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(Pro Hac Vice) LABATON SUCHAROW LLP 140 Broadway Case 2:14-cv-00033-JNP-BCW Document 140 Filed 08/31/16 Page 1 of 48 Jonathan Gardner (pro hac vice) Christine M. Fox (pro hac vice) Guillaume Buell (pro hac vice) LABATON SUCHAROW LLP 140 Broadway New York, New York 10005 Telephone: (212) 907-0700 Facsimile: (212) 818-0477 [email protected] [email protected] [email protected] Eric K. Jenkins (10783) CHRISTENSEN & JENSEN, P.C. 257 East 200 South, Suite 1100 Salt Lake City, UT 84111 Telephone: (801) 323-5000 Facsimile: (801) 355-3472 [email protected] Counsel for Lead Plaintiff State-Boston Retirement System and the Proposed Class IN THE UNITED STATES DISTRICT COURT DISTRICT OF UTAH, CENTRAL DIVISION IN RE NU SKIN ENTERPRISES, INC., Master File No. 2:14-cv-00033-JNP-BCW SECURITIES LITIGATION Hon. Jill Parrish DECLARATION OF JONATHAN This Document Related To: GARDNER IN SUPPORT OF LEAD ALL ACTIONS PLAINTIFF’S MOTION FOR FINAL APPROVAL OF PROPOSED CLASS ACTION SETTLEMENT AND PLAN OF ALLOCATION AND LEAD COUNSEL’S MOTION FOR AN AWARD OF ATTORNEYS’ FEES AND PAYMENT OF EXPENSES Case 2:14-cv-00033-JNP-BCW Document 140 Filed 08/31/16 Page 2 of 48 I, JONATHAN GARDNER, declare as follows pursuant to 28 U.S.C. §1746: 1. I am a member of Labaton Sucharow LLP (“Labaton Sucharow” or “Lead Counsel”), counsel for Lead Plaintiff State-Boston Retirement System (“Lead Plaintiff” or “State Boston”) and the Settlement Class.1 I have been actively involved in prosecuting and resolving this action, am familiar with its proceedings, and have personal knowledge of the matters set forth herein based upon my supervision and participation in all material aspects of the action. 2. Pursuant to Rule 23 of the Federal Rules of Civil Procedure, I submit this declaration in support of Lead Plaintiff’s Motion for Final Approval of Class Action Settlement and Plan of Allocation of Settlement Proceeds as well as Lead Counsel’s Motion for an Award of Attorneys’ Fees and Expenses. Both motions have the full support of Lead Plaintiff. See Declaration of Timothy J. Smyth, Executive Officer of State Boston Retirement System, dated August 18, 2016, 1 References to “Settlement Class” are to the class preliminarily certified by the Court for settlement purposes only, defined as: “all persons and entities that purchased or otherwise acquired the publicly traded common stock (“Common Stock”) of Nu Skin Enterprises, Inc. (“Nu Skin” or the “Company”), including call and put options (“Options”) on such publicly traded Common Stock, between May 4, 2011 and January 17, 2014, inclusive, and were damaged thereby. Excluded from the Settlement Class are: Nu Skin, M. Truman Hunt, and Ritch N. Wood (“Defendants”); the officers and directors of the Company during the Class Period; the immediate family members of any of the foregoing individuals; any affiliate of Nu Skin; any entity in which Defendants have or had a controlling interest; and the legal representatives, heirs, successors or assigns of any of the foregoing excluded persons and entities.” Order Granting Preliminary Approval of Class Action Settlement and Directing Notice to the Settlement Class. ECF No. 135 ¶2. Also excluded from the Settlement Class are any Settlement Class Members who properly exclude themselves by submitting a valid and timely request for exclusion in accordance with the requirements set forth in the Notice. All capitalized terms not otherwise defined herein have the same meaning as that set forth in the Stipulation and Agreement of Settlement, dated as of May 2, 2016 (the “Stipulation”, ECF No. 134-1). 1 Case 2:14-cv-00033-JNP-BCW Document 140 Filed 08/31/16 Page 3 of 48 attached hereto as Exhibit 1.2 I. PRELIMINARY STATEMENT: THE SIGNIFICANT RECOVERY ACHIEVED 3. This case has been vigorously litigated from its commencement in March 2014 through the execution of the Stipulation. The Settlement of $47,000,000 was achieved only after Lead Counsel, inter alia: (a) reviewed and analyzed publicly available information concerning Defendants, including press releases, news articles, and other public statements issued by or concerning Defendants; (b) conducted an exhaustive pre-filing investigation that included contacting more than 100 potential witnesses and interviews of 45 individuals who were either former Nu Skin employees, independent distributors, or sales promoters of Nu Skin and other persons with relevant knowledge, many of whom were located in the People’s Republic of China (“Mainland China”) where the allegations in the Action are centered, and ten of whom provided information as confidential witnesses (some of whom provided internal company documents cited in the Consolidated Amended Class Action Complaint (“Complaint”); (c) prepared and filed a detailed Complaint; (d) successfully opposed Defendants’ comprehensive motion to dismiss; (e) moved for class certification, which was pending at the time the Parties agreed to settle; (f) engaged in fact discovery, which included Plaintiffs’ Counsel’s review of approximately 500,000 pages of documents produced by Defendants and approximately 26,000 pages of documents produced by third parties; (g) conducted depositions of six individuals identified by Nu Skin as the Company’s Rule 30(b)(6) deponents; (h) engaged in thorough mediation efforts which included the preparation of mediation briefs and two separate full day mediation sessions; and (i) conferred with experts on 2 Citations to “Exhibit” or “Ex.___” herein refer to exhibits to this Declaration. For clarity, citations to exhibits that have attached exhibits will be referenced as “Ex. __-__.” The first numerical reference refers to the designation of the entire exhibit attached hereto and the second alphabetical reference refers to the exhibit designation within the exhibit itself. 2 Case 2:14-cv-00033-JNP-BCW Document 140 Filed 08/31/16 Page 4 of 48 damages, multi-level marketing (“MLM”), and direct selling and MLM in Mainland China. Having done so, Lead Counsel was in a position to fully evaluate the strengths and weaknesses of the claims of Lead Plaintiff and the Settlement Class. 4. The Complaint was brought against Nu Skin and two of its officers, M. Truman Hunt (Chief Executive Officer) and Ritch N. Wood (Chief Financial Officer) (collectively, “Defendants”), for violations of §§10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§78j(b), 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. §240.10b-5. 5. The Settlement is an excellent result for the Settlement Class and the product of hard- fought litigation and tenacious arm’s-length negotiations between the Parties, facilitated by a respected and experienced mediator, the Honorable Layn R. Phillips (“Judge Phillips”). The negotiations were conducted by experienced counsel with a full understanding of both the strengths and weaknesses of their respective cases. Both mediations were attended by representatives of State- Boston, which strongly supports approval of the Settlement. 6. The $47 million Settlement Amount exceeds both the average and the median reported settlement amounts in recent securities class actions. As reported by Cornerstone Research, in 2015 the average settlement amount was $37.9 million and the median settlement amount was $6.1 million. See Laarni T. Bulan, Ellen M. Ryan, and Laura E. Simmons, Securities Class Action Settlements - 2015 Review and Analysis (Cornerstone Research 2016) (Ex. 2 at 1). 7. Further, as discussed below, Lead Plaintiff retained an expert to analyze loss causation issues and estimate potential class wide damages. Lead Plaintiff’s expert’s analysis was based on a series of corrective disclosures that were made during market hours on August 7, 2012 (the Citron Report), and before the market opened on each of January 15, 2014 (People’s Daily 3 Case 2:14-cv-00033-JNP-BCW Document 140 Filed 08/31/16 Page 5 of 48 articles), January 16, 2014 (announcement of government investigation) and January 21, 2014 (Nu Skin Form 8-K discussing employee violations). Assuming Lead Plaintiff was successful in establishing that 100% of all four alleged corrective disclosure dates were connected to the alleged fraud (i.e., no disaggregation applied for any confounding information), estimated damages would be approximately $790 million. As such, the $47 million Settlement represents a gross recovery of approximately 6% of Lead Plaintiff’s consulting expert’s best case estimated damages —a favorable recovery in light of the countervailing legal and factual arguments and litigation risks. See, e.g., In re Omnivision Techs., Inc., 559 F. Supp. 2d 1036, 1042 (N.D. Cal. 2008) ($13.75 million settlement yielding 6% of potential damages was “higher than the median percentage of investor losses recovered in recent shareholder class action settlements”); see also Lead Plaintiff’s Motion for Final Approval of Class Action Settlement and Supporting Memorandum of Law (“Approval Brief”), §I.C. 8. However, as explained below, see Section VII.C., Defendants would likely argue, as they did in opposing Plaintiffs’ class certification motion, that Lead Plaintiff’s damages should be reduced significantly (to approximately $45 million) because the Class Period should be curtailed to end after the publication of the Citron Report on August 7, 2012. Or, in the alternative, the Class Period should end after the first People’s Daily article, published before trading began on January 15, 2014. In that case, Defendants would argue that limiting the damages period to January 15, 2014 would reduce any recovery to a maximum of approximately $300 million. Under Defendants’ theory of maximum alleged damages, assuming of course that liability were proven, the Settlement represents approximately 16% of recoverable damages. 4 Case 2:14-cv-00033-JNP-BCW Document 140 Filed 08/31/16 Page 6 of 48 9. Additionally, Defendants would be expected to argue that non-fraud related negative news was included in each of the alleged corrective disclosures in January 2014 (i.e., there was confounding information present), which would further reduce Plaintiffs’ damages.
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