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Polycom Class Action|Must Be Amended

SAN FRANCISCO (CN) - A federal judge partially dismissed, with leave to amend, a securities class action against Polycom, a San Jose-based telecom.

Lead plaintiff Mark Nathanson's lawsuit, like another one filed by Polycom shareholders in January, claims that former CEO Andrew Miller claimed reimbursements for "numerous extravagant business expenses with no legitimate business purpose."

After auditors reported the improper expenses and Miller resigned, Polycom's stock price dropped by 15 percent, U.S. District Judge Samuel Conti wrote in his April 3 order granting in part and denying in motions to dismiss.

Conti dismissed the January lawsuit because the plaintiffs "failed to allege demand futility with particularity."

Mark Nathanson "takes a different tack," Conti wrote, by claiming that Miller and Polycom's CFOs publicly reported false and misleading operating expenses and made such false statements in SEC filings.

Conti found that Nathanson rightly claimed that the expense reports were materially misleading, because public knowledge of Miller's improper spending would have significantly altered shareholders' decisions.

But he said that Polycom's allegedly false SEC filings were not actionable, because the "central thrust" of Nathanson's allegations "is that Polycom's board failed to correctly assess the adequacy of its internal controls - not that it sought to deceive investors about the quality of those controls."

"In short, these allegations are simply insufficient to give rise to a claim of securities fraud," Conti wrote.

Conti also found that Nathanson failed to argue that Polycom's CFOs intentionally misled shareholders, as evidence indicates "not that they were complicit in Miller's misconduct or misleading shareholders, but rather that they too were duped by Miller."

He found that Nathanson's claims on that topic do not allege "anything more than speculation" about the CFOs' state of mind, so he dismissed those claims.

Conti also dismissed Nathanson's claims against Polycom as a company because Miller's deceptive intention cannot be imputed to the whole corporation.

However, Nathanson sufficiently pleaded that Polycom primarily violated securities laws and that Miller's misbehavior was the cause of the company's drop in stock value.

He gave Nathanson 30 days to file an amended complaint.

Nathanson is represented by Jeremy Lieberman, with Pomerantz Grossman in New York City, Polycom by Keith Eggleton, with Wilson Sonsini in Palo Alto.

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