Opinion ID: 622296
Heading Depth: 2
Heading Rank: 4

Heading: Defendants' Statements During the Class Period

Text: Mismanagement is not equal to fraud, however, and plaintiff emphasizes that this action is not about how well or how poorly defendants handled the integration of Level 3's acquisitions. Rather, plaintiff's fraud claim is based on alleged misrepresentations defendants made regarding the success of that endeavor. The complaint provided a catalog of allegedly false or misleading statements. For instance, on October 17, 2006, ten months after Level 3 had acquired WilTel, COO O'Hara spoke favorably about the progress the company had made. We continue to run ahead of plan, he told analysts and investors, and have now completed the majority of integration efforts from WilTel, and we have completed these activities under budget. Id. at A53-54. A week later, O'Hara reiterated that Level 3 continue[d] to run ahead of plan on the WilTel integration from both a timing and budget perspective. Id. at A55. He stated that [a] majority of the physical network interconnections are completed. Id. These claims were repeated and exaggerated by market analysts. See, e.g., id. at A55 (Management stated that it had completed the integration of Wil[T]el.). Level 3 emphasized to the market that it was working hard on integration. CEO Crowe stated, `We have [been] working on integration tasks and it's well over 200 people, so it's a big effort for us, one we take seriously and one we think we are developing pretty good skills in.' Id. (alteration in original). On November 9, 2006, Level 3's Form 10-Q, filed with the Securities & Exchange Commission (SEC), stated that [d]uring 2006, the Company integrated a significant portion of WilTel into the business. Id. at A57. On December 4, CFO Patel gave a more precise estimate. Before inquiring about Level 3's metro acquisitions, a financial analyst commented, On the WilTel side, I think you are pretty much through the woods, you said you completed that in about a year, under budget and under schedule. Id. Patel replied, You are right on WilTel, we have generally done, substantially done, by that I mean 85%, 90% done with those efforts. Id. Patel also presented a PowerPoint slide that proclaimed that Level 3 is a logical consolidator with proven integration experience, a statement that was displayed at conferences on six other occasions by Patel, O'Hara, and Level 3's senior vice president and treasurer. Id. at A58, A62-64, A68. O'Hara continued to make positive statements about integration progress in 2007. On February 8, 2007, he stated that integration of all the acquired companies is progressing well and we're beginning to see the benefits of synergies from those transactions. . . . Most of the physical integration of WilTel is now complete. The remaining activities for WilTel are primarily tied to ongoing IT system development work. Id. at A62-63. In late April, O'Hara reiterated that Level 3 had made significant progress on the integration of all acquisitions. Id. at A67. But he also offered a few cautions: As I mentioned earlier, a key objective during the integration process[] is to make sure that we do not compromise our sales momentum. We are equally focused on insuring that the excellent reputation that Level 3 has earned over the years for customer service does not get degraded. It is inevitable that as employees from seven companies learn new business processes and systems, that some inefficiency will be incurred during the transition. The overall integration effort is tracking within expectations in this regard, and the overall customer experience is still positive. But this is an area that we are monitoring closely. Id. at A67. To that, Crowe added: With respect to our progress in integrating the acquisition we have made, [O'Hara] did a good job of explaining our current status in some detail. I would like to emphasize three points. We understand that this job is our operational challenge and our opportunity and it is job # 1, and we are determined to insure that Level 3 ends 2007 with one network platform, one set of business processes, and most importantly, with an organization with one set of common values. Id. at A68. Patel echoed these views in May 2007: Over the last year and a half we have been very busy on acquisitions, I think we picked up about 7 companies. So this year is really focused on integration and getting the synergies from all those acquisitions. So that is really our top priority. Id. In July 2007, the market received more cautious statements from Level 3. O'Hara repeated that Level 3 had made significant progress on the integration of all acquisitions. Id. at A72. But he explained, As we develop these new processes and systems, we're often working in a hybrid systems environment that has elements of both the legacy Level 3 systems, as well as various systems from the seven acquisitions. Id. Operating in this interim environment has added operational complexity to certain functions. As a result of this complexity, the average period of time it takes to convert certain new service orders into revenue has been extended by up to 50 to 75%. . . . While this is the most complex part of the integration, we remain confident in our end-state architecture and will make meaningful progress toward our end-state environment during the balance of 2007. Id. at A73. Crowe also warned, We are into this a couple of quarters and we are expecting a couple of more quarters of heavy effort. Id. Still, he said he was confident, to go right to the point, because all of the issues that we're dealing with are under our control. Id.