Gary Livingston, et al. v. Cablevision Systems Corporation, et al. 12

Case 1:12-cv-00377-KAM-SMG Document 21 Filed 06/29/12 Page 1 of 44 PageID #: 190

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

x GARY LIVINGSTON, Individually and on : Civil Action No. CV-12-377 (KAM) Behalf of All Others Similarly Situated, :

: CLASS ACTION Plaintiff, :

: AMENDED COMPLAINT FOR vs. : VIOLATION OF THE FEDERAL

: SECURITIES LAWS CABLEVISION SYSTEMS CORPORATION, : et al., DEMAND FOR JURY TRIAL :

: Defendants.

x


Lead Plaintiffs Alaska Electrical Pension Fund (“Alaska Fund”) and Iron Workers Local No.

25 Pension Fund (“Iron Workers,” and together, “Plaintiffs” or “Lead Plaintiffs”), by their

undersigned attorneys, on behalf of themselves and the Class they seek to represent, for their

Amended Complaint for Violation of the Federal Securities Laws (the “Complaint”), allege the

following upon knowledge as to their own acts, and upon the investigation conducted by Plaintiffs’

counsel as detailed below.

NATURE OF THE ACTION

1. Lead Plaintiffs bring this federal securities class action on behalf of all purchasers of

the common stock of Cablevision Systems Corporation (“Cablevision” or the “Company”) between

February 16, 2011 and October 28, 2011, inclusive (the “Class Period”), seeking to pursue remedies

under the Securities Exchange Act of 1934 (the “Exchange Act”).

2. Over a period of approximately nine months, Defendants carried out a fraudulent

scheme that caused Cablevision’s stock to trade at artificially inflated prices and resulted in damage

to the Company’s shareholders once the truth was revealed. In short, when Defendants announced

the Company’s fourth quarter 2010 results, they falsely represented that losses in video subscribers

during that period were an “anomaly” and a “one-time” event caused by a programming dispute.

However, Defendants knew this was not true. Rather, increased competition from Verizon

Communications, Inc. (“Verizon”) caused those subscriber losses, which would continue for the

foreseeable future. In fact, Defendants have since admitted that losses in video subscribers were not

limited to the fourth quarter of 2010 – they were a continuing problem that Defendants knew would

plague the Company throughout 2011. In order to mask the severity of the competitive threat during

the Class Period, the Company offered huge discounts and promotions to new and existing video


subscribers. These activities caused the Company’s adjusted operating cash flow (“AOCF”) 1 for the

third quarter of 2011 to decline materially. Once Defendants finally revealed these facts,

Cablevision’s common stock price plummeted and damaged investors.

3. Prior to 2005, Cablevision operated as a virtual cable monopoly. It did not have

direct competition from other cable television service providers in its service areas. In September

2005, that was about to change, as Verizon announced it would begin to offer cable television

services in the New York Metropolitan area.

4. Verizon faced two major obstacles before it could compete effectively with

Cablevision. First, each local municipality in the New York Metropolitan area where Verizon

wished to sell its services had to grant Verizon regulatory approval. Second, after Verizon received

these approvals, Verizon had to build out its fiber-optics network. The combined process resulted in

substantial financial and time barriers for Verizon. As a result, Verizon was not able to develop its

infrastructure sufficiently to pose an actual threat to the Company until shortly before the Class

Period.

5. Prior to and during the Class Period, Verizon launched aggressive promotional and

pricing campaigns that caused Cablevision to lose a substantial number of video subscribers.

Defendants, however, refused to publicly acknowledge that these losses in customers were due to

competition from Verizon, which would continue to impact Cablevision for quite some time.

Rather, at first Defendants falsely represented that the subscriber losses during the fourth quarter of

2010 were due to a combination of the weak economy and an October 2010 programming dispute

1 The Company defines AOCF as “operating income (loss) excluding depreciation and amortization (including impairments), share-based compensation expense or benefit and restructuring expense (or credit).” AOCF is a “non-GAAP measure.”

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between Cablevision and News Corporation (“News Corp.”). Unbeknownst to the members of the

Class – but well known to Defendants – increased competition from Verizon in large part caused the

fourth quarter 2010 losses in video subscribers.

6. Throughout the Class Period, Cablevision continued to lose video subscribers.

During this time, however, Defendants issued numerous press releases and filings with the SEC, and

participated in numerous conference calls with the investment community, which portrayed the

Company’s video subscriber losses as both manageable and unrelated to competition from Verizon.

Nothing could be further from the truth. Furthermore, unbeknownst to investors, the Company was

offering significant incentives to new and existing video subscribers in order to artificially inflate

Cablevision’s reported video subscriber numbers. These undisclosed discounts and promotions

would have a devastating impact on the Company’s AOCF.

7. Although Defendants represented that the previous losses in video subscribers were a

one-time event, on August 9, 2011, the Company announced that Cablevision lost an additional

23,000 video subscribers in the second quarter of 2011. In reaction to this announcement, the price

of Cablevision stock fell $2.50 per share, or 13%, to close at $17.02 per share, on heavy trading

volume. Then, on October 28, 2011, the Company disclosed that AOCF in its cable television

division had decreased by 4.9% from the prior year period. In reaction to the Company’s

announcement, the price of Cablevision stock fell an additional $2.17 per share, or 13%, to close at

$15.14 per share, on extremely heavy trading volume.

JURISDICTION AND VENUE

8. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the

Exchange Act [15 U.S.C. §§78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder by the SEC

[17 C.F.R. §240.10b-5].

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9. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.

§1331 and Section 27 of the Exchange Act.

10. Venue is proper in this District pursuant to 28 U.S.C. §1391(b), because Defendants

maintain an office in this District and many of the acts and practices complained of herein occurred

in substantial part in this District.

11. In connection with the acts alleged in this Complaint, Defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to,

the mails, interstate telephone communications and the facilities of the national securities markets.

PARTIES

12. Lead Plaintiff Alaska Electrical Pension Fund, as set forth in the certification

previously filed with the Court and incorporated by reference herein, purchased the common stock of

Cablevision during the Class Period and has been damaged thereby.

13. Lead Plaintiff Iron Workers Local No. 25 Pension Fund, as set forth in the

certification previously filed with the Court and incorporated by reference herein, purchased the

common stock of Cablevision during the Class Period and has been damaged thereby.

14. Defendant Cablevision, through its subsidiaries, and as more fully explained below,

operates as a telecommunications, media, and entertainment company. The Company provides

telecommunication services, high-speed Internet, and voice over Internet protocol services, including

iO TV digital television, Optimum Voice digital voice, Optimum Online high-speed Internet, and

Optimum WiFi wireless Internet.

15. Defendant James L. Dolan (“Dolan”) was, at all relevant times, Chief Executive

Officer (“CEO”) and President of Cablevision.

16. Defendant Gregg G. Seibert (“Seibert”) has been Chief Financial Officer (“CFO”)

and Executive Vice President of Cablevision since June 2011.

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17. Defendant Michael Huseby (“Huseby”) was CFO and Executive Vice President of

Cablevision until his resignation in June 2011.

18. Defendant Thomas M. Rutledge was, at all relevant times, Chief Operating Officer

(“COO”) of Cablevision and oversaw the day-to-day operations of the Company. Defendant

Rutledge reported directly to Defendant Dolan at all relevant times.

19. The defendants referenced above in ¶¶15-18 are referred to herein as the “Individual

Defendants,” and with Cablevision, as “Defendants.”

20. During the Class Period, the Individual Defendants, as senior executive officers

and/or directors of Cablevision, were privy to confidential and proprietary information concerning

Cablevision, its operations, finances, financial condition and present and future business prospects.

The Individual Defendants also had access to material adverse non-public information concerning

Cablevision, as discussed in detail below. Because of their positions within Cablevision, the

Individual Defendants had access to non-public information about its business, finances, products,

markets and present and future business prospects via internal corporate documents, conversations

and connections with other corporate officers and employees, attendance at management and/or

board of director meetings and committees thereof and via reports and other information provided to

them in connection therewith. Because of their possession of such information, the Individual

Defendants knew or recklessly disregarded that the adverse facts specified herein had not been

disclosed to, and were being concealed from, the investing public.

21. The Individual Defendants are liable as direct participants in the wrongs complained

of herein. In addition, the Individual Defendants, by reason of their status as senior executive

officers and/or directors, were “controlling persons” within the meaning of Section 20(a) of the

Exchange Act and had the power and influence to cause the Company to engage in the unlawful

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conduct complained of herein. Because of their positions of control, the Individual Defendants were

able to and did, directly or indirectly, control the conduct of Cablevision’s business.

22. The Individual Defendants, because of their positions with the Company, controlled

and/or possessed the authority to control the contents of its reports, press releases and presentations

to securities analysts and through them, to the investing public. The Individual Defendants were

provided with copies of the Company’s reports and press releases alleged herein to be misleading,

prior to or shortly after their issuance, and had the ability and opportunity to commit the fraudulent

acts alleged herein.

23. As senior executive officers and/or directors and as controlling persons of a publicly

traded company whose common stock was, and is, registered with the SEC pursuant to the Exchange

Act, and was, and is, traded on the New York Stock Exchange (“NYSE”) and governed by the

federal securities laws, the Individual Defendants had a duty to promptly disseminate accurate and

truthful information with respect to Cablevision’s financial condition and performance, growth,

operations, financial statements, business, products, markets, management, earnings and present and

future business prospects, and to correct any previously issued statements that had become

materially misleading or untrue, so that the market price of Cablevision common stock would be

based upon truthful and accurate information. The Individual Defendants’ misrepresentations and

omissions during the Class Period violated these specific requirements and obligations.

24. The Individual Defendants are liable as participants in a fraudulent scheme and

course of conduct that operated as a fraud or deceit on purchasers of Cablevision common stock by

disseminating materially false and misleading statements and/or concealing material adverse facts.

The scheme: (i) deceived the investing public regarding Cablevision’s business, operations and

management and the intrinsic value of Cablevision common stock; (ii) allowed Defendant Huseby

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and other Cablevision executives to collectively sell 159,912 shares of their personally-held

Company common-stock for gross proceeds in excess of $5.7 million; and (iii) caused Plaintiffs and

members of the Class to purchase Cablevision common stock at artificially inflated prices.

CLASS ACTION ALLEGATIONS

25. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a class consisting of all persons or entities who purchased

the common stock of Cablevision during the Class Period (the “Class”). Excluded from the Class

are Defendants and the officers and directors of the Company, at all relevant times, members of their

immediate families and their legal representatives, heirs, successors or assigns and any entity in

which Defendants have or had a controlling interest.

26. The members of the Class are so numerous and geographically dispersed that joinder

of all members is impracticable. While the exact number of Class members is unknown to Plaintiffs

at this time and can only be ascertained through appropriate discovery, Plaintiffs believe that there

are hundreds, if not thousands, of members in the proposed Class. Record owners and other

members of the Class may be identified from records maintained by Cablevision or its transfer agent

and may be notified of the pendency of this action by mail, using the form of notice similar to that

customarily used in securities class actions.

27. Plaintiffs’ claims are typical of the claims of the members of the Class as all members

of the Class are similarly affected by Defendants’ wrongful conduct in violation of federal law that is

complained of herein.

28. Plaintiffs will fairly and adequately protect the interests of the members of the Class

and has retained counsel competent and experienced in class and securities litigation.

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29. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

(a) whether the federal securities laws were violated by Defendants’ acts as

alleged herein;

(b) whether statements made by Defendants to the investing public

misrepresented material facts about the business, operations and management of Cablevision;

(c) whether the price of Cablevision’s common stock was artificially inflated

during the Class Period; and

(d) to what extent the members of the Class have sustained damages and the

proper measure of damages.

30. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the

damages suffered by individual Class members may be relatively small, the expense and burden of

individual litigation makes it impossible for members of the Class to individually redress the wrongs

done to them. There will be no difficulty in the management of this action as a class action.

LEAD PLAINTIFFS’ INVESTIGATION

31. Lead Plaintiffs base the allegations herein upon the investigation conducted by and

under the supervision of their counsel, which included reviewing and analyzing information relating

to the relevant time period obtained from numerous public and proprietary sources (such as

LexisNexis®, Dow Jones and Bloomberg, Inc.) – including, inter alia, SEC filings, other regulatory

filings and reports, publicly available annual reports, press releases, published interviews, news

articles and other media reports (whether disseminated in print or by electronic media), and reports

of securities analysts and investor advisory services, in order to obtain the information necessary to

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plead Lead Plaintiffs’ claims with particularity where necessary. Lead Plaintiffs believe that further

substantial evidentiary support will exist for the allegations set forth herein after a reasonable

opportunity for discovery.

32. Moreover, the allegations made herein are supported by the first-hand knowledge of

seven confidential witnesses (“CWs”). These witnesses are former Cablevision employees, each of

whom was employed during the Class Period and provided facts concerning the allegations

contained in this Complaint. As detailed below, the CWs each served in positions at Cablevision

that provided them with access to the information they are alleged to possess.

33. CW1 worked as a Director of Database Marketing at Cablevision from 2004 through

July 2011. CW1 was responsible for marketing to potential new customers. CW1 focused on

Cablevision’s marketing efforts in the Long Island, New York, region.

34. CW2 worked as an Account Manager at Cablevision from early 2011 through

November 2011. CW2 was responsible for retaining Cablevision customers who wanted to

disconnect their services.

35. CW3 worked as a Director of Customer Retention at Cablevision from 2002 through

February 2012. CW3 was responsible for overseeing sales of the Company’s video subscriptions.

36. CW4 worked as an Account Manager at Cablevision from 2010 through August

2011. CW4 was responsible for customer retention, including retaining video subscribers.

37. CW5 worked as a Telemarketing Retention Manager at Cablevision from 1999

through March 2012. CW5 was responsible for managing approximately 70 retention

representatives and seven supervisors. CW5 reported to CW3 during 2011.

38. CW6 worked as an Inbound Sales Manager at Cablevision from May 2004 through

October 2011. CW6 was responsible for leading an inbound sales team at Cablevision.

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SUBSTANTIVE ALLEGATIONS

The Company and its Business

39. Defendant Cablevision describes itself as “one of the nation’s leading media and

telecommunications companies. In addition to delivering its Optimum-branded cable, Internet, and

voice offerings throughout the New York area, the company owns and operates cable systems

serving homes in four Western states.”

40. The Company classifies its operations into three segments: (1) Telecommunications

Services, which encompasses the Cable Television and Lightpath 2 divisions; (2) Rainbow; 3 and (3)

Other, which consists primarily of Newsday, News 12 Networks and Clearview Cinemas, among

other affiliated entities.

41. Cablevision manages each of these reportable segments separately.

42. Cablevision evaluates the performance of each reportable segment, including the

Cable Television division, using the financial metric of AOCF.

43. According to Cablevision’s Form 10-Q for the first quarter of 2011, the period ending

March 31, 2011 (the “March 2011 Form 10-Q”), the Company’s video television services accounted

for 47% of Cablevision’s consolidated revenues during that time period.

Cablevision Successfully Managed Competition Through 2010

44. Prior to the enactment of the Telecommunications Act of 1996 (the “Act”), telephone

companies and cable television companies were prohibited from competing against one another.

After passage of the Act, national phone companies – such as Verizon – could offer video television

“Lightpath” consists of Cablevision’s branded commercial data and voice services.

3 “Rainbow” consist of Cablevision’s national television networks: AMC, WE tv, IFC and the Sundance Channel.

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services for the first time, and, as a result, directly compete throughout the United States with

regional television cable operators.

45. Nonetheless, for years after Congress passed the Act, Cablevision faced little

competition from other cable service providers in the areas where it did business.

46. That was all about to change. By 2005, Verizon created FiOS, which is Verizon’s

version of the domestic telecommunication services offered by Cablevision: Internet, telephone and

video television service. FiOS operates over a fiber-optic communications network.

47. During 2005, Verizon announced that it was launching FiOS service throughout the

United States, including in the New York Metropolitan area.

48. Later that year, the first municipality in New York State voted to allow Verizon to

offer FiOS to its residents.

49. Then, in 2006, Verizon and FiOS began to compete directly with Cablevision in the

New York Metropolitan area. However, at that time, Verizon was unable to offer its services to

most Cablevision subscribers. This was because Verizon still needed to obtain regulatory approvals

from most of the municipalities before it could even begin to build its fiber-optic network. This

process necessarily took a great amount of time and money, which forestalled any real competition

for several years.

50. Over time, however, Verizon obtained the necessary approvals and started to

construct its network to increase its footprint in the New York Metropolitan area. In fact, by August

2007, FiOS was available to roughly 25% of the households that Cablevision serviced.

51. Verizon’s penetration into Cablevision’s service area continued to advance

throughout the Class Period. Indeed, by March 2011, Defendants estimated that FiOS was available

to roughly 40% of the households serviced by Cablevision.

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52. However, while Verizon was building its network from 2005 through the middle of

2010, Cablevision did not suffer any real negative competitive effects from Verizon in terms of

video subscriber losses.

53. Nevertheless, Defendants knew all that was about to change because by mid-2010

Verizon had the infrastructure in place to compete head to head in Cablevision’s core market.

54. This competition was particularly troublesome for Cablevision because the Company

did not have the ability to grow its subscriber base. In fact, by the end of 2010, Cablevision was

highly penetrated in the New York Metropolitan area, meaning that a large percentage of households

in this area were already video subscribers with the Company and there were few opportunities

available for potential new video subscriptions.

55. As a result, at the start of the Class Period, Cablevision was forced to play defense,

and try to retain its current video subscribers.

56. Recognizing that competition from Verizon had developed into a real threat to

Cablevision’s business, Defendants actively tracked Verizon to assess its level of video service

penetration in Cablevision’s geographic markets.

The Company’s October 2010 “Retrans” Dispute with News Corp.

57. News Corp. is a multinational mass media corporation that owns, among other

entities, FOX broadcast television networks.

58. Cablevision’s contract with News Corp. to carry FOX programming expired on

October 15, 2010. Cablevision and News Corp. failed to agree upon a new contract by that date,

and, as a result, on October 16, 2010 at 12:01 a.m., News Corp. blocked all of its programming from

Cablevision’s video subscribers.

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59. Just two weeks later, on October 30, 2010, Cablevision and News Corp. reached an

agreement on a new programming deal. At that time, FOX restored its programming for all

Cablevision video subscribers.

60. While Cablevision and News Corp. did not release the financial terms of their

renewed agreement, Cablevision issued a press release dated October 30, 2010, in which the

Company stated that “Cablevision has agreed to pay FOX an unfair price for multiple channels of its

programming including many in which our customers have little or no interest. Cablevision

conceded because it does not think its customers should any longer be denied the FOX programs

they wish to see.”

61. The dispute between Cablevision and News Corp. was known as a retransmission, or

“retrans,” dispute. Cablevision’s retrans dispute with News Corp. received significant media

attention and both companies engaged in aggressive marketing campaigns to sway public opinion.

62. The retrans dispute with News Corp. was not the first retrans dispute that Cablevision

had experienced. Rather, in 2010 alone, Cablevision was involved in retrans disputes with two other

content providers: (i) Scripps Networks Interactive (“Scripps”) (owner of, among television

channels, Food Network and HGTV) in January 2010, lasting 20 days; and (ii) The Walt Disney

Company (“Disney”) (owner of, among other entities, ABC television channel) in March 2010,

lasting one day.

63. The Company did not claim to suffer losses in video subscribers after the Scripps or

Disney retrans disputes. On the contrary, on February 25, 2010, the Company issued a press release

announcing its financial results for the fourth quarter of 2009, stating in relevant part that there was a

gain of 2,000 video subscribers during that period. Likewise, on May 6, 2010, the Company issued a

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press release announcing its financial results for the first quarter of 2010, stating in relevant part that

there was a gain of 12,900 video subscribers during that period.

Cablevision Knew It Was Rapidly Losing Video Subscribers to Verizon Starting in 2010

64. During the fourth quarter of 2010 and thereafter, Cablevision was rapidly losing video

subscribers. Indeed, when the Company reported its fourth quarter 2010 financial results on

February 16, 2011, it reported that Cablevision lost 15,000 video subscribers during that period.

65. To assuage investor concerns that the losses in video subscribers may be a trend that

would continue into future periods, on February 16, 2011, Defendants stated that the Company’s

fourth quarter 2010 loss in video subscribers was a “one-time” event and was an “anomaly.”

Specifically, Defendants blamed the fourth quarter 2010 video subscriber loss on the retrans dispute

with News Corp. and the weak economy.

66. In making these statements, Defendants knew or recklessly disregarded that video

subscriber losses would be an ongoing problem for the Company throughout 2011 due to increased

competition from Verizon.

67. According to a former Director of Database Marketing at the Company, CW1, by the

start of the Class Period, Cablevision started to experience significant declines in video subscribers

each month.

68. These massive customer defections were not lost on Company executives. According

to a former Director of Customer Retention at the Company, CW3, Cablevision was aware in early

2011 that internal video subscription projections for 2011 would not be met.

69. In fact, before the start of the Class Period, Verizon implemented an aggressive

marketing and pricing war to win video subscribers from Cablevision. According to a former

Account Manager at the Company, CW4, Verizon’s FiOS service became available to larger

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portions of Long Island and Brooklyn. As 2011 progressed, CW4 stated that Cablevision continued

losing customers to Verizon at a steady rate. CW1 corroborated the source of these losses and

recounted that before and during the Class Period many customers left Cablevision for Verizon.

70. A former Telemarketing Retention Manager at the Company who was responsible for

70 retention representatives and seven supervisors, CW5, also noted that Cablevision steadily lost

video subscribers to Verizon as 2011 progressed. In fact, according to a former Account Manager at

the Company, CW2, a large portion of Cablevision customers who sought to cancel their video

subscriptions in 2011 stated that they were leaving the Company for Verizon.

71. By mid-2011, it became clear within the Company that the competition from Verizon

was having a devastating effect on subscriber numbers. The Company’s former Director of

Customer Retention, CW3, stated that, in 2011, weekly meetings were held at Cablevision’s

Piscataway, New Jersey, call center each Monday to discuss projections for video subscribers.

These meetings consisted of an overview of the sales results for the previous week.

72. Prior to each weekly meeting, projection reports were prepared and circulated via

email to attendees of the weekly meetings. Cablevision’s former Director of Customer Retention,

CW3, explained that these reports were Excel-based spreadsheets that detailed, among other things,

the projected sales for the upcoming week for video subscriptions and the sales results for the

previous week for video subscriptions. The weekly projection reports were placed into PowerPoint

presentations and discussed at the weekly projection meetings.

73. However, according to the former Director of Customer Retention, CW3, Cablevision

repeatedly missed its video subscriber projections in 2011. In fact, by no later than June 2011, it was

apparent that Cablevision would not meet its yearly 2011 numbers for video subscriptions. Indeed,

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CW3 characterized achieving the Company’s internal video subscriber projections as “doing the

impossible.”

74. The inability to meet projections was known throughout the Company. For example,

a former Inbound Sales Manager at the Company, CW6, confirmed that Cablevision knew it would

not meet its internal video subscription projections for 2011.

Cablevision Tracked and Monitored Video Subscriber Losses on a Weekly Basis

75. Prior to and during the Class Period, Defendants knew on a weekly basis that internal

projections for video subscriptions were not being met. Indeed, the Company employed various

mechanisms to ensure that Defendants received regular and accurate information regarding

Cablevision’s video subscriber losses.

76. Cablevision maintained the Integrated Desktop Application (“IDA”) database, which

was an application Cablevision employees and executives used before and during the Class Period to

keep records of customer information, cable box data, and billing and collections information,

among other vital information. The IDA database served a variety of functions and was a major

informational database within the Company at all relevant times.

77. As a former inbound sales manager responsible for an entire sales staff, CW6 was an

integral part of the team that implemented the IDA database at the Company in 2009. According to

CW6, the IDA database served as an automated data entry system for the Company. For example,

the former Sales Manager affirmed that when a sales representative entered an order into the IDA

database, there was a “drop down” menu that had pre-programmed codes for the sales representative

to indicate whether the order represented a new customer (code “seven”), a win back from a

competitor (code “eight”) or a transfer request from a current Cablevision customer who moved to a

new residence (code “one”).

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78. Moreover, CW5, a former Telemarketing Retention Manager who worked for

Cablevision for 13 years and was responsible for managing 70 people and seven supervisors, stated

that the IDA database contained information regarding the number of customers who left

Cablevision for competitors, such as Verizon. Specifically, CW5 recounted that retention

representatives noted in the IDA database if a customer was cancelling their video subscription to go

to a competitor, and, if so, which competitor.

79. The IDA database housed other important information. For example, a former

account manager responsible for customer retention, CW4, noted that the IDA database tracked

information regarding promotions given to video subscribers, including when those promotions

would expire. CW4 also stated that reports were generated from the IDA database to evaluate the

performance of sales personnel.

80. Moreover, the IDA database also tracked the Company’s actual sales results. The

Company’s former Director of Customer Retention, CW3, confirmed that weekly sales reports were

created from the sales results data contained in the IDA database.

81. Emails were then circulated that provided updates regarding video subscription sales.

According to CW6, these emails would convey percentages and/or hard numbers concerning video

subscriber gains or losses.

82. In addition to the IDA database, Cablevision had an entire internal department called

the “Key Operating Metrics” department dedicated to tracking existing video subscribers and

measuring attrition rates. The Company’s former Director of Database Marketing, CW1, stated that

the Key Operating Metrics department created “dashboards” that showed the number of video

subscribers on a monthly basis. The Key Operating Metrics department also compared these

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statistics to prior periods year-over-year. According to CW1, Cablevision kept these reports on its

internal website.

83. The Key Operating Metrics department prepared projection and sales reports that

were distributed to corporate personnel. The Company’s former Director of Customer Retention,

CW3, acknowledged this fact and stated that senior level management watched the numbers relating

to video subscriptions.

Cablevision Was Forced to Extend Promotions to Stem Video Subscriber Losses in 2011

84. During the Class Period, Cablevision continued to lose customers to Verizon. As a

result, Cablevision implemented a plan to artificially inflate its reported video subscribers. This plan

consisted of aggressively extending expiring promotions and offering new promotions to former and

existing customers.

85. Specifically, during the Class Period, the Company started to offer increased

discounts and promotions to current Cablevision customers and former customers whose business

Cablevision sought to win back. According to a former Inbound Sales Manager, CW6, while the

Company was aware at this time that increasing discounts and promotions would negatively impact

Cablevision’s financial results, the Company was more focused on the number of video subscribers

than financial results. Put differently, Defendants decided to sacrifice profits rather than have to

report subscriber losses.

86. Cablevision historically utilized one and two year promotions. The Company’s

former Inbound Sales Manager, CW6, described the two year promotions as consisting of, for

example, a deal where a regular customer paid $108 per month for the “family package,” while

customers receiving the 2 year promotion would pay only $77 per month for the duration of the

promotion.

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87. The details concerning these promotions were maintained on the IDA database, and

therefore the Company was aware that they would expire in 2011, according to a former Cablevision

Account Manager, CW4. This former Account Manager stated that, pursuant to Company policy, a

customer who received a two year promotion would not be eligible for a new promotion for a period

of six months after the original promotion expired. This policy was confirmed by CW5, who stated

that the Company barred existing customers from receiving a new promotion until at least six

months had passed since the expiration of their last promotion.

88. During 2011, however, CW4 indicated that Cablevision revised this policy and

allowed customers with expiring promotions to be immediately eligible for new promotions from the

Company.

89. According to the former Director of Customer Retention, CW3, Cablevision changed

this policy because internal projections for video subscribers were not being met and video

subscriber losses were occurring at a high rate. As a result, the number of promotions offered to the

Company’s video subscribers increased throughout 2011.

90. Defendants’ plan to artificially increase the number of reported customers through

promotions was successful. However, the former Director of Customer Retention, CW3, noted that

the success of the Company’s retention efforts came at the high cost of lower rates and large

commissions to sales staff.

91. In fact, these aggressive efforts to extend promotions to artificially inflate the number

of video subscribers during the Class Period caused increased marketing and sales costs that

negatively impacted the cable television division’s AOCF.

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92. As a result, during the Class Period, the Company knew or recklessly disregarded that

its promotional activities would cause any containment of video subscriber losses to come at the

expense of AOCF.

Materially False and Misleading Statements Issued During the Class Period

93. The Class Period begins on February 16, 2011. On that date, Cablevision filed with

the SEC its annual report for 2010 on Form 10-K. At the same time, Cablevision issued a press

release announcing its financial results for the fourth quarter and year end of 2010, the period ended

December 31, 2010. Defendant Dolan, commenting on the Company’s financial results, stated, in

pertinent part, that “Cablevision’s growth continued in the fourth quarter and contributed to solid

full-year increases in revenue and AOCF.” With regard to the Company’s Cable Television

subdivision, Defendants stated, in pertinent part, as follows:

Cable Television fourth quarter 2010 net revenues increased 4.9% to $1.390 billion, AOCF decreased 0.4% to $551.5 million and operating income decreased 1.9% to $352.5 million, each compared to the prior year period. The fourth quarter 2010 increase in net revenues were driven by the twelve month growth in digital video, high-speed data, and voice customers as well as higher rates. Fourth quarter 2010 AOCF and operating income were driven by the revenue increase offset by increased expenses, including a $14.4 million contract termination charge at Bresnan. Excluding the Bresnan results, growth in revenue, AOCF and operating income would have been 3.3%, 0.9% and 1.9%, respectively.

94. Following the press release, Cablevision held a conference call with analysts and

investors to discuss the earnings announcement and the Company’s operations. With regard to the

Company’s outlook on subscribers, Defendant Rutledge stated, in pertinent part, as follows:

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Defendant Rutledge:

Basic subscribers declined by 1%, almost all of which is attributable to our decision to contest a retransmission consent demand. 4

* * *

Defendant Rutledge:

. . . With regard to the retrans fight, you know, it had an impact in the fourth quarter that was significant. As you know, we were growing subs in the first and second quarter, although the economy was the still impacting the business in household formation. And that really hasn’t changed.

Third quarter, which is our seasonal weakest quarter, we did lose video customers. In the fourth quarter, we think that almost all of the either decreased sales or disconnects, which are about 50-50, result from the retrans fight. And as we look at our data after that, the activity of the business is tracking like it was prior to that issue.

Craig Moffett – Analyst – Bernstein:

So given that, Tom, do you feel like the fourth-quarter numbers are an anomaly then in terms of subscribers, or do you have any change in your optimism about the growth prospects of the business overall?

Defendant Rutledge:

I think it is an anomaly directly related to that. It was a decision we had to take. We were faced with a take it or leave it situation on very expensive programming costs. We got significantly lower programming costs as a result of it. Our passings remain the same, so our opportunity for sales continues. Our assets remain the same. So we thought that taking the hit was worth it. But we thought it was a one-time kind of hit.

* * *

Richard Greenfield – Analyst – BTIG:

. . . Tom, I think you said that the basic sub loss was basically all due to the retrans battle, as you look at it. Could you give us some sense of what the flow-through was? Were most of those losses of basic subscribers triple-play subscribers? Was it

All emphasis is added unless otherwise indicated.

- 21 -


in line with your regular mix? Any way of thinking about the impact on digital data telephony would be great. Thanks.

Defendant Rutledge:

. . . So you had an effect where we did lose -- we had some disconnects of people switching to other services, but we also stepped on our own sales message and grew less customers than we would have. And so I do think in that sense, it is kind of a one-time event.

95. Analysts and investors alike were misled by Defendants’ February 16, 2011

statements. For instance, Deutsche Bank analyst Doug Mitchelson stated in his February 16, 2011

report on Cablevision that “[m]gmt suggested 4Q was severely impacted by CVC’s retrans dispute

with Fox, which had an impact on both gross adds and churn, and on marketing spend, and appeared

to be greater than we had modeled. Mgmt indicated sub trends are now back to the pace pre-dispute,

which is good news.” In addition, Pivotal Research Group analyst Jeffrey Wlodarczak reported in

his February 17, 2011 report on Cablevision that “CVC reported mixed 4Q results as it appears that

the company was hit harder than anticipated by the very public 4Q FOX retransmission dispute.

Management indicated operations have returned to normal levels.” Similarly, Collins Stewart

analyst Thomas Eagan noted in his February 17, 2011 report on Cablevision that “CEO Tom

Rutledge indicated that the majority of the 35k basic decline was due to loss of the Fox broadcast

signal during their retransmission dispute. Moreover, increased marketing spend (to counter the

signals pull) ate into 4Q OCF. Mr. Rutledge suggested that so far in 1Q11, operations have returned

to levels prior to the dispute.”

96. The statements referenced above in ¶¶93-94 were each materially false and

misleading when made because they misrepresented and failed to disclose the following adverse

facts, which were known to Defendants or recklessly disregarded by them:

(a) that the loss in video subscribers was neither an “anomaly” related to a dispute

with Fox nor a “one-time” event. Rather, Cablevision was steadily losing video subscribers,

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especially in the New York Metropolitan area – the Company’s main service area – due to increased

competition;

(b) that almost all of the basic subscriber losses were not attributable to

Cablevision’s decision to contest a retransmission consent demand but were rather caused by

increased competition;

(c) that promotions for video subscribers were expiring in 2011, causing these

video subscribers to be more likely to leave the Company for a competitor;

(d) that in order to stem video subscriber losses, Cablevision had to incur

increased marketing and sales expenses, including by aggressively offering promotions, which

would negatively impact AOCF; and

(e) as a result of the foregoing, Defendants lacked a reasonable basis for their

positive statements about the Company and its prospects.

97. On March 1, 2011, Cablevision participated in the Morgan Stanley Technology,

Media & Telecom Conference to discuss the Company and its business. During the conference,

Defendant Rutledge spoke positively about the Company’s cable television business, stating, in

pertinent part, as follows:

Benjamin Swinburne – Analyst – Morgan Stanley:

. . . Can you just talk about what happened in Q4, whether it’s an anomaly and how you see sort of growth from here?

Defendant Rutledge:

Well, yes, I do think it was an anomaly in – from an RGU 5 growth perspective. We had a dispute over retransmission fees. We actually didn’t carry part of the World

5 “RGU” stands for revenue generating unit, and it is a metric that represents individual service subscribers that generate recurring revenue for the Company.

- 23 -


Series and several football games and there was a high profile fight. It was a difficult thing to take on in that not only did we irritate customers by doing it and having some people disconnect, but we also had to spend a lot of marketing dollars and energy talking about things other than sales. So we didn’t take as many sales either during that period.

98. Defendant Rutledge’s statements served to reinforce the belief that the fourth quarter

2010 video subscriber losses were limited to the impact from the retrans dispute with News Corp. –

not increased competition from Verizon. For example, BTIG analyst Richard Greenfield stated in

his April 12, 2011 report on Cablevision that “[w]hile Cablevision’s Q4 2010 was subpar, the

underperformance was self-inflicted – as they suffered from the loss of Fox broadcast and cable

network content for a portion of the quarter. In fact, the programming disruption led to the worst

basic quarterly sub loss we have ever seen at Cablevision, with Q4 typically a solid quarter for

Cablevision.”

99. The statements referenced above in ¶97 were each materially false and misleading

when made because they misrepresented and failed to disclose the following adverse facts, which

were known to Defendants or recklessly disregarded by them:

(a) that the loss in video subscribers was not an “anomaly.” Rather, Cablevision

was steadily losing video subscribers, especially in the New York Metropolitan area – the

Company’s main service area – due to increased competition;

(b) that promotions for video subscribers were expiring in 2011, causing these


(c) that in order to stem video subscriber losses, it had to incur increased

marketing and sales expenses, including by aggressively offering promotions, which would

negatively impact AOCF; and

(d) as a result of the foregoing, Defendants lacked a reasonable basis for their


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100. On May 5, 2011, the Company filed with the SEC its quarterly report for the period

ended March 31, 2011 on Form 10-Q. With regard to the Company’s operations, Defendants stated,

in pertinent part, as follows:

Historically, we have made substantial investments in the development of new and innovative programming options and other product enhancements for our customers as a way of differentiating ourselves from our competitors. We likely will continue to do so in order to remain an effective competitor, which could increase our operating expenses and capital expenditures.

101. Also on May 5, 2011, Cablevision issued a press release announcing its financial

results for the first quarter of 2011, the period ended March 31, 2011. Defendant Dolan,

commenting on the Company’s financial results, stated, in pertinent part, that “[f]or the first quarter

of 2011, Cablevision generated strong increases in revenue and AOCF. This performance was

driven by steady growth in our Rainbow business as well as our cable business, which this quarter

included a solid showing from the recently acquired Bresnan properties.” With respect to the

Company’s Cable Television subdivision, the press release stated, in pertinent part, as follows:

Cable Television first quarter 2011 net revenues increased 10.7% to $1.487 billion, AOCF increased 9.2% to $588.6 million and operating income increased 6.4% to $372.1 million, each compared to the prior year period. The increase in revenue, AOCF and operating income compared to the prior year period was due primarily to the addition of Bresnan in the first quarter 2011 results. Excluding Bresnan, growth in revenue, AOCF and operating income would have been 2.1%, 2.5% and 6.0%, respectively.



Company’s loss of subscribers, Defendant Rutledge stated, in pertinent part, as follows:

Cablevision gained 6000 customers in the quarter. Data customers increased by 32,000, voice lines by 40,000, and video declined by 8000.

* * *

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Douglas Mitchelson – Analyst – Deutsche Bank:

One for Tom and one for Josh. Tom, I’m just trying to get a gauge on the sub counts. And you gave the New York area essentially by breaking out Bresnan. How much of the basic sub loss in the New York area was a carryover from the programming battles in 4Q?

And on high-speed data, if I’m doing the math right, I would think both gross adds and churn would have to be down. And any sort of discussion of drivers there would be helpful.

And, Josh, on your side, just an update 2Q scatter market. And you’ve had some pretty big ratings successes. In the upfront, can you go after both share and price? Or with the incremental ratings you have to sell, do you just target share this year? Thanks.

Defendant Rutledge:

Well, I will start, Doug. On the sub issue, Cablevision core system, the traditional cable system, lost about 8400 video customers. Some of that was attributable, I think, to how we came into the year after the dispute we had had with News Corp. and the carriage in the World Series.

But we still continue to see softness in the economy, particularly in lower-income neighborhoods. New York City, Newark, Bridgeport and other parts of our systems are not performing as well as they have in the past. And we think that’s due directly to economic factors. And that continues to be the biggest impact on us on a year-to-year basis.

*

Craig Moffett – Analyst – Sanford Bernstein:

Two questions. First, for Tom, can you just talk about – FiOS had a lot of aggressive promotions in the quarter. They don’t seem to have had a big impact. Can you talk about responding to FiOS promotions and what you’re seeing in terms of the promotional activity?

And then, for Gregg, given this dramatic drop in capital intensity, I wonder if you can just give us a little more insight into your plans for capital allocation after the spinoff within the cable group.

Defendant Rutledge:

Craig, this is Tom. I guess, yes, FiOS is aggressive. And we are doing well, relatively speaking, competitively. They have been offering very aggressive pricing for the triple play, contrary to their expressed marketing strategy of being a premium service.

- 26 -


But we continue to respond in the marketplace with superior service and superior product offerings. We’ve just launched our new Boost Plus product integrated into a triple play. We’ve been the first company to put its full cable service on the iPad, the first company to be able to put all of the products on your PC on all your TVs.

So we continue to lead in terms of service and quality and product development. But it’s a very competitive marketplace.


Can you just update us on what the footprint overlaps are like now at this point?

Defendant Rutledge:

I believe FiOS represents a little more than 40%

Defendant Rutledge:

Our footprint from a passings perspective, AT&T, 6% or so. So we have wireline competition in about 46% of our footprint.


And relative to last year, what’s that up, about 5%, 6%?

Defendant Rutledge:

No, it hasn’t really moved at all, in any significant way, in the last year.

103. Defendants’ statements on May 5, 2011 continued to deceive both analysts and

investors. For example, RBC Capital Markets analyst Ryan Vineyard stated in his May 6, 2011

report on Cablevision that “subscription revenue growth were below expectations . . . [m]anagement

attributed the slowdown to: 1) a sluggish economy and; 2) a smaller annual price increase in 1Q

post-Fox blackout.” In addition, Deutsche Bank analyst Doug Mitchelson reported in his July 1,

2011 report on Cablevision that “[f]urther for CVC, we expect stronger growth as they emerge from

a run of programming battles . . . and valuation will benefit from shareholders seeing core cable

results for the first time in August.” Mr. Mitchelson likewise noted in his July 25, 2011 report on

Cablevision that “we expect easy Y/Y comparisons in 4Q/1Q due to programming disputes

impacting 4Q10 and 1Q11 (CVC has completed retrans deals with all 4 majors).”

- 27 -


104. The statements referenced above in ¶¶100-103 were each materially false and

misleading when made because they misrepresented and failed to disclose the following adverse

facts, which were known to Defendants or recklessly disregarded by them:

(a) that Cablevision was not doing well competitively. Rather, Cablevision was

steadily losing customers to Verizon and was only able to stem the customer losses by offering huge

discounts and costly promotions, which hurt the Company’s bottom line;

(b) that the loss in video subscribers was not attributable to the retrans dispute

with News Corp. Rather, Cablevision was steadily losing video subscribers, especially in the New

York Metropolitan area – the Company’s main service area – due to increased competition;

(c) that promotions for video subscribers were expiring in 2011, causing these


(d) that Cablevision was relying on increased promotions, not on quality or

service, to stem the tide of video subscriber losses;

(e) that Cablevision’s video subscriber numbers were inflated by the discounts

and promotions; and

(f) as a result of the foregoing, Defendants lacked a reasonable basis for their


Defendants Reveal the Video Subscriber Losses Were Not a One-Time Anomaly Caused by the Dispute with News Corp.

105. On August 9, 2011, the Company filed with the SEC its quarterly report for the

period ended June 30, 2011 on Form 10-Q. Also on August 9, 2011, Cablevision issued a press

release announcing its financial results for the second quarter of 2011, the period ended June 30,

2011. Defendant Dolan, commenting on the Company’s financial results, stated, in pertinent part,

that “Cablevision’s consolidated results are now primarily driven by our telecommunications

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operations, which experienced solid revenue growth in the second quarter due largely to our Bresnan

properties.” With regard to the Company’s Cable Television subdivision, Defendants stated, in


Cable Television second quarter 2011 net revenues increased 9.8% to $1.506 billion, AOCF increased 1.1% to $592.7 million and operating income decreased 5.4% to $373.2 million, all compared to the prior year period. The increase in revenue compared to the prior year period was due primarily to the addition of Bresnan in the results for the second quarter 2011. Excluding Bresnan, revenue growth would have been 1.3%, compared to the prior year period. Second quarter 2010 AOCF and operating income results included a favorable programming cost adjustment of $23.0 million. Second quarter 2011 AOCF would have been down 0.9% and operating income would have grown 1.2%, both compared to the prior year period, if the 2010 programming cost adjustment and the second quarter 2011 Bresnan results were excluded.


investors to discuss the earnings announcement and the Company’s operations. With regards to

video subscriber losses, Defendant Rutledge stated, in pertinent part, as follows:

In the second-quarter our total Company results included an increase of 5,000 high-speed data customers and 27,000 new voice lines, and a video loss of 23,000 .

*

Douglas Mitchelson – Analyst – Deutsche Bank:

Would you say that the FiOS competition has become irrational or still manageable, or are you optimistic that you can actually start to improve share against FiOS?

Defendant Rutledge:

We hope to increase share against FiOS. We continue to interestingly maintain our marketshare in data. We continue to grow our voice business. And since our FiOS competition actually began we have increased our total customer relationship subscribers by more than 10%. And, yes, we have lost several points of video penetration, but it is a marketplace where we can continue to provide superior products, superior customer service, and compete aggressively, and continue to

- 29 -


grow our RPS 6 by adding new value products into our sales mix and using our selling techniques to drive our customers toward those products.

So, yes, it is very competitive. Looking at their pricing and their – what they have to do to grow marketshare, is it irrational? I think they lose free cash flow on every customer they connect. If that is irrational, it is irrational.

* * *

Tom Eagan– Analyst – Collins Stewart:

In terms of customers, they were a little bit lower than we had expected, and a little lower versus last year. If you could give us a little bit of color – in terms of basic and data how was the gross adds versus the churn? Was the churn that much higher and was the gross lower? Thanks.

Defendant Rutledge:

In general churn was up slightly and gross adds were down.

* * *

Marci Ryvicker – Analyst – Wells Fargo:

Tom, can you talk about the different regions in your Eastern footprint? I think you said previously that the low-end neighborhoods are where you are losing the most customers. And if I’m reading you right, it sounds like Verizon may be incrementally aggressive in Long Island, so maybe dynamics within the Eastern region has changed.

Defendant Rutledge:

The Verizon footprint is throughout our service area, which includes New Jersey, Westchester, New York City and Long Island, and their tactics are the same throughout the footprint. And they have been aggressive in their offer strategy in the second-quarter and in the first-quarter, and that has been true throughout our footprint.

The economic impact on our customers in lower income neighborhoods is more pronounced. And we see less gross adds in low income areas and that is the result of

6 As described on page 9 of the Company’s August 9, 2011 press release, “RPS,” which stands for average monthly cable television revenue per video customer, “is calculated by dividing average monthly cable television GAAP revenue for the quarter by the average number of basic video customers for the quarter.”

- 30 -


economics and vacancies. It is also true to a lesser extent in the higher income areas, where we are more competitive as well. So there is economic pain in competitive areas and there is aggressive competition in competitive areas.

107. Defendants’ statements on August 9, 2011 generated surprise and disappointment

from both analysts and investors. For example, Deutsche Bank analyst Doug Mitchelson stated in

his August 9, 2011 report on Cablevision that “CVC rptd. results below across the board, which will

call into question the core cable plant’s ability to grow at a healthy pace, partly due to its high pen.

but also competition from FiOS and the impact of the challenging economy (mgmt mentioned gross

adds are lower in their lower-end geographies).” In addition, Brean Murray Carret & Co. analyst

Todd Mitchell reported in his August 9, 2011 report on Cablevision that “Cablevision is getting

killed by FiOS in NYC suburbs. Stock (was) relatively expensive.”

108. In reaction to the Company’s August 9, 2011 announcement, the price of Cablevision

stock fell $2.50 per share, or 13%, to close at $17.02 per share, on heavy trading volume. However,

as described in detail herein, Defendants continued to conceal the true scope of the problems at the

Company.

Defendants Reveal That the Company’s AOCF Had Decreased Due to Promotional Activities

109. On October 28, 2011 the Company filed with the SEC its quarterly report for the

period ended September 30, 2011 on Form 10-Q. Also on October 28, 2011, Cablevision issued a

press release announcing its financial results for the third quarter of 2011, the period ended

September 30, 2011. Defendant Dolan, commenting on the Company’s financial results, stated, in

pertinent part, that “[a]s we are operating in a challenging environment, we are continuing our efforts

to capitalize on the strength of our network and products and on building our business for the long-

term.” With regard to the Company’s Cable Television subdivision, Defendants stated, in pertinent

part, as follows:

- 31 -


Cable Television third quarter 2011 net revenues increased 9.1% to $1.490 billion, AOCF decreased 1.1% to $550.6 million and operating income decreased 12.0% to $322.0 million, all compared to the prior year period. The increase in revenue compared to the prior year period was due primarily to the addition of Bresnan in the results for the third quarter 2011. Excluding the items mentioned above, revenue would have increased 0.5%, while AOCF and operating income would have decreased 4.9% and 5.5%, respectively , all compared to the prior year period. The decrease in AOCF, compared to the prior period, was driven by cost increases , including both higher programming and sales and marketing costs , on essentially flat revenue growth.



Company’s video subscriber losses, Defendant Rutledge stated, in pertinent part, as follows:

In addition to lack of housing growth, there are several other factors that have impacted our quarter-over-quarter revenue growth for the full fiscal year . . . .

While our third quarter is seasonally our weakest quarter, we were aided by the launch of new services on the iPod Touch and iPhone, which were integrated into our promotions. In addition, one of our competitors had a strike which hurt their performance. Basic video data and voice lines all had net changes which were an improvement not only of last year’s third quarter but also the second quarter this year. High-speed data subs increased by 17,000 in the quarter, and our voice lines grew by 38,000. Video customers declined by 19,000 in the quarter for the total Company . . . .

And our aggressive win back strategy continues. As of September 30, our win back total is more than 45% of customers who once tried FiOS. In the Bresnan properties, we saw growth in data and voice customers in the quarter and a slight decline in video subs. Digital penetration is rising as we deploy new and better digital services, and at the end of the third quarter, 75% of Bresnan’s basic subscribers were digital. We are on track to complete a fiber ring which will interconnect roughly 85% of the Bresnan customer base by the end of this year. Once completed, we will be able to essentially manage these geographically diverse systems as one, which will allow us to sell a state-of-the-art triple play product across our footprint.

111. As explained in the Company’s conference call on October 28, 2011, however, the

Company’s third quarter 2011 financial results were also disappointing because the Company

reported that AOCF for the cable television division declined due to increased sales and marketing

- 32 -


costs. As alleged above, Defendants knew the Company needed to incur these costs in order to

artificially inflate video subscriber numbers.

112. Defendants acknowledged as much in the Company’s October 28, 2011 conference

call with Defendants Seibert and Rutledge stating, in pertinent part, as follows:

Jason Bazinet – Citigroup – Analyst:

I just had a question regarding the sequential change in EBITDA. I thought last quarter there were a number of one-time items related to the Bresnan integration and some other sort of one-time costs that I thought were going to sort of go away. So can you just spend a little bit of time daisychaining us through the 2Q to 3Q expenses so we can try and do a better job, I guess, going forward?

Defendant Seibert:

. . . [I]n terms of Cablevision, I don’t recall any one-time startup costs or other issues that went away this quarter. As I mentioned in my commentary, certainly we had higher programming costs. I cannot get in obviously to the detail on the individual contracts, but you can imagine which ones are flowing through this year as a result of various retransmission consent processes or negotiations. Now we had some increases in network management costs, increases in sales and telemarketing costs and increases in our overall product marketing costs. That is what resulted in the compression of margins this quarter.

* * *

Doug Mitchelson – Deutsche Bank – Analyst:

A couple of questions. Tom, you said you instituted a smaller rate increase than plan to enhance customer value, I think, was the point. Are you essentially pricing to the lowest common denominator in your footprint given the economic cyclicality? Any thoughts as to whether you hope to increase revenue momentum by segmenting more aggressively?

Defendant Rutledge:

Well, we have a variety of product offers, and we have a variety of customers who choose different packages. So we do that through our selling and retention process all the time. But we had a challenge in the fourth quarter of last year with a very confrontational situation where the World Series was taken off our cable system. And as that unfolded and we lost customers, we thought that we should take a less aggressive stance toward a normalized rate increase than we had in the past. And so we took a smaller rate increase. We then implemented a Boost Plus strategy where we began to sell in customers at a higher rate, but we were doing that transactionally.

- 33 -


And that continues, and half of our triple play sell-in now is this new Boost product which has a $10 higher revenue component in it than the previous triple play promotional product.

So we are moving the subscriber base but moving it transactionally.

*

Benjamin Swinburne – Morgan Stanley – Analyst:

Tom, just going back to Verizon, I was wondering if you could talk about whether you had an above average – it sounds like you had an above average marketing spend this quarter to try to take advantage of maybe their work stoppage. In the fourth quarter, are they changing their pricing one way or the other? I know they have been more aggressive all year. But I did not know if you have seen any changes in Q4 so far on how they are behaving. And then I have one more follow-up.

Defendant Rutledge:

Actually our strategies for marketing were in place before we knew about [Verizon’s] strike situation and had nothing to do with it. It is a coincidence.

113. As the above statements show, Defendants acknowledged that they were forced to

incur increased sales and marketing costs in order to stem video subscriber losses. In addition,

Defendants’ admissions of the timing and scope of their marketing and sales efforts directly

contradict their Class Period statements regarding video subscriber losses.

114. Indeed, analysts and investors alike expressed surprise with the Company’s third

quarter 2011 financial results. For example, Macquarie Equities Research analyst Amy Yong stated

in her October 30, 2011 report on Cablevision that “AOCF of US$540m was significantly below our

estimate for US$646m as a result of substantially higher than expected opex, which was up 17%

YoY. ~40% of the increase was led by higher programming costs at Bresnan, 30% from field related

costs and the remainder from charges related to the recent hurricanes and other fees. SG&A also

increased as the company dialled up marketing and advertising spend and win back strategies.”

115. In reaction to the Company’s announcement, the price of Cablevision stock fell

$2.17 per share, or 13%, to close at $15.14 per share, on extremely heavy trading volume.

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116. On February 28, 2012, Cablevision filed with the SEC its annual report on Form

10-K. Defendants further admitted the true nature of the threat posed by the Company’s competitors

and the Company’s strategy of relying on promotions to mask the resulting impact, stating, in


Verizon has made and may continue to make promotional offers to customers in our New York metropolitan service area at prices lower than ours. This intense competition affects our ability to add or retain customers and creates pressure upon our pricing of telecommunications services and our ability to expand services purchased by our customers. Verizon and AT&T have their own wireless phone facilities, and may expand their product offerings to include wireless phone services.

* * *

We have not implemented a residential rate increase in 2012 and plan to extend the term of certain promotional offers, which will negatively impact revenue growth and our operating income.

Loss Causation/Economic Loss

117. During the Class Period, as detailed herein, Defendants engaged in a scheme to

deceive the market and a course of conduct that artificially inflated the prices of Cablevision

common stock and operated as a fraud or deceit on Class Period purchasers of Cablevision common

stock by failing to disclose and misrepresenting the adverse facts detailed herein. When Defendants’

prior misrepresentations and fraudulent conduct were disclosed and became apparent to the market,

the price of Cablevision common stock fell precipitously as the prior artificial inflation came out. As

a result of their purchases of Cablevision common stock during the Class Period, Plaintiffs and the

other Class members suffered economic loss, i.e. , damages, under the federal securities laws.

118. By failing to disclose to investors the adverse facts detailed herein, Defendants

presented a misleading picture of Cablevision’s business and prospects. Defendants’ false and

misleading statements had the intended effect and caused Cablevision common stock to trade at

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artificially inflated levels throughout the Class Period, reaching as high as $27.48 per share on July

7, 2011.

119. As a direct result of Defendants’ disclosures on August 9, 2011, the price of

Cablevision common stock fell precipitously, falling from its closing price of $19.52 per share on

August 8, 2011 to $17.02 per share on August 9, 2011 – a loss of $2.50 per share, or 13%. Likewise,

as a result of Defendants’ disclosures on October 28, 2011, the price of Cablevision common stock

again significantly declined, falling from its closing price of $17.31 per share on October 27, 2011 to

$15.14 per share on October 28, 2011 – a loss of $2.17 per share, or 13%. These drops removed the

inflation from the price of Cablevision common stock, causing real economic loss to investors who

had purchased Cablevision common stock during the Class Period.

120. The stock price declines on August 9 and October 28, 2011 were a direct result of the

nature and extent of Defendants’ fraud finally being revealed to investors and the market. The

timing and magnitude of the price declines in Cablevision common stock negates any inference that

the loss suffered by Plaintiffs and the other Class members was caused by changed market

conditions, macroeconomic or industry factors or Company-specific facts unrelated to Defendants’

fraudulent conduct. The economic loss, i.e. , damages, suffered by Plaintiffs and the other Class

members was a direct result of Defendants’ fraudulent scheme to artificially inflate the prices of

Cablevision common stock and the subsequent significant declines in the value of Cablevision

common stock when Defendants’ prior misrepresentations and other fraudulent conduct were

revealed.

Additional Scienter Allegations

121. As alleged herein, Defendants acted with scienter in that Defendants knew that the

public documents and statements issued or disseminated in the name of the Company were

materially false and misleading; knew that such statements or documents would be issued or

- 36 -


disseminated to the investing public; and knowingly and substantially participated or acquiesced in

the issuance or dissemination of such statements or documents as primary violations of the federal

securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their receipt of

information reflecting the true facts regarding Cablevision, their control over, and/or receipt and/or

modification of Cablevision’s allegedly materially misleading misstatements and/or their

associations with the Company, which made them privy to confidential proprietary information

concerning Cablevision, participated in the fraudulent scheme alleged herein.

122. Defendants were further motivated to engage in this course of conduct in order to

enable Defendant Huseby to sell 115,447 shares of his personally-held Cablevision common stock

for gross proceeds in excess of $4.1 million.

123. Defendants likewise had access to information sufficient to establish that they were

aware, or recklessly disregarded, (i) that video subscriber losses in 2011 were not a one-time event

or anomaly, and were due to increased competition from Verizon, and (ii) their increased

promotional activity would have a devastating effect on the Company’s AOCF. For instance, the

IDA database contained information sufficient to track and report promotional activity and the

number of video subscribers lost to Verizon, including weekly sales reports reflecting actual sales

results. In addition, the Key Operating Metric group produced weekly reports that provided

information on subscriber growth, sales and projections. Finally, weekly subscriber numbers were

reported upwards through the Company to senior management.

No Safe Harbor

124. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.

Many of the specific statements pleaded herein were not identified as “forward-looking statements”

when made. To the extent there were any forward-looking statements, there were no meaningful

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cautionary statements identifying important factors that could cause actual results to differ materially

from those in the purportedly forward-looking statements. Alternatively, to the extent that the

statutory safe harbor does apply to any forward-looking statements pleaded herein, Defendants are

liable for those false forward-looking statements because at the time each of those forward-looking

statements was made, the particular speaker knew that the particular forward-looking statement was

false, and/or the forward-looking statement was authorized and/or approved by an executive officer

of Cablevision who knew that those statements were false when made.

Applicability of Presumption of Reliance: Fraud on the Market

125. Plaintiffs will rely upon the presumption of reliance established by the fraud-on-the-

market doctrine in that, among other things:

(a) Defendants made public misrepresentations or failed to disclose material facts

during the Class Period;

(b) The omissions and misrepresentations were material;

(c) The Company’s common stock traded in an efficient market;

(d) The misrepresentations alleged would tend to induce a reasonable investor to

misjudge the value of the Company’s common stock; and

(e) Plaintiffs and other members of the Class purchased Cablevision’s common

stock between the time Defendants misrepresented or failed to disclose material facts and the time

the true facts were disclosed, without knowledge of the misrepresented or omitted facts.

126. At all relevant times, the market for Cablevision’s common stock was efficient for the

following reasons, among others:

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(a) Cablevision’s common stock met the requirements for listing, and was listed

and actively traded, on the NYSE national market exchange, a highly efficient and automated

market;

(b) as a regulated issuer, Cablevision filed periodic public reports with the SEC;

(c) Cablevision regularly communicated with public investors via established

market communication mechanisms, including through regular dissemination of press releases on the

major news wire services and through other wide-ranging public disclosures, such as

communications with the financial press, securities analysts and other similar reporting services; and

(d) Cablevision was followed by several securities analysts employed by major

brokerage firms who wrote reports which were distributed to the sales force and certain customers of

their respective brokerage firms. Each of these reports was publicly available and entered the public

marketplace.

127. As a result of the foregoing, the market for Cablevision’s common stock promptly

digested current information regarding Cablevision from all publicly available sources and reflected

such information in Cablevision’s stock prices. Under these circumstances, all purchasers of

Cablevision securities during the Class Period suffered similar injury through their purchase of

Cablevision’s common stock at artificially inflated prices and a presumption of reliance applies.

COUNT I

For Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Against All Defendants

128. Plaintiffs incorporates ¶¶1-127 by reference.

129. During the Class Period, Defendants disseminated or approved the false statements

specified above, which they knew or recklessly disregarded were misleading in that they contained

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misrepresentations and failed to disclose material facts necessary in order to make the statements

made, in light of the circumstances under which they were made, not misleading.

130. Defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 in that they:

(a) Employed devices, schemes, and artifices to defraud;

(b) Made untrue statements of material facts or omitted to state material facts

necessary in order to make the statements made, in light of the circumstances under which they were

made, not misleading; or

(c) Engaged in acts, practices, and a course of business that operated as a fraud or

deceit upon Plaintiffs and others similarly situated in connection with their purchases of

Cablevision’s common stock during the Class Period.

131. Plaintiffs and the Class have suffered damages in that, in reliance on the integrity of

the market, they paid artificially inflated prices for Cablevision’s common stock. Plaintiffs and the

Class would not have purchased Cablevision common stock at the prices they paid, or at all, if they

had been aware that the market prices had been artificially and falsely inflated by Defendants’

misleading statements.

132. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiffs and the

other members of the Class suffered damages in connection with their purchases of Cablevision’s

common stock during the Class Period.

COUNT II

For Violation of Section 20(a) of the Exchange Act Against All Defendants

133. Plaintiffs incorporates ¶¶1-132 by reference.

134. The Individual Defendants acted as controlling persons of Cablevision within the

meaning of Section 20 of the Exchange Act. By virtue of their positions and their power to control

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public statements about Cablevision, the Individual Defendants had the power and ability to control

the actions of Cablevision and its employees. Cablevision controlled the Individual Defendants and

its other officers and employees. By reason of such conduct, Defendants are liable pursuant to

Section 20(a) of the Exchange Act.

JURY TRIAL DEMANDED

135. Plaintiffs demand a trial by jury on all issues triable as a matter of right.

136. WHEREFORE, Plaintiffs and the Class pray for relief as set forth below.

PRAYER FOR RELIEF

WHEREFORE , Plaintiffs prays for judgment as follows:

A. Declaring this action to be a proper class action pursuant to Fed. R. Civ. P. 23;

B. Awarding Plaintiffs and the members of the Class damages and interest;

C. Awarding Plaintiffs’ reasonable costs, including attorneys’ fees; and

D. Awarding such equitable/injunctive or other relief as the Court may deem just and

proper.

DATED: June 29, 2012 ROBBINS GELLER RUDMAN & DOWD LLP SAMUEL H. RUDMAN ROBERT M. ROTHMAN MICHAEL G. CAPECI

/s/ Robert M. Rothman ROBERT M. ROTHMAN

58 South Service Road, Suite 200 Melville, NY 11747 Telephone: 631/367-7100 631/367-1173 (fax) [email protected] [email protected] [email protected]

Lead Counsel for Plaintiffs

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SULLIVAN, WARD, ASHER & PATTON, P.C. MICHAEL J. ASHER 25800 Northwestern Highway 1000 Maccabees Center Southfield, MI 48075-8412 Telephone: 248/746-0700 248/746-2760 (fax) [email protected]

Counsel for Plaintiffs

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CERTIFICATE OF SERVICE

I, Robert M. Rothman, hereby certify that on June 29, 2012, I caused a true and

correct copy of the attached:

Amended Complaint for Violation of the Federal Securities Laws

to be served electronically on all counsel registered for electronic service for this case.

/s/ Robert M. Rothman

Robert M. Rothman

Documents

Gary Livingston, et al. v. Cablevision Systems Corporation, et al. 12