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IN RE MOTOROLA SECURITIES LITIGATION

IN RE MOTOROLA SECURITIES LITIGATION.


The opinion of the court was delivered by: REBECCA PALLMEYER, District Judge

AMENDED MEMORANDUM OPINION AND ORDER

The Investment Division of the New Jersey Department of Treasury, Lead Plaintiff in this consolidated action ("Lead Plaintiff"), has filed this federal securities class action lawsuit on behalf of all "persons and entities that purchased" Motorola, Inc. ("Motorola") common stock and debt securities between February 3, 2000 and May 14, 2001 (the "Class Period"). Defendant Motorola has substantial national and international operations in the telecommunications, electronics, computer, and satellite communications industries. Defendants Christopher Galvin, Robert Growney, and Carl Koenemann (the "Individual Defendants") are former officers of Motorola. Lead Plaintiff alleges that Defendants engaged in a fraudulent scheme to inflate the price of Motorola securities by recognizing over $1 billion in revenue on 100% vendor-financed sales of equipment, services, and infrastructure to Telsim Mobil Telekomunikayson Hizmetleri A.S. ("Telsim"), a Turkish mobile telecommunications company, in violation of generally accepted accounting principles ("GAAP"). Plaintiff claims that these actions violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 ("SEA" or the "Act"), 15 U.S.C. § 78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.

Defendants move to dismiss the complaint for failure to comply with the pleading requirements of FED. R. CIV. P. 9(b) and 11 and the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4 et seq. For the reasons set forth here, Defendants' motion to dismiss is granted in part and denied in part. FACTUAL BACKGROUND

  I. Defendants

  According to Lead Plaintiff's Complaint, approximately 2.3 billion shares of Motorola common stock, traded on the New York Stock Exchange, were outstanding as of September 28, 2002. (Cmplt. ¶ 26.)*fn1 Defendant Christopher Galvin ("Galvin") became Motorola's Chief Executive Officer on January 1, 1997, and was named Chairman of the company's Board of Directors in June 1999. (Id. ¶ 32.) On September 19, 2003, Motorola announced that Galvin had resigned, primarily because he had lost the confidence of Motorola's Board. (Id.) Defendant Carl Koenemann ("Koenemann"), who served as Motorola's Executive Vice President-Finance and Chief Financial Officer from 1991 until his retirement on April 17, 2002, was responsible for the company's financial reporting during the Class Period. (Id. ¶ 34.) Defendant Robert Growney ("Growney") was Motorola's Chief Operating Officer from January 1, 1997 until his retirement on March 31, 2002. (Id. ¶ 35.)

  By virtue of their positions as officers of Motorola, Individual Defendants controlled the contents of the Company's annual and quarterly reports fled with the SEC, proxy statements, and press releases. (Id. ¶ 37.) During the Class Period, Individual Defendants allegedly "caused the material misstatement of the Company's financial condition." (Id.) Individual Defendants were aware of the contents of the Company's press releases and SEC filings alleged to be misleading and could have, but failed to, prevent their issuance. (Id.) Motorola managed the Telsim relationship "through its most senior corporate officers." These officers included: Keith Bane ("Bane"), Executive Vice President and President for Global Strategy and Corporate Development; Merle Gilmore ("Gilmore"), Executive Vice President and President for Communications Enterprise; Ed Hughes ("Hughes"), Motorola's Senior Vice President and Director of Finance for Motorola's Global Customer Solutions; and Walter Keating ("Keating"), Vice President and a Director of Motorola Credit Corporation ("MCC"), a wholly-owned credit subsidiary of Motorola. Both Bane and Gilmore reported directly to Galvin and Growney during the Class Period. Hughes, who reported directly to Bane during the Class Period, "was intimately involved on a daily basis with the Telsim financing." Keating "was the primary person at MCC responsible for the Telsim relationship." (Id. ¶ 39.) The Complaint further alleges that Individual Defendants were "actually aware of and received reports about the financing provided to Telsim and the potential problems associated with Telsim's inability to pay Motorola back." (Id. ¶ 241.)

  In 1994, Motorola's share of the United States market for cellular telephones was 60%. (Id. ¶ 51.) As competition in the cellular telephone increased, however, at an unspecified time Motorola "made a serious miscalculation" by investing in a new line of phones that used analog technology,*fn2 while its competitors offered phones employing the more popular digital technology. (Id.) By 1998, Motorola's market share in cellular phones (presumably also in the United States) had dropped to 34%; by the end of the Class Period, that market share was only 13%. (Id.) Between 1994 and 1996, Motorola's market share in wireless infrastructure equipment also declined by an unspecified amount due to faulty products and service. (Id. ¶ 52.)

  In 1995, Motorola Board members declined to appoint Galvin as CEO*fn3 because "he lacked a technical background and was too young (43)." (Id. ¶ 53.) For reasons not specified, on January 1, 1997, the Board did make Galvin CEO. (Id. ¶ 54.) Galvin knew his status was tenuous and that some Board members did not believe he was the best possible candidate for CEO. (Id. ¶ 55.) In an effort to disprove his detractors, on an unspecified date Galvin "set high goals for Motorola." (Id.) Galvin "knew that his performance would be judged by whether or not he could achieve those goals." (Id.) A May 4, 1999 Business Week article stated that Motorola officials indicated that Galvin had "set a hurdle of 15% to 20% revenue growth," which he expected to achieve within the next one to two years. (Id. ¶ 55.)

  For 1998, Motorola reported a 1% decline in revenue from the previous year. (Id. ¶ 57.) During 1998, "Motorola's management was the subject of repeated criticism for its lack of leadership." (Id. ¶ 58.) Between 1996 and 1998, Motorola "developed a reputation for missing analysts' earnings expectations." (Id. ¶ 59.) Specifically, on the September 12, 1997 episode of the CNBC program "The Money Club," correspondent Scott Cohn reported that Motorola's quarterly results had consistently missed Wall Street's expectations since 1989 by an average of 10 percent. (Id.)

  Lead Plaintiff alleges that Defendants were motivated to take steps that would boost Motorola's share price, even by artificial or improper means. First, Defendants were aware that failing to meet Wall Street's expectations would have a "devastating effect" on Motorola's stock price and on their own careers. Second, Motorola stock had declined significantly when the company had missed earnings expectations. Third, Defendants knew that Motorola would lose reported revenue if it ceased extending credit and doing business with Telsim, as explained below.

  The Complaint also alleges that Individual Defendants were motivated to engage in fraud by the prospect of receiving large bonuses. Prior to and during the Class Period, Motorola maintained a "very generous incentive-based compensation program" for Individual Defendants based on Motorola's achieving certain operating and stock performance objectives. (Id. ¶ 248.) In early 2000, Motorola provided Individual Defendants with the following compensation in addition to their base salaries. Motorola granted Galvin a $1.9 million cash bonus, 900,000 stock options, and $13,153,000 in restricted stock awards. (Id. ¶ 249.) For Growney, the Company provided a $1.2 million cash bonus, 825,000 stock options, and $11,837,000 in restricted stock awards. (Id. ¶ 250.) Motorola gave Koenemann a $500,000 cash bonus and 330,000 stock options. (Id. ¶ 251.) Motorola's March 22, 2000 Proxy Statement (for 1999) indicated that these stock options and restricted stock awards were granted "in recognition of their successful efforts to significantly improve the Company's performance during 1999 and to provide them with strong incentive to increase the value of the Company during their employment." (Id. ¶ 254.) Based on Motorola's 2000 operating and stock performance, in early 2001, Motorola provided Individual Defendants with cash bonuses in the following amounts: $1.25 million to Galvin, $875,000 for Growney, and $450,000 to Koenemann. (Id. ¶ 256.)

  II. Motorola Relationship with Telsim Prior to Class Period

  In 1993, Turkish businessman Kemal Uzan, his sons Hakan and Cem, and various members of his immediate family (collectively, the "Uzans") formed Telsim. (Cmplt. ¶¶ 5, 62.) The Uzans structured Telsim so that another of their companies, Rumeli Telefon Sistemleri A.S. ("Rumeli Telefon"), held the majority of Telsim's stock. (Id. ¶ 62.) Also in 1993, Telsim obtained a license from the Turkish government to provide cellular telephone service in Turkey. (Id. ¶ 63.) In 1994, the Uzans launched Telsim's operations. (Id.) On November 29, 1994, Motorola Limited, Motorola's British subsidiary, entered into an agreement to provide cellular infrastructure equipment to Telsim, which paid for the equipment in part with a series of promissory notes in the amount of $52.5 million. (Id. ¶ 65.) On April 24, 1998, Defendant Motorola, Inc. and Telsim entered into two agreements (collectively, the "Agreements"). The first was an Equipment Financing and Security Agreement (the "Equipment Financing Agreement"), in which Motorola expanded the amount of credit available to Telsim to $360 million for the purchase of Motorola equipment (the outstanding $52.5 million promissory notes were rolled into this agreement). The second was a License Financing Agreement, in which Motorola agreed to loan Telsim $200 million to purchase cellular licenses from the Turkish government. (Id. ¶ 66.) These Agreements were intended to enable Telsim "to build-out a Turkish cellular network utilizing state of the art Global System for Mobile Telephony 900 technology." (Id. ¶ 67.)*fn4 The Agreements required the parties to arbitrate any disputes in Switzerland (Id. ¶ 71.)

  Also on April 24, 1998, MCC entered into a Share Pledge Agreement with Telsim in which Telsim granted Motorola a security interest in 51% of Telsim's total outstanding capital stock. (Id. ¶¶ 31, 76.) Telsim's stock was neither publicly-traded nor marketable, however, and thus the value of Telsim stock depended upon Telsim's cash flow and profits. (Id. ¶ 76.) Further, the Share Pledge Agreement required Motorola to wait one year after obtaining judgment from a Swiss arbitrator before liquidating such shares. (Id. ¶ 77.)

  On May 14, 1998, Motorola's stock was trading at approximately $19 per share. On that date, Motorola issued a press release announcing that it had reached a $500 million sales agreement to supply Telsim with Global System for Mobile communications ("GSM") equipment to enhance Telsim's network in Turkey. The press release also stated that, on April 27, 1998, Telsim paid a $500 million license fee to the Turkish government for the right to operate a GSM network for 25 years. The press release did not mention that Motorola had loaned Telsim $560 million pursuant to the Agreements. (Id. ¶ 78.)

  On August 19, 1998, Motorola agreed to loan $77,331,369.00 to L.L.P. KaR-Tel ("KaR-Tel"), a telecommunications company in Kazakhstan affiliated with the Uzans, to enable the company to develop a cellular system in Kazakhstan. (Id. ¶ 80.) Telsim guaranteed KaR-Tel's obligations under the loan agreement. (Id. ¶ 81.) Lead Plaintiff claims the repayment date for that loan was extended several times, ultimately to April 30, 2001. (Id. ¶ 82.)

  On an unspecified date, Motorola provided "billions of dollars in equity, debt and vendor financing" to Iridium LLC, a provider of satellite mobile telecommunications service.*fn5 On August 13, 1999, Iridium declared bankruptcy. Lead Plaintiff alleges that "Motorola's dealings with Iridium cost Motorola approximately $4 billion." As a result of the Iridium collapse, in and around August 1999 Defendants were subjected to "much criticism from the media and investment community." (Id. ¶ 87.)

  On August 19, 1999, Motorola loaned Telsim an additional $123 million under the Equipment Financing Agreement to enable Telsim to buy additional equipment and services from Motorola, thereby increasing the total loan amount under the two Agreements to $683 million. (Id. ¶¶ 86-87.) Defendants*fn6 "knew, by virtue of their relationship with the Uzans, that if Motorola ceased financing Telsim the $560 million in previous loans would go into default," and were "anxious to avoid public disclosure" of any such default due to their nearly contemporaneous difficulties with Iridium. (Id. ¶ 87.)

  In August and November 1999, Turkey suffered two devastating earthquakes that killed more than 17,000 people and decimated the Marmara area, which accounted for one-third of the Turkish economy. (Id. ¶ 83.) On an unspecified date, an unnamed individual or entity estimated that repairs would cost between $5 billion and $7 billion. (Id.) These earthquakes "compounded an already deepening economic crisis in Turkey." (Id.) On an unspecified date following the earthquakes, an unnamed governmental body levied an additional 25% tax on cell phone usage. (Id. ¶ 84.) On an unspecified date, an unnamed individual or entity predicted that the Turkish population would make 30% fewer cell phone calls as a result of that tax increase. (Id.) This tax had "a negative effect on Telsim's ability to generate cash flow." (Id.) Following the August 1999 earthquake, Mark Atkins, a Motorola executive (the Complaint does not identify his position) who "worked closely on the Telsim relationship," and other unidentified Motorola executives, "acknowledged Telsim's inability to pay." (Id. ¶ 85.)*fn7 At unspecified dates, Telsim lodged "ongoing complaints and reported problems with equipment provided by Motorola." (Id.) According to Lead Plaintiff, such complaints created "a situation where Telsim would refuse to pay on the grounds the receivables related to defective equipment." (Id.) The court infers that such complaints were a sham, lodged to create an excuse for nonpayment.

  In meetings held September 1, 3, and 7-10, 1999, Hakan Uzan represented to Motorola officers, including Vice Presidents Ed Hughes and Walter Keating, that Telsim would cooperate in seeking from Deutsche Bank financing that would be guaranteed by the United Kingdom's Export Guarantee Credit Department ("ECGD"), which promotes exports to developing countries by providing insurance, loan guarantees, and other assistance. (Id. ¶ 89.) In reliance on these representations, on September 19, 1999, Motorola provided an additional $200 million loan to Telsim pursuant to the Equipment Financing Agreement, including $35 million in working capital and $165 million for unspecified equipment, bringing the total loan amount under the Agreements to $883 million. (Id. ¶¶ 90-91.) According to Lead Plaintiff, Motorola extended this additional loan in order (1) "to secure the sale of an additional $165 million in Motorola equipment to Telsim," and (2) to prevent Telsim from defaulting on its prior outstanding debt. (Id. ¶ 92.)

  In September 1999, unnamed Motorola employees introduced Hakan Uzan to Deutsche Bank representatives. (Id. ¶ 94.) For several months afterward, however, when Deutsche Bank representatives visited Telsim's offices attempting to review its financial records, Telsim employees denied the representatives access. (Id.) In one such incident in the fall of 1999, a Telsim employee accused a Deutsche Bank analyst of taking a Telsim financial document without permission. (Id.) That evening, Hakan Uzan presented Keating and Hughes with sworn statements from Telsim employees documenting the alleged incident; Mr. Uzan refused to permit Deutsche Bank officials any further access to Telsim's offices. (Id.) Keating and Hughes themselves did not find the allegations to be credible. (Id. ¶ 96.) The complaint alleges that Mr. Uzan manufactured this incident as an excuse to keep Deutsche Bank from reviewing Telsim's financial records and to avert the heightened oversight of its financial dealings that financing from ECGD would have entailed. (Id. ¶ 95.) Deutsche Bank and ECGD refused to provide financing to Telsim. (Id. ¶ 96.) Lead Plaintiff alleges that on numerous occasions during an unspecified two-year period during the course of Motorola's relationship with Telsim, the Uzans similarly failed to comply with requests by Keating and Hughes for financial statements and other records from Telsim. (Id. ¶ 98.)

  Beginning in October 1999, an unnamed individual from Telsim represented to an unnamed Motorola employee that two European telecommunications companies had expressed interest in acquiring or making minority investments in Telsim, and that these investments would enable Telsim to repay its loans from Motorola in full. (Id. ¶ 101.) In December 1999, an unidentified Telsim employee represented to an unnamed individual at Motorola that an additional $450 million loan from Motorola would better position Telsim to sell a minority interest in itself. (Id.) Without conducting any due diligence, Motorola entered into a Memorandum of Understanding with Telsim on December 22 and 23, 1999 in which it agreed to provide Telsim with an additional $125 million in financing for "working capital" and $325 million for the purchase of infrastructure equipment and handsets. (Id. ¶¶ 102-04.) Telsim and Rumeli Telefon (which, as noted, was controlled by the Uzans and which owned the majority of Telsim's stock) agreed to increase MCC's security interest in Telsim's total outstanding capital stock from 51% to 66%. (Id. ¶ 105.) As with the September 19, 1999 loan increase, Lead Plaintiff claims that Motorola extended this additional loan in order (1) "to secure an additional $325 million in reported revenues during the fourth quarter of 1999," and (2) to prevent Telsim from defaulting on its prior outstanding debt. (Id. ¶ 108.)

  For fiscal year 1999,*fn8 Motorola recognized a total of $613 million in revenue on sales of goods and services to Telsim. (Id. ¶ 109.) The court presumes this $613 million in revenue is precisely equal to the amounts Motorola loaned to Telsim: $123 million for the August 19, 1999 equipment financing extension; $165 million for the September 19, 1999 loan; and $325 million for the December 22-23, 1999 credit increase. Motorola and Telsim did not amend the Equipment Financing Agreement to reflect that Telsim's total indebtedness to Motorola had increased to $1.333 billion, however, until February 1, 2000. (Id. ¶¶ 106-07.) Following this December 1999 loan increase, "in recognition of the grave risks continued financing to Telsim presented," an unidentified Motorola official or officials "strongly encouraged Telsim to seek additional and alternate sources of both equity and debt financing." (Id. ¶ 110.)

  In December 1999, Telsim retained Merrill Lynch to pursue an equity investment or sale of its business. (Id. ¶ 112.) As part of this effort, dubbed "Project Skyy," Merrill Lynch prepared a prospectus that was reviewed by six European telecommunications companies: Deutsche Telekom, Mannesmann Eurokom (both of which are German companies), Vodafone (British), Telia A.B. (Swedish), Orange (British), and Telecom Italia (Italian). (Id.) Based on their review of the prospectus and "recognizing the inherent problems with the Uzans, the Turkish economy and Telsim's cash flow, none of the six companies pursued further financing or investment transactions involving Telsim." (Id.)

  At an unspecified time, Telsim undertook "Project Storm," in which it worked with Chase Securities to evaluate the possibility of a public offering of Telsim debt in Turkey. (Id. ¶ 115.) As with Project Skyy, Telsim received no financing as a result of Project Storm. (Id.) Lead Plaintiff urges that, had Defendants inquired about the status of Project Storm, "they would have learned that these financing efforts were illusory." (Id. ¶ 116.)

  III. Motorola Relationship with Telsim and Public Statements During Class Period

  A. February 3, 2000 Press Release

  On February 3, 2000, Motorola issued a press release stating that Motorola and Telsim "have today announced the signing of a contract worth $1.5 billion to provide infrastructure, handsets and associated services in order to expand the countrywide [GSM] network." (Id. ¶ 118.) Motorola's shares closed on that date at $50.92 per share, up from $48.21 the day before. (Id. ¶ 119.) According to Lead Plaintiff, "Individual Defendants were responsible for the content and publication of the February 3, 2000 press release in that they reviewed and approved it." (Id. ¶ 120.) This press release was "archived and maintained on Motorola's web site." (Id.) A March 4, 2000 article in The Times of London pointed to this announcement as evidence of "the turnaround in Motorola's cellular infrastructure business." (Id. ¶ 121.)

  Lead Plaintiff claims the February 3, 2000 press release was false and misleading on several grounds. First, no agreement was entered into on or about February 3, 2000 providing for Telsim to purchase $1.5 billion in equipment, service, and infrastructure from Motorola. Second, the press release failed to disclose the $1.333 billion prior financing provided to Telsim "for which collection was gravely in doubt." Third, no mention was made that Telsim was at that point "in breach of the [Agreements] by refusing to provide Motorola with Telsim's financial statements or other records." Fourth, the press release did not disclose that "Telsim had inadequate cash flow and no access to capital markets to be able to purchase additional equipment, services, or infrastructure from Motorola, and that any such purchases would have to be made through additional, risky vendor financing provided by Motorola." Fifth, the press release did not mention that "the entire amount of the contract"*fn9 was contingent upon Motorola's providing 100% financing for the equipment purchased and additional financing for Telsim in the form of "working capital." Finally, the press release did not reveal that the sole collateral for Telsim's obligations was shares in Telsim itself, which were "both illiquid and of uncertain value," that any dispute between the parties would have to be resolved through arbitration in Switzerland, and that any arbitral award would have to be enforced in Turkey. (Id. ¶ 122.)

  B. March 22, 2000 Proxy Statement and 1999 Form 10-K

  On March 22, 2000, Motorola filed with the SEC its 1999 Form 10-K,*fn10 which was signed by Individual Defendants and incorporated by reference the Company's audited financial statements and notes and the "Management Discussion and Analysis" ("MD & A") section of the Company's Proxy Statement. (Id. ¶ 124.) In its Proxy Statement, filed with the SEC on the same date, Motorola reported $30.93 billion in net sales, $817 million in net income, and earnings per share of $1.31. (Id. ¶ 125.) The MD & A section of the Proxy Statement acknowledged Motorola's involvement in vendor financing generally, but did not mention Telsim specifically: Purchasers of the Company's infrastructure equipment continue to require suppliers to provide long-term financing in connection with equipment purchases. Financing may include all or a portion of the purchase price and working capital. . . . During 1999 the Company significantly increased the amount of customer financing provided by its consolidated financing subsidiary. . . . The Company expects that the need to provide this type of financing . . . will continue and may increase in the future.

 (Id. ¶ 126.) The Proxy Statement noted that MCC, Motorola's wholly-owned finance subsidiary, was "engaged principally in financing long-term receivables arising out of equipment sales made by the Company to customers throughout the United States and internationally." The Proxy Statement also reported that $1.7 billion of Motorola's $11.58 billion in "other assets" were "long-term finance receivables." (Id. ¶ 127.) Defendants "put additional pressure" on themselves by predicting in the Form 10-K and Proxy Statement that "[s]ales are expected to grow at a rate higher than the 1999 growth rates due primarily to strong demand for wireless telephones." (Id. ¶¶ 129-130.)

  Lead Plaintiff claims the statements in the March 22, 2000 Form 10-K and Proxy Statement were false and misleading for two of the reasons identified regarding the February 3, 2000 press release: Telsim had breached the Agreements; and Telsim had inadequate cash flow and lack of access to capital markets. Lead Plaintiff further urges the Form 10-K and Proxy Statement were false and misleading on several additional grounds, as well. First, for reasons that are unclear, Motorola delayed finalizing its December 1999 commitment to provide Telsim with an additional $450 million in vendor financing until February 1, 2000 to avoid having to disclose that financing in the Form 10-K and Proxy Statement. Although Lead Plaintiff does not so state, the court presumes Lead Plaintiff points to this delay as evidence that the March 22 filings were false because, as noted, Motorola recognized $325 million for the December 22-23, 1999 credit increase for fiscal year 1999. Second, the $450 million increased vendor financing commitment to Telsim meant that Motorola failed to disclose that $1.333 billion of its $2.153 billion in total vendor financing, or 62%, as of December 31, 1999 was concentrated in a single customer, i.e., Telsim. Third, Defendants' reported "other assets" were "artificially inflated" by the inclusion of the $833 million in assets provided to Telsim through vendor financing, as those assets were assertedly "impaired." Fourth, Defendants "failed to disclose the concentration of and risks associated with the vendor financing to Telsim." Fifth, Defendants' financial statements did not conform to GAAP (discussed below). Sixth, Defendants did not disclose that Telsim had not repaid any of the financing Motorola had provided and "it was highly improbable that Telsim would be able to pay Motorola back for the amounts already borrowed." Finally, Motorola's reported overall net sales, and sales for two of its business segments, for fiscal year 1999 were "artificially inflated" as that figure included the $613 million in revenue on 100% vendor-financed sales of goods and services to Telsim for which collection "was not reasonably assured" and, in any event, payment for these goods and services was not required for one year after shipment. (Id. ¶ 128.)

  C. Nokia Vendor Financing

  In March 2000, Finnish telecommunications manufacturer Nokia Oyj ("Nokia") provided Telsim with $800 million worth of vendor-financed switching equipment. (Id. ¶ 131.) As collateral, Nokia received a stock pledge for 7.5% of the outstanding shares of Telsim. (Id. ¶ 132.) At this point, then, 73.5% of Telsim's equity was pledged as collateral to Motorola and Nokia. (Id.) During the summer of 2000, unnamed Nokia officials contemplated "buying out Telsim's debt to Motorola and becoming Telsim's sole partner." (Id. ¶ 134.) Nokia never consummated this transaction, however, because it recognized "the enormous economic risks" inherent in Telsim's $1.33 billion debt to Motorola. (Id.)

  D. March 24, 2000 Press Statement

  On March 24, 2000, Motorola denied a report in the Turkish newspaper Hurriyet on an unspecified date that Telsim was having difficulty paying Motorola. (Id. ¶ 135.)*fn11 According to Lead Plaintiff, "Defendants' reported denial was materially false and misleading in that Telsim was in fact unable to repay Motorola and continually had to increase its indebtedness to Motorola, and subsequently incur debt to Nokia, to support its operations." (Id. ¶ 136.) On March 24, 2000, Motorola's common stock closed at $54.52 per share. (Id. ¶ 137.)

  E. April 10, 2000 Press Releases and First Quarter 2000 Form 10-Q

  On April 10, 2000, Motorola issued a press release*fn12 announcing $8.77 billion in net sales for the first quarter of 2000 (reflecting a 19% increase over the first quarter of 1999), net income of $448 million, and earnings per share of $0.59. (Id. ¶ 138.) Although Motorola stated in its consolidated balance sheet that it held $3.624 billion in "other assets," it did not disclose the amount of those assets attributable to vendor financing. (Id.) The press release stated that "[u]nder an agreement with Telsim, estimated to have a sales potential of at least $1.5 billion over three years, Motorola will provide infrastructure, handsets and associated services to expand the countrywide GSM network in Turkey." (Id. ¶ 139.) The complaint alleges that Galvin and Growney were quoted "throughout the . . . press release," although it does not identify the specific statements attributed to Galvin and Growney. (Id. ¶ 140.) Koenemann was responsible for the financial data reported in the press release. (Id.)

  At an unspecified time, unidentified analysts projected, based on Motorola's February 3, 2000 press release, that Motorola would report earnings of $.70 per share for the second quarter of 2000. (Id. ¶ 141.) After the markets closed on April 10, 2000, "Motorola made public statements guiding analysts' [earnings per share] expectations for the second quarter of 2000 down three cents a share, from 70 cents to 67 cents a share." (Id. ¶ 144.) This three cent differential was "largely the result of [D]efendants' undisclosed knowledge concerning Telsim." (Id.) The Complaint does not explain how Motorola made statements that "guided" analysts' expectations downward, nor does it say whether they did so by disclosing aspects of the relationship between Motorola and Telsim. On April 11 and 12, 2000, the price of Motorola's common stock plunged from $50.33 per share to $38.625 per share at the close of April 12, 2000, due to Defendants' revised guidance as to Motorola's second quarter profitability. (Id. ¶ 145.)

  Motorola's Form 10-Q*fn13 for the first quarter of 2000, which it filed with the SEC on May 16, 2000, reiterated and affirmed the financial results published in the April 10, 2000 press release. (Id. ¶ 147.) The Form 10-Q also stated that:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(Id.) The Form 10-Q added that Motorola had "signed an agreement with Telsim, which is estimated to have a sales potential of at least $1.5 billion over three years. Under this agreement, the Company expects to provide infrastructure equipment, wireless phones ...

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