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IN THE UNITED STATES DISTRICT COURT
FOR
THE
|
BRIAN KLEINMAN, Plaintiff, vs. IRIDIUM WORLD COMMUNICATIONS, LTD., Clarendon House, MOTOROLA,
INC., EDWARD STAIANO, Defendants. |
|
CLASS ACTION
COMPLAINT FOR VIOLATION OF FEDERAL SECURITIES LAWS |
INTRODUCTION
Plaintiff, for his class action complaint (the "Complaint"), alleges upon the investigation conducted by and through his undersigned attorneys, except as to those paragraphs relating to the plaintiff, his purchases of the common stock of Iridium World Communications, Ltd., and his suitability to serve as a class representative, which are alleged upon personal knowledge, the following:
JURISDICTION AND VENUE
1. This Court has jurisdiction over the subject matter of this action pursuant to Section 27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78aa.
2. The claims asserted herein arise under Sections 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 Securities and Exchange Commission (the "SEC"), 17 C.F.R. § 240.10b-5.
3. Venue is proper in this district pursuant to Section 27 of the Exchange Act because defendant Iridium maintains its executive offices in this district, and many of the alleged acts, transactions, and conduct constituting violations of law, including the preparation, issuance, and dissemination to the investing public of materially false and misleading information, occurred, at least in part, in this district.
4. In connection with the acts alleged in this Complaint, defendants, directly and indirectly, used the means and instrumentalities of interstate commerce, including the mails, telephone communications, and the facilities of the national securities exchanges.
THE PARTIES
A. Plaintiff
5. Plaintiff Brian Kleinman,
a resident of the State of
B. Defendants
6. Defendant Iridium World Communications,
Ltd. is a
7. Defendant Motorola, Inc.
("Motorola") is a
8. Defendant Edward Staiano ("Staiano") was, at all relevant times herein, Vice Chairman and Chief Executive Officer of the Company. By virtue of his role as an officer and director of the Company, and by virtue of his role as the primary voice of the Company in all press releases and interviews, Staiano is a control person of the Company as that term is construed by the federal securities laws.
9. Defendant Roy Grant ("Grant") was, at all relevant times herein, a Vice President and the Chief Financial Officer of the Company. By virtue of his role as an officer and director of the Company, Grant was a control person of the Company as that term is construed by the federal securities laws. During February 1999, Grant sold 41,750 shares of Company stock, for total proceeds in excess of $1.3 million.
10. Iridium, Staiano, Grant and Motorola are collectively referred to herein as "Defendants."
11. Defendants Staiano and Grant are collectively referred to herein as the "Individual Defendants."
12. By reason of their direct and substantial management positions and responsibilities during the time relevant to this Complaint, the Individual Defendants and Motorola were "control persons" of Iridium within the meaning of Section 20 of the Exchange Act, and had the power and influence to control Iridium, and exercised that control to cause the Company to engage in the violations and improper practices complained of herein. Each of the Defendants had access to adverse non-public information about the Company's operations, and acted to conceal and misrepresent such material information in violation of their duties and responsibilities under the federal securities laws.
13. It is appropriate to presume that the false, misleading and incomplete information conveyed in the Company's press releases, public statements and other publications as alleged herein are the actions of the Individual Defendants. The Individual Defendants and Motorola directly participated in the management of the Company, were directly involved in the day-to-day operations of the Company at the highest levels and were privy to confidential proprietary information concerning the Company and its operations, as alleged herein. The Individual Defendants were involved in drafting, producing, reviewing and/or disseminating the false and misleading statements and information alleged herein, were aware or recklessly disregarded that the false and misleading statements were being issued regarding the Company, and approved or ratified these statements, in violation of the federal securities laws.
14. The statements made by the Defendants, as outlined below, were materially false and misleading when made. Defendants had no reasonable or adequate basis to justify or support their statements concerning Iridium's operating condition and future prospects. Defendants had, during the Class Period, direct knowledge of the Company's technical difficulties and the unrealistic deadlines set for a number of milestone events.
PLAINTIFF'S CLASS ACTION ALLEGATIONS
15. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil Procedure 23 on behalf of a Class consisting of all persons and entities who purchased Iridium common stock between September 9, 1998, and March 29, 1999, inclusive (the "Class Period"), and who were damaged thereby (the "Class"). Excluded from the Class are Defendants, the officers and directors of the Company, members of their immediate families and their legal representatives, heirs, successors and assigns and any entity in which Defendants have or had a controlling interest.
16. The Class is so numerous that joinder of all Class members is impracticable. While the exact number of Class members is unknown to plaintiff at this time and can only be ascertained from the records maintained by Iridium or its agents, as of March 1, 1999, there were 19,725,986 shares of Iridium Class A common stock outstanding and held by what plaintiff believes to be hundreds of shareholders of record throughout the United States.
17. Plaintiff's claims are typical of the claims of the members of the Class, since all members of the Class purchased Iridium common stock during the Class Period and sustained damages arising out of Defendants' wrongful conduct in violation of federal securities laws as alleged herein.
18. Plaintiff will fairly and adequately protect the interests of the members of the Class. Plaintiff has retained counsel competent and experienced in class action and securities litigation and plaintiff has no interests antagonistic to or in conflict with the other members of the Class.
19. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. Joinder of all Class members is impracticable. The likelihood of individual Class members prosecuting separate claims is remote since the damages suffered by individual Class members may be relatively small and the expense and burden of individual litigation makes it impossible for Class members individually to seek redress for the wrongs done to them. Thus, it is desirable for all concerned to concentrate this litigation in this particular forum. No unusual difficulties are likely to be encountered in the management of this class action.
20. There are questions of law and fact common to the members of the Class which predominate over any questions affecting only individual members. These common questions of law and fact include, among others:
a. whether Defendants violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5;
b. whether Defendants participated in the common course of conduct complained of herein;
c. whether documents, releases, reports, and statements disseminated to the investing public during the Class Period omitted to state or misrepresented material facts about the Company's financial condition and operations;
d. whether Defendants acted with knowledge or with reckless disregard for the truth in omitting to state and/or misrepresenting material facts about the Company's revenues and operations;
e. whether, during the Class Period, the market prices of Iridium common stock were artificially inflated due to the non-disclosures and/or material misrepresentations complained of herein; and
f. whether the members of the Class have sustained damages, and, if so, the proper measure thereof.
21. Plaintiff will rely, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine in that:
a. Defendants made public misrepresentations during the Class Period, as alleged in this Complaint;
b. the misrepresentations were material;
c. shares of Iridium were traded on a developed stock exchange, namely the NASDAQ NMS, which is an efficient market within the meaning of that term in the context used in this Complaint; and
d. plaintiff and the other members of the Class purchased their Iridium common stock between the time Defendants made the misrepresentations and the time the truth was fully revealed, without knowledge of the falsity of the misrepresentations.
22. Based upon the above, plaintiff and the Class are entitled to a presumption of reliance upon the integrity of the market for, at least, the purposes of class certification, as well as for ultimate proof of their claims on the merits. Similarly, plaintiff and the Class are entitled to a presumption of reliance established by the material omissions alleged in this Complaint.
NO
23. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false statements pleaded in this Complaint, because the specific statements pleaded herein were neither identified as "forward-looking statements" when made, nor accompanied by meaningful cautionary language identifying important factors that could cause actual results to differ materially from those in the specific statements. To the extent that the statutory safe harbor applies to any of the statements pleaded herein, Defendants are liable for those false forward-looking statements because at the time each of those forward-looking statements were made, the speaker knew that the particular forward-looking statement was false, and/or the forward-looking statement was made by or with the approval of an executive officer of Iridium who knew that the statement was false or misleading.
SUBSTANTIVE ALLEGATIONS
Background
24. According to the Company's Report on SEC
Form 10-K for the year ended
25. The Company described the Iridium System as being comprised of four (4) components: (a) the space segment which included the low earth orbit satellite constellation and the related control facilities; (b) the ground stations or gateways which linked the satellites to terrestrial communications systems; (c) the Iridium subscriber equipment which provided mobile access to the satellite system and terrestrial wireless systems; and (d) the terrestrial wireless interprotocol roaming infrastructure which facilitated roaming among the Iridium satellite system and multiple terrestrial wireless systems that used different wireless protocols.
26. On
27. According to Motorola's Report on SEC
Form10-K for the year ended
Defendants Condition The Market For Their Fraud
28. In June 1998, Defendants started a $140 million marketing and advertising campaign to bolster consumer and investor interest in the first global satellite phone and paging company which they said was set to be launched on September 23, 1998.
29. Due, however, to some of the uncertainty about Iridium's prospects, the Company's stock price dropped more than half (since it reached a high of $70.625 a share on May 5, 1998) to close at $33 per share on September 2, 1998.
30. On
Defendants' False and Misleading Statements During the Class Period
31. By no later than
32. On
Iridium LLC announced that the Iridium
system will be introduced to a limited number of subscribers worldwide
beginning on
33. The same day, Bloomberg News Service reported that
"Iridium LLC [was] postponing charging customers for commercial phone
service until November 1, and instead [would] offer service free of charge to a
limited number of users as of September 23, its initial start-up date."
Defendants, however, knew that due to the many kinks and glitches still present
in the system, full commercial launch by
34. Defendant Staiano also stated as reported in the September 9th Bloomberg news story that "the Company expect[ed] to have about 40,000 customers after full service [began on November 1]." Defendant Staiano "reiterated that the company's goal [was] to have positive cash flow by the end of 1999."
35. The September 9, 1999 press release and Staiano's statements in the Bloomberg article were materially false and misleading at the time that they were issued, because the Defendants knew but failed to disclose that: a) the bugs and difficulties existing in the Iridium System would make full commercial availability by November 1, 1998 impossible, because there was simply not enough time to de-bug the system and test all its functions; and b) as a result of these bugs, the System was far too unstable to support a high volume of users, as would be required for "commercial availability," and thus the November 1, 1999 deadline for commercial availability was unrealistic and unachievable.
36. As a result of the announcement on September 9, 1998, Standard & Poor's revised its outlook on Iridium from "stable" to "negative" stating that "any further delays beyond the November 1 deadline could threaten prospective demand, as well as the company's $1 billion bank credit line."
37. In a story published on
The simple fact of the matter is by September 23 we will not have put the kind of mileage on the system that will verify every element of system performance and customer service. Thus far, we've made tens of thousands of test calls and we will make tens of thousands more in the next two weeks, but it is not enough. We need to make hundreds of thousands of calls of all possible types and from locations around the world. We need to have hundreds, even thousands, of trial users out there using our service under every conceivable circumstance.
A delay in the rollout will enable us to make sure that the system will provide the high quality service that our customers expect and deserve. We have come too far and invested too much money, time and effort into this business to go into commercial service with anything less than a world class product.
(Emphasis Added.) Defendants knew that even with the 5 week delay, they still would not have enough time to sufficiently test the system to make sure it would be capable of fully launching within Defendants' aggressive launch schedule.
38. On
39. The quoted statements issued by the
Defendants between September 10 and
Despite previous vigorous denials by Iridium, industry observers have suspected for some time that the deadline would slip. The company previously announced that it would only have two weeks in which to carry out beta tests - a ridiculously short period of time for any consumer-oriented test, let alone a multi-billion dollar global telecommunications venture.
(Emphases added.) Nevertheless, Defendants, with knowledge of the systems glitches and lack of adequate testing, still boasted that the system would fully roll out on time -- November 1.
40. The same September 17, 1998 Mobile Satellite News article quoted Defendant Staiano as stating, "[b]y our long standing target date of September 23, 1998, we will have the capability to activate the network and constellation, distribute phones, begin loading customers onto the system and provide a level of service that many would find acceptable." This statement was materially false and misleading at the time it was made, because, at the time of the statement, the Iridium System was experiencing significant technical difficulties which would place the level of performance below the minimum level which would be commercially acceptable. Specifically, the System had significant difficulty in completing calls and maintaining them, due to instability in the network.
41. On
42. On
Our progress in the third quarter has made commercial availability of the Iridium system on November 1st a reality....
* * * *
Motorola handsets will be available in sufficient quantities to support the demand shortly after commercial activation. An initial shipment of 5,000 handsets will be shipped to the gateways prior to commercial activation with incremental shipments to follow in the weeks and months thereafter. Kyocera has made substantial progress with software development and expects 4,800 satellite-only and 9,400 multi-mode handsets will be available in November.
* * * *
More than 850,000 prospective customers [had] responded to Iridium print, broadcast, outdoor, in-flight advertising and direct mail since the program's inception in late June. Iridium distribution partners [had] received an estimated 200,000 inquiries directly, through co-branded advertising and direct sales efforts, bringing the total prospect inquiries to more than one million. Recent focus groups, consisting of telecommunications users who either made telecom purchasing decisions directly or had influence on their organization's purchases, reacted favorably to Iridium advertising and expressed interest in the product.
(Emphasis added.)
43. The October 28, 1998 press release was materially false and misleading at the time it was published because: a) the system was not ready for commercial availability, but, rather, was still suffering from significant technical difficulties, including network instability, which resulted in frequent call failures; b) Motorola and Kyocera were experiencing delays in the production of handsets for Iridium, at the time the statement was made, and Defendants knew it was impossible to produce the number of phones they were boasting would be produced by year end 1998; and c) due to instability in the network, the Iridium System was unable to support a commercially material number of users -- as would be required for genuine commercial availability.
44. On October 28th, Bloomberg News Service published a story which reported that the Company's subscriber projections remained unchanged. Defendant Staiano stated that "the company thinks it will have about 40,000 customers by the end of [1998]." The Company touted that it had "received more than 1 million inquiries from potential subscribers about the service, some 100,000 of which the company consider[ed] solid prospects."
45. Also on
Iridium LLC...is preparing to launch commercial service Sunday, despite concerns that the voice and short messaging service appears to be operating below desired performance levels.
* * * *
Just two weeks ago, according to some people
familiar with the system's workings, the
* * * *
To be on the safe side, Iridium likely will introduce the service slowly, concentrating sales in parts of the world where gateways are working well. That would be in keeping with Iridium's move to limit the number of subscribers who have been testing the service for most of the past few weeks at about 500 users, less than the 2,000 originally planned.
Iridium declined to comment.
(Emphasis added.)
46. As indicated by the
47. On November 1, 1998, Iridium announced over the PR Newswire that "the world's first hand-held, global satellite phone and paging system [was] now commercially available to customers," and further stated that "Iridium is now fully operational, 24 hours a day, seven days a week...." In preparation for the high demand, which the Company said it expected, the press release further stated that "Motorola and Kyocera, the manufacturers of Iridium satellite telephones and pagers, [were] expected to produce more than 100,000 satellite telephones by the end of 1998."
48. The November 1, 1998 press release was materially false and misleading at the time it was published because: a) the system was not "fully operational," but rather, was still suffering from significant technical difficulties, including network instability, which resulted in frequent call failures; b) Motorola and Kyocera were experiencing delays in the production of handsets for Iridium, at the time the above statement was made, and Defendants knew it was impossible to produce the number of phones they were boasting would be produced by year end 1998; and c) Defendants knew that there would never be 100,000 customers to use the handsets by the end of 1998 because, due to instability in the network, the Iridium System was unable to support commercial numbers of users, as explained in the October 28, 1998 Wall Street Journal article.
49. On
After 11 years of hard work, [Iridium] is proud to announce that [the Company is] open for business. Iridium satellite service currently is authorized in more than 120 countries and territories around the world, with more than 200 markets expected by year end. Iridium expects that around 200,000 people will sign up for service by the end of this year [1998]. If that prediction holds true, there will be a lot of disappointed people as Motorola and Kyocera are expected to produce only about 100,000 Iridium satellite telephones this year.
(Emphasis Added.).
50. Staiano's statements in the November 3, 1998 Communications Today article were materially false and misleading at the time they were made because: a) the system was not prepared for genuine commercial availability, but rather, was still suffering from significant technical difficulties, including network instability, which resulted in frequent call failures, and which made it impossible for the System to handle large volumes of users; b) Motorola and Kyocera were experiencing delays in the production of handsets for Iridium, at the time the above statement was made, and Defendants knew it was impossible to produce the number of phones they were boasting would be produced by year end 1998; c) the Iridium System was unable to support commercial-level numbers of users - let alone 100,000 to 200,000 - as explained in the October 28, 1998 Wall Street Journal article; and d) Iridium could not obtain 100,000 customers in less than two (2) months and Defendants knew it.
51. The next day,
52. On
The Truth Begins to Emerge
53. On
Iridium LLC, provider of the world's first satellite-based global telephone network, has only limited supplies of phones on sale in much of Europe and the U.S., after one of its two suppliers failed to deliver mobile phones because of technical problems, the Financial Times reported, citing the Company.
(Emphasis added.)
54. Also on
Iridium LLC [had] problems getting its $3,000 phones into customers' hands, although Motorola, Inc. [had] shipped more than 14,000 Iridium handsets since November 1, said Iridium Chairman and Chief Executive Ed Staiano.
At that pace, Iridium, the world's first
satellite-based telephone network, may fall short of its target of 40,000
subscribers by the end of the year. software problems
have delayed shipment of the handsets being built by Iridium's second supplier,
In the meantime, Motorola is shipping 1,000 handsets a day, [Edward Staiano] said. Right now, we have demand substantially higher than supply.
(Emphasis Added.)
55. The December 11th Bloomberg story further reported that "Iridium [stated] it will make enough cash to exceed operating expenses once it has 600,000 customers, a figure it expects to reach in the fourth quarter of next year, Staiano said." Defendants knew these projections were false due to the small number of subscribers that had thus far activated service. At this time Defendants knew that the Company would not [and could not] obtain the 200,000 subscribers it had projected by year end 1998, nor would they [or could they] obtain the earlier, more modest, projection of 40,000 subscribers. The reason that such feats were impossible was simply because: a) the System could not support tens of thousands of users, due to continuing bugs and network instability; and b) Motorola and Kyocera were far behind the stated schedule for producing handsets.
56. According to the Bloomberg story, shares of Iridium World Communications, Ltd. fell 1/8 to 39 7/8. In the same story, however, Defendant Staiano stated that "he [was] optimistic that a new $1.7 billion bank loan will replace a $1 billion bridge loan expiring [in December]." Until Iridium starts making money, Staiano stated that the "new loan [would] solve [the Company's] financing problems."
57. On
finalized and closed $1.95 billion of new financing consisting of an $800 million Senior Secured Credit Facility (the "Secured Bank Facility") and a $750 million Guaranteed Credit Facility (the "Guaranteed Facility") and $400 million of vendor financing from Motorola. The borrower under each of these facilities [was] Iridium Operating, LLC, a wholly owned subsidiary of Iridium LLC.
...These new Facilities [] replace[d] Iridium's existing $1 billion secured facility and the $275 million guaranteed bank facility and [] provide[d] incremental financing to the Company.
58. The Secured Credit Facility included
covenants between Iridium and the lenders that required Iridium to have at
least $30 million in cumulative accrued revenues and at least 52,000
subscribers by
59. Bloomberg
News Service reported in a story, on
60. The December 23, 1998 press release and Staiano's statements in the December 23, 1998 Bloomberg and Dow Jones stories were materially false and misleading at the time that they were made because: a) contrary to the quotes that indicated that Iridium already had "6,000 to 8,000" customers as of December 23, 1998, in fact, by December 31, 1998, the Company had only attracted 3,000 subscribers; b) the Defendants knew that the Company could not meet the requirements of the Secured Credit Facility, because the Company would achieve true commercial availability much later than November 1, 1998 - if at all - and Motorola and Kyocera were not producing handsets fast enough to meet the deadline.
61. On
62. On
63. The next day, Dow Jones News Service reported that the
Company stated it expected 500,000 subscribers by year end 1999. Despite
Defendant Staiano's statement that the Company
believes "demand is out there," Defendants knew that it would be
impossible for Iridium to obtain 497,000 subscribers in a year -- particularly
in light of the fact that, in two full months of service between November 1, 1998
and December 31, 1998, the Company had managed to attract only 3,000
subscribers. A subscriber attraction rate 400% higher than that displayed
between November 1 and
64. On
To hit break-even, Iridium would need to grab 600,000 subscribers. As of the end of December, only 3,000 paying customers had signed on. That helped the company to post a $440 million loss for the quarter on just $186,000 in sales!
By the end of this quarter, Merrill Lynch's Thomas Watts figures 50,000 subscribers will be enlisted. By this time next year, he figures that the company can hit that 600,000 subscriber target. Lehman Brothers' John Bensche is even more bullish, expecting 625,000 users on board by the end of this year.
Trouble is, company guidance on this front has been too optimistic all along. Quarter after quarter, analysts have been ratcheting down their expectations. The company's ambitious guidance also almost caused the company's lenders to call in their notes. The debt covenants attached to more than $1 billion in loans stated that the company needed to garner a specific minimum level of cash flow and subscribers by the end of 1998. Luckily for Iridium, those lenders loosened the restrictive covenants, but are no doubt watching the matter closely.
Realizing that aggressive cash flow and subscriber targets would not be met, Iridium executives have been scrambling to lock-in additional sources of cash. Just last week, the company was able to line up another $250 million through a secondary offering. Funny thing is, that money actually goes to Motorola (NYSE: MOT), which has a controlling interest in Iridium. Motorola, it seems, is also looking to cover its bases, just in case this business doesn't ever reach profitability.
(Emphasis added.)
65. On February 10 and
66. By
67. According to the Bloomberg story, "Iridium shares fell 3 1/8 to 24 3/16 in trading of 2.48 million, more than four times its three-month daily average. On Friday, the shares fell 9.9 percent."
68. One week later, on March 1, 1999, Dow Jones Business News revealed for the
first time that Iridium expected to miss first-quarter subscriber and revenue
targets, which could possibly put it in technical default of its credit
agreements with lenders that helped finance its $5 billion telephone satellite
system. As stated earlier, Iridium had a covenant with its lenders to meet a
target of 52,000 subscribers, including 27,000 users for the high-revenue
satellite communications portion of its network, by the end of March 1999. Similarly,
Iridium also had revenue targets of $4 million cash and $30 million in accrued
revenue by
69. As a result of the announcement, Class A shares of Iridium World Communications, Ltd. fell $1.50, or more than 5%, to $25.8125 on NASDAQ.
70. On
71. On
72. According to a March 29th story published on Bloomberg News Service, "Iridium shares have fallen 30 percent since February 18 when investors initially became concerned that the Company might not be able to meet its bank covenants."
73. A story published by Reuters, on the same day, stated that Iridium stock has fallen 73 percent since its 52-week high in May 1998.
Subsequent Events
74. On
[Iridium's m]anagement ... suffers from a severe loss of credibility. Most investors were unaware of the subscriber shortfall. The company sold shares in a secondary stock offering in January at $33.50. For Iridium to miss the bank covenant subscriber number by such a large margin just two months after selling secondary shares is unforgivable.
....Iridium needs $1 billion in additional financing to make it through 2000....
SCIENTER ALLEGATIONS
75. Each misrepresentation and/or omission of material fact alleged herein was made with reckless disregard for, or knowledge of its false and misleading nature. At all relevant times, each Defendant knew the material facts regarding the Iridium System and the problems with the System set forth herein. Similarly, at all relevant times, the Company's primary focus was on the development of the Iridium System, and the Defendants were therefore certainly aware of the truth concerning the progress of that development. Thus, the misrepresentations and omissions complained of herein were made with the Defendants' knowledge, or with deliberate recklessness.
76. Each Individual Defendant had the opportunity to commit and participate in the fraud described herein. The Individual Defendants were each top officers, directors and/or shareholders of the Company and thus controlled the Company's press releases, corporate reports, SEC filings and communications with analysts. Thus, the Individual Defendants controlled and falsified the information about Iridium's business prospects and operations that reached the public and affected the price of Iridium's stock.
77. Defendant Motorola is the Company's
largest shareholder, primary contractor, the co-signor and guarantor on certain
of the Company's debt facilities, and the Individual Defendants were therefore
beholden to Motorola. Moreover, Motorola exerted substantial control over
Iridium by hand picking and designating many of its current and former
employees to Iridium's Board as Officers and Directors. Motorola thus had the
opportunity to commit the fraud alleged herein. According to Iridium's Report
on SEC Form10-K for the year ended
a. Defendant Staiano
has served as Vice Chairman and Chief Executive Officer of Iridium from
b. Leo Mondale has served as Senior Vice
President of Strategic Planning and Business Development of Iridium from
January 1995 to the present. Mr. Mondale has also served Iridium as Vice
President of Government Affairs and Strategic Planning, and Vice President of
International Relations of Iridium from January 1991 to July 1993. Prior to
that, Mr. Mondale served as Director of International Relations for Motorola's
Satellite Communication unit from
c. Mark Gercenstein has served as Senior Vice President of Business Operations of Iridium from August 1992 to the present. Prior to that Mr. Gercenstein served as Director of Marketing of Motorola Satellite Communications from 1990 to 1992. Mr. Gercenstein has also held various marketing and engineering assignments at Motorola Government Electronics Group from 1984 to 1990.
d. Gordon J. Comerford has served as a Director of Iridium from July 1993 to the present, and Chairman of the Audit Committee. Until recently, Mr. Comerford served, simultaneously, as a Senior Vice President of Motorola, a position he has held since 1989. Mr. Comerford has been employed by Motorola since 1974 when he joined Motorola as a Director of Business Management and has also served as a Corporate Vice President.
e. Stephen P. Earhart has served as a Director of Iridium from March 1999 to the present. Mr. Earhart is also presently employed as a Senior Vice President of Finance for Motorola and has previously served as Senior Vice President of Finance of the Cellular Networks and Space Sector from 1997 to June 1998, and Senior Vice President of Finance of the General Systems Sector of Motorola from 1990 to 1997.
f. Edward Gams has served as a Director of Iridium from July 1993 to the present, and member of the Banking and Financing Committee. Mr. Gams has served as Corporate Vice President and Director of Investor Relations of Motorola since 1996, and Vice President and Director or Investor Relations of Motorola since 1991. Mr. Gams has been employed by Motorola since 1979 and has held a variety of positions in operational and corporate finance.
g. Durrell Hillis has served as a Director of Iridium from 1998 to the present. Mr. Hillis is also presently employed as Senior Vice President and General Manager of the Systems Solutions Group for Motorola. Mr. Hillis previously served as General Manager of the Communications Division of Motorola's Space and Systems Technology Group, and General Manager of Motorola's Strategic Electronics Division.
h. John F. Mitchell has served as a Director of Iridium and Chairman of the Compensation Committee from July 1993 to the present. Mr. Mitchell presently serves as a consultant to Motorola. Mr. Mitchell served as Vice Chairman of the Board of Motorola from 1988 to 1998, and as Officer of the Board from 1988 to 1995. Mr. Mitchell has been employed by Motorola from 1953 to 1995, has served as President from 1980 to 1986, and as Chief Operating Officer from 1986 to 1988.
i. J. Michael Norris has served as a Director of Iridium from July 1996 to the present. Mr. Norris is also presently employed as Senior Vice President of Motorola, Senior Vice President and General Manager of Motorola's Network Management Group and is responsible for all Motorola cellular joint ventures and Iridium gateway operations worldwide. Mr. Norris has been employed by Motorola for 25 years.
78. Motorola used Iridium as a vehicle to amass a presence in the global satellite industry, but always maintained control over the Company, as stated herein. By using Iridium, Motorola ensured that its reputation would not be tarnished if the project failed, and also ensured that it would not be required to completely bankroll the satellite project. In order to protect its controlling interest, however, Motorola guaranteed Iridium's $750 million Senior Guaranteed Credit Agreement, and indirectly guaranteed that it would provide an additional $350 million for Iridium's Senior Secured Credit Agreement if Iridium requested such assistance. Motorola had also directly provided Iridium with $400 million of financial support by deferring amounts owed under a contract with the Company.
79. Each of the Defendants had the motive to commit and participate in the fraud. The aura of success created thereby would have made Iridium more attractive to potential investors, lenders, potential corporate partners and customers. The Individual Defendants, as Iridium's top officers and directors, would benefit from the public and industry-wide perception of their successful leadership. Additionally, the Individual Defendants received substantial compensation in the form of salaries and bonuses from the Company, despite the fact that the Company had essentially no revenues during the Class Period. The funds for these compensation packages were derived from the Company's private and public sales of it's own stock at artificially inflated prices, and from bond issues and other debt financing which was dependent upon a favorable impression of the Company's operations in the business and financial communities.
80. During January 1999, Iridium sold 7.5 million shares of common stock in a public offering, for at least $250 million in gross proceeds. These sales of securities were facilitated by the Defendants' misrepresentations and omissions, and allowed the Company to maximize the proceeds while minimizing the dilution of the Motorola's holdings of Company stock. During February 1999, Defendant Grant sold 41,750 shares of Company stock, for total proceeds in excess of $1.3 million. Similarly, during February 1999, Mauro Sentinelli, Iridium's Vice President of Marketing, sold 7,830 shares of Iridium stock for approximately $250,000 in proceeds. These sales were unusual in their timing and amounts.
81. During the Class Period, unaffiliated third parties, including journalists and securities analysts, indicated that the Company's deadlines and schedules were "too optimistic" and even "ridiculous", and that the Iridium System suffered from "severe quality problems" which would make it necessary for the Company to "introduce the service slowly." Given that these facts were known to outsiders and the Defendants' access to information concerning the development of the Iridium System, the Defendants must have known these facts. Nevertheless, the Defendants misrepresented these facts, and successfully misled the market as to these facts.
82. The combination of attributable knowledge with the evident profit incentives for the Defendants creates a strong inference of scienter.
AS AND FOR A CLAIM FOR RELIEF FOR
VIOLATIONS OF SECTIONS 10(b) AND 20(a)
OF THE EXCHANGE ACT AND SEC RULE
10b-5
83. Plaintiff realleges and incorporates by reference each and every allegation contained above.
84. This Count is asserted against all Defendants and is based upon Sections 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.
85. Defendants, directly and indirectly, by the use of means or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a continuous course of conduct to make materially false and misleading statements about the Company's financial condition and operations and to conceal adverse material information about Iridium. The Defendants employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information and engaged in acts, practices, and courses of conduct as alleged herein, 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 the Company not misleading, as set forth more particularly in the paragraphs herein, and engaged in transactions, practices and a course of business which operated as a fraud and deceit upon the purchasers of the Company's common stock during the Class Period.
86. 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 misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing the true information about the Company's financial condition and operations from the investing public and supporting the artificially inflated price of its stock. As demonstrated by Defendants' systematic failure to fully reveal the Company's declining revenue during the Class Period and the reasons therefore, 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.
87. 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 the Company's common stock was artificially inflated during the Class Period. In ignorance of the materially false and misleading nature of the reports and statements described above, plaintiff and the other members of the Class relied, to their damage, on the reports and statements described above and/or on the integrity of the market price of the Company's common stock and the completeness and accuracy of the information disseminated to the Company's investors in connection with their purchase of the Company's common stock. While Defendants failed to reveal to the plaintiff and the Class information known to them about the Company's problems, Defendants availed of their inside knowledge to sell their stock holdings at artificially inflated prices.
88. By virtue of the foregoing, the Defendants have violated Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder.
89. The Individual Defendants and Motorola, by virtue of their offices with the Company, had exercised their power and influence to cause Iridium to engage in the illegal conduct and practices complained of herein. As a result, at the time of the wrongs alleged herein, they were controlling persons of Iridium within the meaning of Section 20(a) of the Exchange Act.
90. Plaintiff and other members of the Class have been damaged by Defendants' violations as described in this Count and seek recovery for the damages caused thereby.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for judgment as follows:
A. An order certifying the Class as set forth herein and designating plaintiff as the Class representative and his counsel as Class counsel;
B. A judgment declaring the conduct of the Defendants to be in violation of law as set forth herein;
C. A judgment awarding plaintiff and the other members of the Class compensation for the damages which they have sustained as a result of the Defendants' unlawful conduct stated above;
D. A judgment awarding plaintiff's reasonable attorneys' fees, experts' fees, interest and cost of suit; and
E. Such other and further relief as this Court may deem just.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
DATED:
Andrew N. Friedman (375595)
COHEN, MILSTEIN, HAUSFELD
& TOLL, P.L.L.C.
Suite 500
Telephone: 202-408-4600
Kevin J. Yourman
Jordan L. Lurie
WEISS & YOURMAN
Suite 2400
Telephone: 310-208-2800
COUNSEL FOR PLAINTIFF
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