Re: 8/30/00 - [TTN] Summons and Complaint (Case# C235987)
ALSCHULER GROSSMAN STEIN & KAHAN LLP
Marshall B. Grossman (No. 035958)
Michael A. Sherman (No. 094783)
Craig S. Rutenberg (205309)
2049 Century Park East
Thirty-Ninth Floor
Los Angeles, CA 90067-3213
Telephone: (310) 227-2226
Facsimile: (310) 552-5877
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
TITAN CORPORATION, a Delaware
corporation.
Plaintiff
vs.
DOES 1 through 100
Defendants
COMPLAINT FOR:
1) DEFAMATION-LIBEL
2) UNFAIR COMPETITION
3) MONEY HAD AND RECEIVED
Plaintiff Titan Corporation ("Titan"} is informed and believes and thereon alleges (except for paragraphs 1, 9-18, 20, and 28 which are alleged on knowledge) for causes of action against defendants Does 1 through 100 inclusive ("Defendants"), as follows:
FIRST CAUSE OF ACTION
DEFAMATION
(By Plaintiff Titan vs. Does 1 through 100)
1. At all times herein mentioned, plaintiff Titan was, and now is, a Delaware corporation, headquartered in California. Titan’s stock is publicly traded on the New York Stock Exchange. Titan creates, builds, and launches technology-based commercial businesses and offers innovative global technology solutions. Titan has four core businesses: Titan Systems, Cayenta, Titan Wireless, and SureBeam. Titan also has an Emerging Technologies and Business segment. Titan Systems develops and deploys defense information technology. Cayenta integrates software solutions and is Titan's e-commerce business. The goal of Titan Wireless is to create a global wireless information system to meet the needs of its customers and partners. SureBeam is the leading technology for the electronic pasteurizaiton of food products. Titan has over 7500 employees and annualized sales of approximately $1 billion. Titan has been in business since 1981.
1. Plaintiff is unaware of the true names and capacities of Defendants sued herein as DOES 1 through 100, inclusive, and therefor sues these Defendants by such fictitious names. The Defendants reside in diverse counties in California, including Los Angeles. Plaintiff will amend this complaint to allege their true names and capacities when ascertained. Each of the fictitiously named defendants is responsible in some manner for the occurrences herein alleged and Plaintiff's damages were proximately caused by their conduct.
2. Each of the Defendants was the agent or employee of each of the remaining Defendants and in engaging in the conduct hereinafter alleged was acting within the course and scope of such agency.
3. Beginning on or about May 1, 2000, and continuing through the present, two or more of the Defendants knowingly and willingly conspired and agreed among themselves to engage in the conduct hereinafter alleged.
4. Defendants did the acts and things herein alleged pursuant to, and in furtherance of, the conspiracy.
5. On May 1, 2000, Titan shares closed at 44 3/4 a share. The Defendants embarked on a scheme (the "Short Sellers' Scheme") to drive the price of Titan shares down. By May 25, the price of Titan shares closed below $28, a drop of some 36%. By June 20, the shares rebounded and closed above $44 a share. The Defendants then conspired to drive the price of the shares down once again. On August 7, 2000, the share price closed below $29 a share and continued its decline to trade below $21 a share on August 22, 2000. The loss to shareholders between June 20 and August 22, 2000 was approximately 50%, a market loss of $1.3 billion. The price of Titan stock during the time period of May 1, 2000 to the current date is illustrated by the following stock chart:
6. The Short Sellers' Scheme was accomplished through a myriad of devices including the posting of anonymous messages on so-called "message boards" provided by Internet service providers, the preparation and distribution of so-called "analyst reports" on Titan to Titan shareholders and the investment community, and providing information about Titan to Barron's, a highly respected and widely read financial publication, for an article that appeared in the August 7, 2000 issue of Barron's (the "Barron's Article"). The information on these message boards, in the "analyst reports," and given to and included in Barron's was, in material part, false, misleading, and manipulative and was calculated by the Defendants to drive the price of Titan shares down.
7. In order to profit on their scheme, the Defendants sold short substantial blocks of Titan shares and engaged in diverse and manipulative stock market securities transactions calculated to reap huge rewards if the price of 4ritan shares declined. A "short sale" is a transaction in which the seller benefits from a decline in the price of a stock as distinguished from a "long purchase," where the buyer benefits from an increase in the price of the stock. Once these Defendants secured their "short positions," they then schemed to drive the price of Titan shares down, at which point they did or could "cover" their short positions and thus reap huge gains.
8. Short selling, and related transactions designed to create profits upon the decline of the shares of a company, is a legitimate securities transaction. However, it is manipulative and illegal when it is coupled with the dissemination of false and misleading statements calculated to drive the price of the shares down.
9. It has become fashionable recently for unscrupulous stock traders to spread false and misleading information about publicly held companies in order to artificially inflate or depress the price of stock of these companies and harvest ill gotten gains at the expense of innocent shareholders. The following are examples of such nefarious conduct:
1. On August 25, 2000, it was falsely reported over financial wires that the Chief Executive Officer of Emulex, a California based publicly traded company, had resigned and that Emulex was to restate its earnings for the past two years. Within 15 minutes, the price of Emulex shares dropped precipitously from $103 to $45 a share at an expense to its stockholders of over $2 billlion in market value;
2. On March 23, 2000, the shares of Lucent Technologies suffered a decline of billions of dollars after a fake earnings warning was posted on a Yahoo! Message board. The posting was fashioned in such a way as to look like an official news release;
3. On April 7, 1999, a fake news story attributed to Bloomberg News Service was posted on the Internet claiming PairGain Technologies was to be acquired for over $1 billion. The stock skyrocketed on the false news.
10. Those who post messages under a cloak of anonymity on Internet message boards endeavor to mask their identities through the use of multiple, fictitious "screen names" and personal profiles. They engage in these devices as a cover for their fraudulent conduct and leave the average investor powerless to ascertain either their identities or motives.
11. Internet fraud threatens the very integrity of America's financial markets. In an official release issued by the Securities and Exchange Commission on March 2, 2000, Richard A Walker, Director of the SEC's Division of Enforcement said, "The Internet has replaced the boiler room as the stock manipulator's tool of choice. Its low cost and ease of use has attracted a new breed of persons seeking to profit at the expense of innocent investors. People who commit fraud on the Internet will quickly learn that the Enforcement Division will aggressively attack attempts to undermine the integrity of our markets. Ridding the Internet of securities fraud is a top priority of the SEC."
12. On May 17, 2000, a false and misleading written report was issued by one or more of the Defendants on the subject of Titan. (The "May 17 Report"). The May 17 Report is unsigned and is not on any business letterhead. The report, attached hereto as Exhibit "1," includes statements that are false and misleading, including the following:
a. Much of [Titan's] growth is from accounting gimmickry or acquisitions;"
b. "Titan's management has distorted [facts about its SureBeam technology] as validation of their technology and most importantly of their ability to create an on-going revenue/service model out of the SureBeam business;"
c. "Essentially, Titan Wireless is shipping product to a 50% joint venture, Titan Wireless Africa, Benin;"
d. "Cayenta has an unusual distinction of being a money losing software company;" and
e. "Cayenta's big up tick in revenues came from acquisitions."
The statements are false and misleading in that:
a. Titan's financial statements are audited and prepared in accordance with generally accepted accounting principles;
b. The accusations against Titan's management concerning the SureBeam are false;
c. They falsely represent that Titan is engaged in the practice of selling its products to its own subsidiaries;
d. They falsely represent that Cayenta has historically been, and continues to be, unprofitable; and
e. They misrepresent Cayenta's revenue growth, by falsely stating that the growth is due to acquisitions.
13. On May 17, the shares of Titan closed at approximately $33 1/2 per share. The shares declined for several days thereafter and traded as low as $27 1/2 a share. The shares then began to rise until the Defendants schemed to once again drive the price of the shares down. One or more of the Defendants provided false information to Barron's, and various of the Defendants were informed in advance of its publication date. Various of the Defendants were informed that the Barron's Article was initially scheduled to be published on July 31, 2000 and significant short sales occurred in anticipation of that date. The Barron's Article was ultimately published on August 7, 2000, and once again their were short transactions to coincide with its publication. The Barron's Article, attached hereto as Exhibit "2," includes certain statements that are false and misleading, including the following:
a. That Titan's stock was "driven" from "$5·00 to $60.00 in late 1999;"
b. That "industry sources tell us that Sure Beam systems could fetch $4.0 million or so each;" and
c. A reference to "Titan's other, more mundane businesses," other than Titan's defense business.
The statements are false and misleading in that:
a. Titan's stock hit a high of $47 1/2 (never $60) a share as of December 31, 1999;
b. The actual sales price for a SureBeam system is millions of dollars above the quoted $4 million figure; and
c. The article fails to mention Titan's wireless chipset business, satellite communication business, e-commerce and business-to-business software business, or antenna business. 14. When the price of Titan shares did not immediately decline in response to the Barron's Article, those defendants responsible for the issuance of the May 17 Report issued and distributed yet another false report concerning Titan on August 15, 2000 (the "August 15 Report"), attached hereto as Exhibit "3." As was true of its predecessor report, the August 15 report is also unsigned and not on any business letterhead. The August 15 Report includes statements which are false and misleading. These false and misleading statements include the following:
a. "Titan Corp. will lend money to Ivoire Telecom (a Titan subsidiary) so they can buy equipment from Titan Wireless to build out a network. As well, Titan actually owns 80% of the customer buying the equipment;"
b. "Titan owns a chunk of one of their customers [Sakon] and is lending them money to buy equipment from Titan wireless;"
c. ''Titan Wireless shipped $12.0 million of equipment to Titan Africa in the June quarter. Titan Africa is a wholly owned subsidiary of Titan, so that's $12 million of revenues generated with a wholly owned subsidiary;"
d. "Titan SureBeam is lending its customer (Hawaii Pride) money to buy SureBeam product;"
e. "Sure Beam is lending their customers [Tech Ion Brazil] money to purchase SureBeam equipment;" and
f. "SureBeam will be selling its SureBeam systems at $4 million per system."
The statements are false and misleading in that:
a. Neither Titan nor any Titan company has ever sold any equipment or services to Titan subsidiary Ivoire Telecom;
b. Neither Titan nor any Titan company has ever sold any equipment or services to Sakon;
c. Neither Titan nor any Titan company has ever sold anything to Titan Africa. Titan Africa, a Titan company, sells equipment to the Office of Post and Telecommunications, the national, government owned telephone company of Benin, Africa;
d. Titan has not loaned money to Hawaii Pride or any customers to buy Titan SureBeam equipment;
e. Titan has not loaned money to Tech Ion Brazil or any customers to purchase SureBeam equipment; and
f. The actual sales price of a SureBeam system is millions of dollars above the quoted $4 million figure;
15. The scare tactics on the Yahool Internet message boards include messages posted or encouraged by these Defendants designed to frighten and intimidate shareholders into selling their shares of Titan and thereby further depress the market. The following messages are illustrative, and are attached hereto as Group Exhibit "4;"
a. July 24, 2000 - "Very very bad earning surprises coming today?"
b. August 4, 2000 - "TTN is getting nailed with huge sale orders!!!!! Jump from the sinking ship!!!! Have a nice day."
c. August 5, 2000 -" .... I believe we will be picking up TTN under 20.00 real soon."
d. August 7, 2000 - "...Going Down!!! .... '
e. August 9, 2000 - "Do not buy TTN until it hits $3-5
f. August 10, 2000 - "Friend of mine and he works for huge institution and they are selling TTN...'
g. August 14, 2000 - "Short more!!!!!'
h. August 15, 2000 - "Good luck tomorrow longs. You will begin wallow back in the 20's tomorrow. How does it feel to be the dumbest stockholders of stock in a company .... When this thing gets hammered tomorrow you are going to get a sick sinking feeling and no one will be around to ball you out."
i. August 16, 2000 - "Institutions are selling big time!!!!!!!!"
j. August 16, 2000 -" .... Has anybody checked the insider status lately... Gene and Ray baby are probably dumping all of their holdings as we speak."
k. August 17, 2000 - "Institutions bailing out now."
l. August 21, 2000 - "Warning!!!! Specialists are painting the tape, big blocks on the sell side come and go but never show up on total shares traded."
m. August 21, 2000 - "Come everybody can you say - - fifteen!!!!!!!!!!!!!!!!!!!!'
n. August 21, 2000 - "TTN is breaking critical support levels .... If you think TTN is coming back any time soon, l believe you're sadly mistaken. Looks to me like the large accumulators who are buying from the single digits are out pulling the plug."
o. August 22, 2000 - "I would guess the bottom to be around $12.00 to 13.00 a share .... TTN should stay in the teens for a long time after the bottom finally hits in my opinion."
p. August ~, 2000 - "It just gets worse and worse!!!!"
q. August 22, 2000 - "Don't tell me you've been stupid enough to ride TTN down to these levels without selling .... '
r. August 28, 2000 - "Institutions are selling this stock my broker has said."
s. August 28, 2000 - "Here come the teens!!"
16. These materially false and misleading statements concerning Titan are defamatory because they cast aspersions upon Titan's business character and harm Titan's reputation as an ongoing business and investment, and the negative reaction to the May 17 Report, August 15 Report, the Barton's Article, and the Internet postings caused the value of Titan stock to decline precipitously.
17. The May 17 Report, the August 15 Report, the Barton's Article, and the Intemet postings were read in Los Angeles and across the country by Titan's institutional investors, Barton's readers, and by thousands of readers of Internet financial message boards.
18. The above described false publications were published by the defendants with malice in that the Defendants knew that the information was false and misleading, and were disseminated solely for the Defendants' personal financial gain and to injure Titan and its shareholders.
19. As a direct and proximate result of the above-described publications, Titan has suffered damages including the distraction of corporate executives and the loss of market capitalization.
20. The above described false publications were published by the Defendants with malice and fraud and in conscious disregard of the rights of Titan. Defendants disseminated the publications with knowledge that they were materially false and misleading, and for the purpose of personal financial gain at the expense of Titan and its shareholders, and thus Titan is entitled to punitive damages.
SECOND CAUSE OF ACTION
UNFAIR COMPETITION - BUSINESS AND PROFESSIONS CODE § 17200, et seq.
(By Plaintiff Titan vs. Does 1 through 100)
21. Titan realleges and incorporates by reference paragraphs 1 though 19, inclusive.
22. Beginning on or about May 1, 2000, and continuing through today, Defendants continue to publish materially false and misleading statements about Titan in order to advance the Short Sellers' Scheme and drive the price of Titan shares down.
23. Defendants have participated in trading shares of Titan stock. Rather than employ fair, legal, and non-fraudulent methods, however, Defendants have engaged in the Short Sellers' Scheme whereby they have published the materially false and misleading statements about Titan subsequent to and during the time they sold short Titan stock, in order to artificially depress the value of Titan's stock, and to thereby illegally and unjustly profit.
24. Defendants' conduct is unfair, unlawful, and fraudulent.
25. By their unfair, unlawful, and fraudulent acts and practices described herein, the Defendants have obtained an unfair advantage in the securities market and have caused substantial harm to Titan and its shareholders.
26. If Defendants continue their Short Sellers' Scheme, Defendants will continue to illegally and unjustly profit as the securities markets react to the widespread publication of negative, materially false and misleading information about Titan. Unless enjoined, Defendants will continue to anonymously issue materially false and misleading reports and statements about Titan through a variety of media.
27. Titan has no adequate remedy at law for the injuries currently being suffered in that it will be impossible for Titan to determine the precise amount of damage that it will suffer if Defendants' conduct is not enjoined.
THIRD CAUSE OF ACTION
MONEY HAD AND RECEIVED
(By Plaintiff Titan vs. Does 1 through 100)
28. Titan realleges and incorporates by reference paragraphs through 1 through 26,
29. Defendants have engaged in the publication and dissemination of materially false and misleading information about Titan as herein alleged.
30. Defendants have fraudulently gained huge profits derived from the Short Sellers' Scheme. These illegally gained profits had and received by Defendants comprise market capital intended for the use and benefit of Titan.
31. Defendants are indebted to Titan for the amount of their profits, of which Titan has been entirely deprived, and the entire amount, plus interest, is now due and unpaid.
WHEREFORE, Plaintiff prays for judgment against Defendants, and each of them, as follows:
1. For an order requiting Defendants, and each of them, to show cause, if any they have, why they should not be enjoined as set forth below;
2. For a temporary restraining order, a preliminary injunction, and a permanent injunction, all enjoining defendants from the further publication and dissemination of materially false and misleading statements regarding Titan, pursuant to Business and Professions Code Section 17203;
3. For an Order and Judgment that Defendants be ordered to account for, disgorge, and restore all funds received by means of their unfair, unlawful, and fraudulent acts and practices;
4. For general damages;
5. For special damages;
6. For punitive damages.
//
7. For costs of suit incurred herein; and
8. For general relief.
ALSCHULER GROSSMAN STEIN & KAHAN LLP
By:
Attorneys for Plaintiff
TITAN CORPORATION
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Full version, including exhibits, available at:
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