case 1:13-cv-06882-rjs document 1 filed 09/27/13...

Case 1:13-cv-06882-RJS Document 1 Filed 09/27/13 of 23

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

x JOHN ORTUZAR, Individually and on Behalf: of All Others Similarly Situated,

Plaintiff,

VS.

FRANCESCA'S HOLDINGS CORPORATION, GREG BRENNEMAN, RICHARD ZANNINO, NEILL P. DAVIS, THERESA R. BACKES, MARK VENDETTI,: SET JIN ALT and RANDI SONENSHEIN,

Civil Action No. 1 - CV -

CLASS ACTION

COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS

DEMAND FOR JURY TRIAL Defendants.

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Plaintiff John Ortuzar ("plaintiff'), individually and on behalf of all others similarly situated,

by plaintiffs undersigned attorneys, for plaintiffs complaint against defendants, alleges the

following based upon personal knowledge as to plaintiff and plaintiff's own acts, and upon

information and belief as to all other matters based on the investigation conducted by and through

plaintiffs attorneys, which included, among other things, a review of Securities and Exchange

Commission ("SEC") filings by Francesca's Holdings Corporation ("Francesca's" or the

"Company"), as well as conference call transcripts and media and analyst reports about the

Company. Plaintiff believes that substantial evidentiary support will exist for the allegations set

forth herein after a reasonable opportunity for discovery.

NATURE OF THE ACTION

1. This is a securities class action on behalf of all purchasers of the common stock of

Francesca's between March 20, 2013 and September 3, 2013, inclusive (the "Class Period").

Plaintiff seeks to pursue remedies against Francesca's and certain of its most senior executives under

§S10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Rule lOb-5

promulgated thereunder.

JURISDICTION AND VENUE

2. Jurisdiction is conferred by §27 of the Exchange Act. The claims asserted herein

arise under § § 10(b) and 20(a) of the Exchange Act and Rule 1 Ob-5 promulgated thereunder. This

Court has jurisdiction over the subject matter of this action under 28 U.S.C. §§ 1331 and 1337, and

§27 of the Exchange Act,

3. Venue is proper in this District pursuant to §27 of the Exchange Act and 28 U.S.C.

§1391(b) as the Company's common stock was traded on the NASDAQ Global Select Market

("NASDAQ") in this District throughout the Class Period; the Selling Stockholder Defendants

(defined below) delivered 7,394,727 shares of Francesca's common stock to Jefferies & Co.

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("Jefferies") in this District on April 2, 2013, which Jefferies immediately began reselling from this

District throughout the Class Period; and the alleged misconduct was transacted in and emanated

from this District.

4. In connection with the acts alleged in this complaint, defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to,

the mails, interstate telephone communications and the facilities of the national securities markets.

PARTIES

5. Plaintiff John Ortuzar, as set forth in the accompanying Certification, which is

incorporated by reference herein, purchased Francesca's common stock during the Class Period and

has been damaged thereby.

6. Defendant Francesca's, through its subsidiary, Francesca's Collections, Inc., operates

a chain of 429 retail boutiques in 44 states in the United States, including in New York. The

Company offers fashion apparel, jewelry, accessories, and gifts primarily to its female customers.

The Company also sells its products throughout the country through its Website at francescas.com .

The Company's common stock was listed on the NASDAQ, an efficient market, throughout the

Class Period, under the ticker symbol "FRAN," and, as of May 31, 2013, the Company had

approximately 44 million shares of common stock issued and outstanding.

7. Defendant Greg Brenneman ("Brenneman") is, and was throughout the Class Period,

a member of the Francesca's Board of Directors (the "Board") and the Chairman of that Board.

Defendant Brenneman was also the Chairman of CCMP Capital Advisors, LLC ("CCMP"). CCMP,

and entities affiliated with CCMP, which are headquartered in New York City, owned approximately

7.3 million shares of the Company's common stock at the start of the Class Period, or 16.4% of its

then-outstanding capital, all of which was sold in an underwritten stock offering conducted by

Jefferies on or about March 26, 2013 (the "Jefferies Offering"). According to the prospectus filed by

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the Company with the SEC in March 2013 and used by Jefferies to conduct the Jefferies Offering,

defendant Brenneman along with two other CCMP executives were "deemed to beneficially own the

shares owned by the CCMP Capital Funds" sold to Jefferies for $28.36 per share, or $205.5 million

in proceeds to CCMP, and then sold by Jefferies in the Jefferies Offering.

8. Defendant Richard Zannino ("Zaimino") is, and was throughout the Class Period, a

director of Francesca's, a Managing Director of CCMP, and a beneficial owner of the approximately

7.3 million CCMP shares sold to Jefferies for $205.5 million in proceeds, and then sold by Jefferies

in the Jefferies Offering,

9. Defendant Neill P. Davis ("Davis") is, and was throughout the Class Period, a

director and the Chief Executive Officer ("CEO") of Franchesca's.

10, Defendant Mark Vendetti ("Vendetti") is, and was throughout the Class Period, the

Chief Financial Officer ("CFO") of Franchesca's.

11, Defendant Theresa R. Backes ("Backes") is, and was throughout the Class Period, the

President and Chief Operating Officer of Franchesca's. Defendant Backes sold 114,996 shares to

Jefferies for sale in the Jefferies Offering, receiving more than $3.2 million in proceeds.

12. Defendant Sei Jin Alt ("Alt") is, and was throughout the Class Period, the Executive

Vice President and Chief Merchandizing Officer of Franchesca's. Defendant Alt sold 16,000 shares

to Jefferies for sale in the Jefferies Offering, receiving $453,760 in proceeds.

13. Defendant Randi Sonenshein ("Sonenshein") is, and was throughout the Class Period,

the Vice President, Finance and Investor Relations of Franchesca's. Defendant Sonenshein sold

16,000 shares to Jefferies for sale in the Jefferies Offering, receiving $453,760 in proceeds.

14. The defendants referenced above in ¶117-13 are referred to herein as the "Individual

Defendants." Francesca's and the Individual Defendants are referred to herein, collectively, as

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"Defendants." The Defendants referenced above in ¶7-8 and 11-13 are also sometimes referred to

herein as the "Selling Stockholder Defendants."

CLASS ACTION ALLEGATIONS

15. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a class consisting of all purchasers of the common stock of

Francesca's during the Class Period (the "Class"). Excluded from the Class are Defendants, the

officers and directors of the Company, at all relevant times, members of their immediate families and

their legal representatives, heirs, successors or assigns and any entity in which Defendants have or

had a controlling interest.

16. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, Francesca's common stock was actively traded on the

NASDAQ. While the exact number of Class members is unknown to plaintiff at this time and can

only be ascertained through appropriate discovery, plaintiff believes that there are hundreds of

thousands of members in the proposed Class. Record owners and other members of the Class may

be identified from records maintained by Francesca's and/or its transfer agent and may be notified of

the pendency of this action by mail, using the form of notice similar to that customarily used in

securities class actions.

17. Plaintiff's claims are typical of the claims of the members of the Class as all members

of the Class are similarly affected by Defendants' wrongful conduct in violation of federal law that is

complained of herein.

18. Plaintiff will fairly and adequately protect the interests of the members of the Class

and has retained counsel competent and experienced in class and securities litigation.


19. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

(a) whether the Exchange Act was violated by Defendants as alleged herein;

(b) whether statements made by Defendants misrepresented material facts about

the business, operations and management of Francesca's; and

(c) to what extent the members of the Class have sustained damages and the

proper measure of damages.

20. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the

damages suffered by individual Class members may be relatively small, the expense and burden of

individual litigation make it impossible for members of the Class to individually redress the wrongs

done to them. There will be no difficulty in the management of this action as a class action.

BACKGROUND

21, In February 2010, CCMP paid $209 million to buy an 84% stake in Francesca's, then

a privately-held company, from Bear Growth Capital Partners LP and Francesca's founders John De

Meritt (who was then serving as its CEO), Kyong Gill, Insuk Koo and Chong Yi. On March 1,

2010, CCMP and Francesca's issued a press release jointly announcing that CCMP had acquired a

controlling interest in Francesca's, stating that the founders would continue to be involved in its

management.

22. Thereafter, CCMP, Franchesca's controlling shareholder, took the Company public

through an initial public stock offering in July 2011 (the "IPO"), also managed and underwritten by

Jefferies. CCMP and its affiliates then owned more than 34 million shares of the Company's

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common stock, or 84% of its then-outstanding capital, of which they sold more than 6 million shares

in the IPO, leaving CCMP with approximately 28 million shares, or 64.4% of the Company's then-

outstanding capital. Jefferies sold the shares for $17 in the IPO, with CCMP receiving $15.81 per

share, or $95.7 million in net proceeds, after deducting underwriting fees and expenses.

23. Unbeknownst to investors, in large part, businesses owned by family members of the

founders would continue supplying Francesca's post-IPO. The suppliers involved were KJK

Trading ("KJK") and Stony Leather. In total, approximately 20%-25% of Francesca's supplies

would be purchased from these two suppliers during fiscal 2012 and 2013.

24. KJK did not have a single other customer aside from Francesca's. KJK also operated

out of the same building as Francesca's in Houston. Prior to the IPO, KJK did not pay rent to

Francesca's for the space. Following the IPO, a token rent of$l ,000 was set. Francesca's maintained

no supply contracts with these suppliers. KJK has been owned and run by Ki Juing Gu ("Gu"), the

brother-in-law of Insuk Koo, a founder of Francesca's, as well as Kyong Gill, founder and former

EVC of Francesca's. Gu also owns KKGM, which also supplies Francesca's. Like KJK, KKGM

does not have any customers other than Francesca's.

25. Likewise, Chong Yi ("Yi") and Insuk Koo ("Koo") (two of the four founders) own

and operate Stony Leather. Yi and Koo are brother and sister. Yi and Koo along with their sister

Kyong Gill (Francesca's Executive Vice Chairperson and one of the four founders) were

stockholders of Francesca's.

26. In January 2012, CCMP sold another 10+ million shares of Francesca's common

stock in a second public stock offering underwritten by Jefferies, leaving CCMP with 16.65 million

shares, or 38.2% of the Company's then-outstanding capital. Jefferies sold these shares for $23 per

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share in the second public stock offering, with CCMP receiving $22.08 per share, or $222.1 million

in net proceeds, after deducting underwriting fees and expenses.

27. In April 2012, CCMP sold another 8.465 million shares of Franchesca's common

stock in a third public stock offering underwritten by Jefferies, leaving CCMP with 7.248 million

shares, or 16.6% of the Company's then-outstanding capital. Jefferies sold these shares for $27.60

per share in the third public stock offering, with CCMP receiving $233.6 million in net proceeds,

after deducting underwriting fees and expenses.

28. So by the start of the Class Period, CCMP had already profited by at least $342.4

million on its initial $209 million investment in Francesca's and CCMP then sought to completely

cash out, selling the remaining 7.3 million shares of Francesca's common stock it held, or 16.4% of

the Company's then-outstanding capital.

29. And for much of its life as a public company, Francesca's had been a Wall Street

darling. The stock had commanded a premium price due to the Company's ability to consistently

deliver both blistering double-digit growth and dramatically outsized margins of nearly 60%.

30. However, knowing the Company's business trends were diminishing, rather than

conducting a fourth formal underwritten secondary public stock offering, CCMP and the other

Selling Stockholder Defendants bargained with Jefferies to sell their Francesca's shares to Jefferies

at a discount to the $30.15 per share the stock was then trading at in the public market, or $28.36 per

share, and allow Jefferies to then sell the shares to the public through the NASDAQ and directly.

DEFENDANTS' MATERIALLY FALSE AND MISLEADING CLASS PERIOD STATEMENTS

31. The Class Period starts on March 20, 2013. On March 19, 2013, after the close of

trading, Francesca's issued a press release announcing its fourth quarter and fiscal 2012 financial

results (for the period ended February 2, 2013), along with its first quarter and fiscal 2013 guidance.

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Among other things, the press release emphasized that Francesca's "[f]ourth quarter net sales

increased 40.6% to $86.7 million," its "[fjourth quarter comparable boutique sales increased 9.2%,"

its "[fjourth quarter diluted earnings per share increased 73.7% to $0.33," and its full fiscal year

"[n]et sales increased 45.2% to $296.4 million." The release also stated that the full fiscal year

"[n]et sales increases were driven by a 14.9% comparable boutique sales increase and 77 new

boutique openings since the end of the prior year," that the "comparable sales increase was driven

primarily by increased transactions," and that full fiscal year "[n]et income . . . was $47.1 million or

$1.05 per diluted share compared to. . . $22.5 million, or $052 per diluted share" in fiscal 2011.

The press release also quoted defendant Davis stating, in pertinent part, that Francesca's

"delivered another quarter of strong growth and profitability as the company's differentiated shopping experience continues to resonate with new and existing customers. We are well positioned with the teams and capabilities to continue expansion of our boutique base, increase boutique productivity andfurther develop our direct-to-customer presence. Looking ahead, we continue our growth trajectory with 80 openings for fiscal 2013, reaching the milestone of over 400 locations by the end of the first quarter."

32. Based on the Company's then purported sales demand and business conditions, the

Company also introduced the following stellar guidance:

FIRST QUARTER AND FULL YEAR 2013 GUIDANCE

For the first quarter ending May 4, 2013, net sales are expected to be between $79.5 million and $80.5 million assuming a 4%-5% comparable boutique sales increase on top of the prior year increase of 15.5% and the opening of approximately 50 additional new boutiques. Earnings per diluted share are expected to be in the range of $0.25 to $0.26 an increase of 25.0% to 30.0% over the prior year diluted earnings per share of $0.20.

For the full fiscal year ending February 1, 2014, net sales are expected to be in the range of $365.0 million to $370.0 million assuming a 4% to 5% comparable boutique sales increase and the opening of 80 new boutiques. Earnings per diluted share are expected to be in the range of$ 1.27 to $1.30 an increase of 23.3% to 26.2% over the 52-week prior year adjusted diluted earnings per share.

The number of diluted average shares outstanding is expected to be 44.9 million for both the first quarter and full year. The effective tax rate is estimated to


be 39.3% for both the first quarter and full year. Capital expenditures are planned in a range of $22.0 to $25.0 million.

33. Both the reported fourth quarter and fiscal year 2012 financial results and the first

quarter 2013 and fiscal year 2013 guidance exceeded that which the investment community had

previously been led to expect. Rather than the fourth quarter 2012 earnings per share ("EPS") of

$0.33 on revenue of $86.7 million reported by Francesca's, the consensus of analyst estimates was

only $0.30 and $84.7 million. The same-store sales growth of a healthy 9.2% for the quarter gave

investors hope for a profitable expansion going forward. Rather than the expected full fiscal year

2013 EPS of $1.2741.30 per share on revenue of $365 to $370 million provided by Francesca' s, the

consensus of analyst expectations was just $1.27 per share and $370.7 million. Defendants Davis,

Vendetti, Backes and Sonenshein provided additional positive commentary concerning the

Company's then-present business metrics during the conference call held with investors that

evening.

34. On this news, the price of Francesca's common stock increased just under $2 per

share, or more than 7%, to close at $28.91 per share on March 20, 2013, on unusually high trading

volume of more than 2.4 million shares traded, approximately four times the average daily trading

volume over the preceding ten days.

35. On March 26, 2013, Francesca's filed a registration statement on Form S-3 with the

SEC registering the 7,394,727 shares Jefferies would sell in the Jefferies Offering for resale. All of

the shares Jefferies would sell in the Jefferies Offering, which commenced on or about March 26,

2013, were purchased from the Selling Stockholder Defendants for $28.36 per share and delivered to

Jefferies on or about April 4, 2013. The false and misleading registration statement filed with the

SEC and used by Jefferies to conduct the Jefferies Offering was signed by defendants Neill,

Vendetti, Brenneman and Zannino, and expressly incorporated by reference certain filings Francesca

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had previously made with the SEC and certain of its filings made with the SEC subsequent to the

filing of the registration statement, while the Jefferies Offering was still underway. Among other

things, the registration statement misleadingly described Francesca's as "a growing specialty

retailer[,] . . . providing customers a fun and differentiated shopping experience," and characterized

its "merchandise assortment [as] a diverse and balanced mix of apparel, jewelry, accessories and

gifts." The registration statement stated that the Company "offer[ed] a differentiated shopping

experience and high-quality merchandise at a compelling value," with its "boutiques hav[ing] been

successful across a wide variety of geographic markets and shopping venues." The registration

statement also affirmatively stated, in pertinent part, as follows: "We believe we have an opportunity

to continue to grow our boutique base from 360 locations in 44 states as of February 2, 2013 to

approximately 900 boutiques in the United States over the next eight years based on our flexible

boutique format, the financial characteristics of our boutiques and our ongoing analysis of

shopping venues that meet our criteria for new boutiques."

36. On June 5, 2013, Francesca' s issued a press release announcing its first quarter 2013

financial results, along with its second quarter and fiscal 2013 guidance. Among other things, the

press release emphasized that Francesca's first quarter 2013 "[n]et sales increased 29% to $79.0

million," "[c]omparable sales increased 2%," and "[a]djusted diluted earnings per share increased

24% to $0.26." The press release also quoted defendant Davis stating, in pertinent part, that

Francesca' s

"delivered on our earnings expectations as well as several strategic goals in the first quarter. We opened 56 new boutiques increasing our market presence to 416 boutiques, achieved record direct-to-consumer sales now representing 2.1% of total Company sales for the quarter, and successfully completed the rollout of our new point-of-sale system in our boutiques. Our continued execution on key growth initiatives combined with our differentiated business model and unique brand experience position us well for longterm growth."

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37. Based on the Company's then purported sales demand and business conditions, the

Company also introduced the following stellar guidance:

SECOND FISCAL QUARTER AND FULL FISCAL YEAR 2013 GUIDANCE

For the second quarter ending August 3, 2013, net sales are expected to be between $94.5 million and $95.5 million assuming a 1% to 2% increase in comparable sales including direct-to-consumer on top of the prior year comparable sales increase of 21% and the opening of approximately 21 additional new boutiques. Earnings per diluted share are expected to be in the range of $0.35 to $0.36, an increase of 21% to 24% over the prior year adjusted diluted earnings per share of $0.29, excluding $0.2 million net of tax related to stock option acceleration.

For the full year ending February 1, 2014, net sales are expected to be in the range of $365.0 million to $370.0 million assuming a 4% to 5% increase in comparable sales including direct-to-consumer and the opening of 85 new boutiques. Adjusted diluted earnings per share are expected to be in the range of$ 1.27 to $1.30. This is an increase of 22% to 25% over the 52- week prior year adjusted diluted earnings per share of$l .04 which excludes $0.5 million net of tax charge related to a secondary equity offering, $0.2 million net of tax charge related to stock option acceleration, $0.2 million net of tax charge related to the relocation of our headquarters and distribution facilities, and an approximate $0.03 of diluted earnings per share impact from the 53rd week. The number of diluted average shares outstanding is expected to be 44.9 million for both the second quarter and full year. The effective tax rate is estimated to be 39.3% for the second quarter and the full year. Capital expenditures are planned in a range of $22.0 to $25.0 million.

38. Defendants Davis, Vendetti and Sonenshein provided additional positive commentary

concerning the Company's then-present business metrics during the conference call held with

investors that evening, with Davis stating, for instance, in pertinent part as follows:

As it relates to gross margin and the potential promotional cadence, clearly, we will be much less promotional as the weather dynamic subsides. .

And as a result, our merchandise margins should be substantially similar to what they might have been in the prior year quarter.

39. Recognizing that its perceived ability to sell without engaging in the same heavy

discounting as other retailers was of paramount importance to Francesca's ability to meet its

guidance and to justify its lofty share price, in a June 24, 2013 research note to investors, based on

conversations with defendants Vendetti and Sonenshein, JPMorgan lamented that the "Secret

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Sauce" for Francesca's continued to be the fact that its markdown rate was "'less than 10%."

According to JPMorgan, "This compares to other mall based retailers that have 3-6 month lead

times and buy much deeper and have markdown rates that are north of 30%."

40. The true facts, which were known by Defendants, but concealed from the investing

public during the Class Period, were as follows:

(a) Unseasonably rainy and cold spring and summer weather had significantly

diminished the mall traffic Francesca's relied upon to drive same-store sales growth;

(b) A competitive back-to-school retail environment weighed on same-store sales

growth;

(c) Francesca's same-store sales were declining during the Class Period, forcing it

to rely upon new store openings to increase sales;

(d) Francesca's had been forced to engage in promotional selling at significant

discounts during its first quarter 2013 in order to meet its first quarter 2013 financial targets, and by

doing so, had trained its customer base to expect - and to wait for - additional discounting;

(e) Francesca's had been forced to dramatically increase promotional activity

during the second quarter of 2013 - rather than reduce it as promised - such that for any given

purchase made through Francesca's, the discounts had accelerated to a point where customers could

expect to get from 25%-50% off the price - and with other retailers offering 25% discounts,

Francesca's had lost its competitive profit margin edge that supported it high stock price;

(f) Though Francesca's largest suppliers were owned by family members of the

founding management of Francesca's, and though these suppliers continued supplying

approximately 20%-25% of Francesca's total inventory post-IPO without any sort of contract with

Francesca's, providing ultra-short turnaround times for orders, Francesca's concealed the sales terms

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and margins with these suppliers and how the cozy relationship with these suppliers could prevent it

from maintaining its above-average profit margins; and

(g) As a result of the foregoing, the Company was not on track to achieve the

financial results Defendants had led the market to expect during the Class Period,

41, On September 4, 2013, before the opening of trading, the Company issued a press

release announcing its dismal second quarter 2013 financial results and third quarter 2013 guidance.

Rather than the profit of $0.35 per share on revenues of $94.5 million the investment community had

been led to expect, Francesca's reported profits of just $0.33 per share on $89.6 million in sales.

Second quarter comparable sales declined 1%. Rather than the $89.7 million in sales Francesca's

had led the investment community to expect in the third quarter 2013, the Company forecast sales of

just $78 to $80 million - and said it expected comparable sales to decline by 2%-5%. Rather than

the profit of $0.30 per share in the third quarter 2013 the investment community had been led to

expect, the Company forecast a profit of just $0.1940.21 per share. The press release issued that

day quoted defendant Davis as stating: "'[S]econd quarter sales performance was softer than we

anticipated," blaming in part "lower levels of customer traffic. . . and the lack of a dominant

apparel fashion trend." The release also reduced fiscal 2013 guidance, with "net sales . . . now

expected to be in the range of $343.0 million to $349.5 million assuming a -2% decrease to flat

comparable sales including direct-to-consumer, compared to the prior year comparable sales increase

of 16%," and "[a]djusted diluted earnings per share . . . expected to be in the range of $1.10 to

$1.16," with the release quoting defendant Davis as stating that Defendants "anticipate that traffic

trends will remain challenging."

42. On this news, the price of Francesca's common stock, which had traded above $32

per share in intraday trading during the Class Period (on May 22, 2013), plummeted more than 44%

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from that level to close at $17.79 per share on September 4, 2013, on unusual trading volume of

more than 19.8 million shares, erasing more than $625.5 million in market capitalization from the

stock's Class Period high.

43. The market for Francesca' s common stock was open, well-developed and efficient at

all relevant times. As a result of these materially false and misleading statements and omissions as

set forth above, Francesca's common stock traded at artificially inflated prices during the Class

Period. Plaintiff and other members of the Class purchased or otherwise acquired Francesca's

common stock relying upon the integrity of the market price of Francesca's common stock and

market information relating to Francesca's, and have been damaged thereby.

44. During the Class Period, Defendants materially misled the investing public, thereby

inflating the price of Francesca's common stock, by publicly issuing false and misleading statements

and omitting to disclose material facts necessary to make Defendants' statements, as set forth herein,

not false and misleading. Said statements and omissions were materially false and misleading in that

they failed to disclose material adverse information and misrepresented the truth about the Company,

its business and operations, as alleged herein.

45. At all relevant times, the material misrepresentations and omissions particularized in

this Complaint directly or proximately caused, or were a substantial contributing cause, of the

damages sustained by plaintiff and other members of the Class. As described herein, during the

Class Period, Defendants made or caused to be made a series of materially false or misleading

statements about Francesca's business, prospects, and operations. These material misstatements and

omissions had the cause and effect of creating, in the market, an unrealistically positive assessment

of Francesca's and its business, prospects, and operations, thus causing the Company's securities to

be overvalued and artificially inflated at all relevant times. Defendants' materially false and

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misleading statements during the Class Period resulted in plaintiff and other members of the Class

purchasing Francesca's common stock at artificially inflated prices, thus causing the damages

complained of herein. When the true facts about the Company were revealed to the market, the

inflation in the price of Francesca's common stock was removed and the price of Francesca's

common stock declined dramatically, causing losses to plaintiff and the other members of the Class.

ADDITIONAL SCIENTER ALLEGATIONS

46. As alleged herein, Francesca's and the Individual Defendants acted with scienter in

that they knew that the public documents and statements issued or disseminated in the name of the

Company were materially false and misleading; knew that such statements or documents would be

issued or 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, these Defendants, by virtue of

their receipt of information reflecting the true facts regarding Francesca's, their control over, and/or

receipt and/or modification of Francesca's allegedly materially misleading statements and/or their

associations with the Company which made them privy to confidential proprietary information

concerning Francesca's, participated in the fraudulent scheme alleged herein.

NO SAFE HARBOR

47. The "Safe Harbor" warnings accompanying Francesca's reportedly forward-looking

statements ("FLS") issued during the Class Period were ineffective to shield those statements from

liability. To the extent that projected revenues and earnings were included in the Company's

financial reports prepared in accordance with GAAP, including those filed with the SEC on Form

8-K, they are excluded from the protection of the statutory Safe Harbor. See 15 U.S.C. §78u-

5 (b)(2)(A).

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48. Defendants are also liable for any false or misleading FLS pleaded because, at the

time each FLS was made, the speaker knew the FLS was false or misleading and the FLS was

authorized and/or approved by an executive officer of Francesca' s who knew that the FLS was false.

None of the historic or present tense statements made by Defendants were assumptions underlying or

relating to any plan, projection or statement of future economic performance, as they were not stated

to be such assumptions underlying or relating to any projection or statement of future economic

performance when made, nor were any of the projections or forecasts made by Defendants expressly

related to or stated to be dependent on those historic or present tense statements when made.

APPLICATION OF PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET

49. Plaintiff will rely upon the presumption of reliance established by the fraud on the

market doctrine in that, among other things:

(a) Defendants made public misrepresentations or failed to disclose material facts

during the Class Period;

(b) The omissions and misrepresentations were material;

(c) The Company's common stock traded in an efficient market;

(d) The misrepresentations alleged would tend to induce a reasonable investor to

misjudge the value of the Company's common stock; and

(e) Plaintiff and other members of the Class purchased Francesca's common

stock between the time Defendants misrepresented or failed to disclose material facts and the time

the true facts were disclosed, without knowledge of the misrepresented or omitted facts.

50. At all relevant times, the market for Francesca's common stock was efficient for the

following reasons, among others:

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(a) As a regulated issuer, Francesca's filed periodic public reports with the SEC;

and

(b) Francesca's regularly communicated with public investors via established

market communication mechanisms, including through regular disseminations of press releases on

the major news wire services and through other wide-ranging public disclosures, such as

communications with the financial press, securities analysts, and other similar reporting services.

LOSS CAUSATION/ECONOMIC LOSS

51. During the Class Period, as detailed herein, Defendants made false and misleading

statements and engaged in a scheme to deceive the market and a course of conduct that artificially

inflated the price of Francesca's common stock and operated as a fraud or deceit on Class Period

purchasers of Francesca's common stock by misrepresenting the value of the Company's business

and prospects by overstating its earnings and concealing the significant defects in its internal

controls. As Defendants' misrepresentations and fraudulent conduct became apparent to the market,

the price of Francesca's common stock fell precipitously, as the prior artificial inflation came out of

the price. As a result of their purchases of Francesca's common stock during the Class Period,

plaintiff and other members of the Class suffered economic loss, i.e., damages, under the federal

securities laws.

COUNT I

For Violations of §10(b) of the Exchange Act and Rule lOb-5 Against all Defendants

52. Plaintiff incorporates ¶Jl -51 by reference.

53. During the Class Period, Defendants disseminated or approved the false statements

specified above, which they knew or deliberately disregarded were misleading in that they contained

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misrepresentations and failed to disclose material facts necessary in order to make the statements

made, in light of the circumstances under which they were made, not misleading.

54. Defendants violated §10(b) of the Exchange Act and Rule I 0b-5 in that they:

(a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material facts

or omitted to state material facts necessary in order to make the statements made, in light of the

circumstances under which they were made, not misleading; or (c) engaged in acts, practices and a

course of business that operated as a fraud or deceit upon plaintiff and others similarly situated in

connection with their purchases of Francesca's common stock during the Class Period.

55. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of

the market, they paid artificially inflated prices for Francesca's common stock. Plaintiff and the

Class would not have purchased Francesca's common stock at the prices they paid, or at all, if they

had been aware that the market prices had been artificially and falsely inflated by Defendants'

misleading statements.

COUNT II

For Violations of §20(a) of the Exchange Act Against All Defendants

56. Plaintiff incorporates ¶'l-55 by reference.

57. The Individual Defendants acted as controlling persons of Francesca's within the

meaning of §20(a) of the Exchange Act. By reason of their positions with the Company, and their

ownership of Francesca's common stock, the Individual Defendants had the power and authority to

cause Francesca's to engage in the wrongful conduct complained of herein. Francesca's controlled

the Individual Defendants and all of its employees. By reason of such conduct, Defendants are liable

pursuant to §20(a) of the Exchange Act.

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PRAYER FOR RELIEF

WHEREFORE, plaintiff prays for relief and judgment, as follows:

A. Determining that this action is a proper class action, designating plaintiff as Lead

Plaintiff and certifying plaintiff as a Class representative under Rule 23 of the Federal Rules of Civil

Procedure and plaintiff's counsel as Lead Counsel;

B. Awarding compensatory damages in favor of plaintiff and the other Class members

against all Defendants, jointly and severally, for all damages sustained as a result of Defendants'

wrongdoing, in an amount to be proven at trial, including interest thereon;

C. Awarding plaintiff and the Class their reasonable costs and expenses incurred in this

action, including counsel fees and expert fees; and

D. Awarding such equitable/injunctive or other relief as deemed appropriate by the

Court.

JURY DEMAND

Plaintiff demands a trial by jury.

DATED: September 27, 2013 ROBBINS GELLER RUDMAN & DOWD LLP

SAMUEL H. RUDMAN

MUEL H. RUDMAN

5 ervice Road, Suite 200 Melville, NY 11747 Telephone: 631/367-7100 631/367-1173 (fax) [email protected]

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HOLZER HOLZER & FISTEL LLC MICHAEL I. FISTEL, JR. MARSHALL P. DEES 200 Ashford Center North, Suite 300 Atlanta, Georgia 30338 Telephone: 770/392-0090 770/392-0029 (fax) [email protected] [email protected]

Attorneys for Plaintiff

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CERTIFICATION OF NAMED PLAINTIFF PURSUANT TO FEDERAL SECURITIES LAWS

The undersigned declares, as to the claims asserted under the federal securities laws, that:

Plaintiff has reviewed the initial complaint filed in this action.

Plaintiff did not purchase and/or acquire the security that is the subject of this action at the direction of Plaintiff's counsel or in order to participate in any private action under the federal securities laws.

Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary. I understand that this is not a claim form, and that my ability to share in any recovery as a member of the class is not dependent upon execution of this Plaintiff Certification.

Plaintiffs transactions in the security that is the subject of this action during the Class Period are as follows:

Purchases:

Name of Company Date(s) Purchased

# Shares Purchased

Cost

FRAN —/10 31 i 3O

Sales:

Name of Company Date(s) Sold

# Shares Sold

Proceeds

During the three (3) years prior to the date of this certification, Plaintiff has not sought to serve or served as a class representative in an action filed under the federal securities laws except for the following (if any):


Plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond Plaintiffs pro rata 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.

Executed this day of ,2013 in City State

(Signature) X 9\-I C2)

(Print Name), __)/?,t/

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case 1:13-cv-06882-rjs document 1 filed 09/27/13...

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