abraham goldberg, et al. v. tripath technology inc., et al. 04-cv...
TRANSCRIPT
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PD Y 1 Robert S. Green (State Bar No. 136183)
GREEN WELLING LLP 2 235 Pine Street, 15th Floor
San Francisco, California 94104 3 Telephone: (415) 477-6700
Facsimile: (415) 477-6710 4
Marc A. Topaz 5 Richard A. Maniskas
Tamara Skvirsky 6 SCHIFFRIN & BARRO WAY, LLP
Three Bala Plaza East, Suite 400 7 Bala Cynwyd, PA 19004
Telephone: (610) 667-7706 8 Facsimile: (610) 667-7056
9 Attorneys for Plaintiff
10 UNITED STATES STATES DISTRICT COURT
11 NORTHERN DISTRICT OF CALIFORNIA
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13 ABRAHAM GOLDBERG, Individually and On Behalf of All Others Similarly Situated, CIVIL ACTION NO.
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Plaintiff, CLASS ACTION COMPLAINT
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VS.
17 TPJPATH TECHNOLOGY INC., ADYA TRIPATHI, AND DAVID EICHLER,
18 Defendants
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21 Plaintiff, Abraham Goldberg ("Plaintiff'), individually and on behalf of all other persons
22 similarly situated, by her undersigned attorneys, for her complaint against defendants, alleges the
23 following based upon personal knowledge as to herself and her own acts, and information and belief
24 as to all other matters, based upon, inter alia, the investigation conducted by and through her
25 attorneys, which included, among other things, a review of the defendants' public documents,
26 conference calls and announcements made by defendants, United States Securities and Exchange
27 Commission ("SEC") filings, wire and press releases published by and regarding Tripath
28 Technology, Inc. ("Tripath" or the "Company") securities analysts' reports and advisories about the
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1 Company, and information readily obtainable on the Internet. Plaintiff believes that substantial
2 evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for
3 II discovery.
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NATURE OF THE ACTION
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1. This is a federal class action on behalf of purchasers of the securities of Tripath
6 between January 29, 2004 and October 22, 2004 inclusive (the "Class Period"), seeking to pursue
7 remedies under the Securities Exchange Act of 1934 (the "Exchange Act").
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JURISDICTION AND VENUE
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2. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of
10 the Exchange Act, (15 U.S.C. §§ 78j(b) and 78t(a)), and Rule lOb-S promulgated thereunder
11 (17 C.F.R. §240.10b-5).
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3. This Court has jurisdiction over the subject matter of this action pursuant to §27 of
13 the Exchange Act (15 U.S.C. §78aa) and 28 U.S.C. § 1331.
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4. Venue is proper in this Judicial District pursuant to §27 of the Exchange Act,
15 15 U.S.C. § 78aa and 28 U.S.C. § 1391(b). Many of the acts and transactions alleged herein,
16 including the preparation and dissemination of materially false and misleading information, occurred
17 in substantial part in this Judicial District. Additionally, the Company maintains a principal
18 executive office in this Judicial District.
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5. In connection with the acts, conduct and other wrongs alleged in this complaint,
20 defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
21 including but not limited to, the United States mails, interstate telephone communications and the
22 facilities of the national securities exchange.
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PARTIES
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6. Plaintiff, Abraham Goldberg, as set forth in the accompanying certification,
25 incorporated by reference herein, purchased Tripath securities at artificially inflated prices during
26 the Class Period and has been damaged thereby.
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7. Defendant Tripath is a Delaware corporation with its principal executive officer
28 located at 2560 Orchard Parkway, San Jose, California 95131.
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8. Defendant Ayda Tripathi ("Tripathi") was, at all relevant times, the Company's
2 Chairman, President and Chief Executive Officer.
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9. Defendant David Eichler ("Eichler") was, until his departure on September 15, 2004,
4 the Company's Chief Financial Officer.
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10. Defendants Tripathi and Eichler are collectively referred to hereinafter as the
6 "Individual Defendants." During the Class Period, each of the Individual Defendants, as senior
7 executive officers and/or directors of Tripath were privy to non-public information concerning its
8 business, finances, products, markets and present and future business prospects via access to internal
9 corporate documents, conversations and connections with other corporate officers and employees,
10 attendance at management and Board of Directors meetings and committees thereof and via reports
11 and other information provided to them in connection therewith. Because of their possession of such
12 information, the Individual Defendants knew or recklessly disregarded the fact that adverse facts
13 specified herein had not been disclosed to, and were being concealed from, the investing public.
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11. Because of the Individual Defendants' positions with the Company, they had access
15 to the adverse undisclosed information about the Company's business, operations, operational trends,
16 financial statements, markets and present and future business prospects via access to internal
17 corporate documents (including the Company's operating plans, budgets and forecasts and reports
18 of actual operations compared thereto), conversations and connections with other corporate officers
19 and employees, attendance at management and Board of Directors meetings and committees thereof
20 and via reports and other information provided to them in connection therewith.
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12. It is appropriate to treat the Individual Defendants as a group for pleading purposes
22 and to presume that the false, misleading and incomplete information conveyed in the Company's
23 public filings, press releases and other publications as alleged herein are the collective actions of the
24 narrowly defined group of defendants identified above. Each of the above officers of Tripath, by
25 virtue of their high-level positions with the Company, directly participated in the management of
26 the Company, was directly involved in the day-to-day operations of the Company at the highest
27 levels and was privy to confidential proprietary information concerning the Company and its
28 business, operations, growth, financial statements, and financial condition, as alleged herein. Said
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1 defendants were involved in drafting, producing, reviewing and/or disseminating the false and
2 misleading statements and information alleged herein, were aware, or recklessly disregarded, that
3 the false and misleading statements were being issued regarding the Company, and approved or
4 ratified these statements, in violation of the federal securities laws.
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13. As officers and controlling persons of a publicly-held company whose securities
6 were, and are, registered with the SEC pursuant to the Exchange Act, and was traded on the
7 NASDAQ and governed by the provisions of the federal securities laws, the Individual Defendants
8 each had a duty to disseminate promptly, accurate and truthful information with respect to the
9 Company's financial condition and performance, growth, operations, financial statements, business,
10 markets, management, earnings and present and future business prospects, and to correct any
11 previously-issued statements that had become materially misleading or untrue, so that the market
12 price of the Company's publicly-traded securities would be based upon truthful and accurate
13 information. The Individual Defendants' misrepresentations and omissions during the Class Period
14 violated these specific requirements and obligations.
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14. The Individual Defendants participated in the drafting, preparation, and/or approval
16 of the various public and shareholder and investor reports and other communications complained
17 of herein and were aware of, or recklessly disregarded, the misstatements contained therein and
18 omissions therefrom, and were aware of their materially false and misleading nature. Because of
19 their Board membership and/or executive and managerial positions with Tripath, each of the
20 Individual Defendants had access to the adverse undisclosed information about Tripath financial
21 condition and performance as particularized herein and knew (or recklessly disregarded) that these
22 adverse facts rendered the positive representations made by or about Tripath and its business issued
23 or adopted by the Company materially false and misleading.
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15. The Individual Defendants, because of their positions of control and authority as
25 officers and/or directors of the Company, were able to and did control the content of the various
26 SEC filings, press releases and other public statements pertaining to the Company during the Class
27 Period. Each Individual Defendant was provided with copies of the documents alleged herein to be
28 misleading prior to or shortly after their issuance and/or had the ability and/or opportunity to prevent
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1 their issuance or cause them to be corrected. Accordingly, each of the Individual Defendants is
2 responsible for the accuracy of the public reports and releases detailed herein and is therefore
3 primarily liable for the representations contained therein.
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16. Each of the defendants is liable as a participant in a fraudulent scheme and course
5 of business that operated as a fraud or deceit on purchasers of Tripath securities by disseminating
6 materially false and misleading statements and/or concealing material adverse facts. The scheme:
7 (i) deceived the investing public regarding Tripath business, operations, management and the
8 intrinsic value of Tripath securities; and (ii) caused Plaintiff and other members of the Class to
9 purchase Tripath securities at artificially inflated prices.
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PLAINTIFF'S CLASS ACTION ALLEGATIONS
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17. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
12 Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or otherwise
13 acquired the securities of Tripath between January 29, 2004 and October 22, 2004, inclusive (the
14 "Class Period") and who were damaged thereby. Excluded from the Class are defendants, the
15 officers and directors of the Company, at all relevant times, members of their immediate families
16 and their legal representatives, heirs, successors or assigns and any entity in which defendants have
17 or had a controlling interest.
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18. The members of the Class are so numerous that joinder of all members is imprac-
19 ticable. Throughout the Class Period, Tripath' s securities were actively traded on the NASDAQ.
20 While the exact number of Class members is unknown to Plaintiff at this time and can only be
21 ascertained through appropriate discovery, Plaintiff believes that there are hundreds or thousands
22 of members in the proposed Class. Record owners and other members of the Class may be identified
23 from records maintained by Tripath or its transfer agent and may be notified of the pendency of this
24 action by mail, using the form of notice similar to that customarily used in securities class actions.
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19. Plaintiff's claims are typical of the claims of the members of the Class as all members
26 of the Class are similarly affected by defendants' wrongful conduct in violation of federal law that
27 is complained of herein.
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20. Plaintiff will fairly and adequately protect the interests of the members of the Class
2 and has retained counsel competent and experienced in class and securities litigation.
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21. Common questions of law and fact exist as to all members of the Class and
4 predominate over any questions solely affecting individual members of the Class. Among the
5 questions of law and fact common to the Class are:
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(a) whether the federal securities laws were violated by defendants' acts as alleged
7 1 herein;
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(b) whether statements made by defendants to the investing public during the Class
9 Period misrepresented material facts about the business, operations and management of Tripath; and
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(c) to what extent the members of the Class have sustained damages and the proper
11 measure of damages.
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22. A class action is superior to all other available methods for the fair and efficient
13 adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the
14 damages suffered by individual Class members may be relatively small, the expense and burden of
15 individual litigation make it impossible for members of the Class to individually redress the wrongs
16 done to them. There will be no difficulty in the management of this action as a class action.
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SUBSTANTIVE ALLEGATIONS
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Background
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23. Tripath develops and supplies digital amplifiers for three markets based on
20 proprietary technology, called Digital Power Processing ("DPP"). These markets include Consumer
21 Electronics, DSL ("Digital Subscriber Line") and Wireless. Within the Consumer Electronics
22 market, the Company targets the consumer audio and automotive audio market segments. Within
23 the DSL market, Tripath has begun offering single and dual channel line driver products. Within
24 the Wireless market, the Company has a research and development program aimed at developing
25 a family of amplifier products for use in wireless handsets, also known as Radio Frequency ("RF")
26 Power Amplifiers.
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Materially False And Misleading Statements Issued During The Class Period
24. The Class Period commences on January 29, 2004. At that time, Tripath reported
financial results for its fourth quarter and fiscal year 2003. Revenues for the fourth quarter ended
December 31, 2003 were $4.1 million, an increase of 11% over revenues of $3.7 million for the third
quarter of fiscal year 2003 and an increase of 41% over revenues of $2.9 million for the fourth
quarter of fiscal 2002. Revenues for fiscal year 2003 were $13.9 million, a decrease of 14% from
revenues of$ 16.2 million for fiscal year 2002. The gross margin for the fourth quarter of fiscal year
9 2003 was 33% compared with 32% for the third quarter of fiscal year 2003 and 23% for the fourth
10 quarter of fiscal year 2002. The gross margin for fiscal year 2003 was 30% compared to a negative
11 margin of 14% for fiscal year 2002. Operating expenses for the fourth quarter of fiscal year 2003
12 remained flat at $2.7 million compared with the third quarter of fiscal year 2003 and decreased by
13 23% from $3.5 million for the fourth quarter of fiscal year 2002. Operating expenses for fiscal year
14 2003 were $11.4 million, a decrease of 34% from operating expenses of$ 17.2 million for fiscal year
15 2002. Commenting on these results, defendant Tripathi stated:
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We are again pleased with the continued improvement in our operating performance during the fourth quarter[.] ... We achieved 11% sequential revenue growth over the
17 previous quarter and we were able to improve our gross profit margins from 32% in Q3 to 33% in Q4 primarily as a result of lower manufacturing costs. Operating expenses remained flat at $2.7 million and we increased our cash balance to $9.6 18 million. During the fourth quarter we received approximately $1.4 million in proceeds from the exercise of stock warrants that were issued in connection with the 19 January 2002 financing in which we raised $21 million in gross proceeds.
20 We are also very pleased with our progress in securing a number of major design wins during the fourth quarter including flat panel TV design wins with Samsung and 21 Hitachi[.]. . .We also recently announced the introduction of a new breakthrough low cost power stage architecture platform ("Godzilla") that can be used across the broad 22 spectrum of audio amplifiers from 1 OW/ch PC stereo to greater than 1 50W/ch AV receivers. We believe, with this new architecture, we will be competitively priced 23 with existing analog amplifiers without compromising the audio performance that our customers have come to expect from Tripath's Class-T(TM) Digital Amplifiers. 24 We believe this architecture will enable us to reduce our manufacturing costs and is expected to improve our gross margins in the future. 25
25. On March 9, 2004, Tripath filed its annual report with the SEC on Form 10-K. The 26
Company's Form 10-K was signed by defendants Tripathi and Eichler and reaffirmed Tripath's 27
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previously announced financial results. Additionally, the Company's Form 10-K included the
following clean audit opinion by the Tripath's accountants BDO Seidman, LLP, ("BDO"):
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tripath Technology Inc. and its subsidiary at December 31, 2003 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
26. On April 22, 2004, Tripath reported financial results for its first quarter of fiscal year
2004. Revenues for the first quarter ended March 31, 2004 were $4.2 million, a sequential increase
of 2% over revenues of $4.1 million for the fourth quarter of fiscal year 2003 and an increase of 40%
9 over revenues of $3.0 million for the first quarter of fiscal year 2003. The Company's net loss
10 I applicable to the common stockholders for the first quarter of fiscal year 2004 was $1.8 million or
11 $(0.04) per share, compared to a net loss of $1.4 million, or $(0.03) per share for the fourth quarter
12 of fiscal year 2003, and a net loss of $2.5 million or $(0.06) per share for the first quarter of fiscal
13 year 2003. The gross profit margin declined during the first quarter of fiscal year 2004 to 29%
14 compared with 33% for the fourth quarter of fiscal year 2003 primarily due to higher assembly and
15 test manufacturing costs. Operating expenses increased by 7% from $2.8 million for the fourth
16 quarter of fiscal year 2003 to $3.0 million for the first quarter of fiscal year 2004. Commenting on
17 these results, defendant Tripathi stated:
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Despite weaker seasonal demand in the consumer electronics market, Tripath achieved modest revenue growth of 2% during the first quarter of 2004. Revenues
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for the first quarter of 2004, were also up 40% year-over year[.J...
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We are pleased with the progress we are making in penetrating the consumer electronics and communications markets. During the first quarter we announced
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design wins in the flat panel TV market with TCL, a leading Chinese company in the plasma and LCD TV markets in Asia, and with Bizo, a leading Japanese
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manufacturer of high-end visual display products with a wide range of LCD, CRT and PDP monitors. We were also selected by Samsung for five additional LCD,
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plasma TVs and two LCD monitors and are now featured in approximately twenty Samsung LCD, Plasma and DLP TV models ranging from 15 to 63 inches. Sales in
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the flat panel TV market represented 51% of our total revenues last quarter.
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We continue to make excellent progress in the automotive market[.]. ..We announced two design wins with Panasonic's in-dash TV/DVD receivers and CD player/receiver
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and also introduced the world's first 4 channel x 100 watt digital audio amplifier chip in a single package at the Consumer Electronics Show (CES) in Las Vegas. In the
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communications market, we recently announced that our line driver product was selected by Alcatel Shanghai Bell for their 24 channel DSL line card and we began
28 shipping product during the later part of March 2004.
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We also introduced four CMOS digital amplifier devices in January 2004 at CES based on the new 'Godzilla' low cost architecture which are now being sampled with volume production anticipated to start during the third quarter of 2004.
27. On April 30, 2004, Tripath filed its quarterly report with the SEC on Form 10-Q. The
Company's Form 10-Q was signed by defendant Eichler and reaffirmed Tripath's previously
announced financial results. With respect to its financial results, the Company stated:
The unaudited condensed interim consolidated financial statements included herein have been prepared by Tripath Technology Inc. (the "Company") in accordance with accounting principles generally accepted in the United States of America and reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary to state fairly the Company's financial position, results of operations and cash flows for the periods presented.
28. On August 5, 2004, Tripath reported financial results for its second quarter of fiscal
year 2004. Revenues for the second quarter ended June 30, 2004 were $4.4 million, an increase of
5% over revenues of $4.2 million for the first quarter of fiscal 2004 and an increase of 42% over
revenues of $3.1 million for the second quarter of fiscal 2003. The net loss for the second quarter
of fiscal year 2004 was $1.9 million or $(0.04) per share, compared to a net loss of $1.8 million, or
$(0.04) per share for the first quarter of fiscal year 2004, and a net loss of $1.8 million or $(0.04)
per share for the second quarter of fiscal year 2003. Commenting on these results, defendant
Tripathi stated:
We are somewhat pleased with our operating performance during the second quarter[.] ... We achieved 5% sequential revenue growth over the previous quarter.
Demand for our products in the communications (DSL line driver) and in the home entertainment system market segments were much stronger during the second quarter of 2004 than our expectations. These segments represented approximately 20% and 25% of revenues in the June quarter, respectively, compared to 9% and 2% of revenues, respectively, during the March 2004 quarter. Sales of our products in the flat panel TV segment during the second quarter remained strong and represented approximately 52% of revenues, compared with 51% during the first quarter. Unfortunately, shipments in the gaming market segment were lower than what we previously expected, due to customers' concerns about new government regulations over gaming in Japan. These concerns have been alleviated and we are now receiving sales orders again.
We are also very pleased with our progress in securing a number of major design wins during the second quarter, including design wins with Changhong and Denon[.] ... We believe that the design win with Changhong is significant from the standpoint of providing us with additional entry into the China flat panel TV market.
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Changhong is one of the leading companies in the China plasma and LCD TV market. Along with our design win with TCL, which we announced during the first quarter, we are now achieving good traction in the China flat panel TV market.
We also recently announced the introduction of a new amplifier device (TAA2008) for the flat panel TV market. While we have experienced some increased price competition in this market, we still remain the performance leader. We believe the TAA2008 is a reliable solution for a great price and are optimistic that this will be a successful product for us in the flat panel TV market which is widely recognized as one of the fastest growing markets in consumer electronics.
29. On August 6, 2004, Tripath filed its quarterly report with the SEC on Form l0-Q.
The Company's Form 10-Q was signed by defendant Eichler and reaffirmed the Tripath' s previously
announced financial results. With respect to its financial results, the Company stated:
The unaudited condensed interim consolidated financial statements included herein have been prepared by Tripath Technology Inc. (the "Company") in accordance with accounting principles generally accepted in the United States of America and reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary to state fairly the Company's financial position, results of operations and cash flows for the periods presented.
30. The statements contained in ¶11 24-29 were materially false and misleading when
made because defendants failed to disclose or indicate the following: (1) that the Company
improperly recognized revenue from sales of product that was eventually returned to the distributor;
(2) that as a result of this, the Company had to increase its sales return reserve for the third quarter
and had to take a charge of approximately $4.0 - $4.5 million for excess inventory; (3) that the
Company's financial results were in violation of Generally Accepted Accounting Principles
("GAAP"); (4) that the Company lacked adequate internal controls, especially the ability to
adequately estimate distributor sales returns in accordance with SFAS no. 48; and (5) that as a result
of the above, the Company's financial results were materially inflated at all relevant times and the
defendants lacked a reasonable basis for their statements regarding the Company.
The Truth Begins to Emerge
31. On October 22, 2004, Tripath announced that net revenues for the third quarter of
2004 would be significantly below prior guidance of $4 - $4.5 million. More specifically, the
Company stated:
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Shipments made to customers during the third quarter are currently estimated to be between $1.9 million and $2.1 million. Tripath is currently reviewing the return of $1.3 million of product to a distributor in the third quarter. This product had been shipped to customers by the distributor, and recognized as revenue by the Company, in the quarter ended June 30, 2004. The distributor paid for this product during the third quarter. The Distributor will not return this product to the Company. Tripath may restate its revenue for the quarter ended June 30, increase its sales return reserve for the third quarter, which would reduce net revenue in the third quarter, or make other adjustments. In addition, Tripath plans to take a charge of approximately $4.0 - $4.5 million for excess inventory. Tripath will also implement a variety of measures to reduce operating expenses and streamline its current business model.
Tripath anticipates that its net loss for the third quarter will be significantly greater than previously anticipated. In addition, Tripath expects that its cash, cash equivalents and restricted cash balance will be approximately $7.3 million at September 30, 2004, and estimates that the net cash used in operating activities totaled approximately $3.0 million for the third quarter.
Tripath also announced today that its former independent accountants, BDO Seidman, LLP, resigned on October 18, 2004. As more fully explained in the Form 8-K that will be filed by the Company today, on October 18, 2004 BDO Seidman issued a letter asserting material weaknesses in Tripath's internal controls concerning the effectiveness of Tripath's Audit Committee and Tripath's ability to estimate distributor sales returns in accordance with SPAS no. 48. Tripath is actively recruiting a "financial expert" to join the Board and does not agree that there is a material weakness over its ability to estimate distributor returns in accordance with SPAS No. 48.
32. News of this shocked the market. Shares of Tripath fell $.75 per share, or 49.34
percent, on October 25, 2004, to close at $.77 per share.
TRIPATH'S VIOLATION OF GAAP RULES
33. GAAP states that "revenue should not be recognized until it is realized or realizable
and earned." FASB Concepts Statement No. 5, ¶83. The conditions for the recognition of revenue
are met when "persuasive evidence of an arrangement exists, delivery has occurred or services have
been rendered, the seller's price is fixed or determinable, collectibility of the sales price is
reasonably assured and when the entity has substantially performed the obligations which entitle it
to the benefits represented by the revenue." Here, Tripath improperly recognized revenue when
revenue from such transactions was not realizable and earned, which is in violation of GAAP.
34. Given these accounting irregularities, the Company announced financial results that
were in violation of GAAP, the Company's own announced revenue recognition policies, and the
following principles:
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(a) The principle that "interim financial reporting should be based upon the same
2 accounting principles and practices used to prepare annual financial statements" was
3 violated (APB No. 28, ¶10);
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(b) The principle that "financial reporting should provide information that is useful to
5 present to potential investors and creditors and other users in making rational
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investment, credit, and similar decisions" was violated (FASB Statement of Concepts
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No. 1,J34);
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(c)
The principle that "financial reporting should provide information about the
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economic resources of an enterprise, the claims to those resources, and effects of
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transactions, events, and circumstances that change resources and claims to those
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resources" was violated (FASB Statement of Concepts No. 1, ¶40);
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(d)
The principle that "financial reporting should provide information about an
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enterprise's financial performance during a period" was violated (FASB Statement
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of Concepts No. 1, ¶42);
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(e)
The principle that "completeness, meaning that nothing is left out of the information
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that may be necessary to insure that it validly represents underlying events and
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conditions" was violated (FASB Statement of Concepts No. 2, ¶79);
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(f)
The principle that "financial reporting should be reliable in that it represents what it
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purports to represent" was violated (FASB Statement of Concepts No. 2, ¶J58-59);
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and
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The principle that "conservatism be used as a prudent reaction to uncertainty to try
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to ensure that uncertainties and risks inherent in business situations are adequately
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considered" was violated. (FASB Statement of Concepts No. 2, ¶95).
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35. The adverse information concealed by defendants during the Class Period and
25 detailed above was in violation of Item 303 of Regulation S-K under the federal securities law
26 (17 C.F.R. 229.303).
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UNDISCLOSED ADVERSE FACTS
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36. The market for Tripath's securities was open, well-developed and efficient at all
3 relevant times. As a result of these materially false and misleading statements and failures to
4 disclose, Tripath's securities traded at artificially inflated prices during the Class Period. Plaintiff
5 and other members of the Class purchased or otherwise acquired Tripath securities relying upon the
6 integrity of the market price of Tripath's securities and market information relating to Tripath, and
7 have been damaged thereby.
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37. During the Class Period, defendants materially misled the investing public, thereby
9 inflating the price of Tripath's securities, by publicly issuing false and misleading statements and
10 omitting to disclose material facts necessary to make defendants' statements, as set forth herein, not
11 false and misleading. Said statements and omissions were materially false and misleading in that
12 they failed to disclose material adverse information and misrepresented the truth about the
13 Company, its business and operations, as alleged herein.
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38. At all relevant times, the material misrepresentations and omissions particularized
15 in this Complaint directly or proximately caused or were a substantial contributing cause of the
16 damages sustained by plaintiff and other members of the Class. As described herein, during the
17 Class Period, defendants made or caused to be made a series of materially false or misleading
18 statements about Tripath's business, prospects and operations. These material misstatements and
19 omissions had the cause and effect of creating in the market an unrealistically positive assessment
20 of Tripath and its business, prospects and operations, thus causing the Company's securities to be
21 overvalued and artificially inflated at all relevant times. Defendants' materially false and misleading
22 statements during the Class Period resulted in plaintiff and other members of the Class purchasing
23 the Company's securities at artificially inflated prices, thus causing the damages complained of
24 herein.
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ADDITIONAL SCIENTER ALLEGATIONS
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39. As alleged herein, defendants acted with scienter in that defendants knew that the
27 public documents and statements issued or disseminated in the name of the Company were
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disseminated to the investing public; and knowingly and substantially participated or acquiesced in
the issuance or dissemination of such statements or documents as primary violations of the federal
securities laws. As set forth elsewhere herein in detail, defendants, by virtue of their receipt of
information reflecting the true facts regarding Tripath, their control over, and/or receipt and/or
modification ofTripath allegedly materially misleading misstatements and/or their associations with
the Company which made them privy to confidential proprietary information concerning Tripath,
1 participated in the fraudulent scheme alleged herein.
40. Defendants knew and/or recklessly disregarded the falsity and misleading nature of
the information which they caused to be disseminated to the investing public. The ongoing
fraudulent scheme described in this complaint could not have been perpetrated over a substantial
period of time, as has occurred, without the knowledge and complicity of the personnel at the
highest level of the Company, including the Individual Defendants.
41. During the Class Period, defendant Thripathi was able to sell his shares while the
Company's stock traded at artificially inflated prices and reaped about $2 million in proceeds as
shown by the proceeding chart:
NAME DATE AMOUNT/PRICE PROCEEDS
Adya S. Tripathi 05/26/04 40,000 @ $4.255 $107,200 05/27/04 250,000 @ $4.026 $1,006,500 05/28/04 210,000@$3.887 $816,270
Total Shares Total Proceeds: $1,929,970 Sold:300,000
Applicability Of Presumption Of Reliance: Fraud-On-The-Market Doctrine
42. At all relevant times, the market for Tripath securities was an efficient market for the
following reasons, among others:
(a) Tripath securities met the requirements for listing, and was listed and actively
traded on the NASDAQ, a highly efficient and automated market;
(b) As a regulated issuer, Tripath filed periodic public reports with the SEC and the
complaint.wpd 11 CLASS ACTION COMPLAINT 14
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(c) Tripath regularly communicated with public investors via established market
2 II communication mechanisms, including through regular disseminations of press releases on the
3 II national circuits of major newswire services and through other wide-ranging public disclosures, such
4 II as communications with the financial press and other similar reporting services; and
5
(d) Tripath was followed by several securities analysts employed by major brokerage
6 firms who wrote reports which were distributed to the sales force and certain customers of their
7 respective brokerage firms. Each of these reports was publicly available and entered the public
8 marketplace.
9
43. As a result of the foregoing, the market for Tripath securities promptly digested
10 current information regarding Tripath from all publicly-available sources and reflected such
11 information in Tripath stock price. Under these circumstances, all purchasers of Tripath securities
12 during the Class Period suffered similar injury through their purchase of Tripath securities at
13 artificially inflated prices and a presumption of reliance applies.
14
NO SAFE HARBOR
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44. The statutory safe harbor provided for forward-looking statements under certain
16 circumstances does not apply to any of the allegedly false statements pleaded in this complaint.
17 Many of the specific statements pleaded herein were not identified as "forward-looking statements"
18 when made. To the extent there were any forward-looking statements, there were no meaningful
19 cautionary statements identifying important factors that could cause actual results to differ
20 materially from those in the purportedly forward-looking statements. Alternatively, to the extent
21 that the statutory safe harbor does apply to any forward-looking statements pleaded herein,
22 defendants are liable for those false forward-looking statements because at the time each of those
23 forward-looking statements was made, the particular speaker knew that the particular forward-
24 looking statement was false, and/or the forward-looking statement was authorized and/or approved
25 by an executive officer of Tripath who knew that those statements were false when made.
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FIRST CLAIM Violation Of Section 10(b) Of
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The Exchange Act Against And Rule lOb-S Promulgated Thereunder Against All Defendants
3 45. Plaintiff repeats and realleges each and every allegation contained above as if fully
4 set forth herein.
5 46. During the Class Period, defendants carried out a plan, scheme and course of conduct
6 which was intended to and, throughout the Class Period, did: (i) deceive the investing public,
7 including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and other
8 members of the Class to purchase Tripath securities at artificially inflated prices. In furtherance of
9 this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions
10 set forth herein.
11 47. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made untrue
12 statements of material fact and/or omitted to state material facts necessary to make the statements
13 not misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud
14 and deceit upon the purchasers of the Company's securities in an effort to maintain artificially high
15 market prices for Tripath securities in violation of Section 10(b) of the Exchange Act and Rule lOb-
16 5. All defendants are sued either as primary participants in the wrongful and illegal conduct charged
17 herein or as controlling persons as alleged below.
18 48. Defendants, individually and in concert, directly and indirectly, by the use, means
19 or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a
20 continuous course of conduct to conceal adverse material information about the business, operations
21 and future prospects of Tripath as specified herein.
22 49. These defendants employed devices, schemes and artifices to defraud, while in
23 possession of material adverse non-public information and engaged in acts, practices, and a course
24 of conduct as alleged herein in an effort to assure investors of Tripath value and performance and
25 continued substantial growth, which included the making of, or the participation in the making of,
26 untrue statements of material facts and omitting to state material facts necessary in order to make
27 the statements made about Tripath and its business operations and future prospects in the light of
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1 the circumstances under which they were made, not misleading, as set forth more particularly herein,
2 and engaged in transactions, practices and a course of business which operated as a fraud and deceit
3 upon the purchasers of Tripath securities during the Class Period.
4
50. Each of the Individual Defendants' primary liability, and controlling person liability,
5 arises from the following facts: (i) the Individual Defendants were high-level executives and/or
6 directors at the Company during the Class Period and members of the Company's management team
7 or had control thereof (ii) each of these defendants, by virtue of his responsibilities and activities
8 as a senior officer and/or director of the Company was privy to and participated in the creation,
9 development and reporting of the Company's internal budgets, plans, projections and/or reports;
10 (iii) each of these defendants enjoyed significant personal contact and familiarity with the other
11 defendants and was advised of and had access to other members of the Company's management
12 team, internal reports and other data and information about the Company's finances, operations, and
13 sales at all relevant times; and (iv) each of these defendants was aware of the Company's
14 dissemination of information to the investing public which they knew or recklessly disregarded was
15 materially false and misleading.
16
51. The defendants had actual knowledge of the misrepresentations and omissions of
17 material facts set forth herein, or acted with reckless disregard for the truth in that they failed to
18 ascertain and to disclose such facts, even though such facts were available to them. Such defendants'
19 material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose
20 and effect of concealing Tripath operating condition and future business prospects from the investing
21 public and supporting the artificially inflated price of its securities. As demonstrated by defendants'
22 overstatements and misstatements of the Company's business, operations and earnings throughout
23 the Class Period, defendants, if they did not have actual knowledge of the misrepresentations and
24 omissions alleged, were reckless in failing to obtain such knowledge by deliberately refraining from
25 taking those steps necessary to discover whether those statements were false or misleading.
26
52. As a result of the dissemination of the materially false and misleading information
27 and failure to disclose material facts, as set forth above, the market price of Tripath securities was
28 artificially inflated during the Class Period. In ignorance of the fact that market prices of Tripath
complarntwpd 11 CLASS ACTION COMPLAINT 17
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1 publicly-traded securities were artificially inflated, and relying directly or indirectly on the false and
2 misleading statements made by defendants, or upon the integrity of the market in which the
3 securities trades, and/or on the absence of material adverse information that was known to or
4 recklessly disregarded by defendants but not disclosed in public statements by defendants during
5 the Class Period, Plaintiff and the other members of the Class acquired Tripath securities during the
6 Class Period at artificially high prices and were damaged thereby.
7
53. At the time of said misrepresentations and omissions, Plaintiff and other members
8 of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff and the other
9 members of the Class and the marketplace known the truth regarding the problems that Tripath was
10 experiencing, which were not disclosed by defendants, Plaintiff and other members of the Class
11 would not have purchased or otherwise acquired their Tripath securities, or, if they had acquired
12 such securities during the Class Period, they would not have done so at the artificially inflated prices
13 which they paid.
14
54. By virtue of the foregoing, defendants have violated Section 10(b) of the Exchange
15 Act, and Rule lOb-S promulgated thereunder.
16
55. As a direct and proximate result of defendants' wrongful conduct, Plaintiff and the
17 other members of the Class suffered damages in connection with their respective purchases and sales
18 of the Company's securities during the Class Period.
19
SECOND CLAIM Violation Of Section 20(a) Of
20
The Exchange Act Against the Individual Defendants
21
56. Plaintiff repeats and realleges each and every allegation contained above as if fully
22 set forth herein.
23
57. The Individual Defendants acted as controlling persons ofTripath within the meaning
24 of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions, and
25 their ownership and contractual rights, participation in and/or awareness of the Company's
26 operations and/or intimate knowledge of the false financial statements filed by the Company with
27 the SEC and disseminated to the investing public, the Individual Defendants had the power to
28 influence and control and did influence and control, directly or indirectly, the decision-making of
complainLwpd 11 CLASS ACTION COMPLAINT 18
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1 the Company, including the content and dissemination of the various statements which Plaintiff
2 contend are false and misleading. The Individual Defendants were provided with or had unlimited
3 access to copies of the Company's reports, press releases, public filings and other statements alleged
4 II by Plaintiff to be misleading prior to and/or shortly after these statements were issued and had the
5 II ability to prevent the issuance of the statements or cause the statements to be corrected.
6
58. In particular, each of these defendants had direct and supervisory involvement in the
7 day-to-day operations of the Company and, therefore, is presumed to have had the power to control
8 or influence the particular transactions giving rise to the securities violations as alleged herein, and
9 exercised the same.
10
59. As set forth above, Tripath and the Individual Defendants each violated Section
11 10(b) and Rule lOb-S by their acts and omissions as alleged in this Complaint. By virtue of their
12 positions as controlling persons, the Individual Defendants are liable pursuant to Section 20(a) of
13 the Exchange Act. As a direct and proximate result of defendants' wrongful conduct, Plaintiff and
14 other members of the Class suffered damages in connection with their purchases of the Company's
15 securities during the Class Period.
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WHEREFORE, Plaintiff prays for relief and judgment, as follows:
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(a) Determining that this action is a proper class action, designating Plaintiff as Lead
18 Plaintiff and certifying Plaintiff as a class representative under Rule 23 of the Federal Rules of Civil
19 Procedure and Plaintiff's counsel as Lead Counsel;
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(b) Awarding compensatory damages in favor of Plaintiff and the other Class members
21 against all defendants, jointly and severally, for all damages sustained as a result of defendants'
22 wrongdoing, in an amount to be proven at trial, including interest thereon;
23
(c) Awarding Plaintiff and the Class their reasonable costs and expenses incurred in this
24 action, including counsel fees and expert fees; and
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(d) Such other and further relief as the Court may deem just and proper.
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comparntwpd CLASS ACTION COMPLAINT
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JURY TRIAL DEMANDED
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Plaintiff hereby demands a trial by jury.
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I Dated: November 4, 2004
Respectfully submitted,
GREEN WELLING LLP
By: JJ 'I , J'.' obert S. Green
235 Pine Street, 15th Floor San Francisco, California 94104 Telephone: (415) 477-6700 Facsimile: (415) 477-6710
Marc A. Topaz Richard A. Maniskas Tamara Skvirsky SCHIFFRIN & BARRO WAY, LLP Three Bala Plaza East, Suite 400 Bala Cynwyd, PA 19004 Telephone: (610) 667-7706 Facsimile: (610) 667-7056
Attorneys for Plaintiff
complaintwpd CLASS ACTION COMPLAINT
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CERTIFICATION OF NAMED PLAINTIFF I'URSUANT TO FEDERAL LAWS
I. (print name) ("Plaintiff") declare, as to the claims asserted under the federal
securities laws, that:
plaintiff has reviewed the Complaint and authorizes its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of Plaintiffs counsel or in order to
participate in any private action.
3. Plaintiff is willing to serve as a represcntativc party on behalf of the class, including providing testimony at deposition and
trial, if necessary.
4. PlaintifFs transaction(s) in the Tripath Technology, Inc. (Nasdaq: TRPII) security that is thsubjcctofthis action during
the Class Period is/arc as follows':
No. of Shares ( 13 -OA Seu Date Price Per Share
- -.
j..isr suornonat transactions on a separate sneer os paper, it nrucsSary.
5. Plaintiff has complete authority to bring a suit to recover for investment losses.
6. During the three years prior to the date of this Certification, Plaintiff has sought to serve or served as a rcprcscutative patty
or a class in the following actions filed under the federal securities laws (if none, so indicate): fi OWE.
7. Plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiffs pro
sata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to the representation of the class
as ordered or approved by the Court.
I declare under penalty of perjury that the foregoing is true and correct.
Execute __,,2001.
Signature
11131?f/4MOt-'f'6 Print Nam -
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2006 SPOON L17: VOW/TO/IT