Hadi Sakhai, et al. v. STEC, Inc., et al. 09-CV-01304 ...securities.stanford.edu/.../2009116_o02c_09CV01304.pdfCale 8:09-cv-01306-DOC-MLG Document 1 Filed 11/06/2009 Page 8 of 89 1

Case ::09-cv-01306-DOC-MLG Document 1 Filed 11/06/2009 Page 1 ol69UOPV

1 DOYLE LOWTHER LLP

2

F STD CO I

WILLIAM J. DOYLE II (SBN 188069)[email protected]

E3 JOHN LOWT CLERK UHER (SBN 207000) O1 RICT CRT

4 [email protected]

CrivEN

9466 Black Mountain Road, Suite 210

TRAAEIEl:15 San Diego, California 92126

Telephone: (619) 573-1700

6 _DEPLarFacsimile . (619) 573 - 1701

7

8 Counsel for Plaintiff

9 [Additional counsel on signature page]

10

11 UNITED STATES DISTRICT COURT

12 CENTRAL DISTRICT OF CALIFORNIA,„,„ .. \

13 S AV/09-01306 DOC :'-tits0A14 HADI SAKHAL Individually and on Case No.15 Behalf of All Others Similarly Situated,

16 Plaintiff, CLASS ACTION COMPLAINT FOR

17 VIOLATION OF FEDERALvs. SECURITIES LAWS

18

19 STEC, INC., MANOUCH

MOSHAYEDI, MARK MOSHAYEDI, 7'

20 RAYMOND D. COOK, J.P. MORGAN File by ax21 SECURITIES INC., DEUTSCHE BA

SECURITIES INC., BARCLAYS22 CAPITAL INC. and OPPENHEIIVIER &23 CO. INC.,

DEMAND FOR JURY TRIAL

24 Defendants.

25

26

27

28

CLASS ACTION COMPLAINT

Ca le 8:09-cv-01306-DOC-MLG Document 1 Filed 11/06/2009 Page 2 of 89

1 INTRODUCTION

2

3 This is a federal class action on behalf of common stock purchasers of STEC,

4 Inc. ("STEC" or the "Company") between June 16, 2009 and November 3, 2009,

5 .inclusive (the "Class Period"), pursuing remedies under the Securities Exchange Act

6

of 1934 (the "Exchange Act"), and including those who purchased shares in7

8 connection with the Company's August 6, 2009 $320 85 million Secondary Offering

9of common stock by the Company's Chairman and CEO, Manouch Moshayedi, and

10

Mark Moshayedi, Chief Operating Officer of the Company, also seeking to pursue

12 remedies under the Securities Act of 1933 (the "Securities Act"). As alleged herein,

13in addition to issuing a materially false and misleading registration statement and

14

15 prospectus in connection with the August 6, 2009 Secondary Offering, during the

16 Class Period Defendants also published a series of materially false and misleading

17statements that Defendants knew and/or deliberately disregarded were materially false

18

19 and misleading at the time of such publication, and omitted material information

20 necessary to make Defendants' statements, in light of such material omissions, not

21materially false and misleading.

22

23 OVERVIEW

24 1. During the Class Period STEC purported to be a leading global provider25

of solid-state computer memory drive technologies and solutions tailored to meet the26

27 high-performance, high-reliability needs of original equipment computer

28

- 1 - CLASS ACTION COMPLAINT


1 manufacturers (OEMs). STEC purports to manufacture the industry's "most

2comprehensive line" of solid-state drives ("SSDs") to the storage industry. At all

3

relevant times, STEC purported to be growing very quickly primarily due to the4

5 industry's favorable adaptation of one product in particular, its ZeusIOPS SSD, which

6was being sold to major original equipment manufacturers such as EMC, IBM, and

7

8 Sun Microsystems.

9 2. At all times during the Class Period, Defendants not only led investors to

10believe its ZeusIOPS SSDs were increasing in sales and believe they were being

11

12 adopted according to plan, but during the short period of 5 months that makes up the

13 Class Period, Defendants repeatedly published positive statements about ZeusIOPS

14and continually revised earnings and profitability guidance upwards for 2009 and

15

16 beyond. These statements had the intended effect of significantly increasing the price

17 of STEC shares. Between June 2009 and early September 2009, shares of the

18Company doubled in price from approximately $20.00 per share to over $40.00 per

19

20 share.

21 3. Unbeknownst to investors, however, Defendants' publication of22

materially false and misleading statements throughout the Class Period allowed23

24 Defendants to sell over $320 million of their privately held STEC common stock to

25 the public in the August 2009 Secondary Offering and thereafter, during the remainder26

of the Class Period. Defendants false and misleading statements also had the intended27

28 effect of causing STEC' s shares to trade at artificially inflated levels.

- 2- CLASS ACTION COMPLAINT


1 4. In particular, throughout the Class Period and at the time of the August 6,

22009 Secondary Offering, as Defendants knew and/or failed to disclose, the truth

3

about STEC was:4

5 • It was not true the Company's purported success was the result of the

6successful adaptation and use of STEC' s ZeusIOPS products by EMC, IBM,

7

8 or Sun Microsystems, when, in fact, throughout the Class Period,

9 Defendants had propped up the Company's results by over-supplying EMC

10— which was responsible for over 90% of its ZeusIOPS SSD sales — with

11

12 several quarters' worth of excess inventory.

13 • Defendants created the false and materially misleading impression STEC

14was successfully diversifying its sales base away from EMC and that IBM

15

16 and Sun Microsystems were successfully integrating STEC' s ZeusIOPS

17 SSD when, in fact, as Defendants knew but failed to disclose, IBM and Sun

18Microsystems were having significant difficulties integrating STEC' s

19

20 products such that the ZeusIOPS SSDs were not being adopted by these

21 important OEMs according to plan.22

• Throughout the Class Period, it was false that STEC contained adequate23

24 systems of internal operational or financial controls, such that STEC' s

25 public statements and financial reports were true, accurate, or reliable.26

27

28



1 • As a result of the foregoing, throughout the Class Period it also was not true

2that the Company's financial statements and reports were prepared in

3

4 accordance with GAAP and SEC rules.

5 • As a result of the aforementioned adverse conditions which Defendants

6failed to disclose, throughout the Class Period, Defendants lacked any

7

8 reasonable basis to claim STEC was operating according to plan, or claim

9 STEC could achieve guidance sponsored and/or endorsed by Defendants.

10

5. Contrary to the positive statements made by Defendants during the Class11

12 Period, on November 3, 2009, Defendants revealed: STEC would come nowhere near

13 achieving guidance previously sponsored and/or endorsed by Defendants; STEC' s

14largest customer, which accounted for at least 90% of its ZIOS solid state drives, had

15

16 so much excess inventory from the second and third quarters of 2009 that it would be

17 impossible for the Company to meet earnings expectations for 3Q:09 or 4Q:09; and it

18would probably be well into 2010 before EMC could work off the excess. These

19

20 belated disclosures had an immediate adverse impact on the price of STEC shares.

21 6. As a direct result of Defendants' statements, the following day, on22

November 4, 2009, STEC' s stock price collapsed over 30% to close at just above23

24 $14.00 per share — a Class Period trading low — on huge volume of almost 32 million

25 shares, many times the average daily trading volume of STEC' s stock. This dramatic26

27 share price decline eradicated much of the artificial inflation from STEC' s share price

28 and caused real economic loss to investors who purchased this stock during the Class



1 Period. In sum, as the truth about Defendants' fraud and illegal course of conduct

2became known to investors, and as the artificial inflation in the price of STEC' s shares

3

was eliminated, Plaintiff and other Class members were damaged, suffering economic4

5 losses of as much as $28.00 per share.

67. The decline in STEC' s stock price at the end of the Class Period was a

7

8 direct result of the nature and extent of Defendants' fraud being revealed to investors

9 and to the market. The timing and magnitude of STEC' s stock price decline negates

10any inference the losses suffered by Plaintiff and other Class members of the Class

1112 was caused by changed market conditions, macroeconomic or industry factors, or

13 even Company-specific facts unrelated to Defendants' fraudulent conduct.

148. Defendants were motivated to and did conceal the true operational and

15

16 financial condition of STEC and materially misrepresented and failed to disclose the

17 conditions that were adversely affecting STEC throughout the Class Period.

18Defendants' scheme: (i) deceived the investing public regarding STEC' s business,

19

20 operations, and management and the intrinsic value of STEC common stock; (ii)

21 enabled Defendants to register for sale with the SEC, and then sell, over $320 million22

of Company stock in connection with the August 2009 Secondary Offering; (iii)23

24 enabled STEC insiders to sell over 9 million shares of their privately held STEC stock

25 while in possession of material adverse non-public information about the Company;26

27 and (iv) caused Plaintiff and other members of the Class to purchase STEC common

28 stock at artificially inflated prices. In furtherance of this unlawful scheme, plan and


Cale 8:09-cv-01306-DOC-MLG Document 1 Filed 11/06/2009 Page 7 of 89

1 course of conduct, Defendants, jointly and individually (and each of them) took the

2actions set forth herein.

3

4 JURISDICTION AND VENUE

5 9. Jurisdiction is conferred by §22 of the Securities Act of 1933 (the

6"Securities Act"), 15 U. S.C. §77v, and §27 of the Securities Exchange Act of 1934

7

8 (the "Exchange Act"), 15 U. S.C. §78aa and 28 U. S.C. §1331. The claims asserted

9 herein arise under §§11, 12(a)(2) and 15 of the Securities Act, §§77k and 77o, and

10rules promulgated thereunder by the Securities and Exchange Commission (the

1112 "SEC"), and §§10(b) and 20(a) of the Exchange Act [15 U. S.C. §§78j(b) and 78t(a)]

13 and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission

14("SEC") [17 C.F.R. §240.10b-5].

15

16 10. Venue is proper in this District pursuant to §22 of the Securities Act, §27

17 of the Exchange Act and 28 U. S.C. §1391(b), §1337 and §27 [15 U. S.C. §78aa1.

18Defendant STEC maintains its principal place of business within this District, and/or

19

20 the Individual Defendants conduct business in and many of the acts giving rise to the

21 violations complained of herein took place in this District.22

11. In connection with the acts alleged in this Complaint, Defendants,23

24 directly or indirectly, used the means and instrumentalities of interstate commerce

25 including, but not limited to, the mails, interstate telephone communications, and the26

facilities of the national securities markets.27

28



1 PARTIES

212. Plaintiff Hadi Sakhai, as set forth in the accompanying certification,

3

4 incorporated by reference herein, purchased the common stock of STEC at artificially

5 inflated prices during the Class Period and has been damaged thereby.

6Corporate & Individual Defendants

7

8 13. Defendant STEC, Inc. is a California corporation with its principal place

9 of business located at 3001 Daimler Street, Santa Ana, CA 92705. According to the

10Company's profile, STEC purports to be a leading global provider of solid-state

1112 computer memory drive technologies and solutions tailored to meet the high-

13 performance, high-reliability needs of original equipment computer manufacturers

14(OEMs). The Company purports to manufacture the industry's "most comprehensive

15

16 line" of solid-state drives ("SSDs") to the storage industry.

17 14. Defendant MANOUCH MOSHAYEDI ("Manouch Moshayedi") is, and

18during the relevant period was, Chairman of the Board of Directors, Chief Executive

19

20 Officer, Chairman of Equity Awards Committee and a co-Founder of the Company.

21 During the Class Period, Defendant Manouch Moshayedi signed and certified the22

Company's SEC filings, including but not limited to STEC ' s Form(s) 10-Q and/or the23

24 materially false and misleading Registration Statement and Prospectus issued in

25 connection with the sale and offering of stock by the Company and certain "Selling26

27 Shareholders" (as defined herein infra). During the Class Period and/or in connection

28 with the August 2009 Secondary Offering, Defendant Manouch Moshayedi sold over



1 $127 million of his personally-held Company stock while in possession of material

2adverse non-public information about STEC.

3

15. Defendant MARK MOSHAYEDI ("Mark Moshayedi") is, and during4

5 the Class Period was, President, Chief Operating Officer, Chief Technical Officer,

6Secretary, a member of the Board of Directors and a member of Equity Awards

7

8 Committee of the Board of the Company, as well as a co-Founder of STEC. During

9 the Class Period, Defendant Mark Moshayedi signed or assisted in the preparation of

10the Company's SEC filings, including but not limited to STEC' s Form(s) 10-Q and/or

11

12 the materially false and misleading Registration Statement and Prospectus issued in

13 connection with the sale and offering of stock by the Company and certain "Selling

14Shareholders" (as defined herein infra). During the Class Period and/or in connection

15

16 with the August 2009 Secondary Offering, Defendant Mark Moshayedi sold over

17 $151 million of his personally-held Company stock while in possession of material

18adverse non-public information about STEC.

19

20 16. Defendant RAYMOND D. COOK ("Cook") is, and during the Class

21 Period was, the Chief Financial Officer and Principal Accounting Officer of the22

Company. During the Class Period, Defendant Cook signed and certified the23

24 Company's SEC filings, including but not limited to STEC ' s Form(s) 10-Q and/or the

25 materially false and misleading Registration Statement and Prospectus issued in26

27 connection with the sale and Secondary Offering of stock by the Company and certain

28 "Selling Shareholders" (as defined herein infra).


Cas 8:09-cv-01306-DOC-MLG Document 1 Filed 11/06/2009 Page 10 of 89

17. The Defendants referenced above in !IT 14 - 16 are referred to herein as

2the "Individual Defendants," and Defendants Manouch Moshayedi and Mark

3

4 Moshayedi are referred to collectively herein and in the August 2009 Secondary

5 Offering Prospectus and Registration Statement as the "Selling Shareholders."

6August 2009 Secondary Offering Underwriter Defendants

7

8 18. In connection with the August 2009 Secondary Offering, the following

9 investment banks acted as "Underwriters" of the Offering — distributing at least 9

10million shares of STEC stock to investors and initiating the first public market for

12 STEC shares. Not including another 1.35 million shares distributed upon exercise of

13 the underwriters' over-subscription allotment option, the distribution of Secondary

14Offering shares awarded Underwriters reportedly occurred, as follows:

15

16 Name Number of shares

17J.P. Morgan Securities Inc. 2,925,000li)eutsche l3ank Securities Inc. 2,925,000

19 Barclays Capital Inc. 1,800,000

20 Oppenheimer & Co. Inc. 1,350,000

21 Total 9 000 000

2219. In connection with the August 2009 Secondary Offering, the Underwriter

23

24 Defendants were paid at least $11.160 million in fees, indirectly paid by purchasers of

25 the Company's shares. The Underwriter Defendants were paid at least $1.24 per share

26

27

28



I in connection with the sale of the 10.35 million shares, including shares sold pursuant

2to the exercise of the Underwriter's Over-subscription Option.'

3

20. Shareholders were willing to, and did, pay these fees — equal to at least4

5 4% of the gross sales price — to compensate the Underwriter Defendants for

6conducting a purported significant due diligence investigation into STEC. The

7

8 Underwriter Defendants' due diligence investigation is a critical component of the

9 initial public offering, and it was supposed to provide investors with important

10safeguards and protections.

11

12 21. The due diligence investigation that was required by the Underwriter

13 Defendants included a detailed investigation into STEC' s accounting and assumptions

14that extended well beyond a mere casual review of STEC' s accounting, financial

15

16 report and operational and financial controls. The failure of the Underwriter

17 Defendants to conduct an adequate due diligence investigation was a substantial

18contributing factor leading to the ham complained of herein.

19

20 22. In addition to the foregoing, because of the Underwriter Defendants' and

21 Individual Defendants' positions with the Company, they all had access to the adverse22

undisclosed information about STEC' s business, operations, products, operational23

24 trends, financial statements, markets, and present and future business prospects via

25

26 In connection with the August 2009 Secondary Offering, the Selling27 Shareholders granted Underwriters an option for a period of 30 days to purchase up to

an additional 1,350,000 shares to cover overallotments.28


Das 8:09-cv-01306-DOC-MLG Document 1 Filed 11/06/2009 Page 12 of 89

1 access to internal corporate documents (including the Company's operating plans,

2budgets and forecasts, and reports of actual operations compared thereto),

3

4 conversations and connections with other corporate officers and employees,

5 attendance at management and Board of Directors meetings and committees thereof,

6and via reports and other information provided to them in connection therewith.

7

8 23. It is appropriate to treat the Individual Defendants as a group for pleading

9 purposes and to presume the false, misleading and incomplete information conveyed

10in the Company's public filings, press releases and other publications as alleged

11

12 herein are the collective actions of the narrowly defined group of Defendants

13 identified above. Each of the above officers of STEC, by virtue of their high-level

14positions with the Company, directly participated in the management of the Company,

15

16 was directly involved in the day-to-day operations of the Company at the highest

17 levels, and was privy to confidential proprietary information concerning the Company

18and its business, operations, products, growth, financial statements, and financial

19

20 condition, as alleged herein. Accordingly, the Individual Defendants were also

21 involved in drafting, producing, reviewing, and/or disseminating the false and22

misleading statements and information alleged herein; were aware, or deliberately23

24 disregarded, that the false and misleading statements were being issued regarding the

25 Company; and approved or ratified these statements, in violation of the federal26

securities laws.27

28



1 24. As officers and controlling persons of a publicly-held company whose

2common stock was, and is, registered with the SEC pursuant to the Exchange Act, and

3

was traded on the Nasdaq National Market Exchange (the "Nasdaq") and governed by4

5 the provisions of the federal securities laws, the Individual Defendants each had a duty

6promptly to disseminate accurate and truthful information with respect to the

7

8 Company's financial condition and performance, growth, operations, financial

9 statements, business, products, markets, management, earnings, and present and future

10business prospects, and to correct any previously-issued statements that had become

1112 materially misleading or untrue, so that the market price of the Company's publicly-

13 traded common stock would be based on truthful and accurate information. The

14Individual Defendants' misrepresentations and omissions during the Class Period

15

16 violated these specific requirements and obligations.

17 25. The Individual Defendants participated in the drafting, preparation,

18and/or approval of the various public and shareholder and investor reports and other

19

20 communications complained of herein and were aware of, or deliberately disregarded,

21 the misstatements contained therein and omissions therefrom, and were aware of their22

materially false and misleading nature. Because of their Board membership and/or23

24 executive and managerial positions with STEC, each of the Individual Defendants had

25 access to the adverse undisclosed information about STEC' s business prospects and26

27 financial condition and performance as particularized herein and knew (or deliberately

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



1 about STEC and its business issued or adopted by the Company materially false and

2 .misleading

3

26. The Individual Defendants, because of their positions of control and4

5 authority as officers and/or directors of the Company, were able to and did control the

6content of the various SEC filings, press releases, and other public statements

7

8 pertaining to the Company during the Class Period. Each Individual Defendant was

9 provided with copies of the documents alleged herein to be misleading prior to or

10shortly after their issuance and/or had the ability and/or opportunity to prevent their

11

12 issuance or cause them to be corrected. Accordingly, each of the Individual

13 Defendants is responsible for the accuracy of the public reports and releases detailed

14herein, and is therefore primarily liable for the representations contained therein.

15

16 27. Each of the Defendants is liable as a participant in a fraudulent scheme

17 and course of business that operated as a fraud or deceit on purchasers of STEC

18common stock by disseminating materially false and misleading statements and/or

19

20 concealing material adverse facts. The scheme: (i) deceived the investing public

21 regarding STEC' s business, operations, and management and the intrinsic value of22

STEC common stock; (ii) enabled Defendants to register for sale with the SEC, and23

24 then sell, over $320 million of their privately-held shares of Company stock in

25 connection with the August 2009 Secondary Offering; (iii) enabled STEC insiders to26

27 sell millions of dollars of their privately-held STEC shares while in possession of

28 material adverse non-public information about the Company; and (iv) caused Plaintiff



1 and other members of the Class to purchase STEC common stock at artificially

2inflated prices.

3

4 PLAINTIFF'S CLASS ACTION ALLEGATIONS

528. Plaintiff brings this action as a class action pursuant to Federal Rule of

6

7 Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who

8 purchased or otherwise acquired the common stock of STEC between June 16, 2009

9and November 3, 2009, inclusive (the "Class") and who were damaged thereby;

10

11 including those who purchased shares in connection with the Company's August 2009

12 Secondary Offering Excluded from the Class are Defendants, the officers and

13directors of the Company, at all relevant times, members of their immediate families

14

15 and their legal representatives, heirs, successors, or assigns and any entity in which

16 Defendants have or had a controlling interest.

1729. Class members are so numerous that joinder of all members is

18

19 impracticable. Throughout the Class Period, STEC common shares were actively

20 traded on the Nasdaq. As of October 16, 2009, there were 50.264 million shares of

21STEC common stock issued and outstanding. While the exact number of Class

22

23 members is unknown to Plaintiff at this time and can only be ascertained through

24 appropriate discovery, Plaintiff believes that there are hundreds or thousands of25

members in the proposed Class. Record owners and other members of the Class may26

27 be identified from records maintained by STEC or its transfer agent and may be

28



I notified of the pendency of this action by mail, using the form of notice similar to that

2customarily used in securities class actions.

3

30. Plaintiffs claims are typical of the claims of the members of the Class as4

5 all members of the Class are similarly affected by Defendants' wrongful conduct in

6violation of federal law that is complained of herein.

7

8 31. Plaintiff will fairly and adequately protect the interests of the members of

9 the Class and has retained counsel competent and experienced in class actions and

10securities litigation.

11

12 32. Common questions of law and fact exist as to all members of the Class

13 and predominate over any questions solely affecting individual members of the Class.

14Among the questions of law and fact common to the Class are:

15

16 (a) whether the federal securities laws were violated by Defendants'

17 acts as alleged herein;

18(b) whether statements made by Defendants to the investing public

19

20 during the Class Period misrepresented material facts about the business, operations

21 and management of STEC; and22

(c) to what extent the members of the Class have sustained damages23

24 and the proper measure of damages.

25 33. A class action is superior to all other available methods for the fair and26

27 efficient adjudication of this controversy since joinder of all members is

28 impracticable. Furthermore, as the damages suffered by individual Class members



I may be relatively small, the expense and burden of individual litigation make it

2impossible for members of the Class to individually redress the wrongs done to them.

3

There will be no difficulty in the management of this action as a Class action.4

5 SUBSTANTIVE ALLEGATIONS

6Materially False and Misleading Statements Made During the Class Period

7

8 34. On June 16, 2009, the inception of the Class Period, Defendants

9 published a release announcing increased guidance for the second quarter of 2009.

10The release stated, in part:

11

12 SANTA ANA, Calif, June 16, 2009 (GLOBE NEWSWIRE) -- STEC,

13 Inc. (Nasdaq:STEC - News) today announced that based on the

14Company's preliminary review of its anticipated financial

15

16 performance, it is increasing its guidance for the second quarter of

17 2009.

18

19

20 The Company also expects to report revenue in the range of $82

21 million to $84 million, versus the previous estimate of $68 million to22

$70 million.23

24 The increased Non-GAAP diluted earnings per share and revenue

25 guidance are primarily the result of increases in the Company's26

ZeusIOPS sales which now are estimated to exceed $55 million during27

28 the second quarter of 2009.



1 The Company had previously estimated revenue from ZeusIOPS SSDs

2to surpass $65 million during the first half of 2009. With this increase

3

in revenue, the Company now expects ZeusIOPS SSD sales to exceed4

5 $80 million during the first half of 2009.

6[Emphasis added.]

7

8 35. The statements contained in STEC' s June 16, 2009 release were each

9 materially false and misleading when made, and were known by Defendants to be

10false at that time, or were deliberately disregarded as such thereby, for the following

1112 reasons, among others:

13 (a) Throughout the Class Period, it was not true the Company's

14purported success was the result of the successful adaptation and use of STEC' s

15

16 ZeusIOPS products by EMC, IBM or Sun Microsystems, when, in fact, throughout the

17 Class Period Defendants had propped up the Company's results by over-supplying

18EMC — which was responsible for over 90% of its ZeusIOPS SSD sales — with several

19

20 quarters worth of excess inventory;

21 (b) Throughout the Class Period, Defendants created the false and22

materially misleading impression that the Company was successfully diversifying its23

24 sales base away from EMC and that IBM and Sun Microsystems were successfully

25 integrating STEC' s ZeusIOPS SSD when, in fact, as Defendants knew but failed to26

27 disclose, IBM and Sun Microsystems were having significant difficulties integrating

28



I STEC' s products such that the ZeusIOPS SSDs were not being adopted by these

2important OEMs according to plan;

3

4 (c) Throughout the Class Period, it was also not true STEC contained

5 adequate systems of internal operational or financial controls, such that STEC' s public

6statements and financial reports were true, accurate, or reliable;

7

8 (d) As a result of the foregoing, throughout the Class Period it also

9 was not true the Company's financial statements and reports were prepared in

10accordance with GAAP ad SEC rules; and

11

12 (e) As a result of the aforementioned adverse conditions which

13 Defendants failed to disclose, throughout the Class Period Defendants lacked any

14reasonable basis to claim the Company was operating according to plan, or that STEC

15

16 could achieve guidance sponsored and/or endorsed by Defendants.

17 36. As evidence investors relied upon Defendants' false and materially

18misleading statements regarding the purported success and increased sales of STEC' s

19

20 ZeusIOPS SSDs, this release had an immediate positive impact on the price of

21 STEC' s shares. Following this release, shares of the Company rallied from a close of22

$18.02 on June 15, 2009, to a high of $23.89 per share the following day, before23

24 closing at $22.88 per share on very high trading volume of over 10.435 million shares

25 traded — many times the average trading volume for STEC shares at that time. In the26

27 days that followed, shares of the Company continued to trade higher, reaching a close

28 of $23.70 on June 17, 2009; $24.27 on June 18, 2008; and $24.20 on June 19, 2009.


Cas 8 . 09-cv-01306-DOC-MLG Document 1 Filed 11/06/2009 Page 20 of 89

1 37. Taking immediate advantage in of the artificial inflation in the price of

2STEC shares, caused as a direct result of Defendants' publication of materially false

3

and misleading information about the Company, immediately following this release4

5 and continuing in the days thereafter, according to data listed on Yahoo/Finance,

6Defendants and other members of the Moshayedi family, including Defendants named

7

8 herein, liquidated material amounts of their personally held STEC common shares in

9 the open market, in part, as follows:

toSale Price Per

ii Date Insider Shares ValueShare 12 17-Jun- MOSHAYEDI MASOUD 200,000 $23.37 $4,674,00013 09 Beneficial Owner (10% or

more)14

18-Jun- MOSHAYEDI MASOUD 123,800 $24.50 $3,033,10015 09 Beneficial Owner (10% or16 more)

17 23-Jun- MOSHAYEDI MASOUD 122,900 $22.00 $2,703,80009 Beneficial Owner (10% or

18 more)

19 24-Jun- MOSHAYEDI MASOUD 201,508 $22.52-$23.74 $4,661,000

20 09 Beneficial Owner (10% ormore)

2125-Jun- MOSHAYEDI MASOUD 38,908 $23.50 $914,338

22 09 Beneficial Owner (10% or

23 more)

24 26-Jun- MOSHAYEDI MASOUD 81,989 $24.18 $1,982,49409 Beneficial Owner (10% or

25 more)

26 29-Jun- MOSHAYEDI MASOUD 7,325 $24.25 $177,63109 Beneficial Owner (10% or

27more)

28



1 30-Jun- MOSHAYEDI MASOUD 290,594 $23.39 $6,796,9932 09 Beneficial Owner (10% or

more)3

1-Jul-09 MOSHAYEDI MASOUD 5,530 $25.95 $143,503

4 Beneficial Owner (10% or

5 more)

6 6-Jul-09 MOSHAYEDI MASOUD 1,033 $24.80 $25,618Beneficial Owner (10% or

7 more)

8

9 38. On July 7, 2009, TheStreet.com also reported that Masoud Moshayedi

10 sold over 87,500 shares of his privately held STEC shares, to realize gross proceeds of11

over $2.125 million.12

13 39. On July 16, 2009, Defendants published another release that again raised

14 guidance for sales of the Company's ZeusIOPS solid state drives stating, in part, the15

following:16

17 STEC Signs a $120 Million Supply Agreement for ZeusIOPS SSDs for

18 2H 2009 and Now Forecasts Saks of ZeusIOPS SSDs to Exceed $22019

Million in 200920

21 STEC and Its Major Enterprise Storage Customers Continue

22Collaboration to Drive Adoption of SSD Technology Into High-

23

24Performance Enterprise Storage Systems

25 SANTA ANA, Calif, July 16, 2009 (GLOBE NEWSWIRE) -- STEC,

26Inc. (Nasdaq: STEC - News), announced today that it has signed an

27

28agreement with one of its largest enterprise storage customers for sales

-20- CLASS ACTION COMPLAINT


1 of $120 million of ZeusIOPS SSDs in the second half of 2009. STEC

2believes that this agreement reflects the enterprise storage

3

4 manufacturer's continued commitment to integrate STEC's SSD

5 technology into the manufacturer's systems and validates significant

6storage system performance improvements enabled by STEC's

7

8 ZeusIOPS SSDs in these enterprise systems. With this agreement

9 signed, STEC now forecasts revenue from the sale of its ZeusIOPS

10drives will exceed $220 million in 2009.

11

12

13 The STEC ZeusIOPS SSD product family offers a comprehensive array

14of options for enterprise system architects. ZeusIOPS SSD provides a

15

16 wide range of interface options, spanning Fibre Channel to SAS to

17 SATA, as well as the widest range of capacity options, spanning 73GB

18to 1TB. Fundamental to the ZeusIOPS product family is the proprietary

19

20 SSD architecture which renders an enterprise-optimized storage device

21 with an unprecedented combination of performance and energy22

efficiency.23

24 [Emphasis added.]

25 40. The July 16, 2009 release also quoted Defendant Manouch Moshayedi as26

follows:27

28

-21 - CLASS ACTION COMPLAINT


1 "We are pleased to see that sales of our customer's enterprise storage

2systems utilizing our ZeusIOPS drives have grown significantly over the

3

past few years," said Manouch Moshayedi, Chairman and Chief4

5 Executive Officer of STEC. "Our customers have helped evangelize

6this technology and we are glad to be partnered with them as we expect

7

8 that they will help drive further innovation in SSD usage in the

9 highest-end of the enterprise storage markets."

10[Emphasis added.]

11

12 41. Defendants statements and the representations contained in STEC' s July

13 16, 2009 release, were each materially false and misleading and were known by

14Defendants to be materially false and misleading at that time, or were deliberately

15

16 disregarded as such, for the reasons stated herein in 35, supra.

17 42. On August 3, 2009, Defendants published a release purporting to

18announce results for the second quarter of 2009, and provide guidance to analysts and

19

20 investors, in part, as follows:

21 STEC Announces Second Quarter 2009 Results22

Revenue, Gross Profit Margin and EPS Higher On Faster-Than-23

24 Expected Adoption of Its Enterprise Class Solid State Drives

25 SANTA ANA, Calif, Aug. 3, 2009 (GLOBE NEWSWIRE) -- STEC,26

27Inc. (Nasdaq:STEC - News) announced today its financial results for the

28 second quarter ended June 30, 2009. Revenue for the second quarter of



1 2009 was $86.4 million, an increase of 53.7% from $56 2 million for the

2second quarter of 2008, and an increase of 35.9% from $63 5 million for

3

the first quarter of 2009 Shipments of our ZeusIOPS Solid-State drives4

5 (" SSD") into the Enterprise-Storage market grew to $57 7 million for the

6second quarter of 2009, an increase of approximately 375% from $12.1

7

8 million for the second quarter of 2008, and an increase of approximately

9 125% from $25.7 million for the first quarter of 2009.

10GAAP gross profit margin was 50.0% for the second quarter of 2009,

11

12 compared to 32.3% for the second quarter of 2008 and 36.3% for the

13 first quarter of 2009. GAAP diluted earnings per share from continuing

14operations was $0.38 for the second quarter of 2009, compared to $0.03

15

16 for the second quarter of 2008, and $0.07 for the first quarter of 2009.

17 * * *

18Guidance

19

20 "We currently expect third quarter of 2009 revenue to range from $95

21 million to $97 million with diluted non-GAAP earnings per share to22

range from $0.45 to $0.47."23


25 43. The August 3, 2009 release also quoted Defendant Manouch Moshayedi,26

in part, as follows:27

28 Business Outlook



1 "It is exciting to share such outstanding results today and to deliver

2significant revenue, gross profit margin and EPS growth for the

3

4 second quarter of 2009," said Manouch Moshayedi, STEC' s Chairman

5 and Chief Executive Officer. "We have shown a significant

6improvement in our already strong balance sheet particularly in the

7

8 generation of cash and effective management of inventory - added four

9 more major Enterprise-Storage OEMs to our blue chip customer list, and

10surpassed our stated year-end 2009 non-GAAP gross profit margin goal

11

12 of 40%, expanding it to 50% in the second quarter of 2009."

13 "In our prior quarter's earnings announcement we had estimated that14

ZeusIOPS revenue for the first half of 2009 would surpass $53 million.15

16 I am pleased to report that we have actually achieved $83 million in

17 ZeusIOPS revenue for this period. Although we are still early in the

18process of the adoption of SSDs into the Enterprise-Storage market, I

19

20 believe that the $120 million supply agreement that we signed for the

21 second half of 2009 is a further indication of future SSD growth and22

customers' acceptance of SSDs into this growing market. I am very23

24 excited about our product road map -- specific to the Enterprise-Storage,

25 Enterprise-Sewer and related markets."26


28



1 44. The statements made by Defendants and contained in STEC' s August 3,

22009 release, were each materially false and misleading and were known by

3

4 Defendants to be materially false and misleading at that time, or were deliberately


645. The same day, August 3, 2009, Defendants also filed with the SEC

7

8 pursuant to Form 10-Q, results for the second quarter, the period ended June 30, 2009,

9 signed by Defendant Cook and certified by Defendant Cook and Manouch Moshayedi.

10In addition to making substantially similar statements concerning the Company's

1112 results of operations as were contained in STEC' s press release, the Company's 2Q:09

13 Form 10-Q also stated, in part, the following •

14Note 1 — Basis of Presentation

15

16 The accompanying interim condensed consolidated financial

17 statements of STEC, Inc., a California corporation (the "Company"),

18are unaudited and have been prepared in accordance with accounting

19

20 principles generally accepted in the United States of America

21 ("GAAP") for interim financial information and with the instructions to22

Form 10-Q and Article 10 of Regulation S-X. In the opinion of23

24 management, all adjustments (consisting of normal and recurring

25 adjustments and the special charges discussed in Note 7) considered26

27necessary for a fair statement of the consolidated financial position of

28 the Company at June 30, 2009, the consolidated results of operations for



1 each of the three and six months ended June 30, 2009 and 2008, and the

2consolidated results of cash flows for each of the six months ended June

3

30, 2009 and 2008 have been included. These interim condensed4

5 consolidated financial statements do not include all of the information

6and footnotes required by GAAP for complete financial statements and,

7

8 therefore, should be read in conjunction with the consolidated financial

9 statements and related notes contained in the Company's most recent

10Annual Report on Form 10-K filed with the Securities and Exchange

11

12 Commission ("SEC"). The December 31, 2008 balances reported herein

13 are derived from the audited consolidated financial statements included

14in the Company's Annual Report on Form 10-K for the year ended

15

16 December 31, 2008....


1846. Controls. The Company's 2Q:09 Form 10-Q also contained statements

19

20 concerning the Company's controls and procedures, stating in part:

21 Evaluation of Disclosure Controls and Procedures22

An evaluation as of the end of the period covered by this report was23

24 carried out under the supervision and with the participation of our

25 management, including our principal executive officer and principal26

financial officer, of the effectiveness of our disclosure controls and27

28 procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-



1 15(e) promulgated under the Securities Exchange Act of 1934, as

2amended (the "Exchange Act"). Based on their evaluation, our

3

4 principal executive officer and principal financial officer concluded

5 that our disclosure controls and procedures were effective as of the end

6of the period.

7

8 [Emphasis added.]

9 47. Certifications. The 2Q:09 Form 10-Q also contained Certifications by

10Defendants Cook and Manouch Moshayedi that attested to the purported accuracy and

11

12 completeness of the Company's financial and operational reports, as follows:

13 CERTIFICATION OF CHIEF EXECUTIVE OFFICER [And

14CHIEF FINANCIAL OFFICER] PURSUANT TO

15

16 SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

17 1. I have reviewed this Quarterly Report on Form 10-Q for the three

18months ended June 30, 2009 of STEC, Inc.;

19

20 2. Based on my knowledge, this report does not contain any untrue

21 statement of a material fact or omit to state a material fact necessary to

22make the statements made, in light of the circumstances under which

23

24 such statements were made, not misleading with respect to the period

25 covered by this report;26

273. Based on my knowledge, the financial statements, and other

28 financial information included in this report, fairly present in all



1 material respects the financial condition, results of operations and cash

2flows of the registrant as of and for, the periods presented in this report;

3

4. The registrant's other certifying officer and I are responsible for4

5 establishing and maintaining disclosure controls and procedures (as

6defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal

7

8 control over financial reporting (as defined in Exchange Act Rules 13a-

9 15(f) and 15d-15(0) for the registrant and have:

10(a) Designed such disclosure controls and procedures, or

11

12 caused such disclosure controls and procedures to be designed under our

13 supervision, to ensure that material information relating to the registrant,

14including its consolidated subsidiaries, is made known to us by others

15

16 within those entities, particularly during the period in which this report is

17 being prepared;

18(b) Designed such internal control over financial reporting, or

19

20 caused such internal control over financial reporting to be designed

21 under our supervision, to provide reasonable assurance regarding the22

reliability of financial reporting and the preparation of financial23

24 statements for external purposes in accordance with generally accepted

25 accounting principles;26

27(c) Evaluated the effectiveness of the registrant's disclosure

28 controls and procedures and presented in this report our conclusions



1 about the effectiveness of the disclosure controls and procedures, as of

2the end of the period covered by this report based on such evaluation;

3

and4

5 (d) Disclosed in this report any change in the registrant's

6internal control over financial reporting that occurred during the

7

8 registrant's most recent fiscal quarter (the registrant's fourth fiscal

9 quarter in the case of an annual report) that has materially affected, or is

10reasonably likely to materially affect, the registrant's internal control

11

12 over financial reporting; and

13 5. The registrant's other certifying officer and I have disclosed,

14based on our most recent evaluation of internal control over financial

15

16 reporting, to the registrant's auditors and the audit committee of the

17 registrant's board of directors (or persons performing the equivalent

18functions):

19

20 (a) All significant deficiencies and material weaknesses in the

21 design or operation of internal control over financial reporting which are22

reasonably likely to adversely affect the registrant's ability to record,23

24 process, summarize and report financial information; and

25 (b) Any fraud, whether or not material, that involves26

27management or other employees who have a significant role in the

28 registrant's internal control over financial reporting.



Date: August 3, 2009

2Is/ MANOUCH MOSHAYEDI

3 Manouch Moshayedi

4 Chief Executive Officer

5 * * *

6Date: August 3, 2009

7

8 Is/ RAYMOND COOKRaymond Cook

9 Chief Financial Officer

10[Emphasis added.]

11

12 CERTIFICATION OF CHIEF EXECUTIVE OFFICER

13 PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

14PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY

15

16 ACT OF 2002

17 I, Manouch Moshayedi, Chief Executive Officer of STEC, Inc. (the

18"Company"), certify, pursuant to 18 U. S.C. § 1350, as adopted pursuant

19

20 to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

21 (1) the Quarterly Report of the Company on Form 10-Q for the22

quarterly period ending June 30, 2009, as filed with the Securities and23

24 Exchange Commission (the "Report"), fully complies with the

25 requirements of Section 13(a) or 15(d) of the Securities Exchange Act of26

1934; and27

28



1 (2) the information contained in the Report fairly presents, in

2all material respects, the financial condition and results of operations of

3

4 the Company.

5 Is/ MANOUCH MOSHAYEDI

6Manouch Moshayedi

7 Chief Executive Officer

8 August 3, 2009

9CERTIFICATION OF CHIEF FINANCIAL OFFICER

10

11 PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

12 PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY

13ACT OF 2002

14

15 I, Raymond Cook, Chief Financial Officer of STEC, Inc. (the

16 "Company"), certify, pursuant to 18 U. S.C. § 1350, as adopted pursuant

17to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

18

19 (1) the Quarterly Report of the Company on Form 10-Q for the

20 quarterly period ending June 30, 2009, as filed with the Securities and

21Exchange Commission (the "Report"), fully complies with the

22

23 requirements of Section 13(a) or 15(d) of the Securities Exchange Act of

24 1934; and25

26

27

28



1 (2) the information contained in the Report fairly presents, in

2all material respects, the financial condition and results of operations of

3

the Company.4

5/s/ RAYMOND COOK

6 Raymond Cook

7 Chief Financial Officer

8August 3, 2009

9 [Emphasis added.]

10 48. The statements made by Defendants and contained in STEC' s 3Q:09

11Form 10-Q, filed with the SEC on August 3, 2009, were each materially false and

12

13 misleading and were known by Defendants to be materially false and misleading at

14 that time, or were deliberately disregarded as such, for the reasons stated herein in

1535, supra.

16

17 49. Based in substantial part upon the positive statements concerning the sale

18 of the Company's ZeusIPOS SSD' s, by August 3, 2009, shares of the Company traded

19as high as $35.96 per share Taking advantage of the artificial inflation in the price of

20

21 STEC shares that their materially false and misleading representations had caused,

22 that day Defendants announced their intention to conduct a Secondary Offering of at23

least 7 5 million shares of STEC common stock — all of which shares would be sold24

25 by Defendants Manouch Moshayedi, the Company's Chairman and Chief Executive

26 Officer, and Mark Moshayedi, its President, Chief Operating Officer, Chief27

Technical Officer, Secretary, and a Director, in addition to 1.125 million more shares28



I that they would make available to Underwriters, solely for the purpose of covering

2over-allotments

3

50. Days later, however, on August 6, 2009, Defendants published a release4

5 announcing that they had increased the size of the Secondary Offering to 9.0 million

6shares, in addition to 1.35 million over-subscription shares, and published a release

7

8 announcing the expanded offering priced at $31.00 per share. This release stated, in

9 part, the following:

10STEC Announces Pricing of a Secondary Offering of 9.0 Million Shares

11

12 of Common Stock

13 SANTA ANA, Calif, Aug. 6, 2009 (GLOBE NEWSWIRE) -- STEC,

14Inc. (Nasdaq:STEC - News) today announced the pricing of its

15

16 previously announced public offering of its shares of common stock by

17 Manouch Moshayedi, its chairman and chief executive officer, and Mark

18Moshayedi, its president, chief operating officer, chief technical officer,

19

20 secretary and a director. The selling shareholders are selling an aggregate

21 of 9.0 million shares, which represents an increase from the 7 5 million22

shares previously announced, at an initial per share price to the public of23

24 $31.00 per share. The selling shareholders granted the underwriters an

25 option to purchase up to an aggregate of 1,350,000 additional shares26

27solely for the purpose of covering overallotments, if any. STEC will not

28



1 receive any of the proceeds from sales by the selling shareholders in the

2offering and the offering will not be dilutive to existing shareholders.

3

J.P. Morgan Securities Inc., Deutsche Bank Securities Inc., Barclays4

5 Capital Inc. and Oppenheimer & Co. Inc. are acting as managing

6underwriters of the offering. J.P. Morgan Securities Inc. and Deutsche

7

8 Bank Securities Inc. are acting as the joint book-running managers, and

9 Barclays Capital Inc. is acting as joint lead manager.

1051. In connection with the Secondary Offering, on August 5, 2009,

11

12 Defendants also filed with the SEC, pursuant to Form 424B3, a copy of the Secondary

13 Offering Prospectus. In addition to describing the terms and conditions of the

14Secondary Offering itself, the Offering Prospectus contained statements that attested

15

16 to the financial strength and well-being of the Company, as well as statements

17 concerning STEC' s information technology and information management systems and

18its accounting and auditing procedures and policies.

19

20 52. The Secondary Offering Prospectus also identified the Selling

21 Shareholders, as follows:22

[Notes Omitted]

23 Number of Percentage beneficially owned shares of

24 common

Number of Number stock

25 shares of of shares beneficially

common stock to be sold owned26 Name and address of beneficially in this after the Before the After the

beneficial owner owned offering) offering) offering offering27

Officers and directors:28



1 Manouch Moshayedi 7 321 889 4,11 618 3 209„ rt 148°o 6500

Mark Moshayedi *887,382 5,444,396 20 7 % 10 9 %2 Raymond Cook — *

Dan Moses 62500 625003 F. Michael Ball 154,500 — 154,500 * *4 Rat at Bahri 39,500 39,500

Christopher W Colpitts 30,000 — 30,000 * *

5 Matthew L Witte 30,000 3Q000Current directors and executive

6 officers as a group(8 persons) 17,970,167 9000,000 8,970,167 35 8 % 17 9

7

8 53. In addition to the foregoing, the August 5, 2009 Secondary Offering

9Prospectus also incorporated by reference the 2Q:09 Form 10-Q, in addition to other

0SEC filings, in part, as follows:

12 Incorporation of certain information by reference

13 The SEC allows us to "incorporate by reference” information into this

14 prospectus supplement, which means that we can disclose important

15 information about us by referring you to another document tiled

16 separately with the SEC. The in. formation incorporated by reference is

17 considered to be a part of this prospectus supplement This prospectus

18 supplement incorporates by reference the documents and reports listed

19 below (other than filings or portions of filings that under applicable SEC

20 rules are furnished instead of tiled):

21

22

23• our Quarterly Report on Form 10-Q for the fiscal quarter ended

24 June 30, 2009, tiled with the SEC on August 3, 2009[1

25

26 54. As investors ultimately learned following the end of the Class Period, the

27 statements contained in STEC' s Prospectus issued in connection with the Company's

28



1 August 6, 2009 Secondary Offering, referenced above, were each materially false and

2 .misleading, for the following reasons, among others:

3

4 (a) At the time of the Secondary Offering, the Company's purported

5 success was not the result of the successful adaptation and use of STEC' s ZeusIOPS

6products by EMC, IBM or Sun Microsystems, when, in fact, throughout the Class

7

8 Period, Defendants had propped up the Company's results by over-supplying EMC —

9 which was responsible for over 90% of its ZeusIOPS SSD sales — with several

10quarters worth of excess inventory;

11

12 (b) At the time of the Secondary Offering, Defendants had created the

13 false and materially misleading impression that the Company was successfully

14diversifying its sales base away from EMC and that IBM and Sun Microsystems were

15

16 successfully integrating STEC' s ZeusIOPS SSD when, in fact, as Defendants knew

17 but failed to disclose, IBM and Sun Microsystems were having significant difficulties

18integrating STEC' s products such that the ZeusIOPS SSDs were not being adopted by

19

20 these important OEMs according to plan;

21 (c) At the time of the Secondary Offering, it was also not true that22

STEC contained adequate systems of internal operational or financial controls, such23

24 that STEC' s public statements and financial reports were true, accurate or reliable;

25 (d) As a result of the foregoing, at the time of the Secondary Offering26

27 it also was not true that the Company's financial statements and reports were prepared

28 in accordance with GAAP ad SEC rules; and



1 (e) As a result of the aforementioned adverse conditions which

2Defendants failed to disclose, at the time of the Secondary Offering Defendants lacked

3

any reasonable basis to claim that the Company was operating according to plan, or4

5 that STEC could achieve guidance sponsored and/or endorsed by Defendants.

655. Immediately following their sale of over $320 million shares of their

7

8 privately held STEC stock, Defendants announced their intention to embark on a

9 series of analysts and investor conferences, all designed to further inflate and maintain

10the price of Company shares, in part, as follows:

11

12 STEC to Present At the Oppenheimer Annual Technology Conference


14Inc. (Nasdaq:STEC - News) announced today that its Management Team

15

16 will present at the Oppenheimer Annual Communications, Technology

17 & Internet Conference. The STEC Management Team will present at

186:50 a.m.PT/9:50 a.m. ET on Wednesday, August 12, 2009. The Event is

19

20 being held in Boston at the Four Seasons Hotel.

21 * * *

22STEC to Present At the Pacific Crest Securities Technology Forum

23


25 Inc. (Nasdaq:STEC - News) announced today that its Management Team26

27will present at the Pacific Crest Securities Technology Leadership

28 Forum. The STEC Management Team will present at 3:00 p.m. PT/4:00



1 p.m. MT today August 11, 2009. The Event is being held in Vail, CO, at

2the Sonnenalp Resort.

3* * *

4

5 STEC to Present At the Citi Technology Conference

6SANTA ANA, Calif, Sept. 9, 2009 (GLOBE NEWSWIRE) -- STEC,

7

8 Inc. (Nasdaq:STEC - News) announced today that its Chairman and

9 Chief Executive Officer, Manouch Moshayedi, will present at the 2009

10Citi Investment Research Global Technology Conference. The

11

12 presentation will take place at 10:05 a.m. PT/1:05 p.m. ET on Thursday,

13 September 10, 2009. The event is being held in New York City at the

14Marriott Marquis Hotel.

15* * *

16

17 STEC to Present at the Deutsche Bank Technology Conference

18SANTA ANA, Calif, Sept. 15, 2009 (GLOBE NEWSWIRE) -- STEC,

19

20 Inc. (Nasdaq:STEC - News) announced today that its Chairman and

21 Chief Executive Officer Manouch Moshayedi, will present at the 200922

Deutsche Bank Securities Technology Conference. The presentation will23

24 take place at 1:20 p.m., PT/4:20 p.m., ET on Tuesday, September 15,

25 2009. The Event is being held in San Francisco at the Palace Hotel.26

2756. At these presentations, Defendants reiterated the materially false and

28 misleading statements that they had made previously regarding guidance for 2009 and



I the sales of the Company's ZeusIOPS S SD' s, as reported herein supra. The result of

2these presentations, as Defendants had intended, caused shares of the Company to

3

rally and between August 11, 2009 and September 15, 2009, shares of the Company4

5 surged from a close of $32.23 per share at the inception of that period, to a high of

6over $40.00 per share by the end of that time.

7

8 57. After shares of STEC receded to approximately $30.00 per share by mid

9 September 2009, however, Defendants immediately took action to support the market

10price of STEC shares. Accordingly, on October 7, 2009, Defendants published a

11

12 release that announced an important deal with IBM and stated, in part, the following:

13 STEC and IBM Collaborate to Set New Storage Performance Council

14(SPC-1) Record for High-End Enterprise Storage Systems

15

16 STEC ZeusIOPS SSD Within IBM's PowerSystem Achieves An

17 Unprecedented SPC-1 Benchmark Result, Setting a New Standard18

for Performance At Comparatively Lower Costs19

20 SANTA ANA, Calif, Oct. 7, 2009 (GLOBE NEWSWIRE) -- STEC,

21 Inc. (Nasdaq:STEC - News) today announced that STEC' s Enterprise-22

class ZeusIOPS Solid State Drives (SSDs) utilized in IBM's Power 59523

24 with PowerVM has set a new record SPC-1 Result with unprecedented

25 performance. The collaboration demonstrates how solid-state drive26

27technology can obtain levels of performance that would otherwise be

28 difficult to achieve without implementing hundreds of spinning drives.



1 Using fewer SSDs significantly reduces the overall footprint of the

2system design and energy consumption, resulting in substantial benefits

3

to the end-user.4

5 The integration in IBM's Power 595 system, which deploys six STEC

6ZeusIOPS Solid State Drives (SSDs) within each expansion drawer,

7

8 achieves an unprecedented 300,993.85 SPC-1 IOPS(TM) [1]. While

9 fully mirrored for added data protection, the configuration also utilizes

10virtualization to greatly reduce the overall footprint without sacrificing

11

12 capacity (5.8TB raw). Performance of this degree will change the pace

13 and improve the efficiency and costs at which high-transaction

14businesses such as financial institutions will operate.

15

16

17 "Achieving this level of performance is evidence that an overhaul of

18major systems or designing entirely new systems to reach world class

19

20 performance is not necessary," said Manouch Moshayedi, Chairman and

21 Chief Executive Officer of STEC. "Together with IBM, we have22

demonstrated that record performance can be enabled by integrating23

24 our ZeusIOPS in existing high-end systems. Through our

25 collaboration and close integration efforts, STEC and IBM have26

27delivered what we believe to be a game-changing product. The legacy

28 approach of building systems for ultra-high performance through



1 conventional RAM technologies will find it difficult to compete as

2high-powered systems like IBM's Power Series adapt to using SSDs

3

and achieve even better performance."4

5 [Emphasis added.]

658. The publication of the October 7, 2009 release had the effect of again

7

8 pushing shares of the Company to just below $29.00 per share. Thereafter,

9 Defendants continued to host analyst and investor conferences each also designed to10

inflate and maintain the price of STEC shares. Accordingly, on October 20, 2009,11

12 Defendants announced their intention to present at the Third Annual Needham HDD

13 Investor Day, to be held at Needham & Co.'s NYC Headquarters, on the morning of14

November 4, 2009.15

16 59. The statements made by Defendants and contained in STEC' s October 7,

172009 release, were each materially false and misleading and were known by

18

19 Defendants to be materially false and misleading at that time, or were deliberately


21THE TRUE FINANCIAL AND OPERATIONAL CONDITION

22 OF STEC IS BELATED DISCLOSED

23

2460. Before Defendants could attend the Needham conference, however,

25 following the close of trading on November 3, 2009, the final day of the Class Period

26— and only weeks after Company insiders finished liquidating over $320 million of

27

28 their personally held STEC shares — Defendants shocked investors by announcing that



1 STEC was revising guidance downward significantly for the remainder of the year as

2a result of a huge inventory build up at the Company's largest customer, EMC, that

3

would take several quarters to work off4

5 61. Based on the huge disparity between Defendants' prior guidance, the

6Company's past performance, and the results announced by Defendants, the following

7

8 day, November 4, 2009, STEC stock plummeted — falling over 30% in the single

9 trading day, and falling from a prior day's close of $23.15 per share to a close of

10$14.14 per share.

11

12 62. Following the collapse of STEC shares following Defendants' belated,

13 corrective disclosures, Barron 's reported on at least three analysts' immediate

14downgrades, as follows:

15

16 STEC Crushed By EMC Issue; Three Bullish Analysts Give Up

17 STEC (STEC) shares are being ravaged today after the company

18warned investors yesterday that excessive inventory of ZeusIOPS solid-

19

20 state drives sold to customer EMC could hurt demand in the early part

21 of 2010. Adding to the pressure, the company warned on its post-22

earnings conference call that business has been slow as well at both23

24 IBM and Sun Microsystems.

25

26

27This morning, three analysts formerly bullish on STEC - including

28 Van Hees - downgrade the shares:



1 Van Hees cut her rating on the stock to Neutral from Outperform,

2chopping her target price to $18, from $39. Van Hees wrote in a

3

4 research note this morning that while she had concerns about

5 competition, she [was] "completely caught off guard" by the stall in

6adoption of SSDs. She slashed her 2010 EPS estimate to $1.58 from

7

8 $2.29, and asserted that the stock is not a value play at current levels.

9 Vijay Rakesh, an analyst with ThinkEqui07, cut his rating to Holdfrom

10Buy. "We got this one wrong," he writes, adding that he thinks new

11

12 competing solutions from a range of competitors - including Seagate,

13 Micron, Smart Modular, Pliant, FusioIO, Samsung, Intel, Sun and

14NetApp - could make the Zeus line a tougher sell. He writes that fair

15

16 value on the stock is around $15.

17 Gary Hsueh, an analyst with Oppenheimer, cut his rating to Perform18

from Outperform, with a new price target of $21. "With inventory at19

20 EMC auguring a sizable downtick in Ql, and competition only

21 intensifYing in '10, we are taking a longer term view," he writes.22

[Emphasis added.]23

24 63. Immediately following the decline of STEC' s shares, on November 4,

25 2009, the staff at Tickerspy.com , a stock information and investor website, also26

27 reported, in part, the following:

28 STEC Shares Crushed on Near-Term Outlook



1 A weaker-than-expected near-term outlook for STEC (NASDAQ: STEC

2- News) led shares to plunge by -30% on Wednesday.

3* * *

4

5 Accelerating the sell-off is a warning that EMC (NYSE: EMC - News)6

is carrying an inventory glut, suggesting that demandfor STEC's solid7

8 state drives (SSDs) could be weaker than expected. Capstone

9 Investments analyst Jeffrey Schreiner told Reuters "We see the10

inventory adjustments impacting STEC beyond the first quarter of11

12 2010."


1464. In addition to the foregoing, on November 3, 2009, Barron 's also

15

16 reported, in part, that:

17 STEC Q3 Tops Ests, But Sees Possible Order Slowdown From EMC,

18Stock Whacked (Updated)

19

20 On the company's post-earnings conference call, as noted above,

21 the company clearly ID'd the customer in question as EMC. CEO22

Manouch Moshayedi said on the call that EMC accounts for 90% of23

24 the company's ZeusIOPS SSD sales. He also indicated on the call that

25 sales of the Zeus line in the latest quarter were $60.7 million, below26

27previous guidance of $67 million to $68 million. He also indicated on

28 the call that sales of Zeus SSDs to IBM have also been disappointing;



1 he said that "IBM has not found a way of going and implementing

2SSDs into the market yet" He added that demand from Sun

3

4 Microsystems also is "a little bit slow for us...."

5 [Emphasis added.]

665. Also on November 3, 2009, Reuters reported on analysts' disappointment

7

8 and surprise at the revealed inventory glut at EMC and slow adoption at the

9 Company's other customers, and Capstone Investments analyst Jeffrey Schreiner was

10quoted, in part, as follows:

11

12 "We were taken by surprise that (the inventory issue) occurred in the

13 September quarter. We were expecting it in the March quarter,"

14Capstone Investments analyst Jeffrey Schreiner said by phone.

15

16 "We see the inventory adjustments impacting STEC beyond the first

17 quarter of 2010," Schreiner said, adding that he expects overall demand

18for SSDs to pick-up again in the second and third quarters of 2010.

19


21 CAUSATION AND ECONOMIC LOSS22

66. Defendants' publication of materially false and misleading statements23

24 throughout the Class Period allowed Defendants to sell over $320 million of their

25 privately-held STEC common stock to the public in the August 2009 Secondary26

27 Offering and, thereafter, during the remainder of the Class Period, and it also had the

28 intended effect of causing STEC' s shares to trade at artificially inflated levels. As a



1 result of Defendants' publication of these false statements, during the Class Period

2shares of the Company traded to a high of almost $42.00 per share on September 10,

3

2009, within weeks of the August 2009 Secondary Offering.4

5 67. Contrary to the positive statements made by Defendants during the Class

6Period, on November 3, 2009, Defendants revealed that the Company would come

7

8 nowhere near achieving guidance previously sponsored and/or endorsed by

9 Defendants, and that STEC' s largest customer, which accounted for at least 90% of its

10ZIOS solid state drives, had so much excess inventory left over from the second and

11

12 third quarters of 2009 that it would be impossible for the Company to meet earnings

13 expectations for 3Q:09 or 4Q:09, and that it would probably be well into 2010 before

14EMC would be able to work off this excess. These belated disclosures had an

15

16 immediate, adverse impact on the price of STEC shares.

17 68. As a direct result of Defendants' statements, the following day, on

18November 4, 2009, STEC' s stock price collapsed over 30% to close at just above

19

20 $14.00 per share — a Class Period trading low — on huge volume of almost 32 million

21 shares, many times the average daily trading volume of STEC stock. This dramatic22

share price decline eradicated much of the artificial inflation from STEC' s share price23

24 and caused real economic loss to investors who purchased this stock during the Class

25 Period. As the truth about Defendants' fraud and illegal course of conduct became26

known to investors, and as the artificial inflation in the price of STEC shares was27

28



I eliminated, Plaintiff and the other members of the Class were damaged, suffering

2economic losses of as much as $28.00 per share.

3

69. The decline in STEC' s stock price at the end of the Class Period was a4

5 direct result of the nature and extent of Defendants' fraud being revealed to investors

6and to the market. The timing and magnitude of STEC' s stock price declirie negates

7

8 any inference that the losses suffered by Plaintiff and the other members of the Class

9 were caused by changed market conditions, macroeconomic or industry factors, or

10even Company-specific facts unrelated to Defendants' fraudulent conduct.

11

12 70. During the same period in which STEC' s share price fell as much as 50%

13 as a result of Defendants' illegal and improper course of conduct and their fraud being

14revealed, the Standard & Poor's 500 securities index was relatively unchanged, as

15

16 evidenced by the chart below:

STEC.; Inc. as of 5-Nov-200917

+6002 -

18 +400%

19 +200Z - - STEC

20.alat

Or it emir21

22

23

24 Jan09 mar99 M909 J0109 se09 40.0g 9.0 _SVolume

25;21 20.0 -

26 E° 10.0

0,0 *. 1 I. . * t 1,.. . a *** ****. aiNakaa141.4 !Wiwi imala27 Copyright 2009 Yahoo! Inc. http://Finance*yahoo.COMit

28



1 71. The economic loss, i.e. damages suffered by plaintiff and other members

2of the Class, was a direct result of Defendants' fraudulent scheme to artificially inflate

3the price of STEC' s stock and the subsequent significant decline in the value of the4

5 Company's shares when Defendants' prior misstatements and other fraudulent

6conduct was revealed. This was also evidenced by the chart below:

7STEC INC

8 as of 414ov-2009 50

9 40 -

10 30 -

1120 -

/12

13d

Jun09 Jul09 Au109 Seq09 Oct09 14 6 40.0

15-

16 o.o .111iiiih121 Arinh! i n ;Uhl ail I; ini! II n I

Copyright 2009 Yahoo l Inc. http://finanse.yahoo.com/

17

18

19 ADDITIONAL SCIENTER ALLEGATIONS

2072. As alleged herein. , Defendants acted with scienter in that each Defendant

21

22 knew that the public documents and statements issued or disseminated in the name of

23 the Company were materially false and misleading; knew that such statements or

24documents would be issued or dissemthated to the investing public; and knowingly

25

26 and substantially participated or acquiesced in the issuance or dissemination of such

27 statements or documents as primary violations of the federal securities laws. As set

28


Cas 8 . 09-cv-01306-DOC-MLG Document 1 Filed 11/06/2009 Page 50 of 89

1 forth elsewhere herein in detail, Defendants, by virtue of their receipt of information

2reflecting the true facts regarding STEC, their control over, and/or receipt and/or

3

4 modification of STEC' s allegedly materially misleading misstatements and/or their

5 associations with the Company which made them privy to confidential proprietary

6information concerning STEC, participated in the fraudulent scheme alleged herein.

7

8 73. Defendants were motivated to materially misrepresent to the SEC and

9 investors the true financial condition of the Company because the scheme: (i)

10deceived the investing public regarding STEC' s business, operations, and

11

12 management and the intrinsic value of STEC common stock; (ii) enabled Defendants

13 to register for sale with the SEC, and then sell, over $320 million of their privately

14held STEC shares in connection with the August 2009 Secondary Offering; (iii)

15

16 enabled STEC insiders to sell millions of shares of their privately-held STEC stock

17 while in possession of material adverse non-public information about the Company;

18and (iv) caused Plaintiff and other members of the Class to purchase STEC common

19

20 stock at artificially inflated prices.

21 74. According to the financial news website Yahoo Finance, the insider stock22

sales that occurred during the Class Period included at least, the following •23

24 Date Insider Shares Transaction Value

25 11-Aug- MOSHAYEDI 4,500,000 Sale at $29.76 $133,920,00009 MEHRDAD per share.

26Officer

27 1 1-Aug- MO SHAYEDI 4,500,000 Sale at $29.76 $133,920,00028 09 MANOUCH per share.



1 Officer

2 6-Jul-09 MOSHAYEDI 1,033 Sale at $24.80 $25,618

3 MASOUD per share.Beneficial Owner

4 (10% or more)

5 1-Jul-09 MOSHAYEDI 5,530 Sale at $25.95 $143,503

6 MASOUD per share.Beneficial Owner

7 (10% or more)

8 30-Jun- MOSHAYEDI 290,594 Sale at $23.39 $6,796,99309 MASOUD per share.9

Beneficial Owner10 (1 0% or more)

11 29-Jun- MOSHAYEDI 7,325 Sale at $24.25 $177,631

12 09 MASOUD per share.

Beneficial Owner13 (1 0% or more)

14 26-Jun- MOSHAYEDI 81,989 Sale at $24.18 $1,982,49409 MASOUD per share.

15Beneficial Owner

16 (1 0% or more)

17 25-Jun- MOSHAYEDI 38,908 Sale at $23.50 $914,33809 MASOUD per share.

18 Beneficial Owner19 (1 0% or more)

20 24-Jun- MOSHAYEDI 201,508 Sale at $22.52- $4,661,00009 MASOUD $23.74 per

21 Beneficial Owner share.22 (1 0% or more)

23 23-Jun- MOSHAYEDI 122,900 Sale at $22 per $2,703,80009 MASOUD share.


26 18-Jun- MOSHAYEDI 123,800 Sale at $24.50 $3,033,10009 MASOUD per share.




1 17-Jun- MOSHAYEDI 200,000 Sale at $23.37 $4,674,0002 09 MASOUD per share.

Beneficial Owner

3 (10% or more)4

5 Applicability of Presumption of Reliance:

6 Fraud-On-The-Market Doctrine

7 75. At all relevant times, the market for STEC' s common stock was an

8 efficient market for the following reasons, among others:9

10(a) STEC' s stock met the requirements for listing, and was listed and

ii actively traded on the Nasdaq national market exchange, a highly efficient and

12 automated market;13

14(b) As a regulated issuer, STEC filed periodic public reports with the

15 SEC and the Nasdaq;

16(c) STEC regularly communicated with public investors via

17

18 established market communication mechanisms, including through regular

19 disseminations of press releases on the national circuits of major newswire services

20 and through other wide-ranging public disclosures, such as communications with the21

22 financial press and other similar reporting services; and

23 (d) STEC was followed by several securities analysts employed by

24major brokerage firm(s) who wrote reports which were distributed to the sales force

25

26 and certain customers of their respective brokerage firm(s). Each of these reports was

27 publicly available and entered the public marketplace.

28



1 76. As a result of the foregoing, the market for STEC securities promptly

2 .digested current information regarding STEC from all publicly available sources and

3reflected such information in STEC stock price. Under these circumstances, all4

5 purchasers of STEC common stock during the Class Period suffered similar injury

6through their purchase of STEC common stock at artificially inflated prices and a

7

8 presumption of reliance applies.

9 VIOLATIONS OF GAAP AND SEC REPORTING RULES

1077. During the Class period, Defendants materially misled the investing

11

12 public, thereby inflating the price of the Company's securities, by publicly issuing

13 false and misleading statements and omitting to disclose material facts necessary to

14make Defendants' statements, as set forth herein, not false and misleading Said

15

16 statements and omissions were materially false and misleading in that they failed to

17 disclose material adverse information and misrepresented the truth about the

18Company, its financial performance, accounting, reporting, and financial condition in

19

20 violation of the federal securities laws and GAAP.

21 78. GAAP consists of those principles recognized by the accounting22

profession as the conventions, rules, and procedures necessary to define accepted23

24 accounting practice at the particular time. Regulation S-X, to which the Company is

25 subject as a registrant under the Exchange Act, 17 C.F.R. 210.4-01(a)(1), provides26

27 that financial statements filed with the SEC which are not prepared in compliance

28



I with GAAP are presumed to be misleading and inaccurate. SEC Rule 13a-13 requires

2issuers to file quarterly reports.

3

79. SEC Rule 12b-20 requires that periodic reports contain such further4

5 information as is necessary to make the required statements, in light of the

6 .circumstances under which they are made, not misleading

7

8 80. In addition, Item 303 of Regulation S-K requires that, for interim periods,

9 the Management Division and Analysis Section ("MD&A") must include, among

10other things, a discussion of any material changes in the registrant's results of

1112 operations with respect to the most recent fiscal year-to-date period for which an

13 income statement is provided Instructions to Item 303 require that the this discussion

14identify any significant elements of registrant's income or loss from continuing

15

16 operations that are not necessarily representative of the registrant's ongoing business.

17 Item 303(a)(2)(ii) to Regulation S-K requires the following discussion in the MD&A

18of a company's publicly filed reports with the SEC:

19

20 Describe any known trends or uncertainties that have had or that the

21 registrant reasonably expects will have a material favorable or22

unfavorable impact on net sales or revenues or income from continuing23

24 operations. If the registrant knows of events that will cause a material

25 change in the relationship between costs and revenues (such as known26

future increases in costs of labor or materials or price increases or27

28 inventory adjustments), the change in relationship shall be disclosed.



1 Paragraph 3 of the Instructions to Item 303 states in relevant part:

2The discussion and analysis shall focus specifically on material events

3

and uncertainties known to management that would cause reported4

5 financial information not to be necessarily indicative of future operating

6results or of future financial condition. This would include descriptions

7

8 and amounts of (A) matters that would have an impact on future

9 operations and have not had an impact in the past...

1081. The GAAP requirement for recognition of an adequate provision for

11

12 foreseeable costs and an associated allowance applies to interim financial statements

13 as required by Accounting Principles Board Opinion No. 28. Paragraph 17 of this

14authoritative pronouncement states that:

15

16 The amounts of certain costs and expenses are frequently subjected to

17 year-end adjustments even though they can be reasonably approximated

18at interim dates. To the extent possible such adjustments should be

19

20 estimated and the estimated costs and expenses assigned to interim

21 periods so that the interim periods bear a reasonable portion of the22

anticipated annual amount.23

2482. Statements of Financial Accounting Standards No. 5, Accounting for

25

26 Contingencies ("FASB 5"), states that:

27

28



1 An estimated loss from a loss contingency... shall be accrued by a charge

2to income if both of the following conditions are met:

3

a. Information available prior to issuance of the financial statements4

5 indicates that an asset had been impaired or that a liability had been

6incurred at the date of the financial statements. It is implicit in this

7

8 condition that it must be probable that one or more future events will

9 occur confirming the fact of the loss; and

10b. The amount of the loss can be reasonably estimated.

11

12 83. Here, "information available prior to issuance" of the Company's fiscal

13 second quarter 2009 financial statements, the Company's quarterly filings, and press

14releases published during the Class Period indicated that inventory had built up at

15

16 EMC — the OEM purchaser responsible for 90% of the Company's ZeusIOPS SSD

17 sales — necessarily impacting future near-term expected sales and sales projections.

18Defendants knew of, or deliberately disregarded, this information.

19

20 84. Accordingly, the Company's financial statements contained in the second

21 quarter quarterly reports filed with the SEC on Forms 10-Q and the press releases22

published throughout the Class Period were presented in a manner that violated the23

24 principle of fair financial reporting and the following GAAP, among others:

25 a. The principle that financial reporting should provide information26

27 that is useful to present and potential investors and creditors and other users in making

28



1 rational investment, credit, and similar decisions (FASB Statement of Concepts

2No. 1);

3

4 b. The principle that financial reporting should provide information

5 about an enterprise's financial performance during a period (FASB Statement of

6Concepts No. 1);

7

8 c. The principle that financial reporting should be reliable in that it

9 represents what it purports to represent (FASB Statement of Concepts No. 2);

10d. The principle of completeness, which means that nothing material

11

12 is left out of the information that may be necessary to ensure that it validly represents

13 underlying events and conditions (FASB Statement of Concepts No. 2);

14e. The principle that conservatism be used as a prudent reaction to

15

16 uncertainty to try to ensure that uncertainties and risks inherent in business situations

17 are adequately considered (FASB Statement of Concepts No. 2);

18The principle that disclosure of accounting policies should identify

19

20 and describe the accounting principles followed by the reporting entity and the

21 methods of applying those principles that materially affect the financial statements22

(APB Opinion No. 22);23

24 g. The principle that losses be accrued for when a loss contingency

25 exists (Statement of Financial Accounting Standards No. 5);26

27h. The principle that if no accrual is made for a loss contingency, then

28 disclosure of the contingency shall be made when there is at least a reasonable



1 possibility that a loss or an additional loss may have been incurred (Statement of

2Financial Accounting Standards No. 5);

3

4 i. The principle that contingencies and other uncertainties that affect

5 the fairness of presentation of financial data at an interim date shall be disclosed in

6interim reports in the same manner required for annual reports (APB Opinion No. 28);

7

8 j. The principle that disclosures of contingencies shall be repeated in

9 interim and annual reports until the contingencies j have been removed, resolved, or

10have become immaterial (APB Opinion No. 28); and

11

12 (k) The principle that management should provide commentary

13 relating to the effects of significant events upon the interim financial results (APB

14Opinion No. 28).

15

16 85. In addition, during the Class Period, Defendants violated SEC disclosure

17 rules:

18a. Defendants failed to disclose the existence of known trends, events

19

20 or uncertainties that they reasonably expected would have a material,

21 unfavorable impact on net revenues or income or that were reasonably likely to22

result in the Company's liquidity decreasing in a material way, in violation of23

24 Item 303 of Regulation S K under the federal securities laws (17 C.F.R.

25 229.303), and that failure to disclose the information rendered the statements26

27that were made during the Class Period materially false and misleading; and

28



1 b. by failing to file financial statements with the SEC that conformed

2to the requirements of GAAP, such financial statements were presumptively

3

4 misleading and inaccurate pursuant to Regulation S X, 17 C.F.R. ' 210.4

5 01(a)(1).

686. Defendants were required to disclose in the Company's financial

7

8 statements the existence of the material facts described herein and to appropriately

9 recognize and report assets, revenues, and expenses in conformity with GAAP. The

10Company failed to make such disclosures and to account for and to report its financial

11

12 statements in conformity with GAAP. Defendants knew, or were reckless in not

13 knowing, the facts which indicated that all of the Company's interim financial

14statements, press releases, public statements, and filings with the SEC, which were

15

16 disseminated to the investing public during the Class Period, were materially false and

17 misleading for the reasons set forth herein. Had the true financial position and results

18of operations of the Company been disclosed during the Class Period, the Company's

19

20 common stock would have traded at prices well below that which it did.

21 NO SAFE HARBOR22

23 87. The statutory safe harbor provided for forward-looking statements under

24 certain circumstances does not apply to any of the allegedly false statements pleaded25

in this complaint. Many of the specific statements pleaded herein were not identified26

27 as "forward-looking statements" when made. To the extent there were any forward-

28



I looking statements, there were no meaningful cautionary statements identifying

2important factors that could cause actual results to differ materially from those in the

3

4 purportedly forward-looking statements. Alternatively, to the extent that the statutory

5 safe harbor does apply to any forward-looking statements pleaded herein, Defendants

6are liable for those false forward-looking statements because at the time each of those

7

8 forward-looking statements was made, the particular speaker knew that the particular

9 forward-looking statement was false, and/or the forward-looking statement was

10authorized and/or approved by an executive officer of STEC who knew that those

1112 statements were false when made.

13 BASIS OF ALLEGATIONS

14

15 88. Plaintiff has alleged the following based upon the investigation of

16 Plaintiffs counsel, which included a review of SEC filings by STEC, as well as

17regulatory filings and reports, securities analysts' reports and advisories about the

18

19 Company, press releases and other public statements issued by the Company, and

20 media reports about the Company, and Plaintiff believes that substantial additional

21evidentiary support will exist for the allegations set forth herein after a reasonable

22

23 opportunity for discovery.

24

25

26

27

28



1 COUNT I

2(Against the Individual Defendants)

3 Violation of Section 10(b) of the Exchange Act

4 And Rule 10b-5 Promulgated Thereunder

5 89. Plaintiff repeats and re-alleges each and every allegation contained above

6as if fully set forth herein.

7

8 90. During the Class Period, Defendants carried out a plan, scheme and

9 course of conduct which was intended to and, throughout the Class Period, did: (i)

10deceive the investing public regarding STEC' s business, operations, and management

1112 and the intrinsic value of STEC common stock; (ii) enable Defendants to register for

13 sale with the SEC, and then sell, over $320 million of Company stock in connection

14with the August 2009 Secondary Offering; (iii) enable STEC insiders to sell over 9

15

16 million shares of their privately held STEC stock while in possession of material

17 adverse non-public information about the Company; and (iv) cause Plaintiff and other

18members of the Class to purchase STEC common stock at artificially inflated prices.

19

20 In furtherance of this unlawful scheme, plan and course of conduct, Defendants,

21 jointly and individually (and each of them) took the actions set forth herein.22

91. Defendants: (a) employed devices, schemes, and artifices to defraud;23

24 (b) made untrue statements of material fact and/or omitted to state material facts

25 necessary to make the statements not misleading; and (c) engaged in acts, practices,26

27 and a course of business which operated as a fraud and deceit upon the purchasers of

28 the Company's common stock in an effort to maintain artificially high market prices



I for STEC' s common stock in violation of Section 10(b) of the Exchange Act and Rule

210b-5. All Defendants are sued either as primary participants in the wrongful and

3

illegal conduct charged herein or as controlling persons as alleged below.4

5 92. Defendants, individually and in concert, directly and indirectly, by the

6use, means, or instrumentalities of interstate commerce and/or of the mails, engaged

7

8 and participated in a continuous course of conduct to conceal adverse material

9 information about the business, operations and future prospects of STEC as specified

10herein.

11

12 93. These Defendants employed devices, schemes, and artifices to defraud,

13 while in possession of material adverse non-public information and engaged in acts,

14practices, and a course of conduct as alleged herein in an effort to assure investors of

15

16 STEC' s value and performance and continued substantial growth, which included the

17 making of, or the participation in the making of, untrue statements of material facts

18and omitting to state material facts necessary in order to make the statements made

19

20 about STEC and its business operations and future prospects in the light of the

21 circumstances under which they were made not misleading, as set forth more22

particularly herein, and engaged in transactions, practices, and a course of business23

24 which operated as a fraud and deceit upon the purchasers of STEC common stock

25 during the Class Period.26

2794. Each of the Individual Defendants' primary liability, and controlling

28 person liability, arises from the following facts: (i) the Individual Defendants were



1 high-level executives and/or directors at the Company during the Class Period and

2members of the Company's management team or had control thereof; (ii) each of

3

these Defendants, by virtue of his responsibilities and activities as a senior officer4

5 and/or director of the Company was privy to and participated in the creation,

6development and reporting of the Company's internal budgets, plans, projections

7

8 and/or reports; (iii) each of these Defendants enjoyed significant personal contact and

9 familiarity with the other Defendants and was advised of and had access to other

10members of the Company's management team, internal reports, and other data and

1112 information about the Company's finances, operations, and sales at all relevant times;

13 and (iv) each of these Defendants was aware of the Company's dissemination of

14information to the investing public which they knew or deliberately disregarded was

15

16 materially false and misleading.

17 95. The Defendants had actual knowledge of the misrepresentations and

18omissions of material facts set forth herein, or acted with deliberate disregard for the

19

20 truth in that they failed to ascertain and to disclose such facts. Such Defendants'

21 material misrepresentations and/or omissions were done knowingly or with deliberate22

disregard for the purpose and effect of concealing STEC' s operating condition and23

24 future business prospects from the investing public and supporting the artificially

25 inflated price of its common stock. As demonstrated by Defendants' overstatements26

27 and misstatements of the Company's business, operations, and earnings throughout

28 the Class Period, Defendants, if they did not have actual knowledge of the



1 misrepresentations and omissions alleged, were reckless in failing to obtain such

2knowledge by recklessly refraining from taking those steps necessary to discover

3

whether those statements were false or misleading4

5 96. As a result of the dissemination of the materially false and misleading

6information and failure to disclose material facts, as set forth above, the market price

7

8 of STEC common stock was artificially inflated during the Class Period. In ignorance

9 of the fact that market prices of STEC' s publicly-traded common stock were

10artificially inflated, and relying directly or indirectly on the false and misleading

1112 statements made by Defendants, or upon the integrity of the market in which the

13 securities trade, and/or on the absence of material adverse information that was known

14to or deliberately disregarded by Defendants but not disclosed in public statements by

15

16 Defendants during the Class Period, Plaintiff and the other members of the Class

17 acquired STEC common stock during the Class Period at artificially high prices and

18were damaged thereby.

19

20 97. At the time of said misrepresentations and omissions, Plaintiff and other

21 members of the Class were ignorant of their falsity, and believed them to be true. Had22

Plaintiff and the other members of the Class and the marketplace known the truth23

24 regarding the problems that STEC was experiencing, which were not disclosed by

25 Defendants, Plaintiff and other members of the Class would not have purchased or26

27 otherwise acquired their STEC common stock, or, if they had acquired such common

28



I stock during the Class Period, they would not have done so at the artificially inflated

2prices which they paid.

3

98. By virtue of the foregoing, Defendants have violated Section 10(b) of the4

5 Exchange Act, and Rule 10b-5 promulgated thereunder.

699. As a direct and proximate result of Defendants' wrongful conduct,

7

8 Plaintiff and the other members of the Class suffered damages in connection with their

9 respective purchases and sales of the Company's common stock during the Class

10Period.

11

12 COUNT II

13 (Against the Individual Defendants)

14 Violation of Section 20(a) of the Exchange Act

15 100. Plaintiff repeats and re-alleges each and every allegation contained above

16as if fully set forth herein.

17

18101. The Individual Defendants acted as controlling persons of STEC within

19 the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their

20 high-level positions, and their ownership and contractual rights, participation in and/or

21

22 awareness of the Company's operations, and/or intimate knowledge of the false

23 financial statements filed by the Company with the SEC and disseminated to the

24 investing public, the Individual Defendants had the power to influence and control and

25

26 did influence and control, directly or indirectly, the decision-making of the Company,

27 including the content and dissemination of the various statements which Plaintiff

28



I contends are false and misleading The Individual Defendants were provided with or

2had unlimited access to copies of the Company's reports, press releases, public filings,

3

and other statements alleged by Plaintiff to be misleading prior to and/or shortly after4

5 these statements were issued and had the ability to prevent the issuance of the

6statements or cause the statements to be corrected.

7

8 102. In particular, each of these Defendants had direct and supervisory

9 involvement in the day-to-day operations of the Company and, therefore, is presumed

10to have had the power to control or influence the particular transactions giving rise to

1112 the securities violations as alleged herein, and exercised the same.

13 103. As set forth above, STEC and the Individual Defendants each violated

14Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint.

15

16 By virtue of their positions as controlling persons, the Individual Defendants are liable

17 pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of

18Defendants' wrongful conduct, Plaintiff and other members of the Class suffered

19

20 damages in connection with their purchases of the Company's common stock during

21 the Class Period.22

COUNT III23

24 (Against All Defendants)For Violation of Section 11 of the Securities Act

25

26104. Plaintiff incorporates by reference each and every allegation contained

27 above, as if set forth herein only to the extent, however, that such allegations do not

28



I allege fraud, scienter, or the intent of the Defendants to defraud Plaintiff or members

2of the Class. This count is predicated upon Defendants' strict liability for making

3

false and materially misleading statements in the Registration Statement and4

5 Prospectus. This Count is asserted by Plaintiff against all Defendants by and on

6behalf of persons who acquired shares of the Company pursuant to the false

7

8 Registration Statement and Proxy Statement issued in connection with the August

9 2009 Secondary Offering.

10105. STEC is the issuer of the stock issued via the false Registration Statement

11

12 and Prospectus. As such, STEC is strictly liable for each false and misleading

13 statement contained therein.

14106. The Defendants identified in paragraphs 14-16 and 18, supra, are each

15

16 signatories of the Registration Statement or Underwriters of the August 2009

17 Secondary Offering, therefore, each of these Defendants had a duty to make a

18reasonable investigation of the statements contained in the Registration Statement and

19

20 Prospectus to ensure that said statements were true and that there was no omission to

21 state any material fact required to be stated in order to make the statements contained22

therein not misleading In the exercise of reasonable care, Defendants should have23

24 known of the material misstatements and omissions contained in the Registration

25 Statement and Prospectus and also should have known of the omissions of material26

27 fact necessary to make the statements made therein not misleading As such, each of

28 these Defendants is liable to plaintiff and the Class.



1 107. Each of the Defendants identified in Count I issued, caused to be issued,

2and participated in the issuance of materially false and misleading written statements

3

to the investing public which were contained in the Proxy Statement with4

5 misrepresented or failed to disclose, inter alia, the facts set forth above. By reasons of

6the conduct alleged herein, each Defendant violated, and/or controlled a person who

7

8 violated § 11 of the Securities Act. As a direct and proximate result of Defendants'

9 wrongful conduct, the price for the STEC common stock sold in the August 2009

10Secondary Offering was artificially inflated and plaintiff and the Class suffered

1112 substantial damages in connection with their purchase of STEC common stock.

13 108. Plaintiff and other members of the Class acquired their STEC stock

14without knowledge of the untruths and/or omissions alleged herein. Plaintiff and the

15

16 other members of the Class were thus damaged by Defendants' misconduct and by the

17 material misstatements and omissions of the aforementioned Registration Statement

18and Prospectus.

19

20 109. This action was brought within one year after the discovery of the untrue

21 statements and omissions and within three years after the August 2009 Secondary22

Offering of the Selling Shareholders' privately held STEC common stock.23

24

25

26

27

28



1 COUNT IV

2(Against All Defendants)

3 Violation of Section 12(a)(2) of the Securities Act

4 110. Plaintiff repeats and re-alleges each and every allegation contained5

above.6

7 111. This Count is brought by Plaintiff pursuant to Section 12(a)(2) of the

8 Securities Act on behalf of all purchasers of STEC shares in connection with and9

10 traceable to the August 2009 Secondary Offering This cause of action is brought

11 against all Defendants.

12 112. Defendants were sellers, offerors, underwriters and/or solicitors of sales13

14 of the STEC shares offered pursuant to the August 2009 Secondary Offering

15 Registration Statement and Prospectus.

16113. The STEC Secondary Offering Registration Statement and Prospectus

17

18 contained untrue statements of material facts, omitted to state other facts necessary to

19 make the statements made not misleading, and concealed and failed to disclose

20material facts. Defendants' actions of solicitation included participating in the

21

22 preparation of the false and misleading Prospectus and Registration Statement.

23 114. The Defendants owed to the purchasers of STEC shares which were sold

24 in the August 2009 Secondary Offering the duty to make a reasonable and diligent

25

26 investigation of the statements contained in the Prospectus and Registration

27 Statement, to insure that such statements were true and that there was no omission to

28



1 state a material fact required to be stated in order to make the statements contained

2therein not misleading. These Defendants knew of, or in the exercise of reasonable

3

care should have known of, the misstatements and omissions contained in the Offering4

5 materials as set forth above.

6115. Plaintiff and other members of the Class purchased or otherwise acquired

7

8 STEC shares pursuant to and traceable to the defective Prospectus. Plaintiff did not

9 know, or in the exercise of reasonable diligence could not have known, of the untruths

10and omissions contained in the Prospectus and Registration Statement.

11

12 116. Plaintiff, individually and representatively, hereby offer to tender to

13 Defendants those securities which plaintiff and other Class members continue to own,

14on behalf of all members of the Class who continue to own such securities, in return

15

16 for the consideration paid for those securities together with interest thereon.

17 117. By reason of the conduct alleged herein, these Defendants violated,

18and/or controlled a person who violated, §12(a)(2) of the Securities Act. Accordingly,

19

20 Plaintiff and members of the Class who hold STEC shares purchased in the August

21 2009 Secondary Offering have the right to rescind and recover the consideration paid22

for their STEC shares and, hereby elect to rescind and tender their STEC shares to the23

24 Defendants sued herein. Plaintiff and Class members who have sold their STEC

25 shares are entitled to rescissory damages.26

27118. Less than three years elapsed from the time that the securities upon which

28 this Count is brought were sold to the public to the time of the filing of this action.



1 Less than one year elapsed from the time when plaintiff discovered or reasonably

2could have discovered the facts upon which this Count is based to the time of the

3

filing of this action.4

5

6 COUNTY

7 (Against The Individual Defendants)

8 For Violation of Section 15 of the Securities Act

9 119. Plaintiff incorporates by reference each and every allegation contained

10 above as if set forth herein. This Count is asserted against the Individual Defendants.11

120. Throughout the Class Period, the Individual Defendants acted as12

13 controlling persons of STEC within the meaning of §15 of the Securities Act. By

14 reason of their stock ownership, senior management positions and/or directorships at15

16 the Company, as alleged above, these Defendants, individually and acting pursuant to

17 a common plan, had the power to influence and exercised the same to cause STEC to

18engage in the unlawful acts and conduct complained of herein.

19

20121. By reason of such conduct, the Defendants named in this Count are liable

21 pursuant to §15 of the Securities Act. As a direct and proximate result of their

22wrongful conduct, plaintiffs and the Class suffered damages in connection with their

23

24 acquisition of STEC common stock.

25 WHEREFORE, Plaintiff prays for relief and judgment, as follows:

26

27

28



1 (A) Determining that this action is a proper class action, designating

2Plaintiff as Lead Plaintiff and certifying Plaintiff as a class representative under Rule

3

23 of the Federal Rules of Civil Procedure and Plaintiffs counsel as Lead Counsel;4

5 (B) Awarding compensatory damages in favor of Plaintiff and the

6other Class members against all Defendants, jointly and severally, for all damages

7

8 sustained as a result of Defendants' wrongdoing, in an amount to be proven at trial,

9 including interest thereon;

10(C) Awarding Plaintiff and the Class their reasonable costs and

1112 expenses incurred in this action, including counsel fees and expert fees;

13 (D) Awarding extraordinary, equitable, and/or injunctive relief as

14permitted by law, equity, and the federal statutory provisions sued hereunder, pursuant

15

16 to Rules 64 and 65 and any appropriate state law remedies to assure that the Class has

17 an effective remedy; and

18(E) Such other and further relief as the Court may deem just and

19

20 proper.

21

22

23

24

25

26

27

28



1

2JURY TRIAL DEMANDED

3

4 Plaintiff hereby demands a trial by jury.

5

6DATED: November 6, 2009 DOYLE LOWTHER LLP

7 WILLIAM J. DOYLE II (SBN 188069)

8

9/-

10 WILLIAM J. • YLE II ( N 188069)[email protected]

11 JOHN LOWTHER (SBN 207000)

12 [email protected] Black Mountain Road, Suite 210

13 San Diego, California 92126

14 Telephone: (619) 573-1700Facsimile: (619) 573-1701

15

16 Local Counsel for Plaintiff

17 KAHN SWICK & FOTI, LLC

18 Kim Miller12 East 41st Street, 12th Floor

19 New York, NY 10007

20 Telephone: (212) 696-3730Facsimile: (504) 455-1498

21

22 KAHN SWICK & FOTI, LLCLewis Kahn

23 650 Poydras Street, Suite 2150

24 New Orleans, LA 70130Telephone: (504) 455-1400

25 Facsimile: (504) 455-1498

26Attorneys for Plaintiff

27

28



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Case 8:09-cv-01306-DOC-MLG Document 1 Filed 11/06/2009 Page 75 of 89

11/00/2009 12:52 FAX aon

CERTIFICATION IN SUPPORT OF APPLICATION FOR LEAD PLAINTIFF

HA t)I SA KI-Iik 1 (name) ("plaintiff-) declares, as to the claims asserted under the federalSCCIltiliC3 law, that

I. Plaintiff has fully reviewed the facts of the complaint(s) filed in this action alleging

violations of the securities laws and plaintiff is willing to serve as ft lead plaintiff in this case and all other

related cases that may be consolidated with it.

2. Plaintiff did not purchase securities of STEC, Inc. at the direction of counsel Olin order

to participate in a private action under the fcdensl securities laws.

3. Plaintiff is willing to serve as a representative party on behalf of a class, including

providing testimony at deposition and trial, if necessary,

4. During the Class Period, plaintiff has executed transactions in the securities of STEC,

Inc. as follows. See Attached Schedule,

5. In the last three years, plaintiff has not sought to serve as a representative party on behalf

of a class in an action filed wider the federal securities laws, except as indicated herein.

6. Plaintiff will not accept payment for serving as a lead plaintiff beyond ita pro rain share

of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to the

representation of the Class as ordered or approved by the Court.

I declare under penalty of perjury under the laws of the United Stales of America that the

foregoing is true and correct,

Dated; )1 "'" 0' 2009

, a e:•••°11e

Plaintiff


Z00211/06/2009 12:52 FAX

Name of plaintiff' HAeI KIVU5chetiole of p laintiff's Transactional in

Stec, Inc Purchase(s):

th_•011 Nun

See attached.

Sale(s):

Date price

See attached.

Position As of: 11/05/2009, 1:09 AM ET)

Unrealized Unrealized CD

COSymbol Description Quantity Closing Mkt Value Total Cost Basis Gain/ Loss Gain/Loss % Type acoSTEC STEC INC 7,400.0000/ $104,636.00 S2201553.57 -$:25,917,57 1-52.56% Margin Trade e2

News 0lie-slt

9)cp09

Position History r-

show: { Open Lots T, The information below is a summary of your open tax lots as of the prior business,. day's dose,0

Date Cost Basis Closing Mkt Unrealized Unrealized n

Acquired quantity per Share Value Cost Basis Gain/Loss Gain/Loss % Holding Period 5=

09/10/2009 80,0000 $42.12 $1,131,20 $3,369.89 w -$2,238,69 -66,43% Short

09/10/2009 100.0000 $42.10 $1,414,00 $4,210.36 w -$2,796,36 1

-66,42% Short -n09/10/2009 320.0000 $41.95 $4,524,80 S13,422.43 -$8,897.63 -66.29%1 Short lir

aa09/14/2009 1,000.0000 $40.01 S14,140.00 $401008.00 -$25,868„00 -64.66% Short •-•

23-1 i (3)09/16/2009 E 500.0000 $38.52 $7,070.00 $19,262.35 -$12,192.35 -63,30% Short I \ J----

00CO09/17/2009 2,000.0000 $32.02 $28,280.00 t $64/047.80 -$35,767.80 -55,85% Short

J

I -009/22/2009400.0000 $29.61 $5,656.00 511,843.64 -$6,187.64 -52,24% Short cot

COCD

10/28/2009 1,000.0000 $21.49 $14,140,00 S211491.10 -$7,351.101 -34.21%1 Short --,4--I0

10/28/2009 2,000,0000 $21A5 $28,280.00 S421898.00 -$141618.00 -34.06% Short --.,00CD

"WeirInvestment Report

FIDELITY PREFERRED SERVICES sm August It 2009- August 31, 2009

COCD

CO

0CO

Fidelity Account s HADI SAKHAI AND FARAH SAKHAI - WITH RIGHTS OF SURVIVORSHIP TODPerformance Quantity Price per Unit Total Value Total ValueHoldings iSymbol) as of August 31, 2000 August 31, 2009 August 31, 2009 August 31, 2009 Total Cost Basis August t 2009 August 31, 2009

0

00

3CD

(1)0-—i

CT)

Short-term gam: $711.238/13 STEC INC You bought 2000.000 30.34000 -60,705.95 (.0

Transaction cost -$25.95

coCD

CO

CO(0

II III :cytfldeI:ty

Investment Report0FIDELITY PREFERRED SERVICES sm August 1, 2009- August 31, 2009coCo

co

co- • JAI A to I-1 cAC>A1-4 .qel<HAI - WITH RIGHTS OF SURVIVORSHIP TOD

—6

0,

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00

3co

8118 STEC INC You bought 100.000 36.34000 -3,634.00_

8118 STEC INC You bought 180.000 35.10000 -6,328.95Transaction cost: -$10.95Wash sale of 8/13/09: $249.48

8/18 STEC INC You bought 300.000 36.36000 -10,908.00(3)Wash sale of 8/13/09: $105.25EC.)8/18 STEC INC You bought 400.000 36.32000 -14,536.00

Transaction cost: 48,008/18 STEC INC You bought 800.000 36.37000 -29,096.008/18 STEC INC You bought 900.000 36.33000 -32,697.008/18 STEC INC You sold -2,000.000 33.85010 61,689.281 67,690.46 re

Transaction cost: -$9.74Short-term gain: $6,355.91Short-term loss: $354.73 (.0Short-term disallowed loss: $354.73

8/18 STEC INC You sold -180.000 35.52040 5,463.54f 6,385.50 CoTransaction cost: -$8.17Short-term gain: $921.96

0001 090831 0001 900126154 04 18 000 Page 3 of 6

C.)coCD

CO

6co

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00

0

08/19 STEC INC You bought 200.000 35.16000 -7,033.06 3

Transaction cost: -$1.06 CD8/19 STEC INC You bought 300.000 35.17000 -10,552.59

Transaction cost: -$1.598/19 STEC INC You bought 1,000.000 35.16780 -35,173.13

Transaction cost: -$5.338/31 FIDELITY MUNICIPAL Dividend received 1.54

MONEY MARKET CL- FIFO (First-In, First-Out)

nnet hneie nnd rtninhnee inthrmniinn 1,, nrrndrind me enndro fn /un- nnninrnend nnd nionninndn nihnn I SO anon...an-a tn. riddn.

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'11

CD

R300

9/08 STEC INC You sold -4,000.000 37.50010 143,866.59f 149,988.54Transaction cost: -$11.86Short-term gain: $6,152.08 -0Short-term loss: $30.13 CO

. (9

CO

0

CO

• ---*ment Report

0sa)coto

CO

co

c6.)

-20,972.55

500.000 41.92910You bought9/15 STEC INCTroncortinn SA

3CD

CD

n

CO

-40,008.00You bought 1,000 000 40.000009/17 STEC INC

Transaction cost: -$8.00

toYou sold

03

0

COCo

- Fir 17,„ Investment Report

FIDELITY PREFERRED SERVICES sm September 1, 2009 - September 30, 2009 0

Co

co

co

CS

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00

0

0

3co

!NU

- 9121 STEC INC You bought 500.000 38.50870 -19,262.35Transaction cost: -$8.00

6

co

(.0

CoCO0

CO-

9/22 STEC INC You bought 2.000.000 32.01990 -64,047.80Transaction cost. -$8.00

0001 090930 0001 900038398 04 18 000 Page 6 of 10

Investment Report

FIDELITY PREFERRED SERVICES Sm September 1, 2009 - September 30, 2009 0COCD

CO

0CO

Fidelity Account salaam HADI SAKHAI AND FARAH SAKHAI - WITH RIGHTS OF SURVIVORSHIP TODTransaction Details Investment ActivitySettlementDate Security Description Quantity Price per Unit Cost Basis ot Close Transaction Amount

9/25 STEC INC You bought 400.000 29 58910 -11843.64Transaction cost' -$800 0

0

00

3CD

cT

CC)CD

co

CO(.0

Ii I Fidelity

INVESTMENTS Investment Report

FIDELITY PREFERRED SERVICES S m October 1, 2009 - October 31, 2009 0coCo

co6co

Fidelity Account HADI SAKHAI AND FARAH SAKHAI -WITH RIGHTS OF SURVIVORSHIP TOD0•

Trades Pending Settlement on October 31, 2009 COTrade SettlementData Date Security Description Quantity Price per Unit Settlement Amount CD

10/28 11/02 STEC INC (STEC ) Bought 2,000.000 $2144500 -$42,898.0010/28 11/02 STEC INC (STEC ) Bought tooaorm 21.48310 -21,491.10 0

0Daily Additions and Subtractions Fidelity Municipal Money Market @ $1 per share (the following is provided to you in accordance with industry regulations) I kDate Amount Balance Date Amount Balance Date Amount Balance

10/13 -$3,000.00 $10406.69 10/22 -9,791.29 615.40 10/30 0.13 615.53

00

Additional Information About Your Investment ReportI

lo• In addition to SIPC protection, Fidelity Brokerage Services LLC (FBS), through National Financial Services LLC (NFS), provides its brokerage customers with excess ofSIPC coverage from Lloyd's of London. This additional coverage only becomes available in the event S1PC coverage is exhausted. Total aggregate additionalcoverage protection available through Lloyd's of London is $1 billion. This is the maximum additional coverage protection currently available in the brokerage industry.Within our $1 billion in aggregate excess of SIPC protection, there is no per account dollar limit on coverage of securities. There is a per account limit of $1,9 million oncoverage of cash. Neither S1PC nor excess of S1PC coverage protects against a decline in the market value of securities or losses incurred while the broker dealerremains in business.

Cost Basis Information and Endnotes C3)

Fidelity-provided estimated cost basis, gain/loss, and holding period information may not reflect all adjustments necessary for tax reporting purposes. Taxpayers CD0COshould verify such information against their own records when calculating reportable gain or loss resulting from a sale, redemption or exchange. Amortization,

accretion and similar adjustments to cost basis are provided for many fixed income securities (and some bond-like equities), however, they are not provided for certainfixed income securities, such as short-term instruments, Unit Investment Trusts, foreign fixed income securities, or those that are subject to early prepayment of -uprincipal (pay downs).

toco

COCo

0001 091030 0001 900037808 04 18 000 Page 3 of 4


UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIA

NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE FOR DISCOVERY

This case has been assigned to District Judge David 0. Carter and the assigneddiscovery Magistrate Judge is Marc Goldman

The case number on all documents filed with the Court should read as follows:

SACV09- 006 DOC (MLGx)

Pursuant to General Order 05-07 of the United States District Court for the CentralDistrict of California, the Magistrate Judge has been designated to hear discovery relatedmotions.

All discovery related motions should be noticed on the calendar of the Magistrate Judge

NOTICE TO COUNSEL

A copy of this notice must be served with the summons and complaint on all defendants (if a removal action Isfiled, a copy of this notice must be served on all plaintiffs).

Subsequent documents must be filed at the following location:

u Western Division [X] Southern Division u Eastern Division312 N. Spring St., Rm. G-B 411 West Fourth St., Rm. 1-053 • 3470 Twelfth St., Rm, 134Los Angeles, CA 90012 Santa Ana, CA 92701-4516 Riverside, CA 92501

Failure to file at the proper location wilt result M your documents being returned to you.

CV-18 (03/06) NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE FOR DISCOVERY

Case 8:09-cv-01306-D0Q-MLG Document 1 Filed 11106/2009 OW:ANAL,Name & Address:John Lowther, Esq. (SBN 207000)

DOYLE LOWTHER LLP9466 Black Mountain Road, Suite 210San Diego, CA 92126

UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIA

IADI SAKHAL Individually and on Behuliof All Others Similarly CASE NUMBER,

Situated,

CV09 -01306 .0 Cr

V.

STEC, INC., MANOUCH MOSHAYEDI, MARK MOSHAYEDI,RAYMOND 0.000K J.P. MORGAN SECURITIES, INC.,DEUTSCHE BANK SECURITIES INC. BARCLAYS CAPITAL INC., SUMMONSand OPPENHEIMER EV. CO , INC.,

DEFENDANT(S).

TO: DEFENDANT(S):

A lawsuit has been filed against you.

Within 20 days after service of this Summons on you (not counting the day you received it), youmust serve on the plaintiff an answer to the attached gcomplaint 0 amended complaint0 counterclaim 0 cross-claim or a motion under Rule 12 of the Federal Rules of Civil Procedure. The answeror motionmotion must be served on the plaintiff's attorney, John Lowther, Esq. , whose address is9466 Black Mountain Road, Suite 210, San Diego, CA 92126 . If you thil to do so,judgment by default will be entered against you for the relief demanded in the complaint. You also must file sal

your answer or motion with the court.

Clerk, U.S. District Court •

c____11,;t1 \Dated: NfIV 711119 By

Dcputyl"Clif

(Seal of the Comp

[Use 60 days Ville deli:minor is the llnUed Stores or a United Sums agency, or is cm officer or employee of the Uni fed &aka. Allowed60 days by Rule I 2(o)(3).7.

CV-01A (12M7) SUMMONS

. py

-.- Case 8:090eNTMANfiPathiker c n4f

CgreeNtita DFahadd11 Iiei II la RNEteg 88 8.

CIVIL COVER SHEITT1

1 (a) PLAINTIFFS (Cheek box ilyou are representin g yourselro) DEFENDANTS ,HAD! SAKHA1. Individually and on Behalf am Others Similarly Situated STEC, INC., MARK MOSHA VEIN, MANOLICH MOSHAYEDL RAYMOND 1

0. COOK, LP, MORGAN SECURITIES, INC., DaumLE BANK 1SECURLT/ES INC., BARCLAYS CAPITAL INC., OPPENI !EIMER & CO. INC I

1,i

(b) Attorneys (Finn Name, Address and Telephone Number. If you arc representing Attorneys (I r Known)yourselE provide same.)John Lowther, Esq. (SUN 207000) DOYLE I DWTHER LIP(019) 573-170(1 9466 Black Mountain Road. Suite 210

San Diego, CA 92126

IL BASIS OF JURISDICTION (Place an X in one box only.) 111. CITIZENSHIP OF PRINCIPAL PARTIES - For Diversity Cases Only(Place an X in one box thr plaintiliand one Fr defendant.)

0 I U.S. Government Plaintiff i3 Federal Question (US l'TF DEE PIE DEFGovernment Not a Party) Citizen of This State 0 1 0 I Incorporated DV Principal Place 04 04

Sliminess in this State

02 U.S. Government Defendant 04 Diversity (Indicate Citizenship Citizen of Another State 02 02 Incorporated and Principal Place 05 05&Tidies in Item 111) ottusiness in Another Mate

Citizen or Subject pro Foreign Country 03 03 Foreign Nation 06 06

IV. ORIGIN (Place an X in one box oak.)

Etin Original 02 Removed from 03 Remanded from 04 Reinstated or 0 5 Translethed front another district (specify): 06 Multi- 0 7 Appeal to DistrictProceeding State Court Appellate Court Reopened District Judge from

Litigation Magistrate Judge rarn4

V. REQUESTED IN COMPLAINT: JURY DEMAND: t 'Yes 0 No (Check 'Yes' only if -demanded in complaint,)

CLASS ACTION under F.R,C.P. 23: gYes 0 No 0 MONEY DEMANDED IN COMPLAINT: S la

VI. CAUSE OF ACTION (Chi. the U.S. Civil SUMAC under which you are filing and 'write a brief statement or cause. Do not eite , thrisdietional statutes milews diversity.) dr.)15 U.S.C. 607k and noi 15 U-SC*978819 and 788a); 17 CFR. 6240.10h-5: Violation offederol securities laws a arre

VII. NATURE OF SUIT (Mace an X in one tun only.) 157e1 :

. '‘' :Agri ms .01 : ,Z414:10:iii§atIlpival p.•:, igtoav.:! Nsz sr vi icactAt;g:0400 State Reapportionment 0 110 insurance A.,.0'.4w)li.a.G.10;:pos wimitimoitingtititit AglivsmV - 8,,,i<55 0710 Fair labor Standards0 410 Antitrust 0 120 Marine 03/0 Airplane111111OlisgOPERTAiititit't 0510 motions to Act0 430 Bunks and Banking 0 130 Miller Act 0 315 Air/aline Product 0 370 Other Fraud Vacate Sentence 0 720 Labor/Mgmt.0 450 Commeree/ICC 0 140 Negotiable Instrument Liability 037! Truth in Lending Habeas Corpus Relations

Rates/etc. 0 150 Recovery of 0320 Ssault, Libel & 0380 Other Personal 0 530 General 0 730 Lahor/Mgmt,0 460 Deportation Overpayment &Slander Property Damage 0 535 Death Penalty Reporting &„n , ,0470 Racketeer Influenced Enforcem "'"ent of I] reu* GinllglYerC 0 383 Property Damage 0 540 Mandamus/ Disclosure Act

Liabilityand Corrupt Judgment Product Liability Other 0740 Railway Labor ActOrganizations 0 1:31 Medicare Act 0 340 Marine tennWee,„1 05,0 Civil Rights 0 790 Other Labor

0 345 M Pt 0480 Consumer Credit 0 152 Recoveryof Defaulted arine roe CC

.. 0 422 Appeal 28 USC 0 555 Prison Condition LitigationLiability0 490 Cable/Sat TV Student Loan (Excl. 158 kr4frOffi(ETWREVA 0 791 Enipl. Rm. Inc.0 350 Motor Vehicle0,810 Selective Service Veterans)0 355 Motor Vehicle 0 423 Withdrawa if 28 I,Vn'irIBEAVAit459,,W4ltatt c Sycnnrity„Act__, _at 850 Securities/Commodities/ 0 153 Recovery or ProductL iability rus.r,:,rs7,,,, 0 610 Agriculture E iltimmeirn ti41,6i1Itgin

Exchange Overpayment of 0 360 Other Personal assetaMerepeisi P62(1 Other Food & 0 820 Copyrights0 875 Customer Challen ge 12 Veteran's Benefits 1 Mary 0 441 Voting Drug 0 830 Patent

USC 3410 0 160 Stockholders' Suits 0 367 Personal hfituy- El 442 Employment 1:3625 Dam Related Et NO itradentark .El 890 Other Statutory Actions 0 190 Other Comer med ryporaprice 0443 Housing/Aceo- Seizure of rawaciegama0 891 Agricultural Act 0 195 Contract Product 0 365 Persona/ Injury- =Iodations ProperW 21 USC 0 861 IDA (139511)0 892 Economic Stabilization Liability Product Liability 0 444 Welke 881 0 862 Mock Lung (923)

Act 0 196 Franchise 0 368 Asbestos Personal 0445 American with 0 630 Liquor Laws 086$ DIWC/DINVW0 893 Environmental Matters kit7agafaigelWagt$ haury Product Disabilities - 0 640 R.R. & Truck (405(g)) i0 894 Energy Allocation Act 0 210 Land (.ondemnationLiability_ Employment 0650 Airline Regs 0 864 5511) nth: xvi I089' Freedom of Info. Act 0220 Foreclosure In IISOMilgaei 0446 American with 0 660 Occupational 0 865 NI (405(g))

10 900 Appeal of Fee Deward- 0230 Rent Lease & Electrum. 0 462 Naturalization Disabilities - Slat>: /Flail) N$114.PaR9UkaTAVania I

nation Under Equal 0240 Torts to Land Application Other 0 690 Other 0 870 Taxes (U.S. PlaintiffAccess to Justice 0245 Thrt Product Liability 0463 Habeas Corpus- 0 44(1 Other Civil or Defendant)

0 950 Constitutionality of 0 290 All Other/kcal Property Alien Detainee Rights 0 871 IRS-Third Party 260 465 Other ImmigrationState Statutes

LISC 7609Actions

. .

S A C V 0 9 - 01306FOR OFFICE USE ONLY: Case Number: .

AFTER COMPLETING THE FRONT SIDE OF FORM CV-71, COMPLETE THE INFORMATION REQUESTED BELOW,

CV-7I (05108) CIVIL COVER SHEET Page 1 of 2 .

Case 8:041gy-61239§-RP&sP&CaT c6iftay fba. Dfsitirl . 20; faNPAage 89 of 89CIVIL COVER SHEET

VI Mat. IDENTICAL CASES: Has This action been previously filed in this connand dismissed, remanded or closed? dNo 0 YesI Eyes. list case number's):

VI 11(b). RELATED CASES: Have my cases been previously tiled in this court Mal nre related to the present ease? iNo 0 YesIf yes. list case numbodsk

Civil cases are deemed related Ira previously filed case and the present ease:(Check all boxes that apply) 0 A. Arise Irons-the some or closely related transactions, happenings, or events; or

0 B. Call for determination or the same or substantMily related or similar questions of law and km; or0 C. For other reasons would entail substantkl duplication of labor i'heard byAIM:rem judges: or

Involve the saute patent, trademark or copyright,and.one °Hite factors identified above in a, bore alsolsturesent.

IX.YEN OE: (When completing the: rot intimation, use an additional sheet if necessary.)

(a) List the County in this District; Ca Minnie County outside-old his District:Maw it' Mbar than California: or Foreign Country, in which .EA CH -named plaint) fl resides.0 Cheek. here if the novemmene its auctmica or employees is a named plaintiff If this hos. is checked, go to item (M.

County in this Disuicn vCalitinnia Countyoutside of-this District; Stale, ilotherthan California: or Foreign Country

Texas

(M Liathe County in this DistrictiCalifomitiCounty outkidetolithiSDistrick-Statei 'other thareCuMbrnim or Foretell .Country, in which EACH named-defendant-resides.O Checktherc if the government.its agenciesoremplo yees is a named defendant. If this bus istbeeked,uovo item lei'

County is this District:* California County.outside ()Elks District:- Suite, if other than . Calliannin or Foreign Country

STEC - Orangecounty; Morkitioshayedi - Orange County; 'Raymond - D. isdannuch:Moshayedi -New -York; U. :Morgan Securities, inc. -New York;Conk -.: Orange County; Deutsche-Bank SecuritiesInc. - New YotkrBarelays Capital 'Inc. New York;

Qppenheimer&Co.'Inc. - New 'York

c) Litit: the County in -this-District: Califontin County outside of thisDistrieu State ti 'other-than- California; or Foreign Country, in which EACH Makt,arose.Note: In land condemnation-eases, use thelocation of the tract of land ii/Vah ad.

County -in this District* California County outside of this District: State.ifother fthan California: or Foreign Country

Orango County Now 'York .

l'ilms.Aageles, Orange, Smillerna Ohm, Riverside, Yens Santa Barbara. or San. Luis ObisputCoanties'Nnte:in land condemnation eases. use thelmationaltheimmolland involval

X. RIGNAIVRE OF ATTORNEY (OR PROPER): S,,,Lu* Date Novenibento, 2009

Notice-to Counitel/Parties: The CV-7 I (JS;44) Civil CoverSheet and thetinformatim containedherein neitherreplactinor supplement theliling and servicoorpleadiousor otherpapersaaremiked bylaw. Thistonn, approvedby theindietut Conference of didUnited States in September 1974,-is required pursuanitotocal Rule 3-1 isnot fliedhut is-used by the Clerk attic Court fortbeguipose at statistics. venue and initiating thetiviidoeket Sheet..(Formorodetailcd inametinns, seeseparate instructions Maki

'Key miStatistical codes relating hi Social Smithy Cases:

Nature.orStik Code Abbreviation SubstantiveStatementofCause of-Action

861 HIA .Alkelaims kw health insurance benefits (Medicare) tinder Title IS, Part A, ofilleSocial Security Aetrattamended.Also, include claims by hospitals, skilled nursing facilities, etc., for certification as providers of-services under theprognun, (42 II.S.C.1935FP(b))

862 EL All claims lir "Black Ming" benefits tinder Title 4,-Part B, of the-Federal Coal 'Mine :Health and Safety Act of 1969.-(30 USX. 923)

-863 lawc All claims flied by insured-workers for disability insurance benclitsonder Title2 olithe SocialSeeurity Act, asamended; plus all claims Wed for child's insurance bandits based no disability. -(42 tiM. 403(g))

-863 DIWW All claims filed for-widows or widowers insurance bentilitsbused on disability under Title 2 of the Social SecurityAct, as ntnended, 142 U.S.C. 4050sD

564 5510 All claims for supplemental security income payments based upon disability filed underline 16 of the Social SecurityAct, as amended.

865 ES? All claims for retirement Mid ago) and survivors benefits under Title 2 oldie Social Security Act, an amended. (42U.S.C. (g)

CV-7I (05/08) CIVIL COVER SHEET Page 2 of 2

Documents

Hadi Sakhai, et al. v. STEC, Inc., et al. 09-CV-01304 ...securities.stanford.edu/.../2009116_o02c_09CV01304.pdfCale 8:09-cv-01306-DOC-MLG Document 1 Filed 11/06/2009 Page 8 of 89 1