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BROWER PIVEN 1 A Professional Corporation DAVID A.P. BROWER 2 RICHARD H. WEISS 475 Park Avenue South, 33 rd Floor 3 New York, NY 10016 Telephone: (212) 501-9000 4 Facsimile: (212) 501-0300
5 Lead Counsel for Plaintiffs and the
6 Class
7 BRODSKY & SMITH, LLC EVAN J. SMITH (242352)
8 9595 Wilshire Boulevard, Suite 900 Beverly Hills, CA 90212 9 Telephone: (310) 300-8425 Facsimile: (310) 247-0160
10 Liaison Counsel for Plaintiffs and 11 the Class
12 UNITED STATES DISTRICT COURT
13 NORTHERN DISTRICT OF CALIFORNIA
14 SAN JOSE DIVISION
15
16 IN RE FUSION-IO, INC. SECURITIES No. 5:13-cv-05368-LHK LITIGATION 17 CLASS ACTION
18 CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF 19 FEDERAL SECURITIES LAWS
20
21
22 1. Lead Plaintiffs Donald Hunt and Steve Winebrenner and Additional Plainti
23 Nick Micek and Eric Rubenstein (“Plaintiffs”) bring this federal securities class action pur
24 to Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure, on behalf of all persons 25
26 purchased the publicly-traded common stock of Fusion-io, Inc. (“Fusion” or the “Compa
27 between October 25, 2012 and October 23, 2013, inclusive (the “Class Period”), against
28 and certain of its top executive officers during the Class Period (collectively, “Defendants”)
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violations of the Securities Exchange Act of 1934 (the “Exchange Act”). The claims 1
2 herein arise from a series of materially false and misleading statements and
3 concerning Fusion, its business, performance, and prospects that Defendants made to the
4 during the Class Period.
5 2. Plaintiffs allege the following based upon the investigation of Plaintiffs’
6 which has included a review of United States Securities and Exchange Commission 7
8 filings by Fusion, securities analysts’ reports and advisories about the Company, press
9 and other public statements issued by the Company and its executives, media reports about
10 Company and its industry, and interviews with witnesses with knowledge and
11 concerning the matters alleged herein. Plaintiffs believe that substantial additional
12 support will exist for the allegations set forth herein after a reasonable opportunity for discovery. 13
14 OVERVIEW
15 3. Fusion is a computer hardware and software systems company that designs
16 manufactures products that use flash memory technology, also referred to by Fusion as
17 flash memory. According to Fusion’s Fiscal 20131 Form 10-K: 18
19 We provide solutions for enterprises, hyperscale datacenters, and small to medium enterprises, or SMEs, that accelerate databases, virtualization, mission-critical 20 applications, cloud computing, big data, and information systems. These solutions help drive business from small enterprises to Fortune Global 500 companies and 21 the world’s hyperscale leaders. Our integrated hardware and software platforms
22 and solutions enable the acceleration of data and applications in legacy, open, and proprietary architectures. Our core technology leverages flash memory to 23 significantly increase datacenter and computer-based information system efficiency, with enterprise grade performance, reliability, and manageability. We 24
25 1 Fusion’s fiscal year end is June 30 and its fiscal quarters end on September 30, December 31, 26 and March 31, and June 30. Fiscal years ended June 30, 2012; June 30, 2013; and June 30, 2014 are referred to herein as Fiscal 2012, 2013, and 2014, respectively. The quarter of each fiscal 27 year ending September 30 is referred to as the Fiscal First Quarter. The quarter ending
28 December 31 is referred to as the Fiscal Second Quarter, and the quarter ending March 31 is referred to as the Fiscal Third Quarter.
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sell our solutions through a global direct sales force, original equipment 1 manufacturers, or OEMs, including Cisco, Dell, HP [Hewlett-Packard], and IBM,
2 and other channel partners.
3 4. Flash memory is an electronic non-volatile computer storage medium that can 4
5 electrically erased and reprogrammed. Rather than using magnetic spinning disks, flash
6 stores information electronically on silicon as positive or negative charges, mirroring
7 computers use binary code in zeroes or ones. It makes applications faster than relying on
8 disk drives. It also offers cost savings compared to disk storage because it offers more capacity
9 uses less space, has no mechanical parts, generates less heat than spinning disk storage, 10
11 requires less servicing and maintenance. Flash memory is widely used in smartphones, tablets
12 and laptops. It also is used in datacenter servers to speed up application performance. As
13 capacity of flash chips increases, for example, by shrinking the size of the cells that hold
14 electronic charges or by adding more layers to the chips, software to manage the flash 15 increasingly important to ensure that flash memory will perform as expected in enterpri 16
17 servers.
18 5. Before and during the Class Period, Fusion faced competition from
19 companies that sold flash-based products and products that incorporate flash memory and
20 was significant downward pressure on prices. An autumn 2012 report on semiconductors by 21
22 global management consulting firm McKinsey & Co., Inc. explained:
23 In several product segments, such as flash memory, chips have become commoditized. Memory is a tough segment because the designs for the most 24 successful forms of memory chips are relatively simple and the design for higher
25 capacity and improved speed is relentless. Despite constant innovation, there is also constant downward pressure on prices. Between 2000 and 2008, memory 26 prices declined, on average, by 5 percent a year.
27
28
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A December 17, 2012 Computerworld article, with the headline “SSD prices continue 1
2 plunge,” reported:
3 Since 2010, solid state drive (SSD) prices for some models have plummeted from $3 to less than $1 per gigabyte. After dropping 20% in the second quarter of 2012 4 alone, SSD prices fell another 10% in the second half of the year, according to
5 data from IHS iSupply. . . . Oversupply of NAND flash memory is primarily behind the price drops over the past couple of years . . .
6 An analysis in the fourth quarter of 2012 by Idealo, a price comparison service based in 7
8 Germany, concluded that in 2012 “the average price of the 50 popular SSD models
9 24%, with the average per-GB price having fallen almost €0.30” due at least in part to “the
10 improving technology which has led to the less expensive flash memory . . .” According to
11 June 8, 2012 report on the blog The Memory Guy, which covers memory chips, “the
12 market is indeed oversupplied and prices are depressed” and NAND chip prices already 13
14 fallen to 35 cents per gigabyte.
15 6. Further, by 2012, other sellers of flash memory products that competed
16 Fusion were reporting reduced gross margins due to declining prices for flash. Thus, in i
17 annual report on Form 10-K for the fiscal year ended August 30, 2012, Micron Technology, Inc 18
19 (“Micron”) reported that overall gross margin percentage declined to 12% for fiscal 2012
20 20% for fiscal 2011 primarily due to significant declines in average selling prices for flash
21 other products. Micron further reported that, for its NAND Flash products, the average
22 price per gigabit of memory fell 55% in fiscal 2012 compared to fiscal 2011. Likewise, in i
23 Form 10-K for the fiscal year ended December 30, 2012, SanDisk Corporation (“ 24
25 reported that product gross margins decreased in fiscal 2012 compared to fiscal 2011
26 primarily to a decline of 45% in average selling price per gigabyte of memory, which
27 the cost reduction per gigabyte of only 36%.
28
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7. Augmenting the competitive pressures Fusion faced, since its initial p 1
2 offering in 2011, and continuing through the Class Period, Fusion’s business depended on
3 and concentrated purchases by a limited number of customers, most particularly Facebook, Inc
4 (“Facebook”) and Apple Inc. (“Apple”), Fusion’s two most important, strategic customers
5 Facebook and Apple, respectively, accounted for 30% and 25% of the Company’s Fiscal 2012
6
revenue and 29% and 15% of Fiscal 2013 revenue. Fusion’s 10 largest customers, including the 7
8 applicable OEM customers, provided an aggregate of 91% and 84% of its revenue in Fiscal 201
9 and Fiscal 2013, respectively.
10 8. Prior to and during the Class Period, Defendants issued a series of
11 regarding the Company’s business, performance, and prospects. Defendants represented
12
13 investors that Fusion was a market leader in large-scale flash memory applications and was
14 facing significant competitive risk from the commoditization of flash memory products and
15 downward pressure on prices. Belying Defendants’ positive public representations,
16 unbeknownst to the public, Fusion was experiencing significant competitive pressure
17 flash memory was becoming increasingly commoditized and the Company’s most 18
19 customers were seeking lower-cost alternatives. Defendants also issued positive
20 guidance for which they had no reasonable basis in light of all they knew about the compe
21 pressures the Company faced, while failing to disclose trends and uncertainties known to
22 that, if they came to fruition, would have a material adverse impact on Fusion’s business
23
operations, and financial results. As a result, the market price of Fusion common stock 24
25 artificially inflated and maintained throughout the Class Period.
26 9. As revealed during the Class Period in partially curative disclosures, Fusion’
27 business and prospects were not what Defendants had led the market to believe, and the
28
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price of Fusion shares fell dramatically. Yet, even as the truth was emerging, 1
2 continued falsely to reassure the public that competition was not a problem and that
3 revenues reflected merely a temporary, two-quarter shift in the timing of certain purchases by
4 Company’s largest customers, Apple and Facebook. Eventually, as the Company rep
5 slowing revenues and swelling net losses, on August 7, 2013, Defendants were forced to co
6
what they repeatedly had denied -- that the Company was not immune to competitive pre 7
8 that pricing was a major concern for Fusion’s customers, including its most important
9 and that Fusion had lost business because its products were not competitively priced. Two of
10 Individual Defendants -- the Company’s Chief Executive Officer (“CEO”), President,
11 and co-founder, and its Chief Financial Officer (“CFO”) -- both resigned abruptly, along with
12
13 Company’s other co-founder. Finally, on October 23, 2013, the Company was forced to
14 the disappearance of its historically high gross profit margins. Contrary to Defendants’ previ
15 Class Period representations, that revelation confirmed that Fusion’s sales shortfall was
16 merely temporary, but that the increased competition, commoditization, and
17
concentration were serious and fundamental problems resulting in heavy net losses 18
19 permanent significant declines in the Company’s gross profit margins. After the Class P
20 the Company continued to report disappointing revenues and substantial net losses. Just
21 months later, Fusion was acquired by SanDisk.
22 JURISDICTION AND VENUE
23 10. The claims asserted herein arise under and pursuant to Sections 10(b), 20(a), 24
25 20(b) of the Exchange Act [15 U.S.C. §§ 78j(b), 78t(a), and 78t(b)] and Rule 10b-5
26 thereunder by the SEC [17 C.F.R. § 240.10b-5].
27 11. This Court has jurisdiction over the subject matter of this action pursuant to §2
28
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U.S.C. §§ 1331 and 1337, and Section 27 of the Exchange Act [15 U.S.C. § 78aa]. 1
2 12. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 2
3 U.S.C. § 1391(b). Fusion maintains a “Silicon Valley Office” and transacts business in
4 District, and many of the acts, transactions, and omissions giving rise to the violations of l
5 complained of herein occurred in substantial part in the District, including, but not limited to,
6 dissemination of materially false and misleading statements into this District. 7
8 13. In connection with the acts alleged in this Complaint, Defendants, directly
9 indirectly, used the means and instrumentalities of interstate commerce, including, but
10 limited to, the mails, interstate telephone communications, and the facilities of the natio
11 securities markets.
12
13 PARTIES
14 A. Plaintiffs
15 14. Lead Plaintiff Donald Hunt, as set forth in his previously-filed certification
16 #30], incorporated herein by reference, purchased Fusion common stock at artificially inflated
17
price during the Class Period and was harmed when the price of Fusion stock dropped as a resul 18
19 of the revelation of the truth, as alleged herein.
20 15. Lead Plaintiff Steve Winebrenner, as set forth in his previously-filed certification
21 [Dkt. #30], incorporated herein by reference, purchased Fusion common stock at artificia
22 inflated prices during the Class Period and was harmed when the price of Fusion stock dropp
23
as a result of the revelation of the truth, as alleged herein. 24
25 16. Additional Plaintiff Nick Micek, as set forth in the certification attached
26 Exhibit A hereto, purchased Fusion common stock at artificially inflated prices during the
27
28
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Period and was harmed when the price of Fusion stock dropped as a result of the revelation 1
2 the truth, as alleged herein.
3 17. Additional Plaintiff Eric Rubenstein, as set forth in the certification attached
4 Exhibit B hereto, purchased Fusion common stock at artificially inflated prices during the Cl
5 Period and was harmed when the price of Fusion stock dropped as a result of the revelation
6
the truth, as alleged herein. 7
8 B. Defendants
9 18. Defendant Fusion, a Delaware corporation, maintains its principal executiv
10 offices at 2855 E. Cottonwood Parkway, Suite 100, Salt Lake City, Utah 84121. In this District
11 Fusion maintains a “Silicon Valley Office” at 2880 Junction Avenue, San Jose, Californi
12
13 95134-1922, where, according to the Company’s SEC filings, it has “significant operations.
14 Originally incorporated in 2005 as Canvas Technologies, Inc., the Company changed its name t
15 Fusion-io, Inc. in June 2010. It completed an initial public offering of common stock in Jun
16 2011 and a follow-on public offering in November 2011. Throughout the Class Period, Fusio
17
common stock traded on the New York Stock Exchange (“NYSE”), which is an efficient market 18
19 under the symbol “FIO.” After the Class Period, Fusion became a wholly-owned subsidiary o
20 SanDisk.
21 19. Defendant David A. Flynn (“Flynn”) co-founded Fusion with Rick White an
22 served as its CEO, President, and Chairman of the Board of Directors until he resigned on Ma
23 7, 2013, during the Class Period, “to pursue entrepreneurial investing activities.” He remained 24
25 member of Fusion’s Board until June 14, 2013.
26 20. Defendant Dennis P. Wolf (“Wolf”) served as Fusion’s CFO from Novemb
27 2009 until October 23, 2013 (the end of the Class Period), when the Company announced
28
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“will be leaving after a period of transition to pursue an opportunity at a private company.” W 1
2 also was Executive Vice President from October 2010 until his resignation.
3 21. Defendant Shane V. Robison (“Robison”) became CEO, President, and
4 of the Board of Directors of Fusion on May 7, 2013, upon Defendant Flynn’s resigna
5 Effective August 1, 2013, Robison was replaced as President of the Company. He continued
6
serve as CEO and Chairman through the end of the Class Period. Robison was a director 7
8 Fusion since December 2011.
9 22. Flynn, Wolf, and Robison are referred to herein as the “Individual Defendants,
10 and, together with Fusion, as “Defendants.” Because of their positions as senior
11 officers of Fusion, each of the Individual Defendants, while he was a senior executive at
12
13 Company, was provided with copies of the Company’s press releases, reports, public filings,
14 other public statements alleged herein to be materially false and misleading before they
15 issued and had the ability and opportunity to prevent them from being issued or to cause them
16 be corrected. Because, among other things, of their high-level positions and access to
17
non-public information available to them, the Individual Defendants knew, or 18
19 disregarded, that the adverse facts detailed herein were not being disclosed to, and were
20 concealed from, the public and the marketplace, and that the positive representations they
21 making on behalf of the Company were then materially false and misleading.
22 DEFENDANTS CONDITIONED THE MARKET TO BELIEVE FUSION 23 WAS UNIQUE IN ITS INDUSTRY AND WAS NOT SUSCEPTIBLE TO COMPETITIVE PRESSURES 24
25 23. On August 9, 2012, after the markets closed, Fusion issued a press
26 announcing results for the Fiscal Fourth Quarter 2012 and for Fiscal 2012, ended June 30, 2012
27 The same day, Fusion also filed the press release with the SEC on Form 8-K, signed
28
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Defendant Wolf. The Company reported quarterly revenue of $106.6 million and a net loss 1
2 $2.4 million. For the full fiscal year, the Company reported revenue of $359.3 million and a
3 loss of $5.6 million. The Company also announced that revenue growth for Fiscal 2013
4 “expected to be in the range of 45 to 50%,” or between approximately $520 million and
5 million. Non-GAAP gross margin2 for Fiscal 2013 was “expected to be in the range of 56-58%.
6 24. Defendant Flynn stated in the August 9 press release: “[W]e are pleased with 7
8 momentum we have going into the next fiscal year. . . . We believe we are still in the early
9 of demonstrating the transformative potential of software defined storage solutions that
10 greater performance and efficiency for customers at a fraction of the cost of legacy systems.”
11 25. However, when Defendant Flynn stated that the Company had “momentum . .
12 going into the next fiscal year,” he failed to disclose that the Company already was 13
14 increasing competition due, among other things, to the commoditization of flash memory,
15 put downward pressure on prices and, in turn, on gross margins, which jeopardized
16 Company’s financial performance and prospects.
17 26. Later the same day, Fusion hosted a conference call and live webcast 18
19 analysts and investors to discuss the financial results. Defendants Flynn and Wolf spoke
20 behalf of the Company. Terming Fiscal 2012 “a defining year for us,” Wolf stated:
21 With regard to our revenue mix for the fiscal year, revenue from our 2 largest
22 customers combined grew 66% year-over-year and represented 55% of our total business. As it relates to our core customer revenue, we saw it more than doubled 23 this year as we continued to build out our sales team and expand our go-to-market strategy. We expect these trends to continue to be catalysts for robust growth . . . 24
25
26 2 Throughout the Class Period, Defendants provided guidance concerning non-GAAP gros 27 margin, which they explained “is calculated as non-GAAP gross profit divided by GAAP
28 revenue. Non-GAAP gross profit consists of GAAP gross profit excluding the effects of stock based compensation expense.” GAAP refers to Generally Accepted Accounting Principles.
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(Emphasis added.) Wolf explained that Fusion was able confidently to anticipate Fiscal 201 1
2 revenue from its two strategic customers -- Apple and Facebook -- because “we’ve spent a lot
3 time on . . . assess[ing] the strength of our core and strategic customers.” He further noted:
4 key customers, the strategic customers, we’ve had a couple years of experience with them now
5 So we have a better understanding of what their predictability will be going through fiscal 201
6 now.” Wolf added that “we think we know where our Facebook and Apple revenue will be . . . 7
8 Wolf repeated the same guidance for Fiscal 2013 as was asserted in the August 9 press release.
9 27. Defendant Flynn also was unambiguously positive about the Company’s
10
current condition and superior competitive position in the industry: “The combination of our
11 to-market strengths and our expanding product portfolio is just now beginning to pay off.”
12 “[W]e made excellent progress this year on our product road map, go-to-market strategy 13
14 market share capture . . .” Further touting the strength of Fusion’s competitive position,
15 explained that “it’s really quite a hard problem to take these consumer-grade NAND flash
16 and make them into an enterprise product that you can scale into thousands of servers.”
17 continued: 18
19 [O]ur main competition is the status quo of using disk drives and being more competent at articulating the reasons why customers get value from this means 20 that we're capturing market share faster. If I were focused on want to be [sic] competitors, then I would be focusing on the 10% of the market -- of the field that 21 we've already plowed as opposed to the 90-plus percent that remains virgin out
22 front.
23 28. Flynn’s statements, during the August 9 conference call, that “[t]he
24 of our go-to-market strengths and our expanding product portfolio is just now beginning to
25
off,” and that the Company was making “excellent progress . . . on our product road map,
26 market strategy and market share capture,” lacked a reasonable basis in fact because, in fact, 27
28 to increased competition and pricing pressure, the Company’s “expanding product portfolio”
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not beginning “to pay off,” the Company was not capturing market share, and the Company 1
2 not immune to competitive pressure.
3 29. In fact, contrary to Defendant Wolf’s statement, during the August 9
4 call, that “[w]e expect these trends to continue to be catalysts for robust growth,” the t
5 Fusion faced would not produce robust growth because increasing competition, due, among
6
things, to the commoditization of flash memory, put downward pressure on prices, 7
8 reasonably likely to force down profit margins, and jeopardized the Company’s
9 performance and prospects.
10 30. Believing Defendants’ positive assurances, the William Blair analysts wrote,
11 August 9, 2012, after the conference call: “ Management noted no significant 12
13 pressure . We expect these strong margin results to ease investor concerns over commoditi
14 in the PCIe flash market.” (Emphasis added.) On August 10, Morgan Stanley noted
15 Company’s Fiscal 2013 revenue guidance of 45%-50% growth “ highlights management
16 confidence and customer visibility ” (emphasis added), i.e., Defendants’ ability to predi
17
accurately the Company’s customers’ future purchases of its products. 18
19 31. Also on August 10, 2012, Sterne Agee published a report stating: “Wit
20 management’s apparent strong visibility into the Facebook and Apple accounts for FY2013, w
21 believe the risk profile for FIO shares will be lowered – a key, positive outcome of the stock i
22 our view.”; and “Further, management’s confidence around the direction of Facebook/
23 (53% of revenue in 4Q12) into FY2013 at ± 4-5% from 55% in FY2012 suggests no immed 24
25 existential threat to that business.” These and other analyst reports and comments before
26 during the Class Period that are referred to herein reflect that the market was misled
27
28
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Defendants’ material misstatements and omissions concerning the Company’s business 1
2 prospects and also that the matters at issue were highly material to investors.
3 32. Following Defendants’ positive statements on August 9, the price of
4 shares rose, on heavy volume of more than 17.8 million shares, from a closing price of $21.02
5 August 9 to close at $26.86 on August 10 -- a one-day rise of almost 28%. (The average
6 trading volume of Fusion stock during the Class Period was about 3.46 million shares.) 7
8 same day, the S&P 500 Index and the S&P 500 Information Technology Sector Index,
9 indices with which Fusion compared the performance of its common stock in its public fili
10 each rose only slightly (less than 1%).
11 33. On or about September 25, 2012, Fusion filed with the SEC and disseminated 12 its shareholders its Annual Report for Fiscal 2012. The 2012 Annual Report contained a si 13
14 letter from Defendant Flynn to Fusion stockholders, dated September 24, 2012. The
15 assured stockholders the Company was well-positioned for continued success:
16 We use Flash as a new type of server memory, adapted for enterprise use where
17 data reliability is even more critical, while others in the industry chose to integrate Flash like a disk drive. We knew the latter approach would limit this powerful 18 new medium and keep it from achieving its full potential. We believe this gives
19 us a strong head start and competitive advantage.
20 . . . We are still in the early stages of this data center transformation, and we believe our strong execution this past year demonstrates that we are well 21 positioned to continue to drive it.
22 In fiscal 2012, we achieved significant milestones in financial growth and product 23 innovation. Our business momentum is best highlighted against the goals we established at the beginning of this past year: capture market share; enhance our 24 product portfolio; and expand our go-to-market strategy.
25 We delivered 82% revenue growth during the last fiscal year, significantly 26 outperforming the industry and solidifying our leadership position. We attribute this to the compelling return on investment our solutions provide to end-user 27 customers as well as our differentiation in technology and sales strategy. . . .
28
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We believe the enhancements we made to our product portfolio during the last 1 year reflect our steady focus on innovation and lay the groundwork for continued
2 market leadership.
3 In addition, the 2012 Annual Report contained the Company’s annual report for Fiscal 2012
4 Form 10-K (the “2012 10-K”), signed by Defendants Flynn and Wolf, which was filed with
5 SEC on August 27, 2012.
6 34. Defendant Flynn’s assurances concerning the strength of the Company’ 7
8 competitive position, including that the Company had “a strong head start and competiti
9 advantage,” that “we are well positioned to continue to drive it,” that the Company’s
10 had “momentum,” that the Company enjoyed “differentiation in technology,” and that
11 Company had “the groundwork for continued market leadership,” all failed to disclose that
12 Company already was facing increasing competition due, among other things, to 13
14 commoditization of flash memory, which put downward pressure on prices and, in turn, on
15 Company’s sales and gross margin, which jeopardized the Company’s financial performance
16 prospects.
17 35. Evidencing the market’s continued, unmitigated acceptance of Defendants 18
19 positive assurances as to the Company’s competitive strength, on October 18, 2012,
20 issued a report stating: “While some argue that PCIe flash-based server storage is com
21 technology, FIO believes that its software solutions provide a proprietary advantage versus
22 vendors with similar offerings.”
23 DEFENDANTS’ MATERIALLY FALSE AND MISLEADING STATEMENTS AND 24 OMISSIONS DURING THE CLASS PERIOD
25 36. On October 24, 2012, after the market closed, Fusion issued a press
26 announcing results for the Fiscal First Quarter 2013, ended September 30, 2012. The same day 27
28 Fusion also filed the press release with the SEC on Form 8-K, signed by Defendant Wolf.
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Company reported quarterly revenue of $118.1 million and net income of $3.9 mil 1
2 Defendant Flynn stated in the press release: “‘We are pleased with our execution in the
3 quarter and our ability to continue to capture market share.’” The Company also stated
4 “Fiscal Year 2013 guidance remains unchanged.”
5 37. Later the same day, Fusion hosted a conference call and live webcast wi
6
analysts and investors to discuss the financial results. Defendants Flynn and Wolf spoke 7
8 behalf of the Company. Wolf assured everyone: “We continue to believe, we have a
9 opportunity in this market environment, given that our products generate a significant return
10 investment for our customers.” Regarding Fiscal 2013 guidance, Wolf reiterated: “[W]e
11 unchanged.”
12
13 38. Defendants’ representations in the press release and during the conference call
14 I October 24 touting “our ability to continue to capture market share” and the 15 opportunity in this market environment, given that our products generate a significant return
16 investment for our customers” failed to disclose that, in fact, the Company already was fac
17 increasing competition due, among other things, to the commoditization of flash memory, 18
19 put downward pressure on prices and, in turn, on the Company’s sales and gross margin, whi
20 jeopardized the Company’s financial performance and prospects. Defendants’ unambiguo
21 reaffirmation of their Fiscal 2013 guidance likewise failed to disclose the risks coming to fruiti
22 at the time that would seriously undermine that guidance.
23 39. By October 24, notwithstanding Defendants’ representations regarding 24
25 Company’s growth “momentum,” its expectations of “robust growth,” the predictability of
26 customers’ purchases, the uniqueness of its products, its high profit margins, and its lack
27 significant competition, Defendants knew, or recklessly disregarded, the facts that
28
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Company’s competitors had begun to catch up to it in both technology and market share, and 1
2 the Company’s prices were not competitive. Defendants also knew by October 24 that Fusion’
3 customers, in particular its two most important customers, Facebook and Apple, had
4 price sensitive with respect to new purchases and that Fusion no longer had customer visibility
5 a competitive edge. As a result, Defendants knew, or should have known but for their
6 disregard of the facts known to them or easily available to them from with their own ranks, 7
8 Fusion was not competing effectively in its industry due to its pricing structure and, thus, it
9 longer could reliably estimate future sales to its major customers, and that those known
10 and uncertainties were likely to have a material adverse impact on Fusion’s future
11 results and operations. In light of the foregoing, Defendants knew, or recklessly disre
12
13 that the Fiscal 2013 revenue guidance they reaffirmed on October 24 had no reasonable basis
14 was not attainable. The Class Period begins on October 25, 2012, the first trading day
15 the press release and conference call after the close of trading on October 24.
16 40. On November 7, 2012, Fusion filed with the SEC its quarterly report for
17 Fiscal First Quarter 2013 on Form 10-Q, which was signed by Defendants Flynn and Wolf. 18
19 of the Company’s SEC filings during the Class Period were publicly available on the SEC’
20 website. The Form 10-Q was materially false and misleading, when issued, because it failed
21 disclose, as SEC regulations required ( see ¶¶ 93-97 below), that the Company was
22 increasing competition due, among other things, to the commoditization of flash memory,
23
put downward pressure on prices and, in turn, on the Company’s sales and gross margin. 24
25 facts constituted a known trend and uncertainty that, if they came to fruition, would have
26 material adverse impact on Fusion’s operations and financial results.
27
28
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41. A former strategic account manager at Fusion responsible for developing 1
2 relationships and contracts (Confidential Witness “CW” 1), who was at the Company
3 November 2011 to December 2012, related that, in mid November 2012, he met with his
4 Steve Jackson, Senior Vice President, Americas Sales, who in turn reported directly to J
5 Dawson, Fusion’s Chief Sales Officer. At the meeting, Jackson told CW1, in substance, tha
6 CW1 and other employees would have to be cut because the Company was not going to make i 7
8 projected revenues and was eliminating jobs to enhance profitability. During CW1’s exi
9 interview with Jackson in early December 2012, Jackson again stated, in substance, that
10 reason for terminating CW1 was that the Company was not going to make its projected
11 At the time, Fusion’s public revenue guidance for Fiscal 2013 remained “unchanged.”
12
13 42. On January 30, 2013, after the market closed, Fusion issued a press
14 I announcing results for the Fiscal Second Quarter 2013, ended December 31, 2012. The
15 day, Fusion also filed the press release with the SEC on Form 8-K, signed by Defendant Wolf.
16 The Company reported quarterly revenue of $120.6 million and net income of $1.7 million.
17 43. Shocking investors, the Company announced it no longer expected to achieve its 18
19 previously-announced revenue guidance for Fiscal 2013. Defendants now claimed they
20 Fiscal 2013 revenue to be “approximately $420 to $440 million,” representing revenue growth
21 only about 17% to 22% -- well below the 45% to 50% growth, which would have meant
22 Fiscal 2013 revenue of about $520 million to $540 million, that Defendants previously had
23 investors to expect. Non-GAAP gross margin for Fiscal 2013 was now “expected to be in 24
25 range of 58 to 60%,” an increase from Defendants’ previous gross margin guidance for the
26 year of 56% to 58%. Further, Defendants expected Fiscal Third Quarter 2013 revenue to
27
28
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“approximately $80 million” -- a decline from Fiscal Third Quarter 2012 revenue ($94.2 1
2 and from Fiscal Second Quarter 2013 revenue ($120.6 million).
3 44. Yet, quoting Defendant Wolf, the January 30 press release falsely as
4 investors that the change in guidance reflected only a temporary shift in the timing of
5 purchases from Fusion’s strategic customers, Apple and Facebook:
6 “Our two largest customers have purchased nearly half a billion from Fusion-io 7 since 2010, representing robust adoption of our technology. There is a lot of
8 potential with these key customers, and the change in our guidance reflects a two-quarter shift in the timing of their bulk purchases . A healthy pipeline for 9 growth, fueled by new products and partnerships, as well as a sold financial position . . . will enable us to drive the business forward and create value for our 10 shareholders.” [Emphasis added.]
11
12 Continuing to assure the market that Fusion was well positioned for further growth,
13 Flynn stated in the press release:
14 “The shift to the cloud from traditional IT, and the shift away from mechanical 15 storage to solid state, are twin catalysts to our business. We are well-positioned to capture opportunities as a growing number of customers decide to migrate 16 away from legacy storage and move to the cloud using new memory
17 architectures.” [Emphasis added.]
18
19 45. Later that day, Fusion hosted a conference call and live webcast with analysts
20 investors to discuss the financial results. Defendants Flynn and Wolf spoke on behalf of
21 Company. Defendant Flynn continued to assure everyone that the revised guidance si
22 only a temporary shift in the timing of purchases from the Company’s two strategic
23 and that the Company’s competitive position remained strong. With regard to the new gui 24
25 for Fiscal 2013, Flynn stated:
26 Let me address what is certainly top of mind, our guidance for the second half of the year. Our core enterprise business grew at 67% year over year in the second 27 quarter, and our guidance reflects that strong growth. The change in our
28
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guidance is the result of a shift in the timing of bulk purchases from our two 1 key accounts, specifically for the next two quarters. [Emphasis added.]
2 Flynn explained that the efficiency of Fusion’s products, not competitive pressures or
3 resistance to Fusion’s pricing, was causing Apple and Facebook to reduce near-term 4
5 He emphasized, too, that there also was reason to expect those customers would increase
6 demand for Fusion’s products as they developed new applications and services:
7 When building out data centers and expanding into new application areas, these
8 customers have purchased in large volumes. They are now achieving greater efficiency thanks to our products, which has led to a shift in their near term 9 demands . At the same time, they are finding new applications, services, and data tiers in which to leverage our products. [Emphasis added.] 10
11 While our guidance reflects a cautious outlook in the balance between these two conflicting forces, over the past seven quarters, their orders have frequently 12 exceeded our expectations, as they often move more quickly in developing new ways to add additional value using our solutions. 13
14 Our key accounts are managing an exponential increase in data, while simultaneously managing their bottom line . These divergent business demands 15 cause lumpy buying patterns that are indicative of a market going through a radical transformation. This transformation is made possible by new memory 16 architectures that are driving an unprecedented increase in capability and
17 efficiency. [Emphasis added.]
18 Fusion-io is at the forefront of this transformation. . . .
19 In summary, we are pleased with our strong performance in the quarter, and are 20 excited to continue to lead an industry going through a radical transformation. The sheer scale of this transformation, as customers move wholesale to all-Flash 21 architectures can lead to lumpiness in our revenue quarter to quarter as customers
22 learn to extract the full potential of Flash to drive efficiency in their infrastructure.
23 46. Defendant Wolf, too, emphasized that the change in guidance reflected only
24 temporary shift in the timing of purchases from Fusion’s two largest customers:
25 Now turning to guidance, we expect our core enterprise business to continue to 26 grow in excess of 50% for the full year. Our change in guidance is, as we have said, a result of a shift in the timing of bulk purchases , and so therefore, for the 27 fiscal third quarter of 2013, we expect revenue to be approximately $80 million.
28 [Emphasis added.]
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1
2 Wolf also stated:
3 We do also believe that the strategic accounts are a two-quarter shift . We don’t see this as a permanent dysfunction, if you will. It’s just a shift in what we 4 expect the demand to be there. We’re not giving guidance yet on 2014, but
5 nothing has really changed . [Emphasis added.]
6 47. Responding to an analyst’s question “[W]hat gives you confidence and visibili
7 that that business, at Facebook and Apple, will come back after the six-month digestion
8 that you’re talking about?” -- Flynn again expressed confidence that sales to the Company’s
9 strategic customers soon would return to previous levels: 10
11 We work with these customers very closely, and have an understanding of what new applications are coming online and how they’re scaling them. So this is 12 based on information with our interaction with those teams, and the fact that never has really the use of our product been the question. It’s the question of when 13 their deployments happen. So this is really about the timing of when they put in
14 new infrastructure, not whether or not Fusion-io is a key part of that infrastructure. [Emphasis added.] 15 48. Flynn emphasized Defendants’ view that the decline in demand was merely 16
17 timing issue and was not due to Apple and Facebook rethinking their architecture or
18 pressure:
19 We don’t see any risk at this point from competition in these accounts, and 20 these architectures. It’s a major investment. As you heard Jeff Rothschild, at the event, say, that the partnership with Fusion-io is a major investment. They have 21 not made that investment with other folks at this point.
22 So we don’t see a risk from the competition from that point of view. The real 23 question comes into play is when do they make these investments in the infrastructure. [Emphasis added.] 24
25 Flynn went on:
26 Here’s the interesting thing, as we’ve worked with these customers, it’s rather ironic that the efficiencies attained through leveraging their own products is 27 what allows them to extend the efficiency, allows them to extend the timeframe,
28 for which they need to put in more equipment. So as they balance their business
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between investing to extend capability versus driving efficiency to reduce 1 expenses, it’s just rather ironic that the product is kind of our own competition.
2 And that has extended that time period.
3 . . . we’re very confident that the uniqueness of our product, and more importantly the relationship with these customers, means that when they decide 4 to do their next step function in building new data centers or moving to new
5 apps, that it will be with Fusion-io. [Emphasis added.]
6 49. Defendants’ statements, in the press release and during the conference call
7 January 30, misled the market by giving repeated, false assurances that the reduced
8 reflected only a temporary, two-quarter “shift in the timing” of certain purchases from Apple
9 Facebook; that “[w]e are well-positioned to capture opportunities;” that the delay was due 10
11 to the “greater efficiency” of Fusion’s products, which led to a shift in the two customers’
12 term demands; that “nothing has really changed;” that “[w]e don’t see any risk at this point
13 competition in these accounts;” and that, due to “the uniqueness of our product, and
14 importantly the relationship with these customers,” when they decide to build new data 15 or move to new applications “it will be with Fusion-io.” Defendants’ positive assurances 16
17 materially false and misleading when made because, as Defendants knew and/or
18 disregarded, in fact, the Company already was facing increasing competition, including
19 respect to the Facebook and Apple accounts, due, among other things, to the commoditization
20 flash memory, which put downward pressure on prices and gross margins, which jeopardized 21
22 Company’s financial performance and prospects; the reduced demand from the Company’s
23 strategic customers was not merely a temporary, two-quarter shift in the timing of
24 purchases from those customers, and was not due merely to the efficiency of the Company’
25 products; and neither the purported uniqueness of the Company’s product nor its
26 relationship with Apple or Facebook meant their future business was assured. Indeed, in light 27
28 the competitive pressures the Company faced, the opposite was true.
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50. Following the announcement of the downward guidance revision, on the 1
2 trading day, Fusion stock fell about 13%, on heavy volume of more than 18 million shares,
3 $20.09 per share (the closing price on January 30) to close at $17.48 per share on January 31
4 2013. The same day, the S&P 500 Index fell only slightly (less than 1%) and the S&P
5 Information Technology Sector Index rose slightly (less than 1%).
6 51. Notwithstanding the Company’s reduced revenue expectations, Defendants 7
8 positive assurances, including that the lowered guidance simply reflected a two-quarter shift i
9 the timing of purchases from its key customers, was intended to, and did, deceive the
10 Thus, a January 31, 2013 Craig-Hallum report noted:
11
12 Given Apple’s secrecy with its datacenter architecture and technology procurement plans, we have no read through on FIO’s competitive situation 13 beyond FIO Management’s assertions that they do not face any material
14 competitive threat at AAPL. On the other hand, based on recent public pronouncements of Facebook, we are reasonable certain that FIO does not face a 15 competitive threat to its existence. Considering our belief that the lowered FY13 outlook does reflect a timing issue with demand and not a competitive concern 16 and the bar is likely to be set at levels which makes FIO’s task easier over the
17 next 6 months, we reiterate our Buy rating.
18 We rely on FIO Management’s assertions that AAPL has invested significantly
19 in the FIO relationship and has not made similar investment with any of FIO’s likely competitors. [Emphasis added.]
20 52. The same day, Piper Jaffray wrote: 21
22 Apple, Facebook Delaying Orders For Two Quarters -- Based on our channel checks, we did note a slowdown at Apple, which prompted us to provide a more 23 cautious outlook for the quarter. Sadly, this slowdown at Apple proved true, with sales declining 42% q/q to $19.3M. Moreover, management noted that this 24 slowdown will persist for the next two quarters. Coincidentally, Facebook has
25 also decided to slow spending over the next two quarters, though revenue from Facebook in FQ2(Dec) was actually very strong, up 24% sequentially at 26 $41.0M. [Emphasis added.]
27 Management is confident that revenue from both Apple and Facebook will
28 resume in 6 months in the September quarter (FQ1), meaning the FY14 revenue
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estimates could remain relatively unchanged, though management was not yet 1 willing to commit to that guidance.
2 While we are still convinced the flash storage market remains robust, evidenced 3 by the 66% growth in enterprise revenue this quarter, we expect shares to remain range bound over the next 6-12 months, until Apple and Facebook resume 4 spending on new projects. We are somewhat concerned this 6 month deferral
5 could provide ample time for the competition to improve their products and make a more compelling offering to these two strategic customers when new spending 6 picks up again in the September quarter.
7 53. On February 9, 2013, Fusion filed with the SEC its quarterly report for the
8 Second Quarter 2013 on Form 10-Q, which was signed by Defendants Flynn and Wolf.
9 Form 10-Q was materially false and misleading, when issued, because it failed to 10
11 properly, as SEC regulations required (see ¶¶ 93-97 below), that the Company already
12 facing increasing competition due, among other things, to the commoditization of flash memory
13 which put downward pressure on prices and gross margins, which jeopardized the Company’
14 financial performance and prospects. 15 54. Presenting on behalf of Fusion at Barclays Second Annual Big Data 16
17 in San Francisco, California, on February 11, 2013, Defendant Flynn again emphasized that
18 shift in demand from Apple and Facebook was only a temporary timing issue and
19 competition was not the problem:
20 You can see a nice, steady growth in our base business. The business with Apple 21 and Facebook is based on their deployment schedules. We, as a strategic partner,
22 we ship when they need the stuff to ship, and it depends on when they’re building new data centers, when they’re building new applications. There is run rate in that 23 they’re continually growing their user space. . . . And then there is the step- functions, big bulk purchases when the new data center goes in or when they bring 24 a new application live. Now we currently don’t have visibility in the next 2
25 quarters for them doing much more than their current run rate business. . . . I think this time, they are being a little more capital-conscious trying to stretch the 26 dollar. There’s only so far you can stretch it before you need to build an infrastructure. So for example, with Facebook . . . We had anticipated them to 27 refresh the data center and to put in new application area. But instead, they
28 realized they didn’t -- they don’t -- the data centers they have, this 4-year old one,
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doesn’t need to be refreshed and they reused product to start seeding their new 1 application, the Graph Search. So it’s kind of a double-edged sword. . . . [T]he
2 fact that our product lasted more than 4 years, they’re able to reuse it in a new application area. So that’s just in the next 2 quarters. [Emphasis added.]
3
4 55. Moreover, Defendant Flynn’s statements were intended to, and did, mislead
5 market to believe that, when Apple and Facebook chose to build or refresh their datacenters
6 new applications, it was assured they would use Fusion’s products. In fact, however, due 7
8 competitive pressures, particularly concerning Fusion’s high prices (which historically
9 generated the Company’s high gross profit margins) and Defendants’ admissions that Fusion’
10 customers had significant concerns regarding costs, Defendants had no basis to believe Fusion’
11 customers, particularly Facebook and Apple, would purchase Fusion products when they
12 to upgrade or expand their datacenters or build new applications. 13
14 56. Speaking the next day, February 12, 2013, at Goldman Sachs Technology
15 Internet Conference in San Francisco, California, Defendant Flynn similarly stated when
16 about Fusion’s guidance:
17 I don’t want to tick off Apple by going into them too much. So let me tell you 18 what’s going on behind the scenes at Facebook. We have now done 4 data
19 centers with them over the period of 4 years. . . . And that first data center, kind of up for a refresh or decommission. They decided to decommission it instead of 20 refresh it. . . . Secondly, we had expected some new application areas. Indeed, new applications did come. The Graph Search uses flash, uses Fusion-io. It just 21 happens to use for the first couple of pods our 4-year old product from the data
22 center that got decommissioned, displacing and putting a revenue pocket because of the use of that. . . . They already had the Fusion-io. And it proves the point that 23 our product is -- has a second life and is valuable. . . . So that’s really kind of where the air pocket comes in from Facebook side. The truth is that both of those 24 customers, they’re [sic] buying patterns oscillate. . . . And so those 2 quarters up,
25 2 quarters, down, you kind of see that oscillation. . . . But based on our own expectations, it’s going to be both of them are at a low for the next couple of 26 quarters . [Emphasis added.]
27
28
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57. On February 27, 2013, at the Morgan Stanley Technology, Media & 1
2 Conference in San Francisco, California, Defendant Wolf likewise explained re
3 I Facebook:
4 What happened though in the process is that during the last -- at least in the last
5 quarter, we found that the first data center that we built was being repurposed for a different tiering level, which we are in. We won, obviously, because they were 6 able to take some of our older product and put it there. And so what we expect is kind of a timing thing . What we expect is for that tier, it should probably start to 7 move up within the next couple of quarters, and then there’s that data center that
8 we expect as well. So we would anticipate that our 10% to 20% sustainable run rate will go up from there. [Emphasis added.]
9 58. Defendants’ continued assurances at the conferences on February 11, 12, and 27, 10
11 2013, referred to above, that the reduced demand from Apple and Facebook reflected only
12 temporary shift in the timing of certain purchases from those critical customers and that the
13 was because Fusion’s product had greater utility than expected were materially false
14 misleading when made. As Defendants knew and/or recklessly disregarded, in fact, 15 Company already was facing increasing competition due, among other things, to 16
17 commoditization of flash memory, which put downward pressure on prices and gross margins
18 which jeopardized the Company’s financial performance and prospects; and the reduced
19 from the Company’s two strategic customers was not merely a temporary shift in the timing
20 certain purchases from those customers, and was not due merely to the greater- 21
22 utility of the Company’s product.
23 59. On April 24, 2013, after the market closed, Fusion issued a press
24 announcing results for the Fiscal Third Quarter 2013, ended March 31, 2013. The same day
25 Fusion also filed the press release with the SEC on Form 8-K, signed by Defendant Wolf.
26 Company reported quarterly revenue of $87.7 million, down 7% from $94.2 million for the 27
28 quarter of Fiscal 2012 and down 27% from $120.6 million for the preceding quarter. The
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loss for the quarter was $20.0 million, more than four times the net loss of $4.7 million for 1
2 Fiscal Third Quarter 2012. The Company reiterated its Fiscal 2013 guidance, confirm
3 revenue was “expected to be approximately $435 million” and non-GAAP gross margin
4 “expected to be in the range of 59 to 60%.”
5 60. Quoted in the April 24 press release, Defendant Flynn still was reassuring: “‘W
6
are pleased by our traction this quarter, driven by strength in our core business as well as ou 7
8 healthy pipeline of new hyperscale customers.’” Defendant Wolf was equally positive: “‘
9 ioScale product is showing notable traction as customers supporting cloud and Big
10 applications appreciate our software systems capabilities that offer them a very compelling
11 on their datacenter infrastructure spend.’”
12
13 61. Later that day, Fusion hosted a conference call and live webcast with analysts
14 investors to discuss the financial results. Defendants Flynn and Wolf spoke on behalf of th
15 Company. Defendant Flynn reassured everyone: “Our relationship with Facebook and Apple
16 strong. Their orders this quarter were in line with our expectations. They are a key -- we are
17 key part of their infrastructure and expect to grow as they grow.” 18
19 62. Defendants’ assurances concerning the strength of Fusion’s business and
20 relationship with its strategic customers, Facebook and Apple, were materially false
21 misleading when made. As Defendants knew and/or recklessly disregarded, in fact,
22 Company already was facing increasing competition due, among other things, to
23
commoditization of flash memory, which put downward pressure on prices and, in turn, 24
25 margins, which jeopardized the Company’s financial performance and prospects, and, therefore
26 its business was not strong. Defendants had no basis to represent to investors that an interruption
27
28
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in order flow from Facebook and Apple would last only two quarters or that, whenever 1
2 from Facebook and Apple did resume, they would do so at or above previous levels.
3 63. Defendants’ assurances continued to mislead the market. For example, a
4 Agee report issued the next day, April 25, stated: “Commentary from management suggests
5 stabilizing to improving demand picture in June from Apple/Facebook.” The same day,
6 Piper Jaffray analyst wrote: 7
8 Management had previously guided for cumulative revenue from Facebook and Apple to range from $10-20 million in both FQ3(Mar) and FQ4(Jun). These 9 strategic customers generated approximately $19 million (22% of total) this
10 quarter, at the high-end of the range and looking ahead to FQ4(June), management expects the two customers to cumulatively exceed $20 million. 11 Despite the modest ramp, we are not expecting Facebook and Apple to return to historical levels until at least FQ1(Sep), driven by new data center build-outs or 12 existing data center product refreshes. Specifically, we believe Facebook’s
13 Prineville, OR data center is the most likely candidate for the next product refresh and then the build-out of the recently announced Iowa data center. 14 With regard to Apple, we believe the Reno, NV datacenter is the next data center build-out, that Fusion-io could potentially capture. [Emphasis in 15 original]
16 64. On April 25, 2013, Fusion stock rose, on very substantial volume of more
17 12.1 million shares, from a closing price of $16.63 per share on April 24 to close at $19.45 18
19 share, a one-day rise of about 17%. The same day, the S&P 500 Index and the S&P
20 Information Technology Sector Index each rose only slightly (less than 1%).
21 65. On May 7, 2013, Fusion filed with the SEC its report for the Fiscal Third
22 2013 on Form 10-Q, which was signed by Defendants Flynn and Wolf. The Form 10-Q
23
materially false and misleading, when issued, because it failed to disclose properly, as 24
25 regulations required (see ¶¶ 93-97 below), that the Company already was facing
26 competition due, among other things, to the commoditization of flash memory, which
27
28
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downward pressure on prices and, in turn, gross margins, which jeopardized the Company’s 1
2 financial performance and prospects.
3 66. On May 8, 2013, before the market opened, Fusion issued a press
4 suddenly announcing that co-founder Flynn had resigned as CEO and President “to pursu
5 entrepreneurial investing activities.” Defendant Robison, a director of Fusion since Decembe
6 2011, was named to replace Flynn as Chairman, CEO, and President, “effective immediately. 7
8 The Company also announced that co-founder, Rick White, had resigned as Chief
9 Officer “to join Mr. Flynn in early stage investing activities.” Both Flynn and White were
10 remain members of the Board and serve in “advisory roles to the company” for the next
11 months. Just a few weeks later, however, both Flynn and White resigned from the Board.
12
13 May 8 press release reaffirmed the Company’s previous guidance for Fiscal 2013. On May 13
14 2013, the Company filed the text of the May 8 press release with the SEC on Form 8-K.
15 67. Immediately following the sudden announcement that co-founders Flynn
16 White were leaving the Company, the trading price of Fusion stock fell, on huge volume of
17
than 46.2 million shares, from $18.00 per share (the closing price on May 7) to close at $14 18
19 per share on May 8, or almost 19%. The same day, the S&P 500 Index and the S&P
20 Information Technology Sector Index each rose slightly (less than 1%).
21 68. Analysts expressed surprise. On May 8, 2013, Barclays wrote: “Today’
22 announcement is quite a surprise and raises concerns on timing since Flynn just gave
23 for an aggressive rebound in revenues after some major disappointments.” 24
25 69. On May 9, 2013, on a webcast hosted by Technology Insights Research LLC
26 Robison sought to dispel concerns about deeper problems at the Company and emphasized
27 the decision to replace Flynn and White was based only on their inexperience running a
28
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company: “They’ve done a marvelous job of taking the company from startup through the 1
2 and to a successful public company . And now, our challenge is how do we really grow
3 company to the next level? . . . And it’s not that unusual for startup companies to evolve
4 medium-sized companies, and then you need a different management skill set.”
5 added.) Defendant Robison expressly and unequivocally represented that “ there’s not a pro
6
with the company ” (emphasis added) nor had the founders “done something wrong.” He 7
8 denied the Board had “brought me into [sic] dress the company up and sell it.”
9 70. Defendant Robison’s unmitigated statement that “there’s not a problem with
10 company” was materially false and misleading when made because, as Defendants knew an
11 recklessly disregarded, in fact, the Company was facing increasing competition due, among o
12
13 things, to the commoditization of flash memory, which put downward pressure on prices and, i
14 turn, gross margins, which jeopardized the Company’s financial performance and prospects.
15 fact, the Company already was experiencing slowing revenues and mounting net losses. Inde
16 Robison’s choice to make the unmitigated statement that “there’s not a problem with
17 Company” triggered his duty to disclose that, in fact, the Company was facing massively 18
19 year-over-year losses in the then current quarter and that competitive pricing pressures -- whic
20 were no longer a trend or uncertainty, but were now a certainty -- were likely to have a materia
21 adverse impact on Fusion’s results of operations in the near and long term. Defendant Robison’
22 failure to make these disclosures constituted a material omission in light of the statement
23 made. 24
25 71. On June 10, 2013, White resigned from the Board of Fusion
26 immediately.”
27
28
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72. On June 13, 2013, Fusion announced the anticipated retirement in early 1
2 September 2013 of Richard W. Boberg, the Company’s Executive Vice President, Strate
3 Business Development and General Manager of Caching Solutions. The Company
4 announced other organizational changes, “effective immediately,” including the appointment
5 certain persons already officers at the Company as Executive Vice President and Chief Sa
6 Officer; Executive Vice President, Products; and Executive Vice President, Marketing. 7
8 73. On June 14, 2013, Flynn resigned from the Board of Fusion
9 immediately.”
10 74. Effective August 1, 2013, Lance L. Smith (“Smith”), the Company’s
11 Operating Officer, replaced Robison as President. Robison remained Chairman and CEO.
12
13 75. On August 7, 2013, after the market closed, Fusion issued a press
14 I announcing results for the Fiscal Fourth Quarter 2013 and for Fiscal 2013, ended June 30, 2013
15 The same day, Fusion also filed the press release with the SEC on Form 8-K, signed
16 Defendant Wolf. The Company reported quarterly revenue of $106.1 million, “essentially
17 from $106.6 million in the same quarter of Fiscal 2012.” Belying Robison’s assurance “there’ 18
19 not a problem with the company,” the net loss for the Fiscal Fourth Quarter 2013 was $23.
20 million -- almost ten times the net loss of $2.4 million for the Fiscal Fourth Quarter 2012.
21 the full year Fiscal 2013, the Company reported revenue of $432.4 million. The GAAP net
22 per diluted share was $0.40 in Fiscal 2013, compared to a loss of only $0.06 in Fiscal 2012.
23
non-GAAP gross margin was 59.1% for the quarter and 60.1% for the year. The Company also 24
25 announced that, for Fiscal 2014, it expected revenue growth of “approximately 20%” and non-
26 GAAP gross margin “in the range of 52% to 54%.”
27
28
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76. Desperate to reassure investors that Fusion was still well-positioned for 1
2 growth, Defendant Robison stated in the August 7 press release: “‘Fusion-io pioneered the
3 flash data center architecture that the industry is now embracing, and we are well positioned
4 capture a significant share of the opportunity from enterprise to hyperscale over the next
5 years.’” Defendant Wolf stated: “‘We exited fiscal 2013 with a significantly more divers
6
customer and product base, which we believe provides a sound basis for business 7
8 going forward.’”
9 77. Later the same day, Fusion hosted a conference call and live webcast wi
10 analysts and investors to discuss the financial results. Robison, Wolf, and Smith spoke on b
11 of the Company. Defendant Wolf repeated the Company’s guidance for Fiscal 2014.
12
13 revealed that, for the Fiscal Fourth Quarter 2013, Facebook had contributed 36% of revenue
14 Apple had contributed less than 10%. Emphasizing that the Company still had opportunities
15 earn revenue from its strategic customers, Apple and Facebook, Smith stated: “[T]here
16 opportunity at Apple, at Facebook and at these hyperscale accounts as we had an establish
17 footprint because when their databases are growing, when their data footprint is growing, 18
19 actually are able to sell product and sort of a maintenance on a quarterly basis.”
20 78. Defendants’ assurances in the press release and during the conference call
21 I August 7 that Fusion was “well positioned to capture a significant share” of business, that
22 Company had “a sound basis for business expansion going forward,” and that “there
23
opportunity at Apple, at Facebook, and at these hyperscale accounts” were materially false 24
25 misleading when made. As Defendants knew and/or recklessly disregarded, in fact,
26 Company was facing increasing competition due, among other things, to the commoditization
27
28
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flash memory, which put downward pressure on prices and revenues and jeopardized 1
2 Company’s performance and prospects.
3 79. Yet, contrary to what Defendants previously had told the market, the
4 now admitted what Defendants had known all along -- that pricing was a major concern
5 Fusion’s customers, including its most important customers, Facebook and Apple.
6 Defendants revealed Fusion had lost business because its products were not competitively 7
8 According to Defendant Robison, “our leading price performance” was a primary
9 customers bought from Fusion. Contrary to Defendant Flynn’s statement on January 30, 201
10 that Fusion was “well-positioned to capture opportunities,” Robison went on to admit:
11 are opportunities that we would otherwise have available to us that are not there, because 12
13 are too expensive. And so we’re looking at bringing that down to expand our footprint.
14 (Emphasis added.) Smith stated: “But what I can tell you is the opportunities of both of
15 accounts [Apple and Facebook] and with hyperscale accounts that we’ve mentioned
16 the big driver here is price. When we hit the right price points, the opportunities turn up.
17 (Emphasis added.) Smith went on: “[W]e have seen the potential with our product lines and 18
19 price points that we’re going after to actually capture more business.” Discussing the
20 gross margin guidance for Fiscal 2014 of 52% to 54%, Wolf explained: “Shane’s talked
21 the fact that pricing has become -- the fact that we’re moving into a new segment and we
22 moving very aggressively into a new segment, that segment, which is hyperscale, it
23
volume. It’s price-optimized and drives volume, and we’re in it .” (Emphasis added.) 24
25 80. The disclosures concerning competitive pressure on prices, slowing
26 growth, and reduced gross margin were new information of which the market previously
27 unaware and constituted another partial revelation of the truth. Thus, on August 8, 2013,
28
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stock fell, on heavy volume of more than 23 million shares, from a closing price of $14.90 1
2 share on August 7 to close at $11.39 per share -- a one-day drop of nearly 24%. The same day
3 the S&P 500 Index and the S&P 500 Information Technology Sector Index each rose
4 (less than 1%).
5 81. Reflecting Defendants’ concession that the market was, in fact, highly
6 sensitive, putting Fusion at a competitive disadvantage and exerting downward pressure 7
8 revenues, on August 8, 2013, the analyst at Barclays wrote:
9 We expected Fusion-io’s new CEO to lower expectations, but we are not sure he went low enough. In order to hit the new 20% revenue growth goal in FY14, FIO 10 needs to grow revenue about 30% q/q each quarter after F1Q14. This view may
11 not be realistic given increased competitive pressures and new initiatives and customers that take time to ramp. Plus the company’s ramp depends on lower 12 prices, which are now well telegraphed – so competitors may be ready . At current levels (currently down 21% in the after-market), we expect shares to 13 remain range-bound as investors seek clarity around this aggressive revenue
14 target. FIO reported. [Emphasis added.]
15 82. The same day, William Blair stated:
16 While these changes could help the company, we believe that Fusion faces more
17 serious and fundamental problems. It is becoming evident that the company’s two largest strategic customers (Facebook... and Apple...) are becoming less 18 predictable purchasers and appear to be tapering off their investments in Fusion
19 hardware. At the same time, the core enterprise market is posting disappointing growth as the competition catches up to Fusion on both a technical and go-to- 20 market basis, and as Fusion’s software products have yet to catch on. We estimate that the core portion of the business came in roughly flat sequentially during the 21 quarter, missing our estimate by roughly $17 million.
22 This leaves Fusion competing more on price , as evidenced by management’s 23 expectation for margins to decline in fiscal 2014 and Mr. Robison’s commentary around the need to become more aggressive on pricing across the board to take 24 share and fend off the competition. We worry that price pressure will become
25 more pronounced over time and as lower margin ioScale and Asian sales ramp up, they will keep margins down. In other words, many of the concerns around 26 increased competition, commoditization, and customer concentration seem to be coming to fruition . [Emphasis added.] 27
28 83. Also on August 8, 2013, a Janney Capital Markets report noted:
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Fusion-io reported a disappointing Q4, and guided well below expectations for 1 both Q1 and FY14. It appears that our concerns regarding competition forcing
2 pricing cuts, and ioScale cannibalizing ioflrive, are coming true and putting significant pressure on margins . While the company remains the leader in the 3 space, its ability to generate profits is more limited, and we are unclear on who potential acquirers might be. Maintain Neutral and reduce FV to $12 from $15. 4 [Emphasis added.]
5 84. The information revealed on August 7 made clear that Defendant Robison’s
6 unmitigated assurances on May 9 (just three months earlier) were patently false and 7
8 contrary to Defendant Flynn’s and Defendant Wolf’s statements between January 30 and thei
9 departures from the Company, Fusion’s declines in sales and gross margins were not due to
10 temporary shift in the timing of certain purchases but, instead, reflected fundamental
11 relating to competition and Fusion’s lack of competitive pricing.
12 85. On August 28, 2013, Fusion filed with the SEC its report for Fiscal 2013 on F 13
14 10-K (the “2013 10-K”), which was signed by Defendants Robison and Wolf. The 2013 10-
15 was materially false and misleading, when issued, because it failed to disclose properly, as
16 regulations required (see ¶¶ 93-97 below), that the Company was facing increasing competiti
17 due, among other things, to the commoditization of flash memory, which put downward 18
19 on prices and revenues and jeopardized the Company’s performance and prospects.
20 86. On or about October 10, 2013, Fusion filed with the SEC and disseminated to
21 shareholders its Annual Report for Fiscal 2013. The 2013 Annual Report contained the 2013 1
22 K, signed by Defendants Robison and Wolf, which was materially false and misleading for
23 reasons set forth preceding paragraph.. 24
25 87. On October 23, 2013, the last day of the Class Period, after the market
26 Fusion issued a press release announcing results for the Fiscal First Quarter 2014,
27 September 30, 2013. The same day, Fusion also filed the press release with the SEC on Form
28
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K. The Company reported quarterly revenue of $86.3 million, down about 27% from the $118.1 1
2 million in revenue for the same quarter of Fiscal 2013. Net loss for the Fiscal First Quarter 2014
3 was $27.9 million, compared to net income of $3.9 million in Fiscal First Quarter 2013.
4 non-GAAP gross margin for the quarter was 59.4%. In addition, the Company revoked all
5 prior guidance for Fiscal 2014. For Fiscal Second Quarter 2014, ending December 31, 2013,
6
Company warned that revenue was expected to be up only “slightly” sequentially and n 7
8 GAAP gross margin was expected to be down significantly, “in the range of 52 to 54%.”
9 88. Fusion also announced that Defendant Wolf “will be leaving after a period
10 transition to pursue an opportunity at a private company” and that “[a] search for his replacem
11 is underway.” James Dawson, Chief Sales Officer, Executive Vice President, also was “retiri
12
13 from the company.”
14 89. The disclosure that, for the Fiscal Second Quarter 2014, gross margin
15 expected to be down significantly signaled that increased competition, commoditization,
16 downward pressure on prices were continuing to affect Fusion’s business adversely. Upon
17
revelation of these previously undisclosed facts, Fusion stock plummeted, on heavy volume 18
19 more than 29.2 million shares, from a closing price of $12.98 per share on October 23, 2013
20 close at $9.82 per share on October 24, 2013 -- a decline of more than 24% in just one day.
21 same day, the S&P 500 Index and the S&P 500 Information Technology Sector Index each
22 slightly (less than 1%). During the Class Period, Fusion stock had traded as high as $26.50
23
share (on October 25, 2012). 24
25 90. The Company’s announcement prompted the analysts at William Blair to write on
26 I October 23:
27 Beyond the turmoil in the company’s executive ranks, we believe that Fusion 28 faces serious and fundamental problems. It is evident that the company’s two
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largest strategic customers (Facebook . . . and Apple . . .) are becoming less 1 predictable purchasers and that they are apparently tapering off their investments
2 in Fusion hardware. At the same time, despite management’s commentary around growth in the company’s core enterprise market during the quarter, enterprise 3 growth has generally been disappointing as the competition catches up to Fusion on both a technical and go-to-market basis, and as Fusion’s software products 4 have yet to catch on.
5 This leaves Fusion competing more on price as evidenced by management’s 6 significantly curtailed gross margin guidance; the company’s focus on growing lower-margin ioScale sales; and the emphasis on growing sales in lower-margin 7 markets, such as China. In other words, many of the concerns around increased
8 competition, commoditization, and customer concentration have come to fruition . [Emphasis added.]
9 91. Commenting on the reduced gross margin guidance, an October 24, 2013 J.P. 10
11 Morgan report noted: “The [c]ompetitive moat could be shrinking already. In our view, a
12 sign-post is gross margin and how it trends directionally.”
13 92. Thus, in sum, by November 2012, notwithstanding Defendants’ representati
14 regarding the Company’s growth “momentum,” its expectations of “robust growth,” 15 predictability of its customers’ purchases, the uniqueness of its products, and its lack 16
17 significant competition, Defendants knew, or recklessly disregarded, the facts that its
18 had begun to catch up to Fusion in both technology and market share, that Fusion’s high
19 products’ prices were greater than those of its competitors, and that there were
20 problems with the Company and its pricing structure. As Defendants knew and admitted 21
22 later than January 30, 2013, Fusion’s customers, in particular its two most important customers
23 Facebook and Apple, had become price sensitive in their new purchases and, therefore
24 unbeknownst to the investing pubic, Fusion no longer had customer purchase visibility or
25 competitive edge. As a result, throughout the Class Period, Defendants knew, or could
26 should have known but for their reckless disregard of the facts known and/or available to 27
28 that Fusion could no longer compete effectively in its industry with the same pricing
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and, thus, it could not reliably estimate future sales. Defendants also knew, or 1
2 disregarded, that these known trends and uncertainties were likely to have a material
3 impact on Fusion’s financial results and operations.
4 B. Defendants Failed to Disclose Known Trends in Violation of SEC Regulations
5 93. In addition to the foregoing, in the Company’s SEC filings on Forms 10-K
6 10-Q during the Class Period, Defendants violated Item 303 of SEC Regulation S-K, 17 C.F 7
8 §229.303, which required the MD&A section in each annual and quarterly filing to
9 “known trends or uncertainties that have had or that” the Company “reasonably expects will
10 a material . . . unfavorable impact on net sales or revenues or income from
11 operations.” Item 303 of Regulation S-K, 17 C.F.R. § 229.303(a)(3)(ii); Exchange Act
12 No. 34-26831 (“Interpretative Release”), 43 SEC Docket 1577 (May 18, 1989) 13
14 disclosure is based on currently known trends, events, and uncertainties that are
15 expected to have material effects.”)
16 94. The instructions to Item 303(a) state:
17 The discussion and analysis shall focus specifically on material events and 18 uncertainties known to management that would cause reported financial
19 information not to be necessarily indicative of future operating results or of future financial condition. This would include descriptions and amounts of (A) matters 20 that would have an impact on future operations and have not had an impact in the past, and (B) matters that have had an impact on reported operations and are not 21 expected to have an impact upon future operations.
22 95. As noted in SAB 101, the SEC Staff requires the following be disclosed
23 discussed by all registrants, in accordance with the SEC’s Financial Reporting Release No. 36: 24
25 Changing trends in shipments into, and sales from, a sales channel or separate class of customer that could be expected to have a significant effect on future 26 sales or sales returns.
27 96. Defendants failed to disclose the existence of known trends and uncertainties
28 reasonably expected would have a material unfavorable impact on Fusion’s operating results in
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violation of Item 303 of Regulation S-K (17 C.F.R. 229.303). Among other things, 1
2 misrepresented and concealed that the Company already was facing increasing competition
3 among other things, to the commoditization of flash memory, which put downward pressure
4 prices and, in turn, on gross margins, which jeopardized the Company’s financial performa
5 and prospects. The undisclosed trends and uncertainties ultimately caused Fusion to m
6
substantially its revenue guidance for Fiscal 2013 and to report declining revenues and huge 7
8 losses by the Fiscal Third Quarter 2013, ended March 31, 2013.
9 97. Defendants reasonably expected that such known trends and uncertainties in thei
10 business would have a material unfavorable impact on the Company’s operating results, as the
11 eventually did. Because the impact of these undisclosed facts was highly material to Fusion’
12
13 performance and prospects, and Fusion had a duty to disclose these material facts by virtue
14 Item 303, the failures to disclose these facts in Fusion’s periodic filings with the SEC during
15 Class Period constitute material omissions for the purposes of an action under Section 10(b)
16 the Exchange Act and Rule 10b-5.
17 POST-CLASS PERIOD DEVELOPMENTS 18
19 98. After the Class Period, Fusion continued to show disappointing revenues
20 substantial net losses. Thus, on January 22, 2014, the Company reported revenue of $94.
21 million and a net loss of $21.3 million for the Fiscal Second Quarter 2014, ended December 31
22 2013, as compared to revenue of $120.6 million and net income of $1.7 million for the
23 Second Quarter 2013. The non-GAAP gross margin was 57.6%. On April 23, 2014, 24
25 Company reported revenue of $100.5 million and a net loss of $30.7 million for the Fiscal Th
26 Quarter 2014, ended March 31, 2014, as compared to revenue of $87.7 million and a net loss
27 $20.0 million for the Fiscal Third Quarter 2013. The non-GAAP gross margin was only 52.4%.
28
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99. Notwithstanding Robison’s previous denial he had been brought in to “dress 1
2 company up and sell it,” on June 16, 2014, SanDisk announced a definitive agreement to
3 Fusion in an all-cash transaction for $11.25 per outstanding share of Fusion common stock –
4 lower than the closing price of $25.06 on October 25, 2012, the first day of the Class
5 The transaction was completed on July 23, 2014, and Fusion became a wholly-owned
6 of SanDisk. 7
8 SCIENTER ALLEGATIONS
9 100. Defendants acted with scienter in that each Defendant knew and/or
10 disregarded facts available to them that demonstrated that the public documents and
11 issued or disseminated in the name of the Company and complained of herein were
12
13 false and misleading; knew and/or recklessly disregarded that such statements or
14 would be issued or disseminated to the investing public; and, knowingly and/or recklessly, i
15 or disseminated or substantially participated or acquiesced in issuing or disseminating
16 statements or documents as primary violations of the federal securities laws. Defen
17
participated in the fraudulent scheme alleged by virtue of their receipt of information 18
19 the true facts regarding Fusion, their control over the Company’s alleged materially misleading
20 misstatements, and their associations with the Company, all of which made them privy to
21 confidential proprietary information concerning Fusion and the Company’s business
22 performance, and prospects.
23 101. The Individual Defendants were the most senior executive officers at 24
25 I Company responsible for overseeing its business and operations day-to-day. The matters here
26 issue, including the Company’s dealings with its two most important customers, Apple
27 Facebook, were at the core of the Company’s business and were critical to its
28
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performance and prospects. During the Class Period, Defendants made numerous 1
2 statements concerning the matters at issue.
3 102. A number of former Fusion employees (Confidential Witnesses), including CW1
4 who is referred to in ¶ 41 above, provide facts that further support a strong inference tha
5 Defendants knew and/or recklessly disregarded the serious problems affecting the Company’
6
performance during the Class Period. As detailed below, each Confidential Witness worked a 7
8 Fusion during the Class Period and was in a position at the Company to have
9 knowledge and information concerning the matters set forth below.
10 103. According to former Fusion employee who was an account executive for
11 Western Region, which covered Facebook and Apple, from March 2012 to March 201
12
13 (“CW2”), during his time at Fusion, the Company faced significant competition from compani
14 such as Intel, Virident Systems, and Violin Memory (whose CEO Don Basile previously
15 been Fusion’s CEO before leaving in 2009). CW2 noted that sales representatives were
16 instructions that Violin Memory had to be beaten at any cost. While CW2 was at Fusion,
17
quarter, each region held a quarterly business review, attended by the sales personnel. CW2 18
19 related that, until about October 2012, James Dawson (Chief Sales Officer, Executive Vi
20 President) led a regular 8 AM Monday conference call during which all the US sales peop
21 reported on the status of their accounts. Among other things, they would discuss any
22 coming from a competitor and the size of the potential sale that was in jeopardy. According
23 CW2, Dawson reported to Defendant Flynn. 24
25 104. According to a System Engineer at Fusion from July 2008 to October 201
26 (“CW3”), in late 2012, Fusion had a lot of competition, including from products and solution
27 marketed by Dell, Micron, Intel, Violin Memory, and Virident. CW3 recalled that, someti
28
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between early and mid 2012, Fusion lost a big deal with Tumblr to Virident, which was a 1
2 significant competitor.
3 105. A former employee (“CW4”) from January 2012 to September 2013 who was
4 Global Account Manager, with responsibility for Hewlett-Packard (HP), confirmed that
5 faced competition from much cheaper products sold by Virident and Intel, and that V
6 Memory also was a competitor. According to CW4, the Company’s sales forecasts were 7
8 much top down. He could see all the HP numbers and the sales goals were “huge lifts” and
9 difficult to make.
10 106. A former Director Product Marketing (“CW5”), involved with customer su
11 who was at Fusion from January 2012 to March 2013, related that he believed the reason
12
13 sales dropped so much had to do with the price of flash. According to CW5, as flash
14 more widely available and more widely produced, the price dropped substantially.
15 107. A former executive in Fusion’s Advanced Products Group (“CW6”), invo
16 with marketing, who was at the Company from December 2011 to February 2013, confirmed
17 Apple sales fell so much because of competition. CW6 recalled the industry was changing 18
19 there was lots of competition, and prices were dropping. According to CW6, flash memory
20 been commoditized by the big vendors.
21 108. Another former Account Executive (“CW7”), at the Company from July 2009
22 June 2013, rejected, as “bogus,” the explanation that sales were delayed because the quality
23 Fusion products had been better than expected and, therefore, customers did not need to 24
25 them so soon. According to CW7, everyone knew the products would not be replaced in three
26 four years. CW7 also related that there was a 16-week lead time just to get the raw materials
27 build products for customers such as Facebook and Apple.
28
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109. A former Financial Analyst at Fusion (“CW8”) from June 2012 to Novembe 1
2 2013, who reported to Scott Cleland, Director Product Marketing, recalled that everyone i
3 marketing was aware of competitive pressure. In addition, among other projects, CW8
4 assigned by Cleland to prepare a competitive analysis.
5 110. As alleged in ¶¶ 45 and 79 above, contrary to Defendants’ prior,
6
assurances to the market that competition was not a significant concern and that the 7
8 revenue guidance for Fiscal 2013 reflected only a temporary, two-quarter shift in the timing
9 certain purchases by the Company’s most important customers, by at least January 30, 2012
10 Defendants knew that saving money had become a concern of its two major customers
11 Facebook and Apple, and, on August 7, 2013, Defendants admitted that pricing was the maj
12
13 cause of Fusion’s failure to make sales to those critical customers. In fact, Defendants
14 Fusion had lost business because its products were not competitively priced.
15 111. As alleged in ¶¶ 26, 47, 56, and 61 above, during the Class Period, Defenda
16 emphasized they worked closely with and were knowledgeable about the business needs of
17 Company’s two strategic customers, Apple and Facebook. Accordingly, Defendants 18
19 and/or recklessly disregarded that the slowing demand from those customers was not merely
20 temporary, two-quarter shift in the timing of certain purchases and that Fusion’s lack
21 competitive pricing was, in fact, a significant consideration, putting Fusion at a competiti
22 disadvantage.
23 112. In addition, during the Class Period, Fusion was involved in negotiations 24
25 extend its existing credit line and, after that credit line expired, to secure a new credit line
26 Defendants therefore were motivated to misrepresent the Company’s performance and prospect
27 in order to obtain needed financing and to ensure more favorable terms. Thus, on September 11
28
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2012, Fusion concluded an amendment to its then-existing $25 million revolving 1
2 agreement with Silicon Valley Bank to extend the maturity date of the revolving credit line
3 September 13, 2012 to December 31, 2012. On September 13, 2013, Fusion entered into a
4 credit agreement with Silicon Valley Bank, as Administrative Agent and Issuing Lender,
5 allowed the Company to borrow up to $25 million, with a $25 million letter of credit sub-
6
and an option to increase the lending commitments, subject to certain conditions, up to 7
8 aggregate of $75 million in additional lending commitments.
9 LOSS CAUSATION/ECONOMIC LOSS
10 113. During the Class Period, as detailed herein, Defendants engaged in a scheme
11 a course of conduct to deceive the market that artificially inflated Fusion’s stock price
12
13 operated as a fraud and deceit on Class Period purchasers of Fusion stock by misrepresenting
14 truth concerning the Company’s business, performance, and prospects. Ultimately, however
15 when Defendants’ prior misrepresentations and fraudulent conduct came to be revealed to
16 market on August 7 and October 23, 2013, the trading price of Fusion shares
17
precipitously -- evidence that the prior artificial inflation in the price of Fusion shares 18
19 reduced and ultimately eliminated -- and, as a result of their purchases of Fusion stock during
20 Class Period at artificially inflated prices, Plaintiffs and other members of the Class
21 economic losses when the true facts about the Company’s business, performance, and
22 were revealed and the artificial inflation was removed from price of the Company’s stock, i.e.
23 damages under the federal securities laws. 24
25 114. The declines in the price of Fusion common stock after the true facts came to
26 were a direct result of the nature and extent of Defendants’ fraud finally being revealed to
27 market. The timing and magnitude of Fusion’s stock price declines negate any inference that
28
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loss suffered by Plaintiffs and other Class members was caused by changed market conditions 1
2 macroeconomic or industry factors, or Company-specific facts unrelated to Defendants
3 fraudulent conduct as complained of herein. The economic loss Plaintiffs and other
4 members suffered was a direct result of Defendants’ fraudulent scheme and course of conduct
5 artificially inflate and maintain the price of Fusion common stock and the subsequent declines
6
the market value of Fusion stock when Defendants’ prior misrepresentations and other fraudule 7
8 conduct were revealed.
9 115. The economic loss, i.e., damages suffered by Plaintiffs and other members of
10 Class, was a direct result of Defendants’ misrepresentations and omissions being revealed
11 investors, and the subsequent significant declines in the value of the Company’s shares
12
13 August 7 and October 23, 2013 were also the direct result of Defendants’ prior
14 and omissions being revealed.
15 STATUTORY SAFE HARBOR DOES NOT APPLY
16 116. The statutory safe harbor provided for forward-looking statements under
17
circumstances does not apply to any of the allegedly false statements pleaded in this 18
19 Many of the specific statements pleaded herein were not identified as “forward-
20 statements” when made. To the extent there were any forward-looking statements, there were
21 meaningful cautionary statements identifying important factors that could cause actual results
22 differ materially from those in the purportedly forward-looking statements. Alternatively, to
23
extent that the statutory safe harbor does apply to any forward-looking statements ple 24
25 herein, Defendants are liable for those false forward-looking statements because at the time
26 of those forward-looking statements was made, the particular speaker knew that the
27 forward-looking statement was false, and/or the forward-looking statement was
28
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and/or approved by an executive officer of Fusion who knew that those statements were 1
2 when made.
3 117. Each of the Company’s annual and quarterly SEC filings on Forms 10-K and 1
4 Q during the Class Period, which are referred to herein, make the following identical,
5 plate disclosures, among others, concerning risks related to Fusion’s business and industry:
6 We expect large and concentrated purchases by a limited number of customers 7 to continue to represent a substantial majority of our revenue, and any loss or
8 delay of expected purchases could adversely affect our operating results.
9 We compete with large storage and software providers and expect competition to intensify in the future from established competitors and new market entrants. 10
11 If our industry experiences declines in average sales prices, it may result in declines in our revenue and gross profit. [Emphasis in original.]
12 Defendants’ purported risk disclosures did not constitute meaningful cautionary statements 13
14 instead, were materially false and misleading when made because they described only possi
15 risks that might materialize in the future when, in fact, such risks already had begun
16 materialize and to have a material adverse impact on the Company’s performance and prospects
17 Thus, among other things, Defendants’ “risk disclosures” did not reveal that the 18
19 already was facing increasing competition and pressure on prices. Instead, Defendants’
20 disclosures could apply to almost any company selling almost any product and were
21 inadequate to apprise investors of the serious competitive problems then facing the Company.
22 PLAINTIFFS’ CLASS ACTION ALLEGATIONS
23 118. Plaintiffs bring this action as a class action pursuant to Federal Rule of 24
25 Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased
26 otherwise acquired shares of Fusion common stock between October 25, 2012 (the first
27 day following the Company’s press release and conference call after the close of trading
28
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October 24, 2012) and October 23, 2013, inclusive, in the United States or on a United States- 1
2 based stock exchange, and who were damaged by the decline in the market value of
3 common stock when the truth regarding Fusion ultimately was revealed to the public.
4 from the Class are Defendants; the officers and directors of the Company at all relevant t
5 members of their immediate families and their legal representatives, heirs, successors, or as
6
and any entity in which Defendants have or had a controlling interest. 7
8 119. The members of the Class are so numerous that joinder is
9 Throughout the Class Period, Fusion common stock was actively traded on a United States
10 exchange, the NYSE. As of August 15, 2013 (during the Class Period), the Company had m
11 than 100 million shares of common stock issued and outstanding. While the exact number
12
13 Class members is unknown to Plaintiffs at this time and can be ascertained only
14 appropriate discovery, Plaintiffs believe there are thousands of members in the proposed Class
15 Record owners and other members of the Class may be identified from records maintained
16 Fusion or its transfer agent and may be notified of the pendency of this action by mail
17
publication, using the forms of notice similar to those customarily used in securities 18
19 actions.
20 120. Plaintiffs’ claims are typical of the claims of the members of the Class
21 I Plaintiffs and all members of the Class were similarly affected by Defendants’ conduct i
22 violation of the federal securities laws that is complained of herein.
23 121. Plaintiffs will fairly and adequately represent and protect the interests of 24
25 members of the Class and have retained counsel competent and experienced in class action
26 securities litigation.
27 122. Common questions of law and fact exist as to all members of the Class
28
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predominate over any questions solely affecting individual members. A classwide proceedin 1
2 will generate common answers to the following questions of law and fact common to the Clas
3 among others:
4 (a) Whether the federal securities laws were violated by Defendants’ acts an
5 omissions as alleged herein;
6 (b) Whether Defendants made materially untrue and misleading statements an 7
8 omissions during the Class Period; and
9 (c) Whether members of the Class have sustained damages and the proper measure o
10 damages.
11 123. Plaintiffs and other Class members are entitled to a presumption of reliance wit
12
13 respect to their purchases of Fusion common stock during the Class Period because:
14 (a) The alleged misrepresentations were publicly disseminated;
15 (b) The alleged misrepresentations were material;
16 (c) Fusion common stock traded in an efficient market, for the following reason
17
among others: 18
19 (i) Fusion common stock met the requirements for listing, and was listed
20 actively traded on the NYSE, a highly efficient market;
21 (ii) As a regulated issuer, Fusion filed periodic public reports with the
22 and the NYSE;
23 (iii) Fusion and its stock were followed by securities analysts employed 24
25 major brokerage firms who wrote reports that were distributed to the sales force and cert
26 customers of their respective brokerage firms. Each of these reports was publicly available
27 entered the public marketplace;
28
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(iv) Fusion regularly issued press releases, which were carried by 1
2 newswires. Each of these releases was publicly available and entered the public marketplace;
3 (d) Plaintiffs and other Class members purchased Fusion common stock between
4 time the misrepresentations were made and when the truth was fully revealed.
5 124. A class action is superior to all other available methods for the fair and
6
adjudication of this controversy, as joinder of all Class members is impracticable. 7
8 as the damages suffered by individual Class members may be relatively small, the expense
9 burden of individual litigation make it impossible for members of the Class, individually,
10 redress the wrongs done to them. There will be no difficulty in the management of this action
11 a class action. Plaintiffs’ allegations arise from a series of materially false and misleadi
12
13 statements and omissions Defendants made to the public during the Class Period in SEC
14 Company press releases, and conference calls with analysts. These statements and
15 concealed true, adverse facts about Fusion, and its business, performance, and prospects.
16 CLAIMS FOR RELIEF
17 COUNT I 18
19 (For Violations of §10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder 20 Against All Defendants – Fusion, Flynn, Robison, and Wolf)
21 125. Plaintiffs repeat and reallege each and every allegation contained above as if
22 set forth herein.
23 126. During the Class Period, Defendants carried out a plan, scheme, and course 24
25 conduct which was intended to and, throughout the Class Period, did: (a) deceive the invest
26 public regarding Fusion’s business, operations, performance, and prospects, and the true value
27 Fusion stock; (b) enable Defendants to inflate and to maintain the artificial inflation in the
28
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of Fusion stock; and (c) cause Plaintiffs and other members of the Class to purchase 1
2 common stock at artificially inflated prices, resulting in damages after the truth was revealed
3 the artificial inflation was removed from the price of the stock. In furtherance of their
4 scheme, plan, and course of conduct, Defendants and each of them, jointly and individually,
5 the actions set forth herein.
6 127. Defendants (a) employed devices, schemes, and artifices to defraud; (b) 7
8 untrue statements of material fact and/or omitted to state material facts necessary to make
9 statements not misleading; and (c) engaged in acts, practices, and a course of business
10 operated as a fraud and deceit upon the purchasers of the Company’s stock in an effort
11 maintain an artificially high market price for Fusion stock in violation of Section 10(b) of
12
13 Exchange Act and Rule 10b-5. Defendants are sued as primary participants in the wrongful
14 illegal conduct charged herein and as controlling persons as alleged below.
15 128. Defendants, individually and in concert, directly and indirectly, by the use
16 means or instrumentalities of interstate commerce and of the mails, engaged and participated in
17
continuous course of conduct to conceal and misrepresent adverse material information about 18
19 business, performance, and prospects of Fusion as specified herein.
20 129. Defendants employed devices, schemes, and artifices to defraud, while
21 I possession of material adverse non-public information, and engaged in acts, practices, and
22 course of conduct as alleged herein in an effort to assure investors of Fusion’s
23
performance, and prospects, which included the making of, or the participation in the making 24
25 untrue statements of material facts and omitting to state material facts necessary in order to
26 the statements made about Fusion and its business, operations, performance, and prospects in
27 light of the circumstances under which they were made, not misleading, as set forth
28
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particularly herein, and engaged in transactions, practices and a course of business 1
2 operated as a fraud and deceit upon the purchasers of Fusion stock during the Class Period.
3 130. Defendants had actual knowledge of the misrepresentations and omissions
4 material facts set forth herein, or acted with reckless disregard for the truth in that they failed
5 ascertain and to disclose such facts. Such Defendants’ material misrepresentations and
6
were done knowingly or with reckless disregard for the purpose and effect of concealing 7
8 truth regarding Fusion’s business, operations, performance, and prospects from the
9 public and supporting the artificially inflated price of its stock. As demonstrated by Defendants
10 material misstatements and omissions concerning the Company’s business, operations
11 performance, and prospects throughout the Class Period, Defendants, if they did not have
12
13 knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtai
14 such knowledge by recklessly refraining from taking those steps necessary to discover
15 those statements were false or misleading.
16 131. As a result of the dissemination of the materially false and misleading informati
17
and failure to disclose material facts, as set forth above, the market price of Fusion stock 18
19 artificially inflated during the Class Period. In ignorance of the fact that the market price
20 Fusion stock was artificially inflated, and relying directly or indirectly on the false
21 misleading statements made by Defendants, or upon the integrity of the market in which
22 stock trades, and/or on the absence of material adverse information that was known to
23
recklessly disregarded by Defendants but not disclosed in public statements by 24
25 during the Class Period, Plaintiffs and other members of the Class purchased Fusion stock
26 the Class Period at artificially high prices and were damaged after the truth regarding
27 Company was revealed, which removed the artificial inflation from Fusion’s stock price.
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132. The Individual Defendants’ primary liability arises from the following facts, 1
2 among others: (a) Defendants Flynn, Robison, and Wolf were high-level executives and
3 directors at the Company during the Class Period and members of the Company’s
4 team or had control thereof; (b) by virtue of their responsibilities and activities as senior
5 and directors of the Company, the Individual Defendants were privy to and participated in
6
creation, development, and reporting of the Company’s internal budgets, plans, projections 7
8 reports; (c) the Individual Defendants enjoyed significant personal contact and familiarity
9 each other and were advised of and had access to other members of the Company’s manag
10 team, internal reports, and other data and information about the Company’s business, oper
11 performance, and prospects at all relevant times; and (d) the Individual Defendants were
12
13 of the Company’s dissemination of information to the investing public which they knew
14 recklessly disregarded was materially false and misleading.
15 133. Plaintiffs and the Class have suffered damages in that, in reliance on the integrit
16 of the market, they paid artificially inflated prices for Fusion stock. At the time of sai
17
misrepresentations and omissions, Plaintiffs and other members of the Class were ignorant 18
19 their falsity, and believed them to be true. Had Plaintiffs and other members of the Class and
20 marketplace known the truth regarding the problems Fusion was experiencing, which were n
21 disclosed by Defendants, Plaintiffs and other members of the Class would not have purchased
22 otherwise acquired their Fusion stock, or, if they had purchased such stock during the
23 Period, they would not have done so at the artificially inflated prices they paid. 24
25 134. By virtue of the foregoing, Defendants have violated Section 10(b) of
26 Exchange Act, and Rule 10b-5 promulgated thereunder.
27 135. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiffs
28
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the other members of the Class suffered damages in connection with their respective 1
2 of the Company’s stock during the Class Period.
3 COUNT II
4 (For Violations of §20(a) of the Exchange Act against Individual Defendants 5 Flynn, Robison, and Wolf)
6 136. Plaintiffs repeat and reallege each and every allegation contained above as if
7 set forth herein.
8 137. Defendants Flynn, Robison, and Wolf acted as controlling persons of
9
10 within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of
11 high-level positions, and their ownership and contractual rights, participation in
12 awareness of the Company’s business and operations and/or intimate knowledge of the false
13 misleading statements made by or on behalf of the Company to the investing public,
14 Individual Defendants each had the power to influence and control and did influence and 15
16 directly or indirectly, the decision-making of the Company, including the content and
17 dissemination of the various statements Plaintiffs contend are materially false and misleading
18 The Individual Defendants each were provided with or had unlimited access to copies of
19 Company’s reports, press releases, public filings, and other statements alleged by Plaintiffs to
20
misleading prior to and/or shortly after these statements were issued and had the power an 21
22 ability to prevent the issuance of the statements or to cause the statements to be corrected.
23 138. In particular, each of these Defendants had direct and supervisory involvement i
24 the day-to-day operations of the Company and, therefore, is presumed to have had the power
25 control or influence the particular transactions giving rise to the securities violations as
26
27 herein, and exercised the same.
28 139. As set forth above, Fusion and the Individual Defendants each violated
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10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of th 1
2 positions as controlling persons, Defendants Flynn and Wolf also are liable pursuant to Secti
3 20(a) of the Exchange Act. As a direct and proximate result of the wrongful conduct
4 Defendants Flynn, Robison, and Wolf, Plaintiffs and other members of the Class
5 damages in connection with their purchases of the Company’s stock during the Class Period
6
the related damages resulting after the true facts were revealed and the artificial inflation 7
8 removed from the price of the stock.
9 COUNT III
10 (For Violations of §20(b) of the Exchange Act against Individual Defendants Flynn, Robison, and Wolf) 11
12 140. Plaintiffs repeat and reallege each and every allegation contained above as
13 I fully set forth herein.
14 141. The Individual Defendants used their control over Fusion to cause the
15 to issue materially false and misleading information in violation of Section 10(b) of
16
Exchange Act and SEC Rule 10b-5 promulgated thereunder. By virtue of each of the Indivi 17
18 Defendants' acts resulting in the issuance by Fusion of materially false and misleading
19 to the public, each of the Individual Defendants, directly or indirectly, engaged in conduct
20 was unlawful for the Individual Defendants to do under Section 10(b) of the Exchange Act
21 the rules and regulations promulgated thereunder through another person, Fusion.
22 142. As a direct and proximate result of Defendant Fusion’s and the Indivi 23
24 I Defendants' wrongful conduct, Plaintiffs and other members of the Class suffered damages i 25 connection with their purchases of the Company's securities during the Class Period.
26 143. As a direct and proximate result of the Individual Defendants’ wrongful
27 Plaintiffs and other members of the Class suffered damages in connection with their purchases
28
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the Company’s stock during the Class Period based on directly or indirectly relying on 1
2 material misstatements and omissions issued by the Company.
3 WHEREFORE, Plaintiffs pray for relief and judgment, as follows:
4 1. Determining that this action is a proper class action, certifying Plaintiffs as Class
5 representatives under Rule 23 of the Federal Rules of Civil Procedure and Plaintiffs’ counsel as Lead Counsel;
6 2. Awarding compensatory damages in favor of Plaintiffs and the other Class 7 members against all Defendants, jointly and severally, for all damages sustained as a result of Defendants’ wrongdoing, in an amount to be proven at trial, 8 including interest thereon;
9 3. Awarding Plaintiffs and the Class their reasonable costs and expenses incurred in 10 this action, including counsel fees and expert fees;
11 4. Awarding extraordinary, equitable and/or injunctive relief as permitted by law,
12 equity, and the federal statutory provisions sued hereunder; and
13 5. Such other and further relief as the Court may deem just and proper.
14 JURY TRIAL DEMANDED
15 Plaintiffs hereby demand a trial by jury.
16
17 Dated: August 6, 2014 Respectfully submitted, 18
19 BRODSKY & SMITH, LLC
20
21 _/s/ Evan J. Smith ______
22 Evan J. Smith (242352) 9595 Wilshire Boulevard, Suite 900 23 Beverly Hills, CA 90212 Telephone: (310) 300-8425 24 Facsimile: (310) 247-0160
25 Liaison Counsel for Plaintiffs and the Class
26
27 BROWER PIVEN
28 A Professional Corporation David A.P. Brower
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Richard H. Weiss 1 475 Park Avenue South, 33rd Floor
2 New York, NY 10016 Telephone: (212) 501-9000 3 Facsimile: (212) 501-0300
4 Lead Counsel for Plaintiffs and the Class
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EXHIBIT A Case5:13-cv-05368-LHK Document56 Filed08/06/14 Page57 of 62
Nick Micek ("Plaintiff') declares that:
1. I have reviewed the complaint in the Fusion-jo, Inc. Securities Litigation and authorize the filing of that complaint.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of plaintiffs counsel or in order to participate in this private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary, and Plaintiff is willing to serve as a lead plaintiff either individually or as part of a group, a lead plaintiff being a representative party who acts on behalf of other class members in directing the action.
4. Plaintiffs transactions in Fusion-jo, Inc. securities during the Class Period are attached hereto.
5. During the three years prior to the date of this Certification, Plaintiff has not sought to serve or served as a representative party for a class under the federal securities laws.
6. Plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiffs pro rata share of any recovery, except such reasonable costs and
expenses (including lost wages) directly relating to the representation of the class as ordered or
approved by the court. Plaintiff understands that this is not a claim form, and that Plaintiffs ability to
share in any recovery as a member of the class is unaffected by Plaintiffs decision to serve as a
representative party.
I declare under penalty of perjury under the laws of the United States of America that the
foregoing is true and correct. Executed this 6 th day of August 2014.
Nick Micek
Brower Piven, A Professional Corporation 1925 Old Valley Road Stevenson, Maryland 21153 Telephone: 410-332-0030 Facsimile: 410-685-1300 www.browerpiven.com
Case5:13-cv-05368-LHK Document56 Filed08/06/14 Page58 of 62
ATTACHMENT TO CERTIFICATION Fusion-io, Inc. Securities Litigation
Name: Nick Micek
(Please complete only one trade per line)
Purchased Sold Price Per Share Number of Shares (P) (S) Trade Date (Before Commission) 1,000 P 11/07/12 23.81 600 P 01/07/13 21.03 1,400 P 01/07/13 21.03 2,000 P 01/08/13 19.51 700 P 01/29/13 19.75 800 P 01/29/13 19.75 1,000 P 04/05/13 15.01 1,000 P 10/08/13 13.81
Brower Piven, A Professional Corporation 1925 Old Valley Road Stevenson, Maryland 21153 Telephone: 410-332-0030 Facsimile: 410-685-1300 www.browerpiven.com Case5:13-cv-05368-LHK Document56 Filed08/06/14 Page59 of 62
EXHIBIT B Case5:13-cv-05368-LHK Document56 Filed08/06/14 Page60 of 62
p i tq'
flrh Rub &n (IitUV) dh*t thin
I.11 1•iT'W. reviewed the coniplaint In ilic Fuqlon-io. Inc. Securides Litigation and
authorize Ille, t111n t thAt crnp14rft.
2. Plaintiff did ñOk pur&I fl tuy th ,Abjwt c[Ji irccn
fl1rI1f1Iflr1fllUE'
TIMMMEMPM
4. Plaintiffs transactions In Fuilon-lo, Inc. accuriticq during the Claqq Patlod art,
5. During (he 11VO6 yehil pki io 1116 da Of [Ills C Ecthm, PLt( huK nul 4mlilit
in serve or served 15 a representativeparty for a class unrl&thn federal secutlthKi
flff 11
, cxpenflth (including IORI wageo) dimcdy rclating to the representation of The class an ordered or
iHJ.1 the rcoui1rt, Plaintiff l .c.r'i iTrT 1IrrTiI r'imi rinwii11l11 mhom in any mwvcry as a member of [he elm Is unaffected by PlainfliN decision io , serve as a
I j rrr 1923 Old Vulley Road
Case5:13-cv-05368-LHK Document56 Filed08/06/14 Page61 of 62
ATTACHMENT TO CERTIFICATION Fusion-io, Inc. Securities Litigation
Name: Eric Rubenstein
Purchased Sold Price Per Share Number of Shares (P) (S) Trade Date (Before Commission) 1,000 P 05/22/13 13.85 2,500 P 05/22/13 14.16 5,000 S 05/30/13 14.25 500 S 05/30/13 14.32 3,000 S 05/30/13 14.323 28 P 06/12/13 14.12 972 P 06/12/13 14.13 1,000 P 06/12/13 14.00 1,000 P 06/12/13 13.95 5,000 P 06/12/13 14.18 1,000 P 06/12/13 14.10 1,000 P 06/13/13 13.70 1,000 P 06/17/13 13.20 11,000 S 07/19/13 14.00 2,500 P 07/26/13 14.848 1,000 P 08/07/13 14.90 1,000 P 08/07/13 14.85 1,000 P 08/07/13 14.949 1,500 P 08/07/13 14.95 2,500 P 08/07/13 15.23 1,000 P 08/08/13 11.35 1,000 P 08/08/13 11.50 1,000 P 08/08/13 11.35 1,000 P 08/14/13 10.99 678 S 09/09/13 13.39 12,822 S 09/09/13 13.32 1,000 P 09/11/13 14.45 2,500 P 09/11/13 14.8799 5,000 P 09/11/13 15.322 400 P 09/12/13 14.3499 600 P 09/12/13 14.345 1,000 P 09/13/13 14.30 1,000 P 09/16/13 14.19 1,000 P 09/16/13 14.10 1,000 P 09/16/13 13.75
Brower Piven, A Professional Corporation 1925 Old Valley Road Stevenson, Maryland 21153 Telephone: 410-332-0030 Facsimile: 410-685-1300 www.browerpiven.com Case5:13-cv-05368-LHK Document56 Filed08/06/14 Page62 of 62
CERTIFICATE OF SERVICE 1
2 I hereby certify that the foregoing document was filed on August 6, 2014, and will sent electronically to the registered participants as identified on the Notice of Electronic Fili 3 (NEF), and paper copies will be sent to those indicated as non-registered participants on Augu 6, 2014. 4
5 _/s/ Evan J. Smith 6 Evan J. Smith
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