The opinion of the court was delivered by: Judge Rebecca R. Pallmeyer
MEMORANDUM OPINION AND ORDER
This consolidated securities fraud class action, brought by Lead Plaintiff The State of New Jersey, Department of the Treasury, Division of Investment ("New Jersey") against Motorola, Inc. ("Motorola") and three of its senior executives (collectively, "Defendants"), arises from the relationship between Motorola and Telsim Mobil Telekomunikasyon Hizmetleri A.S. ("Telsim"), a Turkish cellular telephone service provider. Lead Plaintiff alleges that Defendants misrepresented or failed to disclose material facts relating to a series of transactions in which Motorola sold billions of dollars worth of cellular handsets and infrastructure equipment to Telsim, but provided Telsim with 100% of the financing for the purchases and for working capital. Lead Plaintiff alleges that these misrepresentations violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "SEA"), 15 U.S.C. § 78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Defendants have filed two motions for summary judgment, one arguing that the action is barred by the statute of limitations, and the other contending that Lead Plaintiff cannot, as a matter of law, establish that Defendants' eventual disclosures of Telsim-related information caused the share price declines of Motorola common stock for which Lead Plaintiff seeks damages. For the reasons explained below, Defendants' motion for summary judgment (statute of limitations) is denied, and their motion for summary judgment (loss causation) is granted in part and denied in part.
Motorola designs, manufactures, sells, installs, and services communications and other electronics equipment, including wireless handsets and wireless infrastructure equipment used in operating wireless networks. (Pl.'s 56.1 Addnl. ¶ 1.) A Delaware corporation, Motorola maintains its principal executive offices in Schaumburg, Illinois, and is listed on the New York Stock Exchange. (Def.'s 56.1 (SOL) ¶ 5.) Defendant Christopher B. Galvin was, during the class period, Chief Executive Officer of Motorola and Chairman of its Board of Directors. (Id. ¶ 6.) Defendant Carl F. Koenemann was Motorola's Executive Vice President of Finance and Chief Financial Officer. (Id. ¶ 7.) Defendant Robert L. Growney was Chief Operating Officer, and also served as a director and as Vice Chairman of Motorola from 1997 through 2001. (Id. ¶ 8.) Lead Plaintiff has alleged that it purchased publicly-traded Motorola securities between February 3, 2000 and May 14, 2001 (the "Class Period"). (Id. ¶ 4.)
Motorola provides its cellular infrastructure equipment and handsets to cellular operators throughout the world. (Id. ¶ 22.) Until 2001, one such customer was Telsim, a Turkish telecommunications company formed in 1993 to develop a wireless communications network in that country. (Id. ¶ 19; Def.'s 56.1 (LC) ¶ 9.) Telsim was Turkey's second-largest provider of cellular telephone service from 1997 to 2001; during this time, Turkey's largest cellular service provider, Turkcell, obtained its wireless equipment exclusively from Ericsson, a competitor of Motorola's.*fn2 (Def.'s 56.1 (LC) ¶¶ 9, 11.) Telsim was controlled by members of the Uzan family, including Kemal Uzan and his sons; Kemal Uzan's son Hakan Uzan was the primary contact liaison between Telsim and Motorola. (Id. ¶ 10; Pl.'s 56.1 Addnl. ¶ 2.) The Uzans had a "very bad public reputation for basic honesty and integrity."*fn3 (Def.'s 56.1 (LC) ¶ 16 (quoting Rebuttal Expert Report of Professor Charles A. Warner ("Werner Rebuttal"), Ex. 5 to Schwartz Decl., at 7).) News stories appearing between 1985 and 2001 reported that the Uzans had a history of questionable business practices and relationships. (Werner Rebuttal, at 7.) Financial media reported that the Uzans had improperly transferred funds and committed other financial irregularities in connection with an electric company they controlled, culminating in authorities raiding the company's headquarters and seizing its books. (Id. at 7-8; Def.'s 56.1 (LC) ¶ 16.) The Uzans and the companies they controlled had also been accused of libel and with blackmailing a dairy company. (Werner Rebuttal, at 8; Def.'s 56.1 (LC) ¶ 16.) Other "severely adverse information about the Uzans . . . was readily available" during the Class Period. (Def.'s 56.1 (LC) ¶ 16 (quoting Werner Rebuttal, at 8).)
It is unclear when Motorola began its relationship with Telsim. The existence of that relationship became public knowledge in any event on December 3, 1996, when Motorola issued a press release announcing a $90 million contract for the sale of cellular infrastructure equipment to Telsim.*fn4 (Id. ¶ 12; Expert Report of Professor Charles A. Werner ("Werner Report"), Ex. 1 to Schwartz Decl., at 4.) Larger transactions followed. Beginning in April 1998, Motorola and Telsim entered into a series of "vendor financing" agreements in which Motorola sold cellular products to Telsim but did not seek immediate cash payment; rather, through its subsidiary Motorola Credit Corporation ("MCC"), Motorola provided financing for the purchases as well as for "working capital."*fn5 (Def.'s 56.1 (SOL) ¶¶ 23-25; Def.'s 56.1 (LC) ¶ 13; Pl.'s 56.1 Addnl. ¶ 2.) Specifically, in vendor financing agreements dated April 24, 1998,*fn6 Motorola loaned Telsim $200 million to finance the purchase of a $500 million telecommunications license from the Turkish government, and provided $360 million in vendor financing for sales to Telsim of handsets and infrastructure equipment. (Pl.'s 56.1 Addnl. ¶ 3.) At this time, Telsim had outstanding to Motorola $52.5 million in promissory notes incurred in connection with (unidentified) earlier purchases. (Id.) In August 1998, Motorola, subject to Telsim's guarantee of payment, provided $60 million in license financing and $9 million in equipment financing to L.L.L. KaR-Tel ("KaR-Tel"), a Kazakhstan wireless telecommunications company 70% owned by the Uzan family. (Pl.'s 56.1 Addnl. ¶ 4.)
By December 1998, Motorola had determined that it had reached its limit with regard to vendor financing for Telsim.*fn7 (Id. ¶ 5.) Accordingly, Motorola sought Telsim's cooperation in obtaining financing from third parties to enable Telsim to continue to purchase handsets and infrastructure equipment from Motorola. (Id.) Although the parties dispute Telsim's level of cooperation in these efforts,*fn8 it is undisputed that Motorola did not secure third party financing for Telsim. (Id. ¶ 8.) Motorola then amended the April 1998 vendor financing agreements to provide additional financing for infrastructure purchases, handset purchases, and working capital: $123 million in August 1999, $155 million in September 1999, and $450 million in February 2000. (Id.) Motorola provided this financing despite the fact that Telsim had been unable to make a substantial payment due to Motorola on June 30, 1999, and had defaulted on the promissory notes that had been outstanding at the time of the April 1998 agreements; Motorola restructured that delinquent debt in terms favorable to Telsim. (Id. ¶¶ 9-10.) In September 2000, Motorola again amended the April 1998 agreements to advance another $700 million in vendor financing to Telsim, of which $250 million was for working capital. (Id. ¶ 13.) Further amendments in January 2001 again restructured Telsim's payments, providing below-market interest rates and allowing Telsim to avoid paying interest on accrued interest. (Id. ¶ 14.) All told, Motorola's Telsim-related vendor financing arrangements approximated $2 billion by the end of the first quarter of 2001. (Def.'s 56.1 (LC) ¶ 14.) This debt was secured by a share pledge of sixty-six percent of Telsim's capital stock,*fn9 (id.), which was not publicly traded. (Answer ¶ 76.)
For the six quarters ending on December 31,1999 through March 31, 2001, Motorola recognized revenue on sales of equipment and services to Telsim, and interest income on Telsim's outstanding debt. (Pl.'s 56.1 Addnl. ¶ 17.) Lead Plaintiff asserts that this practice violated generally accepted accounting principles ("GAAP") because the collectibility of revenue and interest income from Telsim was not "reasonably assured."*fn10 (Id. ¶¶ 15-17.) Lead Plaintiff further asserts that Motorola improperly reduced its loan loss reserves for the Telsim vendor financing and thus "manufactured additional profit" in order "to achieve quarterly profit objectives." (Id. ¶ 18.) According to Lead Plaintiff, in the five quarters ending on December 31, 1999 through December 31, 2000, Motorola achieved net income expectations by reporting inflated operating profits on sales to Telsim, income interest on the Telsim debt, and by reducing loan loss reserves.*fn11 (Id. ¶ 37.) In particular, Motorola inflated its operating profits in the fourth quarter of 2000 by $300.6 million, and its earnings per share by $0.10, by improperly reporting net sales and interest income related to Telsim. (Id.) As for the first quarter of 2001, Lead Plaintiff asserts that Defendants anticipated "being able to manipulate" operating results by including yet more vendor-financed sales to Telsim, and by again reducing loan loss reserves. (Id. ¶ 38.) Motorola tried to secure additional sales to Telsim as late as January 28, 2001, by inviting Hakan and Cem Uzan to a sporting event. (Id.)
II. Motorola's Public Disclosures Relating to Telsim and Vendor Financing
A. Press Releases and SEC Filings Prior to Feb 23, 2001
Before and during the Class Period, Motorola issued press releases relating to its agreements with Telsim,*fn12 (Def.'s 56.1 (SOL) ¶ 26; Pl.'s 56.1 Addnl. ¶ 20 & n.4), announcing that Motorola expected billions of dollars in revenue from its relationship with Telsim. (Pl.'s 56.1 Addnl. ¶ 20.) A press release issued on May 14, 1998 announced a "$500 million contract" with Telsim for Motorola to provide network infrastructure equipment. (May 14, 1998 Press Release, Ex. E to Harrod Decl.) A February 3, 2000 press release trumpeted "the signing of a contract worth $1.5 billion" for Motorola to supply handsets, infrastructure equipment, and services to expand Telsim's GSM network. (February 3, 2000 Press Release, Ex. O to Harrod Decl.) On October 31, 2000, Motorola announced an agreement with Telsim for the supply and development of a third-generation mobile network capable of delivering multimedia services; Motorola "estimate[d] that the potential value of the contract could be in excess of $2 billion." (October 31, 2000 Press Release, Ex. DD to Harrod Decl.) Motorola also referred to Telsim in the October 31 release as "one of the most successful GSM operators worldwide." (Id.) None of these press releases referred to vendor financing in connection with the announced contracts. (Pl.'s 56.1 Addnl. ¶ 21.)
Motorola made periodic SEC filings such as annual and quarterly reports, and proxy statements during the Class Period. (Def.'s 56.1 (SOL) ¶ 26.) Prior to a Proxy Statement filed on March 30, 2001, it is undisputed that Motorola had made no public disclosure of the extent of its vendor financing to Telsim. (Pl.'s 56.1 Addnl. ¶ 22.) Some of Motorola's SEC filings did disclose, in general terms, that Motorola provided vendor financing to its customers. For instance, Motorola's Form 10-K/A for 1998 stated that its customers were "increasingly requiring financing in connection with equipment purchases," that such financing might include "all or a portion of the purchase price and working capital and can be sizeable," that Motorola had in 1998 "significantly increased the amount" of vendor financing, and that it expected the need for such financing to increase. (Form 10-K/A for 1998, Ex. 8 to Thomas Decl., at 15.) A March 2000 Proxy Statement informed investors that the amount of customer financing provided by MCC had "significantly increased" in 1999 as well. (Def.'s 56.1 (LC) ¶ 25; Schedule 14-A Proxy Statement, March 22, 2000, Ex. 9 to Schwartz Decl., at F-20.) Motorola's Form 10-Q for the third quarter of 2000 (ending September 30, 2000) predicted a "likelihood" that Motorola would further increase its amount of vendor financing. (Form 10-Q for Third Quarter 2000, Ex. 8 to Thomas Decl., at 37.) Motorola's Form 10-K for 2000 disclosed that "a portion" of its vendor financing was "supported directly by Motorola" and carried "higher risks" than third-party financing, particularly as to customers in developing countries. (Form 10-K for 2000, Ex. 8 to Thomas Decl., at 15.) The March 2000 Proxy Statement included "[i]ncreasing demand for customer financing" among its primary business risks.*fn13 (Def.'s 56.1 (LC) ¶ 27; Schedule 14-A Proxy Statement, March 22, 2000, Ex. 9 to Schwartz Decl., at F-28.) None of Motorola's filings prior to March 2001 identified Telsim as a recipient of vendor financing, however, even while identifying the specific amount of vendor financing provided to another customer, Nextel Communications, Inc. (Pl.'s 56.1 Addnl. ¶ 22.) The March 2000 Proxy Statement, for instance, informed investors that as of December 31, 1999, $797 million of $1.7 billion in long-term receivables "relate[d] to one customer"; the filing did not identify that customer, though it did disclose $457 million in "equipment financing" to Nextel. (Def.'s 56.1 (LC) ¶ 28; Schedule 14-A Proxy Statement, March 22, 2000, Ex. P to Harrod Decl., at MOT/TEL 03-0117.)
B. Moody's Downgrades and Devaluation of Turkish Lira
On December 8, 2000, Moody's Investors Service ("Moody's") issued a "Rating Action" on Motorola debt securities, changing the rating outlook on Motorola and its subsidiary MCC to "negative" from "stable." (Pl.'s 56.1 Addnl. ¶ 24.) Moody's noted that Motorola's short-term debt obligations had increased from $2.5 billion at the end of 1999 to about $6.6 billion as of November 3, 2000. (Id.) The Rating Action stated that "Moody's is also concerned with, and will be closely monitoring, Motorola's need to extend financing to many of its telecom equipment customers . . . ." (Id. (quoting Rating Action, Dec. 8, 2000, Ex. II to Harrod Decl.)) Of the $4.1 billion debt increase referenced in the Rating Action, 28% was attributable to the $1.15 billion increase in vendor financing to Telsim during 2000. (Pl.'s 56.1 Addnl. ¶ 25.) At a February 8, 2001 meeting with Moody's, Defendant Koenemann and other senior Motorola officers discussed Motorola's exposure to Telsim. (Id. ¶ 26.) On February 15, 2001, Moody's issued another Rating Action, downgrading Motorola long-term senior unsecured securities from A1 to A2. (Id. ¶ 27.) The downgrade reflected "the significant build up in debt levels at Motorola," attributable in part to "growth in the vendor financing portfolio." (Id. (quoting Rating Action, Feb. 15, 2001, Ex. SS to Harrod Decl.)) Neither Rating Action mentioned Telsim.
On February 22, 2001, the Turkish government stopped supporting the valuation of the Turkish lira, causing an immediate 35% decline in the value of the lira. (Pl.'s 56.1 Addnl. ¶ 39.) This devaluation adversely affected Telsim's ability to repay its U.S. dollar-denominated loans, and further lowered the U.S. dollar value of Motorola's collateral in Telsim stock. (Id.)
C. The February 23 Earnings Warning
On February 23, 2001, Motorola issued an earnings warning for the first quarter of 2001 (the "February 23 Warning"). (Id. ¶ 40; Def.'s 56.1 (LC) ¶¶ 31-32.) In a press release, issued prior to the opening of U.S. securities markets, Motorola attributed an expected shortfall in sales revenue and net earnings per share to "the sharp economic slowdown occurring in the United States" and "inventory corrections . . . in technology markets worldwide," which had resulted in "significant weakness in first-quarter order input across [Motorola's] business segments." (Pl.'s 56.1 Addnl. ¶ 40; Def.'s 56.1 (LC) ¶ 32.) According to Lead Plaintiff's expert, Motorola's stock price suffered "a statistically significant residual decline of 5.45% (or $0.92 per share) in response to the February 23, 2001 press release."*fn14 (Pl.'s 56.1 Addnl. ¶ 41.)
The February 23 press release made no mention of Telsim, nor of vendor financing. (Def.'s 56.1 (LC) ¶ 32; February 23, 2001 Press Release, Ex. VV to Harrod Decl.) Lead Plaintiff, however, asserts that the February 23 Warning was "a partial disclosure linked to Motorola's yet undisclosed exposure to Telsim." (Pl.'s 56.1 Addnl. ¶ 45.) Lead Plaintiff cites to evidence that at the time of the February 23 Warning, senior Motorola officials were "highly concerned" about Telsim's ability to make its loan payments. (Id. ¶¶ 42-44.) In an e-mail dated February 23, 2001-the day of the earnings warning-from Motorola Assistant Chief Financial Officer Steve Earhart to Defendant Growney, Mr. Earhart observed that the Turkish lira's devaluation affected both Telsim's ability to meet its U.S. Dollar-denominated loan obligations and the value of Motorola's collateral; the e-mail further notes that a $730 million payment was due at the end of April, but that the "current discussion" had Telsim paying only $200 million at the end of April, with the remainder due on a work-out schedule "to be agreed."*fn15 (Id. ¶ 42; E-mail from Earhart to Growney of February 23, 2001, Ex. UU to Harrod Decl.) A letter from Motorola to Telsim, also dated February 23, 2001 and entitled "Notice of Suspension Events" (the "Suspension Letter"), confirmed Telsim's representation that it would not make a $728 million payment due on April 30, 2001, and warned that, as a result, Motorola would provide no further financing. (Id. ¶ 44.) Attached to the letter was a list of "Current Suspension Events", identifying obligations imposed by the April 1998 agreements that MCC believed Telsim had failed to meet. (Id.) According to Lead Plaintiff, this evidence establishes that the February 23 Warning was Telsim-related in that it shows that Defendants knew, on that date, that "Motorola would be unable to generate operating income from sales of equipment or services to Telsim in the first quarter of 2001."*fn16 (Id. ¶ 45.) In addition, according to Lead Plaintiff's expert, Defendants also knew that Motorola could not continue its practice of reducing loan loss reserves in order to achieve operating projections, due in part to Moody's scrutiny of the Telsim loans. (Id. ¶ 47 (citing Expert Rebuttal Report Prepared by Professor Steven P. Feinstein, Ph.D., CFA ¶¶ 130-32, Ex. 13 to Schwartz Decl.).)
Defendants do not dispute Lead Plaintiff's evidence, nor do Defendants assert that the February 23 Warning was wholly unrelated to Telsim. Rather, Defendants deny that "any stock price decline that may have occurred on or around February 23, 2001 was linked to Telsim-related information." (Def.'s 56.1 Addnl. Resp. ¶ 48.) Defendants point out that the press release announcing the earnings warning did not mention Telsim, and that "newswires reported, and analysts understood Motorola's explanation" that the shortfall was the result of weakening orders for Motorola's wireless phones and equipment, demand for lower-cost cell phones, and weakness across Motorola's other business segments.*fn17 (Def.'s 56.1 (LC) ¶¶ 32-33.) Therefore, according to Defendants, the February 23 Warning, even if it was "related to" Telsim, did not function as a "corrective disclosure" because it neither "identified Telsim [n]or called into question any prior Motorola representation about Telsim." (Def.'s 56.1 Addnl. Resp. ¶ 48.) Because this assertion is essentially a legal argument-that the February 23 Warning was not a "corrective disclosure" as that term is understood in the case law-the court does not consider Defendants' challenge as controverting any of Lead Plaintiff's factual assertions concerning the February 23 Warning.*fn18
D. The March 30 Proxy Statement Disclosing a Turkish Customer
On March 30, 2001, Motorola filed a Schedule 14A Proxy Statement (the "March 30 Proxy") in which Motorola, after restating the general language relating to vendor financing contained in prior SEC filings, disclosed the following:
At December 31, 2000 and December 31, 1999 the Company had long-term finance receivables of $2.6 billion and $1.7 billion, respectively (net of allowance for losses of $233 million and $292 million, respectively), which are included in other assets on the consolidated balance sheets. As of December 31, 2000, approximately $1.7 billion of the $2.8 billion in gross long-term finance receivables related to one customer in Turkey.*fn19 (Def.'s 56.1 (LC) ¶ 35 (quoting March 30 Proxy, Ex. 12 to Schwartz Decl., at F-25).) The March 30 Proxy did not identify the Turkish customer. (Pl.'s 56.1 Addnl. ¶ 51.) As noted, one analyst, a columnist for Bloomberg News, initially assumed that the customer was Turkcell.*fn20 (Id.; Mark Gilbert, Rating Cut May Leave Motorola Gasping Like Xerox, BLOOMBERG NEWS, Apr. 6, 2001 (8:49 a.m.), Ex. AAA to Harrod Decl., at 3.) The March 30 Proxy contained no other information regarding the Turkish customer. (Pl.'s 56.1 Addnl. ¶ 52.)
Lead Plaintiff's damages expert, Professor Feinstein, characterizes as "surprising" Motorola's disclosure that $1.7 billion in long-term finance receivables was related to a single customer in Turkey. (Def.'s 56.1 (LC) ¶ 37 (quoting Expert Rebuttal Report Prepared by Professor Steven P. Feinstein, Ph.D., CFA ("Feinstein Rebuttal") ¶ 144, Ex. 13 to Schwartz Decl.) Nonetheless, it is undisputed that Motorola's stock did not decline by a statistically significant amount on March 30, 2001. (Id. ¶ 38.) In fact, on the following day of trading, April 2, 2001, Motorola's stock increased by a statistically significant amount.*fn21 (Id.)
E. The April 6 Bloomberg Article Identifying Telsim
On April 6, 2001, Bloomberg News released an article in which columnist Mark Gilbert discussed Motorola's March 30 Proxy.*fn22 (Def.'s 56.1 (SOL) ¶ 31.) The article contained the following analysis of Motorola's debt prospects, based on the information it disclosed on March 30:
Motorola is up to its neck in short-term debt, and if its credit rating gets cut, the market is likely to turn off the money taps that are keeping the company afloat. Oh, and for good measure, the company is owed a staggering $1.7 billion by a single customer in an emerging market country. "We're beginning to think the unthinkable about Motorola," said Carol Levenson, author of the Gimme Credit bond newsletter in Chicago who spotted the land mines buried in the company's SEC filing. "Motorola's liquidity has rapidly moved into crisis mode."
The No. 2 cellular phone maker has been gorging in debt markets. Its short-term debt, mostly commercial paper borrowing, more than doubled in the year to the end of 2000, surging to $6.4 billion from $2.5 billion*fn23 in December 1999. (Def.'s 56.1 (LC) ¶ 39; Mark Gilbert, Rating Cut May Leave Motorola Gasping, BLOOMBERG NEWS, Apr. 6, 2001 (2:45 p.m.) (the "April 6 Bloomberg Article"), Ex. BBB to Harrod Decl., at 1.) The article identified Telsim as the "Turkish customer," noting that Motorola in February had announced a $1.5 billion contract with Telsim, and that Motorola had been selling equipment to Telsim since 1994. (April 6 Bloomberg Article, at 3.) The article also quoted a Motorola spokesman as stating that Motorola had "substantial collateral to at least the value of the loan" to Telsim, and that at least some of that collateral was in the form of Telsim stock. (Id.)
Motorola stock declined sharply on April 6, 2001, falling 23% from $14.95 to $11.50.*fn24
(Def.'s 56.1 (LC) ¶ 44; Beaver Report ¶ 47.) The price remained unchanged on the next day of trading, April 9, 2001. (Def.'s 56.1 (LC) ¶ 44.) Over six of the following seven trading days, however, Motorola shares rose on heavy trading, eventually surpassing the April 5 close by the end of trading on April 18, 2001.*fn25 (Id.)
While the April 6, 2001 actual price decline is undisputed, the parties vehemently dispute the extent to which the decline was related to Telsim. Defendants, citing to newswire items referenced in their expert's report, assert that in addition to concerns about Motorola's debt situation, analysts on April 6, 2001 were "also concerned with 'weakening demand for phones, chips, and wireless communications equipment,' which caused general concern about Motorola's earnings." (Id. ¶ 43 (quoting Beaver Report ¶ 52) (quoting in turn Dow Jones Business News, 18:57 GMT, April 6, 2001).) Lead Plaintiff does not dispute that analysts expressed these additional concerns, but contends that such concerns were not "new" and thus would not account for the decline. (Pl.'s 56.1 Resp. (LC) ¶ 43.) Defendants further maintain that the decline could be attributed to other, non-Telsim-related information contained in either Motorola's March 30 Proxy or in the April 6 Bloomberg Article. (Def.'s 56.1 Addnl. Resp. ¶ 57.) Lead Plaintiff's position is that none of the other information was "new" news, and that it was the Telsim-related information in the March 30 Proxy that caused the April 6 price drop, due to "the interpretation, understanding, and broader dissemination of that information [which] took place on April 6, 2001." (Pl.'s 56.1 Addnl. ¶¶ 57, 62.) Lead Plaintiff further asserts that analysts' reports published on April 6 and April 9 "considered Motorola's loans to Telsim to be material."*fn26 (Id. ¶ 60.)
F. The May 14 Form 10-Q Disclosing Telsim's Missed $728 Million Payment
In a Form 10-Q report for the quarter ending March 31, 2001 and filed after the close of trading on May 14, 2001, Motorola disclosed that Telsim had failed to make a scheduled payment to Motorola of $728 million that had become due on April 30, 2001. (Def.'s 56.1 (LC) ¶ 45; Pl.'s 56.1 Addnl. ¶ 67.) The filing also stated that "[a]s of March 31, 2001, approximately $2.0 billion of the $2.9 billion in gross long-term finance receivables related to one customer, Telsim, in Turkey." (Form 10-Q for Period Ending March 31, 2001 (the "May 14 Filing"), Ex. 15 to Schwartz Decl., at 35.) The filing disclosed that "Motorola's collateral for the vendor financing provided to Telsim is the ability, pursuant to a stock pledge agreement, to receive or sell 66% of the stock of Telsim," and that Motorola had other, unspecified "creditor remedies." (Id.) Motorola also informed investors that under the terms of the Telsim vendor financing, Telsim had 30 business days to cure the missed payment, and that Motorola was "currently in discussions with Telsim to reschedule payments, including the April 30th payment." (Id.)
It is undisputed that Motorola shares declined 4.7% on May 15, 2001, from a close of $15.74 on May 14 to $14.96 on May 15. (Def.'s 56.1 (SOL) ¶ 37.) According to Lead Plaintiff, this amounted to a 4.9% residual decline, (Pl.'s 56.1 Addnl. ¶ 68); Defendants' expert, however, puts the residual decline at 4.5%. (Beaver Report ¶ 56.) More significantly, while Lead Plaintiff maintains that the decline was "statistically significant," (Pl.'s 56.1 Addnl. ¶ 68), Defendants' expert, using different methodology, characterizes it as "not statistically different from zero." (Def.'s 56.1 (LC) ¶ 47.) In addition, Defendants dispute Lead Plaintiff's contention that the decline was attributable to Telsim-related disclosures, (Def.'s 56.1 Addnl. Resp. ¶ 68), noting that the May 14 Filing was a detailed, 42-page filing, and contained numerous other data related to Motorola's performance for the quarter and prospects for the future. (Def.'s 56.1 (LC) ¶ 46.)
Defendants assert that "[v]arious analysts expressed a lack of surprise or a lack of concern at Motorola's announcement that Telsim had missed a payment." (Id. ¶ 48.) Lead Plaintiff challenges Defendants' assertion. Defendants cite to their expert's report, which in turn quotes five analysts who reacted to the disclosure of the missed payment in the May 14 Filing. (Beaver Report ¶ 56.) One analyst stated "I'm not overly concerned about it." (Id. (quoting U.S. Bancorp Piper Jaffray analyst quoted in Dow Jones Business News on May 15, 2001)) Another opined that "[t]he Telsim issue, while unfortunate, does not change our view of the company." (Id. (quoting A.G. Edwards, May 15, 2001)) Dresdner Kleinwort Wasserstein on May 15 called the missed payment "an unsurprising bit of news," (id.), and Salomon Smith Barney noted that "we expect the company to successfully restructure the financing agreement." (Id.) Lead Plaintiff cites to no evidence in support of its challenge, other than to the same analyst reports quoted by Defendants' expert. (Pl.'s 56.1 Resp. (LC) ¶ 48.) The court thus deems Defendants' assertion undisputed, as well as Defendants' further assertion that "[b]y May 14, the market had, for several months, understood that Turkey was in a difficult financial situation." (Def.'s 56.1 (LC) ¶ 49.)
G. June 18, 2001 Announcement of Telsim's Failure to Cure
The May 14 Filing marks the end of the Class Period in this action. (Id. ¶ 50.) On June 18, as reported by the Financial Times (London), Motorola announced that the 30-day period for Telsim to cure its failure to make the $728 million payment had expired without an agreement between the two companies. (Id. ¶ 51.) Motorola further stated that it was prepared to pursue "other options"-including all legal remedies-against Telsim. (Id.) Lead Plaintiff asserts, and Defendants do not dispute, that Motorola shares experienced a statistically significant residual price decline of 5.97% on June 18, 2001.*fn27 (Pl.'s 56.1 Addnl. ¶ 70.)
On October 9, 2001, Motorola announced that it had taken a $1.3 billion charge against third quarter earnings to increase its reserves on the Telsim debt. (Id. ¶ 72.)
A. MCC's Suit Against the Uzans
On January 28, 2002, MCC and Nokia commenced an action in the Southern District of New York (the "Uzan Action") against members of the Uzan family, one of their associates, and three companies under the Uzans' control, alleging that the defendants had fraudulently induced both Motorola and Nokia to loan billions of dollars to Telsim, with no intention of repaying the money, and had engaged in various schemes to avoid their obligations. (Pl.'s 56.1 Addnl. ¶ 73; Uzan Action Compl. ¶¶ 3-16, Ex. SSS to Harrod Decl.) MCC and Nokia together brought civil RICO claims against all defendants, (Uzan Action Compl. ¶¶ 237-94), and MCC additionally brought state-law fraud and conspiracy claims, (id. ¶¶ 295-308), as well as claims under federal statutes relating to computer fraud and electronic communications. (Id. ¶¶ 309-25.) Both plaintiffs sought a constructive trust over Telsim stock. (Id. ¶¶ 334-37.)
The Uzan defendants "expressly refus[ed] to attend or participate in the trial" that commenced on February 19, 2003. Motorola Credit Corp. v. Uzan, 274 F. Supp. 2d 481, 492 (S.D.N.Y. 2003). While noting that the plaintiffs were arguably entitled to a default judgment, Judge Rakoff proceeded with the trial, hearing only the plaintiffs' testimony, but taking into account the proof developed at an earlier six-day evidentiary hearing and a two-day contempt hearing that the defendants had contested. Id. at 493. Concluding that the Uzans had "perpetrated a huge fraud," Judge Rakoff summarized the scheme as follows:
Under the guise of obtaining financing for a Turkish telecommunications company, the Uzans have siphoned more than a billion dollars of plaintiffs' money into their own pockets and into the coffers of other entities they control. Having fraudulently induced the loans, they have sought to advance and conceal their scheme through an almost endless series of lies, threats, and chicanery, including, among much else, filing false criminal charges against high level American and Finnish executives, grossly diluting and weakening the collateral for the loans, and repeatedly disobeying the orders of this Court.*fn28
Id. at 490. The court awarded MCC compensatory damages of more than $2.1 billion and an equal amount in punitive damages, and further imposed a constructive trust in both MCC's and Nokia's favor on Telsim shares held by an Uzan-controlled corporation.*fn29 Id. at 579-81.
B. Lead Plaintiff's Assertions That It Based its Complaint on the Uzan Action
In its Local Rule 56.1 statement of additional facts, Lead Plaintiff asserts that it was able to plead a securities fraud claim in this action only by virtue of information contained in the allegations pleaded by MCC in the Uzan Action, or available in the record of the Uzan Action. (Pl.'s 56.1 Addnl. ¶¶ 75-76.) Specifically, Lead Plaintiff asserts that the Uzan Action provided it with knowledge "necessary" to plead its claim, such as the amounts of the loans that were outstanding to Telsim on various dates during the Class Period, the absence of enforceable collateral, Telsim's violations of loan covenants, Telsim's lack of cooperation in obtaining alternative financing for purchases of Motorola's products and services, Defendants' scienter with respect to their alleged misrepresentations and omissions concerning Telsim, and the collectibility of the Telsim debt. (Id. ¶ 76.) Lead Plaintiff further asserts that its allegations regarding "misbehavior by the Uzans," "Telsim's pattern of default on loan payments and refusal to provide access to its financial records," and "the well known economic conditions and devastating earthquakes that occurred in Turkey," are all "derived from facts taken from the record in the Uzan Action." (Id. ¶¶ 77-79.) To support these assertions, Lead Plaintiff cites to twenty paragraphs in the Consolidated Amended Complaint ("CAC") in this action, and invites the court to "compare" these paragraphs with citations to allegations in the Uzan Action pleadings and affidavits. (Id.) Having done so, the court concludes that Lead Plaintiff has overstated the case.
It is true that some of the allegations in the CAC, referenced by Lead Plaintiff in its Local Rule 56.1 statement of additional facts, relate facts that also formed the basis for allegations pleaded by MCC in the Uzan complaint. For instance, both complaints allege specific instances of misconduct by the Uzans, including that Hazan Uzan thwarted MCC's efforts to refinance the Telsim loans through Deutsche Bank, told Motorola executives that Telsim had improperly used money provided by Motorola to cover payments required during a run on an Uzan-controlled bank, and boasted about renegotiating a contract with the Turkish Football League that he had no intention of performing. (Id. ¶ 77; CAC ¶¶ 94-97, 183-85; Uzan Action Compl. ¶¶ 59, 68-69.) An allegation in the CAC that "the Uzans had defrauded other business partners," (CAC ¶ 189j), is similar to MCC's allegation in the Uzan Action that "the Uzans have committed similar acts of fraud and deceit against other major domestic and international corporations." (Uzan Action Compl. ¶ 15.) Allegations in the CAC that Telsim failed to provide financial information upon request or as required by the lending agreements mirror allegations in the Uzan Action. (CAC ¶¶ 98-99, 128f, 150i, 159g, 176h, 180c, 189g; Uzan Action Compl. ¶¶ 153-54.)
In other respects, however, Lead Plaintiff's allegations are not obviously "derived" from the Uzan Action. For instance, Lead Plaintiff asserts that its allegation that Motorola was aware that the Uzans were using Motorola's money to "fuel their personal lifestyles," (CAC ¶ 184), including buying a New York City apartment, was derived from an allegation in the Uzan Action. (Pl.'s 56.1 Addnl. ¶ 77.) The cited allegation in the Uzan Action contains no such information, but instead refers to Hazan Uzan's boasting about the Turkish Football League contract. (Uzan Action Compl.¶ 69.) Similarly, Lead Plaintiff cites an affidavit from the Uzan Action as the source of its allegation in the CAC that Motorola advanced additional vendor financing to Telsim in September 1999 only because Motorola knew that Telsim would default on its prior debt unless Motorola did so. (CAC ¶ 92.) The cited affidavit contains no similar assertion; rather, the affidavit, from the Uzans' expert in that proceeding, states that based on the information available to Motorola, no reasonable lender would have expected Telsim to repay its loans. (Declaration of Vincent J. Love, Ex. VVV to Harrod Decl. ¶¶ 6, 8-10.)
Similarities between the allegations in the CAC and MCC's allegations in the Uzan Action do not, by themselves, establish that the former were "derived from" the latter. And Lead Plaintiff's assertions that it derived, from the Uzan Action, its allegations regarding "misbehavior by the Uzans," "Telsim's pattern of default on loan payments and refusal to provide access to its financial records," and "the well known economic conditions and devastating earthquakes that occurred in Turkey," (Pl.'s 56.1 Addnl. ¶¶ 77-79), is overbroad; at most, some of its allegations relating to these subjects appear to correspond with allegations in the Uzan Action. In any event, information concerning these subjects was publicly available regardless of the Uzan Action. Based on 165 news articles referring to the Uzan family between 1985 and 2001, Lead Plaintiff's own expert concluded that the Uzans had a "very bad public reputation for basic honesty and integrity." (Werner Rebuttal, at 7.) It is undisputed that Motorola's SEC filings and public announcements revealed, well before the Uzan Action, that Telsim had missed a $728 million payment and failed to cure. (Def.'s 56.1 (LC) ¶¶ 45, 51.) The August 1999 earthquake in Turkey, which Lead Plaintiff asserts alerted Motorola to Telsim's inability to make its payments, (CAC ¶ 85), killed thousands and was widely reported at the time. See Edmund L. Andrews, Earthquake in Turkey: The Overview; Thousands Killed as Big Quake Hits Cities in Western Turkey, N.Y. TIMES, Aug. 18, 1999, at A1. Thus, the court cannot accept Lead Plaintiff's assertion that its allegations concerning the Uzans' behavior, Telsim's loan defaults, and the 1999 earthquake were derived exclusively from information that came to light in the Uzan Action. Nor does the court accept Lead Plaintiff's implied assertion that it was unaware of information regarding the above subjects prior to the Uzan Action.
The court does note two exceptions: Lead Plaintiff has identified two specific allegations in the CAC as based on specific information that "would not have been publicly available without the Uzan Action." (Pl.'s 56.1 Addnl. ¶ 80.) Specifically, Lead Plaintiff cites to its allegations that Defendants "had knowledge that its collateral in the form of Telsim stock was weak, not marketable, and subject to potential manipulations by the Uzans", (CAC ¶¶ 12, 71, 76-77), and compares these allegations to an affidavit in the Uzan Action, filed by Motorola Vice President Ed Hughes. In that affidavit, Mr. Hughes states his belief that Hazan Uzan had instituted a complex foreclosure process for the Telsim shares held as collateral for the purpose of impeding Motorola's ability to recover its collateral in the event of default. (Declaration of Ed Hughes in Support of Plaintiffs' Motions for an Attachment and a Preliminary Injunction ¶ 20, Ex. RRR to Harrod Decl.) Lead Plaintiff also cites to its allegation that Telsim guaranteed the $86 million in vendor financing that Motorola provided to KaR-Tel, (CAC ¶¶ 80-82), and corresponding allegations in the Uzan Action complaint. (Uzan Action Compl. ¶¶ 72-73.) Because Defendants do not dispute Lead Plaintiff's assertion that the information contained in these two allegations was not publicly available, (Def.'s 56.1 Addnl. Resp. ¶ 80), and because the record contains no evidence that such information had been made available prior to the Uzan Action, the court accepts Lead Plaintiff's assertion that these two particular allegations were based on information that first came to light via the Uzan Action.
Finally, the court disregards Lead Plaintiff's assertions that knowledge obtained from the Uzan Action was "necessary" to file a securities fraud complaint, and that Lead Plaintiff was unable to do so prior to the Uzan Action. (Pl.'s 56.1 Addnl. ¶¶ 75-76.) The issue of what information and facts were available to Lead Plaintiff, and when, is a question of fact; the degree to ...