ORIGINAL UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK q _ 144 O HOWARD VOGEL on behalf of ) himself and all others similarly situated, Plaintiff, ) CIVIL ACTION NO. ) CLASS ACTION COMPLAINT FOR VIOLATIONS OF v. CIT GROUP INC., JOSEPH M. LEONE and ALBERT R. GAMPER, JR., Defendants ) FEDERAL SECURITIES LAWS w ) ) Jury Trial Demanded u' =ri o c.^ rn NATURE OF THE ACTION o r -I This is a federal securities class action on behalf of a class (the &quot;Class&quot;) consisting of all persons other than defendants who purchased the common stock of CIT Group Inc. (&quot;CIT&quot; or the &quot;Company&quot;) in or traceable to the initial public offering of CIT common stock conducted by CIT on or about July 1, 2002 (the &quot;Offering&quot; or &quot;IPO&quot;). JURISDICTION AND VENUE 1. The claims asserted herein arise under and pursuafit-'to Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended (the &quot;Securities Act&quot;) [15 U.S.C. 77k, 771(2) and 77o]. 2. This Court has jurisdiction of this action pursuant to Section 22 of the Securities Act [15 U.S.C. 77v] and 28 U.S.C. 1331 and 1337. 3. Venue is proper in this District pursuant to Section 22 of the Securities Act and 28 U.S.C. 1391(b) and (c). CIT maintains its headquarters in this District and many of the acts and wrongs complained of herein occurred in this District. 4. In connection with the acts and conduct alleged in this Complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including the mails and telephonic communications and the facilities of the New York Stock Exchange (the &quot;NYSE&quot;), a national securities exchange. PARTIES 5. Plaintiff Howard Vogel purchased CIT common stock, as set forth in the certification attached hereto and incorporated herein by reference, pursuant to the materially false and misleading prospectus (defined below), and was damaged thereby. 6. Defendant CIT is a Delaware corporation with its principal executive offices at 1211 Avenue of the Americas, New York, New York. CIT is a commercial and consumer finance company with global operations. 7. Defendant Albert R. Gamper, Jr. (&quot;Gamper&quot;), was CIT's Chief Executive Officer, President and a Director at the time of the Offering. In addition, Gamper signed the Registration Statement when it became effective. 8. Defendant Joseph M. Leone (&quot;Leone&quot;), was CIT's Chief Financial Officer and Executive VP. In addition , Leone signed the Registration Statement when it became effective. 9. Defendants Gamper and Leone are referred to collectively herein as the &quot;Individual Defendants.&quot; -2- PLAINTIFF'S CLASS ACTION ALLEGATIONS 10. Plaintiff brings this action as a class action pursuant to Federal Rules of Civil Procedure 23(a) and 23(b)(3) on behalf of himself and all persons other than defendants who purchased the common stock of CIT in or traceable to the IPO of CIT common stock conducted by CIT on or about July 1, 2002. Excluded from the Class are defendants herein, members of the immediate family of each of the defendants, any person, firm, trust, corporation, officer, director or other individual or entity in which any defendant has a controlling interest or which is related to or affiliated with any of the defendants, and the legal representatives, agents, affiliates, heirs, successors -in-interest or assigns of any such excluded party. 11. The members of the Class are so numerous that joinder of all members is impracticable . CIT sold over 200 million shares of CIT common stock to members of the investing public in the IPO. The precise number of class members is unknown to plaintiff at this time but are believed to number in the thousands. In addition, the names and addresses of the class members can be ascertained from the books and records of CIT or its transfer agent. 12. Plaintiff will fairly and adequately represent and protect the interests of the members of the Class. Plaintiff has retained competent counsel experienced in class action litigation under the federal securities laws to further ensure such protection and intend to prosecute this action vigorously. 13. Plaintiffs claims are typical of the claims of the other members of the Class because plaintiffs and all the class members' damages arise from and were caused by the -3- same false and misleading representations and omissions made by or chargeable to defendants. Plaintiff does not have any interests antagonistic to, or in conflict with, the Class. 14. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. Since the damages suffered by individual class members may be relatively small, the expense and burden of individual litigation make it virtually impossible for the class members to seek redress for the wrongful conduct alleged. Plaintiff knows of no difficulty which will be encountered in the management of this litigation which would preclude its maintenance as a class action. 15. 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. Among the questions of law and fact common to the Class are: (a) acts as alleged herein; (b) Whether the prospectus and registration statement issued by Whether the federal securities laws were violated by defendants' defendants to the investing public in connection with the IPO omitted and/or misrepresented material facts about CIT and its business; and (c) The extent of injuries sustained by members of the Class and the appropriate measure of damages. 16. The names and addresses of the record owners of the shares of CIT common stock purchased during the Class period are available from CIT's transfer agent and the underwriters for the IPO. Notice can be provided to such record owners by a combination of -4- published notice and first-class mail using techniques and a form of notice similar to those customarily used in class actions arising under the federal securities laws. SUBSTANTIVE ALLEGATIONS Background Facts 17. CIT is a global finance company providing financing and leasing capital to businesses and consumers . Prior to the Offering, CIT was a wholly-owned subsidiary of Tyco International Ltd., (&quot;Tyco&quot;) a global conglomerate, operating under the name Tyco Capital Corporation. In the Offering, CIT issued and sold, through underwriters, 200 million shares of common stock at $23 per share. The Offering grossed $4.6 billion. All of the proceeds of the Offering went to Tyco, except for the proceeds earned from the exercise of an option for an additional 20 million shares which was granted to the underwriters to cover over-allotments. Proceeds from the exercise of the underwriters' over-allotment option would go to the Company. Of the 20 million shares, the underwriters exercised options to purchase 11,573,200 shares of CIT common stock, raising more than $255 million for CIT. 18. In connection with the IPO, CIT prepared and filed with the SEC a registration statement (the &quot;Registration Statement&quot;) which incorporated a prospectus (the &quot;Prospectus&quot;) (collectively, the &quot;Prospectus &quot;). As described in detail below, CIT's Registration Statement and Prospectus were materially false and misleading because they falsely represented that its loan loss reserves for the telecommunications industry and its reserves for the entire finance portfolio were adequate; materially understated the true risks facing the Company; materially overstated the Company's assets and shareholders' equity; and contained financial -5- statements which were prepared and/or presented in violation of Generally Accepted Accounting Principles (&quot;GAAP&quot;). The Prospectus Issued In Connection With The IPO Was Materially False And Misleading 19. On July 1, 2002, the Prospectus became effective, launching the Company's IPO. In the Offering, the Company sold 200 million shares at $23 per share, for total proceeds of $4.6 billion. 20. In a section of the Prospectus titled &quot;Risk Factors,&quot; the Company purported to warn investors of risks that could negatively impact the Company and its stock price. One identified risk factor was the Company' s loans to telecommunications companies, totaling $685 million. The Prospectus represented that while the telecommunications industry was facing serious challenges at the time and could deteriorate further, the Company had adequately reserved for this risk. The Prospectus stated as follows regarding the matter: CONTINUED WEAKNESS IN THE TELECOMMUNICATIONS INDUSTRY COULD ADVERSELY IMPACT THE VALUE OF OUR TELECOMMUNICATIONS PORTFOLIO. Our telecommunications portfolio is approximately $685 million at March 31, 2002, and includes approximately $294 million of Competitive Local Exchange Carrier (CLEC) accounts. The highly competitive telecommunications industry has experienced over-capacity and substantial decline over the past year, which has resulted in considerable weakness in asset values in the sector. Our CLEC portfolio includes many companies which are in the process of building out their networks and developing their customer bases. Therefore , these companies are more vulnerable to the overall industry decline. -6- We believe that our loan loss reserves relating to the telecommunications portfolio are adequate. However, continued deterioration in the sector could result in losses beyond current reserve levels. [Emphasis added]. 21. In the Prospectus, CIT represented that its overall reserves for credit losses, which included the reserves for the teletcommunications portfolio, were $554,900,000 as of March 31, 2002. The Prospectus further represented that the Company regularly reviewed its reserves for adequacy, as follows: The reserve for credit losses is periodically reviewed for adequacy considering economic conditions, collateral values and credit quality indicators, including charge-off experience, and levels of past due loans and non-performing assets. The reserve increased to $554.9 million (2.11% of finance receivables) at March 31, 2002 compared to $492.9 million (1.55% of finance receivables) at September 30, 2001 and $462.0 million (1.39% of finance receivables) at March 31, 2001. 22. The above representations contained in the Prospectus were materially false and misleading when made for the following reasons, among others: a. the Company's loan loss reserves for its finance portfolio in the telecommunications industry were materially deficient in light of material credit losses that had already been incurred and/or in light of loans in that portfolio which had already been materially impaired; b. the Company' s representation that its reserves were &quot;adequate&quot; was lacking in any reasonable basis when made because the reserves did not reflect material credit losses in CIT's telecommunications portfolio that had already occurred and/or loans which were already substantially impaired, and had such factors been taken into account, the reserves could not adequately protect against the risk of material future losses; -7- c. There was no meaningful disclosure in the Prospectus of CIT's exposure to the declining telecommunications sector and the true risks facing the Company with respect to its risk for credit losses in general were not adequately cautioned against; d. Contrary to the representation in the Prospectus, the Company's overall reserves for credit losses, of $554. 9 million, were not adequate and were materially understated. The Prospectus Contained False Financial Statements and Violated GAAP 23. In the Prospectus, the Company reported assets of $44,383,500,000 and shareholders' equity of $6,500,000,000 at March 31, 2002. These representations were materially false and misleading because the Company had failed to write down material credit losses in its telecommunications portfolio that had already occurred and, as a result, its reported assets and shareholders' equity were materially overstated. 24. In Note 1 to the Prospectus, titled &quot;Summary of Accounting Policies,&quot; CIT represented that its results were prepared in accordance with GAAP and fairly presented the Company's financial condition, as follows: BASIS OF PRESENTATION--These financial statements, which have been prepared in accordance with the instructions to Form 10-Q, do not include all of the information and note disclosures required by generally accepted accounting principles (&quot;GAAP&quot;) in the United States and should be read in conjunction with the Company's Annual Report on Form 10-K for the transitional nine-month period ended September 30, 2001. These financial statements have not been examined by independent accountants in accordance with generally accepted auditing standards, but in the opinion of management include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of CIT's financial position and results of operations. Certain prior -8- period amounts have been reclassified to conform to current period presentation. 25. GAAP are those principles recognized by the accounting profession as the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. Regulation S-X [17 C.F.R. 210.4-01(a)(1)] states that financial statements filed with the SEC that are not prepared in conformity with GAAP are presumed to be misleading and inaccurate . As set forth in Financial Accounting Standards Board (&quot;FASB&quot;) Statement of Concepts (&quot;Concepts Statement&quot;) No. 1, one of the fundamental objectives of financial reporting is that it provide accurate and reliable information concerning an entity's financial performance during the period being presented. Concepts Statement No.1, 42, states: Financial reporting should provide information about an enterprise's financial performance during a period. Investors and creditors often use information about the past to help in assessing the prospects of an enterprise. Thus, although investment and credit decisions reflect investors' and creditors' expectations about future enterprise performance, those expectations are commonly based at least partly on evaluations of past enterprise performance. 26. As detailed above, the Company' s balance sheet , as reported in the Prospectus, materially overstated CIT's assets and shareholders ' equity thereby rendering the financial statements inaccurate, unreliable and inconsistent with the fundamental tenet of GAAP and fair reporting. Post-Offering Events 27. On July 23, 2002, CIT issued a press release announcing its results for the quarter ended June 30, 2002. The press release, covering a quarter that ended prior to the Offering, shocked investors by revealing that the Company took a $200 million charge to -9- strengthen the telecommunications loan reserves that it represented were &quot;adequate&quot; only three weeks previously. This amounted to 29.2% of the telecommunications portfolio and a startling 36% of the Company's overall reserves for credit losses as of March 31, 2002. According to the press release, CIT had recognized in the quarter &quot;a $200 million pretax provision related to CIT's telecommunications portfolio, principally reflecting further weakness in the competitive local exchange carrier (CLEC) industry.&quot; In addition, the Company announced that it had grossed $255 million from the underwriters' exercise of a substantial portion of their over-allotment option. 28. On April 8, 2003, the price of CIT common stock closed at $17.40 per share, which is 24% lower than the IPO price of $23 per share. COUNT I [Against All Defendants For Violations Of Section 11 Of The Securities Act] 29. 30. Plaintiff repeats and realleges each and every allegation contained above. This Count is brought pursuant to Section 11 of the Securities Act, 15 U.S.C. 77k, on behalf of the Class, against all defendants. 31. The Registration Statement for the IPO was inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading, and concealed and failed adequately to <a href="/keyword/disclose-material-facts/" >disclose material facts</a> as described above. 32. CIT is the registrant for the IPO. The defendants named herein were responsible for the contents and dissemination of the Registration Statement and the Prospectus. -10- 33. As issuer of the shares, CIT is strictly liable to plaintiff and the Class for the misstatements and omissions. 34. None of the defendants named herein made a reasonable investigation or possessed reasonable grounds for the belief that the statements contained in the Registration Statement and the Prospectus were true and without omissions of any material facts and were not misleading. 35. Defendants issued , caused to be issued and participated in the issuance of materially false and misleading written statements to the investing public which were contained in the Prospectus, which misrepresented or failed to disclose, inter alia, the facts set forth above. By reasons of the conduct herein alleged, each defendant violated, and/or controlled a person who violated, Section 11 of the Securities Act. 36. Plaintiff acquired CIT shares issued pursuant to, or traceable to, and in reliance on, the Registration Statement. 37. Plaintiff and the Class have sustained damages. The value of CIT shares has declined substantially subsequent to and due to defendants' violations. 38. At the times they purchased CIT shares, plaintiff and other members of the Class were without knowledge of the facts concerning the wrongful conduct alleged herein and could not have reasonably discovered those facts. -11- COUNT II [Against All Defendants For Violations Of Section 12(a)(2) Of The Securities Act] 39. 40. Plaintiff repeats and realleges each and every allegation contained above. This Count is brought by plaintiff pursuant to Section 12(a)(2) of the Securities Act on behalf of all purchasers of CIT shares in connection with, and traceable to, the IPO. 41. Defendants were sellers and offerors and/or solicitors of purchasers of the shares offered pursuant to the Prospectus. 42. The Prospectus contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading, and concealed and failed to <a href="/keyword/disclose-material-facts/" >disclose material facts</a> . The Individual Defendants' actions of solicitation included participating in, and signing, the preparation of the false and misleading Prospectus. 43. Defendants owed to the purchasers of CIT shares, including plaintiff and other class member purchasers of CIT shares, the duty to make a reasonable and diligent investigation of the statements contained in the IPO materials, including the Prospectus contained therein, to ensure that such statements were true and that there was no omission to state a material fact required to be stated in order to make the statements containe...