UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT
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LEWIS STEIN, Individually and on Behalf No.
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,of All Others Similarly Situated, : ..
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CLASS ACTIONPlaintiff, : PISTRICT COT
COMPLAINT FOR VtOATIO ,
V. THE FEDERAL SECURITIES LAWS
TANGOE, INC., ALBERT R. SUBBLOIE DEMAND FOR JURY TRIAL JR., and GARY R. MARTINO,
Defendants.
Plaintiff Lewis Stein ("Plaintiff'), individually and on behalf of all other persons similarly situated, by his undersigned attorneys, for his complaint against defendants, alleges the following based upon personal knowledge as to himself and his own acts, and information and belief as to all other matters, based upon, inter alia, the investigation conducted by and through his attorneys, which included, among other things, a review of the defendants' public documents, conference calls and announcements made by defendants, United States Securities and Exchange Commission ("SEC") filings, wire and press releases published by and regarding Tangoe, Inc. ("Tangoe" or the "Company"), analysts' reports and advisories about the Company, and information readily obtainable on the Internet. Plaintiff believes that substantial evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery.
NATURE OF THE ACTION
1. This is a federal securities class action on behalf of a class consisting of all persons other than defendants who purchased or otherwise acquired Tangoe securities between December 20, 2011 and September 5, 2012, both dates inclusive (the "Class Period"), seeking to recover damages caused by defendants' violations of the federal securities laws and to pursue remedies under § 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule
2. Tangoe develops and markets computer software. The Company markets software to help companies manage and control their fixed and mobile communications assets and costs. Such software helps companies track sourcing, asset procurement, services provisioning, invoice processing, expense allocation, bill payment, policy enforcement, usage management, and inventory.
3. Throughout the Class Period, Defendants orchestrated a scheme to inflate their share price through a series of acquisitions, and made materially false and misleading statements regarding the Company's business, operational and compliance policies. Specifically, defendants made false and/or misleading statements and/or failed to disclose that: (i) the Company was overstating organic growth by underreporting the percentage of revenue derived from recent acquisitions; (ii) the Company was not growing customers organically as its deferred implementation fees failed to grow; and (iii) as a result of the above, the Company's financial statements were materially false and misleading at all relevant times.
4. To benefit from these manipulations, Company insiders dumped over $150 million of their Tangoe shares into an unsuspecting market, nearly 30% of the Company's average market capitalization after the Defendants' scheme was revealed.
5. On August 28, 2012, a report was published by thestreetsweeper.org that described the Company as having a "risky acquisition-driven growth strategy."
6. On this news, Tangoe shares declined $3.39 per share, or nearly 17%, to close at $16.70 per share on August 28, 2012.
7. On September 6, 2012, Copperfield Research published a report concluding that the Company had materially misrepresented its organic growth rate.
8. On this news, Tangoe shares declined $1.03 per share, or 6% on September 6, 2012. The stock continued to decline an additional $1.68 per share or 10.5%, to close at $14.29
per share on September 7, 2012.
9. As a result of defendants' wrongful acts and omissions, and the precipitous decline in the market value of the Company's securities, Plaintiff and other Class members have suffered significant losses and damages.
JURISDICTION AND VENUE
10. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the Exchange Act (15 U.S.C. § 78j(b) and 78t(a)) and Rule lOb-S promulgated thereunder (17 C.F.R. § 240.10b-5).
11. This Court has jurisdiction over the subject matter of this action pursuant to § 27 of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331.
12. Venue is proper in this District pursuant to §27 of the Exchange Act, 15 U.S.C. §78aa and 28 U.S.C. §1391(b), as Tangoe's principal place of business is located within this District.
13. In connection with the acts, conduct and other wrongs alleged in this Complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including but not limited to, the United States mail, interstate telephone communications and the facilities of the national securities exchange.
PARTIES
14. Plaintiff, as set forth in the attached Certification, acquired Tangoe securities at artificially inflated prices during the Class Period and has been damaged thereby.
15. Defendant Tangoe is a Delaware corporation with principal executive offices located at 35 Executive Boulevard, Orange Connecticut. Tangoe' s common stock trades on the NASDAQ Stock Market ("Nasdaq") under the ticker symbol "TNGO."
16. Defendant Albert R. Subbloie Jr. ("Subbloie") was, at all relevant times, the 3
Company's Chairman of the Board of Directors ("Board"), President and Chief Executive Officer, and sold $5,372,652 of the Company's shares during the Class Period.
17. Defendant Gary R. Martino ("Martino") was, at all relevant times, the Company's Chief Financial Officer, and sold $1,764,825 of the Company shares during the Class Period.
18. The defendants referenced above in ¶J 15 and 16 are sometimes referred to herein as the "Individual Defendants."
SUBSTANTIVE ALLEGATIONS Background
19. Tangoe is a leading global provider of communications lifecycle management ("CLM") software and services to a wide range of enterprises, including large and medium-sized businesses and other organizations. CLM encompasses the entire lifecycle of an enterprise's communications assets and services, including planning and sourcing, procurement and provisioning, inventory and usage management, mobile device management, invoice processing, expense allocation and accounting, and asset decommissioning and disposal. The Company's on-demand Communications Management Platform is a suite of software designed to manage and optimize the complex processes and expenses associated with this lifecycle for both fixed and mobile communications assets and services.
Defendants' Scheme to Inflate Its Reported Organic Growth
20. Defendants devised a scheme to inflate the Company's share price through a series of misleading statements regarding the Company's organic growth rate, hiding the Company's shrinking customer base and revenues.
21. During the relevant time period, the Defendants executed their scheme by acquiring four companies, and misrepresenting to investors that revenues and customers from these acquisitions were in fact revenues from the Company's original lines of business, thereby
masking its shrinking de novo customer base.
22. Throughout the Class Period, Defendants blatantly misrepresented to investors that the Company's "organic growth," that is revenues and customers from the Company's original lines of business (and not through acquisitions), was approximately 25%. In fact, the Company's organic growth was far lower, falling in the range of 0-5%.
23. To illustrate Defendants' blatant misrepresentations, the following table demonstrates that after subtracting the Company's estimates of the four acquired companies' contribution to Tangoe's reported revenues, the Company's real organic growth rate is in fact closer to the 0-5% range. That is, when the Company's Class Period revenue derived from its four acquired companies (line 1-4) is subtracted from its reported revenue ("line a"), the resulting organic growth rate falls far below the 20-25% figure reported to investors.
Analysis (Conservative Estimates) $000s
Acci. Date Sep-Il Dec-Il Mar-12 Jun-12 Sep-12 Dec-12 2012 a. Reported Revenue/Guide 27,312 29,241 34,147 36,257 39,450 41,896 151,750
2. Anomalous Networks 10-Jan-12 - (250) (250) (250) (250) (1,000) 3. Mobiles 22-Feb-12 - (800) (1,700) (1,700) (1,700) (5,900) 4. Symphony 08-Aug-12 - - - (2,700) (4,800) (7,500) Organic Revenue 27,312 28,741 29,472 30,682 31,175 31,521 122,850
QoQ Growth 5.2% 2.5% 4.1% 1.6% 1.1%
24. As such, Defendants repeatedly misrepresented to investors the true nature of the Company's growth and customer base in furtherance of their scheme to inflate the Company's share price and dump their shares on unsuspecting investors, reaping handsome ill-gotten gains for themselves and Company insiders as indicated in the chart below:
Date Insider Name and Title # of Shares Cash Value Sold
09/04/2012 Snyder, Scott E. 3,270 54,870
Officer
08/26/2012 Golding, Gary Patrick 1852 37,966
Director
08/21/2012 Gamble Charles D. 3,000 60,510
Officer
08/21/2012 Golding, Gary Patrick 59,648 1,205,486
Director 08/21/2012 Pontin, Richard S. 3,700 74,740 Director 08/20/2012 Pontin, Richard S. 66,300 1,343,901 Director 08/20/2012 Gamble Charles D. 3,000 60,600 Officer
08/20/2012 Golding, Gary Patrick 37,500 760,875 Director
08/20/2012 Kaiser, Ronald W. 70,982 117,830
Director
08/19/2012 Golding, Gary Patrick 40,000 802,000
Director
08/19/2012 Kimzey Jackie R. 36,910 744,474
8/14/2012 Snyder, Scott E. 3,270 67,852 Officer 07/31/2012 Snyder, Scott E. 3,270 65,040 Officer 07/17/2012 Snyder, Scott E. 3,270 67,852 Officer
04/02/2012 Edison Partners IV SBIC, LLC 2,989,822 52,262,088 Beneficial Owner (10% or more) 04/02/2012 Pontin, Richard S. 95,000 1,660,600 Director 04/02/2012 Kokos, Gerald G. 38,330 670,008 Director 04/02/2012 Snyder, Scott E. 57,716 1,008,875 Officer 04/02/2012 Gamble Charles D. 65,859 1,151,215 Officer 04/02/2012 Martino, Gary 67,000 1,171,160 Officer 04/02/2012 Subboie, Albert R. Jr. 200,000 3,496,000 Officer
04/02/2012 Golding, Gary Patrick 2,989,822 52,262,088 Director 04/02/2012 Kimzey Jackie R. 1,128,288 19,722,474 Director 04/02/2012 Coit, David M. 903,286 15,789,439 Director Total $161,875,945
Materially False and Misleading Statements Issued During the Class Period
25. On December 19, 2011, after the market closed, Tangoe issued a press release announcing the acquisition of ProfitLine, Inc. ("ProfitLine"), a global provider of telecom expense and mobility management services. The purchase was in exchange for approximately
$23.5 million in cash. The press release stated the following in relevant part (emphasis added):
"We are very excited to announce the acquisition of ProfitLine, which we believe is among the largest independent CLM providers behind Tangoe. The addition of ProfitLine expands our customer base, broadens our vertical coverage, and
provides an attractive cross-sell opportunity as we leverage Tangoe's broader global footprint," said Al Subbloie, president and CEO of Tangoe. "Tangoe has a proven history of complementing our organic growth by successfully identifying and integrating acquisitions, which we believe is among the core competencies that made us an industry leader."
ProfitLine delivers a suite of solutions that address the management of fixed and mobile telecom expenses and mobile device management helping global enterprises and government agencies optimize their telecom spend and employee productivity. ProfitLine's solutions have been deployed across a range of industries, including retail, financial services, healthcare, automotive, energy/utilities, manufacturing, technology, travel/hospitality and government, where the company has received approval to be on the U.S. Government's GSA schedule.
Tangoe expects ProfitLine to contribute approximately $0.4 million in revenues during the fourth quarter of 2011, and it does not expect the acquisition to have a material impact on non-GAAP profitability. For the full year of 2012, the company expects ProfitLine to contribute $14 million to $15 million in revenue, and the acquisition is expected to be slightly accretive to non- GAAP net income per share. Management will provide detailed first quarter and full year 2012 guidance, including the expected financial impact of ProfitLine, when it announces fourth quarter 2011 financial results.
26. On January 10, 2012, the Company issued a press release announcing the acquisition of Anomalous Networks. The press release stated the following in relevant part:
"Managing the costs and security risks associated with the deployment of mobile technologies is an increasing challenge for global organizations as a result of the rapid growth and proliferation of connected devices. The acquisition of Anomalous Networks will enhance Tangoe' s ability to address this challenge by adding additional best-in-class, real-time expense management capabilities to our industry leading CLM platform," said Al Subbloie, President and CEO of Tangoe. "Anomalous Networks' cloud-based rTEM technology is highly complementary to our existing solutions, and we believe its compelling value proposition will provide Tangoe with an attractive cross-selling opportunity across our large and growing customer base as well as our business partners."
27. On February 15, 2012, the Company issued a press release announcing its financial and operating results for the quarter and year ended December 31, 2011. For the quarter, the Company reported net income of $903,000, or $0.02 diluted earnings per share ("EPS") and revenue of $29 million, as compared to net loss of $1.5 million, or ($0.33) diluted
EPS and revenue of $19 million for the same period a year ago. For the year, the Company reported net loss of $3 million, or (0.31) diluted EPS and revenue of $105 million, as compared to net loss of $1.8 million, or ($1.26) diluted EPS and revenue of $68 million for the same period a year ago.
28. On February 15, 2012 the Company held its "2011 Quarter 4 Earnings Call" where Defendant Martino stated repeatedly that the Company had attained organic growth in the 20-25% range, "[o]rganic recurring revenue growth during the fourth quarter was in the mid-20% range." In response to further questions on the Company's organic growth Defendant Subbloie again confirmed the 20-25% organic growth figure:
Question: Okay good, And a question just a follow-up on the organic growth in the quarter, I think what you may have mentioned was mid-20's. I know you typically publish a point figure in the Q. Do you happen to have the point figure handy or do we need to wait for the Q to come out for that?
R. Subbloie: The comparable point figure is $5.4 million I think is the one you're referencing...
Question: Okay, okay. So just, generally speaking, kind of right in that same ballpark of 25% growth organic that we see in the last couple of quarters?
R. Subbloie: Yes
29. On February 21, 2012, the Company issued a press release announcing the acquisition of ttMobiles, Limited. The press release stated the following in relevant part:
"The acquisition of ttMobiles accelerates our European expansion and enhances our ability to implement and service global programs through local expertise in this important geographic region," said Al Subbloie, President and CEO of Tangoe. "ttMobiles will enable Tangoe to immediately deliver additional solutions and coverage to our multi-national and European-based customers. In addition, their cloud-based mobile communications management solutions are highly complementary to Tangoe's offering, further enhancing our global integrated CLM platform and providing an attractive opportunity to drive cross-sell opportunities over the long-term."
ttMobiles' Expected to Have a Positive Financial Impact on Tangoe's Financial Results
As a result of the ttMobiles transaction, Tangoe is increasing its financial guidance as follows:
First Quarter 2012 Guidance: We expect ttMobiles to contribute approximately $0.5 million in total revenue, with approximately $0.4 million in recurring and $0.1 million in non-recurring. As such, total revenue is now expected to be in the range of $32.7 million to $33.2 million, up from prior guidance of $32.2 million to $32.7 million. We don't currently expect the transaction to have material impact on non-GAAP profitability during the first quarter. We continue to expect Adjusted EBITDA to be in the range of $3.5 million to $3.7 million and non-GAAP net income per share to be approximately $0.08 based on approximately 39.0 million weighted-average diluted shares outstanding.
Full Year 2012 Guidance: We expect ttMobiles to contribute approximately $4.5 million in total revenue, with approximately $3.5 million in recurring and $1.0 million in non-recurring. As such, total revenue is now expected to be in the range of $141.5 million to $143.5 million, up from prior guidance of $137.0 million to $139.0 million. Adjusted EBITDA is now expected to be in the range of $20.0 million to $20.5 million, up from prior guidance of
$19.5 million to $20.0 million. Non-GAAP net income per share is now expected
to be in the range of $0.42 to $0.43, up from prior guidance of $0.41 to $0.42 based on approximately 39.5 million weighted-average diluted shares outstanding.
30. On March 29, 2012, the Company filed an annual report for the period ended December 31, 2012 on a Form 10-K with the SEC, which was signed by, among others, Defendants Subbloie and Martino, and reiterated the Company's previously announced financial results and financial position. In addition, the Form 10-K contained signed certifications pursuant to the Sarbanes-Oxley Act of 2002 ("SOX") by Defendants Subbloie and Martino, stating that the financial information contained in the Form 10-K was accurate and disclosed any material changes to the Company's internal control over financial reporting.
31. The Form 10-K stated the following concerning the Company's operations:
Deferred revenue. Our deferred revenue consists of the amounts that have been
invoiced but that have not yet been recognized as revenue, including advanced billed and undelivered portions of our Communication Management Platform subscriptions and related services, maintenance on our software licenses and implementation fees. We invoice our services to many of our customers in advance, with the intervals ranging from 1 to 12 months. We monitor our deferred revenue balance as this balance represents revenue to be recognized over the next 12 months except for implementation fees which are recognized ratably over twice the term of the contract, which we estimate to be the expected life of the customer relationship. As of December 31, 2011, implementation fees represented $2.1 million of the $11.7 million deferred revenue balance.
Revenue retention rates. In addition, we consider our revenue retention rates.
Since we began to fully realize the benefits of our recurring revenue model in 2009, our revenue retention rates have been higher than 90%. We measure revenue retention rates by assessing on a dollar basis the recurring technology and services revenue we retain for the same customer and product set in a given period versus the prior year period. We cannot predict our revenue retention rates in future periods. Our use of a revenue retention rate has limitations as an analytical tool, and you should not consider it in isolation. Other companies in our industry may calculate revenue retention rates differently, which reduces its usefulness as a comparative measure.
Revenue recognition. Recurring technology and services revenue consists of
subscription-based fees, software subscription license fees, software maintenance fees and hosting fees related to the use of our solution to manage our customers' communications expenses. Strategic consulting, software licenses and other revenue consists of fees for perpetual software licenses, professional services, contract negotiations and bill audits.
We recognize revenue when persuasive evidence of an arrangement exists, pricing is fixed and determinable, collection is reasonably assured and delivery or performance of service has occurred. Recurring technology and services subscription-based fees, software subscription license fees, software maintenance fees and hosting fees are recognized ratably over the term of the period of service. The subscription-based services we provide include help desk, asset procurement and provisioning, and carrier dispute resolution services. Implementation fees associated with recurring technology and services engagements are recognized ratably over the estimated expected life of the customer relationship which is estimated to be equal to twice the contract life.
32. On March 29, 2012, the Company announced the pricing of a registered public offering of an aggregate 8,000,000 shares of common stock at $18.50 per share. In addition, the
selling stockholders granted the underwriters a 30-day option to purchase up to 1,200,000 additional shares at the offering price.
33. On April 3, 2012, the Company announced the closing of its registered public offering of 9,200,000 shares of its common stock at $18.50 per share. 1,200,000 of the common shares were sold by selling stockholders as a result of the full exercise by the underwriters of a 30-day option to purchase these additional shares at the offering price.
34. On May 8, 2012, Tangoe issued a press release announcing its financial and operating results for the quarter ended March 31, 2012. For the quarter, the Company reported net income of $192,000, or $0.00 diluted EPS and revenue of $34 million, as compared to a net loss of $613,000 or ($0.33) diluted EPS and revenue of $22 million for the same period a year ago.
35. On May 15, 2012, the Company filed a quarterly report for the period ended March 31, 2012 on Form 10-Q with the SEC, which was signed by, among others, Defendant Martino, and reiterated the Company's previously announced financial results and financial position. In addition, the Form 10-Q contained signed certifications pursuant to SOX by Defendants Subbloie and Martino, stating that the financial information contained in the Form 10-Q was accurate and disclosed any material changes to the Company's internal control over financial reporting.
36. On August 8, 2012, Tangoe issued a press release announcing its financial and operating results for the quarter ended June 30, 2012. For the quarter, the Company reported net income of $338,000, or $0.01 diluted EPS and revenue of $36 million, as compared to a net loss of $1.4 million, or ($0.48) diluted EPS and revenue of $26 million for the same period a year ago.
37. On August 14, 2012, the Company filed a quarterly report for the period ended June 30, 2012 on Form 10-Q with the SEC, which was signed by Defendant Martino, and reiterated the Company's previously announced financial results and financial position. In addition, the Form 10-Q contained signed certifications pursuant to SOX by Defendants Subbloie and Martino, stating that the financial information contained in the Form 10-Q was accurate and that they disclosed any material changes to the Company's internal control over financial reporting.
38. The statements referenced in ¶J 20-26; 29-32 above were materially false and/or misleading because they misrepresented and failed to disclose the following adverse facts, which were known to defendants or recklessly disregarded by them, including that: (i) the Company was overstating organic growth by underreporting its percentage of revenue from various acquisitions; (ii) the Company was not growing customers organically as its deferred implementation fees failed to grow; and (iii) as a result of the above, the Company's financial statements were materially false and misleading at all relevant times.
THE TRUTH BEGINS TO EMERGE
39. On August 28, 2012, thestreetsweeper.org published an analyst report entitled "Dancing on an Old Grave, Digging a New Hole?" The report concluded the following:
• Top executives singled out in a class-action lawsuit (settled years after the CEO assumed his current post) for allegedly falsifying financial results at their last public company and effectively destroying it in the process
• A boardroom populated with directors who have rushed to dump mountains of stock, including several who should recognize potential signs of danger after leading ill-fated companies of their own
• An independent auditing firm cited by industry watchdogs for exercising poor oversight when reviewing the books for a number of its other client
• A risky acquisition-driven growth strategy - inherently vulnerable to 13
accounting games - that has lost much of its former appeal after repeatedly backfiring and leaving former highfliers in ruins
• An expensive shopping spree, financed by the proceeds from stock offerings, that has resulted in explosive growth so far but - with remaining buyout targets (and the excess cash to cover them) now limited - could soon come to an end • A gigantic customer, responsible for more than 10% of past revenue (and rewarded with stock for its help), that recently acquired a direct competitor and has apparently stopped funneling the company so much business since that time • A set of nontraditional financial metrics, used by management as key measures of success, that complicates the process of judging (and sometimes independently verifying) quarterly results
• A sharp rebound in noncore operations, previously fading in significance by design and attracting little interest - or attention - from analysts as a result
• A curious habit of beating profit estimates by a pe nny a share, with recent help from an odd spike in noncore licensing fees like those that management allegedly overstated in the past
• A perfect track record for delivering that upside, which further intensifies the pressure on management to please Wall Street by extending its winning streak
40. On this news, Tangoe shares declined $3.39 per share or nearly 17%, to close at $16.70 per share on August 28, 2012.
41. On September 6, 2012, Copperfield Research published a research report concluding "that the company has significantly misrepresented its de novo growth rate, while demonstrating many of the telltale shenanigans and behavior that tends to be a harbinger for blow ups." The report concluded the following about Tangoe:
1) Tangoe is a fast growth SaaS business - FALSE
We believe that Tangoe's financial profile and key business metrics are not consistent with those of SaaS peers. Non-recurring consulting services, the resale of telecommunication accessories, a deferred revenue balance showing minimal growth, BPO-like gross margins that are roughly 2000 basis points below the purported SaaS comps, and revenue per employee that is 50% lower than its "comps" all suggest Tangoe is little more than a body shop.
2) Tangoe's organic growth rate is 20% - 25%- FALSE
Based on our analysis Tangoe has been systematically underreporting the revenue contribution from acquisitions, which has had the effect of misrepresenting the company's organic growth. Our analysis suggests the CFO categorically falsified the impact from a recent acquisition on the Q2'12 earnings call, understating its impact by up to 60% compared to the figures disclosed in their quarterly 1OQ. This would mark the second time in the last three quarters that Tangoe has provided a lower revenue contribution from acquisitions on its calls than it ultimately discloses in SEC filings. This effectively overstates organic growth. 3) The REAL Organic Growth Rate
We are unable to reconcile CFO Martino's public statements about organic growth. Current SEC filings combined with management's guidance at face value, leads to an implied organic revenue growth rate that IS WELL BELOW 20%. Based on our analysis, we believe Tangoe's organic growth rate may be almost
50% lower year-to-date than the rate many analysts have communicated. If we assume ProfitLine's revenue is flat year-over-year (rather than the decline management implied with their guidance) and we annualize the revenue for ttMobiles from Q1'12, then organic growth has been closer to ZERO year-to-date. 5) Based on 20%-25% organic growth - here would be the conservative estimates for Q3 and Q4
We believe that with our report, sellside "estimates" will no longer matter and Tangoe's new benchmark to demonstrate 20% growth will be based on our analysis (which is rather straight forward). We clearly illustrate why Tangoe's actual results will need to be $2.28M and $3.69M higher than the midpoint of their guidance for Q3 and Q4 respectively if they are actually growing at least 20%. This assumes they do not underreport the Symphony acquisition.
6) Squeaky clean management and VC partner - FALSE
Tangoe's CEO and CFO were accused of fraud at IMA, a fact the sellside has arrogantly ignored. Further, in their last venture at IMA, their large VC-backer (who happens to be Tangoe's VC investor as well) aggressively sold stock after a fictitious earnings report. Tangoe's CEO and CFO blatantly changed their bios for the most recent secondary offering, removing the disclosures that IMA filed for bankruptcy from the original IPO filing. In neither filing do they disclose to investors that they were accused of fraud, while "recklessly issuing quarterly financial statements which materially overstated the Company's actual revenues and assets and materially understated its expenses and net loss." According to public records, we show that Tangoe was actually founded while the CEO shared duties as CEO of IMA, and at the same time the SEC had asked his other company for information pertaining to A/R balances, the collectability of A/R and revenue recognition. Further, we have found inconsistencies in management bios,
including claiming to have been credited with a patent that doesn't seem to exist (or at least that we have been able to find).
7) IMA was just another dot.com bust - FALSE
Contrary to the seliside story, IMA had multiple financial restatements, including IMPROPER EXPENSE RECOGNITION FOR TWO ACQUISITIONS. One particular earnings misstatement led to operating income being overstated by
257%, which led to a 200%+ increases in the stock in a mere 10 days, which was
followed by aggressive insider sales. Additionally, IMA raised capital for a subsidiary called Buyingedge (which Subbloie claims he founded) at a time IMA had falsified public earnings statements that were later restated. Further, IMA fired Arthur Andersen (who took issue with the Company's bad debt reserve) and subsequently fired PwC a mere 172 days after engaging them. PwC "had identified certain transactions where the underlying documentation raises questions regarding the revenue recognition accounting afforded to the transactions." Amazingly, many of the same players are deeply entrenched in the Tangoe story, including its primary VC investor, CEO, and CFO.
8) Seliside analysts really believe - Paint us skeptical
The Tangoe story is a bank's best friend because the one thing that all roll-ups require is capital. Tangoe has already raised $104.7 million through two public offerings in a little over a year, which may help explain the blind justification from Wall Street for asinine price targets and ignominious analysis. We believe Tangoe's cash that is effectively "unrestricted" is closer to $17 million, compared to the $78.4 million that was reported on 6/30/12.
42. On this news, Tangoe shares declined $1.03 per share or 6% on September 6, 2012. The stock continued to decline an additional $1.68 per share or 10.5% to close at $14.29 per share on September 7, 2012.
PLAINTIFF'S CLASS ACTION ALLEGATIONS
43. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or otherwise acquired Tangoe securities during the Class Period (the "Class"); and were damaged thereby. Excluded from the Class are defendants herein, the officers and directors of the Company, at all relevant times, members of their immediate families and their legal
representatives, heirs, successors or assigns and any entity in which defendants have or had a controlling interest.
44. The members of the Class are so numerous that joinder of all members is impracticable. Throughout the Class Period, Tangoe securities were actively traded on the NASDAQ. While the exact number of Class members is unknown to Plaintiff at this time and can be ascertained only through appropriate discovery, Plaintiff believes that there are hundreds or thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by Tangoe or its transfer agent and may be notified of the pendency of this action by mail, using the form of notice similar to that customarily used in securities class actions.
45. Plaintiff's claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by defendants' wrongful conduct in violation of federal law that is complained of herein.
46. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities litigation. Plaintiff has no interests antagonistic to or in conflict with those of the Class.
47. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are:
• whether the federal securities laws were violated by defendants' acts as alleged herein;
• whether statements made by defendants to the investing public during the Class Period misrepresented material facts about the business, operations and management of Tangoe;
• whether the Individual Defendants caused Tangoe to issue false and misleading financial statements during the Class Period;
• whether defendants acted knowingly or recklessly in issuing false and misleading financial statements;
• whether the prices of Tangoe securities during the Class Period were artificially inflated because of the defendants' conduct complained of herein; and
• whether the members of the Class have sustained damages and, if so, what is the proper measure of damages.
48. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action.
49. Plaintiff will rely, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine in that:
• defendants made public misrepresentations or failed to disclose material facts during the Class Period;
• the omissions and misrepresentations were material; • Tangoe securities are traded in an efficient market;
• the Company's shares were liquid and traded with moderate to heavy volume during the Class Period;
• the Company traded on the NASDAQ and was covered by multiple analysts; • the misrepresentations and omissions alleged would tend to induce a
reasonable investor to misjudge the value of the Company's securities; and • Plaintiff and members of the Class purchased, acquired and/or sold Tangoe
securities between the time the defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without knowledge of the omitted or misrepresented facts.
50. Based upon the foregoing, Plaintiff and the members of the Class are entitled to a presumption of reliance upon the integrity of the market.
COUNT I
(Against All Defendants For Violations of
Section 10(b) And Rule lOb-5 Promulgated Thereunder)
51. Plaintiff repeats and realleges each and every allegation contained above as if fully set forth herein.
52. This Count is asserted against defendants and is based upon Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule lob-S promulgated thereunder by the SEC.
53. During the Class Period, defendants engaged in a plan, scheme, conspiracy and course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions, practices and courses of business which operated as a fraud and deceit upon Plaintiff and the other members of the Class; made various untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and employed devices, schemes and artifices to defraud in connection with the purchase and sale of securities. Such scheme was intended to, and, throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of Tangoe securities; and (iii) cause Plaintiff and other members of the Class to purchase or otherwise acquire Tangoe securities and options at artificially inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions set forth herein.
54. Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the defendants participated directly or indirectly in the preparation and/or issuance of the quarterly
and annual reports, SEC filings, press releases and other statements and documents described above, including statements made to securities analysts and the media that were designed to influence the market for Tangoe securities. Such reports, filings, releases and statements were materially false and misleading in that they failed to disclose material adverse information and misrepresented the truth about Tangoe' s finances and business prospects.
55. By virtue of their positions at Tangoe, defendants had actual knowledge of the materially false and misleading statements and material omissions alleged herein and intended thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, defendants acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose such facts as would reveal the materially false and misleading nature of the statements made, although such facts were readily available to defendants. Said acts and omissions of defendants were committed willfully or with reckless disregard for the truth. In addition, each defendant knew or recklessly disregarded that material facts were being misrepresented or omitted as described above.
56. Defendants were personally motivated to make false statements and omit material information necessary to make the statements not misleading in order to personally benefit from the sale of Tangoe securities from their personal portfolios.
57. Information showing that defendants acted knowingly or with reckless disregard for the truth is peculiarly within defendants' knowledge and control. As the senior managers and/or directors of Tangoe, the Individual Defendants had knowledge of the details of Tangoe's internal affairs.
58. The Individual Defendants are liable both directly and indirectly for the wrongs complained of herein. Because of their positions of control and authority, the Individual Defendants were able to and did, directly or indirectly, control the content of the statements of
Tangoe. As officers and/or directors of a publicly-held company, the Individual Defendants had a duty to disseminate timely, accurate, and truthful information with respect to Tangoe's businesses, operations, future financial condition and future prospects. As a result of the dis-semination of the aforementioned false and misleading reports, releases and public statements, the market price of Tangoe securities was artificially inflated throughout the Class Period. In ignorance of the adverse facts concerning Tangoe' s business and financial condition which were concealed by defendants, Plaintiff and the other members of the Class purchased or otherwise acquired Tangoe securities at artificially inflated prices and relied upon the price of the securities, the integrity of the market for the securities and/or upon statements disseminated by defendants, and were damaged thereby.
59. During the Class Period, Tangoe securities were traded on an active and efficient market. Plaintiff and the other members of the Class, relying on the materially false and misleading statements described herein, which the defendants made, issued or caused to be disseminated, or relying upon the integrity of the market, purchased or otherwise acquired shares of Tangoe securities at prices artificially inflated by defendants' wrongful conduct. Had Plaintiff and the other members of the Class known the truth, they would not have purchased or otherwise acquired said securities, or would not have purchased or otherwise acquired them at the inflated prices that were paid. At the time of the purchases and/or acquisitions by Plaintiff and the Class, the true value of Tangoe securities was substantially lower than the prices paid by Plaintiff and the other members of the Class. The market price of Tangoe securities declined sharply upon public disclosure of the facts alleged herein to the injury of Plaintiff and Class members.
60. By reason of the conduct alleged herein, defendants knowingly or recklessly, directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule 1 Ob-5 promulgated thereunder.
61. As a direct and proximate result of defendants' wrongful conduct, Plaintiff and the other members of the Class suffered damages in connection with their respective purchases, acquisitions and sales of the Company's securities during the Class Period, upon the disclosure that the Company had been disseminating misrepresented financial statements to the investing public.
COUNT II
(Violations of Section 20(a) of the
Exchange Act A2ainst The Individual Defendants)
62. Plaintiff repeats and realleges each and every allegation contained in the foregoing paragraphs as if fully set forth herein.
63. During the Class Period, the Individual Defendants participated in the operation and management of Tangoe, and conducted and participated, directly and indirectly, in the conduct of Tangoe's business affairs. Because of their senior positions, they knew the adverse non-public information about Tangoe's misstatement of income and expenses and false financial statements.
64. As officers and/or directors of a publicly owned company, the Individual Defendants had a duty to disseminate accurate and truthful information with respect to Tangoe' s financial condition and results of operations, and to correct promptly any public statements issued by Tangoe which had become materially false or misleading.
65. Because of their positions of control and authority as senior officers, the Individual Defendants were able to, and did, control the contents of the various reports, press releases and public filings which Tangoe disseminated in the marketplace during the Class Period concerning Tangoe's results of operations. Throughout the Class Period, the Individual Defendants exercised their power and authority to cause Tangoe to engage in the wrongful acts
complained of herein. The Individual Defendants, therefore, were "controlling persons" of Tangoe within the meaning of Section 20(a) of the Exchange Act. In this capacity, they participated in the unlawful conduct alleged which artificially inflated the market price of Tangoe securities.
66. Each of the Individual Defendants, therefore, acted as a controlling person of Tangoe. By reason of their senior management positions and/or being directors of Tangoe, each of the Individual Defendants had the power to direct the actions of, and exercised the same to cause, Tangoe to engage in the unlawful acts and conduct complained of herein. Each of the Individual Defendants exercised control over the general operations of Tangoe and possessed the power to control the specific activities which comprise the primary violations about which Plaintiff and the other members of the Class complain.
67. By reason of the above conduct, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act for the violations committed by Tangoe.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment against defendants as follows:
A. Determining that the instant action may be maintained as a class action under Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class representative;
B. Requiring defendants to pay damages sustained by Plaintiff and the Class by reason of the acts and transactions alleged herein;
C. Awarding Plaintiff and the other members of the Class prejudgment and post-judgment interest, as well as their reasonable attorneys' fees, expert fees and other costs; and
D. Awarding such other and further relief as this Court may deem just and proper. DEMAND FOR TRIAL BY JURY
Plaintiff hereby demands a trial by jury.
Dated: March 1, 2013 Respectfully submitted,
.Edth4Ø4 ahd ELSTEIN, P.C. Henry Elstein Bruce L. Elstein 1087 Broad Street Suite 400 Bridgeport, CT 06604 Telephone: 203-367-4421 Facsimile: 203-366-8615
POMERANTZ GROSSMAN HUFFORD DAHLSTROM & GROSS LLP
Marc I. Gross
Jeremy A. Lieberman Gustavo F. Bruckner Lesley F. Portnoy
600 Third Avenue - Floor New York, New York 10016 Telephone: (212) 661-1100 Facsimile: (212) 661-8665
POMERANTZ GROSSMAN HUFFORD DAHLSTROM & GROSS LLP
Patrick V. Dahlstrom
Ten South LaSalle Street - Suite 3505 Chicago, Illinois 60603
Telephone: (312) 377-1181 Facsimile: (312) 377-1184
PLAINTIFF'S CERTIFICATION
[-Ow
f
2' ("Plaintiff') declares under penalty of perjury, as to the claims asserted under the federal securities laws, that:Plaintiff has reviewed the Complaint and authorized the commencement of an action on Plaintiffs behalf.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of Plaintiffs counsel or in order to participate in this private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary.
4. Plaintiffs transactions in TANGOE, INC. securities during the Class Period specified in the Complaint are as follows:
Date # of Shares Purchased # of Shares Sold Price
Po
V 90O7\210 /O
0
)/
5. During the three years prior to the date of this Certificate, Plaintiff has not sought to serve or served as a representative party for a class in an action filed under the federal securities laws.
6. Plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiffs pro rata 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 that the foregoing is true and correct. Executed this day of January, 2013.
