Oclaro Inc Fraud Lawsuit Filed by Law Offices of Mark Anchor Albert

1 Mark Anchor Albert (SBN 137027)
LAW OFFICES OF MARK ANCHOR ALBERT

2 333 South Grand Avenue, 25th Floor
Los Angeles, California 90071
3 Tel: (213) 943-1334
Fax: (323) 878-2655
4 Email: markalbert@maalawoffices.com
5 Attorneys for Plaintiff Bijan Badihian
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SUPERIOR COURT OF STATE OF CALIFORNIA
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COUNTY OF LOS ANGELES
9 CENTRAL DISTRICT
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11 BIJAN BADIHIAN, and individual, ) Case No. BC 407722
Law Offices of Mark Anchor Albert
)
12 Plaintiff, ) [Assigned for All Purposes to the Hon.
Los Angeles, California
) Conrad Aragon, Department 49]

13 vs. )
) PLAINTIFF BIJAN BADIHIAN'S FIRST
14 AVANEX CORPORATION, a Delaware ) AMENDED COMPLAINT FOR
corporation; OCLARO INC., a Delaware ) DAMAGES FOR :
15 corporation; PAUL SMITH, an individual; )
GIOVANNI BARBAROSSA, an individual; ) 1. Deceit (Intentional Misrepresentation);
16 JAMIE THAYER, an individual; MARK )
WEINSWIG, an individual; and DOES 1 through ) 2. Deceit (Negligent Misrepresentation);
17 100, inclusive, )
) 3. Deceit (Concealment);
18 Defendants. )
) 4. Constructive Fraud;
19 ________________________________________)
5. Intentional Infliction of Emotional
20 Distress; and
21 6. Negligent Infliction of Emotional

Distress
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LASC Case No. BC 407722 PLAINTIFF BIJAN BADIHIAN'S FIRST AMENDED COMPLAINT
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TABLE OF CONTENTS
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I. INTRODUCTION ............................................................................................................... 1
3 II. PARTIES ............................................................................................................................. 3
4 III. JURISDICTION AND VENUE .......................................................................................... 6
5 IV. COMMON BACKGROUND ALLEGATIONS. ................................................................ 6

A. Avanex's Fiber Optics Business And Plaintiff's Investments In The Company. ..... 6
6
B. Nasdaq's Listing Qualification Department Warns Avanex On March 5, 2008
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That Its Stock Will Be Delisted Unless Its Price Remains Above $1 Per Share
8 For At Least 10 Consecutive Days. ......................................................................... 7
V. SUMMARY OF DEFENDANTS' MISREPRESENTATIONS, HALF-TRUTHS,
9
AND MATERIAL OMISSIONS. ....................................................................................... 8
10 A. Avanex Makes Several Public Representations Regarding The Status Of the
Company’s Business and Financial Picture In A July 7, 2008 Press Release. ....... 8
11
12 B. Avanex Makes Direct, Person-To-Person Representations To Plaintiff In A

July 30, 2008 Telephone Call Between Plaintiff And Defendant Thayer. .............. 9
13
C. Avanex's Shareholders Approve Of The Board's Recommendation For A 15-1
14 Reverse Stock Split On July 9, 2008, Which Finally Occurs On August 12,
2008. ...................................................................................................................... 12
15
16 D. After Inducing Plaintiff to Hold His Stock By Painting a Rosy Financial
Picture, Avanex's August 21, 2008 Press Release Announces Severe Financial
17 Problems, And the Company’s Stock Price Drops By Over 38.5 % The Next
Day. ....................................................................................................................... 12
18
E. One Or Two Hours After Avanex's August 21, 2008 Investor Conference
19
Call, Plaintiff Sends An Email To Thayer And The Other Defendants
20 Questioning Their Statements In The July 7 Press Release And The July 30
Thayer Telephone Call. ......................................................................................... 14
21
F. Responding To Plaintiff's August 21, 2008 Email To Avanex, CFO Weinswig
22 Reassures Plaintiff, Person-To-Person, With More Lies And Half-Truths. .......... 15
23
G. By False Pretenses, Half-Truths And Material Omissions, Weinswig Again
24 Induces Plaintiff To Hold On To His Existing Shares And To Buy More
Shares In September 2008 In Order To Prop Up Avanex's Faltering Share
25 Price. ...................................................................................................................... 17
26 H. Avanex's Share Price Continues to Plummet Despite Weinswig’s Assurances. ... 19
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1 VI. THE WHOLE TRUTH BEGINS TO EMERGE. ............................................................. 20
2 A. Avanex's Auditors, Deloitte & Touche, Announce That Avanex's June 30,
2008 Financial Controls Were Deeply Flawed And Its Financial Statements
3 Were Therefore Unreliable. ................................................................................... 20
4 B. On November 6, 2008, Avanex Issues A Press Release Revealing That Its
Revenue, Net Income, Earnings Per Share, And Gross Margin All Had
5
Collapsed, And Its Stock Price Soon Imploded To < 5 Cents Per Share Pre-
6 Split........................................................................................................................ 22
7 C. On November 25, 2008, Avanex's Board, At Smith's Urging, Provides For

Change-Of-Control Compensation To Barbarossa And Weinswig ...................... 22
8
9 D. Deloitte Subsequently Announces That Avanex's Ability To Survive As A
Going Concern Is Doubtful ................................................................................... 22
10
E. Approaching Insolvency, Avanex Announces Its Merger With Bookham In
11 January 2009 At A Fire-Sale Price, And Barbarossa, Weinswig, Smith And
Other Avanex Executives And Board Members Are Forced To Resign. ............. 25
12
13 F. Avanex's July 7, 2008 Press Release, Thayer's July 30, 2008 Telephonic
Representations to Plaintiff, the August 21, 2008 Press Release and ICC, And
14 Weinswig's Subsequent Telephonic And Email Representations To Plaintiff
All Contained Misrepresentations, Half-Truths, and Material Nondisclosures. ... 25
15
VII. SUMMARY OF BASES FOR DEFENDANTS' DUTIES OF FIDELITY, CARE,
16 AND DISCLOSURE OWNED TO PLAINTIFF. ............................................................. 28
VIII. SUMMARY OF BASES FOR PLAINTIFF'S ACTUAL AND JUSTIFIABLE
17
RELIANCE ON DEFENDANTS' MISREPRESENTATIONS, HALF-TRUTHS,
18 AND MATERIAL NONDISCLOSURES. ....................................................................... 31
IX. SUMMARY OF PLAINTIFF'S DAMAGES. ................................................................... 33
19
X. CAUSES OF ACTION ...................................................................................................... 34
20
FIRST CAUSE OF ACTION
21 (For Intentional Misrepresentation Against All Defendants)............................................32
22 SECOND CAUSE OF ACTION

(For Negligent Misrepresentation Against All Defendants)..............................................35
23
24 THIRD CAUSE OF ACTION
(For Fraudulent Concealment Against All Defendants)....................................................36
25
FOURTH CAUSE OF ACTIOn
26 (For Constructive Fraud Against All Defendants).............................................................39
27 FIFTH CAUSE OF ACTION
28 (For Intentional Infliction of Emotional Distress Against All Defendants).......................41
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1 SIXTH CAUSE OF ACTION
(For Negligent Infliction of Emotional Distress Against All Defendants)........................43
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3 XI. PRAYER FOR RELIEF .................................................................................................... 48
4 PROOF OF SERVICE
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1 I. INTRODUCTION
2 1. At all times relevant here, Avanex Corporation ("Avanex") was an independent,
3 small-cap manufacturer of fiber optic components and related photonics equipment whose shares
4 were traded on the Nasdaq stock exchange (NASD: AVNX). Avanex was recently delisted from the
5 Nasdaq stock exchange following its merger with Bookham Inc.("Bookham"). On April 27, 2009,
6 following the closing of the merger with Avanex, Bookham changed its name to Oclaro, Inc.
7 ("Oclaro" [NASD: OCLR]). This case involves fraud in connection with Plaintiff's holding -- i.e.,
8 non-sale -- of his Avanex shares (as well as his purchase of additional shares): but this is far from a
9 typical securities fraud action. Plaintiff brings his claims not on behalf of a class of investors under
10 California's Securities Act, any other state's Blue Sky laws, or under federal securities laws and
11 regulations. Rather, Plaintiff -- who at the relevant time was one of Avanex's largest individual
12 shareholders -- brings his claims solely in his individual capacity against the Defendants under
13 California's common and statutory law of deceit (i.e., Civil Code §§ 1709 & 1710).1 This lawsuit
14 presents the highly unusual and exceptional case of an individual investor actively deceived by a
15 publicly-traded company, its senior executives and Board Chairman primarily by means of direct,
16 person-to-person communications via telephone and electronic mail (both individually and through
17 their agents), in addition to publicly-available half-truths disseminated to shareholders at large.
18 2. In the months preceding the complete collapse of its stock price at the end of 2008,
19 Avanex -- acting through its Chairman of its Board, Defendant Paul Smith, its Chief Executive
20 Officer, Defendant Giovanni Barbarossa, his Executive Assistant and Secretary, Defendant Jamie
21 Thayer, and its interim Chief Financial Officer, Mark Weinswig -- engaged in a concerted scheme to
22 prop up Avanex's faltering stock price though the public and private dissemination of
23 misrepresentations, half-truths, and the suppression of material facts necessary to make the half-
24 truths not misleading in the context in which they were made. As an integral part of their fraudulent
25 scheme -- in addition to their misleading public pronouncements -- the Defendants (individually or
26
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Plaintiff also brings common law claims for intentional and negligent infliction of emotional
distress predicated on Defendants' deceit.
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through their agents and co-conspirators) engaged in an ongoing and persistent private campaign
2
orchestrated through direct person-to-person telephone calls and email exchanges with Plaintiff to
3
reassure and convince him that the company, whose shares were steadily declining in value,
4
nonetheless was financially strong and well-run, its prospects rosy, its shares unfairly undervalued,
5
and that Plaintiff not only should not sell his shares, but should purchase additional ones.
6
3. Employing tried-and-true "confidence man" techniques of trust, assurances, and
7
private pep talks, Defendants cynically and heartlessly used Plaintiff as their tool to help prop up
8
Avanex's share price in the face of steadily-mounting downward pricing pressures. They did so to
9
forestall Avanex's delisting from the Nasdaq securities exchange which was necessary in order to
10
maintain access to capital and financing on relatively favorable terms and to consummate their
11
undisclosed plan to merge Avanex with Bookham on terms more favorable than they could achieve
12
if Avanex's stock were delisted pre-merger. Smith's, Barbarossa's, and Weinswig's stock options,
13
stock-based compensation packages and retirement plans, their change-of-control payouts, their
14
ability to obtain executive and/or Board positions at the successor company (Oclaro), and their
15
business reputations -- including Defendant Smith's reputation as a tech company turn-around-and-
16
sales expert -- all hinged to a substantial degree on their ability to salvage what they could from their
17
business that they secretly knew was moribund. As part of their scheme to keep Avanex's stock
18
publicly listed on Nasdaq until a sale or merger could be consummated, Defendants induced
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Plaintiff's assistance and cooperation (a) to forebear from selling his substantial Avanex stock
20
holdings but to purchase still more shares (at ever falling prices) through false pretenses and the
21
suppression and concealment of material facts, and (b) to forebear from castigating Avanex's
22
management on the Yahoo™ Finance message board (which Weinswig assiduously monitored).
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4. The result was a financial fraud which, while relatively small in comparison to other
24
recent corporate fraud scandals that have victimized investors, nonetheless had a devastating effect
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on Mr. Badihian and his family, effectively wiping out $5 million in savings painstakingly
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accumulated during his career as a well-respected physician, saddling him and his family with
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onerous debts, drastically reducing his and his family's financial position, security, status and
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prospects, and causing him and his family untold amounts of anxiety, pain and distress. This case is
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about the role that the Defendants played in deceiving Plaintiff in their effort to artificially prop up
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Avanex's share price, and their responsibility at law to this victim whom they so grievously harmed
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by their deceit.
4 II. PARTIES
5 5. Plaintiff Bijan Badihian (“Plaintiff” or "Badihian”) is an individual who resides in
6 Los Angeles county, California. Plaintiff is a physician specializing in family practice with emphasis
7 in cardiology.
8 6. Defendant Avanex Corporation (“Avanex”) at all relevant times was a corporation
9 organized and existing under the laws of the State of Delaware, with its principal place of business
10 in Fremont, California.
11
7. Defendant Oclaro Inc. ("Oclaro") is a corporation organized and existing under the
12
laws of the State of Delaware, with its principal place of business in San Jose, California. Oclaro is
13 the successor-in-interest to Avanex via merger, and is sued herein on the basis of successor-in-
14 interest liability. In particular, on April 27, 2009, Bookham and Avanex merged into newly-formed
15 Oclaro. Oclaro designs, manufactures and markets optical components, modules and subsystems
16 that generate, detect, amplify, combine and separate light signals principally for use in high-
17 performance fiber optics communications networks, including photonic systems integration.
18 8. Defendant Paul Smith (“Smith”) all relevant times herein was an agent, servant
19 and/or employee of Avanex; and in engaging in the conduct and making the representations
20 described below, Smith acted both in his capacity as a member of Avanex's Board of Directors and
21 as the non-executive Chairman of Avanex's Board.
22 9. Defendant Giovanni Barbarossa (“Barbarossa”) at all relevant times herein was an
23 agent, servant and/or employee of Avanex; and in engaging in the conduct and making the
24 representations described below, Barbarossa acted both in his capacity Avanex's President and Chief
25 Executive Officer, and as a member of Avanex's Board of Directors.
26 10. Defendant Mark Weinswig (“Weinswig”) at all relevant times herein was an agent,
27 servant and/or employee of Avanex; and in engaging in the conduct and making the representations
28 described below, Weinswig acted in his capacity as Avanex's Vice President, Finance and Treasurer
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and Interim Chief Financial Officer (principal financial and accounting officer).
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11. At all relevant times relevant herein these three Defendants -- Smith, Barbarossa and
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Weinswig -- by virtue of their titles and senior positions of control and authority at Avanex, (i) had
4
the actual and apparent authority to speak for and act on behalf of Avanex, and spoke and acted on
5
its behalf on the occasions alleged in this First Amended Complaint within the scope of that
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authority; and (ii) were able to and did control the content of the press releases, SEC filings, Investor
7
Conference Call pronouncements, the telephone and email communications to Plaintiff, and the
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other public and private statements at issue in this action before they were made, and had the ability
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to prevent their issuance or cause them to be corrected. Accordingly, each of these individuals is
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responsible for the accuracy (or inaccuracy) of the public statements and material nondisclosures
11
described in detail below, and each of these individuals either made or authorized and approved
12
those public statements and material nondisclosures in their official capacities within the scope of
13
their corporate responsibilities.
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12. Defendant Jamie Thayer (“Thayer”) at all relevant times herein was an agent, servant
15
and/or employee of Avanex. Thayer told Plaintiff that she was the Executive Secretary and
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Assistant to the Interim CEO, and, as such, she expressly and impliedly held herself out as having
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both the knowledge as well as the actual and apparent authority to speak on behalf of Avanex and
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Barbarossa, as their agent, with respect to the representations she made to Plaintiff in response to his
19
inquiries about the true financial status of the company, as described below. Accordingly, at all
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relevant times Thayer had the actual and apparent authority to speak for and act on behalf of Avanex
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and Barbarossa, and spoke for and acted on their behalf within the scope of that authority on the
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occasions alleged in detail below.
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13. Plaintiff does not know the true names and capacities of the Doe Defendants 1-100
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and, therefore, sues such Defendant by such fictitious names. Plaintiff is informed and believes, and
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based thereon alleges, that each of the fictitiously named Defendants is responsible in some manner
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for the occurrences and misconduct herein alleged, and that Plaintiff’s damages as herein alleged
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were proximately caused by the conduct of such Defendants. Plaintiff is further informed and
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believes, and based thereon alleges, that each of the Doe Defendants participated in the actions
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alleged herein. The Doe Defendants 1-100 are persons or entities who, directly or indirectly,
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participated in the transactions at issue and aided and abetted and conspired to cause or caused the
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primary violations alleged herein. These persons or entities proximately caused damages to Plaintiff
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as alleged herein, but Plaintiff presently does not know their names and identities. Once the true
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names and identities of such fictitious Defendants are discovered, Plaintiff seek leave to amend this
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First Amended Complaint to assert the Doe Defendants’ true names, capacities and conduct. Each
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of the Doe Defendants is liable for the misrepresentations and omissions of material facts and losses
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suffered by Plaintiff as set forth herein, or their inclusion in this action is otherwise necessary for the
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granting for affective relief by this Court. (Smith, Barbarossa, Weinswig and Thayer hereafter
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sometimes are referred to collectively as the "Individual Defendants." The Doe Defendants,
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Avanex, Smith, Thayer, Barbarossa, and Weinswig hereafter sometimes are referred to collectively
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as "Defendants.")
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14. The Individual Defendants served as principal officers and/or directors of Avanex
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(or, in Thayer's case, as their authorized agent) during the relevant time period, and as such,
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exercised control of Avanex's general operations through their day-to-day involvement in the
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company's business operations. The Individual Defendants were: (a) involved in the drafting,
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producing, reviewing, preparing, approving, and/or disseminating the false and/or misleading
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statements, information and half-truths alleged herein; (b) knowingly engaged in key portions of the
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Avanex fraud, and/or (c) knew, but concealed, the truth as to key portions of the Avanex fraud,
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and/or (d) knew that they (i) lacked the confidence that they stated or implied in the accuracy of
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their representations, or (ii) did not have the basis for their representations that they stated or
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implied. The Individual Defendants nevertheless knowingly and recklessly made such
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misrepresentations, and concealed such material facts, and thereby caused Plaintiff severe financial
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harm and emotional distress for which they are liable for substantial damages and restitution under
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California law.
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15. Each of the Defendants was an agent, partner, joint venturer, co-conspirator or alter
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ego of ego each of the remaining Defendants and, in doing the acts hereinafter alleged, was acting
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within the scope of its authority as such and with the permission and consent of each of the
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remaining Defendants.
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16. Every Defendant, and each of them, instigated, encouraged, promoted, aided and
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abetted, and/or rendered substantial assistance to the wrongdoing alleged herein, with knowledge of
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the wrong and the role that each Defendant played in it. Every Defendant, and each of them,
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conspired to commit that wrongdoing which is alleged herein to have been intentional, with
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knowledge of the wrongful purpose of the wrongdoing, by and in contravention of their duties,
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actively participating in the wrongdoing, failing to stop or prevent the wrongdoing from occurring or
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continuing, and/or actively participating in the concealment and non-disclosure of the wrongdoing.
9 III. JURISDICTION AND VENUE.
10 17. This Court has subject-matter jurisdiction over the controversies and violations
11
alleged in this First Amended Complaint, personal jurisdiction over Defendants, and the venue of
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this action properly lies in this Court, because, among other reasons: (i) the misrepresentations,
13 material omissions, negligent conduct, and other misconduct of Defendants alleged herein occurred
14 in substantial part in Los Angeles County; (ii) they were directed toward and harmed a Los Angeles
15 County resident, Plaintiff Badihian; (iii) Avanex formerly maintained, and its successor-in-interest,
16 Oclaro presently maintains, offices in California and Avanex did substantial, continuous business,
17 and Oclaro does substantial, continuous business presently in Los Angeles County; and (iv) the
18 transactions and occurrences giving rise to this First Amended Complaint took place in substantial
19 part in Los Angeles County.
20 IV. COMMON BACKGROUND ALLEGATIONS.
A. Avanex's Fiber Optics Business And Plaintiff's Investments In The Company.
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18. During the relevant time-period, Avanex and its wholly owned subsidiaries designed,
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manufactured and marketed fiber optic-based products, known as photonic processors, which are
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designed to increase the performance of optical networks. Avanex sold its products to
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telecommunications system integrators and their network carrier customers. The vast majority of
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Avanex's sales were made to only a handful of large communications equipment vendors:
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approximately 90% of its revenues during the relevant time period came from only 12% of its
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customers. Until its merger with Bookham in April 2009, Avanex was a "small cap" public
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company whose stock was traded in on the Nasdaq stock exchange (ticker: AVNX).
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19. After careful study, Plaintiff became convinced that Avanex had the potential to grow
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and expand, and would be a good investment. Accordingly, Plaintiff started purchasing shares of
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Avanex on the open market, accumulating large holdings, and selling shares for profit when
5
appropriate. By June 30, 2008, Plaintiff had substantially increased his holdings again, following
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prior sales, accumulating approximately 3,759,665 shares of Avanex with a total value of
7
approximately $4,248,421. By this point, Plaintiff was one of Avanex's largest individual
8
shareholders, and one of its most active, engaging regularly in spirited message board discussions on
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Yahoo™ Finance, and writing to and sometime exchanging emails with Avanex executives on his
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Gmail™ email service and Avanex's company website email server.
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B. Nasdaq's Listing Qualification Department Warns Avanex On March 5, 2008

That Its Stock Will Be Delisted Unless Its Price Remains Above $1 Per Share
12
For At Least 10 Consecutive Days.

13 20. On March 5, 2008, Avanex received a letter from the Listing Qualifications
14 Department of The Nasdaq Stock Market LLC giving formal notice to Avanex that its stock would
15 be delisted from the Nasdaq stock exchange unless, at any time before September 2, 2008, the bid
16 price for its common stock closed at or above $1.00 per share for a minimum of ten consecutive
17 trading days (or such longer period of time as may be required by Nasdaq, in its discretion). For at
18 least the first six months of 2008, Avanex's stock price had averaged just under $1 per share. Based
19 upon Avanex's reported financial results and public comments by its senior executives, Plaintiff had
20 confidence that Avanex's earnings growth would be positive, its future prospects were as strong as
21 Avanex touted based upon the current fundamentals of the business as they disclosed them, and that
22 its stock would remain listed and actively traded on Nasdaq.
23 21. Avanex's fiscal year runs from July 1st to June 30th ( i.e., its 1st quarter ends 9/30, its
24 2nd quarter ends 12/31, its 3rd quarter ends 3/31, and its 4th quarter ends 6/30). Three days after the
25 close of its June 30, 2008 quarter, on July 3rd, Avanex's stock price closed at just under $1 per
26 share, consistent with its average closing price for 2008 up until that time. Because Friday, July 4,
27 2008, was a national holiday, and the following two days were a Saturday and Sunday, the market
28 did not open again until July 7, 2008.
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1 V. SUMMARY OF DEFENDANTS' MISREPRESENTATIONS, HALF-TRUTHS, AND
MATERIAL OMISSIONS.
2 A. Avanex Makes Several Public Representations Regarding The Status Of the
Company’s Business and Financial Picture In A July 7, 2008 Press Release.
3
22. On July 7, 2008, Avanex issued a press release under the auspices of its Board of
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Directors, including and quoting Defendants Smith and Barbarossa, both of whom were then
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Avanex Board members. In that release, Defendants unexpectedly reported to investors that
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Avanex's President and Chief Executive Officer (“CEO”), Dr. Jo Major, had just been fired, and its
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Senior Vice President and Chief Financial Officer ("CFO"), Marla Sanchez, had resigned
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simultaneously. The press release went on to state that Defendant Barbarossa would be the newly-
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appointed interim CEO, and that Defendant Board member Smith -- whose former positions
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included a stint as Vice President and General Manager of another telecom-related company that
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was subsequently acquired by Bookham -- would be appointed as the non-executive Chairman of

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Avanex's Board. I.e., from that point on, Smith and Barbarossa working concertedly together (with
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Weinswig as acting CFO) would effectively control both management operations and Avanex's
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Board.
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23. In explaining these unexpected events, the July 7th press release stated -- without
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mentioning any problems or concerns with Avanex's business -- that Mr. Major's abrupt termination
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was exclusively “due to the inability of Dr. Major and the Board of Directors to work together
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effectively.” The Press Release expressly and by reasonable implication reassured Avanex's
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investors about the company's financial well-being notwithstanding this upheaval in the company's
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most senior management by emphasizing that “[t]he departure of Dr. Major and Ms. Sanchez is not
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related to the Company's operational performance or financial condition.” Indeed, the press release
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went on to state that they "looked forward to continuing the solid execution of the company's
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strategy," that they were "reconfirming" the company's fiscal fourth quarter guidance of between
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$50 million and $53 million, and that they anticipated positive cash flow in its fiscal fourth quarter.
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Thus, by means of the July 7 press release, Avanex (and Barbarossa) represented to investors both
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expressly and impliedly that: (i) the firing of the former CEO was due solely to his supposed
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inability to get along with the Board; (ii) his firing and the resignation of the former CFO had
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nothing to do with Avanex's operational performance and financial condition; and (iii) in fact the
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company's operational performance and financial condition were expected to fulfill the execution of
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the company's strategy, including meeting its fiscal fourth quarter guidance and generating positive
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cash flow. A rosy picture indeed. These were affirmative statements of past or present facts, and
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were not mere expressions of opinion, puffery, or a prediction of future actions by third parties.
6 B. Avanex Makes Direct, Person-To-Person Representations To Plaintiff In A July
30, 2008 Telephone Call Between Plaintiff And Defendant Thayer.
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24. Plaintiff found reassurance in Avanex's express and implicit affirmations and denials
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in its July 7 press release that the company's financial picture and prospects were solid. Not only did
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Plaintiff not sell any shares, he purchased an additional, modest amount of shares in the coming
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weeks. Avanex's other investors apparently reached the same conclusion: Avanex's stock rose
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slightly the day following the announcement. Nevertheless, while relying on the July 7th press
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release's affirmations and denials, Plaintiff desired to obtain additional assurances that Mr. Major's
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abrupt termination and Ms. Sanchez's simultaneous resignation truly had nothing at all to do with
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the company's operational performance or financial condition. The termination of a company CEO
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and concurrent resignation of its CFO are serious matters that might reflect, among other things,
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serious mishaps in their past management of the company as well as presaging future problems
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ahead. If such financial problems existed at Avanex, contrary to the affirmations and denials in the
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July 7th press release, Plaintiff intended and was prepared to sell all of his Avanex shares at the
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earliest practicable opportunity.
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25. But Plaintiff did not simply sit back, relying on the July 7th press release while
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letting his thoughts and concerns about potential undisclosed financial problems at the company
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remain unspoken and unrecorded. Plaintiff did not, indeed could not, remain silent about his
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concerns about the company's true financial condition and his dilemma as to whether he should, on
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the one hand, rely upon the July 7th press release's affirmations and denials to continue to hold his
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shares (much less to purchase additional ones), or should, on the other hand, sell his entire Avanex
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stock holdings as soon as practicable. Instead, Plaintiff took action to speak out and inquire in an
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active manner about the possibility that significant corporate failures, shortcoming or wrongdoing
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might also have been significant precipitating factors behind the former CEO's abrupt termination
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and the former CFO's concurrent resignation. After all, even if it were completely true that Jo Major
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did not get along well with Avanex's Board and that was a primary reason for his termination, if it
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was not the sole reason as claimed by Defendants -- because, for example, perhaps other serious
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financial-related issues and/or major strategic shifts also were precipitating factors in the abrupt
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management upheaval -- Plaintiff wanted to know and was entitled to learn that fact as well. If other
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such precipitating factors did exist but were not disclosed, the publicly-reported half-truth about the
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reason for the management upheaval would be just as misleading as an outright falsehood. Plaintiff
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therefore resolved to and did take concrete actions and made concerted efforts to express and
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articulate his concerns directly with Avanex management, in direct person-to-person
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communications, in an affirmative effort to either obtain the additional assurances he required, or, if
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he did not receive such assurances, to sell all of the shares of Avanex stock he held as soon as
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practicable.
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26. To that end, in order to ally his concerns and obtain the additional assurances he
15
needed to continue to hold his Avanex shares rather than immediately selling them (much less to
16
purchase new ones), Plaintiff made several attempts, in his capacity as one of Avanex's largest
17
individual shareholders, to contact senior management directly via Avanex's company website email
18
server and by telephone, including Defendant Barbarossa and also Weinswig (who by that time had
19
been appointed as Avanex's interim CFO).
20
27. Finally, Plaintiff was able to get through to someone to answer his questions and,
21
hopefully, to provide him the reassurance he needed to hold his existing shares and purchase
22
additional ones. On or about July 30, 2008, Plaintiff called Avanex and was transferred to
23
Defendant Jamie Thayer, who, as noted previously, was the Executive Secretary and Assistant to
24
both the former and the then-current the CEO. The following is a detailed summary of the substance
25
of Plaintiff's July 30, 2008 conversation with Thayer:
26
(a) Plaintiff stated that wanted to speak directly with Barbarossa, the new interim
27
CEO, because he was one of the company's largest investors and had invested his life savings in the
28
company, and was concerned about the recent management upheavals and whether they had
-10-
1
anything to do with any possible financial problems at the company.
2
(b) Thayer said that Plaintiff could not speak with Barbarossa because he was not
3
available, but that she could speak to him, because: as Barbarossa's Executive Secretary and
4
Assistant, she knew about the company and would know if there were any problems of the type
5
Plaintiff mentioned to her; Barbarossa authorized her to speak to investors on his behalf for Avanex;
6
she already had received and responded to several calls by other investors; and Barbarossa would
7
tell him the same things she would tell him.
8
(c) Plaintiff then said he was very concerned about whether the departures of Dr.
9
Major and Ms. Sanchez had anything to do with the Company's numbers, performance, product
10
developments, or a lowering of the guidance. While he had read and relied upon the July 7 press
11
release, he wanted further assurances that there were no financial problems at the company, because
12
if there were, he would have to sell his shares and would no longer invest in Avanex.
13
(d) Thayer then reiterated that there were not any problems of the type Plaintiff
14
mentioned to her; that the only reason Dr. Major was fired was general disagreement between Dr.
15
Major and Avanex's Board for a protracted period of time; that Plaintiff had nothing to worry about
16
and that he should not think of selling his Avanex stock; that CEOs are let go all the time for reasons
17
not related to a company’s financial or business performance; that everything at the company was
18
just fine; and that Avanex's share price would soon go up because the current price correction was
19
for no good reason from the company’s perspective.
20
28. Thayer's representations to Plaintiff were affirmative statements of fact, which she
21
made from a stated position of superior knowledge and authority: they were not subjective
22
opinions, puffery, speculations, or predictions about future conduct by third parties.
23
29. Plaintiff, at the end of their conversation, requested that he be put in contact with one
24
of the members of management, preferably the CEO. Thayer told him she would arrange that, and
25
told Plaintiff to call her back to find out the date and the time. She concluded the conversation by
26
telling Plaintiff that he could call her if he needed any further help. As a direct result of the July 7th
27
press release and Thayer's reassurances to Plaintiff -- in her capacity as the interim CEO's Executive
28
Secretary and Assistant and holding herself out as having the knowledge and authority to provide
-11-
1
such assurances -- Plaintiff did not carry out his previously-stated intention (unequivocally
2
expressed to Thayer in his June 30th telephone call with her) to sell all of his Avanex stock at the
3
earliest practicable opportunity. Instead, based upon her assurances supporting the representations
4
in the July 7th press release, Plaintiff held on to all of the Avanex shares he had acquired by that
5
date and did not sell them, and continued to purchase additional Avanex shares thereafter.
6 C. Avanex's Shareholders Approve Of The Board's Recommendation For A 15-1
Reverse Stock Split On July 9, 2008, Which Finally Occurs On August 12, 2008.
7
30. Two days after the July 7, 2008 press release was issued, at a special meeting of
8
stockholders held on July 9, 2008, Avanex's stockholders -- following Smith's, Barbarossa's,
9
Weinswig's, and the Board's recommendation -- authorized Avanex's Board to effect a reverse split
10
of Avanex's common stock at any time before the annual meeting of stockholders in 2009 at a ratio
11
ranging from 10-for-1 to 15-for-1.

12
31. On August 12, 2008, Avanex effected a 15:1 reverse split of its shares. Accordingly,
13
each fifteen shares of issued and outstanding Avanex common stock and equivalents as of the close
14
of market on August 12, 2008 was converted into one share of common stock, and the reverse stock
15
split was reflected in the trading price of Avanex's common stock at the opening of market on
16
August 13, 2008. By August 14, 2008, Plaintiff owned over 4,000,000 shares of pre-split stock, and
17
those shares were converted into over 266,000 shares of post-reverse split Avanex stock. Avanex
18
post-reverse split shares closed at $11.49 per share on that day, and ultimately went up to $12.52 per
19
share on August 18, 2008.
20
D. After Inducing Plaintiff to Hold His Stock By Painting a Rosy Financial Picture,
21 Avanex's August 21, 2008 Press Release Announces Severe Financial Problems,
And the Company’s Stock Price Drops By Over 38.5 % The Next Day.
22
32. On August 20, 2008, Avanex’s stock closed at $11.55 per share. The next day,
23
August 21, 2008, Avanex issued a press release (under the auspices of Defendants Smith,
24
Barbarossa and Weinswig) in which, among others things, it reported its fiscal outlook for the first
25
quarter of 2009. Plaintiff read the August 21, 2009 press release that day. It stated that the company
26
expected that its net revenue would drop significantly to between $44 million and $48 million – i.e.,
27
by up to 15 percent – from its fourth quarter 2008 numbers. Analysts polled by Reuters Research
28
were looking for at least $54.8 million. Avanex further disclosed that its gross margin would drop
-12-
1
even more in relative terms, to between 20 and 23 percent. (Gross margins reveal how much a
2
company earns taking into consideration the costs that it incurs for producing its products and/or
3
services. In other words, gross margin is equal to gross income divided by net sales, and is
4
expressed as a percentage. Gross margin is a good indication of how profitable a company is at the
5
most fundamental level. Companies with higher gross margins will have more money left over to
6
spend on other business operations, such as research and development or marketing.) The company
7
also disappointed with its earnings for its 2008 fourth quarter, which ended June 30. Avanex
8
reported non-GAAP net income of 11 cents per share, more than 35% below analysts' reported
9
expectations of 17 cents per share.
10
33. Avanex -- acting through Barbarossa and Weinswig -- summarized this information
11
in an Investor Conference Call (“ICC”) on August 21, 2008, which Plaintiff heard "live" by
12
telephone. During the ICC, Todd Koffman -- a Raymond James stock analyst -- asked Barbarossa
13
and Weinswig the following question relating back to the July 7, 2008 press release announcing Dr.
14
Major's firing:
15
"And when the Board made the decision to change out the prior
16
management, it would seem as though the Board was pretty vocal that
17
the changes were not due to strategy or business fundamentals. Yet it
18
seems as though there has been a pretty dramatic change in the
19
business fundamentals not just in the June quarter, but now going
20
forward."
21
In response, Defendant Barbarossa once again reiterated the familiar mantra that Dr. Major’s
22
employment with Avanex was terminated solely due to his supposed inability to work effectively
23
with the Board; Weinswig by his silence concurred with and adopted Barbarossa's statements.
24
Barbarossa statements during the August 21st conference call was, accordingly, a continuation in the
25
chain of prior misrepresentations and/or non-disclosures regarding the whole truth about the serious
26
financial, operational, and company-strategic issues precipitating the sudden July 2008 management
27
upheaval.
28
34. Barbarossa and Weinswig then cited three reasons for the dramatic decline in
-13-
1
Avanex's financial performance and prospects: (i) the increase in Avanex's sales in the Asia market
2
and the increase in its fiber-optic transmission business resulted in less profit because both of those
3
business segments have lower margins; (ii) Avanex faced pricing pressures on one of its products --
4
one of its "highest runners"(i.e., one of its most profitable products) -- from one of its key
5
customers; and (iii) some other recently-introduced products generated less revenue than they had
6
originally estimated. But Barbarossa and Weinswig failed to explain why they either did not know
7
about or disclose these matters when they issued the July 7, 2008 press release.
8
35. Immediately following the ICC, Avanex's stock price went down precipitously $2.39
9
per share (22.9%) -- to $8.05 per share -- in early after-hours trading. The next day, on August 22,
10
2008, Avanex stock closed at $7.08 per share, for a one-day drop in Avanex's share price of 38.7
11
percent.
12
36. This price drop was not simply the result of a downward trend in the stock market at
13
the time. While the New York Stock Exchange did decline in July and August 2008, the stock
14
prices of other comparable technology companies listed on Nasdaq did not suffer a decline during
15
July and August 2008 in any correlative degree or relative amount. In fact, the closing price of the
16
Nasdaq stock exchange actually rose from 2,245.38 on July 3, 2008 to 2,414.71 on August 22, 2008.
17
Moreover, the stock price of other reasonably-comparable companies also rose during that same
18
period. By way of example, the closing price of the Exchange Traded Fund of semiconductor stocks
19
(comprising many companies in that industry and traded under the symbol “SMH”) also rose from
20
28.70 on July 3, 2008 to 29.50 on August 22, 2008. To the extent the price of shares of a handful of
21
appropriately-comparable companies may have fallen at all during that time-frame, Avanex's share
22
price decline was far more precipitous than theirs.
23 E. One Or Two Hours After Avanex's August 21, 2008 Investor Conference Call,
Plaintiff Sends An Email To Thayer And The Other Defendants Questioning
24 Their Statements In The July 7 Press Release And The July 30 Thayer
Telephone Call.
25
37. One or two hours after the ICC, Plaintiff sent an email addressed to Defendant
26
Thayer with a duplicate emailed to Avanex’s Investor Relations Department asking them to forward
27
a copy of that email to Defendant Barbarossa and to the Avanex Board of Directors. The email was
28
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1
entitled "SHAME ON U JAMIE" and stated in pertinent part:
2
"Jaime,
3
[¶] Shame on you for taking advantage of my trust in you and
4
convening me on our telephone conversation a few weeks ago that Jo
5
Major's firing had nothing to do with numbers or guidance or
6
performance and that it was "a simple disagreement with the BOD"
7
and that letting CEOs go "happens all the time" and that everything
8
was just fine...Today's earnings report and the guidance makes it
9
abundantly clear that you shamelessly and conveniently abused my
10
trust and lied to me (as did BOD when in their press release about JO's
11
firing said as much)...

12
[¶] Shame on you and your BOD...

13
[¶] Now I have to look up an attorney that specializes on these matters
14
and see if a class action is warranted...
15
[¶]Dr. Badihian.”
16
38. On August 22, 2008, Avanex stock, which on August 20, 2008 had closed at $11.55
17
per share, closed at $7.08 per share (i.e., approximately $.47 per share pre-reverse split).
18 F. Responding To Plaintiff's August 21, 2008 Email To Avanex, CFO Weinswig
Reassures Plaintiff, Person-To-Person, With More Lies And Half-Truths.
19
39. On or about August 25, 2008, Plaintiff spoke over the telephone with Weinswig. In
20
substance, the conversation was as follows: Weinswig told Plaintiff that he was now in charge of
21
Investor Relations for Avanex. (According to the National Investor Relations Institute ("NIRI"),
22
investor relations is a strategic management responsibility that integrates finance, communication,
23
marketing and securities law compliance to enable the most effective two-way communication
24
between a company, the financial community, and other constituencies, which ultimately contributes
25
to a company's securities achieving fair valuation. [Adopted by the NIRI Board of Directors, March
26
2003].) Weinswig told Plaintiff that he should communicate with him from that point on, and not
27
Defendant Thayer. During this conversation, Plaintiff explained, yet again, that his life's savings
28
-15-
1
were invested in Avanex and he felt that investors were not told the truth in the July 7, 2008 press
2
release regarding the reasons for Dr. Major’s firing. Plaintiff told Weinswig about the statements
3
that Thayer had made to him (as more fully described in Paragraphs 27 through 29, above). Plaintiff
4
once again reiterated his request for the true reasons Dr. Major was fired. Weinswig insisted that
5
Defendant Thayer had not lied or exaggerated and said that he agreed with the accuracy of what she
6
said. He stressed that the July 7, 2008 press release was accurate and told Plaintiff that the company
7
had taken a new direction, and that for both the short and the long term Plaintiff "should be fine."
8
He added that the future for the company "looked good."
9
40. On or about August 27, 2008 Plaintiff sent Weinswig an email thanking him for
10
speaking with him, but complaining about the company's tepid performance. Weinswig replied on
11
the same date, sending Plaintiff an email stating:

12
"[i]f you want to discuss the actions we are taking to improve our
13
business, then I am available. As we discussed yesterday, we are
14
looking to improve our company's performance by doing a better job
15
on the execution of our operational and product development efforts."
16
Plaintiff responded by email that very day, stating in pertinent part that he might take Weinswig up
17
on his offer and contact him occasionally. He also advised Weinswig that he had purchased
18
additional shares based on his trust in the views expressed by Weinswig in the new direction and the
19
future of the company, stating:
20
"I…had to use some funds reserved for other purposes and buy shares
21
to lift it from yet another historic lows partly based on my trust in the
22
belief expessed by you in the new direction and future of the
23
company." [Spelling and punctuation verbatim.]
24
41. By September 15, 2008, Plaintiff had become frustrated with Avanex's share price
25
movement, and sent Weinswig another email regarding the company and complaining about the
26
misleading July 7, 2008 press release issued at the time of Dr. Major’s firing and Ms. Sanchez's
27
resignation. Weinswig responded and invited Plaintiff to call him. Badihian called Weinswig that
28
same day, expressing concern that his life's savings in Avanex stock already had been decimated and
-16-
1
he needed to know the truth behind many issues. Weinswig went to pains to reassure Plaintiff about
2
Avanex's current performance and its future performance based upon current events, including
3
contracts then being negotiated and products then being developed, telling Plaintiff that Avanex's
4
shares were very undervalued and he did not understand the slide in Avanex's share price, while
5
blaming the general markets. Weinswig trumpeted the tremendous progress Avanex was making,
6
noting that the markets would be quite impressed with the news about Avanex's new products and
7
contracts. He stressed to Plaintiff what a "great value" CEO Barbarossa has turned out to be and
8
how fast he was advancing product development matters at the company.
9 G. By False Pretenses, Half-Truths And Material Omissions, Weinswig Again
Induces Plaintiff To Hold On To His Existing Shares And To Buy More Shares
10 In September 2008 In Order To Prop Up Avanex's Faltering Share Price.
11
42. On or about September 18, 2008, Plaintiff again spoke by telephone with Weinswig.
12
In substance, the conversation was as follows: Plaintiff again expressed a desire to know why
13 Defendant Weinswig kept telling him that Dr. Major’s firing had nothing to do with any operational
14 or financial issues. In response, Weinswig told Plaintiff that there were two major reasons Dr. Major
15 was actually fired. Defendant Weinswig said that the first reason was that the company was losing
16 business to the competitors. He said the second reason was that the company was having problems
17 with new products, including ROADM -- reconfigurable optical add/drop multiplexers -- because
18 Dr. Major insisted on running fiber optic product development even though his specialty was in the
19 fiber optics research, not development, and with laser operations. Weinswig also stated that
20 Defendant Barbarossa’s specialty was in fiber optics development and operations, but that under Dr.
21 Major, Barbarossa was simply assigned research work and was not allowed to be in charge of or
22 even participate in fiber optic product development.
23 43. Plaintiff asked Weinswig for an explanation of the basis for his optimism about the
24 next earnings report and guidance, especially considering that resolving product development issues
25 could be a lengthy process. Weinswig responded by stating that there would soon be news about
26 new products. He also emphasized to Plaintiff that Avanex’s stock was "very undervalued"; that
27 Plaintiff had "nothing to worry about"; and that Plaintiff should not only hold on to his existing
28 shares, but should purchase additional ones to prop up Avanex's share price. He said Plaintiff was
-17-
1
"doing the right thing" by holding on to his shares and purchasing new ones at ever-decreasing share
2
prices, and that "we appreciate your support."
3
44. By October 11, 2008, and as Avanex’s share price continued to drop, Plaintiff sent an
4
email to Weinswig in which he stated in pertinent part that “the situation surrounding AVNX
5
continues to be critical with share prices in the ICU. . .”. Weinswig responded on October 13, 2008
6
with an email inviting Plaintiff to call him that evening if Plaintiff wanted to talk.
7
45. Two days later, on October 13, 2008, Plaintiff and Weinswig again spoke by
8
telephone. Among other things, Weinswig again reiterated that the stock was substantially
9
undervalued; that the company had $59.5 million in cash; assured Plaintiff that his Avanex
10
investment would turn around soon because "there are new contracts in the works;" congratulated
11
Plaintiff on holding on to his Avanex shares while at the same time saying he was very upset about
12
what has happened to Plaintiff's investment and savings; and encouraged Plaintiff to purchase still
13
more shares to prop up Avanex's share price because the company was about to "turn the corner."
14
46. On October 23, 2008, Plaintiff and Weinswig had another telephone conversation
15
during which Plaintiff stated to Weinswig that, if (as he had repeatedly asserted to Plaintiff)
16
Avanex's fundamentals were so strong, it was "unfairly undervalued," and Plaintiff should continue
17
to buy still more shares, why were Avanex executives not buying stock too? Weinswig raised his
18
voice, asked if Plaintiff was questioning his integrity, and told Plaintiff to check Avanex's company
19
website to check Weinswig's SEC Form 4's to see Weinswig himself was purchasing Avanex shares
20
to support Avanex's share price.
21
47. Later that same day (i.e., October 23rd), Weinswig sent an email to Plaintiff in which
22
he stated:
23
"I will discuss your comments to my BOD. Overall, i disagree with
24
some aspects. We will host our conf call in a couple weeks.
25
If you did not find the Form 4 documents, please let me know.
26
We appreciate your support
27
Regards" [Spelling and punctuation verbatim.]
28
48. Two days later, on October 25, 2008, after Plaintiff sent an email to Weinswig, at his
-18-
1
request, regarding suggestions for an upcoming ICC, Weinswig responded to Plaintiff by email,
2
stating:
3
"Thank you for the comments. We are in the process of putting
4
together the conf call now. On a separate note, Please note that i
5
always have believe in diversification. Benjamin Graham's 'intelligent
6
investor' focused on asset diversification and its importance. You may
7
also consider just talking to a financial advisor--i have always utilized
8
their expertise. There are a number of good CFP (certified financial
9
planners) around that have a lot of great advice." [Spelling and
10
punctuation verbatim.]
11
Why Weinswig would put this "advice" in writing -- while steadfastly insisting to discuss his
12
Avanex "advice" with Plaintiff only orally by telephone -- presents no mystery. In retrospect, it is
13
clear that this email was an attempt by Weinswig, not to give friendly, avuncular guidance to
14
Plaintiff, but rather to lay a self-serving and misleading "paper record" to support plausible
15
deniability with respect to his constant verbal assurances, recommendations and protestations by
16
telephone that Plaintiff should retain his life's savings in Avanex stock, no matter how badly the
17
stock was performing, he was "doing the right thing" because they were about to "turn the corner,"
18
and management "appreciated his support."
19 H. Avanex's Share Price Continues to Plummet Despite Weinswig’s Assurances.
20 49. Beginning in early November, 2008, Plaintiff began to receive margin calls from his
21 stockbroker for the Avanex shares he had purchased on margin and then held in reliance on the
22 representations made on behalf of Avanex in the July 7, 2008 press release and in the subsequent
23 conversations he had with Defendants Thayer and Weinswig. Plaintiff was unable to meet these
24 margin calls, and his Avanex stock was involuntarily liquidated by his stockbroker. As a result,
25 Plaintiff lost his life savings and incurred substantial debt obligations to both his bank and E*Trade,
26 as discussed in detail at Section IX, Paragraph 80, below.
27
28
-19-
1 VI. THE WHOLE TRUTH BEGINS TO EMERGE.
A. Avanex's Auditors, Deloitte & Touche, Announce That Avanex's June 30, 2008
2 Financial Controls Were Deeply Flawed And Its Financial Statements Were
Therefore Unreliable.
3
50. One of the most critical management functions of a publicly-traded company is the
4
establishment and maintenance of adequate internal controls for the company's financial reporting.
5
Absent effective internal controls for financial reporting, the financial statements and other financial
6
information issued and disseminated by a company cannot be relied upon for their accuracy by
7
investors, regulators, creditors, suppliers, company employees, and other individuals and entities
8
that have a stake in the company's viability as a going concern. A "material weakness" and a
9
"significant deficiency" in a company's internal controls both represent deficiencies in the design or
10
operation of internal control that could adversely affect a company's ability to record, process,
11
summarize and report financial data consistent with the assertions of management in the company's
12
financial statements. But "material weakness" constitutes a greater deficiency than a "significant
13
deficiency." When an auditor concludes that a company's internal controls for financial reporting
14
suffer from material weaknesses, that means that the company's management has failed to institute
15
operational controls sufficient to prevent or detect material misstatements in the company's financial
16
statements, and that there is a reasonable possibility that such misstatements may have occurred
17
without detection or reporting. The existence of material weaknesses in Avanex's financial
18
reporting controls obviously would be critically material to Plaintiff and any other investor when
19
deciding whether to hold, sell or purchase more shares.
20
51. Given these practical financial-reporting realities, at all relevant times Weinswig,
21
Barbarossa, Smith and Avanex's entire Board had a duty: (a) to establish and maintain adequate
22
internal controls over financial reporting for the company; (b) to assess in a diligent manner the
23
effectiveness of the company's internal control over financial reporting; and (c) to ensure that the
24
financial information that they disseminated to shareholders, regulators and other interested parties
25
were not subject to serious doubt due to material weaknesses in the company's financial reporting
26
control mechanisms. Unfortunately, as Plaintiff learned too late, Weinswig, Smith and Barbarossa
27
(and Avanex's entire Board by extension) either intentionally or recklessly failed to ensure that
28
-20-
1
Avanex's internal controls for financial reporting were sufficient to ensure that Avanex's financial
2
statements as of June 30, 2008 (and thereafter) were reliable and accurate.
3
52. After Plaintiff already had lost all of his Avanex shares in November 2009, he
4
subsequently learned that on September 4, 2008, Avanex's auditor, Deloitte & Touche, had issued a
5
report to Avanex's management detailing serious, persistent and material weaknesses and flaws in
6
Avanex's internal controls over its financial reporting which negatively impacted the reliability of
7
Avanex's financial statements and results as reported for the year and period ending June 30, 2008 --
8
i.e., approximately one week before the July 7, 2008 press release, approximately one month before
9
Thayer's telephone call with Plaintiff, approximately two months before the August 21, 2008 press
10
release, and several months before Weinswig's repeated telephone calls with Plaintiff.
11
53. Then, again unbeknownst to Plaintiff at that time, in Item 9A of Avanex's Annual
12
Report on Form 10-K filed with the Securities and Exchange Commission on September 5, 2008,
13
Avanex itself -- through Barbarossa and Weinswig -- admitted (under compulsion from Avanex's
14
auditor) that as of June 30, 2008, Avanex had failed to maintain effective internal controls designed
15
to prevent or detect material misstatements of Avanex's consolidated financial statements as
16
reported for that quarter and thereafter, and that these control deficiencies rendered Avanex's
17
financial statements fundamentally unreliable, as these serious internal control deficiencies could not
18
prevent or detect material misstatements in Avanex's financial statements.
19
54. Defendants Weinswig, Barbarossa and Smith (and Avanex's entire Board and senior
20
management team) hardly could be taken by surprise by Deloitte & Touche's announcement that
21
Avanex's internal financial controls were beset by material weaknesses. Regrettably, this was not
22
the first time Avanex's faulty internal financial controls had generated inaccurate and misleading
23
financial statements. In 2005, Deloitte & Touche cited a number of situations where Avanex's
24
insufficient internal controls could result in material misstatements of its reported finances -- a
25
problem which forced Avanex to substantially delay the filing of its annual report that year,
26
followed by the resignation of its then-current CFO, Richard Yonker, after only five months on the
27
job.
28
-21-
1 B. On November 6, 2008, Avanex Issues A Press Release Revealing That Its
Revenue, Net Income, Earnings Per Share, And Gross Margin All Had
2 Collapsed, And Its Stock Price Soon Imploded To < 5 Cents Per Share Pre-Split.
3 55. On November 6, 2008, Avanex issued a press release which revealed that, for the
4 three months from July 1 through September 30, 2008, Avanex's net revenue was only $45.3
5 million, a decrease of 13 percent from $51.8 million in the fourth quarter of fiscal 2008 (i.e., ending
6 June 30, 2008), and a decrease of 17 percent from $54.7 million in the same period last year. Its
7 gross margin also collapsed, falling to 17%, which reflected a decrease from 31% in the fourth
8 quarter of fiscal 2008, and a decrease from 28% in the same period last year. Avanex's net loss in
9 the first quarter of fiscal 2009 was $9.6 million, or ($0.63) per diluted share, compared with net
10 income of $1.3 million, or $0.08 per diluted share in the fourth quarter of fiscal 2008. This
11 compared to net income of $45,000 or break-even in the same period in 2007.

12 On August November 7, 2008, Avanex stock, which on November 5, 2008 had closed at
13 $3.08 per share, closed at $2.15 per share. The price per share of Avanex stock continued to decline
14 and reached a low of $.67 per share (i.e., ± 4.5 cents per share pre-split) on November 21, 2008.
C. On November 25, 2008, Avanex's Board, At Smith's Urging, Provides For
15 Change-Of-Control Compensation To Barbarossa And Weinswig.
16 In anticipation of their long-planned but undisclosed merger with Bookham, Avanex
17 announced on November 20, 2008 that its Board (acting under Smith as Chairman) had approved
18 Change-in-Control Agreements with Barbarossa and Weinswig that provided for stock option
19 vesting, bonus payments and other compensation and benefits to Barbarossa and Weinswig (and
20 other senior executives) in the event that they were terminated, resigned or otherwise lost their jobs
21 due to a change in control of the company. Thus, while Avanex's investors had been effectively
22 wiped out by this time due to Smith's, Barbarossa's and Weinswig's deceit -- with the share price of
23 the investors' Avanex holdings reduced to about 5 cents per share pre-split -- these Defendants
24 ensured that at least they would not be left empty-handed when they off-loaded Avanex at a fire-sale
25 price to Bookham.
26 D. Deloitte Subsequently Announces That Avanex's Ability To Survive As A Going
Concern Is Doubtful.
27
56. After Plaintiff already had lost all of his Avanex shares in November 2009 and
28
suffered the damages due to Defendants' misconduct as alleged herein, he learned that Deloitte &
-22-
1
Touche in February 2009 had rendered an unqualified opinion -- based upon its review of Avanex's
2
books, records and financial results and discussions with Smith, Barbarossa and Weinswig --
3
expressing doubt that Avanex could survive as a going concern based upon Avanex's June 30,
4
September 30, and December 31, 2008 financial results. It turns out that Deloitte & Touche's doubts
5
were all too well founded: they were predicated on in depth discussions with Smith, Barbarossa and
6
Weinswig and audits of Avanex's books and records going back to the June 30, 2008 fiscal year-end
7
audit -- months before the formal going concern qualification was actually issued. Indeed, as of
8
December 31, 2008, Deloitte had not audited any financial statements of Avanex for any period
9
subsequent to June 30, 2008.
10
57. Statement on Auditing Standards No. 59, entitled "The Auditors Consideration of an
11
Entity's Ability to Continue as a Going Concern," requires auditors to evaluate whether substantial
12
doubt exists about an audit client's ability to continue as a going concern. The first stage in making
13
this going concern evaluation requires consideration of whether during its audit the auditor identifies
14
existing conditions and events that indicate substantial doubt about the client's ability to continue as
15
a going concern. Those conditions and events are divided into four categories: 1) negative trends, 2)
16
other indications of possible financial difficulties, 3) internal matters, and 4) external matters. When,
17
after considering conditions and events in the aggregate, the auditors believe that substantial doubt
18
may exist, they should consider management's plans for dealing with the effects of those conditions
19
and events. If, after considering the conditions and events and management's plans, the auditors
20
conclude that substantial doubt remains, the auditors are supposed to include an explanatory
21
paragraph to reflect this uncertainty. That is what Deloitte & Touche did here regarding Avanex.
22
58. The decision to append a going-concern disclosure to a client's audit report is one of
23
the most difficult and complex decisions faced by the auditing profession. Because the issuance of a
24
going-concern opinion is feared to be a self-fulfilling prophecy, auditors tend to be reluctant to
25
issue one: going concern opinions almost invariably lower stockholders’ and creditors’ confidence
26
in the company; ratings agencies typically downgrade the company's debt, leading to an inability to
27
obtain new capital and an increase in the cost of existing capital; and stock analysts' ratings of the
28
company are negatively impacted. Auditors therefore typically delay the announcement of their
-23-
1
going concern opinion until it is all but unavoidable, given their legitimate concern that a going-
2
concern opinion will hasten the demise of an already-troubled company, reduce a loan officer’s
3
willingness to grant a line of credit to that troubled company or increase the point spread that would
4
be charged if that company were granted a loan, dissuade investors from purchasing the company's
5
stock, and make suppliers and creditors demand more rigorous terms.
6
59. For these reasons, by the time an auditor reluctantly concludes that its client may not
7
survive and publicly reports its professional doubt about its client's viability as a going concern, the
8
auditor typically already has spent many months assessing the financial issues giving rise to that
9
doubt in close consultation with company management with whom they work with during quarterly
10
and year-end audits. So, by the time Deloitte issued its going concern opinion after the close of
11
Avanex's December 31, 2008 quarter, Deloitte already had spent many months discussing with
12
Weinswig, Barbarossa, Smith and other Avanex executives and Board members the dire financial
13
condition of the company and what, if anything, they planned to do about it.
14
60. Defendant Weinswig, Barbarossa and Smith's duties included disseminating prompt,
15
accurate information about Avanex's business, operations, financial statements and internal controls,
16
and correcting any previously issued statements that had become materially untrue. They were
17
involved in drafting, producing, reviewing, preparing, approving and/or disseminating the financial
18
and other material information at issue in this case. They worked in close consultation with Deloitte
19
& Touch auditors for extended periods during 2008 -- particularly prior to and following the June
20
30, 2008 fiscal year-end audit. It is inconceivable, therefore, that Avanex's senior executives and
21
Board did not know (or at least have ample reason to know) at or around the close of the June 30,
22
2008 quarter about Avanex's dire financial condition, about its doubtful going concern viability, and
23
about the material weaknesses in its internal financial reporting controls. As to the last point, as
24
stated in Avanex's SEC Form 10-K issued on September 5, 2008, "our management concluded that
25
our internal control over financial reporting was not effective as of June 30, 2008."
26
61. On or before the time that the July 7, 2008 press release issued, therefore, Barbarossa,
27
Smith, Weinswig, and other senior executives and Board members either knew about these material
28
facts that went the very heart of their company's financial performance and business operations, or at
-24-
1
the very least were grossly negligent -- indeed, reckless -- in not knowing about them. In either
2
case, their representations and assurances, and the unspoken assumptions and implications
3
reasonably implicated thereby, either were entirely fraudulent or at the very least were reckless or
4
grossly negligent.
5 E. Approaching Insolvency, Avanex Announces Its Merger With Bookham In
January 2009 At A Fire-Sale Price, And Barbarossa, Weinswig, Smith And
6 Other Avanex Executives And Board Members Are Forced To Resign.
7 62. On January 27, 2009, Avanex announced that it planned to enter into a definitive
8 agreement to merge with Bookham in an all-stock transaction. Under the terms of the definitive
9 merger agreement as announced on February 3, 2008, each share of Avanex would be exchanged for
10 5.426 shares of Bookham common stock. The fair value of the consideration paid to Avanex
11
stockholders for their shares was only $31.8 million -- i.e., Avanex was valued (monetarily at least)
12
as a light-weight penny-stock.
13 63. As a result of the merger, Smith, Barbarossa, Weinswig and other officers and
14 directors of Avanex were forced to immediately resign. Defendant Barbarossa, however, succeeded
15 in his effort to secure a position in Avenex's successor company, defendant Oclaro, obtaining a seat
16 on its Board together with two other former Avanex Board members.
17 F. Avanex's July 7, 2008 Press Release, Thayer's July 30, 2008 Telephonic
Representations to Plaintiff, the August 21, 2008 Press Release and ICC, And
18 Weinswig's Subsequent Telephonic And Email Representations To Plaintiff All
Contained Misrepresentations, Half-Truths, and Material Nondisclosures.
19
64. Avanex’s statements in the July 7th press release and the July 30th Thayer phone
20
call with Plaintiff, and the August 21, 2008 ICC, were, unbeknownst to Plaintiff at the time, grossly
21
false and misleading. While Defendants to this day retain superior, inside knowledge and inside
22
information about the true state of facts and the full nature and extent of their deceit, the false and
23
misleading nature of Defendants' statements, half-truths and material nondisclosures as subsequently
24
revealed to date nonetheless is demonstrable. For example, as previously alleged, Avanex later
25
admitted (through its CFO, Weinswig) that at the time Avanex terminated Dr. Major on July 7,
26
2008, Defendants knew that Avanex was suffering serious financial performance problems,
27
including but not limited to: 1) losing business to its competitors, receiving substantially lower
28
margins on the sales of its products; 2) being compelled to cut prices on key, high-margin products
-25-
1
at the insistence of one or more of its primary customers; 3) having serious problems with new
2
products, including ROADM -- because, at least according to Weinswig, 4) Dr. Major had insisted
3
on running fiber optic product development and operations even though his specialty was in fiber
4
optic research and laser operations, not fiber optic operations. Moreover, Avanex's internal
5
financial reporting controls in place before and after the June 30, 2008 quarter suffered from
6
numerous material weaknesses and could provide no assurance to shareholders or to anyone else that
7
Avanex's reported financial results were accurate. These and other serious financial and operational
8
problems gave Weinswig, Barbarossa, Smith and other senior Avanex executives and Board
9
Members more than substantial grounds to question -- and would cause any reasonable executive or
10
Board member under the circumstances to seriously doubt -- Avanex's ability to survive for long as
11
a going concern. Deloitte made its going concern doubts clear to Weinswig, Barbarossa, and Smith
12
months before Deloitte finally announced its going concern qualification publicly in February 2009.
13
Defendants were, accordingly, desperate to prop up Avanex's share price to forestall Nasdaq's
14
delisting of Avanex's shares commencing in earnest July 2008, because if the shares were delisted it
15
would have hastened the company's impending demise, reduced the value of their stock options and
16
other retirement and compensation packages, impeded their ability to obtain new capital or
17
financing, hampered the possibility of securing executive or Board positions in the successor
18
company, and limited their negotiating leverage during merger negotiations.
19
65. On or before the time they issued the July 7, 2008 press release, therefore,
20
Defendants either knew or were reckless in not knowing both about the existence foregoing facts
21
and circumstances, the disastrous effect they would have on the company's revenues, gross margin,
22
earnings-per-share, cash balances, and share price, and the corresponding falsity of their contrary
23
assertions and material omissions to Plaintiff.
24
66. Weinswig's statements to Plaintiff also were false and grossly misleading. Weinswig
25
knew at that time of his numerous telephone conversations and email exchanges with Plaintiff that:
26
(i) Avanex was suffering serious financial performance problems, including loss of business to
27
competitors, problems with the ROADM product, diminution of reserves of cash and cash
28
equivalents, and increasing downward pressure on its revenues, net earnings per share, income, and
-26-
1
gross margin; (ii) Avanex was operating with serious financial internal control weaknesses that, if
2
disclosed, would devastate investor, lender and analyst confidence in the company's financial
3
reporting and the reliability of its financial statements as of June 30, 2008; and (iii) Avanex's
4
auditors and Avanex's senior management both harbored grave doubts about the company's ability to
5
survive in the near term as a going concern. Moreover, Weinswig knew that those problems were
6
the main reasons for the executive departures in July 2008. Plaintiff was unaware that Weinswig
7
was misleading him and relied on Weinswig’s statements. As he told Weinswig in response to the
8
August 27 email, he purchased additional shares based on his trust in the views expressed by
9
Weinswig in the new direction and the future of the company.
10
67. Indeed, secretly aware of Avanex's dire financial condition and grim future prospects,
11
Avanex 's July 7, 2008 installation of Defendant Smith as Chairman of the Board -- who had broad
12
experience selling other companies and had prior dealings with Bookham as an acquiring company -
13
- was intended to implement the company's plan to sell itself or merger with Bookham. This plan
14
arose from Avanex's management's undisclosed recognition that the company could not survive for
15
long independently as a going concern. Smith, Barbarossa and Weinswig recognized that if
16
Avanex's stock were delisted from the Nasdaq stock exchange, Avanex's access to capital, financing,
17
and its commercial reputation would be severely impaired, their business reputations and prestige
18
would be diminished, their stock option, compensation and retirement plans, and related change-of-
19
control payouts would be adversely affected, and the company's ability to negotiate a merger on
20
favorable terms would be substantially (and likely fatally) undermined.
21
68. Accordingly, Defendants' stratagems and ploys -- including but not limited to: (i) the
22
reverse 15-1 stock split that was approved on July 9 and consummated on August 12, 2008, (ii)
23
Defendants' fraudulent scheme to withhold the true facts about the company's dire financial
24
condition and future prospects, and (iii) their successful efforts to induce Plaintiff to hold on to his
25
shares and even purchase additional shares -- were all concertedly designed to prop up Avanex's
26
stock sufficiently to forestall delisting and to delay the voluntary or involuntary commencement of
27
insolvency proceedings. If Plaintiff -- as one of Avanex's largest shareholders -- had dumped all of
28
his shares on July 8, 2008 or as soon as practicable after the July 7, 2008 press release, or if he had
-27-
1
dumped all of his shares on August 22, 2008 or as soon as practicable after the August 21, 2008
2
press release (as Plaintiff told Defendants he planned to do absent further assurances by them),
3
flooding the market with so many Avanex shares for sale at one time by one of Avanex's largest and
4
most active individual shareholders would have significantly depressed Avanex's already-faltering
5
share price, undermining management's price support efforts. To advance their agenda to sustain
6
their moribund company for as long as possible, Defendants needed Plaintiff's assistance and
7
cooperation to hold on to his large block of shares -- and to purchase still more shares as their value
8
fell -- in order to prop up Avanex's faltering share price both by holding on to his shares, purchasing
9
new ones, and continuing to support the company on Yahoo Finance's Avanex message board
10
(which Weinswig compulsively checked) in the face of Avanex's progressively-falling share price.
11
Defendants' stock options, their change-of-control payouts, their ability to retain executive or Board
12
positions at the successor company, and their business reputations turned on their ability to salvage
13
what they could from their floundering business.
14 VII. SUMMARY OF BASES FOR DEFENDANTS' DUTIES OF FIDELITY, CARE, AND
DISCLOSURE OWED TO PLAINTIFF.
15
69. The Individual Defendants owed a duty of disclosure, fidelity and care to Plaintiff,
16
for multiple reasons:
17
70. First, by virtue of their titles and positions as senior corporate officers and/or
18
directors of Avanex vis-à-vis Plaintiff as an Avanex shareholder, Defendants Smith, Barbarossa, and
19
Weinswig each stood in a fiduciary relationship to Plaintiff under both California and Delaware law.
20
(a) As fiduciaries, when these Defendants undertook to provide financial
21
information and make other material representations about Avanex's business and affairs to Plaintiff
22
(and other Avanex shareholders) -- whether publicly or directly -- the were required to comply with
23
their fiduciary duty of candor and disclosure to ensure the information they provided and the
24
material representations they made were not untrue or misleading, and to ensure that they did not
25
omit to state material facts necessary to make the statements made, in light of the circumstances
26
under which such statements were made, not misleading. When senior corporate executives and
27
Board members (such as they) undertake to provide information to a major shareholder (such as
28
-28-
1
Plaintiff) about the financial condition of the company and other matters that would be material to
2
any reasonable investor in choosing whether to hold, sell or purchase company stock, they have a
3
duty to provide information that is not false or materially misleading.
4
(b) As fiduciaries, the Individual Defendants' duty of fidelity required them, in
5
their dealings with Plaintiff (and other Avanex shareholders), not to put their personal interests
6
ahead of or in conflict with Plaintiff or other Avanex shareholders. As Avanex Directors and/or
7
senior executive officers, the Individual Defendants owed a fiduciary duty of fidelity to Plaintiff not
8
to use their positions of trust for their own personal advantage at the expense of Plaintiff or other
9
stockholders.
10
(c) As fiduciaries, the Individual Defendants' duty of care also required them to
11
ensure, when they undertook to provide financial information and make other material
12
representations to company shareholders, that they first had exercised reasonable diligence to
13
investigate the basis for their statements and believed them to be accurate and true.
14
71. Second, all of the Individual Defendants (i.e., Smith, Barbarossa, Weinswig, and
15
Thayer) did not have an arms-length relationship with Plaintiff, but rather maintained a confidential
16
relationship with him under the circumstances present here. Smith, Barbarossa, Weinswig and
17
Thayer had superior knowledge of the true state of facts about Avanex's dire financial condition and
18
the complete story behind Mr. Major's termination and Ms. Sanchez's resignation (which were
19
unknown and unavailable to Plaintiff through the exercise of reasonable diligence). Indeed,
20
Defendants had sole knowledge and access to key material facts -- such as that
21
(a) Avanex was suffering from serious financial difficulties that rendered its
22
viability as a going concern doubtful;
23
(b) Avanex's gross margins and revenues were declining markedly due to a
24
variety of factors;
25
(c) Avanex in all likelihood would not be able to maintain its stock listing on
26
Nasdaq for long;
27
(d) Avanex's internal financial controls were beset by material weaknesses that
28
rendered its financial reporting and statements as of June 30, 2008 inherently unreliable; and
-29-
1
(e) These and related reasons were precipitating factors in the firing of former
2
CEO Major and the resignation of former CFO Sanchez.
3
72. Defendants also knew, further, that such facts were not known to or reasonably
4
discoverable by the Plaintiff. Instead, to engender Plaintiff's belief and confidence in their
5
misrepresentations and half-truths, Defendants intended that Plaintiff rely upon their integrity and
6
fidelity as senior officers and/or directors of the company; they were aware that he would do so and
7
did do so; and it was reasonable for Plaintiff to repose confidence and trust in them under the
8
circumstances. Because the Individual Defendants' had sole or superior knowledge of the true state
9
of facts, and were aware of Plaintiff's vulnerability due to the investment of his life's savings in
10
Avanex stock, there existed an unequal relationship between parties in which Plaintiff effectively
11
entrusted his life's savings to Avanex under the care of the Individual Defendants because of the
12
trust and confidence which he reasonably reposed in them.

13
73. Third, because the Individual Defendants used half-truths and false pretenses built on
14
material nondisclosures to mislead Plaintiff, they had an affirmative duty to disclose the true state of
15
Avanex's financial condition and prospects and the true reasons for Dr. Major's abrupt termination
16
and Ms. Sanchez's resignation. Thus, even if there were some doubt about the fiduciary or
17
confidential nature of their relationship with Plaintiff under the facts alleged here -- and there is
18
none -- by making affirmative representations about the company's financial condition and prospects
19
and about the reasons for Dr. Major's abrupt termination and Ms. Sanchez's resignation, the
20
Individual Defendants were under a duty to speak the whole truth so that they did not conceal any
21
facts which materially qualified those stated. Put differently, even if there were no independent duty
22
upon Avanex's management or directors to disclose financial projections or the reasons for executive
23
terminations, it is axiomatic that once a company undertakes partial disclosure of such information
24
there is a duty to make the full disclosure of known facts necessary to avoid making such statements
25
misleading.
26
74. Finally, under California Civil Code § 1714, subd. (a), and under California common
27
law, the Individual Defendants also had a duty to exercise ordinary care to avoid causing injury to
28
Plaintiff. The risk of grievous financial and emotional harm to Plaintiff as a direct and proximate
-30-
1
result of Defendants' misconduct was and would be reasonably foreseeable to any person of normal
2
intelligence.
3 VIII. SUMMARY OF BASES FOR PLAINTIFF'S ACTUAL AND JUSTIFIABLE
RELIANCE ON DEFENDANTS' MISREPRESENTATIONS, HALF-TRUTHS, AND
4 MATERIAL NONDISCLOSURES.
5 75. While many if not most of Avanex's shareholders suffered as a result of the
6 Defendants' fraudulent scheme, Plaintiff's situation stands apart from that of Avanex's other
7 shareholders. Because of his status as one of Avanex's largest individual shareholders and his
8 efforts to seek direct assurances from Avanex's senior management, and because a wholesale
9 dumping of Plaintiff's Avanex stock holdings at the same time would have severely impacted its
10 share price, Plaintiff, unlike other shareholders, had direct, person-to-person communications with
11
Avanex (through Thayer and Weinswig) that were persistent and substantive. Plaintiff was not,
12
therefore, a typical shareholder acting as a bystander watching passively as Avanex's financial

13 calamity unfolded before his or her eyes. Plaintiff was one of Avanex's largest individual
14 shareholders who did not simply rely upon information made publicly available to other
15 shareholders at large, but instead took affirmative action -- concrete steps -- to initiate and
16 consummate direct, person-to-person communications with Avanex (through Smith, Barbarossa,
17 Thayer, and Weinswig).
18 76. Plaintiff took these actions -- as distinguished from unspoken and unrecorded
19 thoughts and decisions -- in order to inform Avanex that he intended to sell all of his shares as soon
20 as practicable if he did not receive adequate assurances from Avanex that Dr. Major's termination
21 and Ms. Sanchez's simultaneous resignation had nothing to do (as Smith, Barbarossa and Avanex's
22 Board claimed in the July 7th press release) with Avanex's financial condition and prospects, and
23 that Avanex's financial condition and prospects were not materially worse than reported. If Plaintiff
24 had known the true state of facts and had received a truthful account of Avanex's actual financial
25 status, he would have sold all of his shares as soon as practicable after the July 7, 2008 press release
26 (if he had known the whole truth then), would thereafter have disposed of all of them as soon as
27 practicable following his July 30, 2008 telephone conversation with Thayer (if he had known the
28 whole truth at that time). Plaintiff's intention to sell all of his Avanex shares at those times did not
-31-
1
remain unspoken or unrecorded. Plaintiff instead took affirmative steps to make his intention to sell
2
all of his Avanex shares at those times expressly known to Avanex and Barbarossa, through Thayer
3
and Weinswig, absent further assurances them, which they duly provided.
4
77. With respect to the August 21, 2008 press release and ICC (in which Barbarossa
5
repeated the misleading half-truth about the reasons for the July 2008 senior management upheaval),
6
Plaintiff again would have sold all of his shares as soon as practicable, and had begun transferring
7
all of his shares into a single E*Trade account to facilitate the bulk sale on economical terms. But
8
Weinswig intervened, interjecting himself with persistent and concerted pleas with Plaintiff in
9
telephone calls, practically begging Plaintiff not to sell his shares, but to buy additional ones, as
10
Weinswig himself was doing (albeit in very minimal amounts), because the company supposedly
11
was about to bounce back because there was money in the bank and products in the pipeline, and
12
they needed to prop up the share price in the meantime.

13
78. The true state of facts about Avanex's actual financial condition and prospects, the
14
critical weaknesses in its financial internal controls, and its dubious going concern viability all were
15
unknown and unavailable to Plaintiff through the exercise of reasonable diligence. Plaintiff's actual,
16
demonstrable reliance on Defendants' material misrepresentations, half-truths and omissions was
17
reasonable and justified under the circumstances, given that:
18
(i) Thayer, Smith, Weinswig and Barbarossa had superior knowledge of the true
19
facts regarding Avanex's perilous financial state, grossly inadequate internal controls and financial
20
reporting systems, and grim future prospects and going concern viability;
21
(ii) The undisclosed facts were and would be very material to any reasonable
22
investor when deciding whether to hold, sell or purchase Avanex stock;
23
(iii) Plaintiff did not have reasonable access to those facts apart from the
24
information he obtained from company officials, because Defendant suppressed and concealed those
25
facts, and Defendants led Plaintiff to believe that he could and should repose confidence and trust in
26
that they said to him;
27
(iv) Plaintiff had direct person-to-person communications with Thayer and
28
Weinswig in which he repeatedly expressed concern about the risk of losing his life's savings and
-32-
1
his desire to sell his stock to protect those savings if the company was in serious financial distress,
2
and in response to which Thayer and Weinswig repeatedly reassured Plaintiff that his life's savings
3
were safely invested with the company under Barbarossa's and Smith's stewardship; and, finally
4
(v) for these reasons and the reasons set forth in Section VII, Paragraphs 69
5
through 74, above, all of the Individual Defendants had a "confidential relationship" with Plaintiff
6
with respect to their dealings with him as herein alleged, and Smith, Weinswig, and Barbarossa had
7
an independent fiduciary relationship with Plaintiff by virtue of their senior executive and/or Board
8
positions at Avanex.
9
79. Plaintiff attached importance, as would any other reasonable investor, not only to
10
what Defendants said, but also to what they did not say about Avanex's financial condition and
11
prospects. Defendants' misrepresentations, half-truths and factual omissions -- about (i) the true
12
reasons for Dr. Major's termination and Ms. Sanchez's resignation; (ii) the dismal state of Avanex's
13
financial condition and future prospects; (iii) Avanex's grossly inadequate internal controls and
14
financial reporting systems, and the fact that Avanex's June 20, 2008 financial statements could not
15
reasonably be relied upon as accurate; (iv) Defendants' fear that Avanex's stock price would
16
continue to fall and its stock would be delisted by Nasdaq; (v) Avanex's dubious going concern
17
viability; and (vi) Defendants' desire and plan to prop up the price of Avanex's shares through false
18
pretenses and the suppression and concealment of material facts in order to consummate Avanex's
19
merger into Bookham on relatively favorable terms -- obviously were material to Plaintiff and any
20
other reasonable investor attempting to determine intelligently his/her choice of action: i.e., whether
21
to sell, hold, or purchase shares.
22 IX. SUMMARY OF PLAINTIFF'S DAMAGES.
23 80. Beginning in early November 2008, Plaintiff began to receive margin calls from his
24 stockbroker for the Avanex shares he had purchased on margin and then held in reliance on the
25 representations made on behalf of Avanex in the July 7, 2008 press release and in the subsequent
26 conversations he had (by telephone and/or email) with Defendants Thayer and Weinswig. Plaintiff
27 was unable to meet these margin calls, and his Avanex stock was liquidated by his stockbroker. As
28 of then, Plaintiff had owned approximately 5,025,990 Avanex shares, or approximately 353,060
-33-
1
Avanex shares after accounting for the 15:1 reverse split. Plaintiff lost his life savings in the sum of
2
approximately $5 million, was saddled with over $550,000 in debts, and has suffered severe
3
emotional distress which has developed in him major depression with the physical symptoms of
4
among other things, weight gain, sleeplessness, irritability, and emotional outbursts. All of this has
5
put considerable strain on Plaintiff's family life and his medical practice. His suffering, and the
6
suffering of his family, has been almost unbearable: more than any normal personal can or should
7
be expected to endure in a decent society.
8 X. CAUSES OF ACTION.
9 FIRST CAUSE OF ACTION
(For Intentional Misrepresentation Against All Defendants)
10
11 81. Plaintiff incorporates by reference the allegations contained in Paragraphs 1 through
12 80 of this First Amended Complaint.

13 82. Defendant Avanex (through its authorized agents) made the representations of fact
14 detailed in Section V, Paragraphs 32 through 34, 39 through 43, and 45 through 48 of this First
15 Amended Complaint. Defendant Thayer made the representations of fact attributed to her in
16 Paragraphs 27 through 29 of this First Amended Complaint. Weinswig made the representations of
17 fact attributed to him in Paragraphs 32 through 34, 39 through 43, and 45 through 48 of this First
18 Amended Complaint. Defendant Smith made the representations of fact attributed to him in
19 Paragraphs 22 and 23 (the July 7, 2008 press release) of this First Amended Complaint. Defendant
20 Barbarossa made the representations of fact attributed to him in Paragraphs 22 and 23 (the July 7,
21 2008 press release), and in Paragraphs 32 through 34 of this First Amended Complaint (the August
22 21, 2008 ICC). These detailed allegations show how, when, where, to whom, and by what means
23 the Defendants representations (and correlative nondisclosures) were tendered to Plaintiff.
24 83. These representations and half-truths (and correlative material nondisclosures) were
25 false when made, and Defendants knew them to be false or were reckless in not knowing that they
26 were false. The falsity of Defendants' representations, half-truths and material nondisclosures are
27 described in detail at Section VI, Paragraphs 50 through 61, and Paragraphs 64 through 68, above.
28 84. Defendants, and each of them, intended that Plaintiff rely on their representations and
-34-
1
half-truths (and correlative material nondisclosures) in considering whether to continue to hold his
2
shares of stock in Avanex, and whether to acquire more shares of stock in Avanex.
3
85. Plaintiff in fact, actually, reasonably, and justifiably relied upon the Defendants'
4
representations and half-truths (and correlative material nondisclosures), as set forth in detail in
5
Paragraphs 24 through 26, in Paragraphs 39 through 48, and summarized in Section VIII,
6
Paragraphs 75 through 79 of this First Amended Complaint.
7
86. Plaintiff was harmed as a direct and proximate result of his reliance on the false
8
representations, half-truths and material omissions made by Defendants, because he did not sell his
9
shares of Avanex stock and it dramatically decreased in value before it was sold for much less than
10
Plaintiff paid for it. Plaintiff was also damaged because, in reliance on Defendants'
11
misrepresentations, half-truths and material nondisclosures, he purchased more shares of Avanex

12
stock, which thereafter declined in value until it was sold for much less than he paid for it. If
13
Defendants' had told the truth on July 7, 2008, Plaintiff would have sold all of his shares by July 8,
14
2008 or as soon as practicable after the July 7, 2008 press release (as Plaintiff told Defendants he
15
planned to do absent further assurances by them). If Defendants have told the whole truth in the
16
August 21, 2008 press release and ICC, Plaintiff would have sold all of his shares by August 22,
17
2008, or as soon as practicable after the August 21, 2008 press release and ICC (as Plaintiff told
18
Defendants he planned to do absent further assurances by them). If Defendants had told the whole
19
truth, moreover, on July 7th, July 30, August 21, or thereafter during Weinswig's telephone pep-
20
talks, Plaintiff would not only have immediately sold all of his shares of stock of Defendant Avanex
21
at the then prevailing market price as soon as practicable upon learning the whole truth, he would
22
not have purchased any additional shares of that stock.
23
87. Each Defendant knowingly and willfully conspired and agreed with each other to
24
assist in the accomplishment of their fraudulent scheme by undertaking the activities described
25
above, and, in particular by making or countenancing the half-truths, false pretenses and material
26
nondisclosures that induced Plaintiff to hold his Avanex shares and purchase additional ones, to his
27
great detriment and damage. Defendants did the acts and things herein alleged pursuant to, and in
28
furtherance of, said conspiracy. Each Defendant is liable for all of the injury to Plaintiff by virtue of
-35-
1
his/its participation in the above-alleged conspiracy to defraud.
2
88. Each Defendant knowingly, intentionally and substantially assisted each other in
3
implementing the fraudulent scheme by the conduct described above, which included agreeing to
4
make material misrepresentations -- via misleading half-truths -- and to conceal material facts from
5
Plaintiff and making statements to Plaintiff that concealed said material facts. By making or
6
countenancing the half-truths, false pretenses and material nondisclosures that induced Plaintiff to
7
hold his Avanex shares and purchase additional ones, to his great detriment and damage, each
8
Defendant provided substantial assistance to each other in accomplishing their fraudulent objectives.
9
Plaintiff was injured in an amount to be proved at trial by the fraudulent scheme, which was
10
materially assisted by each Defendant. Therefore, to the extent any Defendant may not be primarily
11
responsible for the fraudulent conduct alleged herein, each such Defendant nonetheless is liable for
12
aiding and abetting the primary fraud committed by the others.

13
89. As a direct and proximate result of Defendants' misconduct, Plaintiff has suffered
14
severe financial and emotional damages as described in detail at Section IX, Paragraph 80, above,
15
among other damages, all of which will be established according to proof at trial.
16
90. The conduct described herein constitutes “oppression, fraud or malice” as those terms
17
are defined in Civil Code § 3294, and Plaintiff is therefore entitled to punitive damages in an amount
18
according to proof. Plaintiff is further informed and believes, and based upon such information and
19
belief, alleges that:
20
(a) The conduct described herein constituting oppression, fraud or malice was
21
committed by one or more officers, directors, or managing agents of Defendant Avanex who acted
22
on behalf of Defendant Avanex; or
23
(b) The conduct described herein constituting oppression, fraud or malice was
24
authorized by one or more officers, directors, or managing agents of Defendant Avanex; or
25
(c) One or more officers, directors, or managing agents of Defendant Avanex
26
knew of the conduct constituting malice, oppression, or fraud and adopted or approved that conduct
27
after it occurred.
28
-36-
1 SECOND CAUSE OF ACTION
2 (For Negligent Misrepresentation Against All Defendants)

5 92. Defendants made to Plaintiff the misrepresentations and half-truths (and
6 corresponding material nondisclosures) described in Section V, Paragraphs 32 through 34, 39
7 through 43, and 45 through 48 of this First Amended Complaint, without any reasonable grounds for
8 believing them to be true. These detailed allegations show how, when, where, to whom, and by
9 what means the Defendants representations (and correlative nondisclosures) were tendered to
10 Plaintiff.
11
93. For the reasons set forth in detail in Section VII, Paragraphs 69 through 74, above,
12
Defendants owed a duty to Plaintiff, which they breached, to make sure that the information and
13 assurances they provided to him regarding Avanex's financial situation was reasonably based upon
14 the information available to them, and that they reasonably believed such information to be accurate
15 and non-misleading. But Defendants made their factual misrepresentations, half-truths, and material
16 omissions in the face of overwhelming facts and evidence demonstrating the falsity of their
17 assertions and omissions. The falsity of Defendants' representations, half-truths and material
18 nondisclosures are described in detail at Section VI, Paragraphs 50 through 61, and Paragraphs 64
19 through 68, above. Accordingly, even if the Defendants entertained an honest belief that the
20 statements they made to Plaintiff were true -- a far-fetched proposition -- their statements still are
21 actionable because they were made without any reasonable basis for that belief.
22 94. Defendants made their misrepresentations and half-truths (and corresponding
23 material nondisclosures) with the intent that Plaintiff rely upon them; in particular, to induce
24 Plaintiff to hold on to and not sell his Avanex stock but instead to purchase still more Avanex stock
25 in order to prop up its share price.
26 95. Plaintiff in fact, actually, reasonably, and justifiably relied upon the Defendants'
27 representations and half-truths (and correlative material nondisclosures), as set forth in detail in
28 Paragraphs 24 through 26, in Paragraphs 39 through 48, and summarized in Section VIII,
-37-
1
2
96. Defendants' affirmative factual misrepresentations and half-truths (and corresponding
3
material nondisclosures) were the immediate cause of the Plaintiff's conduct which altered his legal
4
relations and financial status, in that, among other things, Plaintiff held on to and did not sell his
5
Avanex shares -- as he expressly told Defendants he planned to do absent their assurances regarding
6
the company's financial condition and related matters (as previously alleged) -- and without such
7
misrepresentations, half-truths and material nondisclosures, Plaintiff would not have held on to his
8
shares much less purchased additional ones at Defendants' insistent urging, but instead would have
9
sold them all at the first practicable opportunity after learning the truth.
10
97. The true state of facts about Avanex's actual financial condition and prospects were
11
unknown and unavailable to Plaintiff through the exercise of reasonable diligence. Plaintiff in fact,
12
actually, reasonably, and justifiably relied upon the Defendants' representations and half-truths (and
13
correlative material nondisclosures), as set forth in detail in Section VIII, Paragraphs 75 through 79
14
of this First Amended Complaint.
15
16
17
18
THIRD CAUSE OF ACTION
19 (For Fraudulent Concealment Against All Defendants)
22 100. Defendant Avanex (through its authorized agents) made the representations of fact
23 detailed in Section V, Paragraphs 32 through 34, 39 through 43, and 45 through 48 of this First
24 Amended Complaint. Defendant Thayer made the representations of fact attributed to her in
25 Paragraphs 27 through 29 of this First Amended Complaint. Weinswig made the representations of
26 fact attributed to him in Paragraphs 32 through 34, 39 through 43, and 45 through 48 of this First
27 Amended Complaint. Defendant Smith made the representations of fact attributed to him in
28 Paragraphs 22 and 23 (the July 7, 2008 press release) of this First Amended Complaint. Defendant
-38-
1
Barbarossa made the representations of fact attributed to him in Paragraphs 22 and 23 (the July 7,
2
2008 press release), and in Paragraphs 32 through 34 of this First Amended Complaint (the August
3
21, 2008 ICC). These detailed allegations show how, when, where, to whom, and by what means
4
the Defendants representations (and correlative nondisclosures) were tendered to Plaintiff.
5
101. As more fully detailed in Section V, above, Defendants disclosed some facts to
6
Plaintiff (including in the July 7, 2008 Avanex press release, in the August 21, 2008 press release
7
and ICC, and in telephone calls with Thayer and Weinswig) but intentionally failed to disclose other
8
important facts that would be and were material to any reasonable investor deciding whether to hold,
9
sell or purchase shares of Avanex stock, making the disclosures they did make deceptive and
10
misleading. Specifically, Defendants stated that Dr. Major was fired solely for not getting along
11
with the Board, but failed to disclose other substantive reasons for Dr. Major's termination: (i) that
12
Defendant Avanex was suffering from severe financial and operational problems that resulted in a
13
loss of customers and a delay in getting new products to market; (ii) that Avanex's internal financial
14
controls were infected by substantial, material weaknesses that significantly undermined their
15
reliability and accuracy; (iii) that Paul Smith was elevated to Chairman of the Board in order to
16
effectuate the sale of merger of the company; (iv) that given serious questions about the ability of
17
the company to survive as a going concern, Barbarossa and Weinswig needed to prop up Avanex's
18
share price to forestall delisting in order to sell or merge the company on relatively favorable terms.
19
102. The falsity of Defendants' representations, half-truths and material nondisclosures are
20
described in detail at Section VI, Paragraphs 50 through 61, and Paragraphs 64 through 68, above.
21
103. For the reasons articulated in detail in Section VII, Paragraphs 69 through 74, above,
22
the Individual Defendants owed to Plaintiff duties of fidelity, care and disclosure, and were in either
23
a fiduciary and/or "confidential relationship" with Plaintiff as that term is defined under California
24
law. Because Thayer, Smith, Barbarossa and Weinswig stood in a fiduciary and/or confidential
25
relationship with Plaintiff; because the Individual Defendants had superior knowledge of the true
26
state of facts which were unknown and unavailable to Plaintiff through the exercise of reasonable
27
diligence; because they were aware and intended that Plaintiff rely upon their integrity and fidelity,
28
and it was reasonable for Plaintiff to repose confidence and trust in them under the circumstances;
-39-
1
and because they used half-truths to mislead Plaintiff, the Individual Defendants had a duty to
2
disclose the true state of Avanex's financial condition and prospects and the true reasons for Dr.
3
Major's abrupt termination (and Ms. Sanchez's resignation). By making affirmative representations
4
and material nondisclosures about the company's financial condition and prospects and about the
5
reasons for Dr. Major's abrupt termination (and Ms. Sanchez's resignation), Defendants were under a
6
duty to speak the whole truth so that they do not and did not conceal any facts which materially
7
qualify those stated. One who is asked for or volunteers information must be truthful, and the telling
8
of a half truth calculated to deceive due to the suppression or concealment of material facts
9
constitutes deceit under California Civil Code §§ 1709 and 1710.
10
104. Plaintiff did not know of the material facts that the Defendants concealed from him
11
and suppressed. Defendants intended to deceive Plaintiff by concealing and suppressing the facts
12
identified in Section VI, Paragraphs 50 through 60, and Paragraphs 63 through 67, of this First
13
Amended Complaint.
14
15
16
17
18
106. Plaintiff was harmed Defendants’ deception because he did not sell his shares of
19
stock in Avanex and it dramatically decreased in value until it was sold for much less than Plaintiff
20
paid for it. Plaintiff was also damaged because he purchased more shares of Avanex stock, which
21
thereafter declined in value until it was sold for much less than Plaintiff paid for it. In particular, if
22
Defendants' had told the truth on July 7, 2008, Plaintiff would have sold all of his shares by July 8,
23
2008 or as soon as practicable after the July 7, 2008 press release (as Plaintiff told Defendants he
24
planned to do absent further assurances by them). If Defendants have told the whole truth in the
25
August 21, 2008 press release and ICC, Plaintiff would have sold all of his shares by August 22,
26
2008, or as soon as practicable after the August 21, 2008 press release and ICC (as Plaintiff told
27
Defendants he planned to do absent further assurances by them). If Defendants had told the whole
28
truth, moreover, Plaintiff would not only have immediately sold all of his shares of stock of
-40-
1
Defendant Avanex at the then prevailing market price, he would not have purchased any additional
2
shares of that stock.
3
107. Defendants’ concealment of the material facts identified in Section VI, Paragraphs 50
4
through 60, and Paragraphs 63 through 67, of this First Amended Complaint was a substantial factor
5
in causing Plaintiff’s harm; indeed, it was the direct and proximate cause of Plaintiff's harm.
6
108. Each Defendant knowingly and willfully conspired and agreed with each other to
7
assist in the accomplishment of Avanex's fraudulent scheme by undertaking the activity described
8
above. Defendants did the acts and things herein alleged pursuant to, and in furtherance of, said
9
conspiracy. Each member of the class made his or her investment in reliance upon the
10
misrepresentations of one or more members of the conspiracy and were injured in an amount to be
11
determined according to proof. Each Defendant is liable for all of the injury to Plaintiff by virtue of
12
his/its participation in the above-alleged conspiracy to defraud.

13
109. Each Defendant knowingly, intentionally and materially assisted Avanex's fraudulent
14
scheme by the conduct described above, which included agreeing to make material
15
misrepresentations -- via misleading half-truths -- and to conceal material facts from Plaintiff and
16
making statements to Plaintiff that concealed said material facts. Plaintiff was injured in an amount
17
to be proved at trial by the fraudulent scheme, which was materially assisted by each Defendant.
18
Therefore, each Defendant is liable for aiding and abetting the fraud committed by Avanex.
19
20
21
22
23
are defined in Civil Code §3294, and Plaintiff is therefore entitled to punitive damages in an amount
24
25
26
27
28
-41-
1
2
3
4
5
after it occurred.
6
FOURTH CAUSE OF ACTION
7
(For Constructive Fraud Against All Defendants)
8
112. Plaintiff incorporates by reference the allegations contained in Paragraphs 1 through
9
80 of this First Amended Complaint.
10
113. Defendant Avanex (through its authorized agents) made the representations of fact
11
detailed in Section V, Paragraphs 32 through 34, 39 through 43, and 45 through 48 of this First
12
Amended Complaint. Defendant Thayer made the representations of fact attributed to her in
13
Paragraphs 27 through 29 of this First Amended Complaint. Weinswig made the representations of
14
fact attributed to him in Paragraphs 32 through 34, 39 through 43, and 45 through 48 of this First
15
Amended Complaint. Defendant Smith made the representations of fact attributed to him in
16
Paragraphs 22 and 23 (the July 7, 2008 press release) of this First Amended Complaint. Defendant
17
Barbarossa made the representations of fact attributed to him in Paragraphs 22 and 23 (the July 7,
18
2008 press release), and in Paragraphs 32 through 34 of this First Amended Complaint (the August
19
21, 2008 ICC). These detailed allegations show how, when, where, to whom, and by what means
20
the Defendants representations (and correlative nondisclosures) were tendered to Plaintiff.
21
114. As set forth in detail in Section VII, at Paragraphs 69 through 74, above, by virtue of
22
their titles and positions and by engaging in the conduct described above, Defendants owed a
23
fiduciary duty to Plaintiff and/or were in a confidential relationship with him. Plaintiff reposed
24
faith, confidence, trust and reliance upon the judgment and advise of Defendants. Plaintiff and
25
Defendants were in a confidential and/or fiduciary relationship based upon the faith, confidence,
26
trust and reliance that Plaintiff placed in what Defendants represented to be superior knowledge,
27
judgment and advice. As are result, Defendants owed to Plaintiff at all time relevant herein a duty
28
of disclosure, fidelity and care.
-42-
1
115. Defendants breached these fiduciary duties of disclosure, fidelity and care by
2
concealing material facts from Plaintiff and by making misrepresentations and half-truths to Plaintiff
3
which omitted these material facts. Defendants' misstatements, half-truths and material
4
nondisclosures are described in detail at Section VI, Paragraphs 50 through 61, and Paragraphs 64
5
through 68, above. The constructive fraud consists of Defendants' breach of the triad of fiduciary
6
duties of disclosure, fidelity and care that they owed to Plaintiff (as set forth in Section VII, at
7
Paragraphs 69 through 74, above): namely, (i) Defendants' breach of their fiduciary duty of
8
disclosure to Plaintiff of relevant material matters arising from the relationship; (ii) Defendants'
9
breach of their fiduciary duty of fidelity to Plaintiff by putting their selfish interests ahead of and in
10
conflict with Plaintiff's interests; and (iii) Defendants' breach of their fiduciary duty of care to
11
Plaintiff by making misstatements, half-truths and material nondisclosures without undertaking any
12
reasonable investigation to inform themselves adequately about the truth or falsity of their
13
statements and material nondisclosures before making them, lacking any reasonable basis for
14
believing them to be true and non-misleading and/or in fact not believing them to be true and non-
15
misleading when made.
16
116. Defendants acted with an intent to deceive Plaintiff and to induce his reliance upon
17
their misstatements, half-truths, and material nondisclosures, by convincing him to forebear from his
18
stated intention to sell all of his Avanex shares at the times previously alleged, and to induce him to
19
purchase additional shares.
20
117. The true state of facts about Avanex's actual financial condition and prospects were
21
unknown and unavailable to Plaintiff through the exercise of reasonable diligence, in that they were
22
in the sole possession of Defendants, who had superior knowledge about them; and Defendants'
23
gained Plaintiff's confidence and trust by virtue of their titles, superior information, position of
24
authority and control, inducing Plaintiff to repose faith in their fidelity and good will in looking after
25
his interests. The reasonableness of Plaintiff's diligence in not discovering the true state of facts
26
sooner must, therefore, be measured in light of the confidential and fiduciary relationship
27
Defendants maintained with Plaintiff under the circumstances detailed in Section VII, at Paragraphs
28
69 through 74, above.
-43-
1
2
3
4
Paragraphs 75 through 79, of this First Amended Complaint.
5
119. At all relevant times, Plaintiff reasonably believed that Defendants were acting with
6
Plaintiff’s best interest in mind in advising and reassuring Plaintiff based on what was in the best
7
interest of Plaintiff by holding and purchasing more Avanex stock.
8
120. As a direct and proximate result of Defendants', Plaintiff suffered substantial
9
damages and severe emotional distress as described in Section IX, Paragraph 80, of this First
10
Amended Complaint, among other damages, all of which will be established according to proof at
11
trial.
12
13
are defined in Civil Code § 3294, and Plaintiff is therefore entitled to punitive damages in an amount
14
15
16
17
18
19
20
21
22
23
after it occurred.
24
FIFTH CAUSE OF ACTION
25
(For Intentional Infliction Of Emotional Distress Against All Defendants)
26
122. Plaintiff incorporates by reference the allegations contained in Paragraphs 1 through
27
80 of this First Amended Complaint.
28
123. Defendants' conduct, as alleged herein, did not consist of mere insults, indignities,
-44-
1
threats, annoyances, petty oppressions, or other trivialities. Rather, by making affirmative
2
misrepresentations and half-truths, and failing to disclose facts necessary to make their
3
representations, in the context in which they were made, not misleading, Defendants intentionally
4
gave Plaintiff false hopes about Avanex's future and prospects in order to induce him to hold shares
5
and acquire new ones, even though they knew that Plaintiff's life savings were at risk. By dealing
6
with Plaintiff directly, in person-to-person emails and telephone calls, on a regular basis during the
7
relevant time period, Defendants knew that they were in a relation or position of power and trust
8
which gave them the ability to damage the Plaintiff's interests, which they abused to harm Plaintiff.
9
124. For example, following Avanex's disastrous August 21, 2008 press release, Plaintiff
10
wrote an email to defendant Smith, Avanex's Chairman, telling him:
11
"Paul, I have my life saving tied to Avanex and this is becoming

12
extremely stressful and unbearable."

13
Plaintiff previously had made substantively identical comments to Thayer and Weinswig during
14
their telephone conversations. As a result of these extensive and ongoing communications,
15
Defendants knew, or were reckless in not knowing, that Plaintiff was and is susceptible to injuries
16
through mental distress and emotional anguish due to the loss of his life's savings due to the
17
Defendants' fraudulent misconduct. Defendants therefore acted intentionally or unreasonably, in a
18
reckless and heartless manner, with the recognition that their misconduct would likely to result in
19
Plaintiff's illness through mental distress and emotional anguish. As such, Defendants' calculated
20
scheme to defraud Plaintiff constitutes extreme and outrageous conduct, exceeding all bounds of
21
decency usually tolerated by a decent society; and was misconduct of a nature calculated to cause
22
Plaintiff, and which did cause him, severe mental and emotional anguish and distress beyond that
23
which any normal person could be expected to endure.
24
125. Plaintiff's severe mental and emotional anguish and distress, which was and is
25
directly and proximately caused by Defendants' extreme and outrageous conduct (as previously
26
described), because such anguish and distress naturally ensued from the acts complained of. Losing
27
one's life's savings and one's home because of another's fraud is more than any normal person can be
28
expected to endure.
-45-
1
2
damages and severe emotional distress as described in Section IX, Paragraph 80 of this First
3
Amended Complaint, at Paragraph 80, among other damages, all of which will be established
4
according to proof at trial. Losing one's life's savings because of another's negligent, reckless or
5
intentional conduct naturally would cause mental anguish more than any normal person can be
6
expected to endure, and exceeds the bounds of what can and should be expected in a decent society
7
governed by the rule of law.
8
9
are defined in Civil Code §3294, and Plaintiff is therefore entitled to punitive damages in an amount
10
11

12
13
committed by one or more of Avanex's officers, directors, or managing agents who acted on its
14
behalf; or
15
16
authorized by one or more of Avanex's officers, directors, or managing agents who acted on its
17
behalf; or
18
19
20
after it occurred.
21 SIXTH CAUSE OF ACTION
22 (For Negligent Infliction Of Emotional Distress Against All Defendants)
25 129. Defendants owed a duty of care, candor, disclosure and fidelity to Plaintiff, for
26 multiple reasons as set forth in detail in Section VII, Paragraphs 66 through 74, above.
27 130. By their misconduct, as previously alleged, Defendants' breached their duty of care,
28 candor, disclosure, and fidelity to Plaintiff. Defendants' conduct, as alleged herein, did not consist
-46-
1
of mere insults, indignities, threats, annoyances, petty oppressions, or other trivialities. They
2
instead made affirmative misrepresentations and half-truths, suppressing and concealing material
3
facts, and failed to disclose facts necessary to make their representations, in the context in which
4
they were made, not misleading. In doing so, Defendants intentionally gave Plaintiff false hopes
5
about Avanex's future and prospects in order to induce him to hold shares and acquire new ones,
6
even though they knew that Plaintiff's life's savings were at risk and he would almost certainly suffer
7
serious emotional distress as a result of their misconduct. By dealing with Plaintiff directly in
8
person-to-person emails and telephone calls on a regular basis during the relevant time period,
9
Defendants knew that they were in a relation or position of power and trust which gave them the
10
ability to damage Plaintiff's interests; yet they abused their relation or position of power to harm
11
Plaintiff both financially and emotionally.

12
131. As a result of these extensive and ongoing communications, Defendants knew, or

13
were reckless in not knowing, that Plaintiff was and is susceptible to injuries through mental distress
14
and emotional anguish due to the loss of his life's savings because of Defendants' fraudulent
15
misconduct. For example, following Avanex's disastrous August 21, 2008 press release, Plaintiff
16
wrote an email to Paul Smith, Chairman of Avanex's Board of Directors, telling him: "Paul, I have
17
my life saving tied to Avanex and this is becoming extremely stressful and unbearable." Plaintiff
18
previously had made substantively identical comments to Thayer and Weinswig during their
19
telephone conversations, as previously alleged. Defendants therefore acted, at bare minimum, in a
20
negligent and entirely thoughtless manner towards Plaintiff when they knew or should have known
21
that their misconduct would likely -- indeed inevitably -- result in Plaintiff's mental distress and
22
emotional anguish.
23
24
damages and severe emotional distress as described in Section IX of this First Amended Complaint,
25
at Paragraph 80, among other damages, all of which will be established according to proof at trial.
26
Losing one's life's savings because of another's negligent, reckless or intentional conduct naturally
27
would cause mental anguish more than any normal person can be expected to endure, and exceeds
28
the bounds of what can and should be expected in a decent society governed by the rule of law.
-47-
1 XI. PRAYER FOR RELIEF
2 WHEREFORE, Plaintiff prays for judgment against Defendants, and each of them, as
3 follows:
4 1. For an award of compensation (whether by way of general and special damages or
5 restitution and including damages for mental and emotional distress) in the sum of at least
6 $5,000,000, together with such sums necessary to extinguish the debts Plaintiff incurred as a result
7 of Plaintiffs' misconduct, together with prejudgment interest thereon;
8 2. For punitive damages as may be permitted by law;
9 3. For costs of suit incurred herein; and
10 4. For such other and further relief as this Court may deem proper.
11
DATED: June 8, 2009 Respectfully submitted,

12
LAW OFFICES OF MARK ANCHOR ALBERT

13
14
15 By:
Mark Anchor Albert
16 Attorneys for Plaintiff Bijan Badihian
17
18
19
20
21
22
23
24
25
26
27
28
-48-
1
PROOF OF SERVICE
2 I reside and work in the County of Los Angeles, State of California. I am over the age of 18
and not a party to the within action; my business address is The Law Office of Mark Anchor Albert,
3 333 S. Grand Avenue, 25th Floor, Los Angeles, California 90071.
4 On June 8, 2009, I served the foregoing document(s) described as:
5
PLAINTIFF BIJAN BADIHIAN'S FIRST AMENDED COMPLAINT
6
on the interested party(ies) at the address(es) set forth below:
7
8 Bruce Vanyo, Esq.
Helen B. Kim, Esq.
9 KATTEN MUCHIN ROSEMAN LLP
10 2029 Century Park East, Ste. 2600
Los Angeles, California 90067
11 (Attorneys for Defendants Avanex Corp., Giovanni Barbarossa,
Jamie Thayer, and Mark Weinswig)

12
13 (BY FIRST CLASS MAIL) I am “readily familiar” with the firm’s practice of
collection and processing correspondence for mailing. Under that practice it would be deposited
14 with U.S. postal service on that same day as shown on this declaration with First Class postage
thereon and fully prepaid at Los Angeles, California in the ordinary course of business. I am aware
15 that on motion of the party served, service is presumed invalid if postal cancellation date or postage
meter date is more than one day after date of deposit for mailing affidavit.
16
(BY FEDERAL EXPRESS) By Federal Express for next business day delivery.
17
(BY PERSONAL SERVICE) I caused to be served by hand-delivery copies of the
18 aforementioned documents to the above-named addressee.
19 (BY FACSIMILE) I caused said document to be transmitted electronically to the
interested parties at the facsimile numbers stated on the attached service list.
20
(BY ELECTRONIC MAIL (PDF FORMAT)) I caused said document to be
21 transmitted electronically, pursuant to the parties' agreement, to the interested parties at
bruce@kattenlaw.com and helen.kim@kattenlaw.com.
22
23 I declare under perjury under the laws of the State of California that the above is true and
correct.
24
Executed on June 8, 2009, at Los Angeles, California.
25
26
27
Mark Anchor Albert
28
-49-

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1 Mark Anchor Albert (SBN 137027)

LAW OFFICES OF MARK ANCHOR ALBERT

5 Attorneys for Plaintiff Bijan Badihian

) Conrad Aragon, Department 49]

21 6. Negligent Infliction of Emotional

5 IV. COMMON BACKGROUND ALLEGATIONS. ................................................................ 6

12 B. Avanex Makes Direct, Person-To-Person Representations To Plaintiff In A

7 C. On November 25, 2008, Avanex's Board, At Smith's Urging, Provides For

22 SECOND CAUSE OF ACTION

B. Nasdaq's Listing Qualification Department Warns Avanex On March 5, 2008

For At Least 10 Consecutive Days.

was subsequently acquired by Bookham -- would be appointed as the non-executive Chairman of

ranging from 10-for-1 to 15-for-1.

firing said as much)...

[¶] Shame on you and your BOD...

the same date, sending Plaintiff an email stating:

11 compared to net income of $45,000 or break-even in the same period in 2007.

trust and confidence which he reasonably reposed in them.

therefore, a typical shareholder acting as a bystander watching passively as Avanex's financial

they needed to prop up the share price in the meantime.

12 80 of this First Amended Complaint.

23 the Defendants representations (and correlative nondisclosures) were tendered to Plaintiff.

misrepresentations, half-truths and material nondisclosures, he purchased more shares of Avanex

aiding and abetting the primary fraud committed by the others.

2 (For Negligent Misrepresentation Against All Defendants)

his/its participation in the above-alleged conspiracy to defraud.

"Paul, I have my life saving tied to Avanex and this is becoming

extremely stressful and unbearable."

belief, alleges that:

22 (For Negligent Infliction Of Emotional Distress Against All Defendants)

23 128. Plaintiff incorporates by reference the allegations contained in Paragraphs 1 through

24 80 of this First Amended Complaint.

Plaintiff both financially and emotionally.

131. As a result of these extensive and ongoing communications, Defendants knew, or

4 1. For an award of compensation (whether by way of general and special damages or

7 of Plaintiffs' misconduct, together with prejudgment interest thereon;

8 2. For punitive damages as may be permitted by law;

9 3. For costs of suit incurred herein; and

DATED: June 8, 2009 Respectfully submitted,

LAW OFFICES OF MARK ANCHOR ALBERT

Jamie Thayer, and Mark Weinswig)

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