Opposition Brief — Kahn v. Alexander Grant & Co.

No. 84-1084 /,

No. 84-1222 2

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

TIFFANY INDUSTRIES, INC.,

Petitioner,

Vs.

ALEXANDER GRANT & COMPANY,

Respondent.

FARRELL KAHN,

Petitioner,

vs.

ALEXANDER GRANT & COMPANY,

Respondent.

RESPONDENT’S BRIEF IN OPPOSITION

TO PETITIONS FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

JKKRAMER & VAUGHAN

611 Olive Street, Suite 1900

St. Louis, Missouri 63101

(314) 621-5070

naaupleacehtyy Respondent

s. ‘Lede Pte Ca 108 ‘ ae 314-231-4477

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QUESTIONS PRESENTED FOR REVIEW

1. Whether, as a matter of law, an accountant cannot sue its

former client under RICO when the client has conducted the af-

fairs of an enterprise through ‘‘organized criminal activity’’ (a

pattern of mail and wire fraud) and the accountant is injured by

reason of that conduct.

2. Whether an accounting firm can claim as RICO injuries

unpaid fees, additional time spent on an engagement, expenses

of an SEC investigation, and loss of business reputation caused

by its former client’s conduct of the affairs of an enterprise

through a pattern of mail fraud and wire fraud aimed at obtain-

ing the accounting firm’s unqualified audit opinion on the

client’s fraudulent financial statements.

ili

TABLE OF CONTENTS

Page

Questions Presented for Review.............00eeeees i

rca tbesksceeeevers eave vossdee ili

EE GCA Cases ewe cdsectisevectesess iv

EM 5 bc sda sce davesceverecsns 2

Reasons the Writ Should Be Denied ................. 5

I. This case presents no true conflict between the

SA eV, ee Lee eR Ee ETE TEL EEE 5

II. Public Policy Reasons do Not Support Gran-

EE cbs beet hanscee eran aewhie awe 10

CUTOUTS CLL ey es GAGA ES Nes cbaowvctssesucces 1]

Appendix: Proposed Amended Complaint ........... A-1l

iV

TABLE OF AUTHORITIES

Cases:

Alexander Grant & Company v. Tiffany Industries,

Inc., 742 F.2d 408 (8th Cir. 1984), petition for

rehearing denied, (October 31, 1984) ............

American National Bank & Trust Company of Chicago

v. Haroco, Inc., 747 F.2d 384 (7th Cir. 1984), cert.

OHNE, BES DA. FE ieee cscs vcidccsvcsicess

Bankers Trust Co. v. Rhoades, 741 F.2d 511 (2d Cir.

1984), petition for cert. filed, 53 U.S.L.W. 3367

(Oct. 24, 1984) (No. 84-657)... 0... cece eee eee

Cenco, Inc. v. Seidman & Seidman, 686 F.2d 449 (7th

Cir.), cert. denied, 459 U.S. 880 (1982) ..........

Russello v. United States, 464 U.S. 16 (1983)..........

Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482 (2d Cir.

1984), cert. granted, 105 S.Ct. 901 (1985)..........

Sutliff, Inc. v. Donovan Companies, Inc., 727 F.2d 648

I ashe Leu cee ee UNLGeS ciue hae emus

United States v. Turkette, 452 U.S. 576 (1981).........

6, 7

No. 84-1084

No. 84-1222

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

TIFFANY INDUSTRIES, INC.,

Petitioner,

VS.

ALEXANDER GRANT & COMPANY,

Respondent.

FARRELL KAHN,

Petitioner,

vs.

ALEXANDER GRANT & COMPANY,

Respondent.

RESPONDENT’S BRIEF IN OPPOSITION

TO PETITIONS FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

Respondent, Alexander Grant & Company, hereby opposes

the writs of certiorari requested by petitioners Tiffany In-

dustries, Inc. and Farrell Kahn. Respondent hereby files this

Brief as its opposition to both Petition No. 84-1084 and Petition

No. 84-1222.

te St ne

STATEMENT OF THE CASE

The Eighth Circuit Court of Appeals held that respondent

(plaintiff below) Alexander Grant & Company (‘‘Alexander

Grant’’) had alleged an injury within the meaning of 18 U.S.C.

§1964(c) by reason of the RICO violations of its former client,

petitioner Tiffany Industries, Inc. (‘‘Tiffany’’), Tiffany’s presi-

dent, petitioner Farrell Kahn (‘‘Kahn’’), and one of Tiffany’s

employees. The District Court, after limiting the issue to stan-

ding, had dismissed the complaint, holding that Alexander

Grant lacked standing to sue under RICO. At the same time it

dismissed the complaint, the District Court denied (without ex-

planation) Alexander Grant’s motion for leave to file its amend-

ed complaint.’ In reaching its decision reversing the lower court,

the Eighth Circuit considered and referred to the allegations of

both the complaint and of that proposed amended complaint,

and held that Alexander Grant had RICO standing and had

alleged more than mere injury from the RICO predicate acts.

The Court neither explicitly adopted nor explicitly rejected the

requirement of a specialized ‘‘racketeering enterprise injury’’,

but instead found that if such an injury were required, it had

been properly alleged. Thus, the Eighth Circuit holding con-

flicts with neither the holding of the Seventh Circuit nor that of

the Scond Circuit. The Eighth Circuit denied rehearing en banc,

and denied motions to stay its mandate; the case is proceeding

below.

STATEMENT OF THE FACTS

Alexander Grant & Company (‘‘Alexander Grant’’) is an ac-

counting partnership with offices and partners nationwide.

From 1970 until mid-1978 Alexander Grant was the outside

auditor for Tiffany Industries, Inc. (‘‘Tiffany’’), a publicly

' The proposed First Amended Complaint clarified the allegations,

added additional predicate acts and defendants, and brought the

“‘enterprise’’ allegations into conformity with Eighth Circuit law.

That proposed amended complaint appears in the Appendix hereto.

RES, Yen

traded company. In 1978, during the course of the audit of Tif-

fany’s financial statements for the fiscal year ended December

31, 1977, Alexander Grant discovered that it was the target ofa

massive criminal scheme on behalf of Tiffany and certain of its

officers, directors, and employees. The purpose of the

fraudulent plan, as alleged in the complaint and proposed

amended complaint, was to obtain Alexander Grant’s un-

qualified audit opinion on Tiffany’s fraudulent financial

statements, and thereby conceal Tiffany’s true financial condi-

tion.

Tiffany and its top officers engaged in almost countless acts

of racketeering activity. In order to deceive Alexander Grant,

forgery became standard practice. When a document was need-

ed to justify a transaction (e.g., the recording of a sale and earn-

ings from the sale) and the document did not exist, Tiffany’s of-

ficers or employees simply created it, for example, by cutting gen-

uine letterheads and signatures off of genuine letters, affixing

them to blank paper and typing in the desired text. Photocopies

of those creations were then presented to Alexander Grant, pur-

porting to be ‘‘evidential’’ matter. The original complaint alleg-

ed thirty,acts of mail or wire fraud, and the amended complaint

alleged 58 such acts, which numbers do not include the multiple

acts of mail fraud committed through mass mailings. to

shareholders and others.

The complaints allege multiple schemes within the major

scheme—forged and false letters from equipment suppliers and

from Nigerian banks were mailed to convince Alexander Grant

to accept recognition of revenue from a sale to a Nigerian state

government, inventory values were inflated, forged and false

letters of intent to purchase assets were mailed—all for the pur-

pose of convincing Alexander Grant to lend its name and

reputation to Tiffany’s inflated financials.

The scheme ultimately failed. After months of audit work

Alexander Grant discovered and disclosed the fraud. By that

time Alexander Grant had expended great amounts of time and

yw pre

professional labor on the audit—yet it was never paid for its ser-

vices. The fraud induced Alexander Grant to remain on the

engagement much longer than it otherwise would have, and its

name was associated with Tiffany, damaging its reputation in

the business community. Even after Alexander Grant’s

discovery and disclosure of the fraud the scheme continued,

through promises, later broken, of a full investigation and

disclosure of the results, and promises, later broken, of pay-

ment for services rendered. The continued fraud increased Alex-

ander Grant’s damages, through expenses of an SEC investiga-

tion and further injury to its business and professional reputa-

tion. Ultimately Tiffany fired Alexander Grant, but never paid

the owed accounting fees. This lawsuit, along with others in-

volving Tiffany’s shareholders, lenders and insurers, ensued.

Tiffany and several of its top officers and directors were sued by

the SEC, and signed consent decrees. The private litigation was

consolidated, and is now in the course of discovery below. This

lawsuit has been severed from that consolidation, but a motion

to reconsolidate it (filed after the Eighth Circuit refused to stay

its mandate) is pending.

oe

REASONS THE WRIT SHOULD BE DENIED

This case presents a unique factual situation because here the

RICO predicate acts (the mail and wire fraud) were directed not

at shareholders or competitors of a company, but at its

auditors. Its decision by this Court would add little, if anything,

to RICO jurisprudence. The decision of the Eighth Circuit,

when viewed in light of the facts actually before that court,

reveals no conflict between the Circuits. This Court has recently

granted certiorari in cases from the Seventh and Second Cir-

cuits, and this Court’s decision on those cases should resolve

any existing conflicts. Ironically, however, the main issue

presented by this case is consistent with both of those conflic-

ting cases’ treatment of the issue.

I. The Decision Of The Eighth Circuit In This Case

Does Not Conflict With Either The Second Or The

Seventh Circuit Cases.

The unique factual context of this case makes it inappropriate

for a grant of certiorari. The clear conflict between the Seventh

and Second Circuits on whether a ‘‘racketeering enterprise in-

jury’’ must be alleged has no effect on this case. The Eighth Cir-

cuit decision essentially held that even if a racketeering enter-

prise injury is required (as held by the Second Circuit, but not

the Seventh), it has been alleged here. Although it is not clear

whether the Eighth Circuit requires a racketeering injury, the

issue of that requirement will be decided by this Court in its

review of American National Bank & Trust Company of

Chicago v. Haroco, Inc., 747 F.2d 384 (7th Cir. 1984) cert.

granted 105 S.Ct. 902 (1985), and Sedima S.P.R.L. v. Imrex

Company, Inc., 741 F.2d 482 (2nd Cir. 1984), cert. granted 105

S.Ct. 901 (1985).

In Haroco the Seventh Circuit held that no specialized

‘‘racketeering enterprise injury’’ distinct from an injury arising

from predicate acts is required under RICO. In Sedima the Se-

pn an

cond Circuit held that such an injury is required.’ If this Court

follows Haroco, and finds no racketeering enterprise injury is

required, then certainly Alexander Grant has stated a claim, and

the Eighth Circuit decision will stand. If, on the other hand, this

Court follows Sedima, and requires a racketeering enterprise in-

jury, then the case should stand because the Eighth Circuit

found that such an injury has been alleged.

The Eighth Circuit, in the case below, characterized the

racketeering enterprise injury requirement as ‘‘a slippery con-

cept whose definition has eluded even those courts professing to

recognize it.’’ Alexander Grant & Company v. Tiffany In-

dustries, Inc., 742 F.2d 408, 413 (8th Cir. 1984), reh’g en banc

denied (October 31, 1984). The Court then went on to hold,

however:

We need not further consider the nature of a racketeering

enterprise injury, liowever, for it is clear that Grant’s com-

plaint does not simply allege injury from the underlying

predicate acts. It contends that Tiffany was conducted

through a pattern of mail and wire fraud that enabled it to

remain in business. As a result of this extended life, Grant

continued to provide its accounting services to Tiffany for

a time greater than it would have had the fraud not occur-

red. This also increased the harm resulting to Grant’s

business reputation. We conclude that these allegations

sufficiently plead an injury ‘‘by reason of’’ a RICO viola-

tion.

Id. (emphasis added). Thus, the Eighth Circuit neither explicitly

accepted nor explicitly rejected the racketeering enterprise in-

jury requirement.

? Sedima’s second holding, that a RICO defendant must have prior

RICO or predicate act convictions was specifically not decided by the

Eighth Circuit. See 742 F.2d at 413, n.11.

i aa

Although the Eighth Circuit’s opinion stated that it read

Sedima as requiring an injury somehow resulting from

‘‘mobster activity,’ Sedima’s discussion of racketeering enter-

prise injury focused on the ‘‘by reason of’’ language in 18

U.S.C. §1964(c). As shown by the quotation above, the same

provision was the Eighth Circuit’s focus. The Sedima opinion

also discussed the organized-crime-fighting purposes of RICO,

yet the facts before the Eighth Circuit clearly revealed massive,

organized criminal activity. We certainly do not read Sedima to

require that the defendants be members of the ‘‘Mafia’’ or of

some organized crime ‘‘family’’ for RICO to apply. The Eighth

Circuit specifically held that its decision was consistent with the

Second Circuit’s holding in Bankers Trust Co. v. Rhoades, 741

F.2d 511 (2nd Cir. 1984) petition for certiorari filed No. 84-657

(Oct. 24, 1984). As the Eighth Circuit stated, ‘‘Both require that

civil RICO plaintiffs allege something more than injury from

the underlying predicate acts.’’ 742 F.2d at 413. Here Alexander

Grant has not alleged that it was injured merely by the underly-

ing predicate acts of mail fraud and wire fraud, but rather that it

was injured by the conduct of the enterprise’s affairs through

that pattern of mail fraud and wire fraud. The injury was not

simply that Alexander Grant relied on a forged document and

therefore lost money ('.e., an injury resulting from the predicate

act of mail fraud). Rather, as Sedima and Bankers Trust require

and as the Eighth Circuit found, the injury resulted from the

conduct of the enterprise’s affairs, made possible by multiple

acts of mail and wire fraud.

Tiffany’s Petition for Certiorari claims that a conflict exists

between the Seventh Circuit and the Eighth because of the

holding by a Seventti Circuit panel in Cenco, Inc. v. Seidman &

Seidman, 606 F.2d 449 (7th Cir.) cert. denied 459 U.S. 880

(1982), that RICO was not intended to provide a remedy to an

accountant injured by its client’s perpetration of a fraud on

shareholders. Petitioner Kahn also claims a conflict with Cenco,

but he relies on Cenco’s language that a person used as a ‘‘tool’’

to forward a fraudulent scheme cannot recover under RICO,

a vem

and on Cenco’s requirement of a ‘‘direct’’ injury. Neither Tif-

fany’s nor Kahn’s position describes a true conflict between the

circuits. When Cenco is read in the light of later Seventh Circuit

case law, most notably the Sutliff opinion (discussed infra) and

the Haroco opinion it is clear that this case does not conflict

with the Seventh Circuit law. First, Alexander Grant’s com-

plaint (and its proposed amended complaint) does not allege

that Alexander Grant was merely a ‘‘tool’’ in the RICO scheme.

Alexander Grant was the direct object of the scheme alleged

here and was the party directly injured by the RICO violation.

In Cenco the RICO violations were alleged to be directed at out-

siders, and the injury alleged by the auditors was the amount the

auditors paid in settlement to those outsiders, the shareholders

who were directly injured by the pattern of securities fraud.

Here the acts of mail and wire fraud (the predicate acts) con-

sisted of mailing forgeries and false documents to Alexander

Grant, to induce Alexander Grant to rely on the fraudulent

documents. Alexander Grant’s claimed injury is not some

amount it paid to others who were directly injured, rather, it is

the direct injury it suffered as a result of petitioners’ RICO

violation. Thus the Cenco ‘‘direct injury’’ test is met in this

case, and the injuries suffered by the auditors are clearly

distinguishable. A later opinion by the author of the Cenco opi-

nion, Judge Posner, in Sutliff Inc. v. Donovan Companies,

Inc., 727 F.2d 648 (7th Cir. 1984), clarified this distinction by

granting RICO standing to a plaintiff who was an “‘allegedly in-

tended victim of the scheme’’, 727 F.2d at 654 (emphasis added)

even though that victim had been ‘“‘infiltrated ... and used ... as

a tool to defraud.’’ Jd. at 653. Clearly the Eighth Circuit in this

case was correct when it held that: ‘‘... Sutliff robbed Cenco of

much of the precedential value accorded it by the district

court.’’ 742 F.2d at 412. Most importantly, no conflict exists

with respect to Haroco, which is the law of the Seventh Circuit’.

* Tiffany’s petition attempts to characterize the Haroco opinion as

that of a panel of the Seventh Circuit, with no more precedential value

than the Cenco panel. However, the Haroco opinion was circulated to

the entire Seventh Circuit en banc, who declined to rehear it.

ra ae

Petitioner Kahn also argues that the Eighth Circuit decision

- somehow conflicts with this Court’s decision in United States v.

Turkette, 452 U.S. 576 (1981), because there is no allegation

that defendants gained any money from the scheme. (This is a

reincarnation of an argument rejected below, that no RICO

violation could have occurred because Alexander Grant

discovered and disclosed the fraud prior to issuing a favorable

audit opinion). Tiffany, however, continued in existence and

continued to obtain Alexander Grant’s professional services

(for which it never paid), petitioner Kahn remained as its Presi-

dent for months longer than he should have, and these very real

tangible benefits are certainly as sufficient as any ‘‘infusion of

income’’ seen in other cases. Most importantly, the RICO pro-

vision under which the suit was brought, §1962(c), refers to the

‘*conduct”’ of an enterprise’s affairs, not to ‘‘investing income’”’

or ‘acquiring an interest’? in an enterprise, as do the other

RICO sections. Nothing in Turkette indicates that a §1962(c)

RICO violation may only apply to wholly successful criminal

schemes. Surely where a scheme is successfully intercepted and

aborted before its ultimate goal is reached, the intended victim

who has already suffered losses is an intended RICO plaintiff.

Finally, nothing in the Eighth Circuit decision conflicts with

any ‘“‘prudential standing limitation’? requirements of this

Court or any other Circuit. Both Petitioners Kahn and Tiffany

argue that ‘‘standing’’ analysis was misapplied, but both cite to

federal cases where no express private civil remedy was involv-

ed, or to antitrust cases which are based on the economic-

impact purposes of those specialized statutes. Clearly, where the

question is one of a citizen’s or taxpayer’s right to sue as a

‘‘private attorney general’ in the absence of a statute, the

analysis is different. Here, however, we have an express civil

remedy, and the Eighth Circuit’s analysis of ‘‘standing’’ does

not conflict with any other circuit. Rather, the Eighth Circuit

expressly followed the directives of this Court, stating:

Section 1964(c) provides a civil remedy for ‘‘[a]ny person

injured in his business or property by reason of a violation

pan pen

of section 1962 * * *.’’ This language is unambiguous and,

‘‘in the absence of a ‘clearly expressed legislative intent to

the contrary, that language must ordinarily be regarded as

conclusive.’ ”’

742 F.2d at 412 (quoting Russello v. United States, 104 S.Ct.

296 (1983), quoting Turkette). The Eighth Circuit found that

Alexander Grant properly alleged that its injury resulted ‘‘by

reason of’’ petitioner Tiffany’s and petitioner Kahn’s RICO

violations, and held that the statute required no more. The

Eighth Circuit’s decision is entirely consistent with Turkette as

well as the standing analysis set forth by this Court in other

cases.

II. This Case Presents No Issues Of Public Importance

Which Will Not Be Decided In Other Pending Cases.

Both Tiffany’s and Kahn’s petitions contain lengthy indict-

ments of the civil RICO statute and issue pleas for judicial

limitation of the statute. The petitions’ ‘‘parades of horrors’’,

however, provide no basis for limiting an express legislative

remedy. If such limitations a.e needed, they are for Congress to

make. As this Court stated in Turkette:

Congress was well aware that it was entering a new domian

of federal involvement through the enactment of this

measure. . . . There is no argument that congress acted

beyond its power in doing so. That being the case, the

courts are without authority to restrict the application of

the statute.

452 U.S. at 587 (emphasis added).

In any event, this Court, in deciding Sedima and Haroco, will

have ample opportunity to resolve any conflict among the cir-

cuits as to the breadth and scope of civil RICO. Because this

case can stand under either of those interpretations there is no

reason to grant the petitions for certiorari. For the same

reasons, the case should not be held pending the decision in

rie | yew

those cases. The Eighth Circuit wisely refused to stay the is-

suance of its mandate in this case, and as a result the case is pro-

ceeding in the district court below. Currently there are seven

other lawsuits pending which arose out of the same facts as this

case. Discovery in those cases is going forward, and a denial of

certiorari in this case would allow this case to be reconsolidated

with those and the cases to be readied for trial. This was the first

filed in all those lawsuits, and should be the first among them to

reach trial.

CONCLUSION

For the reasons stated above, respondent urges this Court to

deny the petitions for a writ of certiorari to the United States

Court of Appeals for the Eighth Circuit.

Respectfully submitted,

Walter M. Clark

(Counsel of Record)

Catherine D. Perry

ARMSTRONG, TEASDALE,

KRAMER & VAUGHAN

611 Olive Street, Suite 1900

St. Louis, Missouri 63101

(314) 621-5070

Attorneys for Respondent

APPENDIX

APPENDIX

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MISSOURI

EASTERN DIVISION

No. 79-191-C(3)

Alexander Grant & Company,

a partnership,

Plaintiff,

VS.

Tiffany Industries, Inc.,

Gail Martin, Farrell Kahn,

Abraham Appel, Joseph Simpkins,

Frank J. Leber, and Harriet

Cassel, a/k/a Esther Cassel,

Defendant.

JURY TRIAL DEMANDED

FIRST AMENDED COMPLAINT

Count I

Comes now Alexander Grant & Company and for Count I of

its claim against defendants states:

A. Jurisdiction and Venue

1. Jurisdiction of this Court is founded upon the provisions

of Chapter 96, U.S. Code, ‘‘Racketeer Influenced and Corrupt

Organizations’’, Title 18 U.S.C. §§ 1961, 1962, 1963 and 1964.

2. This civil action is brought under 18 U.S.C. § 1964(c),

which provides that any person injured ir his business or pro-

perty by reason of a violation of 18 U.S.C. § 1962 may sue in the

U.S. District Court for threefold damages.

ee

3. Venue in this Court is founded upon 18 U.S.C. § 1965(a),

in that defendants reside in the Eastern District of Missouri, or

may be found in said District, or are transacting business in said

District.

B. The Parties.

4. Plaintiff Alexander Grant & Company (hereinafter

*‘Grant’’) is a partnership and brings this action in its common

name pursuant to Rule 17(b)(1), F.R.C.P., for the purpose of

enforcing a substantive right existing under the laws of the

United States. Grant is a public accounting firm engaged in the

business of rendering audit and accounting services throughout

the United States. In the course of rendering its services, Grant

represents numerous publicly held companies subject to regula-

tion and supervision by the federal Securities and Exchange

Commission (‘‘SEC’’).

5. Defendant Tiffany Industries, Inc. (‘‘Tiffany’’) is a cor-

poration having its principal place of business in the Eastern

District of Missouri. Tiffany is a publicly held company. Until

approximately May 1, 1978, the stock of Tiffany was traded on

the American Stock Exchange.

6. Defendant Farrell Kahn (‘‘Kahn’’) is a resident of St. Louis

County, Missouri. At all relevant times herein alleged, and until

approximately May 1, 1978, Kahn was President and Chief Ex-

ecutive Officer (‘““CEO’’) of Tiffany and was a shareholder of

Tiffany. As CEO of Tiffany, Kahn directed and controlled the

business of Tiffany and its operations.

7. Defendant Joseph Simpkins (‘‘Simpkins’’) resides in the

Eastern District of Missouri. Simpkins is the father-in-law of

defendant Kahn. At all relevant times herein alleged, Simpkins

was the Chairman of the Board of Directors of Tiffany, directed

and controlled the business of Tiffany and its operations, and

was (and is) the beneficial owner of approximately 34% of the

common stock of Tiffany. Simpkins claims to be ‘‘the

pare ee oes

motivating force’’ behind Tiffany and claims that he and Tif-

fany are ‘‘viewed as one and the same’’ by the public and the

business community.

8. Defendant Abraham Appel (‘‘Appel’’) resides in the

Eastern District of Missouri. At all relevant times herein alleg-

ed, and until approximately January, 1979, Appel was a Direc-

tor and Vice-President and Chief Financial Officer of Tiffany.

Prior to approximately May 10, i978 Appel was a member of

the Audit Committee of Tiffany’s Board of Directors.

9. Defendant Frank J. Leber (‘‘Leber’’) resides in the Eastern

District of Missouri. At all relevant times herein alleged, Leber

was a Vice-President of Tiffany.

10. Defendant Gail Martin (‘‘Martin’’) resides in the Eastern

District of Missouri. At all relevant times herein alleged, Martin

was employed by Tiffany as a secretary to defendant Kahn.

11. Defendant Harriet Cassel, a/k/a Esther Cassel

(‘‘Cassel’’) resides in the Eastern District of Missouri. At all

times relevant herein alleged, Cassel was employed by Tiffany

as a secretary.

12. At all relevant times, defendants Simpkins, Appel, Leber,

Kahn, Martin and Cassel, and all other officers, agents and

employees of Tiffany, all as described herein, performed the ac-

tivities alleged herein within their employment capacities with

Tiffany and acted on behalf of Tiffany.

C. Substantive Allegations.

13. Defendants Tiffany, Simpkins, Kahn, Appel, Leber,

Martin and Cassel were at all relevant times ‘‘persons’’ as defin-

ed in 18 U.S.C. § 1961(3).

14. At all relevant times herein there existed three distinct

‘“‘enterprises,’’ as defined in 18 U.S.C. § 1961(4), which enter-

prises were engaged in or the activities of which affected in-

terstate or foreign commerce. These enterprises were:

a

(a) Tiffany Industries, Inc., a legal corporate entity, which

sold its products in both interstate and foreign commerce.

(b) A group of individuals associated with Tiffany Industries

Inc., who were associated in fact for the common purpose of

defrauding and deceiving Grant. This enterprise possessed con-

tinuity of structure and personnel and an ascertainable structure

distinct from the pattern of racketeering activity in which it

engaged. The activities of this enterprise affected interstate

commerce in various ways alleged hereafter, including, but not

limited to, attempts to influence or deceive suppliers and

customers of Tiffany who were located in various states and

engaged in interstate commerce.

(c) A group of individuals consisting of all the employees of

Tiffany Industries, Inc. These individuals were associated in

fact for the common purpose of doing interstate and foreign

business including, but not limited to, sales of agricultural

equipment and systems.

All acts alleged hereafter to violate 18 U.S.C. § 1962(c) in-

volved association with, the conduct of and the participation in

the affairs of all of the above-described enterprises.

15. Defendants were at all relevant times associated with the

above described enterprises and their business operations and

affairs. Defendants did unlawfully, willfully and knowingly

conduct and participate, directly and indirectly, in the conduct

of those enterprises’ affairs through a pattern of racketeering

activity as defined in 18 U.S.C. § 1961(5), in violation of 18

U.S.C. § 1962(c), to the damage of Grant as hereafter alleged.

16. SEC regulations require public companies, including Tif-

fany, to retain independent public accountants to audit their

books and to certify to their financial statements. SEC regula-

tions further require filings by Tiffany and other public com-

panies of independently audited financial statements, and the

SEC and the investing public sometimes rely upon the accuracy

a pe

and reasonableness of said financial statements. For several

years prior to 1978 and until approximately May 22, 1978, Tif-

fany retained Grant to render accounting and auditing services.

Tiffany’s fiscal year ends on December 31. Grant’s services

rendered to Tiffany included annual audits of Tiffany’s books

and records. The results of audits conducted by Grant were in-

corporated by Tiffany into its annual reports to stockholders.

These reports were disseminated to Tiffany’s lenders and were

also filed with the SEC as required by Federal securities laws.

17. Sometime prior to June 20, 1977, the exact time presently

unknown to plaintiffs, defendants Simpkins, Kahn, Appel,

Leber and other officers and employees of Tiffany became

aware that Tiffany’s actual financial position was unsound and

that if ‘“‘generally accepted accounting principles’’ (““GAAP’’) |

were applied, Tiffany was incurring losses rather than earnings.

Defendants sought to conceal this fiscal instability from Tif-

fany’s shareholders, creditors and the investing public, and

sought to present a false picture of financial soundness to those

persons. Pursuant to this desire to present a false picture of

financial soundness, defendants devised a scheme or artifice to

defraud Grant and, pursuant to that scheme or artifice to

defraud Grant, committed the acts constituting the violations of

18 U.S.C. § 1962(c) hereafter alleged, which violations were in-

tended to injure and did injure Grant as set forth hereafter.

Defendants sought to defraud Grant by deceiving Grant into

approving financial statements which were false, misleading and

fraudulent and thus to use Grant to create an image of financial

stability and profitability. Grant was thus the direct and specific

object of defendants’ violations of 18 U.S.C. § 1962.

18. Tiffany misrepresented its true financial position to its

lenders in order to obtain financing. Tiffany did not retain

Grant to conduct interim audits or reviews of Tiffany’s books

and records during the year. Accordingly, during the fiscal year

ended December 31, 1977, Tiffany was able to record certain

sales (as hereinafter described) and to make other entries to its

\

—*

books without any check by independent auditors. Tiffany

“‘closed’’ its 1977 books and sought to show earnings for the

fiscal year ending December 31, 1977. After adjustments pro-

posed by Tiffany, defendants Kahn, Simpkins, Appel, Leber

and other officers and employees of Tiffany knew that if the ac-

tual financial facts (applying GAAP) concerning its 1977 per-

formance were discovered, Tiffany would have sustained a

substantial loss for the year instead of a profit as shown on Tif-

fany’s books.

19. Pursuant to the scheme or artifice to deceive Grant into

approving false, misleading and fraudulent financial

statements, defendants Kahn, Appel, Leber and other officers

and employees of Tiffany knowingly gave Grant false,

misleading and fraudulent material information, intending that

Grant accept such information as valid and accurate so that it

would be restated in Tiffany’s financial statements. Defendant

Simpkins withhcld material financial information from Grant,

and upon information and belief, knew that other officers and

employees of Tiffany were giving material false information to

Grant. Defendants further sought to deceive Grant into restric-

ting the scope of its audit investigations by complaining that the

scope was excessive and by withholding payment of fees for ser-

vices due and theretofore promised to Grant for services per-

formed by Grant during the course of the audit. Defendants

further sought to induce Grant to ‘‘certify’’ its audit and finan-

cial statements to the SEC and to stockholders, thus lending

Grant’s reputation and credibility as independent auditors to

such false and fraudulent financial statements.

(i) The Nigerian Transactions.

20. In June, 1977 Tiffany recorded on its books a purported

sale to the Government of Nigeria (hereinafter the ‘‘Nigerian

sale’’) in the approximate amount of $3,500,000. The effect of

Tiffany’s recording the purported sale was to increase substan-

tially Tiffany’s net income for 1977 (or to decrease losses

— = eo

substantially). The recording of such sale by Tiffany was ef-

fected unilaterally, that is, without audit by Grant.

21. In late December, 1977 when Grant personnel commenc-

ed work on the audit of Tiffany’s books for 1977, the purported

Nigerian sale was brought to Grant’s attention. Grant

discovered that most of the products allegedly ‘‘sold’’ by Tif-

fany in 1977 to the Government of Nigeria had not, in fact,

been shipped by Tiffany to the customer. Additionally, Grant’s

investigation revealed that a substantial portion of the products

allegedly ‘‘sold’’ by Tiffany in 1977 were products Tiffany was

to purchase from suppliers, and most of those products had not

even been purchased by Tiffany for delivery to the Government

of Nigeria.

22. As the result of discoveries by Grant as alleged in

paragraph 19, serious and substantial questions arose as to

whether, in accord with GAAP, Tiffany had properly recorded

the Nigerian sale, and whether Tiffany had the right to reflect in

its financial statements the substantial earnings (or reduction in

losses) which would result from such a sale. Grant personnel

communicated to defendant Kahn and to other Tiffany person-

nel their serious doubts as to the validity of the purported

‘‘sale’’. Tiffany personnel and representatives of Tiffany ag-

gressively sought to persuade Grant to ‘“‘sign off’’ on said sale,

that is, to certify that said purported ‘‘sale’’ was indeed a sale in

accord with GAAP.

23. Between January and May, 1978, defendants conducted

or participated, directly or indirectly, in the conduct of the

enterprises’ affairs through a pattern of racketeering activity in

violation of 18 U.S.C. § 1962(c), in that they committed acts

violating 18 U.S.C. § 1341 (mail fraud) and 18 U.S.C. § 1343

(wire fraud) as part of a fraudulent scheme or artifice to deceive

Grant and to induce Grant to certify the purported Nigerian sale

as a sale in accord with GAAP. More specifically:

(a) In early 1978, Tiffany personnel, including but not limited

to Kahn and Leber, represented to Grant personnel that the

—_*

Nigerian sale should be recognized as a sale for various reasons,

including Tiffany’s representation that while the products

*‘sold’’ had not yet been delivered, nevertheless Tiffany had

issued purchase orders in June 1977 (before the Nigerian sale

was recorded by Tiffany) to various suppliers, and that the sup-

pliers were ‘‘holding’’ the products prior to June 30, 1977,

awaiting only shipment instructions from Tiffany. Tiffany per-

sonnel urged Grant personnel to consider such products as

*‘sold’’ under GAAP and pursuant to Tiffany’s ‘‘revenue

recognition program’’, since Tiffany was allegedly obbligated to

pay the suppliers for such products (by virtue of the purchase

orders), and the products were allegedly ready for shipment.

(b) In response to the representations by Tiffany as described

in subparagraph (a), Grant personnel requested of Tiffany con-

firmation from each supplier as to the following: (1) that Tif-

fany had in fact issued the purchase orders to the various sup-

pliers prior to June 30, 1977 (the date as of which the Nigerian

sale was recorded); (2) that the suppliers in fact had been

holding the products so ordered for Tiffany prior to June 30,

1977.

(c) The representations made by Tiffany and Tiffany person-

nel as described in subparagraph (a) were false and fraudulent

and known to be so when made. Tiffany had not, in fact, issued

such purchase orders prior to June 30, 1977 as represented, nor

were said products being held (per any such purchase orders) by

said suppliers awaiting orders for shipment.

(d) Upon information and belief, Defendant Simpkins knew

that Kahn and Leber, or other Tiffany employees or officers,

were providing false and misleading information to Grant in an

effort to deceive Grant into agreeing that the Nigerian sale

should be recognized in 1977.

(e) In response to Grant’s requests for supplier confirmations

as descried in suparagraph (b) above, and in furtherance of the

scheme or artifice to defraud Grant as described above, Tiffany,

a

Kahn, Leber, Martin, or Cassel, or other Tiffany officers or

employees working at their direction, concocted a plan to pro-

vide confirmations by fraudulent means or to manufacture the

confirmations themselves. Pursuant to that plan, said defen-

dants backdated purchase order forms to show order dates of

early June 1977, mailed these purchase orders to the suppliers

and asked that they falsely confirm that they had received the

purchase orders prior to June 30, 1977 and had been holding the

equipment since some time shortly after receipt of the order,

awaiting only shipping instructions from Tiffany. If the sup-

pliers refused or failed to falsely confirm as requested, Kahn,

Leber, Martin and Cassel, or any of them, or other Tiffany of-

ficers or employees working at their direction, forged confirma-

tion letters from the suppliers. These forged letters and the ge-

nuine letters solicited by Kahn and Leber, all of which contained

false information, were provided to Grant by Tiffany or Kahn

in an attempt fraudulently to induce Grant to recognize the

revenue as described above.

(f) After being provided with those false confirmations,

Grant personnel advised Tiffany that Grant sought to ‘‘recon-

firm’’ the representations by having Tiffany address an addi-

tional letter to some of the suppliers. Grant sought to ask a

representative group of suppliers whether the purported Pur-

chase Order to each supplier was, indeed, received by the sup-

plier prior to June 30, 1977, and whether the material supposed-

ly ordered by the Purchase Order had, indeed, been held for

Tiffany’s account and continued to be so held. A draft of such a

confirmation letter was prepared and on or about March 13,

1978, Defendant Kahn had those letters typed on Tiffany let-

terhead and mailed to six of the suppliers. All of these actions

were taken for the purpose of executing a scheme to defraud

Grant and to induce Grant to “‘sign off’’ on the Nigerian sale,

that is, to certify the sale as a sale and to aid Tiffany in issuing

false, fraudulent and misleading financial statements which

would distort Tiffany’s actual earnings or losses.

— A-10 —

24. In the course of executing the above transactions as to

seventeen different suppliers, Tiffany, Kahn, Leber, Martin and

Cassel, or one or more of them, or other Tiffany officers or

employees acting at their direction committed at least 37 acts of

mail fraud and 5 acts of wire fraud, as those offenses are defin-

ed by 18 U.S.C. §§ 1341 and 1343. The specific violations are

described in full in subparagraphs (a) through (q) below. Each

of those mail fraud and wire fraud violations was a part of a

pattern of racketeering activity (as defined in 18 U.S.C. §

1961(5)) carried out by Tiffany, Kahn, Leber, Martin and

Cassel, or any one or more of them, in the conduct of the enter-

prises’ affairs in violation of 18 U.S.C. § 1962(c). Upon infor-

mation and belief, Simpkins, with knowledge of the fraud, fail-

ed to disclose to Grant that the other defendants were providing

false and misleading information to Grant pursuant to the

scheme or artifice to defraud Grant, and so aided and abetted

the other defendants in their violation of 18 U.S.C. § 1962(c).

The violations of 18 U.S.C. § 1962(c) described below were

directed at Grant and done for the purpose of injuring Grant,

by attempting to induce Grant to approve recognition of the in-

come from the transaction.

(a) The Essmueller Co. (‘‘Essmueller’’). Tiffany presented to

Grant two letters (Exhibits A and B) confirming receipt of three

purchase orders (Tiffany Purchase Orders Numbered 431 (Ex-

hibit C), 485 (Exhibit D), and 494 (Exhibit E)). The two letters

were forgeries and falsely confirmed that Essmueller had receiv-

ed the purchase orders dated June 7 and 8, 1977, and had been

holding the equipment awaiting shipment orders since shortly

after receipt of the purchase orders. In fact, none of the pur-

chase orders had been received by Essmueller prior to June 30,

1977: one of the purchase orders (No. 431, Exhibit C) was not

received until December of 1977, and the other two purchase

orders (No. 485 (Exhibit D) and No. 494 (Exhibit E)) were never

received by Essmueller. Furthermore Essmueller, in response to

a Tiffany request for confirmation of receipt of purchase order

SS Oe EE TE ee TT

— A-ll —

No. 431, was induced to mail a letter (Exhibit F), signed by Ed

Bennett, to Tiffany. Kahn, Martin, Cassel or someone acting at

Kahn’s direction used the letterhead and signature from that ge-

nuine letter (Exhibit F), to create the forged letters (Exhibits A

and B).

(b) Burdick Aeration & Electronics Corporation

(‘‘Burdick’’). On or about January 27, 1978, acting at the

direction of Tiffany and Kahn, defendant Leber telephoned,

from Tiffany’s office in St. Louis, Missouri, the Burdick Aera-

tion & Electronics Corporation in Decatur, Illinois, and re-

quested that Burdick confirm that Purchase Order No. 432 (Ex-

hibit G) had been received prior to June 30, 1977, and that Bur-

dick had been holding the equipment awaiting shipping instruc-

tions since shortly after receipt of the purchase order. In fact,

purchase order No. 432 had not been received by Burdick prior

to June 30, 1977, and was not received until on or about

December 12, 1977. In response to Leber’s telephone request,

Lynda Johnson (‘‘Johnson’’), a Burdick employee, mailed a let-

ter (Exhibit H) to Tiffany, providing the false confirmation.

Tiffany presented that letter to Grant, falsely representing that

the statements therein were truthful. On or about March 13,

1978, in response to Grant’s request for ‘‘reconfirmation’’,

Kahn, or someone acting at his direction, mailed a letter to Bur-

dick asking for reconfirmation of the above-described false

statements. On March 15, 1978, Johnson was induced to sign

the Kahn letter (Exhibit 1), again falsely confirming the

misrepresentations. Burdick then mailed the letter to Tiffany or

to Grant.

(c) Hunter Mfg. Co. (‘‘Hunter’’). On or about January 27,

1978, acting at the direction of Tiffany and Kahn, defendant

Leber telephoned, from Tiffany’s offices in St. Louis, Missouri,

the Hunter Mfg. Co. in Mackinaw, Illinois, and requested that

Hunter confirm that Tiffany Purchase Orders Numbered 433

(Exhibit J), 441 (Exhibit K), 442 (Exhibit L), 443 (Exhibit M),

and 448 (Exhibit N) had been received prior to June 30, 1977,

— A-1l2 —

and that Hunter had been holding the equipment, awaiting ship-

ping instructions, since shortly after receipt of the purchase

orders. In fact, none of the above-described purchase orders

was received by Hunter prior to June 30, 1977: they were ap-

parently received in December of 1977. In response to Leber’s

telephone request, William E. Hunter, a Hunter officer and

employee, was induced to mail two letters (Exhibits O and P) to

Tiffany providing the false confirmations. Tiffany presented

those letters to Grant, falsely representing that the statements

therein were truthful. On or about March 13, 1978, in response

to Grant’s request for ‘‘reconfirmation’’, Kahn, or someone ac-

ting at his direction, mailed a letter to Hunter asking for recon-

firmation of the above-described false statements (Exhibit Q).

On or about March 14, 1978, William E. Hunter was induced to

sign the Kahn letter (Exhibit Q) again falsely confirming the

misrepresentations. Hunter then mailed the letter to Tiffany or

to Grant.

(d) Universal Industries (‘‘Universal’’). On or about January

27, 1978, acting at the direction of Tiffany and Kahn, defendant

Leber telephoned, from Tiffany’s offices in St. Louis, Missouri,

Universal Industries in Waterloo, Iowa, and requested that

Universal confirm that Tiffany Purchase Orders No. 434 (Ex-

hibit R), 484 (Exhibit S), 488 (Exhibit T) and 491 (Exhibit U)

had been received by Universal prior to June 30, 1977, and that

Universal had been holding the equipment awaiting shipping in-

structions since shortly after receipt of the purchase orders. In

fact, none of these purchase orders was received by Universal

prior to June 30, 1977: Purchase Order No. 434 was not receiv-

ed until on or about December 7, 1977, and Purchase orders

Numbered 484, 488 and 491 were not received by Universal until

on or about March 13, 1978. In response to Leber’s telephone

request, Norman E. Armstrong (‘‘Armstrong’’), a Universal

employee, was induced to mail two letters (Exhibits V and W) to

Tiffany, providing the false confirmation. Tiffany presented

those letters to Grant, falsely representing that the statements

— A-13 —

therein were truthful. On or about March 13, 1978, in response

to Grant’s request for ‘‘reconfirmation’’, Kahn, or someone ac-

ting at his direction, mailed a letter to Universal asking for

reconfirmation of the above-described false statements. On or

about March 22, 1978, Armstrong was induced to sign the Kahn

letter (Exhibit X) again falsely confirming the misrepresenta-

tions. Armstrong then mailed the letter to Tiffany or to Grant.

(e) Garner Mfg. Co. (‘‘Garner’’). Tiffany presented to Grant

a letter (Exhibit Y) confirming receipt of Tiffany Purchase

Order Number 435 (Exhibit Z). The letter was a forgery and

falsely confirmed that Garner Mfg. Co. had received Purchase

Order No. 435 dated June 10, 1977, and had been holding the

equipment awaiting shipment orders since shortly after receipt

of the purchase order. In fact, Purchase Order No. 435 (Exhibit

Z) did not exist prior to June 30, 1977, and was not received by

Garner until December of 1977. Kahn, Cassel or Martin, or so-

meone acting at Kahn’s direction, forged the letter (Exhibit Y),

purportedly from Philip Mullin of Garner and presented it to

Grant.

(f) Energy Mfg. Co., Inc. (‘‘Energy’’). Tiffany presented to

Grant a letter (Exhibit 2A) confirming receipt of Tiffany Pur-

chase Order No. 436 (Exhibit 2B). The letter was a forgery and

falsely confirmed that Energy and received the purchase order

dated June 10, 1977, and had been holding the equipment

awaiting shipment orders since shortly after receipt of the pur-

chase order. In fact, Purchase Order No. 436 (Exhibit 2B) did

not exist prior to June 30, 1977, and was not received by Energy

until December of 1977. Furthermore Energy, in response to

Tiffany’s request for confirmation of Purchase Order No. 436,

was induced to mail a letter (Exhibit 2C) signed by Sandy Mc-

Quillen to Tiffany. Kahn, Cassel or Martin, or someone acting

at Kahn’s direction, used the letterhead and signature from that

genuine letter (Exhibit 2C), to create the forged letter (Exhibit

2A).

—_*)

(g) Forsbergs International Sales Corp. (‘‘Forsbergs’’). Tif-

fany presented to Grant a letter (Exhibit 2D) confirming receipt

of Tiffany Purchase Order No. 437 (Exhibit 2E). The letter was

a forgery and falsely confirmed that Forsbergs had received

Purchase Order No. 437 dated June 10, 1977, and had been

holding the equipment awaiting shipment orders since shortly

after receipt of the purchase order. In fact, Purchase Order No.

437 (Exhibit 2D) did not exist prior to June 30, 1977, and was

not received by Forsbergs until Decemer of 1977. Furthermore,

Forsbergs, in response to a Tiffany request for confirmation of

Purchase Order No. 437, was induced to mail a letter (Exhibit

2F), signed by Harry M. Donarski to Tiffany. Kahn, Martin or

Cassel, or someone acting at Kahn’s direction, used the let-

terhead and signature from that genuine letter (Exhibit 2F), to

create the forged letter (Exhibit 2D).

(h) CEA Carter International, Inc. (‘‘Carter’’). On or about

January 27, 1978, acting at the direction of Tiffany and Kahn,

defendant Leber telephoned, from Tiffany’s offices in St.

Louis, Missouri, CEA Carter International, Inc. in N.E. Min-

neapolis, Minnesota, and requested that Carter confirm that

Purchase Order No. 438 (Exhibit 2G) had been received prior to

June 30, 1977 and that Carter had been holding the equipment

since shortly after receipt of the purchase order. In fact, Pur-

chase Order No. 438 did not exist prior to June 30, 1977, and

was not received by Carter until on or about December 7, 1977.

In response to Leber’s telephone request, Laverne Vest

(‘‘Vest’’), a Carter employee, was induced to mail a letter (Ex-

hibit 2H) to Tiffany, providing the false confirmation. Tiffany

presented that letter to Grant, falsely representing that the

statements therein were true.

(i) Sprout-Waldron (Koppers Co.) On or about January 27,

1978, acting at the direction of Tiffany and Kahn, defendant

Leber telephoned, from Tiffany’s offices in St. Louis, Missouri,

Sprout-Waldron in Muncy, Pennsylvania, and requested that

Sprout-Waldron confirm that Tiffany Purchase Orders No. 439

—_s

(Exhibit 21) and 440 (Exhibit 2J) had been received prior to June

30, 1977 and that Sprout-Waldron had been holding the equip-

ment awaiting shipping instructions since shortly after receipt of

the purchase order. In fact, Purchase Order Nos. 439 and 440

did not exist prior to June 30, 1977, and were not received by

Sprout-Waldron until December of 1977. Sprout-Waldron

refused to send such a false confirmation letter. Thereafter,

Kahn, Martin or Cassel, or someone acting at Kahn’s direction,

created a forged confirmation letter (Exhibit 2K), which Kahn

and Tiffany then presented to Grant.

(j) Howe Richardson Scale Company (‘‘Howe Richardson’’).

On or about February 20, 1978, acting at the direction of Tif-

fany and Kahn, defendant Leber telephoned, from Tiffany’s of-

fices in St. Louis, Missouri, the Howe Richardson Scale Com-

pany at Maryland Heights, Missouri, and requested that Howe

Richardson confirm that Purchase Orders No. 447 (Exhibit 2L)

and 483 (Exhibit 2M) had been received prior to June 30, 1977;

and that Howe Richardson had been holding the equipment

since shortly after receipt of the purchase order. In fact, neither

purchase order existed prior to June 30, 1977; Purchase Order

No. 447 (Exhibit 2L) was not received by Howe Richardson un-

til on or about December 7, 1977, and Purchase Order No. 483

(Exhibit 2M) was not received by Howe Richardson until on or

about March 13, 1978. Upon Howe Richardson’s failure to send

such a false confirmation, Kahn, Martin or Cassel, or someone

acting at Kahn’s direction, created a forged letter (Exhibit 2N),

purportedly from Tom Shannon at Howe Richardson. Tiffany

or Kahn then presented the forged false confirmation letter to

Grant. On or about March 13, 1978, in response to Grant’s re-

quest for ‘‘reconfirmation,’’? Kahn or someone acting at his

direction mailed a letter to Howe Richardson asking for recon-

firmation of the above-described false statements. On March

15, 1978, Tom Shannon was induced to sign the Kahn letter (Ex-

hibit 20), falsely confirming the misrepresentations. Howe

Richardson then mailed the letter to Tiffany or to Grant.

—_—.

(k) Baldor-Baumann Company (‘‘Baldor’’). On or about

February 8, 1978, acting at the direction of Tiffany and Kahn,

defendant Leber telephoned, from Tiffany’s offices in St.

Louis, Missouri, the Baldor-Bauman Company at Chesterfield,

Missouri, and requested that Baldor confirm that Purchase

Order No. 449 (Exhibit 2P) had been received prior to June 30,

1977 and that Baldor had been holding the equipment awaiting

shipping instructions since shortly after receipt of the purchase

order. In fact, Purchase Order No. 449 did not exist prior to

June 30, 1977, and was not received by Baldor until on or about

December 8, 1977. Baldor, in response to Leber’s request, was

induced to mail a letter (Exhibit 2Q) signed by O. A. Baumann

to Tiffany. Kahn, Martin or Cassel, or someone acting at

Kahn’s direction, used the letterhead and signature from that

genuine letter (Exhibit 2Q), to create a forged letter (Exhibit

2R), falsely confirming receipt of the purchase order. Tiffany

then presented the forgery to Grant.

(1) Superior Equipment Mfg. Co. (‘‘Superior’’). Tiffany

presented to Grant a letter (Exhibit 2S) confirming receipt of

three purchase orders (Tiffany Purchase Orders Numbered 444

(Exhibit 2T), 445 (Exhibit 2U) and 446 (Exhibit 2V)). The letter

was a forgery and falsely confirmed that Superior had received

the purchase orders dated June 7, 1977, and had been holding

the equipment awaiting shipment orders since shortly after

receipt of the purchase order. In fact, the purchase orders did

not exist prior to June 30, 1977, and were not received by

Superior until December of 1977. Kahn, Martin or Cassel, or

someone acting at Kahn’s direction, created the forged letter

(Exhibit 2S) falsely confirming receipt of the purchase orders.

Tiffany and Kahn then presented that letter to Grant, knowing

it was forged and contained false information.

(m) Ferrell-Ross. Tiffany presented to Grant a letter (Exhibit

2W) confirming receipt of Tiffany Purchase Order No. 486 (Ex-

hibit 2X). The letter was a forgery and falsely confirmed that

Ferrell-Ross had received the purchase order dated June 8,

—

1977, and had been holding the equipment awaiting shipment

orders since shortly after receipt of the purchase order. In fact,

the purchase order did not exist prior to June 30, 1977, and was

not received by Ferrell-Ross until March of 1978. Kahn, Martin

or Cassel, or someone acting at Kahn’s direction created the

forged letter (Exhibit 2W) falsely confirming receipt of the pur-

chase order. Tiffany and Kahn then presented that letter to

Grant, knowing it was forged and contained false information.

On or about March 13, 1978, in response to Grant’s request for

‘*reconfirmation’’ Kahn, or someone acting at his direction,

mailed a letter to Ferrell-Ross asking for reconfirmation of the

above-described false statements. On March 17, 1978, a Ferrell-

Ross employee was induced to sign the Kahn letter (Exhibit 2Y)

again falsely confirming the misrepresentations, and mailed it to

Tiffany or to Grant.

(n) Seedburo Equipment Co. (‘‘Seedburo’’). Tiffany

presented to Grant a letter (Exhibit 2Z) confirming receipt of

two purchase orders (Tiffany Purchase Orders Numbered 487

(Exhibit 3A) and 493 (Exhibit 3B)). The letter was a forgery and

falsely confirmed that Seedburo had received the purchase

orders dated June 8, 1977, and had been holding the equipment

awaiting shipment orders since shortly after receipt of the pur-

chase orders. In fact the purchase orders did not exist prior to

June 30, 1977, and were not received by Seedburo until July of

1978, when Seedburo requested copies of them in connection

with the investigation surrounding Tiffany. Kahn, Martin or

Cassel, or someone acting at Kahn’s direction, created the forg-

ed letter (Exhibit 2Z), purportedly from Jack T. Snader at Seed-

buro. Tiffany or Kahn then presented the forged false confirma-

tion letter to Grant.

(o) Gustafson Mfg. Co. (‘‘Gustafson’’). Tiffany presented to

Grant a letter (Exhibit 3C) confirming receipt of Tiffany Pur-

chase Order No. 489 (Exhibit 3D). The letter was a forgery and

falsely confirmed that Gustafson had received the purchase

order dated June 10, 1977, and had been holding the equipment

— A-18 —

awaiting shipment orders since shortly after receipt of the pur-

chase order. In fact, the purchase order did not exist prior to

June 30, 1977, and was not received by Gustafson until March

13, 1978. Kahn, Martin or Cassel, or someone acting at Kahn’s

direction created the forged letter (Exhibit 3C), purportedly

from Gene T. Billmyre at Gustafson. Tiffany or Kahn then

presented the forged false confirmation ietter to Grant. On or

about March 13, 1978, in response to Grant’s request for

‘‘reconfirmation,’’ Kahn or someone acting at his direction

mailed a letter to Gustafson asking for reconfirmation of the

above-described false statements. On March 15, 1978, Gene T.

Billmyre was induced to sign the Kahn letter (Exhibit 3E) falsely

confirming the misrepresentations, and railed it to Tiffany or

to Grant.

(p) Hagan Mfg. Co. (‘‘Hagan’’). Tiffany presented to Grant

a letter (Exhibit 3F) confirming receipt of Tiffany Purchase

Order No. 490 (Exhibit 3G). The letter was a forgery and falsely

confirmed that Hagan had received the purchase order dated

June 8, 1977, and had been holding the equipment awaiting

shipment orders since shortly after receipt of the purchase

order. In fact, the purchase order did not exist prior to June 30,

1977, and was not received by Hagan until December of 1977.

Kahn, Martin or Cassel, or someone acting at Kahn’s direction

created the forged letter (Exhibit 3F), purportedly from Pete

Brunson at Hagan. Tiffany or Kahn then presented the forged

false confirmation letter to Grant.

(q) Merritt Roaster Corp. (‘‘Merritt’’). Tiffany presented to

Grant a letter (Exhibit 3H) confirming receipt of Tiffany Pur-

chase Order No. 492 (Exhibit 31). The letter was a forgery and

falsely confirmed that Merritt had received the purchase order

dated June 8, 1977, and had been holding the equipment

awaiting shipment orders since shortly after receipt of the pur-

chase order. In fact, the purchase order did not exist prior to

June 30, 1977, and was never received by Merritt. Kahn, Martin

or Cassel, or someone acting at Kahn’s direction, created the

— A-19 —

forged letter (Exhibit 3H), purportedly from Alice Goede at

Merritt. Tiffany or Kahn then presented the forged false confir-

mation letter to Grant.

(r) Having devised the scheme or artifice to defraud Grant

and in order to execute or attempt to execute that scheme or ar-

tifice, the following acts (more specifically described above)

were violations of 18 U.S.C. , 1341 (mail fraud) and 18 U.S.C.

§ 1343 (wire fraud), which were parts of a pattern of racketeer-

ing activity through which defendants conducted the enter-

prises’ affairs in violation of 18 U.S.C. § 1962(c):

(i) On or about the dates listed below defendants

transmitted in interstate commerce by means of wire com-

munications certain signs, signals and sounds (that is, the

following described telephone calls made from St. Louis,

Missouri) in violation of 18 U.S.C. § 1343 (wire fraud):

Date Of Supplier Location

Telephone Calls (Person Called) Called

1/27/78 Burdick Decatur, Illinois

1/27/78 Hunter Mackinaw, Illincis

1/27/78 Universal Waterloo, Illinois

Date Of Supplier Location

Telephone Calls (Person Called) Called

1/27/78 Carter N.E. Minneapolis,

Minnesota

1/27/78 Sprout-Waldron Muncey, Pennsylvania

(ii) On or about the dates listed below, defendants plac-

ed in a post office or other authorized depository for mail

the following described letters and purchase orders to be

delivered by the U.S. Postal Service, in violation of 18

U.S.C. § 1341 (mail fraud):

Date

12/77

12/12/77

3/13/78

12/7/77

12/7/77

3/13/78

12/7/77

3/13/78

12/77

12/77

12/77

12/77

12/6/77

12/8/77

12/7/77

3/13/78

12/8/77

12/77

3/13/78

3/13/78

12/77

YS

MAILED

Addressee (Supplier)

Essmueller

Burdick

Burdick

Hunter

Hunter

Hunter

Universal

Universal

Garner

Energy

Forsbergs

Carter

Sprout-Waldron

Sprout-Waldron

Howe Richardson

Howe Richardson

Baldor

Superior

Ferrell-Ross

Gustafson

Hagan

Exhibit No.

C

2M & 20

2P

2T, 2U & 2V

2X & 2Y

3D & 3E

3G

(iii) On or about the dates listed below, defendants caus-

ed the above-described letters to be delivered to Tiffany’s

offices by mail from the following suppliers, in violation of

18 U.S.C. § 1341 (mail fraud):

— A-21 —

CAUSED TO BE MAILED

Date Sender (Supplier) Exhibit No.

1/27/78 Essmueller F

1/27/78 Burdick H

3/15/78 Burdick I

1/27/78 Hunter O

2/20/78 Hunter P

3/14/78 Hunter Q

1/27/78 Universal V

2/17/78 Universal W

3/22/78 Universal X

2/8/78 Energy 2C

2/8/78 Forsbergs 2F

1/27/78 Carter 2H

3/15/78 Howe Richardson 20

2/8/78 Baldor 2Q

3/17/78 Ferrell-Ross 2Y

3/13/78 Gustafson 3E

25.(a) In early 1978, Grant raised the question whether the

Government of Nigeria (the alleged purchaser, sometimes refer-

red to as the ‘‘Bendel Food Production Board’’) had made ar-

rangements to provide Tiffany sufficient assurance that

amounts due Tiffany under the purported Nigerian contract

(described in paragraph 18) would be paid. Defendant Kahn

and other Tiffany officers and employees represented to Grant

that ‘‘financing’’ had been arranged, and that a consortium of

banks in Nigeria had made commitments to loan the Purchaser

— A-22 —

sufficient funds to make full payment to Tiffany for products

sold under the Nigerian contract. As purported proof of said

financing commitments, defendant Kahn, acting in behalf of

defendant Tiffany, delivered to Grant the following documents

(marked as follows and incorporated herein):

Exh. 3J: Letter dated 3/9/78 to Tiffany from W.J.

Anukpe, Chairman/Managing Director, New

Nigeria Bank Ltd. (the ‘‘Anukpe letter’’).

Exh. 3K: Letter dated 3/20/78 to Tiffany, from M. In-

sole, Principal Manager, Standard Bank Nigeria

Limited (the ‘‘Insole letter’’).

Exh. 3L: Letter dated 3/17/78 to Tiffany from W. D.

Keatinge, Ag. Assistant General Manager,

Barclay’s Bank of Nigeria, Limited (the

“*Keatinge letter’’).

Exh. 3M: Telex dated 3/20/78 to Tiffany from H. C. Ar-

nold, Director, Standard Bank Nigeria Limited

(the ‘Arnold telex’’).

Defendant Kahn represented to Grant that Tiffany had received

Exhibits 3J, 3K, 3L and 3M from the Nigerian banks designated

in said exhibits, and further represented that by virtue of said

letters, telexes, and other assurances given Kahn by the banks

and by the Purchaser, payment in full under the Nigerian con-

tract was assured.

(b) The representations made by defendant Kahn and by

other Tiffany employees as described in subparagraph (a) were

false and fraudulent and known to be so when made. Upon in-

formation and belief, Simpkins knew that Tiffany had not

received sufficient assurances from the Nigerian banks, and he

knew that other Tiffany personnel were falsely representing to

Grant that sufficient assurances had been obtained. Simpkins

failed to disclose this information to Grant.

— A-23 —

(c) Exhibits 3J, 3K, 3L and 3M listed above are forgeries and

contain false information. In fact, Kahn, Appel, Martin or

Cassel, or someone acting at their direction, created Exhibits 3J,

3K, 3L and 3M. More specifically:

(i) The Anukpe letter, Exh. 3J, is a forgery, the pur-

ported signature having been forged by defendant Kahn,

Martin or Cassel, or some other Tiffany officer or

employee acting in Tiffany’s behalf. Although represented

as having been typed and prepared in Nigeria, Exhibit S

was in fact typed at Tiffany’s offices in St. Louis County,

Missouri by Kahn, Martin or Cassel, or some other Tiffany

officer or employee acting in Tiffany’s behalf.

(ii) The Insole letter, Exh. 3K, although represented as

having been typed and prepared in Nigeria, was in fact

typed at Tiffany’s offices on the same Tiffany typewriter

used to type the forged Anukpe letter, and is a forgery.

(iii) Upon information and belief, Grant aileges that the

Keatinge letter, Exhibit 3L, is a forgery.

(iv) The Arnold telex, Exh. 3M, was not in fact sent by

Arnold, and is a forgery.

(d) Upon information and belief, Grant further alleges:

(i) At various times (the specific instances presently

unknown to Grant), officers and employees of Tiffany, or

others acting in Tiffany’s behalf, having devised a scheme

or artifice to defraud Grant by means of false and

fraudulent representations (as heretofore described) and

for the purpose of executing such scheme or artifice, plac-

ed (or caused to be placed) in a post office or authorized

depository for mail matter, to be sent or delivered by the

U.S. Postal Service, each of the three fictitious, spurious

and fraudulent letters described above (Exhibits 3J, 3K

and 3L) in violation of 18 U.S.C. §1341.

—_

(ii) At various times (the specific instances presently

unknown to Grant), officers and employees of Tiffany, or

others acting in Tiffany’s behalf, having devised a scheme

or artifice to defraud Grant by means of false and

fraudulent representations (as heretofore described) and

for the purpose of executing such scheme or artifice,

transmitted or caused to be transmitted in interstate or

foreign commerce, by means of wire communications, cer-

tain writings, signs, signals and sounds, specifically,

telephone and telex communications of the contents or

substance of the contents of Exhibits 3J, 3K, 3L and 3M,

in violation of 18 U.S.C. § 1343 (wire fraud).

(iii) The violations of 18 U.S.C. §§ 1341 and 1343

described above were parts of a pattern of racketeering ac-

tivity through which defendants conducted the enterprises’

affairs in violation of 18 U.S.C. § 1962(c). The forgeries

and illegal uses of the mails and wire communications and

the conduct of Tiffany’s affairs through that pattern of

racketeering activity was directed at Grant with the intent

of deceiving Grant to its detriment.

26. In a false and fraudulent attempt to pressure Grant into

certifying the Nigerian transaction as a sale, Tiffany engaged

the services of four independent public accounting firms and

furnished to said firms the fictitious, spurious and fraudulent

documents (Exhs. 3J, *K, 3L and 3M) and other false,

misleading and fraudulent materials. Tiffany intended, by such

fraudulent actions, to persuade said accounting firms to render

opinions to the effect that the Nigerian sale should be recogniz-

ed, and thus to coerce Grant to render such opinion. Based

upon the false representations made to said firms, they did in-

deed render such opinions. Upon information and belief, Grant

further alleges that at various times (the specific instances

presently unknown to Grant), officers, directors and employees

of Tiffany, or others acting in Tiffany’s behalf, having devised

a scheme or artifice to defraud Grant by means of false and

— A-25 —

fraudulent representations (as heretofore alleged), and for the

purpose of executing such scheme or artifice, placed or caused

to be placed in a post office or authorized depository for mail

matter, to be sent or delivered by the U.S. Post Office Depart-

ment, and transmitted by wire or telex in interstate or foreign

commerce, false and fraudulent communications to said ac-

counting firms and to others, in violation of 18 U.S.C. § 1341

(mail fraud) and 18 U.S.C. § 1343 (wire fraud). These mail

fraud and wire fraud violations were part of a pattern of

racketeering activity through which defendants conducted the

enterprises’ affairs in violation of 18 U.S.C. § 1962(c) for the

purpose of deceiving and injuring Grant.

(ii) Steelabrade.

27. Having devised the scheme or artifice to defraud Grant as

heretofore alleged, defendants further conducted or par-

ticipated, directly or indirectly, in the conduct of the enter-

prises’ affairs through a pattern of racketeering activity in viola-

tion of 18 U.S.C. § 1962(c), in the following particulars:

(a) In late February or early March, 1978, defendant Kahn, in

furtherance of said scheme to defraud Grant, called (on the

telephone) one James V. Murphy (‘‘Murphy’’), who was Presi-

dent of Steelabrade Corporation (‘‘Steelabrade’’), a supplier of

products to Tiffany. Kahn, with full knowledge that as of

December 31, 1977, and early March, 1978, Steelabrade held no

Tiffany ‘‘inventory”’ in its possession, nevertheless fraudlently

and willfully attempted to induce Murphy to represent to Grant

that Steelabrade did, in fact, have in its possession as of

December 31, 1977 and early March, 1978 certain inventory

purportedly the property of Tiffany. Murphy refused Kahn’s

fraudulent request, whereupon Kahn directed Murphy to

prepare and deliver to Kahn a schedule of all purchases during

1977 of Steelabrade products by Tiffany. Murphy complied.

(b) Kahn falsely and fraudulently represented to Grant that

Steelabrade held in its possession (as of December 31, 1977 and

—T

early March, 1978) approximately $500,000 in ‘‘inventory’’

(products sold by Steelabrade to Tiffany and other products, all

of which were purportedly held in Steelabrade’s possession).

Kahn, in furtherance of the above-described scheme or artifice

to defraud and in violation of 18 U.S.C. § 1341, caused Grant

(who relied on Kahn’s fraudulent misrepresentations) to place in

a post office or authorized depository for mail, to be sent or

delivered by the U.S. Post Office Department, a confirmation

request, (Exhibit 3N) that is, a written request that Steelabrade

confirm to Grant that Steelabrade did, in fact, have in its

possession said inventory.

(c) On or about March 8, 1978, Kahn, Cassel or Martin, or

someone acting at Kahn’s direction, prepared a schedule show-

ing sales by Steelabrade to Tiffany during 1977 and additional

products. The total of said sales and other property was valued

at approximately $500,000. To the schedule defendants attached

a confirmation request. Defendants Kahn, Cassel or Martin, or

someone acting at Kahn’s direction, signed the name ‘‘James V.

Murphy”’ (President of Steelabrade) to said document and

dated the same. Said signature was made without the

knowledge, consent or authorization of Murphy, and is a

forgery. Further, defendants Kahn, Cassel or Martin, or so-

meone acting at Kahn’s direction, inserted the following typed

language in the confirmation request (Exhibit 30):

Attached please find a list of materials that was either pur-

chased from us going back to 1976 or was delivered to our

facility for processing during 1977. This inventory was at

our premises at December 31, 1977 and March 1, 1978.”’

The insertion of said language was done without the knowledge,

consent or authorization of Murphy, and is a false statement.

(d) Defendants Kahn, Cassel and Martin committed the acts

herein alleged as part of a scheme to defraud Grant, in that

Defendants by means of f .se representations and forgery, in-

tended to deceive Grant into believing that Tiffany owned some

——

— A-27 —

$500,000 in inventory in the possession of Steelabrade. Defen-

dants further attempted to deceive Grant into making a certified

audit which would reflect ownership by Tiffany of said inven-

tory. Such certification would have materially increased Tif-

fany’s earnings (or decreased its losses) for 1977, and would

have distorted Tiffany’s actual financial condition as of

December 31, 1977.

(e) On or about March 8, 1978, defendants Kahn, Cassel or

Martin, or someone acting at Kahn’s direction, placed in a post

office or authorized depository for mail, to be sent or delivered

by the U.S. Post Office Department, the fictitious, fraudulent

and forged confirmations (Exhibit 30), addressed to Grant at its

offices in Clayton, Missouri and to Murphy at Steelabrade’s of-

fices in St. Louis County, Missouri, in violation of 18 U.S.C. §

1341. Said violations of 18 U.S.C. § 1341 were part of a pattern

of racketeering activity through which the enterprises’ affairs

were conducted in violation of 18 U.S.C. § 1962(c).

(iii) Farm Store Inventories.

28. Beginning in late December of 1977, in preparation for

and as a part of the 1977 audit to be conducted by Grant, Tif-

fany counted its inventories at its various facilities. Grant, as

part of its audit, reviewed the inventories prepared by Tiffany.

Tiffany, in order to conceal its true financial condition, and to

deceive Grant into unknowingly assisting it in presenting false

and misleading financial statements, represented to Grant that

the inventories as originally taken at Tiffany’s farm stores were

inaccurate and should be adjusted upward. Specifically, Tiffany

represented that Tiffany’s farm stores each held additional in-

ventory that had not been counted originally, and which should

be added to the original inventory figures. In fact, the farm

stores held no additional inventory. Defendants Tiffany, Kahn,

Leber and Appel, or other Tiffany officers or employees work-

ing at their direction, knew at the time that the representations

concerning additional inventory were false. Tiffany, Kahn, Ap-

—_—s oe

pel and Leber made the misrepresentations to Grant pursuant to

Tiffany’s scheme or artifice to defraud Grant as described

above, and in an attempt to induce Grant to accept the existence

of the additional inventory and allow Tiffany to reflect that in-

ventory On its financial statements, thus overstating its income

and net worth.

(a) In February or March of 1978, defendant Kahn, in fur-

therance of the scheme to defraud Grant, telephoned from the

Tiffany offices in St. Louis, Missouri, the managers of

Tiffany’s farm stores in Oelwein, Iowa, Sullivan, Illinois, Ar-

canum, Ohio and Macon, Mississippi, in violation of 18 U.S.C.

§ 1343, asking that they report to Grant that they were in posses-

sion of Tiffany inventory that, in fact, did not exist.

(b) In response to Kahn’s fraudulent telephone request

described in subparagraph (a) above, Robert E. Richner

(‘‘Richner’’), Manager of the Trulock farm store in Macon,

Mississippi, mailed to Tiffany a letter dated March 30, 1978

(Exhibit 3P) stating that Trulock possessed certain Tiffany in-

ventory. In fact, the representations made in the letter were false

and known by Richner to be false. Tiffany and Kahn, for the

purpose of executing that scheme or artifice, caused the Richner

letter to be delivered by mail to Tiffany on or about March 30,

1978 in violation of 18 U.S.C. § 1341. Tiffany then presented

that letter to Grant.

(c) In response to Kahn’s fraudulent telephone request

described in subparagraph (a) above, Donald D. Myott

(‘‘Myott’’), Manager of the Trulock American Farm Store in

Oelwein, Iowa, mailed to Tiffany an undated, handwritten list

(Exhibit 3Q) of Tiffany inventory which Trulock purportedly

possessed. In fact, the representations made in the list were false

and known by Myott to be false when made. Tiffany and Kahn

caused the Myott letter to be delivered by mail to Tiffany in

March of 1978 in violation of 18 U.S.C. § 1341. Tiffany then

presented that letter to Grant.

— A-29 —

(d) Tiffany represented to Grant that the reason the inventory

had not been reported from all of the farm stores was that Tif-

fany was negotiating with the farm stores concerning the

possibility of the managers’ purchasing those stores from Tif-

fany. To support this representation Kahn solicited ‘‘letters of

intent’’ from the farm store managers. Kahn, or someone acting

at his direction, prepared a form letter which was mailed to each

of the farm store managers for signature (Exhibits 3R, 3S, 3T

and 3U). The letters stated that the manager intended to pur-

chase the particular farm store that he operated and listed items

to be purchased. The managers were induced to sign these ‘‘let-

ters of intent’’ and to mail them back to Tiffany in violation of

18 U.S.C. § 1341. The information stated in the letters did not

accurately reflect the status of the negotiations at the dates of

the letters.

(e) The above-described violations of 18 U.S.C. §§ 1341 and

1343 were part of a pattern of racketeering activity through

which defendants conducted the affairs of the enterprises in

violation of 18 U.S.C. § 1962(c) in an attempt to deceive and

defraud Grant allowing Tiffany to reflect that inventory on its

financial statements.

(iv) Press Releases, SEC Filings, and Reports to

Shareholders.

29. Defendants, pursuant to the scheme or artifice to defraud

Grant and others and knowing that Tiffany’s financial position

during the year 1977 was unsound, sought to conceal its true

financial condition from its creditors, shareholders and the in-

vesting public. As a part of the scheme or artifice to deceive,

Tiffany issued and filed certain false and misleading Quarterly

Reports on Form 10-Q, and distributed false and misleading

statements in Quarterly Reports to Shareholders and Press

Releases. These misleading documents, described more par-

ticularly below, were provided to Grant and disseminated to the

SEC, shareholders and investing public through the mails. The

various SEC filings, shareholder reports and press releases were

— A-30 —

based on financial statements which were not audited by Grant

or reviewed prior to filing or mailing. Instead, Tiffany provided

Grant with copies of the documents after they had been

disseminated to others. Tiffany falsely represented to Grant that

the information contained in the documents was a true and ac-

curate description of Tiffany’s financial condition. In fact, the

documents were false and misleading and were given to Grant to

deceive Grant and to induce Grant to aid and abet Tiffany in

promulgating a false picture of its financial condition. Tiffany

intended that Grant rely on the false information provided

when Grant audited Tiffany’s 1977 financial statements. In

fact, Grant was induced to rely on such false and misleading in-

formation and would not have, had it known of the fraud, con-

tinued to agree to conduct the audit of Tiffany’s 1977 financial

statements or render any accounting services to Tiffany.

The above-described statements were created, reviewed

and/or signed by Kahn and Simpkins, with knowledge that they

contained false and misleading information, or with knowledge

that matters were omitted which were necessary to make the

statements not misleading. The use of the mails, described in

detail hereafter, in disseminating these materials violated 18

U.S.C. § 1341.

(a) On or about August 12, 1977, Tiffany filed a Quarterly

Report on Form 10-Q with the Securities and Exchange Com-

mission covering the three-month and six-month periods ended

June 30, 1977 (‘‘June 1977 10-Q’’) (Exhibit 3V). Tiffany, Kahn,

Simpkins and Appel created, reviewed or participated in the fil-

ing. The June 1977 10-Q was materially false and misleading in

that, inter alia, it materially overstated Tiffany’s sales, net earn-

ings, accounts receivable, shareholders’ equity and working

capital, and in that it omitted to disclose that a condition of

default existed under the terms of certain financing agreements,

and in that it failed to disclose that substantial losses were ex-

pected for the year 1977. The above representations and omis-

sions were material and false, and known to be so at the time

— A-31 —

they were made. Upon information and belief, Tiffany filed the

June 1977 10-Q with the SEC by use of the United States mails.

Tiffany presented to Grant a copy of the June 1977 10-Q, falsely

representing to Grant that it reflected a true and accurate state-

ment of Tiffany’s financial condition.

(b) In August of 1977 Tiffany mailed to its shareholders a

report entitled ‘‘Tiffany Industries, Inc., Second Quarter

reports to Shareholders’’ (‘1977 Second Quarter Report’’),

signed by Kahn and Simpkins (Exhibit 3W). Tiffany provided to

Grant a copy of that report, intending that Grant rely on the

false statements contained therein. Kahn or Simpkins prepared

or reviewed the report. It contained many of the material

misrepresentations contained in the June 1977 10-Q. It

represented that Tiffany’s sales for the second quarter of 1977

were higher than those for the second quarter of 1976. It

represented that Tiffany’s enterprises in Africa were becoming

more substantial in both volume and scope. In fact, the

representations were false and were known to be false when

made. As of August 1977 Tiffany anticipated substantial losses

for 1977, but the report failed to disclose such anticipation.

(c) In August of 1977, Tiffany issued a press release (Exhibit

3X) which summarized the 1977 Second Quarter Report to the

shareholders. The press release was prepared or reviewed by

Kahn, Simpkins or Appel, or other Tiffany officers or

employees acting at their direction. The press release stated that

Tiffany’s sales for the second quarter of 1977 were higher than

for the same period of 1976. That statement was false and

known to be false when made. The press release failed to

disclose that substantial losses were anticipated for 1977. A

copy of the press release was given to Grant. Upon information

and belief, Tiffany presented the press release, through use of

the mails, to various members of the news media.

(d) On or about November 14, 1977, Tiffany filed a Quarterly

Report on Form 10-Q with the Securities and Exchange Com-

mission covering the three-month and nine-month periods end-

— A-32 —

ed September 30, 1977 (‘‘September 1977 10-Q’’) (Exhibit 3Y).

Tiffany, Kahn, Simpkins and Appel created, reviewed or par-

ticipated in the filing. The September 1977 10-Q was materially

false and misleading because, inter alia, it materially overstated

sales, net earnings, accounts receivable, shareholders’ equity

and working capital, it omitted to disclose that a condition of

default existed under the terms of certain financing agreements,

and it failed to disclose that substantial losses were expected for

the year 1977. The above representations and omissions were

material and false, and known to be so at the time they were

made. Grant did not audit the financial statements on which the

10-Q was based. Upon information and belief, Tiffany filed the

September 1977 10-Q by use of the mails. Tiffany provided a

copy to Grant, representing to Grant that it reflected a true and

accurate statement of Tiffany’s financial condition. Said report

was given to Grant with intent to induce Grant to rely on the

false information therein, pursuant to the scheme or artifice to

defraud Grant.

(e) In November of 1977 Tiffany mailed to its shareholders a

report entited ‘‘Tiffany Industries, Inc., 1977 Third Quarter

Report to Shareholders’’ (‘£1977 Third Quarter Report’’), sign-

ed by Kahn and Simpkins (Exhibit 3Z). That report contained

material misrepresentations and omitted disclosure of material

information necessary to make the report not misleading. The

1977 Third Quarter Report contained many of the

misstatements included in the September 1977 10-Q. Addi-

tionally, it represented that Tiffany had record high backlogs

with reference to its export business, when in fact no significant

backlogs existed. The 1977 Third Quarter Report stated that

Tiffany ‘‘is on a course to one of its finest sales years’’ and that

the outlook was for ‘‘earnings growth that is commensurate

with these new sales plateaus.’’ In fact, Tiffany’s sales and earn-

ings were not growing. Tiffany anticipated significant losses for

the year 1977, but that fact was not disclosed in the 1977 Third

Quarter Report. Tiffany, Kahn, Simpkins and Appel, or other

Tiffany officers or employees acting at their direction, prepared

— A-33 —

or reviewed the 1977 Third Quarter Report and knew that it

contained false statements.

(f) In November of 1977, Tiffany issued a press release (Ex-

hibit 4A) which summarized the 1977 Third Quarter Report to

the shareholders. The press release was prepared or reviewed by

Kahn, Simpkins or Appel, or other Tiffany officers or

employees acting at their direction. The press release falsely

staied that Tiffany’s export activities had significant backlogs

and that sales and earnings were growing, when in fact both

statements were false. The press release failed to disclose that

substantial losses were anticipated for 1977. A copy of the press

release was given to Grant. Upon information and belief, Tif-

fany presented the press release, through use of the mails, to

various members of the news media.

(g) The above described uses of the mails in violation of 18

U.S.C. § 1341 were part of a pattern of racketeering activity

through which defendants conducted the enterprises’ affairs in

violation of 18 U.S.C. § 1962(c), for the purpose of deceiving

and injuring Grant.

(v) Further Course of Conduct; Injury te 2laintiff.

The defendants’ above described violations of 18 U.S.C. §

1962(c) were directed at Grant with the intent of injuring Grant

and did injure Grant in its business and property in the follow-

ing respects:

30. Throughout the course of the (uncompleted) audit by

Grant of Tiffany’s books and records for 1977, Tiffany of-

ficers, agents and employees (or others acting in Tiffany’s

behalf) impeded and obstructed the ordinary course of the audit

and engaged in a conspiracy to conceal relevant facts from

Grant and to defraud and mislead Grant. As the result of such

conspiratorial and fraudulent conduct, the time required by

Grant personnel to conduct the audit was substantially enlarged

over the time which would have been required had Tiffany not

on ih on

engaged is such conduct, thus increasing the amount of Grant’s

bill for its services. Tiffany was well aware that the charges by

Grant to Tiffany for audit services vould be based upon the

time spent by Grant personnel. In further perpetration of this

fraudulent and criminal conspiracy, Tiffany attempted to

deceive Grant and to induce Grant to complete its audit and cer-

tify Tiffany’s fraudulent transactions first by withholding pay-

ment; then, when the fraudulent and criminal conduct was

disclosed, Tiffany sought to conceal said conduct by promising

to pay Grant in full.

31. Had Grant been aware of the activities of defendants as

above alleged, it would not have performed any accounting ser-

vices for Tiffany in connection with the 1977 audit. As a result

of the fraudulent conduct of defendants as described above,

none of which was known or disclosed to Grant, the personnel

of Grant continued to perform accounting services for defen-

dan., all to Grant’s injury to its business and property. Because

Tiffany had no intention of paying Grant’s bill for its services,

the actions of defendants and Tiffany’s other officers, agents

and employees in impeding the audit as described above had the

effect of increasing the ultimate damages suffered by Grant.

32. Through late April, 1978, defendants attempted to con-

ceal (and are continuing to conceal) their fraudulent and

unlawful acts. In late April, 1978 when Grant confirmed that

defendants had used forged and fictitious documents in an at-

tempt to defraud Grant and in a further attempt to publish

misleading and fraudulent financial reports, Grant promptly

advised Tiffany and its counsel that Grant would report its fin-

dings to the SEC as required by SEC Regulations. Following

that report, the SEC commenced an intensive investigation of

Tiffany which resulted in the SEC’s suing Tiffany and others

for injunctive relief. Following Grant’s report to the SEC, Tif-

fany terminated Grant and refused to pay Grant for its services.

33. As the result of the SEC investigation, which was

necessitated by and resulted directly from the unlawful and

— A-35 —

fraudulent actions of defendants, Grant has incurred substan-

tial expenses in excess of $250,000 in responding to SEC sub-

poenas and requests for documents, interviews, the giving of

testimony, counsel fees related to same, and other related ex-

penses.

34. At the time Grant’s allegations were made public and the

SEC commenced its investigation, Tiffany and Simpkins an-

nounced that the company would make a full internal investiga-

tion into the allegations, and that the results of that investiga-

tion would be made public. A ‘‘Special Inquiry Committee’’

was formed, consisting of one of Tiffany’s outside directors and

two independent persons. The Special Inquiry Committee in-

vestigated and provided a report to Tiffany’s board. The report

revealed massive fraud involving upper levels of Tiffany

management. Tiffany did not make the report public as it had

promised to do. Had Tiffany disclosed the report instead of fur-

ther attempting to conceal the fraud, Grant’s damages would

have been mitigated, rather than increased as they were by the

continued concealment. Defendants Tiffany and Simpkins

have, from time to time after Grant’s initial discovery of the

fraud, issued public statements and press releases attempting to

blame Grant for the fraud of Tiffany’s management and in-

dicating that Tiffany’s problems do not involve violations of

law but instead are little more than ‘‘disputes’’ with its former

auditors. As a result of Tiffany’s fraud, concealment of that

fraud, and attempts to place public blame on Grant, Grant has

been injured in its reputation as a national independent public

accounting firm.

35. In furtherance of its fraudulent and unlawful actions, Tif-

fany (beginning in early May, 1978) promised to pay Grant all

fees owed (totaling $258,000), whereas Tiffany intended not to

pay Grant at all, but in induce Grant to limit its response to the

SEC and to lend its reputation to representations made to the

SEC by Defendants.

— A-36 —

36. As the result of the foregoing, Grant has been damaged in

the sum of $1,500,000. ;

WHEREFORE, plaintiff (Grant) prays for judgment on

~~ Count I against defendants in the sum of $1,500,000; further, in

accord with 18 U.S.C. § 1964(c), that said award of damages be

trebled, and that plaintiffs further recover the costs of this ac-

tion and reasonable attorneys fees.

Pee al

COUNT II

COMES NOW plaintiff Alexander Grant and Co., and for

Count II of its claim against defendant Tiffany Industries, Inc.,

states:

1. Jurisdiction of Count II is founded on the doctrine of pen-

dent jurisdiction, in that the claim on which Count II is based

and the RICO claim on which Count I is based arose from the

same transaction and from a common nucleus of operative fact.

2. Repeats and realleges the allegations of paragraphs 4 and 5

of Count I as this paragraph 2 of Count II.

3. Plaintiff Alexander Grant & Company was retained by

defendant Tiffany Industries, Inc. to audit the financial

statements of Tiffany Industries, Inc.

4. Plaintiff Alexander Grant & Company performed services

for Tiffany Industries, Inc. in accordance with its retainer by

Tiffany Industries, Inc. and in accordance with generally ac-

cepted auditing standards.

5. Tiffany Industries, Inc. owes Alexander Grant & Company

$258,000.00 for its services rendered to Tiffany during 1977 and

1978.

6. The fees charged for said services were reasonable and pro-

per at the time said services were performed.

7. Tiffany Industries, Inc. in early May, 1978 promised to pay

Alexander Grant & Company all fees owed to Grant

—w~ pe

($258,000.00). However, although subsequent demand has been

made by Alexander Grant & Company, Tiffany has failed and

refused, and continues to fail and refuse to pay any or all of the

aforementioned amount, which is presently due and owing.

WHEREFORE, plaintiff Alexander Grant & Company prays

judgment on this Court II of its claim against defendant Tiffany

Industries, Inc. in the principal sum of $258,000.00, together

with interest at the legal rate, and that Alexander Grant & Com-

pany further recover the costs of this action and a reasonable at-

torney’s fee.

COUNT Ill

COMES NOW plaintiff Alexander Grant & Company

(‘‘Grant’’) and for Count III of its claim against defendant Tif-

fany Industries, Inc. (‘‘Tiffany’’) states and alleges as follows:

1. Jurisdiction of Count III is founded on the doctrine of pen-

dent jurisdiction, in that the claim on which Count III is based

and the RICO claim on which Count I is based arose from the

same transaction and from a common nucleus of operative

facts.

2. Repeats and realleges the allegations of paragraphs 4 and 5

of Count I as this paragraph 2 of Count III.

3. From 1970 until the spring of 1978 Grant was retained by

Tiffany as its outside auditor pursuant to the terms of written

engagements.

4. At all relevant times, the activities of Tiffany were carried

out by Tiffany’s agents on behalf of Tiffany.

5. Sometime prior to June 30, 1977, the exact time of which is

presently unknown to Alexander Grant & Company, Tiffany

Industries, Inc., through its authorized agents, made and cir-

culated to Alexander Grant & Company false, misleading and

fraudulent information and documents, intending that Grant

— A —

accept such false, misleading and fraudulent information and

permit Tiffany to include such information in Tiffany’s finan-

cial statements.

6. In its efforts to seek to induce Grant’s assistance as set

forth in paragraph 5, Tiffany made the following misrepresen-

tations described more fully in paragraphs 13 through 33 of

Count I, which allegations are repeated herein as this paragraph

6 of Count III.

7. The foregoing representations and conduct were

misrepresentations of material facts made and perpetuated by

Tiffany with actual knowledge of their falsity, with the intent to

deceive Alexander Grant & Company, and with the intent to in-

duce Alexander Grant & Company to rely on said misrepresen-

tations to its detriment.

8. As a direct and proximate result of said misrepresentations

and conduct, Alexander Grant & Company has been damaged

in reputation, business and property in the amount of

$1,500,000.00.

9. The acts and conduct of Tiffany as described above were

wanton, willful and malicious. An award of punitive damages is

necessary and appropriate to punish Tiffany and to deter it

from like conduct in the future.

—<

WHEREFORE, Alexander Grant & Company prays judg-

ment on this Count III of its claim against defendant Tiffany In-

dustries, Inc. in the sum of $1,500,000; and that Alexander

Grant & Company further recover the costs of this claim and

reasonable attorneys’ fee.

Respectfully submitted,

Walter M. Clark

Thomas E. Wack

Catherine D. Perry

611 Olive Street, Suite 1950

St. Louis, Missouri 63101

(314) 621-5070

Attorneys for Plaintiff

OF COUNSEL:

ARMSTRONG, TEASDALE,

KRAMER & VAUGHAN

Certificate of Mailing

I certify that I hand-delivered a copy of the foregoing First

Amended Complaint to all counsel of record on this 19th day of

August, 1982.

Catherine D. Perry