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IN RE COMDISCO SECURITIES LITIGATION

March 31, 2003

IN RE COMDISCO SECURITIES LITIGATION


The opinion of the court was delivered by: Milton I. Shadur, United States District Judge

MEMORANDUM OPINION AND ORDER

With Comdisco, Inc. ("Comdisco") having vanished as a potential defendant in consequence of its bankruptcy,*fn1 counsel for the proposed plaintiff class have tendered an Amended Class Action Complaint for Violations of the Federal Securities Laws ("Complaint") against individual defendants Nicholas Pontikes ("Pontikes") and John Vosicky ("Vosicky"). Pontikes and Vosicky have in turn moved to dismiss the Complaint, and the parties have submitted bulky memoranda (and, on the part of Pontikes and Vosicky, far bulkier exhibits) to address the issues.

But the answer to the question of the Complaint's legal sustainability in Fed.R.Civ.P. ("Rule") 1.2(b)(6) terms can be stated far more simply than the volume of the litigants' input would suggest. As briefly summarized in the Introduction to their Reply and Memorandum ("R. Mem."), Pontikes and Vosicky assert (emphasis in original);

In this case, when the Court looks at everything Comdisco said about Prism*fn2 during the purported class period, it becomes clear that investors would not have been misled about what Prism had already achieved or what it hoped to achieve in the future.
That contention does not adequately credit, as this Court must for Rule 12(b)(6) purposes, the well-pleaded allegations of the Complaint.*fn3 Those allegations plainly entitle the class to stay in court as having advanced a viable complaint against Pontikes and Vosicky for violation of the securities laws.

Indeed, it is worth adding a point that is not sufficiently remarked in the case law in situations where the effect of the material misrepresentations or material omissions, which form the gravamen of the securities law claims, itself provides further confirmation of the sustainability of such claims. In that respect counsel for Pontikes and Vosicky have essentially urged the "total mix" approach first articulated in TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) — as R.Mem. 3-4 (emphasis in original) puts it:

The fraud-on-the-market doctrine assumes that the market will absorb all publicly-available information about the price of a widely-traded stock.
But if that is really so — if the market here (that is, the universe of investors and perspective investors) really processed all of the information about Prism that Comdisco was putting out, both good and bad, in pegging the price of Comdisco stock at all times — it is difficult to understand why the revelation of the news about Comdisco's giving up on the Prism venture should have caused such a major and precipitate drop in the stock price if, as Pontikes and Vosicky would have it, their earlier and assertedly accurate statements should have prepared the investing public for the reality that "something is rotten in the state of Prism."*fn4 In an important sense, the Pontikes-Vosicky arguments about the omniscience of the market and market forces really undercut what they now attempt to urge on this Court.

This is not a matter of arguing from results — of post hoc ergo propter hoc. It is rather that the contentions put forth by Pontikes and Vosicky — that Comdisco's representations about Prism, about how well it was doing and would do in the future, were no more than mere puffery readily recognizable as such by the market, and that the purported "safe harbor" hedges operated to prevent investor deception in that respect — really do not withstand analysis.

This Court has examined the parties arguments with care. Class counsel have provided a powerful memorandum that delivers an effective point-by-point response to the Pontikes-Vosicky attack. It graphically demonstrates that the Complaint more than suffices to state a claim with the level of particularity required by the securities law.

There is consequently no need to reinvent the wheel here. Simply put, the motion to dismiss is denied, and Pontikes and Vosicky are ordered to file an answer to the Complaint in this Court's chambers (with a copy of course to be delivered to class counsel) on or before April 17, 2003. This action is set for a status hearing at 8:45 a.m. April 21, 2003 to discuss the establishment of a plan to move the case forward to as expeditious a trial as possible.

APPENDIX 1

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
IN RE COMDISCO SECURITIES Master File No. 01 C 2110 LITIGATION Judge Milton I. Shadur
PLAINTIFFS' MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS' MOTION TO DISMISS THE AMENDED CLASS ACTION COMPLAINT
Plaintiffs respectfully submit this memorandum of law in opposition to defendants Nicholas K. Pontikes' and John J. Vosicky's motion to dismiss the Amended Class Action Complaint for Violation of the Federal Securities Laws (the "Complaint").[fn1a]

I. PRELIMINARY STATEMENT[fn2a]

This case involves a fraud implemented by defendants to deceive purchasers of Comdisco[fn3a] (the "Company") common stock. As set forth in the Complaint, between November 3, 1999 and October 3, 2000, defendants — individually and as controlling persons of Comdisco,[fn4a] as well as other Comdisco officers and directors, repeatedly misrepresented Comdisco's financial condition, business activities, and prospects, particularly with respect to its wholly-owned subsidiary Prism Communications Services ("Prism"). Defendants, individually and as controlling persons of Comdisco, made a series of materially false and misleading statements and omissions about Comdisco's business dealings, intentions, and prospects with respect to Prism, the center of Comdisco's purported recasting of itself as a cutting edge Internet company and a major player in the Internet "revolution." ¶ 2.

Throughout the Class Period, defendants falsely and repeatedly highlighted Prism's purported position as, inter alia, a "market leader," ¶ 56, and a "leading integrated communications provider," ¶ 57, and further promoted Comdisco's purported ability to cross-sell Prism's services to its existing customers. Defendants did so with full knowledge that Prism had virtually no market share, was losing the few customers it did have, and that Comdisco's existing customers had no desire to acquire DSL lines from Prism or to subscribe to any of Prism's services and that ...


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