the inspector must first find that an injury or illness would be reasonably likely to occur if the
violation was not rectified and, if the injury or illness were to occur, such injury would be reasonably
serious. In 2005 - the same year ICG's Reorganization and stock exchange occurred- a staggering
48% of citations and orders were deemed "S&S" violations at the Sago mine.
70. Operations at Sago were so deficient, that in just one day (September 12, 2005), the
mine received in excess of $25,000 in fines. The fines issued from the MSHA investigation were
largely pursuant to federal regulations for allowing the accumulation of combustible materials and
deficiencies in its pre-shift examinations. During an inspection period running from early October
to late December 2005 - contemporaneous in time to the Reorganization and its immediate aftermath
MSHA investigators issued 46 citations and three orders for several safety violations at Sago. 18
of these violations were listed as "S&S," that is, investigators believed the cited hazards were likely
to cause an accident that would seriously injure a miner. Not surprisingly, Sago's accident rate was
triple the national average.
27
71. The MSHA also cited Sago for violating its approved roof control and mine
ventilation plans that exist specifically to prevent explosions like that which doomed Sago's victims,
in addition to violations concerning emergency escapeways and required pre-shift safety
examinations- again all within the same time frame leading up to and during the Reorganization
(more than a dozen serious roof falls — in which huge slabs of the mine roof simply collapsed — were
recorded in 2005.)
72. During 2005, the MSHA increased enforcement activity at Sago in response to the
severity and pervasiveness of safety violations and the compliance problems arising from the
abnormal number of roof falls that were occurring, the increased injury rate, and ICG' s disregard of
compliance with safety regulations. MSHA personnel met with Anker Energy officers throughout
2005 at their Bridgeport field office and District 3 Office in Morgantown to emphasize the need for
compliance at the mine. According to Ray McKinney, administrator of the coal division of the
MSHA, federal inspectors spent 744 hours at the Sago Mine in 2005, compared with 405 hours in
2004 - an 84% increase in on-site hours.
73. The number of Section 104(d)(1) citations, also known as "unwarrantable failure
citations" increased in 2005 as a result of the need for enhanced enforcement by the MSHA. Under
MSHA regulations, a Section 104(d)(1) citation is only issued if (1) there is a violation of a
mandatory health or safety standard; (2) the violation significantly and substantially contributes to
the concern of a mines' safety or health hazard; and (3) there is an "unwarrantable failure" of the
mine operator or contractor to comply with the required standard. Mere negligence or reckless
disregard on the part of the operator is insufficient to warrant a Section 104(d)(1) violation or order.
Hence, a violation is deemed an "unwarrantable failure" if it is determined that the mine operator
28
entails aggravated misconduct constituting more than ordinary negligence. The MSHA cited Sago
over a dozen times for serious Section 104(d)(1) "unwarrantable failures" from May 2005 through
December 2005 - the critical period immediately preceding the Reorganization.
74. On July 12, 2005, a single month after ICG began providing management services
at Sago, the MSHA cited the mine for exposing miners to significant hazards. The Section 104(d)(1)
unwarrantable failure citation, stated as follows:
[t]he failure of management to provide reasonable sight lines for the miners tofollow demonstrates higher than normal neglect as sight lines are fundamental to thesystematic development of a section. This section is a set of mains that will beutilized for years. The small block sizes can not be completely replaced. The minerswill be exposed to the danger done for several years to come. (Emphasis added).
75. By December 14, 2005, less than a month after the Reorganization and exchange
of common stock, ICUs Sago MSHA investigators issued 46 citations and three orders citing safety
violations at the Sago mine. Sago also received a Section104(d)(1) citation fine for the dangerous
accumulation of coal from previous mining shifts. The MSHA safety inspector noted in the citation
that operator ICG "has showed a high degree of negligence for the health and safety of the miners
that work in this coal mine by allowing the conditions to exist. This is an unwarrantable failure to
comply with a mandatory standard." (Emphasis added).
76. A breakdown of MSHA's citation record for Sago for 2005 shows the following:
2 -103 (k) orders (issued by MSHA when accidents occur).
181 - 104(a) citations (a citation is issued with a reasonable abatement time).
96 of these citations were "significant and substantial" (i.e. likely to cause injury ordeath).
104(b) citations (issued for a previous citation/safety violation that had not beencorrected).
29
I - 104(d)(1) unwarrantable failure citation (issued when there is an unwarrantablefailure to comply with a mandatory safety or health standard).
2 — 104(d)(1) orders (issued to withdraw miners from a section of the mine wheredangerous conditions exist).
13 — 104(d)(2) orders (issued for violations similar to those that resulted in theissuance of the withdrawal order under 104(d)(1). These are extremely serious andif violated lead to a "special investigation" and charges against mine supervisors,foremen, and the mine operator, including criminal proceedings.
77. The Federal Mine Safety and Health Review Commission (the "Commission")4
recognizes that past discussion with MSHA about recurring problems serves to place operators on
notice that increased efforts are required to comply with the standard. The Commission' has
similarly determined that past violations will put an operator on notice that it has a recurring safety
problem needing correction and the violation history can be relevant in determining the operator's
negligence. The Commission6 has stated that citations further serve to place an operator on notice
of the need to increase its efforts for compliance.
78. In numerous instances, inspection notes and citations supported the determination of
heightened negligence at Sago. For example, Citation No. 7098544, issued on November 8, 2005
cited to a violation of 30 CFR 75.202(a), indicating the mine roof in miner areas was not properly
supported or controlled to protect miners from hazards.
79. Similarly, Citation No. 714929, issued October 5, 2005, asserted violations of30 CFR
75.380(d)(2), indicating that the primary mine escapeway was not properly marked, and presented
a danger.
4 Consolidation Coal Co., 23 FMSHRC 588 (2001).
Peabody Coal Co., 14 FMSHRC 1258 (1992).
6 Youghiogheny & Ohio Coal Co., 9 FMSHRC 2007 (1987).
30
80. Section 104(a) of the Mine Act directs the inspector to specify a reasonable time for
the operator to abate a violation. The MSHA Program Policy Manual states that the time for
abatement should be determined, whenever practical, after a discussion with the mine operator or
the operator's agent. The degree of danger to the miners is the first consideration in determining a
reasonable time for abatement. At least eight citations were outstanding when the Sago mine
explosion occurred.
81. The Sago mine failed to comply with the standards of the West Virginia Office of
Miners' Health, Safety and Training, the state agency responsible for administering West Virginia's
mine safety laws and regulations. During 2005 alone, this agency cited Sago for 143 violations of
state mine safety laws and regulations, many involving "high" negligence and/or repeat occurrences.
82. As discussed infra, ICG was providing management services to numerous Anker
mines, including the Sago mine, by June 2005. ICG, therefore, was aware of the significant and
repeated safety issues at numerous mines by the time the Reorganization Documents were issued,
as well as the financial investment in equipment needed to address the problems. The safety
problems at the Sago mine were so pervasive that the MSHA ordered parts closed 18 times during
2005.
83. Tony Oppegard, a former official with the MSHA, summarized the state of
Defendant's operations during the class period by stating: "I would say these (violations) are
indicative of an operator who wasn't going to let safety get in the way of production." The former
director of the MSHA agreed when he represented "This mine [Sago] should have been closed. .
the record is very clear."
84. The reality was that the Company's safety issues plagued the operations of most, if
31
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not all of its underground mine assets, and would necessarily negatively impact ICG's financial
condition because of the inevitability of disruption from disaster (as occurred) or because the need,
apparent at the time of issuance of the April 2005 Form S-1, that capital was needed to purchase new
equipment and modernize safety facilities at the mines.
Safety Violations in ICG's Other Mines
85. Sago was not ICG's only problem mine. Rather, throughout the Class Period the vast
majority of TCG's mines incurred MSHA safety violations that substantially exceeded industry
standards. For example, the coal industry average for MSHA citations per mine are recorded and
tracked by the U.S. Department of Labor. The most recent (May 20, 2009) analysis and report
prepared by this U.S. Department entitled, "Mine Safety and Health at a Glance" reflects that for
2005 the average mine received 33 MSHA citations; for 2006, the annual citation rate was 37 per
mine. A comparison of this industry average rate to ICUs underground mines reveals the following:
ICG Mine Name 2005 Violations 2006 Violations
Calvary Mine 103 50
Classic Mine 22 31
Clean Energy 26 58
Elk Hollow 62 54
Flint Ridge 63 180
Raven Mine No. 2 33 (closed 2Q'05) N/A'
Sago Mine 205 222
Sentinel Mine 118 84
7 According to MSHA records, ICG gained control of Raven Mine No. 2 on October 1, 2004 andoperated the mine under the ICG Knotts County, LLC's umbrella through Double A Mining, Inc.
32
Spruce Fork Mine No. 1 108 1 (closed 1Q`06)
Stoney River 21 (opened 3q05) 5 (closed 1Q`06)
Sycamore No. 1 134 62
Sycamore 2 Mine 24 (opened 3Q'05) 109
Viper Mine 125 110
86. It was common practice at ICG throughout the relevant time period for a notation of
any MSHA citations issued during a mining shift to be included, among other production items, in
the Section Foreman's daily report provided to management of the mine operator, as well as to the
office of the applicable ICG senior vice president responsible for operations in the division in which
the mine was located, together with a notation of the corrective action taken, fine assessed and/or
whether downtime immediately resulted from the citation.'
87. Thus, for example, during the Class Period if the mine's operation was based in
Kentucky or Illinois, a copy of the daily Section Foreman's report would be directly routed to
management of the mine's operator (which included defendants Teramoto and Campbell) as well
as to William S. Perkins who was the ICG senior VP in charge of operations for this division.
However, if the mine was located in West Virginia or Maryland, a copy of the report would be
similarly routed to mine operators falling under the umbrella of either ICG Eastern, LLC (of which
defendants Campbell and Teramoto were both managers and officers during the Class Period, as was
ICG' s SVP William S, Perkins) or Wolf Run (of which defendant Campbell was a Vice President
and Treasurer throughout the Class Period) — depending upon the specific mine involved — and to
As alleged in further detail below, during the Class Period defendants Campbell, Hatfield andTeramoto each served as officers and or managers for several of the corporate and LLC subsidiariesof ICG that were the direct operators of ICG' s coal mines. As a result, these individual defendantsoften received duplicate copies of the same reports and the information contained therein.
33
Samuel R. Kitts, ICG' s Sr. VP of operations for this division. This same information would also be
routinely summarized and incorporated into weekly and monthly management and budgetary reports
issued to ICG mid-level and senior management (again, including defendants Campbell and
Hatfield), and report summaries were provided at least quarterly to ICG' s corporate directors (which
included defendants Ross and, again, Teramoto).
THE MATERIAL IMPACT OF ICG's WOEFUL SAFETYPROBLEMS ON THE COMPANY'S COAL PRODUCTION OPERATIONS
88. The recurring instances of MSHA and state safety inspections of ICG's mining
operations and the resultant issuance of citations and levying of fines during the Class Period had
a much greater impact on the Company's coal operations and profitability than that disclosed in its
SEC filings, reports to shareholders, press releases and other statements issued publicly. Coal is
essentially a fungible commodity whose price per ton is largely dictated by the available supply of
the grade of coal demanded by the consuming public. As such, increased costs associated in the
mining and processing of coal for sale due to disruption of operations occasioned by abating safety
violations or, worse yet, repairing mine operations after an otherwise avoidable accident has
occurred, reduce a coal producer's profit margins rather than merely becoming a cost item added to
the purchase price. ICG said as much in its SEC filings: "ICG's revenues depend on the price at
which it is able to sell its coal. ... ICG's results of operations depend on the cost of coal production."
See, e.g., Fowl S-4/AI at p. 42.
89. The historic mine safety problems experienced by ICG (as discussed above) far
exceeded industry standards and directly resulted in a material reduction in coal production from its
mining operations during the Class Period. Both ICG and the Individual Defendants were fully
aware of these events and their negative impact on the Company's operations and profitability by
34
virtue of their senior management job functions, or their independent receipt of periodic internal
reports (such as the Section Foreman's daily report) on specific ICG mining operators by virtue of
their position as a manager or officer of the subsidiary operating unit.
Spruce Fork Division
90. Indicative ofthe piecemeal manner in which the Company's April 28, 2005 Form S-1,
misrepresented its coal mining projections for 2005 is that involving the Spruce Fork Division,
consisting of the Sago Mine and Spruce Fork Mine No. 1, located in Upshur County, West Virginia.
In its initial Form S-1, ICG stated that it had projected that the division "will produce approximately
1.3 million tons of coal in 2005." (See Form S-1, at p. 86). This same pronouncement was reiterated
by ICG no less than eight (8) times in the Company's filings with the SEC made on and between
June 15 and December 8, 2005, together with the representation that "Sago is expected to reach full
production in the fourth quarter 2005." 9 However, and as reflected below, based on Sago's
historical and then-current coal production reports when combined with the decreasing production
from the Spruce Fork Mine No.1, ICG knew by the end of the first quarter 2005 that this division
could not possibly meet the 1.3 million ton 2005 coal production figure it had publicly represented,
i.e., the Company knew before it first uttered a word, that the lofty production estimate had
absolutely no reasonable basis in fact.
9 See, Form S-1 at p. 95; Form S-4 filed June 27, 2005 ("Form 5-4") at p. 95; Third Amendment toForm S-1 filed September 28, 2006 ("Form S-1/A3") at p. 97; Second Amendment to Form S-4 filedOctober 24, 2005 ("Form S-41A2") at p. 94; Fourth Amendment to Form S-1 filed October 24, 2005("Form S-11A4") at p. 100; Form S-1/A5 at p. 99; Reorganization prospectus at p. 94; and, IPOprospectus at p. 99.
35
Figure 1: ICG Internal Knowledge v Pub/ic Projection5
30,000
•
25,000
20,000 11—4— Projected
15,000 —s—Actual (known by ICG
from MS HA reports) 11
10,000 ,
5,000 Jr
0 7
6 6 (:k" ,Q6k
\)2, .c?..9 \ ••
4\(C".' esc‘ e
a so ocdc,
•
.•
36
91. Indeed, 1CG had long known about the immanent depletion of coal in the Spruce Fork
Mine No. 1, and had noted as much in the Form S-1. Additionally, ICG knew from its historic and
then-current coal production data on Sago Mine — that it was systematically receiving from its
operator (Wolf Run) — that Sago Mine could never have achieved the degree of coal production
during 2005 necessary to meet the 1.3 million ton production level represented in the initial Form
S-1 and consistently repeated in the Company's public filings through December 8, 2005. Indeed,
the Sago Mine's coal production per man-hour of labor for the first three quarters of 2005 was only
1.86 in comparison to the industry average of 3.94 for underground mining operations.'
92. This glaring adverse production information was also routinely reported to the
management of ICG (and the operator of the Sago Mine), and was in addition to the continuously
negative mine safety reports that ICG had been receiving regarding the increasing instances of roof
falls, accidents and injuries, and MSHA safety violations for the Sago Mine that caused excessive
work stoppages during 2005 and acerbated its production woes. These work stoppages, combined
with MSHA citations, the deteriorating mining equipment, and the depletion of the Spruce Fork
Mine No. 1, ultimately resulted in the actual coal production from Spruce Fork Division for 2005
to be less than 760,000 tons — a negative variance of 41.5% from the production that ICG repeatedly
represented would be achieved at a loss of over $20 million in revenues in 2005.
10 Another function of MSHA is its compilation of statistical data from actual coal production asreported quarterly by each operational coal mine under its jurisdiction. A common tool used withinthe coal industry to measure a mine's efficiency is to compare the ratio of man-hours expended toactual coal production. During the relevant period, the industry ratio of tons per man-hour forunderground coal mines was 3.94 — meaning for every hour of labor, 3.94 tons of coal is mined. SeeMine Injury and Worktime, Quarterly, Table-1 http://www.msha.gov/Stats/Part50/WQ/MasterFiles/MIWQ%20Master_20065.pdf.
37
The Sycamore Group Mines
93. According to ICG's SEC filings, the Sycamore Group operations included one mine
from the Company's Harrison Division and a joint venture (The Sycamore Group LLC) formed
between the Company and Emily Gibson Coal Company. In the April 28, 2005 Form S-1, the mines
involved in this operational unit were represented to consist of the "Sycamore No. 1 Mine" (although
identified and tracked by MSHA simply as "#3 Mine") and the "Sycamore 2 Mine" (identified and
tracked by MSHA as the "# 4 Mine"), both of which were located in Harrison County, West
Virginia. MSHA records also reflect that ICG's subsidiary, Wolf Run, had operated the Sycamore
2 Mine since the inception of operations in September 2004, although coal production had only
begun in that mine in the third quarter of 2005.
94. ICG's April 28, 2005 Form S-1, and each amendment thereto with the SEC through
December 8, 2005, included a 2005 projection of coal production of 430,000 tons for the Sycamore
2 Mine and roughly 210,000 tons for ICG' s 50% share of the production of the Sycamore No. 1
mine. In addition, the Company's SEC filings also initially projected 2006 coal output from the
Sycamore Group mines to be a combined 1.6 million tons, before downgrading that figure to 1.2
million tons in the Reorganization prospectus." The revision of the above projection was a
byproduct of the Company's determination, perfouned during the third quarter 2005 by Charles G.
Snavely and Samuel R. Kitts and expressly approved by defendants Hatfield and Campbell, that the
Sycamore No. 1 mine was quickly depleting the mine's current coal seam and that tapping additional
reserves was time consuming and not cost effective given the state of the mine's equipment and the
1 ' Compare, Form S-1 at p. 86, and Form S-1/A 5th at p. 100, with Reorganization prospectus at p.95; and IPO prospectus at p. 100.
38
availability of capital.
95. Beginning the first week of September 2005 and continuing with increasing frequency
for the remainder of the year, the Sycamore 2 Mine experienced persistent and repeated instances
of methane gas build up, roof collapses and floodings that had left the mine unsafe and subject to
multiple MSHA citations and work stoppages, particularly for violations of the mine's roof and
ventilation control plans filed of record with MSHA. As a result of these events, the Sycamore 2
Mine coal production per man-hour of labor reached only .65 for the third quarter 2005 in
comparison to the industry average of 3.94 for underground mining operations. These problems
were immediately brought to the attention of Messrs. Snavely and Kitts because of their mine
planning and operational responsibilities and due to the fact that Kitts was also the president of the
mine's operator, Wolf Run.
96. In addition, at all times relevant defendant Campbell was the Vice President and
Treasurer of Wolf Run, and ICG Senior Vice President Samuel R. Kitts was its President. In those
positions, both Campbell and Kitts (who directly reported to ICG officers/defendants Campbell and
Hatfield) received daily Section Foreman reports and weekly (and monthly) summaries of the mine's
coal production (including its tons/man-hour ratio), equipment failures, worker accidents and
injuries, production downtime, MSHA safety citations and abatement efforts, and updated year-to-
date comparisons of actual production vs. internal forecast. These reports reflect that for 2005, the
mines comprising the Sycamore Group produced a combined total of 295,401 tons of coal.
However, prior to June 6, 2006, the Company did not disclose the Sycamore 2 Mine's adverse
conditions in the Company's 2005 Form 10-K or other public filings or statements. Thus, there was
a complete lack of any reasonable basis in fact for ICG to initially and thereafter steadfastly project
39
the Sycamore Group's combined 2005 coal production of 640,000 tons in repeated public filings
made through December 8, 2005. Similarly, both the initial (1.6 million tons) and November 21,
2005 revised (1.2 million tons) projection of 2006 coal production for the Sycamore Group was
extreme recklessness and had no reasonable basis in fact when made, particularly in light of the
adverse conditions that began in the Sycamore 2 Mine on and after September 1, 2005 and were
known to defendants, yet they persisted in misrepresenting the Sycamore Group's production
capabilities in SEC filings.'
97. It was not until the conclusion of the Class Period on June 6, 2006, that ICG first
disclosed the emergence of the serious production problems at these mines which, for 2006, resulted
in them having a combined coal output of roughly 350,000 tons — a fraction of the 1.6 million - 1.2
million ton production projected in the Company's numerous public filings.
The Sentinel Mine
98. The Sentinel Mine located in Barbour County, West Virginia, near the town of
Philippi, was an Anker legacy mine with coal production at the Lower Kittanning seam when
production commenced in 1990. This seam had been depleted by early 2004. In ICG's initial SEC
Form S-1 filed April 28, 2005, the Company represented that Anker's "Philippi Development
Division" had previously moved the mine's coal harvesting operations to the Upper Kittanning seam
and had installed a "new low-seam haulage mining system" during the fourth quarter 2004 to mine
high quality (high priced) steam and metallurgical coal. The Form S-1 farther stated that the Sentinel
Mine was projected to produce 317,000 tons of coal in 2005 and increasing to 634,000 tons by
12, See, e.g., Form S-1/A5 at p. 100 (November 9, 2005 SEC filing signed by the IndividualDefendants projecting Sycamore Group's 2006 coal production of 1.6 million tons).
40
2008.' This same coal production projection of 317,000 tons of coal for 2005 was made in each
SEC filing relating to the Reorganization and IP0.14
99. In actuality, beginning in June 2004 the Sentinel Mine began experiencing
unintentional roof falls in the B-Main area of the mine where coal production operations were
centered. Previously, the roof conditions in this area of the mine had been relatively stable and had
allowed the mine to produce approximately 300,000 tons of coal in both 2002 and 2003. However,
the frequency in roof falls in the B-Main that commenced in June 2004 and continued to grow in
intensity throughout the remainder of 2004 forced numerous work stoppages that, in turn, adversely
effected coal production. In fact, total coal production for the Sentinel Mine for 2004 was slightly
more than 255,000 tons, but production had significantly been curtailed in the third and fourth
quarters (slightly less than 90,000 tons combined) because of the increased frequency of adverse roof
conditions.
100. The frequency of roof instability in the B-Main section of the Sentinel Mine
continued to increase (as did resultant worker accidents and MSHA safety violations) during the first
six months of 2005 (10 roof fall accidents and injuries), and coal production similarly continued to
decline. In fact, the mine's tons/man-hour ratio during this period was only 1.07 — less than one-
' Within the coal industry, a low-seam haulage mining system is recognized as highly efficient inextracting coal. In its Amendment No. 1 to Form S-4 filed September 28, 2005 ("Form S-1/A1"),ICG clarified that coal extraction in the Sentinel Mine since 2004 had actually been performed usinga lesser efficient "continuous miner" system. Id. at p. 92.
14 See, e.g., Form S-1 at p. 87; Form S-4 at p. 96; Form S-1/A4 at p. 101; Reorganization prospectusat p. 95; and IPO prospectus at p. 100.
41
third the industry average for underground mine production according to MSHA statistics. This
information along with the daily production of the Sentinel Mine was tracked on a per working shift
basis (2 per day) and reported to management of Wolf Run (the Sentinel Mine's operator of record
with MS HA).
101. Throughout the Class Period, defendant Campbell was the Vice President and
Treasurer of Wolf Run, and ICG Senior Vice President Samuel R. Kitts was its President. In those
positions, both Campbell and Kitts (who directly reported to ICG officers/defendants Campbell and
Hatfield) received daily flash reports (Section Foreman's reports), and weekly/monthly summary
reports of the mine's coal production (including its tons/man-hour ratio), equipment failures, worker
accidents and injuries, production downtime, MSHA safety citations and updated year-to-date
comparisons of actual production vs. internal forecast. These reports reflected that as of the end of
the first quarter 2005, the Sentinel Mine was then-expected to produce less than 175,000 tons of coal
for the entire year.
102. Faced with the increasing deterioration of the roof conditions in the B-Main section
of the Sentinel Mine, in May 2005, Wolf Run's management, including its President Samuel R.
Kitts, with the involvement and approval of defendants Hatfield and Campbell and ICG officer
Charles G. Snavely, decided to cease operations in the mine's B-Main section and relocate all mining
equipment and operational infrastructure to the mine's C-Main section — a lengthy process that began
shortly after the Memorial Day holiday weekend and was not completed until the first week of
September 2005, during which coal production was halted. However, when operations resumed in
the Sentinel Mine's C-Main section in September 2005, Wolf Run again experienced frequent roof
falls and resultant worker accidents and injuries. In fact, the mine experienced an additional 16 roof
42
fall accidents and injuries in the third quarter 2005, and 5 more such events in the fourth quarter
causing the mine operator (Wolf Run) to incur increased MSHA fines and the loss of manpower and
equipment costs to abate MSHA safety citations. Indeed, according to MSHA records, during 2005
MSHA inspectors fined the Sentinel Mine for over 110 safety and maintenance violations, 44 of
which were deemed "serious and substantial." Moreover the mine recorded injury rates were 6.5
times the national average during this period.
103. The lack of improved efficiency at the Sentinel Mine following the relocation of its
mining operations to the C-Main is apparent when viewed in light of its tons/man-hour ratio for the
coal production reported to MSHA for third and fourth quarter 2005 — a paltry 0.86 in comparison
to the industry average of 3.94.
104. As a result, in October 2005 Wolf Run's management, with the acknowledgment and
approval of ICG' s management, including defendants Hatfield and Campbell, and ICG officers
Snavely and Samuel R. Kitts, concluded that the continuing adverse roof conditions at Sentinel Mine
warranted the abandonment of coal mining operations in the Upper Kittanning seam, and
commenced negotiations to obtain the rights to mine lower quality (and 20% lower price) coal from
the Clarion seam. However, in order to access the Clarion seam, a detailed Sloping Down
Construction Plan needed to be prepared and submitted to state and federal inspectors for their
review and permitting.
105. This extensive Plan documents the precise location, angle, and work involved in
cutting a sloped ramp through the underlying strata down to the Clarion seam from the Upper
Kittanning seam. Further, when excavation of the slope reached the Clarion seam, additional
43
excavation or construction would have been required before the fall production mining cycle could
commence. For example, additional horizontal mining in the Clarion seam would have been
required to advance from the actual slope to a point that permitted installation and setup of mining
equipment needed for the production mining cycle. Due to this extensive planning (and the
prerequisite MSHA permit approval process), full production in the Sentinel Mine ceased before the
end of the first quarter 2006 and was not scheduled to resume (and did not resume) until late
November 2006, yet this information was omitted in both ICG's 2005 Form 10-K and Form 10-Q
for the first quarter 2006 (filed May 12, 2006) leaving investors with no reason to distrust the
accuracy of the Sentinel Mine production projections and representations contained in the
Reorganization and IPO SEC filings.
106. Based upon the periodic mine operation reports provided each of the Individual
Defendants and to other members of ICG' s management, neither the Company nor the Individual
Defendants had any reasonable basis in fact to rationally justify the projections contained in ICG' s
public filings that the Sentinel Mine would produce 317,000 tons of coal during 2005 as repeatedly
represented in ICG' s public filings beginning in April 28, 2005. Indeed, according to MSHA
records, approximately 147,000 tons of coal were produced at the Sentinel Mine for all of 2005 —
a negative variance of nearly 54% that was represented to the public as late as December 8, 2005 in
the IPO prospectus. This coal production shortfall caused a loss of expected revenues for 2005 of
approximately $10 million. Based on ICG's non-public, internal decision in October 2005 to halt
mining the Upper Kittanning seam and, instead, commit to the lengthy process of both securing
mineral rights to mine the Clarion seam and MSHA peimits to extend the Sentinel Mine to that strata
(not to mention actually cutting and excavating the mine slope and rebuilding the mine's
44
infrastructure to accomrnodate operations), it was impossible for the Sentinel Mine to meet its
publicly announced production goal for 2005 and 2006.
107. Thus, the decline in the Sentinel Mine's coal production output, the increased
difficulties and costs of mining coal from the Upper Kittarming seam, and the increase in worker
accidents and MSHA safety violations from mid-2004 through the end of the Class Period was fully
known to Defendants, but intentionally distorted if not outright omitted in the Company's public
filings and statements. In fact, the Company's claim in its 2005 Form 10-K filed March 31, 2006
(p. 13) that "mining is currently conducted in the Upper Kittarming seam by room-and-pillar mining
method" was false and misleading at the time made for such operations were non-existent at that
time. Indeed, although this decision to halt mining of the Upper Kittanning seam was made by ICG
in October 2005, it was first disclosed publicly on June 6, 2006 (close of the Class Period), and the
Sentinel Mine's production operations for the Clarion seam did not begin until late November 2006
(as later disclosed in the Company's 2006 Form 10-K). In fact, according to ICG's 2006 Form 10-K
(p. 8), the total coal production of the Sentinel Mine in 2006 was only 58,400 tons.
The "Phantom" Patriot Mines
108. According to ICG's pre-Reorganization filings with the SEC, Patriot Mining
Company ("Patriot") consisted of "three active surface mines near Morgantown, West Virginia:" the
Crown 2 and New Hill East mines located in Monongalia County, West Virginia, and the Keener
mine located in "Green County, Pennsylvania." 15 ICG also initially projected that the 2005
combined coal production for these three mines was 750,000 tons, which was later slightly
15 See, e.g., Form S-1 at p. 85; Form S-4 at pp. 94-95; Form S-1/A4 at p. 100; Reorganizationprospectus at p. 94; and IPO prospectus at p. 99.
45
downgraded to 700,000 tons on and after November 18, 2005.16
109. Although MSHA records reflect that Patriot operated three active surface mines in
2005 near Morgantown, West Virginia, the names of these mines do not correspond to those
identified by ICG, nor does their combined coal production come close to that represented in ICG's
public filings. Specifically, MSHA has no record of any mines existing in West Virginia or
Pennsylvania operating under the names of Crown 2, New Hill East or Keener. Further, while
MSHA's records confirm that Patriot operated two active mines in West Virginia (mine no. 4607654
and Stacks Run) and one in Greene County, Pennsylvania (Mt. Morris Surface Mine) during 2005,
the combined coal production for these mining complexes was only 273,497 tons — a 61% negative
variance from Patriot's coal production as reported in ICG's Form 10-K for 2005.
110. Throughout the Class Period, the Individual Defendants received weekly and monthly
summary reports of the coal production from Patriot's mines (including its tons/man-hour ratio),
equipment failures, worker accidents and injuries, production downtime, MSHA safety citations and
updated year-to-date comparisons of actual production vs. internal forecast. These reports also
reflected that Patriot's surface mines produced a combined total of 423,448 tons of coal for 2004,
and roughly only 46,700 tons as of the date ICG's initial Form S-1 was filed with the SEC. Thus,
there was no reasonable basis for ICG to represent, or the Individual Defendants to attest, that
750,000 tons of coal (or even 700,000 tons) would be produced from Patriot's operations for 2005
as reflected in its public filings.
16 Compare, Foun S-1 at p. 85, Faint S-4 at p. 95, and Form S-1/A4 at p. 100, with Reorganizationprospectus at p. 94 and IPO prospectus at p. 99. Also see ICG's 2005 Form 10-K at p. 8 (stating thata combined 700,762 tons of coal were produced from Patriot's "mining complexes" in 2005).
46
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The Viper Mine Fire
111. The mine safety and maintenance troubles caused by deferred maintenance and need
for new equipment was not exclusive to the Sago operations. For example, on September 30, 2004,
the Company took control over the Viper Mine located in Williamsville, Illinois through its
subsidiary ICC Illinois, LLC. Between the date of ICG' s assumption of the Viper Mine's operations
on September 30, 2004 through April 7, 2006, the mine was issued 182 MSHA safety violations,
including violations for failing to protect miners from roof collapses and failing to periodically test
and recalibrate the mine's methane gas monitors. A notation of such violations would have been
included as a matter of common practice in the daily Section Foreman reports submitted to the mine
operator, ICG Illinois, LLC, who had controlled and supervised the daily operations of the Viper
Mine since acquiring it in late September 2004. The substance of these reports, in turn, would have
been summarized and periodically provided to each of the Individual Defendants.
112. On April 8, 2006, a fire broke out on the high angle conveyor belt in the Viper Mine's
production shaft while workers were performing maintenance causing extensive damage that idled
the mine for nearly a month. Although the financial impact of the Viper Mine fire was minimized
through the mine's ability to continue with shipments of coal from existing inventory for nearly three
weeks following the fire, it serves to under score the inadequacy of the Company's mine safety and
equipment maintenance and repair protocols and procedures.
The Birch River Mine
113. In October 2004, ICG took control of the Birch River Mine, a surface ("strip") mine
located in Webster County, West Virginia, in connection with its acquisition of Horizon's assets
47
following its successful bankruptcy auction bid. The Birch River Mine's accident rate worsened
throughout 2005 under ICG's ownership, increasing from 2.17 injuries per 200,000 hours worked
to 3.25 injuries per 200,000 hours worked. This was twice the national average in 2005. MSHA
inspectors identified 37 safety violations at the Birch River Mine during this time, 12 of which were
deemed "serious and substantial."
114. MSHA inspectors cited the Birch River Mine an additional 13 times, and assessed
over $120,588 in penalties, for serious violations relating to ICG's failure to use proper electrical
connections, failure to correct equipment defects, allow accumulations of combustible materials, and
failure to maintain proper safety. The thirteen citations spanned February 7, 2006 through April 3,
2006, contemporaneous to the Sago disaster.
Other Problem Mines
115. During 2005, the Company's Stony River Mine in Grant County, West Virginia
recorded a nonfatal injury rate of approximately 28 injuries per 200,000 hours worked, four times
higher than the national average. In February, an operational disaster occurred when the Stony River
mine had a major roof collapse. It did, however, render the mine permanently inoperable — a fact
concealed until June 6, 2006.
116. Similarly, ICG's Cavalry Mine received over 100 MSHA citations in 2005; the
Blackberry Creek Mine, located in Pike County, Kentucky, was cited over 65 times in 2005; the
Raven Mine No. 2, located in Knott County, Kentucky, received 24 MSHA citations in the short
4 months it operated in 2005 before shutting down, and ICG 's Flint Ridge Mine in Breathitt County,
Kentucky, received 27 MSHA citations in December 2005 alone.
48
117. At the time that these mines were being operated, and the subject MSHA citations
issued, they were directly operated and supervised by three distinct ICG subsidiaries (ICG Knott
County, LLC, ICG East Kentucky, LLC, and ICG Hazard, LLC) having one common denominator:
defendants Campbell and Teramoto were both designated as managers of record for each of these
entities with MSHA and Kentucky's Secretary of State. In that capacity these defendants would have
received notification of these MSHA citations contemporaneously with their issuance (along with
the other types of mine operational information accompanying the daily and weekly/monthly mine
reports).
DEFENDANTS' KNOWLEDGE OF
MINE SAFETY VIOLATIONS AND PRODUCTION OUTAGES
118. The foregoing allegations establish Defendants' conscientious and carefully
conceived a plan to avoid needed expenditures on plant equipment and safety and failed to disclose
or minimize, the consequences to safe operations and coal production volumes. Rather than devote
needed resources to ensuring that its mines were operated in a safe and productive manner,
defendants concentrated on temporarily increasing coal production to show increased profits.
Defendants postponed disclosure of the truth regarding ICG's deteriorating mine conditions and
hazardous status and need to invest in equipment.
119. Throughout the Class Period ICG and the Individual Defendants received nearly
continuous operational reports routinely disclosing mine accidents, MSHA citations, acute safety
problems and declining actual coal production from the Companies' mining operations that was
contemporaneously captured in the Section Foreman's report and similar means. As such,
49
defendants knew, or recklessly chose to ignore, the declining levels of production in its operational
units and the increasing frequency of work stoppages caused by safety hazards and MSHA citations
requiring corrective action and emergency mine closures. Indeed, defendant Ross admitted during
an ABC news interview broadcast conducted on or about January 5, 2006, that he had been
personally aware and regularly kept abreast of the various mine collapses, accidents and MSHA
citations routinely issued in connection with ICG's mining operations.
120. After close of trading on June 6, 2006, ICG issued a press release to investors which
sought to correct earlier material misstatements/omissions by announcing that, "due to a variety of
operating issues experienced during the first half of 2006, [ICG] has lowered its outlook for the
Company's 2006 financial performance." Defendant Hatfield did not seek to blame ICUs woes on
the Sago Mine disaster but, instead, stated, "[Ni]e have faced an unprecedented number of operating
challenges thus far in 2006, many of which have demanded an extraordinary amount of time and
attention from our management team." Among these "unprecedented ... operating challenges" were:
• A conveyor fire at the Company's Viper Mine on April 8, 2006 that resultedin a 30-day loss of production and significant repair costs;
• A major roof collapse at the Company's newly acquired Stony River Minelocated in Garrett County, Maryland, occurring in February 2006 (but notpreviously reported) that led the Company to permanently close the mine;
• Adverse geologic conditions at the Company's Sycamore No. 2 Mine inHarrison County, West Virginia that somehow caused "difficult miningconditions resulted in high production costs and reduced tonnage" in theSycamore No. 1 Mine's operations and also "forced a 4-month delay instartup of the Number 2 mining section"; and
• That the Company's Sentinel Mine's production units would be "moved fromthe high-cost Upper Kittanning mine to the underlying Clarion reserve" thuscausing an 8-month construction outage during 2006 while mine shafts andslopes were extended "to access recently acquired Clarion seam reserves."
50
121. The market immediately appreciated the significance of the disclosures and reacted
negatively in response by eroding ICG's stock price from $8.50 on June 6, 2006 to $7.10 per share
(approximately a loss of 16.5%) on June 7, 2006, on extremely heavy trading volume. The stock
continued to decline as further disclosures regarding the impact of work stoppages caused by ICG' s
mining safety violations, accidents, and equipment deficiencies became public over the ensuing
weeks.
VIOLATION OF SEC RULES AND REGULATIONS
122. In addition to the duties of full disclosure imposed on the defendants by their status
as controlling persons of ICG, as a result of their affirmative statements and reports, or participation
in the making of affirmative statements and reports to the investing public contained in the
Company's SEC filings, press releases and other public statements, both ICG and the Individual
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
regulations 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. The Company was required to disclose in the appropriate SEC filings the safety and
maintenance problems at ICG mines, the causes as known, and the potential and actual adverse
impact that those problems would, and did, have on the Company's financial condition and
operations as detailed herein. Defendants' SEC filings failed to contain any such disclosure.
Specifically, inter cilia:
(a) Pursuant to Item 11(h) of Form S-1, a Registration Statement is required tofurnish the information required by Item 303 of Regulation S-K. Under item 303(a)of Regulation S-K an issuer is required to, among other things, "describe any knowntrends or uncertainties that have had or that the registrant reasonably expects will
51
have a material favorable or unfavorable impact on net sales or revenues or incomefrom continuing operations." The prevalent safety and maintenance problemsresulting from the need for equipment and capital investment at ICG mines washaving, and would continue to have, a damaging impact on the Company's revenuesand income from continuing operations through decreasing coal production and,therefore, Defendants were required to disclose this fact in the ReorganizationRegistration Statement but did not; and
(b) Pursuant to Item 3 of Form S- 1, a registration statement is required tofurnish the information required by Item 503 of Regulation 503. Under Item 503(c)of Regulation S-K, an issuer is required to, among other things, provide a "discussionof the most significant factors that make the offering risky or speculative." Theprevalent safety and maintenance problems resulting from a lack of investment inneeded equipment at ICG mines negatively impacted coal production, causedshutdowns of several mines, and decreased coal production and the resulting loss ofrevenues necessarily followed as described herein were "significant factors" thatmade the Reorganization and Offering "risky or speculative", and thus required to bedisclosed, but were not, in the Company's SEC filings.
123. The Reorganization and stock exchange was effectuated on Monday, November 21,
2005 - approximately 131 million shares of old ICO stock were exchanged for a like number of new
ICO shares in a firm commitment public offering, in which the lead underwriters were UBS
Investment Bank and Lehman Brothers.
124. ICUs compliance with safety facility, equipment and maintenance standards, as
represented in the Reorganization and Offering Documents, 2005 Folui 10-K and Form l0-Q's filed
during the Class Period were false and misleading and not prepared in accordance with SEC
regulations.
DEFENDANTS ACTED WITH SCIENTER
125. As alleged in greater detail above, the Individual Defendants knew from their
52
positions as officers and/or directors of ICG, and (in the case of defendants Hatfield, Campbell and
Teramoto) as managers and officers of the ICG subsidiary units directly operating and supervising
individual mine operations, of the various state and MSHA mine safety violations, fines, worker
accidents and injuries, and their concomitant negative effect on mine coal production operations that
occurred throughout the Class Period. Despite this knowledge and awareness, ICG and each of the
Individual Defendants approved and authorized the Reorganization and IP 0 offering documents, the
Company's 2005 Form 10-I( and Form 10-Qs, and the press releases and other public statements
filed, issued or disseminated in the name or at the instance of the Company during the Class Period
— all of which contained materially false and misleading statements. Defendants similarly knew that
such filings and documents would be issued and/or disseminated to the investing public and, as such,
knowingly and substantially participated, acquiesced and authorized the issuance and dissemination
of such filings and documents that were primary violations of the federal securities laws.
126. As set forth elsewhere herein, defendants, by virtue of their receipt of information
reflecting the true facts regarding ICG and their control over, and/or receipt and/or modification of
materially misleading misstatements and/or their associations with the Company which made them
privy to such confidential propriety infounation concerning ICG, participated in the fraudulent
scheme alleged herein.
127. Defendants received information entailing the true facts regarding ICG and had
control over, and/or receipt of and/or modification and/or direct participation o f the group published
information. Defendants association with the Company made them privy to all confidential and
proprietary information concerning ICG and each Defendant thereby participated in the fraudulent
scheme alleged herein.
53
128, Defendants knew and/or recklessly disregarded the falsity and misleading nature of
the infoimation which was disseminated to the investing public. The ongoing fraudulent scheme
described in this First Amended Complaint could not have been perpetuated over a substantial period
of time, as occurred, without the knowledge and complicity of personnel at the highest level of the
Company, including the Individual Defendants.
129. Defendants were motivated to engage in this course of conduct in order to complete
the corporate Reorganization and IPO and enable defendant Ross to merge ICG and his interests in
Anker and thus gain access to a publicly traded market for ICG common stock, and raise additional
capital to fund the future operations and equipment and infrastructure requirements of ICG/Anker,
where the Individual Defendants and the Company realized millions in additional net proceeds.
130. Defendant Ross was particularly motivated to commit the scheme and misconduct
alleged herein. As Chairman of the Board of the Company, Ross both earned performance based
compensation from the Company and owned substantial holdings of Company securities. Therefore,
he would disproportionately benefit by engaging in the practices herein described that inflated the
Company's stock price.
131. During the Class Period, and with the Company's stock trading at artificially inflated
prices, ICG completed the Reorganization, on or about November 21, 2005, and completed its IPO
transaction but days later on December 8, 2005.
APPLICABILITY OF THE PRESUMPTION OF RELIANCE:
FRAUD-ON-THE-MARKET DOCTRINE
54
1 3 2. Plaintiffs will rely, in part, upon the presumption of reliance established by the fraud-
on-the market doctrine in that:
(a) Defendants named under these causes brought pursuant to the Exchange Actmade public representations or failed to disclose material facts during theClass Period regarding ICG as alleged herein;
(b) The omissions and misrepresentations were material;
(c) Both prior to the Reorganization and continuing throughout the ClassPeriod, ICG's stock was traded on a well developed national stockexchange, initially the Pink Sheets Electronic Quotation Service and,following the Reorganization, the NYSE. Both of these markets areopen and efficient;
(d) ICG filed periodic reports during the Class Period with the SEC;
The market rapidly assimilated information about ICG which waspublicly available and communicated by the foregoing means; thatinformation was promptly reflected in the price of the Issuer'scommon stock;
(f) The misrepresentations and omissions and the manipulative conductalleged herein would tend to induce a reasonable investor to misjudgethe true value of the Issuer's common stock; and
(g) Plaintiffs and the class members purchased their stock between thetime defendants failed to disclose or misrepresented material factsand the time the true facts were disclosed, without knowledge of themisrepresented facts.
55
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LOSS CAUSATION/ECONOMIC LOSS
133. Defendants' false and misleading statements had the intended effect and caused the
Company's securities to trade at artificially inflated levels.
134. The decline in the value of the Company's securities was a direct result of the nature
and extent of defendants' fraud finally being revealed to investors and the market. The timing and
magnitude of the decline in the value of the Company's securities negates any inference that the loss
suffered by Plaintiffs, and other members of the Class, was caused by changed market conditions,
macroeconomic or industry factors, or Company-specific facts, unrelated to defendants' fraudulent
conduct. The economic loss, i.e., damages, suffered by Plaintiffs and other Class members was a
direct result of defendants' fraudulent scheme to artificially inflate the value of the Company's
securities, and the subsequent significant decline in that value when defendants' prior
misrepresentations and other fraudulent conduct was revealed to the investing public.
STATUTORY SAFE HARBOR
135. The statutory safe harbor providing for forward-looking statements under certain
circumstances does not apply to any of the false "forward-looking statements" pleaded in this First
Amended Complaint. None of the "forward-looking statements", if any, pleaded herein were
sufficiently identified as a "forward-looking statement" when made. No meaningful cautionary
statements identifying important factors that could cause actual results to differ materially from that
in the "forward-looking statements" accompany any relevant statements. To the extent that the
statutory safe harbor does apply to any "forward-looking statements" pleaded, the defendants are
liable for those false-"forward-looking statements" because at the time each of those statements was
56
made, the speaker actually knew the "forward-looking statement" was false and the "forward-looking
statement" was authorized and/or approved by an executive officer or director of ICG who actually
knew that those statements were false when made.
CLASS ALLEGATIONS
136. Plaintiffs bring this action as a class action pursuant to Rule 23(a) and (b)(3) of the
Federal Rules of Civil Procedure on behalf of a Class consisting of all persons and entities who
during the Class Period April 18, 2005 through June 6, 2006 either: (1) purchased "old ICG"
securities; (2) held "old ICG" securities and received shares in "new ICG" pursuant to the
Company's November 21, 2005 Reorganization; or (3) purchased shares of "new ICG" stock
following the Company's Reorganization. Excluded from the Class are ICG and the Individual
Defendants, and any officers or directors of the Company, members of their immediate families, and
their legal representatives, heirs, successors or assigns and any entity in which defendants have or
had a controlling interest (including, but not limited to WL Ross, WLR I and WLR II).
137. The members of the Class are so numerous that joinder of all members is
impracticable. While the exact number of Class members is unknown to Plaintiffs at the present
time and can only be ascertained through appropriate discovery, Plaintiffs believe that there are
thousands of members of the Class located throughout the Unites States. ICG issued and/or
exchanged millions of shares in connection with the Company's Reorganization and Offering.
Record owners, beneficial owners, and other members of the Class may be identified from records
maintained by ICG and/or its transfer agent(s) and may be notified of the pendency of this action by
mail, using a form of notice similar to that customarily used in securities class actions.
57
138. Plaintiffs' claims are typical of the claims of the members of the Class as all members
of the Class are similarly affected by defendants' wrongful conduct in violation of federal law that
is complained of herein.
139. Plaintiffs will fairly and adequately protect the interests of the members of the Class
and has retained counsel competent and experienced in Class and securities litigation. Plaintiffs have
no interests that are adverse or antagonistic to those of the Class.
140. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. Because the damages suffered by many individual class members
maybe relatively small, the expense and burden of individual litigation make it virtually impossible
for the class members to individually seek redress for the wrongful conduct alleged herein. Plaintiffs
know of no difficulty to be encountered in the management of this action that would preclude its
maintenance as a class action.
141. Common questions of law and fact exist as to all members of the Class and
predominate over any questions affecting solely individual members of the Class. The prosecution
of separate actions by individual Class members would create a risk of inconsistent and varying
adjudications, which could establish incompatible standards of conduct for defendants. Among the
questions of law and fact common to the Class are:
(a) Whether the Securities and Exchange Act of 1934 and/or Rule 10b-5
promulgated thereunder were violated by defendants' acts as alleged
herein;
(b) Whether defendants participated in and pursued the common course
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of conduct complained of herein;
(c) Whether the Reorganization and Offering Documents, 2005 Foi in 10-
K, and Form 10-Qs issued and filed with the SEC during the Class
Period, and/or disseminated by defendants to the investing public and
the Company's shareholders during such period, contained untrue
statements of material fact, omitted to state facts necessary to make
the statements made therein not misleading, and were prepared in
accordance with the rules and regulations governing their preparation;
(d) Whether the market price of ICG securities during the Class Period
was artificially inflated due to the misrepresentations and/or non-
disclosures complained of herein;
(e) Whether defendants acted with scienter and willfully or with
conscious or deliberate recklessness with respect to the claims
brought under the Exchange Act and/or Rule 10b-5 promulgated
thereunder; and
(0 The extent of damage sustained by Plaintiffs and other Class
members, and the appropriate measure of damages.
59
COUNT I
FOR VIOLATIONS OF SECTION 10(b) OF THE EXCHANGE ACT ANDRULE 10b-5 THEREUNDER AGAINST DEFENDANTS BASED UPONMATERIALLY FALSE AND MISLEADING STATEMENTS ANDOMISSION OF MATERIAL FACTS
142. Plaintiffs repeat and re-allege each and every allegation set forth above as though fully
set forth herein.
143. ICG common stock is currently traded on the NYSE (under the symbol "ICO") and
governed by the provisions of the federal securities laws. Defendants each had a duty to disseminate
truthful infoilnation promptly and accurately with respect to the Company's operations, products,
markets, management, earnings and business prospects, to correct any previously issued statements
that had become materially misleading or untrue, and to disclose any trends that would materially
affect earnings and the financial results of ICG, so that the market price of the Company's publicly
traded securities would be based upon truthful and accurate information.
144. Under rules and regulations promulgated by the SEC under the Exchange Act, the
defendants also had a duty to report all trends, demands or uncertainties that were likely to influence
ICG' s net sales, revenues and/or income and financial performance and the Individual Defendants'
representations violated these specific requirements and obligations.
145. The Reorganization and IPO prospectuses and other SEC filings made by ICG during
the Class Period contained untrue statements of material facts, omitted to state other facts necessary
to make the statements not misleading, and concealed and failed to disclose material facts.
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146. Plaintiffs and other members of the Class purchased or otherwise acquired either "old
ICG" or "new ICG" common stock during the Class Period (or had the existing shares or "old ICG"
stock exchanged for "new ICG" stock pursuant to the Reorganization). Plaintiffs and the class
members did not know, or in the exercise of reasonable diligence could not have known, of the false
statements and omissions contained in the Reorganization and IPO prospectuses and other ICG
related SEC filings, press releases and public statements issued by the Company and/or the
Individual Defendants on behalf of ICG.
147. Defendants, and each of them, violated §10(b) of the Exchange Act and Rule 10b-5
in that they:
(a) employed devices, schemes and artifices to defraud;
(b) made untrue statements of material facts or omitted to state material
facts necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading; or
engaged in acts, practices and a course of business that operated as a
fraud or deceit upon Plaintiffs and others similarly situated in
connection with their purchase, exchange or acquisition of ICG stock
during the relevant period in an effort to maintain an artificially high
market price for ICG stock in violation of § 10(b) of the Exchange
Act and Rule 10b-5.
148. In addition to the duties of fall disclosure imposed on the defendants by their status
as controlling persons of ICG, as a result of their affirmative statements and reports, or participation
61
in the making of affirmative 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 regulations 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 ICG's stock, operations, financial condition and earnings
so that the market price of ICG stock would be based on truthful, complete and accurate information.
149. Defendants, individually and in concert, directly and indirectly, by using the 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 business, operations
and future prospects of ICG as specified herein.
150. Defendants employed devices, schemes and artifices to 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 investors of ICG's value and performance and continued
substantial growth, 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 ICG' s workplace safety, equipment needs, capital requirements and
environmental compliance, business operations and future prospects, in 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
purchasers of ICG stock during the Class Period.
151. Each of the Individual Defendant's primary liability, and controlling person liability,
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arises from the following facts:
(a) the Individual Defendants were high-level executives and/or directors
at the Company at all times relevant hereto and members of the
Company's management team or had control thereof;
(b) each of these defendants, by virtue of his responsibilities and
activities as a senior officer and/or director of the Company was privy
to and participated in the creation, development and reporting of the
Company's internal budgets, plans, projections, operations, the
Reorganization and/or IPO prospectuses, related SEC filings, press
releases and/or other public statements and reports;
(c) each of these defendants enjoyed significant personal contact and
familiarity with the other defendants and was advised of and had
access to other members of the Company's management team,
internal reports and other data and information about the Company's
workplace safety, compliance, finances, operations, capital needs, and
the sales of coal and related trending at all relevant times; and
(d) each of the defendants was aware of the Company's dissemination of
information to the investing public which they knew or recklessly
disregarded was materially false and misleading.
152. The defendants had actual knowledge of the misrepresentations and omissions of
material facts set forth herein in the above mentioned filings, documents and public statements.
63
Defendants' material misrepresentations or omissions with respect to the Company's workplace
safety, equipment requirements and capital needs were done knowingly and for the purpose and
effect of concealing ICG' s true operating condition and safety record and the adverse effects on the
Company's financial condition and operations from the investing public while supporting the
artificially inflated price of ICG stock, as demonstrated by said defendants' overstatements and
misstatements of ICG' s workplace safety, financial condition, operations, equipment, capital needs
and future earnings prospects and/or financial statements throughout the relevant time period.
Defendants, if they did not have actual knowledge of the misrepresentations and omissions alleged,
were reckless in failing to obtain such knowledge by deliberately refraining from taking those steps
necessary and reasonably prudent to discover whether those statements were false or misleading.
153. As a result of the dissemination of the materially false and misleading information
and failure to disclose material facts by all defendants, as set forth above, the market price of ICG
stock was artificially inflated during the class period.
154. In ignorance of the fact that market prices of ICG' s publicly-traded 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 securities trade, and/or the absence of
material adverse information that was known to or recklessly disregarded by defendants but not
disclosed in public statements by defendants during the relevant period, Plaintiffs and the other
members of the Class purchased, exchanged or otherwise acquired ICG common stock during the
Class Period as alleged herein, and were damaged thereby.
155. At the time of said misrepresentations and omissions, Plaintiffs and other members
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of the Class were ignorant of their falsity and believed them to be true. Had Plaintiffs Saratoga or
Hyer (or the other members of the Class) and the marketplace known the truth as to ICG' s workplace
conditions, safety violations, operations and financial needs which were not disclosed by defendants,
Plaintiffs and other members of the Class would not have purchased, exchanged or otherwise
acquired ICG common stock during the Class Period as alleged herein, or, if they had purchased,
exchanged or otherwise acquired such stock, would not have done so at the artificially inflated prices
which they did.
156. By virtue of the foregoing, defendants, and each of them, have violated § 10(b) of the
1934 Act and Rule 101)-5 promulgated thereunder.
157. As a direct and proximate result of the wrongful conduct of the defendants, Plaintiffs
and the other members of the Class have suffered damages in connection with their purchases of
ICG securities during the Class Period.
COUNT II
FOR VIOLATIONS OF SECTION 20(a) OF THE EXCHANGEACTAGAINST THE INDIVIDUAL DEFENDANTS BASED UPONMATERIALLY FALSE AND MISLEADING STATEMENTS ANDOMISSIONS OF MATERIAL FACTS
158. Plaintiffs repeat and re-allege each and every allegation set forth in the paragraphs
above, as if set forth fully herein.
159. Each of the Individual Defendants, by virtue of their offices, directorships, and
specific acts was, at the time of the wrongs alleged herein, a controlling person of ICG within the
65
meaning of §20(a) of the Exchange Act. By virtue of their high-level position, and their ownership
and contractual rights, participation in and/or awareness of the Company's operations and/or intimate
knowledge of the false financial and operational statements filed by the Company with the SEC and
disseminated to the investing public, the Individual Defendants had the power and the influence to
control and did influence and control, directly or indirectly, the decision-making of the Company,
including the content and dissemination of the various statements which Plaintiffs contend are false
and misleading. The Individual Defendants were provided with or had unlimited access to copies
of ICG' s Reorganization and IPO prospectuses and related SEC filings, 2005 Form 10-K, Form 10-
Qs, press releases and other public statements attlibutable to defendants alleged by Plaintiffs to be
false or misleading prior to and/or shortly after they were filed, issued or disseminated, and
Individual Defendants had the ability to prevent the filing, issuance or dissemination of the filings,
documents and statements or cause them to be corrected.
160. The Individual Defendants were obligated to make a reasonable and diligent
investigation of the accuracy and completeness of the Reorganization and IPO prospectuses and
related and other SEC filings, press releases and public statements made, approved or attributable
to the defendants during the Class Period. Plaintiffs did not know and, in the exercise of reasonable
diligence, could not have known, of the false representations and omissions contained in these
materials and statements.
161. In addition, each of these defendants had direct and supervisory involvement in the
day-to-day operations of the Company, including but not limited to direct and supervisory
involvement with respect to the written and oral communications made in connection with ICG's
corporate Reorganization and Offering and SEC filings and press releases and public statements
66
made, issued or disseminated during the Class Period and, therefore, had the power to control or
influence the particular activities giving rise to the securities violations as alleged herein, and
exercised the same.
162. As set forth above, each of the Individual Defendants each violated Section 10(b) and
Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their positions as
controlling persons, these defendants are liable to Plaintiffs and the Class pursuant to Section 20(a)
of the Exchange Act. As a direct and proximate result of defendants' wrongful conduct, Plaintiffs
and other members of the Class suffered damages in connection with their purchases of the
Company's securities during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, on behalf of themselves and other members of the Class, pray for
judgment as follows:
A. Declaring the action to be a proper class action pursuant to Rule 23(a) and (b) of the
Federal Rules of Civil Procedure on behalf of the Class defined herein and appointing Saratoga as
Lead Plaintiff and its counsel as Lead Counsel for the Class and certifying Plaintiffs Saratoga and
Hyer as Class Representatives;
B. Awarding compensatory damages in favor of Plaintiffs and the Class against all
defendants, jointly and severally;
C. Awarding Plaintiffs and the other members of the Class pre-judgment and post-
judgment interest, as well as their costs and expenses of this litigation, including reasonable
67
attorneys' fees and experts' fees and other costs and disbursements;
D. Awarding extraordinary, equitable and/or injunctive relief as permitted by law or
equity and the federal statutory provisions sued hereunder, pursuant to Rules 64 and 65 and any
appropriate state law remedies to assure that the Class has an effective remedy; and
E. Awarding Plaintiffs and other members of the Class such other and further relief as
this Court may deem just and proper under the circumstances.
JURY DEMAND
Plaintiffs demand a jury trial on all issues so triable.
Dated: July 6, 2009 Respectfully Submitted,
Is! Troy N. Giatras
Troy N. Giatras, Esquire
The Giatras Law Firm, PLLC
118 Capitol St., Suite 400
Charleston, WV 25301
Telephone: (304) 343-2900
Facsimile: (304) 343-2942
Email: [email protected]
-and-
Jeffrey R. Krinsk (Admitted pro hac vice)
Mark L, Knutson (Admitted pro hac vice)
William R. Restis (Pro hac forthcoming)
FINKELSTEIN & KR1NSK, LLP
501 West Broadway, Suite 1250
San Diego, California 92101-3579
Telephone: (619) 238-1333
Facsimile: (619) 238-5425
68
07/6212009 13:01 5306234989 IMAGINATIONS PAGE 02
FINKELSTEIN & KR1NSK LLPTHEODORE HYER
CERTIFICATION OF REPRESENTATIVE PLAINTIFFPURSUANT 10 15 U.S.C. §78u-4(a)(2)
1, Theodore Hyer ("Plaintiff"), declare as to the claims asserted under the federalsecurities laws, that I have reviewed the Complaint and authorized the filing of this FirstAmended Complaint.
1. Plaintiff did not purchase the security that is the subject of this action at thedirection of plaintiff's counsel or in order to participate in this private action.
2. Plaintiff is willing to serve as a representative party on behalf of the class,including providing testimony at deposition and trial, if necessary.
3. Plaintiff's transactions in the securities that are the subject of this action duringthe Class Period are as follows:
Security Amount Purchased/Sold fl Price Per Share
ICO 2,000 Purchase 03/02/2006 58.45
4. Plaintiff has not sought to serve or served as a representative party for a class inthe following actions filed under the Securities Exchange Act of 1934 or Securities Act of 1933within the last three years;
5. Plaintiff will not accept any payment for serving as a representative party onbehalf of the class beyond the Plaintiff's pro rata share of any recovery, except such reasonablecosts and expenses (including lost wages) directly relating to the representation of the class asordered or approved by the Demi.
I declare under penalty or perjury of the laws of the United States that the foregoing istrue and correct. Executed this 2 day of July, 2009 at Douglas City, California.
Theodore Hyer
IN THE UNITED STATES DISTRICT COURTFOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
AT CHARLESTON
SARATOGA ADVANTAGE TRUST, On )Behalf Of Themselves And All Others )Similarly Situated, )
))
Plaintiffs, )vs. )
))
ICG, INC. a/k/a INTERNATIONAL COAL ) Case No. 2:08-cv-0011GROUP, INC., WILBUR L. ROSS, JR., )BENNETT K. HATFIELD, WENDY L. )TERAMOTO , WILLIAM D. CAMPBELL, )
)Defendants. )
)
CERTIFICATE OF SERVICE
I, Troy N. Giatras, Esquire, Counsel for Saratoga Advantage Trust, do hereby certify
that on July 6, 2009, I electronically filed the foregoing "First Amended Class Action
Complaint for Violation of Federal Securities Laws" with the Clerk of the Court using
CM/ECF system which will send notification of such filing to the following CM/ECF
participants:
Robert C. Micheletto, EsquireJONES DAY
222 East 41 st StreetNew York, NY 10017-6702
Edward D. McDevitt, EsquireBowles Rice McDavid Graff & Love
P.O. Box 1386Charleston, WV 25325-1386
Jeffrey R. Krinsk, EsquireMark L. Knutson, EsquireWilliam R. Restis, Esquire
Finkelstein & KrinskSuite 1250, 501 West Broadway
San Diego, CA 92101
Bronson J. Bigelow, EsquireJONES DAY
222 East 41 st StreetNew York, NY 10017-6702
John M. Newman, Jr., EsquireJONES DAYNorth Point
901 Lakeside AvenueCleveland, OH 44114-1190
Douglas Wilens, EsquireLerach Coughlin Stole Geller Rudman & Robbins
Suite 500, 120 East Palmetto Park RoadBoca Raton, FL 33432
/s/ Troy N. Giatras Troy N. Giatras (WV SB ID No. 5602)The Giatras Law Firm, PLLC118 Capitol Street, Suite 400Charleston, West Virginia 25301Telephone: (304) 343-2900Facsimile: (304) 343-2942E-mail: troythewvlawfirm.corn