exhibit 2 - SAP Lawsuit Portal

Case4:07-cv-01658-PJH Document875-6 Filed09/16/10 Page28 of 33
material fact or to omit to state a material
fact necessary in order to make the
statements made, in the light of the
circumstances under which they were
made, not misleading, or
(c) To engage in any act, practice, or
course of business which operates or
would operate as a fraud or deceit upon
any person,blockquotepara>in connection
with the purchase or sale of any security."
17 C.F.R. 240.10b-5. Sallaberry rightly concedes that an
actor who did not issue a public statement still may be
liable if there was "substantial participation or intricate
involvement [*97] in the preparation of fraudulent
statements . . . even though that participation might not
lead to the actor's actual making of the statements."
Howard v. Everex Sys., 228 F.3d 1057, 1061 n.5 (9th Cir.
2000). Sallaberry contends that he did not participate
substantially in making any statement. In fact, the only
public statements identified by the SEC cannot support a
claim against Lonchar or Sallaberry in any event. The
evidence against Lonchar and Sallaberry supports only
the inference that they misled the auditors with respect to
whether the license and the advertising purchase were
separately negotiated or contingent agreements. As
discussed above, the auditors rebuffed any such
representations, and the public statements and records did
not incorporate them.
However, the SEC's claims against Lonchar and
Sallaberry are not necessarily predicated on public
statements. Instead, the SEC alleges that Lonchar and
Sallaberry made misleading statements to Ernst & Young
in connection with an audit that was sure to affect the
valuation of Veritas shares. As discussed above, the SEC
need not demonstrate that any investors relied on the
statements or even that the misstatements caused any loss
[*98] in particular. If Lonchar or Sallaberry made an
untrue statement of material fact in connection with the
purchase or sale of a security, they may be liable for a
violation of Rule 10b-5. The publication of the statement
appears to be irrelevant in an SEC enforcement action.
Sallaberry relies on In re Cylink Secs. Litig., 178 F.
Supp. 2d 1077, 1084 (N.D. Cal. 2001), in which the court
concluded that a defendant who instructed his sales force
to solicit a deal for which revenue was incorrectly
recognized was not liable because there was no allegation
2010 U.S. Dist. LEXIS 76826, *96
that he was involved in the process of revenue
recognition or the issuance of financial statements. The
SEC presents evidence that Sallaberry was involved in
the process of revenue recognition and had direct contact
with outside auditors who were trying to valuate the AOL
transaction. The other cases upon which Sallaberry relies
are distinguishable. See In re Gilead Scis. Secs. Litig.,
No. C 04-0100 SI, 2009 U.S. Dist. LEXIS 95072, 2009
WL 3320492 (N.D. Cal. Oct. 13, 2009) (ultimately
dismissing a complaint because it failed to allege with
any specificity how the defendant was substantially
involved with the statement and no allegation could
support a finding of scienter), [*99] SEC v. Fraser, 2009
WL 2450508, 2009 U.S. Dist. LEXIS 70198, 2009 WL
2450508, at *8 (D. Ariz. Aug. 11, 2009) (dismissing a
complaint for failing to allege the nature of the
defendant's involvement in reviewing and discussing
SEC filings, including whether the defendant suggested
what the forms should state, or that any such suggestion,
if it occurred, was heeded), and SEC v. Berry, 580 F.
Supp. 2d 911, 922 (N.D. Cal. 2008) (finding that "[t]he
SEC's conclusory pleadings that [the defendant]
'reviewed' and 'discussed' various filings is insufficient to
plead (with particularity) [the defendant's] role in the
purported fraud"). The SEC offers evidence that provides
specific details of Sallaberry's participation in the revenue
recognition process. See McGann v. Ernst & Young, 102
F.3d 390, 394 (9th Cir. 1996) (parenthetically quoting
Anixter v. Home-Stake Prod. Co., 77 F.3d 1215, 1226
(10th Cir. 1996) for the proposition that accountants may
be liable under anti-fraud laws if they "make a false or
misleading statement (or omission) that they know or
should know will reach potential investors"). The
evidence is sufficient to create a genuine issue of material
fact with respect to whether Sallaberry or Lonchar acted
[*100] with scienter when making misstatements directly
to Ernst & Young.
2. Scheme liability
Page 27
In the alternative, the SEC argues that Sallaberry
may be held liable under Section 17(a)(2) and Rule 10b-5
under a scheme liability theory. An actor is liable for
participation in a scheme to defraud if the actor "engaged
in conduct that had the principal purpose and effect of
creating a false appearance of fact in furtherance of the
scheme." Simpson v. AOL Time Warner Inc., 452 F.3d
1040, 1048 (9th Cir. 2006), vacated on other grounds sub
nom. Avis Budget Group, Inc. v. Cal. State Teachers' Ret.
Sys., 552 U.S. 1162, 128 S.Ct. 1119, 169 L. Ed. 2d 945