Shareholders Can Accuse Omnivision of Apple Lies

     SAN JOSE, Calif. (CN) – A federal judge refused to disturb misrepresentation claims against a company that lost an exclusive contract related to the Apple iPhone.
     At this stage of the consolidated class action, the complaint against OmniVision Technologies sufficiently accuses CFO Officer Anson Chan of having made two actionable misstatements that were false and for which Chan knew were false, the court found.
     Shareholders claim that the truth about OmniVision’s contract with Apple caused its stock to drop from $34.67 to $14.26 per share.
     OmniVision designs image sensors that are used in mobile phones with camera features, including in Apple’s 2009 iPhone 3GS and 2010 iPhone 4. Although Apple prohibited suppliers from revealing that Apple was their customer, OmniVision used buzz phrases and code words indicating that it was the exclusive image sensor provider for the iPhone, according to U.S. District Judge Ronald Whyte’s summary of the complaint Friday.
     “During the class Period, defendants continued to make positive statements about such topics as OmniVision’s competitive lead, its new BSI-2 technology, market share, design wins, and its relationship with ‘Tier 1’ customers,” Whyte wrote. “Lead plaintiffs contend these statements led the market to believe that OmniVision remained Apple’s exclusive image sensor supplier when in fact Sony, not OmniVision, had been chosen by Apple to be the dominant supplier of 8 MPx camera image sensors for the next generation 2011 iPhone (ultimately called the iPhone 4S).”
     The shareholders claim that OmniVision lacked a reasonable basis to make positive statements about the company and its prospects because the company had lost its exclusive contract with Apple. Delays in the development of its 8-megapixel product line meanwhile allegedly threatened its financial prospects.
     OmniVision argued that none of the company’s direct statements “ever made reference to Apple or the iPhone 4S,” according to the ruling.
     In addition to distancing itself from statements made by analysts, the company said its forward-looking statements are protected by the safe harbor.
     Whyte found that the majority of the alleged false or misleading statements cited in the complaint were too vague or forward-looking to actually be false or misleading. Two specific statements do, however, appear “actually misleading” at this stage, and warrant further analysis, according to the ruling.
     Whyte attributed the two possibly actionable statements to CFO Anson Chan.
     “On September 1, 2011, an analyst spoke with Chan and reported that Chan ‘acknowledges that Sony is a credible competitor at 8MPx,” Whyte wrote. “That said, he believes OVTI [Omnivision Technologies Inc.] has only gone head-to-head with Sony once (so far) and claims that OVTI won the resulting design opportunity for a 2012 product.’ Similarly, Chan held a ‘Management Access Call’ on September 20, 2011 after which analysts reported ‘Management believes OEM [original equipment manufacturer] relationships remain unchanged; not dependent upon one customer. OVTI noted that in terms of its market share, the company believes its OEM relationships remain unchanged.'”
     With the official release of the iPhone 4S on Oct. 14, 2011, industry experts dismantled the products and concluded that the new phone contained an image sensor made by Sony rather than OmniVision.
     “For determining whether the alleged statements were false or misleading when made, the critical issue is when Apple decided to use Sony components or, stated somewhat differently, when OmniVision lost all reasonable chance of having its image sensors included in the iPhone 4s,” Whyte wrote (emphasis in original).
     Whyte said that “insider trading allegations support an inference that OmniVision was experiencing problems in June 2011.”
     Those indications are said to account for why Apple ultimately “did not select OmniVision’s image sensor,” according to the ruling.
     “The court finds that there are sufficient factual allegations to make it plausible that Chan’s statements in September 2011 were false when made,” Whyte wrote.
     The complaint also sufficiently alleged that Chan made the two actionable misstatements with scienter, which involves an intent to deceive or an extreme departure from the standard of ordinary care.
     The lead plaintiffs in the case are Oakland County Employees Retirement System, Laborers’ District Council Contractors’ Pension Fund of Ohio, and Woburn Retirement System. The class action was brought on behalf of all purchasers of publicly traded common stock and securities of OmniVision between Aug. 27. 2010, and Nov. 6, 2011.
     Named as individual defendants are: former CEO, president and board chairman Shawn Hong; former CFO and vice president of finance Anson Chan; and former vice president of worldwide sales Aurelio “Ray” Cisneros.

%d bloggers like this: