Memorandum in Support of Motion to Dismiss Securities Fraud Claim by lte69772

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 2   Steven B. Rosenfeld (Admitted Pro Hac Vice)
     Theodore V. Wells (Admitted Pro Hac Vice)
 3   Michele Hirshman (Admitted Pro Hac Vice)
     Charles E. Davidow (Pro Hac Vice Motion Pending)
 4   Sarah A. Nolan (Pro Hac Vice Motion Pending)
     PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
 5   1285 Avenue of the Americas
     New York, New York 10019
 6   Telephone: 212-373-3000
     Facsimile : 212-757-3990
 7   E-mail :   srosenfeld@paulweiss.com
     E-mail :   twells@paulweiss.com
 8   E-mail:    mhirshman@paulweiss.com
     E-mail:    cdavidow@paulweiss.com
 9   E-mail :   snolan@paulweiss.com

10   Stephen E. Taylor (SBN 58452)
     Nicholas G. Campins (SBN 238022)
11   TAYLOR & COMPANY LAW OFFICES, LLP
     One Ferry Building , Suite 355
12   San Francisco, California 94111
     Telephone : (415) 788-8200
13   Facsimile : (415) 788-8208
     E-mail : staylor@tcolaw.com
14   E-mail : ncampins @tcolaw.com

15   Attorneys for Defendant WEILI DAI
16

17                           IN THE UNITED STATES DISTRICT COURT
18                            NORTHERN DISTRICT OF CALIFORNIA
19                                         SAN JOSE DIVISION
20

21   IN RE MARVELL TECHNOLOGY GROUP,)                 Case No. C-06-06286 (RMW)
22   LTD. SECURITIES LITIGATION
                                                      CLASS ACTION
23                                                    DEFENDANT WEILI DAI'S REPLY
     This Document Relates to:                    )
                                                      MEMORANDUM IN SUPPORT OF
24                                                    MOTION TO DISMISS CONSOLIDATED
     ALL ACTIONS.
                                                      CLASS ACTION COMPLAINT
25
                                                      Date:     February 15, 2008
26                                                    Time:     9:00 a.m.
                                                      Dept.:    Courtroom 6, 4th Floor
27                                                    Judge:    Hon. Ronald M. Whyte
28



                                                        Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                 C-06-06286 (RMW)
 1                                                        TABLE OF CONTENTS
2                                                                                                                                              Page

3     Preliminary Statement ........................................................................................................       .......1

4     I. THE CONSOLIDATED COMPLAINT FAILS TO PLEAD SCIENTER AGAINST
             WEILI DAI .......................................................................................................................2
5
                 A.         The Legal Standards .............................................................................................2
6
                            1.         The PSLRA and Tellabs ...........................................................................2
7
                            2.         Scienter Requires an Intent to Defraud Investors .....................................2
8
                            3.         Inferences From Marvell 's Financial Statements and Periodic SEC
9                                      Filings ............................................................................... ....................4

10               B.         The Complaint ' s Allegations Do Not Support a "Cogent and Compelling"
                            Inference of an Intent to Defraud Investors .......................................................... 6
11
                 C.         Plaintiffs ' Remaining Allegations as to Ms. Dai Do Not Support a "Cogent
12                          And Compelling" Inference of Scienter .............................................................11
13    II. THE COMPLAINT DOES NOT ADEQUATELY PLEAD A CLAIM AGAINST MS.
                DAI UNDER SECTION 20(A) OF THE EXCHANGE ACT .......................................15
14
      Conclusion ................................................................................                              .............. 17
15

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17.

18

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                                                                            -1 -     Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                                              C-06-06286 (RMW)
 1
                                               TABLE OF AUTHORITIES
2
                                                                                                                         Page(s)
3    FEDERAL CASES

4    Belizan v. Hershon, 495 F.3d 686 (D.C. Cir. 2007) ........................................................................2
5
     Caiafa v. Sea Containers Ltd., 2007 WL 2815633 (S.D.N.Y. Sept. 25, 2007) ..............................4
6
     Cent. Laborers Pension Fund v. Integrated Elec. Servs., 497 F.3d 546 (5th Cir. 2007) . ...............4
7
     Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) .........................................................................3
8
     Higginbotham v. Baxter Int'l Inc., 495 F.3d 753 (7th Cir. 2007) .................................... ..............14
9
                                                                                                                   3,15
     Hollinger v. Titan Capital Corp., 914 F.2d 1564 (9th Cir. 1990) ................................... ..........3,
10
     Howard v. Everex Sys., Inc., 228 F.3d 1057 (9th Cir. 2000) ........................................... ........15,
                                                                                                                   15,16
11
                                                                                                               15,16
     Howard v. Hui, 2001 WL 1159780 (N.D. Cal. Sept. 24, 2001) ...................................... ........ 15,
12

13   Howard v. SEC, 376 F.3d 1136 (D.C. Cir. 2004) ............................................................ ..............11

14
                                                                                                  9,10
     In re Apple Computer Inc. Deriv. Litig., 2007 WL 4170566 (N.D. Cal. Nov. 19, 2007) ..........9,

15                                                                                                    13,14
     In re Bearingpoint, Inc. Sec. Litig., 2007 WL 2713906 (E.D. Va. Sept. 12, 2007) ......... ........13,

16   In re Computer Sci. Corp. Deriv. Litig., 2007 WL 1321715 (C.D. Cal. Mar. 26, 2007) ................2
17                                                                                                        5,14
     In re Cyberonics Inc. Sec. Litig., 2007 WL 2914995 (S.D. Tex. Oct. 4, 2007) .............. ..........5,
18   In re Hansen Natural Corp. Sec. Litig., 2007 WL 3244646 (C.D. Cal. Oct. 16, 2007) .. ................9
19                                                                                                              2,7
     In re Intelligroup Sec. Litig., 2007 WL 3376743 (D.N.J. Nov. 13, 2007) ....................... ............2,
20
     In re McKesson HBOC Inc. Sec. Litig., 126 F. Supp. 2d 1248 (N.D. Cal. 2000) ............ .............. 14
21
     In re MDC Holdings Sec. Litig.,754 F. Supp. 785 (S.D. Cal. 1990) ............................... ................ 8
22
     In re Silicon Graphics Sec. Litig., 183 F.3d 970 (9th Cir. 1999) .............................................1, 2, 4
23
                                                                                                   15,16
     In re Splash Tech. Holdings, Inc., 2000 WL 1727405 (N.D. Cal. Sep. 29, 2000) ..................15,
24
     In re Sportsline.com Sec. Litig., 366 F. Supp. 2d 1159 (S.D. Fla. 2004) .......................................11
25
     In re Vantive Corp. Sec. Litig., 283 F.3d 1079 (9th Cir. 2002) .....................................................13
26

27
     In re Verisign Inc. Deriv. Litig., 2007 WL 2705221 (N.D. Cal. Sept. 14, 2007) ..............2, 3, 8, 13

28
                                                                                                                5,11
     In re Zoran Corp. Deriv. Litig., 511 F. Supp. 2d 986 (N.D. Cal. 2007) ......................... ...........5,

                                                                 -11 -   Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                                  C-06-06286 (RMW)
     Keirnan v. Homeland, Inc., 611 F.2d 785, 788 (9th Cir. 1980) ......................................................11
 1
     Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588 (7th Cir. 2006) ...................................4
 2

 3   Middlesex Ret. Sys. v. Quest Software Inc., 2007 U.S. Dist. LEXIS 84695
          (C.D. Cal. Oct. 22, 2007) ...........................................................................................3, 5, 11, 14
4
     Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151 (9th Cir. 1996) .............................16
 5
     Ponce v. SEC, 345 F.3d 722 (9th Cir. 2003) ...................................................................................3
 6
     Roth v. Officemax, Inc., 2007 WL 2892634 (N.D. Ill. Sept. 26, 2007) .....................................4,
                                                                                                             4,14
 7
     Siemers v. Wells Fargo & Co., 2006 WL 2355411 (N.D. Cal. Aug. 14, 2006) ............................15
 8

 9   Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc.,                          S. Ct.
         (Jan. 15, 2008) (Slip Op.) ......................................................................................................9,9,13
10
     Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d 1033 (7th Cir. 1977) ..........................................3
11
     Tellabs, Inc. v. Makor Issues & Rights, Ltd., _ U.S.                               , 127 S. Ct. 2499 (2007) ..............1, 2, 4
12

13   United States v. Reyes, No. C 06-00556-1, 2007 WL 2462147 (N.D. Cal. Aug. 29, 2007) ...........2

14   Weiss v. Amkor Tech., Inc., 2007 WL 2808224, (D. Ariz. Sept. 25, 2007) .......................3, 7, 8, 11

15                                                                                                                    4,5
     Winer Family Trust v. Queen, 503 F.3d 319 (3d Cir. 2007) ........................................................4,

16

17   FEDERAL STATUTES

18   15 U.S.C. § 78u-4(b)(2) ...................................................................................                 ...............2
19

20
     RULES
21
                                                                                                                                           15,16
     Fed R. Civ. P. 9(b) ..................................................................................................................15,
22

23
     OTHER AUTHORITIES
24
     Staff of Joint Comm. on Taxation, Present Law and Background Relating to Executive
25
         Compensation (JCX-39-06) (Sept. 5, 2006) .......................................................:......................2
26

27

28

                                                                       -111 -    Weili Dai's Rep ly Memorandum In Support of Motion to Dismiss
                                                                                                                           C-06-06286 (RMW)
1                                             Preliminary Statement'

2                    The Consolidated Complaint against Weili Dai should be dismissed because it
3    fails to allege scienter. Backdating stock options is not in and of itself illegal, and backdating
4    stock options is not the securities fraud alleged in the Consolidated Complaint. Rather, the
5    Complaint alleges that Marvell's financial statements and periodic SEC filings were "false and
6    misleading" with respect to accounting for and disclosing backdated options (see Compl.                          ¶

7    147-198). Accordingly, to plead scienter in this case, plaintiffs must allege, "in great detail" (In
8    re Silicon Graphics Sec. Litig., 183 F.3d 970, 974 (9th Cir. 1999)), facts supporting a strong
9    inference that Ms. Dai acted with the intent to defraud investors in connection with the options-
10   related accounting information and disclosures found in those statements and filings. Moreover,
11   under the Supreme Court's holding in Tellabs v. Makor Issues & Rights, Ltd., it is not enough to
12   allege facts that merely support a reasonable inference of such intent; rather, the facts alleged
13   must support an inference that is "cogent and at least as compelling as any opposing inference
14   one could draw from the facts alleged."            U.S.       , 127 S. Ct. 2499, 2510 (2007).
15                    Plaintiffs do not allege facts supporting any inference -- much less a compelling
16   inference .-- that Ms. Dai was aware of, or involved in, the securities fraud alleged here --
17   Marvell's accounting for and disclosure ofbackdated options. At most, the Complaint alleges
18   that Ms. Dai participated in backdating options. Indeed, the "Omnibus Memorandum" in
19   opposition to defendants' motions ("Omn. Opp.") wholly ignores facts contained in the
20   Complaint and in publicly filed documents that support a more compelling, non-fraudulent
21   inference as to Ms. Dai's intent -- that backdated options furthered Marvell's business interest in
22   recruiting and retaining the most talented employees in an intensely competitive market without
23   any awareness whatsoever of the accounting and disclosure implications of that conduct.
24

25

26
         This Reply Memorandum focuses on the adequacy of the Complaint' s allegations of scienter (and, in Point II on
27       p. 15, on plaintiffs' "control person" claim). Ms. Dai respectfully relies upon the reply memorandum filed by
         Marvell with regard to the adequacy of the allegations of loss causation and the claims under Section 14(a).
28

                                                           - 1 -   Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                            C-06-06286 (RMW)
 1
                                                        1.
2
                             THE CONSOLIDATED COMPLAINT FAILS
3                            TO PLEAD SCIENTER AGAINST WEILI DAI
4    A.      The Legal Standards
 5           1.      The PSLRA and Tellabs

6                    The PSLRA requires that plaintiffs "state with particularity facts giving rise to a

7    strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-

 8   4(b)(2). Thus, plaintiffs must plead "in great detail, facts that constitute strong circumstantial

9    evidence of deliberately reckless or conscious misconduct." Silicon Graphics, 183 F.3d at 974.

10   In Tellabs, the Supreme Court held that to qualify as a "strong" inference, the facts alleged "must

11   be cogent and compelling, thus strong in light of other explanations. A complaint will survive . .

12    only if a reasonable person would deem the inference of scienter cogent and at least as

13   compelling as any opposing inference one could draw from the facts alleged." Tellabs, 127 S.

14   Ct. at 2510. In applying this "inherently comparative" standard, this Court "must consider

15   plausible nonculpable explanations for the defendant's conduct, as well as inferences favoring

16   the plaintiff." Id.; see also Belizan v. Hershon, 495 F.3d 686, 692 (D.C. Cir. 2007) (remanding

17   case for district court to consider non-fraudulent inferences in accord with Tellabs). Tellabs

18   requires the Court to "factor[] in all facts, regardless whether these facts favor the plaintiff or the

19   defendant." In re Intelligroup Sec. Litig., 2007 WL 3376743, at *60 (D.N.J. Nov. 13, 2007).

20           2.      Scienter Requires an Intent to De and Investors
21                   To meet the "cogent and compelling" test, it is not enough to allege, as this

22   Complaint does, that Ms. Dai participated in Marvell's options backdating. Backdating options

23   is not per se illegal or a violation of the securities laws. See Jury Instructions at 39, United

24   States v. Reyes, No. C 06-00556-1, 2007 WL 2462147 (N.D. Cal. Aug. 29, 2007) (instructing the

25   jury that backdating is not, in and of itself, a violation of criminal law); see also In re Verisign

26   Inc. Deriv. Litig., 2007 WL 2705221, at * 1 (N.D. Cal. Sept. 14, 2007); In re Computer Sci. Corp.

27   Deriv. Litig., 2007 WL 1321715, at *2 (C.D. Cal. Mar. 26, 2007); Staff of Joint Comm. on

28   Taxation, Present Law and Background Relating to Executive Compensation 40 (JCX-39-06)

     (Sept. 5, 2006), available at http://www.house.gov/jct/x-39-06.pdf ("Backdating stock options is

                                                       -2-    Wei[i Dai' s Reply Memorandum in Support of Motion to Dismiss
                                                                                                        C-06-06286 (UAW)
1
2    not itself illegal, but there are several financial statement and securities and tax law

3    implications."). Rather, as plaintiffs acknowledge (Ornn. Opp. at 4), it is Marvell's accounting

4 I for and disclosure ofbackdated options that it is "at the core" of their case.

5                   Thus, the PSLRA' s scienter standard requires that plaintiffs plead something

6    more than options backdating -- it demands pleading of facts showing a "mental state embracing

7    intent to deceive, manipulate or defraud" with respect to Marvell's accounting for and disclosure

8    of backdated options. Ernst & Ernst v. Hoch/elder, 425 U.S. 185, 193 n.12 (1976) (emphasis

9    added). There must be detailed factual allegations showing that Ms. Dai "knew or w[as]

10   deliberately reckless in not knowing that the backdated options would have a material effect on

11   the financial reports" (Middlesex Ret. Sys. v. Quest Software Inc., 2007 U.S. Dist. LEXIS 84695,

12   at *63 (C.D. Cal. Oct. 22, 2007) (emphasis added)) -- i.e., "what [a].defendant knew, when

13   he/she knew it, or how he/she acquired that knowledge" concerning the accounting and

14   disclosure requirements and implications of the backdating. Verisign, 2007 WL 2705221, at

15   *30; see also Weiss v. Amkor Tech., Inc., 2007 WL 2808224, at *8 (D. Ariz. Sept. 25, 2007) ("a

16   complaint must allege specific facts that each individual defendant knew that the accounting for

17   the subject transactions was incorrect at the time it was determined.").

18                   Although the scienter standard may also embrace "recklessness" -- i.e. "not

19   merely simple , or even inexcusable negligence, but an extreme departure from the standards of

20   ordinary care" (Ponce v. SEC, 345 F.3d 722, 729 (9th Cir. 2003)) -- the recklessness alleged

21   must also relate to Marvell ' s accounting for and disclosure of backdated options, not simply

22   backdating itself. As the Ninth Circuit held in Hollinger v. Titan Capital Corp.:

23                   "[R]eckless conduct may be defined as a highly unreasonable
                     omission . .. which presents a danger ofmisleading buyers or
24                   sellers that is either known to the defendant or is so obvious that
                     the actor must have been aware of it." (Emphasis added.)
25
     914 F.2d 1564, 1569 (9th Cir. 1990), quoting Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d
26
     1033, 1044-45 (7th Cir. 1977).
27
                     Moreover, plaintiffs cannot resort to "group pleading" to support their allegations
28
     concerning Ms. Dai's intent with respect to Marvell's accounting for and disclosure of backdated


                                                       -3 -   Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                       C-06-06286 (RMW)
 I
 2   options. Winer Family Trust v. Queen, 503 F.3d 319, 335 (3d Cir. 2007) (interpreting Tellabs to

 3   abolish the group pleading doctrine); Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588,

 4   603 (7t' Cir. 2006) (stating that plaintiffs must plead strong inference of scienter "with respect to

 5   each individual defendant"); Roth v. Officemax, Inc., 2007 WL 2892634, at *4 (N.D. Ill.

 6   Sept. 26, 2007) (same). Thus, to support a strong inference of scienter, plaintiffs must allege

 7   facts showing that Weili Dai herselfknew about the requirements for Marvell's options-related

 8   accounting and disclosures. See Caiafa v. Sea Containers Ltd., 2007 WL 2815633, at *10-11

 9   (S.D.N.Y. Sept. 25, 2007) (finding no strong inference of scienter where there were no

10   allegations that defendants knew. accounting treatment was incorrect).

11          3.      Inferences From Marvell's Financial Statements and Periodic SEC. Filings
12                  In making the comparative analysis mandated by Tellabs, this Court is free to

13   draw inferences not only from the facts alleged in the complaint, but also from what is not

14   alleged in the Complaint ("omissions and ambiguities count against inferring scienter," Tellabs,

15   127 S.Ct. at 25.11) -- and from the contents of publicly filed documents referenced in the

16   complaint.

17                  There is no merit in plaintiffs' argument, in their separate "Opposition to

18   Requests for Judicial Notice" ("Opp. J.N."), that the Court may not consider inferences drawn

19   from the Marvell SEC filings cited in the Complaint that favor defendants, while simultaneously

20   considering inferences drawn from those same documents that favor plaintiffs. That argument

21   ignores the Supreme Court's holding in Tellabs that the "comparative" analysis must take into

22   account inferences to be drawn from "the complaint in its entirety, as well as other sources courts

23   ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents

24   incorporated into the complaint by reference, and matters of which a court may take judicial

25   notice." 127 S. Ct. at 2509. It also ignores the standard practice of federal courts, both before

26 I and after Tellabs, to consider inferences drawn from both facts alleged in the complaint and the
27   contents of filed documents identified in the complaint . See, e.g., Silicon Graphics, 183 F.3d at

28   986 (holding that plaintiff cannot "rely on the SEC forms at issue" and then "complain when

     [defendants] refer to the same information in their defense"); Cent. Laborers Pension Fund v.

                                                     -4-    Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                     C-06-06286 (RMW)
 1

 2   Integrated Elec. Servs., 497 F.3d 546, 554 (5th Cir. 2007) (taking j udicial notice, in Tellabs

 3   analysis, of divorce decree providing exculpatory explanation for stock sales, and noting that in

 4   doing so, the "truth" of the document is not at issue); In re Cyberonics Inc. Sec. Litig., 2007 WL

 5   2914995, at *3 (S.D. Tex. Oct. 4, 2007) (considering, in Tellabs analysis , inferences drawn from

 6   SEC filings); Winer Family Trust, 503 F.3d at 329 (stating that "[i]n considering competing

 7   inferences [under Tellabs], courts may find it necessary to probe the documents integral to the

 8   complaint"); In re Zoran Corp. Deriv. Litig., 511 F. Supp. 2d 986, 1001 (N.D. Cal. 2007)

 9   ("Plaintiff cannot be allowed to exclude the rest of the Form I OK because he wishes to pick and

10   choose which statements should be considered.").

11                  Plaintiffs argue that were the Court to draw inferences favorable to defendants

12   from filed documents, it would be impermissibly considering those documents "for the truth of

13   the statements asserted therein." (Opp. J.N. at 4.) This is wrong. Under the relevant law as

14   mandated by Tellabs, in order to engage in the required "comparative" analysis, the Court must

15   consider in their entirety the documents relied on by plaintiffs, not to make factual findings, but

16   to draw reasonable inferences that support an opposing, more compelling, and non-fraudulent

17   explanation for Ms. Dai's intent.

18                                             *       *       *

19                  What follows from the foregoing authorities is this : In order to plead scienter in

20   this case, plaintiffs must allege "in great detail" facts supporting a "cogent" inference that Ms.

21   Dai "knew or w[as] deliberately reckless in not knowing that the backdated options would have a

22   material effect on the [company 's] financial reports." Quest, 2007 US Dist. LEXIS 84695, at

23   *63 (emphasis added). That inference must be "at least as compelling" as the "plausible

24 I nonculpable explanations" that may be drawn from what is and what is not alleged in the

25 I Complaint, and from what appears in the documents referenced in the Complaint. Plaintiffs have

26   not met that burden with regard to Ms. Dai.

27

28



                                                     -5-    Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                    C-06-06286 (RMW)
 1
      B.     The Complaint's Allegations Do Not Support a "Cogent and
2            Compelling" Inference of an Intent to Defraud Investors

 3                   Plaintiffs seek to meet the Tellabs scienter requirement with the following

4     allegations about Ms. Dai: (1) she participated in the selection of option grant dates with the

 5    benefit of hindsight (Omn. Opp. at 15-16); (2) she signed allegedly "false" Stock Option

 6    Committee minutes that were prepared by Marvell's General Counsel (Omn. Opp. at 19); (3) she

 7    understood, contrary to what appeared in Marvell's Proxy statements, that there were no formal

 8    Stock Option Committee "meetings" (Omn. Opp. at 19); (4) she sold vested stock options from

 9    one allegedly backdated grant she received, although she herself was not involved in its approval

10    or dating (Omn. Opp. at 32-34); (5) the Special Committee recommended that she have "no

11    continuing role with the company" and that her unvested options be cancelled (Omn. Opp. at 39-

12    40); and (6) she failed to establish proper internal controls regarding options (Omn. Opp. at 23-

13    24).

14                   Under Tellabs, plaintiffs' complaint against Ms. Dai cannot survive unless the

15    inference that she intended to falsify Marvell's public disclosures and accounting with respect to

16    option grants is "cogent" and "at least as compelling" as the strong non-fraudulent inference that

17    can be drawn from the above-cited allegations, from the other allegations and omissions in

18    plaintiffs' own Complaint, and from facts set forth in the Special Committee report and other

19    publicly-filed documents.

20                   The Complaint itself provides a non-fraudulent explanation for backdating

21    Marvell options that is far more compelling than the inference drawn by plaintiffs: that Marvell

22    was competing for top talent in an intensely competitive employment market and backdated

23    options enabled Marvell to hire and retain talent. Plaintiffs themselves describe that environment

.24   as follows (Comp. IT 58-59):

25                   5 8. In the context of a rapidly rising market for tech companies
                     immediately preceding and during the Class Period, the granting of
26                   stock options, particularly non-statutory options, was the
                     preeminent issue in the compensation of skilled labor. Given the
27                   enormous potential upside that stock options offered, without the
                     cash investment and investment risk that typical investors
28                   experienced, many workers in the industry, particularly those
                     working in the greater San Francisco Bay Area, were less


                                                      -6-    Well Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                     C-06-06286 (RMW)
                      concerned with their compensation than with the availability and
2                     particulars of stock option packages.

3                     59. From the perspective of Marvell, a new public start-up tech
                      company, options were a particularly important tool to allow it to
4                     meet the demands of the labor market. Like many high tech start-
                      ups, Marvell was short on actual cash to pay salaries and taxes but
5                     was high on potential and stock options allowed the Company to
                      hire new employees without expending great sums of cash.
6
                      As reflected in Marvell' s disclosures throughout the class period, the competition
7
      for employees with skills required by Marvell remained intense (see, e.g., Marvell Technology
8
      Group Ltd., Annual Report (Form 10-K) at 34 (July 2, 2007) (Exh. A to Bai Declaration ("Bai
9
      Dec.") in Support of Lead Plaintiffs' Request for Judicial Notice)):
10
                       We believe ourfuture success will depend in large part on our .
11                    ability to attract and retain highly skilled managerial, engineering,
                      and sales and marketing personnel ... . There is currently a
12                    .shortage of qualified technical personnel with significant
                      experience in the design, development, manufacturing, marketing,
13                    and sales of integrated circuits. In particular, there is a shortage of
                      engineers who are familiar with the intricacies of the design and
14                    manufacture of products based on analog technology, and
                      competition for these engineers is intense. Our key technical
15                    personnel represent a significant asset and serve as the source of
                      technological and product innovations. We may not be successful
16                    in attracting and retaining sufficient numbers of technical
                      personnel to support our anticipated growth. (Emphasis added.)'
17
                       These disclosures plainly support the "cogent and compelling" inference that, to
18
      the extent backdated options were used to attract and retain the qualified personnel that Marvell's
19
      "future success... depend[ed] on," they were offered to further the business interests of Marvell
20
      and its stockholders -- not for the purpose of avoiding the compensation charges required by the
21
      relevant options-related accounting rules or the disclosures mandated by those requirements. See
22
      Intelligroup, 2007 WL 3376743, at *59 (holding that "common business goals" such as
23'
      increasing compensation "cannot be read as an indication that an interest in achieving these goals
24
      would provide a concrete and personal motive to commit fraud") (internal citation omitted);
25
      Weiss, 2007 WL 2808224, at * 12 (that an executive "favored stock option grants due to their
26

27

28
      2 The quoted language from the 2007 Marvell 10-K appears in each of Marvell's 10-K filings from 2002 to 2007.


                                                           -7-     Weili Dai' s Reply Memorandum in Support of Motion to Dismiss
                                                                                                             C-06-06286 (RMW)
 1

2    ability to boost morale" does not suggest fraud, but "does nothing more than demonstrate [an]

3    executive's interest in retaining quality employees.").

4                    This "non-culpable " inference is likewise supported by what is not alleged in the

5    Complaint. The Complaint alleges no specific facts showing that Ms. Dai had any knowledge or

6    understanding of the proper accounting treatment for stock options or their disclosure in

7    Marvvell's financial statements and periodic SEC filings -- "the core" of plaintiffs' case -- and an

8    essential element of any inference that she intended to defraud investors. Verisign, 2007 WL

9    2705221, at *30. It is not alleged that Ms. Dai had any education in finance, accounting or law,

10   or any formal business training when she, her husband, and brother-in-law founded Marvell in

11   1995 (Marvell Technology Group Ltd., Definitive Proxy Statement (Form Def. 14A), at 5 (Apr.

12   26, 2004) (Exh. L to Thomas Declaration ("Thomas Dec.") in Support of Request for Judicial

13   Notice by Marvell)). Nor is it alleged that she had responsibility for Marvell's finances,

14   accounting or related disclosures.' Indeed, the Complaint alleges that in her position as

15   Executive Vice President and General Business Manager of Marvell's Communications Business

16   Group from 1999 to March 2006, she was responsible for managing the Company's

17   communications product lines (Comp. ¶ 32), a position not alleged to have any oversight over

18   the finance or accounting functions of the company. Finally, neither within the "false and

19   misleading statements" that plaintiffs identify as "the core" of their case (Omn. Opp. at 4), set

20   forth in paragraphs 147-198 of the Complaint, nor anywhere else in the complaint, do plaintiffs

21   allege that Ms. Dai had anything whatsoever to do with those statements -- other than the

22   repeated mantra that "each Individual Defendant" signed Marvell's 2003-06 10-K filings.

23   (Comp. ¶ ¶ 148, 156, 165, 187.) See In re MDC Holdings Sec. Litig.,-754 F. Supp. 785, 795-96

24   (S.D. Cal. 1990) (dismissing claims for failure to allege "in what respect [defendants] were

25   involved in preparing the allegedly false reports"); Weiss, 2007 WL 2808224, at *10 (holding

26

27   3   Ms. Dai became Chief Operating Officer in April 2006 (Comp. ¶ 32), but the Complaint does not allege that she
         had any involvement in options backdating after that date, and the only grant alleged to have been backdated
28       and received by Ms. Dai was in December 2003 (Comp. ¶¶ 112-113), when she was Manager of the
         Communications Business Group.


                                                           - 8 -   Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                            C-06-06286 (RMW)
 2   that an allegation that a defendant signed a 10-K was insufficient to raise a strong inference of

 3   scienter); In re Hansen Natural Corp. Sec. Litig., 2007 WL 3244646, at * 14 (C.D. Cal. Oct. 16,

 4   2007) ("Without allegations that each of the Individual Defendants that signed various

 5   [company] public filings knew those public filings contained misstatements , the Individual

 6   Defendants ' signatures on those public filings alone does not give rise to a strong inference of

 7   scienter.") (emphasis added)4; see also Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc.

 8       S.Ct. at       (Jan. 15 , 2008) (Slip Op . at 10) ("It was Charter, not respondents , that misled its

 9   auditor and filed fraudulent financial statements ; nothing respondents did made it necessary or

10   inevitable for Charter to record the transactions as it did.") (emphasis added).

11                   In this respect, In re Apple Computer Inc. Deriv. Litig., 2007 WL 4170566, *7

12   (N.D. Cal. Nov. 19, 2007) is squarely on point. There, plaintiffs alleged that the company's

13 I management misled investors by permitting the backdating of stock option grants,

14   misrepresenting that options were granted at an exercise price equal to the fair market value on

15   the date of grant, overstating its earnings, and issuing false financial statements. The plaintiffs

16   likewise relied on the findings of Apple's internal investigation, which disclosed that Apple's

17   CEO "was not only aware of the options backdating but also received some of the grants and

18   recommended some of the dates chosen," and that "Board minutes were falsified in order to

19   cover up the wrongdoing." Id. at *2. But just as here with respect to Ms. Dai, the plaintiffs did

20   not allege that the Apple CEO or any of the other individual defendants had been involved in the

21   accounting for stock options or had understood what impact the backdating would have on

22   Apple's financial statements. The Apple Computer court granted the motion to dismiss,

23   concluding that "[i]n order to meet the requirements of the PSLRA, Plaintiffs must provide more

24

25

26      Ms. Dai signed the 10-K reports as a Marvell director, as did every other director. In their opposition brief,
        plaintiffs erroneously state that Ms. Dai was also a signatory of Sarbanes-Oxley certifications of the accuracy of
27      Marvell's financial statements (Omn. Opp. at 22-23). In their Complaint, however, plaintiffs do not allege that
        Ms. Dai signed Sarbanes-Oxley certifications; nor could they, since SOX certifications are signed only by the
28      CEO and CFO, and Ms. Dai was neither. Thus, it appears that this error in the brief was merely an editing
        oversight.



                                                            -9-     Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                             C-06-06286 (RMW)
 1

2    detailed allegations giving rise to a stronger inference of scienter on the part of each defendant."

3    Id. at *7. This Court should rule similarly with respect to Ms. Dai.

4                   The non-culpable inference is further supported by the Complaint's allegations

5    and the findings of the Special Committee that Ms. Dai was not properly advised by the senior

6    Marvell officers who had knowledge and training in accounting for stock options. According to

7    the Complaint and other relevant documents, George Hervey, Marvell's Chief Financial Officer

 8   and Vice President of Finance during the class period (Comp. ¶ 35), had previously served for

9    three years as Senior Vice President, CFO, and Secretary of Galileo Technology, Ltd. (Marvell

10   Technology Group Ltd., Definitive Proxy Statement (Form Def. 14A), at 21 (May 23, 2007)

11   (Exh. H to Thomas Dec.). Although he was "primarily responsible for designing, implementing,

12   and evaluating the Company's accounting policies, and was directly responsible for the

13   preparation and accuracy of the Company's financial statements" (Comp. 122 1; Omn. Opp. at

14   28), according to the Complaint Hervey "failed to properly advise upper management, including

15   ... Dai, about their responsibilities and duties regarding stock options and other financial

16   filings." (Comp. ¶ 222.)
17                  Likewise, Matthew Gloss, Marvell's Vice President of Business Affairs and

18   General Counsel from 2001 to 2006, had a law degree, an M.B.A. from the University of

19   Pennsylvania's Wharton School, and had previously worked as a corporate associate at the law

20   firm now known as Pillsbury Winthrop Shaw Pittman LLP (Marvell Technology Group Ltd.,

21   Definitive Proxy Statement (Form Def. 14A), at 13 (May 17, 2002) (Exh. D to McIntyre

22   Declaration in Support of George Hervey's Motion to Dismiss Consolidation Class Action

23   Complaint).) While acknowledging the Special Committee's findings that Gloss was responsible

24   for preparing all of the allegedly "false" Stock Option Committee minutes (Comp. ¶ 101),

25   plaintiffs ignore the Special Committee findings that Gloss:

26                  failed to properly advise ... Ms. Dai, about [her] responsibilities
                    and duties regarding stock options and other financial filings.
27                   **** Mr. Gloss was also found to have misled the Executive
                     Compensation Committee by creating false minutes and unanimous
28                  written consents [regarding option grants to executive officers that
                     did not involve Ms. Dai] .... He also failed to establish proper
                     controls over the stock option process despite being on notice of

                                                     -10-    Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                      C-06-06286 (RMW)
                        various control problems. (2007 10-K, Exh. A to Bai Dec., at 56;
 2                      emphasis added.)
 3                      The Complaint alleges no facts showing that Marvell's professional "gatekeepers"

 4   ever told Ms. Dai that options backdating was improper or was subject to certain accounting and

 5   disclosure requirements. Nor are facts alleged showing that Ms. Dai should have independently

 6   recognized any "red flags" alerting her that stock options were not being properly recorded or

 7   expensed! In light of Ms. Dai's own lack of business training and expertise in financial and

 8   legal matters, the Special Committee's findings support a strong inference that Ms. Dai acted

 9   without scienter -- that is, without knowledge of the options-related accounting and disclosure

10   requirements and implications and thus, without intent to defraud investors.'

11   C.       Plaintiffs' Remaining Allegations as to Ms. Dai Do Not
              Support a "Cogent And Compelling" Inference of Scienter
12
                       Faced with the cogency of the foregoing non-fraudulent inference, plaintiffs
13
     repeatedly argue (Omn. Opp. at 13, 23, 24, 26 n.16, 31-32, 41, 41 n.26) that the inference of
14
     scienter does not flow from any single allegation standing alone, but rather from their cumulative
15
     force. But the cumulative effect of lumping together weak allegations does not create the "cogent
16
     and compelling" inference of scienter required under Tellabs. The remaining allegations against
17

18

19        Scienter premised on a failure to heed "red flags" can succeed only if an individual has "reasonable grounds to
          believe material facts existed that were misstated or omitted, but nonetheless failed to obtain and disclose such
20        facts although [she] could have done so without extraordinary effort." Keirnan v. Homeland, Inc., 611 F.2d
          785, 788 (9th Cir. 1980); see also Howard v. SEC, 376 F.3d 1136, 1147 (D.C. Cir. 2004) (defendant did not act
21        recklessly where counsel's approval of illegal securities transactions gave him green lights, not "red flags").
          Here, contrary to plaintiffs' arguments (Omn. Opp. at 18-19), courts have found the accounting rules for stock
22        options (APB 25, FAS 123 and FAS 123(R), among others) to be sufficiently complex and arcane that incorrect
          applications of those rules did not establish scienter for persons, such as Ms. Dai, who lack specialized
23        accounting knowledge. See In re Sportsline.com Sec. Litig., 366 F. Supp. 2d 1159, 1168-69 (S.D. Fla. 2004)
          ("interpretations of the measurement date criteria embodied in APB No. 25 are far from obvious"); Weiss, 2007
24        WL 2808224, at *9 ("the accounting rules at issue, specifically APB No. 25, are complex and require
          accounting expertise and judgment").
25
          Plaintiffs' reliance on Quest and Zoran is misplaced with regard to Ms. Dai, because the backdating claims
26        upheld in those cases were brought against individual defendants who had direct responsibility for accounting
          and reporting of stock options - the CEO, current and former CFO, Controller, and members of the Audit
27        Committee in Quest, and the CEO and CFO in Zoran, both of whom were alleged to have been intimately
          involved in the options granting process, and also in reviewing and certifying the financial statements. The
28        Quest decision is further distinguishable from this case for the reasons discussed in defendant Sehat Sutardja's
          Reply Memorandum (at 8-9), to which the Court is respectfully referred.



                                                             - 11 -   Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                               C-06-06286 (RMW)
      Ms. Dai, even when taken together, fail to raise a "cogent" inference that is even "at least as

      compelling as" the non-culpable explanation for Ms. Dai's conduct.

                       (1)      Ms. Dai's receipt ofone backdated grant. The Complaint identifies one

      allegedly backdated option received by Ms. Dai -- a grant dated December 26, 2003, which the

      Special Committee found should have been priced at the fair market value of the stock on

      January 16, 2004. (Comp. ¶¶ 112-113.) But the Complaint alleges no facts showing that Ms. Dai

      was aware that the option had been backdated. To the contrary, the Complaint alleges that

 9    option grants to Ms. Dai were made by the Executive Compensation Committee ("ECC") of

10    Marvell's Board, which was comprised entirely of outside directors (Comp. ¶ 79); there is no

11    claim that Ms. Dai had any role in granting or setting the value of her own option-based

12    compensation. Indeed, the Special Committee specifically found that Ms Dai "did not personally

13    benefit from any of the grants she approved" (2007 Form 10-K, Exh. A to Bai Dec. at 57) --

14    another fact ignored by plaintiffs that undermines any inference of her scienter with respect to

15    the accounting and disclosures at the "core" of plaintiff's case.'

16                     Ms. Dai's exercise of the December 2003 option does not strengthen the

17    inference plaintiffs seek to draw. Plaintiffs argue (Omn. Opp. at 29-31) that the factors usually

18    considered probative of scienter with regard to insiders' sales of stock -- amount and percentage

19    of shares sold, timing of the sales , and consistency with past trading history -- are not applicable

20    in options backdating cases . That may be so, but the argument is beside the point; plaintiffs have

21    not alleged that Ms. Dai knew that the December 2003 options grant was backdated or that she

22    would not have exercised the options had they not been backdated. Indeed, the very stock prices

23    set forth in the Complaint (¶¶ 112-13, 118) show that Ms. Dai likely would have exercised the

24'

25       Plaintiffs repeatedly allege that the December 2003 options grants received by Mr. Sutardja and Ms. Dai jointly
         were for six million and four million shares, respectively. (E.g. Comp. ¶ 111.) This is incorrect. Plaintiffs'
26       calculation is based on the number of Marvell shares they received post split . (See Ex. A to Bai Dec. at 95
         (Marvell's stock underwent a two for one stock split in May 2004 and again in July 2006).) Ms. Dai actually
27       received 1 million shares. Plaintiffs also misrepresent the benefit to Mr. Sutardja and Ms. Dai of the alleged
         backdating. Plaintiffs claim that they realized profits of $144 million, but in a footnote acknowledge that only
28       $8.8 million of that amount was attributable to the difference in the fair market value of the stock on December
         24, 2003 and January 16, 2004. (Omn. Opp. at 34 & n.23.)



                                                            -12-    Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                             C-06-06286 (RMW)
     I options even if the exercise price had been $10.91, the price on January 16, 2004 which plaintiffs

     I allege was "the proper measurement date" (id, ¶ 112), since each of her sales were at prices

     I exceeding $28.40 per share. (Id. ¶ 118). Thus, her sale of stock received pursuant to one
      allegedly backdated option is a wholly neutral fact, unrelated to backdating, and thus not at all

     I probative of scienter . As the court observed in In re Verisign, 2007 WL 2705221, at *30 (citing

     I In re Vantive Corp. Sec. Litig., 283 F.3d 1079, 1093 (9th Cir. 2002)), "insiders often sell stock
      for a variety of reasons having nothing to do with fraud, and [the courts have] concluded that

      even large stock sales, without more, cannot give rise to a strong inference of scienter."

                      (2)     The allegedly `false " Stock Option Committee minutes. Although

     I Ms. Dai signed Stock Option Committee minutes that were prepared by General Counsel

      Matthew Gloss (Comp. at 110 1) and that the Complaint alleges were "false," plaintiffs do not

13    allege how the minutes -- purely internal documents -- were used as support for any false public

14    statements, much less that Ms. Dai knew, or was reckless in not knowing, that the minutes would

15    be used to falsify any public filings or financial statements. See In re Bearingpoint, Inc. Sec.

16    Litig., 2007 WL 2713906, at * 14 (E.D. Va. Sept. 12, 2007) ("what is missing from these

17    allegations is any suggestion that uncorrected information ... made its way into [defendant's]

18    financial statements with the acquiescence or reckless indifference of [] management."). As the

19    Supreme Court noted just last week in Stoneridge (Slip Op. at 10), allegations that a defendant

20    participated in creating false documents which themselves "were not disclosed to the investing

21    public" are not sufficient to allege a Rule I Ob-5 violation, absent a showing that such defendant

22    "filed fraudulent financial statements" or did anything that "made it necessary or inevitable" that

23    the company would "record the transactions as it did." That showing is entirely missing from

24    plaintiffs' allegations with respect to Ms. Dai:

25                    (3)    Ms. Dai's `failure" to establish internal controls. Nor does the Special

26    Committee's finding that Ms. Dai "failed to establish proper internal controls" (Comp. ¶ 103)

27    raise any compelling inference that Ms. Dai acted with the requisite scienter in connection with

28    the options-related accounting information and disclosures found in Marvell's financial

      statements and periodic SEC filings. As the Seventh Circuit has explained, failure to strengthen

                                                         - 13 -   Weili Dai' s Reply Memorandum In Support of Motion to Dismiss
                                                                                                            C-06-06286 (RMW)
 1

 2    internal controls does not itself raise an inference of scienter, because "all frauds demonstrate the

 3    `inadequacy' of existing controls, just as all bank robberies demonstrate the failure of bank

 4    security and all burglaries demonstrate the failure of locks and alarm systems." Higginbotham v.

 5    Baxter Intl Inc., 495 F.3d 753, 760 (7th Cir. 2007); see also Bearingpoint, 2007 WL 2713906, at

 6    * 13 (allegations of failure to maintain adequate controls "might demonstrate corporate

 7    mismanagement -- but they do not amount to a securities law violation"). Here, the most that is

 8    alleged is that the Special Committee found that Ms. Dai "failed to establish proper internal

 9    controls" (Comp. ¶ 103); plaintiffs do not and cannot allege that Ms. Dai, with no financial or

10    accounting background, was responsible for creating or evaluating internal controls. Nor do they

11.   allege that Ms. Dai "knew about the deficiencies in the Company's internal controls or that those

12    deficiencies were obvious." Roth, 2007 WL 2892634, at *7. Any inference of scienter from

13    Ms. Dai's alleged "failure" to establish internal controls regarding options is weak at best.

14                    (4)      Ms. Dai's change ofpositions at Marvell. Finally , scienter cannot be

15    inferred from the fact that Ms. Dai resigned from her role as Chief Operating Officer to become

16    Director of Strategic Marketing and Business Development. A resignation from an executive

17    officer position followed by a reassignment within the company does not raise a strong inference

18    of scienter. Quest, 2007 U.S. Dist. LEXIS 84695, at *58 (reassignment of CFO in connection

19 I with investigation of backdating was of "little significance" because "it is just as plausible that

20    [the executive] was either negligent or grossly negligent"); see also Cyberonics, 2007 WL

21    2914995, at *5 (resignations of CFO and CEO did not create strong inference of scienter,

22    especially where CFO was retained as consultant to the company); Bearingpoint, 2007 WL

23    2713906, at * 15 (resignations of executives do not support a strong inference of scienter because

24    "shakeups of top management are quite likely to occur when a public company has been poorly

25    managed").8

26
         In re McKesson HBOC Inc. Securities Litigation, relied upon by plaintiffs (Omn. Opp. at 39), has little.bearing
27       on this case, In that pre-Tellabs case, the company announced that its employees had been "dismissed
         immediately for cause," that it believed the employees' intent was "to inflate revenues," and that each "knew or
28       should have known" of the accounting improprieties. 126 F. Supp. 2d 1248, 1274 (N.D. Cal. 2000). Marvell's
         Special Committee made no such findings with respect to Ms. Dai.



                                                           -14-     Weili Dai' s Reply Memorandum In Support of Motion to Dismiss
                                                                                                              C-06-06286 (RMW)
1

2
                     In sum, under the comparative analysis required by Tellabs, what the plaintiffs
3
     allege, what the plaintiffs do not allege , and what appears in the documents the plaintiffs cite
4
     does not support a "cogent and compelling" inference that Ms . Dai acted with fraudulent intent
5
     in connection with the options-related accounting information and disclosures found in
6
     Marvell's financial statements and periodic SECfilings. Any such inference is far less
7
     "compelling" than the alternative, non-fraudulent inference -- which plaintiffs themselves allege
8
     in the Complaint -- that Marvell ' s backdating of options was used to recruit and retain the most
9
     talented employees in an intensely competitive market, and that Ms . Dai had no awareness of the.
10
     relevant accounting and disclosure requirements and implications of that conduct.
11
                                                             II.
12
                  THE COMPLAINT DOES NOT ADEQUATELY PLEAD A CLAIM
13              AGAINST MS. DAI UNDER SECTION 20(A) OF THE EXCHANGE Al
14                    To state a claim against Ms. Dai for control person liability under § 20(a) of the

15   Exchange Act, plaintiffs must plead, with particularity, (1) a primary violation of the securities

16   laws, and (2) that Ms. Dai exercised actual power or control over the primary violator.

17   Howard v. Everex Sys., Inc., 228 F.3d 1057, 1065 (9th Cir. 2000). For the reasons set forth in

18   Marvell's moving and reply briefs, plaintiffs have not sufficiently alleged a primary violation by

19   Marvell.

20                    Contrary to plaintiffs' assertion (Oran. Opp. at 54), Ms. Dai has not conceded that

21   she was a "control person" of Marvell. Plaintiffs are required under Rule 9(b) to "plead the

22   circumstances of the control relationship with particularity." In re Splash Tech. Holdings, Inc.,

23   2000 WL 1727405 at * 15 (N.D. Cal. Sep. 29, 2000); Howard v. Hui, 2001 WL 1159780 at *4

24   (N.D. Cal. Sept. 24, 2001).9 Although plaintiffs need not show Ms. Dai's "culpable

25   participation" in the fraud in order to establish control person liability (Hollinger, 914 F.2d at

26
     9   It is true that the court in Siemers v. Wells Fargo & Co., 2006 WL 2355411 at* 14 (N.D. Cal. Aug. 14, 2006)
27       disagreed with the holdings in In re Splash and Howard v. Hui that the circumstances of control must be pled
         with particularity. But Siemers involved a brokerage firm's Section 20(a) liability for the fraud of its
28       subsidiaries and managed mutual funds -- and thus fell squarely within the Ninth Circuit's holding in Hollinger
         v. Titan Capital Corp.; it did not involve, as here, an individual defendant alleged to be in control of a public
         company

                                                            - 15 -   Weili Dai' s Reply Memorandum In Support of Motion to Dismiss
                                                                                                               C-06-06286 (RMW)
  1

 2    1575), they are required to show, "with enough particularity to satisfy rule 9(b)" (Howard v.

 3 I Hui, 2001 WL 1159780, at *4), that her responsibilities at Marvell included "actual authority

 4 I over the preparation and presentation to the public of the financial statements" (Howard v.

 5    Everex, 228 F.3d at 1066) or other publicly filed documents alleged to have been false or

 6 I misleading.

 7                     Plaintiffs allege no such authority in the Complaint with respect to Ms. Dai. The

 8 1 allegations that Ms. Dai was Executive Vice President of Marvell (Comp. ¶¶ 32, 252) and that

 9    she "played a major role in and participated directly in the management of Marvell" (id. ¶ 250)

10    are not enough; plaintiffs must plead with particularity that her control related in some way to the

11    fraud on investors that constitutes the primary violation of the securities laws. See Paracor Fin.,

12    Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1163-64 (9th Cir. 1996) (finding that although

13    defendant was involved in major management decisions , he did not exercise "direct or indirect

14    control over the debenture offering " at issue); Splash, 2000 WL 1727405 at * 16 (stating that

15    plaintiff must plead, for example , that "x individual in Splash provided [defendant] y press

16    release on z date with the request that [defendant] determine whether the disclosure was

17    sufficient.").

18                     Plaintiffs have not alleged facts showing that Ms. Dai's management role in the

19    day-to-day operations of Marvell gave her "control" over the options-related accounting

20    information and disclosures found in Marvell's financial statements and periodic SEC filings.

21    See Paracor , 96 F.3d at 1163 . As set forth above , plaintiffs do not allege that Ms. Dai knew

'22   about or played any role in preparing Marvell ' s financial statements or periodic SEC filings,

23    much less that she had control over them . See supra at 8-11 . These deficiencies undermine any

24    claim that Ms. Dai was a control person with respect to the primary securities fraud alleged in the

25    Complaint, and plaintiffs' Section 20(a) claim therefore should be dismissed.

26    111
27    111
28    111



                                                      -16-   Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                      C-06-06286 (RMW)
 1

 2                                             Conclusion

 3                 For the foregoing reasons, as well as those presented in the reply memorandum

 4   filed by Marvell (which is adopted and incorporated herein by reference) the Consolidated

 5   Complaint against Weili Dai should be dismissed.

 6

 7   Dated: January 22, 2008
 8                                Respectfully submitted,

 9                                PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
10
11                                By: Isl Steven B. Rosenfeld

12                                Steven B. Rosenfeld (admitted pro hac vice)
                                  Theodore V. Wells (admitted pro hac vice)
13                                Michele Hirshman (admitted pro hac vice)
                                  Charles E. Davidow (pro hac vice motion pending)
14                                Sarah A. Nolan (pro hac vice motion pending)
                                  1285 Avenue of the Americas
15                                New York, New York 10019-6064
                                  (212) 373-3000
16                                E-mail:   srosenfeld@paulweiss.com
                                  E-mail:   twells@paulweiss.com
17                                E-mail:   mhirshman@paulweiss.com
                                  E-mail:   cdavidow@paulweiss.com
18                                E-mail:   snolan@paulweiss.com


19                                TAYLOR & COMPANY LAW OFFICES, LLP
20

21                                By: Isl Stephen E. Taylor

22                                Stephen E. Taylor (SBN 58452)
                                  Nicholas G. Campins (SBN 238022)
23                                One Ferry Building, Suite 355
                                  San Francisco, California 94111
24                                Telephone: (415) 788-8200
                                  Facsimile: (415) 788-8208
25
                                  E-mail: staylor@tcolaw.com
26                                E-mail: ncampins@tcolaw.com

27                                Attorneys for Defendant WEILI DAI

28



                                                  -17-   Weili Dai's Reply Memorandum In Support of Motion to Dismiss
                                                                                                  C-06-06286 (RMW)

								
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