January 30, 2002 -- A class action has been filed in the United States District Court for the District of Colorado on behalf of purchasers of Rhythms NetConnections, Inc. (OTC Bulletin Board: RTHMQ) publicly traded securities during the period between January 6, 2000 and April 2, 2001, inclusive (the "Class Period").

The complaint charges Rhythms and certain of its officers and directors with issuing a series of material misrepresentations to the market. Throughout the Class Period, Rhythms portrayed itself as a fast-growing and expanding provider of DSL services and repeatedly represented that it could continue to expand its broadband network throughout the United States and reassured investors that it was financially able to continue this expansion. As alleged in the Complaint, defendants' statements issued throughout the Class Period were materially false and misleading when made as they failed to disclose the following adverse facts which were then known to defendants or recklessly disregarded by them: (i) that Rhythms lacked the financial resources necessary to execute its business plan of a full national network expansion; (ii) that the Company's efforts to scale back its expansion plans were not meeting with success as the Company was unable to generate the necessary financing; (iii) that Rhythms was not well-funded or well-positioned to continue its growth, as the Company's expenses, including its ongoing debt payment obligations, were far outpacing its revenues and rapidly depleting the Company's cash reserves; (iv) that the Company did not have adequate cash reserves and was not sufficiently "stable" and "financially strong" that it would be able to fund Rhythm's operational needs into the first quarter of 2002, as defendants repeatedly promised investors -- defendants were not even able to keep Rhythms running through 2001, as it had earlier guaranteed, and (v) that without the influx of additional capital, Rhythms would be forced to seek bankruptcy protection, which would render Rhythms common stock worthless. While in possession of the true facts about Rhythms and its business, the Individual Defendants and other Rhythms insiders collectively sold 600,000 shares of Rhythms common stock for gross proceeds in excess of $16 million -- of which over $12.6 million alone was received by defendant Catherine Hapka -- and the Company raised hundreds of millions of dollars in preferred stock sales and debt issuances.

Plaintiff is represented by The Law Offices of Marc S. Henzel.

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