laurence m. rosen (sbn 219683) phillip kim (admitted...

Case3:14-cv-00722-SI Document38 Filed07/22/14 Page1 of 24

Laurence M. Rosen (SBN 219683) Phillip Kim (admitted pro hac vice) Jonathan Stern (admitted pro hac vice) [email protected] [email protected] [email protected] THE ROSEN LAW FIRM, P.A. 355 South Grand Avenue, 2450 Los Angeles, CA 90071 Telephone: (213) 785-2610 Facsimile: (213) 226-2684

Counsel for Lead Plaintiff and the Class

In re MONTAGE TECHNOLOGY GROUP LIMITED SECURITIES LITIGATION

This Document Relates To: All Actions

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Master File No 3:2014-cv-0722 (SI)

CLASS ACTION

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

CONSOLIDATED AMENDED CLASS ACTION COMPLAINT FOR VIOLATION OF

THE FEDERAL SECURITIES LAWS

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1. Lead Plaintiff Martin Graham, and Shaun Shen (“Plaintiffs”) individually and on behalf of

19 all other persons similarly situated, by Lead Plaintiff’s undersigned attorneys, for Plaintiffs

20 complaint against defendants, allege the following based upon personal knowledge as to Lead

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Plaintiff and Plaintiffs own acts, and upon information and belief as to all other matters based on

22 the investigation conducted by and through Plaintiffs’ attorneys, which included, among other

23 things, a review of the U.S. Securities and Exchange Commission ("SEC") filings by Montage

24 Technology Group Limited (“Montage” or the “Company”), a review of the Chinese State

25 Administration for Industry and Commerce (“SAIC”) 1 filings by Montage Technology (Shanghai)

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1 The SAIC is a governmental authority in the People’s Republic of China that is responsible for a variety of corporate and commercial issues here. Chinese corporations must register with the SAIC upon formation, and must

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timely disclose a variety of information to the SAIC, including but not limited to: periodic financial statements; changes in ownership; use of corporate stock as collateral for a debt contract; and the identities of corporate officers.


Co., Ltd. (“Montage Shanghai”) and Shanghai Montage Microelectronics Technology Co. Ltd.

(“SMMT”), the Hong Kong Companies Registry filings of LQW Technology Company Limited

(“LQW”), and analyst and other media reports about the Company. Plaintiffs believe that

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

opportunity for discovery.

NATURE OF THE ACTION

2. This is a federal securities class action brought on behalf of a class consisting of all persons

and entities, other than defendants and their affiliates, who purchased the securities of Montage

from September 25, 2013 to February 6, 2014, inclusive and did not sell such securities prior to

February 6, 2014 (the "Class Period"). Plaintiffs seek to pursue remedies against Montage, certain

of its officers and directors for violations of the federal securities laws under the Securities

Exchange Act of 1934 (the "Exchange Act").

3. Defendant Montage is a Cayman Islands company, whose shares trade on NASDAQ.

Montage, through its operating subsidiaries, primarily conducts business in China.

4. Montage purportedly engages in the design, development and marketing of various analog

and mixed-signal semiconductor solutions for the home entertainment and cloud computing

markets. Montage’s largest distributor, LQW, is a Hong Kong entity which purportedly accounted

for an overwhelming majority of Montage’s revenue during the Class Period.

5. Throughout the Class Period, Defendants failed to disclose material related party

transactions. Specifically, Montage failed to disclose that it owned and controlled its largest

distributor, LQW, which represented 50% ($39.1 mm) of Montage’s revenue in fiscal 2012, and

67% ($30.4 mm) for the first six months of 2013. Failure to disclose these material related party

transactions is a violation of generally accepted accounting principles (“GAAP”), which rendered

Montage’s financial statements false and misleading at all times.

6. On February 6, 2014, Gravity Research issued a report asserting that Montage’s largest

distributor (LQW) was a related party.

Some of this information is accessible to the public and is used by Chinese investors. Information regarding encumbrance of stock through use as collateral is also available to counterparties considering making loans.

- 2 - CONSOLIDATED AMENDED COMPLAINT -

- NO. 3:14-CV-00722 (SI)

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7. When the market learned of the undisclosed related party transactions that day the

2 Company’s stock price plunged $3.76/share on February 6 and another $1.73/share on February 7,

3 2014, on extremely high volume. In all, Montage’s share price fell 25.9% as a result of the

4 disclosure that LQW was a related party.

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JURISDICTION AND VENUE

6 8. Jurisdiction is conferred by §27 of the Exchange Act. The claims asserted herein arise under

7 §§10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.

8 9. This Court has jurisdiction over the subject matter of this action under 28 U.S.C. §1331 and

9 §27 of the Exchange Act.

10 10. Venue is proper in this District pursuant to §27 of the Exchange Act and 28 U.S.C. §1391(b)

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as the Company conducts business in this district.

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11. In connection with the acts alleged in this complaint, defendants, directly or indirectly, used

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

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

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PARTIES

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12. Lead Plaintiff Martin Graham, as set forth in his Certification previously filed with the

17 Court, which is incorporated by reference herein, purchased the common stock of Montage during

18 the Class Period and has been damaged thereby.

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13. Shaun Shen, as set forth in his Certification attached hereto, purchased the common stock

20 of Montage during the Class Period, and has been damaged thereby.

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14. Defendant Montage is a Cayman Islands company. It purports to be a global fabless

22 provider of analog and mixed-signal semiconductor solutions to the home entertainment and cloud

23 computing markets.

24 15. Montage conducts business in several territories including China, Hong Kong, Taiwan and

25 the United States through its wholly owned subsidiaries. According to the Form S-1 Montage filed

26 with the SEC on January 17, 2014, LQW comprised of approximately half of Montage’s reported

27 revenue for 2012 and approximately 71.0% of Montage’s reported revenue in the first nine months

- 3 - CONSOLIDATED AMENDED COMPLAINT NO. 3:14-CV-00722 (SI)

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1 of 2013. In addition, LQW accounted for 79.0% of Montage’s accounts receivable as of September

2 I 30, 2013.

3 16. Defendant Howard C. Yang (“H. Yang”) is one of the founders of the Company has been

4 its Chairman of the Board and Chief Executive Officer (“CEO”) since its inception in 2004.

5 17. Defendant Stephen Tai (“Tai”) is one of the founders of the Company and has been its

6 President and a member of its Board of Directors since its inception in 2004.

7 18. Defendant Mark Voll (“Voll”) has been the Company’s Chief Financial Officer (“CFO”)

8 since June 2012.

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19. Defendants H. Yang, Tai, and Voll, are referred to herein, collectively, as the “Individual

10 Defendants.”

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20. Defendant Montage and the Individual Defendants are referred to herein, collectively, as

12 the “Defendants.”

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ALLEGATIONS OF FALSE STATEMENTS

14 21. The Class Period begins on September 25, 2013, when the SEC declared effective the Form

15 S-1 Montage filed on August 21, 2013 and later amended on September 11, 2013 (collectively, the

16 “2013 Registration Statement”), in connection with the Company’s initial public offering (“IPO”)

17 on September 26, 2013.

18 22. The 2013 Registration Statement contained a preliminary prospectus; the final prospectus

19 was filed with the SEC on September 26, 2013 (collectively, the “2013 Prospectus”).

20 23. The 2013 Registration Statement represented that 82% of its net revenues came through

21 “independent distributors.” The largest of those distributors, LQW, accounted for 50% of total

22 revenue in fiscal 2012 or $39.1 million and represented 67% of revenue for the first six months of

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fiscal 2013 or $30.4 million.

24 24. The 2013 Registration Statement claimed that LQW had only been a distributor of Montage

25 since October 2011, and that Montage did not recognize any revenues from sales to LQW until

26 2012.

27 25. The entirety of Montage’s revenue growth for 2012 is attributable to LQW. Fiscal 2012

28 revenues from all sources other than LQW declined from 2011 to 2012 by 22.3%.



1 26. The 2013 Registration Statement also stated that 78% of accounts receivable as of June 30,

2 2012 was owed by LQW, an amount equal to $6,474,000.00.

3 27. The 2013 Registration Statement was materially false and misleading because it failed to

4 disclose that LQW was a related party as required by U.S. generally accepted accounting principles

5 (“GAAP”).

6 28. The 2013 Registration Statement was signed by each of the Individual Defendants.

7 29. On November 12, 2013 the Company filed with the SEC Form 10-Q for the quarterly period

8 ended September 30, 2013 (the “2013 Third Quarter 10-Q”). The 10-Q stated that LQW accounted

9 for 71% of the Company’s total revenue for the nine months ended September 30, 2013 or $53.5

10 million. The 2013 Third Quarter 10-Q stated that LQW owed 79% of its accounts receivable,

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totaling $8.2 million to Montage.

12 30. The 2013 Third Quarter 10-Q was materially false and misleading because it failed to

13 disclose that LQW was a related party.

14 31. The 2013 Third Quarter 10-Q was signed by Defendant Voll. Attached to the 2012 Third

15 Quarter 10-Q were SOX certifications of Defendants H. Yang and Voll falsely attesting to the

16 accuracy of the 2013 Third Quarter 10-Q.

17 32. On January 30, 2014, the SEC declared effective the Form S-1 Registration Statement

18 Montage filed on January 17, 2014 and later amended on January 27, 2014 (collectively, the “2014

19 Registration Statement”), in connection with the Company’s secondary offering on January 31,

20 2014.

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33. The 2014 Registration Statement contained a preliminary prospectus; the final prospectus

22 was filed with the SEC on January 31, 2013 (collectively, the “2014 Prospectus”).

23 34. The 2014 Registration Statement stated that LQW accounted for 71% of the Company’s

24 total revenue for the nine months ended September 30, 2013 or $53.5 million and 50% of the

25 Company’s total revenue for 2012 or $39.1 million.

26 35. The 2014 Registration Statement also stated that as of September 30, 2013, LQW owed

27 79% of its accounts receivable, totaling $8.2 million to Montage and that LQW represented 78%

28 of its accounts receivable or $6.5 million as of December 31, 2012.



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36. The 2014 Registration Statement was materially false and misleading because it failed to

2 disclose that LQW was a related party.

3 37. The 2014 Registration Statement was signed by all the Individual Defendants.

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THE TRUTH EMERGES

5 38. On February 6, 2014, the analyst firm Gravity Research issued a report asserting LQW,

6 Montage’s largest distributor, is in fact owned and controlled by SMMT, an undisclosed affiliate

7 of Montage.

8 39. The Gravity Research Report shocked the market on February 6, 2014 and caused the

9 Company’s stock to fall $3.76/share on February 6 and another $1.73/share on February 7, or

10 approximately 25.5%, from its previously closing price on February 5 of $21.21 on extraordinary

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volume.

12 40. Since then, as a result of the disclosures in the Gravity Research report, Montage has failed

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to file its Form 10-K annual report. It has not filed audited financial statements for fiscal 2013.

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LQW IS AN UNDISCLOSED RELATED PARTY OF MONTAGE

15 41. As stated in LQW’s Certificate of Incorporation and Articles of Association, LQW was

16 founded by Anthony Ho, an ex-employee of Defendant H. Yang at Newave Semiconductor. LQW

17 was founded in October 2011 – the exact same month Montage claims to have started doing

18 business with LQW.

19 42. On February 2, 2012, less than four months after its incorporation, 100% ownership of

20 I LQW was transferred to SMMT. This is reflected in the 2012 Annual Return of LQW.

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43. SMMT is an affiliate of Montage. It was founded by an indirect, wholly owned subsidiary

22 of Montage, Montage Shanghai. SMMT was formed as a joint venture between Montage Shanghai

23 and a Montage officer, Lei Wu (“Wu”), who served as Montage’s Director of Engineering.

24 According to SMMT’s registration with the SAIC, Lei Wu received 90% of the capital of SMMT,

25 and Montage Shanghai received 10%. However, Montage Shanghai also revealed to the SAIC that

26 Wu received a loan on December 25, 2008 for 1.8 million RMB (approximately $265,000 US) and

27 pledged as collateral his equity in SMMT. In Montage’s Investors’ Rights Agreement attached to


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1 the Registration Statement, Wu is referred as a Montage Officer. Wu has applied for Chinese

2 patents jointly with Montage

3 44. The name “LQW” is a play on the Chinese name for SMMT. In Chinese, SMMT is called

4 Shanghai Lanqi Weidianzi Youxian Gongsi. The name LQW appears to be derived from the “l”

5 and “q” in Lanqi and the “W” in Weidianzi.

6 45. Wu was appointed as legal representative, executive director, and general manager of

7 SMMT. This is reflected in the SMMT Articles of Incorporation.

8 46. In addition to being an officer of Montage, Wu is also a Series A and Series B-2 investor in

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Montage, as indicated in Montage Form S-1, filed August 21, 2013. In the S-1 filed on August 21,

10 2013, Montage referred to the Investor Rights Agreement that included “Liang Wu.” No such

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investor signed the agreement, which was attached as an exhibit to the S-1. However, Lei Wu did.

12 47. Another Montage officer took up other essential functions at SMMT as well. Phoebe Su

13 (“Su”) is identified as the Vice President of Finance and Administration of Montage in Montage’s

14 S-1. A person named Lin Su was appointed as the initial auditor of SMMT. This is reflected in

15 SMMT’s Registration with the SAIC. Lin Su and Phoebe Su are the same person. Montage’s

16 Chinese-language website reveals that Phoebe Su is the English language name for Lin Su. Su

17 remained SMMT’s auditor until July 2012, when she was replaced by Nan Zhang, as stated in a

18 contemporaneous amendment to SMMT’s registration information filed with SAIC.

19 48. SMMT and Montage also used the same people for minor clerical duties. Ying Cao

20 retrieved SAIC filings for Montage on October 11, 2007 and for SMMT on December 25, 2008.

21 Wanyang Xi picked up SAIC filings for Montage in November 2012 and for SMMT in August

22 2012.

23 49. Following its acquisition of LQW, SMMT appointed two directors for LQW: Yueci Chen

24 (“Chen”); and Dexiu Zhu (“Zhu”). The address listed in LQW’s corporate filings for Zhu also

25 appears listed as the address for Su.

26 50. In July of 2009, the ownership of SMMT was restructured. SMMT filed an amendment to

27 its registration listing Lei Wu as 60% owner of SMMT and Chongyi Yang as 40% owner of

28 Montage. Also in July 2009, SMMT disclosed to the SAIC that both Chongyi Yang and Wu



1 received loans from Yan Zhu (“Yan”) for 2 million RMB and 3 Million RMB, respectively, and

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placed their equity in SMMT as collateral.

3 51. In July of 2012, SMMT again disclosed to the SAIC that the ownership of SMMT had

4 changed. SMMT was transferred to Yan”) and Chen Yueci, who received 60% and 40% of SMMT,

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respectively.

6 52. The SMMT registration was also amended to indicate that Yan is the current legal

7 representative of SMMT. Yan is also the legal representative of Yunduan Technology (Shanghai)

8 Co. Ltd. (“Yunduan”), which is owned by Yunduan Media Company Ltd (a Hong Kong entity),

9 which is, in turn, controlled by the parents of Defendant Tai.

10 53. Notwithstanding the fact that Wu apparently ceased to be the on-paper owner and legal

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representative of SMMT, he is still listed as the contact person for SMMT on several Chinese

12 websites.

13 54. The phone number posted for SMMT on various websites for SMMT (+86 021-51696833)

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is also listed as a phone number for Montage in Exhibit 10.10 to the S-1 filed on August 21, 2013.

15 That number is currently out of service.

16 55. Montage has also openly referred to SMMT as a subsidiary. When advertising for jobs in

17 China, Montage has provided a company description that lists its subsidiaries and includes among

18 those subsidiaries SMMT. As an example, attached as Exhibit A is one of the job postings listing

19 SMMT as a subsidiary of Montage, from renren.com , with an accompanying translation.

20 56. LQW’s registered office is actually a small warehouse room estimated to be between 1,000

21 to 1,500 square feet. When Gravity Research visited LQW’s registered office, its door was

22 padlocked and no employees were sighted. Below are pictures of the front entrance of LQW’s front

23 entrance:

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- 8 - CONSOLIDATED AMENDED COMPLAINT -

- NO. 3:14-CV-00722 (SI)

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57. Lead Plaintiff’s investigators also visited the same site, and took the below photograph:


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58. The registered address of SMMT does not exist. SMMT’s registered business address is

Room 303-30, Building 33, 680 Guiping Rd., Shanghai, China. Investigators for Gravity Research

attempted to visit the registered address of SMMT and were unable to find any indication that

SMMT ever had an office matching that address. This was confirmed by Lead Plaintiff’s

investigators in July 2014.

59. SMMT has listed on various Chinese websites an alternate address: Room 402, 4th Floor,

Building 32, 680 Guiping Rd., Shanghai, China. Lead Plaintiff’s investigators determined that

SMMT does not presently occupy that office. They were told by front desk staff that a company

named “Lanqi” previously occupied an office on the third floor, as well as room 406 on the fourth

floor, but that it had moved out. The name Lanqi is the Chinese name for Montage. Room 406A

is currently occupied by Yunduan Technology (Shanghai) Co., Ltd., which, as mentioned above, is

owned by the parents of defendant Tai.

60. Plaintiff’s investigators also went to the Shanghai address Montage listed on its own website

(www.montage-tech.com ): 16th Floor, Building A, No. 900, Yishan Road, Shanghai, China. Lead

Plaintiff’s investigators were able to confirm that Montage had an office there, pictured below:

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x 00W monirm1LIT


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61. Plaintiff’s investigators inquired as to whether SMMT was located at that address as well.

Staff at the Montage front desk confirmed that SMMT operates on the 16 th to 18th floors – the same

space as Montage. Front desk staff also confirmed that SMMT is “a part of Montage”.

62. LQW employs the same small law firm (C.K. Mok & Co.) as all three of Montage’s Hong

Kong subsidiaries (Montage Semiconductor Hong Kong Company Ltd., Montage Technology

Hong Kong Co. Ltd., and Montage Technology Co. Ltd). This can be gleaned from the respective

Hong Kong corporate filings of each company. C.K. Mok & Co. is a very small practice (<10

lawyers). Given that there are hundreds of law offices doing business in Hong Kong this is unlikely

to be a coincidence.

63. Lead Plaintiff’s investigators have spoken with confidential sources who confirm that

SMMT is still a subsidiary of Montage.

64. CW1 is a software engineer who worked for Montage for over a year from September 2010

to September 2011. CW1 stated that SMMT is a “part of Montage.”

65. CW2 was an internal IT system engineer who worked for Montage for four years from 2010

to late 2013 and was responsible for handling Montage’s internal IT system, including employee

email systems, and user access to other IT resources. CW2 stated that SMMT, Montage

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- CONSOLIDATED AMENDED COMPLAINT - 11 - NO. 3:14-CV-00722 (SI)

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Technology (Shanghai) Co., Ltd and Montage were operated by the same group of people. This

source referred to SMMT as a “shell company established for tax evasion.”

66. CW3, who worked as a client service manager at Montage from 2008 to 2014 said that

LQW was “a Hong Kong company to pass through.”

GAAP REQUIRED DEFENDANTS TO DISCLOSE THE RELATED PARTY

TRANSACTIONS

67. GAAP constitutes those standards recognized by the accounting profession as the

conventions, rules, and procedures necessary to define accepted accounting practices at a particular

time.

68. GAAP are the common set of accounting principles, standards, and procedures that

companies in the United States use to compile their financial statements.

69. The SEC has the statutory authority for the promulgation of GAAP for public companies

and has delegated that authority to the Financial Accounting Standards Board (the “FASB”).

70. SEC and NASDAQ rules and regulations require that publicly traded companies such as

Montage include financial statements that comply with GAAP in their annual and quarterly reports

filed with the SEC. See Sections 12 and 13 of the Exchange Act; Rule 10-01(d) of Regulation SX.

71. SEC Rule 4-01(a) of Regulation S-X states that “[f]inancial statements filed with the

Commission which are not prepared in accordance with generally accepted accounting principles

will be presumed to be misleading or inaccurate.” 17 C.F.R. § 210.4-01(a)(1) (emphasis added).

72. Management retains responsibility for preparing financial statements that conform with

GAAP. The American Institute of Certified Public Accountants (“AICPA”) Professional Standards

provide:

The financial statements are management’s responsibility . . . Management is responsible for adopting sound accounting policies and for establishing and maintaining internal controls that will, among other things, record, process, summarize, and report transactions (as well as events and conditions) consistent with management’s assertions embodied in the financial statements. The entity’s transactions and the related assets, liabilities, and equity are within the direct knowledge and control of management. . . . Thus, the fair presentation of financial statements in conformity with generally accepted accounting principles is an implicit and integral part of management’s responsibility.

AIPCA, Professional Standards, vol. 1, AU § 110.02 (1998).

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1 73. GAAP Statement of Financial Accounting Standards (“SFAS”) and SEC regulation S-K

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required the Company to disclose all material related party transactions.

3 74. SFAS No. 57 and No. 850 provide that a public company’s “[f]inancial statements shall

4 include disclosures of material related party transactions.” SFAS No. 57 ¶ 2; 850-10-50-1.

5 75. “Related party transactions” include those between “an enterprise and its principal owners,

6 management, or members of their immediate families” and those between a company and its

7 “affiliates.” SFAS No. 57 ¶ 1; 850-10-05-3. “Affiliate” includes any company that is under common

8 control or management with the public company. SFAS No. 57 ¶ 24(a, b); 850-10-20.

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76. Disclosures of related party transactions shall include (a) the nature of the relationship

10 involved, (b) a description of the transactions for each period for which income statements are

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presented and such other information necessary to an understanding of the effects of the

12 transactions on the financial statements, (c) the dollar amount of transactions for each of the periods

13 for which income statements are presented, and (d) amounts due from or to related parties as of the

14 date of each balance sheet presented and, if not otherwise apparent, the terms and manner of

15 settlement. SFAS No. 57 ¶ 2; 850-10-50-1.

16 77. Chinese Generally Accepted Accounting Principles (“PRC GAAP”) are substantially the

17 same as GAAP as they both require disclosure of material related party transactions.

18 78. ABSE 36 (the applicable Chinese GAAP) requires disclosure in the financial statements of

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related party transactions. The definition of related parties is materially the same as SFAS 57. A

20 translated copy of ABSE 36 is attached hereto as Exhibit B and is referenced herein.

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CLASS ACTION ALLEGATIONS

22 79. Lead Plaintiff brings this action as a class action pursuant to Federal Rule of Civil Procedure

23 23(a) and (b)(3) on behalf of a class consisting of all purchasers of the common stock and call

24 options and sellers of put options of Montage during the Class Period (the "Class"). Excluded from

25 the Class are defendants and their families, the officers and directors of the Company, at all relevant

26 times, members of their immediate families and their legal representatives, heirs, successors or

27 assigns and any entity in which defendants have or had a controlling interest.

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1 80. The members of the Class are so numerous that joinder of all members is impracticable.

2 Throughout the Class Period, Montage securities were actively traded on NASDAQ. While the

3 exact number of Class members is unknown to Lead Plaintiff at this time and can only be

4 ascertained through appropriate discovery, Lead Plaintiff believes that there are hundreds or

5 thousands of members in the proposed Class. Record owners and other members of the Class may

6 be identified from records maintained by Montage or its transfer agent and may be notified of the

7 pendency of this action by mail, using the form of notice similar to that customarily used in

8 securities class actions.

9 81. Lead Plaintiffs' claims are typical of the claims of the members of the Class as all members

10 of the Class are similarly affected by defendants' wrongful conduct in violation of federal law that

11 is complained of herein.

12 82. Lead Plaintiff will fairly and adequately protect the interests of the members of the Class

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

14 83. Common questions of law and fact exist as to all members of the Class and predominate

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

16 and fact common to the Class are:

17 . whether the Exchange Act was violated by defendants as alleged herein;

18 . whether statements made by defendants misrepresented material facts about the

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business, operations and management of Montage; and

20 • to what extent the members of the Class have sustained damages and the proper measure

21 of damages.

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

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

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

25 litigation make it impossible for members of the Class to individually redress the wrongs done to

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

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APPLICABILITY OF PRESUMPTION OF RELIANCE:

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85. Plaintiffs allege their reliance should be presumed for any claim asserted which requires a

3 showing of reliance and that they are entitled to a presumption of reliance under each of the

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following theories:

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AFFILIATED UTE

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86. Neither Lead Plaintiff nor the Class need prove reliance - either individually or as a class

7 because under the circumstances of this case, which involves a failure to disclose that LQW was a

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related party, as described herein above, positive proof of reliance is not a prerequisite to recovery,

9 pursuant to ruling of the United States Supreme Court in Affiliated Ute Citizens of Utah v. United

10 States , 406 U.S. 128 (1972). All that is necessary is that the facts withheld be material in the sense

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that a reasonable investor might have considered the omitted information important in deciding

12 whether to buy or sell the subject security. As the Supreme Court explained, requiring plaintiffs to

13 describe how they would have behaved had the omitted information been disclosed places an

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unrealistic burden on plaintiffs.

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FRAUD ON THE REGULATORY PROCESS

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87. The Fraud on the Regulatory Process presumption of reliance was created by the 9th Circuit

17 in Arthur Young and Co. v. United States District Ct. , 549 F. 2d 686 (9th Cir. 1976), cert. denied,

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434 U.S. 829 (1977). In its S-1 filing for its IPO, Montage omitted to disclose material facts to the

19 Securities & Exchange Commission and NASDAQ in applying for and obtaining permission to sell

20 Montage stock publicly in the IPO and having those securities listed for trading on NASDAQ.

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Montage failed to disclose that its largest distributor responsible for over 50% of its revenue was a

22 related party. Had it disclosed the material related party transactions, Montage never would have

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been able to list its securities on the NASDAQ market, sell its securities publicly to investors and

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complete the initial public offering by which it raised $71 million. Investors relied on the integrity

25 of the regulatory process when purchasing Montage stock. Defendants ' omissions were a fraud on

26 the regulatory process, permitting Plaintiffs a presumption of reliance.

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FRAUD-ON-THE-MARKET DOCTRINE

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88. Plaintiff will rely upon the presumption of reliance established by the fraud on the market

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doctrine in that, among other things:

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

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during the Class Period;

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(b)

The omissions and misrepresentations were material;

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(c)

The Company’s stock traded in an efficient market;

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(d)

The misrepresentations alleged would tend to induce a reasonable investor to

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

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(e) Plaintiff and other members of the Class purchased Montage common stock between

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the time defendants misrepresented or failed to disclose material facts and the time the true facts

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

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89. At all relevant times, the market for Montage common stock was efficient for the following

14 reasons, among others:

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(a) As a regulated issuer, Montage filed periodic public reports with the SEC. Montage

16 met the requirements for listing, and was actively traded on the NASDAQ, under ticker MONT;

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(b) As of September 30, 2013, there were 22.7 million shares in Montage’s public float,

18 and 27.5 million Montage shares were outstanding;

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(c) During the Class Period, an average of 1,243,037 Montage shares were traded

20 weekly, or about 6.7% of Montage’s publicly traded float and 5.5% of Montage’s total shares

21

outstanding;

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(d) Montage regularly communicated with public investors via established market

23 communication mechanisms, including through regular disseminations of press releases on the

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

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

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(e) Montage was eligible to file short-form registration statements with the SEC on

27 Form S-3;


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(f) Montage was followed by numerous analysts that issued reports about it, including

2 Stifel Nicolaus, Chardan Capital Markets, Topeka Capital Markets, Deutsche Bank, EVA

3 Dimensions, Barclays, Needham & Co., Wells Fargo Securities, and Makor Capital.

4

(g) New company specific information was rapidly reflected in the Company’s stock

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price.

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(h) More than twenty firms made a market in the Company’s stock on the NASDAQ.

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COUNT I

8

FOR VIOLATIONS OF §10(B) OF THE EXCHANGE ACT AND RULE 10B-5

9

AGAINST MONTAGE, H. YANG AND VOLL

10 90. Lead Plaintiff repeats and realleges each and every allegation contained above as if fully set

11 I forth herein.

12 91. This claim is asserted against Montage, H. Yang, and Voll (“First Claim Defendants.”).

13 92. During the Class Period, the First Claim Defendants carried out a plan, scheme and course

14 of conduct which was intended to and, throughout the Class Period, did: (1) deceive the investing

15

public, including Lead Plaintiff and other Class members, as alleged herein; and (2) cause Lead

16

Plaintiff and other members of the Montage’s securities at artificially inflated prices. In furtherance

17 of this unlawful scheme, plan and course of conduct, the First Claim Defendants, and each of them,

18 took the actions set forth herein.

19 93. The First Claim Defendants omitted to state material facts necessary to make the statements

20

Defendants made not misleading in an effort to maintain artificially high market prices for

21 Montage’s securities in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

22

94. The First Claim Defendants, individually and in concert, directly and indirectly, by the use,

23

means or instrumentalities of interstate commerce and/or of the mails, engaged and participated in

24 a continuous course of conduct to conceal adverse material information about the business,

25 operations and future prospects of Montage as specified herein.

26 95. Each of the First Claim Defendants’ primary liability, and controlling person liability, arises

27 from the following facts: (1) the H. Yang and Voll were high-level executives, directors, and/or

28 agents at the Company during the Class Period and members of the Company’s management team



1

or had control thereof; (2) each of these defendants, by virtue of his responsibilities and activities

2 as a senior officer and/or director of the Company, was privy to and participated in the creation,

3 development and reporting of the Company’s financial condition; (3) each of these defendants

4 enjoyed significant personal contact and familiarity with the other defendants and was advised of

5 and had access to other members of the Company’s management team, internal reports and other

6 data and information about the Company’s finances, operations, and sales at all relevant times; and

7 (4) each of these defendants was aware of the Company’s dissemination of information to the

8 investing public which they knew or recklessly disregarded was materially false and misleading.

9 96. The First Claim Defendants had actual knowledge of the misrepresentations and omissions

10

of material facts set forth herein, or acted with reckless disregard for the truth in that they failed to

11

ascertain and to disclose such facts, even though such facts were available to them. Such First Claim

12 Defendants’ material misrepresentations and/or omissions were done knowingly or recklessly and

13 for the purpose and effect of concealing Montage’s operating condition and future business

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prospects from the investing public and supporting the artificially inflated price of its common

15 stock. As demonstrated by these First Claim Defendants’ overstatements and misstatements of the

16 Company’s financial condition throughout the Class Period, the Defendants, if they did not have

17 actual knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain

18 such knowledge by deliberately refraining from taking those steps necessary to discover whether

19 those statements were false or misleading.

20 97. As a result of the failure to disclose material facts, as set forth above, the market price of

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Montage securities was artificially inflated during the Class Period. In ignorance of the fact that

22

market prices of Montage’s publicly-traded securities were artificially inflated, and relying directly

23 or indirectly on the false and misleading statements made by defendants, or upon the integrity of

24 the market in which the securities trade, and/or on the absence of material adverse information that

25 was known to or recklessly disregarded by the Defendants but not disclosed in public statements

26 by First Claim Defendants during the Class Period, Lead Plaintiff and the other members of the

27

Class acquired Montage securities during the Class Period at artificially high prices and were or

28 will be damaged thereby.



1

98. Lead Plaintiff and other members of the Class were ignorant of the material omissions

2 alleged herein. Had Lead Plaintiff and the other members of the Class and the marketplace known

3 the truth, Lead Plaintiff and other members of the Class would not have purchased or otherwise

4 acquired their Montage securities, or, if they had acquired such common stock during the Class

5

Period, they would not have done so at the artificially inflated prices that they paid.

6 99. By virtue of the foregoing, the First Claim Defendants have violated Section 10(b) of the

7 Exchange Act, and Rule 10b-5 promulgated thereunder.

8 100. As a direct and proximate result of the First Claim Defendants’ wrongful conduct, Lead

9

Plaintiff and the other members of the Class suffered damages in connection with their respective

10 purchases and sales of the Company’s Securities during the Class Period.

11

101. This action was filed within two years of discovery of the fraud and within five years of

12 each Lead Plaintiff’s purchases of securities giving rise to the cause of action.

13

COUNT II

14

FOR VIOLATIONS OF §20(A) OF THE EXCHANGE ACT

15

AGAINST THE INDIVIDUAL DEFENDANTS

16

17 102. Lead Plaintiff repeats and realleges each and every allegation contained above as if fully set

forth herein. 18

19 103. The Individual Defendants acted as controlling persons of Montage within the meaning of

20 Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions, agency,

21 and their ownership and contractual rights, participation in and/or awareness of the Company’s

22 operations and/or intimate knowledge of the misleading financial statements filed by the Company

23 with the SEC and disseminated to the investing public, the Individual Defendants had the power to

24 influence and control, and did influence and control, directly or indirectly, the decision-making of

25 the Company, including the content and dissemination of the various statements that Lead Plaintiff

26 contends are false and misleading. The Individual Defendants were provided with or had unlimited

27 access to copies of the Company’s reports, press releases, public filings and other statements

28 alleged by Lead Plaintiff to have been misleading prior to and/or shortly after these statements were

- 19 - CONSOLIDATED AMENDED COMPLAINT - NO. 3:14-CV-00722 (SI)


1

issued and had the ability to prevent the issuance of the statements or to cause the statements to be

2 I corrected.

3

104. In particular, each of these defendants had direct and supervisory involvement in the day-

4 to-day operations of the Company and, therefore, is presumed to have had the power to control or

5

influence the particular transactions giving rise to the securities violations as alleged herein, and

6 I exercised the same.

7 105. As set forth above, Montage and the Individual Defendants each violated Section 10(b) and

8

Rule 10b-5 by their acts and omissions as alleged in this Complaint.

9

106. By virtue of their positions as controlling persons, the Individual Defendants are liable

10 pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of Defendants’

11 wrongful conduct, Lead Plaintiff and other members of the Class suffered damages in connection

12 with their purchases of the Company’s common stock during the Class Period.

13

107. This action was filed within two years of discovery of the fraud and within five years of

14 each Lead Plaintiff’s purchases of securities giving rise to the cause of action.

15

PRAYER FOR RELIEF

16 WHEREFORE , Lead Plaintiff prays for relief and judgment, as follows:

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(a) Determining that this action is a proper class action, designating Lead Plaintiff as Lead Plaintiff

18

and certifying Lead Plaintiff as a class representative under Rule 23 of the Federal Rules of

19

Civil Procedure and Lead Plaintiff’s counsel as Lead Counsel;

20 (b) Awarding compensatory damages in favor of Lead Plaintiff and the other Class members

21

against all Defendants, jointly and severally, for all damages sustained as a result of Defendants’

22

wrongdoing, in an amount to be proven at trial, including interest thereon;

23 (c) Awarding rescissory damages; and

24 (d) Such other and further relief as the Court may deem just and proper.

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JURY TRIAL DEMANDED

Lead Plaintiff hereby demands a trial by jury.

Dated: July 22, 2014 Respectfully submitted,

THE ROSEN LAW FIRM, P.A.

/s/ Jonathan Stern Jonathan Stern (admitted pro hac vice) Laurence M. Rosen (SBN 219683) Phillip Kim (admitted pro hac vice) [email protected] [email protected] [email protected] THE ROSEN LAW FIRM, P.A. 355 South Grand Avenue, 2450 Los Angeles, CA 90071 Telephone: (213) 785-2610 Facsimile: (213) 226-2684

Counsel for Lead Plaintiff and the Class


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PROOF OF SERVICE

2

I, Jonathan Stern, hereby declare under penalty of perjury as follows: I an attorney at the

3 Rosen Law Firm, P.A., with offices at 355 South Grand Avenue, Suite 2450, Los Angeles, CA

4 90071. I am over the age of eighteen. On July 22, 2014, I electronically filed the following

5 CONSOLIDATED AMENDED COMPLAINT with the Clerk of the Court using the CM/ECF

6 system which sent notification of such filing to counsel of record.

7

I certify under penalty of perjury under the laws of the United States of America that the

8 foregoing in true and correct.

9

Executed on July 22, 2014.

10 /s/ Jonathan Stern

11 Jonathan Stern

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Certification and Authorization of Named Plaintiff Pursuant to Federal Securities Laws

The individual or institution listed below (the "Plaintiff') authorizes and, upon execution of the accompanying retainer agreement by The Rosen Law Firm P.A., retains The Rosen Law Firm PA. to file an action under the federal securities laws to recover damages and to seek other relief against Montage Technology Group Limited. The Rosen Law Firm PA. will prosecute the action on a contingent fee basis and will advance all costs and expenses. The Montage Technology Group Limited. Retention Agreement provided to the Plaintiff is incorporated by reference, upon execution by The Rosen Law Firm PA.

First name: Middle initial: Last name: Address: City: State: Zip: Country: Facsimile: Phone: Email:

Shaun

Shen

Ir son""

Plaintiff certifies that:

1. Plaintiff has reviewed the complaint and authorized its filing.

2. Plaintiff did not acquire the security that is the subject of this action at the direction of plaintiff's counsel or in order to participate in this private action or any other litigation under the federal securities laws.

3. Plaintiff is willing to serve as a representative party on behalf of a class, including providing testimony at deposition and trial, if necessary.

4. Plaintiff represents and warrants that he/she/it is fully authorized to enter into and execute this certification.

5. Plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiff's pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to the representation of the class as ordered or approved by the court.

6. Plaintiff has made no transaction(s) during the Class Period in the debt or equity securities that are the subject of this action except those set forth below:

Acquisitions:

Type of Security

Buy Date

#ofShares

Price per Share Common Stock

1/24/2014

100

22.95 Common StockBuy Date

#ofShares

Price per Share

Sales

Type of Security

Sale Date

#ofShares

Price per Share

Common StockSell Date # of Shares Price per Share


Certification for Shaun Shen (cont.)

7. I have not served as a representative party on behalf of a class under the federal security laws during the last three years, except if detailed below. []

I declare under penalty of perjury, under the laws of the United States, that the information entered is accurate: YES

By clicking on the button below, I intend to sign and execute this agreement and retain the Rosen Law Firm, P.A. to proceed on Plaintiffs behalf, on a contngent fee basis. YES

Signed pursuant to California Civil Code Section 1633.1, etseq. - and the Uniform Electronic Transactions Act as adopted by the various states and territories of the United States.

Date of signing: 02/06/2014

laurence m. rosen (sbn 219683) phillip kim (admitted...

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