Free Reply to Response to Motion - District Court of Connecticut - Connecticut

Case 3:03-cv-00409-DJS

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Motions, Pleadings and Filings Only the Westlaw citation is currently available. United States District Court, N.D. Illinois, Eastern Division. In re MOTOROLA SECURITIES LITIGATION No. 03 C 287. Sept. 9, 2004. Marvin Alan Miller, Jennifer Winter Sprengel, Christopher B. Sanchez, Miller Faucher and Cafferty, LLP, Michael I. Behn, Ronald L. Futterman, Futterman & Howard, Chtd., Chicago, IL, Jules Brody, Aaron L. Brody, Stull, Stull & Brody, Steven G. Schulman, Milberg Weiss Bershad & Schulman LLP, New York, NY, Christopher T. Reyna, Law Offices of Bernard M. Gross, Deborah R. Gross, Philadelphia, PA, for Plaintiff. Michael A. Warner, Timothy F. Haley, Brian William Barrett, Jeffrey Wayne Finke, Attorney at Law, Chicago, IL, Damon E. Dunn, Wilson P. Funkhouser, Dara Sahebjami, Funkhouser Vegosen Liebman & Dunn, Ltd., John C. Massaro, Emily M. Pasquinelli, Stephen M. Sacks, Arnold & Porter, Washington, DC, for Defendant. AMENDED MEMORANDUM OPINION AND ORDER PALLMEYER, J. *1 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 equip-

ment, 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.) FN1. The factual assertions in Lead Plaintiff's Complaint are drawn from "an extensive investigation of counsel," including a review of Defendants' public filings to the Securities and Exchange Commission, press releases issued by Motorola, media reports, news articles, academic studies and reports, securities and debt analysts' reports, internet postings concerning Motorola, transcripts and re-

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cordings of conference calls between Motorola representatives and "the investment community," price and volume data concerning Motorola securities, and documents filed with the United States District Court for the Southern District of New York in Motorola Credit Corp. v. Uzan, 02 Civ. 666(JSR) (discussed below). (Cmplt.¶ 3.) 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.) *2 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.) FN2. Although the Complaint does not define the term "analog technology," the court understands that analog technology involves transmission of voice data via radio waves to a receiving antenna, usually mounted on a tower, pole, or other high structure. With digital technology, on the other hand, the caller's voice is broken up into binary digits that correspond with various sounds at different points in time. By avoiding the amplification process, digital telecommunications avoid problems with background noise, resulting in a much clearer signal. Digital technology also reduces the strain on the cellular infrastructure by compressing voice signals, thereby eliminating natural pauses and increasing calling capacity. See Stephanie E. Niehaus, Note, Bridging the (Significant) Gap: To What Extent Does the Telecommunications Act of 1996 Contemplate Seamless Service?, 77 NOTRE DAME L.REV. 641, 648-649 (2002). 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.) FN3. The Complaint does not state whether Galvin

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was seeking appointment as CEO, or what position he held, at that time. 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.) *3 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.) FN4. The Complaint does not define the term "Global System for Mobile Telephony 900 technology." *4 Also on April 24, 1998, MCC entered into a Share

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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.) FN5. The Complaint does not state whether Iridium, LLC operated internationally. The court notes that Motorola formed Iridium, Inc., as a wholly owned subsidiary in 1991, and that in 1996, after

others invested, Iridium, Inc. was merged into a newly created Delaware limited liability company, Iridium LLC. In December 1997, Iridium LLC's assets were transferred to Iridium Operating LLC, a Delaware limited liability company wholly owned by Iridium LLC. Chase Manhattan Bank v. Motorola, Inc., 136 F.Supp.2d 265, 266 (S.D.N.Y.2001). 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.) FN6. The Complaint does not specify which Defendants allegedly knew this. The court presumes throughout this opinion that the term "Defendants" in the Complaint refers collectively to all Defendants. 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

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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. FN7. The Complaint does not state to whom or in what context these executives acknowledged this. *5 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.) *6 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,

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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.) FN8. The court presumes Motorola observes a January through December fiscal year. 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.) *7 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 .) FN9. It is not clear to which of the MotorolaTelsim contracts Lead Plaintiff is referring here. B. March 22, 2000 Proxy Statement and 1999 Form 10-K On March 22, 2000, Motorola filed with the SEC its 1999

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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: FN10. The purpose of a Form 10-K is to provide investors with a comprehensive overview of a company's business and financial condition. See http://www.sec.gov/answers/form10k.htm. 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.) *8 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, un-

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named 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 *9 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.) FN11. The Complaint does not specify in what forum Motorola denied the report. 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.) FN12. Lead Plaintiff alleges that Defendants

"caused Motorola" to issue this press release. As Defendants consist of three individuals and the corporation itself, the court understands Plaintiff to mean that the three individual Defendants caused Motorola to issue the press release. 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" analysis' 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: FN13. The purpose of a Form 10-Q, which includes unaudited financial statements, is to provide investors with a continuing view of a company's financial condition during the year. See http:// www.sec.gov/answers/form10q.htm. *10 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

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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 and associated services to expand the countrywide GSM network in Turkey." (Id. ¶ 148.) Motorola again made no mention of its vendor financing to Telsim. (Id.) Motorola's common stock closed on May 16, 2000 at $32.73 per share. (Id. ¶ 149.) [FN14] FN14. The Complaint states that Motorola's common stock closed at $32.73 per share on May 16, 2001, but the court presumes this is merely a scrivener's error. Lead Plaintiff claims that Motorola's first quarter 2000 Form 10-Q was false and misleading for many of the same reasons identified in relation to the Company's March 22, 2000 Form 10-K and Proxy Statement: Telsim had breached the Agreements; Telsim had inadequate cash flow and lack of access to capital markets; the Telsim contract [FN15] was 100% vendor-financed and Motorola provided additional financing in the form of "working capital"; assets provided to Telsim through vendor financing were "impaired"; Defendants failed to disclose the Telsim concentration and risks; Defendants' financial statements did not conform to GAAP; loan repayment was "highly improbable"; and collection of Telsim loan was not "reasonably assured." Lead Plaintiff further asserts these filings were false and misleading on several additional grounds. First, there was no signed agreement providing for Telsim to purchase $1.5 billion in equipment, service, and infrastructure from Motorola. Second, the filing failed to disclose the $1.333 billion prior financing provided to Telsim "for which collection was gravely in doubt." Finally, the form 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 had to be resolved through arbitration in Switzerland, and that any arbitral award would have to be enforced in Turkey. (Id. ¶ 150.) FN15. Here, again, it is not clear to what contract Lead Plaintiff is referring. F. July 12, 2000 Press Release and Second Quarter 2000 Form 10-Q

After the financial markets closed on July 12, 2000, Motorola issued a press release [FN16] reporting $9.255 billion in net sales for the second quarter of 2000 (reflecting a 15% increase over the second quarter of 1999 [FN17] and a 5.5% increase over the first quarter of 2000), net income of $204 million, and earnings per share of $0.09. (Id. ¶¶ 151-52.) Motorola reported in its consolidated balance sheet that it held $4.293 billion in "other assets," (id. ¶ 151); although the Complaint is not explicit, the court presumes that Motorola did not disclose the amount of those assets attributable to vendor financing. [FN18] According to Lead Plaintiff, investors perceived the second quarter as "an excellent quarter for Motorola, beating the (reduced) consensus estimates and showing improvement in revenue and income." (Id. ¶ 152.) Motorola's common stock closed on July 13, 2000 at $39.1875 per share. (Id. ¶ 154.) FN16. See footnote 13. FN17. Lead Plaintiff claims that Motorola's reported sales figure for the second quarter of 2000 ($9.255 billion) reflects a 23% increase over the second quarter of 1999. (Cmplt.¶ 151.) Lead Plaintiff also indicates that Motorola reported sales of $8.03 billion for the second quarter of 1999. (Id. ¶ 152.) The court calculates, then, Motorola's reported sales increased 15%, rather than 23% as Lead Plaintiff contends. FN18. For reasons it does not explain, Lead Plaintiff does not specifically allege that Koenemann was responsible for the financial data reported in the July 12, 2000 press release. *11 Motorola's Form 10-Q for the second quarter of 2000, which Motorola filed with the SEC on July 31, 2000, repeated and affirmed the financial results published in the July 12, 2000 press release, and included the same language regarding conformity with GAAP as appeared in its May 16, 2000 Form 10-Q. (Id. ¶ 155.) The Form 10-Q also noted that as of July 1, 2000, Motorola had provided a total of $457 million in vendor financing to Nextel Communications, Inc. (Id. ¶ 156.) Defendants did not mention its vendor financing to Telsim or any customer other than Nextel. (Id. ¶ 157.) Motorola's common stock closed on July 31, 2000 at $33.25

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per share. (Id. ¶ 158.) Lead Plaintiff claims that Motorola's July 10, 2000 press release and second quarter 2000 Form 10-Q were false and misleading on several of the same grounds previously identified: Telsim had breached the Agreements; Telsim had inadequate cash flow and lack of access to capital markets; assets provided to Telsim through vendor financing were impaired; Defendants failed to disclose the Telsim concentration and risks; Defendants' financial statements did not conform to GAAP; loan repayment was "highly improbable"; and the Telsim contract [FN19] was 100% vendor-financed and Motorola provided additional financing in the form of "working capital." In addition, Lead Plaintiff alleges that the July 10, 2000 press release and second quarter 2000 Form 10-Q were false and misleading because Defendants' failure to disclose the $1.333 billion financing to Telsim "created the materially false and misleading impression that Nextel represented Motorola's largest concentration of vendor financing." (Id. ¶ 159.) FN19. Again, it is not clear to what contract Lead Plaintiff is referring. G. August 1, 2000 Press Release On August 1, 2000, Motorola issued a press release describing the Motorola-Telsim relationship in positive terms, stating that Telsim was "once again taking technology forward in Turkey at internet speed" and that "Motorola has estimated that revenues from [Telsim] could be at least $1.5 billion." (Id. ¶ 160.) Following this announcement on August 1, Motorola's common stock closed at $35 per share, a 5% increase over the previous day's closing value of $33.25 per share. (Id. ¶ 161.) Lead Plaintiff claims that Motorola's August 1, 2000 press release was false and misleading for some of the same reasons previously discussed: Telsim had inadequate cash flow and lack of access to capital markets; loan repayment was "highly improbable"; and there was no $1.5 billion agreement with Telsim. Lead Plaintiff alleges that the August 1, 2000 press release was false and misleading for several additional reasons, as well: First, Motorola's efforts to have third parties assume Telsim's indebtedness had failed.

Second, all of Telsim's efforts to find a buyer for the company, to conduct a public offering of its shares, or to receive a significant equity investment had failed. Third, Telsim had denied Motorola representatives access to its books and records, so Motorola could not assess the value of its purported collateral, i.e., Telsim's stock. Fourth, Defendants did not disclose that the sole remedy for a default was "to secure payment through arbitration in Switzerland and by attaching shares of a closely-held Turkish corporation, [which] did not provide for reasonable expectations of collectibility." Fifth, Lead Plaintiff alleges that "Telsim was claiming to experience severe technical problems with the Motorola equipment." (Id. ¶ 162.) H. September 29, 2000 Vendor Financing Agreement *12 On or about August 2000, an unidentified Telsim representative told an unnamed individual at Motorola that Telsim had failed to find an interested buyer and that it required an additional $700 million in financing. (Id. ¶ 163.) On or about September 15, 2000, Motorola had "a senior executive meeting" to discuss lending additional funds to Telsim. (Id. ¶ 164.) Based on Telsim's representations that it would "pursue all potential third-party sources of such funds, including, without limitation, placement of equity and high-yield debt," on September 29, 2000, Motorola agreed to amend the Equipment Financing Agreement to provide Telsim with an additional $450 million for the purchase of infrastructure equipment and handsets and $250 million in financing for "working capital." (Id. ¶¶ 165-66.) Motorola "immediately used" this $450 million "to report an aggregate amount of $450 million in revenue from purported sales to Telsim in the third quarter of 2000"; the Complaint does not explain how or where Motorola reported this revenue. (Id. ¶ 166.) Lead Plaintiff claims that Motorola extended this additional loan in order (1) to prevent Telsim from defaulting on its prior outstanding loans, which would lead to "full disclosure of all material facts," and (2) to provide an additional $450 million in reported revenues during the third quarter of 2000, thereby enabling Motorola to meet Wall Street's expectations. (Id. ¶ 167.) I. October 10, 2000 Press Release and Third Quarter 2000 Form 10-Q

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After the financial markets closed on October 10, 2000, Motorola issued a press release [FN20] reporting $9.493 billion in net sales for the third quarter of 2000 (reflecting a 15% increase over the third quarter of 1999 [FN21] and a 3% increase over the second quarter of 2000), net income of $531 million, and earnings per share of $0.23. (Id. ¶ 170.) Motorola reported in its consolidated balance sheet that it held $5.058 billion in "other assets" (id.); the Complaint does not state whether Motorola disclosed the proportion of those assets attributable to vendor financing. As with the April 10, 2000 press release, Lead Plaintiff claims that Galvin and Growney were quoted "throughout the [October] 10, 2000 press release," [FN22] although, as before, the Complaint does not identify the specific statements attributed to Galvin and Growney. (Id. ¶ 172.) Koenemann was responsible for the financial data reported in the press release. (Id.) According to Lead Plaintiff, Motorola's reported revenues were approximately $500 million below expectations, which caused Motorola's shares "to decline $4.937 per share from $26.375 to $21.438." (Id. ¶ 173 .) [FN23] Lead Plaintiff claims, however, that this decline would have been significantly worse if not for the $450 million in revenue from Telsim that Motorola "fraudulently reported" on its third quarter balance sheet. (Id. ¶ 174.) FN20. See footnote 13. FN21. Lead Plaintiff claims that Motorola's reported sales figure for the third quarter of 2000 ($9.493 billion) reflects a 23% increase over the second quarter of 1999. (Cmplt.¶ 170.) The court presumes the reference to the second quarter of 1999 is a scrivener's error. Further, as Lead Plaintiff indicates that Motorola reported sales of $8.223 billion for the second quarter of 1999, (id. ¶ 171), the court calculates that Motorola's reported sales increased 15%, rather than 23% as Lead Plaintiff alleges. FN22. Lead Plaintiff alleges that "Galvin and Growney were quoted throughout the April 10, 2000 press release," but the court presumes this is a scrivener's error. FN23. The Complaint does not state when this de-

cline in the value of Motorola shares occurred. *13 Motorola's Form 10-Q for the third quarter of 2000, which Motorola filed with the SEC on November 7, 2000, reiterated and affirmed the financial results published in the October 10, 2000 press release, and included the same language regarding conformity with GAAP that appeared in its May 16, 2000 and July 30, 2000 Form 10-Q. (Id. ¶ 175.) Lead Plaintiff claims that Motorola's October 10, 2000 press release and third quarter 2000 Form 10-Q were false and misleading in all of the ways previously identified: Telsim had breached the Agreements; assets provided to Telsim through vendor financing were impaired; Defendants failed to disclose the amount of, and the concentration and risks associated, the Telsim loan; Defendants' financial statements did not conform to GAAP; it was "highly improbable," or in any event not "reasonably assured," that Telsim would be able to repay the loan; and the Telsim contract [FN24] was 100% vendor-financed and Motorola provided additional financing in the form of "working capital." (Id. ¶ 176.) FN24. As with several press releases and financial statements discussed above, it is not clear to what contract Lead Plaintiff is referring. J. October 31, 2000 Press Release Before the financial markets opened on October 31, 2000, Motorola issued a press release [FN25] titled "Motorola in Third Generation Mobile Network Deal With Turkey's Telsim" which touted the success of the Motorola-Telsim relationship and claimed that the two companies had entered into a contract that could provide an additional $2 billion in telecommunications equipment. (Id. ¶ 177.) The press release further represented that Telsim was "one of the most successful [GSM] operators worldwide," that Telsim had more than 5 million customers, and that Telsim was projected to have 7.5 million customers by the end of 2000. (Id.) According to Lead Plaintiff, Motorola's common stock rose $2.44 to $24.98 "in response to" this press release. (Id. ¶ 179.) [FN26] FN25. See footnote 13.

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FN26. The Complaint does not state when this increase occurred. Lead Plaintiff claims that Motorola had "no reasonable basis" to make the representations in the October 31, 2000 press release. (Id. ¶ 177.) The Complaint alleges that this press release was false and misleading on several of the grounds previously identified: Telsim had breached the Agreements; Defendants failed to disclose the amount of the Telsim loan; loan repayment was "highly improbable"; the Telsim contract [FN27] was 100% vendor-financed; and Motorola provided additional financing in the form of "working capital." In addition, Lead Plaintiff asserts that the press release misrepresented that Telsim was "one of the most successful [GSM] operators worldwide" and that Telsim had more than 5 million customers; in fact, Lead Plaintiff notes, Motorola had been denied access to Telsim's records to verify these statements and Defendants knew that Telsim had been unable to obtain third-party financing. (Id. ¶ 180.) FN27. Again, it is not clear to what contract Lead Plaintiff is referring. K. November 24, 2000 Press Statement In the November 24, 2000 edition of the Wall Street Journal, Koenemann stated that in vendor financing, Motorola should "act like a bank" in determining to whom it should extend credit, adding, "[a]s long as you're making sound judgments, you can grow with your customers." (Id. ¶ 181.) Lead Plaintiff claims this press release was false and misleading on the ground that "he failed to disclose Motorola's $2 billion concentration of vendor financing to one uncreditworthy Turkish customer," and that "every bank that had been approached by Telsim or Motorola had flatly rejected extending credit to Telsim." (Id. ¶ 182.) L. Notice of Uzans' Improper Use of Motorola Funds *14 Lead Plaintiff identifies several instances that should have put Defendants on notice of Telsim's financial uncertainty: First, in a March 9, 2000 email to Hughes and Keating addressing the concerns of Motorola's senior officers regarding repayment of the Telsim loans, Hakan Uzan referred to such officers as "the guys with shaky hands." (Id. ¶

123.) Several months later, in a December 14, 2000 meeting with Motorola Vice Presidents Hughes and Keating, Hakan Uzan acknowledged that he had improperly used the money that Motorola had provided Telsim in September 1999 "to cover payments required during a run on one of the Uzancontrolled banks." (Id. ¶ 183.) Also in December 2000 (the Complaint does not state the precise date), Hakan Uzan claimed Telsim urgently needed to borrow $35 million in cash from Motorola. On an unspecified date, Hughes read an article in The Washington Post which reported that Hakan Uzan had acquired a $38 million apartment in New York. When Hughes questioned Hakan Uzan about the article during a December 2000 meeting in Istanbul (again, the Complaint does not specify the date), Mr. Uzan smiled sheepishly and said, "[w]e were hoping you guys didn't find that out." Motorola denied Hakan Uzan's request for additional funds. (Id. ¶ 184.) Hakan Uzan told Hughes and Keating during a January 9, 2001 meeting that he was seeking a twelve-month extension on a contract with the Turkish Football League and that, if he could not renegotiate Telsim's contract with the League, he would not pay the League the amounts he owed. (Id. ¶ 185.) [FN28] FN28. The Complaint does not explain the nature of this contract, or why Uzan owed the League money under it. M. January 10, 2001 Press Release After the financial markets closed on January 10, 2001, Motorola issued a press release [FN29] reporting $10.1 billion in net sales for the fourth quarter of 2000 (reflecting an 11% increase over the fourth quarter of 1999 and a 6% increase over the third quarter of 2000), net income of $135 million, and earnings per share of $0.06. (Id. ¶ 186.) For fiscal year 2000, Motorola reported $37.6 billion in net sales for the fourth quarter of 2000 (reflecting a 14% increase over fiscal year 1999), net income of $1.3 billion, and earnings per share of $0.58. Motorola reported in its consolidated balance sheet that it held $5.375 billion in "other assets" (id.); again, the Complaint does not state whether Motorola disclosed what portion of those assets was attributable to vendor financing. Lead Plaintiff alleges that Motorola's common stock "rose $0.94 on January 11, 2001 to close at $22.125 per share." (Id. ¶ 188.)

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FN29. See footnote 13. Lead Plaintiff claims that Motorola's January 10, 2001 press release was false and misleading in several of the ways previously identified: Telsim had breached the Agreements; assets provided to Telsim through vendor financing were impaired; Defendants failed to disclose the amount of, and the concentration and risks associated with, the Telsim loan; Telsim's ability to repay the loan was not reasonably assured; the Telsim contract [FN30] was 100% vendor-financed; and Motorola provided additional financing in the form of "working capital." Lead Plaintiff further claims the January 10, 2001 press release was false and misleading on several additional grounds. First, there were "technical and operational limitations" apparent in Telsim's implementation of the systems it purchased from Motorola. Second, there were "[n]umerous warning signs" that the Uzans had defrauded other unspecified business partners. Third, Motorola had "[c]oncerns that the Uzans were failing to ensure that the Telsim financing would be repaid." Finally, the Uzans had made several complaints about the performance of the Motorola equipment. (Id. ¶ 189.) Lead Plaintiff also claims that "Defendants' failure to disclose the information about the Telsim financing, the likelihood of default on the Telsim financing and the deterioration of the Company's relationship with Telsim and the Uzans, as these things occurred or became apparent .... constituted a knowing and willful fraud upon the Class." (Id. ¶ 190.) FN30. As with several press releases and financial statements discussed above, it is not clear to what contract Lead Plaintiff is referring. N. The Uzans' False Claims *15 On January 22, 2001, Hakan Uzan sent an e-mail message to Hughes and Keating, falsely claiming that 16 separate major faults in Motorola equipment had seriously affected call traffic or the performance of Telsim's cellular system. (Id. ¶ 194.) (Lead Plaintiff does not explain how or when Keating and Hughes discovered that the complaints were false.) At a February 8, 2001 meeting in London, Hakan Uzan told Motorola Executive Vice President Keith Bane that Telsim's audited financial statements would be made available to Motorola by February 23, 2001. (Id. ¶¶

39(a), 195.) The Uzans never provided the financial statements to Motorola, however. (Id. ¶ 195.) O. Disclosure of Motorola's Increased Debt Load Motorola's short-term borrowing increased from $2.5 billion in December 1999 to $6.4 billion at the end of 2000, "resulting in a liquidity crisis that endangered the Company's credit ratings." (Id. ¶ 196.) The Complaint alleges that this increased debt load resulted from "the negative cash flow effect of the vendor financing to Telsim." (Id.) On an unspecified date, an unnamed Motorola official stated that Motorola might report a first-quarter operating loss. (Id. ¶ 197.) In response to this statement, on February 23, 2001, Moody's Investor Service and Standard & Poor's Corp. placed Motorola's debt ratings on review for possible downgrading. (Id.) The price of Motorola's 6.5% debentures due 2028 fell from $85.25 at the close of February 23, 2001 to $74.94 at the close of February 27, 2001 (a 12% decline in value). (Id. ¶ 198.) Motorola's common stock declined from a closing value of $17.29 on February 22, 2001 to close at $16.25 per share on February 23, 2001 (a 6% decline in value). (Id.) On February 12, 2001, 11 days before Motorola's debt ratings were placed on review for possible downgrading, Galvin sold 165,000 of his own shares of Motorola common stock at $23.50 per share, thereby grossing $3.85 million. (Id. ¶ 257.) P. Motorola's March 2001 Attempts to Recover Loan The Equipment and License Finance Agreements, as well as the agreement regarding Motorola's loans to KaR-Tel, required Telsim to make two payments to Motorola during the spring of 2001:(1) $12,698,115.20, due on March 30, 2001; and (2) $737,906,243.67, due on April 30, 2001. (Id. ¶ 200.) In a March 19, 2001 letter to Hakan Uzan, with copies sent to Koenemann, Bane, and Hughes, Keating acknowledged Telsim's "impending default." (Id. ¶ 199.) Keating also proposed rescheduling Telsim's debt: Telsim would make a $200,000,000 payment on April 20, 2001, and would pay the remaining balance by July 31, 2001. (Id. ¶ 200.) In March 2001, Motorola retained Goldman Sachs to make an independent valuation of Telsim. (Id. ¶ 202.) As they had done with other bankers, unnamed Telsim representatives denied Goldman Sachs access to Telsim's financial informa-

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tion. (Id.) Q. March 30, 2001 Proxy Statement *16 In its Proxy Statement filed with the SEC on March 30, 2001, signed by Galvin and Koenemann, Motorola disclosed that out of a total of $2.8 billion in gross long-term finance receivables as of December 31, 2000, "approximately $1.7 billion ... related to one customer in Turkey." (Id. ¶ 203.) Lead Plaintiff claims this Proxy Statement was false and misleading on the grounds that it (1) omitted any risk of default by Telsim and (2) understated the amount of financing provided to Telsim by $300 million. (Id. ¶ 204.) R. April 6, 2001 Analysis On April 6, 2001, a Bloomberg News columnist published an analysis of Motorola's loan to Telsim and the related disclosures in the March 31, 2001 Proxy Statement. (Id. ¶ 205.) The analysis underscored the significance of the loan to Telsim, noting that the company was owed "a staggering $1.7 billion by a single customer in an emerging market country." (Id.) That day, Motorola shares declined by 23% from the previous day's close of $14.95 per share to $11.50 per share. (Id.) S. First Quarter 2001 Form 10-Q Motorola's Form 10-Q for the quarter ended March 31, 2001, which Motorola filed with the SEC on May 14, 2001, reported that Telsim's vendor-financing debt to Motorola totaled $2 billion ($300 million more than Motorola had disclosed in its March 31, 2001 Proxy Statement) of its total $2.9 billion in gross long-term finance receivables. In addition, the Form 10-Q stated that "[o]n April 30, 2001, $728 million of the Telsim Loan became due, but was not paid," and noted that if Telsim did not pay within 30 business days, it would be in default. (Id. ¶ 207.) IV. Motorola's Disclosures and Relationship with Telsim Subsequent to Class Period On May 15, 2001, Motorola stock closed at $14.96 per share, a 5% decrease from the previous day's closing value of $15.74. (Id. ¶ 208.) On October 9, 2001, Motorola announced its results for the third quarter of 2001, [FN31] and

disclosed that it had recorded a $1 .3 billion charge against earnings in that quarter for the purpose of taking a reserve against the outstanding balance Telsim owed. (Id. ¶ 209.) At an unspecified time after October 9, 2001, Motorola sent financial investigators to Turkey to assess the collectibility of the Telsim loan. (Id. ¶ 211.) From this investigation, unnamed Motorola officials learned that the Uzans had diverted at least $1 billion of Motorola's financing for purposes other than the development of Telsim's telecommunications business. (Id. ¶ 212.) Lead Plaintiff urges that "[t]hese same facts would have been evident to Motorola during the Class Period if not for its reckless indifference to the truth." (Id.) FN31. The Complaint does not state where or to whom Motorola announced these results. On January 2, 2002, MCC and Nokia filed suit in the United States District Court for the Southern District of New York against five members of the Uzan family, one of their associates, and three Uzan-controlled companies, charging defendants with federal acts of racketeering, state claims of fraud, and other serious misconduct. See Motorola Credit Corp. v. Uzan, 274 F.Supp.2d 481, 491 (S.D.N.Y.2003) (Rakoff, J.). Early in the case, the court entered an injunction to maintain the status quo, including the preservation of the portion of Telsim's outstanding shares that functioned as collateral. Id. Defendants, however, refused to obey the court's orders, including breaking their sworn promise not to further eviscerate the collateral. Id. [FN32] The defendants also repeatedly reneged on promises to provide ordered discovery, and instructed their counsel not to reveal to the court or the Court of Appeals steps they were secretly taking in Turkey to obtain ex parte orders undercutting the prior orders of the New York court. Id. Defendants "expressly refus[ed] to attend or participate in the trial" that commenced on February 19, 2003. Id. at 492. Although the court observed that plaintiffs were arguably entitled to a default judgment, he nevertheless proceeded with a trial, hearing only plaintiffs' testimony, but also 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 and the other defendants had "perpetrated a huge fraud" on MCC and Nokia, the court awarded MCC more than $2 billion in

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