FRANCIS M. GREGOREK (144785) WOLF HALDENSTEIN ADLER

29 Pages·2004·0.14 MB·English

FRANCIS M. GREGOREK (144785)
BETSY C. MANIFOLD (182450)
FRANCIS A. BOTTINI, JR. (175783)
RACHELE R. RICKERT (190634)
WOLF HALDENSTEIN ADLER
FREEMAN & HERZ LLP
Symphony Towers
750 B Street, Suite 2770
San Diego, CA 92101
Telephone: [phone]
Facsimile: 619/234-4599

Attorneys for Plaintiff

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
SOUTHERN DIVISION

SIDNEY FIELDEN, individually and on
behalf of all others similarly situated, CIVIL ACTION NO.

Plaintiff, CLASS ACTION COMPLAINT
FOR VIOLATIONS OF FEDERAL
v. SECURITIES LAWS

LIQUIDMETAL TECHNOLOGIES, INC., JURY TRIAL DEMANDED
JOHN KANG, BRIAN McDOUGALL,
JAMES KANG, WILLIAM JOHNSON,
SHEKHAR CHITNIS, RICARDO SALAS,
JACK CHITAYAT, TJOA THIAN SONG,
JEFFREY OSTER, HENRI TCHEN, BETSY
ATKINS, and DAVID BROWNE,

Defendants.

Plaintiff, individually and on behalf of all other persons similarly situated, by plaintiff’s
undersigned attorneys, for plaintiff’s Complaint, alleges upon the investigation made by and
through plaintiff’s counsel, which included, inter alia, a review of relevant public filings made
by Liquidmetal Technologies, Inc. ("Liquidmetal” or the "Company") with the Securities and
Exchange Commission (the "SEC"), as well as tele-conferences, press releases, news articles,
analyst reports, and media reports concerning the Company. This complaint is based upon
plaintiff’s personal knowledge as to plaintiff’s own acts, and upon information and belief as to
all other matters, based upon the aforementioned investigation.
SUMMARY OF ACTION
1. This is a class action on behalf of all persons, other than defendants, who
purchased Liquidmetal securities during the period from May 21, 2002 to March 30, 2004,
inclusive (the "Class Period") to recover damages caused by defendants' violations of the federal
securities law.
JURISDICTION AND VENUE
2. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of
the Exchange Act [15 U.S.C. §§ 78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder by
the SEC [17 C.F.R. § 240.10b-5].
3. This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §§ 1331 and 1337 and Section 27 of the Exchange Act [15 U.S.C. § 78aa].
4. Venue is proper in this District pursuant to Section 27 of the Exchange Act, and 28
U.S.C. § 1391(b). Many of the acts and practices complained of herein occurred in substantial
part in this District and Liquidmetal maintains its corporate headquarters in this District.
5. In connection with the acts alleged in this complaint, defendants, directly or
indirectly, used the means and instrumentalities of interstate commerce, including, but not
limited to, the mails, interstate telephone communications and the facilities of the national
securities markets.
2
PARTIES

6. Plaintiff Sidney Fielden purchased shares of Liquidmetal common stock as set
forth more fully in the annexed certificate and suffered economic damages.
7. Liquidmetal is a California corporation with its principal place of business located
at 25800 Commercentre Dr. Suite 100, Lake Forest, CA 92630. Defendant Liquidmetal is in the
business of developing, manufacturing and marketing products made from amorphous alloys.
The Company markets and sells Liquidmetal alloy industrial coatings and also manufactures,
markets and sells products and components from bulk Liquidmetal alloys that can be
incorporated into the finished goods of its customers across a variety of industries.
8. The defendants listed below served, during the period specified, as senior officers
and/or directors of Liquidmetal:
(a) Defendant John Kang (“Kang”) is, and was at all relevant times,
Chairman of the Company's Board of Directors, President, and Chief Executive Officer;
(b) Defendant Brian McDougall (“McDougall”) is, and was at all relevant
times, Chief Financial Officer, Chief Operating Officer and Executive Vice President of
Liquidmetal;
(c) Defendant James Kang (“James Kang”) was Chairman of the Board of
Directors;
(d) Defendant William Johnson (“Johnson”) served as Vice Chairman of the
Board and Vice Chairman of Technology at all relevant times;
(e) Defendant Shekhar Chitnis (“Chitnis”) served as a director of
Liquidmetal during the Class Period;
(f) Defendant Ricardo Salas (“Salas”) served as a director of Liquidmetal
3
during the Class Period;
(g) Defendant Jack Chitayat (“Chitayat”) served as a director of Liquidmetal
during the Class Period;
(h) Defendant Tjoa Thian-Song (“Tjoa”) served as a director of Liquidmetal
during the Class Period;
(i) Defendant Jeffrey Oster (“Oster”) served as a director of Liquidmetal
during the Class Period;
(j) Defendant Henri Tchen (“Tchen”) served as a director of Liquidmetal
during the Class Period;
(k) Defendant Betsy Atkins (“Atkins”) served as a director of Liquidmetal during
the Class Period; and
(l) Defendant David Browne (“Browne”) served as a director of Liquidmetal
during the Class Period.
9. Defendants John Kang, McDougall, James Kang, Johnson, Chitnis, Salas,
Chitayat, Oster, Tjoa, Tchen, Atkins and Browne are referred to herein as the "Individual
Defendants." The Individual Defendants, because of their positions with the Company,
possessed the power and authority to control the contents of Liquidmetal’s quarterly reports,
press releases and presentations to securities analysts, money and portfolio managers and
institutional investors, i.e., the market. Each defendant was provided with copies of the
Company's reports and press releases alleged herein to be misleading prior to or shortly after
their issuance and had the ability and opportunity to prevent their issuance or cause them to be
corrected. Because of their positions and access to material non-public information available to
them but not to the public, each of these defendants knew that the adverse facts specified herein
4
had not been disclosed to and were being concealed from the public and that the positive
representations which were being made were then materially false and misleading.
10. It is appropriate to treat the Individual Defendants as a group for pleading
purposes and to presume that the false, misleading and incomplete information conveyed in the
Company’s public filings, press releases and other publications as alleged herein are the
collective actions of the narrowly defined group of defendants identified above. Each of the
above officers of Liquidmetal, by virtue of their high-level positions with the Company, directly
participated in the management of the Company, was directly involved in the day-to-day
operations of the Company at the highest levels and was privy to confidential proprietary
information concerning the Company and its business, operations, products, growth, financial
statements, and financial condition, as alleged herein. Said defendants were involved in drafting,
producing, reviewing and/or disseminating the false and misleading statements and information
alleged herein, were aware, or recklessly disregarded, that the false and misleading statements
were being issued regarding the Company, and approved or ratified these statements, in violation
of the federal securities laws.
11. As officers and controlling persons of a publicly-held company whose common
stock was, and is, registered with the SEC pursuant to the Exchange Act, and was traded on the
NASDAQ Stock Exchange (the “NASDAQ”), and governed by the provisions of the federal
securities laws, the defendants each had a duty to disseminate promptly, accurate and truthful
information with respect to the Company’s financial condition and performance, growth,
operations, financial statements, business, products, markets, management, earnings and present
and future business prospects, and to correct any previously-issued statements that had become
materially misleading or untrue, so that the market price of the Company's publicly-traded
5
securities would be based upon truthful and accurate information. The Individual Defendants’
misrepresentations and omissions during the Class Period violated these specific requirements
and obligations.
12. The Individual Defendants participated in the drafting, preparation, and/or
approval of the various public and shareholder and investor reports and other communications
complained of herein and were aware of, or recklessly disregarded, the misstatements contained
therein and omissions therefrom, and were aware of their materially false and misleading nature.
Because of their Board membership and/or executive and managerial positions with Liquidmetal,
each of the defendants had access to the adverse undisclosed information about Liquidmetal’s
business prospects and financial condition and performance as particularized herein and knew (or
recklessly disregarded) that these adverse facts rendered the positive representations made by or
about Liquidmetal and its business issued or adopted by the Company materially false and
misleading.
13. The Individual Defendants, because of their positions of control and authority as
officers and/or directors of the Company, were able to and did control the content of the various
SEC filings, press releases and other public statements pertaining to the Company during the
Class Period. Each Individual Defendant was provided with copies of the documents alleged
herein to be misleading prior to or shortly after their issuance and/or had the ability and/or
opportunity to prevent their issuance or cause them to be corrected. Accordingly, each of the
Individual Defendants is responsible for the accuracy of the public reports and releases detailed
herein and is therefore primarily liable for the representations contained therein.

6
PLAINTIFF'S CLASS ACTION ALLEGATIONS
14. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of all those who purchased or otherwise acquired the
securities of Liquidmetal during the Class Period and who suffered damages (the “Class”).
Excluded from the Class are defendants, the officers and directors of the Company, at all
relevant times, members of their immediate families and their legal representatives, heirs,
successors, or assigns and any entity in which defendants have or had a controlling interest.
15. The members of the Class are so numerous that joinder of all members is
impracticable. According to the Company’s report filed on Form 10-Q with the SEC on
November 14, 2003, a representative point during the Class Period, Liquidmetal had
approximately 41,599,652 shares of common stock outstanding. While the exact number of
Class members is unknown to plaintiff at this time and can only be ascertained through
appropriate discovery, plaintiff believes that there are hundreds or thousands of members in the
proposed Class. Record owners and other members of the Class may be identified from records
maintained by Liquidmetal or its transfer agent and may be notified of the pendency of this
action by mail, using the form of notice similar to that customarily used in securities class
actions.
16. Plaintiff's claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by defendants' wrongful conduct in violation of
federal law that is complained of herein.
17. Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
7
18. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) whether the federal securities laws were violated by defendants' acts as
alleged herein;
(b) whether statements made by defendants to the investing public during the
Class Period misrepresented material facts about the business, operations, financial
condition and management of Liquidmetal; and
(c) whether defendants acted knowingly or recklessly in making materially
false and misleading statements during the Class Period;
(d) whether the market prices of the Company's common stock was artificially
inflated or distorted during the Class Period because of defendants' conduct complained
of herein; and
(e) whether the members of the Class have sustained damages and the proper
measure of such damages.
19. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation make it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.

8
SUBSTANTIVE ALLEGATIONS

Fraudulent Scheme and Course of Business

20. Each of the defendants is liable as a participant in a fraudulent scheme and course of business
that operated as a fraud or deceit on purchasers of Liquidmetal securities by disseminating
materially false and misleading statements and/or concealing material adverse facts.
Specifically, the scheme involved the Company’s improper recognition of certain revenues and
will result in the Company restating its financial statements from the third quarter 2002 through
the first quarter 2003. Defendants' fraudulent scheme and course of business that operated as a
fraud or deceit on purchasers of Liquidmetal securities was a success, as it: (i) deceived the
investing public regarding Liquidmetal's business, operations, management and the intrinsic
value of Liquidmetal securities; (ii) enabled Liquidmetal insiders to sell their personally-held
Liquidmetal common stock at inflated prices to the unsuspecting public resulting in proceeds to
those insiders of more than $1.9 million; (iii) allowed defendants to consummate the $75 million
IPO; (iv) enabled the repayment of millions of dollars in loans made by defendants to
Liquidmetal; and (v) caused plaintiff and other members of the Class to purchase Liquidmetal
securities at artificially inflated prices
SUBSTANTIVE ALLEGATIONS

Background Facts

21. Liquidmetal describes itself as “in the business of developing, manufacturing and
marketing products made from amorphous alloys. The Company markets and sells Liquidmetal
alloy industrial coatings and also manufactures, markets and sells products and components from
bulk Liquidmetal alloys that can be incorporated into the finished goods of its customers across a
variety of industries.”
9
Materially False And Misleading
Statements Issued During The Class Period

22. The Class Period begins on May 21, 2002. On that day the Company issued a
press release, “Liquidmetal Technologies Initial Public Offering Priced at $15.00 Per Share.”
The press release stated in pertinent part as follows:
“Liquidmetal Technologies announced today the initial public offering of
5,000,000 shares of its common stock at a price of $15.00 per share.
The shares will be quoted on the Nasdaq National Market under the symbol
"LQMT." Liquidmetal Technologies has granted the underwriters an option to
purchase up to 750,000 additional shares of its common stock to cover
overallotments. Liquidmetal Technologies intends to use the net proceeds of the
offering for the construction and equipping of manufacturing facilities, for the
repayment of indebtedness, and for general corporate purposes.”

23. A Registration Statement related to the initial public offering was filed with the
SEC by the Individual Defendants, and included a Prospectus which discussed, among other
things, the Company’s strategy, customer relationships, compliance with accounting rules,
regulations and revenue recognition practices, and internal controls. The Registration Statement
provided the following with regard to the Company’s strategy and customers:
We produce casing components for electronic devices. We targeted this market
because of its high product volume and potential branding opportunities. For
example, the market for cellular phones is projected to reach nearly 672 million
units in 2005, according to IDC. Liquidmetal alloys can be used for each of the
structural components of a cellular phone, including the shield, face plate, hinge,
back plate, side plates, and the clam shell, which is the plate that flips open on
some cellular phone models.

To date, we have produced cellular phone casing components for several
cellular phone manufacturers. We are currently manufacturing prototype casing
parts for Samsung, and we are working with LG Electronics to develop casing
components for their cellular phones. We are also working with Motorola to
develop cellular phone casing components, and we have received orders from
Motorola for limited quantities of prototype casing components. Additionally, we
are working with TCL Mobile Communication Company, Ltd., a leading Chinese
10