Emerson Radio Corporation Securities Litigation 03-CV-4201-Amended Consolidated Complaint
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Case 2:03-cv-04201-JLL-RJH Document 21-1 Filed 03/29/2004 Page 1 of 52 LITE DEPALMA GREENBERG & RIVAS, LLC Joseph J. DePalma (JD-7697) Susan D. Pontoriero (SP-0463) Two Gateway Center, 12th Floor Newark, New Jersey 07102 Plaintiffs’ Co-Liaison Counsel (Additional Counsel on Signature Page) UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY Civil Action No. 03-cv-4201 IN RE EMERSON RADIO CORP. (JLL) SECURITIES LITIGATION AMENDED CONSOLIDATED COMPLAINT Lead Plaintiffs, Clark E. Niss and Jeffrey Hoffman (“Plaintiffs”), by and through their attorneys, allege the following based upon, inter alia, the investigation of their attorneys, including without limitation: (a) review and analysis of public filings made by Emerson Radio Corporation (“Emerson” or the “Company”) with the Securities and Exchange Commission ("SEC"); (b) review and analysis of securities analysts' reports concerning Emerson; (c) review and analysis of press releases, transcripts of investor conference calls and other publications disseminated by or on behalf of Emerson; (d) review and analysis of news articles concerning Emerson; (e) interviews with former employees of Emerson; and (f) review and analysis of other publicly available information about Emerson. SUMMARY OF THE ACTION 1. Plaintiffs bring this class action alleging violations of the Securities Exchange Act of 1934, 15 U.S.C. § 78, et seq., (the "Exchange Act") against Emerson as well as current executives, Geoffrey P. Jurick (“Jurick”), Kenneth A. Corby (“Corby”), John. J. Raab (“Raab”), and director Jerome H. Farnum (“Farnum”) (collectively the “Individual Case 2:03-cv-04201-JLL-RJH Document 21-1 Filed 03/29/2004 Page 2 of 52 Defendants”) on behalf of a proposed class and subclass of persons who purchased or acquired Emerson common stock on the open market or otherwise from January 29, 2003 through August 12, 2003, inclusive (the “Class Period”) and who suffered economic damages, as defined below. JURISDICTION AND VENUE 2. The claims asserted herein arise under and pursuant to Sections 10(b), 20(a) and 20(A) of the Exchange Act and Rule 10b-5 promulgated thereunder by the SEC [17 C.F.R. § 240.10b-5]. 3. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. § 1331 and Section 27 of the Exchange Act. 4. Venue is proper in this District pursuant to Section 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 Emerson maintains its principal place of business in this District. 5. 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 6. Plaintiffs, Clark E. Niss and Jeffrey Hoffman, each purchased the common stock of Emerson, as set forth in their certifications attached as exhibits to their respective motions for appointment as lead plaintiffs, at artificially inflated prices during the Class Period and suffered economic damages. Each purchased Emerson common stock without knowledge of the falsity of the Company's reported financial results and other public representations, as specified herein, and the fact that the price of the Company's common 2 Case 2:03-cv-04201-JLL-RJH Document 21-1 Filed 03/29/2004 Page 3 of 52 stock was artificially inflated by these misrepresentations. Plaintiffs relied upon Emerson’s public reports, press releases, filings with the SEC and other public statements, more fully described below, and that the Company's common stock was fairly priced and upon the integrity of the market for its securities. 7. Defendant Emerson is a Delaware corporation with its principal executive offices located at 9 Entin Road, Township of Parsippany-Troy Hills, Morris County, New Jersey 07054. Emerson designs, markets and licenses, throughout the world, full lines of televisions, and other video products, microwave ovens, clocks, radios, audio and home theater products. Its 53.2% owned subsidiary, Sport Supply Group, Inc. (“SSG”) is a direct marketer of sports-related equipment and leisure products to the institutional market, including schools, colleges, universities, government agencies, military facilities, athletic clubs, athletic teams and dealers, youth sports leagues and recreational organizations. 8. Defendant Jurick is, and was during all relevant times, Emerson’s President, Chief Executive Officer, and Chairman of the Board of Directors. Jurick is also SSG’s Chief Executive Officer and Chairman of the Board of Directors. During the Class Period, defendant Jurick was a controlling person of Emerson within the meaning of §20(a) of the Exchange Act and caused Emerson to file Registration Statements with the SEC so that Jurick could sell over 4.8 million shares of his personally owned Emerson stock. Jurick planned to use the bulk of the proceeds of the sale to satisfy a judgment against him of more than $16.5 million. Defendant Jurick signed and certified numerous financial statements that contained material misstatements and omissions throughout the Class Period. 9. Defendant Corby is, and was during all relevant times, Emerson’s Chief Financial Officer and Executive Vice President -- Finance. During the Class Period, defendant Corby was a controlling person within the meaning of §20(a) of the Exchange Act. 3 Case 2:03-cv-04201-JLL-RJH Document 21-1 Filed 03/29/2004 Page 4 of 52 Defendant Colby certified and signed numerous financial statements that contained material misstatements and omissions throughout the Class Period. 10. Defendant Raab first became an officer of Emerson in 1995. He has served as Chief Operating Officer and Senior Executive Vice President - International since May 2003, Executive Vice President - International from June 2000 to May 2003, Senior Vice President - International from October 1997 to June 2000 and Senior Vice President-Operations from October 1995 to October 1997. In July 2000, the Company’s Board of Directors granted stock options to Mr. Raab to purchase 50,000 shares of common stock, at an exercise price of $1.00 per share. Effective September 1, 2001, Mr . Raab entered into a three-year employment agreement with the Company, providing for an annual compensation of $250,000, which was increased to $257,500, effective April 1, 2002, and $275,000, effective April 1, 2003. In addition to his base salary, Mr. Raab also receives an additional annual performance bonus recommended by the Compensation and Personnel Committee of the Company’s Board of Directors, subject to the final approval of the Board of Directors. During the Class Period, Mr. Raab, as the COO of the Company, was a controlling person within the meaning of § 20(a) of the Exchange Act. Further, during the Class Period, Mr. Raab sold 100,000 shares of Emerson common stock -- all of his holdings in the Company - - for proceeds of $632,096.00, including the sale of 20,966 shares on July 28, 2003, alone. 11. Defendant Farnum is, and was at all relevant times, a director of Emerson since 1992, and reviewed and signed several of the Company’s SEC filings during the Class Period including Emerson’s Form 10-K for the fiscal year ended March 31, 2003, as well as the Company’s Form S-3 and Amendment filed on March 14, 2003 and June 16, 2003, respectively. Defendant Farnum sold over $150,000 worth of Emerson stock over the course of less than one week in late July, 2003, only two weeks before Emerson announced its sharply disappointing results for the first quarter of fiscal year 2004, including the sale of 4 Case 2:03-cv-04201-JLL-RJH Document 21-1 Filed 03/29/2004 Page 5 of 52 10,000 shares on July 28th alone. During Fiscal 2003, Mr. Farnum served as chair of the Company’s Audit Committee, served on the Compensation and Personnel Committee, and was a member of the Executive Committee. Mr. Farnum, as Chair of Emerson’s Audit Committee, was a controlling person within the meaning of § 20(a) of the Exchange Act. Emerson’s Proxy Statement filed on July 29, 2003, sets forth the duties of Emerson’s Audit Committee in detail. 12. It is appropriate to treat the Individual Defendants as a group for pleading purposes and to presume that the false or misleading information conveyed in the Company's public filings, and statements in press releases and other publications, as alleged herein, are the collective actions of this narrowly defined group of defendants. Each of the Individual Defendants by virtue of his executive, managerial, or directorship positions with the Company, directly participated in the daily management of the Company, was directly involved in the day-to-day operations of the Company at the highest level, and was privy to confidential proprietary information concerning the Company and its business and operations, and revenue streams. The Individual Defendants were involved or participated in drafting, producing, reviewing, and/or disseminating the false and misleading statements alleged herein. 13. The statements made by the Individual Defendants, as outlined below, were materially false or misleading when made. The true financial and operating condition of the Company, which was known or recklessly disregarded by the Individual Defendants, remained concealed from the investing public. The Individual Defendants, who were under a duty to disclose those facts, instead misrepresented or concealed them during the relevant period herein. 14. The Individual Defendants, as officers and/or directors of a publicly-held company, had a duty to promptly disseminate truthful and accurate information with respect 5 Case 2:03-cv-04201-JLL-RJH Document 21-1 Filed 03/29/2004 Page 6 of 52 to Emerson and to promptly correct any public statements issued by or on behalf of the Company that had become false or misleading.