LIONEL Z. GLANCY #134180
TRACY L. THROWER #145782
MICHAEL GOLDBERG #188669
LAW OFFICES OF LIONEL Z. GLANCY
1801 Avenue of the Stars
Suite 308
Los Angeles, California 90067
(310) 201-9150
IRA M. PRESS
KIRBY McINERNEY & SQUIRE, LLP
830 Third Avenue
10th Floor
New York, New York 10022
(212) 317-2300
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
___________________________________
ELLIS INVESTMENT CO., LTD., | Civil Action. No.
personally, and on behalf of all | 99-CV-1102 BZED
others similarly situated, | [filed Mar. 10, 1999]
|
Plaintiff, | Hon. Bernard Zimmerman
|
v. | CLASS ACTION COMPLAINT
| FOR VIOLATION OF FEDERAL
ADVANCED MICRO DEVICES, INC. and | SECURITIES LAWS
JERRY SANDERS, |
|
Defendants. | JURY TRIAL DEMANDED
___________________________________|
Plaintiff, through counsel, alleges as follows, based
on information and belief, except those allegations which
pertain to the named plaintiff, which are based on personal
knowledge. Plaintiff's information and belief is based, inter
alia, on the investigation made by and through counsel,
primarily from public filings, statements, and releases made by
defendants.
OVERVIEW OF ACTION
1. This is a class action on behalf of all
purchasers of securities issued by Advanced Micro Devices, Inc.
("AMD" or the "Company") between November 12, 1998 and January
13, 1999, inclusive (the "Class Period"), seeking remedies
under the Securities Exchange Act of 1934 (the "Exchange Act").
2. In late October 1998, AMD cut prices on its
personal computer-compatible microprocessors by nearly 30% in
an effort to boost sales. Thereafter, the Company boasted
publicly of increased demand for its products, particularly its
K6 processor. In November 1998, Company management, including
defendant Jerry Sanders, AMD's Chief Executive Officer, told
securities analysts that the Company expected a significant
increase in sales in the 1998 fourth quarter (then already well
underway) as well as a significant increase in AMD's market
share (relative to industry leader, Intel Corporation). At the
time of the conference call, and/or thereafter during the Class
Period, defendants knew or in the absence of recklessness
should have known that AMD's projected increase in demand and
sales in the 4th quarter could not translate into an increase
in revenues or earnings unless AMD could remedy design and
production problems with its K-6 microprocessor. Neither this
fact, nor the existence of the design and production problems
were disclosed to the investing public during the Class Period.
Accordingly, the investment community believed that AMD's
pricing strategy was a success, and AMD was poised for a
successful fourth quarter. Based on defendants' statements,
securities analysts raised their estimates of AMD's 4th quarter
earnings, and AMD's stock price rose quickly, from just $17 per
share on October 22, 1998 to a Class Period high of $32 per
share.
3. At the close of fourth quarter, analysts were
still optimistic about the Company, as they had no reason to
suspect that AMD had not been able to take advantage of the
increased demand for its processors.
4. Unbeknownst to the investing public, AMD's much-
ballyhooed road to success in the 1998 fourth quarter had hit a
major pothole. The demand for the K6 processor was there, but
design and production flaws rendered the K6 unfit to meet that
demand. Because of these undisclosed problems, AMD was not
able to sell many of its high-speed 400 MHz and 350 MHz K6
chips, which are priced from $158 to $283. Instead, most of
AMD's sales were of the 300 MHz K6 chip, which sells for less
than $80.
5. Unsuspecting investors were stunned when on
January 13, 1999 (more than two weeks after the fourth quarter
ended), AMD disclosed to the marketplace that it had not been
able to meet the increased demand for its products in the
fourth quarter because design and production flaws sharply
decreased the number of high powered microprocessors that the
Company was able to sell in the quarter. As a result, the
Company announced quarterly earnings that were significantly
below analysts' estimates.
6. The fallout from the January 13, 1999
announcement was swift and devastating. The Company's stock
price dropped from $27 3/4 per share on January 13, 1999 to
close at $22 1/2 per share the following day, a single day
decline of nearly 20%.
7. By the acts, transactions, and courses of
conduct alleged herein, defendants, individually and acting
with others in a common plan and scheme, deceived the plaintiff
and the Plaintiff Class and deprived them unfairly of the full
value of their investments in AMD in violation of the federal
securities laws.
JURISDICTION AND VENUE
8. The jurisdiction of this Court is founded upon
Section 27 of the Securities Exchange Act of 1934, 15 U.S.C.
§78aa (the "1934 Act"), and 28 U.S.C. §1331. The claims set
forth herein arise under Sections 10(b) and 20(a) of the 1934
Act 15 U.S.C. §§ 78j(b) and 78t(a)), and Rule 10b-5 of the SEC
rules promulgated thereunder (17 C.F.R. §240.10b-5).
9. Venue is proper in this District pursuant to §27
of the Exchange Act, and 28 U.S.C. §1391. A substantial part
of the acts and events giving rise to the violations complained
of, including the dissemination of reports, updates and other
false and misleading information, occurred in this District.
In addition, defendant AMD maintains its principal offices in
this District.
10. In connection with the acts, conduct, and other
wrongs complained of herein, the defendants, directly and
indirectly, used the means and instrumentalities of interstate
commerce, including the mails, interstate telephone
communications, and the facilities of a national securities
exchange.
PARTIES
11. Plaintiff Ellis Investment Co., Ltd. purchased
shares of AMD common stock during the Class Period, as set
forth in the accompanying certification, and has been damaged
thereby. Plaintiff and the putative class are herein referred
to as "Plaintiff Class."
12. Defendant AMD is a California-based producer of
computer microprocessors, located at One AMD Place, Sunnyvale,
California, which operates facilities in the U.S. and Asia, and
maintains sales offices worldwide. As of October 1998, the
Company had nearly 145 million shares of common stock
outstanding, and its shares traded on the New York Stock
Exchange under ticker symbol AMD.
13. Defendant Sanders is AMD's Chief Executive
Officer. As such, defendant Sanders had a duty to disseminate
complete, accurate and truthful information regarding AMD's
business operations. Defendant Sanders had a duty to correct
promptly any public statements issued by the Company which had
become false and misleading. Defendant Sanders, as Chief
Executive Officer of the Company, actively participated in the
issuance of the false financial information complained of
herein. Because of his position, his ability to exercise power
and influence with respect to AMD's course of conduct and his
access to material inside information about the Company,
Defendant Sanders was, at the time of the wrongs alleged
herein, a controlling person of AMD within the meaning of
§20(a) of the 1934 Act.
PLAINTIFF'S CLASS ALLEGATIONS
14. Plaintiff brings this action as a class action
pursuant to Federal Rules of Civil Procedure 23(a) and (b)(3)
on behalf of a class (the "Class") consisting of all persons
and entities who purchased the Company's common stock from
November 12, 1998 through January 13, 1999, inclusive.
Excluded from the Class are the defendants, members of the
immediate families of the defendants, any entity in which any
defendant has a controlling interest, and all of the
subsidiaries, affiliates, legal representatives, heir,
successors or assigns of any such excluded party.
15. Because millions of shares of the Company's
common stock were purchased by the Class during the Class
Period, the members of the Class are so numerous that joinder
of all members is impracticable. While the exact number of
class members can only be determined by appropriate discovery,
plaintiff believes that class members number in the thousands.
They reside in various places in this country and throughout
the world.
16. Plaintiff's claims are typical of the claims of
the members of the Class. Plaintiff and all members of the
Class sustained damages as a result of defendants' wrongful
conduct complained of herein.
17. Plaintiff will fairly and adequately protect the
interests of members of the Class, and has retained counsel
competent and experienced in class action and securities
litigation.
18. A class action is superior to other available
methods for the fair and efficient adjudication of this
controversy. The expenses and burdens of individual litigation
would make it infeasible for the class members individually to
seek redress for the wrongful conduct alleged.
19. Common questions of law and fact exist as to all
members of the Class, and predominate over any questions
affecting solely individual members of the Class. Among the
questions of law and fact common to the Class are:
a. whether the federal securities laws were
violated by defendants' conduct as alleged herein;
b. whether defendants participated in and
pursued the conduct complained of;
c. whether documents filed with the SEC and
other documents, press releases and statements disseminated to
the securities analysts, investing public, and the shareholders
omitted and/or misrepresented material facts about the
financial condition, business affairs, and prospects of the
Company;
d. whether the defendants acted willfully or
recklessly in omitting to state and/or misrepresenting material
facts;
e. whether the market prices of AMD common
stock during the Class Period were artificially inflated due to
the nondisclosure and/or misrepresentations complained of
herein;
f. whether the defendants perpetrated a fraud
on the integrity of the market; and
g. whether the members of the Class have
suffered damages and, if so, the proper measure of such
damages.
20. Plaintiff knows of no difficulty which will be
encountered in the management of this litigation which would
preclude its maintenance as a class action.
SUBSTANTIVE ALLEGATIONS
21. As a player in the highly competitive
microprocessor field, AMD operates in the shadows of the
industry leader, Intel Corporation.
22. On October 26, 1998, AMD, faced with lagging
demand for its microprocessors, slashed prices by nearly 30% in
an effort to stimulate sales and increase its market share.
23. The price cut was an immediate hit with the
financial community. AMD's stock price surged from $17 7/16
per share on October 26, 1998 (the day the price cuts were
announced) to $22 9/16 per share on October 30. As the
Bloomberg news service reported on October 30, 1998, the stock
price increase was based on optimism that an expected rise in
personal computer sales during the 1998 holiday season would
boost demand for AMD's K6 microprocessor.
24. Unbeknownst to investors, AMD could not
reasonably expect to capitalize on the increased demand for its
products in late 1998, because of serious design and production
flaws that rendered the K6 incapable of performing at the 400
megahertz or even 350 megahertz level, thereby seriously
undermining the product's marketability. As a result, AMD's K6
sales during the fourth quarter were largely limited to the 300
MHz version, which sells for less than half the price of the
350 MHz version and less than one-third the price of the 400
MHz version.
25. Despite these serious problems, defendants did
nothing to dispel investors' expectations concerning the 1998
fourth quarter (which was, by this time, well underway).
26. To the contrary, defendants took affirmative
steps to fan the flames of investor delusion, thereby causing
AMD's stock to trade at artificially inflated levels throughout
the Class Period.
27. Thus, on November 9, 1998, AMD issued a press release
on the Business Wire news line, in which the Company announced
the signing of an agreement with Supercom, Inc. to distribute
AMD's K6 processor. Rather than acknowledge the design and
production defects that plagued the K6, David Shefler, AMD's Vice
President of Sales and Marketing for the Americas, gloated about
the "growing success of the AMD K6 family of processor products."
28. On November 12, 1998, the Company held a conference at
its Sunnyvale, California headquarters for its analysts. At the
meeting, according to Bloomberg reports, company executives made
bullish projections concerning the number of K6 microprocessors
they expected to sell in the fourth quarter, because of the
strong demand for personal computers. AMD's executives were
reported in Bloomberg as having said that they expected AMD's
share of the microprocessor market to rise as high as 14% in the
fourth quarter (up from 12.4% in the third quarter and just 6.8%
in the market in the first quarter). One of the key participants
at the November 12, 1998 conference was defendant Sanders.
29. Defendants' statements at this conference were
misleading because of the failure to disclose then-existing
design and production problems with AMD's K6 chip, which, unless
corrected, would prevent AMD from taking advantage of the
increased demand in the 1998 fourth quarter. Unless the problem
could be corrected, AMD's sales would be largely limited to
slower (300 MHz) versions of the K6 (which sell for less than
$80) as opposed to the faster, more profitable 350 to 400 MHz
versions (which sell between $150 and $283).
30. On November 16, 1998, Dow Jones reported that AMD
issued a press release touting the fact that the 400 MHz, 380 MHz
and 366 MHz K6 processors would now carry 3dNow! technology.
Investors were not informed that design problems precluded AMD
from producing K6 processors at the above-referenced speeds (with
or without 3dNow! technology).
31. According to a November 27, 1998 Dow Jones article, by
the end of November 1998, securities analysts, even those who had
long been bearish on AMD, began to be more upbeat about the
Company's prospects, because of the Company's purported ability
to sell and market the 400 megahertz K6-2 microprocessor for
$283, well below Intel Corporation's comparable Pentium II chip.
The Dow Jones article quoted analyst Thomas Kurlack of Merrill
Lynch as saying, "because of good value of the K6-2, AMD has
essentially created the sub-$1,000 PC market, and leading PC-
makers, including Compaq, IBM and Hewlett Packard, are
experiencing strong growth with their AMD-based products."
32. Throughout the fourth quarter of 1998, AMD's stock
continued to trade at artificially inflated levels because of
continued reports that the expected year-end boom in personal
computer sales had indeed come to fruition. For example,
Bloomberg reported on December 4, 1998 that "chip stocks have
been gaining in recent weeks amid signs that holiday sales of
personal computers are booming." The article cited AMD as an
example of this trend, as did a similar Bloomberg report issued
on December 8, 1998. Similarly, Bloomberg reported on
December 22, 1998 that AMD was riding the effects of an industry-
wide increase in demand for microprocessors. With no effort by
the Company to quell the general industry-wide optimism or the
statements made at the November 12 conference, the investing
public pushed AMD's stock price to a Class Period high of $32 per
share in early December 1998.
33. As the fourth quarter came to an end on December 31,
1998, analysts and investors continued to express upbeat views
concerning AMD, as they had been told nothing that would suggest
that the rosy fourth quarter that the Company had spoken of a few
weeks earlier had not come to pass.
34. Thus, Bloomberg reported on December 30, 1998 that
shares of AMD rose amid optimism that strong sales of its
microprocessors had boosted fourth quarter earnings.
35. That same day Dow Jones reported that BT Alex. Brown
analyst, Erika Lauer, increased her fourth quarter earnings
estimate for the Company, from $0.15 per share to $0.19 per
share, due to "stronger than previously forecast unit demand for
the Company's K6 family of microprocessors." The article also
reported that Fahnstock & Co. analyst, Dan Scoval, issued a $0.21
EPS estimate due to recent industry strength.
36. It was not until after the close of trading on January
13, 1999, more than two weeks after the Company's fourth quarter
ended, that the Company disclosed for the first time that it had
been unable to meet the growing demand in the fourth quarter due
to production problems with the K6. An AMD spokesman admitted
that K6 chips not only failed to attain the hoped for 400
megahertz standard, but they also failed to meet the next highest
grade, 350 megahertz. As a result, according to a January 18,
1999 Dow Jones report, the microprocessors ended up running at
just 300 megahertz, a speed that is considered "practically
worthless" in today's personal computer market, and which sells
for considerably less than the faster chips. Because of the
production problems, which led to lower than expected revenues,
AMD reported earnings per share of $0.15, compared to the $0.19
that analysts, on average, expected the Company to earn.
37. The reaction to this surprising news was swift and
sudden. AMD stock fell from $27 3/4 per share to just $22 1/2
per share the day of this announcement, a single day decline of
nearly 20%.
38. Moreover, in the aftermath of this announcement, the
investment community was left in a state of confusion with
respect to AMD. According to a January 18, 1999 Dow Jones
article, "several of Wall Street's finest were caught by
surprise," by AMD's announcement. The article quoted Piper
Jaffrey analyst, Ashok Kumar, as saying, "I think AMD's
management is sorely testing its credibility at this point."
DEFENDANTS' MISREPRESENTATIONS PROXIMATELY CAUSED
PLAINTIFF CLASS' DAMAGES THROUGH A FRAUD ON THE MARKET
39. At all relevant times, the market for AMD's securities
was an efficient market which promptly digested current
information with respect to the Company from all publicly-
available sources and reflected such information in the Company's
stock price: AMD's common stock met the requirements for
listing, and was listed and actively traded, on the New York
Stock Exchange ("NYSE"), the world's largest stock exchange and
clearly a highly efficient market, and AMD filed periodic public
reports with the SEC and the NYSE; AMD's stock was followed by
analysts from major brokerages including BancBoston, NationsBank,
Montgomery Securities, PaineWebber, Sutro & Co., Josephthal &
Co., Needham & Co., Prudential, Fahnstock, Gruntal, and Piper
Jaffrey. The reports of these analysts were distributed to their
customers and the public at large; and AMD regularly issued press
releases which were carried by national newswires.
40. The material misrepresentations and omissions
particularized in this complaint created an unrealistically
positive assessment of the Company's business, finances and
operations causing the market for its common stock to be over-
valued and artificially inflated. This in turn proximately
caused the damages complained of herein which were suffered by
plaintiff and other members of the Class who relied on the
integrity of the market price of the Company's common stock.
COUNT I
(Against AMD and the Defendant Sanders
for Violations of Section 10(b) of the 1934 Act)
41. Plaintiff repeats and incorporates the allegations in
the foregoing paragraphs as if fully set forth herein.
42. During the Class Period, the Company and the defendants
issued releases, statements and reports which misrepresented the
Company's business prospects and inflated the market price of the
Company's common stock throughout the Class Period. These
reports contained untrue statements of material facts and omitted
to state material facts necessary in order to make the statements
made, not misleading, in violation of Section 10(b) of the 1934
Act and Rule 10b-5, promulgated thereunder, as described above.
43. Defendants engaged in acts, practices and courses of
business which operated as a fraud and deceit upon the plaintiff
and the Plaintiff Class, and employed devices, schemes, and
artifices to defraud and engaged in facts, practices, and a
course of conduct in an effort to maintain artificially high
market prices for the Company's common stock in violation of
Section 10(b) of the 1934 Act and Rule 10b-5.
44. Defendants, by acting as described above, did so
knowingly and intentionally or in such a reckless manner as to
constitute a willful deceit and fraud upon the plaintiff and the
Plaintiff Class. They acted with scienter. With knowledge or
reckless disregard of the Company's true operating condition,
defendants caused the statements to contain misstatements and
omissions of material fact as alleged herein.
45. During the Class Period, defendants, individually and
in concert, directly and indirectly, by the use, means or
instrumentalities of interstate commerce and/or of the mails,
engaged in an participated in a continuous course of conduct and
conspiracy to circulate false and/or material information
regarding the Company's sales and production. Defendants
employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information, and
engaged in acts, practices, and a course of conduct as alleged
herein in an effort to assure investors of the Company's value
and performance and results from prior operations. This included
the making of, or the participation in the making of, untrue
statements of material facts and/or omitting to state material
facts necessary in order to make the statements made about AMD
and its business operations in light of the circumstances under
which they were made, not misleading, as set forth more
particularly herein, and engaged in transactions, practices and a
course of business which operated as a fraud and deceit upon the
purchasers of the Company stock during the Class Period.
46. As a result of the materially false and misleading
information and failure to disclose material facts, as set forth
above, the market price of the common stock of AMD during the
Class Period were artificially inflated.
47. In ignorance of the fact that the market price of the
Company's publicly traded common stock and other securities were
artificially inflated and distorted, and relying directly or
indirectly on the false and misleading statements made by
defendants, or upon the integrity of the market in which the
securities trade, and the truth of any representations made to
appropriate agencies and to the investing public, at the times at
which any statements were made, and/or on the absence of material
adverse information that was known to or recklessly disregarded
by defendants but not disclosed in public statements by
defendants during the Class Period, plaintiff and Plaintiff Class
acquired the Company's securities during the Class Period at
artificial prices and were damaged thereby.
48. At the time of said misrepresentations and/or
omissions, plaintiff and other member of the Class were ignorant
of their falsity, and believed them to be true. Had plaintiff
and the Plaintiff Class and the marketplace known of the truth
concerning the Company's operations, plaintiff and the Plaintiff
Class would not have purchased or otherwise acquired their AMD
common stock during the Class Period or, if they had acquired the
Company common stock during the Class Period they would not have
done so at the artificially inflated prices at which they
purchased their AMD stock during the Class Period.
49. By virtue of the foregoing, defendants have violated
Section 10 (b) of the Exchange Act, and Rule 10b-5 promulgated
thereunder.
50. As a direct and proximate result of defendants'
wrongful conduct, plaintiff and the Plaintiff Class suffered
damages in connection with their purchases of the Company's
common stock during the Class Period.
COUNT II
(Against Defendant Sanders
for Violation of Section 20(a) of the 1934 Act)
51. The plaintiff repeats and incorporates the allegations
in the foregoing paragraphs as if fully set forth herein.
52. Because of his executive position with AMD, defendant
Sanders had access to the adverse confidential and material
information about the Company's sales and production and approved
the misleading statements and omissions as particularized herein
and acted to conceal them. Defendant Sanders because of his
position of control and authority as a principal executive
officer of the Company, was able to and did, directly or
indirectly, control the content of the Company's various publicly
disseminated reports, press releases and statements. Defendant
Sanders had and exercised the power and influence to cause the
Company to engage in the illegal practices complained of herein.
Any acts attributed to AMD were caused and/or influenced by
defendant Sanders by reason of his domination and control of the
Company.
53. As an officer of a publicly held Company, defendant
Sanders had a duty to disseminate accurate and truthful
information with respect to the Company's business, operations
and financial performance so that the market price of the
Company's securities would be based on truthful, accurate and
timely disclosure of all material information.
54. Defendant Sanders was a controlling person of the
Company within the meaning of Section 20 (a) of the 1934 Act and
pursuant to said Section 20 (a) is liable for AMD's violations of
Section 10 (b) of the 1934 Act and Rule 10b-5 promulgated
thereunder.
JURY DEMAND
55. Plaintiff demands a trial by jury.
PRAYER FOR RELIEF
WHEREFORE, the plaintiff demands judgment against the
defendants, and each of them jointly and severally, as follows;
a. Determining that this suit is a proper plaintiff
class action and certifying the plaintiff and Plaintiff Class
representative pursuant to Rule 23 of the Federal Rules of Civil
Procedure;
b. Declaring that the defendants violated the federal
securities laws, as alleged herein;
c. Awarding the plaintiff and the Class damages as a
result of the violations set forth in this complaint, with
interest thereon;
d. Awarding the plaintiff and the Class the costs and
disbursements of this action, including reasonable attorneys'
fees, as well as costs and fees paid to accountants and other
experts; and
e. Granting such other and further relief as the Court
may deem just and proper.
Dated: March 9, 1999
Respectfully submitted,
LAW OFFICES OF LIONEL Z. GLANCY
By:____________________________
LIONEL Z. GLANCY #134180
TRACY L. THROWER #145782
MICHAEL GOLDBERG #188669
1801 Avenue of the Stars
Suite 308
Los Angeles, California 90067
(310) 201-9150
IRA M. PRESS, ESQ.
KIRBY McINERNEY & SQUIRE, LLP
830 Third Avenue
10th Floor
New York, New York 10022
(212) 317-2300
Attorneys for Plaintiff
Source: File to epost from Law Offices of Lionel Z. Glancy