GILBERT R. SEROTA (No. 75305) SARAH A. GOOD (No . 148742) …securities.stanford.edu/filings-documents/1032/TRPH04_01/... · 2005-11-04 · Adya Tripathi, And David Eichler (No. 05

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GILBERT R. SEROTA (No . 75305)SARAH A. GOOD (No . 148742)CLARA J. SHIN (No . 214809)HOWARD RICE NEMEROVSKI CANADY

FALK & RABKI NA Professional CorporationThree Embarcadero Center, 7th FloorSan Francisco, California 94111-4024Telephone: 415/434-1600Facsimile : 415/217-5910

Attorneys for DefendantTRIPATH TECHNOLOGY INC.

[Other Counsel Listed On Signature Pages ]

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNI A

OAKLAND DIVISION

In re TRIPATH TECHNOLOGY INC .,SECURITIES LITIGATION

No. C 04 4681 SBANo. 05 CV 04194 S C

ADMINISTRATIVE MOTION TOCONSIDER WHETHER CASESSHOULD BE RELATED AND[PROPOSED] ORDER(Civ. L. R. 3-12 & 7-11 )

ADMINISTRATIVE MOTION AND [PROPOSED] ORDER

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TO ALL PARTIES AND TBEIR ATTORNEYS OF RECORD :

Pursuant to Civil Local Rules 3-12 and 7-11, Defendants Tripath Technology Inc . ,

Adya Tripathi, and David Eichler (collectively, "Defendants") hereby notify the Court that

Langley Partners, L.P. v. Tripath Technology Inc., Adya Tripathi, And David Eichler (No.

05 CV 04194), transferred to this court on October 18, 2005 from the United States District

Court Southern District of New York, is related to other actions earlier filed in this District

and assigned to this Court . This Administrative Motion To Consider Whether Cases Should

Be Related ("Motion") is based upon this Notice and Motion; the [Proposed] Order ; the

accompanying Declaration of Clara J . Shin explaining why a stipulation could not be

obtained; and such further papers and argument as may be submitted to the Court in

connection with the Motion .

A. Titles And Dockets Numbers Of The Related Cases.

Pursuant to Civil Local Rules 3-12 and 7-11, Defendants Tripath Technology Inc . ,

Adya Tripathi, and David Eichler (collectively, "Defendants") hereby notify the Court that

Langley Partners, L.P. v. Tripath Technology Inc ., Adya Tripathi, And David Eichler (No.

05 CV 04194) (hereinafter "Langley Partners, L .P."), transferred to this Court on October

18, 2005 from the United States District Court Southern District of New York, is related to

other actions earlier filed in this District : Abraham Goldberg, Individually And On Behalf Of

All Others Similarly Situated v. Tripath Technology Inc., Adya Tripathi, And David Eichler

(No . C 04 4681), Marc Cherbonnier, Individually And On Behalf Of All Others Similarly

Situated v . Tripath Technology Inc ., Adya Tripathi, And David Eichler (No . C 04 4936),

Navtej S. Bhandari, On Behalf Of Himself And All Others Similarly Situated v . Tripath

Technology Inc ., Adya S. Tripathi, David P. Eichler, And Graham K. Wright (No. C 04

4969), and Frank Oravec, Individually And On Behalf Of All Others Similarly Situated v .

Tripath Technology Inc ., Adya Tripathi, And David Eichler (No. C . 04 4976), consolidated

into In re Tripath Technology Inc. Securities Litigation (No . C 04 4681) (hereinafter "In re

Tripath Technology Inc."), and assigned to the Honorable Saundra B . Armstrong .


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Defendants therefore request that Langley Partners, L.P. v. Tripath Technology Inc . ,

Adya Tripathi, And David Eichler (No. 05 CV 04194) be assigned to the same Judge of thi s

Court, the Honorable Saundra B . Armstrong, for reasons of fairness, convenience, an d

economy .

B . Relationship Of The Related Cases.

As defined in Local Rule 3-12(a), Langley Partners, L.P. is a related case to In re

Tripath Technology Inc .

First, the two actions involve the same defendants . In Langley Partners, L .P., the

defendants are Tripath Technology Inc . ("Tripath " or the "Company"), Adya Tripathi, and

David Eichler . Similarly, in In re Tripath Technology Inc ., the defendants also are Tripath ,

Adya Tripathi , and David Eichler . '

Second, the two proceedings involve the same property, transactions, events, and

questions of law . In re Tripath Technology Inc . is a consolidated class action alleging

violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 . Specifically,

the plaintiffs in In re Tripath Technology Inc . alleged that the defendants made materially

false and misleading statements regarding Tripath's financial results for its fourth quarter of

fiscal year 2003, first quarter of fiscal year 2004, and second quarter of fiscal year 2004 .

The plaintiffs alleged that the statements were purportedly false and misleading because the

defendants failed to disclose or indicate the following : (a) that the Company improperly

recognized revenue from sales of products that eventually were returned to the distributor ;

(b) that as a result of this, the Company had to increase its sales return reserve for the third

quarter and had to take a charge of approximately $4 .0-$4.5 million for excess inventory ;

(3) that the Company's financial results were in violation of Generally Accepted Accounting

'In Navtej S. Bhandari, On Behalf Of Himself And All Others Similarly Situated v . TripathTechnology Inc ., Adya S . Tripathi, David P . Eichler, And Graham K. Wright (No. C 04 4969), oneof the original actions consolidated into In Re Tripath Technology Inc., the plaintiffs also namedGraham Wright as a defendant .


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Principles ("GAAP") ; (4) that the Company lacked adequate internal controls ; and (5) that as

a result of the above, the Company's financial results were materially inflated at all relevant

times and the defendants lacked a reasonable basis for their statements regarding the

Company. The plaintiffs also alleged that the Company announced financial results that

were in violation of GAAP. The plaintiffs further alleged that, as a result of the defendants'

alleged false and misleading statements and failures to disclose, Tripath's securities traded at

artificially inflated prices and members of the class purchased or otherwise acquired Tripath

securities relying upon the integrity of the market price of Tripath's securities and market

information relating to Tripath . The plaintiffs further alleged that the defendants acted with

scienter. The parties entered into a Stipulation of Settlement dated July 12, 2005, and, on

October 20, 2005, the Court entered the Preliminary Order For Notice And Hearing In

Connection With Settlement Proceedings . The Settlement Fairness Hearing pursuant to

Federal Rule of Civil Procedure 23(e) is scheduled to be held before the Court on January

24, 2006 at 1 :00 P.M.

On June 2, 2005, Langley Partners, L .P. ("Langley Partners") brought an action in th e

United States District Court Southern District of New York substantially similar to In re

Tripath Technology Inc except that it seeks individual (not class action) relief (attached

hereto as Exhibit 1 (Langley Partners Complaint)) . As in In re Tripath Technology Inc.,

Langley Partners alleges violations of Sections 10(b) and 20(a) of the Securities Exchange

Act of 1934.2 As in In re Tripath Technology Inc., Langley Partners further alleges that the

defendants made materially false and misleading statements regarding Tripath's financial

results for its fourth quarter of fiscal year 2003, first quarter of fiscal year 2004, and second

quarter of fiscal year 2004 . As in In re Tripath Technology Inc., Langley Partners further

alleges that the statements were purportedly false and misleading because the defendants

failed to disclose or indicate the following : (1) that the Company improperly recognize d

2Langley Partners' additional claims for relief are fraud, breach of contract, unjust enrichment,rescission, and purported violation of Section 11 of the Securities Act .


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revenue from sales of products that eventually were returned to the distributor ; (2) that as a

result of this, the Company had to increase its sales return reserve for the third quarter and

had to take a charge of approximately $4 .0-$4.5 million for excess inventory; (3) that the

Company's financial results were in violation of Generally Accepted Accounting Principles

("GAAP"); (4) that the Company lacked adequate internal controls ; and (5) that as a result of

the above, the Company's financial results were materially inflated at all relevant times and

the defendants lacked a reasonable basis for their statements regarding the Company . As in

In re Tripath Technology Inc., the plaintiffs also allege that the Company announced

financial results that were in violation of GAAP. As in In re Tripath Technology Inc .,

Langley Partners further alleges that, as a result of the defendants' alleged false and

misleading statements and failures to disclose, Tripath's securities traded at artificially

inflated prices. As in In re Tripath Technology Inc., Langley Partners further alleges that the

defendants acted with scienter . In addition, Langley Partners alleges that the Company

made false and misleading statements about its technology for digital audio amplifiers .

C. Assignment Of The Two Proceedings To A Single Judge Will ConserveJudicial Resources And Promote Efficient Determination Of BothProceedings .

Because of the broadly similar allegations and questions of fact and law raised in thes e

proceedings, there would be burdensome and inappropriate duplication of labor and expense

for the Court and the parties, accompanied by the risk of conflicting processes and results, if

the two actions are conducted before different judges of this Court . Assignment of both

proceedings to a single judge will conserve judicial resources and promote an efficient

determination of the actions . Indeed, Judge Baer of the Southern District of New York


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granted defendants ' motion to transfer based , in part, upon the pendency of In re Tripath

Technology Inc. in this Court (attached hereto as Exhibit 2 (Memorandum & Order Oct . 6, 2005)) .

DATED: November) , 2005 .

DATED : November , 2005 .

GILBERT R. SEROTASARAH A. GOODCLARA J. SHINHOWARD CE NEMEROVSKI CANADY

FAIX & RABKINA Pro e r Mation

By '

A ttorneys for DefendantTRIPATH TECHNOLOGY INC .

SUSAN S. MUCKRACHAEL G . SAMBERGFENWICK & WEST LLPEmbarcadero Center West275 Battery StreetSan Francisco , CA 94111Telephone : 415/875-2300Facsimile: 415 /281-1350

By :

Attorneys for Defendants ADYA S . TRIPATHI andDAVID EICHLER

ADMINISTRATIVE MOTION AND [ PROPOSED] ORDER

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ORDER

Upon the foregoing Administrative Motion To Consider Whether Cases Should Be

Related, and for good cause shown, IT IS ORDERED that Langley Partners, L.P. v. Tripath

Technology Inc ., Adya Tripathi, And David Eichler (No . 05 CV 04194) (hereinafter

"Langley Partners, L.P."), transferred to this Court on October 18, 2005 from the United

States District Court Southern District of New York, should be related to In re Tripath

Technology Inc . Securities Litigation (No. C 04 4681) and assigned to the Honorable

Saundra B . Armstrong .

IT IS SO ORDERED .

DATED: November _, 2005 .THE HONORABLE SAUNDRA B . ARMSTRONG

UNITED STATES DISTRICT JUDG E


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granted defendants' motion to transfer based, in part, upon the pendency of In re Tripath

Technology Inc. in this Court (attached hereto as Exhibit 2 (Memorandum & Order Oct . 6, 2005)) .

DATED: November2 , 2005 .

DATED : November , 2005 .

GILBERT R . SEROTASARAH A. GOODCLARA J. SHINHOWARD CE NEMEROVSKI CANADY

FAI-Al & RABKINA. Pro i Co ation

By:

A ttorneys for DefendantTRIPATH TECHNOLOGY INC .

SUSAN S. MUCKRACHAEL G . SAMBERGFENWICK & WEST LLPEmbarcadero Center West275 Battery StreetSan Francisco, CA 94111Telephone : 415/875-2300Facsimile : 415/281-135 0

By: 244)2 r? /V14%c ',L

Attorneys for Defendants ADYA S . TRIPATHI andDAVID EICHLER

ADMINISTRATIVE MOTION AND [ PROPOSED] ORDER

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EXHIBIT r

10/05/2005 10 :33 FAX 212 805 7901 JUDGE HAROLD BAER JR .

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

LANGLEY PARTNERS, L.P.,

Plaintiff,

-against

TRIPATH TECHNOLOGY, INC .,ADYA TRIPATHI and DAVIDEICHLER,

Defendants .

Hon. HAROLD BAER, JR., District Judge :

05 Civ . 5255

MEMORANDUM & ORDER

By motion dated July 12, 2005, defendants Tripath Technology, Inc ., Adya

Tripathi and David Eichler ("defendant?' or "Tripath") seek to transfer this action to the

Northern District of California pursuant to 28 U,S .C, § 1404(a). The motion is granted .

L BACKGROUND

Plaintiff Langley Partners, L.P ("Langley") filed this action on June 2, 2005,

alleging, inter alia, violations of section 10(b) of the Securities and Exchange Act of

1934, as well as common law fraud and breach of contract, based on defendants'

IJ002/00p3

purported misrepresentations surrounding a restatement of revenues by Tripath . Langley,

an investment partnership based in New York, entered into a stock purchase agreement

with Tripath on August 2, 2004 in which Langley purchased 1,000,000 shares of Tripath

at $2 .00 per share . (Declaration of Jeffrey Thorp, dated August 9, 2005 ("Thorp Dec .")

117-8) . Tripath is a publicly traded corporation based in San Jose, California tha t

designs and markets digital chips for use in consumer products . (Declaration of Jeffrey

Garon, dated July 9, 2005 ("Garon Dec.") ¶ 4; Declaration of Adya Tripathi, dated June

24, 2005 ("Tripathi Dec .") ¶ 2) .

Following Tripath's announcement on October 22, 2004 that reported revenues

for the second quarter of that year might have been inaccurate, four separate securities

fraud class actions (the "California class actions") were filed against Tripath in the

Northern District of California . (Declaration of Sarah Good, dated July 6, 2005 ("Good

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Dec.") ¶ 2) .' On December 22, 2004, the California class actions were consolidate d

before Judge Saundra Brown Armstrong . (Good Dec . ¶ 3) . On July 12, 2005 the parties

to the consolidated California class action fi led a stipulation of settlement. (Pl.'s Reply

Mem, at 10 ). Oral argument on the California plaintiffs ' motion for preliminary approval

of the settlement is scheduled to occur on October 25 , 2005. lid .)

H. DISCUSSION

Defendants seek to transfer this action to the Northern District of California wher e

the related class actions are pending. Section 1404(a) provides that, "[fJor the

convenience of parties and witnesses, in the interest ofjustice, a district court may

transfer any civil action to any other district or division where it might have been

brought." 28 U.S.C. § 1404(a).2 "Motions for transfer lie within the broad discretion of

the courts and are determined upon notions of convenience and fairness on a case-by-case

basis ." Berman v. Informix Corp ., 30 F. Supp . 2d 653,656 (S.D.N.Y. 1998) (internal

quotation omitted) . However, "a court should not disturb a plaintiff's choice of forum

unless the defendants make a clear and convincing showing that the balance of

convenience favors defendants' choice ." Id. (internal quotation omitted) .

Courts generally consider several factors in evaluating a transfer motion,

including "plaintiff's choice of forum, location of the operative facts, convenience of the

parties and witnesses, location of documents and ease of access to sources of proof,

relative means of the parties, the forum's familiarity with the governing law [,] trial

efficiency[,J and the interests of justice ." Toy Biz, Inc . v. Centuri Corp .. 990 F. Supp .

328, 330-31 (S.D.N.Y. 1998) (Baer, J.).

Here, the vast majority of Tripath's employees with knowledge of the

circumstances that led to the revenue restatement are located in northern California .

(Declaration of'Randall Clark, dated July 5, 2005 ("Clark Dec.") ¶ 4-7). Furthermore,

Tripath's outside auditors and outside counsel who were involved in the p reparation of

the SEC filings at issue in this litigation are located in northern California. (Declaration

1 Adya Tripathi and David Eichler, Tripath's CEO and former CFO respectively, were also named asdefendants in the California class actions .2 The parties do not contest the fact that this action could have been brought in the Northern District ofCalifornia,

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10/05/2005 10 :34 FAX 212 805 7901 JUDGE HAROLD BAER JR . 0004/00D,AQ

of David Eichler, dated July 19, 2005 ("Eichler Dec .") ¶J 6-7; Garon Dec . 1 7). These

non-partyw itnesses would be outside the subpoena power of this Court . See Berman, 30

F. Supp . 2d at 657 ("availability of process to compel the attendance of unwilling

witnesses" factor to be considered in venue transfer) . All of the corporate filings and

press releases at issue in this litigation originated at Tripath's headquarters in San Jose,

and all relevant documents related to Tripath's actions remain there . (Eichler Dec . 7 5 ;

Garon. Dec . 18) .

Courts faced with securities fraud actions have transferred those actions to the

district in which the issuer is located . See In re Stillwater Mining Co . Securities

LIItia ., 02 Civ. 2806, 2003 WL 21087953 (S .D.N.Y. May 12, 2003) (transferring

consolidated securities class action to Montana where issuer was located and alleged false

statements originated) ; In re Nematron Corp .Securities Liter 30 F. Supp. 2d 397

(S.D.N.Y. 1998) (transferring securities fraud class action to Eastern District of Michigan

where issuer was located). Transfer seems especially appropriate where, as here, there

are previously filed actions pending in the defendants' home district. See Berman. 30 F .

Supp. 2d at 655 (transferring securities fraud action to California where consolidated

class action was pending) . While settlement of the consolidated California action appears

imminent, there may be opt out litigation following approval of the settlement . Indeed,

Langley, by virtue of its purchase of Tripath stock, is a member of the putative California

class . See Good Dec . 1 2) . See also MBCP Peerlogic, L .L.C. v. Critical Path. Inc ., 02

Civ. 3310, 2002 WL 31729626, *2 (S .D.N.Y. Dec. 5, 2002) (approving transfer to district

in which previously filed consolidated action had already settled) .

Plaintiff argues that this action is distinguishable from those cases in which courts

have transferred securities fraud suits to the issuers' home districts . Plaintiff further

argues that this action is distinct in relevant respects from the pending consolidated class

action in California. Principally, plaintiff contends that, since plaintiff purchased Tripath

stock pursuant to a stock purchase agreement that plaintiff executed in New York, the

"center of gravity" of the complaint lies in New York . Plaintiff claims that, since there is

a contract involved, the testimony of plaintiffs officers will be more important than

plaintiffs' testimony in a typical stock fraud case . This argument is unavailing . Although

plaintiff asserts a claim for breach of contract, the gravamen of plaintiff's complaint is

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10/05/2005 10 :35 FAX 212 805 7901 JUDGE HAROLD BAER JR. Ij005/00po

securities fraud. In fact, Langley's contract claim turns on whether or not there was a

"material change" in Tripath's condition not reflected in Tripath's SEC filings . (Compl .

¶Q 19, 74-48) . Thus, Tripath's ultimate liability will, on either theory, involve the

accuracy of its 2004 financial statements.

Transfer of this action to the Northern District of California is in the interest o f

the efficient administration of justice . Not only are Tripath, its employees, and the

relevant non-party witnesses located there, but there is a closely related consolidated

class action already pending. Thus, defendants have met their burden in demonstrating

that transfer is warranted .

M. CONCLUSION

For the foregoing reasons, defendant's motion to transfer this action to the

Northern District of California is hereby GRANTED. The Clerk of the Court is directed

to close this case and remove it from my docket .

IT IS SO ORDERED .

New York, New York

,'S~er b 2005

3 The elements of plaintiffs breach of contract and securities fraud claims are not identical . For example,to succeed on a fraud theory plaintiff must also prove reliance on defendant's fraudulent statements .Nonetheless, plaintiff's breach of contract claim involves the same alleged misrepresentations that form thecore of plaintiff's claim for securities fraud,

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t ENDAN7(S) ADDRESS UNKNOWNREPf2ESENTATit)~1 IS HEREBY MADE "T, AT THIS TIME, I HAVE BEEN UNABLE. Wins REASONAt3LE DILIGENCE. TO ASCERTAIN THE

RESIDENCE A)DR .ESSES OF THE FOLLOWING DEFENDANTS ;

Cntrx one: THIS ACTION SHOULD 8E ASSIGNED TO: Q WHITE PLAINS (J FOLEY SQUARE(00 NOT check either box it thisa PRISONER PETITION .)

DATE SIGNATURE OFYr. (1998)

RECFJPT# ~_'iC n~/1 (/lei t~ / ! lA11A Attem8YHar Code 9 CM 33n

Magistraio Judge is to be designated by the Clerk of the Cour t

,lret Judge is so Doskpmfed_

James Mt , Po*Mn, Clerk of Court by Deputy Clerk, DATED

UNITED STATES DISTRICT COURT (NEW YORK SOUTHERN)

r)qr ro,r Lnro n4 : 1o ,rne uj' FINANCE PAGE 0l/32

low SU;nnx a ln a ClA Act1cn - aDNY 1NEB 4189

Akato 1zA,;D1i#trt' YJA-da

SOUTHERN DISTRICT OF NEW YORK

ANGEEY PARTNERS, L .P ., SUMMONS IN A CIVIL CASE

V. CASE NUMBER

Tx.IPATH TECRNOLOCY . INC ., ADYA TRIPA?F.HI

and. DAVID EICHLEP.,

05 5,~ TO: pram and padre aBr ,t)

525 5Tripfth Technology, Inc. Adyq Tripathi David Eichler

2560 Orchard Parkway c /Q Tripath Technology ; Itic . c/o Sinnett CorporationSan lose, CA 95131 2560 Orchard Parkway 640 West California Avenue

San Jose, CA 95±3± : Suite 200''Sunnyvale, CA 94086

YOU ARE HEREBY SUMMONED and roquired to she upon PL N11FFS ATTORNEY {namaai adores )

Caryn G . Mazin

DLA Piper Rudnick Gray Cary US, LLP

1251 Avenue of the Americas

New Yorks New York 10020-110 4

an answer to the compraint which is herewith served upon you, within 30 days after service of thissummons upon you, exclusive of the day of service . If you fall to do so, judgment by default will be taken agairist you forthe relkkf domat•sded in the complaint . You must also file your answer with the Clerk of this-Court within a reasonable periodof fitne after service.

J, MTCf-,M*-ARONCLERK

(BY) DEPUTY CLERK

DATA

v-* . L.~ r . .r u.7u .7•t

Caryrt G. Main (CM 3858)DLA PIPER R[,UDNICK GkAY CARY US LLP1251 Avenue of the AmericasNew York., New York 10020212.835 .6000 1

. .►A tnrneys for Plainti 9 Langley Partners L .P .

UNTIED STATESSOUTHERN DISTRIC

F 1Nf4Nt. ;t

YORK

fnTN ,PAR , LP., 105 %J V

Plaintiff,

TRIPATH TCI:TOLOGY, INC ., A.DYA TRIPAM COMPLAINT

and DAVID EIMER ,

Defendants.

x

VAU± 05/32

F FM

525 5

Plaintiff Langley Partners, L.F. ("Langley"), for its cozyplaint against Tripath Technology

tue. ("Tripatb'), Adya Tripes ("Tripathi") and David Bichier ("Eiehlee) states as follows :

IUSDICTXON AIWA YEN[Th

1 . This Court has jurisdiction over the subject matter of this action pursuant to 1 .5

U.S.C. §78aa and 28 U.S.C. § 1331 .

2. Venue is proper in this Judicial District pursuant to 15 U.S.C. § 78aa and 28

U.S.C. § 139l(b). Many of the acts and transactions alleged herein, including the transmission

of materialy false and misleading information, occurred in substantial part in this Judicial

District .

~. L~~~ a r. t f JUJU) i r INr NUL PAGE e6!32

3 . In connection with the acts, conduct and other wrongs alleged in this complaint,

defendants, directly or indirectly, used the means and instrumentalities of interstate co mmerce,

including but not limited to, the United States mails, interstate telephone communications and

the facilities of the national securities exchange.

?ARTLES

4. Plaintiff Langley is a Delaware limited partnership residing in New York that

purchased Tripath securities at artificially inflated prices on August 3, 2004 and that has bee n

damaged thereby.

5. Langley is informed and believes and thereon alleges that defendant Tripath'is a

Delaware corporation with its principal executive offices located at 2560 Orchard Parkway, S an

lose, California 951 31 . Tripath trades, 'and all relevant times did trade, on the NASDAQ .

6. Langley is informed and believes and thereon alleges that defendant Tripathi was ,

at all relevant times, Tripath's Cha irman, President and Chief Executive Officer.

7. Langley is informed and believes and thereon alleges that defendant Eichler was ,

until his departure on September 15, 2004, Tripath's Chief Financial Officer . Defendants

Tripathi and Eichler are collectively referred to hereinafter as the "Individual Defendants ."

8. From at least March 2004 to August 2004, each of the Individual Defendants, as

senior executive officers and/or directors of Tripath, were privy to non-public information

concerning its business, finances, products, markets and present and future business prospects

via access to internal corporate documents, 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 inform on provided to them in connection

therewith- Because of their possession of such information, the Individual Defendants knew o r

2

. -- --- I iiyr ur% c tIAUL b // J2

recklessly disregarded the fact tb .at-'adverse facts specified herein had not been disclosed to, and

were being concealed from,, the investing public .

9, Because of the Individual Defendants' positions with Tripath, they had access to

the adverse undisclosed information about Tripath's business, operations, operational trends ,

financial statements, markets and present and future business prospects via access to internal

corporate documents (including Tripath'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 pleadin g

purposes and to presume that the false, misleading and incomplete information conveyed in

Tripath's public filings, press releases and other publications as alleged herein are the collective

actions of the narrowly defined group of defendants identified above . Each of the above officers

of Tripath, by virtue of their high-level positions with Tripath, directly participated in the

management of Tripath, was directly involved in the day-to-day operations of Tripath at the

highest levels and was privy to confidential proprietary information concerning Tripath 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 Tripath, 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 securities

were, and are, registered with the SEC pursuant to the Exchange Act, and was traded on the

c ~r v~r Luuv u-r . to r UUUJU04 I- INF)Nl;tHAUL 08132

NASDAQ 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 Tripath' 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 Tripath's publicly-traded securities would be based upon truthful and

accurate information- The Individual Defendants ' misrepresentations and omissions from March

2004 to August 2004 as discussed more fully below violated these specific requirements and

obligations .

12. The Individual Defendants participated in the drafting, preparation, and/or

approval of the various public and 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 their Board mnernbership and/or executive and managerial positions with Tripath,

each of the Individual Defendants had access to the adverse undisclosed information abou t

Tripath's financial condition and performance as particularized herein and knew (or recklessl y

disregarded) that these adverse facts rendered the positive representations made by or abou t

Tripath and its business issued or adopted by Tripath materially false and misleading.

13. The Individual Defendants, because of their positions of control and authority as

officers and/or directors of Tripath, were able to and did control the content of the various SEC

filings pertaining to Tniipath from March 2004 to August 2004 . 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 t o

4

v. + v v V f. LJ (JVJVJ t r ltwaivUL PAGE 09132

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 dyerein.

14. Each of the Defendants is liable as a participant in a fraudulent scheme and cours e

of business that operated as a fraud or deceit on purchasers of Tripath securities by disseminating

materially false and misleading statements and/or concealing material Adverse facts . The scheme:

(1) deceived the investing public, including Langley, regarding Tripath business, operations,

management and the intrinsic value of Txipath securities; and (2) caused Langley to purchase

Tripath securities at artificially inflated prices .

S TM TIVE ALLEGATIONS

Background

15. Tripath develops and supplies digital amplifiers .

16. In July, 2004, Tripath sought out investors to raise capital through a shel f

registration.

The Purchase Agreement

IT On or about August 2, 2004, Langley and Tripath entered into a stock purchas e

agreement, pursuant to which Langley purchased 1,000,000 shares of Tripath common stock at a

purchase price of $2 per share for a total price paid of $2,000,000 ("Purchase Agreement's} . At

the close of trading on August 2, 2004, Tripath's shares traded at $2 .42 per share . The 1,000,000

shares ofTripath stock were delivered to Langley on August 3, 2004-

18 . The Purchase Agreement acknowledges that in making its investment decision i n

this offering, Langley relied on the Company's public filings as filed with the Securities and

Exchange Commission. In the Purchase Agreement, Langley also consented to receipt of the

Company's Prospectus Supplement, dated August 2, 2004 ("Prospectus Supplement") and the

5

accompanying Prospectus, dated June 1, 2004, including the documents incorporated b y

reference therein. The Prospectus Supplement specifically incorporated by reference Tripath's

10K for the fiscal year ended December 31, 2003, filed on March 9, 2004 ("Form I O K"%,

Tripath's 10Q for the quarter ended March 31, 2004, filed on April 22, 2004, as amended on

May 21, 2004 (`Form 10Q"), and its Form 8-K., filed on July 22, 2004 ("July Form 8K"}.

19. In Paragraph (d) of the Purchase Agreement, defendant Tripatb made th e

following representations :

(d) Material Cbanges. Since the date of the latest audited financial statementsincluded within the SEC Reports, except as specifically disclosed in theProspectus or a report filed pursuant to the Securities Exchange Act of 1934, asamended, (i) there has been no event, occurrence or development that has had orthat could reasonably be expected to result in a material adverse effect on theCompany's operations or business prospects, taken as a whole, (ii) the Companyhas not incurred any liabilities (contingent or otherwise) other than (A) tradepayables and accrued expenses incurred in the ordinary course of businessconsistent with past practice and (B) liabilities not required to be reflected in theCompany's financial statements pursuant to GAAP or required to be disclosed infilings made with the Commission, (iii) the Company has not altered its method ofaccounting, (iv) the Company has not declared or made any dividend ordistribution of cash or other property to its stockholders or purchased, redeeme dor made any agreements to ptirohase or redeem any shares of its capital stock an d

(v) the Company has not issued any equity securities to any officer, director oraffiliate, except pursuant to existing Company stock option plans . The Companydoes not have pending before the Commission any request for confidentialtreatment of information.

raise Representations and Omissions Of Material Fact Made By Tripatb.

20. On January 29, 2004, Tripath reported financial results for its fourth quarter an d

fiscal year 2003 in its January form 8K.. Revenue for the fourth quarter ended December 31,

2003 were $4.1 million, an increase of i I% over revenues of $3 .7 million for the third quarter of

fiscal year 2003 and an increase of 41 °% over revenues of $2.9 million for the fourth quarter of

fiscal 2002. Revenues for fiscal year 2003 were $13.9 million, a dcerease of fiscal year 2003

was 33%, compared with 32% for the third quarter of fiscal year 2003 and 23% for the fourth

t'HU . 1i/J2

6

v~" v .Jr LvvsJ ut . 40 t JUOU04 r 11`IF1My t

quarter of fiscal year 2002 . The gross margin for fiscal year 2003 and decreased by 23% from

$3.5 million for the fourth quarter of fiscal year 2002. Operating expenses for fiscal year2003

were $11.4 million, a decrease of 34% from operating expenses of $17 .2 million for fiscal year

2002.

21 . The Form 1 OK filed on March 9, 2004 was signed by the 3udividual Defendants

and reaffirmed Tripath's previously announced financial results . Additionally, the Form I OK

included the following clean, audit opinion by Tripath's accountants BOO Seidman, L.LP,

Jn our opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Tripath Technology Inc .

and its subsidiary at December 31, 2 003 and the results of their operations andtheir cash flows for the year then ended in conformity with accounting principlesgenerally accepted in the United States of.AAmerica .

22. The Form IO-K also represented that Tripath had "Disclosure Controls and

Internal Controls to provide reasonable assurances that their objectives will be met ." Tripath

explained what it meant by "Disclosure Controls" and "Internal Controls" as follows :

Rules promulgated under the Securities Exchange Act of 1934 , as ainended, (the"Act") de fine "disclosure controls and procedures" to mean controls andprocedures that are designed to ensure that information required to be disclosedby public reporting companies in the repo rts filed or submitted under the Act isrecorded, processed, summarized and reported, within the time periods speci fiedin the SEC's rules and forms ("Disclosure Controls"), New rules promulgated.under the Act de fine "internal control over financial reporting" to mean a processdesigned by, or under the supervision of, a public company's principal execu tiveand principal financial officers, or persons performing similar functions, andeffected by such company's board of directors , management and other personnel,to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance withgenerally accepted account ing principles ("GAAP"), includ ing those policies andprocedures that (i) pertain to the maintenance of records that in reasonable detailaccurately and fairly reflect the transactions and dispositions of the assets of thecompany, (ii) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with (AAP,and that receipts and expenditures of the company are being arcade only inaccordance with authorizations of management and directors of the company and

r'Aut 11!dZ

7

V uV! Luuu VT. LJ ! VVVVJT F J.I'f ,I,nc h' bE 12132

(iii) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition , use or disposition of the company' s assets that couldhave a material effect on the financial statements (Internal Controls").

23. The Form 10-K also represented that Tripath properly recognized revenue onl y

after being reasonably assured that the sale was consummated, and where sales to distributors

were concerned, only after distributors sold the p roducts to customers , as follows:

The Company recognizes revenue in accordance with Securities and ExchangeCommission Staff Accounting Bulletin No . 304 ("SAB 104"), "RevenueRecognition in Financial Statements" . The Company recognizes revenue whenall of the following criteria are met: 1) there is persuasive evidence that anarrangement exists, 2) delivery of goods has occurred, 3) the sales price is fixed ordeterminable, and 4) collectibility is reasonably assured. The, following policiesapply to the Company's major categories of revenue transactions.

,Mlles to OiM Customers: Under the Company's standard terms and conditionsof sale, title and risk of loss transfer to the customer at the time product isdelivered to the customer, FOB shipping point, and revenue is recognizedaccordingly. The Company accrues the estimated cost of post-sale obligations,including basic product warranties or returns, based on historical experience. TheCompany has experienced minimal warranty or other returns to date.

Sales to Distributors : The Company provides its distributors certain incentivessuch as stock rotation, price protection, and other offerings . As a result of theseincentives, the Company defers recognition of revenue until such time that thedistributor sells product to its customer.

24. Accordingly, the Form 10-K represented that Tripath used sufficient controls to

ensure that its financial reporting was accurate and that revenue would not be recognized until it s

distributors actually sold the products to its customers . Tripath's Form 1 O-Q made substantiall y

similar representations.

25. Notably, the Form l0-l( also represented that Tripath had developed

"revolutionary" technology for digital audio amplifiers that it called "Godzilla" architecture :

fn September 2003, we announced the introduction of a new breakthrough lowcost power stage architecture platform, based on "CMOS" processes, which werefer to as "Godzilla" that can be used across the broad spectrum of audi oamplifiers from 10 Watt per channel PC stereo to greater than 150 Watt perchannel audio video receivers . We believe that this new architecture will enabl e

8

Uo. uor L r,o~j Ulf .- LD ron ~n j4 r 1NANUE PAGE 13/32

IS to reduce our manufactl nng costs in the future and help us compete moreeffectivelywith traditional analog amplifiers and other digital solutions .

In January 2004, we announced our first four amplifier devices based on the, newGiodzilla, CMOS process and we are currently sampling these devices withvarious customers . These four devices can deliver a wide range of power from 50up to 200 Watts per channel . Volume production on all four devices is expected tobegin during the third quarter of 2004,

26. On April 22, 2004, Tripath reported financial results for its first quarter of fisca l

year 2004, Revenues for the first quarter ended March 31, 2004 were $4 .2 million, a sequential

increase of 2% over revenues of $4.1 million for the fourth quarter of fiscal year 2003 and an

increase of 40% over revenues of $3 .0 million for the first quarter of fiscal year 2003 . Tripath's

net loss applicable to the common stockholders for the first quarter of fiscal year 2004 was $1 .8

million or $(0.04) per share, compared to a net loss of $1 .4 million, or $(0.03) per share for the

fourth quarter of fiscal year 2003, and a net loss of $2 .5 million of $(0 .06) per share for the first

quarter of fiscal year 2003. The gross profit margin declined during the first quarter of fiscal

year 2004 to 29% compared with 33% for the fourth quarter of fiscal year 2004 to 29%

compared with 33% for the fourth quarter of fiscal year 2003 primarily due to higher assembly

and test manufacturing costs . Operating expenses increased by 7% from $2.8 million for the

fourth quarter of fiscal year 2003 to $3 .0 million for the first quarter of fiscal year 2004 .

27. On May 21, 2004, Tripath filed its amended quarterly report with the SEC on

Form 10-Q. Iripath's Form l0-Q was signed by Eichler and reaffirmed Tripath's previously

announced financial results. With respect to its financial results, Tripath stated :

The unaudited condensed interim consolidated financial statements includedherein have been prepared by Tripath Technology Inc . (the ; "Company") inaccordance with accounting principles generally accepted in the United States ofAmerica and reflect all adjustments, consisting of normal recurring adjustments,which in the opinion of management are necessary to state fairly the Company's,financial position, results of operations and cash flows for the periods presented .

9

-+W' cror tw.J vt . L:! I OUJU04 FINANCE

28. In addition, Tripath's July 2004 Form 8-K., which attached a July 15, 2004 press

release, represented that Tripath's revenues for the second quarter of 2004, ending a few week s

before on June 30, 2004, would be %4 .4 million and that it was making "good progress" in

securing additional "design wins" on the Cmdzilla architecture :

Tripath Technolo Inc. (NASDAQ: TRPH}, creators of Digital PowerProcessing (DPP`} and Class-T4 advanced I -bit digital audio amplifiersannounced that it has reduced its revenue expectation for the second quarter to b e

approximately $4.4 million, as compared to the previous expectation of $5million- Revenues for the first quarter ended March 31, 2004 were $4.2 million.

Dr. Adya Tripathi, Chairman, President and CEO stated, " Shipments primarily inthe gaming market segment were lower that what we had previously expected dueto softer demand which we believe is a temporary inventory correction ." Dr.Tripathi also added, "'Demand for our products in the communications (DSL linedriver) and in the home entertainment system market segments were muchstronger during the second quarter of 2004 than company expectations . These

market segments represented approximately 2 0% and 25% of revenues for the .June quarter respectively while during the first quarter of 2004 these segmentsrepresented approximately 8% and 2% of revenues respectively ."

Dr. Tripathi commented, "Sales of our products in the flat panel TV segmentduring the second quarter remained strong and represented approximately 51% ofrevenues, the same percentage as during the first quarter. WVhile we haveexperienced some increased price competition in this marketplace we still remainthe performance leader in this marketplace. With the recently announcedintroduction of the new !'AA 2009 device, which we anticipate to start shippingduring the later part of the third quarter, Tripath will offer a more cost competitiveas well as a high performance solution primarily geared for the flat panel TVmarket „

Dr_ Tripathi also added, "We also believe that we are making good progress insecuring additional design wins in the home entertainment system market basedon the new low cost Godzilla architecture based on feedback from various majorJapanese and Chinese OEMS as well as in securing design wins with automotiveOEMS for in-dash units. We'll discuss this in more detail during the upcomingconference call : '

29. The statements contained in ¶j 20-28 were materially false and misleading whe n

made because Defendants failed to disclose or indicate the following : (1) that Tripath improperly

recognized revenue from sales of product that was eventually returned to the. distributor; (2) that

PAGE 14/32

10

bGI b 3I'lbbb b4 : 15 lbb ill i4 FINANCE PAGE 15/32

as a result of this, Tripatth had to increase its sales return rese rve for the third quarter and had to

take a charge of approximately $4.0 - $4.5 million for excess inventory ; (3) that Tripath's

financial results were in violation of Generally Accepted Accounting Principles ("GAAP") ; (4)

that Tripath lacked adequate internal controls, especially the ability to adequately estimate

distributor sales returns in accordance with SFAS no . 48; (5) that as a result of the above,

Ta path 's financial results were materially inflated at all relevant times and Defendants lacked a

reasonable basis for their statements regarding Tripath ; and (6) that Tripath had not and would

not secure "design wins ' for its Godzilla architecture .

30. Defendants made false and misleading statements in Tripath's SBC filings

including (1) that Tripath used appropriate controls to report information accurately; (2) that

Tripath's second qua rter 2004 revenues were $4.4 million; and (3 ) that Tripath had "design

wins" on its "revolutionary" Godziilla architecture .

31 . Notably, Tripath 's false representation that it was making "good progress" o n

securing "additional" design-wins for the Godzilla architecture necessarily meant that Tripath

had been securing "design-wins" for its Godzilla architecture all along. According to Tripath's

Form 10-K and Form 10-Q, such "design wins" were instances where Tripath's "products [were)

selected for design into new products of current and potential customers ."

Falsity of Defendants' Representations And Omissions of Material Fact s

32. The Relevant Filings filed by Tripath with the SEC were false and misleading .

As discussed above, Tripath represented that : (1) it used appropriate controls to report

information accurately and that its revenue from sales to distributors was recognized only after

products were actually sold to customers ; (2) that its second quarter 2004 revenues were $4 .4

million; and (3) that it had "design wins" on its promising Godzilla architecture . Tripath's own

subsequent SEC filings prove that those representations were false and misleading .

It

~Y~ c,~/~ cc.+~.+v ~'t . GJ t ~.JVJUJ`t r 1Nr-)Nt;t PAGE 16/32

33. Specifically, on August 5-6, 2005, only three days after the execution of the

Purchase Agreement Tripath announced its second quXter results in its 8-K. and 1OQ. In

announcing design wins on some of its products, design wins on its Godzilla architecture were

noticeably absent. This absence was in direct contrast to Tripath's prior representation that it

already bad design wins on that product and that it was making progress on even more "design

wind."

34. Tripath initially failed to explain that it had not secured any design wins on it s

GodzilIa architecture. It did so onlyafter Langley and Trlpath already had entered into the

Purchase Agreement. In Wpath's March 24, 2005 filing with the SEC, Tripath explained that :

"We introduced our lower cost `Godzilla' architecture products in January 2004 and began

sampling them in certain customers' products in mid-2004 . However, we have not received

design-wins for these products to date."

35. The Godzilla product was not the only subject of Tripath's false representation s

and material omissions. Tripatb's $4.4 million in reported revenues for the second quarter of

2004 were false- On January 31, 2005, Thhpath filed an 8-K announcing that it had restated its

earnings - because it had improperly recognized revenue from sales to distributors of products

that had not actually been sold to customers . This improper revenue recognition conflicted with

its own policy and representations as to how revenue was supposed to be recognized . Tripath's

January 31, 2005 8-K revealed that :

As described in the Registrant's Current Report on Form 8-K dated October 18,2004 and filed with the Securities and Exchange Commission on October 22,2004, the Registrant's Audit Committee directed the Registrant's Chief FinancialOfficer to investigate the matter involving approximately $1 .3 million of productthat was returned to one of the Registrant's distributors (the "Distributor) by theDistributor's customers and report the findings to the Audit Committee. As aresult of such investigation, on January 25, 2005 the Registrant's AuditCommittee concluded that the Registrant should restate certain financial

12

r INANUL PAGE 17/32

information that was previously reported in the Company's Form 10-Q for thequarter ended June 30, 2004 filed with the Securities and Exchange Commissionon August 6, 2004 (the "June 2004 Form 1 Q-Q") to properly reflect its revenueand related financial information for the referenced periods (the "Restatement") .Accordingly, the Consolidated Statement of Operations for the three months andsix months ended June 30, 2004 and the Consolidated Balance Sheet as of June30, 2004 included in the tune 2004 Form I O-Q should no longer be relied upon.

Eased upon the investigation, the Audit Committee concluded that approximately

$1 .4 million of a sale of the Registrant's product to the Distributor did not meet

the appropriate revenue recognition criteria because a former employee of theRegistn t had agreed that the Distributor could return the product at theDistributor's discretion, which forms the basis of the Restatement . This formeremployee had on this occasion agreed to a term of sale that was outside of theRegistrant's standard practices, This term of sale was not referenced in thedocurneiitation related to the sale submitted to the Registrant's financedepartment.

36. Accordingly, Tripath's representations as to its policies on recognizing revenue

and its disclosure and internal controls were false and misleading . In addition, Tripath's

representations as to $4 .4 million in revenue during the second quarter of 2004 were false and

misleading. Its revenues were actually 30% lower. Further, Tripath's "design wins" on its

"Godzilla" architecture were not realized .

37. The price of Tripath's stock plummeted 17% on heavy volume on August 6, 2004

alone . From a price of $2.42 on August 2, 2004, the date of the Purchase Agreement, the stock

declined to a low of j ust $1 .09 per share by August 11, 2004.

38 . Langley sold Tripath common stock during the period of August 3, 2004 t o

September 9, 2004 .

39_ Also, on October 22, 2004, Tripath announced that net revenues for the thir d

quarter of 2004 would be significantly below prior guidance of $4 - $4.5 million. More

specifically, Tripath stated :

Shipments made to customers during the third quarter are currently estimated tobe between $ 1 .9 mi llion and $2 .1 milon. Tripath is currently reviewing thereturn of $1.3 million of product to a distributor in the third qua rter. This product

13

°P( riot 4r)OU o' r ro rouini4 FINANCE PAGE 18/32

had been shipped to customers by the distributor, and recognized as revenue byTripath, in the quarter ended June 30, 2004. The distributor paid for this productduring the third quarter. The Distributor will not return this product to Tripath.Tripath may restate its revenue for the quarter ended June 30, increase its salesreturn reserve for the third quarter, Which would reduce net revenue in the thirdquarter, or make other adjustments. In addition, Tripath plans to take a charge ofapproximately $4.0 - $4.5 million for excess inventory. Tripath will alsoimplement a variety of measures to reduce operating expenses and stremline itscurrent business model.

Tripath anticipates that its net loss for the thind quarter will be significantlygreater than previously anticipated. In addition, Tripath expects that its cash, cashequivalents and restricted cash balance will be approximately $7 .3 million atSeptember 30, 2004, and estimates that the net cash used in operating activitiestotaled approximately $3 .0 million for the third quarter.

Tripath also announced today that its former independent accountants, BDOSeidman, LLP, resigned on October 18, 2004. As more fully explained in the

Form 8-K that will be filed by Tripath today, on October 18, 2004 BDO Seidman

issued a letter asserting material weaknesses in Tripath's internal controlsconcerning the effectiveness of Tripath's Audit Committee and Tripath's abilityto estimate distributor sales returns in accordance with SFAS no . 48_ Tripath is

actively recruiting a "financial expert' to join the Board and does not agree thatthere is a material weakness over its ability to estimate distributor returns in

accordance with SFAS No. 4$.

40. This news shocked the market . Shares of Tripath fell $ .75 per share, or 49 .34

percent, on October 25, 2004, to close at $ .77 per share.

Tripath 's Violation of GAAP Rules

41 . GAAP states that "revenue should not be recognized until it is realized or

realizable and earned." FASB Concepts Statement No. 5,183. The, conditions for the recognition

of revenue are met when "persuasive evidence of an arrangement exists, delivery has occurred or

services have been rendered, the seller's price is fixed or deter minable, collectibility of the sales

price is reasonably assured and when the entity has substantially performed the obligation s

which entitle it to the benefits represented by the revenue ." Here, Tripath improperly recognized

revenue when revenue from such transactions was not realizable and earned, which is i n

violation of GAAP.

14

ri 1-1)r u ,3r 4ririo rjct ; za rondndq t- 1N( NCE

42. Liven these aced nting irregularities, Tripath announced financial results that

were in violation of GAAP, Tripath's own announced revenue recognition policies, and th e

following principles:

(a) The principle that "interim financial reporting should be basedupon the same accounting principles and practices used to prepare annualfinancial statements" was violated (APB No . 28,110);

(b) The principle that "financial reporting should provide informationthat is useful to present to potential investors and creditors and other users inmalting rational investment, credit, and similar decisions" was violated (FASBStatement of Concepts No .1,134);

(c) The principle that "f ancial. reporting should provide informationabout the economic resources of an enterprise, the claims to those resources, andeffects of transactions, events, and circumstances that change resources andclaims to those resources" was violated (PA .SB Statement of Concepts No . 1,140);

(d) The principle that "financial reporting should provide informationabout an enterprise's financial performance during a period" was violated (FASBStatement of Concepts No . 1,142) ;

(e) The principle that "completeness, meaning that nothing is left outof the information that may be necessary to insure that it validly representsunderlying events and conditions" was violated (FASB Statement of ConceptsNo. 2,179) ;

(f) The principle that "financial reporting should be reliable in that itrepresents what it purports to represent" was violated (FASB Statement ofConcepts No. 2,1158-59); and

(g) The principle that. "conservatism be used as a prudent reaction touncertainty to try to ensure that uncertainties and risks inherent in businesssituations are adequately considered" was violated. (FAS Statement of ConceptsNo. 2, 195).

43. The adverse information concealed by Defendants and detailed above was in

violation of Item 303 of Regulation S-K under the federal securities law (17 C.RR, 229.303).

Additional Scienter legations

44. As alleged herein, Defendants acted with scienter in that Defendants knew tha t

the public documents and statements issued or disseminated in the name of Tripath were

materially false and misleading ; knew that such statements or documents would be issued or

PAGE 19/32

15

t D rear ZUrJZ U-4 ; Lo tObJbj4 F 1NANCE PAGE 20/32

disseminated to the investing public including Langley and relied upon by Langley in making its

determination to enter into the Purchase Agreement; 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 infbnnation reflecting the true facts regarding Tripath,

their control over, and/or receipt and/or modification of Tripath allegedly materially misleading

misstatements and/or their associations with Tripath which made them privy to confidential

proprietary information concerning Tripath, participated in the fraudulent scheme alleged herein.

45. Defendants knew and/or recklessly disregarded the falsity and :misleading nature

of the information which they caused to be disseminated to the investing public . The ongoing

fraudulent scheme described in this complaint could not have been perpetrated over a substantial

period of time, as has occurred, without the knowledge and complicity of the personnel at the

highest level of Tripath, including the Individual Defendants.

46. Defendant Ttipathi was able to sell his shares while Tripath's stock traded at

artificially inflated prices and reaped about $2 million in proceeds as shown by the proceedin g

chart:

NAMEDATE AMOUNT/PRICE PROCEED S

Adya S. Tripathi 05/26/04 40,000 r®, $4 .255 $107,20005/27/04 250,000 © $4.026 $1,006,50005128/04 210,000 @ $3 .887 $816,270

Total SharesSold.300,000 Total Proceeds : $1 ,929,970

47. Accordingly, Defendant Tripathi had motive to artificially inflate Tripath's stock

price .

The Safe Harbor Does Not Apply To The Allegedly False Statements

16

.,•~..+r _vt LVV~ V't . LJ (OUOCIJ'-F I- Ir'IA h PAGE 21/32

4$. The statutory safe harbor provided for forward-looking scat ents under certain

circumstances does not apply to any of the allegedly false statements pleaded in this complaint .

49: Many of the specific statements pleaded herein were not identified as "forward-

looting statements" when made. Moreover, at the time the statements pleaded herein were

communicated to Langley, such statements could not be construed as "forward-looking

statements," and the Purchase Agreement specifically agreed that Langley would be relying on

the Company's public filings . To the extent there were any forward-looking statements,

however, there were no meaningful cautionary statements identifying important factors that

could cause actual results to differ materially from those in the purportedly forward-lookin g

statements .

50. Alternatively, to the extent that the statutory safe harbor does apply to an y

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 Trripath who knew that

those statements were false when made.

CLAIMS FOR RELIEF

First Claim for Aellef:Violation of Section 10(b) of the Exchange Act and Rule job-5 against An Defendant s

51 . Langley realleges and incorporates by reference the allegations contained in

paragraphs 1 through 50 as though fu ly set forth herein .

52 . This claim is brought by Langley pursuant to § 10(b) of the Exchange Act and

Rule I Ob-S promulgated thereunder by the SEC against the Defendants . As set forth in more

detail above, the Defendants , directly and indirectly, by use of the means and instrumentalities of

17

eJoI riot Lrueo ruq ; zo rou,jujq FINANCE PAGE 22/32

interstate commerce or of the mails, have (1) employed devices, schemes, and artifices to

defraud; (2) made untrue statements of material fact and have omitted to state material facts

necessary in order to make the statements made, in light of the circumstances under which they

were made, not misleading; and (3) engaged in acts, practices, and a course of business which

operated as a fraud and deceit upon Langley in connection with its purchase of securities,

including entering into the Purchase Agreement and purchasing Tripath common stock as

described above in violation of § 10(b) of the Exchange Act and Rule 10b-5 .

53. Defendants had a duty to promptly disseminate truthful information that would b e

material to investors, including Langley, in compliance with the applicable law . The disclosure

of this information was necessary so that Langley's decision to enter into the Purchase

Agreement and purchase Tripath's common stock would be based upon truthful, complete and

accurate info ation . This information was also necessary to make other statements made by

Defendants not misleading, as set forth above.

54. The Individual Defendants as senior executive officers and/or directors of Tripath,

are liable along with Tripath as direct participants in the wrongs complained of herein . Through

their position of control and authority with Tripath, the Individual-Defendants were able to and

did control the content of the statements disseminated by Tripath . With knowledge of the

material facts purposefully omitted from these statements and the misleading nature of the

statements contained therein, the Individual Defendants engaged in a scheme to cause and did

cause the omissions of material facts and misstatements as alleged herein .

55. As set forth in more detail above, Defendants directly and indirectly, and with

scienter, engaged and participated in a continuous course of conduct to conceal adverse materia l

information about Tripath and provided false and misleading information as specified herein .

18

r;ol riot zriero n4: Lo ronjnj4 FINANCE PAGE 23/32

Defendants employed devices, schemes and artifices with the intent to defraud and deceive,

while in possession of material adverse information . Defendants engaged in acts, practices and a

course of conduct as alleged herein in an effort to induco investors, including Langley, to invest

in Tripath, which included the omission or the participation in the omission of material facts,

which Defendants bad a duty to disclose and were necessary in order to make the statements

made about Tripath, in light of the circumstances under which they were made, not misleading,

as set forth more particularly herein .

56. Defendants acted with scienter in that they either had actual knowledge of th e

false and misleading statements alleged herein and the omissions of material facts set forth

herein, or acted with reckless disregard for the troth in that they failed to ascertain and to disclose

the true facts, even though such facts were available to them. Defendant Tripathi was, at all

relevant times, the chairman, president and chief executive officer ofTrip ath and, Defendaut

Elobler was, at all relevant times, the chief financial officer of Trlpath .. Therefore, the Individual

Defendants were directly responsible for the. misstatements and omissions of fact concealed for

the purpose of inducing Langley to enter into various agreements with Langley, including,

without limitation, the Purchase Agreement and the purchase of common stock of Tripath .

Defendants' omissions of material fact were international and/or reckless and done for the

purpose of enriching themselves at the expense of Langley and to conceal the true facts .

$7. As a result of the misstatements and failure to disclose material facts by

Defendants, as set forth above, Langley was induced to enter into various agreements and

transactions with Tripath, including, without li .mitatiork, the Purchase Agreement and purchase of

Tripath's common stock . Langley relied on the truth of the representations and omissions of

material facts made by Defendants in the SEC filings and otherwise and on the absence o f

19

rib/ n.jt Inao U4:15 tbU U34 FINANCE PAGE 24/3 2

material adverse information that was k own by Defendants knit not disclosed to Langley or in

public statements in entering the various agreements with Thpath and purchasing its stock . The

misrepresentations and nondisclosures caused Langley to enter into the agreements with Tripath

and purchase Tripath stock when it otherwise would not have done so, thereby damaging

Langley. The misrepresentations and nondisclosures caused Langley to purchase Tripath stock

at an artificially inflated price, thereby damaging Langley .

58. At the time of said false representations and omissions, Langley had no

knowledge of the falsity of the SEC filings, the other representations contained in the Purchase

A, ement or of the omitted facts and misinformation described above. The SEC finings, the

representations contained in the Purchase Agreement and the omitted facts described above were

important to Langley's determination to enter into the agreements with Tripath . Had Langley

known of the true facts stated herein, Langley would not have purchased Tripath stock or entered

into any agreements with Tripath .

59. By virtue of the foregoing, Defendants have violated § 10(b) of the Exchange Act

and SEC Rule I Ob-S promulgated thereunder .

60. As a direct and proximate result of the wrongful conduct of Defendants, Langley

has suffered damages, in an amount according to proof at the time of trial, in connection with the

purchase of Tripath common stock .

61. The aforementioned conduct of Defendants was an intentional misrepresentation ,

deceit and/or concealment of material fact known by Defendants with the intention on the part of

Defendants of thereby depriving Langley of property or legal rights or otherwise causing injury,

and was despicable conduct that subjected Langley to cruel and unjust hardship in conscious

disregard of Langley's rights, so as to justify an award of punitive damages .

20

UbieJf21J05 04 .25 7503034 FINANCE PAGE 25/32

Second Claim for Relief:Control Person Liability Under Section 20 of the Exchange Act Against the Individual

Defendants

62. Langley realleges and incorporates by this reference the allegations contained i n

paragraphs 1 through 61 as though fully set forth herein-

63. As alleged above, Tripath has violated Section 10(b) and of the Exchange Act and

Rule 1Oir5 .

64. The individual Defendants have acted as a controlling person of Tripath withi n

the me ring of § 20 of the Exchange Act as described herein and exercised control over the

corporate operations of Tripath in general. Specifically, the Individual Defendants had the

power and authority to cause Tripath to engage in the wrongful conduct complained of herein b y

virtue of their positions as chairman of the board, president, chief executive officer and/or chief

financial a cer of Tripath, were in a position of power and authority to cause Tripath to engage

in the wrongful acts complained of herein and did cause Tripath to engage is such acts . In

addition, the Individual Defendants engaged in culpable conduct with respect to the

misrepresentations and failures to disclose as alleged above .

65. By reason of the wrongful conduct alleged herein, the Individual Defendants are

liable pursuant to § 20(a) of the Exchange Act for the conduct of Tripath . As a direct and

proximate result of this wrongful conduct, Langley suffered damages in connection with its

purchase of Langley common stock in an amount to be proven at trial as alleged above .

Third Claim for Relief:Fraud against All Defendants

66. Langley realleges and incorporates by this reference the allegations contained in

paragraphs 1 through 65 as though fully set forth herein-

21

Ubflia 1 2ee5 04:25 Ibd3O34 FINANCE PAGE 26/32

67. Defendants made the representations and engaged in the failures to disclose

described above .

68. As described above, those representations were false. In addition, as described

above, Defendants had a duty to disclose the undisclosed facts in order to make their

representations not misleading-

69. when making the representations desc ribed above, and when faili ng to make the

disclosures set forth above, Defendants knew them to be false and made the representa tions and

failed to disclose true facts to induce Langley to rely on the representations and failures t o

disclose by inves ting in Tripatb, entering into the Purchase Agreement and other related

agreements and purchasing Tripath common stock .

70. At the time the representations were made by Defendants and at the time

Defendants failed to disclose the true material facts , Langley was ignorant of the falsity of the

representations and believed them to be true.

71_ :Langley relied on Defendants ' representations and failures to disclose by

investing $2,000000 in Tripath, entering into the Purchase Agrccment and other related

agreements and purchasing Tripath common stock . Had Langley known the true facts, it would

not have invested in Tripath, would not have entered into the Purchase Agreement and related

agreements and would not have purchased Tripath common stock .

72. As a proximate result of the fraudulent conduct of Defendants, Langley has been

damaged in an amount to be proven at trial .

73 . The aforementioned conduct of Defendants was an intentional device, scheme and

artifice to defraud, and/or an act, practice or course of business which operated as a fraud and

deceit upon Langley with the intention on the part of Tripath of thereby depriving Langley o f

22

uor aor ce,rta rJ,f ; zo ton.iu FINANCE PAGE 27/32

property or legal rights or otherwise causing injury, and was despicable conduct that subjecte d

Langley to cruel and unjust hardship in conscious disregard of Langley's sights, so as to justify

an award of punitive damages .

Voui th Claim for Relief:Breach of !Contract Against Trlpati


p .graphs I through 73 as though fully set forth herein.

75. The Purchase Agreement entered into between Langley and Tripath constitutes a

valid contract between Langley and Tripath .

76. Langley and Tripath entered into the P=hase, Agreement for valid consideration .

77. Tripath breached the Purchase Agreement by, among other things, violatin g

Paragraph (d) of the Purchase Agreement as more fully described above .

78. Langley has suffered and continues to suffer damages in an amount to be proven

at trial as a direct result of these material breaches of the Purchase Agreement by Tripath.

Fifth Claim for ReliefUnjust Enrichment and Money Had and Received against Tripat h


paragraphs 1 through 78 as though fully set forth herein. .

80. Tripath has received $2,000,000 from Langley pursuant to the Purchas e

Agreement in connection with Langley's purchase of Tripath common stock .

81 . Because Tripalb made false representations to Langley and did not make material

disclosures of true facts in connection with Langley's purchase of Tripath' s common stock,

Tripath is not entitled to the $2,000,000.

23

f9br 0Jt 1005 04 :25

82.

7503034 FINANCE

The $2,000,000 paid by Langley to Tripath for its common stock re flected an

artificially inflated price as a result ofTiipath's false representations and failures to disclose .

Tripath has been unjustly enriched by it's receipt and retention of the $2,000,000 to which it ha s

no claim of entitlement .

83. Nevertheless, Tripath has refused to disgorge the $2,000,000, and Tripath ha s

(wrongly) stated that it is entitled to keep t e $2,000,0000 .

84. Langley has been damaged by Tripath's receipt and retention of the $2,000,000 ,

85. Equity and good conscience demand that Tripatb return the $2,000,000 to

Langley.

SI±t}t Claim for Relief;Rescission against T*ipath


paragraphs 1 through 85 as though fully set forth herein .

87. Trnpath made the representations and engaged in the fail um to disclose described

above.

88. As described above, those representations were false . In addition, as described

above, Tripath had a duty to disclose the undisclosed facts in order to make their representation s

not misl g.

89. When making the representations described above, and when failing to make th e

disclosures set forth above, Tripath knew them to be false and made the representations and

failed to disclose true facts to induce Langley to rely on the representations and failures to

disclose by investing in Tripath, entering into the Purchase Agreement and other related

agreements and purchasing Tripath common stock .

PAGE 28/32

24

Ub/ b;i! 2bbb 04 :25

90 .

7503034 FINANCE

lk

At the time the representations were made by Tripath and at the time Tripath

failed to disclose the true material facts, :Langley was ignorant of the falsity of th e

representations and believed them to be xme .

91 . Langley relied on 'T'ripat3i's representations and failures to disclose by investin g

$2,000,000 in Tripath, entering into the Purchase Agreement and other related agreements an d

purchasing Tripath common stock. Had Langley known the true facts, it would not have

invested in Tripath, would not have entered into the Purchase Agreement and related agreements

and would not have purchased Tripath common stock .

92. The aforementioned conduct of Tripath was an intentional device, scheme and

artifice to defraud, and/or an act, practice or course of business which operated as a fraud and

deceit upon Langley with the intention cin the part of Tripath of thereby depriving Langley of

property or legal rights or otherwise causing injury.

93. Tripath is entitled to a rescission of the Purchase Agreement and other agreements

and a return of the $2,000,000.

Seventh Claim for Relief;Section 11 of the Securities Act Against All Defendants


paragraphs 1 through 93 as though fatly set forth herein ..

95. The shares of Tripath co ninon stock sold by Tripath to Langley on or about

August 2, 2004 were registered with the SEC pursuant to the Prospectus Supplement and a

registration statement dated May 21, 2004, (The Prospectus Supplement and shelf registratio n

statement are collectively referred to as', the "Registration Statement') . Langley purchased the

Tripath shares pursuant to the Registration Statement .

PAGE 29/32

25

l?b/ b:J/'1dd5 04 :2b

96_

7503034 FINANCE

As alleged in greater detail herein, the Registration Statement containe d

materially false and misleading information or omitted : material information which was require d

to be included therein, including without limitation : (1) that Tripath improperly recognized

revenue from sales ofproduct that was eventually returned to the distributor, (2) that as a result

of this, Tripath had to increase its sales return reserve for the third quarter and had to take a

charge of approximately $4A - $4.5 million for excess inventory ; (3) that Tripath's financial

results were in violation of Generally Aecepted Accounting Principles ("GAAP'); (4) that

Tripath lacked adequate internal controls, especially the ability to adequately estimate distributor

sales returns in accordance with SFAS no, 48; and (5) that as a result of the above, Tripath's

financial results were materially inflated at all relevant times and Defendants lacked a reasonable

basis for their statements regarding Tripath.

97. The individual Defendants both signed the Registration Statement. Tripathi was

the chairman of the board, president and chief executive officer of Thpath at the time he signe d

the Registration Statement. Eichler was the chief financial officer at the time he signed the

Registration Statement .

98. As a result of the conduct described above, Langley has suffered damages in an

amount to be proven at trial .

Eighth Claim for Relief:Section 15 of the Securities Act Against the Individual Defendant s


paragraphs 1 through 98 as though fu lly Set forth herein-

100. As alleged above, Tripath has violated Section i 1 of the Securities Ac t

101 . The Individual Defendants have acted as a controlling person of Tripath within

the meaning of § 15 of the Securities At as described herein and exercised control over the

PAGE 30/32

26

06/03/ 2005 04:25 7503034 FINANCE

corporate operations of Tripath in generat_ Specifically, the Individual Defendants had th e

power and authority to cause Tripath to engage in the wrongful conduct complained of herein by

virtue of their positions as chairman of the board, president, chief executive officer and/or chief

dial officer of Tripath, were in a position of power and authority to cause Tripath to engage

in the wrongful acts complained of herein and did cause Tripath to engage is such acts .

102 . By reason of the wrongful conduct alleged herein, the Y'ndividual Defendants are

liable pursuant to § 15 of the Securities Act for the conduct of Tripath. As a direct and

proximate result of this wrongful conduct, Langley suffered damages in connection with it s

purchase of Langley common stock in an amount to be proven at trial as alleged above .

' REFORE, Langley is entitled to the following relief:

(i) Against Defendants, jointly and severally, an award of compensatory damages

and restitution in an amount according to proof at trial but in any event in excess

of $2 million ;

(ii) Rescission of the Fturchase Agreement and accompanying agreements and a return

of the $2,000,000 investment by Tripath to Plaintiff

(iii) Against Defendants, jointly and severally, an award ofpunitive damages;

(iv) Against Defendants, an award of costs ; and,

(v) Against Defendants, such other and further relief as this Court deems just and

proper.

PAGE 31/32

27

!j6/03/2005 04 :25 7503034 FINANCE

Demand ford Trial

Langley hereby demands trial by jury of all eligible claims.

Dated- New York, New YorkSune 2, 2005

Of Co wme1 :

Peale M. WeinerGregory ZuckerMA Piper Rudnick Gray Cary U.S. LLP1999 Avenue of the StarsFourth FloorLos .Angeles, California 90067-6022

310.595.3000

DLA. PIPER RU DN GARY US LLP

By:Caryn G. Mazin (CM 385$)Thomas 0. O'Connor (TO 0891 )

1251 Avenue of the AmericasNew York, Now York 10020212.835.6000

Attorneys For Plaintiff Langley Partner, L.P.

28

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Documents

GILBERT R. SEROTA (No. 75305) SARAH A. GOOD (No . 148742) …securities.stanford.edu/filings-documents/1032/TRPH04_01/... · 2005-11-04 · Adya Tripathi, And David Eichler (No. 05