Gary Gelman, et al. v. Siebel Systems, Inc., et by zgp14654

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									 1 LIONEL Z. GLANCY (#134180)
   MICHAEL GOLDBERG (#188669)
 2
   DALE MacDIARMID (#228667)
 3 GLANCY BINKOW & GOLDBERG LLP
   1801 Avenue of the Stars, Suite 311
 4 Los Angeles, California 90067
   Telephone:     (310) 201-9150
 5
   Facsimile:     (310) 201-9160
 6
   Attorneys for Plaintiff
 7 [Additional Counsel on Signature Page]
 8
                                 UNITED STATES DISTRICT COURT
 9                             NORTHERN DISTRICT OF CALIFORNIA

10
      GARY GELMAN, Individually And On                   No.
11    Behalf Of All Others Similarly Situated,
                                                         CLASS ACTION COMPLAINT
12                              Plaintiff,               FOR VIOLATIONS OF FEDERAL
13                    v.                                 SECURITIES LAWS

14    SIEBEL SYSTEMS, INC., THOMAS M.
      SIEBEL KENNETH A. GOLDMAN and                      JURY TRIAL DEMANDED
15    DAVID SCHMAIER,
16
                                Defendants.
17
18          Plaintiff has alleged the following based upon the investigation of plaintiff’s counsel,

19 which included a review of United States Securities and Exchange Commission ("SEC") filings by
20 Siebel Systems, Inc. ("Siebel Systems" or the “Company”), as well as regulatory filings and
21
     reports, securities analysts' reports and advisories about the Company, press releases and other
22
     public statements issued by the Company, and media reports about the Company, and plaintiff
23
24 believes that substantial additional evidentiary support will exist for the allegations set forth herein
25 after a reasonable opportunity for discovery.
26                                       SUMMARY OF ACTION
27
            1.      This is a federal class action on behalf of purchasers of the securities of Siebel
28
 1 Systems between October 1, 2001 and July 17, 2002, inclusive (the "Class Period"), seeking to
 2
     pursue remedies under the Securities Exchange Act of 1934 (the "Exchange Act").
 3
                                     JURISDICTION AND VENUE
 4
            2.      The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of
 5
 6 the Exchange Act [15 U.S.C. §§ 78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder by
 7 the Securities and Exchange Commission ("SEC") [17 C.F.R. § 240.10b-5].
 8
            3.      This Court has jurisdiction over the subject matter of this action pursuant to 28
 9
     U.S.C. §§ 1331 and 1367 and Section 27 of the Exchange Act [15 U.S.C. § 78aa].
10
11          4.      Venue is proper in this District pursuant to Section 27 of the Exchange Act, and

12 28 U.S.C. § 1391(b). Siebel Systems maintains its principal place of business in this District and
13 many of the acts and practices complained of herein occurred in substantial part in this District.
14
            5.      In connection with the acts alleged in this complaint, defendants, directly or
15
     indirectly, used the means and instrumentalities of interstate commerce, including, but not limited
16
17 to, the mails, interstate telephone communications and the facilities of the national securities
18 markets.
19                                               PARTIES
20
            6.      Plaintiff Gary Gelman, as set forth in the accompanying certification incorporated
21
     by reference herein, purchased the common stock of Siebel Systems during the Class Period and
22
23 has been damaged thereby.
24          7.      Defendant Siebel Systems develops and sells Web applications software that
25 enables organizations to manage customer, partner and employee relationships. The Company’s
26
     principal executive offices are located at 2207 Bridgepoint Parkway, San Mateo, California.
27
28                                                    2
 1          8.      Defendant Thomas M. Siebel (“Siebel”), at all times relevant to this action, served
 2
     as the Company's Chairman and Chief Executive Officer.
 3
            9.      Defendant Kenneth M. Goldman ("Goldman"), at all times relevant to this action,
 4
     served as the Company's Senior Vice President and Chief Financial Officer.
 5
 6          10.     Defendant R. David Schmaier, at all times relevant to this action, served as the

 7 Company’s Executive Vice President.
 8
            11.     The defendants referenced above in ¶¶7-10 are referred to herein as the "Individual
 9
     Defendants."
10
11          12.     Because of the Individual Defendants' positions with the Company, they had access

12 to the adverse undisclosed information about its business, operations, products, operational
13 trends, financial statements, markets and present and future business prospects via access to
14
     internal corporate documents (including the Company's operating plans, budgets and forecasts
15
     and reports of actual operations compared thereto), conversations and connections with other
16
17 corporate officers and employees, attendance at management and Board of Directors meetings
18 and committees thereof and via reports and other information provided to them in connection
19 therewith.
20
            13.     It is appropriate to treat the Individual Defendants as a group for pleading
21
     purposes and to presume that the false, misleading and incomplete information conveyed in the
22
23 Company's public filings, press releases and other publications as alleged herein are the collective
24 actions of the narrowly defined group of defendants identified above. Each of the above officers
25 of Siebel Systems, by virtue of their high-level positions with the Company, directly participated
26
     in the management of the Company, was directly involved in the day-to-day operations of the
27
28                                                    3
 1 Company at the highest levels and was privy to confidential proprietary information concerning
 2
     the Company and its business, operations, products, growth, financial statements, and financial
 3
     condition, as alleged herein. Said defendants were involved in drafting, producing, reviewing
 4
     and/or disseminating the false and misleading statements and information alleged herein, were
 5
 6 aware, or recklessly disregarded, that the false and misleading statements were being issued
 7 regarding the Company, and approved or ratified these statements, in violation of the federal
 8
     securities laws.
 9
             14.        As officers and controlling persons of a publicly-held company whose common
10
11 stock was, and is, registered with the SEC pursuant to the Exchange Act, and was traded on the
12 NASDAQ National Market (the “NASDAQ”), and governed by the provisions of the federal
13 securities laws, the Individual Defendants each had a duty to disseminate promptly, accurate and
14
     truthful information with respect to the Company's financial condition and performance, growth,
15
     operations, financial statements, business, products, markets, management, earnings and present
16
17 and future business prospects, and to correct any previously-issued statements that had become
18 materially misleading or untrue, so that the market price of the Company's publicly-traded
19 securities would be based upon truthful and accurate information. The Individual Defendants'
20
     misrepresentations and omissions during the Class Period violated these specific requirements and
21
     obligations.
22
23           15.        The Individual Defendants participated in the drafting, preparation, and/or

24 approval of the various public and shareholder and investor reports and other communications
25 complained of herein and were aware of, or recklessly disregarded, the misstatements contained
26
     therein and omissions therefrom, and were aware of their materially false and misleading nature.
27
28                                                       4
 1 Because of their Board membership and/or executive and managerial positions with Siebel
 2
     Systems, each of the Individual Defendants had access to the adverse undisclosed information
 3
     about Siebel Systems’ business prospects and financial condition and performance as
 4
     particularized herein and knew (or recklessly disregarded) that these adverse facts rendered the
 5
 6 positive representations made by or about Siebel Systems and its business issued or adopted by
 7 the Company materially false and misleading.
 8
            16.     The Individual Defendants, because of their positions of control and authority as
 9
     officers and/or directors of the Company, were able to and did control the content of the various
10
11 SEC filings, press releases and other public statements pertaining to the Company during the
12 Class Period. Each Individual Defendant was provided with copies of the documents alleged
13 herein to be misleading prior to or shortly after their issuance and/or had the ability and/or
14
     opportunity to prevent their issuance or cause them to be corrected. Accordingly, each of the
15
     Individual Defendants is responsible for the accuracy of the public reports and releases detailed
16
17 herein and is therefore primarily liable for the representations contained therein.
18          17.     Each of the defendants is liable as a participant in a fraudulent scheme and course

19 of business that operated as a fraud or deceit on purchasers of Siebel Systems common stock by
20
     disseminating materially false and misleading statements and/or concealing material adverse facts.
21
     The scheme: (i) deceived the investing public regarding Siebel Systems’ business, operations,
22
23 management and the intrinsic value of Siebel Systems common stock; (ii) enabled the Individual
24 Defendants and other insiders to sell more than $125,897,000 worth of their personally-held
25 shares of Siebel Systems common stock at artificially inflated prices; and (iii) caused plaintiff and
26
     other members of the Class to purchase Siebel Systems securities at artificially inflated prices.
27
28                                                     5
 1                                  CLASS ACTION ALLEGATIONS
 2
            18.     Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
 3
     Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or
 4
     otherwise acquired the securities of Siebel Systems between October 1, 2001 and July 17, 2002,
 5
 6 inclusive (the "Class Period") and who were damaged thereby. Excluded from the Class are
 7 defendants, the officers and directors of the Company, at all relevant times, members of their
 8
     immediate families and their legal representatives, heirs, successors or assigns and any entity in
 9
     which defendants have or had a controlling interest.
10
11          19.     The members of the Class are so numerous that joinder of all members is

12 impracticable. Throughout the Class Period, Siebel Systems common shares were actively traded
13 on the NASDAQ. While the exact number of Class members is unknown to plaintiff at this time
14
     and can only be ascertained through appropriate discovery, plaintiff believes that there are
15
     hundreds or thousands of members in the proposed Class. Record owners and other members of
16
17 the Class may be identified from records maintained by Siebel Systems or its transfer agent and
18 may be notified of the pendency of this action by mail, using the form of notice similar to that
19 customarily used in securities class actions.
20
            20.     Plaintiff’s claims are typical of the claims of the members of the Class as all
21
     members of the Class are similarly affected by defendants' wrongful conduct in violation of federal
22
23 law that is complained of herein.
24          21.     Plaintiff will fairly and adequately protect the interests of the members of the Class
25 and have retained counsel competent and experienced in class and securities litigation.
26
            22.     Common questions of law and fact exist as to all members of the Class and
27
28                                                     6
 1 predominate over any questions solely affecting individual members of the Class. Among the
 2
     questions of law and fact common to the Class are:
 3
                     a. whether the federal securities laws were violated by defendants' acts as alleged
 4
     herein;
 5
 6                   b. whether statements made by defendants to the investing public during the Class

 7 Period misrepresented material facts about the business, operations and management of Siebel
 8
     Systems; and
 9
                     c. to what extent the members of the Class have sustained damages and the proper
10
11 measure of damages.
12             23.   A class action is superior to all other available methods for the fair and efficient

13 adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the
14
     damages suffered by individual Class members may be relatively small, the expense and burden of
15
     individual litigation make it impossible for members of the Class to individually redress the
16
17 wrongs done to them. There will be no difficulty in the management of this action as a class
18 action.
19                                   SUBSTANTIVE ALLEGATIONS
20
     Background
21
               24.   Defendant Siebel Systems develops and sells Web applications software that
22
23 enables organizations to manage customer, partner and employee relationships. According to the
24 Company’s SEC filings and press releases, the customer relationship management (“CRM”)
25 applications developed by Siebel Systems enable companies to sell to, market to and service their
26
     customers across multiple channels, including the Web, call centers, field, resellers and retail and
27
28                                                      7
 1 dealer networks.
 2
     Materially False And Misleading Statements Issued During The Class Period
 3
              25.   The Class Period begins on October 1, 2001. On that date Siebel Systems unveiled
 4
     the Internet-enabled version of its CRM software – Siebel 7 – during its annual user conference
 5
 6 held in Chicago. At the user conference and in presentations to analysts the following day,
 7 defendants made a number of highly positive representations concerning the Company’s customer
 8
     satisfaction surveys, new Siebel 7 product enhancements and future earnings prospects.
 9
     Importantly, defendant Siebel represented that its “independent” customer survey results indicated
10
11 that an overwhelming majority of the Company’s customers – “93%” – would “recommend Siebel
12 software to potential customers” and that the Company expected sales to existing customers to
13 increase. In addition, defendants represented that the new Siebel 7 product included a number of
14
     significant enhancements over previous versions that would: (1) reduce user training and
15
     application maintenance costs; (2) reduce integration challenges when interacting with other user
16
17 applications; and (3) enhance revenues – defendants maintained that Siebel Systems realizes
18 approximately 75% of its license revenue from “vertical product offerings” – the new Siebel 7
19 release added 8 new vertical software solutions, increasing the total of existing products from 12
20
     to 20.
21
              26.   Between October 1 to October 3 the Company and its industry “partners”
22
23 inundated the electronic news services with more than 130 press releases announcing hardware
24 manufacturers’ and software applications’ support for Siebel 7, including such companies as
25 Microsoft, SunMicro Systems and IBM. For example on October 1, 2001, IBM and Siebel
26
     Systems issued a joint statement announcing that the two companies were “expanding their Global
27
28                                                   8
 1 Strategic Alliance,” stating in pertinent part as follows:
 2
            IBM and Siebel Systems are announcing that Siebel Handheld 7 for PalmOS, a
 3          new Siebel Systems offering, is built on DB2 Everyplace, IBM's relational database
            for mobile and embedded devices. DB2 Everyplace will be the basis for Siebel
 4          Handheld.
 5
            The combination of Siebel 7 for DB2 and the IBM eServer platforms provide our
 6          customers with the industry's most scalable eBusiness solutions," said David
            Schmaier, executive vice president, Siebel Systems. "IBM's cooperation and
 7          technology assistance during development and testing was instrumental for Siebel
            to once again raise the industry standards for functionality, performance and
 8
            customer satisfaction.
 9
            27.     On or about October 3, 2001, U.S. Bancorp Piper Jaffray Inc. issued a highly
10
     positive research report reviewing the Company’s “analyst day” presentations in Chicago, held in
11
12 conjunction with Siebel Systems’ worldwide user conference. The report reiterated the firm’s
13 “Buy - Aggressive” rating on Siebel Systems common shares, stating in pertinent part as follows:
14
             The Company provided a variety of customer satisfaction metrics during the day
15           [stating, among other things, that:] a) 93% of customers would recommend
             Siebel products to potential clients b) Areas for improvement include mobile
16           functionality c) We expect Siebel's sales to existing customers to increase. At a
17           time when new license deals are increasingly difficult to come by, Siebel's
             loyal customer base of 3000 is an important asset. Moreover, this is a
18           compelling competitive differentiator, versus companies such as Oracle, which
             continue to be plagued by product quality issues. We look for the Company to
19           increasingly focus on its installed base in the coming quarters, and expect to see
20           existing customer license contribution rise.

21          28.     Following the Company’s October 1st through 4 th media blitz concerning Siebel
22   Systems’ new product offerings and industry leading customer satisfaction results, the Company’s
23
     shares gained over 38 percent in value to close at $18.81 per share on our about October 4, 2001.
24
            29.     On or about October 17, 2001, the Company issued a press release announcing its
25
26   financial results for the third quarter ended September 30, 2001. The Company reported revenues

27
28                                                    9
 1 were $428.5 million, compared to $496.5 million for the same period in 2000, and that net income
 2
     was $35.2 million, or $0.07 per share, compared with net income of $67.5 million, or $0.13 per
 3
     share for the third quarter of 2000. Commenting on the Company’s most recent customer
 4
     satisfaction survey completed during September 2001, the press release stated in pertinent part as
 5
 6 follows:
 7          According to an independent audit by Satmetrix Systems, Inc. completed in
 8          September 2001, Siebel Systems' customers reported an average increase of 11
            percent in revenue, 19 percent in employee productivity, 16 percent in customer
 9          retention, and 20 percent in the satisfaction of their customers, as a result of using
            Siebel eBusiness Applications. On average, customers realized a return on their
10          investment in Siebel eBusiness Applications in ten months. Ninety-six percent of
11          Siebel Systems' customers reported that they intend to purchase additional
            software from the company. [Emphasis added.]
12
            30.     Later on October 17, 2001, defendants hosted a conference call with analysts
13
14 discussing the Company’s third quarter financial results and future earnings outlook for fourth-
15 quarter 2001 and full-year 2002. An abstract of the conference call transcript published by Fair
16 Disclosure Wire stated in pertinent part as follows:
17
            FINANCIAL OUTLOOK: 1. The current estimate for Q4 [2001] are $225 to
18          $300 million range for license revenue. 2. EPS to be $0.9 to $0.14 3. For 2002,
            license revenue $865 million to $1.4 billion. 4. The company expects the service
19          revenue to decline[...]to 55 percent of the total.
20
     During the call, defendants were questioned concerning recent industry reports which had found
21
     significantly lower overall customer satisfaction levels with CRM applications than reported in the
22
23 “independent audit” compiled by Satmetrix:
24          Q. Is there an issue regarding customer satisfaction? ...
25          A. No, our customer satisfaction level today is not only the highest in the
26          industry, but the highest that it has ever been. ...[Emphasis added.]

27
28                                                    10
 1           31.     The statements referenced above in ¶¶25-27 and 29-30 were each materially false
 2
     and misleading when made because they failed to disclose certain existing material facts,
 3
     including, inter alia:
 4
                     (a) that the Company’s customer satisfaction surveys were conducted by a firm
 5
 6 that was neither “independent” nor objective. Indeed, the structure of the survey artificially
 7 skewed the results to make it appear as if the Company’s customer satisfaction was high when, in
 8
     fact, it was not. Furthermore, as defendants have now admitted, Satmetrix is not independent of
 9
     Siebel as the Company had a major ownership position in Satmetrix and was its business partner
10
11 on the sale of new products;
12                   (b) that the Company’s survey findings – “96 percent of Siebel Systems' customers

13 intended to purchase additional software from the company” – were artificially skewed in the
14
     Company’s favor. A third-party analysis of the Satmetrix’s survey methods and procedures
15
     revealed that the survey questions and responses did not provide an accurate measure of a
16
17 customer’s propensity to purchase additional products from the Company;
18                   (c) that a majority of the Company’s largest customers had not reported any

19 positive return on investment as a result of using the Company’s products;
20
                     (d) that steadily declining demand for the Company’s products would require the
21
     Company to incur hundreds of millions of dollars in staff termination and restructuring charges
22
23 during 2002; in fact, defendants have now admitted that by at least the beginning of the Class
24 Period it was apparent that the Company’s business volume in the third and fourth quarter of
25 2001 would require staff reductions of about 1500; and
26
                     (e) based on the foregoing, defendants' opinions, projections and forecasts
27
28                                                    11
 1 concerning the Company and its operations were lacking in a reasonable basis at all times.
 2
            32.     On or about November 5, 2001, Dow Jones News Services reported that Siebel
 3
     Systems announced that its new Internet-based software – Siebel 7 – will begin to ship later this
 4
     month. The Company predicted that 90% of its installed base will upgrade to the new version
 5
 6 within six to nine months.
 7          33.     Also on November 5, 2001, during a question and answer presentation at the
 8
     Goldman Sachs Technology Conference held in California, defendant Siebel declared that his
 9
     company was optimistic that its business was returning to normal, stating in pertinent part as
10
11 follows:
12          Q: [T]he software that you sell gives you a good window into sales pipelines ...
            you've been pretty good in seeing what's going on in the overall economy and what
13          that means for the software sector. I wonder if you could give us an update of
14          what you're seeing after September, maybe how the economy is looking and how
            the software business is looking during the month of October. Are customers still
15          paralyzed or are we getting back to normalcy?

16          A: [T]he business decisions appear to be quite normal right now, and so we're
17          pretty optimistic about what we're seeing at this time. People are engaging . . .
            people are engaging in software evaluations, . . . software selection, . . . vendor
18          negotiations, procurement, installations, . . . contracts are getting signed, . . .
            they're expanding their existing previous appointments, so right now it appears
19          we're seeing a return to normal behavior in IT buying patterns.
20
            Q: Would you, how would you characterize the sort of sales activity levels and
21          linearity throughout . . . the quarter?
22          A: I think the linearity of this Q4 will be about what we saw in Q4 of the previous
23          two years. It was, the behavior of the market appears normal. ...

24          Q: They're still evaluating, they're just slowing down actual signing contracts?
25          A: They were slowing it down significantly in Q3. Right now, it appears to be,
26          the processes appear to be back to more of a normal rate. It's not, it's not a
            depressed rate . . . as deals are moving through the pipeline. ...
27
28                                                    12
 1
            34.     On or about November 20, 2001, in a Company press release announcing
 2
 3 that it had commenced shipment of Siebel 7, defendant Siebel stated in pertinent part as follows:
 4           [A]s more organizations recognize the importance of focusing their organizations
             and resources on attracting, retaining, and growing customers, there is no
 5
             question that the CRM market will continue to grow significantly faster than all
 6           other eBusiness applications segments. [Emphasis added.]

 7 The press release also reiterated the Company’s predictions that a vast majority of the Company’s
 8
     customers – more than 90% – would upgrade to Siebel 7 within 12 months:
 9
             As with the six prior releases of Siebel eBusiness Applications, Siebel 7 offers a
10           clear and easy upgrade path for customers, including automated upgrade
11           functionality, resulting in reduced deployment times and the lowest TCO. Unlike
             most applications software, Siebel 7 allows existing customers to employ an
12           automated process to upgrade to the latest version of the application by combining
             and merging customizations with new functionality on the enhanced platform. As a
13           result, to date more than 90 percent of Siebel Systems' installed base has deployed
14           on the latest version of Siebel eBusiness Applications within 12 months of a
             product release, providing the benefits of the expanded functionality while
15           preserving prior investments in customizations and integrations.

16           35.    Following this series of highly bullish announcements the price of Siebel Systems
17
     common stock jumped more than 40 percent from $17.29 per share on November 4, 2001 to
18
     close at $24.24 per share on November 21, 2001.
19
20           36.    During November 2001, defendant Goldman and other Siebel Systems’ executive

21 officers or directors initialized a substantial insider selling campaign, collectively disposing of
22 97,500 shares of personally-held Siebel Systems common stock, generating proceeds of more than
23
   $2.2 million, as follows: (i) on November 5, 2001, Patricia A. House (“House”), the Company’s
24
   vice-chairman and co-founder, sold 30,000 shares of Siebel Systems common stock at a price of
25
26 $19.86 per share and generating proceeds of $595,800; (ii) on November 19, 2001, Mark D.
27
28                                                     13
 1 Hanson (“Hanson”), a senior vice president, sold 25,000 shares of Siebel Systems common stock
 2
     at a price of $25.51 per share, generating proceeds of $637,750; (iii) on November 20, 2001, A.
 3
     Michael Spence (“Spence”), a director, sold 30,000 shares of Siebel Systems common stock at a
 4
     price of $23.86 per share, generating proceeds of $715,800; (iv) between November 21, 2001 and
 5
 6 November 27, 2001, defendant Goldman sold 2,500 shares of Siebel Systems common stock at an
 7 average price of $23.49 per share, generating proceeds of approximately $58,725; and on
 8
     November 26, 2001, Eric E. Schmidt (“Schmidt”), a director, sold 10,000 shares of Siebel
 9
     Systems common stock at a price of $24.27 per share, generating proceeds of $637,750.
10
11          37.     The statements referenced above in ¶¶ 32-34 were each materially false and

12 misleading for the reasons set forth at ¶31. In addition, the statements referenced in ¶¶32-34 were
13 each materially false and misleading because:
14
                    (a) defendants knew or recklessly disregarded that demand for the Company’s
15
     products was continuing to decline and that many of the Company’s customers were delaying or
16
17 cancelling their plans to upgrade their CRM technology or purchase additional products from the
18 Company; therefore, defendants’ statements that “90 percent" of the Company’s customers were
19 expected to upgrade their CRM applications to Siebel 7 over the first 12 months following its
20
     release was materially false and misleading.
21
            38.     On or about January 23, 2002, the Company issued a press release announcing its
22
23 financial results for the quarter ended December 31, 2001, reporting revenues of $481.4 million,
24 compared with $428.5 million for the third quarter of 2001, an increase of 12 percent. Revenues
25 from license fees for the fourth quarter of 2001 were $250.2 million, compared to $193.5 million
26
     in the third quarter of 2001. The Company reported that net income for the fourth quarter was
27
28                                                  14
 1 $65.9 million or $0.13 per share, compared with net income of $35.2 million or $0.07 per share
 2
     for the third quarter of 2001. The Company’s fourth quarter earnings came in at the high end of
 3
     defendants’ previously issued guidance of $0.09 to $0.14 per share and exceeded consensus
 4
     analyst estimates of $0.09 per share.
 5
 6          39.     At a conference call with analysts later on January 23, 2002 defendant Siebel

 7 commented that the software environment had improved substantially during November 2001 and
 8
     was maintaining its momentum since that time. Defendants also represented that the Company
 9
     was off to a good start in the first quarter of 2002 and has already booked a $20 million licensing
10
11 deal with a major corporate customer. Defendants issued bullish earnings guidance for fiscal 2002
12 calling for licensing revenues to increase by 15% on an annual basis.
13          40.     On January 24, 2002, U.S. Bancorp Piper Jaffray Inc. (analyst Ekoniak, J.) issued
14
     a research report under the banner headline “[Siebel Systems] Delivers Strong Q4 and Issues
15
     Bullish 2002 Guidance.” The report repeated the firm’s “Outperform” purchase recommendation
16
17 and 12 to 18 month price target for Siebel Systems common shares of $44. The report included
18 increased revenue forecasts and earnings projections for fiscal 2002 modeled from guidance
19 provided by defendants, for example the report stated:
20
            Raising estimates. We have increased our 2002 revenue by 6.1%, from $2.05B to
21          $2.17B. The increase entails 10% license growth, which is slightly below the
            Company's guidance of 15%, reflecting our continued cautionary stance on the
22          economy. The attractive operating leverage in Siebel's model is reflected by the
23          increase in our EPS estimate from $0.50 to $0.60.

24 The report also echoed defendant Siebel’s recent statements that the Company’s sales momentum
25 was sustainable, the report stated:
26
            Whereas forecasting license revenue has been exceptionally challenging during the
27
28                                                   15
 1          past few quarters, we believe that a degree of stability has returned, and expect any
            Q1 surprise to be on the upside.
 2
 3          41.     Following the Company’s positive fourth quarter earnings release and fueled by

 4 defendants’ statements to analysts concerning the Company’s sustainable growth, shares of Siebel
 5
     Systems increased by more than 6 percent, reaching a Class Period high of $37.20 on or about
 6
     January 25, 2002.
 7
            42.     Then, starting just three days after the release of the Company’s 2001 year-end
 8
 9 results, and continuing for several weeks thereafter, the Individual Defendants and other Siebel
10 Systems senior executives and directors engaged in a massive insider selling campaign collectively
11
     selling 3,125,000 shares of Siebel Systems common stock garnering proceeds of more than
12
     $107,605,000 as follows: (i) on January 29, 2002, in a private sale transaction, defendant Siebel
13
14 sold 1,000,000 shares of Siebel Systems common stock at a price of $34.98 per share, generating
15 proceeds of $34,980,000; (ii) on the dates of January 28 - 29, 2002, defendant Goldman sold
16 25,000 shares of Siebel Systems common stock at an average price of $36.40 per share,
17
     generating proceeds of approximately $910,000 and between the dates of February 4, 2002 and
18
     February 8, 2002, Goldman sold an additional 15,000 shares of Siebel Systems common stock at
19
20 an average price of $33.00 per share, generating proceeds of approximately $495,000; (iii) on
21 January 28, 2002, defendant Schmaier sold 400,000 shares of Siebel Systems common stock at a
22 price of $36.13 per share, generating proceeds of $14,452,000; (iv) on January 28, 2002, David
23
     C. Schwartz (“Schwartz”), a senior vice president, sold 50,000 shares of Siebel Systems common
24
     stock at a price of $36.20 per share, generating proceeds of $1,810,000 and on March 1, 2002,
25
26 Schwartz sold an additional 100,000 shares at a price of $30.11 per share, generating proceeds of
27
28                                                   16
 1 $3,011,000; (v) on January 28, 2002, Paul Wahl, the Company’s president, sold 500,000 shares of
 2
     Siebel Systems common stock at a price of $36.74 per share, generating proceeds of
 3
     $18,370,000; (vi) on January 29, 2002, Schmidt sold 25,000 shares of Siebel Systems common
 4
     stock at a price of $34.67 per share, generating proceeds of $866,750 and between the dates of
 5
 6 February 5, 2002 and February 26, 2002, Schmidt sold an additional 75,000 shares of Siebel
 7 Systems common stock at an average price of $30.89 per share, generating proceeds of
 8
     approximately $2,316,000; (vii) on January 28, 2002, Spence sold 50,000 shares of Siebel
 9
     Systems common stock at a price of $27.13 per share, generating proceeds of $1,356,500; (viii)
10
11 between the dates of February 20, 2002 and February 22, 2002, Charles R. Schwab, a director,
12 sold 400,000 shares of Siebel Systems common stock at an average price of $28.58 per share,
13 generating proceeds of approximately $11,432,000; (ix) on the dates of January 28 - 29, 2002,
14
     Bruce Cleveland, a senior vice president, sold 50,000 shares of Siebel Systems common stock at
15
     an average price of $35.99 per share, generating proceeds of approximately $3,958,500; (x) on
16
17 January 28, 2002, Hanson sold 25,000 shares of Siebel Systems common stock at a price of
18 $36.11 per share, generating proceeds of $902,750; and on the dates of January 28 - 29, 2002,
19 House sold 350,000 shares of Siebel Systems common stock at an average price of $36.41 per
20
     share, generating proceeds of approximately $12,743,500.
21
            43.     The statements referenced above in ¶¶ 39-40 were each materially false and
22
23 misleading for the reasons set forth at ¶37.
24 The Truth Begins To Emerge
25          44.     On April 10, 2002, Defendant Siebel was reported by Bloomberg News as
26
     having made statements at a conference in Spain that the first quarter may have been the worst in
27
28                                                  17
 1 the tech industry's history and that the contraction in tech industry spending was not over. The
 2
     price of Siebel Systems common stock dropped $2.12 to close at $25.44 on April 10.
 3
            45.     On April 17, 2002, Siebel Systems issued a press release announcing its financial
 4
     results for the first quarter ended March 31, 2002. The Company reported first quarter net income
 5
 6 of $64.6 million or 12 cents per share and revenue of $477.8 million. Analysts had been expecting
 7 earnings of 12 cents per share on $483 million in revenue for the quarter. During a conference call
 8
     with analysts later that day, defendant Siebel stated that more than 50 deals in excess of $1 million
 9
     (each) that the Company had expected to close in the first quarter were moved out into the next
10
11 two quarters. Siebel also reported that the Company's pipeline of expected transactions was larger
12 than it was in the first quarter. Defendants issued guidance for the second quarter 2002 which
13 called for flat software licensing revenues if business conditions remained unchanged and pushed
14
     growth in license revenues to the second half of 2002.
15
            46.     During the question and answer phase of the call, and in light of the Company’s
16
17 lower earnings guidance and large inventory of unclosed deals, defendants were questioned
18 concerning the Company’s plans for staffing reductions. According to an abstract of the call
19 transcript published by Federal Disclosure Wire, the following interchange took place:
20
            Q. Would you expect the headcount to end in the quarter, or are you planning any
21          reductions in force? Could you help us understand when the timing of your normal
            quality reduction [in] headcount ... is supposed to take place this year?
22
23          A. I think [indiscernible] will be very probable as I see it today. We ended the
            quarter in a little over 7300. It will be right around at the end of the quarter. By
24          the way, we continue to hire. We're hiring in sales, engineering and other areas.
            At the same time, we do let go the bottom four or five [percent of the] company
25          every six months. And so that part just continues, but at the same time we're
26          [indiscernible].

27
28                                                    18
 1 Defendants were also asked to update the Company’s expectations regarding the rate of customer
 2
     upgrades to the Siebel 7 product release:
 3
            Q. Any change in your expectation for customer or the timing of customer
 4          upgrades to Siebel 7? Or are you still looking for that which already was upgraded
            in the current calender year or do you think that would get pushed out due to
 5
            economic conditions?
 6
            A. We seem to accelerate. [sic]
 7
            47.     Beginning on April 22, 2002 and continuing through May 9, 2002, defendant
 8
 9 Goldman and other highly placed Company insiders disposed of an additional 630,000 shares of
10 personally-held Siebel Systems common shares generating more than $16 million in proceeds.
11
            48.     On June 12, 2002, defendant Goldman advised analysts attending a Bear Stearns
12
     Technology Conference in New York that Siebel's second quarter showed little sign of
13
14 improvement over the first quarter and was quoted by TheStreet.com as stating that "It's every bit
15 as challenging" without providing any specific guidance as to earnings estimates.
16          49.     The statements referenced above in ¶¶ 45-48 were each materially false and
17
     misleading for the reasons set forth at ¶ 37.
18
     Disclosures at the End of the Class Period
19
20          50.     On July 17, 2002, the Company issued a press release announcing its financial

21 results for the quarter ended June 30, 2001. The Company reported that its revenues fell more
22 than 15%, to $405.6 million in the second quarter from $477.8 million in the first quarter and that
23
     the Company’s earnings per share were 6 cents – 3 cents short of analysts' consensus estimates.
24
     Defendants also admitted that the Company had incurred a substantial shortfall in customer
25
26 migration to the Siebel 7 CRM platform – with only 20% of the Company’s 3500 customers
27
28                                                   19
 1 signing on for the update. During a conference call following the earnings release, defendants
 2
     disclosed their plan to lay off approximately 15% of Siebel Systems' employees, incurring
 3
     termination related restructuring expenses of $200 to 250 million during the third and fourth
 4
     quarter of 2002. Defendants also confirmed the continuing slide in demand for Siebel Systems'
 5
 6 products by slashing revenue forecasts for the remainder of 2002 by an additional 25% – to $1.6
 7 billion – a $600,000,000 shortfall compared to guidance provided by defendants just six months
 8
     prior.
 9
              51.    In unusually heavy volume of 65 million shares traded, Siebel Systems common
10
     stock price dropped $2.13 on July 18 to close at $9.61.
11
12            52.    On October 15, 2002, an article published by Jupitermedia Corporation in the on-

13 line publication EarthWeb.com on-line network, disclosed that defendants had grossly overstated
14
     the Company’s customer satisfaction ratings during the Class Period and had failed to disclose
15
     that the Company had an ownership interest in the Company conducting the surveys. The article
16
17 stated in relevant part as follows:
18            Siebel Systems' assertions that it enjoys an unprecedented 90-plus percent
              customer satisfaction rating came under fire recently in a report from Nucleus
19            Research that questioned not just Siebel's customer satisfaction rating but its return
20            on investment claims. Within a week, Siebel released its most recent customer
              satisfaction survey (conducted by Satmetrix, a research firm in which Siebel is
21            a minority owner and strategic partner) that reiterated Siebel's past claims of
              near universal satisfaction. 1


22                                                   *****
23            [A] look at the methodology and the questions used to come up with Siebel's
              customer satisfaction ratings make it much easier to believe Nucleus than
24            Satmetrix. ... [T]here are three good reasons why the Satmetrix surveys are
              skewed in Siebel's favor: The lack of anonymity of the survey. The Siebel
25
26            1
           Defendants subsequently discussed the Company’s investment in Satmetrix during a 1
27 conference call hosted by the Company on or about October 17, 2002.
28                                                     20
 1          customers are sent a URL that links them to a survey that matches the status of
            their implementation. The survey is filled out at a web site, which means that
 2
            Satmetrix knows exactly who is answering what question in what way. Anything
 3          less than total anonymity brings into question whether the respondent is being
            completely candid.
 4                                                *****
            The survey question which leads Siebel to claim 100 percent loyalty has a tricky
 5
            internal logic. Customers are asked, "Based on your experience with Siebel and its
 6          products, are you most likely to continue purchasing or using their products?" The
            response can only be a simple "yes" or "no." The problem is the "or" in the
 7          question. If you plan to never buy software from Siebel again but will continue to
            use the product you've installed, you have to answer "yes." Unless you're tearing
 8
            the system out, you have to answer "yes" and join the rest of the "loyal"
 9          customers. Siebel's customer loyalty figure really measures who is planning to
            throw out an existing implementation and who isn't. [Emphasis added.]
10
11 The article also debunked defendants’ Class Period claims that Siebel Systems’ customers
12 averaged a 10- to 12-month payback period on their investment in Siebel products. The third -
13 party survey conducted by Nucleus Research found that “14 out of 23 marquee customers,
14
     gleaned from Siebel's web site, have no positive [return on investment] and are, most likely,
15
     unhappy as well.”
16
17          53.    On April 11, 2003, news reports revealed that defendants had withheld certain

18 negative results obtained from the Satmetrix surveys conducted during the Class Period. The
19 report published by an industry news service ComputerWire, stated in pertinent part as follows:
20
           Over the past few weeks, eight pages taken from a 75-page customer survey
21         report have anonymously found their way on to the desks of analysts, reporters
           and traders, containing comments about Siebel 7.0, citing issues such as
22
           performance problems concerning the user interface, migration issues, and
23         bugs in the release. ... The survey was carried out at a time when 7.0, which was
           launched in December 2001, was a relatively new product.
24
                                                *****
25
           The surveys are independently carried out by Satmetrix Systems, a provider of
26         customer satisfaction measurement services. Siebel does have links with the
           company and is a minority investor, while one of Satmetrix's board members also
27
28                                                  21
 1          serves on the board of Siebel. Satmetrix has also integrated its own software with
            Siebel to become a Siebel Portfolio Partner, and Siebel is a Satmetrix software
 2
            reseller. Although the links do not invalidate Satmetrix's Siebel customer
 3          satisfaction surveys, they do make them a little less watertight.

 4 Undisclosed Adverse Information
 5
            54.     The market for Siebel Systems’ securities was open, well-developed and efficient
 6
     at all relevant times. As a result of these materially false and misleading statements and failures to
 7
     disclose, Siebel Systems’ common stock traded at artificially inflated prices during the Class
 8
 9 Period. Plaintiff and other members of the Class purchased or otherwise acquired Siebel Systems
10 securities relying upon the integrity of the market price of Siebel Systems’ securities and market
11
     information relating to Siebel Systems, and have been damaged thereby.
12
            55.     During the Class Period, defendants materially misled the investing public, thereby
13
14 inflating the price of Siebel Systems’ securities, by publicly issuing false and misleading statements
15 and omitting to disclose material facts necessary to make defendants' statements, as set forth
16 herein, not false and misleading. Said statements and omissions were materially false and
17
     misleading in that they failed to disclose material adverse information and misrepresented the truth
18
     about the Company, its business and operations, as alleged herein.
19
20          56.     At all relevant times, the material misrepresentations and omissions particularized

21 in this Complaint directly or proximately caused or were a substantial contributing cause of the
22 damages sustained by plaintiff and other members of the Class. As described herein, during the
23
     Class Period, defendants made or caused to be made a series of materially false or misleading
24
     statements about Siebel Systems’ business, prospects and operations. These material
25
26 misstatements and omissions had the cause and effect of creating in the market an unrealistically
27
28                                                     22
 1 positive assessment of Siebel Systems and its business, prospects and operations, thus causing the
 2
     Company's securities to be overvalued and artificially inflated at all relevant times. Defendants'
 3
     materially false and misleading statements during the Class Period resulted in plaintiff and other
 4
     members of the Class purchasing the Company's securities at artificially inflated prices, thus
 5
 6 causing the damages complained of herein.
 7                             ADDITIONAL SCIENTER ALLEGATIONS
 8
            57.     As alleged herein, defendants acted with scienter in that defendants knew that the
 9
     public documents and statements issued or disseminated in the name of the Company were
10
11 materially false and misleading; knew that such statements or documents would be issued or
12 disseminated to the investing public; and knowingly and substantially participated or acquiesced in
13 the issuance or dissemination of such statements or documents as primary violations of the federal
14
     securities laws. As set forth elsewhere herein in detail, defendants, by virtue of their receipt of
15
     information reflecting the true facts regarding Siebel Systems, their control over, and/or receipt
16
17 and/or modification of Siebel Systems’ allegedly materially misleading misstatements and/or their
18 associations with the Company which made them privy to confidential proprietary information
19 concerning Siebel Systems, participated in the fraudulent scheme alleged herein.
20
            58.     While Siebel Systems insiders were issuing false and misleading statements about
21
     Siebel Systems and its business, the Individual Defendants, together with other high-level Siebel
22
23 Systems insiders, directly or indirectly, disposed of over $100 million worth of personally-held
24 stock, benefitting from the artificial inflation in Siebel Systems’ stock price their fraudulent
25 scheme had created. The Individual Defendants and other insiders sold shares during the Class
26
     Period as follows:
27
28                                                     23
1
         Insider/ Title            Sale Date(s)       # of Shares      Price Per       Value
                                                                        Share
2
3    Thomas M. Siebel,
     Chairman                        1/29/02               1,000,000        $34.98   $34,980,000.00
4
                        Total                              1,000,000                 $34,980,000.00
5
6    Kenneth A. Goldman,
     Senior VP                  11/21/01 - 11/27/01           2,500         $23.49      $58,725.00
7
                                 1/28/02 - 1/29/02           25,000         $36.40     $910,000.00
8
                                  2/4/02 - 2/8/02            15,000         $33.00     $495,000.00
9                                4/24/02 - 4/30/02           10,000         $24.70     $247,000.00

10                      Total                                52,500                   $1,652,000.00

11
     David Schwartz, Officer          1/28/02                50,000         $36.20    $1,810,000.00
12
                                      3/1/02                100,000         $30.11    $3,011,000.00
13                               4/22/02 - 4/24/02          100,000         $25.00    $2,500,000.00

14                      Total                               250,000                   $7,321,000.00

15
     David R. Schmaier,
16   Executive VP                     1/28/02               400,000         $36.13   $14,452,000.00

17
     Paul Wahl, President             1/28/02               500,000         $36.74   $18,370,000.00
18
19   Eric E. Schmidt,
     Director                        11/26/01                10,000         $24.27     $242,700.00
20                                    1/29/02                25,000         $34.67     $866,750.00

21                               2/5/02 - 2/26/02            75,000         $30.89    $2,316,750.00

22                                    4/23/02                25,000         $24.92     $623,000.00

                                      5/9/02                 25,000         $23.06     $576,500.00
23
                        Total                               160,000                   $4,625,700.00
24
25   Michael A. Spence,
     Director                        11/20/01                 30,000        $23.86     $715,800.00
26
                                      1/28/02                 50,000        $27.13    $1,356,500.00
27
28                                                    24
 1                                      4/24/02                10,000           $25.01         $250,100.00
 2                         Total                               90,000                         $2,322,400.00

 3
      Charles R. Schwab,
 4    Director                     2/20/02 - 2/22/02          400,000           $28.58       $11,432,000.00

 5
      Bruce A. Cleveland,
 6    Officer                      1/28/02 - 1/29/02          110,000           $35.99        $3,958,900.00

 7
      Mark D. Hanson,
 8    Officer                          11/19/01                25,000           $25.51           $25,000.00

                                        1/28/02                25,000           $36.11         $902,750.00
 9
                           Total                               50,000                          $927,750.00
10
11    Patricia A. House,
      Officer & Director                11/5/01                30,000           $19.86         $595,800.00
12
                                   1/28/02 - 1/29/02          350,000           $36.41       $12,743,500.00
13                                 4/22/02 - 4/23/02          460,000           $25.75       $11,845,000.00

14                         Total                              840,000                        $25,184,300.00

15
          Cumulative Total                                  3,852,500                       $125,226,050.00
16
                                   Applicability Of Presumption Of Reliance:
17
                                       Fraud-On-The-Market Doctrine
18
             59.      At all relevant times, the market for Siebel Systems’ securities was an efficient
19
20 market for the following reasons, among others:
21                    (a) Siebel Systems’ stock met the requirements for listing, and was listed and

22 actively traded on the NASDAQ, a highly efficient and automated market;
23
                      (b) As a regulated issuer, Siebel Systems filed periodic public reports with the SEC
24
     and the NASD;
25
26                    (c) Siebel Systems regularly communicated with public investors via established

27
28                                                     25
 1 market communication mechanisms, including through regular disseminations of press releases on
 2
     the national circuits of major newswire services and through other wide-ranging public
 3
     disclosures, such as communications with the financial press and other similar reporting services;
 4
     and
 5
 6                  (d) Siebel Systems was followed by several securities analysts employed by major

 7 brokerage firms who wrote reports which were distributed to the sales force and certain
 8
     customers of their respective brokerage firms. Each of these reports was publicly available and
 9
     entered the public marketplace.
10
11          60.     As a result of the foregoing, the market for Siebel Systems’ securities promptly

12 digested current information regarding Siebel Systems from all publicly available sources and
13 reflected such information in Siebel Systems’ stock price. Under these circumstances, all
14
     purchasers of Siebel Systems’ securities during the Class Period suffered similar injury through
15
     their purchase of Siebel Systems’ securities at artificially inflated prices and a presumption of
16
17 reliance applies.
18                                          NO SAFE HARBOR
19          61.     The statutory safe harbor provided for forward-looking statements under certain
20
     circumstances does not apply to any of the allegedly false statements pleaded in this complaint.
21
     Many of the specific statements pleaded herein were not identified as "forward-looking
22
23 statements" when made. To the extent there were any forward-looking statements, there were no
24 meaningful cautionary statements identifying important factors that could cause actual results to
25 differ materially from those in the purportedly forward-looking statements. Alternatively, to the
26
     extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein,
27
28                                                     26
 1 defendants are liable for those false forward-looking statements because at the time each of those
 2
     forward-looking statements was made, the particular speaker knew that the particular forward-
 3
     looking statement was false, and/or the forward-looking statement was authorized and/or
 4
     approved by an executive officer of Siebel Systems who knew that those statements were false
 5
 6 when made.
 7                                             FIRST CLAIM
 8
                                    Violation Of Section 10(b) Of
 9                                The Exchange Act And Rule 10b-5
                            Promulgated Thereunder Against All Defendants
10
11          62.     Plaintiff repeats and realleges each and every allegation contained above as if fully

12 set forth herein.
13          63.     During the Class Period, defendants carried out a plan, scheme and course of
14
     conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing
15
     public, including plaintiff and other Class members, as alleged herein; (ii) enable the Individual
16
17 Defendants and other Siebel Systems insiders to sell more than $125 million worth of their
18 personally-held shares of Siebel Systems common stock at artificially inflated prices; and (iii)
19 cause plaintiff and other members of the Class to purchase Siebel Systems’ securities at artificially
20
     inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants,
21
     and each of them, took the actions set forth herein.
22
23          64.     Defendants (a) employed devices, schemes, and artifices to defraud; (b) made

24 untrue statements of material fact and/or omitted to state material facts necessary to make the
25 statements not misleading; and (c) engaged in acts, practices, and a course of business which
26
     operated as a fraud and deceit upon the purchasers of the Company's securities in an effort to
27
28                                                    27
 1 maintain artificially high market prices for Siebel Systems’ securities in violation of Section 10(b)
 2
     of the Exchange Act and Rule 10b-5. All defendants are sued either as primary participants in the
 3
     wrongful and illegal conduct charged herein or as controlling persons as alleged below.
 4
            65.      Defendants, individually and in concert, directly and indirectly, by the use, means
 5
 6 or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a
 7 continuous course of conduct to conceal adverse material information about the business,
 8
     operations and future prospects of Siebel Systems as specified herein.
 9
            66.      These defendants employed devices, schemes and artifices to defraud, while in
10
11 possession of material adverse non-public information and engaged in acts, practices, and a course
12 of conduct as alleged herein in an effort to assure investors of Siebel Systems’ value and
13 performance and continued substantial growth, which included the making of, or the participation
14
     in the making of, untrue statements of material facts and omitting to state material facts necessary
15
     in order to make the statements made about Siebel Systems and its business operations and future
16
17 prospects in the light of the circumstances under which they were made, not misleading, as set
18 forth more particularly herein, and engaged in transactions, practices and a course of business
19 which operated as a fraud and deceit upon the purchasers of Siebel Systems securities during the
20
     Class Period.
21
            67.      Each of the Individual Defendants' primary liability, and controlling person liability,
22
23 arises from the following facts: (i) the Individual Defendants were high-level executives and/or
24 directors at the Company during the Class Period and members of the Company's management
25 team or had control thereof; (ii) each of these defendants, by virtue of his responsibilities and
26
     activities as a senior officer and/or director of the Company was privy to and participated in the
27
28                                                     28
 1 creation, development and reporting of the Company's internal budgets, plans, projections and/or
 2
     reports; (iii) each of these defendants enjoyed significant personal contact and familiarity with the
 3
     other defendants and was advised of and had access to other members of the Company's
 4
     management team, internal reports and other data and information about the Company's finances,
 5
 6 operations, and sales at all relevant times; and (iv) each of these defendants was aware of the
 7 Company's dissemination of information to the investing public which they knew or recklessly
 8
     disregarded was materially false and misleading.
 9
             68.    The defendants had actual knowledge of the misrepresentations and omissions of
10
11 material facts set forth herein, or acted with reckless disregard for the truth in that they failed to
12 ascertain and to disclose such facts, even though such facts were available to them. Such
13 defendants' material misrepresentations and/or omissions were done knowingly or recklessly and
14
     for the purpose and effect of concealing Siebel Systems’ operating condition and future business
15
     prospects from the investing public and supporting the artificially inflated price of its securities. As
16
17 demonstrated by defendants' overstatements and misstatements of the Company's business,
18 operations and earnings throughout the Class Period, defendants, if they did not have actual
19 knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain such
20
     knowledge by deliberately refraining from taking those steps necessary to discover whether those
21
     statements were false or misleading.
22
23           69.     As a result of the dissemination of the materially false and misleading information

24 and failure to disclose material facts, as set forth above, the market price of Siebel Systems’
25 securities was artificially inflated during the Class Period. In ignorance of the fact that market
26
     prices of Siebel Systems’ publicly-traded securities were artificially inflated, and relying directly or
27
28                                                     29
 1 indirectly on the false and misleading statements made by defendants, or upon the integrity of the
 2
     market in which the securities trade, and/or on the absence of material adverse information that
 3
     was known to or recklessly disregarded by defendants but not disclosed in public statements by
 4
     defendants during the Class Period, plaintiff and the other members of the Class acquired Siebel
 5
 6 Systems securities during the Class Period at artificially high prices and were damaged thereby.
 7           70.     At the time of said misrepresentations and omissions, plaintiff and other members
 8
     of the Class were ignorant of their falsity, and believed them to be true. Had plaintiff and the other
 9
     members of the Class and the marketplace known the truth regarding the problems that Siebel
10
11 Systems was experiencing, which were not disclosed by defendants, plaintiff and other members
12 of the Class would not have purchased or otherwise acquired their Siebel Systems securities, or, if
13 they had acquired such securities during the Class Period, they would not have done so at the
14
     artificially inflated prices which they paid.
15
             71.     By virtue of the foregoing, defendants have violated Section 10(b) of the Exchange
16
17 Act, and Rule 10b-5 promulgated thereunder.
18           72.     As a direct and proximate result of defendants' wrongful conduct, plaintiff and the

19 other members of the Class suffered damages in connection with their respective purchases and
20
     sales of the Company's securities during the Class Period.
21
                                               SECOND CLAIM
22
23                                   Violation Of Section 20(a) Of
                             The Exchange Act Against Individual Defendants
24
             73.     Plaintiff repeats and realleges each and every allegation contained above as if fully
25
26 set forth herein.
27
28                                                     30
 1          74.     The Individual Defendants acted as controlling persons of Siebel Systems within
 2
     the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
 3
     positions, and their ownership and contractual rights, participation in and/or awareness of the
 4
     Company's operations and/or intimate knowledge of the false financial statements filed by the
 5
 6 Company with the SEC and disseminated to the investing public, the Individual Defendants had
 7 the power to influence and control and did influence and control, directly or indirectly, the
 8
     decisionmaking of the Company, including the content and dissemination of the various
 9
     statements which plaintiff contends are false and misleading. The Individual Defendants were
10
11 provided with or had unlimited access to copies of the Company's reports, press releases, public
12 filings and other statements alleged by plaintiff to be misleading prior to and/or shortly after these
13 statements were issued and had the ability to prevent the issuance of the statements or cause the
14
     statements to be corrected.
15
            75.      In particular, each of these defendants had direct and supervisory involvement in
16
17 the day-to-day operations of the Company and, therefore, is presumed to have had the power to
18 control or influence the particular transactions giving rise to the securities violations as alleged
19 herein, and exercised the same.
20
            76.     As set forth above, Siebel Systems and the Individual Defendants each violated
21
     Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue
22
23 of their positions as controlling persons, the Individual Defendants are liable pursuant to Section
24 20(a) of the Exchange Act. As a direct and proximate result of defendants' wrongful conduct,
25 plaintiff and other members of the Class suffered damages in connection with their purchases of
26
     the Company's securities during the Class Period.
27
28                                                    31
 1                                        PRAYER FOR RELIEF
 2
            WHEREFORE, plaintiff prays for relief and judgment, as follows:
 3
                    (a) Determining that this action is a proper class action, designating plaintiff as
 4
     Lead Plaintiff and certifying plaintiff as class representative under Rule 23 of the Federal Rules of
 5
 6 Civil Procedure and plaintiff’s counsel as Lead Counsel;
 7                  (b) Awarding compensatory damages in favor of plaintiff and the other Class
 8
     members against all defendants, jointly and severally, for all damages sustained as a result of
 9
     defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;
10
11                  (c) Awarding plaintiff and the Class their reasonable costs and expenses incurred in

12 this action, including counsel fees and expert fees; and
13                  (d) Such other and further relief as the Court may deem just and proper.
14
                                         JURY TRIAL DEMAND
15
            Plaintiff hereby demands a trial by jury.
16
17 Dated: March 25, 2004                            GLANCY BINKOW & GOLDBERG LLP
18
19                                                  ________________________________
                                                    Lionel Z. Glancy (#134180)
20                                                  Michael Goldberg (#188669)
                                                    Dale MacDiarmid (#228667)
21
                                                    1801 Avenue of the Stars, Suite 311
22                                                  Los Angeles, CA 90067
                                                    Telephone: (310) 201-9150
23                                                  Facsimile: (310) 201-9160
24
                                                    GOODKIND LABATON
25                                                     RUDOFF & SUCHAROW LLP
                                                    Christopher J. Keller
26                                                  100 Park Avenue
                                                    New York, N.Y. 10017
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1    Telephone:     (212) 907-0853
     Facsimile:     (212) 883-7053
2
3    Attorneys for Plaintiff

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