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ROBBINS GELLER RUDMAN
& DOWD LLP
DARREN J. ROBBINS (168593)
ARTHUR C. LEAHY (149135)
DANIELLE S. MYERS (259916)
655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
darrenr@rgrdlaw.com
artl@rgrdlaw.com
dmyers@rgrdlaw.com
[Proposed] Lead Counsel for Plaintiffs
[Additional counsel appear on signature page.]
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
MICHAEL A. GOLDSTEIN,
Individually and on Behalf of All Others
Similarly Situated,
Plaintiff,
vs.
TONGXIN INTERNATIONAL LTD.,
et al.,
Defendants.
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No. 2:11-cv-00348-VBF(PJWx)
CLASS ACTION
MEMORANDUM OF LAW IN
SUPPORT OF MOTION FOR
CONSOLIDATION, APPOINTMENT
AS LEAD PLAINTIFF AND
APPROVAL OF SELECTION OF
COUNSEL
DATE: April 4, 2011
TIME: 1:30 p.m.
CTRM: 9
JUDGE: Hon. Valerie Baker
Fairbank
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Class members Michael A. Goldstein, Eric W. Goldstein, and Daniel J. Rock
and Kathleen A. Rock on behalf of SEP IRA f/b/o Daniel J. Rock, IRA f/b/o Kathleen
Rock and Daniel J. and Kathleen A. Rock Trust u/a/d 2/7/01 respectfully submit this
memorandum in support of their motion for: (i) consolidation; (ii) appointment as lead
plaintiff pursuant to the Private Securities Litigation Reform Act of 1995 (“PSLRA”);
and (iii) approval of their selection of Robbins Geller Rudman & Dowd LLP
(“Robbins Geller”) as lead counsel for the class.
I. INTRODUCTION
There are three securities class action lawsuits (the “Related Actions”) pending
in this Court on behalf of all purchasers of Tongxin International Ltd. (“Tongxin” or
the “Company”) common stock between May 15, 2009 through December 14, 2010,
inclusive (the “Class Period”) against Tongxin and certain of its officers and/or
directors for violations of the Securities Exchange Act of 1934 (the “Exchange Act”):
Case Date Filed
Goldstein v. Tongxin International Ltd., No. 11-cv-00348 1/12/11
Liu v. Tongxin International Ltd., No. 11-cv-00671 1/21/11
Potrykus v. Tongxin International Ltd., No. 11-cv-00803 1/26/11
The PSLRA requires district courts to resolve consolidation prior to appointing
a lead plaintiff in securities cases such as this. See 15 U.S.C. §78u-4(a)(3)(B)(ii).
Here, the Related Actions should be consolidated because they each involve
substantially similar issues of law and fact. See Fed. R. Civ. P. 42(a).
Pursuant to the PSLRA, and as soon as practicable after its decision on
consolidation, the Court “shall appoint the most adequate plaintiff as lead plaintiff for
the consolidated actions.” See 15 U.S.C. §78u-4(a)(3)(B)(ii). The lead plaintiff is the
“member or members of the purported plaintiff class that the court determines to be
most capable of adequately representing the interests of class members.” 15 U.S.C.
§78u-4(a)(3)(B)(i). The Goldsteins and Rocks should be appointed lead plaintiff
because they: (1) timely filed their motion; (2) to their counsel’s knowledge, have the
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largest financial interest in the relief sought by the class; and (3) will fairly and
adequately represent the interests of the class. See 15 U.S.C. §78u-4(a)(3)(B)(iii). In
addition, the Goldsteins’ and Rocks’ selection of Robbins Geller as lead counsel for
the class should be approved. See 15 U.S.C. §78u-4(a)(3)(B)(v).
II. STATEMENT OF FACTS
Tongxin, through its subsidiary, Hunan Tongxin Enterprise Co. Ltd., designs,
develops, manufactures, sells, and services engineered vehicle body structures
(“EVBS”) for light, medium, and heavy duty trucks, and light vehicles in the People’s
Republic of China.1 The EVBS consist of exterior body panels, including doors, floor
pans, hoods, side panels, and fenders. The Company also designs, fabricates, and tests
dies used in the vehicle body structure manufacturing process. In addition, it
manufactures complete cab structures for commercial vehicles.
The complaints allege that defendants issued materially false and misleading
statements regarding the Company’s business and financial results during the Class
Period. Specifically, defendants improperly accounted for Tongxin’s related-party
transactions. As a result of defendants’ false statements, Tongxin’s stock traded at
artificially inflated prices during the Class Period, reaching a high of $11.39 per share
on October 14, 2009.
On June 30, 2010, Tongxin announced that the filing of its Form 20-F for the
fiscal year ending December 31, 2009 would be delayed because the Company’s
auditor needed additional time to complete its review. Beginning in July 2010, the
Company began to acknowledge that the delay was due to an investigation by the
Company’s Audit Committee into Tongxin’s accounting for certain related-party
1 The Individual Defendants include Rudy Wilson (the Company’s Chairman and
CEO), Jackie Chang (the Company’s CFO and CAO), William E. Zielke (a director),
and Zhang Duanxiang (a director).
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transactions. Nevertheless, the Company downplayed the investigation and the
circumstances surrounding the review of the related-party transactions.
On October 12, 2010, Tongxin announced that NASDAQ would delist the
Company’s stock due to its failure to timely file its Form 20-F. Moreover, the
Company acknowledged that a report issued by KPMG, the forensic accountants hired
by the Company’s Audit Committee, concluded that the documentary support for
certain of its related-party transactions was contradictory, insufficient and lacking in
substantive detail and/or accuracy, thus calling into question the validity of the
transactions. On this news, Tongxin’s stock dropped 22% on unusually heavy
volume.
On November 20, 2010, Tongxin issued a press release announcing that
defendants Rudy Wilson and Jackie Chang were being removed from their positions
as officers of the Company. Additionally, Tongxin lowered its revenue guidance for
fiscal year 2010 from its prior outlook of $150-$160 million to a range of $100-$110
million. On this news, Tongxin’s stock dropped another 7% on high volume on
November 22, 2010 (the next trading day).
Thereafter, on December 13, 2010, Tongxin announced that it had filed a civil
suit against defendant Chang due to the wrongful transfer of Company funds by
Chang into an account for the benefit of her and defendant Wilson. As alleged in
Tongxin’s complaint, in mid-November, defendant Chang became aware of the fact
that the Company’s Board was planning to terminate her and defendant Wilson and
thus began to transfer funds from a Company account into a bank account in her name
to protect herself in the event she was terminated. On this news, Tongxin’s stock
declined an additional 4% on high volume on December 14, 2010 (the next trading
day).
The true facts, which were known by the defendants but concealed from the
investing public during the Class Period, were as follows: (a) Tongxin improperly
accounted for its related-party transactions such that its financial statements were
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presented in violation of Generally Accepted Accounting Principles; and (b)
defendants failed to maintain proper internal controls related to Tongxin’s engaging in
and accounting for its related-party transactions and over the safeguard of the
Company’s assets. As a result of defendants’ false statements, Tongxin’s common
stock traded at inflated levels during the Class Period. As these revelations were
absorbed by the market, the Company’s stock price declined over 88% from its Class
Period high, causing damage to the class of Tongxin shareholders.
III. ARGUMENT
A. The Related Actions Should Be Consolidated
When “actions before the court involve a common question of law or fact, the
court may . . . consolidate the actions.” Fed. R. Civ. P. 42(a). Here, the three Related
Actions allege claims on behalf of purchasers of Tongxin common stock for violations
of the Exchange Act during the Class Period. The defendants, Class Periods, factual
allegations, and claims are nearly identical. As such, “[c]onsolidating these cases for
all purposes will be the most efficient solution for the court, and will ease the
litigation burden on all parties involved.” Takeda v. Turbodyne Techs., Inc., 67 F.
Supp. 2d 1129, 1133 (C.D. Cal. 1999).2
B. The Goldsteins and Rocks Should Be Appointed Lead
Plaintiff
The PSLRA establishes a procedure for the appointment of a lead plaintiff in
“each private action arising under [the Exchange Act] that is brought as a plaintiff
class action pursuant to the Federal Rules of Civil Procedure.” 15 U.S.C. §78u-
4(a)(1). First, the pendency of the action must be publicized in a widely circulated
national business-oriented publication or wire service not later than twenty days after
2 A similar action against Tongxin and certain of its officers and directors was
filed in the U.S. District Court for the Eastern District of New York on January 3,
2011. See Augenbaum v. Tongxin Int’l, Ltd., No. 11-0010 (E.D.N.Y.). The
Augenbaum case was voluntarily dismissed on January 14, 2011. Id.
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filing of the first complaint. 15 U.S.C. §78u-4(a)(3)(A)(i). Next, the PSLRA provides
that the Court shall adopt a presumption that the most adequate plaintiff is the person
or group of persons that –
(aa) has either filed the complaint or made a motion in response to a
notice . . .;
(bb) in the determination of the court, has the largest financial interest in
the relief sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules
of Civil Procedure.
15 U.S.C. §78u-4(a)(3)(B)(iii); see also In re Cavanaugh, 306 F.3d 726 (9th Cir.
2002). The Goldsteins and Rocks meet each of these requirements and should
therefore be appointed as lead plaintiff.
1. The Goldsteins and Rocks Have Timely Filed Their
Motion
The January 3, 2011, notice published in this action advised class members of
the action’s pendency, the alleged claims, the proposed class period, and the option of
moving the Court to be appointed as lead plaintiff within 60 days of January 3, 2011,
or March 4, 2011. See Declaration of Danielle S. Myers in Support of Motion for
Consolidation, Appointment as Lead Plaintiff and Approval of Selection of Counsel
(“Myers Decl.”), Ex. A. This Motion is therefore timely filed and the Goldsteins and
Rocks are entitled to be considered for appointment as lead plaintiff.
2. The Goldsteins and Rocks Possess the Largest
Financial Interest in the Relief Sought by the Class
During the Class Period, the Goldsteins and Rocks lost almost $160,000 as a
result of defendants’ misconduct. See Myers Decl., Exs. B, C. To the best of their
counsels’ knowledge, there are no other applicants seeking appointment as lead
plaintiff who have a larger financial interest. As such, the Goldsteins and Rocks
satisfy the PSLRA’s largest financial interest requirement.
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3. The Goldsteins and Rocks Satisfy Rule 23 of the
Federal Rules of Civil Procedure
In addition to having the largest financial interest, a lead plaintiff must also
“otherwise satisf[y] the requirements of Rule 23 of the Federal Rules of Civil
Procedure.” 15 U.S.C. §78u-4(a)(3)(B)(iii)(I)(cc). Rule 23 requires that “the claims
or defenses of the representative parties are typical of the claims or defenses of the
class; and [that] the representative parties will fairly and adequately protect the
interests of the class.” Fed. R. Civ. P. 23(a)(3)-(4); Cavanaugh, 306 F.3d at 730
(focusing “in particular” on typicality and adequacy at the lead plaintiff stage). The
test of typicality “‘is whether other members have the same or similar injury, whether
the action is based on conduct which is not unique to the named plaintiffs, and
whether other class members have been injured by the same course of conduct.’”
Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (citation omitted).
The adequacy requirement is met if no conflicts exist between the representative and
class interests and the representative’s attorneys are qualified, experienced and
generally able to conduct the litigation. Fed. R. Civ. P. 23(a)(4); Staton v. Boeing Co.,
327 F.3d 938, 957 (9th Cir. 2003). The Goldsteins and Rocks satisfy these
requirements at this stage of the litigation.
The Goldsteins and Rocks have submitted sworn certifications confirming their
desire, willingness and ability to serve as lead plaintiff. See Myers Decl., Ex. B. Like
all class members, the Goldsteins and Rocks purchased Tongxin common stock during
the Class Period at allegedly inflated prices and suffered damages as a result. See
Myers Decl., Ex. C. The Goldsteins’ and Rocks’ almost $160,000 loss further
indicates that they have the incentive to represent the claims of the class vigorously.
Id. In addition, the Goldsteins and Rocks have a longstanding pre-litigation
relationship and decided to jointly seek appointment as lead plaintiff independently of
their counsel. See Myers Decl., Ex. D. Moreover, the Goldsteins and Rocks are not
subject to unique defenses and are not aware of any conflicts between their claims and
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those asserted by the class. Finally, as discussed below, the Goldsteins and Rocks
selected qualified counsel experienced in securities litigation.
The Goldsteins’ and Rocks’ common interests shared with the class, their
significant losses suffered and their selection of qualified counsel demonstrates their
satisfaction of the Rule 23 requirements at this stage.
C. The Court Should Approve the Goldsteins’ and Rocks’
Selection of Counsel
The PSLRA vests authority in the lead plaintiff to select and retain lead counsel,
subject to this Court’s approval. See 15 U.S.C. §78u-4(a)(3)(B)(v). This Court should
not disturb the lead plaintiff’s choice of counsel unless it is necessary to “protect the
interests of the class.” 15 U.S.C. §78u-4(a)(3)(B)(iii)(II)(aa); see also Cavanaugh,
306 F.3d at 732-33; Cohen v. United States Dist. Ct. for the N. Dist., 586 F.3d 703
(9th Cir. 2009). The Goldsteins and Rocks selected Robbins Geller as their counsel in
this case.
Robbins Geller, a 180-lawyer firm with offices nationwide, is actively engaged
in complex litigation, particularly securities litigation. See Myers Decl., Ex. E.
District courts throughout the country, including this Court, have noted Robbins
Geller’s reputation for excellence, which has resulted in the appointment of Robbins
Geller attorneys to lead roles in hundreds of complex class action securities cases.
See, e.g., In re Cooper Cos. Sec. Litig., 254 F.R.D. 628, 636 (C.D. Cal. 2009) (Carney,
J.) (noting that it was “undisputable” that Robbins Geller lawyers have “extensive
experience prosecuting suits of this nature”); In re Enron Corp. Sec., 586 F. Supp. 2d
732, 797 (S.D. Tex. 2008) (Harmon, J.) (commenting that the “experience, ability, and
reputation of the attorneys of [Robbins Geller] is not disputed; it is one of the most
successful law firms in securities class actions, if not the preeminent one, in the
country”).
As such, the Court may be assured that in the event this Motion is granted, the
members of the class will receive the highest caliber of legal representation available
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from Robbins Geller. Accordingly, the Goldsteins’ and Rocks’ selection of counsel
should be approved.
IV. CONCLUSION
The three Related Actions before the Court are virtually identical and should be
consolidated. In addition, the Goldsteins and Rocks have satisfied each of the
PSLRA’s requirements for appointment as lead plaintiff. As such, the Goldsteins and
Rocks respectfully request that the Court appoint them Lead Plaintiff, approve their
selection of counsel and grant such other relief as the Court may deem just and proper.
DATED: March 4, 2011 Respectfully submitted,
ROBBINS GELLER RUDMAN
& DOWD LLP
DARREN J. ROBBINS
ARTHUR C. LEAHY
DANIELLE S. MYERS
s/DANIELLE S. MYERS
DANIELLE S. MYERS
655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
[Proposed] Lead Counsel for Plaintiffs
LAW OFFICES OF CURTIS V.
TRINKO, LLP
CURTIS V. TRINKO
16 West 46th Street, 7th Floor
New York, NY 10036
Telephone: 212/490-9550
212/986-0158 (fax)
Additional Counsel for Plaintiffs
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CERTIFICATE OF SERVICE
I hereby certify that on March 4, 2011, I authorized the electronic filing of the
foregoing with the Clerk of the Court using the CM/ECF system which will send
notification of such filing to the e-mail addresses denoted on the attached Electronic
Mail Notice List, and I hereby certify that I caused to be mailed the foregoing
document or paper via the United States Postal Service to the non-CM/ECF
participants indicated on the attached Manual Notice List.
I certify under penalty of perjury under the laws of the United States of America
that the foregoing is true and correct. Executed on March 4, 2011.
s/ DANIELLE S. MYERS
DANIELLE S. MYERS
ROBBINS GELLER RUDMAN
& DOWD LLP
655 West Broadway, Suite 1900
San Diego, CA 92101-3301
Telephone: 619/231-1058
619/231-7423 (fax)
E-mail: dmyers@rgrdlaw.com
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Mailing Information for a Case 2:11-cv-00348-VBF -PJW
Electronic Mail Notice List
The following are those who are currently on the list to receive e-mail notices for this case.
Catherine J Kowalewski
katek@rgrdlaw.com,ldeem@rgrdlaw.com
Darren J Robbins
e_file_sd@rgrdlaw.com
David C Walton
davew@rgrdlaw.com,e_file_sd@rgrdlaw.com
David T Wissbroecker
dwissbroecker@rgrdlaw.com,e_file_sd@rgrdlaw.com
Manual Notice List
The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who
therefore require manual noticing). You may wish to use your mouse to select and copy this list into
your word processing program in order to create notices or labels for these recipients.
(No manual recipients)
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3/3/2011https://ecf.cacd.uscourts.gov/cgi-bin/MailList.pl?701924577561657-L_555_0-1
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