united states district court southern district of new...

Case 1:12-cv-05825-PGG Document 1 Filed 07/30/12 of 25

J I C'V u UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

Individually and on Behalf of All Others Similarly Situated,

Plaintiff,

VS.

RADIO SHACK CORPORATION and JAMES F. GOOCH,

Defendants.

Civ. Action No.

CLASS ACTION COMPLAINT FOR - VIOLATIONS OF FEDERAL SECURITIES LAWS

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JURY TRIAL DEMA

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Plaintiff, alleges the following based upon the investigation of Plaintiff's

counsel, which included a review of United States Securities and Exchange Commission

("SEC") filings by RadioShack Corporation ("RadioShack" or the "Company"), as well as, press

releases and other public statements issued by the Company and media reports about

RadioShack. Plaintiff believes that substantial additional 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 class action on behalf of purchasers of the common stock of

RadioShack between July 26, 2011 and July 24, 2012, inclusive (the "Class Period"), seeking to

pursue remedies under the Securities Exchange Act of 1934 (the "Exchange Act").

JURISDICTION AND VENUE

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

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

SEC [17 C.F.R. §240.10b-5].


3. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. §1331 and Section 27 of the Exchange Act.

4. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28

U.S.C. §1391(b). Defendants have store locations in this District and the Company's common

stock is listed on the New York Stock Exchange.

5. In connection with the acts alleged in this complaint, Defendants, directly or

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

limited to, the mails, interstate telephone communications and the facilities of the national

securities markets.

PARTIES

6. Plaintiff, , as set forth in the accompanying certification incorporated

by reference herein, purchased the common stock of RadioShack during the Class Period and has

been damaged thereby.

7. Defendant RadioShack is a national retailer of mobility technology products,

consumer electronics and accessories. The Company operates approximately 4,670 company-

operated stores and approximately 1,490 wireless phone centers located in Target stores.

8. Defendant James F. Gooch ("Gooch") is, and was at all relevant times, the Chief

Executive Officer and President of RadioShack and a Director of the Company. Gooch

controlled the business decisions of RadioShack and the contents of its SEC filings and press

releases. Gooch is RadioShack's principal spokesperson and is quoted in the Company's press

releases.

9. RadioShack and Gooch each had a duty to timely, fully and truthfully disclose all

material facts and information concerning RadioShack. Each defendant is liable as a participant

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in a fraudulent scheme and course of conduct that operated as a fraud or deceit on purchasers of

RadioShack common stock by disseminating materially false and misleading statements and/or

omitting or concealing material adverse facts. The scheme: (i) deceived the investing public

regarding RadioShack's business and profitability and stock repurchase program; and (ii) caused

Plaintiff and members of the Class to purchase RadioShack common stock at artificially inflated

prices.

PLAINTIFF'S CLASS ACTION ALLEGATIONS

10. 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 the

common stock of RadioShack between July 26, 2011 and July 24, 2012, inclusive, and who were

damaged thereby (the "Class"). Excluded from the Class are Defendants, the officers and

directors of RadioShack and 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.

11. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, RadioShack's common stock was actively traded

on the NYSE. While the exact number of Class members is unknown to Plaintiff at this time and

can only be ascertained through appropriate discovery, Plaintiff believes that there are thousands

of members in the proposed Class. More than 100 million shares of Radio Shack common stock

were traded on the NYSE during the Class Period. Record owners and other members of the

Class may be identified from records maintained by the Company 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.

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12. Plaintiffs claims are typical of the claims of the members of the Class as all

members of the Class are similarly affected by Defendants' wrongful conduct in violation of

federal law complained of herein.

13. 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.

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

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

questions of law and fact common to the Class are:

a. whether the federal securities laws were violated by Defendants' acts as

alleged herein;

b. whether statements made by Defendants to the investing public during the

Class Period misrepresented material facts about RadioShack;

C. whether the price of Radio Shack common stock was artificially inflated

during the Class Period; and

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

proper measure of damages.

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

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

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

burden of individual litigation 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.

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SUBSTANTIVE ALLEGATIONS

16. By the beginning of the Class Period, defendants were well on their way to

executing their strategy to transform Radio Shack from its historical roots as a seller of consumer

electronics and accessories into a reseller of wireless products. To that end, defendants had

begun opening kiosks in Target stores to sell wireless products and had entered into a

relationship with Verizon Wireless, the largest wireless provider, to sell Verizon wireless

products. Defendants knew, but did not accurately and timely disclose during the Class Period,

the devastating adverse impact this corporate strategy was having and would continue to have

throughout the Class Period on RadioShack's net income. In an attempt to cover-up the true

financial realities facing the company, Defendants repeatedly emphasized returning value to the

Shareholders by funding the stock repurchase program and the solid dividends. Unfortunately,

both of these avenues had to be abruptly halted when the Defendants recognized their business

model was a failure and they needed to save cash.

17. On July 26, 2011, Defendants issued a news release reporting the Company's

results for the second quarter of 2011, the three months ended June 30, 2011 ("Q2 2011 News

Release"). Defendants reported that the Company's net sales, operating revenues and net income

had declined from the year earlier second quarter. In discussing the current and future

operational and financial condition of the Company, defendant Gooch stated, as quoted in the

news release, that:

Our second-quarter results reflect a number of short-term transitional changes related to our wireless carriers. We are working diligently to position RadioShack for future growth in the wireless space, and our new relationship with Verizon Wireless, the nation's largest wireless provider, is an integral piece of that program. With our new portfolio of carriers, we are delighted to offer customers what we consider to be the best mobile offerings on the market.


While it is difficult to predict the pace of improvement we will see in our business as we add Verizon Wireless to our offerings, we are comfortable with the range of analysts' earnings estimates for the remainder of 2011. We are aware of the challenges that remain given the current consumer climate, and we believe we are taking the right steps to move forward with new initiatives that build on our strengths while addressing the changing needs of our customers.

18. Defendants also stated in the Q2 2011 News Release that consolidated gross

profit, excluding one-time items, had declined 1.2% from the gross profit reported in the second

quarter of 2010. In the Q2 News Release, Defendants attributed the decline in second-quarter

gross profit margin to "lower Target Mobile center gross margin. . . reflecting changes in service

provider compensation terms."

19. Also on July 26, 2011, Defendants held a conference call to discuss earnings.

Defendant Gooch participated. In commenting on the quarter, Defendant Gooch stated,

What I will say is, is that while our mobility business was clearly challenged in the quarter, I characterize these issues as temporary, as transitional, and they've either been resolved or they're in the process of being resolved today.

20. In further discussing the Company's negative performance, and the largest impact

on the business comes from Sprint, Defendant Gooch stated,

The good news is, is the negative impact from the shift, it was temporary. We've now transitioned through the initial three months. And during July, we're seeing our Sprint business return to strong positive year-over-year trends, similar to what we're experiencing before the upgrade change. Add a little bit of context, add a little bit of scope to the Sprint performance, we compared the trend from the fourth quarter of last year and the first quarter of this year through our results in the second quarter. If, and I know this is a big "IF," but if Sprint had remained consistent with the trend established over those past two quarters, both our total company sales and our total company gross profit dollars in the second quarter would have been higher than last year.

Now, I think the point here is that Sprint has been it is today, it's a big part of our postpaid wireless business, it's a big part of our overall business. And of our carriers, our relationship with Sprint is the longest and it's the


most well developed. But I think now through the addition of Verizon, through the continued development of AT&T, we expect our sales mix to be better balanced between the carriers and this is going to result in a more predictable model going into the future.

21. The statements made by Defendants, as quoted in paragraphs 17 through 20,

above, were false and misleading when made because they failed to disclose the following:

a. The decline in net income was not a short-term problem but rather was a

long-term problem that Radio Shack was facing and would continue to face throughout the Class

Period as it transitioned to a wireless reseller and away from its historical consumer electronics

and accessories business because, as defendants knew, the profit margins on wireless product

sold by RadioShack in company-owned an operated stores and in Target centers were

considerably less than the profit margins associated with the Company's sales of consumer

electronics and accessories. The decline in net income would become more and more significant

in subsequent quarters because as RadioShack continued its transition to a wireless reseller at the

expense of sales of consumer electronics and accessories RadioShack's sales mix would become

increasingly dependent on significantly lower margin items.

b. Defendants had no basis in fact for their statement that they were

comfortable with analysts' earnings estimates for the remainder of 2011 becausewhen

Defendants knew that RadioShack's profit margins would continue to decline and that that

decline would increase as the market for smart phones increased because the profit margins on

smart phones were even smaller than the profit margins on sales of traditional cell phones.

Defendants also knew that even with Verizon products coming on stream in mid-September

2011, sales of Verizon products, including its Android smart phone, would not add significant

enough additional revenues to offset both the decline in net income caused by the ever-declining

profit margins associated with sales of those product and the significant increase in selling,

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general and administrative expenses associated with RadioShack's transition to a wireless

reseller and the opening of approximately 1000 Target mobile centers in the Third Quarter of

2011. Defendants also knew that RadioShack would not be able to meets analysts' earning

estimates of Q4 2011 and 2011 because RadioShack's profit margins and net income would be

significantly pressured by steep discounting to be offered in the upcoming holiday season,

changing credit strategy of Sprint resulting in weak sales of Sprint products, the costs of winding

down the relationship with T-Mobile,and the increased competition RadioShack was facing and

would continue to face from internet and on-lines sales of the same products at steep discounts

from the prices at which RadioShack sold the same products, competition from Apple and

Verizon-owned and authorized stores which sold their products now offered by Radio Shack but

with considerable help and expertise to the consumer at no cost and that Radio Shack employees

were not experienced or trained to offer similar support to consumers and the fact that by

transitioning RadioShack to a wireless reseller, defendants caused RadioShack to lose its niche in

the market as a retailer who offered consumers products that were not readily available

elsewhere.

C. At the same time that RadioShack was focusing its efforts on transitioning

to a wireless reseller, sales of its consumer electronics products and accessories were suffering

and would continue to suffer from a lack of effort on the part of Radio Shack to build those more

profitable lines of business, thus adding to defendants' knowledge that RadioShack's sales mix

would turn quickly and increasingly toward wireless products which would cause RadioShack to

sustain lower profit margins and reduced net income in the third and fourth Quarters of 2011.

and in subsequent quarters.

22. On October 25, 2011 Defendants issued a news release reporting the Company's

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results for the third quarter of 2011, the three months ended September 30, 2011 ("Q3 News

Release"). Defendants reported that the Company's net sales and operating revenues had

increased 3% from net sales and operating revenues reported in the third quarter of 2010.

Defendants also reported that RadioShack's net income had dropped $0.15 per share, excluding

one-time items. In discussing the current and future operational and fmancial condition of the

Company, defendant Gooch stated, as quoted in the news release, that:

The third quarter continued to be a transition period for RadioShack as we prepared for the mid-September launch of Verizon wireless products and phaseout of T-Mobile products and services in our company-owned stores. At the same time, we continued our focus on improving our core business and introducing a more compelling assortment of brands and products to bolster our leadership in the wireless space. Despite the pervasive challenges in the retail economy, we believe we are well positioned to advance our mobility growth strategy in the quarters ahead.

* * *

The company said it completed the third quarter with $668 million in cash, and has generated $200 million in free cash so far this year, up double from the same point last year.

23. In the Q3 News Release defendants also stated that the RadioShack Board of

Directors, in recognition of RadioShack's "strong balance sheet," continues ability to "manage

[its] working capital and generate positive cash flow" authorized the repurchase of $200 million

of the Company's common stock to "reinforce [Defendants'] commitment to return excess cash

to [Radio Shack] shareholders in a more consistent manner."

24. Also, on October 25, 2011 in a separate release from the earnings release,

RadioShack Corp. announced "a 100-percent increase in its dividend and the authorization of a

$200 million share repurchase program as part of a new capital allocation strategy designed to

balance business growth opportunities with continued strong cash flow and provide a more

consistent return of excess cash to long-term shareholders. The Board of Directors has declared


an increase in the annual dividend on the Company's common stock to $0.50 per share in 2011,

compared to $0.25 per share paid in 2010, and has changed the annual dividend payout to a

quarterly payout. The annual cash dividend of $0.50 per share for 2011 is payable on Dec. 15,

2011, to stockholders of record at the close of business on Nov. 25,20 11, after which the

dividend will be paid on a quarterly basis beginning in the first quarter of 2012. The Board also

approved an authorization for a share repurchase of $200 million of the Company's common

stock to be executed from time to time through open market or private transactions. The

Company currently expects to repurchase $200 million of the Company's common stock during

the next 12 months."

25. In commenting on the increase in dividend and share repurchase program,

defendant Gooch stated, "Our balance sheet is strong and our business generates consistent

positive cash flow. At the same time, our evolving growth profile is well supported by current

cash flow. Our new capital strategy reflects our desire to return excess cash more consistently to

shareholders during a challenging economic environment." Dorvin Lively, Radioshack's Chief

Financial Officer noted that "Together these measures reinforce our commitment to return excess

case to our shareholders in a more consistent manner."

26. On October 25, 2011, Radioshack held its quarterly earnings conference call, in

which Defendant Gooch introduces RadioShack's new CFO and CAO, Dorvin Lively, who

joined in mid August because of "the strong brand, healthy balance sheet and the substantial cash

flow generation of the company."

27. During the Q&A portion of the call, a question on the capital allocation

perspective arose,

Matthew Fassler - Goldman Sachs: Thanks a lot. One question and one follow-up, first on the question, your decision to raise your dividend,

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while it seems like a smart decision from the capital allocation perspective raises your commitments to shareholders in the time when the earnings seem to be a much less certain then it takes the payout ratio to a pretty high level. So, how do you all essentially think about the security of the dividend and you financial flexibility at a time when there is an accurate visibility in the business?

Dorvin Lively: I think Matt, and we're talked about this before. We've gone back and forth looking at dividend, looking at share repurchase, looking at internal external growth opportunities and how we're going to utilize our capital. I think we're - we feel that's a significant increase without question doubling the dividend, providing some great return to our shareholders. If you look at our cash flow and even though we're in a transitional state from an operational performance, we still feel very strong about our cash flow. I think that's evidence over those past nine months of generating over $200 million of cash flow even as our some of the operational performance as been a little bit challenged

28. The statements quoted in paragraphs 22 through 27, above, were false and

misleading when made because they failed to disclose the material facts alleged in paragraph 21,

above and, in addition, because Defendants failed to disclose and misrepresented that

RadioShack's growth strategy to transform RadioShack into a low-margin wireless reseller and

to grow that business at the expense of RadioShack's historical high-margin consumer

electronics and accessory business came at the expense of profitability was not a short-term by-

product of the strategy but rather was a long-term change. in Radio Shack's fundamental business

and cost structure, and defendants had no reasonable business plan to grow RadioShack's net

income under that new business model except by selling more low-margin products at a higher

operational cost which would not lead to profitability. Defendants knew, by reason of the

RadioShack's Third Quarter results that growth in revenues from wireless products and the

higher percentage of sales of those products compared to the percentage of sales of the higher-

margin consumer electronics and accessories would not lead to growth in net income in light of

the lower profit margins of and higher costs associated with obtaining those sales, including

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increased selling, general and administrative costs associated with the increased number of

Target kiosks and the substantial holiday discounting necessary to compete with online and

internet sales , as well as sales by Apple and Verizon stores.

29. In RadioShack's SEC Form 10-Q for the Third Quarter ("Q3 10Q")Defendants,

Note 12, after noting the completion of the Company's $610 million share repurchase

authorization in the Second Quarter of 2011, reiterated the Board's $200 million share purchase

authorization. In "Sources of Liquidity," Defendants stated that RadioShack's "cash flows from

operations and available cash and cash equivalents will adequately fund our operations, our

capital expenditures, and our debt obligations. Additionally, we have a credit facility of $450

million with availability of $420.9 million as of September 30, 2011." In discussing the

Company's "Available Financing," Defendants stated that they "are generally, free to pay

dividends and repurchase shares as long as the current and projected unused amount under the

facility is greater than 17.5% of the maximum borrowing amount and the minimum consolidated

fixed charge coverage ratio is maintained. We may pay dividends and repurchase shares without

regard to the Company's consolidated fixed charge coverage ratio as long as the current and

projected unused amount under the facility is greater than 75% of the maximum borrowing

amount and cash on hand is used for the dividends or share repurchase." At page 28 of the Q3

10-Q Defendants stated that the Board of Directors approved an authorization in October 2011

for a total share repurchase of $200 million of the Company's common stock to be executed

through open market or private transactions and that the Company expects to repurchase $200

million of its commons stock during the subsequent 12 months. Defendants further stated that

the "amount and timing of share repurchases are at the sole discretion of [the Company's] board

of directors, and plans for future dividends and share repurchases may be revised by the board at

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any time."

30. The statements quoted in paragraph 29, above, were false and misleading when

made because they failed to disclose the material fact that Defendants were not fully committed

to implementing the Board's share repurchase authorization and had sought the authorization and

made disclosure of the authorization in an effort to offset negative market reaction to

RadioShack's decline in Third Quarter net income. Indeed, on October 26, 201, analyst Matt

Koppenheffer pointed to the $200 million share repurchase as one reason to consider buying

RadioShack stock.

31. Unexpectedly, on January 30, 2012, three weeks before the fourth quarter and

2011 full year results were due to be disseminated, defendants issued a news release announcing

the Company's "preliminary fourth-quarter 2011 results." Defendants partially disclosed that

Defendants' strategy of transitioning Radio Shack to a wireless reseller had a negative impact on

RadioShack's net income for the year due to lower profit margins from sales of wireless devices,

compounded by a higher percentage of sales of even lower margin smartphones, and an overall

unprofitable shift in sales mix away from higher profit consumer electronics and accessories. In

addition, defendants disclosed that they were "suspending" the $200 million share repurchase

program announced with much fanfare only three months earlier. The impact in the market of

defendants' January 30, 2012 disclosures was significant with the price of RadioShack common

stock declining 30% from a close of $9.79 on Friday, January 27, 2012, to a closing price of

$6.87 on January 30, 2012.

32. On February 21, 2012, Defendants reported financial results for the year ended

2011. Defendant Gooch in commenting on the results said, "The finalresults for our fourth

quarter are in line with the preliminary range we issued in January. Despite our gross margin

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challenges, we have a strong balance sheet, are making progress in our mobility business, and

expect to advance our business improvement initiatives in 2012."

33. During the earnings conference call on February 21, 2012, Defendant Gooch

stated:

The entire team is very committed to improving trends in 2012 with an emphasis on driving productivity per store, continuing to raise consumer awareness and improving inventory management. So overall where does this leave us for 2012? We expect our results will continue to be impacted by factors evident in our fourth quarter, including the higher mix of lower margin Smartphones, particularly iPhone, and the continued shift in total revenues to a higher mix of Mobility. That said, we feel good about the progress we made on initiatives in 2011. Our plan this year is to continue to build on this progress, focusing on key initiatives including growing our Mobility business, making further enhancements to our store experience and optimizing our merchandising and our pricing strategy. We expect the Verizon business to continue to mature throughout the year as we continue to raise awareness with our customers. AT&T is also expected to grow and should deliver another solid performance this year. This will create a far more balanced, more stable and predictable foundation for our Mobility business. Our iPhone mix will likely normalize as we move through the year, although new devices both in the handsets and in tablets could create peaks and valleys in volume and in impact mix.These trends shape our outlook for 2012 and our capital allocation decisions in the near term. When we saw changes in the Sprint trends in the fourth quarter we made the decision to suspend share repurchases as we continue to evaluate the best use of our excess cash.We would look for stabilization in growth of net income and free cash flow to support any resuming of share repurchases. In the meantime, our strong liquidity and cash balance gives us the opportunity to reinvest in the business and continue to return value to shareholders through our quarterly dividend. Now some final comments on our outlook for 2012. As we indicated in our preliminary earnings announcement, we look for net income to be down in 2012 compared to 201 1.We assume our Sprint business remains at its current run rate making our comparisons in the first quarter very difficult. In fact, we are anticipating the first-quarter results to be even more difficult than the fourth quarter of 2011. However, after what will be an extremely challenging first quarter we expect to make steady progress throughout the remainder of the year and, depending on the timing of new device launches, realize sequential quarterly improvements in net income.

34. In response to a question from Raymond James analyst, Dan Wewer as to why the

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Company was keeping the dividend "given that it may equal 100% of your net income over the

next 12 months, particularly if you thought it was a smart decision to eliminate the share

buyback program, defendant Gooch responded:

from a capital allocation we're continuing to look at that with the Board and the management team. We did make the decision to suspend the share repurchase with the shift in business from Sprint, but we are committed at this point to continue to pay the quarterly dividend going forward.

35. The statements quoted in paragraphs 32 through 34, above, were false and

misleading when made because they failed to disclose the following:

a. The decline in net income was not a short-term problem but rather was a

long-term problem that RadioShack was facing and would continue to face throughout the Class

Period as it transitioned to a wireless reseller and away from its historical consumer electronics

and accessories business because, as defendants knew, the profit margins on wireless product

sold by RadioShack in company-owned an operated stores and in Target centers were

considerably less than the profit margins associated with the Company's sales of consumer

electronics and accessories. The decline in net income would become more and more significant

in subsequent quarters because as RadioShack continued its transition to a wireless reseller at the

expense of sales of consumer electronics and accessories RadioShack's sales mix would become

increasingly dependent on significantly lower margin items.

b. Defendants had no basis in fact for their statements of sequential quarterly

improvements in net income in 2012 when Defendants knew that RadioShack's profit margins

would continue to decline and that that decline would increase as the market for smart phones

increased because the profit margins on smart phones were even smaller than the profit margins

on sales of traditional cell phones.

C. At the same time that RadioShack was focusing its efforts on transitioning

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to a wireless reseller, sales of its consumer electronics products and accessories were suffering

and would continue to suffer from a lack of effort on the part of Radio Shack to build those more

profitable lines of business, thus adding to defendants' knowledge that RadioShack's sales mix

would turn quickly and increasingly toward wireless products which would cause RadioShack to

sustain lower profit margins and reduce net income into 2012.

d. Defendants knew that their buildup of cash was going to be reduced

because of the decreasing margins, the increasing expenses of new stores and new products and

would not be available to return value to shareholders in light of the impending 2013 debt

refinancing.

36. On April 24,20 12, Defendants reported RadioShack's financial results for the first

quarter of 2012:

Total net sales and operating revenues from continuing operations for the 2012 first quarter decreased 0.9% to $1.01 billion, compared to $1.02 billion for the 2011 first quarter. Net loss for the 2012 first quarter totaled $8.0 million, or $0.08 per diluted share, compared to net income of $35.1 million, or $0.33 per diluted share, for the 2011 first quarter. Net income in the 2011 first quarter included costs associated with the early retirement of debt totaling $4.1 million ($2.5 million after tax), or $0.02 per diluted share.

37. Defendant Gooch emphasized, "As we anticipated, the first quarter was extremely

challenging. While our results were disappointing, we are working quickly to drive top line

growth and expand margins. We were pleased to see progress from initiatives we began

implementing last year, particularly in our highest gross margin signature platform. We believe

these initiatives contributed to monthly sequential improvement in Company performance

throughout the quarter that has continued into April." He added, "As a result of these initiatives,

and with our continued commitment to stringent cost control and cash management, we are

confident in our ability to drive sequential quarterly improvement in performance throughout

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2012."

38. Dorvin Lively, executive vice president, chief financial officer and chief

administrative officer, said, "Our substantial cash position allows us to manage through this

period with maximum flexibility while reinvesting in the business to drive improved financial

performance for our shareholders. Moreover, our new quarterly dividend is a central component

of our commitment to returning value to shareholders."

39. During the earnings conference call, in response to a question from David

Goberof Morgan Stanley on capital allocation and the balance sheet, and how should we think

about the dividend over the next year or so as we approach that maturity, Dorvin Lively

responded:

Well the dividend is going to remain at central component of what we are doing, so I would think about the dividend as a piece that will continue forward. There are absolutely no plans to discontinue that dividend, as far as some of the maturing debt coming due, we are in conversations today on that. I don't think we have anything specifically to share but I would anticipate as probably putting something else in place that may not be of the same amount aswhat will be replacing and may not be of the same type but we will probably be out in the market in some form of fashion.

40. The statements quoted in paragraph 36 through 39, above, were false and

misleading when made as set forth in paragraph 35.

41. Then, on July 25, 2012 in a surprise to the market, defendants reported

Radioshack' s earnings for the second quarter which were a net loss of $21 million resulting from

weakened mobility sales and margin erosionand the decision to suspend the dividend.

42. As a result of this July 25, 2102 announcement, Radioshack's common stock

price dropped precipitously, from a closing of $3.65 on July 24, 2012 to $2.60 on July 25, 2012.

Additionally, analysts downgraded the stock. StifelNicholaus, David Shick downgraded the

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stock to hold from buy and stated "we have little confidence in RadioShack's ability to earn a

profit stream given their inability to see this coming."

43. The market for RadioShack's common stock Was open, well-developed and

efficient at all relevant times. As a result of these materially false and misleading statements and

failures to disclose, RadioShack's common stock traded at artificially inflated prices during the

Class Period. Plaintiff and other members of the Class purchased or otherwise acquired

RadioShack common stock relying upon the integrity of the market price of RadioShack's

common stock and have been damaged thereby.

44. During the Class Period, Defendants materially misled the investing public,

thereby inflating the price of RadioShack's common stock, by publicly issuing false and

misleading statements and omitting to disclose material facts necessary to make Defendants'

statements, as alleged above, not false and misleading.

45. At all relevant times, the material misrepresentations and omissions particularized

in this Complaint directly or proximately caused or were a substantial contributing cause of the

damages sustained by Plaintiff and other members of the Class. Defendants' materially false

and misleading statements during the Class Period resulted in Plaintiff and other members of the

Class purchasing the RadioShack common stock at artificially inflated prices, thus causing the

damages complained of herein.

46. Defendants acted with scienter in that they knew or recklessly disregarded facts

known or available to them, which made the statements they made false and misleading, as

alleged herein.

LOSS CAUSATION/ECONOMIC LOSS

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

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deceive the market and a course of conduct that artificially inflated the price of Radio Shack

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

common stock, as alleged above. When Defendants' prior misrepresentations and fraudulent

conduct were disclosed and became apparent to the market, the price of RadioShack common

stock fell precipitously as the prior artificial inflation came out. As a result of their purchases of

RadioShack common stock during the Class Period, Plaintiff and the other Class members

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

48. Defendants' false and misleading statements and omissions of material fact

caused RadioShack common stock to trade at artificially inflated levels throughout the Class

Period.

49. As a direct result of Defendants' announcements on January 30, 2012, and July

25, 2012, the price of RadioShack common stock price fell precipitously. These drops removed

the inflation from the price of RadioShack common stock causing real economic loss to investors

who had purchased the Company's common stock during the Class Period.

50. The 30% decline in the price of RadioShack common stock after each of these

disclosures came to light was a direct result of the nature and extent of Defendants' fraud finally

being revealed to investors and the market. The timing and magnitude of Radio Shack common

stock price decline negates any inference that the loss suffered by Plaintiff and the other Class

members was caused by changed market conditions, macroeconomic or industry factors or

company-specific facts unrelated to Defendants' fraudulent conduct. The economic loss, i.e.,

damages, suffered by Plaintiff and the other Class members was a direct result of Defendants'

fraudulent scheme and the subsequent significant decline in the value of Radio Shack common

stock when Defendants' prior misrepresentations and other fraudulent conduct were revealed.

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APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET DOCTRINE

51. At all relevant times, the market for Radio Shack common stock was an efficient

market for the following reasons, among others:

a. RadioShack stock met the requirements for listing, and was listed and

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

b. as a regulated issuer, RadioShack filed periodic public reports with the

SEC and the NYSE;

C. RadioShack regularly communicated with public investors via established

market communication mechanisms, including through regular disseminations of press releases

on the national circuits of major newswire services and through other wide-ranging public

disclosures, such as communications with the financial press and other similar reporting services;

and

d. RadioShack was followed by several securities analysts employed by

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

customers of their respective brokerage firms. Each of these reports was publicly available and

entered the public marketplace.

52. As a result of the foregoing, the market for Radio Shack common stock promptly

digested current information regarding Radio Shack from all publicly available sources and

reflected such information in the prices of its common stock. Under these circumstances, all

purchasers of RadioShack common stock during the Class Period suffered similar injury through

their purchase of RadioShack common stock at artificially inflated prices and a presumption of

reliance applies.

FTI

• Case 1:12-cv-05825-PGG Document 1 Filed 07/30/12 of 25

NO SAFE HARBOR

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

circumstances does not apply to any of the allegedly false statements and omissions pleaded in

this complaint. To the extent that the statutory safe harbor does apply to any forward-looking

statements pleaded herein, Defendants are liable for those false forward-looking statements

because at the time each of those forward-looking statements was made, the particular speaker

knew that the particular forward-looking statement was false, and/or the forward-looking

statement was authorized and/or approved by an executive officer of Radio Shack who knew that

those statements were false when made.

COUNT .1

Violation of Section 10(b) of the Exchange ActDand Rule 10b-5 Promulgated Thereunder Against All Defendants

54. Plaintiff repeats and realleges the allegations set forth as though fully set forth

herein.

55. During the Class Period, Defendants disseminated false and misleading

statements, and failed to disclose material facts, as alleged above, which they knew or

deliberately disregarded were misleading in that they contained misrepresentations and failed to

disclose material facts necessary in order to make the statements made, in light of the

circumstances under which they were made, not misleading.

56. Defendants violated Section 10(b) of the Exchange Act and Rule lOb-5 in that

they:

a. employed devices, schemes, and artifices to defraud;

b. made untrue statements of material facts or omitted to state material facts

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

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were made, not misleading; or

C. engaged in acts, practices, and a course of business that operated as a

fraud or deceit upon Plaintiff and others similarly situated in connection with their purchases of

RadioShack common stock during the Class Period.

57. Plaintiff and the Class have suffered damages in that, in reliance on the integrity

of the market, they paid artificially inflated prices for RadioShack common stock. Plaintiff and

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

if they had been aware that the market prices had been artificially and falsely inflated by

Defendants' misleading statements.

58. As a direct and proximate result of Defendants' wrongful conduct, Plaintiff and

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

RadioShack common stock during the Class Period.

COUNT II

Violation of Section 20(a) of the Exchange ActLlAgainst Defendant Gooch

59. Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

60. Defendant Gooch acted as a controlling person of Radio Shack within the meaning

of Section 20(a) of the Exchange Act as alleged herein. By virtue of his positions at Radio Shack

defendant Gooch had the power to influence and control and did influence and control, directly

or indirectly, the decision-making and actions of RadioShack, as alleged herein.

61. As set forth above, RadioShack violated Section 10(b) and Rule lOb-5, as alleged

in this Complaint. Defendant Gooch is liable pursuant to Section 20(a) of the Exchange Act. As

a direct and proximate result of Defendant Gooch's wrongful conduct, Plaintiff and other

22


members of the Class suffered damages in connection with their purchases of the common stock

of RadioShack during the Class Period.

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

A. Determining that this action is a proper class action, designating Plaintiff as Lead

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

Civil Procedure and Plaintiff's counsel as Lead Counsel;

B. Awarding compensatory damages in favor of Plaintiff and the other Class

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

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

C. Awarding Plaintiff and the Class their reasonable costs and expenses incurred in

this action, including counsel fees and expert fees; and

D. Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.

Dated: July 30, 2012

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united states district court southern district of new...

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