Case 1:14-cv-00227-LMB-JFA Document 133 Filed 07/18/14 Page 1 of 127 PageID# 972 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA ALEXANDRIA DIVISION IN RE NII HOLDINGS, INC. Case No. 1:14-cv-00227-LMB-JFA SECURITIES LITIGATION DEMAND FOR JURY TRIAL SECOND AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF FEDERAL SECURITIES LAWS July 18, 2014 Case 1:14-cv-00227-LMB-JFA Document 133 Filed 07/18/14 Page 2 of 127 PageID# 973 TABLE OF CONTENTS I. NATURE OF THE ACTION ................................................................................................ 1 II. JURISDICTION AND VENUE ............................................................................................ 7 III. PARTIES ............................................................................................................................... 8 A. Plaintiffs........................................................................................................................ 8 1. Lead Plaintiffs ......................................................................................................... 8 2. Additional Plaintiff ............................................................................................... 10 B. Defendants .................................................................................................................. 11 1. The Company ........................................................................................................ 11 2. The Individual Defendants .................................................................................... 11 C. Relevant Non-Parties .................................................................................................. 11 IV. SUBSTANTIVE ALLEGATIONS ..................................................................................... 13 A. Company Background ................................................................................................ 13 B. To Address Its iDEN Technology Becoming Obsolete, NII Attempted To Rapidly Transition PTT Technology ..................................................................... 14 C. Defendants Concealed That NII’s Roll-Out Of Its “High Performance” 3G-PTT Network In Peru Was Failing ....................................................................... 16 D. Delays In Developing And Deploying 3G Networks In Latin America Result In NII Losing Customers ................................................................................. 19 1. Nextel Peru’s Staged 3G Launch Fails.................................................................19 2. Delays In Nextel Brazil’s Launch Of 3G Left NII Open To Increased Competitor Pressure ............................................................................ 25 3. Nextel Mexico Loses Hundreds Of Thousands Of Subscribers To Competitors Because It Could Not Successfully Migrate iDen SubscribersTo 3G................................................................................................. 27 E. Without 3G, NII Resorts To Disclosing Misleading Metrics To Maintain The Façade Of Financial Health And Future Profitability .......................... 29 - i - Case 1:14-cv-00227-LMB-JFA Document 133 Filed 07/18/14 Page 3 of 127 PageID# 974 F. NII Continued The Strategy To Target Less Credit Worthy Subscribers, While Defendants Assured Investors NII Had Changed Strategy....................................................................................................................... 31 G. NII’s Marketing Policy (The “Steve Dussek Special”) Was Designed to Artificially Meet Gross Subscriber Addition Targets ............................................. 34 V. DEFENDANTS’ FALSE AND MISLEADING STATEMENTS ...................................... 36 A. NII’s 4Q 2009 and FY 2009 Financial and Operational Results ................................ 36 B. NII’s 1Q 2010 Financial and Operational Results ...................................................... 41 C. NII’s 2Q 2010 Financial and Operational Results ...................................................... 45 D. NII’s 3Q 2010 Financial and Operational Results ...................................................... 49 E. NII’s 4Q 2010 and FY 2010 Financial and Operational Results ................................ 54 F. NII’s 1Q 2011 Financial and Operational Results and Peru Investor Day.............................................................................................................................. 59 G. NII’s 2Q 2011 Financial and Operational Results ...................................................... 63 H. NII’s Press Release Announcing Nextel Peru’s Re-Launch of 3G-PTT .................... 67 I. NII’s 3Q 2011 Financial and Operational Results ...................................................... 68 J. NII’s 4Q 2011 and FY 2011 Financial and Operational Results ................................ 72 K. NII’s 1Q 2012 Financial and Operational Results ...................................................... 76 L. NII’s 2Q 2012 Financial and Operational Results ...................................................... 78 M. NII’s 3Q 2012 Financial and Operational Results ...................................................... 80 N. NII’s 4Q 2012 and FY 2012 Financial and Operational Results ................................ 83 O. Statements Concerning NII’s and Nextel Mexico’s Response to the Shutdown of the US iDEN Network ........................................................................... 84 VI. THE TRUTH BEGINS TO EMERGE ................................................................................ 88 VII. ADDITIONAL INDICIA OF SCIENTER .......................................................................... 99 VIII. THE STATUTORY SAFE HARBOR AND BESPEAKS CAUTION DOCTRINE ARE INAPPLICABLE ................................................................................. 103 IX. LOSS CAUSATION .......................................................................................................... 104 - ii - Case 1:14-cv-00227-LMB-JFA Document 133 Filed 07/18/14 Page 4 of 127 PageID# 975 X. CONTROL PERSON ALLEGATIONS............................................................................ 105 XI. CLASS ACTION ALLEGATIONS .................................................................................. 106 XII. LEAD PLAINTIFFS ARE ENTITLED TO A PRESUMPTION OF RELIANCE........................................................................................................................ 108 XIII. CAUSES OF ACTION ...................................................................................................... 110 COUNT I For Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder Against NII ......................................................................... 110 COUNT II For Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder Against the Individual Defendants Steve P. Dussek, Steven M. Shindler, and Gokul Hemmady ............................................................................. 114 COUNT III For Violations of Section 20(a) of the Exchange Act Against the Individual Defendants Steven P. Dussek, Steven M. Shindler, and Gokul Hemmady119 XIV. PRAYER FOR RELIEF .................................................................................................... 120 - iii - Case 1:14-cv-00227-LMB-JFA Document 133 Filed 07/18/14 Page 5 of 127 PageID# 976 Court-appointed Lead Plaintiffs Danica, Industriens, Operating Engineers Pension Trust Fund, IBEW Local No. 58 / SMC NECA Funds, Jacksonville P&F (as defined fully below) (together, “Plaintiffs”), by and through their undersigned counsel, allege the following individually and on behalf of a class of all persons and entities who purchased or otherwise acquired the securities of NII Holdings, Inc. (“NII” or the “Company”) and NII Capital Corp. (“NII Capital”), a wholly owned subsidiary of the Company, between February 25, 2010 and February 27, 2014, inclusive (the “Class Period” and the “Class,” as further defined herein), upon information and belief, except as to those allegations concerning Plaintiffs, which are alleged upon personal knowledge. Plaintiffs’ allegations are based upon the investigation of Plaintiffs’ counsel, which included a review of U.S. Securities and Exchange Commission (“SEC”) filings by NII, regulatory filings and reports, securities analysts’ reports and advisories about the Company, press releases and other public statements issued by the Company and its operating businesses, media reports about the Company, and other publicly available information concerning NII and the Individual Defendants (as defined herein), as well as interviews with former NII employees and internal NII documents provided by former NII employees. Plaintiffs believe that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. I. NATURE OF THE ACTION 1. In 2009, NII, one of the world’s leading providers of fully integrated mobile communication services, embarked on a major corporate shift in Latin America from reliance on an outdated, obsolete telecommunications network to a network based on a more modern technology that purportedly would be able to support NII’s services and higher speed data availability, referred to as “3G” connectivity. This case concerns Defendants’ materially false Case 1:14-cv-00227-LMB-JFA Document 133 Filed 07/18/14 Page 6 of 127 PageID# 977 and misleading statements