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A shareholder’s suit against BellSouth Corp. claims that when the company’s stock fell 18 percent last month, BellSouth executives did not feel those losses. That is because company insiders had sold thousands of shares prior to a public announcement that BellSouth’s earnings had dropped 67 percent during the second quarter of 2002, according to the suit, filed in U.S. District Court in Atlanta. Collins v. BellSouth, No. 1:02-cv-2142 (N.D. Ga. Aug. 1, 2002). The suit alleges that between Jan. 22, 2001, and July 19, 2002, Atlanta-based BellSouth inflated its stock price by providing shareholders with misleading information that provided a rosier view of the company’s finances than was warranted. During the same period, the suit continues, company insiders sold BellSouth stock worth millions at prices they knew were artificially high. Plaintiff Virginia Collins, a resident of Nassau County, N.Y., bought 70 shares of BellSouth stock at $32.36 a share in June, according to the complaint. She is represented by Martin D. Chitwood of Atlanta’s Chitwood & Harley, who is seeking class status on behalf of thousands of BellSouth shareholders who owned stock in the company between Jan. 22, 2001, and July 19, 2002. Chitwood & Harley is co-counsel with New York firms Fruchter & Twersky and Milberg Weiss Bershad Hynes & Lerach. Jeffrey C. Battcher, BellSouth’s director of corporate communications, said the company denies the allegations in the complaint, “and we plan to vigorously defend against the lawsuit. These claims are simply without merit.” “We are proud of our record of compliance with SEC [Securities and Exchange Commission] rules,” Battcher continued. “We have been open with our disclosures to investors.” On Monday, BellSouth Chairman and CEO Duane F. Ackerman and Chief Financial Officer Ronald M. Dykes filed with the SEC sworn statements certifying that they stand behind the 2002 filings the company gave the commission, according to a company news release. The sworn statements cover BellSouth’s 2001 annual financial information reported on Form 10-K, financial reports for the first two quarters of 2002 on Form 10-Q, and the company’s 2002 proxy statement. Reform legislation passed by Congress last month requires that top corporate executives personally certify as accurate their companies’ financial statements. Battcher said BellSouth has not selected outside defense counsel yet. According to the suit, three top executives who are named as defendants in the suit — Ackerman, Dykes and Principal Accounting Officer W. Patrick Shannon — “controlled the contents of quarterly and annual reports, press releases and presentations to securities analysts.” Dykes, the chief executive officer, according to the suit, sold 126,468 shares at nearly $40 a share, for nearly $5 million. The complaint does not allege that either Ackerman or Shannon engaged in suspect stock sales, but refers to unidentified “insiders.” But Battcher said Dykes sold his BellSouth stock in accordance with SEC regulations eight months before the company reported the earnings drop. BellSouth boosted its reported earnings through uncollectible accounts receivable that the company had not identified as uncollectible, the suit claims. BellSouth had counted about $163 million as income from services provided for “phantom customers” who had never been billed, according to the suit. Those receivables were “hypothetical receivables,” the suit alleged, “that might or might not be invoiced in the future; that might or might not be collectible if invoiced.”

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