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Michael D. Braun (167416) Timothy J. Burke (181866) STULL, STULL & BRODY 10940 Wilshire Boulevard Suite 2300 Los Angeles, CA 90024 Tel: (310) 209-2468 Fax: (310) 209-2087 Jules Brody Aaron Brody Tzivia Brody
STULL, STULL & BRODY 6 East 45th Street
New York, NY 10017 Tel: (212) 687-7230 Fax: (212) 490-2022
Kevin J. Yourman (147159) WEISS & YOURMAN 10940 Wilshire Boulevard 24th Floor
Los Angeles, CA 90024 Tel: (310) 208-2800 Fax: (310) 209-2348 Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
YAIR YAISH and ADELE BRODY, Custodian for ALIZA BRODY, On Behalf of Themselves and All Others Similarly Situated,
ORACLE CORPORATION and LAWRENCE J. ELLISON,
COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
Plaintiffs, through their attorneys, bring this action on behalf of themselves and all others similarly situated, and on personal knowledge as to themselves and their activities, and on information and belief as to all other matters, based on investigation conducted by counsel, hereby alleges as follows:
NATURE OF THE CASE
1. This is a class action on behalf of all purchasers of the securities of Oracle Corporation ("Oracle" or the "Company") between December 15, 2000, and March 1, 2001, inclusive (the "Class Period"), seeking remedies under the Securities Exchange Act of 1934 (the "Exchange Act"). Defendants include: Oracle and its founder, CEO and Chairman Lawrence J. Ellison ("Ellison"). 2. Oracle is the world's second largest software maker and supplies computer software for enterprise
information management systems. The Company offers database and relational servers,
application development and decision support tools, and enterprise business applications. Oracle's software runs on a variety of computers, including network computers, personal digital assistants, set-top devices, work-stations, PCs, minicomputers, mainframes and powerful super computers. 3. Oracle's high stock price was dependent upon its phenomenal growth rate. However, by the
beginning of Oracle's third quarter(1) Oracle's business began to fall victim both to the general economic slowdown in the computer industry and the dot-com bust. Realizing that the public disclosure of Oracle's slowing growth rate would have a huge negative impact on Oracle's stock price, Oracle and Ellison put out a series of false and misleading statements designed to keep Oracle's stock price high while Ellison sold over 61 million shares of Oracle common stock for over $1.8 billion.
4. On March 1, 2001, Oracle revealed that, contrary to defendants' prior assurances of Oracle's continuing "strong" revenue and EPS growth, which continued to be made less than two weeks earlier, that it would post revenue and EPS declines, sending Oracle's shares into a free fall. In a press release Oracle stated:
- Database growth would be flat to slightly negative. - Oracle would post sequential EPS declines.
- Applications growth would be two-thirds of what Ellison had projected.
5. This disclosure shocked the market, causing Oracle's stock to fall to less than $17 per share before closing at $16.88 per share on March 2, 2001, on record volume of more than 221 million shares, causing billions of dollars of damage to plaintiffs and the Class. Oracle lost over $90 billion in market capitalization as Oracle stock has fallen over 50% from its class Period high of over $35 per share.
JURISDICTION AND VENUE
6. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §§1331 and 1337, and §27 of the Securities Exchange Act of 1934 (the "Exchange Act") (15 U.S.C. §78aa). Defendants.
7. This action arises under §§10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder (17 C.F.R. §240.10b-5).
8. Venue is proper in this district pursuant to §27 of the Exchange Act and 28 U.S.C. 1391(b) because the acts charged herein, including the dissemination of materially false and misleading information, occurred in this district.
9. In connection with the conduct complained of herein, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including the mails and interstate telephone communications, and the facilities of a national securities exchange.
10. Plaintiff Yair Yaish purchased Oracle publicly traded securities as detailed in the attached certification and was damaged thereby.
11. Plaintiff Adele Brody, Custodian for Aliza Brody, purchased Oracle publicly traded securities as detailed in the attached certification and was damaged thereby.
12. Defendant Oracle supplies software for enterprise information management. The Company offers databases and relational servers, application development and decision support tools, and
enterprise business applications. Oracle's software runs on network computers, personal digital assistants, set-top devices, work-stations, PCs, minicomputers, mainframes and powerful super computers. During the Class Period, Oracle had approximately 5.58 billion shares of common stock outstanding, which shares traded in an efficient market on the NASDAQ National Market System.
13. Defendant Ellison is Chief Executive Officer, Chairman of the Board of the Company, founder and largest shareholder. He ran Oracle as a "hands-on" manager, dealing with important issues facing Oracle's business, its customer base, including Internet companies (many of whom had gone out of business or were having difficulty surviving), Oracle's market share position, and its ability to achieve growth in its business in fiscal 2001 in light of the dramatic adverse
developments which had been affecting Oracle's core and Internet customers since September of 2000. During the Class Period, defendant Ellison was in possession of the following confidential adverse information concerning Oracle: (i) Oracle's prior growth in data base was caused by sales to dot-com companies. Not only had the dot-com bubble burst, causing a decrease in sales to potential new dot-com customers, but also 30 of Oracle's dot-com customers had closed their doors, making the prediction of 20%-25% growth forecast by the defendants impossible; (ii) substantial programming systems integration work was required to implement the 11i Suite rendering the suite undesirable to Oracle's customers; (iii) Oracle's customers were refusing to upgrade to the 11i Suite due to the instability of the production, problems with the code, and in its CRM modules; (iv) growth in Oracle's business application software line would be only two-thirds of the growth forecast by defendants; (v) demand for Oracle's products was not nearly as healthy as represented due to the inability of Oracle's customer base to pay for products, which defendant Ellison knew about as he was wining and dining CEO's at his home during the Class Period in an attempt to sell the Company's products; and as a result of (i)-(v) above, it was impossible for Oracle to achieve third quarter 2001 EPS and revenue of $0.12 and $2.9 billion, respectively. Ellison took advantage of his false statements and the artificial inflation caused thereby and sold over 61 million shares of Oracle stock at artificially inflated prices of as high as $32 per share for illegal gains of over $1.8 billion.
14. Ellison is liable for the false statements pleaded herein at ¶¶ 31-44, as those statement where each "group-published" information for which he is responsible. Ellison, by reason of his 25% stock ownership and position with Oracle as CEO, Chairman and founder, was controlling person of Oracle.
15. As an officer, director and/or controlling person of a Company whose common stock is traded on NASDAQ and governed by the provisions of the federal securities laws, Ellison had a duty to disseminate truthful information promptly and accurately with respect to the Company's operations, products, markets, management, earnings and business prospects, to correct any previously issued statements that had become materially misleading or untrue, and to disclose any trends that would materially affect earnings and the financial results of Oracle, so that the market price of the Company's publicly traded securities would be based upon truthful and accurate information.
16. Under rules and regulations promulgated by the SEC under the Exchange Act, Ellison also had a duty to report all trends, demands or uncertainties that were likely to influence: (a) Oracle's liquidity; (b) Oracle's net sales, revenues and/or income; and (c) previously reported financial information such that it would not be indicative of operating results. Oracle's and Ellison's representations during the Class Period violated these specific requirements and obligations. 17. Ellison, because of his position with the Company, controlled and/or possessed the power and
authority to control the contents of Oracle's reports, press releases and presentations to the public, which information was conveyed through the investing public. Ellison was 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.
18. Because of his position and access to material non-public information available to him, but not to the public, Ellison knew or recklessly disregarded that the adverse facts specified herein had not been disclosed to, and were being concealed from, the public and that the positive representations which were being made were then materially false and misleading.
19. Ellison is also liable as an individual participant in a fraudulent scheme and course of conduct that operated as a fraud and/or deceit upon the class. Because of his managerial and directorial position with the Company, Ellison had access to the adverse, non-public information about the business, finances and future business prospects of Oracle as particularized herein and acted to
misrepresent, misstate or conceal such information from plaintiffs and the investing public. SUBSTANTIVE ALLEGATIONS
20. Since its beginning in 1977, Oracle had focused on becoming the principal vendor of high-end data base management systems. In doing so, with Oracle's current release, 8i, Oracle sought to increase its market share, and the Company managed to add market share during each of the last three years. Specifically, its total market share expanded from 38.3% in 1997 to 39.8% in 1998 to 42.4% in 1999. Oracle fought the database battle on two fronts (versus IBM's DB/2 on the high end and Microsoft's SQL Server 2000 on the low end) and claimed it still would be able to take market share from some of the legacy DBMS vendors while holding off advances from the larger competitors.
21. While enterprise DBMS sales remain Oracle's core business, application offers the strongest growth prospects for the next several years. With the shipment of 11i, Oracle sought to market an
integrated solution in an attempt to rival the best-of-breed point products from other players like Siebel, i2 and Ariba.
22. In third quarter 2000, Oracle delivered 10%-12% of its database license revenue from dot-com companies. By September 2000, thirty of Oracle's significant Internet customers were no longer in business. The majority of Oracle's viable Internet customers were scrambling simply to fund their businesses. By late 1999, Oracle was powering 93% of all Internet companies which had initiated initial public offerings ("IPOs"), and these companies' ability to fund themselves had diminished, resulting in their cutting back on information technology orders in the fall of 2000 as the market for Internet IPOs and secondary offering had soured. By September 2000, the problems the Internet customers were having raising money had reached crisis proportions. Ellison also knew, from his frequent conversations with non-Internet customers and other Oracle employees, that even Oracle's core customers were cutting information expenditures which would cause Oracle's future revenues to decline.
23. Thus, at the time Oracle reported its second quarter 2001 results (on December 14, 2000), it faced increasingly bleak short-term and long-term prospects. Nevertheless, Ellison wanted to sell his shares before the truth began to be revealed about Oracle's true prospects. Thus, defendants disseminated false information about Oracle's business and prospects concealing that fact that, even in November 2000, customers were cutting back on expenditures for information
technologies which would hurt future results.
24. Defendants also knew from frequent conversations with customers and staff that the Company's new flagship 11i Suite, which had been first shipped to Oracle's customers in second quarter 2000, was fraught with technical problems, including giant gaps in its CRM modules, and required massive and expensive programming systems integration work. Oracle had become the first customer for this produce and had publicly bragged how it had saved the Company over one billion dollars. Oracle also used its "Oracle Sales Intelligence" software, which provides senior executives, sales managers, and analysts with a real-time enterprise view of their sales data to help them meet quotas, assess current performance, and make continuous improvements to their sales processes. It includes a robust set of reports covering eight key focus areas including: sales force performance, sales effectiveness, revenue management, customer analysis, product analysis, channel analysis, and pipeline analysis. From the reports generated by his own Oracle Sales Intelligence, Ellison also knew that unless he continued to ship 11i in its current faulty form, it would be impossible to convince the market that Oracle would be able to meet Ellison's
phenomenal third quarter projections. Ellison also knew that unless Oracle could quickly develop a "new version" with fewer technical difficulties by the end of February 2001 (the end of its Third quarter), Oracle would be flooded with returns. During the week of February 12, 2001, two weeks away from the end of its third quarter, Oracle pushed out the "working" version of 11i and shipped it to its unhappy customers who had purchased the earlier versions of 11i.
25. Ellison was personally familiar with Oracle's third quarter 2001 revenues as he sold 11i and other products himself from his home, where he would have dinners with his customers' CEOs. He also monitored Oracle's sales, closely monitoring the performance of Oracle's operations via reports from Oracle's Finance Department, which were generated and provided to management on regular basis. The reports summarized orders, dollar volume, buyer name, credit terms, and product type. These reports were generated on Oracle's own "Oracle Sales Intelligence" software. As a result of his monitoring, Ellison was aware that Oracle would be unable to meet its projection results, as its software business was slowing and its customers were unable to continue the capital expenditure programs at the levels previously conveyed to defendants in light of the dramatic adverse
defendants' plan to inflate the price of Oracle shares, defendants continue to maintain throughout the Class Period that Oracle would post third quarter 2001 revenue and EPS of at least $2.9 billion and $0.12, respectively, when, in reality, Ellison knew that Oracle could not possibly achieve such performance. In fact, Ellison knew that Oracle's third quarter would not result in growing
sequential growth for its EPS and for the first time in more than eight years would show a decline in EPS instead.
26. In addition to having actual knowledge of the falsity of their statements, defendants had the motive and the opportunity to perpetrate the fraudulent scheme and course of business described herein, in order to sell over $1.8 billion worth of Ellison's Oracle shares at prices as high as $32 per share, or 50% higher than the price to which Oracle shares dropped at the end of the Class Period, as Oracle's true prospects began to reach the market.
BACKGROUND TO THE CLASS PERIOD
27. Due to continued deterioration in the financial condition of many of Oracle's customers during the late summer and early fall of 2000, by September 2000 at the latest, defendants knew that re-order rates would not continue to be strong and future results would be adversely affected. Ellison also knew from his frequent conversations with customers and staff that the Company's new flagship 11i Suite, which had first been shipped to Oracle's customers in second quarter 2001, was fraught with technical problems, including massive gaps in its CRM modules rendering the product unstable, and that these massive technical problems required massive expensive systems
integration programming work before the product could even be implemented. Ellison also knew that unless the continued to ship the 11i in its current faulty form, it would be impossible to convince the market that Oracle would be able to meet Ellison's phenomenal third quarter projections.
28. Thus, at the time Oracle reported second quarter 2001 results, if faced increasingly bleak short-term and long-short-term prospects. Nevertheless, Ellison wanted to sell his shares before the truth began to be revealed about Oracle's true prospects. Thus, defendants disseminated false information about Oracle's business and prospects, concealing the fact that, even in November 2000, customers were cutting bact on expenditures for information technologies which would hurt future results.
29. By December 14, 2000, defendants know that they would be unable to show sequential earnings growth in Oracle's third quarter. This would be the first time in more than eight years that Oracle would report a declining sequential quarter in EPS growth. In fact, as depicted below, for the past seven years, Oracle had reported either sequential growth or sequential flat quarter but never a declining quarter. Ellison knew that Oracle's inability to post sequential growth would devastate Oracle's share price and his wealth in his Oracle shares, including the 20+ million shares he held options on that expired in August 2001, long before defendant Ellison expected Oracle's stock price would recover from the effect of disclosing the truth regrading Oracle's operations.
FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIOD
30. On December 14, 2000, subsequent to the release of its second quarter 2001 results after the market closed, Ellison and Henley held an conference call for analysts, money and portfolio managers, institutional investors and large Oracle shareholders to discuss Oracle's second quarter results and third quarter projections, and it prospects. During the call -- and in the follow-up
conversations with analysts -- Ellison and Oracle's CFO, Jeffrey Henley, stated; • No programming systems integration work in necessary to implement the 11i Suite. • Oracle would report third quarter 2001 EPS of $0.12.
• Customers were favoring the fully integrated versus piecing together different systems from different vendors.
• Oracle would report in third quarter 2001: • Application growth of 75;
• Database growth of 20%-25%; • Licensing growth of 25%; and • Total service growth of 15%-20%.
31. Furthermore Henley reassured investors that Oracle was unfazed by slowing personal-computer sales and a downshifting U.S. economy in general. "All tech companies are not the same." "We're much more immune to economic factors than others.''
32. On December 15, 2000, Henley held a conference call with Radio on Wall Street to discuss Oracle's second quarter results and third quarter projections in which Henley stated:
• The margins were continuing to expand nicely and the application business was really picking up steam. He saw no difference in demand for the upcoming fiscal third quarter.
• The applications business was going to be solid and steady. But the real momentum in the much higher growth was going to be in the applications business. That business can grow at very high rates for the next few years.
• At lot of current customers were moving to the new architecture and lots of new customer were buying this stuff.
• Oracle was seeing larger improvement across the board in every one of its businesses, in its support business, in its consulting business, and so forth.
• They were telling people that Oracle would grow sequentially and see better growth for each quarter for the next couple of quarters because the consulting business was rebounding. 33. These strong projections of phenomenal third quarter 2001 growth sent Oracle shares soaring
34. On January 5, 2001, Oracle issued a press release entitled "Oracle Enters New Year Stronger Than Ever." The press release stated in part:
Oracle Corp., the largest provider of software for e-business, today highlighted a year of accomplishments that have led to the company's strong position as it enters 2001.
Over the course of the past year, Oracle had distinguished itself from the rest of the industry by introducing the first suite of integrated e-business software, the Oracle (r) E-Business Suite [11i] .... Part of Oracle's success story in 2000 was Oracle's own implementation of the Oracle E-Business Suite which resulted in savings of over one billion dollars and continual improvements in its operating margins above 10 points. As it enters 2001, Oracle is seeing rapid adoption and implementation of its e-business software.
* * *
Quite simply, 2000 has been an amazing year for Oracle on top of two decades of phenomenal growth, " said Mark Jarvis, senior vice president and Chief Marketing Officer at Oracle. "Our messages and offering of complete and simple software for e-business are resonating with customers and offer a sharp contrast to the rest of the industry still talking up the expensive best-of-breed approach. We plan to build on the amazing success and, armed with Oracle9i and the Oracle E-Business Suite, put even more distance between us and the competition with initiatives in the software
services, B2B and wireless arenas."
35. By the second week of January, reports of an economic slowdown had put pressure on Oracle's shares. Oracle repeatedly denied that the economic slowdown was having any impact on its business. On January 11, 2001, the defendants directed Oracle spokeswoman Stephanie Aas to publicly rebut any suggestion that the economic slowdown would negatively impact Oracle. In response, Aas told analysts and reporters that Oracle had seen no signs that its business was being hurt by the economic slowdown. Moreover, Aas specifically denied that Oracle's customers had notified Oracle of reported cuts to their information technology budgets.
36. On January 16, 2001, Edward J. "Sandy" Sanderson, Jr., Oracle's Executive Vice President, discussed Oracle's future with Joe Bousquin of TheStreet.com following Oracle's "B2B Day" including Oracle's year-end results, stating "Our pipelines are strong." Oracle shares soared to a Class Period high of $35.
37. Between January 22 and 31, 2001 defendant Ellison sold 61 million shares of Oracle stock at prices as high as $32 for proceeds of $1.8 billion.
38. On February 9, 2001, Oracle shares fell 13%, leading other computer software-related stocks lower, amid investor concern that Oracle's earnings would suffer as economic growth slowed and due to problems associated with 11i Suite. Defendants sought to halt the decline in their shares and in response directed spokeswoman Jennifer Glass to issue the following statements: "We haven't charged our projections at all" .... "This slowdown is going to provide new opportunities for Oracle as companies need to streamline and be more strategic about the technology they buy." In fact, Glass confirmed that Oracle's earnings growth would be fueled by sales of the 11i Suite. 39. On February 13, 2001, Sanderson appeared at the Goldman Conference to rebut speculation that
Oracle's third quarter would fall short of meeting the Company's stated projections. As reported by Mike Tarsala of CBS.MarketWatch.com, Oracle executives said they've been meeting weekly to forecast sales, and they haven't come across any signs yet that their gigantic software business is slowing down. "Our pipelines around the database and applications business have never been stronger," said Sandy Sanderson, an executive vice president with Oracle. Very few customers are canceling contracts, Sanderson added in remarks at a technology conference in La Quinta,
Oracle. Some customers are taking less time to decide between's Oracle's applications suite and a collection of competing software in light of economic conditions. The result: Faster turnaround is boosting revenue.
40. Following the conference, Joe Bousquin from TheStreet.com issued a report on February 13, 2001, which reiterated Oracle's previous stance on its third quarter 2001, and explained that Oracle was actually seeing an acceleration of purchases: As an example, [Sanderson] said one recent deal he's involved in wasn't scheduled to close until Oracle's fourth quarter, which ends in May. Instead, that deal should now close shortly. "I met with the COO and he decided he wanted to do it in February [instead of May]," Sanderson Said. Sanderson said its database and
application software businesses are strong. "Actually, our pipelines around applications and database have never been stronger," Sanderson said. Insider selling by Ellison was also mentioned as this time. But Sanderson explained Ellison had to sell shares recently because they were tied to options that would expire if he didn't. (This explanation was false as there was nothing preventing Ellison from exercising his options and keeping the shares, versus selling the shares.) The option price of the stock was either $.23 or $3.79 per option.
41. On February 13, 2001, Adam Feuerstein of Upside.com reported that George Roberts, Oracle's Executive Vice President of North American Sales, discussed Oracle's third quarter at the Robertson Stephens Technology Conference in San Francisco. Feuerstein reported that Oracle is employing a "secret sales weapon" to meet high growth expectations for its new suite of
e-business software; Lunch at Larry's house. Feuerstein reported that Oracle's CEO is inviting other CEOs to his spacious home for a bite to eat. "Lunch discussion, of course, centers on how Oracle saved $1 billion last year by using its own software and plans to save another $1 billion this year. These CEOs, apparently impressed and envious, then sign Oracle sales contracts while walking to their cars." Feuerstein said that George Roberts, Oracle's executive vice president of North
America sales, spilled the beans on this "new" sales technique while speaking in front of a standing-room only crowd at the Robertson Stephens technology conference today. Roberts addressed the database issue, stating that Oracle "has held its own" in the database software business, reiterating the company's belief that it will grow sales between 15 percent and 20 percent during the fiscal third quarter. Database sales grew 19 percent during the fiscal second quarter. Roberts admitted that Oracle was impacted by the mass death of Internet startups once running its databases, but not enough to matter. "Our dotcom business is less than what it was one year ago, but our traditional business has accelerated in growth," he said. Feuerstein also reported that Roberts insisted that sales of the Oracle 11i suite of e-business applications is strong,
confirming the Oracle's previous guidance of EPS of $0.12 was on target and stating that at Oracle, "[they're] seeing accelerating applications growth."
42. On February 13, 2001, Ellison appeared in Paris, France and proclaimed that Oracle was on track to save another $1 billion this fiscal year and an additional $1 billion next year as it used its own 11i Suite to run more efficiently. Ellison said he save Oracle $1 billion in its fiscal 2000 by implementing its Oracle 11i Suite of business software programs.
43. In response to these statements and confirmation of Oracle's "strong" applications and database businesses, and the fact that, according to Oracle, those lines of businesses "[had] never been stronger," together with Oracle saving "$1 billion" using its own products, Oracle shares increased 12%.
44. On February 21, 2001 through February 23, 2001, Ellison and Henley met with analysts, money and portfolio managers, institutional investors and large Oracle shareholders at the AppsWorld Conference in New Orleans, Louisiana to discuss Oracle's third quarter results, its business and its
prospects. During the meeting--and in the follow-up conversations with analysts--Ellison and Henley confirmed that their earlier projects of phenomenal growth (below) were unchanged, stating:
- Oracle would report EPS for third quarter 2001 of $0.12.
- Application sales were acceleration during third quarter and would continue to do so through fourth quarter.
- Oracle's margins were materially expanding and would continue to do so through fourth quarter 2001.
- Oracle was experiencing rapid growth in its server licensing business. - Oracle would report third quarter revenue of $2.9 billion.
- Oracle would report fiscal 2001 EPS of $0.49
- Oracle was not seeing an impact on its results due to the slowdown in the U.S. economy. - Data base products would increase 20-25%.
45. On March 1, 2001, Oracle revealed that, contrary to prior assurance by defendants of Oracle's continuing "strong" revenue and EPS growth, including defendants' assurances less than two weeks earlier that demand remained strong, Oracle would post revenue and EPS declines, sending Oracle's shares into a free fall. In a press release Oracle stated:
• Oracle would post sequential EPS declines
• Database growth would be flat to slightly negative.
• Applications growth would be two-thirds of what Ellison had projected.
46. Thereafter, Oracle held a conference call to discuss its disastrous quarter. Defendants tried to claim that it was not until the last day of the quarter that they realized Oracle would report disastrous results. Ellison's explanation lacked consistency. One moment on the call he said customers had been saying: "We just don't have the money to spend right now." He then claimed they had said: "We don't feel comfortable spending money right now." Two very different things. If it's the former, then Oracle's outlook is dire indeed.
47. This disclosure shocked the market, causing Oracle's stock to declined to less than $17 per share before closing at $16.88 per share on record volume of more than 221 million shares, infliction billions of dollars of damage on plaintiffs and the Class. Defendants' misconduct has vaporized over $90 billion in market capitalization as Oracle stock has fallen 50% from its Class Period high of $35 per share as the truth about Oracle, its operations and prospects began to reach the market. 48. Each of the statements made by defendants between December 14, 2000 and March 1, 2001 were
false or misleading when issued. The true facts, which were known to defendants, were:
rendering the Suite undesirable to Oracle's customers.
b. Oracle's so-called "billion dollar savings" in fiscal 2000 was not the result of its use of its 11i Suite. In fact, at least $400 million of its savings was associated with the termination of thousands of employees, many of whom were in Oracles' service department. Further savings were caused by old fashioned belt tightening, such as limiting travel expenses.
c. Oracle would not be able to save an additional billion dollars as a result of using its own software in fiscal 2001. To accomplish this goal, Oracle would have to increase its profit margin to about 40% for the entire year, when its profit margin had been 33% for the first half of the year, a margin that would translate into a savings of only $300 million, not the billion that Oracle promised.
d. Oracle's customers were refusing to upgrade to 11i due to the instability of the product. For example, certain pieces of the product were suffering from giant gaps in its CRM modules. e. Growth in Oracle's business application software line would be only two-thirds of the growth state by defendants.
f. Growth in Oracle's database software, the Company's "cash cow," would be zero to negative as compared to the 20%-25% growth stated by defendants.
g. Demand for Oracle's products was not nearly as healthy as represented due to the inability of Oracle's customer base to pay for production.
h. Oracle was struggling in induce its customers to upgrade to its 11i Suite. Despite the claims that the 11i suite requires little or no customization or integration, that claim was not in step with the realities of how large companies implement software. Companies always have to integrate new products with their older systems. Most companies have millions of hours worth of software code and they simply don't just throw out what they have already done.
i. Customers were also put off because there is not much room in 11i for customization. Large companies typically want to modify enterprise applications to fit their business needs. However, one of the main goals of Ellison implored customers not to customize his products, because Oracle consultants can't support it once it's been customized.
j. As result of (a)-(i) above, it was impossible for defendants to achieve third quarter 2001 EPS and revenue.
DEFENDANT ELLISON' INSIDER TRADING
49. During the Class Period, defendant Ellison sold the following amounts of his Oracle stock despite his possession of adverse information about Oracle's business which he knew had not been
disclosed to the public:
Insider Date Sold Price $Value Ellison 1/31/01 1,300,000 $30.35 $ 39,455,000
50. Ellison's insider sales during the Class Period were highly suspicious given their proximity to the date of the bad news and the fact that they occurred before the stock had dropped and while Ellison was making positive statements.
51. As depicted in the charts below, Ellison's stock sales were suspicious in timing and amount. In fact, Ellison hadn't sold any share for at least two years prior to his sales during the Class Period. Moreover, the amount of shares sold was much greater than any prior sales.
STATUTORY SAFE HARBOR
52. The statutory safe harbor providing for forward-looking statements under certain circumstances does not apply to any of the false forward-looking statements pleaded in this Complaint. None of the forward-looking statements pleaded herein were sufficiently identified as a "forward-looking statement" when made. Nor did meaningful cautionary statements identifying important factors that could cause actual results to differ materially from that in the forward-looking statements accompany those statements. To the extent that the statutory safe harbor does apply to any forward-looking statements pleaded, the defendants are liable for those false forward-looking statements because at the time each of those statements was made, the speaker actually knew the forward-looking statement was false and the forward-looking statement was authorized and/or approved by an executive officer of Oracle who actually knew that those statements were false when made.
PLAINTIFFS' CLASS ACTION ALLEGATIONS 1/30/01 3,237,576 $30.21-$30.83 $ 98,903,154 1/29/01 5,000,000 $30.40 $ 151,991,265 1/29/01 1,082,000 $30.03 $ 32,492,460 1/29/01 2,315,000 $30.22-$30.49 $ 70,364,300 1/26/01 4,225,000 $30.09 $ 127,130,250 1/26/01 2,232,000 $30.09 $ 67,158,801 1/25/01 3,825,000 $30.14 $ 115,285,500 1/25/01 5,000,000 $30.73 $ 150,700,500 1/24/01 5,000,000 $30.73 $ 153,638,500 1/24/01 4,900,000 $30.73 $ 150,577,000 1/23/01 5,100,000 $31.64 $ 161,364,000 1/23/01 5,000,000 $31.64 $ 158,194,000 1/22/01 5,000,000 $32.01 $ 160,041,000 1/22/01 3,100,000 $32.01 $ 99,231,000 TOTAL: $ 1,889,268,730
53. Plaintiffs bring this action as a class action pursuant to Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure on behalf of a Class consisting of all persons and entities who purchased or otherwise acquired Oracle common stock from December 15, 2000 to March 1, 2001, inclusive, and who were damaged thereby. Excluded from the Class are defendants, officers and directors of the Company, 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. 54. During the Class Period, thousands of shares of common stock of Oracle were traded on an
efficient and developed securities market. Thousands of brokers nationwide have access to trading information about Oracle through the system. Within minutes of any transaction taking place, this system displays the most recent trades and prices.
55. The members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members is unknown to plaintiffs at this time and can only be ascertained through appropriate discovery, plaintiffs believe that there are thousands of members of the Class. During the Class Period, Oracle had over 5.58 billion shares of common stock outstanding and actively traded on the NASDAQ National Market, an efficient market, under the ticker symbol "ORCL."
56. Plaintiffs' claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by defendants' wrongful conduct in violation of federal law that is
complained of herein.
57. Plaintiffs 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. Plaintiffs have no interests that are adverse or antagonistic to those of the Class.
58. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. Because the damages suffered by many individual Class members may be relatively small, the expense and burden of individual litigation make it virtually impossible for the Class members to individually seek redress for the wrongful conduct alleged herein.
59. Common questions of law and fact exist as to all members of the Class and predominate over any questions affecting solely 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 defendants participated in and pursued the common course of conduct complained of herein;
c. whether documents, press releases and other statements disseminated to the investing public and the Company's shareholders during the Class Period misrepresented the business condition of Oracle;
d. whether defendants failed to correct prior statements when subsequent events rendered those prior statements untrue or inaccurate;
e. whether defendants acted willfully or recklessly in misrepresenting and/or omitting to state material facts;
f. whether the market price of Oracle's common stock during the Class Period was artificially inflated due to the misrepresentations and/or non-disclosures complained of herein; and
g. whether the members of the Class have sustained damages, and, if so, what is the proper measure thereof.
60. Plaintiffs will rely, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine in that:
a. defendants made public misrepresentations or omitted material facts during the Class Period, as alleged herein;
b. the misrepresentations and/or omissions were material; c. Oracle's common stock was traded in an efficient market;
d. the misrepresentations and/or omissions alleged tended to induce reasonable investors to misjudge the value of Oracle shares; and
e. plaintiffs and members of the Class acquired their shares between the time defendants made the misrepresentations and/or omissions and the time the truth was revealed, without knowledge of the falsity of the misrepresentations.
(Violations of Section 10(b) of the Exchange Act and Rule 10-5 Promulgated Thereunder)
61. Plaintiffs incorporate by reference the above paragraphs above as if set forth fully herein.
62. During the Class Period, the defendants, and each of them, carried out a plan, scheme and course of conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing public, including plaintiffs and the other class members, as alleged herein; (ii) artificially inflate and maintain the market price of Oracle; and (iii) cause plaintiffs and other members of the Class to purchase Oracle securities at inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions set forth herein.
63. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not
misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of the Company's stock in an effort to maintain artificially high market prices for Oracle securities in violation of section 10(b) of the Exchange Act and Rule 10b-5.
64. The statements made by defendants during the Class Period were materially false and misleading because at the time they were made, the Company and persons acting as corporate officers knew or recklessly ignored, but failed to disclose, the matters set forth herein.
65. In ignorance of the artificially high market prices of Oracle's publicly traded securities, and relying directly on defendants or indirectly on the false and misleading statements made by defendants, upon the integrity of the market in which the securities trade, on the integrity of the regulatory process and the truth of representations made to appropriate agencies throughout the
Class Period and/or on the absence of material adverse information that was known to defendants but not disclosed in public statements by defendants during the Class Period, plaintiffs and the other members of the Class acquired Oracle securities during the Class Period at artificially high prices and were damaged thereby.
66. Had plaintiffs and the other members of the Class and the marketplace known of the true financial condition, business prospects and character of leadership of Oracle which were not disclosed by defendants, plaintiffs and other members of the Class would not have purchased or otherwise acquired their Oracle securities during the Class Period, or would have not done so at the artificially inflated prices which they paid. Hence, plaintiffs and the Class were damaged by defendants' violations of Section 10(b) and Rule 10b-5.
(Violation of Section 20(a) of the Exchange Act Against the Individual Defendants)
67. Plaintiffs incorporate by reference the above paragraphs above as if set forth fully herein. This Count is asserted against defendant Ellison.
68. Defendant Ellison acted as a controlling person of Oracle within the meaning of Section 20 of the Exchange Act as alleged herein. By reasons of his executive and managerial position with Oracle, defendant Ellison had the power and authority to cause the Company to engage in the wrongful conduct complained of herein.
69. By reasons of the aforementioned wrongful conduct, Ellison is liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of their wrongful conduct, plaintiffs and the other members of the Class suffered damages in connection with purchasing the Company's securities during the Class period.
WHEREFORE, plaintiffs pray for relief and judgment, as follows:
1. Determining that this action is a proper class action, certifying plaintiffs as class representatives under Rule 23 of the Federal Rules of Civil Procedure and his counsel as class counsel;
2. Awarding compensatory damages in favor of plaintiffs 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;
3. Awarding plaintiffs and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and
4. Such other and further relief as the Court may deem just and proper. JURY DEMAND
Plaintiffs hereby demand a trial by jury. Dated March 12, 2001
Timothy J. Burke
STULL, STULL & BRODY By: _________________________ Timothy J. Burke 10940 Wilshire Boulevard Suite 2300 Los Angeles, CA 90024 Tel: (310) 209-2468 Fax: (310) 209-2087 Jules Brody Aaron Brody Tzivia Brody
STULL, STULL & BRODY 6 East 45th Street
New York, NY 10017 Tel: (212) 687-7230 Fax: (212) 490-2022
Kevin J. Yourman (147159) WEISS & YOURMAN 10940 Wilshire Boulevard 24th Floor
Los Angeles, CA 90024 Tel: (310) 208-2800 Fax: (310) 209-2348 Attorneys for Plaintiffs
1. Oracle's third quarter 2001 was from December 1, 2000, to February 28, 2001. Please click here to return to previous page
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