this morning i'm going to talk about several items several of the defendants more blatant false and misleading statements and why this court's decision in the brody case does not excuse those statements as well as the sufficiency of the many sources pleaded  complaint both human and documentary showing that the defendant statements were knowingly false before i get the first set of false statements so i want to do a little refresher on exactly what we're talking about here j and i as a company that made connectivity products between a server and storage area networks the workhorse of its product line was the old s bus product and that s bus product utilized the tacking on chip that's the old product it's on its way out the new product that we know and this is played in the complaint to paragraph nine the new product that we know j and i had to move to was p c i and that p c i product was going to depend upon a new type of line solarz was the name of the server that used the product we have to move to the p c i product so that we can expand and start serving all of the computer manufacturers out there so coming into october two thousand of toby's a very heavy month for this corporation they are going to they are slated to have a three hundred eighty two million dollar public offering so leading up to that public offering we have a slew of public statements coming from the company we have an october sixteenth press release we have  october sixteenth conference call with analysts we have the october nineteenth prospectus and registration statement itself for the offering as well as two analyst reports october twenty fourth and twenty fifth that's specifically referred back to the october sixteenth conference call and here's what was being said about the new p c i emerald product line the one that they had to move to this product group is growing in the animal product line was there more a little confusing when a reference was made to m roll it was not clear whether it was immoral knew him or all i and i agree with with your honor that often but you have to also recall that the public statements that were being complaint taki on was being phased out it was a more expensive chip to produce the emerald chip it was a newer improved faster chip and yet converse li cheaper and so that therefore you have a greater defendants he's erratic i'm sorry he's e mailing the c f o gloria purdy he says we are still selling ninety five percent tax after all this time which is quote contrary to plan so even within the corporation even within jane i they knew that tacky on was on its way out as i said the chairman of the c e o had told the board back in april our clients the o e m's are demanding that we move to the new p products where you can move to p c i with emerald and yes you can move to p c i with tacking on but as i've just shown you as the complaint alleges and many more paragraphs tacking on was not the vehicle with which they were going to move forward if the c i it was going to be p i and p c i emerald now what was happening in october when those statements were being made we've got the vice president of sales mike or a niche who testified in a separate lawsuit that he warned the executive team of j and i throughout october that they were not going to make the numbers that were then that were being given to the street he insists that before the numbers were given to the street he specifically warned the executive team that j and i can't meet its numbers that's a paragraph eighty four of the complaint i made that very aware to the executive team on a weekly basis so there was no surprise contrary to what was given to the street by the company when did you formulate that projection early october and did you convey that projection to members of the executive team yes did you convey your projection before the company announced to the street its projected goals the next quarter yes i'm sorry but you did you did give that information about your projection yes before they made the announcement to the street yes mr orange was not a lone voice in the wilderness ajay and i at the same time that he was warning the executives we have a person department employee within j and i whose responsibility it was was to go to purchase the materials that j and i needed to make its products to sell to its customers and he specifically recalls and this is in paragraph eighty six of the complaint he specifically recalls being told at a tuesday green sheet meetings that was the name for the tuesday meetings they had they held every week he recall specifically being told at an october green sheet meeting that new orders were not coming in and that they were slowing demand for their existing products now we have orders for after the problems that i have with al rather they were a little more global about what was happening inside the company so when you say that we are experiencing greater demand for our products when you say that we as the company are very comfortable with what you the analysts are saying we are going to do in the next quarter i would submit that a purchasing department employee who was told that demand is not growing and that we are not getting the new orders and that you better go out and cancel some of your orders for materials used to make our orders  statements coming in in october and then i'm going to jump to another set of false statements made in november october twelfth the chairman emailing again three of our defendants here's a very specific product itachi will not purchase any more p c i cards from jay and i should we amend the prospectus should we tell the people that are going to buy three hundred eighty two million dollars worth of our stock that one of our major customers that keep the eye on the at emerald it's just as p c i i understand that product and i can safely say all the products that j and i makes august twenty third g and e m c has stopped testing emerald that is stop testing the end will shift they've almost thrown us out and then of course we have  budget hard budget numbers from july august and september of two thousand showing the insiders the emerald revenue and i would submit that probably needs ephemeral overall emerald s plus as well as well as emerald p c i emerald revenue is sixty five percent below budget they had budgeted five point seven billion and they had only sold two million now moving forward to november november the market starts to get wind of the problems with the old the old workhorse there as they suspect i's not selling as much of s bust as they've been as they've been telling the market so the c f o talks to the dow jones business weekly and she says no no no we've got quote continued growth in our s bus line o nov thirteenth the prepared statement from the company quote from all indications in the market from sun our major original equipment manufacturers and our key customers let's not forget the key customers e m c s bus is strong and growing nothing has changed but we know because we and we've we allege the contents of the document at paragraph eighty five a right around the same time and a comments from the c e o from the very same gentleman that just said s plus a strong and plus shipments have just decreased thirty six percent from september september to october again reflecting the slowdown in orders from e m c now that's a very pregnant statement there it's there's a slow that there's a decrease in plus orders which is directly contradictory to what he just told the market it again reflects a slowdown from their largest customer not it's not the first time it's happened it is against slowing down and then november seventh right around the same time on the same day she sends off another frantic email to the head of human resources if you go santos we're missing the quarter this is directly contrary to what was just being told to the market on november eleventh and over thirteenth and let's not also forget what's happening in november we've got my corner again testifying that he met with the c f o with chief financial officer purdy and vice and the vice president of finance paul kim and purty specifically request that he go out and beat the bushes over in the among their asian customers china korea taiwan hong kong find some of these people and get them to buy some more of our emerald product i'm paraphrasing here but it's in it's in the complaint of paragraph one fourteenth he says i can't do that they don't have the funds to buy our product they don't have the credit lines to give it to them on credit and she says i don't care three phony purchase orders get it over there and he refuses and i believe it was in doubt that this court adopted the second circuit's standard from the novak case basically saying if you're going to rely upon human sources you need to give us some indication that would at least support the probability that persons in that position would possess the information not not support the certainty all right just the probability and i think by describing for example a purchasing department employee whose responsibility it is to buy the raw materials with which to make that the chips and the and the p c i the perfec component interconnect i think that's enough it doesn't help matters really to say that it was fred smith and purchasing i think i think it's enough to say that i don't think this court's decision in dol requires anymore and when we were able to give the name of an employee we certainly did i mean this complaint is just littered with names of j and i insiders who either have spoken to our investigators or who gave testimony in unrelated state lawsuits we've got my cornish the senior vice president of sales we've got scott rubel vice president of marketing and business development who is continually e mailing the members of the executive team saying guys we're not we're not making things we're not cutting things here let me just give you a few of those e mails and i have one minute left so i guess i will just briefly segue to our documentary sources as i said the complaint this is chock full of e mails and with those e mails and with the internal reports that we were able to  describe with particularity we've met the silicon graphics standard the particulars the e mails we've given the court name the name of the author name and or names of the recipients the date it was sent the contents of the e mails those particular documents more than we s g i which again said if you're going to rely upon some sort of documentary sources you should be at least able to plead some of the specifics as we know the s g i courts concern was whether or not the interim reports that were jet generically described there even existed and i think there's no doubt that these e mails exist i see i am coming on to my time for rebuttal so i'll sit down for a while alleged mis forecasts your honour's this is the case of the missing forecast today i would like to address several issues beginning with the missing forecast from the complaint then to talk about the  with incredible presence in april two thousand glorie hurt each terry flanagan some members of the board and other senior executives of jane i knew in four corners in the fourth quarter more than half a year down the road that the company's revenue growth would plateau and that because of that they orchestrated a a cum complex securities fraud scheme in order to launch an initial public or a secondary public offering with all the attendant due diligence while they're conducting this scheme to commit fraud and dump their stock in them for some unexplained reason continue this alleged fraud until the company makes a voluntary forecast in the fourth quarter two thousand two thousand and one was a unique high technology company that had actual products that were being sold it was generating actual revenues and had actual profits and this company over the class period and in the point the points of times alleged in the complaint had record undisputed revenue growth in earnings growth quarter over quarter year year over  where the company's having record growth in the second quarter a few thousand record growth in the third quarter of two thousand and one hour into the class three these numbers are undisputed they can launch their secondary offering and then in the fourth quarter of  two thousand and one on december eleventh the company makes its first forecast to the market and the company's stock falls this case was filed on the heels of the last corrective disclosure on march twenty eighth two thousand and one motion to defense different plaintiffs sometimes same firm sometimes to ok and then then there's a first amended consolidated complaint where there's a there's a first consolidated complaint the subsequent to that correct you know and there's no direction given by the district court between the initial complaints and the consolidated complaint as to the content not at that point all right there's a motion to dismiss the first consolidated complaint which is granted complaint which is again dismissed by the district court again with directions and leave to amend correct correct and then the third american saudi complaint which is the operative complaint today is dismissed without leave so because they don't challenge the dismissal as to three of the press releases the alleged to be false to all of the statements made during the road show for the secondary offering they don't appeal the district court's decision that the accounting fraud allegations weren't adequately pled and they don't challenge the district court's decisions with respect to the c e o s retirement plan so the court didn't botched the decision below and we submit the entire ruling was correct now let me please turn to the missing foreca linchpin allegation of this case it's mentioned no less than fourteen times in the third amended complaint it's mentioned six times in their opening three it's mention two times in the reply in your party referred to this morning the problem is were there is no forecast alleged in the complaint that jane i gave to the market for the fourth quarter of two thousand until december eleventh two thousand and one when the company made a forecast that disappointed the market that causes stock prices to decline the key point in time here is october sixteenth two thousand and that's when the company announced its third quarter earnings which contain only historical information and they held a conference call with the securities market and in that conference call the pla allege the glory of purdy the c f o of the company told the analysts and the participants in the call that she was comfortable with the company with the analyst forecasts in the quote the the conference call and then they go on an ad in the complaint which came up the first time the second amended complaint so it was addressed in two separate orders by the district court that the forecasts at that time was for eighteen to twenty percent growth for the fourth quarter the problem is for the pla this fatal to their case there is nowhere alleged in the complaint about a fourth quarter forecast made by jane i before october sixteenth two thousand they don't say what the forecast and this party was supposedly comfortable specific allegation that says what that is there is a an allegation that refers to no analysts report no statement by the company that at that time the analysts expectations were for eighteen to twenty percent growth but there is no allegation in the complaint that refers to a specific analyst forecast that is dated on or before october sixteenth for this company for the fourth quarter and your order i submit there is a reason for that because if you look at what happened eight days later there were some analyst reports and then they do come out with forecasts on october twenty fourth and first of all those forecasts are attributed to the company but for the sake of this analysis maybe they are those forecasts say on october twenty fourth we are raising our expectations for the fourth quarter from thirty point seven million in revenue to thirty four and change  of october twenty fourth the raising the forecast from three point seven to thirty four unchanged by implication from those analyst reports as of october sixteenth that analysts forecast was thirty point seven why is that important your honour's because what did change i actually do in the fourth quarter of two thousand thirty point seven million dollars you can't build a securities fraud case based on a disappoint forecast when you net the forecast that was in existence there is conspicuously absent from from this complaint is any analyst forecast that was dated before october sixteenth two thousand the best we can tell from the allegations know it's critical because all of the challenge statements in the complaint deal with statements of historic fact they challenge the company's earnings release for the second for the second quarter they challenge the company's  quarter in both press releases all the company did was talk about historic information they talked about the sales for the second quarter of two thousand they talked about the sales for the third quarter of two thousand and none of those numbers are challenged not once in th meet the particularities requirements of rule nine b or the private securities litigation reform act if those were the analysts forecast where are they when did the analysts make the forecast which analyst made the forecast when was it published and this is when they said we're comfortable with experts they've had three at least three opportunities to see that and they didn't that there is not a single analyst forecast that is dated before implication the forecast that existed was not this eighteen to twenty percent growth forecast that is generally alleged in the complaint with no particular hurry it was a forecast of thirty point seven million dollars which is the number the company sixteenth of october was of a three point seven which would have been a smaller percentage growth which is the number of the company's excessive number they hit yes no it was that was the failure to identify the specific forecast and forgive me for not remembering th submit they couldn't because it would destroy the whole theory the case she was comfortable with a number they met that is not securities fraud and then going back to what they allege was false so it was actually historic information repeat itself there is also no duty to give forecasts or other information to the market the information that the plaintiff alleges that was withheld from the market does not change or render falls the fact that jane i with respect to another issue that is raised in the in the appellants reply brief that iraq wanted address briefly in the new curve reference this morning to the fact that they claim they have lots of the emails and in our brief we showed the court as we showed the court below that what they have given the court is carefully excerpt the portions of the e mails that changed the meaning of exactly what was going on at that point in time and in the foul that we improperly did that because the district court denied our request for judicial notice which is true but what the plaintiffs an appellant failed to inform this court is why the court below denied request for judicial notice in footnote two of the order dismissing the thirty minute complaint the court said i'm denying the request because it's moot under branch versus title i can consider all documents referred to relied upon footnote for the express we shows the court considered that material in for the material even that one reference dealt with a specific report in footnote to the court said i am considering all the here and if you if you look at what happened in this case where the corrective disclosures there were two the correct first a corrective disclosure was the first forecasts that the company gave to the market on the fourth quarter which occurred on december eleventh and it  only dealt with the fact that the company's forecast was for basically flat revenue growth in the in that fourth quarter in the second corrective disclosure is another forecast of the company gave to the market on march twenty eight referenced in the complaint right the court may consider the documents the lad upon him but not attach the complaint that's nothing surprising about that ruling but how does that relate to if the if  object to the court's consideration of the exhibit in portions of the exhibit age which are not part of our brief here in our argument however the court need not resolve the dispute because it did not rely on the objective portions of the exhibit by implication the court did in taking into consideration the portions of the material that was not objected to and if you go to footnote four it shows where the court specifically did that with respect when it's specific documents are if if i can if i can turn to the totality of the complaint issue and that is if you if you look at what this can plaint is all about that on april two thousand  executives got together and have attempted to create a scheme for securities fraud because they knew the fourth quarter was going to have flat revenues the revenues would plant tell and then you look at the conduct that is alleged in the complaint by these individuals and that shows that at the end of october two thousand after the secondary offering after the first month of the fourth quarter of two thousand that sales were running behind internal expectations internal expectations that mr purdie who they claim is central to this alleged scheme reacted with surprise she said i don't know if we're going to make the quarter she if i may have just a minute  younger that she reacted with surprise close the trading window no stock sales occurred after that while the court company's stock is still climbing this is not conduct of somebody who had known for at least six months that this was going to happen if this was known by these individuals and was an object of a fraud she wouldn't have written e mails and asked people like mike the ranch what do you think we're going to do in the fourth quarter so i can report it to the built around admissions but there is a twist to it and the twist is that the plaintiffs have argued that you need to consider all these e mails and internal reports and statements of witnesses but they only put a portion of that in front of the court and they don't want the court to consider those other materials and they argue for five pages the court should only consider those carefully crafted crafted excerpts and it's just like the forecast that they bandied about in the complaint but never a your honors we have to talk about these e mails immediately we don't object to the court considering the full text of an e mail that we excerpted in the complaint we know the law on that if i if there's a three page e mail and i only give you the first page of course the court can look at the other two pages we are talking about eight instances in the answering brief where the defendants referred to e mails other e mails that were not part of the court record there's an october thirty and there's an october thirty e mail from  rtti in which which they try to use those e mails which are not part of the record which the court referred to that's when the district court said those were part of exhibit h that i'm not going to look at those are the e mails that they want to use to discredit the testimony of both m niche my cornish the vice president of sales because with those e mails they think they can bring up a colorable dispute about maybe mr oren should have been so pessimistic in october when he said i want to teach i went to the executive team and told them we are not making those numbers that's why we have checked for those e mails they are not part of the record i invite the court to go through our i'm sorry to go through the answering brief look for those two e mails at at two sixteen three seventeen and you'll find they're not part of the record now moving on to the forecasts this is not just a missed forecast case this is not just a forecast of the analysts if it were well then my job's a little tougher because opposing counsel is correct when he says we do not point to any specific public forecasts that existed in a newspaper or something on october sixteenth for here's what we have we've got the c f o telling the assembled analysts we are comfortable with your numbers number one other numbers yeah i'm afraid we have to do a little inferring on that we have to i know i understand but but actually jump a more fundamental point and that is we're also i think losing the big picture in that is there doesn't have to be a forecast out there floating around in the wall street journal she is speaking to the market right then when she says we are comfortable with your numbers and yet internally they just received these emails saying we're not selling proud of them embers are bad we're thrown of that if you don't have any of the numbers weren't bad this may have been the first time i heard this argument when opposing counsel stood up and said she's probably referring to a forecast of thirty million and then they they amended that forecast on the twenty fourth well that can't be true because i had just gone through sequential sequential quarterly growth they had just finished a second quarter thirty percent growth they had just they were just finishing their third quarter twenty five percent growth they were heading into this secondary offering the market was expected to grow if she would she have said to the analysts the analyst by the way that works for the underwriters putting on the offering we're comfortable with you say we're having flat revenues to know what the numbers are so i don't we have to know what the numbers are that she's comfortable with isn't that isn't that essentially a complaint please th twenty fourth analyst report it's not created in a vacuum that report specifically refers back to the sixteenth conference call and says j and i reported it cetera et cetera et cetera and goes on to talk about all the great things happening with s c i and here are the numbers that that they are expected to make in the next quarter there's one piece of evidence we've got an analyst off in december of two thousand saying we were expecting nineteen percent or eighteen percent i forget all you've got is the one statement saying we're comfortable with your numbers and some new numbers come out eight days later and then some and some people so you are you're making the question you're assuming that those are new numbers and i'm saying wouldn't those analysts have said who are those analysts whose job it is to dig out information i'm not begging the until you've got the pleading burden of saying here is the statement they made and when they made it with great particularity this statement was false and they knew it was false with time they made it and so for us to say that you methods occurred we have to know what numbers we're the analysts job is to put out the numbers of what's investors care what's going to happen in a company in the upcoming quarters and that's it's they look forward to what how the company's going to be tomorrow not how it did yesterday i think it's a fair inference that defend pretty was speaking about the analysts then existing forecasts for the for the upcoming quarter which is based upon information that the company is giving to them i mean by that we don't know any more than you planned and one of the issues here is whether the complaint should have been dismissed without leave is there anything else you can plead factually on this point and if not if so why didn't you do it when the judge directed you to i believe that was probably all we had on the forecast but as i said when i stood up this is also not just a forecast case i don't want the court to forget that for example in the oracle case here are some of the states that were found actionable oracle saying robust demand for its database there is sustained demand for its database products those were held to be case and we're here like forward looking statements or what statements that were not statements of historical fact were false in this case what statements like what what what statements that were not statements of historical fact were false on the scale of court and we're quibbling with the hard numbers that they said you know we switch just so thirty we just had revenues of thirty million that's that's not the false statement the false statement is yes plus demand is strong and growing that statement is directly contradictory to the c e o s own with now j and i is now able that's i believe those that those are the exact words is now able not hopes to not someday j and i is now able to support a whole the whole variety of servers out there in other words we don't just have to sell to sun microsystems anymore we don't just have to hope that somebody another major manufacturer like hitachi uses our product we now have the product that all the o e m s want but we know that was false we know that e m c had just stopped testing this great new product we know that pretty had just emailed five days earlier to another executive we're not selling p c i those two statements are your console you know at bottom your honour's i think you really have to  we're really left with this and that is taking the alleged facts that we fleeted not the alleged legal conclusions i'm not going to go down into that morass but taking the alleged facts with pleated the november meeting about the phony asian deal  all of these emails coming in vice president of sales or an itch testifying in sworn testimony that should be that should go in front of a jury that he specifically told the executive team we're not making we're not going to make the numbers that you're giving the street