GLANCY BINKOW & GOLDBERG LLP LIONEL Z. GLANCY … · 2013-03-08 · GLANCY BINKOW & GOLDBERG LLP...

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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS of 29

GLANCY BINKOW & GOLDBERG LLPLIONEL Z. GLANCY (#134180)MICHAEL GOLDBERG (#188669)ROBERT V. PRONGAY (#270796)CASEY E. SADLER (#274241)1925 Century Park East, Suite 2100Los Angeles, California 90067Telephone: (310) 201-9150Facsimile: (310) 201-9160

LAW OFFICES OF HOWARD G. SMITHHOWARD G. SMITH3070 Bristol Pike, Suite 112Bensalem, PA 19020Telephone: (215) 638-4847Facsimile: (215) 638-4867

Attorneys for Plaintiff

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF CALIFORNIA

PLAINTIFF, Individually and on Behalf ofAll Others Similarly Situated,

Plaintiff,

v.

MAXWELL TECHNOLOGIES, INC.,DAVID J. SCHRAMM, AND KEVIN S.ROYAL,

Defendants.

No. DRAFT

CLASS ACTION COMPLAINT FORVIOLATIONS OF THE FEDERALSECURITIES LAWS

JURY TRIAL DEMANDED

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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWSPage 1 of 29

Plaintiff (“Plaintiff”), by and through his attorneys, alleges the following upon information

and belief, except as to those allegations concerning Plaintiff, which are alleged upon personal

knowledge. Plaintiff’s information and belief is based upon, among other things, his counsel’s

investigation, which includes without limitation: (a) review and analysis of regulatory filings made

by MAXWELL TECHNOLOGIES, INC. (“Maxwell” or the “Company”), with the United States

Securities and Exchange Commission (“SEC”); (b) review and analysis of press releases and media

reports issued by and disseminated by Maxwell; and (c) review of other publicly available

information concerning Maxwell.

NATURE OF THE ACTION AND OVERVIEW

1. This is a class action on behalf of purchasers of Maxwell’s securities between April

28, 2011 and March 7, 2013, inclusive (the “Class Period”), seeking to pursue remedies under the

Securities Exchange Act of 1934 (the “Exchange Act”).

2. Maxwell, together with its subsidiaries, develops, manufactures, and markets energy

storage and power delivery products, and microelectronic products worldwide.

3. On March 7, 2013, the Company announced that its previously issued financial

statements contained in its annual report on Form 10-K for the year ended December 31, 2011, and

all unaudited quarterly reports on Form 10-Q in 2011 and 2012, respectfully, should no longer be

relied upon because of errors in those financial statements. According to the Company, the errors

relate to the timing of recognition of revenue from sales to certain distributors. As the Company

explained, "the investigation discovered arrangements with certain of our distributors regarding the

payment terms for sales to such distributors with respect to certain transactions. These arrangements

had not been communicated to our finance and accounting department and, therefore, had not been

considered when recording revenue on shipments to these distributors." The Company further

disclosed that "as a result of our investigation, certain employees were terminated and our Sr. Vice

President of Sales and Marketing resigned as reported in Item 5.02 of this Form 8-K."

4. On this news, shares of the Company declined substantially, on unusually heavy

volume.

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5. Throughout the Class Period, Defendants made false and/or misleading statements,

as well as failed to disclose material adverse facts about the Company’s business, operations, and

prospects. Specifically, Defendants made false and/or misleading statements and/or failed to

disclose: (1) that employees of the Company were making certain arrangements with certain

distributors regarding the payment terms for sales to such distributors with respect to certain

transactions; (2) that these arrangements had not been communicated to Maxwell's finance and

accounting department; (3) that, as a result, these arrangements had not been considered when

recording revenue on shipments to these distributors; (4) that a fixed or determinable sales price did

not exist at the time of shipment to these distributors; (5) that collection was not reasonably assured

at the time revenue had been recognized for certain transactions; (6) that, as a result, the Company

was improperly recognizing revenue related to sales transactions to distributors; (7) that, as such,

the Company’s financial results were not prepared in accordance with Generally Accepted

Accounting Principles (“GAAP”); (8) that the Company lacked adequate internal and financial

controls; and (9) that, as a result of the foregoing, the Company’s statements were materially false

and misleading at all relevant times.

6. As a result of Defendants’ wrongful acts and omissions, and the precipitous decline

in the market value of the Company’s securities, Plaintiff and other Class members have suffered

significant losses and damages.

JURISDICTION AND VENUE

7. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange Act

(15 U.S.C.§§78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17 C.F.R. §

240.10b-5).

8. 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 (15 U.S.C. §78aa).

9. Venue is proper in this Judicial District pursuant to 28 U.S.C. §1391(b) and Section

27 of the Exchange Act (15 U.S.C. §78aa(c)). Substantial acts in furtherance of the alleged fraud

or the effects of the fraud have occurred in this Judicial District. Many of the acts charged herein,

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including the preparation and dissemination of materially false and/or misleading information,

occurred in substantial part in this Judicial District. Additionally, Defendant’s principal executive

offices are located within this Judicial District.

10. In connection with the acts, transactions, and conduct alleged herein, Defendants

directly and indirectly used the means and instrumentalities of interstate commerce, including the

United States mail, interstate telephone communications, and the facilities of a national securities

exchange.

PARTIES

11. Plaintiff, as set forth in the accompanying certification, incorporated by reference

herein, purchased Maxwell common stock during the Class Period, and suffered damages as a result

of the federal securities law violations and false and/or misleading statements and/or material

omissions alleged herein.

12. Defendant Maxwell is a Delaware corporation with its principal executive offices

located at 5271 Viewridge Court, Suite 100, San Diego, California 92123.

13. Defendant David J. Schramm (“Schramm”) was, at all relevant times, President and

Chief Executive Officer (“CEO”), and a director of the Company.

14. Defendant Kevin S. Royal (“Staton”) was, at all relevant times, Senior Vice

President, Chief Financial Officer (“CFO”), Treasurer and Secretary of the Company.

15. Defendants Schramm and Royal are collectively referred to hereinafter as the

“Individual Defendants.” The Individual Defendants, because of their positions with the Company,

possessed the power and authority to control the contents of Maxwell’s reports to the SEC, press

releases and presentations to securities analysts, money and portfolio managers and institutional

investors, i.e., the market. Each defendant was provided with copies of the Company’s reports and

press releases alleged herein to be misleading prior to, or shortly after, their issuance and had the

ability and opportunity to prevent their issuance or cause them to be corrected. Because of their

positions and access to material non-public information available to them, each of these defendants

knew that the adverse facts specified herein had not been disclosed to, and were being concealed

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from, the public, and that the positive representations which were being made were then materially

false and/or misleading. The Individual Defendants are liable for the false statements pleaded

herein, as those statements were each “group-published” information, the result of the collective

actions of the Individual Defendants.

SUBSTANTIVE ALLEGATIONS

Background

16. Maxwell, together with its subsidiaries, develops, manufactures, and markets energy

storage and power delivery products, and microelectronic products worldwide.

Materially False and MisleadingStatements Issued During the Class Period

17. The Class Period begins on April 28, 2011 . On this day, the Company issued a press

release entitled, “Maxwell Technologies Reports First Quarter Financial Results.” Therein, the

Company, in relevant part, stated:

Maxwell Technologies, Inc. (Nasdaq: MXWL) today reported revenue of $35.3million for its first quarter ended March 31, 2011, up 32 percent over the $26.6million recorded in the same period in 2010. BOOSTCAP(R) ultracapacitor revenueincreased by 55 percent, to $21.4 million in Q111, compared with $13.8 million forthe same period last year. Sales of high voltage capacitor and microelectronicsproducts totaled $13.9 million in Q111, up 8 percent from the $12.8 million recordedin Q110.

"Energy storage solutions for wind turbine blade pitch systems and hybrid andelectric transit vehicle drive systems continued to be primary drivers ofultracapacitor sales growth, along with increasing contributions from automotivestop-start idle elimination systems and various backup power applications," saidDavid Schramm, Maxwell's president and chief executive officer. "This strong topline growth and ongoing cost reduction and efficiency improvements also enabledthe company to continue improving operating results."

On a U.S. generally accepted accounting principles (GAAP) basis, operating loss forQ111 was $73,000, compared with an operating loss of $1.6 million in Q110. GAAPnet income for the first quarter 2011 was $196,000, or $0.01 per diluted share,compared with GAAP net income of $1.2 million, or $0.05 per diluted share, in thesame period last year. The GAAP net income comparison is affected by a non-cashgain of $1.1 million, or $0.04 per diluted share, in Q111 vs. a non-cash gain of $3.2million, or $0.12 per diluted share, in Q110, based on the quarterly valuation ofconversion features and warrants associated with convertible debentures issued in2005. As previously disclosed, the warrants were exercised in December 2010, andthe company retired the convertible debentures in February 2011. Therefore, thecompany will not record non-cash gains or losses related to the conversion featuresand warrants going forward.

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On a non-GAAP basis, the company reported operating income of $978,000 in Q111,compared with an operating loss of $849,000 in the same period last year, and netincome of $161,000, or $0.01 per diluted share in Q111, compared with a net loss of$1.2 million, or $0.05 per share in Q110. A reconciliation of GAAP to non-GAAPfinancial measures is included as an addendum to this release.

GAAP gross margin was 39 percent in Q111, compared with 38 percent in Q110 and37 percent in Q410. GAAP operating expenses totaled approximately $14.0 million,or 39 percent of revenue in Q111, compared with $11.8 million, or 44 percent ofrevenue in Q110. Non-GAAP operating expenses totaled approximately $13.1million, or 37 percent of revenue, in Q111, compared with $11.3 million, or 42percent of revenue, in Q110. Cash and cash equivalents totaled $33.1 million as ofMarch 31, 2011, compared with $47.8 million of cash, cash equivalents andrestricted cash as of December 31, 2010. Complete financial statements andManagement's Discussion and Analysis of Financial Condition and Results ofOperations will be available with the filing of the company's Quarterly Report onForm 10-Q with the Securities & Exchange Commission.

18. On May 5, 2011, Maxwell filed its Quarterly Report on Form 10-Q with the SEC for

the 2011 fiscal first quarter. The Company’s Form 10-Q was signed by Defendants Schramm and

Royal, and reaffirmed the Company’s statements announced on April 28, 2011 . The Company’s

Form 10-Q also contained Sarbanes-Oxley required certifications, signed by Defendants Schramm

and Royal, who certified:

1. I have reviewed this quarterly report on Form 10-Q of MaxwellTechnologies, Inc. for the quarter ended March 31, 2011;

2. Based on my knowledge, this report does not contain any untrue statementof a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financialinformation included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:

a) Designed such disclosure controls and procedures, or caused suchdisclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period inwhich this report is being prepared;

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b) Designed such internal control over financial reporting, or causedsuch internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generallyaccepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls andprocedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the endof the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal controlover financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the caseof an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control overfinancial reporting.

5. The registrant's other certifying officer(s) and I have disclosed, based on ourmost recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board ofdirectors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design oroperation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record,process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant'sinternal control over financial reporting.

19. On July 18, 2011, the Company issued a press release entitled, “Maxwell

Technologies Reports Second Quarter Financial Results.” Therein, the Company, in relevant part,

stated:

Maxwell Technologies, Inc. (Nasdaq: MXWL) today reported revenue of $38.5million for its second quarter ended June 30, 2011, up 30 percent over the $29.6million recorded in the same period in 2010. Ultracapacitor revenue increased by 54percent, to $24.4 million in Q211, compared with $15.9 million in the same periodlast year. Sales of high voltage capacitor and microelectronics products totaled $14.0million in Q211, up two percent from the $13.7 million recorded in Q210.

"Rapidly increasing sales into stop-start idle elimination systems in micro hybridautos and various backup power applications augmented continuing strong sales forwind turbine blade pitch systems and hybrid and electric transit vehicle drive systemsto generate another record quarter for ultracapacitor sales," said David Schramm,Maxwell's president and chief executive officer.

On a U.S. generally accepted accounting principles (GAAP) basis, operating loss forQ211 was $1.6 million compared with an operating loss of $3.3 million in Q210.

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GAAP net loss for the second quarter 2011 was $1.2 million or $0.04 per share,compared with a GAAP net loss of $2.6 million, or $0.10 per share, in the sameperiod last year. GAAP operating and net loss comparisons are affected by:

! A reserve of $2.6 million, $2.0 million net of tax, or $0.07 per diluted share,in Q211 for an anticipated legal settlement.

! A non-cash gain of $1.2 million, or $0.05 per diluted share, in Q210, basedon the quarterly valuation of conversion features and warrants associatedwith convertible debentures. As the warrants were exercised in December2010, and the convertible debentures were retired in February 2011, thecompany will no longer record gains or losses related to the conversionfeatures and warrants.

! An accrual of $3.4 million, or $0.13 per diluted share, in Q210 for settlementof U.S. Foreign Corrupt Practices Act violations.

On a non-GAAP basis, the company reported operating income of $1.9 million inQ211, compared with operating income of $933,000 in the same period last year, andnet income of $1.7 million or $0.06 per diluted share in Q211, compared with netincome of $455,000, or $0.02 per diluted share in Q210. A reconciliation of GAAPto non-GAAP financial measures is included as an addendum to this release.

GAAP gross margin was 40 percent in Q211, compared with 40 percent in Q210 and39 percent in Q111. GAAP operating expenses totaled approximately $17.1 million,or 44 percent of revenue in Q211, compared with $15.2 million, or 51 percent ofrevenue in Q210. Non-GAAP operating expenses totaled approximately $13.7million, or 36 percent of revenue, in Q211, compared with $11.1 million, or 37percent of revenue, in Q210. Cash and cash equivalents totaled $29.8 million as ofJune 30, 2011, compared with $33.1 million as of March 31, 2011. Completefinancial statements and Management's Discussion and Analysis of FinancialCondition and Results of Operations will be available with the filing of thecompany's Quarterly Report on Form 10-Q with the Securities & ExchangeCommission.

20. On August 8, 2011, Maxwell filed its Quarterly Report on Form 10-Q with the SEC

for the 2011 fiscal second quarter. The Company’s Form 10-Q was signed by Defendants Schramm

and Royal, and reaffirmed the Company’s statements announced on July 18, 2011. The Company’s


and Royal, substantially similar to the certifications contained in ¶__, supra.

21. On November 3, 2011, the Company issued a press release entitled, “Maxwell

Technologies Reports Third Quarter Financial Results.” Therein, the Company, in relevant part,

stated:

Maxwell Technologies, Inc. (Nasdaq: MXWL) today reported revenue of $41.1million for its third quarter ended September 30, 2011, up 31 percent over the $31.5million recorded in the same period in 2010. Ultracapacitor revenue increased by 34percent, to $24.9 million in Q311, compared with $18.6 million in the same periodlast year. Sales of high voltage capacitor and microelectronics products totaled $16.2

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million in Q311, up 26 percent from the $12.8 million recorded in Q310.

"Strong demand for ultracapacitor products across multiple applications, includingstop-start idle elimination systems in micro hybrid autos, backup power, wind turbinepitch control and power quality, and hybrid and electric transit vehicle drive systemscontinued to drive sales growth," said David Schramm, Maxwell's president andchief executive officer.

On a U.S. generally accepted accounting principles (GAAP) basis, operating incomefor Q311 was $1.2 million, compared with an operating loss of $907,000 in Q310.GAAP net income for the third quarter 2011 was $298,000 or $0.01 per dilutedshare, compared with a GAAP net loss of $2.4 million, or $0.09 per share, in thesame period last year. GAAP operating and net income and loss comparisons areaffected by:

! A $1.7 million operating expense accrual in Q310 to increase the reserve forsettlement of U.S. Foreign Corrupt Practices Act (FCPA) violations.

! A non-cash charge of $814,000 in Q310, based on the quarterly valuation ofconversion features and warrants associated with convertible debentures. Asthe warrants were exercised in December 2010, and the convertibledebentures were retired in February 2011, the company no longer recordsgains or losses related to the warrants and conversion features.

On a non-GAAP basis, the company reported operating income of $2.1 million inQ311, compared with operating income of $1.6 million in the same period last year,and net income of $1.2 million or $0.04 per diluted share in Q311, compared withnet income of $968,000, or $0.04 per diluted share in Q310. A reconciliation ofGAAP to non-GAAP financial measures is included as an addendum to this release.

GAAP gross margin was 40 percent in Q311, compared with 39 percent in Q310 and40 percent in Q211. GAAP operating expenses totaled approximately $15.3 million,or 37 percent of revenue in Q311, compared with $13.2 million, or 42 percent ofrevenue in Q310. Non-GAAP operating expenses totaled approximately $14.6million, or 36 percent of revenue, in Q311, compared with $10.9 million, or 35percent of revenue, in Q310. Cash and cash equivalents totaled $31.0 million as ofSeptember 30, 2011, compared with $29.8 million as of June 30, 2011. Completefinancial statements and Management's Discussion and Analysis of FinancialCondition and Results of Operations will be available with the filing of thecompany's Quarterly Report on Form 10-Q with the Securities & ExchangeCommission (SEC).

22. On November 7, 2012, Maxwell filed its Quarterly Report on Form 10-Q with the

SEC for the 2011 fiscal third quarter. The Company’s Form 10-Q was signed by Defendants

Schramm and Royal, and reaffirmed the Company’s statements announced on November 3, 2012.

The Company’s Form 10-Q also contained Sarbanes-Oxley required certifications, signed by

Defendants Schramm and Royal, substantially similar to the certifications contained in ¶__, supra.

23. On February 16, 2012, the Company issued a press release entitled, “Maxwell

Technologies Reports 2011 Financial Results.” Therein, the Company, in relevant part, stated:

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SAN DIEGO, Feb. 16, 2012 /PRNewswire/ -- Maxwell Technologies, Inc. (Nasdaq:MXWL) today reported revenue of $42.5 million for its fourth quarter endedDecember 31, 2011, up 24 percent over the $34.2 million recorded in the sameperiod in 2010. Revenue for the fiscal year ended December 31, 2011, totaled $157.3million, up 29 percent over the $121.9 million recorded in fiscal 2010.

Ultracapacitor revenue increased by 30 percent, to $26.2 million in Q411, comparedwith $20.2 million in the same period last year, and totaled $97.0 million for the fullyear, up 42 percent from the $68.5 million recorded in 2010. Sales of high voltagecapacitor and microelectronics products totaled $16.3 million in Q411, up 16 percentfrom the $14.0 million recorded in Q410, and full year sales for those productstotaled $60.3 million, up 13 percent from the $53.4 million recorded in 2010.

"Emerging ultracapacitor applications in backup power and stop-start idleelimination systems in micro hybrid autos augmented ongoing contributions fromestablished customer bases in wind energy and hybrid bus drive systems to drivesteadily increasing sales growth in 2011," said David Schramm, Maxwell's presidentand chief executive officer. "We have also introduced new products for theuninterruptible power supply (UPS) and engine starting markets that we expect todrive additional growth in the coming year."

On a U.S. generally accepted accounting principles (GAAP) basis, operating incomefor the fourth quarter 2011 was $2.2 million, compared with an operating loss of$629,000 in Q410. GAAP operating income for the full year was $1.8 million,compared with an operating loss of $6.5 million in 2010. GAAP net income for Q411was $1.6 million, or $0.06 per diluted share, compared with a net loss of $2.4 millionor $0.09 per share, in Q410. GAAP net income for the full year was $849,000, or$0.03 per diluted share, compared with a net loss of $6.1 million, or $0.23 per share,in 2010. Fourth quarter 2010 operating loss and net loss comparisons are affected by:

! Reclassification of assets from held for sale to held and used in Q410,including an increase of $520,000 in depreciation expense recorded in costof revenue and an $880,000 asset impairment charge recorded in selling,general and administrative expense.

! A non-cash loss of $1.3 million, or $0.05 per share, in Q410 based on thequarterly valuation of conversion features and warrants associated withconvertible debentures issued in 2005. As the warrants were exercised inDecember 2010, and the convertible debentures were retired in February2011, the Company no longer records gains or losses related to the warrantsand conversion features.

On a non-GAAP basis, the Company reported operating income of $2.5 million inQ411 compared with $1.5 million in Q410. Non-GAAP operating income for the fullyear was $7.5 million compared with $3.2 million in 2010. Non-GAAP net incomefor Q411 was $1.9 million, or $0.07 per diluted share, compared with net income of$1.1 million or $0.04 per diluted share in Q410. Non-GAAP net income for the fullyear was $4.9 million, or $0.17 per diluted share compared with $1.3 million, or$0.05 per diluted share, in 2010. A reconciliation of GAAP to non-GAAP financialmeasures is included as an addendum to this release.

GAAP gross margin was 38 percent in Q411, compared with 37 percent in Q410 and40 percent in Q311. GAAP operating expenses totaled approximately $13.9 million,or 33 percent of revenue, in Q411 compared with $13.1 million, or 38 percent ofrevenue in Q410. Non-GAAP operating expenses totaled approximately $13.8

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million, or 32 percent of revenue, in Q411 compared with $11.6 million, or 34percent of revenue, in Q410. Cash and cash equivalents totaled $29.3 million as ofDecember 31, 2011, compared with $31.0 million as of September 30, 2011.Complete financial statements and Management's Discussion and Analysis ofFinancial Condition and Results of Operations will be available with the filing of theCompany's Annual Report on Form 10-K with the Securities & ExchangeCommission.

24. On February 16, 2012, Maxwell filed its Annual Report on Form 10-K with the SEC

for the 2011 fiscal year. The Company’s Form 10-Q was signed by Defendants Schramm and

Royal, and reaffirmed the Company’s statements announced that same day. The Company’s Form

10-K also contained Sarbanes-Oxley required certifications, signed by Defendants Schramm and

Royal, substantially similar to the certifications contained in ¶__, supra.

25. Additionally, the Company’s Annual Report filed with the SEC on Form 10-K

described the Company’s revenue recognition policy, in relevant part, as follows:

Revenue Recognition

Nature of Estimates Required. Sales revenue is primarily derived from the sale ofproducts directly to customers. For certain long-term contracts, revenue is recognizedratably as costs are incurred, or upon the delivery of final work products or thesatisfaction of contractually-defined milestones. For license fees and services,revenue is recognized when the performance requirements have been met.

Assumptions and Approach Used. Product revenue is recognized when all of thefollowing criteria are met: (1) persuasive evidence of an arrangement exists (uponcontract signing or receipt of an authorized purchase order from a customer); (2) titlepasses to the customer at either shipment from our facilities or receipt at thecustomer facility, depending on shipping terms; (3) price is deemed fixed ordeterminable and free of contingencies or significant uncertainties; and (4)collectability is reasonably assured. Customer purchase orders and/or contracts aregenerally used to determine the existence of an arrangement. Shipping documentsare used to verify product delivery. We assess whether a price is fixed ordeterminable based upon the payment terms associated with the transaction. If avolume discount is offered, revenue is recognized at the lowest price offered to thecustomer. We assess the collectability of accounts receivable based primarily uponcreditworthiness of the customer as determined by credit checks and analysis, as wellas the customer’s payment history.

Revenue recognized on a percentage of completion basis is measured by thepercentage of cost incurred to date to the estimated costs for each contract and islimited by the funding of the primary contractor. Provisions for estimated losses, ifany, on incomplete contracts are made in the period in which such losses aredetermined. The estimated contract costs are based on historical experience andassumptions regarding future contractual obligations. We regularly review theseestimates and consider the impact of recurring business risks and uncertaintiesinherent in the contracts, such as implementation delays due to factors within oroutside our control. Under the milestone method, revenue is recognized for the

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contractual consideration that is contingent upon achievement of a milestone in itsentirety as revenue in the period the milestone is achieved if the milestone isdetermined to be substantive.

* * *

Revenue Recognition

Revenue is derived primarily from the sale of manufactured products directly tocustomers. Product revenue is recognized, according to the guidelines of theSecurities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”)Numbers 101, Revenue Recognition in Financial Statements, and 104, RevenueRecognition, when all of the following criteria are met: (1) persuasive evidence ofan arrangement exists (upon contract signing or receipt of an authorized purchaseorder from a customer); (2) title passes to the customer at either shipment from theCompany’s facilities or receipt at the customer facility, depending on shipping terms;(3) customer payment is deemed fixed or determinable and free of contingencies orsignificant uncertainties; and (4) collectability is reasonably assured. If a volumediscount is offered, revenue is recognized at the lowest price to the customer. Thismethod has been consistently applied from period to period and there is no right ofreturn.

Revenue generated from certain long-term, fixed price contracts is recognized eitheron a percentage of completion basis or on a milestone basis, depending on whichmethod management determines best reflects the progress of performance under thecontract. Under the milestone method, revenue is recognized for the contractualconsideration that is contingent upon achievement of a milestone in its entirety asrevenue in the period the milestone is achieved if the milestone is determined to besubstantive. Under the percentage of completion basis, revenue is measured by thepercentage of cost incurred to date to the estimated costs for each contract, asrequired by the Construction-Type and Production-Type Contracts Subtopic of theFinancial Accounting Standards Board Accounting Standards Codification (“FASBASC”), and is limited by the funding of the prime contractor. Provisions forestimated losses on incomplete contracts are made in the period in which such lossesare determined.

26. On April 26, 2012, the Company issued a press release entitled, “Maxwell

Technologies Reports First Quarter Financial Results.” Therein, the Company, in relevant part,

stated:

Maxwell Technologies, Inc. (Nasdaq: MXWL) today reported revenue of $39.2million for its first quarter ended March 31, 2012, up 11 percent over the $35.3million recorded in the same period in 2011.

Ultracapacitor revenue increased by 3 percent, to $22.0 million in Q112 comparedwith $21.4 million in the same period last year. Sales of high voltage capacitor andmicroelectronics products totaled $17.2 million in Q112, up 24 percent from the$13.9 million recorded in Q111.

"Ultracapacitor revenue was down sequentially from Q4, due in part to seasonalfactors, including the Chinese New Year observance," said David Schramm,Maxwell's president and chief executive officer. "Continued demand forultracapacitor-based energy storage systems to power hybrid electric transit buses

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helped to offset softness in other applications. That, along with ongoing order flowfor backup power applications and stop-start idle elimination systems in micro hybridautos enabled us to sustain year-over-year growth."

On a U.S. generally accepted accounting principles (GAAP) basis, operating incomefor the first quarter 2012 was $1.3 million, compared with an operating loss of$73,000 in Q111. GAAP net income for Q112 was $504,000, or $0.02 per dilutedshare, compared with $196,000 or $0.01 per diluted share, in Q111. Q111 net incomeis affected by a non-cash gain of $1.1 million, or $0.04 per diluted share, based ona quarterly valuation of conversion features associated with convertible debenturesissued in 2005. As previously disclosed, the company retired the convertibledebentures in February 2011, and therefore no longer records gains or losses for theconversion features.

On a non-GAAP basis, the company reported operating income of $2.6 million inQ112 compared with operating income of $978,000 in Q111. Non-GAAP net incomefor Q112 was $1.8 million, or $0.07 per diluted share, compared with $161,000 or$0.01 per diluted share in Q111. A reconciliation of GAAP to non-GAAP financialmeasures is included as an addendum to this release.

GAAP gross margin was 41 percent in Q112, compared with 39 percent in Q111 and38 percent in Q411. GAAP operating expenses totaled approximately $14.9 million,or 38 percent of revenue, in Q112 compared with $14.0 million, or 40 percent ofrevenue in Q111. Non-GAAP operating expenses totaled approximately $13.7million, or 35 percent of revenue, in Q112 compared with $13.1 million, or 37percent of revenue, in Q111. Cash and cash equivalents totaled $30.6 million as ofMarch 31, 2012, compared with $29.3 million as of December 31, 2011. The currentcash balance was augmented by net proceeds of $10.3 million from the sale of572,510 shares of Maxwell common shares during the first quarter through thecompany's "at the market" equity offering. Complete financial statements andManagement's Discussion and Analysis of Financial Condition and Results ofOperations are available in the company's Quarterly Report on Form 10-Q, whichwas filed today with the Securities & Exchange Commission.

On April 12, 2012, a settlement was reached in the shareholder derivative suitinvolving certain of the company's past and current officers and directors. Under theterms of the settlement, $3.0 million was paid to plaintiffs' counsels; $2.7 millionwas paid by the company's insurer and $290,000 was paid by the company. Inaddition, the company agreed to ensure that certain corporate governance measuresare in place and enforced. Without admitting any wrong doing, the defendants to thissuit entered into this settlement to expedite resolution of the matter and relieve thedefendants and the company from further financial and resource burden.

27. On April 26, 2012, Maxwell filed its Quarterly Report on Form 10-Q with the SEC

for the 2012 fiscal first quarter. The Company’s Form 10-Q was signed by Defendants Schramm

and Royal, and reaffirmed the Company’s statements announced that same day. The Company’s



28. On August 2, 2012, the Company issued a press release entitled, “Maxwell

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Technologies Reports Second Quarter Financial Results.” Therein, the Company, in relevant part,

stated:

Maxwell Technologies, Inc. (Nasdaq: MXWL) today reported revenue of $40.9million for its second quarter ended June 30, 2012, up six percent over the $38.5million recorded in the same period in 2011.

Second quarter ultracapacitor revenue was $24.2 million, up 10 percent sequentiallyfrom the $22.0 million recorded in Q112, but slightly lower than the $24.4 millionrecorded in Q211. Sales of high voltage capacitor and microelectronics productstotaled $16.7 million in Q212, up 19 percent from the $14.0 million recorded inQ211.

"Slowing demand in Europe has impacted ultracapacitor revenue growth through thefirst half of the year, and the outlook there remains uncertain," said David Schramm,Maxwell's president and chief executive officer. "On the plus side, careful expensecontrols, strong demand for ultracapacitor products for hybrid electric transit busesand wind turbine blade pitch systems in China and steady performance by our highvoltage and microelectronics groups have enabled us to continue growing andimproving bottom line performance in a difficult economic environment."

On a U.S. generally accepted accounting principles (GAAP) basis, operating incomefor the second quarter 2012 was $3.4 million, compared with an operating loss of$1.6 million in Q211. GAAP net income for Q212 was $2.7 million, or $0.09 perdiluted share, compared with a net loss of $1.2 million, or $0.04 per diluted share,in Q211.

On a non-GAAP basis, the Company reported operating income of $4.3 million inQ212 compared with operating income of $1.9 million in Q211. Non-GAAP netincome for Q212 was $3.5 million, or $0.12 per diluted share, compared with $1.7million, or $0.06 per diluted share in Q211. A reconciliation of GAAP to non-GAAPfinancial measures is included as an addendum to this release.

GAAP gross margin was 42 percent in Q212, compared with 40 percent in Q211 and41 percent in Q112. GAAP operating expenses totaled $13.5 million, or 33 percentof revenue, in Q212 compared with $17.1 million, or 44 percent of revenue in Q211.Non-GAAP operating expenses totaled $12.9 million, or 32 percent of revenue, inQ212 compared with $13.7 million, or 36 percent of revenue, in Q211. Cash andcash equivalents totaled $22.3 million as of June 30, 2012, compared with $30.6million as of March 31, 2012. Complete financial statements and Management'sDiscussion and Analysis of Financial Condition and Results of Operations areavailable in the company's Quarterly Report on Form 10-Q, which was filed todaywith the Securities & Exchange Commission.

29. On August 2, 2012, Maxwell filed its Quarterly Report on Form 10-Q with the SEC

for the 2012 fiscal second quarter. The Company’s Form 10-Q was signed by Defendants Schramm

and Royal, and reaffirmed the Company’s statements announced that same day. The Company’s



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30. On October 25, 2012, the Company issued a press release entitled, “Maxwell

Technologies Reports Third Quarter Financial Results.” Therein, the Company, in relevant part,

stated:

Maxwell Technologies, Inc. (Nasdaq: MXWL) today reported revenue of $43.9million for its third quarter ended September 30, 2012, up 7 percent over the $41.1million recorded in the same period in 2011. Third quarter ultracapacitor revenuewas $28.8 million, up 15 percent from the $24.9 million recorded in Q311. Sales ofhigh voltage capacitor and microelectronics products totaled $15.1 million in Q312,down 7 percent from the $16.2 million recorded in Q311.

On a U.S. generally accepted accounting principles (GAAP) basis, operating incomefor the third quarter 2012 was $5.9 million, compared with $1.2 million in Q311.GAAP net income for Q312 was $5.4 million, or $0.19 per diluted share, comparedwith $298,000, or $0.01 per diluted share, in Q311.

On a non-GAAP basis, the company reported operating income of $6.5 million inQ312 compared with $2.1 million in Q311. Non-GAAP net income for Q312 was$6.0 million, or $0.21 per diluted share, compared with $1.2 million, or $0.04 perdiluted share in Q311. A reconciliation of GAAP to non-GAAP financial measuresis included as an addendum to this release.

GAAP gross margin was 42 percent in Q312, compared with 40 percent in Q311 and42 percent in Q212. GAAP operating expenses totaled $12.4 million, or 28 percentof revenue, in Q312 compared with $15.3 million, or 37 percent of revenue in Q311.Non-GAAP operating expenses totaled $12.0 million, or 27 percent of revenue, inQ312 compared with $14.6 million, or 36 percent of revenue, in Q311. Cash andcash equivalents totaled $20.1 million as of September 30, 2012, compared with$22.3 million as of June 30, 2012. Complete financial statements and Management'sDiscussion and Analysis of Financial Condition and Results of Operations will beavailable in the Company's Quarterly Report on Form 10-Q, which we anticipatefiling next week with the Securities & Exchange Commission.

31. On October 30, 2012, Maxwell filed its Quarterly Report on Form 10-Q with the SEC

for the 2012 fiscal third quarter. The Company’s Form 10-Q was signed by Defendants Schramm

and Royal, and reaffirmed the Company’s statements announced on October 25, 2012. The

Company’s Form 10-Q also contained Sarbanes-Oxley required certifications, signed by Defendants

Schramm and Royal, substantially similar to the certifications contained in ¶__, supra.

32. The statements contained in ¶¶__-__, were materially false and/or misleading when

made because defendants failed to disclose or indicate the following: (1) that employees of the

Company were making certain arrangements with certain distributors regarding the payment terms

for sales to such distributors with respect to certain transactions; (2) that these arrangements had not

been communicated to Maxwell's finance and accounting department; (3) that, as a result, these

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arrangements had not been considered when recording revenue on shipments to these distributors;

(4) that a fixed or determinable sales price did not exist at the time of shipment to these distributors;

(5) that collection was not reasonably assured at the time revenue had been recognized for certain

transactions; (6) that, as a result, the Company was improperly recognizing revenue related to sales

transactions to distributors; (7) that, as such, the Company’s financial results were not prepared in

accordance with GAAP; (8) that the Company lacked adequate internal and financial controls; and

(9) that, as a result of the foregoing, the Company’s statements were materially false and misleading

at all relevant times.

Disclosures at the End of the Class Period

33. On March 7, 2013, the Company filed a Current Report with the SEC on Form 8-K

that, in relevant part, stated:

Item 4.02 Non-Reliance on Previously Issued Financial Statements or a RelatedAudit Report or Completed Interim Review.

(a) On March 1, 2013, the audit committee of our board of directors concluded thatthe previously issued financial statements contained in our annual report on Form10-K for the year ended December 31, 2011, and all unaudited quarterly reports onForm 10-Q in 2011 and 2012 (collectively, the “Prior Periods”), as well our selectedfinancial data for the related periods, should no longer be relied upon because oferrors in those financial statements. The errors relate to the timing of recognition ofrevenue from sales to certain distributors.

In addition to the financial statements for the Prior Periods, related press releasesfurnished on current reports on Form 8-K, reports and stockholder communicationsdescribing our financial statements for the Prior Periods and the report of ourindependent registered public accounting firm, McGladrey LLP (formerlyMcGladrey & Pullen, LLP), related to the year ended December 31, 2011, should nolonger be relied upon.

The conclusion that the financial statements for the Prior Periods cannot be reliedupon is the result of an investigation by our audit committee, with the assistance ofindependent outside counsel and forensic accountants. The investigation commencedfollowing receipt of information concerning potential recognition of revenue priorto the satisfaction of certain of the criteria required to be met to recognize revenue.

The investigation discovered arrangements with certain of our distributors regardingthe payment terms for sales to such distributors with respect to certain transactions.These arrangements had not been communicated to our finance and accountingdepartment and, therefore, had not been considered when recording revenue onshipments to these distributors. Based on the terms of the agreements with thesedistributors as they were known to our finance and accounting department, it hadbeen our policy to account for revenue related to shipments to these distributors astitle passed to the distributor at either shipment from our facilities or receipt at thedistributor's facility, assuming all other revenue recognition criteria had been

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achieved. As a result of the arrangements discovered during the investigation, we donot believe that a fixed or determinable sales price existed at the time of shipmentto these distributors, nor was collection reasonably assured, at least with respect tocertain transactions. Therefore, the revenue from such sales should not have beenrecognized at the time of shipment to these distributors.

We believe that the impact to the Prior Periods of correcting the errors in revenuerecognition related to sales transactions to these distributors will be to decreasepreviously reported revenues and profits for 2011 and the first three quarters of 2012,and to increase revenue and profits by the same amounts in subsequent periods.

We believe that the restatement of revenue related to these distributors will decreasepreviously reported revenues for fiscal year 2011 by approximately $6.5 million anddecrease revenues in the first three quarters of 2012 by approximately $5.5 millionin the aggregate.

We also believe that the restatement of revenue related to these distributors willresult in shipments to these distributors for which title has passed to the distributor,but for which the revenue recognition criteria has not been fully achieved, ofapproximately $12.0 million as of September 30, 2012. Of the shipments to thesedistributors that had not been collected as of September 30, 2012, and therefore notrecognized as revenue, we collected $4.6 million in the fourth quarter of 2012 and$3.0 million to date in the first quarter of 2013, leaving $4.4 million outstanding thatwill be recognized as revenue as we receive payments in the future.

We are in the process of evaluating deficiencies in our internal controls overfinancial reporting and have preliminarily concluded that we have materialweaknesses in our internal controls over financial reporting related to theidentification and evaluation of revenue transactions which deviate fromcontractually established payment terms and therefore have preliminarily concludedthat our internal controls over financial reporting and disclosure are not effective. Weintend to design and implement controls to remediate these deficiencies.

As a result of our investigation, certain employees were terminated and our Sr. VicePresident of Sales and Marketing resigned as reported in Item 5.02 of this Form 8-K.

The Company, including the audit committee, has discussed the foregoing matterswith our independent registered public accounting firm, McGladrey LLP. The auditcommittee has authorized and directed the officers of the Company to take theappropriate and necessary actions to restate its financial statements for the PriorPeriods. We intend to file restated financial statements for the Prior Periods as soonas reasonable practicable after this filing.

* * *

Item 5.02 Departure Of Directors Or Certain Officers; Election Of Directors;Appointment Of Certain Officers; Compensatory Arrangements of CertainOfficers.

(b) Van Andrews, our Sr. Vice President of Sales and Marketing resigned on March1, 2013, effective immediately, in connection with the ongoing independentinvestigation by the audit committee of our board of directors.

34. On March 7, 2013, the Company issued a press release entitled, “Maxwell

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Technologies To Restate Prior Financial Results.” Therein, the Company, in relevant part, stated:

SAN DIEGO, March 7, 2013 /PRNewswire/ -- Maxwell Technologies, Inc.(NASDAQ: MXWL) announced today that on March 1, 2013, the audit committeeof its board of directors concluded that the previously issued financial statementscontained in its annual report on Form 10-K for the year ended December 31, 2011,and all unaudited quarterly reports on Form 10-Q in 2011 and 2012 (collectively, the"Prior Periods"), as well its selected financial data for the related periods, should nolonger be relied upon because of errors in those financial statements. The errorsrelate to the timing of recognition of revenue from sales to certain distributors.

In addition to the financial statements for the Prior Periods, related press releasesfurnished on current reports on Form 8-K, reports and stockholder communicationsdescribing its financial statements for the Prior Periods and the report of itsindependent registered public accounting firm, McGladrey LLP (formerlyMcGladrey & Pullen, LLP), related to the year ended December 31, 2011, should nolonger be relied upon.

The conclusion that the financial statements for the Prior Periods cannot be reliedupon is the result of an investigation by Maxwell's audit committee, with theassistance of independent outside counsel and forensic accountants. Theinvestigation commenced following receipt of information concerning potentialrecognition of revenue prior to the satisfaction of certain of the criteria required tobe met to recognize revenue.

The investigation discovered arrangements with certain distributors regarding thepayment terms for sales to such distributors with respect to certain transactions.These arrangements had not been communicated to Maxwell's finance andaccounting department and, therefore, had not been considered when recordingrevenue on shipments to these distributors. Based on the terms of the agreementswith these distributors as they were known to the finance and accounting department,it had been the policy to account for revenue related to shipments to thesedistributors as title passed to the distributor at either shipment from Maxwell'sfacilities or receipt at the distributor's facility, assuming all other revenue recognitioncriteria had been achieved. As a result of the arrangements discovered during theinvestigation, Maxwell does not believe that a fixed or determinable sales priceexisted at the time of shipment to these distributors, nor was collection reasonablyassured, at least with respect to certain transactions. Therefore, the revenue fromsuch sales should not have been recognized at the time of shipment to thesedistributors.

Maxwell believes that the impact to the Prior Periods of correcting the errors inrevenue recognition related to sales transactions to these distributors will be todecrease previously reported revenues and profits for 2011 and the first threequarters of 2012, and to increase revenue and profits by the same amounts insubsequent periods.

Maxwell believes that the restatement of revenue related to these distributors willdecrease previously reported revenues for fiscal year 2011 by approximately $6.5million and decrease revenues in the first three quarters of 2012 by approximately$5.5 million in the aggregate.

Maxwell also believes that the restatement of revenue related to these distributorswill result in shipments to these distributors for which title has passed to the

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distributor, but for which the revenue recognition criteria has not been fullyachieved, of approximately $12.0 million as of September 30, 2012. Of theshipments to these distributors that had not been collected as of September 30, 2012,and therefore not recognized as revenue, Maxwell collected $4.6 million in the fourthquarter of 2012 and $3.0 million to date in the first quarter of 2013, leaving $4.4million outstanding that will be recognized as revenue as Maxwell receives paymentsin the future.

Maxwell is in the process of evaluating deficiencies in its internal controls overfinancial reporting and have preliminarily concluded that it has material weaknessesin its internal controls over financial reporting related to the identification andevaluation of revenue transactions which deviate from contractually establishedpayment terms and therefore has preliminarily concluded that its internal controlsover financial reporting and disclosure are not effective. Maxwell intends to designand implement controls to remediate these deficiencies.

As a result of the investigation, certain employees were terminated and Maxwell'sSr. Vice President of Sales and Marketing resigned.

The Company, including the audit committee, has discussed the foregoing matterswith Maxwell's independent registered public accounting firm, McGladrey LLP. Theaudit committee has authorized and directed the officers of the Company to take theappropriate and necessary actions to restate its financial statements for the PriorPeriods. Maxwell intends to file restated financial statements for the Prior Periodsas soon as reasonable practicable.

35. On this news, shares of the Company declined substantially, on unusually heavy

volume.

MAXWELL’S VIOLATION OF GAAP RULESIN ITS FINANCIAL STATEMENTS

FILED WITH THE SEC

36. These financial statements and the statements about the Company’s financial results

were false and misleading, as such financial information was not prepared in conformity with

GAAP, nor was the financial information a fair presentation of the Company’s operations due to the

Company’s improper revenue recognition, in violation of GAAP rules.

37. GAAP are those principles recognized by the accounting profession as the

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

time. Regulation S-X (17 C.F.R. § 210.4 01(a) (1)) states that financial statements filed with the SEC

which are not prepared in compliance with GAAP are presumed to be misleading and inaccurate.

Regulation S-X requires that interim financial statements must also comply with GAAP, with the

exception that interim financial statements need not include disclosure which would be duplicative

of disclosures accompanying annual financial statements. 17 C.F.R. § 210.10-01(a).

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38. The fact that Maxwell announced that it expects to restate its financial statements,

and informed investors that these financial statements should not be relied upon is an admission that

they were false and misleading when originally issued (APB No.20, 7-13; SFAS No. 154, 25).

39. Given these accounting irregularities, the Company announced financial results that

were in violation of GAAP and the following principles:

(a) The principle that “interim financial reporting should be based upon the same

accounting principles and practices used to prepare annual financial statements” was violated (APB

No. 28, 10);

(b) The principle that “financial reporting should provide information that is

useful to present to potential investors and creditors and other users in making rational investment,

credit, and similar decisions” was violated (FASB Statement of Concepts No. 1, 34);

(c) The principle that “financial reporting should provide information about the

economic resources of an enterprise, the claims to those resources, and effects of transactions,

events, and circumstances that change resources and claims to those resources” was violated (FASB

Statement of Concepts No. 1, 40);

(d) The principle that “financial reporting should provide information about an

enterprise’s financial performance during a period” was violated (FASB Statement of Concepts No.

1, 42);

(e) The principle that “financial reporting should provide information about how

management of an enterprise has discharged its stewardship responsibility to owners (stockholders)

for the use of enterprise resources entrusted to it” was violated (FASB Statement of Concepts No.

1, 50);

(f) The principle that “financial reporting should be reliable in that it represents

what it purports to represent” was violated (FASB Statement of Concepts No. 2, 58-59);

(g) The principle that “completeness, meaning that nothing is left out of the

information that may be necessary to insure that it validly represents underlying events and

conditions” was violated (FASB Statement of Concepts No. 2, 79); and

(h) The principle that “conservatism be used as a prudent reaction to uncertainty

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to try to ensure that uncertainties and risks inherent in business situations are adequately considered”

was violated (FASB Statement of Concepts No. 2, 95).

40. The adverse information concealed by Defendants during the Class Period and

detailed above was in violation of Item 303 of Regulation S-K under the federal securities law (17

C.F.R. §229.303).

CLASS ACTION ALLEGATIONS

41. 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 Maxwell’s

securities between April 28, 2011 and March 7, 2013, inclusive (the “Class Period”) and who were

damaged thereby (the “Class”). Excluded from the Class are Defendants, the officers and directors

of the Company, at all relevant times, 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.

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

impracticable. Throughout the Class Period, Maxwell’s securities were actively traded on the

NASDAQ Stock Exchange (the “NASDAQ”). 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 hundreds or thousands of members in the proposed Class. Millions of

Maxwell shares were traded publicly during the Class Period on the NASDAQ. As of October 19,

2012, the Company had 29,182,923 shares of common stock outstanding. Record owners and other

members of the Class may be identified from records maintained by Maxwell 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.

43. Plaintiff’s 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 that

is complained of herein.

44. 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.

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45. 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 omitted and/or misrepresented material facts about the business, operations, and

prospects of Maxwell; and

(c) To what extent the members of the Class have sustained damages and the

proper measure of damages.

46. 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 makes 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.

UNDISCLOSED ADVERSE FACTS

47. The market for Maxwell’s securities was open, well-developed and efficient at all

relevant times. As a result of these materially false and/or misleading statements, and/or failures

to disclose, Maxwell’s securities traded at artificially inflated prices during the Class Period.

Plaintiff and other members of the Class purchased or otherwise acquired Maxwell’s securities

relying upon the integrity of the market price of the Company’s securities and market information

relating to Maxwell, and have been damaged thereby.

48. During the Class Period, Defendants materially misled the investing public, thereby

inflating the price of Maxwell’s securities, by publicly issuing false and/or misleading statements

and/or omitting to disclose material facts necessary to make Defendants’ statements, as set forth

herein, not false and/or misleading. Said statements and omissions were materially false and/or

misleading in that they failed to disclose material adverse information and/or misrepresented the

truth about Maxwell’s business, operations, and prospects as alleged herein.

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

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

the damages sustained by Plaintiff and other members of the Class. As described herein, during the

Class Period, Defendants made or caused to be made a series of materially false and/or misleading

statements about Maxwell’s financial well-being and prospects. These material misstatements

and/or omissions had the cause and effect of creating in the market an unrealistically positive

assessment of the Company and its financial well-being and prospects, thus causing the Company’s

securities to be overvalued and artificially inflated at all relevant times. Defendants’ materially false

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

Class purchasing the Company’s securities at artificially inflated prices, thus causing the damages

complained of herein.

LOSS CAUSATION

50. Defendants’ wrongful conduct, as alleged herein, directly and proximately caused

the economic loss suffered by Plaintiff and the Class.

51. During the Class Period, Plaintiff and the Class purchased Maxwell’s securities at

artificially inflated prices and were damaged thereby. The price of the Company’s securities

significantly declined when the misrepresentations made to the market, and/or the information

alleged herein to have been concealed from the market, and/or the effects thereof, were revealed,

causing investors’s losses.

SCIENTER ALLEGATIONS

52. As alleged herein, Defendants acted with scienter in that Defendants knew that the

public documents and statements issued or disseminated in the name of the Company were

materially false and/or misleading; knew that such statements or documents would be issued or

disseminated to the investing public; and knowingly and substantially participated or acquiesced in

the issuance or dissemination of such statements or documents as primary violations of the federal

securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their receipt of

information reflecting the true facts regarding Maxwell, his/her control over, and/or receipt and/or

modification of Maxwell’s allegedly materially misleading misstatements and/or their associations

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with the Company which made them privy to confidential proprietary information concerning

Maxwell, participated in the fraudulent scheme alleged herein.

APPLICABILITY OF PRESUMPTION OF RELIANCE(FRAUD-ON-THE-MARKET DOCTRINE)

53. The market for Maxwell’s securities was open, well-developed and efficient at all

relevant times. As a result of the materially false and/or misleading statements and/or failures to

disclose, Maxwell’s securities traded at artificially inflated prices during the Class Period. On

November 4, 2011, the Company’s stock closed at a Class Period high of $21.20 per share. Plaintiff

and other members of the Class purchased or otherwise acquired the Company’s securities relying

upon the integrity of the market price of Maxwell’s securities and market information relating to

Maxwell, and have been damaged thereby.

54. During the Class Period, the artificial inflation of Maxwell’s stock was caused by the

material misrepresentations and/or omissions particularized in this Complaint causing the damages

sustained by Plaintiff and other members of the Class. As described herein, during the Class Period,

Defendants made or caused to be made a series of materially false and/or misleading statements

about Maxwell’s business, prospects, and operations. These material misstatements and/or

omissions created an unrealistically positive assessment of Maxwell and its business, operations, and

prospects, thus causing the price of the Company’s securities to be artificially inflated at all relevant

times, and when disclosed, negatively affected the value of the Company stock. Defendants’

materially false and/or misleading statements during the Class Period resulted in Plaintiff and other

members of the Class purchasing the Company’s securities at such artificially inflated prices, and

each of them has been damaged as a result.

55. At all relevant times, the market for Maxwell’s securities was an efficient market for

the following reasons, among others:

(a) Maxwell stock met the requirements for listing, and was listed and actively

traded on the NASDAQ, a highly efficient and automated market;

(b) As a regulated issuer, Maxwell filed periodic public reports with the SEC

and/or the NASDAQ;

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(c) Maxwell regularly communicated with public investors via established market

communication mechanisms, including through regular dissemination 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/or

(d) Maxwell was followed by securities analysts employed by brokerage firms

who wrote reports about the Company, and these reports 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.

56. As a result of the foregoing, the market for Maxwell’s securities promptly digested

current information regarding Maxwell from all publicly available sources and reflected such

information in Maxwell’s stock price. Under these circumstances, all purchasers of Maxwell’s

securities during the Class Period suffered similar injury through their purchase of Maxwell’s

securities at artificially inflated prices and a presumption of reliance applies.

NO SAFE HARBOR

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

circumstances does not apply to any of the allegedly false statements pleaded in this Complaint. The

statements alleged to be false and misleading herein all relate to then-existing facts and conditions.

In addition, to the extent certain of the statements alleged to be false may be characterized as

forward looking, they were not identified as “forward-looking statements” when made and there

were no meaningful caMaxwellonary statements identifying important factors that could cause

actual results to differ materially from those in the purportedly forward-looking statements. In the

alternative, to the extent that the statutory safe harbor is determined to 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 speaker had actual knowledge

that the forward-looking statement was materially false or misleading, and/or the forward-looking

statement was authorized or approved by an executive officer of Maxwell who knew that the

statement was false when made.

FIRST CLAIM

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Violation of Section 10(b) ofThe Exchange Act and Rule 10b-5

Promulgated Thereunder Against All Defendants

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

set forth herein.

59. During the Class Period, Defendants carried out a plan, scheme and course of conduct

which was intended to and, throughout the Class Period, did: (i) deceive the investing public,

including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and other

members of the Class to purchase Maxwell’s securities at artificially inflated prices. In furtherance

of this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions

set forth herein.

60. Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made untrue

statements of material fact and/or omitted to state material facts necessary to make the statements

not misleading; and (iii) engaged in acts, practices, and a course of business which operated as a

fraud and deceit upon the purchasers of the Company’s securities in an effort to maintain artificially

high market prices for Maxwell’s securities in violation of Section 10(b) of the Exchange Act and

Rule 10b-5. All Defendants are sued either as primary participants in the wrongful and illegal

conduct charged herein or as controlling persons as alleged below.

61. Defendants, individually and in concert, directly and indirectly, by the use, means

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

continuous course of conduct to conceal adverse material information about Maxwell’s financial

well-being and prospects, as specified herein.

62. These defendants employed devices, schemes and artifices to defraud, while in

possession of material adverse non-public information and engaged in acts, practices, and a course

of conduct as alleged herein in an effort to assure investors of Maxwell’s value and performance and

continued substantial growth, which included the making of, or the participation in the making of,

untrue statements of material facts and/or omitting to state material facts necessary in order to make

the statements made about Maxwell and its business operations and future prospects in light of the

circumstances under which they were made, not misleading, as set forth more particularly herein,

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and engaged in transactions, practices and a course of business which operated as a fraud and deceit

upon the purchasers of the Company’s securities during the Class Period.

63. Each of the Individual Defendants’ primary liability, and controlling person liability,

arises from the following facts: (i) the Individual Defendants were high-level executives and/or

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

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

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

development and reporting of the Company’s internal budgets, plans, projections and/or reports; (iii)

each of these defendants enjoyed significant personal contact and familiarity with the other

defendants and was advised of, and had access to, other members of the Company’s management

team, internal reports and other data and information about the Company’s finances, operations, and

sales at all relevant times; and (iv) each of these defendants was aware of the Company’s

dissemination of information to the investing public which they knew and/or recklessly disregarded

was materially false and misleading.

64. The defendants had actual knowledge of the misrepresentations and/or omissions of

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

ascertain and to disclose such facts, even though such facts were available to them. Such defendants’

material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose

and effect of concealing Maxwell’s financial well-being and prospects from the investing public and

supporting the artificially inflated price of its securities. As demonstrated by Defendants’

overstatements and/or misstatements of the Company’s business, operations, financial well-being,

and prospects throughout the Class Period, Defendants, if they did not have actual knowledge of the

misrepresentations and/or omissions alleged, were reckless in failing to obtain such knowledge by

deliberately refraining from taking those steps necessary to discover whether those statements were

false or misleading.

65. As a result of the dissemination of the materially false and/or misleading information

and/or failure to disclose material facts, as set forth above, the market price of Maxwell’s securities

was artificially inflated during the Class Period. In ignorance of the fact that market prices of the

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Company’s securities were artificially inflated, and relying directly or indirectly on the false and

misleading statements made by Defendants, or upon the integrity of the market in which the

securities trades, and/or in the absence of material adverse information that was known to or

recklessly disregarded by Defendants, but not disclosed in public statements by Defendants during

the Class Period, Plaintiff and the other members of the Class acquired Maxwell’s securities during

the Class Period at artificially high prices and were damaged thereby.

66. At the time of said misrepresentations and/or omissions, Plaintiff and other members

of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff and the other

members of the Class and the marketplace known the truth regarding the problems that Maxwell was

experiencing, which were not disclosed by Defendants, Plaintiff and other members of the Class

would not have purchased or otherwise acquired their Maxwell securities, or, if they had acquired

such securities during the Class Period, they would not have done so at the artificially inflated prices

which they paid.

67. By virtue of the foregoing, Defendants have violated Section 10(b) of the Exchange

Act and Rule 10b-5 promulgated thereunder.

68. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and the

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

of the Company’s securities during the Class Period.

SECOND CLAIMViolation of Section 20(a) of

The Exchange Act Against the Individual Defendants

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

set forth herein.

70. The Individual Defendants acted as controlling persons of Maxwell within the

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

positions, and their ownership and contractual rights, participation in and/or awareness of the

Company’s operations and/or intimate knowledge of the false financial statements filed by the

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

power to influence and control and did influence and control, directly or indirectly, the

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decision-making of the Company, including the content and dissemination of the various statements

which Plaintiff contends are false and misleading. The Individual Defendants were provided with

or had unlimited access to copies of the Company’s reports, press releases, public filings and other

statements alleged by Plaintiff to be misleading prior to and/or shortly after these statements were

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

corrected.

71. In particular, each of these Defendants had direct and supervisory involvement in the

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

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

exercised the same.

72. As set forth above, Maxwell and the Individual Defendants each violated Section

10(b) and Rule 10b-5 by their acts and/or omissions as alleged in this Complaint. By virtue of their

positions as controlling persons, the Individual Defendants are liable pursuant to Section 20(a) of

the Exchange Act. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and

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

securities during the Class Period.

PRAYER FOR RELIEF

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

(a) Determining that this action is a proper class action under Rule 23 of the Federal

Rules of Civil Procedure;

(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.

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DATED: March __, 2013 GLANCY BINKOW & GOLDBERG LLP

DRAFT Lionel Z. GlancyMichael GoldbergRobert V. ProngayCasey E. Sadler1925 Century Park East, Suite 2100Los Angeles, California 90067Telephone: (310) 201-9150Facsimile: (310) 201-9160

LAW OFFICES OF HOWARD G. SMITHHoward G. Smith3070 Bristol Pike, Suite 112Bensalem, PA 19020Telephone: (215) 638-4847Facsimile: (215) 638-4867

Attorneys for Plaintiff

GLANCY BINKOW & GOLDBERG LLP LIONEL Z. GLANCY … · 2013-03-08 · GLANCY BINKOW & GOLDBERG LLP...

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Transcript of GLANCY BINKOW & GOLDBERG LLP LIONEL Z. GLANCY … · 2013-03-08 · GLANCY BINKOW & GOLDBERG LLP...