The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge
MEMORANDUM OPINION AND ORDER
Before the Court is Plaintiffs' motion for class certification, appointment of class representatives, and appointment of class counsel. In their Second Consolidated Amended Class Action Complaint ("SAC"), (R. 63-1, Second Am. Compl.), Plaintiffs allege that Defendants Tellabs, Inc. ("Tellabs") and certain officers and board members of Tellabs allegedly violated securities laws by making a series of deceptive statements and offering inflated earnings guidance. (R. 63-1 at ¶ 5.) For the following reasons, the Court, in its discretion, grants Plaintiffs' motion, but disqualifies Alan Mobley from serving as a class representative.
The Court previously set forth the facts of this case extensively in its previous opinions, see Makor Issues & Rights, Ltd. v. Tellabs, Inc., Case No. 02 C 4356, 2008 WL 2178150, * 1 (N.D. Ill. May 22, 2008); see also Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 705 (7th Cir. 2008); Tellabs, Inc. v. Makor Issues & Rights, Ltd., 437 F.3d 588, 603-05 (7th Cir. 2006), vacated in part, 551 U.S. 308, ----, 127 S.Ct. 2499, 2509, 168 L.Ed.2d 179 (2007), and thus familiarity with those opinions is presumed. Accordingly, the Court recites only the facts relevant to resolution of the present issues and additional background facts that provide helpful context. Following the Court's prior rulings, Plaintiffs' Section 10(b) and Rule 10b-5 claims remain pending only against Defendants Tellabs and Richard Notebaert. 15 U.S.C. § 78j(b); 17 C.F.R. §240.10b-5.
Defendant Tellabs is a Delaware corporation with its principal place of business in Lisle, Illinois. (R. 63-1, SAC ¶ 16.) Tellabs designs, manufactures, markets, and services optical networking, broadband access, and voice quality enhancement solutions. (Id. ¶ 2.) Plaintiffs are current and former holders of Tellabs stock.
The remaining individual Defendants include: Birck, Jackman, Notebaert, and Ryan (collectively, the "Individual Defendants"). Each of the Individual Defendants was an officer and/or director of Tellabs during the Class Period. Michael Birck, a founder of the company, served as chief executive officer and president of Tellabs from 1975 through 2000 and served as chairman of Tellabs's board of directors beginning on September 18, 2000. (Id. ¶ 17.) Brian Jackman was a director of Tellabs and served as president of global systems and technology and executive vice president from 1998 through 2001. (Id. ¶ 18.) Richard Notebaert served as a Tellabs's director from April 19, 2000 to June 17, 2002, and served as chief executive officer and president of Tellabs from September 18, 2000 to June 17, 2002. (Id. ¶ 20.) Joan Ryan served as Tellabs's executive vice president and chief financial officer from February 2, 2000 to February 7, 2003. (Id. ¶ 22.)
II. Plaintiffs' Allegations
Plaintiffs bring this putative class action individually and on behalf of persons who purchased common stock of Defendant Tellabs between December 11, 2000 and June 19, 2001 (the "Class Period"). Plaintiffs allege that Defendants engaged in a scheme to deceive and defraud investors as to the true value of Tellabs, Inc.'s common stock during the Class Period. In the pending claims, Plaintiffs contend that Defendants made a series of misrepresentations that fall into four categories: 1) statements regarding Tellabs's financial results for the fourth quarter of 2000; 2) statements regarding demand for Tellabs's TITAN 5500 product; 3) statements regarding the availability of Tellabs's TITAN 6500 system; and 4) projections of Tellabs's earnings and revenues during 2001. Plaintiffs allege that Defendants' deceptive actions resulted in the artificial inflation of Tellabs's stock price which reached a high of $67.125 per share on February 5, 2001, and that Plaintiffs suffered injury when they purchased Tellabs's common stock at these artificially inflated prices.
The surviving claims in Plaintiffs' SAC focus on certain statements Defendants made regarding two of Tellabs's products: the TITAN 5500 and the TITAN 6500. According to the SAC, the internet and telecommunications sectors suffered a significant decline in demand in mid-2000. (Id. ¶ 3.) Given this decline, Plaintiffs allege that demand for Tellabs's products also decreased. (Id. ¶¶ 3--4.) Plaintiffs contend, however, that Defendants disguised the impact that this decline had on Tellabs and falsely assured investors that Tellabs's performance was strong. Plaintiffs allege that contrary to Defendants' public representations during the Class Period, the demand for the TITAN 5500-Tellabs's "best seller"-substantially slowed. (Id. ¶¶ 34--45.) As a result, in late 2000 and early 2001, Tellabs had "tons" of excess TITAN 5500s stored in a warehouse. (Id. ¶ 45.)
Similarly, Plaintiffs allege that the TITAN 6500 failed to sell as Tellabs had represented. (Id. ¶¶ 46--53.) Plaintiffs further contend that the TITAN 6500 actually was far behind schedule and not ready for release during the Class Period, was failing customer lab evaluations, and was inferior to other products offered at the time. (Id. ¶ 74.)
B. Statements by Tellabs*fn1
Plaintiffs claim that beginning on December 11, 2000 and throughout the purported Class Period, Defendants made a series of false statements and omissions regarding Tellabs's fourth quarter 2000 financials, Tellabs's products, and its future prospects that resulted in the artificial inflation of Tellabs's stock price. Plaintiffs allege that the Individual Defendants are responsible for each of the statements.
For example, on December 11, 2000-the start of the purported Class Period-Tellabs issued a press release announcing a multi-year sales agreement with Sprint for the TITAN 6500. (Id. ¶ 73.) The press release noted that the "TITAN 6500 system is available now." (R. 149-1, Joint Status Rep. at 4.) Also on December 11, 2000, Tellabs held a conference with securities analysts in which it allegedly "reconfirmed consensus growth forecasts for fourth quarter 2000 and 2001." (R. 63-1, SAC ¶ 76.)
On March 7, 2001, Tellabs issued a press release announcing that it was lowering its revenue and earnings per share expectations for the first quarter 2001. It noted that Tellabs could not recognize revenue from TITAN 6500 shipments in the first quarter but expected to do so in the second quarter of 2001. (Id. ¶ 99.) The next day, during a conference call with securities analysts on March 8, 2001, Notebaert told analysts "[w]e're still seeing that product continue to maintain its growth rate; it's still experiencing strong acceptance." (Id. ¶ 102.) Notebaert further stated, "Interest in and demand for the 6500 continues to grow . . . . We continue to ship the . . . 6500 through the first quarter. We are satisfying very strong demand and growing customer demand." (R. 149-1 at 4.)
The parties dispute when the tide of Tellabs's positive statements turned. Relevant to the instant motion, on April 6, 2001, Tellabs issued a press release lowering its first quarter earnings guidance. The press release stated, "[t]he revised guidance stems from reduced and deferred spending by major communications carriers late in the quarter." (Id. ¶ 113.) In addition, on April 6, 2001, Defendants Notebaert and Ryan held a conference call with securities analysts, during which Notebaert told analysts that "everything we hear from the customers indicates that our in-user demand for services continues to grow." (Id. ¶ 114.) He further stated that "the 6500 is showing strength . . . we should hit our full manufacturing capacity in May or June to accommodate the demand we are seeing. Everything we can build, we are building and shipping. The demand is very strong." (Id. ¶ 117.)
Shortly thereafter, on April 18, 2001, Tellabs issued a press release announcing its first quarter financial results for the period ending March 31, 2001, and modified its revenue projections for 2001 from $3.99 billion to within the range of $3.6 billion to $3.7 billion. Tellabs further announced that it would "further reduce discretionary spending, eliminate salary increases this year, institute a pay-cut for all corporate officers, align manufacturing capability with demand expectations..." (Id. ¶ 121.) Although these statements do not form the basis for any of Plaintiffs' surviving claims, Defendants now contend that "[a]fter the April 18 announcement, a reasonable investor could not believe that the TITAN 5500 would continue its long history of substantial year-over-year growth." (R. 237-1, Defs.' Resp. at 39.)
On June 19, 2001, which is the close of the purported Class Period, Tellabs issued a press release revising its second quarter guidance and reducing its revenues by approximately $300 million to $500 million. (Id. ¶ 131.) The press release explained:
The dramatic changes affecting the landscape of the telecommunications marketplace have continued to impact Tellabs. Service providers . . . are only buying equipment to meet the immediate needs of their customers. 'While we continue to see caution from our customers in the place of equipment deployment, our market position remains intact, and we are focused on ensuring the most profitable path through the current environment,' said Tellabs President and CEO Richard C. Notebaert.
Id. Tellabs common stock fell from a high of $21.20 per share on June 19, 2001 to a low of $15.87 per share on June 20, 2001. (Id. ¶ 135.) The stock closed at $16.04 on June 20, 2001. (Id. ¶ 135.) The June 20, 2001 price reflected a decline of more than 75% "from the Class Period high of $67.125." (Id. ¶ 135.)
Plaintiffs seek to certify a nationwide class of: All persons who purchased the common stock of Defendant Tellabs during the period from December 11, 2000 through June 19, 2001, inclusive (the "Class Period"). Excluded from the Class are Defendants; the subsidiaries and affiliates of Tellabs; the officers and directors of Tellabs or its subsidiaries or affiliates, at all relevant times; members of the immediate family of any excluded person; the legal representatives, heirs, successors, and assigns of any excluded person; and any entity in which any excluded person has or had a controlling interest. (the "Class"). (R. 218-1, Pls.' Mot. ¶ 1.) As Tellabs had over 188 million shares of common stock outstanding during the Class Period, Plaintiffs estimate the size of the putative class as in the thousands. (R. 63-1, SAC ¶ 175.) Plaintiffs request that the Court designate Milberg LLP as lead counsel for the Class and Miller Law LLC as liasion counsel for the Class. As class representatives, Plaintiffs propose Alan A. Mobley, Richard J. LeBrun, Nolan Howell, and lead plaintiff Makor Issues & Rights, Ltd. ("Makor").
Proposed class representative Alan A. Mobley recently admitted that he held Tellabs stock at the beginning of the Class Period. On December 20, 2000, during the Class Period, Mobley sold 1200 shares of Tellabs stock at a price of $62.44 per share. (R. 237-3, Defs.' Ex. 1 at TDA0473; see also R. 225-1, Corrected Certification of Proposed Pl. Mobley, at 4.) Mobley later purchased an additional 700 shares of Tellabs stock on January 4, 2001 at a price of $60.09.
(R. 225-1 at 4.) Taken together with his December 20, 2000 trade, Mobley experienced a profit of approximately $32,000 during the Class Period. Mobley later sold these 700 shares on November 13, 2001, outside of the Class Period, at $14.25 per share. (R. 237-3, Defs.' Ex. 1 at TDA0522.)
Also within the Class Period, proposed class representative Richard LeBrun purchased 300 shares of Tellabs stock on February 2, 2001 for approximately $63.81 and sold these shares on March 12, 2001 at $41.06. (R. ...