UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
x KEITH INOUYE, On Behalf of Himself and
All Others Similarly Situated,
Plaintiff, vs.
VONAGE HOLDINGS CORP., JEFFREY A. CITRON, MICHAEL TRIBOLET, MICHAEL F. SNYDER, JOHN S. REGO, PETER
BARRIS, ORIT GADIESH, HUGH PANERO, HARRY WELLER, JOHN J. ROBERTS, BETSY S. ATKINS, MORTON DAVID, J. SANFORD MILLER, THOMAS J. RIDGE, CITIGROUP GLOBAL MARKETS INC., UBS SECURITIES LLC, BEAR, STEARNS & CO. INC., DEUTSCHE BANK
SECURITIES INC., PIPER JAFFRAY & CO. and THOMAS WEISEL PARTNERS LLC,
Defendants. : : : : : : : : : : : : : : : : : : : : : x
Civil Action No. CLASS ACTION
COMPLAINT FOR VIOLATIONS OF FEDERAL SECURITIES LAWS
NATURE OF THE ACTION
1. This is a securities class action on behalf of purchasers of the common stock of Vonage Holdings Corp. (“Vonage” or the “Company”) between May 24, 2006 and June 19, 2006, inclusive (the “Class Period”), including those who purchased their shares pursuant to the Company’s 2006 Initial Public Offering (“IPO”), seeking to pursue remedies under the Securities Exchange Act of 1934 (the “Exchange Act”) and the Securities Act of 1933 (the “Securities Act”). 2. Defendant Vonage, through its subsidiaries, provides broadband telephone services primarily in the United States, Canada, and the United Kingdom. The Company’s shares trade on the New York Stock Exchange (“NYSE”), an efficient market where, on average, hundreds of thousands of Vonage shares trade daily.
3. Defendant Jeffrey A. Citron (“Citron”), who started the Internet phone Company in 2001, invested $81.56 million prior to Vonage’s May 24, 2006 public offering, allowing him to acquire 47.67 million common shares at an average of $1.71 each, including convertible debt.1 Defendant Citron’s profit contrasts with losses of shareholders, including customers, who bought stock in the IPO for $17 a share. The stock now trades below $8 per share. The decline has wiped out more than $700 million in Vonage’s value, giving the Company a market capitalization of $1.88 billion. Defendant Citron converted preferred stock obtained during the Company’s start-up phase into 47.49 million common shares. He also holds debt convertible into 178,322 shares. In addition, he has warrants to buy 2.57 million shares for $1.40 each. His holdings, including the convertible debt but not the warrants, are equal to 27.5% of the Company’s common stock outstanding following the IPO.
1
Excluding options, his stake is valued at $576.8 million (based on a price of $12.10 per share).
4. Before starting Vonage, Citron had a history of securities fraud related issues. Citron was the former CEO of Datek Online Holdings Corp., where he and others were accused of wrongdoing involving the Nasdaq Stock Market’s Small Order Execution System. He paid a $22.5 million fine and agreed to accept an SEC order permanently barring him from the securities industry. As a result, financial institutions and accounting firms have declined to enter into business relationships with the Company, including supporting the Company via participating in the Company’s May 2006 IPO. To make up for the lack of support for the IPO from the investment community, the Company, with the assistance of the Underwriter Defendants (as defined below), sought to sell the shares to its customers. Defendants induced the Company’s customers to purchase what would be, for many of them, not just their first IPO trade, but their first investment, ever.
5. Defendants Citigroup Global Markets Inc., UBS Securities LLC, Bear, Stearns & Co. Inc., Deutsche Bank Securities Inc., Piper Jaffray & Co. and Thomas Weisel Partners LLC (the “Underwriter Defendants”), were the lead underwriters for the IPO, and were primarily involved in selling such shares to the public, whereby they collectively reaped $31.8 million in fees for selling the inflated shares, together with distributing the defective Prospectus.
6. On May 24, 2006, Vonage sold 31.3 million of its shares and raised approximately $531.3 million in its IPO. The IPO was originally planned to be offered at approximately $20 per share. However, the demand for the stock would not support such a price and the offering price was lowered to $17 per share. And even at that price, indications of interest from the institutional investor community waned. To compensate for the lack of investor support for the Company’s newly printed shares at $17, defendants arranged to sell to 9,000 of their unsophisticated phone service customers whatever shares remained unsold to investors, including pension plans, institutions and high-net-worth sophisticated individuals. In all, Vonage induced its customers to purchase as
much as 13% of the IPO shares through a “directed share program.” Approximately 10,000 of the Company’s customers participated in the directed share program.
7. Vonage, which has been unprofitable since it began offering web-based phone services four years ago, raised $531.3 million in the IPO. According to the Prospectus, the money will pay for marketing to fend off competitors such as San Antonio-based AT&T Inc. However, immediately after the Company went public, investors were stunned to learn information that Citron and his co-defendants had concealed from investors, including problems with the Company’s facsimile business, that Vonage was violating patents held by Verizon, and that the IPO was not a firm offering, turning Vontage into what would be the worst IPO debut in six months.
8. As a result of the defective manner in which the IPO was carried out and the defective Prospectus, immediately after the start of trading on May 24, 2006, the Company’s shares plunged. In fact, by the end of May 24, 2006, the first trading day, shares of Vonage stock closed at $14.85 per share, a decline of $2.15 per share or 12.7%. On May 25, 2006, as a result of the defects highlighted in ¶11, the shares continued to plummet, closing at $13 per share. As a result of the immediate decline in the price of the stock after the offering, a large number of participants in the directed share program refused to pay for the shares, setting the stage for a massive sell-off of the shares following the IPO.
9. Then, on May 30, 2006, Vonage released a public statement on the nationally broadcast television program CNBC “Squawk Box,” that if the participants in the directed share program did not pay for their shares, Vonage “expected to repurchase the shares from the underwriters” at the offering price.
10. Then, on June 19, 2006, it was revealed that Vonage had been sued by Verizon over Internet phone patents, claiming infringement of seven patents. The suit relates to the commercial
implementation of the Company’s Internet calling product and services. Like other material issues negatively impacting the Company’s core business, discussed infra, these patent infringement issues were omitted from the defective Prospectus. The revelations of patent infringement sent the Company’s shares down to an all-time low of $8.50 per share – 50% lower than when the shares went public weeks earlier.
11. The true facts, which were known to defendants based upon their access to and/or review of internal Vonage corporate data during the Class Period, include, but are not limited to:
(a) Nearly four million shares (or 13.5% of the offering) were being sold through the Company’s directed share program to as many as 9,000 unsuitable investors who lacked the sophistication and/or means to pay for their allocated shares acquired pursuant to the false and misleading Prospectus. As a result, the Company’s shares would, and did, experience a massive wave of selling pressure within the first week of the Company’s offering, causing an unusual amount of “sell” trades within the time prescribed by Regulation T.
(b) The defendants failed to ensure timely notification of shares allocated through the Company’s directed share program, which would, and did, create unnecessary selling pressure on the Company’s shares the second trading day.
(c) The IPO was not a true “firm offering” but, in fact, a “reverse firm offering” whereby the Company served as the guarantor of the unallocated or unpaid-for shares which would, and did, cause the Company to reap less proceeds than claimed in the Company’s Prospectus.
(d) The Company’s voice over Internet Protocol (“VoIP”) technology, used to facilitate a material component of the Company’s telephonic business to consumers and businesses, violated a number of patents held by Verizon. The enforcement and publication of such would have a material impact on the Company’s share price and business prospects.
(e) The Company lacked the requisite Internet infrastructure to provide the 9,000 directed share purchasers a “link” or access to a prospectus within the time established by SEC rules and regulations.
(f) At the time of the Company’s IPO, the Company was then experiencing poor results from its facsimile service business. Moreover, the Company was also at that time ill-equipped to properly transmit facsimile communications due to, among other things, the defendants’ decision to delay the necessary expenditures to build the requisite facsimile communications infrastructure, causing the Company’s previously reported (in the Prospectus) expenses to be understated. The Company’s infrastructure was so materially deficient that consumers had filed class action lawsuits on behalf of defrauded facsimile customers. Furthermore, not only had the Company failed to build the necessary facsimile VoIP infrastructure, as of the date of the IPO the necessary technology was not yet developed by any known company. Thus, not only did the defendants conceal the deficient facsimile infrastructure, but the Company was also named as a defendant in a class action lawsuit for misleading its own customers.
(g) The Prospectus failed to disclose the truth about the technical problems and fundamental deficiencies that had been plaguing certain of the Company’s services and products. One such major technical failure concerned the inability of Vonage’s customers to use facsimile machines to send facsimile communications over Vonage’s VoIP technology platform. In particular, Vonage purportedly uses a transport layer protocol called User Datagram Protocol (“UDP”). Although the UDP technology is sufficient for transmitting voice communications, it is reportedly insufficient for transmitting facsimile communications. As a result, facsimile transmissions using Vonage’s technology platform were either aborted in midstream, illegible to the recipient, or simply did not transmit as they were supposed to.
(h) At the time of the IPO, the Company’s key products and services were incompatible with the products and services of other VoIP providers, including but not limited to, some of the largest providers such as AOL Time Warner.
(i) At the time of the IPO, the Company was then experiencing known adverse trends compromising the Company’s core business model. While the defendants admitted other VoIP providers existed, thereby creating a competitive business environment, the Prospectus concealed the fact that the major threat to Company was a trend generated by Skype which provided “free” VoIP services. (Skype is a unit of eBay which conceivably could offset the VoIP cost with the generation of new consumers for its own key services/products.)
JURISDICTION AND VENUE
12. The claims asserted herein arise under and pursuant to §§10(b) and 20(a) of the Exchange Act [15 U.S.C. §§78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder by the SEC [17 C.F.R. §240.10b-5], and §§11, 12(a)(2) and 15 of the Securities Act [15 U.S.C. §§77k and 77o]. 13. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §1331, §27 of the Exchange Act and §22 of the Securities Act.
14. Venue is proper in this District pursuant to §27 of the Exchange Act, §22 of the Securities Act and 28 U.S.C. §1391(b). Many of the acts charged herein, including the preparation and dissemination of materially false and misleading information, occurred in substantial part in this District, Vonage conducts business in this District, the pre-sale presentation “road shows” were conducted in this District, and three of the Underwriter Defendants maintain their principal offices, and all have offices, in this District. Citigroup’s principal offices are located at 399 Park Avenue, New York, New York 10043. Bear Stearns’ principal offices are located at 383 Madison Avenue, New York, New York 10179. Deutsche Bank’s principal United States offices are located at 31 West 52nd Street, New York, New York 10019.
15. In connection with the acts alleged in this complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the New York Stock Exchange, also located in this district at 60 Wall Street, New York, New York 10005.
PARTIES
16. Plaintiff Keith Inouye, as set forth in the accompanying certification and incorporated by reference herein, purchased Vonage common stock at artificially inflated prices during the Class Period and has been damaged thereby.
17. Defendant Vonage, through its subsidiaries, provides broadband telephone services primarily in the United States, Canada, and the United Kingdom.
18. Defendant Jeffrey A. Citron (“Citron”) is Chairman, Chief Strategist and a director of Vonage. Defendant Citron signed the materially false and misleading Registration Statement.
19. Defendant Michael F. Snyder (“Snyder”) is Chief Executive Officer of the Company. Defendant Snyder signed the materially false and misleading Registration Statement.
20. Defendant Michael Tribolet (“Tribolet”) is President of the Company.
21. Defendant John S. Rego (“Rego”) is Chief Financial Officer and Executive Vice President of the Company. Defendant Rego signed the materially false and misleading Registration Statement.
22. Defendant Peter Barris (“Barris”) is a director of the Company. Defendant Barris signed the materially false and misleading Registration Statement.
23. Defendant Orit Gadiesh (“Gadiesh”) is a director of the Company. Defendant Gadiesh signed the materially false and misleading Registration Statement.
24. Defendant Hugh Panero (“Panero”) is a director of the Company. Defendant Panero signed the materially false and misleading Registration Statement.
25. Defendant John J. Roberts (“Roberts”) is a director of the Company. Defendant Roberts signed the materially false and misleading Registration Statement.
26. Defendant Harry Weller (“Weller”) is a director of the Company. Defendant Weller signed the materially false and misleading Registration Statement.
27. Defendant Betsy S. Atkins (“Atkins”) is a director of the Company. Defendant Atkins signed the materially false and misleading Registration Statement.
28. Defendant Morton David (“David”) is a director of the Company. Defendant David signed the materially false and misleading Registration Statement.
29. Defendant J. Sanford Miller (“Miller”) is a director of the Company. Defendant Miller signed the materially false and misleading Registration Statement.
30. Defendant Thomas J. Ridge (“Ridge”) is a director of the Company. Defendant Ridge signed the materially false and misleading Registration Statement.
31. The defendants named in ¶¶18-30 above are referred to herein as the “Individual Defendants.”
32. Defendants Citigroup Global Markets Inc. (“Citigroup”), UBS Securities LLC (“UBS”), Bear, Stearns & Co. Inc. (“Bear Stearns”), Deutsche Bank Securities Inc. (“Deutsche Bank”), Piper Jaffray & Co. (“Piper”) and Thomas Weisel Partners LLC (“Thomas Weisel”) (collectively, the “Underwriter Defendants”) were the lead underwriters for the IPO, and were primarily involved in selling such shares to the public, whereby they collectively reaped $31.8 million in fees for selling the inflated shares, together with distributing the defective Prospectus.
33. During the Class Period, the Individual Defendants, as senior executive officers and/or directors of Vonage, were privy to confidential and proprietary information concerning Vonage, its operations, finances, financial condition and present and future business prospects. The
Individual Defendants also had access to material adverse non-public information concerning Vonage, as discussed in detail below. Because of their positions with Vonage, the Individual Defendants had access to non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents, conversations and connections with other corporate officers and employees, attendance at management and/or board of directors meetings and committees thereof and via reports and other information provided to them in connection therewith. Because of their possession of such information, the Individual Defendants knew or recklessly disregarded that the adverse facts specified herein had not been disclosed to, and were being concealed from, the investing public.
34. The Individual Defendants, because of their positions with the Company, controlled and/or possessed the authority to control the contents of its reports, press releases and presentations to securities analysts and through them, to the investing public. The Individual Defendants were provided with copies of the Company’s reports and press releases alleged herein to be misleading, prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Thus, the Individual Defendants had the opportunity to commit the fraudulent acts alleged herein.
35. As senior executive officers and/or directors and as controlling persons of a publicly traded company whose common stock was, and is, registered with the SEC pursuant to the Securities Act, and was traded on the NYSE and governed by the federal securities laws, the Individual Defendants had a duty to promptly disseminate accurate and truthful information with respect to Vonage’s financial condition and performance, growth, operations, financial statements, business, products, markets, management, earnings and present and future business prospects, and to correct any previously issued statements that had become materially misleading or untrue, so that the market
price of Vonage’s stock would be based upon truthful and accurate information. The Individual Defendants’ misrepresentations and omissions during the Class Period violated these specific requirements and obligations.
36. The Individual Defendants are liable for their participation in a fraudulent scheme and course of conduct that operated as a fraud or deceit on purchasers of Vonage common stock, which included the dissemination of materially false and misleading statements and/or the concealment of material adverse facts. Defendants’ scheme: (i) deceived the investing public regarding Vonage’s business, operations and management and the intrinsic value of Vonage stock; (ii) enabled the Company to sell over 31 million shares of their Vonage stock vis-à-vis the false and misleading Registration Statement, which raised $500 million for the Company in badly needed cash; (iii) enabled the Underwriter Defendants to reap $31.8 million in fees; (iv) enabled the defendants to inflate the value of their individual stock options which could be used as a source of collateral for defendants’ own personal financing activities; and (v) caused plaintiff and members of the Class to purchase Vonage common stock at artificially inflated prices.
PLAINTIFF’S CLASS ACTION ALLEGATIONS
37. 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 Vonage common stock during the Class Period and who were damaged thereby (the “Class”), including those who purchased the shares pursuant or traceable to the Company’s false and misleading Registration Statement and Prospectus disseminated in connection with the IPO. Excluded from the Class are defendants, 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.
38. The members of the Class are so numerous that joinder of all members is impracticable. Throughout the Class Period, Vonage stock was actively traded on the NYSE. While the exact number of Class members is unknown to plaintiff at this time and can only be ascertained through appropriate discovery, plaintiff believes that there are hundreds or thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by Vonage 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.
39. 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 as complained of herein.
40. 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.
41. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are:
(a) whether the federal securities laws were violated by defendants’ acts as alleged herein;
(b) whether statements made by defendants to the investing public during the Class Period misrepresented material facts about the business and operations of Vonage;
(c) whether the price of Vonage common stock was artificially inflated during the Class Period; and
(d) to what extent the members of the Class have sustained damages and the proper measure of damages.
42. 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.
BACKGROUND
43. Vonage, through its subsidiaries, provides broadband telephone services primarily in the United States, Canada, and the United Kingdom.
44. Vonage, at the time of the IPO, was then infringing, in the United States, including in this District, as well as contributing to and inducing the infringement of, at least seven of Verizon’s patents relating to VoIP technology (collectively, the “Verizon Patents”).
45. Vonage has illegally capitalized on Verizon’s investment in VoIP research and development by using Verizon’s patented technology in its VoIP service offerings, including Verizon’s inventions relating to (a) gateway interfaces between a packet-switched and circuit-switched network, which is critical to implementing commercially viable VoIP telephony; (b) billing and fraud detection in commercial VoIP telephony; (c) call services in commercial VoIP telephony, such as call forwarding, follow me, and voicemail; and (d) the use of Wi-Fi handsets in a VoIP network. Through its product and service offerings (albeit omitted from the Prospectus), Vonage has appropriated the results of years of research conducted by Verizon and its predecessors. Vonage does not currently own any issued U.S. patents. Instead, Vonage relies on the intellectual property developed by Verizon in delivering its infringing products and services.
46. Vonage is aggressively marketing and advertising the services created with Verizon’s appropriated intellectual property. Vonage’s marketing and advertising targets customers of Verizon. As a direct result of its “saturation” marketing and advertising campaign, Vonage currently
serves an estimated 47% of all domestic non-cable VoIP customers. Vonage’s success in offering VoIP services, and its ability to provide such services to U.S. telephony consumers, are direct results of its unauthorized use of Verizon’s patented technology. This includes United States Patent Nos. 6,430,275 B1; 6,137,869; 6,104,711; 6,282,574B1; and 6,128,304.
47. Patent issues were but a few of the problems Vonage has had with its IPO – many involved its customer directed share purchase program. When it went public, Vonage made the rare move of reserving over four million shares for its customers to offset the true demand/support for the Company’s proposed $17 per share IPO. Over 9,000 of the Company’s clients were used essentially as a receptacle to place the Company’s newly minted shares that could not be sold though traditional means. In fact, the client shareholders who acquired their shares pursuant to the directed share program were never told how many shares were placed into their accounts (and subsequently billed for) until after the close of the market on the day the Company’s shares had gone public and plummeted 12.7%. Upon learning that the shares were selling for drastically less than what they started at, many Vonage customers canceled their checks and reneged on their offer at the original $17 price. (If the customers do not pay for the shares they reserved, Vonage will have to pay because the Company signed a side contract that lets the Underwriter Defendants off the hook.) Further, shareholder outrage increased as technical glitches in the Company’s advertisements blocked the link to a prospectus preventing shareholders from accessing the prospectus.
48. By concealing the truth about its business operations and manipulating the Company’s own client base to compensate for the lack of genuine demand for the Company’s IPO, Vonage raised over $500 million in the IPO and the Underwriter Defendants pocketed over $31 million.
THE DEFECTIVE IPO
49. Defendants completed Vonage’s IPO on May 23, 2006 (the effective date), pursuant to a false Registration Statement/Prospectus which failed to disclose the truth concerning its service/technology. With respect to the Company’s service/technology, the Registration Statement stated:
Flaws in our technology and systems could cause delays or interruptions of service, damage our reputation, cause us to lose customers and limit our growth.
Although we have designed our service network to reduce the possibility of disruptions or other outages, our service may be disrupted by problems with our technology and systems, such as malfunctions in our software or other facilities and overloading of our network. Our customers have experienced interruptions in the past and may experience interruptions in the future as a result of these types of problems. Interruptions have in the past and may in the future cause us to lose customers and offer substantial customer credits, which could adversely affect our revenue and profitability. For example, during 2005 our service was significantly impaired on two separate occasions. In March 2005, a problem during a software upgrade to our call processing system caused most of our customers to experience intermittent service for several hours. In August 2005, one of our third party carriers experienced an outage of approximately 90 seconds, which caused a failure in some of our gateways. As a result, during a period of several hours, approximately two out of three outbound calls from our customers to the public switched telephone network experienced an “all circuits busy” condition. We have since had other outages that affected smaller groups of customers at various times. In addition, because our systems and our customers’ ability to use our services are Internet-dependent, our services may be subject to “hacker attacks” from the Internet, which could have a significant impact on our systems and services. If service interruptions adversely affect the perceived reliability of our service, we may have difficulty attracting new customers and our brand, reputation and growth will be negatively impacted.
50. With respect to the Company’s facsimile services and business, the Prospectus stated: We also offer a number of premium services for an additional fee, such as toll free
numbers, fax numbers and virtual phone numbers. * * *
Subscriber lines [as reported] include, as of a particular date, all subscriber lines from which a customer can make an outbound telephone call on that date. Our subscriber lines include fax lines, SoftPhones and WiFi phones but do not include our virtual phone numbers or toll free numbers, which only allow inbound telephone calls to customers.
* * *
We derive most of our telephony services revenue from monthly subscription fees that we charge our customers under our service plans. We also offer residential fax service, virtual phone numbers, toll free numbers and other services, for each of which we charge an additional monthly fee. One business fax line is included with each of our two small office and home office plans, but we charge monthly fees for additional business fax lines.
* * *
• Residential Fax Service. We offer 250 minutes of outgoing fax service within the United States, Puerto Rico and Canada on a dedicated fax line for $9.99 per month, plus unlimited incoming faxes, with customers charged a per minute fee of 3.9 cents thereafter.
• Business Fax Service. We offer 500 minutes of outgoing fax service within the United States, Puerto Rico and Canada on a dedicated fax line plus unlimited incoming faxes, with customers charged a per minute fee of 3.9 cents thereafter. One business fax line is included in each of our business calling plans. We offer additional business fax lines for a monthly fee in the United States of $9.99 per line.
51. With respect to the severity of the competition the Company was then facing, the Prospectus offered generalized statements, as follows:
The telecommunications industry is highly competitive. We face intense competition from traditional telephone companies, wireless companies, cable companies and alternative voice communication providers. Our principal competitors are the traditional telephone service providers, namely AT&T, Inc. (formerly SBC Communications Inc.), BellSouth Corp., Citizens Communications Corp., Qwest Communications International Inc. and Verizon Communications, Inc., which provide telephone service based on the public switched telephone network. Some of these traditional providers also have added or are planning to add VoIP services to their existing telephone and broadband offerings. We also face, or expect to face, competition from cable companies, such as Cablevision Systems Corp., Charter Communications, Inc., Comcast Corporation, Cox Communications, Inc. and Time Warner Cable (a division of Time Warner Inc.), which have added or are planning to add VoIP services to their existing cable television, voice and broadband offerings. Further, wireless providers, including Cingular Wireless LLC, Sprint Nextel Corporation, T-Mobile USA Inc. and Verizon Wireless, offer services that some customers may prefer over wireline service. In the future, as wireless companies offer more minutes at lower prices, their services may become more attractive to customers as a replacement for wireline service. Some of these providers may be developing a dual mode phone that will be able to use VoIP where broadband access
is available and cellular phone service elsewhere, which will pose additional competition to our offerings.
52. With respect to the investors in the directed share program, these investors were told not to call Vonage about the IPO or the directed share program. Specifically, the Prospectus claimed that the program would be “centrally administered” through a Company Web site, as follows:
The Vonage Customer Directed Share Program will be centrally administered through the program Web site at ipoinfo.vonage.com.
53. However, the Web site did not work properly and failed to provide investors with the required information. The Prospectus omitted these technological deficiencies with the Web site when the IPO shares were first allocated and sold to members of the Class. Revelations of these technical glitches would serve as the beginning of the complaints about one of the worst IPOs in recent history on the NYSE.
54. On June 3-4, 2006, the weekend edition of The Wall Street Journal highlighted the fundamental deficiencies in the customer Web site and the lack of any proper “central administration” of Vonage’s customer directed share program:
Investors also claim the debut has been plagued by poor communication from Vonage and technical glitches in the electronic system used for notifying them about their orders and transferring shares to them. These glitches delayed attempts to trade, they say, or led them to believe they didn’t own shares when in fact their orders had gone through and they did. As Vonage stock dropped, these customers say, their losses mounted without their knowledge.
“Vonage and the underwriters didn’t do their jobs, and the customers who helped make the company successful are taking it on the chin,” says Steven Norsworthy, a telecommunications engineering consultant from San Diego and Vonage customer who bought 1,300 shares.
Similarly, Mr. Baden says he signed up for 200 shares but wasn’t notified of the $17 offering price or given a chance to confirm his purchase before his deal went through. “I think it has been very lousy as a customer experience,” he says, adding that he hasn’t decided whether he will contest the purchase.
Vonage says it knows of no “technical glitches,” and that the offering was “six times oversubscribed and was priced at the midpoint of the range.” As some
customers who bought the IPO have threatened to withhold payment, Vonage has said it may answer with collection efforts.
55. Within days of May 24, 2006, Vonage indicated initially that it would permit investors in the directed share program to rescind their purchases, but then shortly thereafter issued a statement reversing that position, indicating instead that the Company reserved the right to pursue its investor/customers for full payment for their IPO shares. The Company indicated its intention to pursue its customers for such payments despite acknowledging at least certain technical problems with the Web site. According to the June 3-4, 2006 weekend edition of The Wall Street Journal:
A key issue, investors say, is a line from the IPO prospectus that said Vonage would compensate its underwriters in the event that customers didn’t pay for the shares they had pledged to buy. Some investors took that to mean they weren’t obligated to pay.
In the first days of trading, the company added to the confusion by suggesting on CNBC that it wasn’t likely to play hardball with customers who balked. “While all avenues are available to us, we cannot imagine alienating our customers in that way,” the company said in a statement on May 30. “If certain . . . customers don’t pay, we expect to repurchase the shares from the underwriters if necessary.”
The statement set off a flood of speculation on www.vonage-forum.com and elsewhere that Vonage was allowing customers to back out and would buy shares back from customers. But a week after trading began, Vonage clarified that it wouldn’t buy back shares and reserved the right to pursue payment. It sent customers emails reiterating their obligation to pay.
56. On May 24, 2006, the Company’s first trading day, Vonage’s stock price plummeted from its IPO price of $17 per share to a low of $14.49 and closed at $14.85 per share, a loss of 12% of its value, and a decline of more than $225 million in market capitalization for the Company.
57. The June 3-4, 2006 Wall Street Journal also highlighted the Underwriter Defendants’ knowledge of certain “technical problems” associated with the directed share program:
A spokesman for Citigroup’s Smith Barney said the company found no technical glitches in its systems for handling customer orders. A spokesman for the securities unit of Deutsche Bank declined to comment.
A UBS spokesman said about 300 of its customers encountered technical problems, such as being unable to log onto their accounts or complete trades. He said UBS has records of their efforts and phone calls if they couldn’t trade online and would honor their intentions. Citing [a legally mandated] quiet period, the underwriters declined to comment on the pricing of the IPO and other aspects of the deal.
58. On May 25, 2006, Vonage’s stock price dove further, trading as low as $12.63, and closing at $13.00 – a 24% loss over the first two days of trading.
59. Following a one-day stabilization in the Company’s stock price, the Company issued a press release on May 29, 2006 (Memorial Day) to announce that defendant Rego would appear the following morning on CNBCs Squawk Box. Rego was reportedly going to “discuss Vonage’s Customer Directed Share Program, Vonage’s business and industry competition.” The next day, Vonage’s share price dropped to a low of $12.42 per share and closed at $12.50 per share. In the next three trading days the stock lost even more value, falling to as low as $11.63 per share.
60. On June 19, 2006, the Company issued a press release entitled “Vonage Acknowledges Lawsuit from Verizon,” which stated in part:
Vonage Holdings Corp., a leading provider of broadband telephone services announced today that it has been served with a patent infringement lawsuit, along with its wholly owned subsidiary, Vonage America, Inc., filed by Verizon Services Corp. and Verizon Laboratories, Inc. relating to voice over the internet (VoIP) technology.
As a leading developer of VoIP technology, Vonage respects the valid intellectual property rights of others. Vonage believes that its services have been developed with its own proprietary technology and technology licensed from third parties and intends to vigorously defend the lawsuit. Vonage has not previously been notified by Verizon regarding the seven patents identified in the lawsuit and has engaged its outside intellectual property counsel to investigate the matter.
61. On this news of the patent violations, the Company’s shares had plummeted by 50% – to $8.50 per share. The stock has since dropped to below $8 per share.
UNDISCLOSED ADVERSE INFORMATION
62. The true facts, which were known to defendants based upon their access to and/or review of internal Vonage corporate data during the Class Period, include, but are not limited to:
(a) Nearly four million shares (or 13.5% of the offering) were being sold through the Company’s directed share program to as many as 9,000 unsuitable investors who lacked the sophistication and/or means to pay for their allocated shares acquired pursuant to the false and misleading Prospectus. As a result, the Company’s shares would, and did, experience a massive wave of selling pressure within the first week of the Company’s offering, causing an unusual amount of “sell” trades within the time prescribed by Regulation T.
(b) The defendants failed to ensure timely notification of shares allocated through the Company’s directed share program, which would, and did, create unnecessary selling pressure on the Company’s shares the second trading day.
(c) The IPO was not a true “firm offering” but, in fact, a “reverse firm offering” whereby the Company served as the guarantor of the unallocated or unpaid-for shares which would, and did, cause the Company to reap less proceeds than claimed in the Company’s Prospectus.
(d) The Company’s VoIP technology violated a number of patents held by Verizon. The enforcement and publication of such would have a material impact on the Company’s share price and business prospects.
(e) The Company lacked the requisite Internet infrastructure to provide the 9,000 directed share purchasers a “link” or access to a prospectus within the time established by SEC rules and regulations.
(f) At the time of the Company’s IPO, the Company was then experiencing poor results from its facsimile service business. Moreover, the Company was also at that time ill-equipped to properly transmit facsimile communications due to, among other things, the defendants’
decision to delay the necessary expenditures to build the requisite facsimile communications infrastructure, causing the Company’s previously reported (in the Prospectus) expenses to be understated. The Company’s infrastructure was so materially deficient that consumers had filed class action lawsuits on behalf of defrauded facsimile customers. Furthermore, not only had the Company failed to build the necessary facsimile VoIP infrastructure, as of the date of the IPO the necessary technology was not yet developed by any known company. Thus, not only did the defendants conceal the deficient facsimile infrastructure, the Company was named as a defendant in a class action lawsuit for misleading its own customers.
(g) The Prospectus failed to disclose the truth about the technical problems and fundamental deficiencies that had been plaguing certain of the Company’s services and products. One such major technical failure concerned the inability of Vonage’s customers to use facsimile machines to send facsimile communications over Vonage’s VoIP technology platform. In particular, Vonage purportedly uses a transport layer protocol called User Datagram Protocol (“UDP”). Although the UDP technology is sufficient for transmitting voice communications, it is reportedly insufficient for transmitting facsimile communications. As a result, facsimile transmissions using Vonage’s technology platform were either aborted in midstream, illegible to the recipient, or simply did not transmit as they were supposed to.
(h) At the time of the IPO, the Company’s key products and services were incompatible with the products and services of other VoIP providers, including but not limited to, some of the largest providers such as AOL Time Warner.
(i) At the time of the IPO, the Company was then experiencing known adverse trends compromising the Company’s core business model. While the defendants admitted other VoIP providers existed, thereby creating a competitive business environment, the Prospectus
concealed the fact that the major threat to Company was a trend generated by Skype which provided “free” VoIP services. (Skype is a unit of eBay which conceivably could offset the VoIP cost with the generation of new consumers for its own key services/products.)
LOSS CAUSATION/ECONOMIC LOSS
63. During the Class Period, as detailed herein, defendants engaged in a scheme to deceive the market and a course of conduct that artificially inflated Vonage’s stock price and operated as a fraud or deceit on Class Period purchasers of Vonage stock by misrepresenting the Company’s business success and future business prospects and through omissions in the Company’s May 2006 Prospectus. Defendants achieved this façade of success, growth and strong future business prospects by misrepresenting the Company’s financial statements, earnings and prospects, including in a Registration Statement/Prospectus filed with the SEC. A few weeks later, when defendants’ prior misrepresentations and fraudulent conduct were disclosed and became apparent to the market, Vonage stock fell precipitously as the prior artificial inflation came out of Vonage’s stock price. As a result of their purchases of Vonage stock during the Class Period, plaintiff and other members of the Class suffered economic loss, i.e., damages, under the federal securities laws.
COUNT I
Against the Underwriter Defendants for Violations of Section 11 of the Securities Act
64. Plaintiff repeats and realleges each of the allegations set forth in the foregoing paragraphs, except that to the extent any allegations contained above may be interpreted to sound in fraud, such allegations are expressly not incorporated under this Count.
65. This Count is asserted against the Underwriter Defendants for violations of §11 of the Securities Act, 15 U.S.C. §77k, on behalf of all persons who purchased shares of Vonage stock issued in connection with or traceable to the IPO in May 2006.
66. The Underwriter Defendants issued, caused to be issued, and participated in the issuance of the materially false and misleading Registration Statement and Prospectus, which misrepresented or failed to disclose, inter alia, the material facts concerning the business of Vonage as set forth herein.
67. As a direct and proximate result of the false and misleading statements in the Registration Statement and Prospectus, Vonage common stock was sold in the May 2006 offering at a price far exceeding the true value of the shares. At the time this action was filed, Vonage common stock was trading at a price of approximately $8 per share, well below the $17 per share price in the May 2006 IPO.
68. Plaintiff and other members of the Class purchased Vonage common stock pursuant and traceable to the IPO without knowledge of the untruths or omissions alleged herein. Plaintiff and the other members of the Class could not have reasonably discovered the nature of defendants’ untruths and omissions.
69. Plaintiff and the other members of the Class have sustained damages. The value of Vonage common stock has declined precipitously subsequent to and due to the Underwriter Defendants’ violations.
70. In connection with the IPO, the Underwriter Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce and the U.S. mails.
71. This action was brought within one year after the discovery of the untrue statements and omissions and less than three years after the IPO.
72. By reason of the foregoing, the Underwriter Defendants have violated §11 of the Securities Act and are liable to plaintiff and the other members of the Class, each of whom has been damaged by reason of such violations.
COUNT II
Against Vonage and the Underwriter Defendants for Violations of Section 12(a)(2) of the Securities Act
73. Plaintiff repeats and realleges each and every allegation contained above as if fully set forth herein, except that to the extent any allegations contained above may be interpreted to sound in fraud, such allegations are expressly not incorporated under this Count.
74. This Count is asserted against Vonage and the Underwriter Defendants for violations of §12(a)(2) of the Securities Act on behalf of plaintiff and all persons who purchased shares issued in the May 2006 IPO.
75. Vonage and the Underwriter Defendants were sellers, offerors, and/or solicitors of sales of the shares offered in connection with the May 2006 IPO.
76. The Registration Statement and Prospectus contained misstatements of material facts, omitted to state facts necessary to make the statements made not misleading, and concealed and failed to disclose material facts. The defendants’ actions of solicitation included participating in the preparation of the false and misleading Registration Statement and Prospectus.
77. Plaintiff and the other members of the Class purchased or otherwise acquired Vonage common stock issued pursuant to or traceable to the false and misleading Registration Statement and Prospectus. Plaintiff did not know, or in the exercise of due diligence could not have known, of the untruths and omissions contained in the Registration Statement and Prospectus.
78. By reason of the conduct alleged herein, Vonage and the Underwriter Defendants violated §12(a)(2) of the Securities Act.
79. Plaintiff, individually and representatively, hereby elects to rescind and tender to those defendants named in this Count those securities that plaintiff and other members of the Class continue to own, in return for the consideration paid for those securities together with interest
thereon. Plaintiff and the other members of the Class who have sold their Vonage common stock seek rescissory damages.
80. This action was brought within one year after the discovery of the untrue statements and omissions and within three years after the IPO.
COUNT III
Violation of Section 11 of the Securities Act Against Defendants Vonage, Citron, Snyder, Rego, Barris, Gadiesh, Panero, Weller, Roberts, Atkins, David, Miller and Ridge
81. Plaintiff repeats and realleges each and every allegation contained above as if fully set forth herein. Plaintiff for purposes of this Count disclaims any allegations of fraud. This Count is brought on behalf of a Class of all purchasers of Vonage’s common stock issued pursuant to the Registration Statement/Prospectus who were damaged thereby, seeking to pursue remedies under the Securities Act against defendant Vonage, the issuer of the stock, and defendants Citron, Snyder, Rego, Barris, Gadiesh, Panero, Weller, Roberts, Atkins, David, Miller and Ridge, who were directors and/or signatories of the Registration Statement.
82. Vonage, as the issuer, and the other defendants named herein, as signers of the Registration Statement that contained untrue statements of material fact or omitted to state facts required to be stated therein or necessary to make the statements therein not misleading, are liable under §11(a)(1) and (2) of the Securities Act.
83. Each of the defendants named in this Count is liable under §11(a) of the Securities Act because the Registration Statement, when it became effective, contained an untrue statement of material fact or omitted to state material facts required to be stated therein or necessary to make the statements therein not misleading.
84. Vonage went public in May 2006 in an IPO pursuant to the Registration Statement filed with and declared effective by the SEC at $17 per share. Vonage sold 31.3 million shares pursuant thereto, raising over $500 million.
85. Defendants Citron, Snyder, Rego, Barris, Gadiesh, Panero, Weller, Roberts, Atkins, David, Miller and Ridge each signed the Registration Statement. Because the Registration Statement contained untrue statements of material fact or omitted to state a material fact required to be stated therein or necessary to make the facts stated therein not misleading, each of these defendants is liable as “a person who signed the Registration Statement,” under §11(a)(1), 15 U.S.C. §77k(a)(1) of the Securities Act.
86. Defendants Citron, Snyder, Barris, Gadiesh, Panero, Weller, Roberts, Atkins, David, Miller and Ridge were directors of Vonage when the Registration Statement became effective. Because the Registration Statement contained untrue statements of material fact or omitted to state material facts required to be stated therein or necessary to make the facts stated therein not misleading, each of these defendants is liable as a director under §11(a)(2), 15 U.S.C. §77k(a)(2) of the Securities Act.
87. Plaintiff and other members of the Class purchased Vonage common stock pursuant and traceable to the IPO without knowledge of the untruths or omissions alleged herein, and sustained damages as a result. Plaintiff and the other members of the Class could not have reasonably discovered the nature of defendants’ untruths and omissions.
88. This action was brought within one year after the discovery of the untrue statements and omissions and less than three years after the IPO.
COUNT IV
Against the Individual Defendants (Except Tribolet) for Violations of Section 15 of the Securities Act
89. Plaintiff repeats and realleges each and every allegation contained above as though fully set forth herein, except that to the extent any allegations above sound in fraud, such allegations expressly are not incorporated in this Count.
90. This Count is asserted against the Individual Defendants (except Tribolet) for violation of §15 of the Securities Act, 15 U.S.C. §77o.
91. Defendant Citron, by virtue of his position, stock ownership, and specific acts as described herein, had the power, and exercised the same, to control the representations and actions of Vonage. Citron converted preferred stock obtained during the Company’s start-up phase into 47.49 million common shares. He also holds debt convertible into 178,322 shares. In addition, he has warrants to buy 2.57 million shares for $1.40 each. His holdings, including the convertible debt but not the warrants, are equal to 27.5% of the Company’s common stock outstanding following the IPO. The $17 IPO price compares with an average original investment of $3.29 a share by early investors. Such early investors assert control over the Company through the respective Board they hand-picked to ensure the Company would go public.
92. Each of the Individual Defendants named herein was a culpable participant and is jointly and severally liable to plaintiff and the members of the Class as a “control person” pursuant to §15 of the Securities Act.
93. As a result of the foregoing, plaintiff and the members of the Class have suffered damages.
COUNT V
Against Vonage and the Individual Defendants for Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder
94. Plaintiff repeats and realleges each and every allegation contained in ¶¶1-93 as if fully set forth herein.
95. During the Class Period, Vonage and the Individual Defendants, and each of them, carried out a plan, scheme and course of conduct which was intended to and, throughout the Class Period, did: (a) deceive the investing public, including plaintiff and other Class members, as alleged herein; (b) artificially inflate the market price of Vonage common stock; and (c) cause plaintiff and other members of the Class to purchase Vonage common stock 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.
96. Defendants: (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements made not misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of the Company’s stock in an effort to maintain an artificially high market price for Vonage common stock in violation of §10(b) of the Exchange Act and Rule 10b-5. All defendants are sued either as primary participants in the wrongful and illegal conduct charged herein or as controlling persons as alleged below.
97. In addition to the duties of full disclosure imposed on defendants as a result of their making of affirmative statements and reports, or participation in the making of affirmative statements and reports to the investing public, defendants had a duty to promptly disseminate truthful information that would be material to investors in compliance with the integrated disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R. §210.01, et seq.) and
Regulation S-K (17 C.F.R. §229.10, et seq.) and other SEC regulations, including accurate and truthful information with respect to the Company’s operations, financial condition and earnings so that the market price of the Company’s stock would be based on truthful, complete and accurate information.
98. Vonage and the Individual Defendants, individually and in concert, directly and indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a continuous course of conduct to conceal adverse material information about the business, operations and future prospects of Vonage as specified herein.
99. These defendants employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information and engaged in acts, practices, and a course of conduct as alleged herein in an effort to assure investors of Vonage’s value and performance and continued substantial growth, which included the making of, or the participation in the making of, untrue statements of material facts and omitting to state material facts necessary in order to make the statements made about Vonage and its business operations and future prospects in the light of the circumstances under which they were made, not misleading, as set forth more particularly herein, and engaged in transactions, practices and a course of business which operated as a fraud and deceit upon the purchasers of Vonage common stock during the Class Period.
100. The Individual Defendants’ primary liability, and controlling person liability, arises from the following facts: (a) the Individual Defendants were high-level executives and/or directors at the Company during the Class Period; (b) the Individual Defendants were privy to and participated in the creation, development and reporting of the Company’s internal budgets, plans, projections and/or reports; and (c) the Individual Defendants were aware of the Company’s dissemination of
information to the investing public which they knew or recklessly disregarded was materially false and misleading.
101. The defendants had actual knowledge of the misrepresentations and omissions of material facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were available to them. Such defendants’ material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing Vonage’s operating condition and future business prospects from the investing public and supporting the artificially inflated price of its stock. As demonstrated by defendants’ overstatements and misstatements of the Company’s business, operations and earnings throughout the Class Period, defendants, if they did not have actual knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain such knowledge by deliberately refraining from taking those steps necessary to discover whether those statements were false or misleading.
102. As a result of the dissemination of the materially false and misleading information and failure to disclose material facts, as set forth above, the market price of Vonage common stock was artificially inflated during the Class Period. In ignorance of the fact that the market price of Vonage common stock was artificially inflated, and relying directly or indirectly on the false and misleading statements made by defendants, or upon the integrity of the market in which the securities trade, and/or on the absence of material adverse information that was known to or recklessly disregarded by defendants but not disclosed in public statements by defendants during the Class Period, plaintiff and the other members of the Class acquired Vonage common stock during the Class Period at artificially high prices and were damaged thereby.
103. At the time of said misrepresentations and omissions, plaintiff and other members of the Class were ignorant of their falsity, and believed them to be true. Had plaintiff and the other members of the Class and the marketplace known of the true financial condition and business prospects of Vonage, which were not disclosed by defendants, plaintiff and other members of the Class would not have purchased or otherwise acquired their Vonage common stock, or, if they had acquired such stock during the Class Period, they would not have done so at the artificially inflated prices which they paid.
104. By virtue of the foregoing, defendants have violated §10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder.
105. 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 and sales of the Company’s common stock during the Class Period.
COUNT VI
Violation of Section 20(a) of
the Exchange Act Against Vonage and the Individual Defendants
106. Plaintiff repeats and realleges each and every allegation contained in ¶¶1-105 as if fully set forth herein.
107. The Individual Defendants acted as controlling persons of Vonage within the meaning of §20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions, and their ownership and contractual rights, participation in and/or awareness of the Company’s operations and/or intimate knowledge of the statements filed by the Company with the SEC and disseminated to the investing public, the Individual Defendants had the power to influence and control and did influence and control, directly or indirectly, the decision-making of the Company, including the content and dissemination of the various statements which plaintiff contends are false and
misleading. The Individual Defendants were provided with or had unlimited access to copies of the Company’s reports, press releases, public filings and other statements alleged by plaintiff to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected.
108. In particular, the Individual Defendants had direct and supervisory involvement in the day-to-day operations of the Company and, therefore, are presumed to have had the power to control or influence the particular transactions giving rise to the securities violations as alleged herein, and exercised the same. The Company controlled the Individual Defendants and all of its employees. 109. As set forth above, Vonage and the Individual Defendants each violated §10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their positions as controlling persons, the defendants are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result of Vonage’s and the Individual Defendants’ wrongful conduct, plaintiff and other members of the Class suffered damages in connection with their purchases of the Company’s common stock during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for relief and judgment, as follows:
A. Determining that this action is a proper class action, designating plaintiff as lead plaintiff and certifying plaintiff as a class representative under Rule 23 of the Federal Rules of Civil Procedure and plaintiff’s counsel as lead counsel;
B. Awarding compensatory damages in favor of plaintiff and the other Class members against all defendants, jointly and severally, for all damages sustained as a result of defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
C. Awarding Plaintiff and the other members of the Class rescission on Count II to the extent they still hold shares of Vonage stock, or if sold, awarding rescissory damages in accordance with Section 12(a)(2) of the Securities Act;
D. Awarding plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and
E. Such equitable/injunctive or other and further relief as the Court may deem just and proper.
JURY DEMAND Plaintiff hereby demands a trial by jury.
DATED: July 17, 2006 LERACH COUGHLIN STOIA GELLER
RUDMAN & ROBBINS LLP SAMUEL H. RUDMAN (SR-7957) DAVID A. ROSENFELD (DR-7564)
DAVID A. ROSENFELD 58 South Service Road, Suite 200 Melville, NY 11747
Telephone: 631/367-7100 631/367-1173 (fax)
LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP
WILLIAM S. LERACH DARREN J. ROBBINS
655 West Broadway, Suite 1900 San Diego, CA 92101
Telephone: 619/231-1058 619/231-7423 (fax) Attorneys for Plaintiff
