Opinion ID: 1038518
Heading Depth: 3
Heading Rank: 1

Heading: Cokem & Witness 3

Text: Ricker’s complaint primarily relies on information provided by Witness 3, a confidential witness and former employee in Zoo’s accounting department.2 Witness 3 alleged that problems 2 “While . . . anonymous sources are not altogether irrelevant to the scienter analysis,” conclusory or vague allegations do not deserve much weight. Ley v. Visteon Corp., 543 F.3d 801, 811 (6th Cir. 2008) (citation omitted), abrogated on other grounds by Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309, 1323 25 (2011), as recognized in Frank v. Dana Corp., 646 F.3d 954, -3- No. 12-3951 Ricker v. Zoo Entm’t Inc. with one of Zoo’s largest customers, Cokem, led Zoo to improperly recognize revenue. Witness 3 maintained that payments received from Cokem were always past due, and that she emailed Fremed and Rosenbaum, relaying that Cokem’s owner was “very difficult to deal with[,] . . . never paid on time and demanded rebates and discounts well beyond” those afforded to other companies. (R. 14, Am. Compl. ¶ 32.) Despite Witness 3’s attempts to prompt Cokem to pay its bills, she alleges that Rosenbaum cut deals with Cokem that forced Zoo to collect far less than Cokem owed. This prevented her from accurately projecting cashflow and hindered her ability to evaluate important billing and collection matters. Witness 3 further claims to have alerted Fremed and Seremet to the collection problems, emailing them daily “Year to Date Sales” reports that monitored what Zoo billed, the cash it received, and outstanding accounts receivable. Witness 3 stated that she told Fremed and Seremet about the inaccuracies in her cashflow projections, warning Seremet to “look closely at Rosenbaum and Cokem.” Also, “[d]uring the Class Period, Witness 3 remembers hearing discussions of Company employees, questioning whether sales to Cokem were final” and stretching to “mak[e] the numbers . . . [by] push[ing] product with unusual sales enhancements.” Even as Cokem’s share of Zoo’s net revenue grew from 14% in 2008 to 40% in 2010, Ricker alleges that Seremet and Fremed allowed Rosenbaum, the Cokem account’s primary contact and 960 62 (6th Cir. 2011). Here, Witness 3’s employment in Zoo’s accounting department positioned her to learn of the facts now alleged. The district court therefore credited Witness 3’s perceptions more than the anonymous source in Ley. See also Halford v. AtriCure, Inc., 2010 WL 8973625, at ,  12 (S.D. Ohio Mar. 29, 2010) (crediting six confidential witnesses’ allegations after examining their job descriptions to ascertain whether any could have gained first-hand knowledge of the facts attributed to him or her). -4- No. 12-3951 Ricker v. Zoo Entm’t Inc. salesperson, to “maintain strict control over the relationship and contact with Cokem.” This delegation of control, Ricker reasons, coupled with Seremet and Fremed’s purported knowledge of problems with the Cokem account, demonstrates that Zoo “should have known that revenue numbers for Cokem were highly suspect.” When the time came to restate revenue, however, Witness 3 played no role; Zoo “excluded” her from its restatement process.