The opinion of the court was delivered by: Grady, District Judge.
This cause comes before the court on motion of the plaintiff
for class certification. Fed.R.Civ.P. 23. The class sought to
be certified is defined as
All persons, exclusive of the defendants, who
purchased the common stock of AES Technology
Systems, Inc., on the Over-the-Counter Market
between March 13, 1979, and September 5, 1980.
The complaint alleges violations of the Securities Exchange
Act of 1934, 15 U.S.C. § 78j (§ 10(b)).
Plaintiff is an investor who purchased shares of stock in
AES Technology Systems, Inc. Defendants are AES Technology,
its subsidiary, Game Plan, Inc., which is engaged in the
manufacture of slot and pinball machines, and the officers and
directors of those corporations. Plaintiff alleges that on
March 13, 1979, defendants issued a press release in which
they claimed to have received their first orders for coin
operated slot machines from two hotel/casinos in Las Vegas;
one order was claimed to be for 72 machines to the Sands
Hotel, another was for 50 machines to the Dunes Hotel. The
release also stated that the Sands had agreed to buy a
substantial number of additional machines from AES. This press
release failed to state that this order for 72 machines was
not an "order" but was rather an agreement for the purchase of
three machines with 69 machines to follow if the first three
proved satisfactory. (Defendants later failed to disclose that
the Sands never exercised this option to purchase the
additional machines.) This release also failed to state that
the commitment from the Dunes was not a "firm" order, and that
on March 5, 1979, AES had granted an option to a Dunes'
subsidiary, M & R Investment Corporation, to purchase shares
of AES stock. Defendants again failed to disclose the
existence of this stock option in their press release of March
29, 1979, in which AES stated that the Dunes had placed an
order for more than 200 machines for its Atlantic City casino.
Obviously, disclosure of the stock option might have undercut
the significance of the large order from the Dunes as an
indication of the desirability of the machines produced by
AES. Prior to these press releases, AES stock had been lightly
traded at approximately $7 3/4 per share. On March 30, 1979,
plaintiff Mottoros, having seen these two press releases,
purchased 200 shares of AES stock at a price of $13 3/4 per
On June 21, 1979, AES issued a press release stating it had
been field testing new machines at three locations in Las
Vegas and had received orders from more than a dozen casinos
in Nevada. Plaintiff again alleges a failure to disclose that
certain of these orders were not firm but were contingent or
conditional upon testing of a small number of machines, and
that again the Dunes' option was not disclosed.
On July 29, 1979, a column written by Dan Dorfman was
published in the Chicago Tribune and other newspapers.
Although we have not seen a copy, it appears that the column
disclosed and commented negatively upon the Dunes' options and
the business of AES. On July 30, 1979, AES issued a press
release in reply. Among other things, the defendants stated in
this press release that AES' pinball machine sales had gone
from $- 0- to $5 million during its first year and that it had
"commitments" for more than 1,000 slot machines. Plaintiff
alleges that AES' books at the time showed sales of only
$4,371,000.00. On December 4, 1979, AES filed its form 10-K
with the Securities and
Exchange Commission. The financial statement attached to the
form revealed that certain sales previously recorded as having
been made had not been made; therefore, the amounts of these
sales were deducted and first year sales (for the fiscal year
ending June 30, 1979) ultimately totalled only $3,763,000.00.
The allegedly misleading press release of July 30, 1979, was
also attached as part of the 10-K filing.
On April 2, 1980, AES issued a press release stating that it
had sustained substantial losses due to the fact that some of
its orders had been contingent, that it had been unable to
collect receivables, and that it was seeking debt or equity
On September 5, 1980, the SEC issued an order (Release No.
17126) finding probable cause to believe that AES had
conducted its business in violation of the securities laws,
and accepting an Offer of Settlement from AES. This SEC
release detailed all the activities complained of by the
plaintiffs in this case. After the release, AES shares
declined to approximately $4 per share.
Plaintiff has filed this suit on behalf of the class
pursuant to Section 27 of the Securities Exchange Act of 1934,
15 U.S.C. § 78aa, to enforce liabilities created by Section
10(b) of the Act (15 U.S.C. § 78j) and Rule 10b-5 of the SEC
(17 C.F.R. § 240.10b-5).
Defendants raise two points in opposition to this motion for
class certification.*fn1 First, they argue that there is no
"common question of law or fact" predominating among the class
members, since the plaintiffs are required to prove reliance
as to each and every class member individually. Second,
defendants argue that the closing date for the class should
not be as late as September 5, 1980, when the SEC published
Release No. 17126 and found that there was reason to believe
that AES was substantially in violation of the securities
laws. Rather, defendants argue that the closing date for the
class should be, at the latest, April 2, 1980, when defendants
issued the "corrective" press release that allegedly "cured"
all previous misstatements and omissions. Neither argument has
merit, and we therefore grant the motion and certify the class
as defined above.