Tellabs, Inc. Summary: The original complaint charges that Defendants Tellabs, its CEO and its Chairman violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of materially false and misleading statements to the market between December 11, 2000 and June 19, 2001. According to the complaint, Tellabs had represented to the public, in press releases issued throughout the Class Period, that its new products were enjoying strong demand, that the seeming slowdown in its business was due to "component-parts shortages which have been corrected" and that Tellabs' business was strong fundamentally and the Company would meet earnings and revenues expectations. The complaint alleges that these, and other, statements were materially false and misleading because, as alleged in the complaint, Tellabs' new optical networking line of products were inferior to the competition and its products were not well-received or in high demand. The complaint further alleges that, contrary to Defendants' statements to the investing public, the Company's highly-touted acquisition of SALIX was a failure as sales of the product line Tellabs gained in the acquisition were falling. On June 19, 2002, Tellabs issued a press release revealing that second quarter of 2001 revenues would be 35% less than guidance reiterated only weeks before, and that the Company's earnings would be breakeven instead of the consensus $0.29 per share. In reaction to the announcement, the price of Tellabs' common stock fell by 31%, from $23 per share on June 19 to $15.87 on June 20, representing a 75% decline from the Class Period high. During the Class Period, Defendant Tellab’s Chairman sold a total of 80,000 shares of Tellabs common stock at prices between $64.25 to $65.38 per share, grossing proceeds of more than $5.18 million.
As summarized by the Company’s FORM 10-Q for the quarterly period ended June 30, 2006, nine actions were subsequently consolidated, and on December 3, 2002, a consolidated amended class action complaint was filed against Tellabs and certain its of its current or former officers and/or directors. The consolidated amended complaint alleged that during the class period (December 11, 2000-June 19, 2001) the defendants violated the federal securities laws by making materially false and misleading statements, including, among other things, allegedly providing revenue forecasts that were false and misleading, misrepresenting demand for the Company’s products, and reporting overstated revenues for the fourth quarter 2000 in the Company’s financial statements. Further, certain of the individual defendants were alleged to have violated the federal securities laws by trading the Company’s securities while allegedly in possession of material, non-public information about the Company pertaining to these matters. On January 17, 2003, Tellabs and the other named defendants filed a motion to dismiss the consolidated amended class action complaint in its entirety. On May 19, 2003, the Court granted the Company’s motion and dismissed all counts of the consolidated amended complaint, while affording plaintiffs an opportunity to replead. On July 11, 2003, plaintiffs filed a second consolidated amended class action complaint against Tellabs and many (although not all) of the other previously named individual defendants, realleging claims similar to those contained in the previously dismissed consolidated amended class action complaint. The Company filed a second motion to dismiss on August 22, 2003, seeking the dismissal with prejudice of all claims alleged in the second consolidated amended class action complaint. On February 19, 2004, the Court issued an order granting that motion and dismissed the action with prejudice. On March 18, 2004, the plaintiffs filed a Notice of Appeal to the United States Federal Court of Appeal for the Seventh Circuit, appealing the dismissal. The appeal was fully briefed and oral argument was heard on January 21, 2005. On January 25, 2006, the Seventh Circuit issued an opinion affirming in part and reversing in part the judgment of the district court, and remanding for further proceedings. On February 8, 2006, defendants filed with the Seventh Circuit a petition for rehearing with suggestion for rehearing en banc. On April 19, 2006, the Seventh Circuit ordered plaintiffs to file an answer to the petition for rehearing, which was filed by the plaintiffs on May 3, 2006. On July 10, 2006, the Seventh Circuit denied the petition for rehearing with a minor modification to its opinion.
According to the Company’s FORM 10-Q for the quarterly period ended March 30, 2007, on September 22, 2006, defendants filed a motion in the district court to dismiss some (but not all) of the remaining claims. On October 3, 2006, the defendants filed with the United States Supreme Court a petition for a writ of certiorari seeking to appeal the Seventh Circuit’s decision. On January 5, 2007, the defendants’ petition was granted. The United States Supreme Court heard oral arguments on March 28, 2007.
According to a press release dated June 21, 2007, the Supreme Court on Thursday ruled in favor of Tellabs Inc. in a class-action case, setting a tougher standard for investors pursuing lawsuits alleging that corporations engaged in securities fraud. In an 8-1 ruling, the court said plaintiffs' attorneys must show when filing suit that corporate executives had a "cogent and compelling" intent to engage in wrongdoing. Courts must weigh other innocent explanations for conduct alleged in fraud suits, the court said in an opinion written by Justice Ruth Bader Ginsburg. The decision vacates an appellate court ruling that had set a lower standard. The case now goes back to the lower court. Tellabs (TLAB), a telecommunications equipment maker, welcomed the decision. "We are encouraged that the Supreme Court recognized that the Seventh Circuit's decision was incorrect," said James M. Sheehan, the company's general counsel. "The Supreme Court has also appropriately established a strict standard to be applied in sending the case back for further review." Sheehan said Tellabs was confident the lawsuit would ultimately be found to be without merit. The class-action lawsuit was filed in 2001 after a sharp plunge in Tellabs' revenue and stock price.
According to a press release dated January 18, 2008, the most important United States Supreme Court decision in the field of securities litigation in 2007 received a significant postscript today when the appellate court to which the case was remanded determined that the securities fraud complaint at issue was sufficient to allow full litigation to proceed against the defendants. In Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S.Ct. 2499 (2007), the Supreme Court announced a uniform standard for evaluating the sufficiency of a complaint under the Private Securities Litigation Reform Act of 1995 and sent the case back to the Seventh Circuit to rule on the sufficiency of the complaint under the new standard. Milberg Weiss LLP In the decision issued today, the Seventh Circuit again reviewed the complaint, and concluded that "the plaintiffs have succeeded, with regard to the statements identified in our previous opinion as having been adequately alleged to be false and material, in pleading scienter in conformity with the requirements of the PSLRA. We therefore adhere to our decision to reverse the judgment of the district court dismissing the suit." The unanimous decision was written by Judge Richard A. Posner.
On February 13, 2008, a mandate from the United States Court of Appeals was entered reversing the lower court’s decision to dismiss. As a result, the case has been remanded back to the District Court. On March 17, 2008, a renewed motion was filed seeking dismissal of Count V of the complaint relating to Tellabs claims of insider trading by the CEO and all claims based on channel stuffing and statements regarding the TITAN 6500 for all individual defendants. The judge entered an order granting in part the dismissal of insider trading claims and denying all others on May 22, 2008, stating that “A defendant may be liable under laws governing insider trading only if he violates a provision of the Exchange Act by trading securities while in possession of material, nonpublic information.”
On February 23, 2009, a Memorandum Opinion and Order granted Plaintiffs’ motion for class certification, appointment of class representatives, and appointment of class counsel, pursuant to Rule 23. On October 22, 2009, the defendants filed a motion for partial dismissal and judgment. On December 9, 2009, before the Honorable Amy J. St. Eve denied the Defendants' motion for partial dismissal and judgment.
On November 24, 2009, the defendants filed a motion for summary judgment. The lead plaintiffs filed an opposition to the motion.
According to an article dated February 18, 2010, pursuant to Rule 23 of the Federal Rules of Civil Procedure and an Order of the Court, the action has been certified as a class action.
On August 13, 2010, the Honorable Amy J. St. Eve granted in large part and denied in part Defendants' motion for summary judgment.
The parties have entered into a settlement. On April 5, 2011, the plaintiffs filed a motion for preliminary approval of settlement and setting of the Fairness Hearing. The proposed settlement is in the amount of $7,375,000 in cash. The motion was preliminary approved on April 11, 2011. The Fairness Hearing was set for July 26, 2011.
According to the Order and Final Judgment signed by the Honorable Amy J. St. Eve, on July 26, 2011, the Court finds that the settlement is fair, reasonable and adequate. The attorneys' fees and costs are reasonable and appropriate. The instant action is dismissed pursuant to settlement. All pending dates and motions are hereby stricken. Civil case terminated.
SIC Code: 3661
Industry: Communications Equipment
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