MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH (68581)
KIRK B. HULETT (110726)
HENRY ROSEN (156963)
JAMES I. JACONETTE (179565)
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
[Proposed] Lead Counsel for Plaintiffs
[Additional counsel appear on signature page.]
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
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ROBERT MISHELOW, et al., On Behalf of Plaintiffs, vs. DSP COMMUNICATIONS, INC., et al.,
Defendants. |
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No. C-98-0765-FMS CLASS ACTION DATE: June 5, 1998 |
I. INTRODUCTION
III. ARGUMENT
A. The Lead Plaintiff Procedures Of The PSLRA
B. Under The PSLRA The Mishelow Group Should Be Appointed Lead Plaintiff
IV. THIS COURT SHOULD APPROVE THE MISHELOW GROUP'S CHOICE OF LEAD COUNSEL
V. CONCLUSION
TO: THE PARTIES AND THEIR ATTORNEYS OF RECORD
PLEASE TAKE NOTICE that, on June 5, 1998 at 10:00 a.m., or as soon thereafter as the matter can be heard, before the Honorable Fern M. Smith, United States District Court, 450 Golden Gate Avenue, San Francisco, California 94102, plaintiffs Robert Mishelow and Ram Yariv (hereinafter, the "Mishelow Group" or "Movants") will, and hereby do, move the Court to be appointed Lead Plaintiff in this action, pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"), as added by §21D(a)(3)(B) of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). The Mishelow Group also moves the Court to approve their selection of Milberg Weiss Bershad Hynes & Lerach LLP ("Milberg Weiss") as Lead Counsel for the class of investors who plaintiffs represent. This motion is brought on the further grounds that Movants have timely filed their lead appointment request and, by reason of their substantial financial losses, are the "most adequate plaintiffs" under the Exchange Act. 15 U.S.C. §78u-(a)(3)(B)(iii)(I).
This motion is based on this Notice of Motion and the attached Memorandum of Points and Authorities in support thereof, the accompanying Declaration of Henry Rosen In Support of Plaintiffs' Motion to be Appointed Lead Plaintiff Pursuant to §21D(a)(3)(B) of the Securities Exchange Act of 1934 and for Approval of Lead Plaintiffs' Choice of Lead Counsel ("Rosen Decl."), the pleadings and other files herein, and such other written or oral argument as may be presented to the Court.
Presently pending before this Court is Mishelow, et al. v. DSP Communications, Inc., et al., C-98-0765-FMS, a securities fraud class action which plaintiffs bring against DSP Communications, Inc. ("DSP Communications," "DSPC" or the "Company") and certain of its officers and directors. Plaintiffs allege violations of the Exchange Act and Rule 10b-5 promulgated thereunder, on behalf of purchasers of DSP Communications common stock during January 7, 1997 through April 16, 1997 (the "Class Period"). To plaintiffs' knowledge, they constitute all plaintiffs who have filed related actions in this District to date.
The Mishelow Group submits this memorandum in support of its motion for (a) the appointment of the Mishelow Group as "Lead Plaintiff," and (b) approval of the Mishelow Group's selection of Milberg Weiss as "Lead Counsel" in this action and any other action that may be consolidated herewith. Each plaintiff in the Mishelow Group purchased DSP Communications securities during the Class Period and suffered damages as a result of defendants' violations of federal securities laws. The Mishelow Group's combined financial interest in the relief sought by the class is at least $8,500.00 in out-of-pocket losses.
The allegations in this class action are summarized as follows.(1)
DSPC was founded in 1987 to create new technologies for the emerging cellular market. According to the Company, it creates, markets, licenses and supports software, baseband integrated circuits and application specific integrated circuits ("ASICs") based on digital signal processing technology. The products from which DSPC derives its revenue are chipsets used in cellular phone handsets assembled and sold by Japan-based original equipment manufacturers ("OEMs") in the analog and digital wireless communication markets. ¶2.
As of the end of 1996, approximately 95% of the Company's business was derived from sales of the Company's "B-series" PDC baseband chipsets to handset manufacturers in Japan. The B-series chipsets were the Company's most advanced PDC chipsets sold throughout 1996 and during the Class Period. DSPC's customers using the Company's B-series chipsets during the Class Period included, among others, Kenwood, Kyocera, Sanyo, Sharp, Pioneer and Kokusai. ¶7.
Throughout 1996, DSPC experienced tremendous growth based on the success of its B-series chipsets, which were used in the cellular handsets of DSPC's above-referenced OEM customers. As a result, DSPC's stock increased from below $20 per share to over $60 per share between January 1996 and October 1996. Because DSPC derived virtually all of its 1996 revenues from the sale of its B-series chipsets, the Company's success remained dependent on continued demand for that chipset. ¶8.
However, during November-December 1996, defendants learned that order rates for the B-series chipsets had materially declined and DSPC's backlog of orders had shrunk by $10 million. Defendants also learned that the declining order rate was largely due to the decision of the Company's OEM customers to redesign their current models of PDC phones which would require development and delivery of DSPC's next generation "D-series" PDC chipsets. ¶¶10, 61.
DSPC's customers materially changed their chipset requirements because Panasonic, a competitor of DSPC, had introduced a new, superior handset which was eroding the market for the handsets of DSPC's customers. Panasonic's new model P201 handset, manufactured with Panasonic's latest and superior chipset technology, weighed just 97 grams, nearly half the weight of handsets made with DSPC's B-series chipsets. It was the smallest and lightest handset then available and consumed significantly less current than other handsets. Panasonic began manufacturing its P201 handset in October 1996, the cellular carrier NTT began selling the handset throughout the Christmas season in Japan, and Panasonic's handset stole significant market share from DSPC's OEM customers. ¶¶11, 61.
Consequently, in late December 1996 to early January 1997, DSPC's OEM customers, including Sanyo, Sharp and Kyocera, informed defendants of their needs for the Company's next generation D-series chipsets, which would be smaller, lighter and use less energy than the Company's predecessor B-series chipsets. Those customers, whose orders were material to the Company's revenues, also told DSPC that demand for their phones incorporating the B-series chipsets had materially declined, as reflected in DSPC's shrunken backlog and order rate, that no advance orders for the B-series chipsets would follow and that virtually no future orders for the B-series chipsets would be made. ¶¶12, 61.
This was a devastating development to DSPC because the defendants knew that DSPC would not, given design and development delays and foundry ramp-up lead times, deliver commercial quantities of its new D-series chipsets until after the end of second quarter 1997 (June 30, 1997). As defendants knew or recklessly disregarded, the Company was caught in a serious product transition gap spurred by Panasonic's introduction of the next technological advance in baseband chipsets over six months ahead of DSPC. Defendants knew the Company's second quarter 1997 earnings would be a disaster. ¶¶13, 61, 76, 79, 81, 83.
Despite their knowledge of these adverse material facts, defendants embarked on a campaign to conceal the Company's product transition problems and to raise and sustain the price of DSPC's stock until they were able to sell large amounts of their personal holdings at artificially inflated prices. Defendants' media campaign included stepping up their already frequent and regular communications with securities analysts. Thus, in December 1996 and January 1997, defendants conducted numerous conferences and "one-on-one" sessions with securities analysts knowing and expecting that these analysts would publish what the defendants said and told them. ¶¶14, 52-85.
On January 16, 1997, defendants Arnon Kohavi, Davidi Gilo, Nathan Hod and Gerald Dogon held a conference call with securities analysts. The analysts asked defendants questions about the Company's expected future performance, product transition concerns and OEM customer demand in the face of competition by cellular handsets of non-DSPC customers. In response, defendants gave the analysts false and misleading answers, concealing their knowledge that the Company's B-series chipsets, which accounted for 96% of DSPC's 1996 revenues, were effectively obsolete and that DSPC would be unable to produce its next generation D-series chipsets in time to avoid a sharp revenue and earnings decline compared to forecasted amounts. Given the highly positive and misleading statements made in DSPC's press release and conference call, the analysts maintained their current DSPC earnings forecasts for second quarter and year-end 1997 and issued favorable reports on DSPC which uniformly recommended the purchase of DSPC stock. Those reports and the Company's other positive earnings announcements caused DSPC's stock price to increase. ¶¶18, 62-70.
In the third week of January 1997, just days after defendants again communicated with securities analysts in part to encourage the publication of additional favorable reports about DSPC, the individual defendants started to sell tens of thousands of shares of DSPC stock. (A two-for-one stock split was also announced in late 1996 which doubled the number of shares outstanding and reduced the price of DSPC's stock by half.) Exploiting their concealed knowledge of the Company's adverse business conditions, defendants conducted the largest insider sell-off in DSPC's history as a public company. Between January 21, 1997 and February 19, 1997, the individual defendants sold nearly 400,000 shares of their personal holdings -- over twice the volume of previous insider sales during any similar period of time -- for proceeds of nearly $8 million. ¶¶19-21, 72.
Responding in part to the sell-off, as well as the tips provided to favored shareholders to sell, DSPC's stock price dropped from over $21 per share on February 19, 1997, to below $10 per share on March 3, 1997 (post-split prices). ¶¶20, 74.
In an effort to halt the further slide of DSPC's stock price, on March 3, 1997, defendants issued a "special" press release. In that news release, DSPC stated that "no new information has appeared to . . . change its visibility of the business environment." DSPC also announced that it had not lost any customers nor had any customers decided to exit the PDC market. The Company also stated that it was not aware of any new competitors. Defendant Nathan Hod stated: "We still believe in the viability of the Japanese PDC market over the next several years and believe that our OEMs are well positioned in that market. . . . [W]e believe that in the near future, additional OEMs will adopt our solutions for the PDC, CDMA and TDMA markets." These announcements caused DSPC's stock to rebound by over 20% and subsequently the Company sold over 155,000 shares of DSPC stock. ¶¶22, 77-82.
However, although DSPC had not "lost" any customers, its customers order rates for the B-series chipsets had materially declined because those customers were waiting for DSPC to ramp up production of its next generation chipset. In contrast to DSPC's public statements, DSPC's customers were not "well positioned" because Panasonic was already marketing and selling a superior handset that utilized technology to which DSPC's customers were denied, given, in part, DSPC's inability to timely develop and deliver its next generation D-series chipsets. Indeed, by at least March 1, 1997, DSPC had learned that its OEM cellular handset customers were losing market share as a result of competition from the Panasonic handset. ¶¶76-77.
Finally, on April 16, 1997, after months of deception and insider selling, contrary to defendants' previously confirmed second quarter 1997 projections of $.17 per share, defendants announced that "revenues and profits in [second quarter 1997] will be materially lower than the first quarter of 1997." Defendants announced that orders for DSPC's B-series chipsets were so abysmal that DSPC had discontinued production requests to its foundries until a specific order was placed. Defendants continued to mislead the market, stating that DSPC's customers were merely at the point of "designing" new handsets, but for the first time admitted that "our production for the second quarter will be reduced due to the anticipated phase-out of our existing chip sets, as our customers transition to new models." ¶¶24, 86.
On this startling news, DSPC's stock price collapsed by nearly 40% to a low of just $6 per share in massive trading volume of 19 million shares, three times the highest previous trading volume ever for DSPC stock. DSPC's second quarter 1997 revenues were a disastrous $8.7 million, almost $12 million less than the Company's first quarter 1997 revenues and second quarter 1996 revenues. ¶¶25, 87-89.
Section 21D of the Exchange Act, recently added, sets forth the procedure for the selection of "Lead Plaintiff" to oversee class actions brought under the federal securities laws. Section 21D(a)(3)(A)(i) provides that, within 20 days after the date on which such a class action is filed:
the plaintiff or plaintiffs shall cause to be published, in a widely circulated national business-oriented publication or wire service, a notice advising members of the purported plaintiff class --
(I) of the pendency of the action, the claims asserted therein, and the purported class period; and
(II) that, not later than 60 days after the date on which the notice is published, any member of the purported class may move the court to serve as lead plaintiff of the purported class.
15 U.S.C. §78u-4(a)(3)(A)(i).(2) Within 60 days after the notice's publication, any person or group of persons who are members of the proposed class may apply to the court to be appointed lead plaintiff. 15 U.S.C. §78u-4(a)(3)(A)(i)(II).
Section 21D(a)(3)(B) also directs the court to consider any motions to serve as Lead Plaintiff by plaintiffs or other class members by no later than 90 days after the date of the §21D publication notice or as soon as practicable after the court decides any pending motion to consolidate actions asserting substantially the same claim or claims. In so doing, the court "shall" appoint the "most adequate plaintiff" to serve as lead plaintiff and that is the person or group of persons, that:
(aa) has either filed the complaint or made a motion in response to a notice . . . ;
(bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.
15 U.S.C. §78u-4(a)(3)(B)(iii). For purposes of determining "the largest financial interest" under this provision, a "member or members" of the class or a "person or group of persons" may combine their individual financial interests and those persons may jointly serve as the "most adequate plaintiff." 15 U.S.C. §78u-4(a)(3)(B)(iii).(3) Plaintiffs in the Mishelow Group fulfill each of these requirements and therefore are the most adequate representatives of the class to serve as Lead Plaintiff.
The Mishelow action was filed on February 26, 1998. On February 27, 1998, the Mishelow plaintiffs published notice to the class informing all class members of their right to file a motion for lead plaintiff appointment. That publication was made well within 20 days after the Mishelow plaintiffs filed their complaint, as provided by the PSLRA. See Rosen Decl., Ex. 3. Therefore, the time period in which class members may move to be appointed Lead Plaintiff in this case closes on April 28, 1998.(4) The Mishelow Group is more than qualified to represent the Class and respectfully requests that it be appointed Lead Plaintiff in this action. The Mishelow plaintiffs have already filed their certifications with their complaint, stating that they have reviewed the complaint, approved of the complaint's filing and that they are willing and able to serve as a representative party on behalf of the class. The Mishelow Group thus satisfies the requirements of the PSLRA. See 15 U.S.C. §78u 4(a)(3)(B)(iii) (I)(aa).
The Mishelow Group collectively suffered out-of-pocket losses of over $8,500.00, as a result of their purchases of DSP Communications common stock during the Class Period, at prices artificially inflated by defendants' false and misleading statements. Rosen Decl., Ex. 2. The Mishelow Group therefore has a very substantial financial interest in the relief sought by the class and is the most adequate plaintiff pursuant to the PSLRA. See 15 U.S.C. §78u-4(a)(3)(B)(iii)(I)(bb).
The Exchange Act provides that, in addition to possessing the largest financial interest in the litigation's outcome, the Lead Plaintiff must also "otherwise satisf[y] the requirements of Rule 23 of the Federal Rules of Civil Procedure." 15 U.S.C. 78u-4(a)(3)(B)(iii)(I)(cc). With regard to a class representative's qualifications, Rule 23(a) requires that the representative's claims be typical of class claims and that the representative will fairly and adequately protect the class members' interests.
Each member of the Mishelow Group satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure. The Mishelow plaintiffs' claims are typical of the class claims. They will fairly and adequately represent the interests of the class because the Mishelow plaintiffs' interests are clearly aligned with the interests of the members of the class, and they have retained experienced class counsel to represent the class as Lead Counsel.
A named plaintiff satisfies the typicality requirement of Rule 23(a)(3) when he or she has: (a) suffered the same injuries as the absent class members; (b) as a result of the same course of conduct by defendants; and (c) their claims are based on the same legal issues. See, e.g., Haley v. Medtronic, Inc., 169 F.R.D. 643, 649 (C.D. Cal 1996); Shields v. Smith, [1992 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶97,001, at 94,376 (N.D. Cal. 1992); In re Activision Sec. Litig., 621 F. Supp. 415 (N.D. Cal. 1985). The questions of law and fact common to the class members here which predominate over questions which may affect individual claims include:
(1) whether the federal securities laws were violated by defendants' acts;
(2) whether defendants' statements during the Class Period omitted and/or misrepresented material facts;
(3) whether defendants pursued the fraudulent scheme and course of conduct complained of;
(4) whether defendants acted intentionally or recklessly;
(5) whether the market price of the Company's stock was artificially inflated due to the activities of which plaintiffs complain; and
(6) the extent of damage class members sustained and the appropriate measure of those damages.
There is a well-defined community of interest in the questions of law and fact involved in this case, as confirmed by the allegations of the complaints in the related actions. The claims asserted by the Mishelow Group are typical of the claims of the members of the class. Each alleges, as do all proposed class members, that defendants violated the Exchange Act, that defendants fraudulently disseminated false financial statements and issued a series of false or misleading statements concerning DSP Communications' operations and business prospects, and that the class members were damaged thereby.
The Mishelow Group satisfies the typicality requirement of Rule 23 because it advances claims which are based on the same legal theory and which arise "from the same event or course of conduct giving rise to the claims of other class members." In re United Energy Corp. Solar Power Modules Tax Shelter Inv. Sec. Litig., 122 F.R.D. 251, 256 (C.D. Cal. 1988); see also Blackie v. Barrack, 524 F.2d 891, 910 (9th Cir. 1975).
The Mishelow Group's interests are clearly aligned with those of the other class members. Each proposed Lead Plaintiff shares substantially similar questions of law and fact with other members of the class, their claims are typical of the claims of absent class members, and they have taken significant steps to advance this litigation, thereby demonstrating that they have and will protect the interests of the class. The Mishelow Group plaintiffs are willing to serve as and assume the responsibilities of class representatives. In addition, the Mishelow Group plaintiffs have selected and retained experienced class counsel to represent them and zealously prosecute this action. For all these reasons, the Mishelow Group should be appointed Lead Plaintiff.
The PSLRA vests authority in the Lead Plaintiff to select and retain Lead Counsel, subject to court approval. See 15 U.S.C. §78u-4(a)(3)(B)(v). Thus, the Court should not disturb the Lead Plaintiff's choice of counsel unless "necessary to protect the interests of the plaintiff class." See 141 Cong. Rec. H 13700, Statement of Managers (daily ed. Nov. 28, 1995), Rosen Decl., Ex. 12. The Mishelow Group selected Milberg Weiss to serve as Lead Counsel for the class. Milberg Weiss possesses extensive experience in the area of securities litigation and has successfully prosecuted numerous securities fraud class actions on behalf of injured investors. See Rosen Decl., Ex. 13. Thus, the Court may be assured that, in the event the instant motion is granted, the members of the class will receive the highest caliber of legal representation available.
For all the foregoing reasons, the Mishelow Group respectfully requests that the Court appoint the Mishelow Group as Lead Plaintiff in this action, and appoint Milberg Weiss as Lead Counsel to represent the Class.
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DATED: April 27, 1998 |
Respectfully submitted, MILBERG WEISS BERSHAD ______________________________ 600 West Broadway, Suite 1800 [Proposed] Lead Counsel for Plaintiffs CHITWOOD & HARLEY BERNSTEIN LITOWITZ BERGER & ABBEY, GARDY & SQUITIERI, LLP KAUFMAN, MALCHMAN, KIRBY LAW OFFICES OF KENNETH A. ELAN SAVETT FRUTKIN PODELL & LEVIN, FISHBEIN, SEDRAN & Attorneys for Plaintiffs |
DSPCOMM\LSC00205.BRF
1. All "¶" references are to plaintiffs' Complaint for Violation of the Federal Securities Laws ("Complaint") filed in this action on February 26, 1998.
2. All emphasis has been added unless indicated otherwise.
3. See also In re Informix Corp. Sec. Litigation, No. C-97-1289 SBA, slip op. at 4 (N.D. Cal. Oct. 17, 1997) ("courts in this Circuit have determined that the group of plaintiffs with the 'largest financial interest' are those plaintiffs whose aggregate financial loss is greatest"); In re Ride, Inc. Sec. Litig., No. C97-402 WD, slip op. at 3 (W.D. Wash. Aug. 5, 1997) ("[i]t is clear that the `financial interest' of plaintiffs aligned together should be computed by aggregating their claims"); In re Read-Rite Corp. Sec. Litig., No. C-97-20059-RMW, order, at 4-5 (N.D. Cal. May 23, 1997) (same); Zuckerman v. Foxmeyer Health Corp., No. 3:96-CV-2258-T, slip op. at 5 (N.D. Tex. Mar. 28, 1997) (eleven individual plaintiffs with the largest financial interest collectively appointed lead plaintiff); In re Diamond Multimedia Sys., Inc., Sec. Litig., No. C-96-2644-SBA, slip op. at 2-4 (N.D. Cal. Jan. 13, 1997) (proposed lead plaintiffs can pool together their shares to form the largest financial interest); Chan v. OrthoLogic Corp., No. Civ. 96-1514 PHX RCB, slip op. at 13 (D. Ariz. Dec. 19, 1996) (plaintiffs from five separate actions collectively appointed lead plaintiff); Powers v. Eichen, Civ. No. 96-1431-B(AJB), order, at 1 (S.D. Cal. Nov. 15, 1996) (nine individual plaintiffs collectively appointed lead plaintiff); Malin v. IVAC Corporation, et al. No. 96-1843-CIV-Moreno, slip op. at 4-8 (S.D. Fla. Nov. 1, 1996) (holding the plaintiff group with the largest number of shares is the most adequate plaintiff under the PSLRA). (Opinions are attached to the Rosen Decl. as Exs. 4-11.)
4. When more than one action on behalf of a class asserting substantially the same claims is filed, only plaintiffs in the first filed action are required to publish the early notice. The 90-day period for the selection of Lead Plaintiff is calculated from the date of the publication of the first notice. 15 U.S.C. §78u-4(a)(3)(A)(ii).
I, the undersigned, declare:
1. That declarant is and was, at all times herein mentioned, a citizen of the United States and a resident of the County of San Diego, over the age of 18 years, and not a party to or interested in the within action; that declarant's business address is 600 West Broadway, Suite 1800, San Diego, California 92101.
2. That on April 27, 1998, declarant served the NOTICE OF MOTION AND MOTION AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO BE APPOINTED LEAD PLAINTIFF PURSUANT TO §21D(a)(3)(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND FOR APPROVAL OF LEAD PLAINTIFF'S CHOICE OF LEAD COUNSEL by depositing a true copy thereof in a United States mailbox at San Diego, California in a sealed envelope with postage thereon fully prepaid and addressed to the parties listed on the attached Service List and that this document was forwarded to the following designated Internet site at:
3. That there is a regular communication by mail between the place of mailing and the places so addressed.
I declare under penalty of perjury that the foregoing is true and correct. Executed this 27th day of April, 1998, at San Diego, California.
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Source: Milberg Weiss Bershad Hynes & Lerach LLP website