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1;1 rt 1juDGE scHE1vtuL111
JS 44C/SDNY CIVIL COVER SHEETREV. 1/2008
The JS-44 civil cover sheet and the information contained herein neithe c upple nt th ing and servic0 1.pleadings or other papers as required by law, except as provided by local f This for p ved by the Ju4 6Conference of the United Slates in September 1974, is required for use e of Court for the purpose - of initiatithe civil docket sheet.
PLAINTIFFS DEFENDANTSMIKE ZAFTROVSKI and PAVI BINNINGDAVID LUCESCU, Individually and On Behalf of Al! Others
Similarly Situated, ATTORNEYS (FIRM NAME, ADDRESS, AND TELEPHONE NUMBER) ATTORNEYS (IF KNOWN)
Coughlin Stoia Geller Rudman & Robbins, 58 So. Service Road, Suite 200, mv 1 9 7009Melville, NY 11747 (631) 367-7100
CAUSE OF ACTION (CITE THE U.S, CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE A BRIEF STATEMENT OF CAUSE)=C",(DO NOT CITE JURISDICTIONAL STATUTES UNLESS DIVERSITY) •
(i) 07) 77•I.. ,.. ., .„I ._Sections 10(b) and 20(a) of the Exchange Act [15 U.S.C. §§78j(b) and 78t(a)] —
---',1.
Has this or a similar case been previously filed in SDNY at any time? No? Igi Yes? El Judge Previously Assigned „,...._ ......
--0 ,,,"If yes, was this case V0l0 Invol, 0 Dismissed, No 0 Yes CI If yes, give date & Ca 1)1Q__. ._,_ i____
C) i f).(PLACE AN [x] IN ONE BOX ONLY) NATURE OF SUIT (7)
.. r3(.._ ,...i7.74) 1.--
TORTS ACTIONS UNDER STATUTES --1
CONTRACT PERSONAL INJURY PERSONAL INJURY FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTES
[ 1110 INSURANCE 1 1 310 AIRPLANE [ ] 362 PERSONAL INJURY - [ 1 610 AGRICULTURE I 1422 APPEAL I 1 400 STATE1 1 120 MARINE 1 1 315 AIRPLANE PRODUCT MED MALPRACTICE 1 ] 620 OTHER FOOD & 28 USC 158 REAPPORTIONMENT[ 1 130 MILLER ACT LIABILITY [ 1 365 PERSONAL INJURY DRUG [ ] 423 WITHDRAWAL I 1 410 ANTITRUST[ 1 140 NEGOTIABLE I 1 320 ASSAULT, LIBEL & PRODUCT LIABILITY [ ] 625 DRUG RELATED 28 USC 157 I 1 430 BANKS & BANKING
INSTRUMENT SLANDER [ 1 368 ASBESTOS PERSONAL SEIZURE OF I 1 450 COMMERCE[ [ 150 RECOVERY OF [ 1 330 FEDERAL INJURY PRODUCT PROPERTY [ ] 460 DEPORTATION
OVERPAYMENT & EMPLOYERS' LIABILITY 21 USC 881 PROPERTY RIGHTS [ 1470 RACKETEER INFLU-ENFORCEMENT LIABILITY I 1 630 LIQUOR LAWS ENCED & CORRUPTOF JUDGMENT [ 1 340 MARINE PERSONAL PROPERTY I I 640 RR & TRUCK [ 1 820 COPYRIGHTS ORGANIZATION ACT
[ 1 151 MEDICARE ACT [ ] 345 MARINE PRODUCT I 1 850 AIRLINE REGS 1 1 830 PATENT (RICO)[ ] 152 RECOVERY OF LIABILITY [ 1 370 OTHER FRAUD I 1 660 OCCUPATIONAL [ 1 840 TRADEMARK ,;."CONSUMER CREDIT
DEFAULTED 1 1 350 MOTOR VEHICLE [ ] 371 TRUTH IN LENDING SAFETY/HEALTH [ 1 490 CABLE/SATELLITE TVSTUDENT LOANS [ 1 355 MOTOR VEHICLE [ ] 380 OTHER PERSONAL [ ] 690 OTHER [ 1 810 SE, CTIVE SERVICE(EXCL VETERANS) PRODUCT LIABILITY PROPERTY DAMAGE SOCIAL SECURITY 1(1850 SE' RITIES/
I 1 153 RECOVERY OF [ 1 360 OTHER PERSONAL [ 1 385 PROPERTY DAMAGE CO MODITIES/OVERPAYMENT INJURY PRODUCT LIABILITY LABOR [ 1 861 HIA (1395ff) E FLANGEOF VETERAN'S 1 1 862 BLACK LUNG (• 0 3) [ ] 875 C •STOMERBENEFITS 1 I 710 FAIR LABOR 1 1 863 DIWC/DIWW (40 •)) - I-IALLENGE
1 1 160 STOCKHOLDERS STANDARDS ACT 1 1 864 $SID TITLE XVI 12 USC 3410SUITS 1 1 720 LABORJMGMT 1 1 865 RSI (405(g)) [ 1 890 OTHER STATUTORY
[ ] 190 OTHER RELATIONS ACTIONSCONTRACT 1 1 730 LABOR/MGMT [ 1 891 AGRICULTURAL ACTS
[ 1 195 CONTRACT REPORTING & FEDERAL TAX SUITS ( 1 892 ECONOMICPRODUCT ACTIONS UNDER STATUTES DISCLOSURE ACT STABILIZATION ACTLIABILITY [ 1 740 RAILWAY LABOR ACT [ 1 870 TAXES (U.S. Plainfff or 1 1 893 ENVIRONMENTAL
[ 1 196 FRANCHISE CIVIL RIGHTS PRISONER PETITIONS [ 1 790 OTHER LABOR Defendant) MATTERSLITIGATION 11 871 IRS-THIRD PARTY I 1 894 ENERGY
[ 1 441 VOTING [ 1 510 MOTIONS TO [ ] 791 EMPL RET INC 26 USC 7609 ALLOCATION ACT[ 1 442 EMPLOYMENT VACATE SENTENCE SECURITY ACT I 1 895 FREEDOM OF
REAL PROPERTY [ 1443 HOUSING/ 20 USC 2255 INFORMATION ACTACCOMMODATIONS [ 1 530 HABEAS CORPUS IMMIGRATION [ 1900 APPEAL OF FEE
I 1 210 LAND I 1444 WELFARE [ 1 535 DEATH PENALTY DETERMINATIONCONDEMNATION II 445 AMERICANS WITH [ 1 540 MANDAMUS & OTHER 1 1 462 NATURALIZATION UNDER EQUAL
I 1 220 FORECLOSURE DISABILITIES - [ 1 550 CIVIL RIGHTS APPLICATION ACCESS TO JUSTICE[ 1 230 RENT LEASE & EMPLOYMENT [ 1 555 PRISON CONDITION [ 1 463 HABEAS CORPUS- [ 1 950 CONSTITUTIONALITY
EJECTMENT 1 1 446 AMERICANS WITH ALIEN DETAINEE OF STATE STATUTES[ 1 240 TORTS TO LAND DISABILITIES -OTHER 1 1 46 5 OTHER IMMIGRATION[ 1 245 TORT PRODUCT [ 1 440 OTHER CIVIL RIGHTS ACTIONS
LIABILITY[ 1290 ALL OTHER
REAL PROPERTY
i_pc?i. /-icir Check if demanded in complaint:
,
CHECK IF THIS IS A CLASS ACTION DO YOU CLAIM THIS CASE 15 RELATED TO A CIVIL CASE OW PENDING IN SONY.?CI UNDER F.R.C.P, 23 IF SO, STATE:
DEMAND $ OTHER JUDGE DOCKE NUMBER
Check YES only if demanded in complaintJURY DEMAND: 2] YES 0 NO NOTE: Please submit at the time of filing an explanation of why cases are deemed related,
(PLACE ' . ONE BOX ONLY)C ORIGINSI 1 Original 0 2a. Removed from El 3 Remanded from 0 4 Reinstated or 0 5 Transferred from El 6 Mullidistrict 0 7 Appeal to District
Proceeding State Court Appellate Court Reopened iSpecify District) Litigation Judge from
0 2b.Removed from Magistrate Judge
State Court AND Judgment
at least oneparty is pro se.
(PLACE AN x IN ONE BOX ONLY) 1E0. SIS OF JURISDICTION IF DIVERSITY, INDICATE01 U.S. PLAINTIFF 02 U.S. DEFENDANT IS 3 FE A ERAL QUESTION 04 DIVERSITY CITIZENSHIP BELOW.
( .S. NOT A PARTY) (28 USC 1322, 1441)
CITIZENSHI- • ' -INCIPAL PARTIES (FOR DIVERSITY CASES ONLY)
(Place an [X] in one box for Plaintiff and one box for Defendant)
PTF DEF PTF OFF PTF OFFCITIZEN OF THIS STATE 1 1 1 1 1 1 CITIZEN OR SUBJECT OF A 1 1 3 1 1 3INCORPORATED and PRINCIPAL PLACE [ 15 [ 15
FOREIGN COUNTRY OF BUSINESS IN ANOTHER STATE
CITIZEN OF ANOTHER STATE 1 ] 2 [ I 2 INCORPORATED or PRINCIPAL PLACE [ ] 4 1 14 FOREIGN NATION [ 1 6 1 16OF BUSINESS IN—THIS STATE
PLAINTIFF(S) ADDRESS(ES) AND COUNTY(IES)
David B, Lucesca C:. c7.71129-415 Janus St. It-..? f ....)
• —, ....Toronto, ON M4Y3C1
co,
;..‹.- --,DEFENDANT(S)ADDRESS(ES) AND COUNTY(IES) ;-ilPavi Binning C) t 13 'Mike S. Zafirovski
1291 N GREEN RAY RD Norte], Networks CD .. _,:jI= C,-.)
LAKE FOREST, IL 60045-1105 100-8200 Dixie Rd.
Make County) Brampton, ON, L6T 5P6, Canada —1
DEFENDANT(S) ADDRESS UNKNOWNREPRESENTATION IS HEREBY MADE THAT, AT THIS TIME, I HAVE BEEN UNABLE, WITH REASONABLE DILIGENCE, TO ASCERTAIN THE
RESIDENCE ADDRESSES OF THE FOLLOWING DEFENDANTS:
Check one: THIS ACTION SHOULD BE ASSIGNED TO: E WHITE PLAINS NI MA" ,ATTAN(DO NOT 8 - . either box if this a PRISONER PETIT • ,.)V._. ..vr h ..
DATE 5/18/2009 1 U,.. oF.. r 0 Y OF 1— - ORD ADMITTED TO PRACTICE IN THIS DISTRICT[ I NO
pq 05 1995YES (DATE ADMITTED Mo. Yr. )RECEIPT # Attorney Bar Code # SR7957
Magistrate Judge is to be designated by the Clerk of the cott,j it GORENSTEN
Magistrate Judge is so Designated.
J. Michael McMahon, Clerk of Court by Deputy Clerk, DATED .
UNITED STATES DISTRICT COURT (NEW YORK SOUTHERN)
a • •
JUDGE SCHEINDLIN 09 a 4691UNITED STATES DISTRICT COURT ‘).5' ° 5-FTI! IECDT
SOUTHERN DISTRICT OF NEW YORKMAY 8 ?009 -
DAVID LUCESCU, Individually and On : Civil Action No.Behalf of All Others Similarly Situated,
CLASS ACTION COMPLAINT FOR
Plaintiff, VIOLATIONS OF FEDERAL SECURITIESLAWS
vs.
MIKE ZAFIROVSKI and PAVI BINNING,
Defendants.
,-n_ -
. ) ,
C.
• .7
Plaintiff has alleged the following based upon the investigation of Plaintiff's counsel, which
included a review of United States Securities and Exchange Commission ("SEC") filings by Nortel
Networks Corporation ("Nortel" or the "Company"), as well as regulatory filings and reports,
securities analysts' reports and advisories about the Company, press releases and other public
statements issued by the Company, and media reports about the Company, and Plaintiff believes that
substantial additional evidentiary support will exist for the allegations set forth herein after a
reasonable opportunity for discovery.
NATURE OF THE ACTION
1. This is a federal class action on behalf of purchasers of the securities of Nortel
between May 2, 2008 and September 17, 2008, inclusive (the "Class Period"), seeking to pursue
remedies under the Securities Exchange Act of 1934 (the "Exchange Act").
JURISDICTION AND VENUE
2. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the
Exchange Act [15 U.S.C. §§78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder by the SEC
[17 C.F.R. §240.10b-5].
3. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.
§§1331 and Section 27 of the Exchange Act [15 U.S.C. §78aa].
4. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28
U.S.C. §1391(b), as many of the acts and practices complained of herein occurred in substantial part
in this District.
5. In connection with the acts alleged in this Complaint, Defendants, directly or
indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to,
the mails, interstate telephone communications and the facilities of the national securities markets.
- 1 -
PARTIES
6. Plaintiff David Lucescu, as set forth in the accompanying certification, incorporated
by reference herein, purchased the securities of Nortel during the Class Period and has been
damaged thereby.
7. Nortel supplies end-to-end networking products and solutions that help organizations
enhance and simplify communications. Nortel is not named in this action as a Defendant because it
and its core operating subsidiaries filed for bankruptcy protection in January 2009.
8. (a) Defendant Mike Zafirovski ("Zafirovski") served as Nortel's Chief Executive
Officer and President during the Class Period.
(b) Defendant Pavi Binning ("Binning") served as Nortel's Chief Financial
Officer during the Class Period.
(c) Defendants Zafirovski and Binning are collectively referred to herein as the
"Individual Defendants."
9. Because of the Individual Defendants' positions with the Company, they had access
to the adverse undisclosed information about the Company's business, operations, operational
trends, financial statements, markets and present and future business prospects via access to internal
corporate documents (including the Company's operating plans, budgets and forecasts and reports of
actual operations compared thereto), conversations and connections with other corporate officers and
employees, attendance at management and Board of Directors meetings and committees thereof and
via reports and other information provided to them in connection therewith.
10. It is appropriate to treat the Individual Defendants as a group for pleading purposes
and to presume that the false, misleading and incomplete information conveyed in the Company's
public filings, press releases and other publications as alleged herein is the collective action of the
narrowly defined group of Defendants identified above. Each of the above officers of Nortel, by
-2-
virtue of their high-level positions with the Company, directly participated in the management of the
Company, was directly involved in the day-to-day operations of the Company at the highest levels
and was privy to confidential proprietary information concerning the Company and its business,
operations, growth, financial statements, and financial condition, as alleged herein. Said Defendants
were involved in drafting, producing, reviewing and/or disseminating the false and misleading
statements and information alleged herein, were aware, or recklessly disregarded, that the false and
misleading statements were being issued regarding the Company, and approved or ratified these
statements, in violation of the federal securities laws.
11. As officers and controlling persons of a publicly-held company whose common stock
was, and is, registered with the SEC pursuant to the Exchange Act, and was, and is, traded on the
New York Stock Exchange ("NYSE") and the Toronto Stock Exchange ("TSE"), and governed by
the provisions of the federal securities laws, the Individual Defendants each had a duty to
disseminate promptly accurate and truthful information with respect to the Company's financial
condition and performance, growth, operations, financial statements, business, markets,
management, earnings and present and future business prospects, and to correct any previously-
issued statements that had become materially misleading or untrue, so that the market price of the
Company's publicly-traded common stock would be based upon truthful and accurate information.
The Individual Defendants' misrepresentations and omissions during the Class Period violated these
specific requirements and obligations.
12. The Individual Defendants participated in the drafting, preparation, and/or approval
of the various public, shareholder and investor reports and other communications complained of
herein and were aware of, or recklessly disregarded, the misstatements contained therein and
omissions therefrom, and were aware of their materially false and misleading nature. Because of
-3-
their Board membership and/or executive and managerial positions with Nortel, each of the
Individual Defendants had access to the adverse undisclosed information about Nortel's business
prospects and financial condition and performance as particularized herein and knew (or recklessly
disregarded) that these adverse facts rendered the positive representations made by or about Nortel
and its business issued or adopted by the Company materially false and misleading.
13. 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 content of the various SEC
filings, press releases and other public statements pertaining to the Company during the Class
Period. Each Individual Defendant was provided with copies of the documents alleged herein to be
misleading prior to or shortly after their issuance and/or had the ability and/or opportunity to prevent
their issuance or cause them to be corrected. Accordingly, each of the Individual Defendants is
responsible for the accuracy of the public reports and releases detailed herein and is therefore
primarily liable for the representations contained therein.
14. Each of the Defendants is liable as a participant in a fraudulent scheme and course of
business that operated as a fraud or deceit on purchasers of Nortel common stock by disseminating
materially false and misleading statements and/or concealing material adverse facts. The scheme:
(i) deceived the investing public regarding Nortel's business, operations, management and the
intrinsic value of Nortel common stock; and (ii) caused Plaintiff and other members of the Class to
purchase Nortel common stock at artificially inflated prices.
CLASS ACTION ALLEGATIONS
15. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased the securities
of Nortel during the Class Period, inclusive, and who were damaged thereby. Excluded from the
Class are Defendants, the officers and directors of the Company, at all relevant times, members of
-4-
their immediate families and their legal representatives, heirs, successors or assigns and any entity in
which Defendants have or had a controlling interest.
16. The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Nortel common shares were actively traded on the
NYSE and TS E. While the exact number of Class members is unknown to Plaintiff at this time and
can only be ascertained through appropriate discovery, Plaintiff believes that there are hundreds or
thousands of members in the proposed Class. Record owners and other members of the Class may
be identified from records maintained by Nortel or its transfer agent and may be notified of the
pendency of this action by mail, using the foiiii of notice similar to that customarily used in
securities class actions.
17. Plaintiffs claims are typical of the claims of the members of the Class as all members
of the Class are similarly affected by Defendants' wrongful conduct in violation of federal law that is
complained of herein.
18. Plaintiff will fairly and adequately protect the interests of the members of the Class
and has retained counsel competent and experienced in class and securities litigation.
19. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) whether the federal securities laws were violated by Defendants' acts as
alleged herein;
(b) whether statements made by Defendants to the investing public during the
Class Period misrepresented material facts about the business, operations and management of Nortel;
and
-5-
(c) to what extent the members of the Class have sustained damages and the
proper measure of damages.
20. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the
damages suffered by individual Class members may be relatively small, the expense and burden of
individual litigation make it impossible for members of the Class to individually redress the wrongs
done to them. There will be no difficulty in the management of this action as a class action.
SUBSTANTIVE ALLEGATIONS
21. Nortel supplies end-to-end networking products and solutions that help organizations
enhance and simplify communications. These organizations range from small businesses to multi-
national corporations involved in all aspects of commercial and industrial activity, to federal, state
and local government agencies and the military.
22. The Class Period commences on May 2, 2008. On that date, Norte' issued a press
release announcing its financial results for the first quarter of 2008. According to the press release,
the Company's first quarter results "demonstrated continued progress against the Company's
turnaround strategy. Strong operational progress in margins combined with steady revenue growth
kept Nortel on track to meet full year goals." Defendant Zafirovski commented on the
announcement, stating, in pertinent part, as follows:
Nortel had a strong first quarter, driven by the completion of a contract in our LG-Nortel joint venture and continued improvements in gross and operating margins.Nortel's operating margin, a critical measure of our plan's traction, expanded for theseventh consecutive quarter year over year, recording a 512 bps improvement to 4.7percent. . We expect to achieve our full year guidance and we continue to makesolid progress against the strategy to turn around the company. Our relentless focuson execution and our determination to deliver value to customers is strengthening thefoundation upon which to build our performance over the balance of 2008 andbeyond.
The press release provided the Company's "Outlook," stating, in pertinent part, as follows:
-6-
Nortel reiterates its financial outlook for the full year 2008, and continues to expect:
• Revenue to grow in the low single digits compared to 2007
• Gross Margin to be about the business model target of 43 percent ofrevenue
• Operating Margin as a percentage of revenue to increase by about 300basis points compared to 2007
23. On May 21, 2008, Nortel issued a press release reconfirming its full year Outlook and
stating, in pertinent part, as follows:
• Revenue to grow in the low single digits compared to 2007
• Gross Margin to be about the business model target of 43 percent ofrevenue
• Operating Margin as a percentage of revenue to increase by about 300basis points compared to 2007
24. That same day, Nortel issued a press release announcing that its principal direct
operating subsidiary, Nortel Networks Limited, had commenced a proposed $500 million offering of
10.75% senior unsecured notes due 2016 in the United States to qualified institutional buyers.
25. On May 28, 2008, Nortel issued a press release announcing that it had completed a
$675 million senior notes offering and used the proceeds to redeem $675 million in outstanding
principal of 4.25% convertible senior notes due September 1, 2008.
26. On June 11, 2008, Nortel issued a press release announcing that it would be holding a
day-long conference in Toronto with the investment community to "provide an update on the
company's transformation." The press release "reconfirmed" the Company's Outlook and stated, in
pertinent part, as follows:
Executives will review the achievements of the past two years to build theoperational and execution capabilities required to compete and win in a rapidlychanging market. Of note, they will discuss how this fundamental phase of thetransformation was accomplished while delivering consistent margin improvementsthat go against industry trends. The Nortel team will also explain how this
-7-
strengthened foundation, along with the company's growing market relevance, willbe leveraged to capture profitable new revenue opportunities in growth segments ofthe market.
27. During the Class Period, Defendants held conference calls and meetings with analysts
and investors to discuss the Company's earnings and operations. During these calls and
presentations, Defendants made numerous materially false and misleading statements concerning
Nortel's business.
28. The statements referenced above in 722, 23, 26 and 27 were each materially false
and misleading when made because they failed to disclose and/or misrepresented the following
adverse facts, among others:
(a) that demand for the Company's products was declining as carriers cut back
their capital expenditures and other customers deferred purchase decisions;
(b) that the Company's financial results were materially overstated as the
Company was failing to properly write-down its goodwill;
(c) that the Company's restructuring was not meeting with success as the
Company was struggling to cut costs and improve profitability; and
(d) as a result of the foregoing, Defendants lacked a reasonable basis for their
positive statements about the Company, its business, operations, earnings and prospects.
29. On August 1, 2008, Nortel issued a press release announcing its financial results for
the second quarter of 2008. Defendant Zafirovski commented on the results, stating, in pertinent
part, as follows:
Norte] 's financial performance in the first half of 2008 has been consistent anddisciplined. We have achieved our objectives and are on track to meet our targets forthe year. . . In the second quarter, the company focused on the work at hand andimproved productivity, stepped-up cost reduction activities and enhanced marginperformance. We delivered gross margin of 43.1%, the seventh consecutive quarterof year-over-year improvement, and management operating margin of 4.3%, theeighth consecutive quarter of year-over-year improvement.
-8-
We continue to see strong customer momentum in key growth areas of ourbusiness. In recent months, we've signed a comprehensive global managed servicestelepresence agreement with Deloitte, have secured approximately 20 wins for ourinnovative 40G offering, and earlier this week signed on as the official networkinfrastructure partner for the London 2012 Olympic and Paralympic Games. . . Inthe second half, faced with a challenging business environment, we will continue ourfocus on execution and on delivering accelerated growth in key segments in order toachieve our financial objectives for the year.
[Emphasis added.]
The press release provided the Company's Outlook, stating, in pertinent part, as follows:
Norte] faces a challenging business environment with increasing risk due to generalmacro-economic weakness, continuing competitive pressures and potential of furtherreduced capex spending by key North American CDMA customers.
Accelerated growth in Nortel's Enterprise and Metro Ethernet businesses in thesecond half and the expected completion of wireless contracts in the fourth quarter,representing approximately $350 million of previously deferred revenue, are key tothe company achieving its financial objectives for this year.
Nortel reiterates its financial outlook for the full year 2008, and continues to expect:
• Revenue to grow in the low single digits compared to 2007
• Gross Margin to be about the business model target of 43 percent ofrevenue
• Management Operating Margin as a percentage of revenue to increaseby about 300 basis points compared to 2007
30. Following this press release, the price of Norte] stock declined from $7.64 per share
to $6.52 per share. Defendants, however, continued to conceal the scope and severity of the
problems at Norte' and its operations.
31. Then, on September 17, 2008, Norte] issued a press release announcing its
"preliminary view on certain third quarter results." According to the press release," the Company is
experiencing significant pressure as Carrier customers cut back their capital expenditures further
than previously expected and certain Enterprise and Metro Ethernet customers defer new IT and
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optical investments." With respect to Nortel's third quarter results and the Company's Outlook, the
press release stated, in pertinent part, as follows:
As a result, the Company currently expects revenues in the third quarter of 2008 ofabout $2.3 billion. Third quarter gross margin is currently expected to beapproximately 39 percent of revenue primarily as a result of a product delivery delayinto the fourth quarter and customer mix within the Carrier business. Third quarteroperating expense (SG&A and R&D) is currently expected to be $60 million lessthan the second quarter 2008 level.
In the context of the foregoing, the Company has revised its full year 2008 outlook(a) and now currently expects:
• Revenue to decline between two and four percent compared to 2007
• Gross Margin of approximately 42 percent of revenue
• Management Operating Margin as a percentage of revenue toimprove 125 to 175 basis points compared to 2007
The Company also announced that it was engaging in a "comprehensive review" of Nortel's
business and that "planning" was "underway for further restructuring and other cost reduction
initiatives. . ."
32. In response to the Company's announcement, the price of Nortel stock declined from
$5.30 per share to $2.68, on heavy trading volume.
33. On November 10, 2008, Nortel issued a press release announcing its financial results
for the third quarter of 2008, the period ending September 30, 2008. Among other things, the
Company reported that it would be taking a charge of $3.21 billion to write-down goodwill and
deferred tax asset, "driven by changes in assumptions and lower growth projections in the current
environment."
34. On January 14, 2009, Norte' issued a press release announcing that it and certain of
its operating subsidiaries would seek protection under the Companies' Creditors Arrangement Act
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("CCAA") in Canada and that certain of the Company's U.S. subsidiaries had filed voluntary
petitions in the United States under Chapter 11 of the U.S. Bankruptcy Code.
35. The market for Nortel securities was open, well-developed and efficient at all relevant
times. As a result of these materially false and misleading statements and failures to disclose, Nortel
common stock traded at artificially inflated prices during the Class Period. Plaintiff and other
members of the Class purchased or otherwise acquired Nortel common stock relying upon the
integrity of the market price of Nortet common stock and market information relating to Nortel, and
have been damaged thereby.
36. During the Class Period, Defendants materially misled the investing public, thereby
inflating the price of Nortel common stock, by publicly issuing false and misleading statements and
omitting to disclose material facts necessary to make Defendants' statements, as set forth herein, not
false and misleading. Said statements and omissions were materially false and misleading in that
they failed to disclose material adverse information and misrepresented the truth about the Company,
its business and operations, as alleged herein.
37. At all relevant times, the material misrepresentations and omissions particularized in
this Complaint directly or proximately caused, or were a substantial contributing cause of, the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false or misleading
statements about Nortel's business, prospects and operations. These material misstatements and
omissions had the cause and effect of creating in the market an unrealistically positive assessment of
Nortel and its business, prospects and operations, thus causing the Company's common stock to be
overvalued and artificially inflated at all relevant times. Defendants' materially false and misleading
statements during the Class Period resulted in Plaintiff and other members of the Class purchasing
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the Company's common stock at artificially inflated prices, thus causing the damages complained of
herein.
Additional Scienter Allegations
38. As alleged herein, Defendants acted with scienter in that Defendants knew that the
public documents and statements issued or disseminated in the name of the Company were
materially false and misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced in
the issuance or dissemination of such statements or documents as primary violations of the federal
securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their receipt of
information reflecting the true facts regarding Nortel, their control over, and/or receipt and/or
modification of Nortel' s allegedly materially misleading misstatements and/or their associations with
the Company which made them privy to confidential proprietary information concerning Nortel,
participated in the fraudulent scheme alleged herein.
Applicability of Presumption of Reliance:Fraud on the Market Doctrine
39. At all relevant times, the market for Nortel common stock was an efficient market for
the following reasons, among others:
(a) Nortel stock met the requirements for listing, and was listed and actively
traded on the NYSE, a highly efficient and automated market;
(b) As a regulated issuer, Nortel filed periodic public reports with the SEC and
the NYSE;
(c) Nortel regularly communicated with public investors via established market
communication mechanisms, including through regular disseminations of press releases on the
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national circuits of major newswire services and through other wide-ranging public disclosures, such
as communications with the financial press and other similar reporting services; and
(d) Nortel was followed by several securities analysts employed by major
brokerage firms who wrote reports which were distributed to the sales force and certain customers of
their respective brokerage firms. Each of these reports was publicly available and entered the public
marketplace.
40. As a result of the foregoing, the market for Nortel common stock promptly digested
current information regarding Nortel from all publicly available sources and reflected such
information in Nortel's stock price. Under these circumstances, all purchasers of Nortel common
stock during the Class Period suffered similar injury through their purchase ofNortel common stock
at artificially inflated prices and a presumption of reliance applies.
NO SAFE HARBOR
41. The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
Many of the specific statements pleaded herein were not identified as "forward-looking statements"
when made. To the extent there were any forward-looking statements, there were no meaningful
cautionary statements identifying important factors that could cause actual results to differ materially
from those in the purportedly forward-looking statements. Alternatively, to the extent that the
statutory safe harbor does apply to any forward-looking statements pleaded herein, Defendants are
liable for those false forward-looking statements because at the time each of those forward-looking
statements was made, the particular speaker knew that the particular forward-looking statement was
false, and/or the forward-looking statement was authorized and/or approved by an executive officer
of Nortel who knew that those statements were false when made.
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FIRST CLAIM
Violation of Section 10(b) ofthe Exchange Act and Rule 10b-5
Promulgated Thereunder Against All Defendants
42. Plaintiff repeats and realleges each and every allegation contained above as if fully set
forth herein.
43. During the Class Period, Defendants disseminated or approved the materially false
and misleading statements specified above, which they knew or deliberately disregarded were
misleading in that they contained misrepresentations and failed to disclose material facts necessary
in order to make the statements made, in light of the circumstances under which they were made, not
misleading.
44. Defendants: (a) employed devices, schemes, and artifices to defraud; (b) made untrue
statements of material fact and/or omitted to state material facts necessary to make the statements not
misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud
and deceit upon the purchasers of the Company's common stock during the Class Period.
45. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of
the market, they paid artificially inflated prices for Nortel common stock. Plaintiff and the Class
would not have purchased Nortel common stock at the prices they paid, or at all, if they had been
aware that the market prices had been artificially and falsely inflated by Defendants' misleading
statements.
46. As a direct and proximate result of these Defendants' wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their purchases of Nortel
common stock during the Class Period.
-14-
SECOND CLAIM
Violation of Section 20(a) ofthe Exchange Act Against the Individual Defendants
47. Plaintiff repeats and realleges each and every allegation contained above as if fully set
forth herein.
48. The Individual Defendants acted as controlling persons of Norte] within the meaning
of Section 20(a) of the Exchange Act as alleged herein. By reason of their positions as officers
and/or directors of Nortel, and their ownership of Nortel stock, the Individual Defendants had the
power and authority to cause Nortel to engage in the wrongful conduct complained of herein. By
reason of such conduct, the Individual Defendants are liable pursuant to Section 20(a) of the
Exchange Act.
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a) Deteiiiiining that this action is a proper class action, designating Plaintiff as
Lead Plaintiff and certifying Plaintiff as a Class representative under Rule 23 of the Federal Rules of
Civil Procedure and Plaintiff's counsel as Lead Counsel;
(b) Awarding compensatory damages in favor of Plaintiff and the other Class
members against all Defendants, jointly and severally, for all damages sustained as a result of
Defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;
(c) Awarding Plaintiff and the Class their reasonable costs and expenses incurred
in this action, including counsel fees and expert fees; and
(d) Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
- 15-
•
DATED: May 18, 2009 COUGHLIN STOIA GELLERRUDMAN & ROBBINS LLP
SAMUEL H. RUDMAN
SAMUEL H. RUDMAN
58 South Service Road, Suite 200Melville, NY 11747Telephone: 631/367-7100631/367-1173 (fax)
HOLZER HOLZER & FISTEL, LLCCOREY D. HOLZERMICHAEL I. FISTEL, JR.200 Ashford Center North, Suite 300Atlanta, Georgia 30338Telephone: 770/392-0090770/392-0029 (fax)
DYER & BERENS LLPROBERT J. DYER IIIJEFFREY A. BERENS682 Grant StreetDenver, Colorado 80203Telephone: 303/861-1764303/395-0393 (fax)
- 16-
CERTIFICATION OF NAMED PLAINTIFFPURSUANT TO FEDERAL SECURITIES LAWS
The undersigned declares, as to the claims asserted under the federal securities laws, that:
I. Plaintiff has reviewed the complaint and authorized its filing.
2. Plaintiff did not purchase and/or acquire the security that is the subject of this actionat the direction of Plaintiffs counsel or in order to participate in any private action under thefederal securities laws.
3. Plaintiff is willing to serve as a representative party on behalf of the class, includingproviding testimony at deposition and trial, if necessary. I understand that this is not aclaim form, and that my ability to share in any recovery as a member of the class is notdependent upon execution of this Plaintiff Certification.
4. Plaintiffs transactions in the security that is the subject of this action during theClass Period are as follows:
Purchases:
Name of Company Date(s) Purchased 4 Shares Purchased CostNT •-, <•Tr",
Sales:
Name of Company Date(s) Sold 4 Shares Sold ProceedsNT ,
,
5. During the three (3) years prior to the date of this certification, Plaintiff has notsought to serve or served as a class representative in an action filed under the federalsecurities laws except for the following (if any):
6. Plaintiff will not accept any payment for serving as a representative party on behalfof the class beyond Plaintiffs pro rata share of any recovery, except such reasonable costsand expenses (including lost wages) directly relating to the representation of the class asordered or approved by the court.
I declare under penalty of perjury that the foregoing is true and correct.
Executed this day of , 2009 in .1 1
City State
(Signature) X ; „,/