filed - clerk u. s. d!s1flct court in the...

Case 9:02-cv-00103-TH Document 76 Filed 02/11/03 of 86 PageID #: 2360

FILED - CLERK U. S. D!S1flCT COURT

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS ?1,93 FEB 101 P1 3: 49

LUFKIN DIVISION TX EASTERj -

§_____________________ IN RE UNIVERSAL ACCESS §

BY____________

SECURITIES LITIGATION § 9:02-C V-103 (JH)

§ (JURY DEMANDED)

§

FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINT (redacted)

1. This is a securities class action on behalf of all purchasers of the common stock of

Universal Access, Inc. or Universal Access Global Holdings, Inc. (collectively "Universal

Access" or the "Company") between December 4, 2000 and March 22, 2002 (the "Class

Period"), and a subclass of persons who purchased on the open market Universal Access

common stock contemporaneously with the sales of such stock by Defendants Shutt and

Pommer, against Universal Access and certain of its officers and directors seeking remedies

under the Securities Act of 1934 (the "Exchange Act"). The claims asserted in this action arise

under Section lOb-5, Section 20(a) and Section 20A(a) of the Exchange Act.

2. Lead Plaintiffs, by and through their attorneys, allege the following upon the

investigation of Lead Plaintiffs and their Counsel. This investigation included, without

limitation: (a) review and analysis of filings made by Universal Access with the Securities and

Exchange Commission ("SEC"); (b) review and analysis of securities analysts' reports

concerning Universal Access; (c) review and analysis of press releases, analyst reports and other

publications disseminated by Defendants; (d) investigation of news articles containing quotations

I LEAD PLAINTIFFS' FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINT 1.


by Defendants; and (e) other sources of information, including, but not limited to, consultation

with confidential consultants, confidential consulting experts and confidential informants,

regarding certain of the events described herein. Further facts relating to the securities violations

alleged herein are exclusively within the control of Defendants.

1. JIJRISDICT1ON & VENUE

3. The claims asserted herein arise under and pursuant to Sections 10(b), 20(a), and 20A(a)

of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. §§ 78j(b) and 78t(a)]

and Rule lOb-5 promulgated thereunder by the Securities and Exchange Commission ("SEC")

[17 C.F.R. § 240.10b-5].

4. This Court has jurisdiction over the subject matter of this action pursuant to Section 27 of

the Exchange Act, 15 U.S.C. § 78aa and 28 U.S.C. § 1331. Additionally, Defendants have

submitted to the personal jurisdiction of this Court.

5. Venue is proper in this District pursuant to Section 27 of the Exchange Act, 15 U.S.C. §

78aa, and 28 U.S.C. § 1391(b) and (c), as determined by the Court's Order Denying Defendants'

Motion to Transfer Venue.

6. In connection with the wrongs complained of herein, Universal Access, directly or

indirectly, used the means and instrumentalities of interstate commerce, including the United

States mails and interstate telephone communications, and the facilities of the NASDAQ, a

national securities exchange.

II. PARTIES

7. Lead Plaintiff JOHN FRANDSEN purchased the common stock of Universal Access, as

set forth in his previously filed certification, at artificially inflated prices during the Class Period

and has been damaged thereby.

LEAD PLAITTIFFS' FiRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINT 2.


8. Lead Plaintiff WILLIAM M. RYBAK LEIJDI, purchased the common stock of

Universal Access, as set forth in his previously filed certification, at artificially inflated prices

during the Class Period and has been damaged thereby.

9. Lead Plaintiff JAMES P. NEWSOME purchased the common stock of Universal

Access, as set forth in his previously filed certification, at artificially inflated prices during the

Class Period and has been damaged thereby.

10. Lead Plaintiff MICHAEL P. WHELAN purchased the common stock of Universal



11. Lead Plaintiff A. JEROME FREELAND purchased the common stock of Universal



12. Lead Plaintiff GEORGE TENYER purchased the common stock of Universal Access,

as set forth in his previously filed certification, at artificially inflated prices during the Class

Period and has been damaged thereby.

13. Lead Plaintiff STONERIDGE PARTNERS purchased the common stock of Universal

Access, as set forth in its previously filed certification, at artificially inflated prices during the


14. Defendant UNIVERSAL ACCESS maintains its principal place of business at 233

South Wacker Drive, Suite 600, Chicago, Illinois, 60606, and an operating facility at 400 S.

Akard, Dallas, Texas, 75201. This Defendant has appeared for all purposes.

LEAD PLAINTIFFS' FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINT 3.


15. Defendant PATRICK C. SIIIJTT ("Shutt") is and was at all relevant times to this

lawsuit the Chief Executive Officer and Chairman of Universal Access. This Defendant has

appeared for all purposes.

[redacted]

16. Defendant ROBERT E. RAINONE, JR. ("Rainone") is and was at all relevant times to

this lawsuit the President of Global Operations for Universal Access. This Defendant has

appeared for all purposes.

[redacted]

17. Defendant ROBERT J. POMMIER ("Pominer") is and was at all relevant times to this

lawsuit the Vice Chairman of Universal Access. This Defendant has appeared for all purposes.

[redacted]

18. Defendant ROBERT M. BROWN ("Brown") is and was at all relevant times to this

lawsuit the Chief Financial Officer of Universal Access. This Defendant has appeared for all

purposes.

19. Defendant PAOLO GUIDI ("Guidi") was at all times relevant to this lawsuit a member

of the board of Universal Access and Chief Executive Officer and Chairman of Aleron. This

Defendant has appeared for all purposes.

20. Defendants Shutt, Brown, Rainone, Pommer, and Guidi are collectively referred to herein

as the "Individual Defendants."

III. MOTIVE, OPPORTUNITY & KNOWLEDGE

21. As officers, directors and/or controlling persons of a publicly-held company whose

common stock is registered with the SEC under the Exchange Act, traded on the NASDAQ, and

governed by the provisions of the Exchange Act, the Individual Defendants had a duty to



promptly disseminate accurate and truthful information with respect to the Company's

operations, business, services, markets, management, earnings, present and future business

prospects, to correct any previously issued statements from any source that had become untrue,

and to disclose any trends that would materially affect earnings and the present and future

financial operating results of Universal Access, so that the market price of the Company's

publicly traded securities would be based upon truthful and accurate information.

22. During the Class Period, each of the Individual Defendants was a senior executive and/or

director of Universal Access and was thereby privy to confidential and proprietary information

concerning Universal Access, its operations, finances, financial condition, and present and future

business prospects. Defendants also had access to, and were aware of, material adverse

non-public information concerning Universal Access, as discussed in detail below.

23. Because of their Board memberships and/or top executive and managerial positions with

Universal Access, each of the Individual Defendants had access to adverse non-public

information about its business, finances, products, markets, and present and future business

prospects via access to internal corporate documents, conversations and connections with other

corporate officers and employees, attendance at management and Board of Directors meetings

and committees thereof, and reports and other information provided to them in connection with

such meetings. Because of their possession of such information, each of the Individual

Defendants knew or severely recklessly disregarded adverse facts specified herein and

intentionally concealed such adverse facts from the public.

24. The Individual Defendants, because of their positions of control and authority as officers

and/or directors of the Company, were able to and did control the contents of the various

quarterly reports, SEC filings, press releases, and presentations to securities analysts pertaining



to the Company. Each of the Individual Defendants was provided with copies of Universal

Access's management reports, press releases, and SEC filings alleged herein to be misleading

prior to, or shortly after their issuance and had the ability and opportunity to prevent their

issuance or cause them to be corrected. As a result, each of the Individual Defendants is

responsible for the accuracy of the public reports and releases detailed herein as "group

published" information and are therefore responsible and liable for the representations contained

therein.

25. Each of the Individual Defendants is liable as a direct participant or coconspirator with

respect to the wrongs complained of herein. In addition, the individual Defendants, by reason of

their stock ownership and their status as officers and/or directors of Universal Access, were

"controlling persons" within the meaning of Section 20 of the Exchange Act and had the power

and influence to cause the Company to engage in the unlawful conduct alleged in this Complaint.

Because of their positions of control, the Individual Defendants were able to and did, directly or

indirectly, control the conduct of Universal Access's business, the information contained in its

filings with the SEC, and public statements about its business.

26. During the Class Period, Defendants, individually and in concert, directly and indirectly,

engaged and participated in a continuous course of conduct to misrepresent the results of

Universal Access's operations and to conceal adverse material information regarding Universal

Access's finances, financial condition, and results of operations. Defendants employed devices,

schemes, and artifices to defraud, and engaged in acts, practices, and a course of conduct as

herein alleged in an effort to increase and maintain an artificially high market price for the

common stock of Universal Access and to increase their own remuneration and personal wealth

as a result. This included the formulation, making, and/or participation in the making of untrue



statements of material facts, and the omission to state material facts necessary in order to make

the statements made, in light of the circumstances under which they were made, not misleading,

which operated as a fraud and deceit upon Lead Plaintiffs and the other members of the Class, as

defined below.

IV. UNIVERSAL ACCESS'S GUIDANCE TO SECURITIES ANALYSTS AND USE OF THEM AS A CONDUIT TO PROVIDE FALSE

INFORMATION TO THE SECURITIES MARKETS

27. As described below, among other wrongful conduct, Defendants used communications

with securities analysts to promote the Company and to artificially inflate the price of Universal

Access's common stock during the Class Period.

28. In writing their reports, these analysts relied in substantial part upon information

provided by the Company, public statements and reports of the Company, information provided

to them privately by the Company (including by the Individual Defendants) and assurances by

the Company and the Individual Defendants that information in the analysts' reports did not

materially vary from the Company's internal knowledge of its operations and prospects.

29. Defendants used their communications with analysts to assure them that their analysis

and estimates of Universal Access's financial condition, revenues, and business were accurate.

30. Prior to and during the Class Period, it was the Company's practice to have its top officers

and key members of its management team communicate regularly with securities analysts to

discuss, among other things, the Company's operating results and anticipated revenues and to

provide detailed "guidance" to these analysts with respect to the Company's business and

anticipated revenues and earnings. These communications included, but were not limited to,

conference calls, meetings, and analyst briefings where the Defendants discussed relevant

aspects of the Company's operations and financial prospects.

31. Additionally, Individual Defendants and their representatives acting under the control of

Individual Defendants, also attended "conferences" sponsored by different organizations

throughout the Class Period and sponsored "conference calls" with securities analysts and



institutional investors in connection with releases of earnings announcements and other major

corporate events during which they promoted the Company's stock by disseminating materially

false and misleading information about the Company.

32. The Individual Defendants knew that, by participating in these regular and periodic direct

communications with analysts, the Company would disseminate information to the investment

community and that investors and the market would rely and act upon such information (i.e.,

make purchases of the Company's securities). The Individual Defendants had these

communications with analysts in order to cause or encourage them to issue favorable reports

concerning Universal Access—which the analysts did—and Defendants used these

communications to falsely present the financial condition, revenues, operations and prospects of

Universal Access to the marketplace in an artificially and falsely favorable light in order to

artificially inflate the market price of Universal Access's common stock. Despite their duty to do

so, the Individual Defendants failed to correct these communications of which they were the

sources or which they had caused or facilitated during the Class Period.

33. The investment community and, in turn, investors, relied and acted upon the information

contained in these written analyst reports that repeatedly recommended that investors purchase

Universal Access common stock. The Company and the Individual Defendants manipulated and

inflated the market price of Universal Access stock by falsely presenting to analysts, through

regular meetings and during both telephonic and written communications, the financial

condition, revenues, reserves and value of the Company and by failing to disclose the true

adverse facts about the Company that were known only to them.

V. CLASS ACTION ALLEGATIONS

34. Lead Plaintiffs bring this case as a class action pursuant to Rules 23(a) and (b)(3) of the

Federal Rules of Civil Procedure, on behalf of themselves and all other persons who purchased

or otherwise acquired Universal Access common stock between December 4, 2000 and March

22, 2002, inclusive (the "Class"). Excluded from the Class are Universal Access, its subsidiaries

LEAD PLAINTIFFS' FIRST AMENDED CONSOLIDATED CLASS AcTION COMPLAINT 8.


and affiliates, the Individual Defendants, members of the immediate families of each of the

Individual Defendants, and any entities in which any of the Defendants has a controlling interest,

and the legal representatives, heirs, successors, predecessors in interest, affiliates, or assigns of

any of the Defendants.

35. Lead Plaintiffs also bring this action on behalf of a subclass consisting of all persons who

purchased Universal Access common stock contemporaneously with the sales of such stock by

Defendants Shutt and/or Pommer (the "Insider Trading Subclass"). Excluded from the Insider

Trading Subclass are Defendants, the officers and directors of the Company and its subsidiaries

and affiliates, at all relevant times, members of their immediate families and their legal

representatives, heirs, successors, or assigns and any entity in which any Defendant has or had a

controlling interest.

36. This action is properly maintainable as a class action because:

(a) During the Class Period, in excess of 94,000,000 shares of Universal Access

common stock were outstanding. The common stock was actively traded on an

impersonal and efficient trading market during the Class Period. The members of

the Class for whose benefit this action is brought are dispersed throughout the

United States and are so numerous that joinder of all Class members is

impracticable. Millions of Universal Access shares were publicly traded during

the Class Period and, upon information and belief, Lead Plaintiffs believe that

there are thousands of members of the Class;

(b) Lead Plaintiffs' claims are typical of the claims of the other members of the Class,

and Lead Plaintiffs and all members of the Class sustained damages as a result of

Defendants' wrongful conduct complained of herein;



(c) Lead Plaintiffs are representative parties who will fairly and adequately protect

the interests of the other members of the Class and have retained Counsel

competent and experienced in class action securities litigation. Lead Plaintiffs

have no interests antagonistic to, or in conflict with, the Class they seek to

represent;

(d) A class action is superior to other available methods for the fair and efficient

adjudication of the claims asserted herein, because joinder of all members is

impracticable. Furthermore, because the damages suffered by the Individual Class

Members may be relatively small, the expense and burden of individual litigation

make it virtually impossible for the Class members individually to redress the

wrongs done to them. The likelihood of individual Class members prosecuting

separate claims is remote;

(e) Lead Plaintiffs anticipate no unusual difficulties in the management of this action

as a class action; and

(f) The questions of law and fact common to the members of the Class predominate

over any questions affecting any individual members of the Class.

37. The questions of law and fact that are common to Lead Plaintiffs and the Class include,

among others:

(a) Whether the federal securities laws were violated by Defendants' acts as alleged

herein;

(b) Whether the documents, releases, reports and/or statements disseminated to the

investing public and to Universal Access common stock holders during the Class



Period omitted or misrepresented material facts about the financial condition,

business, and revenue of Universal Access;

(c) Whether Defendants have acted with knowledge or with severely reckless

disregard for the truth in omitting to state and/or misrepresenting material facts;

(d) Whether, during the Class Period, the market price of Universal Access common

stock was artificially inflated due to the non-disclosures and/or material

misrepresentations complained of herein;

(e) Whether the Defendants participated in and pursued the common course of

conduct complained of herein; and

(f) Whether the members of the Class have sustained damages and, if so, what is the

proper measure thereof.

VI. NATURE OF THE CASE

38. [redacted]

39. Corporate fraud has rocked our economic foundation. Almost every day, a new scheme

of corporate fraud is revealed. [redacted]

40. [redacted]

41. [redacted]

42. It is against this backdrop that the present case now lies. Defendants engaged in a

continuous and systematic scheme of corporate fraud over several years. The Defendants'

principal offices were located in Chicago, Illinois. But, their fraud was far-reaching. Defendants

engaged in transactions and partnerships, which essentially amounted to a huge Ponzi scheme.

Defendants entered into transactions forming the basis of this suit with business partners all over

the country. Defendants engaged in several strategic business partnerships with companies



whose officers and directors engaged in fraud which left their respective companies bankrupt,

their investors massively defrauded, and, in some cases, subjected themselves to criminal

investigation and prosecution. [redacted] Defendants disseminated materially false and

misleading statements forming the basis of this suit across this country, thereby defrauding

investors out of millions of dollars.

43. Now, Lead Plaintiffs seek to recover those losses for all investors defrauded by Universal

Access [redacted].

Vii. SUBSTANTIVE ALLEGATIONS

A. The Individual Defendants

44. Patrick Shutt co-founded Universal Access. Shutt has served as President and as a

Director since Universal Access's formation in October of 1997. Prior to that time, Shutt

worked with Robert Pommer as an independent sales agent for Arista Communications. When

Shutt founded Universal Access, he anointed himself as a member of the Compensation

Committee and the Options Committee. In that capacity, Shutt granted himself a compensation

package for fiscal year 2001, which gave him an annual salary of $300,000.00 per year, a

$179,390.00 incentive bonus, a stock option grant of 150,000 shares exercised in September

2000 and a stock option grant of 300,000 shares. Shutt also gave himself a $600.00 per month

allowance for personal transportation.

45. Robert Pommer co-founded Universal Access with Shutt in October 1997. Pommer has

served as the Company's Secretary since that time and has served as Chief Operating Officer

since December of 1998, and as Chief Technical Officer since January 2000. Pommer also has

served as a Director since July 1998. Like Shutt, Pommer also serves on the Company's

Compensation Committee and Options Committee. in that capacity, Pommer gave himself a



$215,000.00 annual salary for fiscal year 2001, a $147,098.00 incentive bonus, and a stock

option grant of 150,000 shares, plus a $600.00 per month allowance for personal transportation.

46. Robert Rainone, Jr., served as Chief Development Officer from February 2000 until April

2000. From April 2000 to November 2000, he served as Chief Operating Officer. From

November 2000 to January 2001, he served as Chief Operating Officer, North America. Since

January 2001, he has served as President Global Operations. Since January 2002, he as served as

Chief Operating Officer. Prior to joining Universal Access as an executive, Rainone worked for

various companies in the telecommunications industry. For fiscal year 2001, Shutt and Pommer

gave Rainone an annual salary of $215,000.00, an incentive bonus of $150,037.00, a stock option

grant of 500,000 shares and a monthly transportation allowance of $500.00 per month.

47. Robert Brown served as Universal Access's Chief Financial Officer from July 2000 until

April 2002. Mr. Brown left the Company on April 23, 2002, amid disagreements with Shutt and

Pommer over their fraudulent accounting practices and, not surprisingly, contemporaneously

with the filing of this lawsuit. For fiscal year 2001, Shutt and Pommer gave Brown an annual

salary of $215,000.00, plus an incentive bonus of $152,241, a stock option grant of 500,000

shares, and a monthly transportation allowance of $500.00 per month.

48. Shutt and Pommer brought Paolo Guidi to the Universal Access Board of Directors in

August of 1999. Guidi is a Class I Director whose term expires at the annual meeting to be held

in 2003. At the time he joined the Company, Guidi was President and CEO of Teleglobe

Communications Corporation, a telecommunications services company, a position he had held

since February of 1995. Since September 2000, Guidi has served as Chairman and CEO of

Aleron, Inc. As discussed in more detail below, during the Class Period, Universal Access

entered into sham business relationships with Guidi's companies. These business relationships

LEAD PLAINTIFFS' FIRST AMENDED CONSOLIDATED CLASS AcTIoN COMPLAIN!' 13.


would form the basis of a substantial part of Defendants' fraudulent conduct during the Class

Period and would cause Lead Plaintiffs and Class Members millions of dollars in damages.

Shutt and Pommer agreed to pay Guidi $2,000.00 in cash for every Board of Directors meeting

he attended, even if he only attended by telephone. Thus, for the fiscal year 2000 alone, Guidi

was paid $10,000.00 in cash just for these meetings. No other director was paid in cash. Shutt

and Pommer also gave Guidi 200,000 options to purchase Universal Access common stock at a

strike price of $1.38 per share in August of 1999.

B. The Founding of an "Empire"—Shutt and Brown Create Universal Access

49. Patrick C. Shutt and Robert J. Pommer started Universal Access in 1997—a time when

the demand for communications services was growing rapidly due to the proliferation of the

Internet and data communications. In order to meet this growing demand, hundreds of

communications companies were formed with the purpose of developing the necessary

infrastructure to support this growing market. Also, existing communications companies raised

large amounts of money to fund aggressive expansion plans.

50. Even today, no communications service provider has a ubiquitous network. In other

words, no carrier can provide service to every potential customer without utilizing another

service provider's network. Therefore, service providers often are required to purchase service

from many other service providers in order to provision service to a customer, the end-user. This

process is referred to in the industry as "off-net" provisioning and formed the foundation of

Universal Access's original business model.

51. In order to assist communications service providers with "off-net" provisioning,

Universal Access negotiated volume discounts with various communications service providers,

such as MCI WorldCom, Broadwing, Level 3, and Global Crossing. This volume purchased



access was then resold to other communication service providers. Universal Access also

purchased and augmented a database that contained information about the location and

intersection points of these disparate networks. This purchased bandwidth and the database,

together with a team of communications provisioning personnel, allegedly gave Universal

Access the ability to efficiently provide end-to-end circuits on behalf of its customers.

52. By year-end 1999, Defendants publicly touted Universal Access's business as a web-

enabled, business-to-business intermediary that facilitates the provisioning, installation and

servicing of dedicated, point-to-point communications links, commonly known as circuits, for

service providers who buy network capacity and transport suppliers who sell network capacity.

According to Defendants, the Universal Access business model proposed to aggregate network

information, operate facilities where communications networks can be physically interconnected,

provide ongoing dedicated circuit access and offer client support services. Universal Access's

business was to supply its customers an outsourced, integrated solution to the challenges faced

within a fragmented network services market.

53. Defendants claimed that Universal Access had successfully collected and aggregated

network information from multiple transport suppliers. Defendants also claimed to have several

proprietary, interconnected databases containing capacity, availability, physical location and

pricing information from over 35 transport suppliers and more than 75,000 physical sites.

Defendants labeled these interconnected databases "Universal Information Exchange, or UIX."

Defendants claimed that UIX provided Universal Access's clients with point-to-point network

connections efficiently and cost-effectively.

54. In addition, Defendants claimed to operate network interconnection facilities called

"Universal Transport Exchanges, or UTXs," which allowed various transport suppliers to easily



access the network connections of any other transport supplier in that facility. Defendants

claimed to provide a single point of contact for network management services, including network

monitoring, maintenance and restoration.

C. The Rise and Fall of the Telcom Millionaires—Universal Access Goes Public

55. In March 2000, Defendants decided to take the Company public with an initial public

offering. This IPO was underwritten by investment bankers Goldman Sachs, Chase H&Q, and

Robertson Stephens. As of March 15, 2000, before the IPO, there were 76,419,716 shares of

Universal Access common stock outstanding.

56. Universal Access's officers and directors owned 48,576,203 of these shares. Defendants

sold 11,000,000 shares of Universal Access common stock in the IPO. This left 87,419,716

shares outstanding after the completion of the [P0. As with so many telecommunication

company IPOs launched in the late 1990's and early 2000's, the Individual Defendants stood to

make hundreds of millions overnight—at least on paper—if the [P0 was a success.

57. To fully grasp the importance of the [P0 to the Individual Defendants, as well as their

subsequent motive in defrauding their investors, it is important to understand the enormous

personal wealth they stood to gain with the rise of the stock price as the Company went public.

58. At the time of the IPO, Shutt owned 5,369,000 shares of common stock. Shutt owned

these shares individually as Trustee of the Patrick C. Shutt Declaration of Trust dated December

22, 1999 and an additional 870,000 shares through the Shutt Family Limited Partnership. Not

surprisingly, the Shutt Family Limited Partnership consisted of Shutt and his wife. Shutt

purchased 4,725,000 shares at a price of $0.000002 per share, 150,000 shares at a price of

$0.00003 per share, and 500,000 shares at a price of $1.51 per share. As the head of the Options

Committee, Shutt also had granted himself an option to purchase 300,000 shares at a strike price

LEAD PLAINTIFFS' FIRST AMENDED CONSOLIDATED CLAS AcTIcN COMPLAINT 16.


of $0.01 per share and 500,000 shares at a strike price of $1.51 per share. Moreover, Shutt

granted himself a loan from the Company on favorable terms to purchase 500,000 shares of

common stock. Shutt used this loan to purchase 500,000 shares at a price of $1.51 per share on

August 4, 1999. At the time of the IPO, Shutt owed the Company $756,250.00 under this loan.

As of April 26,2002, Shutt owed the Company $866,020.21.

59. Robert Ponimer owned 5,085,000 shares of common stock at the time of the IPO.

Pommer owned 3,885,000 shares individually, 200,000 shares through his wife, Elizabeth, as

Trustee of the Elizabeth M. Pommer Declaration of Trust, and 1,000,000 shares through the

Pommer Family Limited Partnership. As a member of the Options Committee, Pommer also

granted himself an option to purchase 300,000 shares at a strike price of $0.01 per share and

500,000 shares at a strike price of $1.51 per share. Like Shutt, Pommer granted himself a loan

from the Company on favorable terms to purchase 300,000 shares of common stock at an interest

rate of 6 percent. Pommer used this loan to purchase these shares at a price of $1.51 per share

on August 4, 1999. Pommer also loaned himself an additional $200,000 under the same terms.

At the time of the IPO, Pommer owed $653,750.00 under these loans. As of April 26, 2002,

Pommer owed the Company $751,666.91.

60. Guidi also held a significant number of options to purchase the Company's common

stock when the IPO was launched. Indeed, in August of 1999, Shutt and Ponimer gave Guidi an

option to purchase 200,000 shares at a strike price of $1.38 per share.

61. Shutt and Pommer gave Robert Rainone an option to purchase 500,000 shares of the

Company's common stock at a strike price of $8.10 per share in February 2000.

62. Shutt and Pommer gave Robert Brown an option to purchase 130,000 shares of common

stock during 1999. In the year 2000, Shutt and Pommer gave Brown options to buy 170,000

LEAD PLAINTIFFS' FLRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINT 17.


shares at a strike price of $8.10 per share, 250,000 shares at a strike price of $15.13 per share,

and 350,000 shares at a strike price of $42.00 per share.

63. Defendants took the Company public on March 20, 2000. The underwriters announced

that they expected the IPO price to open at between $8.00 and $10.00 per share. However, by

the end of the day, the Company's stock had rocketed to $35.56 per share. By March 24, 2000,

the share price had increased to a staggering $54.62.

64. Overnight, the Individual Defendants had become rich beyond their wildest dreams. By

the close of trading on March 24, 2000, Shutt's shares of common stock alone were worth

$292,717,880.00, with essentially no cost basis. Shutt also had options worth another

$43,696,000.00, with a cost basis of less than $800,000.00. Pommer held 5,085,000 shares of

common stock. By the close of trading on March 24, 2000, Pommer's shares of common stock

were worth $277,742,700.00. Pommer also had options worth $43,696,000.00, with a cost basis

of less than $800,000.00.

65. In the span of less than a week, Shutt and Pommer had gone from making less than

$300,000.00 per year to a net worth of nearly $300,000,000.00 each. And, while the other

Individual Defendants did not become quite so rich, they each became worth a small fortune on

their own.

66. Guidi's options were worth $10,924,000.00, with a cost basis of approximately

$276,000.00. Rainone's options were worth $27,310,000.00, with a cost basis of $4,050,000.00.

And, Brown's options were worth $11,006,000.00.

67. There was, however, as there almost always is, a catch. Under federal law and the

provisions of the IPO, the Individual Defendants were each subject to "lock-up" agreements.

Under these lock-up agreements, the Individual Defendants were prohibited from selling their



shares or exercising their options for a set period of time. Pursuant to these agreements, 10

percent of these shares and options would be subject to lock-up agreements until 3 business days

after publication of the Company's financial results for the close of the second fiscal quarter

(July 18, 2000) and the remaining 90 percent of these shares and options for 180 days after the

IPO (September 16, 2000). Thus, while the Individual Defendants watched their fortunes rise

astronomically—their wealth only existed on paper. That is, they had no way to cash in on their

new-found wealth. They were forced to watch and wait to see what happened to the price of the

Company's stock.

68. It is almost impossible to imagine what it must feel like to obtain a net worth of over

$300,000,000.00 overnight, yet, not be able to access it. It is even more difficult to imagine what

it must feel like to watch your newly-acquired wealth tumble, day after day. But, that is exactly

what happened to the Individual Defendants.

69. By May 23, 2000, Universal Access's share price—and thus the Individual Defendants'

new wealth—dropped over 75 percent to close at $13.25 at the end of trading that day. This was

an alarming problem for the Individual Defendants, as 10 percent of their shares and options

would be freed from the lock-up agreements in mid-July. They needed the share price to

increase so they could maximize personal profits. Therefore, on the eve of the end of the first

lock-up period, the Company issued several positive statements. These statements caused the

stock price to rocket to $39.44 per share on July 14, 2000.

70. This crest in price did not last long. Shortly after the end of this first lock-up period, the

Company's stock price plummeted once again. During this time the remaining 90 percent of the

Individual Defendants' shares and options were subject to the lock-up agreements. By

September 8, 2000, the Company's share price had fallen to $14.75 per share. Once again, on



the eve of the end of the second lock-up period, the Company issued several positive statements.

These statements caused the Company's stock price to rise to $17.12 per share on September 14,

2000.

71. Shortly thereafter, the Company's stock price began to plummet once again. By year-end

2000, the Company's stock price had dropped to a price of $8.00 per share.

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72. The Individual Defendants gained and lost millions on paper during the lock-up period.

The Individual Defendants were able to inflate the stock price through positive statements on the

eve of the expiration of each lock-up period. However, shortly after they were able to sell their

shares at the end of each lock-up period, the stock price once again began to spiral downward.

So, the Individual Defendants were forced to retain all or a substantial part of their shares. The

Individual Defendants had to find a way either to resurrect the stock price or keep it from falling

even lower.

73. As of year-end 2000, the Individual Defendants were fully aware that Universal Access

was in dire financial straits. The company was bleeding in excess of $15 million in cash per

quarter. The company also was experiencing almost no growth in revenue, and it was becoming

LEAD PLAINTIFFS' FmsT AMENDED CONSOLIDATED CLASS ACTION COMPLAINT 20.


increasingly difficult to collect money from current customers. Hemorrhaging cash, and with

only $84 million in the bank, the Individual Defendants knew that there was a substantial risk

that the company would run out of money in 2002. Universal Access's stock price—and the

Individual Defendants' personal wealth—continued to drop dramatically.

D. Defendants Turn to Fraud—Defendants' Materially False and Misleading Statements and Omissions of Material Fact

74. Universal Access and the Individual Defendants engaged in a systematic campaign

throughout the Class Period to deceive the investing public regarding the nature and amount of

Universal Access's revenues. This misinformation campaign included sham transactions and the

falsification of Universal Access's Financial Statements. These sham transactions and false

Financial Statements were trumpeted repeatedly by the Defendants in conference calls to

analysts who covered the Company and directly to investors through a series of press releases

during the Class Period. This was all done in an effort to inflate the share price of the common

stock of Universal Access. This campaign was motivated by the Individual Defendants' greed

and desire to sell their Universal Access stock at as high a price as possible.

1. Williams Communications—a classic capacity swap

75. On December 4, 2000, Universal Access publicly announced that it had struck a deal with

Williams Communications Group. Defendants announced this transaction in a December 4,

2000 press release. This press release was disseminated under the control and/or approval of the

Individual Defendants through the Universal Access Investor Relations Department. Defendant

Patrick Shutt announced that this "reciprocal relationship" allegedly would be the start of a

mutually beneficial relationship by and between the two companies. Under this agreement,

Williams was to become part of Universal Access's UTX facilities to supply long-haul carrier



services to Universal Access's customers. Conversely, Universal Access was to provision

circuits to Williams Communications' service providers using its UIX database. No dollar

amount or value was associated with this transaction—thereby giving Williams and Universal

Access the ability to modify the amount of the swaps depending on the revenue needed to cover

each other's revenue shortfalls.

76. The price of Universal Access's common stock rose almost 10 percent on the heels of

this announcement Further, revenue allegedly generated from this deal was reported in

subsequent Financial Statements issued by Defendants during the Class Period. Because of the

inclusion of revenue from Williams, these statements were false and misleading and omitted

material facts when made.

77. The December 4, 2000 statement and all subsequent Financial Statements regarding

Universal Access's relationship with Williams Communications were materially false and

misleading and omitted material facts when made. The Defendants concealed from the investing

public the fact that the subject of the relationship would be the manipulation of both companies'

revenue figures. This manipulation was accomplished through the now-infamous practice of

"capacity swaps." Defendants also concealed this fact from the public. The December 4, 2000

deal was, in and of itself, a capacity swap, which gave the false impression that both companies

were generating revenue, although the transaction served no legitimate business purpose.

78. Moreover, since Universal Access's press releases concerning the performance of the

Company and its Financial Statements issued during the Class Period relied in part on this false

Williams revenue, these statements and financials were materially false and misleading and

omitted material facts when made in that Defendants failed to adequately disclose that, as



detailed in paragraphs 160 through 176, any revenues from capacity swaps with Williams

violated Generally Accepted Accounting Principles.

79. This "reciprocal relationship" included material agreements between Williams and

Universal Access, which were never disclosed to the public. Specifically, Patrick Shutt and

Frank Aulenta, a Universal Access Vice-President of Sales, worked out a side deal with Williams

Communications' President, Frank Semple, which was never disclosed to the public. Under this

side deal, Universal Access was allowed to book approximately $140,000.00 in monthly

recurring revenue from Williams Communications each month and, in turn, Williams

Communications could book an identical amount of corresponding revenue. This side deal was

open-ended. Each quarter, each party would determine how much revenue they needed to make

up shortfalls and each would buy/sell capacity to each other to meet the objective. Universal

Access would buy capacity from Williams, and Williams would buy a similar amount from

Universal Access. Such capacity swaps had no real business purpose other than to artificially

inflate the revenues of both companies.

80. Evidence of the true nature of these transactions was clear when Shutt secretly explained

to the Universal Access sales representative assigned to the Williams account, Pete Ulman, that

no commission would be paid for these types of transactions because the deal was put together to

help "pump up both companies' numbers to help elevate the stock price." Mr. Shutt added,

"You will get paid when you get to exercise your options." This true reason for this deal was

never revealed to the investing public. Today, Williams is now in bankruptcy and subject to

SEC investigation because of the numerous capacity swaps it used with Universal Access and

others to falsely inflate its stock price. Defendants intentionally refused to disclose this

information to the public.



2. Pommer and Shalt's Diversflcation Plan

81. By February 8, 2001, the Company's stock price had dropped to $10.94 per share. Shutt

and Pommer needed to unload as many shares as possible. However, Shutt and Pommer knew

that if they sold all or a substantial part of their shares at one time, it would alarm investors and

send the Company's stock price into a free fall.

82. So, on February 8, 2001, Shutt and Pommer issued a press release announcing that they

would initiate a systematic diversification program to sell a portion of their shares in the

Company pursuant to separate diversification plans under Rule 10b5-1 of the Securities

Exchange Act of 1934. Under their respective diversification plans, Shutt and Brown each

would sell up to 5,000 shares per day for a period of 180 days up to a total of 555,000 shares

each. A floor price of $6.00 per share was set for shares to be sold under this plan. Thus, if the

share price dropped below $6.00 per share, they could not sell any shares.

83. Pommer stated that he and Shutt had not previously sold shares since the IPO because

they "were determined not to sell shares until we had completed four successive quarters of

strong growth, and we have met that commitment." Therefore, Shutt and Pommer had not sold

as their paper wealth plummeted. Shutt and Pommer knew by February 2001 that the

Company's future was very dim. The Company was experiencing an alarming number of

disconnects and several of their major customers were in financial trouble. And, they knew that

the Company's stock price would continue to drop. They were looking for a way to unload as

much stock as possible as fast as possible.



84. Shutt and Brown did not disclose the real reason why they were unloading their stock.

Instead, Shutt stated that it was time to sell because, "through the dedication and perseverance of

the entire Universal Access team, we have demonstrated the strength and success of our business

model as evidenced by our exceptional [revenue] growth to date." More telling of the true

reason for this plan, and foreshadowing the motive behind the fraud that was yet to be revealed,

Shutt continued: "our Universal Access common stock represents a high percentage of our

personal assets . . . [t]he substantial majority of both our personal holdings remain tied to the

long-term success and growth of Universal Access."

85. Pre-arranged programs such as this one were commonly used by insiders to regularly

dispose of shares with minimal disclosure to investors. Pommer's and Shutt's plan established a

program whereby they could sell 15% and 12% of their shares, respectively. Additionally, they

each sold 300,000 shares at approximately the same time as the announcement. Pommer and

Shutt announced the Diversification Plan when the Company's stock was trading in excess of

$12.00 per share. A month into the Diversification Program, however, no shares were being sold

due to a precipitous decline in the share price below the $6.00 floor price. Shutt stated in a

March 16, 2001 press release that he and Pommer "did not believe current market prices

accurately reflect the long-term value of Universal Access shares." This was a statement Shutt

and Pommer knew was false when made because they knew the horrific financial condition of

the Company and its customer base. The real reason behind this statement was that they could

not sell any shares under the Diversification Program at that time because the Company's stock

was trading below $5.00 per share and, under the Program, no shares could be sold while the

share price was below $6.00 per share. Thus, Shutt and Pommer made the March 16, 2001



statement, just like the other statements, in an effort to drive the stock price up and keep it above

$6.00 per share.

86. To the investing public, the Diversification Plan appeared simply as a plan by top

management to diversify their holdings. In truth, however, Shutt, Pommer and the other

Individual Defendants knew that the Company and its business model was in bad shape and that

they were about to embark on a series of fraudulent statements designed to artificially inflate the

price of Universal Access's common stock so that they could sell their shares and exercise their

options at the highest price possible. And, when the Company's stock price would drop below

the $6.00 per share floor under the Diversification Plan, Defendants would make an

announcement or public statement designed to once again drive the stock price up above this

floor.

3. The February 14, 2001 CORE Announcement—a Comprehensive Scheme of Fraud

87. On February 14, 2001, at a Goldman Sachs technology investments symposium in Palm

Springs, California, Universal Access announced to the public a dramatic departure from its

business plan. These statements were disseminated by Universal Access through its Investor

Relations Department at the direction and approval of the Individual Defendants. Speaking for

Defendants, Shutt and Brown announced that the Company would no longer focus on selling

broadband capacity to its retail customers. Rather, it would now provide consulting services to

its telecommunication clients. This initiative was referred to as the Combined Operational

Revenue Engine or "CORE." In its press release of the same day, Universal Access claimed that

the CORE initiative "focus[es] on customer service, operational efficiencies to drive revenue,

profitability." Shutt and Brown also stated that the CORE initiative was "designed to lead to

profitability by second quarter 2002.



88. The February 14, 2001 CORE statements were materially false and misleading and

omitted material facts when made. First, Defendants knew, but intentionally concealed from the

public, that CORE was never "designed" to generate profits. It was a zero margin revenue

generating vehicle designed to pump up the Company's revenues. Second, Defendants

intentionally failed to disclose the fact that they knew that the target customer base under CORE

was financially troubled telecom providers. Nevertheless, as discussed below, Defendants

repeatedly disseminated statements regarding revenue and profitability to be gained under

contracts with these customers when, in truth, Defendants knew their ability to collect on these

accounts for the long-term was virtually non-existent. Third, Defendants concealed the fact that

the revenue generated by CORE would have no real benefit to, or legitimate business purpose

for, the Company. Fourth, Defendants concealed that the revenue recognized under the CORE

program violated Generally Accepted Accounting Principles.

89. This new model was premised on the idea that customers would welcome the opportunity

to outsource their telecommunication capacity requirements. Basically, Universal Access would

go to its customers and offer—for a single monthly fee—to supply all of its telecommunications

capacity. One problem: many of these customers had existing contracts with other

telecommunications providers. Universal Access would, thus, be forced to accept transfer of all

the customer's circuits, and all the corresponding liabilities. This meant that Universal Access,

not the customer, would be responsible for payment for these services. This was attractive to

financially troubled telecommunications companies because they could essentially "factor" their

circuits with Universal Access. Universal Access accepted transfer of the circuits and the

obligation to pay for them.



90. An example of CORE in action can be found in the following hypothetical business

transaction. Suppose Universal Access had identified Carrier X as a potential customer under

CORE. In this hypothetical, Carrier X is a regional telecommunications start-up that sells

telecommunication services to medium-sized businesses. Universal Access approaches the CEO

of Carrier X with a proposal—Universal Access can provide all his telecommunication capacity

for one monthly price. This would, according to Universal Access's statements to its investors,

"increase efficiency" and "lower costs." Carrier X would no longer need to shop the market for

its various telecommunications or data transport needs.

91. The CEO responds, "Great, but I have one problem, I have a multi-year contracts with

TXU Communications, Worldcom, and SBC that add up to a $1 million per month." Universal

Access counters, "No problem, we will accept transfer of those contracts, assume your liability

under them, and pay all the transactional costs associated with the transfer." With that said, the

CEO agrees and signs up with Universal Access, which, in turn gets to report Carrier X's circuit

costs as revenue.

92. However, because Universal Access merely passes the payments from Carrier X on to the

suppliers, Universal Access makes no profit on the transaction. All the money Universal Access

receives from Carrier X goes to the companies that originally supplied the circuits. However,

Universal Access appears to have the all-important revenue growth it needs to continue to

mislead the market. Secretly, however, this was an unworkable business model, a mere vehicle

that obligated Universal Access to pay, for example, $1,000,000.00 per month in exchange for

$1,000,000.00 in zero margin "revenue" per month. CORE was attractive to Universal Access

for one reason and one reason only—easier "sales" and the corresponding ability to dramatically

LEAD PLAINTIFFS' FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINT 2$.


increase its revenue numbers. These higher revenue numbers would, in turn, artificially inflate

the Company's stock price.

93. In this respect, CORE was a sham. CORE's zero gross margin revenue plan was no

different than the "round-trip" transactions made famous by Enron, Williams Communications

Group, Dynegy and others. That is why Defendants entered into the December 4, 2000 deal with

Williams Communications—to pump up revenue statements, even though no profits would be

realized. Neither side publicly announced a dollar amount associated with this transaction, so

that they could attach whatever dollar amount they needed to the deal when they needed.

Capacity swaps and pass-through vehicles like CORE have no legitimate business purpose.

They merely artificially inflate the companies' revenue numbers. In fact, CORE was even worse

than the "round-tripping" so prevalent in these other companies because, in order to get this zero

margin revenue, Universal Access was forced to pay the transactions costs of the circuit transfers

and assume liability for the transferred circuits. These transactions therefore exposed Universal

Access to extreme undisclosed risks. If, after Universal Access assumed liability for Carrier X's

telecommunication capacity, Carrier X went bankrupt, Universal Access would be stuck with $1

million a month in expenses with no corresponding revenue. Many such telecommunications

companies that Universal Access was targeting with CORE were having financial difficulty.

That is why Universal Access went to great lengths during the Class Period to hide the true risks

of this strategy.

94. Even though under this "business model" it was critical to have sound customers,

Universal Access gave little or no consideration to the financial solvency of its customers. All

Defendants cared about was to continue this scheme and to generate reports of increased revenue

thereby pumping the stock price.



95. Further, at or about the same time as Defendants announced CORE, they changed their

method of compensating their salespeople on certain accounts. Defendants stopped giving cash

commissions for new deals. The reason: no cash was actually being realized. CORE was

merely a revenue inflation scheme.

96. Also in its February 14, 2001 statement, Universal Access stated that CORE was

"designed to lead to profitability by second quarter 2002." By making this statement,

Defendants were assuring investors that their new business model—CORE—was designed to

and, in fact, would lead to profitability by second quarter 2002. As demonstrated in more detail

below, nothing could be further from the truth.

97. The initial announcement of CORE drove the Company's stock price up 15 percent from

$9.81 per share to $11.25 per share. From February 20, 2000 until March 27, 2000, Shutt sold

105,000 shares of stock in the Company. Pommer also sold at least 20,000 shares during this

time, and, upon information and belief, Lead Plaintiffs believe that Pommer sold approximately a

total of 105,000 shares.

98. Not surprisingly, Defendants announced the CORE initiative less than one week after

Shutt and Pommer began to sell 300,000 shares each and announced their Diversification Plan

through which they each could sell another 550,000 shares over the next 180 days. Thus, Shutt

and Pommer made millions off of the fraudulent announcement of CORE and subsequent

announcements to follow, while exposing the Company and investors to huge undisclosed risks.

The investing public, however, was in the dark about the truth behind CORE. And, as a result,

Lead Plaintiffs and the Class lost millions in reliance thereon.

4. March 8, 2001 Press Release - Universal Access Continues to Pump the Stock



99. On March 8, 2001, Defendants continued to mislead the investing public by claiming

false revenue in its Financial Statements. On that date, the Company announced to the public

that it had earned $25 million in revenues for the 2001 first quarter. Specifically, it claimed that:

"Universal Access.. .today announced that it will meet its $25 million revenue forecast for the

quarter ending March 31..." Defendant Shutt stated as follows: "Based upon our revenues to-

date and visibility into March, we will meet our first quarter revenue projection ..." These

statements were disseminated by the Company through its Investor Relations Department at the

control and/or approval of the Individual Defendants.

100. These statements were materially false and misleading and omitted material facts when

made. Defendant Shutt knew or was severely reckless in not knowing that these statements were

based on false Financial Statements. These Financial Statements were materially false and

misleading and omitted material facts when made because, as detailed in paragraphs 160 through

176, they included false revenues that were recorded in violation of Generally Accepted

Accounting Principles.

5. Defendants' May 10, 2001 Statements

101. On May 10, 2001, Defendants continued their misinformation campaign of false

statements. That day, Defendants again touted the CORE's success in generating revenue.

Specifically, Defendant Shutt "highlighted" the following accomplishments:

A 38% increase in revenue from the company's top 25 customers since CORE's launch in January

New circuit sales for the first four months of 2001 were $3 million of monthly recurring revenues.

In that same press release:



"CORE continues to gain momentum with the company's top 25 accounts, and the fundamentals of the business continue to grow stronger," said Universal Access Chairman and CEO Patrick Shutt. "However, with the broad pressure on stocks, especially in the telecom industry, we do not believe the current market prices accurately reflect the long term value of our shares."

Defendant Brown also got into the act:

"Our confidence in our forecast is also bolstered by the continuing strength of our balance sheet.. .Strong collections actions reduced accounts receivable to $13.2 million at April 30 from April $17.1 million at March 31...."

102. These statements were disseminated through the Universal Access Investor Relations

Department at the direction and/or approval of the Individual Defendants. Market reaction to

these statements was favorable. The stock price rose nearly 25% on this announcement.

103. As discussed below, this press release was materially false and misleading and omitted

material facts when made in that Defendants knew or was severely reckless in not knowing that

this press release was based on false Financial Statements issued by Defendants. These Financial

Statements were materially false and misleading and omitted material facts when made because,

as detailed in paragraphs 160 through 176, they included false revenues that were recorded in

violation of Generally Accepted Accounting Principles.

104. In this press release, Shutt also enticed investors to invest in the Company by

guaranteeing to them that the market had undervalued the Company's stock and that it was worth

more than the market price of $4.32. This statement was materially false and misleading and

omitted material facts when made because Shutt concealed the real reason for this guarantee. At

the time he and Pommer announced their Diversification Plan, the Company's share price was

$12.00. However, less than three months after the Plan was announced, the share price had

fallen below the $6.00 floor. Shutt and Pommer could not unload any shares. They had to

suspend their Diversification Programs during this time. Thus, they need to convince the market



that the share price was worth more than the current price of $4.32 per share. This statement,

like all the others during the Class Period, was designed to accomplish this goal.

105. Moreover, Brown intentionally misled the public by indicating success in collecting

outstanding accounts receivables when, in fact, Brown was seeing an increasing amount of

delinquent and terminated contracts. Indeed, in 2001 sixty-five (65) customers canceled their

service and terminated their contract with Universal Access. Defendants were well aware of this

trend by May 10, 2001, but did not disclose this fact to investors. At the time this statement was

made, Defendant Brown knew or was severely reckless in not knowing that these Companies

were on the verge of bankruptcy or would not be able to fulfill their obligations under their

contracts with the Company. However, Universal Access's SEC filings and press releases to

investors did not disclose this deterioration of the Company's customer base. In fact, the

following customers terminated or defaulted their contracts with Universal Access within the

three quarters prior to the end of the Class Period:

Business Telecom Services Teligent Atlas Communications Servint

S Darwin Networks S Dontel International, LLC

Interloop, Inc. Internet I st, Inc. VBC net GB Limited Northpoint Communications

S WorldXchange Communications S lAsia Works S DavNet, Inc.

Advancenet S Cidera S Electronic Freight Exchange

Hyperbanner Intelligent Computers Michigan Internet Exchange

S NonStopNet RCP Communications, Inc.

S Red Light Communications S Trilogy Telemanagemcnt, LLC S Wolf Computers

Artloop, Inc. S Pacific Telecommunications S New Global Telecom S Atlantic Telecommunications S Anet

Edge Connections Ejigsaw.corn

S Futuris S GCN Communications S Kibu, Inc.

Livebuilder S Netliant

Networking Institute of Techno S Portal Bay, Inc.



Quickview, Inc. RSL COM USA Sigma Networks

S Silver Cyber Tech Zoho Corporation

S Academy Network Services S Access Point, Inc.

Affiliated Mgrs Group Bay Area Internet Solutions

S Broadband Office CANTV Servicios, CA

S CetLink CoreExpress Carmen & Associates

S ClarionlP.Com Computerese Information Network Conexus LTD

S Convergent Communications Cumulus

S IPlus Internet Service

DBN S Digital Galaxy S Dimensional Communications

Dynamex Etam International Teleport, Inc. Flashcorn

S GCSI Green to Tee, Inc. Internet Connect, Inc. Mechanical Contractors Association Net-Sentry Corp.

S Omnetnx International S Onsite Access S Pacific Gateway Exchange S Reach Communications

Scescape,lnc. S Telehub

Transco Research Corp.

106. Defendants kept a list of these customers, which was updated periodically and sent to

salespersons. Many of these companies were terminating their contracts because they were

disappearing into bankruptcy. Defendants knew that these companies were likely to default on

their contracts with Universal Access, but failed to disclose this knowledge to the investing

public.

107. The customers discussed above are not the only ones that Defendants knew were in

trouble. Brown kept another secret list of "at-risk" customers Defendants knew were likely to go

under or otherwise cancel their service. The customers on this list constituted a huge part of the

Company's revenue base. Lead Plaintiffs obtained a copy of that list, which, as of January 2002,

contained the following customers and monthly recurring revenue figures:



The customers on this at risk list constituted a whopping $61,054,453 in annual revenue -

HALF of Universal Access's total revenue. Defendants knew this revenue not only was at "at-

risk" but that many of these companies might be imminently subject to bankruptcy proceedings.

This list was regularly updated, but never published to investors. Internally, key sales people

questioned the Company's effort in dealing with these customers, as well as the Company's

reporting MRR with these customers, when they knew these most of these customers were

highly impaired and the revenue would never be realized. Nevertheless, Defendants never

disclosed this list and the knowledge it contained to investors. Quite the contrary, Brown and

the other Individual Defendants continued to mislead the investing public by touting the

increased strength in their receivables. Indeed, Defendants reiterated 26% - 28% revenue growth

for the second quarter of 2001 - figures that they knew at the time they made these statements

and issued their false Financial Statements were not accurate, and they violated GAAP as

discussed in paragraphs 160 through 176.



6. Defendants 'August30, 2001 Press Release

108. In a press release unbelievably entitled "UAXS Global Holdings Confirms Profitability

Through Corporate Consolidation, $9.6M Customer Contract," Defendants further misled

investors about the true state of affairs at Universal Access:

UAXS Global Holdings Inc. (NASDAQ: UAXS) announced . . . [t]he company also has secured its first CORE transfer contract equaling $9.6 million of annualized revenue, as well as additional potential funding for strategic

opportunities.

Defendant Brown also stated in the same release:

"Today's restructuring and reduction in headcount, as well as our recent ISP win, will enable the company to become cash flow positive in Qi of 2002 and net income positive in Q2 of 2002," stated Bob Brown, CFO, UAXS Global Holdings. "We remain strong even in today's tumultuous telecom marketplace."

109. Shutt also stated that "Based upon our continued confidence in Universal Access's future,

a number of company executives, board members and I expect to increase our stake in the

company's future through buying shares on the open market." These statements were

disseminated through Universal Access's Investor Relations Department at the direction and/or

approval of the Individual Defendants. The market reacted favorably to these statements and the

share price increased by approximately 20 percent.

110. This press release and the Financial Statements upon which it was based were materially

false and misleading and omitted material facts when made for several reasons. First, Individual

Defendants had no intent to buy shares on the open market to increase their stake in the

company. Quite the contrary, Shutt and Pommer already were trying to unload as many shares

as possible under the Diversification Programs. Defendants made this statements to entice



investors to invest in the company. Defendants previously said that they believed the market

undervalued the price of the Company's stock. To support this statement, and to encourage

investors to buy stock on this statement, Defendants followed up by stating that they believed in

the Company so much, that they were going to increase their stake by buying up more shares on

the open market. This statement was completely false. in fact, Defendants did not increase their

stake in the Company on the open market. Rather, they continued to try to dump their shares.

111. Second, Defendants knew or were severely reckless in not knowing that this press release

was based on false Financial Statements. These Financial Statements were materially false and

misleading and omitted material facts when made because, as detailed in paragraphs 160 through

176, they included false revenues that were recorded in violation of Generally Accepted


112. Third, this press release and the Financial Statements upon which it was based also were

materially false and misleading and omitted material facts regarding the CORE initiative, and its

impact on the Company's fmancials. Defendants knew, but intentionally concealed from the

public, that CORE was never "designed" to generate profits. It was nothing more than a zero

margin revenue generating vehicle designed to pump up the Company's revenues. Fourth,

Defendants intentionally failed to disclose the fact that they knew that the customer base under

CORE was under substantial financial risk. In fact, as discussed above, Defendants kept a secret

at risk list of CORE customers whom Defendants believed were on the verge of bankruptcy.

Nevertheless, Defendants repeatedly disseminated statements regarding revenue and profitability

to be gained under contracts with these customers when, in truth, Defendants knew their ability

to collect on these accounts was virtually non-existent. Fifth, Defendants concealed that the

revenue generated by CORE, including the $9,600,000.00 announced in this statement, would



have no margin and exposed the Company to a large undisclosed risk. Sixth, Defendants

concealed that there was a substantial undisclosed risk that the announced CORE revenues

would ultimately have to be restated because, as detailed in paragraphs 160 through 176 below,

revenue recognized under the CORE program violated Generally Accepted Accounting

Principles. Finally, the ISP not disclosed by name in this statement was WAM!NET, a company

on Brown's list of at-risk customers. And, the contract was not really for $9,600,000.00. That

figure was based on assumptions about WAM!NET's business, and the actual contractual

commitments were much smaller.

7. Defendants October 30, 2001 Press Release

113. On October 30, 2001, Universal Access issued a press release announcing "Third Quarter

Results Highlighting Strong Growth in Recurring Revenues and Reaffirming Positive EBITDA

in the First Quarter of 2002:"

CHICAGO, IL, October 30, 2001 - Universal Access Global Holdings Inc. (Nasdaq: UAXS) today announced results for the quarter and nine months ended September 30, 2001.

Third Quarter 2001 Financial Highlights

• Revenues were $30.7 million, 119% above the third quarter a year ago • Monthly Recurring Revenues (MRR) grew 11% to $11.1 million with a

32.5% gross margin

"The many positive factors that contributed to the quarter's results further proved the validity of our model and bolster our confidence in achieving profitability early next year," said Patrick Shutt, Chairman of CEO of Universal Access. "Despite a difficult industry environment which has challenged many of our customers and vendors, and generated higher disconnect levels early in the quarter, we were able to significantly increase revenues from our major customers. In September, we closed a major CORE transfer with WAM!NET, which represents our fourth million dollar per month customer. At the same time, our team generated strong increases in MRR from many of our top customers, including MCI!W0r1dComJUUNET, Cable & Wireless, AT&T, Level 3,



BCEfFeleGlobe, Broadwing, Microsoft and Touch America. We also successfully restructured our costs to reduce our SG&A and cash burn rates."

Third Quarter Financial Results

For the third quarter ended September 30, 2001, total revenues increased to $30.7 million, a 119% increase versus $14.0 million from the comparable period in 2000. Gross profit for the third quarter expanded to $10.0 million, up 170% from $3.7 million in the third quarter of 2000. Gross margin increased 620 basis points (bps) to 32.5% from 26.3% in the prior year period. The net loss for the third quarter was $64.5 million or ($0.70) per share. Before restructuring and other one-time charges and non-cash stock option compensation charges, the net loss for the quarter was $12.1 million or ($0.13) per share.

Other Highlights

Customer Wins - In addition to increased MMR from existing CORE customers, the company also achieved several large customer wins in the quarter. In support of new initiatives, Microsoft significantly expanded its relationship with Universal Access, the company achieved a major CORE transfer with WAM!NET...

114. These statements were disseminated by Defendants through the Universal Access

Investor Relations Department at the direction and/or approval of the Individual Defendants.

Within a week of this announcement, the price of Universal Access stock had risen from $1.49 to

$2.30 --- a whopping 54 percent increase.

115. This press release and the Financial Statements upon which they were based were

materially false and misleading and omitted material facts when made for several reasons. First,

Defendants knew or were severely reckless in not knowing that this press release was based on

false Financial Statements. These Financial Statements were materially false and misleading and

omitted material facts when made because, as detailed in paragraphs 160 through 176, they

included false revenues that were recorded in violation of Generally Accepted Accounting

Principles.



116. Second, this press release and the Financial Statements upon which it was based also

were materially false and misleading and omitted material facts regarding the CORE initiative,

and its impact on the Company's financials. Defendants knew, but intentionally concealed from

the public, that CORE was nothing more than a zero margin revenue generating vehicle designed

to pump up the Company's revenues, while exposing the Company to huge undisclosed risks if

its CORE customers defaulted. Third, Defendants intentionally failed to disclose the fact that

they knew that the customer base under CORE was under substantial financial risk. In fact, as

discussed below, Defendants kept a secret list of at-risk CORE customers whom Defendants

believed would soon disconnect their service or were on the verge of bankruptcy. Nevertheless,

Defendants repeatedly disseminated statements regarding revenue and profitability to be gained

under contracts with these customers when, in truth, Defendants knew their ability to collect on

these accounts for the long-term was virtually non-existent. Fourth, Defendants concealed that

the revenue generated by CORE would have no real benefit to, or legitimate business purpose

for, the Company. Fifth, Defendants concealed that there was a substantial undisclosed risk that

the announced CORE revenues would ultimately have to be restated because, as detailed in

paragraphs 160 through 176, revenue recognized under the CORE program violated Generally

Accepted Accounting Principles.

117. Defendants knew that these statements were materially false and misleading when made

in that they purposefully made it difficult for investors to understand the Company's business

dealings under the CORE initiative. Under this scheme, Defendants could entice investors with

announcements of huge revenue gaining transactions, but conceal the fact that these contracts

were with companies Defendants knew were at a "high-risk" of going bankrupt and that the

revenue generated by the contracts would not actually be realized. Defendants also concealed



the fact that there was a high degree of risk that Defendants would be left holding the bag for the

liabilities they had assumed under these contracts.

118. Finally, this press release and the Financial Statements upon which it was based were

false and misleading and omitted material facts when made in that Defendants knew or were

severely reckless in not knowing that any revenue received from MFN, Universal Access's major

customer, would not be collectable. Therefore, as detailed in paragraphs 160 through 176 any

recognition of revenue from MFN contracts would be violative of GAAP. In fact, MFN sent

Universal Access a letter during the Third Quarter, which was not disseminated to the public,

informing Universal Access that MFN was suspending payments as part of an effort to

restructure. MFN ultimately filed for bankruptcy protection.

119. Fourth, this press release and the Financial Statements upon which it was based were

false and misleading and omitted material facts when made in that it concealed that the

WAM!NET contract, which had just signed in October - an agreement touted in the October

2001 Universal Access press release—had already made Brown's at-risk contract list.

8. From One Insider to Another—Defendants' November 12, 2001 Statement

120. On a November 12, 2001, Universal Access issued the following press release:

CHICAGO - November 12, 2001 - In a strategic move, Aleron, an industry leader in high-performance Internet connectivity, data transmission and value-added network applications, chose Universal Access (NASDAQ: UAXS) as its outsourced network services provider. Universal Access, which specializes in connectivity services for clients worldwide, will provide procurement, provisioning and network management services for off-net circuits carrying data and value-added services to Aleron's customers throughout the United States.

In addition, Universal Access will support Aleron's need for ATM connectivity through the purchase of its ATM network. "ATM is a natural progression for Universal Access. As we strive to meet the needs of our wholesale customers, extending our offering to include ATM services is becoming critical. The Aleron network mirrors our deployment enabling or allowing Universal Access to easily



integrate the new ATM switching network into existing network facilities," stated Patrick Shutt, CEO, Universal Access.

121. These statements were disseminated by Defendants through the Universal Access

Investor Relations Department at the direction and/or approval of the Individual Defendants.

These statements were materially false and misleading and omitted material facts when made.

122. Aleron was a provider of IP bandwidth and operated a national telecommunications

network. Paolo Guidi was President of Aleron. Guidi also was a member of the Board of

Directors at Universal Access. On or about March 5, 2001, Frank Aulenta and Patrick Shutt met

with Paolo Guidi to strike a deal to engage in several secret transactions designed to hide and

cover any revenue shortfalls the companies might experience over the next year. Aulenta was a

Vice President of Sales for Universal Access. In these meetings, Shutt concluded that it was

very likely that MFN or another major Universal Access customers would fail prior to the end of

the year. The MFN contract was worth an alleged $1,100,000.00 in MRR. As a result of MFN's

insolvency, Universal Access would miss its monthly and annual revenue numbers. Shutt,

Aluenta and Guidi designed a fraudulent scheme by which Universal Access and Aleron would

enter into various sham transactions to make up for any short fall in revenues. This side

agreement was never disclosed to the public, in effect, Universal Access fraudulently agreed to

"purchase" revenues which would be used to falsely inflate Universal Access's operating results.

123. The agreement (but not the side deal) was formalized on March 8, 2001 in the form of a

Master Private Line Services Agreement. This Agreement was signed by Steve Heap, Chief

Network Officer of Aleron and Robert Rainone, Chief Operating Officer of Universal Access.

Among other things, the Agreement provided that "[Aleron] shall make all payments

due.. .within thirty calendar days of the date of [Universal Access's] invoice . . . ." The



Agreement also provided that Universal Access was not allowed to issue public statements

regarding this transaction without the express written permission of Paolo Guidi.

124. When it was learned that Universal Access was entering into the Agreement with Aleron,

several of the sales staff (unaware that the true purpose of the Agreement was to "purchase"

revenues) openly questioned the deal to top management. The sales staff's inquiries were

rebuffed quickly by top management and were told to "mind their own business."

125. In September 2001, Universal Access discovered another opportunity to enter into sham

transactions with Aleron. During that month, Broadwing entered into an agreement to sell

various communication services to Aleron. Broadwing sought to purchase various elements of

the circuits it intended to sell to Aleron, including OC 12 local access connectivity, from

Universal Access. Paul Welch, a salesperson for Universal Access, provided Broadwing pricing

and availability for the necessary services. Chris Keller, from Universal Access Client Services,

and Jerry O'Neil, Managing Director of Universal Access, realized that Broadwing was

providing Aleron with services that Universal Access could sell directly. Mr. Keller and Mr.

O'Neil notified Patrick Shutt and Robert Pommer of the situation setting a chain of events in

motion.

126. In October of 2001, Paolo Guidi, CEO of Aleron and a director of Universal Access,

entered into talks with Robert Pominer, Vice Chairman of Universal Access. At the time,

Universal Access was attempting to offset the bad news relative to MFN. Pommer and Guidi

both understood that Aleron's business plan was grossly under-funded. Guidi needed a free

network because Aleron was running out of cash. Pommer needed more revenue to offset the

revenue that Universal Access expected to lose when MNF went bankrupt. Pommer and Guidi



thus hatched a scheme to turn Aleron's liability for its 0C48 network into revenue for Universal

Access.

127. Universal Access would not only provide the 0C12 local access circuits that Aleron had

been seeking from Broadwing, but also would accept a transfer of Aleron's liability for its long

haul 0C48 circuits, which Aleron had been obtaining from another carrier. Universal Access

agreed to accept transfer of those circuits, and the obligation to pay the other carrier for them.

Guidi agreed to cancel his order with Broadwing and enter into this arrangement with Universal

Access with the understanding that Universal Access would begin paying Aleron's circuit costs

and then delay collection from Aleron until it could secure additional funding. Defendants

agreed to pay for Aleron's long-haul circuit until Aleron got funding, and then they touted this

arrangement as revenue. Thus, Universal Access was able to "purchase" additional revenue

from Aleron in order to further inflate their results.

128. This agreement later was formalized in the form of an Addendum to Master Private Line

Services. This Addendum was also signed by Robert Rainone, President, Operations of

Universal Access and Paolo Guidi, Chief Executive Officer of Aleron.

129. Among other things, the Addendum provided that Aleron could, at its option, set off any

and all amounts owed to it by Universal Access under the Agreement for Sale of Goods

discussed below against any debt owed to Universal Access under the Master Private Line

Services Agreement entered into on March 8, 2001. The Agreement also provided that Universal

Access was not allowed to issue public statements regarding this transaction without the express

written permission of Paolo Guidi.

130. On that same date, the Agreement for Sale of Goods was entered into by and between

Aleron and Universal Access. This Agreement was signed by Robert Rainone, President,



Operations of Universal Access and Paolo Guidi, Chief Executive Officer of Aleron. Under the

Agreement, Universal Access agreed to purchase asynchronous transfer mode ("ATM")

equipment from Aleron ifAleron was able to raise additional funds to pay for services provided

by Universal Access. ATM is a legacy technology with which Universal Access had no prior

experience, and it was uncertain as to whether it was capable of utilizing this equipment. But if

Aleron failed to get funding, which was highly likely, Universal Access would keep this

equipment as payment on the agreement— even though Universal Access had no real use for it.

That way, even if the deal failed, Universal Access could book revenue that it desperately needed

to meet its forecasts, and Guidi could keep the ATM equipment out of the Aleron's bankruptcy

estate.

131. Defendants knew that they had no use for this ATM equipment and that the equipment

was of minimal value. In fact, after the Class Period, Defendants for the first time disclosed that

the Company would not use this equipment and that it would write it off as having no value.

This known fact was never disclosed to the investing public during the Class Period.

132. This contract, but not the side agreement, was announced in the press release of

November 12, 2001 as a $13 million deal. Under the announced terms of the deal, Aleron was to

pay Universal Access approximately $1.15 million per month for use of the networks. These

were essentially the same payments that Aleron was making before the deal, only now the money

passed through Universal Access so that Universal Access could book it as revenue. Internally,

Defendants knew that Aleron's payments were contingent and that Aleron would never make

them.

133. The Aleron deal had the effect Defendants intended. On November 11, 2001, Universal

Access's stock closed at $2.67. Within days of the November 12, 2001 announcement of the



Aleron deal, Univeral Access's stock was trading at $4.34—a sixty-six percent increase.

However, Defendants did not disclose that Aleron was under-funded, the side agreement that

Aleron would not pay under the terms of the contract unless it raised additional capital, Universal

Access's acceptance of liability under the terms of Aleron's 0C48 contract, or the side deal

between Aulenta, Shutt and Guidi regarding the ATM equipment. Nor did Defendants

adequately reserve for bad debt.

134. These deals allowed Defendants to recognize revenue from the Aleron deal even though

Aleron had yet to pay for any services, and it was clear to the Individual Defendants that Aleron

had not and would not fmd any funding. But that did not matter to the Individual Defendants.

The Aleron deal allowed Universal Access to claim positive Earnings Before Interest, Taxes,

Depreciation, and Amortization ("EBITDA") a month earlier than projected.

135. Due to the incestuous relationship Shutt, Pommer, Brown, Fehian, King, and Rainone

had developed with Guidi, they also decided to conceal the fact that he is or was a director of

Universal Access in both the Universal Access website and press releases. Previously,

Defendants had listed Guidi as a member of the Universal Access Board of Directors. However,

the Universal Access website later listed the following people as directors on March 29, 2002:

• Carolyn Katz - Providence Equity Partners

• Kevin Powers - Unemployed

• Roland Van der Meer - ComVentures

• Edward H. West - COO, CFO Internet Capital Group

• Robert Pommer - Vice Chairman and Founder of UAXS

• Patrick Shutt - Chairman & CEO Universal Access



136. Guidi was not listed. Universal Access's 14(a) proxy statement, however, also included

Paolo Guidi, Chairman & CEO of Aleron, as a director. Guidi also appeared as a director on

Universal Access's website. As of March 2002, Universal Access had removed Paolo Guidi

from the website and when Universal Access released its 2002 10K, items 10, 11, 12, and 13 of

Part II were omitted. These items discuss current officers and directors, executive compensation,

ownership, and certain relationships and related transactions, respectively. This was done in

order to conceal from shareholders Guidi's conflict of interest in a transaction that transferred

substantial undisclosed risks to Universal Access in a last ditch effort to save Aleron. Even

though the Aleron deal was a gift to Aleron with little or no hope of ever seeing a dime in actual

revenue, the Individual Defendants went along with this scheme because they were desperately

trying to inflate their operating results by purchasing revenue.

137. Defendants intentionally refused to disclose the material contingencies related to the

Aleron deal. Defendants concealed that the agreement between Aleron and Universal Access

was, in substance, a sham transaction designed to cover the impending Universal Access revenue

shortfall and that the parties had a secret side agreement under which Aleron would not pay

under the terms of the contract until it raised additional capital. This was done in direct violation

of Universal Access's stated credit policy. In order to cover the revenue shortfall from Aleron's

expected default, Shutt, Pommer, and Guidi arranged for Universal Access to "purchase"

obsolete and useless ATM equipment from Aleron. It was further agreed that Universal

Access's payable from this "purchase" would be written off and the gain used to offset the lost

revenue from Aleron's default.

138. In January 2002, a mere two months after Universal Access made this announcement, the

undisclosed side agreement had been triggered, but, importantly, after Universal Access had used



this false revenue to "meet" its 2001 numbers, Universal Access "offset" all but $200,000.00 of

Aleron's debt in exchange for this worthless equipment. This "offset" was never disclosed until

the April 1, 2002 filing (after the Class Period) of the Universal Access 2001 10-K. In this

filing, on page 62, Universal Access cryptically disclosed, for the first time, the following:

In 2001, the Company provided $3,200 [in thousands] of circuit access services to Aleron, Inc. ("Aleron"). Also during the fourth quarter of 2001, the Company agreed to purchase certain ATM network equipment from Aleron for $3,000 [in thousands]. During January 2002, the Company offset amounts due from Aleron from circuit access services with the payable due to Aleron related to the purchase of network equipment from Aleron. During 2001, an executive officer of Aleron [Guidi] was a member of the Company's Board of Directors.

139. Importantly, the filing failed to disclose that this "offset" was all agreed to in advance by

Shutt, Pommer and Guidi. Later, after Aleron had gone bankrupt and Defendants could no

longer use Aleron to generate sham revenue, Universal Access finally disclosed what Shutt and

Pommer knew all along—that the equipment received from Aleron was worthless. Specifically,

on page 7 of its 2002 10-Q filed on August 14, 2002, Universal Access disclosed the following:

The Company's plan to provide ATM services was discontinued for economic reasons and the equipment has been offered for sale. The Company has not been able to attract any offers for its ATM equipment and believes that its value is minimal.

9. Defendants' January 9, 2002 Press Release

140. Despite the fact that (1) the Aleron deal was a sham and (2) Aleron was in default under

its agreements with Universal Access, Universal Access issued a press release on January 9,

2002 stating that it had exceeded previous revenue guidance:

Universal Access Q4 Revenues Exceeded $35 Million; Achieved Positive EBITDA for December

CHICAGO, Jan. 9 /PRNewswire/ -- Universal Access Global Holdings Inc. (Nasdaq: UAXS - news) today announced that revenues for its fourth quarter ended December 31, 2001 exceeded $35 million, above the company's previous



guidance of $33 million. Based on these higher revenues, the company also generated positive EBITDA (excluding non-cash compensation charges) for the month of December, a month earlier than projected. For the full year 2001, the company's revenues exceeded its $120 million forecast, which represented a 135% increase over 2000.

"We are very excited to announce that Universal Access achieved positive EBITDA for December, a full month ahead of schedule," said Patrick Shutt, Chairman and CEO of Universal Access. "This company benchmark reflects successful execution in all facets of the company's operations as we continue to deploy our model. It is the recognition of our benefits of outsourcing, speed to revenue, SG&A cost containment and ability to reduce network costs that is generating traction with carriers still working through a difficult telecom market."

141. Defendants disseminated this statement through the Universal Access Investor Relations

Department at the control and/or approval of the Individual Defendants. These statements were

materially false and misleading when made.

142. The significance of the Aleron deal is apparent in this statement in that it (falsely)

allowed Universal Access to claim positive Earnings Before Interest, Taxes, Depreciation, and

Amortization ("EBITDA") a month earlier than projected. Positive EBITDA is a significant

milestone in any company's progress towards earning a profit. Universal Access was no

different. On the day that Universal Access issued this false and misleading press release, the

companies stock rose more than fifteen percent from $463 to close at $5.35.

143. Unfortunately for the investing public, this statement was not worth the paper it upon

which it was released. Defendant Shutt knew that the Financial Statements that these "earnings"

included revenue recognized from the Aleron deal even though Aleron was in default and had

yet to pay for any services, and it was clear to Shutt and Pommer that Universal Access would

never receive a dime from Aleron. Because of these facts, as detailed in paragraphs 160 through

176 any revenue from Aleron would have to be restated in that they violated Generally Accepted

Accounting Principles. As a consequence, any press releases or financial statements based in



whole or in part of these revenues received from Aleron also was materially false and misleading

and omitted material facts when made.

144. This press release and the Financial Statements upon which it was based were false and

misleading and omitted material facts when made in that Defendants knew or were severely

reckless in not knowing that any revenue received from financially troubled companies would

not be collectable. Therefore, as detailed in paragraphs 160 through 176, any recognition of

revenue from contracts from financially troubled companies violates GAAP.

10. Defendants' February 22, 2002 Press Release

145. Despite having maintained the at-risk contract list and knowing that several large

customers would fail and that the revenue from Aleron were false statements, Defendants Shutt

and Brown reiterated the false revenue numbers and reiterated 2002 guidance:

Universal Access Reiterates 2002 Guidance

CHICAGO, Feb. 22 IPRNewswire-FirstCall/ -- Universal Access (Nasdaq: UAXS - news) today reiterated its revenue and profitability guidance for the year.

"Despite challenging industry conditions, our sales pipeline continues to be very strong, in excess of $25 million of monthly recurring revenues (MRR)," said Patrick Shutt, Chairman and CEO. "As a result, we remain confident in our 2002 guidance: MRR to grow to $19 to $20 million at year end; to generate positive EBITDA for the first quarter of this year; to achieve positive operating cash flow in the first quarter; and to achieve positive EPS at a point in the second quarter. While delayed from what we had expected, the large customer announcement we referred to on our call is also still pending."

"We are reiterating our guidance for 2002, and we remain fully funded to free cash flow and profitability," added CFO Bob Brown. "The industry's difficulty in growing revenues and reducing costs remains a significant opportunity driver for us, as we represent an easy and no-cost answer to both of those problems."

146. These statements were disseminated through Universal Access's Investor Relations

Department at the control and/or direction of the Individual Defendants. These statements were



materially false and misleading and omitted material facts when made. Defendant Shutt knew

these "earnings" included revenue recognized from the Aleron deal even though Aleron had yet

to pay for any services, and it was clear to Shutt and Pommer that Universal Access would never

receive a dime from Aleron. In fact, after the Class Period, in Universal Access's 2001 Annual

Report, Universal Access acknowledged that, at the time Defendants issued or caused to be

issued this press release, Aleron was already in default. Specifically, on page 28 of the Report,

Universal Access noted the following:

On March 15, 2002, Aleron filed for protection under Chapter 11 of the bankruptcy code, with outstanding amounts owed Universal Access of $3.7 million, representing services incurred January through March 14, 2002. (emphasis added).

147. Aleron ultimately filed for bankruptcy protection in March 2002. On March 22, 2002,

just one month after reiterating its revenue and profitability targets, Universal Access issued a

press release withdrawing that revenue guidance as well as revising its profitability target for

2002. The stated reason for the press release was Aleron's recent bankruptcy filing. The

Individual Defendants had known for months that Aleron was going to file bankruptcy, and in

fact, they had been planning for it through transfers of assets, such as Aleron's ATM network, to

Universal Access to keep them out of Aleron's bankruptcy estate.

148. Due in large part to Aleron's recent filing for bankruptcy, the Company announced in

March 2002 that it would withdraw revenue guidance as well as revise its profitability target for

2002. Defendants also stated that they now anticipated re-establishing positive EBITDA in the

second half of 2002, but could not provide further guidance for the year. Aleron never made a

payment to Universal Access. In the March 2002 release, Defendants stated that Aleron's

bankruptcy reduced the Company's first quarter 2002 reported revenues by approximately $4.8

million. However, in an Aleron bankruptcy court pleading filed by Universal Access, Defendants



claimed on March 28, 2002 that Universal Access is owed an aggregate of more than

$17,000,000.00 for telecommunications services provided prior to March 2002. Moreover, the

Company was still on the hook for Aleron's liability to Broadwing.

149. Because of these facts, any revenue from Aleron violates Generally Accepted Accounting

Principles. As a consequence, any statement regarding revenues or forecast based in whole or in

part of these revenues received from Aleron also would be materially false and misleading and

omitted material facts.

150. This press release also was false and misleading and omitted material facts in that

Defendants knew that the revenues stated in the press release included revenue recognized from

the Aleron deal even though Aleron had yet to pay for any services, and it was clear to

Defendants that Universal Access would never receive a dime from Aleron. Because of these

facts, as detailed in paragraphs 160 through 176, any recognition of revenue from Aleron violates

Generally Accepted Accounting Principles. As a consequence, press release or financial

statement based in whole or in part of these revenues received from Aleron also would be

materially false and misleading and omitted material facts.

151. This press release and the Financial Statements upon which it was based also were

materially false and misleading and omitted material facts when made because Universal

Access's business model was deteriorating and because at the time it was made it was based in

part on "revenue" that it would receive from financially troubled companies. As detailed in

paragraphs 160 through 176, the recognition of such revenues violated Generally Accepted




11. Defendants' statements to andlor adopted by analysts

152. In addition to the public statements mentioned above, the Defendant also "pumped"

Universal Access's stock to various securities analysts. The Defendants made these statements

to analysts with the intention and expectation that the information would be disseminated into the

market and affect the perceived value of the Company's stock. These statements to analysts

were knowingly false and/or made with severe recklessness as to the truthfulness of the

statements.

153. On the heels of the February 14, 2001 and March 8, 2001 CORE press releases, Shutt and

Pommer had to suspend sales under their Diversification Plan because the stock fell under the

$6.00 floor price. On or about April 3, 2001, UBS Warburg, Glenn Waldorf, issued an analyst

statement "UAXS: Initiating Coverage With A Buy Rating & $17.00 Price Target." This

analyst report, based on information obtained from Shutt, Pommer, and Brown, enticed investors

to invest in the Company, even though the share price had dropped to $5.10 per share, by stating

that the Company's ability to become EBITDA positive and its high MRR, made the stock a Buy

with a price target of $17.00. This report was based upon statements made to analysts by

Defendants. The stock rose 25 percent on this report. Shutt and Pommer unloaded over 20,000

shares each under their Diversification Programs thereafter because the stock price rose above

the $6.00 per share floor.

154. Two analysts who regularly discussed Universal Access with Patrick Shutt and Bob

Brown were Jonathan Atkin and David Coleman from RBC Capital Markets. On November 20,

2001 Coleman and Atkin published a report reiterating their "buy" rating on Universal Access's

stock. This buy rating was based on Shutt assuring these analysts that Aleron's ATM network

would "contribute approximately $11.4 million of annual revenue." Coleman and Atkin also



reiterated Shutt's representations that Universal Access would be able to "wholesale ATM

services to other carriers." Defendants knew at the time they made these statements to analysts

that ATM equipment was legacy equipment with which Universal Access had no prior

experience and that there was no demand for ATM services. Buying into the Individual

Defendants' spin on CORE, these analysts called the Aleron deal "a potentially prime example

of the company's CORE strategy."

155. These analysts did not know of the material omissions in Shutt's statements --- there was

no margin on CORE transactions, Aleron was in financial trouble, there was a side agreement

with Paolo Guidi that Aleron did not have to pay under the terms of the contract unless Aleron

received funding, there was no contractual commitment that Aleron actually purchase $11.4

million in capacity, and there was absolutely no demand for the proposed ATM service. The day

that Coleman and Atkin passed these misstatements on to investors, Universal Access's stock

rose 11 percent --- exactly what the Defendants intended.

156. On December 6, 2001, Atkin and Coleman and RBC came out with a new report

reiterating their buy rating and raising the target price of Universal Access stock to $7 per share.

They also raised their 2002 revenue estimate to $184 million from $174 million. This report was

based on earnings guidance provided by Patrick Shutt and Bob Brown on December 5, 2002, in

which they stated that MRR was growing to $ 19-20 million. Atkin and Coleman bought the

Defendants' story and stated in their report that the "fundamentals appear strong."

157. While Atkin and Coleman were aware of the risk of disconnect and customer

bankruptcies, they were misled as to the extent of that risk. Universal Access never disclosed

that the fundamentals of the business were actually falling apart. The Defendants had witnessed

the record number of disconnects listed above and were concerned about the continued viability



of nearly HALF of the company's revenue as calculated in Brown's at-risk MRR list. This

material information was omitted from the Defendants' statements on December 5, 2001. The

day after Atkin and Coleman issued their report based on those misleading statements, the stock

price rose more than six percent.

158. On January 8, 2002, one day before Universal Access publicly pre-announced better than

expected fourth quarter 2001 results, Atkin and Coleman issued a report announcing that

Universal Access was EBITDA positive in December 2001. They reiterated a Buy rating a $7 a

share target price. The Company's stock rose nearly 20 percent in the wake of this report. They

reiterated this guidance again on February 5, 2002, the date of the official earnings release. The

stock again jumped more than five percent.

159. The statements contained in these analyst reports were materially false and misleading

and omitted material facts when made. These analyst reports were based upon statements made

by and information received from Defendants, which were materially false and misleading and

omitted material facts when made for the reasons set forth in detail in paragraphs 160 through

176, which are hereby incorporated by reference.

VIII. DEFENDANTS' FINANCIAL STATEMENTS DURING THE CLASS PERIOD WERE MATERIALLY FALSE AND MISLEADING AND VIOLATED GAAP

160. Defendants represented during the Class Period that Universal Access's Financial

Statements for the year ended December 31, 2000, quarter ended March 31, 2001, quarter ended

June 30, 2001, quarter ended September 30, 2001, and year ended December 31, 2001 were

prepared in accordance with Generally Accepted Accounting Principles ("GAAP"). These

Financial Statements were signed by Brown (2001 First, Second and Third Quarter 10Q), Shutt

and Pommer (2000 and 2001 10K) and approved by the other Individual Defendants. These

representations were materially false and misleading when made because Universal Access



employed improper accounting practices that caused its reported Financial Statements not to be

in conformity with GAAP and artificially inflated the Company's reported operating results.

161. GAAP are those principles recognized by the accounting profession as the conventions,

rules, and procedures necessary to define accepted accounting practices at a particular time.

Regulation S-X [17 C.F.R. § 210.4-01 (a) (1)] states that Financial Statements filed with the SEC

that are not prepared in conformity with GAAP are presumed to be misleading and inaccurate.

As set forth in Statement of Accounting Concepts No. 1, Objectives of Financial Reporting by a

Business Enterprise, FINANCIAL ACCOUNTING STANDARDS BOARD (1978) [hereinafter "SFAC

No. 1"], one of the fundamental objectives of financial reporting is that it provide accurate and

reliable information concerning the a company's financial performance during the period being

presented. This allows investors to make informed decisions about whether the invest in the

Company.

162. Universal Access's Financial Statements during the Class Period (the "Financial

Statements") were not prepared in accordance with GAAP. The GAAP violations were material

and rendered the Company's Financial Statements misleading and inaccurate. Defendants

caused these violations by knowingly or recklessly employing improper accounting practices

which violated GAAP and artificially inflated Universal Access's reported operating results.

A. Improper Revenue Inflation

163. The first improper accounting practice was the recognition and reporting of revenue that

had not been earned as defined under GAAP. Under GAAP, revenue is recognized' when (1) it is

realized or realizable2 and (2) it is earned. 3 The SEC has stated that revenue is realized or

"Recognition" is the process of formally recording or incorporating an item in the accounts and financial statements of an entity. "Recognition includes depiction of an item in both words and numbers, with an amount included in the totals of the financial statements." Statement of Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business

Enterprises, Financial Accounting Standards Board (1984), at 16 [hereinafter "SFAC No. 5"]. 2 "Realization in the most precise sense means the process of converting non-cash resources and rights (such as accounts receivable) into money and is most precisely used in accounting and financial reporting to refer to sales of assets for cash or claims for cash." Statement of



realizable when all of the following conditions are met: (1) persuasive evidence of an

arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller's

price to the buyer is fixed or determinable; and (4) collectabiity is reasonably assured .4

Universal Access violated these GAAP provisions by recognizing revenue from Aleron that was

contingent and by recognizing revenue in the form of receivables from companies that the

Defendants knew were on the verge of bankruptcy.

164. Instead of having reasonable assurance of collectability of these accounts, the Defendants

were aware of a severe risk that the companies would never pay for service. Universal Access's

Financial Statements contained, inter alia, materially false and misleading statements regarding

the recognition of revenue from Aleron and MFN. Universal Access recorded these revenues

even though there was not reasonable assurance of collectability. Therefore, Universal Access's

Financial Statements were materially misleading, which caused the price of Universal Access's

stock to be artificially inflated during the Class Period.

B. Universal Access Entered Into "Round Trip" Capacity Trades With Williams Which Had No Leiitiniate Business Purpose

165. The second improper accounting practice was the artificial inflation of Universal

Access's financial results during the Class Period by entering into "round trip" capacity sales that

served no legitimate business purpose and were accounted for in violation of GAAP.

166. Under GAAP, revenues are "inflows or other enhancements of assets of an entity or

settlements of its liabilities from delivering or producing goods, rendering services, or other

activities that constitute the entity's ongoing major or central operations." Statement of

Accounting Concepts No. 6, Elements of Financial Statements, Financial Accounting Standards

Board (1985), at ¶ 143 [hereinafter "SFAC No. 6"]. SFAC No. 5,at83. See Revenue Recognition in Financial Statements, SEC Staff Accounting Bulletin No. 101,

Dec. 3, 1999 [hereinafter "SAB No. 101"].



Financial Accounting Concepts No. 6, Elements of Financial Statements, Financial Accounting

Standards Board (1985), at 178. In these swap transactions, Universal Access and Williams

merely sold each other capacity for identical amounts of money. There was no "enhancement"

of Universal Access's assets as a result of these transactions, and they did not result in legitimate

revenue. Thus, these transactions could not be recognized pursuant to GAAP.

167. By engaging in such sales, participant companies grossly inflated actual revenues from

"on-going or central operations." Id. As a result, Universal Access knowingly misrepresented its

actual financial performance and results of operations.

C. Improper Accounting for Bad Debt Expense and Allowance for Doubtful Accounts

168. The third improper accounting practice was the failure to recognize appropriate bad debt

expense and allowance for doubtful accounts. Universal Access uses the allowance method to

account for uncollectable accounts receivable. Because the collectability of receivables is

considered a loss contingency, the allowance method is only appropriate in situations where it is

probable that an asset has been impaired and that the loss can be reasonably estimated. See

Accounting for Contingencies, Statement of Financial Accounting Standards No. 5 (Stamford

Conn.: FASB 1975), at ¶ 8. Those estimates should be based on past experiences, present

market conditions, and an analysis of the outstanding balances.

169. Due to the increasing defaults and disconnects that Universal Access was experiencing, it

was no longer possible to make reasonable estimates of the impairment of accounts receivable.

As shown in the graph below, during the Class Period, when the sixty-five customers listed

above defaulted or discontinued service, Universal Access's allowance for doubtful accounts as a

percentage of accounts receivables actually decreased to six percent of accounts receivable. In

addition, Universal Access was recording receivables from MFN and Aleron and then failing to

make a proper allowance for doubtful accounts.



170. MFN sent all of its suppliers a letter in the Third Quarter of 2001 announcing that, as part

of its restructuring, it would not be paying for its circuits. It then requested that the suppliers

extend its terms to allow time for restructuring. Universal Access complied and extended the

terms in direct violation of its stated credit policy, and then failed to recognize an appropriate

amount of bad debt expense and allowance for doubtful accounts for the MFN account.

171. Aleron was teetering on bankruptcy in the third and fourth quarter of 2001. It was

running out of cash and needed a way to finance its circuits. Universal Access agreed to do this

as part of the side agreement between Patrick Shutt and Paolo Guidi. Under that agreement,

Universal Access agreed to accept a transfer of Aleron's circuits and assume responsibility for

their costs. Aleron was then supposed to pay Universal Access if Aleron ever got additional

financing. This gave Universal Access the appearance of revenue growth while giving Aleron

free circuits until it could raise cash. The circuits were free because Universal Access made no

attempts to collect the amounts due and let then go thirty, sixty, ninety, and one hundred and

twenty days or more before finally announcing at the close of the Class Period that the amounts

due from Aleron were uncollectible.

Allowance for Doubtful Accounts as a Percentage of Accounts Receivable

45%

0% I I I I I I

I I

171. This graph reveals the extent of Universal Access's failure to properly recognize bad debt

expense and allowance for doubtful accounts. In the 10-K for the year ended December 31,



2001, Aleron and MFN accounted for thirty-seven percent (37%) of total accounts receivable.

Universal Access's allowance for doubtful accounts, however, equaled just thirteen percent of

total accounts receivable.

172. The graph also reveals that just before the commencement of the Diversification Plan in

February 2001, the allowance for doubtful accounts goes down to a mere six percent of total

accounts receivable. This time period corresponds to an acceleration in defaults and

cancellations discussed above in which more than sixty customers defaulted or cancelled their

contracts with Universal Access. But by reducing the allowance accounts, Universal Access was

able to avoid recognition of a substantial amount of bad debt expense going into the first quarter

of 2001. This substantially reduced the loss that Universal Access had to report in the first

quarter of 2001 and allowed Universal Access to put a positive spin on it First Quarter 2001

numbers in its April 24, 2001 press release. Even though Shutt and Brown were hiding an

increase in delinquent accounts, Brown announced in the April 24, 2001 press release, "The

company has established reserves that are expected to be sufficient to cover potential risks

associated with its customers."

173. Note that Brown's statement was not forward-looking. SFAS 5 requires that if a

company uses the allowance method, it must be possible to make a reasonable estimate of

current impairment. Thus, with this statement, Brown is saying that based on his assessment of

the current condition of accounts receivable, the eight percent (8%) allowance is reasonable.

That statement was knowingly false or made with severe recklessness. Brown was aware of the

increasing number of delinquent and cancelled accounts and he kept his own list of potential

losses in MRR that showed nearly half of the company's revenue was in jeopardy.

174. Finally, the last two points on the graph show reported allowances for doubtful accounts

after the close of the Class Period and after revelations concerning MFN, Aleron, and the other

fraudulent activity by the Defendants. Shortly after the filing of this lawsuit, Universal Access

reported first quarter 2002 results in which it increased the allowance account from thirteen



percent (13%) of accounts receivable to twenty-four percent (24%). And for the second quarter

of 2002, that figure jumped to forty-one percent (41%).

D. Violation of Basic Accounting Principles

175. GAAP also requires that entities be conservative in response to uncertainty in accounting

for transactions. As demonstrated above, Universal Access's accounting practices regarding the

Financial Statements at issue clearly violated GAAP in that they were anything but conservative.

176. In addition to the accounting improprieties discussed above, Universal Access presented

its Financial Statements in a manner which also violated at least the following provisions of

GAAP:

(a) The principle that financial reporting should provide information that is useful

to present and potential investors and creditors and other users in making

rational investment, credit, and similar decisions (SFAC No. 1, 134);

(b) The principle that financial reporting should provide information about the

economic resources of an enterprise, the claims to those resources, and the

effects of transactions, events and circumstances that change resources and

claims to those resources (SFAC No. 1, 140);

(c) The principle that financial reporting should provide information about how

management of an enterprise has discharged its stewardship responsibility to

owners (stockholders) for the use of enterprise resources entrusted to it. To

the extent that management offers securities of the enterprise to the public, it

voluntarily accepts wider responsibilities for accountability to prospective

investors and to the public in general (SFAC No. 1, 1 50);

(d) The principle that financial reporting should provide information about an

enterprise's financial performance during a period. Investors and creditors



often use information about the past to help in assessing the prospects of an

enterprise. Thus, although investment and credit decisions reflect investors'

expectations about future enterprise performance, those expectations are

commonly based at least partly on evaluations of past enterprise performance

(SFAC No. 1, ¶ 42);

(e) The principle that financial reporting should be reliable in that it represents

what it purports to represent. That information should be reliable as well as

relevant is a notion that is central to accounting (SFAC No. 2, IM 58-59);

(f) The principle of completeness, which means that nothing is left out of the

information that may be necessary to ensure that it validly represents

underlying events and conditions (SFAC No. 2, 179); and

(g) The principle that conservatism be used as a prudent reaction to uncertainty to

try to ensure that uncertainties and risks inherent in business situations are

adequately considered. The best way to avoid injury to investors is to try to

ensure that what is reported represents what it purports to represent (SFAC

No. 2,111195,97). 5

IX. SCIENTER

177. All of the material misrepresentations previously discussed herein were made by the

Defendants with scienter. Specifically, the facts surrounding the desperate financial condition of

the Company, the false and improper booking of revenue, the failure to identify the names of

There are many specific GAAP provisions pertaining to revenue recognition. See SAB No. 101. The SEC has stated, "[h]owever, in the absence of authoritative literature addressing a specific arrangement or a specific industry, the staff will consider the existing authoritative accounting standards as well as the broad revenue recognition criteria specified in FASB's conceptual framework that contains basic guidelines for revenue recognition." SAB No. 101.



counterparties to the Company's contracts, the failure to disclose the true at-risk nature of these

contracts, the true nature of CORE, the Aleron transaction, the capacity swaps with Williams

Communications, the huge amount of wealth the Individual Defendants stood to gain and lose

with the rise and fall of the Company's stock price, the violations of GAAP, and Shutt's and

Pommer's Diversification Plan, prior to and during the Class Period, provide strong evidence

that the aforementioned material misrepresentations were made as a part of a conscious decision

to deceive the investing public. In addition, these material misrepresentations were made

knowingly or in a manner, which, at the very least, constituted an extreme departure from the

standard of care of this industry and presented an immediate danger of misleading the investing

public which was known by the Defendants, thus constituting severe recklessness. Finally, the

Defendants had various motives to engage in their fraudulent schemes, as well as to access to

channels of communication by which they could disseminate this false information, which was

based, in part, on non-public proprietary information.

178. Individual Defendants had an opportunity to, and did in fact, inflate the price of Universal

Access's common stock through the dissemination of statements during the Class Period because

of their positions as control persons in the Company. Universal Access is a relatively small

company with only one real product. Thus, statements by the CEO, CFO, and other officers and

directors regarding the Company and its one product caused the Company's fortunes to rise and

fall in reaction to such statements. Defendants had a clear motive to inflate the stock price

personal financial wealth. This motive was exercised through the sale of stock and exercise of

options at a profit at opportune times on the heels of the statements alleged herein. Thus,

evidence of Defendants' motive and opportunity provides circumstantial evidence, which, when



taken as a whole with Lead Plaintiffs' allegations regarding conscious misbehavior, gives rise to

a strong inference of scienter.

179. As such, the Defendants' actions as alleged herein demonstrate conscious misbehavior or

severe recklessness because Defendants knew their actions were fraudulent. Further, by making

such statements as were made by Defendants prior to and during the Class Period, Defendants

knew they were publishing materially false information or omitting material facts or that they

were severely reckless in publishing such information. As to the statements made by the

Defendants as herein alleged, reasonably available data could not have uncovered the knowing or

severely reckless deception in Defendants' public statements. Finally, Defendants intentionally

or severely recklessly omitted material information in each and every statement alleged herein

necessary to provide truthful information to the public, and said omissions could not be realized

by reasonably available data.

A. CONSCIOUS MISBEHAVIOR AND SEVERE RECKLESSNESS

180. The underlying facts which established an intent by the Defendants to deceive the

investing public can be found in the series of materially false and misleading statements made by

the Defendants during the Class Period and by the enormous amount of personal wealth they

either did gain or stood to gain through inflation of the price of Universal Access's common

stock during the Class Period. This scheme to defraud was perpetrated through Defendants'

discrete acts of misrepresentation, all of which have been previously alleged. Severe

recklessness and/or knowledge of the falsity of these misrepresentations is shown by the

following:



1. Williams Communkalions

180. As set forth above, Defendants announced on December 4, 2000 that Universal Access

had entered into a reciprocal relationship with Williams Communications. Shutt, Brown,

Pommer and the other Individual Defendants disseminated the December 4, 2000 press release

regarding this deal and signed off on or approved the reporting of Financial Statements, which

included revenues reportedly derived from this deal. However, Defendants knew but

intentionally concealed from the public that this deal was merely a capacity swap. Defendants

knew, but intentionally concealed from the public, that this deal was created to allow Universal

Access to book at least $140,000.00 in monthly recurring revenue each month to help the

Company increase its reported MRR and make up for any revenue shortfalls. Defendants knew

this side deal resulted in the improper booking of revenue. Defendants knew that this side deal

had no legitimate business purpose and violated GAAP. Defendants consciously chose to

conceal the true nature of the Company's relationship with Williams Communications from its

investors. Today, Williams Communications is in bankruptcy and is the target of an SEC

investigation. Williams and its officers and directors also are named defendants in a securities

fraud lawsuit pending in federal court in Tulsa, Oklahoma. The SEC's investigation and the

pending civil litigation both are based upon Williams' fraudulent statements regarding capacity

swaps with the counterparties to numerous contracts like this one.

2. CORE

182. As set forth above, CORE was little more than a zero margin revenue plan designed to

inflate the Company's stock price to, in turn, inflate the Individual Defendants' personal wealth

through the sale of their stock under, among other things, the Diversification Plan, which was

secretly timed to coincide with the launch of CORE. Defendants announced the launch of CORE



one week after Shutt and Pommer's Diversification Plan went into effect. Defendants had to find

a way to inflate the Company's stock price as much as possible and, under the Diversification

Plan, they had to make sure that the stock price did not fall below a floor of $6.00 per share.

CORE was their solution.

183. As stated above, Pommer, Brown, Shutt and the other Defendants repeatedly made

statements and signed off on and/or approved Financial Statements, which falsely heralded the

success of CORE, the Company's MRR, and the Company's ability to become EBITDA positive

in the near future. These statements all caused the Company's stock price to increase and/or to

remain artificially inflated. In reality, however, Shutt, Pommer, Brown and the other Individual

Defendants knew that CORE was merely a program designed to inflate revenue through zero

margin deals. Defendants also knew that CORE was based upon deals with companies that were

teetering on the verge of bankruptcy (such as Aleron, Wam!Net, Teleglobe, MFN, and

WorldCom), and that CORE required Universal Access to assume liabilities for these

companies' circuits. This arrangement created an extreme risk that Universal Access would be

forced to pay these companies' circuit costs with no offsetting revenue. The Defendants

intentionally concealed the true nature of these risks from investors during the Class Period.

184. The Individual Defendants knew the Company's customer base was at risk. Pommer,

Brown and Shutt kept a secret list of CORE customers the Individual Defendants believed were

high-risk customers and/or on the brink of bankruptcy. The Individual Defendants knew that the

Companies on this list would likely cancel their service or not be able to make the required

payments under CORE and that the Company would likely be left on the hook for the liabilities

it had assumed for these customers under CORE. Defendants also concealed their true belief as



to the viability of CORE from the investing public. Instead, Defendants intentionally continued

to disseminate false statements regarding the success of CORE and the Company's MRR.

3. Aleron

185. As set forth above, the Aleron deal was a sham transaction. Shutt, Guidi, Brown,

Pommer and the Individual Defendants made and/or approved statements and Financial

Statements regarding that the Aleron. To the public, the statements made Universal Access look

like a Company with high MRR and a positive future, thereby inflating the price of Universal

Access's stock and the Individual Defendants' personal financial wealth.

186. Internally, however, the Individual Defendants knew these deals were a sham. Guidi was

CEO of Aleron. Guidi also was on the Board of Directors at Universal Access. Guidi was the

only Universal Access director paid in cash for his participation in the Company. GUidi knew

that Aleron was in trouble and nearing bankruptcy. Guidi also knew that Universal Access, a

Company in which he owned a least 200,000 options, was in dire financial condition. The other

Individual Defendants, through their inside knowledge regarding the true condition of Universal

Access and their relationship with Guidi knew that the Aleron deals were falsely reported. The

Individual Defendants knew that the Company had entered into a side deal to make Aleron's

payments under the contract contingent upon Aleron getting funding. However, they never

disclosed this secret to the public. The Individual Defendants also knew that Aleron would never

be able to make any payments under this contract. However, they never disclosed this secret to

investors. Defendants also took affirmative efforts to conceal Guidi's relationship between the

two companies at the time they announced this deal.

187. Further, Defendants valued the ATM equipment deal at $3,000,000.00. However,

Defendants knew this equipment was of no value to the Company. However, the Individual



Defendants never disclosed this secret to the public. After the Class Period, the Defendants

publicly acknowledged that it had no use for the ATM equipment and would provide no ATM

services. The Company also acknowledged that it had received no offers for the ATM

equipment and that its value was minimal. These were facts known to the Individual Defendants

during the Class Period but intentionally concealed from the public.

188. The Aleron contracts were signed by Rainone and Guidi. Further, under the terms of the

contracts, Universal Access was not allowed to make any public statements about the

transactions with Aleron without the express consent of Aleron. Thus, Guidi, as CEO of Aleron

and a signatory to the contract, authorized Universal Access's statements about the Aleron

transactions.

189. All of the above detailed facts clearly demonstrate that the Defendants acted with an

intent to deceive the investing public and with full knowledge of the nature of their actions,

because at the time these statements were disseminated, the Defendants knew of their falsity.

B. MOTIVE AND OPPORTUNITY

190. In addition to the conscious behavior and severely reckless conduct of Defendants, facts

exist, which present clear motives for engaging in the fraudulent conduct at issue. Further, the

facts clearly establish that Defendants had an opportunity to perpetrate the fraud of which the

Lead Plaintiffs now complain. Defendants motive and opportunity, when considered in the

aggregate with all other allegations contained herein, as is required by law, constitute

circumstantial evidence sufficient to create a strong inference that the Defendants acted with

scienter.



1. Motives

191. First, as previously alleged herein, Defendants were motivated to mislead the investing

public regarding Universal Access's true financial condition in order to avoid potential

bankruptcy and to continue operations.

192. Second, each of the Individual Defendants were motivated by the potential financial gain

presented by lucrative compensation packages and stock options, and the sale of their shares of

the Company's common stock. Shutt and Pommer had a motive to sell their stock at the highest

price possible, and to drive the stock price up past the floor price of $6.00, pursuant to their

Diversification Plans. Shutt and Pommer also had a motive to eliminate their personal debt owed

to the company under the favorable loans they had given themselves. Guidi was motivated to

commit fraud to benefit himself not only by increasing the value of his shares of Universal

Access's common stock, but also to keep his own company, Aleron, out of bankruptcy. Further,

each of the other Individual Defendants stood to gain enormous wealth through their sales of

their shares and the exercise of their options.

193. Defendants had an enormous amount of their personal wealth at stake in the Company.

Their fmancial stature—or their financial ruin—depended on the price of the Company's stock

price. All the Defendants stood to gain greatly by an increase in the Company's stock price.

And, all Defendants stood to lose greatly if the stock price fell.

194. At the time of the IPO, Shutt owned 5,369,000 shares of common stock. Shutt purchased

4,725,000 shares at a price of $0.000002 per share, 150,000 shares at a price of $0.00003 per

share, and 500,000 shares at a price of $1.51 per share. Shutt also had granted himself an option

to purchase 300,000 shares at a strike price of $0.01 per share and 500,000 shares at a strike

price of $1.51 per share. Moreover, Shutt granted himself a loan on favorable terms to purchase



500,000 shares of common stock. Shutt used this loan to purchase 500,000 shares at a price of

$1.51 per share on August 4, 1999. At the time of the IPO, Shutt owed the Company

$756,250.00 under this loan. Thus, Shutt was motivated to inflate the Company's stock price by

the huge amount of shares he held in the Company and by the loan he was obligated to pay back

to the Company.

195. Robert Pommer owned 5,085,000 shares of common stock at the time of the IPO.

Pommer owned 3,885,000 shares individually, 200,000 shares through his wife, Elizabeth, as

Trustee of the Elizabeth M. Pommer Declaration of Trust, and 1,000,000 shares through the

Pommer Family Limited Partnership. Pommer also granted himself an option to purchase

300,000 shares at a strike price of $0.01 per share and 500,000 shares at a strike price of $1.51

per share. Like Shutt, Pommer granted himself a loan on favorable terms to purchase 300,000

shares of common stock at an interest rate of 6 percent. Pommer used this loan to purchase

these shares at a price of $1.51 per share on August 4, 1999. Pommer also loaned himself an

additional $200,000 under the same terms. Thus, like Shutt, Pommer also was motivated to

inflate the Company's stock price by the huge amount of shares he held in the Company and by

the loans he was obligated to pay back to the Company.

196. Shutt and Pommer were prohibited from selling their shares in the Company under the

lock-up agreements. Thus, while their personal wealth grew by nearly $300,000,000.00 each

during the first week after the IPO, it fell by nearly that much in the next 11 months. By

February 8, 2001, the Company's stock price had dropped to $10.94 per share. Shutt and

Pommer independently sold approximately 300,000 shares during the month of February.

However, Shutt and Pommer knew that if they sold all or a substantial part of their shares at one

time, such would alarm investors and send the Company's stock price into a free fall.



197. So, on February 8, 2001, Shutt and Pommer issued a press release announcing that they

would initiate a systematic diversification program to sell a portion of their shares in the

Company pursuant to separate diversification plans under Rule 10b5-1 of the Securities

Exchange Act of 1934. Under their respective diversification plans, Shutt and Pommer each

would sell up to 5,000 shares per day for a period of 180 days up to a total of 555,000 shares

each. A floor price of $6.00 per share was set for shares to be sold under this plan.

198. Pommer stated that he and Shutt had not previously sold shares since the IPO because

they "were determined not to sell shares until we had completed four successive quarters of

strong growth, and we have met that commitment." Therefore, Shutt and Pommer had stood by

and watched as their paper wealth plummeted. Shutt and Pommer knew that the Company's

future was very dim. And, they knew that the Company's stock price would continue to drop.

They were looking for a way to unload as much stock as possible as fast as possible. Under the

Diversification Plan, Shutt and Pommer had to keep the Company's stock price above a $6.00

floor in order to sell their shares.

199. Shutt stated that it was time to sell because, "through the dedication and perseverance of

the entire Universal Access team, we have demonstrated the strength and success of our business

model as evidenced by our exceptional growth to date." More telling of the true reason for this

plan, and foreshadowing the motive behind the fraud that was yet to be revealed, Shutt

continued: "our Universal Access common stock represents a high percentage of our personal

assets.. . [t]he substantial majority of both our personal holdings remain tied to the long-term

success and growth of Universal Access." Thus, Shutt, Pommer and the other Individual

Defendants engaged in a systematic scheme of fraud designed to artificially inflate the price of



Universal Access's common stock so that they could sell their shares and exercise their options

at the highest price possible.

200. Pre-arranged programs such as this allow insiders to regularly dispose of their shares with

minimal disclosure to investors. Pominer's and Shutt's plan established a program whereby

they could sell 15% and 12% of their shares, respectively. Additionally, they each sold 300,000

shares at or about the same time as the announcement. Pommer and Shutt announced the

Diversification Plan when the Company's stock was trading in excess of $12.00 per share. A

month into the Diversification Program, however, no shares were being sold. Shutt stated in a

March 16, 2001 press release that he and Pommer "did not believe current market prices

accurately reflect the long-term value of Universal Access shares." This was a statement Shutt

and Pommer knew was false when made because they knew the horrific financial condition of

the Company and its customer base. The real reason behind this statement was that they could

not sell any shares under the Diversification Program at that time because the Company's stock

was trading below $5.00 per share and, under the Program, no shares could be sold until the

share price reached $6.00 per share or greater. Thus, Shutt and Pommer made the March 16,

2001 statement, just like the other statements, in an effort to drive the stock price up and keep it

above $6.00 per share.

201. During the Class Period, as a product of Defendants' fraud, Shutt unloaded shares in the

following amounts:



Shutt Class Period Stock Sales

No. of Date Shares Price Proceeds

2/2/2001 93,250 $ 12.940 $1,206,655.00

2/5/2001 40,500 $ 12.040 $ 487,620.00

2/6/2001 72,500 $ 12.690 $ 920,025.00

2/8/2001 22,500 $ 12.260 $ 275,850.00

2/8/2001 26,250 $ 12.340 $ 323,925.00

2/9/2001 22,500 $ 9.990 $ 224,775.00

2/1212001 22,500 $ 10.190 $ 229,275.00

2/20/2001 5,000 $ 9.970 $ 49,850.00

2/22/2001 5,000 $ 8.720 $ 43,600.00

2/22/2001 5,000 $ 9.610 $ 48,050.00

2/2312001 5,000 $ 8.083 $ 40,415.00

2/23/2001 5,000 $ 8.720 $ 43,600.00

2/26/2001 5,000 $ 8.720 $ 43,600.00

2/27/2001 5,000 $ 8.530 $ 42,650.00

2/28/2001 5,000 $ 8.350 $ 41,750.00

3/1/2001 5,000 $ 6.870 $ 34,350.00

3/2/2001 5,000 $ 6.810 $ 34,050.00

3/5/2001 5,000 $ 6.950 $ 34,750.00

3/6/2001 5,000 $ 7.440 $ 37,200.00

3/7/2001 5,000 $ 7.560 $ 37,800.00

3/8/2001 5,000 $ 7.360 $ 36,800.00

3/9/2001 5,000 $ 6.940 $ 34,700.00

3/12/2001 5,000 $ 6.110 $ 30,550.00

3/1312001 5,000 $ 6.000 $ 30,000.00

3/20/2001 5,000 $ 6.000 $ 30,000.00

3/2612001 5,000 $ 6.170 $ 30,850.00

3127/2001 5,000 $ 6.370 $ 31,850.00

4/18/2001 5,000 $ 6.000 $ 30,000.00

4/19/2001 5,000 $ 6.000 $ 30,000.00

4/20/2001 5,000 $ 6.650 $ 33,250.00

412312001 5,000 $ 6.600 $ 33,000.00

4/24/2001 5,000 $ 6.080 $ 30,400.00

6/29/2001 2,500 $ 6.000 $ 15,000.00 $4,596,190.00

202. Upon information and belief, Pommer sold approximately the same amount of shares for

the same amount of profit on the same days as Shutt.



203. Shutt and Pommer's sales during this period of time were at a substantial profit. These

sales were done at highly suspicious times. Shutt and Pommer had sold virtually no shares prior

to the Diversification Plan and the announcement of CORE. This was so due to the fact that the

lock-up periods precluded them from selling stock for most of the time preceding the Class

Period and, once the lock-up periods expired, the stock price was so low that they could not sell

their shares. Also, at the time the Diversification Plan was created, Shutt and Pommer could not

simply unload all of their shares at one time because they knew such selling would send the

Company's stock price to rock-bottom. So, they opted for the Diversification Plan. Under the

Diversification Plan, Defendants had to ensure that the stock price was over $6.00 per share, or

they could not sell their shares. This provided an enormous motive to commit fraud to inflate the

stock price.

204. Further, Defendants announced CORE immediately after they began the Diversification

Plan. These Defendants sold shares under the Diversification Plan after the February 14, 2001,

March 8, 2001, and April 24, 2001 statements issued under CORE. Each of these statements

drove the stock price above $6.00 and, thereby freed shares to be sold under the Diversification

Plan. Defendants would have been entitled to sell additional shares under the Diversification

Plan after the other fraudulent statements made during the Class Period had such statements

driven stock price above the $6.00 per share floor. While each of these other statements did in

fact artificially inflate the Company's share price, they did not raise the price over the $6.00 per

share floor, and thus these Defendants could not unload shares on the heels of these

announcements.



205. Guidi also held a significant number of options to purchase the Company's common

stock when the IPO was launched. Indeed, in August of 1999, Shutt and Pommer gave Guidi an

option to purchase 200,000 shares at a strike price of $1.38 per share.

206. Shutt and Pommer gave Robert Rainone an option to purchase 500,000 shares of the

Company's common stock at a strike price of $8.10 per share in February 2000.

207. Shutt and Pommer gave Robert Brown an option to purchase 130,000 shares of common

stock during 1999. In the year 2000, Shutt and Pommer gave Brown options to buy 170,000

shares at a strike price of $8.10 per share, 250,000 shares at a strike price of $15.13 per share,

and 350,000 shares at a strike price of $42.00 per share.

208. Thus, each Defendant had a clear and undeniable motive to commit fraud during the

Class Period.

2. Opportunüy

209. As evidenced by the numerous press releases described herein, industry meetings at

which time the Defendants interviewed with analysts and with industry publications, as well as

the Financial Statements published and filed with the SEC, the Defendants had ample channels

of communication by which to disseminate to the investing public the false information

regarding the Company's financial status. In addition, Defendants had access to non-public

information relating to the Company's true financial condition, and the true financial condition

of several of the Company's contractual counter-party's, such information being fraudulently

concealed and/or misrepresented to the public.

210. When considered individually, and certainly in totality, the factual circumstances

described herein establish that Defendants engaged in the conduct complained of herein with

scienter.



X. STATUTORY SAFE HARBOR

211. The statutory safe harbor providing for forward-looking statements under certain

circumstances does not apply to any of the false forward-looking statements pleaded in this

Complaint. None of the forward-looking statements pleaded herein were sufficiently identified

as a "forward-looking statement" when made. Nor did meaningful cautionary statements

identifying important factors that could cause actual results to differ materially from that in the

forward-looking statements accompany those statements.

212. To the extent that the statutory safe harbor does apply to any forward-looking statements

pleaded, the defendants are liable to those false forward-looking statements because at the time

each of those statements was made, Defendants actually knew the forward-looking statements

were false when made.

XI. APPLICABILITY OF THE PRESUMPTION OF RELIANCE FRAUD ON THE MARKET THEORY

213. At all relevant times, the Class Members were reasonable in assuming that the market for

Universal Access common stock was an efficient market for the following reasons, among

others:

(a) Universal Access stock met the requirements for listing, and was listed and

actively traded, on the NASDAQ National Market ("NASDAQ"), a highly efficient market;

(b) As a regulated issuer, Universal Access filed periodic reports with the SEC and

the NASD;

(c) Universal Access stock was followed by securities analysts employed by major

brokerage firms who distributed reports that were distributed to the sales force and certain

customers of their respective brokerage firms; and

(d) These analyst reports were publicly available and entered the public marketplace.



214. As a result, the market for Universal Access securities promptly digested current

information that was not fraudulently concealed and that publicly-available information was

reflected in Universal Access's stock price. Under these circumstances, all purchasers of

Universal Access stock during the Class Period suffered similar injury through their purchase of

artificially inflated prices. Therefore, Lead Plaintiffs and the Class are entitled to a presumption

of reliance under the fraud on the market theory.

XII. COUNT I VIOLATION OF SECTION 10(b) OF THE

SECURITIES EXCHANGE ACT AND RULE 10b-5THEREUNDER

215. Lead Plaintiffs repeat and reallege each every allegation above as if set forth in full

herein.

216. Throughout the Class Period, Defendants, singly and in concert, directly or indirectly,

engaged in a common plan, scheme and course of conduct described herein, pursuant to which

they knowingly or recklessly engaged in acts, transactions, practices and a course of business

which operated as a fraud upon plaintiff and the other members of the Class; made various false

statements of material facts and omitted to state material facts to make the statements made not

misleading to Plaintiff and the other members of the Class; and employed manipulative or

deceptive devices and contrivances in connection with the purchase and sale of Universal Access

stock.

217. The purpose and effect of Defendants' plan, scheme, and course of conduct was to

artificially inflate the price of Universal Stock and to artificially maintain the market price of

Universal Access securities.

218. Defendants acted with scienter throughout the Class Period, in that they either had actual

knowledge of the misrepresentations and omissions of material fact set forth herein, or acted



with reckless disregard for the truth in that they failed to ascertain and disclose the true facts,

even though such facts were available to them. Defendants' scienter is demonstrated by:

Failing to disclose the level of risk involved in CORE;

Failing to disclose the number of Universal Access customers that Brown, Shutt,

and the other Individual Defendants had identified as at-risk;

Failing to disclose the true extent of customer cancellations and defaults;

Failing to recognize an appropriate allowance for doubtful accounts;

Failing to disclose the extent of Universal Access's exposure if WorldCom, Level

3, GX, Aleron, Wam!Net, or MFN declared bankruptcy;

Recognizing pass-through money from CORE transfers as revenue;

Recognizing revenue from Aleron and similar deals as revenue without

reasonable assurance that any money would ever be collected and while actually

conspiring with Aleron's management to defraud Aleron's creditors by

transferring Aleron's assets in anticipation of its bankruptcy;

Misrepresenting the Company's success in collecting receivable when sixty-five

customers had defaulted or terminated their contracts;

Misrepresenting that Universal Access would achieve positive EBITDA and free

cash flow in the first quarter of 2002 when Brown and Shutt were subjectively

aware at the time they made such statements that many of the Universal Access's

largest customers (representing half of Universal Access's total annual revenue)

were at risk of default;

Covering up fraud by removing Paolo Guidi's biographical information from the

company's website;



Recognizing revenue from "capacity swaps" with Williams and other service

providers when such transactions had no real economic substance; and

• Violations of GAAP.

219. As a result of the foregoing, the market price of Universal Access securities was

artificially inflated during the Class Period. In ignorance of the falsity of the reports and

statements and the deceptive and manipulative devices and contrivances employed by the

Defendants, Lead Plaintiffs and the other members of the Class relied, to their damage, on the

reports and statements described above and/or the integrity of the market price of Universal

Access stock during the Class Period in purchasing Universal Access common stock at prices

which were artificially inflated as a result of Defendants' false and misleading statements.

220. Had Lead Plaintiffs and the other members of the Class known of the material adverse

information which defendants did not disclose, they would not have purchased Universal Access

common stock at the artificially inflated prices that they did.

221. Defendants' concealment of this material information served only to harm Lead Plaintiffs

and the other members of the Class who purchased Universal Access common stock in ignorance

of the financial risk to them as a result of such nondisclosures.

222. As a result of the wrongful conduct alleged herein, Lead Plaintiffs and other members of

the Class have suffered damages in an amount to be established at trial.

223. By reason of the foregoing, Defendants have violated Section 10(b) of the Securities

Exchange Act and Rule lOb-5 promulgated thereunder and are liable to Lead Plaintiffs and the

other members of the Class for the substantial damages which they suffered in connection with

their purchase of Universal Access common stock during the Class Period.



XUL COUNT II VIOLATIONS OF SECTION 20(a)

OF THE SECURITIES EXCHANGE ACT

224. Lead Plaintiffs repeat and reallege each and every allegation above as if set forth in full

herein.

225. During the Class Period, each of the Individual Defendants, by virtue of his office or

offices at, and/or directorship of Universal Access and his specific acts, was a controlling person

of Universal Access within the meaning of Section 20(a) of the Securities Exchange Act.

226. Each of the Individual Defendants' positions made them privy to, and provided him with

actual knowledge of, the material fact, which Universal Access concealed from Lead Plaintiffs

and the other members of the Class during the Class Period.

227. Each of the Individual Defendants had the power and influence, and exercise the same, to

cause Universal Access to engage in the unlawful conduct and practices complained of herein by

causing Universal Access to disseminate the false and misleading information refined to above.

228. By virtue of the foregoing, the Individual Defendants have violated Section 20(a) of the

Securities Exchange Act.

229. By virtue of the conduct alleged above, Defendants are liable to Lead Plaintiffs and the

other members of the Class for the substantial damages which they suffered in connection with

their purchase of Universal Access Common stock during the Class Period.

XIV. COUNT THREE—VIOLATIONS OF SECTION 20A(a) OF THE EXCHANGE ACT

230. Lead Plaintiffs repeat and reallege each and every allegation contained above.

231. This Count is brought by Lead Plaintiffs on behalf of the Insider Trading Subclass

pursuant to Section 20A(a) of the Exchange Act, 15 U.S.C. § 78tA(a), against Defendants.

LEAD PLAINTIFFS' FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINT SO.


232. During the Class Period, Defendants Shutt and Pommer sold nearly 1,000,000 shares,

collectively, of Universal Access common stock on the open market for total proceeds of nearly

$10,000,000.00, while in the possession of the material, non-public information as set forth

above. Defendants violated Section 10(b) of the Exchange Act and SEC Rule lOb-5

promulgated thereunder as alleged hereinabove. As a result of these violations, the sales of

Universal Access common stock by Defendants violated Section 20A(a) of the Exchange Act.

233. During the Class Period, Defendants, while in the possession of material, non-public

information, sold Universal Access common stock while Lead Plaintiffs and other members of

the Insider Trading Subclass, contemporaneously with the sale of Universal Access common

stock by Defendants, purchased Universal Access common stock of the same class sold by

Defendants.

234. This action was first commenced within five years of the 2001 open-market sales of

Universal Access common stock by Defendants.

235. As a result of the foregoing, Lead Plaintiffs and other members of the Insider Trading

Subclass have suffered substantial damages.

XIV. PRAYER FOR RELIEF

236. WHEREFORE, Lead Plaintiffs, on their own behalf and on behalf of the other members

of the Class, demand judgment against the Defendants as follows:

A. Determining that this action is properly maintainable as a class action pursuant to

Rule 23 of the Federal Rules of Civil Procedure;

B. Certifying Lead Plaintiffs as the Class Representative and their Counsel as Class

Counsel;



C. Declaring and determining that Defendants violated the federal securities laws by

reason of their conduct as alleged herein;

D. Awarding monetary damages against all Defendants, jointly and severally, in

favor of Lead Plaintiffs and the other members of the Class for all losses and

damages suffered as a result of the acts and transactions complained of herein,

including punitive damages where appropriate, together with prejudgment interest

from the date of the wrongs to the date of the judgment herein;

E. Awarding Lead Plaintiffs the costs, expenses, and disbursements incurred in this

action, including reasonable attorneys' and experts' fees; and

F. Awarding Lead Plaintiffs and the other members of the Class such other and

further relief as the Court may deem just and proper in light of all the

circumstances of this case.



t ci

O.Welch Texas Bar No. 21120500 115 West Shepard Ave. Lufldn, Texas 75901 936-639-3311 936-639-3049 (fax) Email: [email protected] Plaintiffs' Liaison Counsel

Nix, PATTERSON& ROACH, LLP. Bradley E. Beckworth Texas Bar No. 24001710 205 Linda Drive Daingerfield, Texas 75638 (903) 645-7333 (ext. 221) (903) 645-4415 (fax) Email: bbeckworth(nixlawfirm.cOm

Plaintiffs' Co-Lead Counsel

Law Offices of Bernard M. Gross, P.C. Deborah R. Gross Second Floor, 1515 Locust Street Philadephia, PA 19102 (215) 561-3600 (215) 561-3000 (fax) Email: debbie(bernardmgrOSS.COm

Plaintiffs' Co-Lead Counsel

SHORE * DEARY L.L.P.

MICHAEL 2515 McKinney Avenue, Suite 1565 Dallas, Texas 75201 (214) 292-2600 (214) 739-3879 (fax) Email: kenneth.shore(2ishore-dearY.COm

Of Counsel



CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing was served in compliance with Rule 5 of the Federal Rules of Civil Procedure on February 10, 2003, on those individuals listed in the attached service list.



SERVICE LIST (See Note Below)

Counsel for Plaintiff in Frandsen v. Universal Access (E.D., Tex.)

Nix, PA TTERSON & ROACH, L.L.P. Bradley E. Beckworth 205 Linda Drive Daingerfield, Texas 75638

SHORE-DEARY, L.L.P.

Michael W. Shore Kenneth E. Shore 2515 McKinney Avenue, Suite 1565 Dallas, Texas 75201

PA TTON, HALTOM, ROBERTS, MCWILLIAMS & GREER, L.L.P. Richard A. Adams George McWilliams 2900 St. Michael Drive Century Bank Plaza, Suite 400 Post Office Box 6128 Texarkana, Texas 75505-6128

FAX: 936-559-9606

FAX: 214-739-3879

FAX: 903-334-7007

LAW OFFICES OF BERNARD M. GROSS, P. C.

Deborah R. Gross FAX: 215-561-3000

1515 Locust Street Suite 200 Philadelphia, PA 19102

Counsel for Defendants Universal Access, Inc., Universal Access Global Holdings, Inc., Patrick C. Shutt, Robert M. Brown, Robert E. Rainone, Jr., George A. King, Robert J. Ponimer and Scott D. Fehlan.

LAW OFFICE OF DA VII) GUILLORY David J. Guillory FAX: 936-559-9606

510 Ochiltree Street Nacogdoches, Texas 75961

SULLWAN & CROMWELL Emily Alexander FAX: 310-712-8800

1870 Embarcadero Road Palo Alto, CA 94303


SCHOPF & WEISS Paula E.Litt FAX: 312-701-9335

312 West Randolph Street Suite 300 Chicago, IL 60606-1721

NOTE: Transmittal letter to clerk and first and last pages of complaint faxed on 02-10- 03 to all on service list. Email of full text of complaint sent on 02-10-03 to Mr. David J. Gufflory, Esq. Full text of complaint sent by FEDX (for overnight delivery) to all on service list

on 02-10-03.

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