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a.

Under this theory, plaintiff says that the Whitney Defendants violated the

securities laws in handling chargebacks. A chargeback occurs when a credit card

customer cancels and order made under his or her credit card number and the

merchant bank charges back the merchant account for the canceled amount. The

relevant allegations in the CAC appear in ¶¶ 43-57 which detail the Company

experiencing an increase the chargebacks and what the Company proposed to do

about it.

b.

The Whitney Defendants argue that plaintiff’s attempt to paint a picture of a credit

card chargeback crisis is fatally flawed because chargeback percentages are imposed

on the Company by a third-party (each individual credit card processing company)

without Company involvement, and there is no allegation that the Company inaccurately

reported the chargeback rates in its public filings. In short, the Whitney Defendants say

plaintiff has not established an inference of scienter.

At the Court’s request, plaintiff submitted a chart identifying the alleged

misleading statements and omissions for each of its theories, and the allegations of

materiality and scienter. Plaintiff’s supplemental chart cites what it says are misleading

statements or omissions to support his theory of fraud based on the chargebacks: (1) a

10-Q for the Quarter Ended June 30, 2005 (outside the Purported Class Period), in

which the Company announced that credit card processing reserves had been raised

from 1% to 5%; and (2) a third-party website (www.knobias.com) that purports to quote

Defendant Maturo on that issue.

25

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