SCAC | Securities Class Action Clearinghouse | Home ...securities.stanford.edu/filings-documents/1050/PLCM00_01/...between January 20, 2011 and July 23, 2013, both dates inclusive

SECOND AMENDED COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS

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GLANCY BINKOW & GOLDBERG LLP Lionel Z. Glancy (#134180) Michael Goldberg (#188669) Robert V. Prongay (#270796) 1925 Century Park East, Suite 2100 Los Angeles, CA 90067 Telephone: (310) 201-9150 Facsimile: (310) 201-9160 Email: [email protected]

POMERANTZ LLP Jeremy A. Liebermann (admitted pro hac vice) Emma Gilmore (admitted pro hac vice) 600 Third Avenue, 20th Floor New York, New York 10016 Telephone: (212) 661-1100 Facsimile: (212) 661-8665 [email protected] [email protected]

POMERANTZ LLP Patrick V. Dahlstrom Ten South La Salle Street, Suite 3505 Chicago, Illinois 60603 Telephone: (312) 377-1181 Facsimile: (312) 377-1184 [email protected]

Attorneys for Lead Plaintiff and the Class

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

MARK NATHANSON, Individually and On Behalf of All Others Similarly Situated,

Plaintiff,

v.

POLYCOM, INC., ANDREW M. MILLER, MICHAEL R. KOUREY, and ERIC F. BROWN,

Defendants.

:::::::::::::: : : : : :

No. 13-3476 SC CLASS ACTION SECOND AMENDED COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS DEMAND FOR JURY TRIAL

Case 4:13-cv-03476-YGR Document 79 Filed 05/04/15 Page 1 of 60

SECOND AMENDED COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS - 1 -

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Lead Plaintiff Mark Nathanson (“Plaintiff”), individually and on behalf of all other

persons similarly situated, by his undersigned attorneys, for his complaint against defendants,

alleges the following based upon personal knowledge as to himself and his own acts, and

information and belief as to all other matters, based upon, inter alia, the investigation

conducted by and through his attorneys, which included, among other things, a review of the

defendants’ public documents, conference calls and announcements made by defendants,

United States Securities and Exchange Commission (“SEC”) filings, wire and press releases

published by and regarding Polycom Inc. (“Polycom” or the “Company”), analysts’ reports and

advisories about the Company, information obtained following an SEC investigation and as

reflected in SEC v. Miller, 15-cv-01461 (N.D. Cal. 2015) and in In the Matter of Polycom, Inc.,

Administrative Proceeding File No. 3-16464, Release No. 74613/March 31, 2015, and

information readily obtainable on the Internet.1 Plaintiff believes that further substantial

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

for discovery.

NATURE OF THE ACTION

1. This is a federal securities class action on behalf of a class consisting of all

persons other than defendants who purchased or otherwise acquired Polycom securities

between January 20, 2011 and July 23, 2013, both dates inclusive (the “Class Period”), seeking

to recover damages caused by defendants’ violations of the federal securities laws and to

pursue remedies under §§ 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934 (the

“Exchange Act”), and Rules 10b-5, 14a-3 and 14a-9 promulgated thereunder against the

Company and certain of its top officials and/or directors.

1 Before filing the Second Amended Complaint, counsel for Plaintiff spoke with the attorney who signed the SEC complaint and found the SEC allegations to corroborate Plaintiff’s allegations.



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2. Polycom provides standards-based unified communications and collaboration

(UC&C) solutions for voice and video collaboration. The Company offers video, voice, and

content-management and content-sharing solutions, such as telepresence and conference room

systems, home/work office solutions, applications for mobile devices, browser-based video

collaboration, cloud-delivered services, and specialized healthcare video carts.

3. Unbeknownst to investors, throughout the Class Period, the Company’s CEO,

Andrew Miller, submitted numerous false expense reports, claiming personal expenses as

business expenses. On July 23, 2013, the Company shocked investors when it announced that

Miller, who spent three years at Polycom’s helm, resigned as CEO and Board member “after

the Audit Committee of the Board of Directors found certain irregularities in [his] expense

submissions.” Miller “accepted responsibility” for his transgressions.

4. Following the Company’s announcement of Miller’s departure, the SEC has

commenced an investigation into the Audit Committee’s review of Miller’s expenses and his

resignation. Polycom represents that it is cooperating with the investigation. To date, Polycom

spent over $5 million in connection with the SEC investigation.

5. From January 2010 to July 19, 2013, Miller was paid approximately $24 million in

total disclosed compensation by Polycom, the overwhelming majority of which was in the form of

Polycom stock and options.

6. According to confidential witnesses (“CWs”), as CEO of Polycom Miller has

improperly submitted expenses associated with remodeling his penthouse; buying and renting

luxury cars; money spent on his mistress; expensive dinners; and chartered jets. For example,

when Miller took business trips, his luxury rental cars procured on the Company’s tab were

sometimes returned days after Miller left the city. The cars were used by his mistress. Miller’s

ex-wife also recounted that during a company trip to Sydney, Australia, Miller invited her and



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several of her friends who lived there to an expensive dinner to celebrate her birthday and

expensed the entire dinner on Polycom. On another trip, this time to Buenos Aires, where

Miller’s former wife accompanied Miller to celebrate the achievements of Polycom’s local

employees, Miller chartered a jet after the meeting to take him and his wife to see Iguazu Falls,

one of the top destinations in South America. That trip had no business purpose and none of

the lower level Polycom employees for whom the meeting had been arranged in Argentina

were invited to the luxurious splash. Nevertheless, Miller charged the trip to Polycom.

7. Defendants’ failure to properly account for Miller’s false expense submissions

caused Polycom to report false and misleading operating expenses. Moreover, Miller’s

improper classification of personal expenses as business expenses constituted a theft of the

Company’s assets. Defendants falsely reported these losses as part of the Company’s normal

operating expenses. The amounts should properly have been reported in the Company’s

financial statements as a loss due to the management’s misappropriation of assets and not as a

normal operating expense. Thus, the nature of the expenses was materially misstated.

8. Moreover, as the Individual Defendants knew, Polycom reported annually the

compensation paid to its top executives and board members, such as Miller. As the Individual

Defendants also knew, the annual compensation disclosures were the principal subject of

Polycom’s annual proxy statements, which described important information for shareholders in

advance of the annual shareholder meeting, including details about Miller’s salary, stock options

and other forms of his negotiated compensation, as well as all perks and other personal benefits that

Miller obtained during the prior year. The Individual Defendants solicited proxies from

investors for annual meetings in 2011, 2012, and 2013. The Individual Defendants knew or

were reckless in not knowing that the annual proxy statements contained false and misleading

statements about Miller’s compensation and perquisites. The Individual Defendants also signed



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and certified the Company’s annual reports on Forms 10-K for the fiscal years 2010, 2011 and 2012

(filed in 2011, 2012 and 2013). As the Individual Defendants knew, each of those annual reports

incorporated by reference, on a prospective basis, portions of Polycom’s proxy statements for the

upcoming annual meeting of stockholders, including the Company’s false and misleading

compensation disclosures.

9. In their positions as CFOs, Defendants Kourey and subsequently Brown approved

Miller’s expenses, and together with Defendant Miller drafted financial disclosures and proxy

statements that affirmatively concealed from Polycom’s shareholders the substantial benefits being

bestowed on Miller. Defendant Kourey in particular confronted Miller about the improper

expenses, but neither Defendant Kourey nor Defendant Brown did anything to actually stop

Miller’s illicit practice. For example, in June 2011 Defendant Kourey confronted Miller about his

false expense reports. In that incident, Polycom employees discovered that Miller had expensed

more than $800 worth of spa gift cards as purported gifts to Polycom employees, but that Miller

had actually used the gift cards, at least in part, for himself. In response, Defendant Kourey raised

the issue directly with Miller and suggested a system for further review of Miller’s expense reports

to avoid problems in the future. Miller reacted angrily at being second-guessed. On June 26, 2011,

Defendant Kourey sent Miller an email emphasizing the importance of Miller’s and Polycom’s

disclosure obligations, including a detailed description of the relationship between Miller’s

expenses, rules requiring that Polycom disclose all perks he received, and the Company’s proxy

statements. Miller continued to improperly claim personal expenses as business expenses, and

Polycom and the Individual Defendants failed to disclose Miller’s perquisites in public filings.

Defendants Kourey and Brown simply acquiesced in this conduct. Indeed, Polycom continued to

allow air travel to be booked and charged without entering a business description, further

perpetuating Miller’s fraud.



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10. Item 402 of SEC Regulation S-K unambiguously requires the disclosures of

“perquisites” as a form of compensation. Regardless of these regulation requirements, Defendants

still had an affirmative duty to ensure that the statements made in Polycom’s filings were not

misleading. Defendants falsely and misleadingly disclosed, however, that Polycom made “no

excessive perquisites” and that only “a small amount of perquisites are provided to [Polycom’s]

executives, consistent with the practices of [Polycom’s] peer companies.”

11. Miller’s falsification of his expense reports constituted fraud at the highest level

of management. The tone set by top management––the corporate environment or culture

within which financial reporting occurs––is the most important factor contributing to the

integrity of the financial reporting process.

12. Miller’s rampant falsification of expense reports jeopardized his position at the

helm of the Company, threatening Polycom’s stability and stock price. Despite the

precariousness of his position resulting from these false submissions, Miller assured investors

that he was “planning on being [at Polycom] for quite a period of time.”

13. The risks associated with Miller’s illicit actions were particularly material to

investors in light of Miller’s importance to Polycom’s success. Miller was credited for

Polycom’s ability, “for the first time in [its] history, [to] put together seven quarters of

sequential growth.” Indeed, Miller was considered the “primary architect” of Polycom’s sales

(“go-to-market”) initiative, a “transformation” and “culturally a huge shift” that contributed to

Polycom’s strong financial performance. As part of that shift, Miller had replaced “42% of the

sales team.” Miller also made “a complete change up in the executive team” that is “rarely

seen,” replacing the Company’s executives with a “top notch management team” loyal to him.



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14. On July 23, 2013, Polycom unexpectedly announced that Miller had resigned

after the board found "irregularities" in his expense submissions. The Company stated that

Miller had accepted responsibility for his actions.

15. Analysts slammed Polycom following Miller’s resignation, downgrading it to

“underperform” and “underweight.” PiperJaffray declared that “[t]he departure of CEO Andy

Miller…raises red flags and we believe management credibility (at all executive levels) comes

into question.” Janney Capital similarly warned that because Miller “spearheaded the recent

expansion in direct selling model and recruited most of the current sales leadership team,” the

“sales turnover is a real threat.” In a similar vein, Wedbush concluded that “[g]iven Miller’s

role in shaping senior management, we also have concerns regarding the potential for

additional management upheaval and sales force attrition” and, as an example, pointed to the

departure of Polycom’s Executive Vice President of Global Sales, a Miller appointee.

16. When grilled about the impact of Miller’s departure on Polycom’s

“organizational stability” as a result of Miller’s “very loyal following at the company,”

Polycom’s interim CEO was forced to acknowledge that “[t]his is obviously a tough set of

circumstances” and “undoubtedly, a significant change.”

17. On this news, Polycom shares fell $1.69 cents, or over 15% percent, to $9.49 per

share on July 24, 2013, on volume of over 14 million shares. This drop eviscerated over $275

million in market value.

18. Throughout the Class Period, defendants made materially false and misleading

statements, misrepresenting and/or failing to disclose that: (i) Miller was misappropriating

Polycom’s funds for personal expenses in material amounts; (ii) Miller’s false expense reports

caused defendants to report false and misleading operating expenses; and (iii) Miller’s illicit



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actions caused defendants to report false and misleading statements regarding Miller’s

compensation and perquisites.

19. As a result of defendants’ wrongful acts and omissions, and the precipitous

decline in the market value of the Company’s securities, Plaintiff and other Class members

have suffered significant losses and damages.

20. On March 15, 2015, the SEC commenced an action against Defendant Miller,

charging him with engaging in a scheme to use Polycom funds to pay for his personal

expenses, including lavish meals, international and domestic travel, clothing, gifts and

entertainment for himself, his mistress, his relatives, and friends. See SEC v. Miller, 15-cv-

01461 (N.D. Cal. 2015) (“SEC Complaint” or “SEC Compl.”). Miller obtained perks from

Polycom in the amount of at least $190,000 that were not disclosed to investors. The SEC

alleges that, as a result of these and other similarly illicit acts, Miller "violated . . . the anti-

fraud, proxy solicitation, periodic reporting, books and records and internal control provisions

of the federal securities laws, and falsely certified Polycom's public filings in violation of SEC

rules." SEC Compl. ¶5.2

21. According to the SEC Complaint, Miller sought and obtained reimbursement

from Polycom for various types of personal expenses, including meals with his friends and

family at upscale restaurants and catered meals; air travel for personal vacations and weekend

getaways; fashion and accessories, particularly men’s dress shirts from high-end retailers; spa

treatments; tickets to baseball games, the theatre, and other entertainment; luxury hotels;

limousine services; and numerous other purchases for himself and his San Francisco apartment.

SEC Compl. ¶14.

2 A copy of the SEC Complaint is attached herein as Exhibit A.



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22. As described in the SEC Complaint, Miller accomplished the expense abuse

scheme in several ways. The first involved Miller’s use of a credit card Polycom had obtained

for him to use for business expenses. Id. ¶15. Miller regularly used his Polycom credit card to

charge personal expenses, and then sought and obtained reimbursement from Polycom for these

charges by submitting, or causing one or more of his administrative assistants to submit,

expense reports with fabricated business descriptions. Id. Miller also obtained reimbursement

from Polycom for his personal expenses through the use of Company purchasing cards, which

Polycom called “P-Cards,” that were used by Miller’s administrative assistants. Id. ¶24.

Polycom arranged for P-Cards to be issued to employees who might need to charge business

expenses but who did not have Company-affiliated credit cards, including administrative

assistants. Id. Under Polycom’s internal policy, Miller was responsible for reviewing and

approving (or denying) his administrative assistants’ P-Card charges. Id. ¶25. Miller directed

his assistants to pay for his personal charges on their P-Cards, and provided them with false

business justifications to record as support. Id.

23. According to the SEC Complaint, in total, from 2010 to July 19, 2013, when Miller

resigned from Polycom, in hundreds of transactions ranging in price from as little as $2.70 to

$3,000, Miller charged Polycom for at least $93,000 in personal expenses through reimbursements

to his Polycom credit card and his administrative assistants’ P-Cards. Miller incurred

approximately half of these charges in 2012 alone. Notably, from 2010 to 2012, Miller charged

more than $10,000 to his Polycom credit card for personal clothing and accessories. SEC Compl.

¶36.

24. As described in the SEC Complaint, Miller also charged Polycom for his personal

air travel, which was paid for directly by Polycom. Miller charged Polycom both for trips that were

wholly personal, and for personal trips added to business trips. In each instance, Miller failed to



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reimburse Polycom for the cost of his personal air travel, in contravention of Polycom’s Travel and

Expense Reimbursement Policy. Miller was able to incur these personal charges without oversight

by others, since Polycom allowed flights to be booked and charged without entering a business

description. From 2011 to July 19, 2013, Miller thus charged Polycom for at least approximately

11 roundtrip flights that were personal in nature, costing Polycom more than $16,000, and forty

additional personal air trips that were added onto other business trips. For example, in 2012, Miller

charged Polycom for at least five roundtrip flights from San Francisco, California to Florida, where

his girlfriend lived, without any business justification. In two other instances, Miller charged

Polycom for a roundtrip flight from San Francisco, California to Reno, Nevada in July 2012, and he

charged Polycom for a roundtrip flight from San Francisco to Washington, D.C. in September

2012. Neither the trip to Reno nor the trip to Washington, D.C. was taken for a business purpose.

¶¶37-40.

25. As a result of this scheme, Defendants failed to disclose at least $109,000 of

Miller’s perks from Polycom’s compensation disclosures to investors. ¶41.

26. The SEC alleges that as a result of this scheme, Miller violated the anti-fraud, proxy

solicitation, periodic reporting, books and records and internal controls provisions of the federal

securities laws, and falsely certified Polycom’s public filings. Id. ¶5.

27. In a related administrative action, the SEC made specific findings that Polycom

violated internal control provisions by permitting Miller, among other things, to approve his

own expenses and book his travel arrangements without providing detailed descriptions of their

purpose.3 The SEC also found that Polycom failed to adequately disclose Miller's conduct to

investors in violation of several Exchange Act provisions, including violations of Item 402 of

3 See Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order (“Order”) against Polycom, attached herein as Exhibit B.



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Regulation S-K, which requires disclosure of the total value of all perquisites provided to

Named Executive Officers (including CEOs) who receive more than $10,000.00 in perquisites

in a given year, and which also requires disclosure of all perquisites by type, and specific

identification of any perquisites greater than $25,000.00 or 10% of total perquisites. Order at

¶11. The SEC found that "[b]ecause Polycom incorrectly recorded Miller's personal charges as

business expenses, and not compensation, its books, records and accounts did not, in reasonable

detail, accurately and fairly reflect its disposition of assets." Order at ¶13. Relatedly, the SEC

also found that Polycom failed "to devise and maintain a system of internal accounting controls

sufficient to provide reasonable assurances that transactions are executed in accordance with

management's general or specific authorization and are recorded as necessary to maintain

accountability for assets, and that access to assets is permitted only in accordance with

management's general or specific authorization." Order at ¶16.4

JURISDICTION AND VENUE

28. The claims asserted herein arise under and pursuant to Sections 10(b), 14(a) and

20(a) of the Exchange Act (15 U.S.C. §§ 78j(b), 78t(a) and 78n(a)) and Rules 10b-5, 14a-3 and

14a-9 promulgated thereunder (17 C.F.R. §§ 240.10b-5, 240.14a-3 & 240.14a-9).

29. This Court has jurisdiction over the subject matter of this action pursuant to § 27

of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331.

30. Venue is proper in this District pursuant to §27 of the Exchange Act, 15 U.S.C.

§78aa and 28 U.S.C. §1391(b), as Polycom’s principal place of business is located within this

District.

4 In connection with the administrative action, Polycom agreed to settle the SEC's charges without admitting or denying them and agreed to pay $750,000.00 in civil penalties.



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31. In connection with the acts, conduct and other wrongs alleged in this Complaint,

defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

including but not limited to, the United States mail, interstate telephone communications and

the facilities of the national securities exchange.

PARTIES

32. Plaintiff, as set forth in the Certification previously filed with the Court,

acquired Polycom securities at artificially inflated prices during the Class Period and was

damaged upon the revelation of the alleged corrective disclosures.

33. Defendant Polycom is a Delaware corporation with its principal executive

offices located at 6001 America Center Drive, San Jose, California. Polycom common stock

trades on the NASDAQ under the ticker symbol “PLCM.”

34. Defendant Andrew M. Miller (“Miller”) served as the Company’s Chief

Executive Officer (“CEO”) and President between May, 2010 and July 2013, at which point he

resigned his position. From June 2010 to July 19, 2013, Miller was also a member of

Polycom’s Board of Directors. Prior to becoming the Company’s CEO, Miller served as

Executive Vice President, Global Field Operations, from June 2009 to May 2010.

35. Defendant Michael R. Kourey (“Kourey”) served as the Company’s Chief

Financial Officer (“CFO”) from the beginning of the Class Period until his retirement on

February 20, 2012. Kourey also served as the Company’s Executive Vice President, Finance

and Administration. Kourey also served as Polycom’s Director from January 1999 to May

2011.



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36. Defendant Eric F. Brown (“Brown”) was appointed as the Company’s CFO,

Chief Operating Officer, and Executive Vice President on February 21, 2012, after Defendant

Kourey’s retirement.

37. The defendants referenced above in ¶¶34-36 are sometimes referred to herein

as the “Individual Defendants.”

38. The defendants referenced above in ¶¶33-36 are sometimes referred to herein

as “Defendants.”

SUBSTANTIVE ALLEGATIONS

Background

39. Polycom describes itself as “a global leader in unified communications (“UC”)

solutions and a leading provider of telepresence, video, voice and infrastructure solutions based

on open standards.” (2010 10-K at 3). The Company’s UC solutions run the gamut from

immersive telepresence to desktop video to mobile devices, and span voice, video, content

management, and sharing solutions. (Id. at 6).

40. Polycom competes in the UC market with multiple competitors in each product

line. (Id. at 12). The Company’s competitors include Cisco Systems, Inc. (Polycom’s primary

global competitor), Logitech International S.A., RADVISION Ltd., Avaya, HP, and Motorola,

Inc. (Id. at 12-13). Polycom’s competitive landscape “has changed throughout 2009 and 2010

and continues to rapidly evolve as competitors consolidate, increase their corporate

partnerships, develop new technologies, and change their pricing strategies.” (Id. at 12).

41. Polycom operates globally and is managed geographically in three segments:

the Americas; Europe, Middle East and Africa; and Asia Pacific. (2010 10-K at 41). The

Company reported revenues of $1.2 billion for 2010, the year that Miller became CEO, a spike



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of $251.5 million, or 26%, over 2009, driven by increases in both product and service revenues.

(2010 10-K at 41, 43). By the end of 2012, Polycom’s revenues reached $1.4 billion.

Miller Shifts Polycom Into a Go-To-Market Direction

42. A company’s go-to-market strategy is the mechanism used to deliver the

company’s unique value proposition to its target market. The main focus of this strategy is to

target the direct customer. Typically, the go-to-market approach brings together all the

commercial actions––marketing, sales, brand management, pricing, and customer insight––to

drive the bottom line.

43. Miller joined Polycom on July 1, 2009, as Executive Vice President of Global

Field Operations. Defendant Kourey described Miller’s hiring as “a very important addition”

to the Company, given his extensive background and uniquely superior go-to-market skills.

(Piper Jaffray Technology, Media & Telecommunications Conference, 11/9/2010). Miller

spent 11 years at Cisco and held a number of senior key sales and go-to-market roles. (Id.)

After Cisco, Miller was the CEO of Polycom’s “archrival,” Tandberg. (Id.) Miller “had a great

and frankly unique on the planet, background to come into Polycom into that EVC Global Field

Ops role.” (Id.) As Defendant Kourey explained, “a lot of the benefits that [investors] [are]

seeing in [Polycom’s] execution, a lot of the improvements in execution really began when

[Miller] came on board in July of 2009…there have been a lot of great things that have

happened since May of 2010, because in May of 2010, we promoted him to CEO.” (Id.)

Miller “grew up in [the] go-to-market––he was a salesman and worked his way up into the

senior rates of go-to-market management…So [Polycom] ha[s] a very go-to-market savvy CEO

that is out there working with the sales team, and the customers themselves, and the prospects,



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and the partners, almost perpetually––I mean, personally he is on the road, out of 90, 95% of

the time meeting with customers and partners.” (Id.)

44. In his initial role as Executive Vice President of Global Field Operations, Miller

strategized, directed and implemented Polycom’s aggressive shift to a go-to-market approach.

In fact, Miller was brought in “to take over [Polycom’s] go-to-market organization, take it to

the next level.” (UBS Global Technology and Services Conference, 6/8/2010). As part of that

go-to-market transformation, Polycom spent significant resources in additional sales coverage

for underserved areas and in building demonstration centers across the world to more

effectively compete in the marketplace. (Id.) Polycom also increased its sales engineering

coverage by improving the mix of sales engineers to sales people in order to more effectively

market its products. (Bank of America Merrill Lynch SMID Cap Conference, 6/9/2010). The

Company invested not only in its quota-carrying sales team, but also in the support, training,

marketing, infrastructure and facilities areas that supported the success of its sales’ team.

(Cowen and Company Technology Media & Telecom (TMT) Conference, 6/3/2010). As part

of incentivizing its sales team, Miller devised a commission-based structure that increased

rewards for sales of higher gross-margin products. (UBS Global Technology and Services

Conference, 6/8/2010; William Blair Growth Stock Conference, 6/5/2010). Miller “lead[] that

[strategy] effort very successfully.” (UBS Global Technology and Services Conference,

6/8/2010).

45. In doing the “heavy lifting” of Polycom’s transformation, Miller made

“significant change[s] with the sales force.” (Bank of America Merrill Lynch SMID Cap

Conference, 6/9/2010). “[S]ince start[ing] this [transformation] process in October of 2009,

[Miller] hired a net addition of 164 individuals in the sales organization, 49 of which were



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made in Q2.” (Polycom Q2 2010 Earnings Call, 7/15/2010). Indeed, Miller announced the he

“changed out 42% of the sales team which is not for the weak of heart. And [Polycom] did that

because Polycom was always a channel-led company. It was not a high touch company like

Cisco. We felt––I felt strongly that for us to compete against Cisco and win, it had to be high

touch.” (Sanford C. Bernstein & Co. Strategic Decisions Conference, 6/3/2011). The

Company said Miller was “deadly serious about speed and precision [a]nd accountability and

performance and intensity.” (Id. (6/9/2010)).

46. Miller also created Polycom’s Open Collaboration Network, a key partnership

with seven providers: Microsoft, IBM, Juniper, Avaya, Siemens, Broadsoft and HP. (Cowen

and Company Technology Media & Telecom (TMT) Conference, 6/3/2010). This partnership

enabled Polycom to integrate with these critical providers not only from a technology

perspective, but also from a go-to-market perspective in order to provide choice for customers,

as well as investment protection. (Id.) Polycom is the only independent open standard-based

solution provider that can interface and work within a Microsoft OCS or IBM environment,

giving the Company a “huge advantage…in the marketplace.” (Id.) Accordingly, the Polycom

Open Collaboration Network was a “key part” of Polycom’s strategy. (Id.) As part of that

alliance, Polycom co-founded the Unified Communications Interoperability Forum, designed to

make unified communications open and interoperable. (UBS Global Technology and Services

Conference, 6/8/2010). Polycom’s Open Collaboration Network has been driving significant

customer wins for the Company. (Polycom Q1 2011 Earnings Call, 4/21/2011). For example,

23% of Polycom’s revenues in the fourth quarter of 2010 were a direct result of the network.

(Morgan Stanley Technology, Media & Telecom Conference, 3/1/2011).



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47. Polycom consistently acknowledged Miller’s contributions to the Company’s

success: Miller “has brought with him over the last almost a year now strong customer-centric

approach, very much focus on partners, very much a focus on meeting the demand that is now

in front of us and I know one of the things that Andy is very focused on is augmenting what has

been a technology and product centricity and adding that customer centricity to it.” (JMP

Securities Research Conference, 5/10/2010). Miller was considered the “primary architect” of

Polycom’s go-to-market initiative, a “big deal,” a “big investment.” (Bank of America Merrill

Lynch SMID Cap Conference, 6/9/2010). Miller “came in and he was a key driver of that

strategic investment model that we developed and the execution plan. If you look at those

initiatives, he was…leading the preponderance of the heavy lifting there. The go-to-market

build out by definition, that was his job. The strategic partnership, absolutely…So as far as the

strategy and the financial commitments, 100% in line…this isn’t a third-party individual

coming in…[h]e is just the opposite. Very much involved in driving it before and is involved

completely now as CEO in driving the plan.” (Id.) . . . “So I think you see it in the go-to-

market transformation, it’s exciting, people love it. The channels like what they’re seeing, the

sales force likes what they’re seeing, now with him in the bigger job, the whole company likes

it.” (Id.) It was “culturally a huge shift.” (Wells Fargo Securities Technology, Media &

Telecom (TMT) Conference, 11/10/2010). In short, from a go-to-market standpoint, Miller’s

addition was “really nothing [short] of transformative.” (Id.)

48. Miller “more effectively aligned [Polycom’s] resources by geography, vertical

market and strategic alliance…and…also continued to shift [its] mix of sales staff, from six

quota-bearing salespeople per sales engineering just nine months ago, to 2.2 quota-bearing

salespeople per sales engineer. That ratio and this improvement is now enabling Polycom to



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both capture more wallet share, as well as deepen the relationships with [the Company’s]

customers and IT organizations.” (Polycom Q2 2010 Earnings Call, 7/15/2010). As a result,

Polycom is “achieving a stronger ramp in sales productivity that is well ahead of plan.” (Id.).

49. Thus, having “been leading that [go-to-market] effort very successfully,” Miller

was “promoted to the CEO position.” (UBS Global Technology and Services Conference,

6/8/2010). Immediately after this elevation, Miller announced that he “decided to structure

[Polycom’s] go-to-market leadership team as direct reports to [him]…mean[ing] that [the

Company’s] theater presidents for the Americas, EMEA and Asia-Pacific are now on the

executive staff team and [Miller] [wi]ll be more directly involved with each of [Polycom’s]

theater presence operations.” (Polycom Q2 2010 Earnings Call, 7/15/2010). “In concert with

this organizational approach, you’ll see me take a very active role as CEO with the executives

of our strategic partners, channel partners, and customers around the world,” Miller said. (Id).

In a Rare Move, Under Miller’s Command, Polycom Completely Reshuffles Its Executives

50. As CEO of Polycom, Miller made “significant management changes” at

Polycom, bringing in six world-leading executives at one time, comprising an entirely new

executive management team. (Piper Jaffray Technology, Media & Telecommunications

Conference, 11/9/2010). Miller told investors that he “simultaneously…hired six of the best

executives on the market to help drive Polycom to its next $1 billion revenue growth

opportunity:” (i) Sudhakar Ramakrishna, with a “stellar reputation and career” at Motorola,

where he ran the Mobility and Wireless Group, joined Polycom as the General Manager of

Products, Engineering, Services and Operations, as well as Chief Development Officer; (ii) Joe

Burton, former Chief Technology Officer for Unified Communications at Cisco, joined

Polycom to help drive its strategy and technology; (iii) Sue Hayden, former Vice President at



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Oracle Corporation, became Polycom’s Executive Vice President and General Manager of the

Company’s line of business; (iv) Alan Rudolph, with a former “stellar career” at ACS and

Xerox, was hired as Polycom’s SVP of Services; (v) Gary Rider, who previously ran one the

largest segments at NCR, joined Polycom as the President of Europe, Middle East, and Africa;

and (vi) Ashley Goldsmith, who became Polycom’s Senior Vice President of Human

Resources. (Polycom Analyst and Investor Meeting, 12/6/2010).

51. As Miller himself acknowledged, when he “came on board as CEO, [the

Company] made a complete change up in the executive team. [The Company] hired six new

executives simultaneously. And [the Company] did that because [Miller] felt in order to

initiate all the changes…[Polycom] needed a different set of executives to drive [it] to the next

level.” (Sanford C. Bernstein & Co. Strategic Decisions Conference, 6/3/2011). Through the

“significant” shift to a go-to-market approach and the changeover in the executive team, the

Company was “able to, for the first time in Polycom’s history, put together seven quarters of

sequential growth.” (Id.) “But I would never want to do what I did last year again, and

stability and momentum are key now,” said Miller. (Id.)

52. In Defendant Kourey’s own words, that kind of executive reshuffling is

remarkably rare:

But what [Miller] has done and with the legacy management team, has made some significant changes and I won’t go in depth into each one of these names, but we’ve brought on a really top notch management team into this company and this was just a couple of months ago. We actually announced all six of these in one day, something that I’m not sure I’ve ever seen before, but it was a significant shift in, and additions to our management.

* * *

We had brought in a new go-to-market organization under the leadership of Andy Miller as our EVP of Global Field Operations back in July 2009, and in May we made him the CEO of the company. And with that, we made some significant management additions to the company later in the year. We actually, on a single



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day, announced six new executives on the executive team. Something that is rarely seen, but in fact, we brought in some very high-powered additions to the team…

(Barclays Capital Global Technology Conference, 12/8/2010; Morgan Stanley Technology,

Media & Telecom Conference, 3/1/2011).

53. Kourey praised Miller for his ability to “sell[] some of these executives to quit

the[ir] great jobs and come over to Polycom and really swing for the fences.” (Piper Jaffray

Technology, Media & Telecommunications Conference, 11/9/2010).

The Expense Approval Process at Polycom

54. According to confidential witnesses (“CWs”), Polycom had a tightly-monitored

expense report approval process. Expenses that did not include matching receipts were sent

back to the employee. Approved expense reports ultimately went to Accounts Payable, which

reimbursed employees via automatic deposit. CW 1 was North America Sales Operation

Manager for Polycom from 2007 to August 2013, when he/she was laid off. CW1 reported to

Cathy Bensink, Senior Director of North America Sales Operations. CW 1 explained that the

expense approval procedure was strict and that all expenses had to have a matching receipt.

When CW1 reviewed his/her subordinates’ expense reports, CW 1 sent back anything that did

not have a matching receipt, in compliance with Company policy. CW 1 said Accounts

Payable also reviewed receipts to ensure they matched what was claimed in the expense report.

“They were pretty anal about checking every receipt,” CW 1 said of the Accounts Payable

department. In his/her case, CW 1 submitted his/her expense reports to his/her supervisor,

Bensink, for approval. Eventually, CW 1’s expense reports were reviewed and paid out by

Accounts Payable. Throughout the process, CW 1 received several emails alerting him/her to

the expense report’s status. CW 1 received emails 1) confirming the report was submitted, 2)

when the images of the receipts were viewable digitally, 3) when CW 1’s boss approved the



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expenses, 4) when the report was received by Accounts Payable, and 5) when the expense

report’s status went from “approved” to “paid.”

55. CW 2 was Lead Senior Accountant for Polycom from February 2005 to July

2012. CW 2 reported to Mike McMahon, Director of Accounting, and then to Carmen Evans,

Accounting Manager. CW 2 similarly related that the Company tightly monitored expense

reports and employees were required to use an online software system to submit the reports.

The software was called Concur. Employees’ immediate superiors typically approved

expenses. Receipts were always required.

56. CW 3 was a Channel Account Manager for Polycom from 2007 to July 2012,

when his/her division was outsourced. CW 3 also attested that Polycom had a specifically

designed software program that employees used to submit their expense reports. The system

tracked the expense report’s status as it moved from submission to approval to pay out.

Receipts were required for every item that was expensed.

57. CW 4 was the senior executive administrator for Polycom’s former CEO Robert

Hagerty from July 2008 to June 2010. CW 4 reported to Hagerty and was let go immediately

after Miller took over as CEO. CW 4 said the CFO of Polycom must have approved Miller’s

expenses. This was the procedure when CW 4 worked for the former CEO, Hagerty, and it was

the procedure at other companies where CW 4 worked for CEOs. That meant that Kourey and

subsequently CFO Eric Brown were responsible for approving Miller’s expenses.

58. CW 5 was an Executive Assistant to senior executives at Polycom’s

headquarters in Pleasanton, California from October 2008 to May 2010. CW 5 reported to

Chief Legal Officer Sayed Darwish and Joe Sigrist, Senior Vice President and General

Manager, Video Solutions Group. CW 5 explained that CFO Michael Kourey would have to



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review, answer questions and approve unusually high expenses, such as very expensive meals.

CW 5 believed the CFO approved executive expenses on a general basis. “When I was there

we had to do expense reports for everything,” CW 5 said. “The company was very careful

about making sure everything was itemized.” Polycom employees were surprised that CFO

Michael Kourey “would allow Andy to do some of the stuff he was doing” by approving his

expenses. According to CW 5, it was well-known on the C-Suite executive floor that Miller

spent the company money lavishly, including on himself. Miller had huge expenses, buying

gifts for people, traveling, and dining out. Employee comments about Miller’s spending ranged

from “he’s going to take the company down,” to “there goes the stock.”

59. CW 6 was a Senior Executive Assistant in Polycom’s Human Resources

Department from January 2007 to October 2011. CW 6 reported to Kathy Duarte, Director of

Compensation and Benefits. Duarte left the company when Andrew Miller became CEO, and

CW 6 then began reporting to Mitchell Pulley, Vice President of Compensation and Benefits.

CW 6 remarked that CFO Eric Brown likely was aware of what was in Miller’s expense reports

and approved them. According to CW 6, Miller “expensed literally everything. It was over-

the-top.” Miller’s expenses were “off-the-charts.” These included daily living expenses such

as meals, dry cleaning, transportation and entertainment.

60. CW 8 was Vice President of Worldwide Corporate Functions from October

2011 to January 2015. CW 8 reported to Ashley Goldsmith, Executive Vice President of

Human Resources. According to CW 8, Polycom employees were required to follow a strict

process for submitting travel expenses. Most travel required a pre-approval from the

employee’s manager. When the employee returned from the business trip, the employee

submitted the receipts, the itinerary and the manager’s pre-approval. The manager then



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reviewed the submission to ensure it matched what was pre-approved and that the expenses met

company guidelines regarding cost level and activity. After the manager approved the

expenses, the report went to the Global Shared Services Center in China, which was Polycom’s

expense processing center. At the Services Center, the report was closely reviewed to ensure

proper approvals were obtained and that receipts and travel dates/locales matched the originally

pre-approved itinerary. The Center also compared travel costs of airfare, hotels and meals to

the limits set by Company policy. If anything in the report did not meet company guidelines

and did not have the proper approval for the exception, the item was flagged by the Center and

sent back to the employee for further explanation. The employee was required to submit

additional information or approvals from managers to fully justify the expense.

61. According to CW 8, Miller appeared to be exempt from the travel expense

policies of the company. Miller bullied anyone who tried to question him about his expenses

and everyone existed in a state of fear that Miller would fire them. CW 8 recalled that there

was a widespread belief at Polycom that the Company was covering lavish expenses for Miller.

Many people were aware of the expensive apartment in San Francisco, which was supposed to

be temporary. CW 8 also heard about constant upgrades to the furniture and other interior

aspects of the apartment under the guise of “relocation costs” years after Miller had started

working for Polycom. CW 8 said a common reaction to the announcement about

“irregularities” in Miller’s expenses was not necessarily surprise. CW 8 said many people

thought, “It was only a matter of time.”

Miller Submits Expenses for Remodeling His Home

62. CW 4 stated that when Miller took over as CEO, part of his compensation

package included the temporary leasing of an apartment until he could move his family from



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Colorado to a new home in California. Miller leased a “massive” penthouse in San Francisco

and had two Polycom employees running errands to coordinate the décor and furnishings of the

apartment. Although it was supposed to be temporary, the apartment became permanent and

Miller still rented it at the time of his resignation. Miller’s family never moved to California

and Miller continued to commute from Colorado to California via airplane.

63. “I find it hard to believe that the CFO and Sayed (the Chief Legal Officer) didn’t

know what was happening,” CW 4 said. Miller “was just spending the money of Polycom like

it was his own,” exclaimed CW 4. This extravagant spending was in stark contrast to the

previous CEO, Hagerty, who was extremely cost conscious and “never” wanted to spend

Polycom’s money.

64. According to CW5, when Miller became CEO in May 2010, he rented a

penthouse in San Francisco and the Company paid all of the expenses associated with the

penthouse. “He charged everything to the Company.” CW 5 remarked that he/she never heard

of any other Polycom employees who had their homes and living expenses paid for by the

company. “The only one I ever heard about was Andy,” she said. “The only one.”

65. CW 3 also noted that Miller tried to expense remodeling costs for his home.

66. Similarly, according to the SEC Complaint, in June 2012, Miller directed his

administrative assistant to hire a custom indoor gardening service to deliver, install and service

a series of plants for his personal residence in San Francisco, California. On June 9, 2012,

Miller emailed his assistant and instructed her: “Go ahead and buy the plants, put on your

PCARD. Split the purchases on the card to around $250 per transaction. I will then take the

plants to SF once we move in.” Following Miller’s instruction, his assistant charged more than

$5,000 to her P-Card for the plants, including charges for a monthly watering service. Also as



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Miller had instructed, his assistant split the charges into $250 increments and submitted the

expenses for reimbursement with a description indicating that the plants were for Polycom’s

San Francisco office. Miller never brought the plants to Polycom’s San Francisco office. SEC

Compl. ¶¶31-32.

Miller Rents Luxury Cars and Buys $500 Ties on Company Tab

67. According to CW 4, Miller only rented luxury class vehicles on business trips

and when he commuted to Polycom’s headquarters. Since Miller technically lived in Colorado

with his family and commuted by airplane to Polycom in California, he regularly rented cars

for a week at a time. “The cars were not what Hertz gave out regularly,” CW 4 said. “He

drove very expensive cars.” CW 4 heard that Miller was once given a Chevy, and “I think he

threw a fit.” CW 4 also heard from executive assistants that Miller asked them to buy $500 ties

for him to give to top salespeople as a bonus. But when the assistants asked one of the

salesmen who was supposed to have received the tie about it later, the salesman did not know

what the assistants were talking about. The assistants believed Miller was keeping the ties for

himself.

68. CW 5 also recalled that Miller asked his assistant, Laurie Grover, to buy several

$400-$500 ties from the luxury retailer Hermes, which were supposed to be gifts for other

employees. When Grover asked the employees about the ties later, the employees did not

know what she was talking about. Apparently, Miller had kept the ties for himself.

69. Similarly, according to the SEC Complaint, from February 22, 2012 to March 8,

2012, Miller charged more than $2,000 to his Polycom credit card for a spa gift certificate from the

Four Seasons, designer sunglasses, Hermes ties and Thomas Pink dress shirts at stores in London,

England; Houston, Texas; Melbourne, Australia; and Washington, D.C. Miller emailed his

administrative assistant, who was preparing an expense report at his direction, and told her that the



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purchases were retirement gifts for Polycom’s then-outgoing CFO. Miller kept the “gifts.” SEC

Compl. ¶¶20-21.

70. As described in the SEC Complaint, in another instance, on May 9, 2012, Miller

charged $524.67 (£316.66) to his Polycom credit card at Thomas Pink, a men’s clothing boutique at

Heathrow Airport, in London, England. Miller hand-wrote certain names on the receipt, along with

the words “Q2 gift,” and later emailed his administrative assistant, who was preparing an expense

report at his direction, claiming that the purchase was for a Polycom partner. But Miller’s

description of the May 9, 2012 purchase at Thomas Pink was false, as Miller’s own emails reflect

that he had purchased Thomas Pink dress shirts to wear himself. ¶¶18-19.

Miller Buys a Tesla on Company Money

71. CW 2 heard from people who are in a position to know that Miller bought a

Tesla automobile with company money. A Tesla sells for anywhere from $69,900 – $94,900.

Miller Spends Large Sums of Polycom’s Money on His Mistress and His Family

72. CW 5 said that during Miller’s tenure as CEO, he had a mistress who worked at

the Company. Herrick heard from Miller’s executive assistant, Laurie Grover, that Miller was

spending a lot of Company money on his mistress and that Miller’s wife found out. Grover

told Herrick that Miller and his wife split or divorced over it. The wife and children never

moved to California from Aspen, where Miller had been living with them prior to taking a job

at Polycom.

73. Likewise, CW 6 recounted that one of Miller’s executive assistants, Elizabeth

Loux, who regularly prepared Millers’ expense reports, told CW 6 that when Miller traveled on

business trips, his rental car was sometimes returned days after Miller had left a particular city

or area where the car was rented. The implication was that someone else was still driving the

car. CW 6 said the talk among executive assistants was that Miller had a mistress who was



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using the car after Miller left a town he visited. CW 6 believed that Miller’s mistress was an

executive he hired in September 2010.

74. Similarly, according to the SEC Complaint, on February 23, 2011, Miller

charged $342.70 to his Polycom credit card at the Hook restaurant in Washington, D.C. Miller

hand-wrote on the meal receipt the names of five individuals with whom he purportedly dined,

identifying them as employees of a Polycom customer, and he submitted, or directed his

administrative assistant to submit, an expense report describing the meal as a “Customer

Meeting.” SEC Compl. ¶16. Miller’s description of the February 23, 2011 meal was false,

however, as he had actually eaten and paid for dinner at Hook with his brother and certain other

family members, none of whom were Polycom customers. Emails from Miller’s brother to

Miller reveal that Miller’s brother actually made the dinner reservation at Hook and then

thanked Miller for the dinner two days later. Id. ¶17.

75. Also according to the SEC Complaint, in another instance, on December 7,

2012, Miller charged $667.02 to his Polycom credit card at Quince, a four-star restaurant in San

Francisco, California. The next month, while preparing his expense report, Miller’s

administrative assistant emailed Miller to ask him for a description of the December 7, 2012

meal. Miller responded via email with the names of purported business guests and a purported

business description, which his assistant added to the expense report. Id. ¶22. But Miller’s

description of the December 7, 2012 meal was false, as he had actually eaten and paid for

dinner at Quince with his girlfriend and parents, who were visiting San Francisco. Indeed,

Polycom’s own records reflect that Miller arranged for a limousine service to pick up his

parents from their hotel, bring them to the restaurant, and wait for them outside during the

dinner, costing more than $380, which Miller also charged to Polycom. Id. ¶23.



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76. As described in the SEC Complaint, in another instance, on July 17, 2012,

Miller emailed his administrative assistant and directed her to buy him “the two best” tickets to

a San Francisco production of the musical Les Miserables, explicitly instructing her to put the

charge on her P-Card. The subject line of Miller’s email indicated that the purchase was for the

“University of California SF/Childrens Hospital” on behalf of another prominent Bay Area

executive. Pursuant to the instruction, Miller’s administrative assistant charged $413.40 to her

P-Card for two tickets to the show, and submitted the expense for reimbursement with the

description that Miller had provided. Miller’s description of the expense was false, however, as

he used the tickets to attend the theatre with his girlfriend, and did not make a gift of the tickets

to the Children’s Hospital on behalf of the executive or anyone else. Id. ¶¶ 26-27.

77. The SEC Complaint described another similar occasion where, on July 7, 2012,

Miller directed his administrative assistant to buy him two tickets to an August 3, 2012

performance of the Broadway musical Jersey Boys in New York City. On July 24, 2012,

Miller emailed his administrative assistant to ask if she had the tickets, and during that

exchange he represented, “I am giving the JB tickets as a prize in a NYC PLCM office sales

contest . . . On PCARD place NYC PLCM Q3 Sales Incentive Contest[.]” At Miller’s

direction, his assistant charged $576.20 to her P-Card for two tickets to the show, and

submitted the expense for reimbursement with the description that Miller had provided. But

Miller’s description of the expense was false, as he used the tickets to attend the theatre with

his girlfriend, and did not give them away to Polycom’s New York sales team or anyone else.

Miller’s August 3, 2012 night out with his girlfriend in New York cost Polycom more than

$1,000. In addition to the tickets, Miller charged more than $275 to his Polycom credit card for

post-theatre dinner and later, although he had eaten alone with his girlfriend, emailed his



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administrative assistant a bogus business description for the meal, including the names of

purported attendees from a Polycom customer. Miller also directed his administrative assistant

to book a limousine service to take him to the theatre and dinner, for which she charged more

than $160 on her P-Card. Id. ¶¶28-30.

Miller Expenses Lavish Dinners and Charters Jets on Polycom’s Tab

78. CW 7 was married to Miller for four years until they divorced on September 21,

2011. CW 7 remarked that she “wasn’t surprised about the news” that Miller left Polycom

because he cheated on expense reports.

79. For example, during a company trip to Sydney, Australia in the fall of 2010, CW

7 accompanied her husband. Miller invited CW 7 and several of her friends who lived there to

an expensive dinner to celebrate CW 7’s birthday. Only one Polycom employee attended the

dinner––which was held at Tetsuya’s––but CW 7 observed that Miller charged the whole fete

on Polycom’s credit card.

80. On another trip, this one to Buenos Aires in Argentina, CW 7 accompanied

Miller to a Company meeting to celebrate the achievements of Polycom’s local employees.

After the meeting, which was held around April 2011, Miller chartered a jet––at the Company’s

expense––to take him, CW 7, and several other Polycom executives to see Iguazu Falls, one of

the top destinations in South America. CW 7 noted that the trip did not include any of the

lower level local Polycom employees for whom the meeting had been arranged to recognize

their achievements. The trip to the falls did not have a business purpose. Nevertheless, Miller

charged the entire tour to the Company.



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Polycom’s Testing of Only a “Sample” of Miller’s Submissions Confirms the Confidential Witnesses’ Allegations of Miller’s Egregious Theft 81. On April 25, 2014, Polycom disclosed in a Definitive Proxy Statement filed with

the SEC that pursuant to a “testing…done [by advisors retained by the Company’s Audit

Committee] on a sample of Mr. Miller’s total expenses,” Miller improperly submitted as

business expenses personal expenses that include “airline travel” and “hotel costs, meals, car

services, event tickets, spa and other personal services, services and items for his home,

clothing, commuting costs and gift cards.”5 Proxy at 59-61. Based on this sampling, the

advisors determined that, “excluding airline travel, the selected expenses between 2011 and

2013 included approximately $77,000 in expenses that were either personal or most likely

personal” and that “it was inconclusive whether an additional approximately $116,000 of the

selected expenses during the same years were personal.” Id. As for airline travel, the advisors

concluded that “60 of 222 flight segments tested between 2011 and 2013 were personal or

likely personal,” but the advisors were “unable to determine the total amount of expense

associated with the 60 flight segments because of the unavailability of historical airline pricing

information.” Id.

82. The Company also disclosed that between 2011 and 2013, it held an annual

event called “CEO Circle” as a “reward” for its top sales representatives and other executives,

who brought guests to those events. Id. In 2011, the event was held in Argentina; in 2012, in

Bali; and in 2013, in South Africa. Id. The Company spent approximately $20,500, $10,000,

and $14,600 for Miller, respectively, and approximately $14,300, $7,000, and $11,200 for

Miller’s guest. Id. The Company claims that Miller and his guests’ attendance on these

5 A court may take judicial notice of SEC filings. Dreiling v. Am. Exp. Co., 458 F.3d 942, 946 n. 2 (9th Cir. 2006).



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particular days were related to Miller’s CEO “duties” and “his role as a host of the events.” Id.

Polycom also disclosed that “[i]n 2011 and 2012, prior to the CEO Circle events planned for

2012 and 2013, Miller visited Bali and South Africa, purportedly to inspect the sites for the

upcoming events…Polycom has learned that Mr. Miller also expensed airfare in connection

with his trips to Bali and South Africa in the amount of approximately $13,000 for each trip.

Id. Polycom has also learned that Mr. Miller took guests on these trips and that Polycom may

have paid for the costs of the guests and additional expenses incurred by Mr. Miller on these

trips…Polycom does not know the total costs associated with these additional expenses.” Id.

Miller is Forced to Resign as a Result of Irregularities in His Expense Reports

83. On July 23, 2013, Polycom shocked the market when it suddenly announced that

Miller was forced to resign as a result of “irregularities” in his expense report submissions.

Specifically, Polycom announced that Miller “resigned as Chief Executive Officer, President

and a member of the Board of Directors on July 19, 2013, after the Audit Committee of the

Board of Directors found certain irregularities in Mr. Miller’s expense submissions, for which

Mr. Miller accepted responsibility.” (Polycom Press Release, July 23, 2013). Subsequently, on

September 11, 2013, the Company announced that its “review of Mr. Miller’s expenses has

continued, including for the years ended December 31, 2010, 2011, and 2012” and that

“[b]ased on its review to date, the Company believes that some of Mr. Miller’s expenses during

each of those years, which were accounted for as business expenses, were personal expenses.”

(8-K dated September 11, 2013). The Company also announced that the “SEC has commenced

an investigation concerning the Audit Committee’s review of Mr. Miller’ expenses and his

resignation, and it has requested information from [Polycom]. [Polycom] [is] cooperating with

the investigation.” (Id.)



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84. As part of his Separation Agreement with the Company, Miller agreed that he

will not delete or destroy any data related to his expense report machinations. (Separation

Agreement and Release at 3).

85. To date, Polycom has spent over $5 million in connection with Miller’s forced

resignation and the related SEC investigation.

Materially False and Misleading Statements Issued During the Class Period

86. On January 20, 2011, the Company issued a press release announcing financial

results for the fourth quarter and fiscal year ended December 31, 2010. The Company reported

total operating expenses of $167 million for the three months ended December 31, 2010,

including general and administrative expenses of $19 million, and reported total operating

expenses of $626 million for the twelve months ended December 31, 2010, including general

and administrative expenses of $75 million. (Id.)

87. The foregoing statements were materially false and misleading because they

misrepresented and/or failed to disclose the following: (i) Miller was misappropriating

Polycom’s funds for personal expenses in material amounts; and (ii) Miller’s false expense

reports caused Defendants to report false and misleading operating expenses.

88. On February 18, 2011, Polycom filed an annual report for the period ended

December 31, 2010, on Form 10-K with the SEC, which reiterated the Company’s previously

announced financial results and financial position. The 2010 10-K reported total operating

expenses for the year ended 2010 of $626 million, including general and administrative

expenses of $75 million. (2010 10-K at 39, F-5). The 2010 10-K incorporated by reference the

2010 proxy statement, filed with the SEC on April 13, 2011. The 10-K was signed, among

others, by Defendants Miller and Kourey. In addition, the 10-K contained signed certifications



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pursuant to the Sarbanes-Oxley Act of 2002 by Defendants Miller and Kourey, stating that the

financial information contained in the 10-K was accurate and that it disclosed any material

changes to the Company’s financial reporting.




caused Defendants to report false and misleading operating expenses; and (iii) Defendants

omitted at least $15,435 of Miller’s undisclosed perks.

90. On April 13, 2011, Polycom filed its definitive proxy statement on Form DEF

14A for the fiscal year 2010. In that filing, Polycom reported that Miller had received

$4,341,868 in total compensation, including $111,493 in perks ($162,215 in “All Other

Compensation,” which included non-perk 401(k) plan contributions and tax gross-ups). Of

those perks, $107,918 consisted of relocation expenses that Miller incurred pursuant to his offer

letter from the Company. Polycom only reported that Miller received one “token gift,” valued

at $125, and it did not report having paid for any of Miller’s personal meals, travel or

entertainment. Miller signed the April 13, 2011 Form DEF 14A on behalf of and “By Order of

the Board of Directors of Polycom,” including Kourey, and Defendants Polycom, Miller and

Kourey used it to solicit proxy votes for Polycom’s annual shareholder meeting.



Polycom’s funds for personal expenses in material amounts; and (ii) Defendants omitted at

least $15,435 of Miller’s undisclosed perks.



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92. On April 21, 2011, the Company issued a press release announcing financial

results for the first quarter ended March 31, 2011. The Company reported total operating

expenses of $170 million for the three months ended March 31, 2011, including general and

administrative expenses of $18 million.

93. On April 28, 2011, the Company filed with the SEC a quarterly report on Form

10-Q for the period ended March 31, 2011, which included signed Certifications by Defendants

Miller and Kourey, stating that the financial information contained in the Form 10-Q was

accurate and that they disclosed any material changes to the Company’s financial reporting.

The report reiterated the Company’s previously announced quarterly financial results and

financial position. Polycom reported total operating expenses of $170 million, including

general and administrative expenses of $18 million. (Q1 2011 10-Q at 4).

94. On July 21, 2011, the Company issued a press release announcing financial

results for the second quarter ended June 30, 2011. The Company reported total operating

expenses of $182 million for the three months ended June 30, 2011, including general and


95. On August 2, 2011, the Company filed with the SEC a quarterly report on Form

10-Q for the period ended June 30, 2011, which included signed Certifications by Defendants

Miller and Kourey, stating that the financial information contained in the Form 10-Q was







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96. On October 19, 2011, the Company issued a press release announcing financial

results for the third quarter ended September 30, 2011. The Company reported total operating

expenses of $197 million for the three months ended September 30, 2011, including general

and administrative expenses of $22 million.

97. On October 31, 2011, the Company filed with the SEC a quarterly report on

Form 10-Q for the period ended September 30, 2011, which included signed Certifications by

Defendants Miller and Kourey, stating that the financial information contained in the Form 10-

Q was accurate and that they disclosed any material changes to the Company’s financial

reporting. The report reiterated the Company’s previously announced quarterly financial

results and financial position. Polycom reported total operating expenses of $197 million,

including general and administrative expenses of $22 million. (Q3 2011 10-Q at 4).


results for the fourth quarter and fiscal year ended December 31, 2011. The Company reported

total operating expenses of $200 million for the three months ended December 31, 2011,

including general and administrative expenses of $21 million, and reported total operating

expenses of $748 million for the twelve months ended December 31, 2011, including general

and administrative expenses of $83 million. (Id.)









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announced financial results and financial position. The 10-K reported total operating expenses

for the year ended 2011 of $748 million, including general and administrative expenses of $83

million. (2011 10-K at 42, F-5). The 2011 10-K incorporated by reference the 2011 proxy

statement, filed with the SEC on April 9, 2012. The 10-K was signed, among others, by

Defendants Miller and Kourey. In addition, the 10-K contained signed certifications pursuant

to the Sarbanes-Oxley Act of 2002 by Defendants Miller and Kourey, stating that the financial

information contained in the 10-K was accurate and that it disclosed any material changes to

the Company’s financial reporting.






102. On April 9, 2012, Polycom filed its definitive proxy statement on Form DEF 14A

for the fiscal year 2011. In that filing, Polycom reported that Miller had received $5,016,646 in

total compensation, including $112,998 in perks ($175,967 in “All Other Compensation,” which

included non-perk 401(k) plan contributions). Of those perks, $106,623 consisted of additional

relocation expenses that Miller incurred pursuant to his offer letter from the company. Polycom did

not report having paid for any of Miller’s personal items, meals, travel or entertainment. Miller

signed the April 9, 2012 Form DEF 14A on behalf of and “By Order of the Board of Directors of

Polycom,” and Defendants Polycom and Miller used it to solicit proxy votes for Polycom’s annual

shareholder meeting.





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105. On May 1, 2012, the Company filed with the SEC a quarterly report on Form


Miller and Brown, stating that the financial information contained in the Form 10-Q was





106. On July 24, 2012, the Company issued a press release announcing financial

results for the second quarter ended June 30, 2012. The Company reported total operating

expenses of $210 million for the three months ended June 30, 2012, including general and


107. On August 1, 2012, the Company filed with the SEC a quarterly report on Form

10-Q for the period ended June 30, 2012, which included signed Certifications by Defendants






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108. On October 23, 2012, the Company issued a press release announcing financial

results for the third quarter ended September 30, 2012. The Company reported total operating

expenses of $214 million for the three months ended September 30, 2012, including general

and administrative expenses of $27 million.

109. On October 31, 2012, the Company filed with the SEC a quarterly report on

Form 10-Q for the period ended September 30, 2012, which included signed Certifications by

Defendants Miller and Brown, stating that the financial information contained in the Form 10-

Q was accurate and that they disclosed any material changes to the Company’s financial

reporting. The report reiterated the Company’s previously announced quarterly financial

results and financial position. Polycom reported total operating expenses of $214 million,

including general and administrative expenses of $27 million. (Q2 2012 10-Q at 4).


results for the fourth quarter ended December 31, 2012. The Company reported total operating

expenses of $202 million for the three months ended December, 2012, including general and










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announced financial results and financial position. The 10-K reported total operating expenses

for the year ended 2012 of $817 million, including general and administrative expenses of $98

million. (2012 10-K at 40, F-5). The 2012 10-K incorporated by reference the 2012 proxy

statement, filed with the SEC on April 19, 2013. The 10-K was signed, among others, by

Defendants Miller and Brown. In addition, the 10-K contained signed certifications pursuant to

the Sarbanes-Oxley Act of 2002 by Defendants Miller and Brown, stating that the financial

information contained in the 10-K was accurate and that it disclosed any material changes to

the Company’s financial reporting.






114. On April 19, 2013, Polycom filed its definitive proxy statement on Form DEF 14A

for the fiscal year 2012. In that filing, Polycom reported that Miller had received $7,356,905 in

total compensation, including $31,430 in perks ($33,430 in “All Other Compensation,” which

included non-perk 401(k) plan contributions and tax gross-ups). Of those perks, $21,430 consisted

of final relocation expenses that Miller incurred pursuant to his offer letter from the company.

Polycom did not report having paid for any of Miller’s personal items, meals, travel or

entertainment. Miller signed the April 19, 2013 Form DEF 14A on behalf of and “By Order of the

Board of Directors of Polycom,” and Defendants Polycom and Miller used it to solicit proxy votes

for Polycom’s annual shareholder meeting.





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116. Polycom’s April 19, 2013 proxy statement specifically highlighted perks as a metric

of its corporate governance and pay-for-performance goals, stating that it provided “No Excessive

Perquisites” (emphasis in original) and explaining that “[a] small amount of perquisites are

provided to our executives, consistent with the practices of our peer companies.” This statement

was materially false and misleading, as Miller had engaged and was still engaging in a scheme to

obtain and hide tens of thousands of dollars’ worth of perks and other personal benefits from

Polycom.





118. On April 30, 2013, the Company filed with the SEC a quarterly report on Form













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120. On July 12, 2011, November 4, 2011 and June 14, 2013, Defendants Miller, Brown

and Kourey signed registration statements filed with the SEC on Forms S-8, each of which

registered offerings of Polycom stock previously reserved for issuances pursuant to employee stock

purchase and equity incentive plans. Each of the registration statements incorporated Polycom’s

previously-filed annual report which, in turn, incorporated the company’s proxy statements.

Accordingly, these registration statements filed by Polycom were also false and misleading.6

THE TRUTH BEGINS TO EMERGE

121. On July 23, 2013, the Company issued a press release announcing its financial

results for the second quarter ended June 30, 2013. In that July 23, 2013 press release the

Company disclosed for the first time that:

On July 19, 2013, Mr. Andrew M. Miller submitted a letter to the Board of Directors (the “Board”) of the Company resigning from the positions of Chief Executive Officer and President and from the Board, effective immediately on such date. Mr. Miller will continue as a non-executive employee of the Company until August 15, 2013.

* * *

On July 17, 2013, the Audit Committee of the Board completed a review of certain of Mr. Miller’s expense submissions. The Audit Committee found certain irregularities in these submissions. At the conclusion of the review, Mr. Miller accepted responsibility and submitted the letter referred to in Item 5.02. The amounts involved did not have a material impact on the Company’s previously reported financial statements for any period.

(emphasis added).

122. The same day, during an earnings call announcing the Company’s Q2 2013

financial results, analysts questioned Polycom’s “organizational stability” in light of Miller’s

forced resignation, as Miller “had a very loyal following at the company.” (Polycom Q2 2013

Earnings Call, 7/23/2013). Polycom’s interim CEO, Kevin Parker, openly acknowledged that

6 Defendants Miller and Kourey signed the July 12, 2011 and November 4, 2011 Registration Statements. Defendants Miller and Brown signed the June 14, 2013 Registration Statement.



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“[t]his is obviously a tough set of circumstances” and is “undoubtedly, a significant change.”

(Id.)

123. On this news, shares of Polycom fell $1.68 cents, or over 15% percent, to $9.50

per share on July 24, 2013, on volume of over 11 million shares. This decline wiped out over

$275 million in market value.

124. Analysts reacted negatively to Miller’s departure. For example, RBC Capital

Markets downgraded Polycom to “underperform” and concluded that “[t]he management

transition presents yet another factor of uncertainty in the company’s near-term direction.”

(RBC Capital Markets report, July 24, 2013). PiperJaffray also downgraded Polycom to

“underweight” and lamented that “[t]he departure of CEO Andy Miller…raises red flags and

we believe management credibility (at all executive levels) comes into question.” Indeed,

PiperJaffray “view[ed] the departure of Mr. Miller as a longer term headwind for a company

that was already struggling to find direction.” (PiperJaffray report, July 24, 2013). Janney

Capital Markets similarly warned that “Miller was an execution-focused CEO, who

spearheaded the recent expansion in direct selling model and recruited most of the current sales

leadership team,” therefore “[w]ith pressure on the sales force still high…sales turnover is a

real threat.” (Janney Capital Markets report, July 24, 2013). Likewise, Wedbush cautioned

that Miller’s resignation introduces risks and “heightens investor skepticism.” “Given Mr.

Miller’s role in shaping senior management, we also have concerns regarding the potential for

additional management upheaval and sales force attrition. We note that EVP of Global Sales

Tracey Newell, appointed by Mr. Miller, has also indicated she will be leaving the firm in

August.” (Wedbush Equity Research, July 24, 2013).



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125. The SEC commenced an investigation into the Audit Committee’s review of

Miller’s expense submissions and his resignation. To date, Polycom squandered over $5

million in connection with the SEC investigation.

126. As a result of Defendants’ wrongful acts and omissions, and the precipitous

decline in the market value of the Company’s securities, Plaintiff and other Class members

have suffered significant losses and damages.

ADDITIONAL SCIENTER ALLEGATIONS

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

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

were materially false and misleading or omitted material information; knew or recklessly

disregarded that such statements or documents would be issued or disseminated to the investing

public; and knowingly and substantially participated or acquiesced in the issuance or

dissemination of such statements or documents as primary violators of the federal securities

laws. Defendants, by virtue of their receipt of information reflecting the true facts regarding

Defendant Miller’s expense reports, their control over the materially false and misleading

misstatements, and/or their associations with the Company, which made them privy to

confidential information concerning the misstatements and/or omissions alleged herein, were

active and culpable participants in the fraudulent scheme alleged herein. Defendants knew of

and/or recklessly disregarded the false and misleading nature of the information that they

caused to be disseminated to the investing public.

128. As explained above, Defendants Kourey and Brown reviewed and approved

Miller’s expenses.



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129. The Individual Defendants were each motivated to maintain their lucrative jobs,

and increase their compensation over their normal salary and their personal net worth.

Polycom’s executive compensation had three components: base salary, short-term cash

incentives, and long-term equity-based incentives. Short-cash incentives were offered “[t]o

focus each executive officer on the importance of achieving [Polycom’s] goals” of “meeting

and exceeding [the Company’s] operating plan and maximizing [the Company’s] delivery of

rewards to its stockholders and employees.” (Proxy filed 4/19/2013 at 45-46, incorporated by

reference in 2012 10-K). Keeping Polycom’s stock at artificially inflated prices enabled

Defendants to enhance their net worth.

130. The Individual Defendants received handsome compensation packages. For

example, in 2011 Miller pocketed over $5 million, including a base salary of $727,778, a bonus

of $150,000, and stock awards of $3,270,901; and Kourey received over $1.5 million, including

a base salary of 454,720 and stock awards of $732,325. In 2012, Miller received over $7

million, including a base salary of $819,949 and stock awards of $6,166,576; and Brown

pocketed more than $8 million, including a salary of $519,542, a bonus of $375,000, and stock

awards of $7,791,816. (Id. at 58).

THE INDIVIDUAL DEFENDANTS’ SCIENTER IS IMPUTED TO POLYCOM

131. As a general rule, the knowledge of a company’s agents––most obviously senior

executives who speak on its behalf––is imputed to the company. Imputation of an officer’s acts

to the corporation is simply an application of more general agency laws.

132. In very narrow circumstances not applicable here, the “adverse interest”

exception to the imputation rule applies to preclude imputation. The purpose of the adverse

interest exception is to let companies sue their former agents without being barred by the



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doctrine of in pari delicto (at equal fault). It is not meant to insulate companies from claims

brought by innocent third parties. Accordingly, the “adverse interest” exception does not apply

when innocent their parties rely on the agent’s apparent authority in good faith.

133. The innocent-third party exception is predicated on the Restatement of Agency.

The Restatement provides that notwithstanding the adverse interest exception to the general

rule of imputation, knowledge still is imputed “when necessary to protect the rights of a third

party who dealt with the principal in good faith.” Restatement (Third) of Agency §5.04(a),

“An Agent Who Acts Adversely to a Principal,” (2006); see also cmts. b, c and accompanying

illustrations.

134. Imputing knowledge also advances public policy goals in that because it is the

principal who has selected and delegated responsibility to its agents, the doctrine creates

incentives for the principal to do so carefully and responsibly. Indeed, the Supreme Court of

the United States, citing to Restatement (Second) of Agency (1957), teaches that “it is . . . for

the ultimate interest of persons employing agents, as well as for the benefit of the public, that

persons dealing with agents should be able to rely upon apparently true statements by agents

who are purporting to act and are apparently acting in the interest of the principal.” American

Society of Mechanical Engineers, Inc. v. Hydrolevel Corp., 456 U.S. 556, 567 (1982).

135. As courts and the Restatement (Third) of Agency teach, “[i]t is helpful to view

questions about imputation from the perspective of risk assumption, taking into account the

posture of the third party whose legal relations with the principal are at issue.” See

Restatement (Third) of Agency § 5.04, cmt. c; accord In re Tyco Int’l., 2004 WL 2348315 at

*6 (D.N.H. Oct. 14, 2004) (“Although the misrepresentations that were at issue in [In re

Atlantic Financial Mgmt., 784 F.2d 29 (1st Cir. 1986)] were not adverse to the corporate



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defendants’ interests, the risk allocation policies that led the court to apply the apparent

authority doctrine to misstatements generally apply with equal force when the misstatements

are adverse to the corporation’s interests.”).

136. Thus, when a third party deals in good faith with the principal’s agent, the risk is

allocated to the principal. This is because “[a] principal assumes the risk that the agent it

chooses to interact on its behalf with third parties will, when actual or apparent authority is

present, bind the principal to the legal consequences of their actions.” Restatement (Third) of

Agency § 5.04, cmt. c. It is only fair to allocate the risk to the principal because “the principal

chooses its agents, has the right to control them, and determines how to characterize its agents’

positions and indicia of authority in manifestations made to third parties.” Id.

137. Moreover, the adverse interest exception is narrow and requires an agent to

completely abandon the principal’s interests and act entirely for his own purposes. The fact that

an action taken by an agent has unfavorable results for the principal does not establish that the

agent acted adversely. See Restatement [Third] of Agency. So long as the corporate

wrongdoer’s fraudulent conduct enables the business to survive––to attract investors and

customers and raise funds for corporate purposes––the adverse interest test is not met.

138. By failing to disclose Miller’s repeated misappropriations, Defendants permitted

Miller to remain at Polycom’s helm and attract investors. As described above, Miller had been

the key player in the Company’s success. Miller “had a great and frankly unique on the planet,

background to come into Polycom.” As Defendant Kourey explained, “a lot of the benefits that

[investors] [are] seeing in [Polycom’s] execution, a lot of the improvements in execution really

began when [Miller] came on board in July of 2009.” Miller also made “significant management

changes” at Polycom and appointed an entirely new executive team loyal to him. Accordingly,

Defendants had a strong incentive to keep Miller employed. Indeed, Defendant Kourey turned a



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blind eye after Miller reacted angrily at being second-guessed when he was caught with his hands

in the cookie jar. Defendants also left untouched Polycom’s Travel and Expense Reimbursement

Policy, which permitted air travel to be booked and charged without entering a business description,

further appeasing Miller’s extravagant life. Defendants also kept in place a policy that permitted

Miller to review and approve the P-Card charges incurred by his administrative assistants, even

though they had been incurred at Miller’s direction and on his behalf, allowing Miller to dispose of

Polycom’s assets without supervision. By adopting a “heads-in-the-sand” approach, Defendants

were able to keep an appearance of proper internal controls that assured investors that all

transactions are executed in accordance with the management’s authorization and are recorded as

necessary to maintain accountability for Polycom’s assets. In light of these assurances, investors

flocked to Polycom.

PLAINTIFF’S CLASS ACTION ALLEGATIONS

139. Plaintiff brings 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 those who purchased or

otherwise acquired Polycom securities during the Class Period (the “Class”), and were

damaged thereby. Excluded from the Class are Defendants herein, 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.

140. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, Polycom securities were actively traded on the

NASDAQ. While the exact number of Class members is unknown to Plaintiff at this time and

can be ascertained only through appropriate discovery, Plaintiff believes that there are hundreds

or thousands of members in the proposed Class. Record owners and other members of the



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Class may be identified from records maintained by Polycom 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.

141. Plaintiff’s claims are typical of the claims of the members of the Class as all

members of the Class are similarly affected by Defendants’ wrongful conduct in violation of

federal law that is complained of herein.

142. Plaintiff will fairly and adequately protect the interests of the members of the

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

Plaintiff has no interests antagonistic to or in conflict with those of the Class.

143. 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:

whether the federal securities laws were violated by Defendants’ acts as alleged herein;

whether statements made by Defendants to the investing public during the Class Period misrepresented material facts about the business, operations and management of Polycom;

whether the Individual Defendants caused Polycom to issue false and misleading financial statements during the Class Period;

whether Defendants acted knowingly or recklessly in issuing false and misleading financial statements;

whether the prices of Polycom securities during the Class Period were artificially inflated because of the Defendants’ conduct complained of herein; and

whether the members of the Class have sustained damages and, if so, what is the proper measure of damages.

144. 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



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

burden of individual litigation make it impossible for members of the Class to individually

redress the wrongs done to them. There will be no difficulty in the management of this action

as a class action.

145. Plaintiff will rely, in part, upon the presumption of reliance established by the

fraud-on-the-market doctrine in that:

Defendants made public misrepresentations or failed to disclose material facts during the Class Period;

the omissions and misrepresentations were material;

Polycom securities are traded in an efficient market;

the Company’s shares were liquid and traded with moderate to heavy volume during the Class Period;

the Company traded on the NASDAQ and was covered by multiple analysts;

the misrepresentations and omissions alleged would tend to induce a reasonable investor to misjudge the value of the Company’s securities; and

Plaintiff and members of the Class purchased, acquired and/or sold Polycom securities between the time the Defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without knowledge of the omitted or misrepresented facts.

146. Based upon the foregoing, Plaintiff and the members of the Class are entitled to

a presumption of reliance upon the integrity of the market.

CAUSATION AND ECONOMIC LOSS

147. As described herein, during the Class Period, Defendants made or caused to be

made a series of materially false or misleading statements and/or omitted material information

about Defendant Miller’s expense reports and Polycom’s financial and business practices.

These material misstatements and omissions had the cause and effect of creating in the market

an unrealistically positive assessment of Polycom, thus causing the Company’s shares to be



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overvalued and artificially inflated at all relevant times. Defendants’ materially false and

misleading statements during the Class Period were widely disseminated to the securities

markets, investment analysts, and to the investing public, and resulted in Plaintiff and other

members of the Class purchasing the Company’s shares at artificially inflated prices.

Moreover, upon the revelation to the market and the investing public of the truth concerning

Defendant Miller’s falsified expense reports and its forced resignation, the market price of

Polycom’s shares declined substantially, resulting in significant damages to Plaintiff and other

shareholders.

148. Had the truth about Polycom been revealed to the market earlier, Plaintiff and

the Class would not have purchased Polycom’s common stock or would have purchased the

stock only at dramatically lower prices.

149. When the truth about Polycom was finally revealed on July 23, 2013, as detailed

above in ¶¶ 100-101, a significant portion of the artificial inflation that had been caused by

Defendants’ materially false and misleading statements and omissions was eliminated from the

price of Polycom’s common stock, causing significant losses to Plaintiff and the Class. See ¶

102.

150. Defendants’ conduct, as alleged herein, proximately caused foreseeable losses to

Plaintiff and the other members of the Class.

APPLICABILITY OF THE PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE

151. Plaintiff will rely, in part, upon the presumption of reliance established by the

fraud-on-the-market doctrine in that:

• Defendants made public misrepresentations or failed to disclose material facts during the Class Period;

• the omissions and misrepresentations were material;



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• the Company’s stock met the requirements for listing, and was listed and actively traded on the NASDAQ, a highly efficient and automated market;

• the Company’s shares were liquid and traded with moderate to heavy volume during the Class Period (ranging from hundreds of thousands to millions of shares per week);

• as a regulated issuer, the Company filed with the SEC periodic reports during the Class Period;

• the Company regularly communicated with public investors via established market communication mechanisms, including regular disseminations of press releases on the national circuits of major newswire services and other wide-ranging public disclosures, such as communications with the financial press and other similar reporting services;

• the Company was followed by multiple securities analysts employed by major brokerage firms who wrote reports that were distributed to the sales force and certain customers of their respective brokerage firms during the Class Period; these reports were publicly available and entered the public marketplace;

• numerous FINRA member firms were active market-makers in the Company’s stock at all times during the Class Period; and

• unexpected material news about the Company was rapidly reflected in and incorporated into the Company’s stock price during the Class Period.

152. Based upon the foregoing, Plaintiff and the members of the Class are entitled to

a presumption of reliance upon the integrity of the market.

COUNT I

(Against All Defendants For Violations of Section 10(b) and Rule 10b-5 Promulgated Thereunder)

153. Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

154. This Count is asserted against Defendants and is based upon Section 10(b) of the

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

155. During the Class Period, Defendants engaged in a plan, scheme, conspiracy and

course of conduct, pursuant to which they knowingly or recklessly engaged in acts,



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transactions, practices and courses of business which operated as a fraud and deceit upon

Plaintiff and the other members of the Class; made various untrue statements of material facts

and 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; and employed devices,

schemes and artifices to defraud in connection with the purchase and sale of securities. Such

scheme was intended to, and, throughout the Class Period, did: (i) deceive the investing public,

including Plaintiff and other Class members, as alleged herein; (ii) artificially inflate and

maintain the market price of Polycom securities; and (iii) cause Plaintiff and other members of

the Class to purchase or otherwise acquire Polycom securities at artificially inflated prices. In

furtherance of this unlawful scheme, plan and course of conduct, Defendants, and each of them,

took the actions set forth herein.

156. Pursuant to the above plan, scheme, conspiracy and course of conduct, each of

the Defendants participated directly or indirectly in the preparation and/or issuance of the

quarterly and annual reports, SEC filings, press releases and other statements and documents

described above, including statements made to securities analysts and the media that were

designed to influence the market for Polycom securities. Such reports, filings, releases and

statements were materially false and misleading in that they misrepresented the truth about

and/or failed to disclose material adverse information related to Miller’s fraudulent submissions

of expense reports and Polycom’s stability as a result of the fraud committed at the highest

level of management, Miller’s non-compliance with Polycom’s Code of Business Ethics and

Conduct, the Company’s financial reporting, and the internal controls over its business and

financial operations.



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157. By virtue of their positions at Polycom, Defendants had actual knowledge of the

materially false and misleading statements and material omissions alleged herein and intended

thereby to deceive Plaintiff and the other members of the Class, or, in the alternative,

Defendants acted with reckless disregard for the truth in that they failed or refused to ascertain

and disclose such facts as would reveal the materially false and misleading nature of the

statements made, although such facts were readily available to Defendants. Said acts and

omissions of Defendants were committed willfully or with reckless disregard for the truth. In

addition, each Defendant knew or recklessly disregarded that material facts were being

misrepresented or omitted as described above.

158. Further information showing that Defendants acted knowingly or with reckless

disregard for the truth is peculiarly within Defendants’ knowledge and control.

159. As the Chief Executive Officer of Polycom and the person filling and submitting

the expense reports for approval, Defendant Miller had intimate knowledge of the details of his

false expense submissions. The remaining Individual Defendants received, reviewed and/or

approved Miller’s expense reports.

160. The Individual Defendants also are liable both directly and indirectly for the

wrongs complained of herein. Because of their position of control and authority, the Individual

Defendants were able to and did, directly or indirectly, control the content of the statements of

Polycom. As officers and/or directors of a publicly-held Company, the Individual Defendants

had a duty to disseminate timely, accurate, and truthful information with respect to Miller’s

expense submissions and Polycom’s stability as a result of the fraud committed at the highest

level of management, Miller’s non-compliance with Polycom’s Code of Business Ethics and



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Conduct, the Company’s financial reporting, and the internal controls over the Company’s

business and financial operations.

161. As a result of the dissemination of the aforementioned false and misleading

reports, releases and public statements, the market price of Polycom securities was artificially

inflated throughout the Class Period. In ignorance of the adverse facts concerning Defendant

Miller’s expense submissions and his non-compliance with Polycom’s Code of Business Ethics

and Conduct, Polycom’s financial reporting, and the internal controls over the Company’s

business and financial operations, which were concealed and/or misrepresented by Defendants,

Plaintiff and the other members of the Class purchased or otherwise acquired Polycom

securities at artificially inflated prices and relied upon the price of the securities, the integrity of

the market for the securities and/or upon statements disseminated by Defendants, and were

damaged thereby.

162. During the Class Period, Polycom securities were traded on an active and

efficient market. Plaintiff and the other members of the Class, relying on the materially false

and misleading statements described herein, which the Defendants made, issued or caused to be

disseminated, or relying upon the integrity of the market, purchased or otherwise acquired

shares of Polycom securities at prices artificially inflated by Defendants’ wrongful conduct.

Had Plaintiff and the other members of the Class known the truth, they would not have

purchased or otherwise acquired said securities, or would not have purchased or otherwise

acquired them at the inflated prices that were paid. At the time of the purchases and/or

acquisitions by Plaintiff and the Class, the true value of Polycom securities was substantially

lower than the prices paid by Plaintiff and the other members of the Class. The market price of



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Polycom securities declined sharply upon public disclosure of the facts alleged herein to the

injury of Plaintiff and Class members.

163. By reason of the conduct alleged herein, Defendants knowingly or recklessly,

directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule 10b-5

promulgated thereunder.

164. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and

the other members of the Class suffered damages in connection with their respective purchases,

acquisitions and sales of the Company’s securities during the Class Period, upon the disclosure

that the Company had been disseminating false and misleading financial statements to the

investing public.

COUNT II

(Violations of Section 20(a) of the Exchange Act Against the Individual Defendants)

165. Plaintiff repeats and realleges each and every allegation contained in the

foregoing paragraphs as if fully set forth herein.

166. During the Class Period, the Individual Defendants participated in the operation

and management of Polycom, and conducted and participated, directly and indirectly, in the

conduct of Polycom’s business affairs. Because of their senior positions and their roles in

preparing, receiving, reviewing and/or approving Defendant Miller’s expense reports, the

Individual Defendants knew the adverse non-public information about Polycom’ published

representations.

167. Polycom required its CFOs to sign off on expense reports. Polycom required

Defendants Kourey and Brown to sign off on Miller’s expense reports. In their role as Chief

Financial Officers of Polycom, Defendants Kourey and Brown had the authority to approve,



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were responsible for approving, and did approve Miller’s expense reports. Indeed, as described

above, Defendant Kourey confronted Miller about his improper expenses. Accordingly,

Defendants Kourey and Brown were “controlling persons” of Miller within the meaning of

Section 20(a) of the Exchange Act. In this capacity, Defendants Kourey and Brown

participated in the unlawful conduct alleged, which artificially inflated the market price of

Polycom securities. Defendants Kourey and Brown reviewed, approved, signed and

disseminated public filings that contained false and misleading statements regarding Polycom’s

operating expenses and Defendant Miller’s compensation and perquisities. Defendants Kourey

and Brown therefore were “controlling persons” of Miller with respect to his expense reports

and the related disclosures to investors.

168. Moreover, because of their position of control and authority as senior officers,

the Individual Defendants were able to, and did, control the contents of the various reports,

press releases and public filings which Polycom disseminated in the marketplace during the

Class Period concerning Defendant Miller’s expense submissions. Throughout the Class

Period, the Individual Defendants exercised this power and authority to cause Polycom to

engage in the wrongful acts complained of herein. The Individual Defendants therefore were a

“controlling person” of Polycom within the meaning of Section 20(a) of the Exchange Act. In

this capacity, they participated in the unlawful conduct alleged, which artificially inflated the

market price of Polycom securities.

169. As officers and/or directors of a publicly-owned Company, the Individual

Defendants had a duty to disseminate accurate and truthful information with respect to

Defendant Miller’s expense submissions, including disseminating accurate and truthful

information regarding Polycom’s operating expenses and Defendant Miller’s compensation and



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perquisites. The Individual Defendants also had a duty to correct promptly any public

statements issued by Polycom which had become materially false or misleading.

170. By reason of the above conduct, the Individual Defendants are liable pursuant to

Section 20(a) of the Exchange Act for the violations committed by Defendant Polycom.

171. By reason of the above conduct, Defendants Kourey and Brown are also liable

pursuant to Section 20(a) of the Exchange Act for violations committed by Defendant Miller.

COUNT III

(Violations, and Aiding and Abetting Violations, of Section 14(a) of the Exchange Act and Rules 14a-3 and 14a-9 Promulgated Thereunder Against Defendants

Polycom, Miller, and Kourey)

172. Plaintiff repeats and realleges each and every allegation contained in the

foregoing paragraphs as if fully set forth herein.

173. By virtue of the foregoing, Defendants Polycom, Miller, and Kourey, directly or

indirectly, by use of the mails or the means or instrumentalities of interstate commerce or of any

facility of a national securities exchange or otherwise, solicited and permitted the use of their name

to solicit proxies with respect to securities issued by Polycom and registered with the SEC, in

contravention of Section 14 of the Exchange Act and Rules 14a-3 and 14a-9 thereunder, which

prohibit solicitation of proxies without required information or with proxy statements that contain

any false or misleading statement as to any material fact, or that omit any material fact necessary to

make the statements made not false or misleading.

174. By virtue of the foregoing, Defendants Polycom, Miller, and Kourey violated

Section 14(a) of the Exchange Act, 15 U.S.C. § 78n(a), and Rules 14a-3 and 14a-9 thereunder, 15

U.S.C. §§ 240.14a-3 & 240.14a-9.



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175. By virtue of the foregoing, Defendants Miller and Kourey knowingly provided

substantial assistance to Polycom’s violations of Section 14(a) of the Exchange Act and Rules 14a-

3 and 14a-9.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff demands judgment against Defendants as follows:

A. Determining that the instant action may be maintained as a class action under

Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class

representative;

B. Requiring Defendants to pay damages sustained by Plaintiff and the Class by

reason of the acts and transactions alleged herein;

C. Awarding Plaintiff and the other members of the Class prejudgment and post-

judgment interest, as well as their reasonable attorneys’ fees, expert fees and other costs; and

D. Awarding such other and further relief as this Court may deem just and proper.

DEMAND FOR TRIAL BY JURY

Plaintiff hereby demands a trial by jury.

Dated: May 4, 2015 Respectfully submitted, POMERANTZ LLP By: /s/Jeremy A. Lieberman Jeremy A. Lieberman (admitted pro hac vice) Emma Gilmore (admitted pro hac vice) 600 Third Avenue, 20th Floor New York, New York 10016 Telephone: (212) 661-1100 Facsimile: (212) 661-8665 [email protected] [email protected]



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POMERANTZ LLP Patrick V. Dahlstrom Ten South LaSalle Street, Suite 3505 Chicago, Illinois 60603 Telephone: (312) 377-1181 Facsimile: (312) 377-1184 [email protected] GLANCY BINKOW & GOLDBERG LLP Lionel Z. Glancy (#134180) Michael Goldberg (#188669) Robert V. Prongay (#270796) 1925 Century Park East, Suite 2100 Los Angeles, CA 90067 Telephone: (310) 201-9150 Facsimile: (310) 201-9160 Email: [email protected] Attorneys for Lead Plaintiff and the Class



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CERTIFICATE OF SERVICE

I hereby certify that on May 4, 2015, a copy of the foregoing was filed electronically and

served by mail on anyone unable to accept electronic filing. Notice of this filing will be sent by

e-mail to all parties by operation of the Court’s electronic filing system or by mail to anyone

unable to accept electronic filing as indicated on the Notice of Electronic Filing. Parties may

access this filing through the Court’s CM/ECF System.

/s/ Jeremy A. Lieberman Jeremy A. Lieberman


Documents

SCAC | Securities Class Action Clearinghouse | Home ...securities.stanford.edu/filings-documents/1050/PLCM00_01/...between January 20, 2011 and July 23, 2013, both dates inclusive