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Tech Law Journal |
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| News, records, and analysis of legislation, litigation, and regulation affecting the computer, internet, communications and information technology sectors | |
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Editor's Notes: UNITED STATES DISTRICT COURT
Plaintiff Ronald Hart, on behalf of himself and all others similarly situated, for his Class Action Complaint ("Complaint"), alleges the following, based upon the investigation conducted by his attorneys, except for those allegations which pertain to him, which allegations are based upon personal knowledge. NATURE OF THE ACTION 1. This is a class action on behalf of all persons who sold common stock or call options in Emulex Corporation ("Emulex") or purchased put options in Emulex on August 25, 2000 between the opening of the market at approximately 9:30 a.m. EST (when the misleading information described below was first disseminated) and 1:29 p.m. EST (before trading of Emulex securities resumed following a halt of trading) (the "Class Period"), exclusive of Defendants, all partners, officers and/or directors of any of Defendants or their subsidiaries, any entity in which any Defendant has a controlling interest, and the legal representatives, heirs, successors or assigns of any such excluded person (the "Class"). During the Class Period, the price of Emulex common stock dropped as much as $70 per share as a result of the misrepresentations by Defendants, resulting in losses of millions of dollars by members of the Class. JURISDICTION AND VENUE 2. This Court has jurisdiction over this action pursuant to Section 27 of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa (the "Exchange Act") and 28 U.S.C. §§ 1331 and 1337. The claims asserted in the Complaint arise under and pursuant to Sections 10(b) and 20 of the Exchange Act (15 U.S.C. §§78j(b), 78t) and Rule 10b-5 (17 C.F.R. §240.10b-5) promulgated by the SEC. 3. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28 U.S.C. § 1391(b). A substantial part of the events or omissions giving rise to the claims complained of herein occurred in this District. In addition, Defendants do business in this District and the principal offices of Defendant Bloomberg is located within this District. 4. In connection with the wrongs alleged herein, Defendants used the instrumentalities of interstate commerce, including interstate wire and telephone facilities, and the facilities of the national securities markets. THE PARTIES 5. Plaintiff Ronald Hart ("Plaintiff") sold securities of Emulex during the Class Period, as set forth in a Certification of Named Plaintiff filed herewith. 6. Defendant Internet Wire, Inc. ("Internet Wire") is a corporation that disseminates financial news and information to the public. The offices of Internet Wire are located at 5757 West Century Boulevard, Suite 391, Los Angeles, California 90045. 7. Defendant Bloomberg L.P. ("Bloomberg") is a limited partnership which disseminates financial news and information to the public. The offices of Bloomberg are located at 499 Park Avenue, New York, New York 10022. FRAUD ON THE MARKET AND THE PRESUMPTION OF RELIANCE 8. Emulex is a publicly-held company, and its shares were, and are, registered with the SEC pursuant to the Exchange Act, traded on the NASDAQ National Market, and governed by the provisions of the federal securities laws. 9. At all relevant times, the market for Emulex securities was an efficient market for the following reasons, among others: a. Emulex securities met the requirements for listing, and were listed and actively traded on the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market System, a highly efficient and automated market; b. As a regulated issuer, Emulex filed periodic public reports with the SEC; and c. Information about Emulex was regularly communicated to public investors via established market communication mechanisms, including through regular disseminations of press releases on and to the major newswire services. 10. The market for Emulex securities digested current information regarding Emulex from the publicly available sources described above and reflected such information in Emulex’s share price. Under these circumstances, all sellers of Emulex’s securities during the Class Period suffered similar injury through their sale of shares at artificially deflated prices and a presumption of reliance applies. CLASS ACTION ALLEGATIONS 11. Plaintiffs bring this action as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure, individually and on behalf of the Class. 12. The members of the Class are so numerous that joinder of all members of the Class is impractical. While the exact number of the Class Members is unknown to the Plaintiffs at this time and can only be ascertained through appropriate discovery, Plaintiffs reasonably believe that there are hundreds, if not thousands, of members of the Class located throughout the United States. As of May 4, 2000, approximately 36,112,075 Emulex shares were issued and outstanding. 13. Plaintiff’s claims are typical of the claims of the other members of the Class because the damages suffered by Plaintiff and all Class Members arise from and were caused by the same misrepresentations made by or chargeable to Defendants as alleged herein. Plaintiffs do not have interests antagonistic to, or in conflict with, the Class. 14. Common questions of law and fact exist as to all members of the Class and predominate over any questions affecting solely individual members of the Class. Among the questions of law and fact common to the Class are: a. whether Defendants acted recklessly; b. whether the federal securities laws were violated by Defendants' acts as alleged herein; c. whether the market price of Emulex’s securities was artificially deflated during the Class Period due to the recklessness and/or omissions complained of herein; and d. whether the members of the Class have sustained damages, and, if so, the proper measure of such damages. 15. Plaintiff will fairly and adequately protect the interests of the other members of the Class, and Plaintiff has retained counsel competent and experienced in class and securities litigation to further ensure such protection and intends to prosecute this action vigorously. 16. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. The Class is so numerous and geographically dispersed that it would be impracticable for each member of the Class to bring a separate action or to be joined in an individual action. The individual damages of any member of the Class may be relatively small when measured against the potential costs of bringing this action, and thus make the expense and burden of this litigation unjustifiable for individual actions. In this class action, the Court can determine the rights of all members of the Class with judicial economy. 17. There will be no difficulty in the management of this litigation which would preclude its maintenance as a class action. The names and addresses of the record owners of Emulex’s securities who sold their holdings during the Class Period are available from the Company's transfer agent. Notice can be provided to such record owners and all Class Members by a combination of published notice and first-class mail, using techniques and a form of notice similar to those customarily used in class actions arising under the federal securities laws. SUBSTANTIVE ALLEGATIONS 18. At or about 9:30 a.m. EST on Friday, August 25, 2000, at the opening of the securities markets, Internet Wire disseminated a "press release" which purported to originate from Emulex. The press release stated, in pertinent part, that Emulex’s net income for the fourth quarter of fiscal 2000 (ended June 28, 2000) would be revised from the previously reported gain of $0.25 per diluted share to a loss of $0.15 per diluted share and that Emulex’s net earnings for fiscal years 1998 and 1999 would be revised. In addition, although not addressed in the text of the "press release," the headline/title of the press release also stated that the Securities and Exchange Commission was conducting an investigation into the Company’s accounting practices, and that Emulex’s Chief Executive Officer had resigned. 19. The "press release" was not authorized or issued by Emulex, and the contents of the "press release" were false. 20. At approximately 10:13 a.m. EST on Friday, August 25, 2000, Bloomberg (through "Bloomberg News") falsely reported to the investing public the alleged resignation of Emulex’s CEO and the alleged SEC accounting investigation. At approximately 10:14 a.m. EST on Friday, August 25, 2000, Bloomberg (through "Bloomberg News") falsely reported to the investing public the alleged fourth quarter restatement of results. Bloomberg did not contact Emulex to verify the authenticity of the supposed "press release" or the accuracy of the supposed "news" which Bloomberg reported. An article in the Wall Street Journal on August 28, 2000, reported that Matthew Winkler, editor-in-chief of Bloomberg News, stated that:
21. There is a strong inference that Defendants were reckless in their dissemination of the false representations described above given the following facts: a. Emulex had not used Internet Wire for its previous press releases, but had instead used Business Wire, and Emulex’ press releases issued by Business Wire had been published repeatedly by Bloomberg. Given the significance of the substance of the "press release" and the likely devastating effect upon the price of Emulex securities, the purported use of Internet Wire to carry the "press release" constituted a "red flag" concerning the authenticity of the "press release" and the truthfulness of the information included therein. b. Defendants took no steps to verify the authenticity or accuracy of the "press release" with anyone from Emulex, thereby violating Defendants’ own internal policies. c. The "press release" listed as the "contact person" the name and telephone number of an Emulex employee responsible for public relations, but the "press release" was provided to Internet Wire by someone who was not an employee of Emulex and who claimed to be a member of a public relations firm. d. Suspiciously, the "press release" had a headline/title which referred to the purported SEC investigation and the purported resignation of Emulex’s Chief Executive Officer, but the text of the "press release" did not mention either of these purported events. e. The "press release" was disseminated by Internet Wire at 9:30 a.m., E.D.T., precisely when the market opened, rather than after the market closed, or sufficiently before the market opened, or after obtaining a halt of trading, as would be customary with such devastating information. In fact, the "press release" was submitted to Internet Wire during the afternoon of August 24, 2000. f. The "press release" stated: "A press release with more detail will be submitted today at 5:00 p.m." 22. At or about 10:30 a.m., NASDAQ issued a halt in all trading in Emulex securities. Trading resumed at approximately 1:30 p.m., following disclosure that the "press release" was a hoax and the information in the "press release" was false. 23. The price of Emulex stock dropped precipitously due to the false statements included in the "press release" and in Bloomberg’s representations. On Thursday, August 24, 2000, the price of Emulex stock closed at $113.06 per share. On August 25, 2000, Emulex stock began trading at $110.69 per share, was selling at approximately $106 per share before Bloomberg made its misrepresentations and thereafter plummeted, eventually reaching as low as $43 per share before trading was halted at 10:30 a.m. Reports of trading show some shares sold at prices below $60 per share at times during which trading was halted, which are included in the Class. Trading resumed at 1:30 p.m. with Emulex trading at $120 per share, and the price traded as high as $130 per share before closing on August 25, 2000 at $105.75 per share. 24. The drop in price of Emulex stock during the Class Period and the resulting loss to Plaintiff and other members of the Class were the result of the misrepresentations by Defendants. 25. Plaintiff and other members of the Class were unaware of the falsity of the information disseminated by Defendants. 26. In connection with the purchase or sale of Emulex securities, each of the Defendants knowingly or recklessly used and employed devices, schemes or artifices to defraud, made untrue statements of material fact or omitted to state facts necessary to make the statements made, in the light of the circumstances under which they were made, not misleading, or engaged in acts, practices or a course of business which operated as a fraud or deceit upon the Plaintiff and other members of the Class, all as further set forth herein, in violation of Section 10 (b) of the Securities Exchange Act of 1934 (15 U.S.C. §78j(b)) and Rule 10b-5 promulgated thereunder by the SEC (17 C.F.R. §240.10b-5). PRAYER FOR RELIEF WHEREFORE, Plaintiff herein demand judgment: A. Declaring this action to be a proper class action maintainable pursuant to Rule 23 of the Federal Rules Of Civil Procedure and declaring Plaintiff to be a proper Class representative; B. Awarding damages against each Defendant, jointly and severally, and in favor of Plaintiff and all other members of the Class, in an amount determined to have been sustained by them, awarding rescission and/or money damages as appropriate, plus pre-judgment interest; C. Awarding Plaintiff and the Class the costs and other disbursements of this suit, including, without limitation, reasonable fees for attorneys, accountants and experts; and D. Granting Plaintiff and the Class such other and further relief as the Court may deem just and proper. JURY DEMAND Plaintiff hereby demands a trial by jury. DATED: August 31, 2000.
Of Counsel: Andrew M. Schatz |
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