1 2 3 4 5 6 7 8 9 10 11 1 2 13 14 15 16 17 18 19 20 2 1 22 23 24 25 26 27 28 HULETT HARPER LLP I L "" KIRK B . HULETT, SBN : 11072 6 BLAKE M. HARPER, SBN : 115756 02 - 5 550 West C Street, Suite 1770 San Diego, CA 92101 - Y , Telephone : (619) 338-113 3 Facsimile : (619) 338-113 9 ABBEY, GARDY, LL P Arthur N . Abbe y Ilana Kohn 212 East 39th Stree t New York, NY 1001 6 Telephone : (212) 889-3700 Attorneys for Plaintiff UNITED STATES DISTRICT COUR T i FOR THE SOUTHERN DISTRICT OF CALIFORNI A SOLOMON SCHECHTER, on behalf of himself and all others similarly situated, ORIG I N Case No . : '02 f1 02 1 v ""( j Plaintiff , vs . LEAP WIRELESS INTERNATIONAL, IN C ., HARVEY P . WHITE, SUSAN G . SWENSON, MANFORD LEONARD AND JILL E . BARAD, Defendants . CE"ASS ACTION COMPLAIN T (JURY TRIAL DEMANDED) L
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HULETT HARPER LLP I L ""KIRK B . HULETT, SBN : 110726BLAKE M. HARPER, SBN: 115756 02 -5550 West C Street, Suite 1770San Diego, CA 92101
ABBEY, GARDY, LLPArthur N . AbbeyIlana Kohn212 East 39th Stree tNew York, NY 10016Telephone: (212) 889-3700
Attorneys for Plaintiff
UNITED STATES DISTRICT COUR Ti
FOR THE SOUTHERN DISTRICT OF CALIFORNI A
SOLOMON SCHECHTER, on behalf of
himself and all others similarly situated,
ORIG I N
Case No . : '02 f1 02 1v ""(j
Plaintiff,
vs .
LEAP WIRELESS INTERNATIONAL, INC .,HARVEY P. WHITE, SUSAN G . SWENSON,MANFORD LEONARD AND JILL E .BARAD,
Defendants .
CE"ASS ACTION COMPLAINT
(JURY TRIAL DEMANDED)
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1 Plaintiff, by his attorneys, as and for his Class Action Complaint, alleges the following upon
2 personal knowledge as to himself and his acts and as to all other matters upon information an(
3 belief based upon, inter alia, the investigation made by and through his attorneys, including a reviev
4 of the public filings of Leap Wireless International, Inc ., ("Leap" or "the Company") with the
5 Securities Exchange Commission ("SEC"), as well as published reports and news articles .
6 JURISDICTION AND VENUE
7 1. This Court has jurisdiction over the subject matter of this action pursuant to Sectioi
8 27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U .S .C . §78aa and 28 U.S.C
9 §1331 . The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange Act, L
10 U.S.C. §78j(b) and §78t(a), and Rule 10b-5, 17 C .F.R. §240.10b-5, promulgated thereunder by th,
11 SEC .
12 2. Venue is proper in this Judicial District pursuant to Section 27 of the Exchange Ac
13 and 28 U.S .C . §1391(b) . Many of the acts and transactions giving rise to the violations of lav
14 complained of herein, including the preparation and dissemination to the investing public of false
15 and misleading information, occurred in this Judicial District . In addition, Leap maintains it .
16 principal executive offices within this Judicial District .
17 3. In connection with the acts, conduct and other wrongs alleged in this Complaint
18 the defendants, directly and indirectly, used the means and instrumentalities of interstatc
19 commerce, including the mails, telephone communications and the facilities of nationa
20 securities exchanges .
21 NATURE OF THE ACTION
22 4. This is a securities class action brought by plaintiff on behalf of himself and al
23 persons as described below (the "Class"), other than the defendants and related parties, whc
24 purchased or otherwise acquired shares of Leap common stock between February 11, 2002 (thy
25 day after the Company publicly announced it financial results for its fiscal year ending Decembe
26 31, 2001, and July 24, 2002 (the day the Company announced its financial results for the secon(
27 quarter of 2002), inclusive (the "Class Period") . By February 2002 defendants knew or wen
28 blinding themselves to the fact that Leap was in dire financial trouble . Its business plan, whic i
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1 required, under the best scenario, large amounts of additional capital to build out wireles
2 systems for which Leap had paid high prices, was unachievable given the increasing competitior
3 in the wireless cell phone industry and the ongoing economic recession . Barring a miraculou :
4 economic recovery, Leap would run out of cash and lose its right to develop many of the servic(
5 areas covered by its licenses, or be forced to sell its business and assets at fire sale prices . In ai
6 effort to keep the market price of its securities and the apparent value of the Company at level :
7 that would permit Leap to continue to attract capital and credit, defendants concealed the
8 drastically deteriorated value of its wireless license assets by undertaking a fraudulen
9 impairment test of those assets and, based on the conclusion of that test, grossly overstated thf
10 value of Leap's wireless license assets in its financial statements, resulting in a trend upward ii
11 the market price of Leap shares . Defendants were motivated by the need to preserve the image o
12 Leap as a viable wireless company with valuable assets, sufficient to persuade lenders, investor,
13 and vendors to provide capital, loans and equipment to the Company. In fact, defendants had nc
14 reasonable, good faith expectation that substantial numbers of licenses recorded at hundreds o
15 millions of dollars on the books of Leap would at any foreseeable time produce positive cast
16 flow. Defendants thus knew or recklessly disregarded the serious impairment of the value of the
17 Leap wireless licenses but concealed this reality in a desperate and hopeless attempt to maintain
18 the market price of Leap securities and attract new capital . Plaintiff and other class member:
19 would not have purchased Leap shares at artificially inflated market prices or would not hav(
20 purchased those shares at all if the true value of the wireless licenses had been properl'
21 disclosed. In April 2002, the true financial condition of the Company began to come to light a :
22 Leap reported a widening loss and higher than expected expenses in first quarter results on Apri
23 24, and then announced the firing of 50 employees on May 2, 2002 . The market price of Leal
24 shares fell from approximately $10 per share to below $5 by mid May 2002, and finally to les ;
25 than a dollar per share in July 2002.
26 5. Defendants' public misrepresentations and omissions of material adverst
27 information regarding, inter alia, the Company's true financial condition were known to them, o
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1 were recklessly disregarded by them and caused the market price of Leap securities to be
2 artificially inflated during the Class Period .
3 6. Each of the defendants either knew or recklessly disregarded the fact that the
4 statements and omissions described below were false and misleading ; that such statements woulc
5 adversely affect the integrity of the market for Leap securities ; and that such statements woulc
6 deceive investors, causing them to purchase Leap securities at fraudulently inflated prices .
7 THE PARTIES
8 7. During the Class Period, plaintiff Solomon Schechter and each member of the Clas;
9 purchased shares of Leap common stock in the open market or otherwise without knowledge of thf
10 false and misleading statements and omissions of the defendants and without knowledge that thf
I1 price of Leap common stock was artificially inflated during the Class Period, and have sufferer
12 damages as a result . During the Class Period, plaintiff and each member of the Class directly o .
13 indirectly relied upon the defendants' public reports, press releases, filings with the SEC and othe
14 public statements, as more fully described below, and the fact that Leap common stock was fairl,
15 priced and/or upon the integrity of the market for Leap securities . As a result, plaintiff and east
16 member of the Class have been damaged by the defendants' wrongful conduct .
17 8. Plaintiff Solomon Schechter purchased shares of Leap common stock during thf
18 Class Period as set forth in his accompanying certification and was damaged thereby as set font
19 herein .
20 9. Defendant Leap is a corporation duly organized and existing under the laws of thf
21 state of Delaware with its principal executive offices located at 10307 Pacific Center Court, Sat
22 Diego, California . As of March 27, 2002, Leap had approximately 37 million shares of commor
23 stock outstanding. Leap common stock is actively traded on the Nasdaq National Market System
24 Leap provides wireless communications services to mass market consumers through digita
25 networks . In the United States, Leap offers wireless service under the brand name "Cricket"
26 through a pre-paid monthly flat rate service plan with no long-term contract and no credit check or
27 the customer. According to its 2001 annual 10-K Report filed with the SEC, Leap had launcher
28 Cricket service in 40 markets covering a total population of 215 .2 million potential customers. As o .
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December 2001, Leap had approximately 1,119,000 Cricket customers in 33 states . Leap also ow :
20.1% of the outstanding capital stock of Pagaso Telecomunicaciones, S .A. de C .V. ("Pegaso"),
Mexican company providing more traditional wireless service in that country, in a license ar
covering approximately 99 million customers . Leap also has loans outstanding to Pegasus total]
$120.5 million . At December 31, 2001, Leap's common stock was trading at a price in excess
$20 per share . During February 2002 the market price dropped below $5 per share and as
October 28, 2002, the Company's stock was trading around $ .30 per share .
10. Defendant Harvey P. White ("White") was at all relevant times and Chairman z
Chief Executive Officer of Leap, as well as the Interim Chief Financial Officer.
11. Defendant Susan G. Swenson ("Swenson") was at all relevant times
President, Chief Operating Officer and a Director .
12. Defendant Manford Leonard ("Leonard ") was at all relevant times Vice President
Corporate Controller of the Company.
13. Defendant Jill E. Barad ("Barad" ) was at all relevant times Chief Accounting
and a Director of Leap .
14. Defendants White, Swenson, Leonard and Barad are collectively referred to
as the "Individual Defendants . "
15. As officers, directors and/or controlling persons of a publicly-held company who
common stock is registered with the SEC under the Exchange Act, traded on the New York Sto ,
Exchange, and governed by the provisions of the Exchange Act, the Individual Defendants had
duty to promptly disseminate accurate and truthful information with respect to the Compan )
operations, finances, financial condition, products, revenues and present and future busine
prospects, to correct any previously issued statements from any source that had become untrue, at
to disclose any trends that would materially affect earnings and the present and future financi
operating results of Leap, so that the market price of the Company's publicly traded securities wou
be based upon truthful and accurate information .
16 . During the Class Period, each of the Individual Defendants was a senior execut i
I and/or director of Leap and was privy to confidential and proprietary information concernin g
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1 its operations, finances, financial condition, products, revenues and present and future business
2 prospects . Because of his or her possession of such information, each of these defendants knew o :
3 recklessly disregarded the fact that the accounting impropriety specified herein had materiall,
4 inflated the reported earnings of Leap during the Class Period and had not been disclosed to thf
5 public. Because of their Board memberships and/or executive and managerial positions with Leap
6 each of the Individual Defendants had access to adverse non-public information about Leap'!
7 operations, finances, financial condition, products, revenues, expenses and earnings via access tc
8 internal corporate documents, conversations and connections with other corporate officers an(
9 employees, and via reports and other information provided to them in connection therewith
10 Because of their possession of such information, each of the Individual Defendants knew o :
11 recklessly disregarded the fact that the reported financial results of Leap were materially overstates
12 during the Class Period.
13 17. The Individual Defendants, because of their positions of control and authority a ;
14 officers and/or directors of the Company, were able to and did control the contents of the various
15 quarterly reports, SEC filings, press releases and presentations to securities analysts pertaining to thf
16 Company. Each of the Individual Defendants was provided with copies of Leap's managemen
17 reports, press releases and SEC filings alleged herein to be misleading prior to, or shortly after their
18 issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected
19 As a result, each of the Individual Defendants is responsible for the accuracy of the public report!
20 and releases detailed herein as "group published" information, and is therefore responsible anc
21 liable for the representations contained therein .
22 18. Each of the Individual Defendants is liable as a direct participant in, and a co
23 conspirator with respect to the wrongs complained of herein . In addition, the Individua
24 Defendants, by reason of their status as officers and/or directors of Leap, were "controlling persons'
25 within the meaning of Section 20 of the Exchange Act and had the power and influence to causf
26 Leap to engage in the unlawful conduct complained of herein . Because of their positions of control
27 these defendants were able to and did, directly or indirectly, control the conduct of Leap's business
28 the information contained in its filings with the SEC, and public statements about its business .
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19. During the Class Period, the defendants, individually and in concert, directl y
indirectly, engaged and participated in a continuous course of conduct to misrepresent the result s
Leap's operations, and to conceal adverse material information regarding the financial condition an
results of operations of Leap as specified herein . The defendants employed devices, schemes, an
artifices to defraud, and engaged in acts, practices, and a course of conduct as herein alleged in a
effort to increase and maintain an artificially high market price Leap common stock . This include
the formulation, making, and/or participation in the making of untrue statements of material fac
and the omission to state material facts necessary in order to make the statements made, in light
the circumstances under which they were made, not misleading, which operated as a fraud a
deceit upon plaintiff and the other members of the Class .
CLASS ACTION ALLEGATIONS
20. Plaintiff brings this case as a class action pursuant to Rule 23 of the Federal Rule s
Civil Procedure, on behalf of himself and all other persons who purchased or otherwise acqui
Leap common stock between February 11, 2002 and July 24, 2002., inclusive. Excluded from
Class are Leap, its subsidiaries and affiliates, the Individual Defendants, members of the immed i
families of each of the Individual Defendants, any entities in which any of the defendants hav e
controlling interest, and the legal representatives, heirs, successors, predecessors in
affiliates or assigns of any of the defendants .
21 . This action is properly maintainable as a class action because :
a. During the Class Period, in excess of 37 million shares of Lea p
stock were outstanding . The common stock was actively traded on the Nasdaq National Mar
System ("NNMS"), an impersonal and efficient trading market, during the Class Period. 1
members of the Class for whose benefit this action is brought are dispersed throughout the Uni
States, and are so numerous that joinder of all Class members is impracticable. Millions of Lf
shares were publicly traded during the Class Period and, upon information and belief, there
hundreds or thousands of members of the Class ;
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b. Plaintiffs claims are typical of the claims of the other members of the Class
and plaintiff and all members of the Class sustained damages as a result of the defendants' wrongfu
conduct complained of herein ;
c. Plaintiff is a representative party who will fairly and adequately protect thi
interests of the other members of the Class, and has retained counsel competent and experienced ii
class action securities litigation . Plaintiff has no interests antagonistic to, or in conflict with, the
Class he seeks to represent ;
d . A class action is superior to other available methods for the fair and efficien
adjudication of the claims asserted herein, because joinder of all members is impracticable
Furthermore, because the damages suffered by the individual Class members may be relative]'
small, the expense and burden of individual litigation make it virtually impossible for the Clas ;
members to separately redress the wrongs done to them . The likelihood of individual Clas ;
members prosecuting separate claims is remote ;
e. Plaintiff anticipates no unusual difficulties in the management of this actio r
as a class action ; and
f. The questions of law and fact common to the members of the Clas
predominate over any questions affecting any individual members of the Class .
22. The questions of law and fact which are common to the Class include, among others
a. Whether the federal securities laws were violated by the defendants' acts a
alleged herein ;
b. Whether the documents, releases, reports and/or statements disseminated t
the investing public and to Leap shareholders during the Class Period omitted or misrepresente
material facts about the financial condition, business and income of Leap ;
c . Whether the defendants acted with knowledge or with reckless disregard fe
the truth in mispresenting and omitting material facts ;
d. Whether, during the Class Period, the market price of Leap common stocl
was artificially inflated due to the material misrepresentations and omissions complained of herein ;
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1 e. Whether the defendants participated in and pursued the common course
2 conduct complained of herein ; and
3 f. Whether the members of the Class have sustained damages and, if so, wh
4 is the proper measure thereof.
5 23. Plaintiff will rely, in part, upon the presumption of reliance established by the franc
6 on-market doctrine. The market for Leap common stock was at all times an efficient market for if
7 following reasons, among others :
8 a. Leap met the requirements for listing, and was listed on the NNMS, a high]
9 efficient and automated market ;
10 b. As a regulated issuer, Leap filed periodic public reports with the SEC ;
11 c. Leap's securities trading volume was substantial during the Class Period ;
12 d. Leap was followed by various securities analysts who wrote reports whic
13 were available through various automated data retrieval services ;
14 e. Leap disseminated information on a market-wide basis through varioL
15 electronic media services, and participated in open conference calls with stock analysts an
16 investors ; an d
17 f. The market price of Leap securities reacted rapidly to new informatic
18 entering the market .
19 24. The foregoing facts clearly indicate the existence of an efficient market for tradin
20 of Leap securities and make applicable the fraud-on-the-market doctrine . Similarly, plaintiff an
21 the other members of the Class are entitled to a presumption of reliance with respect to th
22 misstatements and omissions alleged herein.
23 111
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SUBSTANTIVE ALLEGATIONS
25 . On November 14, 2001, Leap issued its quarterly report on Form 10Q for t
quarter ended September 30, 2001 . The balance sheet for that period stated that Leap's asst
included wireless licenses valued at a net of $687,634,000, compared to $265,635,000 a s
I' December 31, 2000. The Statement of Operations for the nine months ended September 3
2001, stated that Leap had service revenues of $ 122,449,000 and total revenues
$151,292,000. By comparison, interest expense for the same nine-month period w
$123,709,000. Total operating expenses were $410,100,000, resulting in a net operating loss
$258,808,000. The total net loss of the Company for the nine months was $403,657,000 .
26 . On February 11, 2002, the first day of the alleged Class Period, Leap filed a For
8-K Report with the SEC, announcing its reported results for the fourth quarter and year ender
December 31, 2001 . The report was generally upbeat and self-congratulatory, representing that
for the fourth quarter, "Total operating revenues for Leap's U .S . operations were $103.9 million
an increase of more than $37 million over the $66 .7 million reported for the previous quarter
Service revenue rose to $93 .5 million, an increase of $36 .3 million over that reported for th e
third fiscal quarter of 2001 ." The report also enthusiastically touted the addition of 394,
Cricket service customers in the fourth quarter. Despite the positive textual representations ,
report nonetheless revealed in its accompanying financial schedules that Leap had suffered ;
substantial $483,297,000 or $14 .27 per share loss for fiscal 2001 . Interest expense alone for th+
year was $178,067,000, on top of an operating loss of $284,518,000 . Total revenues for the yea
were only $255,164,000. Notwithstanding the huge losses and deteriorating prospects of the
Company, the consolidated balance sheet contained in the report listed as the Company's larges
assets wireless licenses valued at $717,222,000, increased from $687,634,000 in the pri o
I quarter .
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1 27. The February 8-K Report and the financial statements published on February 11
2 2002, were materially false and misleading because by that time, defendants knew or had blinde(
3 themselves to the fact that Leap could not in the foreseeable future generate sufficient cash flov
4 from its operations to support the huge debt load of the Company, to satisfy the covenants in it .
5 loan agreements, and to support the value of these assets . The value of the wireless license asset :
6 contained in the financial statements published on February 11, 2002, was grossly inflated an(
7 defendants upbeat representations describing increases in revenue and Cricket customers wen
8 designed to conceal and obscure the extreme financial distress of the Company and its inabilit,
9 to stanch its increasing expenses and losses .
10 28. In its 10-K Annual Report filed with the SEC on March 29, 2002, defendant ;
I 1 revealed that, at year-end, Leap had "tested" its licenses for impairment and found they were no
12 impaired :
1314 Impairment of Long-Lived and Intangible Asset s
15 We assess potential impairments to our long-lived assets, including property16 and equipment, wireless licenses, goodwill and other intangible assets, when there
is evidence that events or changes in circumstances indicate that the carryin g17 amount may not be recoverable . Factors we consider important, which could18 trigger an impairment review, include the following : significant variances in
performance relative to projected future operating results ; significant changes i n19 the market price of or in the manner of our use of our long-lived assets ; our ability
to satisfy buildout deadlines and geographic coverage requirements for wireless20 licenses ; significant industry or economic trends; a current expectation that, more21 likely than not, our long-lived assets will be sold or otherwise disposed o f
significantly before the end of their previously estimated useful life; an22 accumulation of costs significantly in excess of the amount originally expected to
acquire or construct an asset ; and a current period operating or cash flow los s23 combined with a history of operating or cash flow losses or a projection of24 forecast that demonstrates continuing losses associated with an asset used for the
purpose of producing revenue . An impairment loss is recognized when the25 undiscounted cash flows expected to be generated by an asset (or group of assets)
is less than its carrying amount . Any required impairment loss would be measured26 as the amount by which the asset's carrying value exceeds its fair value, and27 would be recorded as a reduction in the carrying value of the related asset and a
charge to results of operations .28
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At December 31, 2001, we tested our long-lived assets, including wirelesslicenses and goodwill, for potential impairment . Because our long-lived assets do
not have identifiable cash flows that are largely independent of other asset
groupings, we compared our total estimated undiscounted future cash flows,
excluding interest costs, to the carrying value of our long-lived assets . The cashflow forecast used in this assessment was a ten-year forecast based on our
40 Market Plan. The total undiscounted future cash flows, excluding interest,
resulting from this forecast exceeded the total carrying value of all of our long-
lived assets at December 31, 2001 . As a result, our wireless licenses, goodwill and
other long-lived assets were not considered to be impaired at December 31, 2001 .
This conclusion is based on our best estimate of future operating results and ourability to pay our debt obligations as they become due . Our estimated future
operating results are based on estimates of key operating metrics, includingcustomer growth, customer churn, average monthly revenue per customer and
costs per gross additional customer . If we do not achieve these metrics and, as a
result, do not achieve our planned operating results, this may have a significantadverse effect on our estimated undiscounted future cash flows and may
ultimately result in an impairment charge related to our wireless licenses,
goodwill and other long-lived assets .
This determination was not made in good faith or with a reasonable basis and was
false and fraudulent . The false conclusion that Leap' s wireless license assets were not impaire{
was reflected in the grossly inflated value of $777,122,000 of wireless licenses set forth in th,
financial results repo rted on February 11, 2002, and repeated in the 10-K Annual Report of
March 29 , 2002 . That representation was mate rially false and misleading and resulted in Lead
shares trading at market p ri ces that were artificially inflated. At best , management had m
reasonable basis for any estimate at December 2001 and thereafter of the "key metrics " of cask
flow, such as customer churn and growth (pa rt icularly given the unique nature of Leap' ;
"Cricket" customers , who had no long term commitment to that service , were paying $30-$3'
per month for local service only in a competitive market and who were not subject to any credi
check) and average monthly revenue (particularly given the increasing competition amon g
service providers and rapidly decreasing cell phone service plan pricing). Further, Le
unknown to investors and the market, was suffering material losses from fraud by persi
subscribing to its service using fake identities or credit cards and reselling complimentary
discounted cell phones provided by Leap . No "best" estimate was possible given these facts ,
circumstances, and the resulting affirmation of the carrying value of the wireless license ass (
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(as well as other long-lived assets used in the analysis) which continued throughout the cla s
Period, was materially false and misleading .
29 . On April 24, 2002, Leap publicly announced its financial results for the firs
quarter of 2002 . Although sales increased the Company announced an increasing loss o
$196,600,000, or $5 .32 per share, compared to a $3 .88 loss in the prior year's first quarter. Leal
reported that its operating expenses had more than doubled to $267 .9 million and that somc
customers in it newly opened Buffalo market were not paying their bills . Leap further disclose(
for the first time that its Senior Vice President of Finance, Tom Willardson, had resigned in earl)
March. Leap also stated that it would raise its rates in most markets to $32 .99 per month
bringing them closer to the rates charged by larger national companies . Defendants furtt
revealed for the first time in a conference call with analysts that over the last two quarters Le
had suffered a serious level of fraud arising from persons using stolen credit cards and othe
means to sign up fake customers and resell the discounted phones provided by Leap . Leap'
stock price dropped from $10.50 to $8 .15 on these disclosures . The financial statements issu e
for the first quarter continued to inflate the value of Leap's wireless licenses, valuing them
$718,206,000 .
30. On May 2, 2002, Leap announced that it was eliminating 50 additional jobs afte
firing 30 workers in the first quarter, resulting in its stock price to falling to below $6 .00 pe
share. After this announcement analysts issued reports downgrading their assessments of Leap'
performance, resulting in a further drop in the stock price to below $4 .00 per share .
31 . On July 24, 2002, the last day of the proposed Class Period, Leap announced its
financial results for the second quarter, admitting that the circumstances which had existed
throughout the year were adversely affecting the Company . Defendant White stated in a press
release, "During the second quarter, we were successful in meeting challenges facing our
business, particularly in relation to the mitigation of fraud and the control of operating costs . . .
However, these improvements in the operational security of our business and the aggressive
dealer incentives launched by traditional wireless carriers, particularly late in the quarter ,
contributed to our slower than expected customer growth and the overall results we are reporting
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1 for the quarter." Leap reported net losses of $158 .6 million, or $4 .23 per share for the second
2 quarter. These results led to concerns that Lep would be unable to meet the covenants on its loan
3 agreements with vendors and further downgrades by analysts . After the announcement of these
4 results, the market price of Leap shares fell below $1 .00 per share . Leap shares are presentl y
5 trading at less than $ .40 per share .
6 VIOLATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLE S
7 32. In reporting the value of Leap's wireless licenses at the high values represented
8 in the Company's financial statements described above, defendants violated generally accepted
9 accounting principles ("GAAP") . In particular, defendants have violated Financial Accounting
10 Standard ("FAS") 144, which requires that an impairment loss be recognized when the carrying
11 amount of a long-lived asset is not recoverable from its expected undiscounted cash flows . As set
12 forth above, Defendants had no reasonable basis for estimating and thus for expecting that the
13 ten year cash flows used in determining that there was no impairment to the wireless licenses
14 could be achieved, given the specific condition of Leap's business and the increasing
15 competition in the wireless industry at the time the estimates were prepared .
16 COUNT I
17 VIOLATION OF SECTION 10(b) OF THESECURITIES EXCHANGE ACT AND RULE 10b-5 THEREUNDER
1 8
19 33. Plaintiff repeats and realleges each and every allegation above as if set forth in full
20 herein.
21 34. Throughout the Class Period, the defendants, singly and in concert, directly of
22 indirectly, engaged in a common plan, scheme and course of conduct described herein, pursuant tc
23 which they knowingly or recklessly engaged in acts, transactions, practices and a course of business
24 which operated as a fraud upon plaintiff and the other members of the Class ; made various false
25 statements of material facts and omitted to state material facts to make the statements made not
26 misleading to plaintiff and the other members of the Class ; and employed manipulative or deceptive
27 devices and contrivances in connection with the purchase and sale of Leap securities .
28 35. The purpose and effect of the defendants' plan, scheme and course of conduct was tc
artificially inflate and maintain the market price of Leap securities .
- 13 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
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19
20
21
22
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24
25
26
27
28
0 .
36 . The Individual Defendants, as executive officers of Leap, had actual knowledg e
the falsity of the material statements set forth above, and intended to deceive plaintiff and the otl
members of the Class, or, in the alternative, acted with reckless disregard for the truth by failin g
I I ascertain and disclose the true facts in the statements made by them or other Leap personnel t o
I I SEC, plaintiff, and other members of the Class .
37 . Leap had actual knowledge of the falsity of the material statements set fort h
and intended to deceive plaintiff and the other members of the Class, or, in the alternative,
with reckless disregard for the truth when it failed or refused to ascertain and disclose the true
to the SEC, plaintiff, and the other members of Class .
38. The facts alleged herein, including the forced resignation of the senior officers of
Company, compel a strong inference that the defendants made material false and mislead
statements to the investing public with scienter, in that the defendants knew that the pu l
statements issued or disseminated in the name of the Company were materially false a
misleading; knew or recklessly disregarded that such statements would be issued or disseminate d
the investing public ; and knowingly and substantially participated or acquiesced in the issuance
dissemination of such statements as primary violators of the federal securities laws .
39. As a result of the foregoing, the market price of Leap securities was artifici o
inflated during the Class Period . In ignorance of the falsity of the reports and statements, and t
deceptive and manipulative devices and contrivances employed by the defendants, plaintiff and t
other members of the Class relied, to their detriment, on the reports and statements described ab o
and/or the integrity of the market price of Leap securities during the Class Period in purchasin
Leap securities at prices which were artificially inflated as a result of the defendants' false an
misleading statements .
40. Had plaintiff and the other members of the Class known of the material adver s
information which the defendants misrepresented, they would not have purchased Leap securitie s
the artificially inflated prices that they did .
-14-
• •1 41. The defendants' dissemination of this material information served only to harp
2 plaintiff and the other members of the Class who purchased Leap securities in ignorance of the
3 financial risk to them as a result of such false and misleading information .
4 42. As a result of the wrongful conduct alleged herein, plaintiff and other members o
5 the Class have suffered damages in an amount to be established at trial .
6 43. By reason of the foregoing, the defendants have violated Section 10(b) of th,
7 Exchange Act and Rule l0b-S promulgated thereunder and are liable to plaintiff and the othe
8 members of the Class for the substantial damages which they suffered in connection with thei
9 purchase of Leap securities during the Class Period .
10 COUNT II
11 VIOLATION OF SECTION 20(A )OF THE SECURITIES EXCHANGE ACT
1 2
13 44. Plaintiff repeats and realleges each and every allegation above as if set forth in ful
14 herein .
15 45. During the Class Period, each of the Individual Defendants, by virtue of his or he
16 office or offices at, and/or directorship of Leap and his or her specific acts, was a controlling persoi
17 of Leap within the meaning of Section 20(a) of the Exchange Act .
18 46. Each of the Individual Defendants' position made him or her privy to, and provide(
19 him or her with actual knowledge of, the material facts that Leap misrepresented concealed fron
20 plaintiff and the other members of the Class during the Class Period .
21 47. Each of the Individual Defendants had the power and influence, and exercised thl
22 same, to cause Leap to engage in the unlawful conduct and practices complained of herein b .
23 causing Leap to disseminate the false and misleading information referred to above .
24 48. By virtue of the foregoing, the Individual Defendants have violated Section 20(a) o
25 the Exchange Act .
26 49. By virtue of the conduct alleged above, the defendants are liable to plaintiff and the
27 other members of the Class for the substantial damages that they suffered in connection with their
28 purchase of Leap common stock during the Class Period .
-15-
S
1 WHEREFORE, plaintiff, on behalf of himself and the other members of the Class, demand
2 judgment against the defendants as follows :
3 A. Determining that this action is properly maintainable as a class actin
4 pursuant to Rule 23 of the Federal Rules of Civil Procedure ;
5 B. Certifying plaintiff as the Class Representative and his counsel as Clas
6 Counsel ;
7 C. Declaring and determining that the defendants violated the federal securitie
8 laws by reason of their conduct as alleged herein ;
9 D. Awarding monetary damages against all of the defendants, jointly an
10 severally, in favor of plaintiff and the other members of the Class for all losses and damage
11 suffered as a result of the acts and transactions complained of herein, including punitive damage
12 where appropriate, together with prejudgment interest from the date of the wrongs to the date of th
13 judgment herein ;
14 E. Awarding plaintiff the costs, expenses, and disbursements incurred in thi
15 action, including reasonable attorneys' and experts' fees ; and
16 F. Awarding plaintiff and the other members of the Class such other and furthe
17 relief as the Court may deem just and proper in light of all the circumstances of this case .
18 111
19 111
20 111
21 Ill
22 111
23 111
24 111
25 111
26 111
27 111
28 111
-16-
S
JURY DEMAND
Plaintiff demands a trial by jury .
Dated : December 5, 2002 ABBEY, GARDY, LLP
Arthur N. Abbey
Ilana Kohn212 East 39th StreetNew York, New York 10016(212) 889-370 0
HULETT HARPER LLPKirk B . Hulett550 West C StreetSuite 1770San Diego, CA 91202(619) 338-113 9
-17-
CERTIFICATION OF PLAINTIFFPURSUANT 10 FEDERATASECURMES LAWS
I, Solomon Schechter, certify that :
1 . 1 have reviewed a copy of the complaint to be filed in this action .
2. I did not purchase the stock of Leap Wireless International, Inc ., the subject of thisaction, at the direction of plaintiffs counsel or in order to participate in any private action arising underthe Private Securities Litigation Reform Act (the "PSLRA").
3 . I am willing to serve as a lead plaintiff and representative party on behalf of a class andwill testify at deposition and trial, if necessary .
4. My transactions in the security that is the subject of this litigation during the classperiod set forth in the complaint are as follows:
Bgy 316/02 "r to , 70
5 . 1 have not served as a representative party on behalf of a class of securities holders,purchasers or sellers during the last three years.
6. I will not accept any payment for serving as a representative party, except to receivemy pro rata share of any recovery or as ordered or approved by the court or any award to me by theCourt of reasonable costs and expenses (including lost wages) directly relating to my representation of
the class.
I declare under penalty of perjury that the foregoing are, to the best of my knowledge and
belief, true and correct statements.
I FA01ADated: November 2002 Signed :
Print Name : 90 5Cf___TE`_
F.\C;ASESLEHPWIAE=MPLARd MT.D0C - •'
• OR I G I NA L1Sss
IRev.07119) a- L OVER SHEETThe JS-44 civil cover sheet and the information contained herein ither
Cnor supplement the filing and service of pleadings or other papers as required by law , except as provided by local
rules of court This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of Court for the purpose of initiating the civil docketsheet. (SEE INSTRUCTIONS ON THE SECOND PAGE (JGt
.1 [r+ 'TJr~'{)RW p u 1
j1(a) PLAINTIFFS EFENANTS
Solomon Schechter, orTJ ha~-f,)ig-,ii TLeap Wireless, et al .himself and all othe s~~t{sRi# l~ y A~lFQ 9~j ~t ®~ n A
G~lt
situated. lg tJ
(b) COUNTY OF RESIDENCE OF FIRST LISTED3 Y 'PLAINTIFF
(EXCEPT IN U.S. PLAINTIFF CASES)
CQM 'F wRESIDENCE OF FIRST LISTED DEFENDANT San Diego
(IN U.S. PLAINTIFF CASES ONLY )
1'
NOTE: IN LAID CONDEMNATION CASES, USE THE LOCATION OF THE TRACT OF LANDINVOLVED "
(c) ATTORNEYS ( FIRM NAME , ADDRESS, AND TELEPHONE NUMBER) A TT ORNEYS (IF KNOWN)
Hulett Harper LLP550 West C Street,Suite 1770San Diego , CA 9210 1Tel : (619) 338-113 3H . BASIS OF JURISDICTION (PLACE AN x IN ONE BOX ONLY) 111 . CITIZENSHIP OF PRINCIPAL PARTIES ( PLACE AN X IN ONE BO X
❑ IU.S. Government plaintiff X13Federal Question
(U .S . Government Not a Party)
❑ 2U .S . Government Defendant ❑ 4Divetsity ( Indicate Citizenship of Parties inItem Ill
(For Diversity Cases Only) FOR PLAINTIFF AND ONE BOX FOR DEFENDANT
PT DEF PT DEF
Citizen of This State ❑ I0I
Incorporated or Pri ncipal Place of Business 04 04in This State
Citizen of Another State 02 ❑ 7 Incorporated and P rincipal Place of Business 05❑5
IV . CAUSE OF ACTION (CITE THE US CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE A BRIEF STA TEMENT OF CAUSE. DO NOT CITEJURISDICTIONAL STATUTES UNLESS DIVERSITY). Violation of Section 10(b) of the SecuritiesExchange Act . False and misleading statements in c nnection with sale ofqt-nilr i t- i Ps _ 2 9 , . art l ev !!Lp1V lukTrror nC cltnT £01 Arc AN V ld ONC RAY AM Vl
CONTRACT TORTS FORFEITUREJPENAL7Y BANKRUPTCY OTHER STATUTES
❑ l to IrwlmncePERSONAL INJURY PERSONAL INJURY
610 Agdeulnve 422 Apprnl 28 USC 159 400 State Reap toimmea t
11 120 Mnrins 310 Airpiana ❑ 362 Pcnwml [niury- 620 Other Foal & Drug 47.1 Wilhj-l 7 410Anli6uat
A t❑ 130 MillMedical Malpractice
la P duct Liabili t315 Ai 625 Ding Related SamnaPROPERTY RIGHTS 430 Banks and Beakinyer r yrp ne ro
❑ 240 Tan to Lars! 444 Welfarr 535 Death Pcnany 950 Coaalitutie.dity of Stat e
❑ 245 Tan Product Liability 440 Other Civil Rights 540 Mandamus & Other 990 Other Slotulory Aetiout
❑ 290 All Other Red Property 550 Civil Riglur
555 PH-cga~= -
VI. ORIGIN (PLACE AN X IN ONE BOX ONLY)
IN Original Proceeding ❑ 2 Removal from El 3 Remanded from Appelate ❑ 4 Reinstated or 05 Transferred from ❑ 6 Multidistrict Litigation ❑ 7 Appeal to District Judge from
State Court Court Reopened another district (specify) Magistrate Judgment
v')PL'A'INT-'
r.u uv HECK IF THIS IS A CLASS ACTION~ctneu~ v «- • ~ ~,~~ •• ~- - ••~- -• • - •••r•-•••• .
COUNDER f.r.c.p. 23 , EX YE S DEMAND: F~yYES ❑ N O
