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IN RE MOTOROLA SECURITES LITIGATION

July 16, 2003

IN RE MOTOROLA SECURITES LITIGATION.


The opinion of the court was delivered by: Rebecca Pallmeyer, District Judge

MEMORANDUM OPINION AND ORDER

Pending before this court are nine related securities class actions filed on behalf of purchasers of Motorola, Inc. ("Motorola") securities. These actions allege that Motorola violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as Rule 10b-5 promulgated by the Securities and Exchange Commission ("SEC"). The court has granted the parties' motions for a finding of relatedness, and all of the cases are hereby consolidated in this court pursuant to 15 U.S.C. § 78U-4(a)(3)(B)(ii). (Minute Order, No. 03 C 287, February 28, 2003.) The consolidated actions shall hereinafter be referred to as "In re Motorola Securities Litigation."

There are currently three plaintiffs with outstanding motions before this court for appointment as lead plaintiff, and appointment of their chosen counsel as lead counsel.*fn1 For the following reasons, the court grants New Jersey's motion for appointment as lead plaintiff, and approves New Jersey's choice of lead counsel in this matter.

BACKGROUND

Plaintiff Stephen Frank filed this class action lawsuit on January 14, 2003 on behalf of purchasers of Motorola securities during the period of February 3, 2000 through April 6, 2001. (Complaint $1 .) Eight actions were subsequently filed in the Northern District of Illinois, in addition to seven related lawsuits filed in the Southern District of New York, and potentially others unknown to the court. (Transcript of Proceedings, In re Koenemann, S.D.N.Y., April 15, 2003, at 13.)

Motorola is headquartered in Schaumburg, Illinois, which lies within this court's district. The company has substantial national and international operations in the telecommunications, electronics, semiconductor, computer, and cable television industries. (Frank Complaint ¶ 7.) Motorola common stock trades on the New York Stock Exchange, and approximately 2.3 billion shares are outstanding. (Id. ¶ 16.)

In each of the nine cases before this court, the Plaintiffs' allegations relate to the sale of products and services by Motorola to Telsim Mobil Telekomunikayson Mizmetleri A.S. ("Telsim"), a Turkish company, for use by Telsim in developing a cellular telephone network in Turkey.*fn2 (Memorandum of Law in Support of the State of New Jersey's Motion for Consolidation, to be Appointed Lead Plaintiff and for Approval of its Selection of Lead Counsel, hereinafter "New Jersey's Memorandum," at 3-4.) According to the State of New Jersey, on February 3, 2000, Motorola issued a press release announcing a $1.5 billion agreement with Telsim to provide equipment, services, and infrastructure to expand Telsim's Global System for Mobile Communications network. (Frank Complaint ¶ 21.) Plaintiffs allege that this announcement had a positive effect on Motorola's stock price, as its shares closed on February 3, 2000 at $50.92 per share, up from $48.21 the day before. (New Jersey's Memorandum, at 4.) Plaintiffs allege that Motorola continued over the next several months to issue press releases detailing its business with Telsim, which had the effect of further increasing the value of Motorola stock. (Id. at 4-5.)

According to Plaintiffs, however, Defendants' public statements failed to disclose that Motorola itself was financing the deal with Telsim. The transactions with Telsim were predicated upon an approximately $2 billion vendor financing agreement provided by Motorola. (Id. at 5.) Plaintiffs claim that Motorola misled investors by failing to disclose numerous problems related to that loan, including Telsim's failure to insure repayment. (Id.) Plaintiffs also allege that Motorola improperly recognized revenue in connection with the Telsim transaction in violation of generally accepted accounting principles ("GAAP"). (Id.)

In its Proxy Statement filed with the SEC on March 30, 2001, Motorola disclosed for the first time, according to Plaintiffs, that out of a total of $2.8 billion in gross long-term finance receivables, Motorola had provided $1.7 billion in vendor financing to a single customer in Turkey, that is, Telsim. (Frank Complaint ¶¶ 33-34.) On April 6, 2001 (the last day of the purported class period), a Bloomberg News columnist published an analysis of Motorola's loan to Telsim and the related disclosures in the 2001 Proxy Statement. The analysis underscored the risk of non-recovery of the loan to Telsim. (New Jersey's Memorandum, at 6.) That day, Motorola shares declined by 23% from the previous day's close of $14.95 per share to $11.50 per share. (Id.) Telsim never repaid the Motorola loan, according to Plaintiffs, and Motorola filed a lawsuit against the Turkish company. (Id. at 6-7.) These circumstances led Plaintiffs to file the lawsuits against Motorola that are currently before the court.

Under the Private Securities Litigation Reform Act of 1995 ("PSLRA"), the court must appoint a lead plaintiff in this case. 15 U.S.C. § 78u-4(a)(3). Plaintiff Stephen Frank*fn3 purchased shares of Motorola stock during the class period (February 3, 2000 to April 6, 2001), and alleges that he was damaged by Motorola's non-disclosures. (Frank Complaint ¶ 6.) Frank filed a class action against Christopher Galvin, the Chairman of the Board and the Chief Executive Officer of Motorola during the class period, as well as other Motorola officials and the company itself. (Id. ¶¶ 7-11 .) Similar actions were filed in the Southern District of New York, with the Barry v. Koenemann action's pendency noted in Investors Business Daily on December 31, 2002. Within 60 days thereafter, on March 3, 2003, Plaintiff Department of the Treasury of the State of New Jersey and its Division of Investment and Market Street Securities, Inc. ("New Jersey" or "the State") filed this motion seeking appointment as lead plaintiff. In addition, a group of class members referred to as the "Commerzbank Lead Plaintiffs" (hereinafter "Commerzbank"), consisting of class members Edward and Anna Mae Appell, Raymond Behvand, Country Trust Bank, Zohreh Jahingiri, Tom Livaditus, Village Park Association, and Commerzbank moved for appointment as lead plaintiff. In addition, the International Brotherhood of Teamsters Local 710 Pension Fund, Health and Welfare Fund, and Employees Pension Fund ("Local 710 Funds"), moved for appointment as lead plaintiff. Commerzbank advances several reasons, discussed below, why New Jersey is not an appropriate choice for lead plaintiff. The Local 710 Funds state that for the reasons set forth by Commerzbank, "it appears that the State of New Jersey may be subject to unique defenses and is not an adequate lead plaintiff." (The Local 710 Funds' Reply in Support of Their Motion to be Appointed Lead Plaintiff, at 1.) The Local 710 Funds also argue that Commerzbank is not a suitable lead plaintiff, and therefore suggest their appointment as lead plaintiff.

DISCUSSION

I. Appointment of Lead Plaintiff

Under the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4 et seq., presumptively, the lead plaintiff shall be the party with the largest financial interest in the relief sought by the class, assuming that person otherwise satisfies the requirements of Federal Rule of Civil Procedure 23. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I). The presumption may be rebutted by a showing that this party will not fairly and adequately protect the interests of the class or "is subject to unique defenses that render such plaintiff incapable of adequately representing the class." 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II).

The purpose behind the PSLRA is to prevent "lawyer-driven" litigation, and to ensure that "`parties with significant holdings in issuers, whose interests are more strongly aligned with the class of shareholders, will participate in the litigation and exercise control over the selection and actions of plaintiffs [sic] counsel.'" In re Oxford Health Plans, Inc., Securities Litigation, 182 F.R.D. 42, 43-44 (S.D.N.Y. 1998) (quoting H.R. Conf. Rep. No. 104-369). Congress believed this goal could best ...


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