2005 jun - 2 pm 4 : 2 8 - scac | securities class...
TRANSCRIPT
Y
U.S . DISFTIRLICEDT COURT
DtSTR4 ; f OF COLORAD O
2005 JUN - 2 PM 4 : 2 8IN THE UNITED STATES DISTRICT COUf Cr, ,~ , LAt S #AM
FOR THE DISTRICT OF COLORADO CLER K
0 5 - 1 0 1 1-[ ! V DEP . CLK
Civil Action No .
JERRY CROKER, On Behalf of Himself and All Others Similarly Situated ,
Plaintiff,
v.
CARRIER ACCESS CORPORATION,ROGER L . KOENIG ,NANCY G . PIERCE, andTIMOTHY R. ANDERSON,
Defendants .
COMPLAINT FOR VIOLATIONS OF FEDERAL SECURITIES LAWS
NATURE OF THE ACTION
This is a federal class action on behalf of purchasers of the publicly traded securitie s
of Carrier Access Corporation ("Carrier Access" or the "Company") between October 21, 2003 an d
May 20, 2005, inclusive (the "Class Period"), seeking to pursue remedies under the Securitie s
Exchange Act of 1934 (the "Exchange Act"). Defendant Carrier Access designs, manufactures an d
sells converged access equipment to wireline and wireless carriers . The Company's products are
used to upgrade capacity and provide enhanced services to wireline and wireless communication s
networks . Its products support traditional telecommunications technologies, as well as technologies ,
such as voice-over Inte rnet protocol (VoIP) and fiber-based access , which is referred to as a passive
optical network (PON) . The Company's product portfolio features eight platforms that reside in a
variety of locations, including Carrier Access's central office, cell site and wireless hub locations ,
and the end user's business premises .
2. Desirous to further capitalize on defendants' own actions which, by the end of 2003 ,
had already caused the Company's shares to spike by more than 2000% and already pawned 1 . 3
million of these shares to facilitate its acquisition of Paragon Networks, defendants sought to tak e
their scheme a step further . Defendants would attempt to unload 6 million shares on the
unsuspecting public via a secondary offering . The Company's secondary offering was, at least fo r
the defendants, a success . The offering raised net proceeds of approximately $78 million . These
proceeds insured the defendants that even when the public caught on to their inflated financial result s
- including the fact that the Company was not earn ing what defendants had claimed - there would
be plenty of cash to pay defendants ' inflated salaries as well as fund the cost of any proxy contests
stemming from the potential "public" unraveling of defendants' misdeeds . With the dramatic rise in
the Company's share price coupled with its "fifth consecutive quarter of revenue growth," an
acquisition and a $78 million secondary offering, the defendants were nearing yet another goal o f
"legitimizing" the Company - having the Company added to one of Wall Street's indexes .
3 . By July 20, 2004, defendants had become conce rned about the government 's stance
towards accounting fraud and reduced the Company' s reliance on accounting manipulations an d
reduced its projections , sending the shares down 37%, a loss of $4 .73 to $8 .06. The following day,
Bloomberg issued an article entitled "Carrier Access Shares Fall on 3rd Qtr Sales Forecast," which
stated in part :
Shares of Carrier Access Corp ., which makes equipment for high-speedwireless Internet connections, had their biggest drop ever, falling 37 percent after thecompany forecast third-quarter sales will be little changed from second-quarterlevels .
The Company also announced it had been added to the Russell 3000 Index .
4. By November 2004, the Company was in its "pre-audit" stages and preparing th e
Company's books for filing the Company's fully audited financial statements . Concerned about the
severity of the Court's attacks associated with manipulated accounting in public companies, the
Company's CFO, Timothy R . Anderson, opted for the door . By leaving the Company with six to
seven weeks of its fiscal year left, Anderson hoped his departure would go unnoticed . Moreover,
Anderson knew that his successor would then be responsible for "explaining" the Company's
creative accounting .
5 . During the winter/spring of 2005, the Company was having difficulties justifying it s
accounting entries . Its former CFO, Anderson, had fled in November 2004, just for this reason - he
did not want to sign the Company's Form 10-K . The Company's May 5, 2005 press release woul d
suggest that others did not want to sign it either .
-2-
.
b . In fact, Carrier Access's financials had been false for at least two years due to it s
improper revenue and cost recognition . As a result, Carrier Access's results were presented i n
violation of Generally Accepted Accounting Principles ("GAAP" )
7 . As a result of these materially false and misleading statements and failures to
disclose, Carrier Access's publicly traded securities traded at inflated prices during the Class Period .
Plaintiff and other members of the Class purchased or otherwise acquired Carrier Access publicl y
traded securities relying upon the integrity of the market price of Carrier Access publicly trade d
securities and market information relating to Carrier Access, and have been damaged thereby .
JURISDICTION AND VENU E
8 . The claims asserted herein arise under and pursuant §§10(b) and 20(a) of the
Exchange Act, 15 U.S .C. §§78j(b) and 78t(a), and Rule 1 Ob-5 promulgated thereunder by the SEC ,
17 C .F.R . §240 .10b-5 .
9. This Court has jurisdiction over the subject matter of this action pursuant to 28 U .S .C .
§§1331 and 1337, and §27 of the Exchange Act .
10. Venue is proper in this District pursuant to §27 of the Exchange Act and 28 U.S .C .
§1391(b). Many of the acts charged herein , including the preparation and dissemination of
materially false and misleading information, occurred in substantial part in this District and Carrier
Access conducts business in this District . The Company's principle place of business is located a t
5395 Pearl Parkway, Boulder, CO 80301 .
11 . In connection with the acts alleged in this complaint, defendants, directly o r
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 .
-3-
PARTIES
12 . Plainti ff Jerry Croker, as set forth in the accompanying cert ification and incorporated
by reference herein, purchased publicly traded securities of Carrier Access at artificially inflate d
prices during the Class Period and has been damaged thereby .
13. Defendant Carrier Access designs, manufactures , and sells converged acces s
equipment to wireline and wireless carriers . The Company's products are used to upgrade capacit y
and provide enhanced services to wireline and wireless communications networks . Its products
support traditional telecommunications technologies, as well as technologies, such as voice-ove r
Internet protocol (VoIP) and fiber-based access, which is referred to as a passive optical network
(PON) . The Company 's product portfolio features eight platforms that reside in a variety of
locations, including Carrier Access's central office, cell site and wireless hub locations, and the en d
user's business premises .
14. (a) Defendant Roger Koenig ("Koenig") is Carrier Access's President and Chief
Executive Officer . During the Class Period, Koenig sold 561,000 Carrier Access shares for inside r
trading proceeds of more than $7 million .
(b) Defendant Nancy G. Pierce ("Pierce") is Carrier Access's Corporat e
Development Officer (and Interim Chief Financial Officer between November 2004 and the present) .
During the Class Period, Pierce sold 561,000 Carrier Access shares for insider trading proceeds o f
more than $7 million.
(c) Defendant Timothy R . Anderson ("Anderson") was Carrier Access's Chie f
Financial Officer. During the Class Period, Anderson sold 167,819 Carrier Access shares for inside r
trading proceeds of $1 .7 million .
-4-
(d) Defendants Anderson, Pierce and Koenig are referred to herein as th e
"Individual Defendants . "
15 . During the Class Period, the Individual Defendants, as senior executive officers
and/or directors of Carrier Access, were privy to confidential and proprietary information concernin g
Carrier Access , its operations, finances, financial condition , and present and future business
prospects . The Individual Defendants also had access to material adverse non-public information
concerning Carrier Access, as discussed in detail below . Because of their positions with Carrier
Access, the Individual Defendants had access to non-public information about its business , finances ,
products, markets, and present and future business prospects via access to internal corporat e
documents, conversations, and connections with other corporate officers and employees, attendanc e
at management and/or board of directors meetings and committees thereof, and via reports and other
information provided to them in connection therewith . Because of their possession of such
information, the Individual Defendants knew or recklessly disregarded that the adverse fact s
specified herein had not been disclosed to, and were being concealed from, the investing public .
16. The Individual Defendants are liable as direct participants in the wrongs complaine d
of herein. In addition, the Individual Defendants, by reason of their status as senior executiv e
officers and/or directors, were "controlling persons" within the meaning of §20(a) of the Exchang e
Act and had the power and influence to cause the Company to engage in the unlawful conduc t
complained of herein . Because of their positions of control, the Individual Defendants were able t o
and did, directly or indirectly, control the conduct of Carrier Access' s business .
17 . The Individual Defendants, because of their positions with the Company, controlled
and/or possessed the authority to control the contents of its repo rt s , press releases, and presentation s
-5-
to securities analysts and through them, to the investing public . The Individual Defendants were
provided with copies of the Company' s repo rts and press releases alleged herein to be misleading ,
prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance o r
cause them to be corrected . Thus, the Individual Defendants had the opportunity to commit th e
fraudulent acts alleged herein .
18 . As senior executive officers and/or directors and as controlling persons of a publicl y
traded company whose common stock was, and is, registered with the SEC pursuant to the Exchang e
Act, and was traded on the Nasdaq and governed by the federal securities laws, the Individua l
Defendants had a duty to disseminate promptly accurate and truthful information with respect to
Carrier Access's financial condition and performance , growth , operations , financial statements ,
business, products, markets, management, earnings, and present and future business prospects, t o
correct any previously issued statements that had become materially misleading or untrue, so that th e
market price of Carrier Access's securities would be based upon truthful and accurate information .
The Individual Defendants ' misrepresentations and omissions during the Class Period violated thes e
specific requirements and obligations .
19 . The Individual Defendants are liable as participants in a fraudulent scheme an d
course of conduct that operated as a fraud or deceit on purchasers of Carrier Access publicly trade d
securities by disseminating materially false and misleading statements and/or concealing materia l
adverse facts . The scheme: (a) deceived the investing public regarding Carrier Access's business ,
operations, and management and the intrinsic value of Carrier Access securities ; (b) enabled the
Individual Defendants to sell nearly 1 .3 million shares of their personally held Carrier Access stoc k
and thereby reap nearly $15 .8 million in gross proceeds ; (c) obtain relisting on Nasdaq ; (d) obtain
-6-
listing on the Russell 3000 Index ; (e) complete a 6 million share secondary offering for proceeds i n
excess of $72 million ; (f) complete a stock-for-stock acquisition using 1 .3 million of its inflated
shares ; and (g) caused plaintiff and members of the Class to purchase Carrier Access publicly traded
securities at artificially inflated prices .
PLAINTIFF'S CLASS ACTION ALLEGATION S
20 . Plaintiff brings this action as a class action pursuant to Federal Rule of Civi l
Procedure 23(a) and (b)(3) on behalf of a class consisting of all those who purchased the securities of
Carrier Access between October 21, 2003 and May 20, 2005, inclusive, and who were damage d
thereby (the "Class") . Excluded from the Class are defendants, the officers and directors of th e
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 .
21 . The members of the Class are so numerous that joinder of all members i s
impracticable. Throughout the Class Period, Carrier Access stock was actively traded on th e
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 or thousand s
of members in the proposed Class . Record owners and other members of the Class maybe identifie d
from records maintained by Carrier Access or its transfer agent and maybe notified of the pendenc y
of this action by mail, using the form of notice similar to that customarily used in securities clas s
actions .
22 . Plaintiff's claims are typical of the claims of the members of the Class as all member s
of the Class are similarly affected by defendants' wrongful conduct in violation of federal law
complained of herein .
-7-
23. Plaintiff will fairly and adequately protect the interests of the members of the Clas s
and has retained counsel competent and experienced in class and securities litigation .
24 . Common questions of law and fact exist as to all members of the Class an d
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 federal securities laws were violated by defendants' acts a s
alleged herein ;
(b) whether statements made by defendants to the investing public during th e
Class Period misrepresented material facts about the business and operations of Carrier Access ;
(c) whether the prices of Carrier Access's publicly traded securities were
artificially inflated during the Class Period ; and
(d) to what extent the members of the Class have sustained damages and th e
proper measure of damages .
25 . A class action is superior to all other available methods for the fair and efficien t
adjudication of this controversy since joinder of all members is impracticable . Furthermore, as th e
damages suffered by individual Class members may be relatively small, the expense and burden o f
individual litigation make it impossible for members of the Class to individually redress the wrong s
done to them . There will be no difficulty in the management of this action as a class action .
BACKGROUND
26 . On April 22, 2003, the Company issued a press release entitled "Carrier Access
Reports First Quarter 2003 Financial Results ." The press release stated in part :
-8-
Carrier Access Corporation, a manufacturer of broadband communicationsequipment, today announced financial results for its first quarter ended March 31,2003 .
Net revenue for first quarter 2003 was $11 .2 million, compared to net revenueof $11 .5 million for the fourth quarter 2002 . The company reported net revenue of$16 .4 million of revenue in the first quarter of 2002 .
Net income for the first quarter 2003 was $ .00 per share, or $117,000, animprovement from a fourth quarter 2002 loss of $ .32 per share, or $8 .0 million .During the first quarter of 2003, the company recovered a significant amount of agedreceivables, and accordingly has changed its estimates for allowance for doubtfulaccounts .
Carrier Access also reported that its cash and cash equivalents , together withsecurities available for sale, increased to $29 .8 million as of March 31, 2003 from$25 .7 million on December 31, 2002 . The company continues to maintain a strongbalance sheet with no long-term debt . The company received an income tax refundof $6 .9 million in the first quarter related to the company 's 2002 federal income taxfilings .
"This quarter showed significant progress in our return to profitability, duein part to the positive effects ofour restructuring. The gross margin improvementduring the quarter reflected ongoing cost management , plus shipments of newhigher margin products . Although current revenue was roughly flat, we arepleased with being able to manage expenses while delivering new products andadding new customers, " said Roger Koenig, Carrier Access' CEO .
27 . This positive but false claim of progress towards profitability had its desired effect .
The Company needed to inflate the Company's shares so they would trade above the "minimum bid
price" in order to stay listed on Nasdaq .
28 . On May 12, 2003, the Company issued a press release entitled "Carrier Acces s
Regains Full Nasdaq Compliance ." The press release stated in part :
Carrier Access Corporation, a manufacturer of broadband communications
equipment, today announced that it was notified by the NASDAQ Stock Market on
May 6, 2003, that the company had achieved compliance with the Nasdaq National
Market's minimum closing price requirement for continued listing . Accordingly,
Carrier Access' securities are no longer subject to delisting from the Nasdaq NationalMarket .
-9-
Based on a decision by the Nasdaq Listing Qualifications Panel dated
March 26, 2003, Carrier Access had been required to evidence a closing bid price
of at least $1.00 per share by June 24, 2003, and maintain that minimum per share
closingprice for the ten consecutive days immediately thereafter.
29 . On July 22, 2003, the Company issued a press release entitled "Carrier Access
Reports Second Quarter 2003 Financial Results ." The press release stated in part :
Carrier Access Corporation , a manufacturer of broadband communicationsequipment , today announced financial results for its second qua rter ended June 30,2003 .
Net revenue for second quarter 2003 was $12 .2 million, compared to netrevenue of $11 .2 million for the first quarter 2003, an increase of 9%, and an increaseof 3% over the net revenue of $11 .8 million reported for the second quarter 2002 .
Net income for the second quarter 2003 was $122,000, or $ .00 per share, anincrease from first quarter 2003 net income of $117,000, or $ .00 per share, and anincrease from a net loss of $20 .8 million, or $ .84 per share, reported for the secondquarter 2002 .
Revenue for the first six months of fiscal 2003 totaled $23 .4 million,compared to $28 .3 million for the same period of 2002 . Net income for the first sixmonths of fiscal 2003 was $239,000, or $0 .01 per share, compared with a net loss forthe first six months of fiscal 2002 of $29 .8 million, or $1 .20 per share .
During the first and second quarters of 2003, the company recoveredsignificant amounts of aged receivables, and accordingly changed its estimates forallowance for doubtful accounts .
Carrier Access also reported cash and cash equivalents, together withsecurities available for sale, of $29 .1 million as of June 30, 2003 . The companycontinues to maintain a strong balance sheet with no long-term debt .
"We are pleased with our second quarter 2003 results . We saw an increase inrevenue and continued our focus on cost control . More importantly, we saw positive
customer developments in three major new deployment initiatives . These threeservice provider initiatives are : the conversion of traditional telephone circuits toVoice over Internet Protocol (Vow) ; deployment of Fiber To The User (FTTU) ; andcompetitive service bundling for broadband access . Our products connect end usersto these major new access services and allow both technology and cost breakthroughs
for our customers . We believe we are positioned to win in the deployment of thesenew services, and that our opportunities are increasing," said Roger Koenig,Carrier Access' CEO.
-10-
SUBSTANTIVE ALLEGATIONS
30. On October 21, 2003, the Company issued a press release entitled "Carrier Access
Reports Third Quarter 2003 Financial Results ; Revenues Grow 31 % Sequentially ; Company
Achieves Third Consecutive Quarterly Profit ." The press release stated in part :
Carrier Access Corporation, a leading provider of broadband access solutions, todayreported its financial results for the third quarter ended September 30, 2003 .
Revenues for the third quarter of fiscal 2003 were $15 .9 million comparedwith $12 .2 million for the second quarter of fiscal 2003 and $10 .5 million for thethird quarter of fiscal 2002 . Net income for the third quarter of fiscal 2003 was$702,000 or $0 .03 per diluted share compared with a net income for the secondquarter of fiscal 2003 of $122,000 or $0 .00 per diluted share and a net loss of $14 .9million or $0.60 per diluted share for the third quarter of fiscal 2002 .
Revenues for the first nine months of fiscal 2003 were $39 .3 millioncompared with $38 .8 million in the same period last year. Net income for the firstnine months of fiscal 2003 was $94 1,000 or $0 .04 per diluted share compared with anet loss for the first nine months of fiscal 2002 of $44 .6 million or $1 .80 per dilutedshare . During the first nine months of 2003, the company recovered significantamounts of aged receivables, and accordingly changed its estimates for allowance fordoubtful accounts .
"This was a great quarter for Carrier Access, our third consecutive quarter
of revenue and net income growth," said Roger Koenig, president and CEO,Carrier Access Corporation . "We are clearly executing our plan to return to
profitability and to increase our revenue through diversification of our customer
base with the introduction of new products . Our third-quarter results demonstrate
our progress as revenues grew 31 % sequentially to $15.9 million, reflecting
increased market demand for our wireless, integrated business services, Voice overIP (VoIP), and fiber solutions. Our investments in research and development over
the last two years are now showing returns as we continue to deliver newapplications to new customers. As a result, we believe we are gaining momentumand market share in our target access segments.
"The third quarter was particularly significant for us in the wireless market .We believe that our success is due to a continuing wireless carrier focus on cell site
efficiency, improving remote management, upgrading sites for E911 compliance, and
providing packetized traffic for 3G migration . In June of 2002, we introduced the
Axxius(TM) 800 platform as part of our market diversification strategy and we are
now recognizing the benefits of that investment with 28% of our Q3 revenuegenerated from sales to the wireless market . We intend to continue our development
-11-
efforts in this area to enable wireless carrier customers to migrate to new packet-based solutions for even greater operational efficiencies .
"In addition to gaining momentum in the wireless market, earlier this monthwe announced successful trials and a strategic partnership for fiber-to-the-premises(FTTP) deployments . Our product development of the Exxtenz(TM) BusinessOptical Network Terminal (B-ONT) began to pay off as well as in the third quarteras we recognized our first meaningful revenue for this new access technology . Weare clearly delivering results on our investment in packetized access technologies thatare designed to lower the cost of delivering new broadband services to businessesand end users . During the third quarter, we added new features to our Adit(R) 600platform, and successfully trialed new VoIP features for international customers . Weare seeing increased demand for our Adit 600 platform both for traditional voicedeployments and for VoIP applications . We are extremely encouraged by ourcustomers' adoption of the Adit 600 platform .
31 . On November 10, 2003, the Company filed a Form 4 with the SEC reporting tha t
between November 6 and November 10, 2003 Koenig sold 6,000 shares at $11 .50-$12 .00, resulting
in net proceeds of $70,138 .
32. Also on November 10, 2003, the Company filed a Form 4 with the SEC reporting tha t
between November 6 and November 10, 2003 Pierce sold 6,000 shares at $11 .50-$12 .00, resulting i n
net proceeds of $70,138 .
33 . On November 25, 2003, with the Company's shares further inflated by defendants '
false statements, the defendants acquired a company using Carrier Access's own shares as currency .
Using the Company's shares to consummate the acquisition would render the acquisition far les s
dilutive to the Company's shares . The Company issued a press release disclosing the terms of the
transaction entitled "Carrier Access Completes Acquisition of Paragon Networks ." The press releas e
stated in part :
Carrier Access Corporation , a leading provider of broadband access and servicedelivery platforms for both wireline and wireless communications carriers, todayannounced the completion of its acquisition of Paragon Networks International Inc .Under the terms of the transaction , Carrier Access issued approximately 1,334,52 1
-12-
shares of common stock and paid approximately $411,407 in cash for all outstandingshares of Paragon capital stock . The combined company will be headquartered inBoulder, Colorado .
34. On January 12, 2004, the Company filed a Form 4 with the SEC reporting that
between January 8 and January 12, 2004 Pierce sold 9,000 shares at $15 .11-$15 . 29, resulting in ne t
proceeds of $136,620 .
35 . On January 15, 2004, the Company filed a Form 4 with the SEC reporting tha t
between January 13 and January 15, 2004 Pierce sold 9,000 shares at $15 .50-$16 .50, resulting in net
proceeds of approximately $144,540 .
36 . Also on January 15, 2004, the Company filed a Form 4 with the SEC reporting tha t
between January 13 and January 15, 2004 Koenig sold 12,000 shares at $15 .50-$16 .50, resulting in
net proceeds of $192,600 .
37. On January 20, 2004, the Company issued a press release entitled "Carrier Access
Reports Fourth Quarter and 2003 Year End Financial Results ." The press release stated in part :
Carrier Access Corporation, a manufacturer of broadband communicationsequipment, today reported results for its fourth quarter and year ended December 31,2003 .
Revenue for the fourth quarter of fiscal 2003 was $23 .3 million comparedwith $15 .9 million for the third quarter of fiscal 2003 and $11 .5 million for the fourthquarter of fiscal 2002 . Net income for the fourth quarter of fiscal 2003 was $1 .5million or $0 .05 per diluted share compared with net income for the third quarter offiscal 2003 of $702,000 or $0.03 per diluted share and a net loss of $8 .0 million or$0.32 per diluted share for the fourth quarter of fiscal 2002 .
Revenue for the year 2003 was $62 .6 million compared with $50 .2 millionfor the year of 2002 . Net income for the year of 2003 was $2.5 million or $0 .09 perdiluted share, compared with a net loss for the year of 2002 of $52 .7 million or $2 .13per diluted share .
"The fourth quarter was an excellent quarter for Carrier Access as werecorded our fourth consecutive quarter of revenue and net incomegrowth, "said
- 13 -
Roger Koenig, President and CEO of Carrier Access. "Our fourth quarter results
showed a 46% gain in revenue to $23 .3 million over $15.9 reported in the thirdquarter. This revenue increase was primarily driven by our wireless customer
deployments . "
"We believe that 2003 was a successful year for Carrier Access . At thebeginning of the year our focus was to increase revenues and return to profitability
during the year. Our approach for achieving this goal was to diversify our
customer base, focus our sales and marketing efforts on wireless and other newmarkets, and introduce new products, while controlling our expenses. We believe
that our 2003 results clearly demonstrate that we achieved this goal - as we endedthe year profitably with revenue growth of 24.5% over 2002. "
38. Desirous to further capitalize on defendants' own actions which, by the end of 2003 ,
had already caused the Company's shares to spike by more than 2000% and already pawned 1 . 3
million of these shares to facilitate its acquisition of Paragon Networks, defendants sought to tak e
their scheme a step further . Defendants would attempt to unload 6 million shares on th e
unsuspecting public via a secondary offering .
39. On January 22, 2004, the Company filed a Form 4 with the SEC reporting tha t
between January 20 and January 22, 2004 Pierce sold 10,500 shares at $14.68-$17 .75, resulting i n
net proceeds of $164,310.
40. Also on January 22, 2004, the Company filed a Form 4 with the SEC reporting tha t
between January 20 and January 22, 2004 Koenig sold 10,500 shares at $14 .68-$17 .75, resulting in
net proceeds of $164,310 .
41 . On January 27, 2004, the Company filed a Form 4 with the SEC reporting that
between January 23 and January 27, 2004 Pierce sold 10,500 shares at $14 .78-$15 .04, resulting in
net proceeds of $156,645 .
-14-
42 . Also on January 27, 2004, the Company filed a Form 4 with the SEC reporting tha t
between January 23 and January 27 Koenig sold 10,500 shares at $14 .78-$15 .04, resulting in ne t
proceeds of $156,645 .
43 . On January 30, 2004, the Company issued a press release entitled "Carrier Access
Announces Public Offering of 6,000,000 Shares of Common Stock ." The press release stated in
part :
Carrier Access announced today the public offering of 6,000,000 shares of common
stock at a price of $12 .25 per share .
The managing underwriters of the offering were Credit Suisse First BostonLLC, Deutsche Bank Securities Inc. and Needham & Company, Inc . Credit SuisseFirst Boston LLC served as the sole book runner . The underwriters have an option topurchase up to 900,000 additional shares of common stock from the company solelyto cover over-allotments , if any .
44 . The Company's secondary offering was, at least for the defendants , a success . The
offering raised net proceeds of approximately $78 million . These proceeds insured the defendants
that even when the public caught on to their inflated financial results - including the fact that the
Company was not earning what defendants had claimed - there would be plenty of cash to pay
defendants' inflated salaries as well as fund the cost of any proxy contests stemming from the
potential "public" unraveling of defendants' misdeeds .
45. On February 4, 2004, the Company filed a Form 4 with the SEC reporting that
between February 2 and February 4, 2004 Koenig sold 9,000 shares at $13 .03-$13 .04, resulting in
net proceeds of $117,330 .
46. On February 4, 2004, the Company filed a Form 4 with the SEC reporting tha t
between February 2 and February 4, 2004 Pierce sold 9,000 shares at $13 .03-$13 .04, resulting in net
proceeds of $117,330 .
- 15 -
47, On February 9, 2004, the Company filed a Form 4 with the SEC reporting that
between February 5 and February 9, 2004 Pierce sold 9,000 shares at $13 .09-$14 .14, resulting in net
proceeds of $121,320 .
48. On February 9, 2004, the Company filed a Form 4 with the SEC reporting tha t
between February 5 and February 9, 2004 Koenig sold 9,000 shares at $13 .09-$14 . 14, resulting in
net proceeds of $121,320 .
49. On February 18, 2004, the Company filed a Form 4 with the SEC reporting that
between February 13 and February 18, 2004 Pierce sold 10,000 shares at $12 .40-$13 .00, resulting in
net proceeds of $126,280 .
50. Also on February 18, 2004, the Company filed a Form 4 with the SEC repo rt ing tha t
between February 13 and February 18, 2004 Koenig sold 10,000 shares at $12 .40-$13 .00, resulting
in net proceeds of $126,280 .
51 . On February 23, 2004, the Company filed a Form 4 with the SEC reporting tha t
between February 19 and February 23, 2004 Pierce sold 11,000 shares at $11 .00-$12 .61, resulting in
net proceeds of $129,690 .
52 . Also on February 23, 2004, the Company filed a Form 4 with the SEC reporting tha t
between February 19 and February 23, 2004 Koenig sold 11,000 shares at $11 .00-$12 .61, resulting
in net proceeds of $129,690 .
53 . On March 2, 2004, the Company filed a Form 4 with the SEC reporting that on
February 27, 2004 Pierce sold 3,000 shares at $11 .20, resulting in net proceeds of $33,600 .
54 . Also on March 2, 2004, the Company filed a Form 4 with the SEC reporting that o n
February 27, 2004 Koenig sold 3,000 shares at $11 .20, resulting in net proceeds of $33,600 .
-16-
55 . On April 14, 2004, the Company filed a Form 4 with the SEC reporting that on Apri l
13, 2004 Pierce sold 15,000 shares at $12 .50, resulting in net proceeds of $187,500 .
56. On April 14, 2004, the Company filed a Form . 4 with the SEC reporting that on Apri l
13, 2004 Koenig sold 15,000 shares at $12 .50, resulting in net proceeds of $187,500 .
57. On April 20, 2004, the Company issued a press release entitled "Carrier Acces s
Reports First Quarter 2004 Financial Results ; Wireless Sales Drive 23% Quarter over Quarter
Revenue Growth ." The press release stated in part :
Carrier Access Corporation, a manufacturer of broadband communicationsequipment, today reported results for its first quarter ended March 31, 2004 .
Revenue for the first quarter of 2004 was $28 .5 million compared with $23 .3million for the fourth quarter of 2003 and $11 .2 million for the first quarter of 2003 .Net income for the first quarter of 2004 was $2 .7 million, or $0.09 per share,compared with net income for the fourth quarter of 2003 of $1 .5 million, or $0 .05 pershare, and net income of $117,000, or $0 .00 per share, for the first quarter of 2003 .
This marks Carrier Access' fourth consecutive quarter of revenue growth andfifth consecutive quarter of net income growth . In the first quarter of 2004, CarrierAccess completed a public offering of approximately 6 .8 million shares of commonstock, resulting in net proceeds to the Company of approximately $78 .5 million . TheCompany ended the quarter with cash, cash equivalents, and marketable securitiesavailable for sale of $118 .1 million .
"Q 1 was an excellent quarter for Carrier Access as we recorded 23 % quarterover quarter revenue growth, and 79% quarter over quarter net income growth," saidRoger Koenig, president, CEO and chairman of Carrier Access . "We believe ourbalance sheet strength, 11 years of operating history and technology direction,combined with our incumbent vendor status and extensive sales and distributionchannels, give us an advantage for strong, continued success across our three focusmarkets wireless, broadband and fiber access . "
58. On May 28, 2004, the Company filed a Form 4 with the SEC reporting that on May
28, 2004 Pierce sold 60,000 shares at $10 .82, resulting in net proceeds of $649,200 .
-17-
59. Also on May 28, 2004, the Company filed a Form 4 with the SEC reporting that o n
May 28, 2004 Koenig sold 60,000 shares at $10 . 82, resulting in net proceeds of $649,200 .
60. On June 14, 2004, the Company filed a Form 4 with the SEC reporting that on Jun e
10, 2004 Anderson sold 6,000 shares at $11 .96-$12 .27, resulting in net proceeds of $72,540 .
61 . On June 28, 2004, the Company filed a Form 4 with the SEC reporting that betwee n
June 24 and June 25, 2004 Pierce sold 45,000 shares at $12 .51-$12 .62, resulting in net proceeds of
$564,600 .
62. On July 6, 2004, the Company filed a Form 4 with the SEC reporting that between
July 1 and July 6, 2004 Pierce sold 60,000 shares at $12 .80-$14 .30, resulting in net proceeds o f
$806,400 .
63. Also on July 6, 2004, the Company filed a Form 4 with the SEC reporting that
between July I and July 6, 2004 Koenig sold 60,000 shares at $12 .80-$ 14.30, resulting in ne t
proceeds of $806,400 .
64. On July 20, 2004, the Company issued a press release entitled "Carrier Acces s
Reports Second Quarter 2004 Financial Results ; Company Reports Fifth Consecutive Quarter of
Revenue Growth ." The press release stated in part :
Carrier Access Corporation, a leading provider of broadband communicationstechnologies, today reported results for its second quarter ended June 30, 2004 .
Revenue for the second quarter of 2004 was $30 .8 million compared to firstquarter 2004 revenue of $28 .5 million, an 8% increase . Year over year revenue,including revenue from the Paragon acquisition, increased 152% from the $12 .2million reported for the second quarter of 2003 .
Net income for the second quarter of 2004 was $3 .6 million, or $0.10 pershare, compared with the $2 .7 million, or $0 .09 per share, reported in the first quarterof 2004, an increase of 32% . Year over year net income increased more than 29times from the $122,000, or $0.00 cents per share, reported for the second quarter o f
- 18 -
2003 . This marks the fifth consecutive quarter of revenue growth and eighthconsecutive quarter of net income growth for Carrier Access .
Revenue for the first six months of 2004 totaled $59 .4 million, compared to$23 .4 million for the same period of 2003, an increase of 154% . Net income for thefirst six months of 2004 was $6 .3 million or $0 .18 per share, compared with netincome for the first six months of fiscal 2003 of $239,000 or $0 .01 per share .
In the second quarter, Carrier Access was added to the Russell 3000 indexas part of Russell Investment Group 's annual re-evaluation of the closely watchedindexes. The Russell 3000 measures the top 3,000 U.S. equities in terms ofmarketcapitalization .
"The second quarter 2004 was another positive quarter for CarrierAccess.
Once again we met our financial expectations andgained increased interest fromboth current and potential customers for our wireless backhaul and VoIPtechnologies, " said Roger Koenig, chairman , CEO and president, Carrier Access."We continue to operate against a solid business plan, and maintain a long-termoutlook and commitment to our three focus markets - wireless, broadband andfiber access. "
65 . With the dramatic rise in the Company's share price coupled with its "fift h
consecutive quarter of revenue growth," an acquisition and a $78 million secondary offering, th e
defendants were nearing yet another goal of "legitimizing" the Company - having the Compan y
added to one of Wall Street' s indexes .
66 . By July 20, 2004 , defendants had become conce rned about the government 's stanc e
towards accounting fraud and reduced its reliance on accounting manipulations and reduced th e
Company's projections, sending the shares down 37%, a loss of $4 .73 to $8 .06 . The following day,
Bloomberg issued an article entitled "Carrier Access Shares Fall on 3rd Qtr Sales Forecast," whic h
stated in part :
Shares of Carrier Access Corp ., which makes equipment for high-speedwireless Internet connections, had their biggest drop ever, falling 37 percent after thecompany forecast third-quarter sales will be little changed from second-quarterlevels .
-19-
67. In fact, the Company' s financial results would be much worse than the Bloomberg
article suggested and would fail to achieve even the reduced third quarter forecasted results throug h
legitimate means . The Company' s prospects for business success and earnings growth for Q3 2003
and beyond were severely diminished . As investors and the market became aware that Carrie r
Access's actual business prospects were poorer than represented, which had been obfuscated b y
defendants, the prior artificial inflation continued to evaporate, thereby eroding the Company's share
price .
68 . On September 8, 2004, the Company issued a press release entitled "Carrier Acces s
Updates Guidance for Third Fiscal Quarter 2004 ." The press release stated in part :
Carrier Access Corporation, a leading provider of broadband communicationstechnologies, today announced after discussions with several wireless serviceproviders and OEM customers, and due to industry consolidation in the wirelessindustry, it expects revenues for the third fiscal quarter of 2004 to decline on asequential basis by approximately 15 to 20 percent from the $30 .8 million recordedin the second fiscal quarter of 2004 .
Carrier Access believes discussions with its customers have resulted inincreased visibility and anticipates that revenuesfor the fourth quarter 2004 will
increase slightly quarter over quarterfrom revenues anticipated to be reported inthe third quarter. Carrier Access continues to see increased demand for its business
service delivery, including Voice-over-EP (VoIP) products and believes the decrease
in sales to wireless customers is a short-term event and due principally to the
consolidation in the wireless mobility market in North America .
"Consolidation among wireless service providers has resulted in what we
believe is a short-term spending decline as wireless service providers constrain theircapital to rationalize their networks . This is clearly affecting our top line . Althoughquarterly revenues are anticipated to decline from those reported in the second
quarter of 2004, we believe we are well positioned to increase revenues in 2005 inthe wireless market ," said Roger Koenig, president, CEO and chairman, Carrier
Access .
"We remain focused on introducing new products for our BroadbandBusiness Access and Wireless customers and are encouraged by customerengagements and continued trials . We continue to believe we are focused on th e
-20-
highest growth markets and believe we are well positioned to profitably grow ourbusiness ," Koenig said .
69. On October 19, 2004, the Company issued a press release entitled "Carrier Access
Repo rts Third Quarter 2004 Financial Results ." The press release stated in part :
Carrier Access Corporation, a leading provider of communications accesstechnologies, today reported results for its third quarter ended Sept . 30, 2004 .
Revenue for the third quarter of 2004 was $21 .6 million compared to thirdquarter 2003 revenue of $15 .9 million . Net loss for the third quarter of 2004 was$3.8 million, or $0.11 per share, compared with the net income of $702,000, or $0.03per share, reported in the third quarter of 2003 . Net loss for third quarter 2004includes the settlement amount and legal expenses of $2 .1 million associated with thesettlement of litigation with SMTC Manufacturing Corporation of Colorado as wellas $307,000 for amortization of intangible assets related to a previous acquisition,which total $0 .07 per share .
"As we have previously stated, wireless consolidation and budget changessignificantly impacted our third quarter results," said Roger Koenig, president, CEOand chairman, Carrier Access . "Although our quarterly revenues were less than we
anticipated, we maintain our belief that wireless data upgrades and VoIP accessdelivery are significant growth areas in the communications industry . As such, webelieve that our focus and development within these areas, combined with ourstrong balance sheet and customer base, puts us in a good position to capitalize onthe global migrationfrom circuit to packet-based infrastructure in 2005 .
"Throughout the third quarter we remained focused on developing ourcustomer and product base, and delivered on expanding our converged IP access withshipment of the Adit 3000 Series for carrier-grade IP business services . Theintroduction of the Adit 3000 combined with the delivery of new capacities for ourAdit 600 CMG for the conversion of telephone lines to VoIP have allowed us toincrease our customer base in this market . During the third quarter we added 12 newcustomers who are deploying hosted VoIP services," Koenig added .
70. By November 2004, the Company was in its "pre-audit" stages and preparing th e
Company's books for filing the Company's fully audited financial statements . Concerned about the
severity of the courts' attacks associated with manipulated accounting in public companies, the
Company's CFO, Timothy Anderson, opted for the door . By leaving the Company with six to seven
weeks of its fiscal year left, Anderson hoped his departure would go unnoticed . Moreover,
-21 -
Anderson knew that his successor would then be responsible for "explaining " the Company' s
creative accounting .
71 . On November 18, 2004, the Company issued a press release entitled "Carrier Access
Announces CFO Resignation; Co-Founder and Board Member Nancy Pierce Appointed Interi m
CFO ." The press release stated in pa rt :
Carrier Access Corporation, a leading provider of communications accesstechnologies, said Thursday that its chief financial officer (CFO), Timothy R .Anderson, has resigned to pursue another CFO opportunity in Colorado . NancyPierce, the Company's co-founder and corporate development officer, will takeresponsibility as interim CFO, effective immediately . Pierce previously served asCFO for Carrier Access from 1992 through 2000, and managed the Company'sinitial public offering in July 1998 . Pierce will continue as a member of the CarrierAccess board and as corporate development officer, while a search is conducted .
Carrier Access chief executive officer and president Roger Koenig stated :"Tim brought strong financial management to our business operations and thecompany has benefited from his many contributions over the years . We appreciatehis dedication to Carrier Access and wish him all the best . "
72 . On January 25, 2005, the Company issued a press release entitled "Carrier Access
Reports Fourth Quarter and 2004 Year-End Financial Results ." The press release stated in part :
Carrier Access Corporation, a manufacturer of broadband communicationsequipment, today reported results for its fourth quarter and year ended December 31,2004 .
Revenue for the fourth quarter of fiscal 2004 was $20.4 million comparedwith $23.3 million for the fourth quarter of fiscal 2003 . Net loss for the fourthquarter of fiscal 2004 was $1 .5 million or $0 .04 per diluted share compared with netincome for the fourth quarter of fiscal 2003 of $1 .5 million or $0 .05 per dilutedshare .
Revenue for the year 2004 was $101 .4 million compared with $62 .6 millionfor the year of 2003 . Net income for the year of 2004 was $946,000 or $0.03 perdiluted share compared with $2 .5 million or $0.09 per diluted share for the year of2003 .
-22-
Results for the fourth quarter 2004 reflect a charge of $504,000 in COGSrelated to the write off of inventory from the Paragon acquisition that was completedin November of 2003 .
Carrier Access Chairman and Chief Executive Officer Roger Koenig stated,"Fiscal 2004 was a successful year for Carrier Access . At the beginning of the yearour focus was to increase revenues profitably during the year . We increased yearover year revenues by 62% . The largest portion of this increase was due to continuedwireless customer acceptance and implementation of our Radio Access Network(RAN) platforms . We believe that our investments in research and development onnew platform additions to economically converge broadband data with voice servicesin wireless access networks will drive continued market success in 2005 . "
Koenig further stated : "Our broadband business market delivered both growthand significant change during 2004 . We delivered our Adit VoIP access products to
a significant number of new service provider customers . There were many new
Hosted VoIP service launches during 2004 and we clearly see an industry trend ofconverged IP service access for businesses beginning to replace traditional telephone
lines and services. In late 2004, Carrier Access announced and began shipments of
our new Adit 3K series products designed to economically enable carrier-grade
quality and security for the delivery of new LP services to business users . We have apositive outlook on the growth of the new Hosted VoIP service offerings and our
ability to supply specialized equipment and software to access these services during
2005 . "
73 . During the winter/spring of 2005, the Company was having difficulties justifying it s
accounting entries . Its former CFO, Anderson, had fled in November 2004, j ust for this reason - he
did not want to sign the Company's Form 10-K . The Company's May 5, 2005 press release woul d
suggest that others did not want to sign it either .
74. On May 5, 2005, the Company issued "a press release entitled "Carrier Access
Receives Expected Nasdaq Deficiency Notice Related to Late Filing for Its Form 10-K ." The press
release stated in part :
Carrier Access Corporation, a manufacturer of broadband communicationsequipment, today announced that consistent with the information provided on itspress release on May 2, 2005, the Company has received a Nasdaq StaffDetermination letter .
- 23 -
The letter indicates that although the company filed its Form 10-K for thefiscal year ended December 31, 2004, the filing did not include management'sassessment of its internal controls over financial reporting and the associated auditorattestation report (collectively, the "Attestations") . Because the Company has nottimely filed an amended Form 10-K, with the Attestations, it is not in compliancewith the Nasdaq continued listing requirements set forth in Nasdaq Marketplace Rule4310(c)(14) . As a result of the delinquency, Carrier Access common stock willbegin trading under the symbol "CACSE" effective at the opening of business onFriday, May 6, 2005, and its common stock is also subject to delisting from theNasdaq Stock Market .
Carrier Access intends to request an appeal hearing with the Nasdaq ListingQualifications Panel within seven days of the date of the Determination letter forcontinued listing on the Nasdaq National Market . Under Nasdaq Market PlaceRules, Carrier Access securities will remain listed on the Nasdaq National Marketpending the outcome of the hearing. There can be no assurance that the Panel willgrant a request for continued listing.
As announced in its press release on May 2, 2005, Carrier Access remainscommitted to accurate and transparent financial reporting. The Company is workingdiligently with its auditors KPMG to complete its 2004 Form 10-K and to fullycomply with all requirements for continued listing .
75 . On May 20, 2005, the Company issued a press release entitled "Carrier Access
Provides Financial Update and Receives Nasdaq Hearing Date ." The press release stated in part :
Carrier Access Corporation, a manufacturer of broadband communicationsequipment, today provided an update on its previously announced financial review .
Carrier Access is in the process of performing a detailed review of allsignificant customer relationships and as part of those reviews is evaluating thepropriety of the timing of revenue and cost recognition and other revenuerecognition issues. At this point in time, the Company has determined that certainrevenues and direct costs have been recorded in incorrect periods . The amountsthat have been quantified to date are significant and, as a result, previously issuedfinancial statementsfor the year ended December 31, 2004, and certain interiorperiods in each of the years ended December 31, 2004, and 2003, will be restated.
Carrier Access expects to file an amendment to its 2004 Form 10-K (the"Form 10-K/A") and its Form 10-Q for the first quarter of 2005 as soon asreasonably possible .
Carrier Access announced on May 5, 2005, that the Company received anotice on May 4, 2005, from the staff of The Nasdaq Stock Market which stated tha t
-24-
although the company filed its 2004 Form 10-K, the filing did not includemanagement's assessment of its internal controls over financial reporting and theassociated auditor attestation report (collectively, the "Attestations") . Therefore, itwas not in compliance with the filing requirements for continued listing on Nasdaqas required by Nasdaq Marketplace Rule 4310(c)(14) due to the Company's inabilityto timely file its Form 10-K /A with the Attestations for the 2004 fiscal year .
The Company appealed the delisting notification to the Nasdaq ListingsQualifications Panel and is currently in the appeals process, which will address thedelinquency of both the Form 10-K/A and the Form 10-Q . On May 17, 2005, theCompany received a notice of a hearing date from the staff of The Nasdaq StockMarket for the Company's appeal of the Nasdaq Listing Qualifications Staffdetermination to delist the Company's securities from The Nasdaq National Market .The hearing will be held on Thursday, June 2, 2005 . The Company intends to submitmaterials and attend the hearing in support of its appeal . There can be no assurancethat the Panel will grant a request for continued listing .
Carrier Access' securities will remain listed pending a decision . TheCompany is continuing to work diligently to complete the previously announced
detailed review of its financial statements, to comply with applicable Nasdaq rulesand to cooperate with Nasdaq .
UNDISCLOSED ADVERSE INFORMATION
76. In fact, Carrier Access's financials had been false for at least two years due to it s
improper revenue and cost recognition . As a result, Carrier Access's results were presented i n
violation of GAAP .
77 . GAAP are those principles recognized by the accounting profession as th e
conventions , rules, and procedures necessary to define accepted accounting practices at a pa rt icular
time. Regulation S-X, 17 C.F.R. §210.4-01(a)(]), states that financial statements filed with the SEC
which are not prepared in compliance with GAAP are presumed to be misleading and inaccurate .
Regulation S-X requires that interim financial statements must also comply with GAAP, with the
exception that interim financial statements need not include disclosures that would be duplicative of
disclosures accompanying annual financial statements .
-25-
78. Pursuant to GAAP, as set forth in Accounting Principles Board Opinion ("APB") No .
20, the type of restatements and revisions announced by Carrier Access were to correct for materia l
errors in previously issued financial statements . APB No . 20, ¶~7-13 . The restatement of pas t
financial statements is a disfavored method of recognizing an accounting change as it dilute s
confidence by investors in the financial statements , it makes it difficult to compare financia l
statements , and it is often difficult, if not impossible, to generate the numbers when restatemen t
occurs . Id. ¶14 . Thus, GAAP provides that financial statements should only be restated in limite d
circumstances, i .e ., when there is a change in the reporting entity, there is a change in accountin g
principles used, or to correct an error in previously issued financial statements . Carrier Access's
restatements and revisions were not due to a change in reporting entity or a change in accountin g
principle, but rather to errors in previously issued financial statements . Thus, the restatements and
revisions were an admission by defendants that Carrier Access's previously issued financial result s
and its public statements regarding those results were false and misleading . Moreover, immateria l
corrections are not required to be restated . APB No. 20, ¶38 . Thus, the restatement indicates tha t
the errors were material .
79 . As a result of these materially false and misleading statements and failures t o
disclose, Carrier Access's publicly traded securities traded at inflated prices during the Class Period .
Plaintiff and other members of the Class purchased or otherwise acquired Carrier Access publicl y
traded securities relying upon the integrity of the market price of Carrier Access publicly trade d
securities and market information relating to Carrier Access, and have been damaged thereby .
-26-
ADDITIONAL SCIENTER ALLEGATION S
80. As alleged herein, defendants acted with scienter in that defendants knew that th e
public documents and statements issued or disseminated in the name of the Company wer e
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 federa l
securities laws . As set forth elsewhere herein in detail, defendants, by virtue of their receipt o f
information reflecting the true facts regarding Carrier Access, their control over, and/or receip t
and/or modification of Carrier Access's allegedly materially misleading misstatements and/or thei r
associations with the Company which made them privy to confidential proprietary informatio n
concerning Carrier Access, participated in the fraudulent scheme alleged herein .
81 . Defendants were further motivated to engage in this course of conduct in order to (a)
complete a partial stock for stock acquisition ; (b) complete a 6 million share secondary offering at
$12 .25 per share on terms more favorable than it would have had the truth been known ; (c) obtain
listing on the Russell 3000 Index ; and (d) enable the Individual Defendants to sell nearly 1 .3 million
shares of their personally held Carrier Access stock and thereby reap nearly $15 .8 million in gross
proceeds .
LOSS CAUSATION/ECONOMIC LOS S
82 . During the Class Period , as detailed herein , defendants engaged in a scheme t o
deceive the market and a course of conduct that artificially inflated Carrier Access's stock price an d
operated as a fraud or deceit on Class Period purchasers of Carrier Access stock by misrepresentin g
the Company's business success and future business prospects . Defendants achieved this facade o f
-27-
success, growth, and strong future business prospects by misrepresenting the Company's financia l
statements, earnings, and prospects . Later, however, when defendants' prior misrepresentations an d
fraudulent conduct were disclosed and became apparent to the market, Carrier Access stock fel l
precipitously as the prior artificial inflation came out of Carrier Access's stock price . As a result of
their purchases of Carrier Access stock during the Class Period, plaintiff and other members of th e
Class suffered economic loss, i.e ., damages, under the federal securities laws .
83 . During the Class Period, the defendants presented a misleading picture of Carrie r
Access's business and prospects. Thus, instead of truthfully disclosing during the Class Period that
Carrier Access's business was not as healthy as represented, defendants caused Carrier Access to
falsely report its results and forecasted earnings. During the Class Period, defendants repeatedly
emphasized Carrier Access achieving consecutive revenue growth when, in fact, those results were
false and will be restated .
84 . These false claims of current earnings that met expectations and strong future result s
caused and maintained the artificial inflation in Carrier Access' s stock price throughout the Clas s
Period and until the truth was revealed to the market .
85 . Defendants' false and misleading statements had the intended effect and cause d
Carrier Access stock to trade at artificially inflated levels throughout the Class Period, trading a s
high as $16 .75 per share .
86. By July 20, 2004, defendants had become concerned about the government's stanc e
towards accounting fraud and reduced its reliance on accounting manipulations and reduced th e
Company's projections, sending the shares down 37%, a loss of $4 .73 to $8.06. The following day,
-28-
Bloomberg issued an article entitled "Carrier Access Shares Fall on 3rd Qtr Sales Forecast," whic h
stated in part :
Shares of Carrier Access Corp ., which makes equipment for high-speed
wireless Internet connections, had their biggest drop ever, falling 37 percent after the
company forecast third-quarter sales will be little changed from second-quarterlevels .
87 . On May 5, 2005, defendants were forced to publicly disclose that Carrier Acces s
would restate its results due to improper revenue/cost recognition . Later, on May 20, 2005, Carrie r
Access admitted that it was not in compliance with Nasdaq filing rules as it omitted th e
management's opinion of the Company's internal contracts . These revelations indicated that Carrie r
Access's fiscal 2003-2004 financial results would be much worse than prior representations, that
Carrier Access had failed to achieve the results represented through its past reported earnings, an d
that the Company's prospects for business success and earnings, growth for fiscal 2003-2004 and
beyond were severely diminished . As investors and the market became aware that Carrier Access' s
actual business prospects were poorer than represented, which had been obfuscated by defendants ,
the prior artificial inflation came out of Carrier Access's stock price, damaging investors .
88 . As a direct result of defendants' admissions and the public revelations regarding th e
truth about Carrier Access's previous representations and its actual business prospects goin g
forward, Carrier Access's stock price plummeted 37%, falling from $12 .79 on July 20, 2004 to $8 .06
per share on July 21 , 2004 , a drop of $4.73 per share . Then on May 20, 2005 , further revelations
relating to the quality of the Company's 2003-2004 results and even the quality of the Company' s
internal controls caused the shares to fall to $4 .60 from $5 .30, a drop of an additional $0 .70 per
share. These drops removed the inflation from Carrier Access's stock price, causing real economi c
loss to investors who had purchased the stock during the Class Period . In sum, as the truth abou t
-29-
defendants' fraud and Carrier Access's business performance was revealed, the Company's stoc k
price plummeted twice, the artificial inflation came out of the stock, and plaintiff and other members
of the Class were damaged, suffering combined economic losses of up to $8 .19 per share, as the
stock dropped from $12 .79 per share in July 2004 to $4 .60 per share at the end of the Class Period .
89 . The decline in Carrier Access's stock price at the end of the Class Period was a direc t
result of the nature and extent of defendants' fraud being revealed to investors and the market . The
timing and magnitude of Carrier Access's stock price declines negate any inference that the los s
suffered by plaintiff and other Class members was caused by changed market conditions ,
macroeconomic or industry factors or Company-specific facts unrelated to the defendants' fraudulen t
conduct . During the same period in which Carrier Access's stock price fell 64% as a result o f
defendants ' fraud being revealed , the Standard & Poor' s 500 securities index was up slightly. The
economic loss, i . e ., damages, suffered by plaintiff and other members of the Class was a direct resul t
of defendants' fraudulent scheme to artificially inflate Carrier Access's stock price and th e
subsequent significant decline in the value of Carrier Access's stock when defendants' prio r
misrepresentations and other fraudulent conduct was revealed .
COUNT I
Violation of Section 10(b) of the Exchange Act and Rule 10b-5Promulgated Thereunder Against All Defendants
90. Plaintiff repeats and realleges each and every allegation contained above as if fully se t
forth herein .
91 . During the Class Period, Carrier Access and the Individual Defendants, and each o f
them, carried out a plan, scheme and course of conduct which was intended to and, throughout th e
Class Period, did: (a) deceive the investing public, including plaintiff and other Class members, a s
-30-
alleged herein; (b) artificially inflate and maintain the market price of Carrier Access publicly trade d
securities; and (c) cause plaintiff and other members of the Class to purchase Carrier Access publicl y
traded securities at artificially inflated prices . In furtherance of this unlawful scheme, plan and
course of conduct, defendants, and each of them, took the actions set forth herein .
92 . Defendants : (a) employed devices, schemes, and artifices to defraud ; (b) made untru e
statements of material fact and/or omitted to state material facts necessary to make the statement s
made not misleading ; and (c) engaged in acts, practices, and a course of business which operated as a
fraud and deceit upon the purchasers of the Company's securities in an effort to maintain an
artificially high market price for Carrier Access's publicly traded securities in violation of § 10(b) o f
the Exchange Act and Rule 10b-5 . All defendants are sued either as primary participants in th e
wrongful and illegal conduct charged herein or as controlling persons as alleged below .
93 . In addition to the duties of full disclosure imposed on defendants as a result of thei r
making of affirmative statements and repo rt s , or participation in the making of affirmative
statements and reports to the investing public, defendants had a duty to promptly disseminate truthfu l
information that would be material to investors in compliance with the integrated disclosur e
provisions of the SEC as embodied in SEC Regulation S-X (17 C .F.R. §§210.01, et seq.) and
Regulation S-K (17 C .F.R. §§229.10, et seq .) and other SEC regulations, including accurate an d
truthful information with respect to the Company's operations, financial condition, and earnings s o
that the market prices of the Company's securities would be based on truthful, complete, an d
accurate information .
94 . Carrier Access and the Individual Defendants, individually and in concert, directl y
and indirectly , by the use, means , or instrumentalities of interstate commerce and/or of the mails ,
-31 -
engaged and participated in a continuous course of conduct to conceal adverse material informatio n
about the business, operations, and future prospects of Carrier Access as specified herein .
95 . These defendants employed devices, schemes, and artifices to defraud, while i n
possession of material adverse non-public information and engaged in acts, practices, and a course o f
conduct as alleged herein in an effort to assure investors of Carrier Access's value and performanc e
and continued substantial growth, which included the making of, or the participation in the makin g
of, untrue statements of material facts and omitting to state material facts necessary in order to make
the statements made about Carrier Access and its business operations and future prospects in th e
light of the circumstances under which they were made, not misleading, as set forth mor e
particularly herein, and engaged in transactions, practices, and a course of business which operate d
as a fraud and deceit upon the purchasers of Carrier Access publicly traded securities during th e
Class Period .
96 . The Individual Defendants' primary liability, and controlling person liability, arise s
from the following facts : (a) the Individual Defendants were high-level executives and/or director s
at the Company during the Class Period ; (b) the Individual Defendants were privy to and participated
in the creation, development, and reporting of the Company's internal budgets, plans, projections ,
and/or reports ; and (c) the Individual Defendants were aware of the Company's dissemination o f
information to the investing public which they knew or recklessly disregarded was materially fals e
and misleading .
97. The defendants had actual knowledge of the misrepresentations and omissions o f
material facts set forth herein, or acted with reckless disregard for the truth in that they failed to
ascertain and to disclose such facts, even though such facts were available to them . Such
-32-
defendants' material misrepresentations and/or omissions were done knowingly or recklessly and fo r
the purpose and effect of concealing Carrier Access's operating condition and future busines s
prospects from the investing public and supporting the artificially inflated price of its securities . As
demonstrated by defendants' overstatements and misstatements of the Company's business ,
operations, and earnings throughout the Class Period, defendants, if they did not have actua l
knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain suc h
knowledge by deliberately refraining from taking those steps necessary to discover whether thos e
statements were false or misleading .
98 . As a result of the dissemination of the materially false and misleading information
and failure to disclose material facts, as set forth above, the market prices of Carrier Access publicl y
traded securities were artificially inflated during the Class Period . In ignorance of the fact that th e
market prices of Carrier Access publicly traded securities were artificially inflated , and relying
directly or indirectly on the false and misleading statements made by defendants, or upon th e
integrity of the market in which the securities trade, and/or on the absence of material advers e
information that was known to or recklessly disregarded by defendants but not disclosed in publi c
statements by defendants during the Class Period, plaintiff and the other members of the Clas s
acquired Carrier Access publicly traded securities during the Class Period at artificially high price s
and were damaged thereby .
99. At the time of said misrepresentations and omissions , plaintiff and other members o f
the Class were ignorant of their falsity, and believed them to be true. Had plaintiff and the other
members of the Class and the marketplace known of the true financial condition and business
prospects of Carrier Access, which were not disclosed by defendants, plaintiff and other members of
-33-
the Class would not have purchased or otherwise acquired their Carrier Access publicly trade d
securities, or, if they had acquired such securities during the Class Period, they would not have don e
so at the artificially inflated prices which they paid .
100 . By virtue of the foregoing, defendants have violated § 10(b) of the Exchange Act, and
Rule IOb-5 promulgated thereunder.
101 . As a direct and proximate result of defendants' wrongful conduct, plaintiff and th e
other members of the Class suffered damages in connection with their respective purchases and sale s
of the Company's publicly traded securities during the Class Period .
COUNT I I
Violation of Section 20(a) ofthe Exchange Act Against All Defendant s
102 . Plaintiff repeats and realleges each and every allegation contained above as if fully set
forth herein .
103 . The Individual Defendants acted as controlling persons of Carrier Access within th e
meaning of §20(a) of the Exchange Act as alleged herein . By virtue of their high- level positions,
and their ownership and contractual rights, participation in and/or awareness of the Company' s
operations, and/or intimate knowledge of the statements filed by the Company with the SEC an d
disseminated to the investing public, the Individual Defendants had the power to influence an d
control and did influence and control, directly or indirectly, the decision-making of the Company ,
including the content and dissemination of the various statements which plaintiff contends are fals e
and misleading . The Individual Defendants were provided with or had unlimited access to copies o f
the Company's reports, press releases, public filings, and other statements alleged by plaintiff to be
-34-
misleading prior to and/or shortly after these statements were issued and had the ability to preven t
the issuance of the statements or cause the statements to be corrected .
104 . In particular, the Individual Defendants had direct and supervisory involvement in the
day-to-day operations of the Company and, therefore, are presumed to have had the power to contro l
or influence the particular transactions giving rise to the securities violations as alleged herein, an d
exercised the same . The Company controlled the Individual Defendants and all of its employees .
105. As set forth above, Carrier Access and the Individual Defendants each violated § 10(b )
and Rule 10b-5 by their acts and omissions as alleged in this Complaint . By virtue of their positions
as controlling persons, the defendants are liable pursuant to §20(a) of the Exchange Act . As a direct
and proximate result of Carrier Access's and the Individual Defendants' wrongful conduct, plaintiff
and other members of the Class suffered damages in connection with their purchases of the
Company's publicly traded securities during the Class Period .
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 Civi l
Procedure and plaintiffs counsel as lead counsel ;
B . Awarding compensatory damages in favor of plaintiff and the other Class member s
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 thi s
action, including counsel fees and expert fees ; and
-35-
D. Such equitable/injunctive or other and further relief as the Court may deem just an d
proper .
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury .
DATED : June 2, 2005 DYER & SHUMAN, LLPROBERT J. DYER IIIKIP B . SHUMAN
KIP B . SHUMAN
801 East 17th AvenueDenver, CO 80218-1417Telephone : 303/861-3003303/830-6920 (fax )
LERACH COUGHLIN STOIA GELLERRUDMAN & ROBBINS LLP
WILLIAM S . LERACHDARKEN J . ROBBINS401 B Street , Suite 1600San Diego , CA 92101Telephone : 619/231-1058619/231-7423 (fax)
Attorneys for Plaintiff
PLAINTIFF :Jerry Coke r318 River Ridge DriveWallace, NC 28466
-36-
CERTIFICATION OF NAMED PLAINTIFFPURSUANT TO FEDERAL SECURITIES LAW S
JERRY CROKER ("Plaintiff') declares :
1 . Plaintiff has reviewed a complaint and authorized its filing .
2 . Plaintiff did not acquire the security that is the subject of this action at th e
direction of plaintiff's counsel or in order to participate in this private action or any
other litigation under the federal securities laws .
3 . Plaintiff is willing to serve as a representative party on behalf of th e
class, including providing testimony at deposition and trial, if necessary .
4. Plaintiffhas made the following transaction (s) during the Class Period in
the securities that are the subject of this action :
Acquisitions :
Sales :
Date AcquiredNumber of Shares
AcquiredAcquisition Price Pe r
Share
a Dob 5
Date SoldNumber of Shares
SoldSelling Price Per
Share
asoS
c iS- '
5 . During the three years prior to the date of this Certificate, Plaintiff has
not sought to serve or served as a representative party for a class in an action filed
under the federal securities laws except as detailed below :
6 . The Plaintiff will not accept any payment for serving as a representativ e
party on behalf of the class beyond the Plaintiff's pro rata share of any recovery ,
G~Ipot )It ccrt Ictt r soaker cert. Carrier Aec .doc CARRIER ACCESS
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 .
., 2005 .Executed this 7 day of ffiA)
~01> .4 M,> a~L
E CROKER
-2-G•lpot lic tert Icitaekroker cert,Carrirr Atceg .doe CARRIER ACCESS