In Re Neustar, Inc. Securities Litigation 14-CV-00885...
Transcript of In Re Neustar, Inc. Securities Litigation 14-CV-00885...
Case 1:14-cv-00885-JCC-TRJ Document 23 Filed 11/06/14 Page 1 of 72 Page ID# 229
UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
IN RE NEUSTAR, INC. SECURITIES Case No. 14-CV-00885 JCC TRJ LITIGATION
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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TABLE OF CONTENTS
1. NATURE OF THE ACTION ............................................................................. 1
II. JURISDICTION AND VENUE ......................................................................... 5
III. PARTIES ............................................................................................................ 6
A. Lead Plaintiff ............................................................................................. 6
B. Defendants ................................................................................................. 6
C. Relevant Non-Party.................................................................................... 8
IV. FACTUAL BACKGROUND AND SUBSTANTIVE ALLEGATIONS .......... 8
A. Number Portability and Neustar's Longstanding Role as the Sole Local Number Portability Administrator.................................
B. Telcordia Successfully Petitions the FCC to Reintroduce Competition to Number Portability
Administration, Threatening Neustar's Monopoly Profits ........................ 12
C. The NAPM Unexpectedly Extends the Deadline for Competing Bidders to Submit Proposals, Putting
Neustar's Competitive Standing at Significant Risk ................................. 15
D. The NAPM Unexpectedly Delays the Timeline for the Selection Process, Heightening Investor
Concerns About Neustar's Competitive Standing ..................................... 18
E. The NAPM Initiates a Best and Final Offer Process for Neustar and Telcordia to
Submit Their Most Competitive Proposals................................................ 18
F. Defendants, Knowing Neustar Has Been Outbid By Telcordia, Secretly Submit an Unsolicited Revised BAFO and Repeatedly
Ask FoNPAC to Reopen the Bidding Process ........................................... 19
G. Price Was the Determining Factor Separating the Neustar and Telcordia BAFOs, and the Price
Difference Alone Justified Selecting Telcordia......................................... 20
H. Defendant Hook Breaches Protocol and
Appeals Directly to the Chairman of the FCC........................................... 23
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I. Defendants Belatedly Reveal Part of
Their Secret Efforts to Edge Out Telcordia .......................... 25
J. Defendants Continue to Scramble to Avoid
Losing the NPAC Contracts to Telcordia ............................ 25
K. The NANC Unanimously Recommends
That the FCC Select Telcordia as Sole LNPA...................... 28
L. The NANC Recommendation Leads Neustar to
Consider Selling Itself to a Private Equity Firm................... 29
V. DEFENDANTS' MATERIALLY FALSE AND MISLEADING
STATEMENTS AND OMISSIONS OF MATERIAL FACT ...... 30
A. April 18, 2013 "Statement" on
Extension of RFP Submission Deadline ............................... 30
B. May 2, 2013 First Quarter
Press Release and Conference Call....................................... 32
C. July 30, 2013 Second Quarter Conference Call .................... 34
D. October 30, 2013 Third Quarter
Press Release and Conference Call....................................... 36
VI. THE TRUTH BEGINS TO EMERGE .......................................... 38
A. January 29, 2014 Partially Corrective
"Update" and Conference Call ............................................ 38
B. Continued Material Misstatements in the April 16, 2014
First Quarter Press Release and Conference Call ................. 41
C. The NANC's Recommendation of Telcordia Over
Neustar Is Revealed, Fully Correcting the Market ............... 44
VII. ADDITIONAL INDICIA OF SCIENTER .................................... 45
VIII. THE STATUTORY SAFE HARBOR AND BESPEAKS
CAUTION DOCTRINE ARE INAPPLICABLE .......................... 51
IX. LOSS CAUSATION...................................................................... 52
X. CONTROLLING PERSON ALLEGATIONS .............................. 53
XI. CLASS ACTION ALLEGATIONS .............................................. 54
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XII. LEAD PLAINTIFF AND CLASS MEMBERS ARE ENTITLED TO A PRESUMPTION OF RELIANCE ........................... 57
XIII. CAUSES OF ACTION ........................................................................... 59
COUNT I Asserted Against Defendant Neustar for Violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule lOb-S Promulgated Thereunder................... 59
COUNT II Asserted Against the Individual Defendants for Violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule lOb-S Promulgated Thereunder................... 62
COUNT III Asserted Against the Individual Defendants for Violations of Section 20(a) of the Securities Exchange Act of 1934 ..... 66
XIV. PRAYER FOR RELIEF ......................................................................... 67
XV. JURY DEMAND .................................................................................... 68
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Court-appointed Lead Plaintiff Indiana Public Retirement System ("Lead Plaintiff' or
"INPRS"), by and through its undersigned counsel, alleges the following individually and on
behalf of a class of all persons and entities that purchased or otherwise acquired the publicly
traded securities of Neustar, Inc. ("Neustar" or the "Company") between April 19, 2013 and June
6, 2014, inclusive (the "Class Period" and the "Class," as further defined herein), upon
information and belief, except as to those allegations concerning Lead Plaintiff, which are
alleged upon personal knowledge. Lead Plaintiff's allegations are based upon the investigation
of its counsel, which included a review of reports filed by Neustar with the U.S. Securities and
Exchange Commission ("SEC"); press releases and other public statements issued by Neustar;
documents filed by Neustar, Telcordia Technologies, Inc. d/b/a iconectiv ("Telcordia"), and
others with the Federal Communications Commission ("FCC"); securities analysts' reports about
Neustar; media and news reports related to Neustar; data and other information concerning
Neustar securities; and other publicly available information concerning the Company and the
Individual Defendants (as defined below); as well as discussions with consulting experts. Lead
Plaintiff believes that substantial additional evidentiary support will exist for the allegations set
forth herein after a reasonable opportunity for discovery.
I. NATURE OF THE ACTION
1. This securities class action concerns a high-stakes competition between an
incumbent and a challenger to be selected by the FCC to serve as the next Local Number
Portability Administrator ("LNPA"). Number portability emerged in the late 1990s and enables
telephone customers to retain their phone number in the same location if they switch telephone
service providers. The LNPA manages the Number Portability Administration Center
("NPAC"), a large central data registry that includes essentially all of the wireline and wireless
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telephone numbers in the United States, and allows numbers to be ported from one service
provider to another.
2. Since 1997, when the NPAC was implemented, Neustar has been the sole LNPA
for the United States. Neustar's monopoly over number portability administration has been
increasingly lucrative. In 2013, Neustar generated more than $440 million—nearly half of its
annual revenue—from its NPAC Contracts, and enjoys remarkable profit margins, exceeding 60
percent, on these high technology services. Beginning in 2007, after telecommunications
companies began to voice concerns about the cost and structure of the NPAC Contracts,
Telcordia, a leading competitor of Neustar, successfully petitioned the FCC to conduct the first
competitive bidding process for number portability administration since 1996. The FCC directed
the North American Numbering Council (the "NANC"), the federal advisory committee that
advises the FCC on telephone numbering issues, to make a recommendation to the FCC as to
which bidder to select as the next LNPA starting in July 2015.
3. This case is about Defendants' materially false and misleading statements
regarding Neustar's competitive standing in the selection process and the significant and
increasing risk that the Company, after 17 years as the sole LNPA, would lose the NPAC
Contracts to Telcordia.
4. Given the Company's sole and incumbent status and the importance and
complexity of NPAC administration, Defendants initially believed that the FCC would once
again renew Neustar's NPAC Contracts. Neustar, in fact, nearly avoided having to compete for
the NPAC Contracts at all, after Telcordia apparently failed to meet the submission requirements
by the April 2013 deadline. The deadline was subsequently extended by two weeks, however,
after Neustar submitted its confidential proposal, to allow competing bidders to participate.
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Defendants complained bitterly to the FCC, asserting that the deadline extension was seriously
prejudicial to Neustar by, among other things, perversely favoring that bidders that could not
meet the deadline and raising the risk that Neustar's bid was leaked to competing bidders.
5. While Defendants were crying foul to the FCC, however, they were repeatedly
assuring investors that Neustar was well-positioned to win renewal of the NPAC Contracts and
that the Company's long track record and high quality of service set it apart from its competitors.
And as Neustar's competitive standing worsened during the Class Period, Defendants continued
to reassure investors of their confidence in their proposal when, in fact, they were scrambling
behind the scenes to stay competitive and beat Telcordia.
6. In August 2013, after the FCC's designees reviewed Neustar's and Telcordia's
initial proposals, they were asked to submit their most competitive best and final offers
("BAFO5"). Both did so in September. Neustar's BAFO, however, did not offer the Company's
most competitive price for the NPAC Contracts, and instead reflected Defendants' effort to
preserve the large premium associated with Neustar's monopoly and incumbent status. And, as
Defendants soon came to learn, their effort to perpetuate their monopoly profits resulted in
submitting a BAFO that was priced so much higher than Telcordia's BAFO that it seriously
jeopardized Neustar's chances. According to reports, Telcordia was "now likely to win the
LNPA contract outright because its bid [BAFO] came in significantly lower than Neustar's."
Indeed, "the gap between bids [was] so significant as to make it very difficult for Neustar to win
the contract."
Defendants, in fact, became so certain they were going to lose their coveted
NPAC Contracts that only a month later, in an underhanded effort to edge out Telcordia, Neustar
secretly submitted an unsolicited second BAFO (the "October Revised BAFO"), together with a
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request that bidding be reopened. The October Revised BAFO reportedly was "very different"
than Neustar's initial BAFO, and was carefully priced "to come in 'just under' Telcordia's bid."
Plainly, and as reported, Neustar improperly received "detailed knowledge" about Telcordia's
confidential BAFO and tried to capitalize on it outside the approved bidding process. None of
this, however, was disclosed during the Company's quarterly earnings call with securities
analysts at the end of October, only nine days later.
8. In November 2013, after not receiving a sufficiently prompt response to its
October submission, Defendants urged for a second time, again in secret, that their October
Revised BAFO be considered in place of the initial BAFO. And in January 2014, amid growing
concerns at the Company, Neustar's CEO broke protocol and called the Chairman of the FCC to
appeal to him directly to have the October Revised BAFO considered.
9. This conduct, which crossed the line with respect to the selection process, was
entirely inconsistent with Defendants' positive reassurances to investors during the Class Period
regarding Neustar's competitive standing and likelihood of winning the contract renewal.
10. Matters worsened for Neustar. The day after the CEO reached out to the FCC
Chairman, Defendants were informed that the October Revised BAFO was rejected—"returned
unopened" in FCC parlance. Defendants recognized that they could no longer hide their cynical
machinations from investors, and on January 29, 2014, Neustar stunned the market by
announcing that it had submitted a BAFO in September, that in October and again in November
it had submitted a revised BAFO and asked that bidding be reopened, and that the revised BAFO
would not be considered. Neustar common stock fell nearly 20 percent.
11. By this point, Defendants saw their sinecure and half the Company's revenues
slipping away, and knew that they would lose the NPAC Contracts unless they could
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fundamentally change the dynamics of the selection process, including by convincing the FCC
itself to intervene and direct that the October Revised BAFO be treated as Neustar's operative
proposal. None of this was disclosed on January 29, however, as Defendants put a brave face on
their chances and reiterated their confidence that Neustar ultimately would be selected.
12. In February and March 2014, Neustar made a flurry of efforts before the FCC to
salvage its position. This campaign culminated in Neustar's CEO personally offering a $50
million credit against the Company's fees on the NPAC Contracts if the NANC would delay its
recommendation decision by several months, during which time Neustar naturally would stay on
as sole LNPA.
13. Defendants continued to mislead investors as to Neustar's competitive standing
into April 2014, but its last-ditch efforts to change the game were failing. On June 6, 2014, it
was revealed that the NANC had unanimously recommended to the FCC that Telcordia replace
Neustar as the next LNPA.
14. The FCC and Neustar confirmed the news, and Neustar common stock lost
another 8 percent of its value. By the end of the Class Period, Neustar stock had lost more than
42 percent of its value from the start of the Class Period, and more than 56 percent of its value
from its Class Period high, costing Lead Plaintiff and members of the Class hundreds of millions
of dollars in damages.
II. JURISDICTION AND VENUE
15. The claims asserted herein arise under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and the rules and
regulations promulgated thereunder by the SEC, including Rule lOb-5, 17 C.F.R. § 240. lOb-S.
16. This Court has jurisdiction over the subject matter of this action pursuant to
Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1331.
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17. Venue is proper in this District pursuant to Section 27 of the Exchange Act, 15
U.S.C. § 78aa, and 28 U.S.C. § 1391(b). The Company maintains its principal place of business
in this District and many of the acts that constitute the violations of law complained of herein,
including dissemination of materially false and misleading information to the investing public,
occurred in or were issued from this District.
18. In connection with the acts alleged in this Complaint, Neustar and the Individual
Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
including, but not limited to, the mails, interstate telephone communications, and the facilities of
the national securities markets.
III. PARTIES
A. Lead Plaintiff
19. Lead Plaintiff Indiana Public Retirement System ("INPRS") is a pension system
of the State of Indiana. INPRS is responsible for the investment of approximately $30 billion in
net assets in multiple defined benefit and defined contribution retirement plans. INPRS presently
serves the needs of approximately 450,000 members and retirees representing more than 1,100
employers including public universities, school corporations, municipalities and state agencies.
20. INPRS purchased shares of Neustar common stock during the Class Period, as set
forth in the certification previously filed with the Court, and suffered damages as a result of the
federal securities law violations alleged herein. By Order dated October 7, 2014, the Court
appointed INPRS as the Lead Plaintiff in this action.
B. Defendants
21. Defendant Neustar, Inc. ("Neustar" or the "Company") is a communications data
processing company that provides directory and analytic services to telecommunications
companies and internet service providers. Neustar describes itself as "a neutral and trusted
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provider of real-time information services and analytics, using authoritative, hard-to-replicate
datasets and proprietary analytics to help our clients promote and protect their businesses."
Neustar was incorporated in Delaware in 1998 and maintains its principal executive offices at
21575 Ridgetop Circle, Sterling, Virginia 20166. Neustar's common stock trades under the
ticker symbol "NSR" on the New York Stock Exchange ("NYSE"), which is an efficient market.
22. Defendant Lisa A. Hook ("Hook") is President and Chief Executive Officer of
Neustar and a member of the Company's Board of Directors. Hook has served as President since
joining Neustar in January 2008, as CEO since October 2010, and as a director since November
2010. As President and CEO, Hood is an Executive Officer of the Company.
23. Defendant Paul S. Lalljie ("Lalljie") has served as Senior Vice President and
Chief Financial Officer of Neustar since June 2009, and is an Executive Officer of the Company.
Lalljie served as Senior Vice President, Interim CFO and Treasurer from January 2009 to June
2009, and as Vice President, Financial Planning & Analysis and Treasurer from December 2006
to January 2009. From 2000 through December 2006, Lalljie served in a variety of roles in
corporate finance at the Company, including accounting, financial planning and analysis,
treasury and investor relations.
24. Defendant Steven J. Edwards ("Edwards") has served as Senior Vice President,
Data Solutions since October 2013, and is an Executive Officer of the Company. Edwards
served as Senior Vice President, Carrier Services from 2011 until October 2013. Prior to
becoming Senior Vice President, Carrier Services, Edwards served in a variety of Carrier
Services roles at Neustar from August 2008 through August 2011.
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25. Defendants Hook, Lalijie, and Edwards are referred to herein collectively as the
"Individual Defendants." Defendant Neustar and the Individual Defendants are referred to
herein together as "Defendants."
C. Relevant Non-Party
26. Telcordia Technologies, Inc. d/b/a iconectiv ("Telcordia"), based in Piscataway,
New Jersey, is a world leader in number portability administration and provides services in 19
countries. Formerly Bell Communications Research, Inc. or Bellcore, Telcordia was the
telecommunication research and development company created as part of the 1982 break-up of
AT&T. In 2012, Telcordia was acquired by telecommunications giant Ericsson. In February
2013, Ericsson announced that its interconnection business, known previously as Telcordia
Interconnection Solutions, had been renamed iconectiv. The iconectiv unit covers such areas as
number portability, device theft and counterfeit prevention, information services, numbering and
addressing, mobile messaging and spectrum management.
IV. FACTUAL BACKGROUND AND SUBSTANTIVE ALLEGATIONS
A. Number Portability and Neustar's Longstanding Role as the Sole Local Number Portability Administrator
27. Local number portability ("LNP"), also known as number portability and number
porting, enables consumers to keep their telephone number when switching from one
telecommunications service provider to another. Before LNP was introduced, changing service
providers meant consumers had to get a new telephone number. Number portability enables
consumers to retain the same telephone number when changing service providers.
28. LNP was a revolutionary idea when it was first considered in the mid-1990s, and
was mandated in the Telecommunications Act of 1996. Congress and the FCC recognized that
successful implementation of LNP would foster competition in the telephone business, which
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was a key goal of the Telecommunications Act. Number portability originally was mandated
only for wireline services. Wireless number portability was implemented in 2004.
29. The North American Numbering Council ("NANC") is a federal advisory
committee established by the FCC in October 1995 to advise the agency on telephone numbering
issues and to make recommendations that foster efficient and impartial administration of the
North American Numbering Plan ("NANP"). The NANP is the telephone numbering plan for
the United States and its territories, Canada, Bermuda, and 17 Caribbean nations. The NANC's
current membership represents a broad cross-section of the U.S. telecommunications industry,
with representatives from local exchange carriers, interexchange carriers, wireless providers,
manufacturers, state regulators, consumer interests, and telecommunications industry
associations. The NANC's 29 voting members presently include several state public utility
commissioners, telecommunications companies like AT&T, Verizon, Vonage, Sprint and T-
Mobile, and industry and consumer associations.
30. In 1997, the FCC adopted the NANC's recommendation that there should be
seven regionally deployed number portability databases, one for each of the original Regional
Bell Operating Company ("RBOC") regions, 1 and "multiple database administrators to permit
competition in both the initial and future competitive bidding and selection processes." The
industry eventually agreed on an industry-operated limited liability structure approved by the
FCC for oversight, management, and contracting with potential database administrators.
31. Originally, eight regional limited liability corporations ("LLC5") were formed by
the telephone companies to represent them in contracting with database administrators, one LLC
The seven independent RBOCs (AmeriTech, Bell Atlantic, BellSouth, NYNEX, Pacific Telesis, Southwestern Bell, and US West), also known as "Baby Bells," were formed in 1984 as a result of the divestiture of AT&T's Bell Operating Companies that had provided local telephone service in the United States up to that point.
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for each of the original RBOC regions and one for Canada. After an open competition,
Lockheed-Martin Information Management Services ("Lockheed-Martin") and Perot Systems
were selected as the initial database administrators. Each was granted a five-year contract by the
LLCs to provide services until 2003. Perot Systems dropped out when its service could not be
ready on time, however, and the LLCs that had contracted with Perot Systems signed contracts
with Lockheed-Martin.
32. In 1999, the seven U.S. LLCs merged into a single private-sector entity, the North
American Portability Management LLC (the "NAPM"), which represents all of the
telecommunications service providers in the United States. In November 1999, because of
concerns about neutrality, Lockheed-Martin was spun off from the parent Lockheed-Martin
corporation and renamed Neustar.
33. Since 1997, through its contracts with the NAPM or predecessor LLCs ("NPAC
Contracts"), Neustar has served as the sole Local Number Portability Administrator ("LNPA")
for the United States. In its role as LNPA, Neustar manages the Number Portability
Administration Center ("NPAC"). NPAC, implemented in 1997, consists of the eight regional
U.S. and Canadian number portability databases and is the world's largest number portability
registry. NPAC manages more than 500 million wireline and wireless telephone numbers,
enables approximately 4,800 telecommunications carriers to route billions of phone calls and text
messages daily, and allows customers to transfer their phone numbers from one carrier to another
(collectively, "NPAC Services").
34. The FCC has plenary authority over the administration of number portability (and
indeed all issues relating to telephone numbers) in the United States, but is not itself a party to
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the NPAC Contracts. The NANC, through a delegation of authority by the FCC, reviews and
oversees the NAPM's management of the NPAC Contracts.
35. Neustar also provides wireline and wireless number portability and network
management services in Canada pursuant to a separate contract with the Canadian LNP
Consortium Inc., which, similar to the NAPM, is a private entity composed of
telecommunication service providers in Canada.
36. Prior to the fourth quarter of 2013, Neustar conducted its business through three
operating segments: Carrier Services, Enterprise Services, and Information Services. NPAC
Services were handled by the Carrier Services segment. In or about September 2013, Neustar
reorganized its operating structure into a single operating segment.
37. The first open-bidding contracting process for administering the number
portability databases, in 1996, was also the last. Neustar has previously been given three
contract extensions without any open process seeking competitive bids. This lack of competitive
bidding has given Neustar a 17-year monopoly over NPAC Services, and has enabled Neustar to
benefit enormously by charging telecommunications carriers, and ultimately consumers, much
more than fair market rates.
38. These charges have escalated dramatically in recent years. Neustar's revenues
derived from the NPAC Contracts were $84.5 million in 2003, $130 million in 2004, $188.8
million in 2005 and, more recently, $374.4 million for 2011, $418.2 million for 2012, and $446.4
million for 2013. For 2011, 2012 and 2013, these revenues accounted for 60 percent, SO
percent, and 49 percent of Neustar's total revenues for those years, respectively, with profit
margins exceeding 60 percent. Neustar's revenues on its existing NPAC Contracts, which
expire on June 30, 2015, increased by a similar amount in 2014 and are worth $466 million to
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Neustar—nearly half a billion dollars for one year of services, and again expected to constitute
approximately half of the Company's total revenue. Neustar has realized more than $3 billion in
total revenue from its NPAC Contracts since it began serving as sole LNPA in 1997. Telcordia
has estimated that, over the course of the NPAC Contracts, telecommunications carriers and
consumers have paid Neustar more than $2 billion in additional fees owing to the absence of a
competitive bidding process.
39. Accordingly, the importance to Neustar's business of the NPAC Contracts and its
position as sole LNPA cannot be overstated. As Neustar acknowledged in its Form 10-K Annual
Report for 2013, filed with the SEC on February 28, 2014:
The revenue we receive under our seven contracts with North American Portability Management LLC represents, in the aggregate, a substantial portion of our overall revenue. These contracts are not exclusive and could be terminated or modified in ways unfavorable to us. These contracts are due to expire in June 2015 and are currently subject to a competitive proposal process. If we are not selected to continue to provide these services on the same terms and conditions, or at all, our business, prospects, financial condition and results of operations will be materially adversely affected . 2
40. Indeed, Neustar, faced with the NANC's adverse recommendation to the FCC and
the likely loss of the NPAC Contracts, has recently begun to explore selling itself in a going-
private transaction.
B. Telcordia Successfully Petitions the FCC to Reintroduce Competition to Number Portability Administration, Threateniiw Neustar' s Monopoly Profits
41. Alarmed by the escalating costs of the NPAC Contracts, which they ultimately
bear themselves, and Neustar's entrenched position, telecommunications companies began to
express concerns to the FCC about the cost and structure of the NPAC Contracts. In June 2007,
2 Throughout this Complaint, emphases in quotations are added.
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Telcordia petitioned the FCC to direct the NAPM to conduct a competitive bidding process for
NPAC Services. The FCC took no action.
42. Two years later, in June 2009, Telcordia filed another petition with the FCC to
abrogate the then-existing NPAC Contracts and initiate a government-managed procurement
process for the selection of the next LNPA. In this petition, Telcordia reminded the FCC of
President Obama's March 4, 2009 Memorandum for the Heads ofExecutive Departments and
Agencies, Subject: Government Contracting, which warned that "Feixcessive reliance by
executive agencies on sole-source contracts . . . creates a risk that taxpayer funds will be spent on
contracts that are wasteful, inefficient, subject to misuse, or otherwise not well designed to serve
the needs of the Federal Government or the interests of the American taxpayer." This
Memorandum, as cited by Telcordia, further declared that "executive agencies shall not engage
in noncompetitive contracts except in those circumstances where their use can be fully justified
and where appropriate safeguards have been put in place to protect the taxpayer."
43. The FCC listened. On September 23, 2010, the FCC's Wireline Competition
Bureau ("WCB") issued a Public Notice announcing that the NAPM would be developing a
Request for Proposal ("RFP") for local number portability database platforms and services, and
stating that the NAPM would issue a Request for Information later in 2010 to begin pre-
qualifying potential vendors. The Public Notice made clear that the FCC was encouraging "full
competition" in the selection process.
44. On March 8, 2011, the FCC issued an Order and Request for Comment
announcing that the WCB was taking four actions in furtherance of the selection of the next
LNPA. First, the WCB delegated authority to the NANC, working in consultation with the
NAPM, to implement a process for selecting the next LNPA. Second, the WCB sought comment
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on the specific process that the NANC and NAPM would use. Third, the WCB directed the
NANC to recommend to the FCC one or more independent, non-governmental entities to serve
as the next LNPA. Fourth, the WCB outlined its own role in overseeing the LNPA selection
process.
45. On May 16, 2011, after receiving comments from various parties including
Neustar and Telcordia, the FCC issued a further Order detailing the procedures the NANC and
NAPM must follow in the LNPA selection process, and outlining the WCB's role in overseeing
that process.
46. On August 13, 2012, the FCC issued a Public Notice seeking comment on the
proposed RFP procurement documents.
47. On February 5, 2013, after receiving comments from various parties including
Neustar and Telcordia, the FCC issued a Public Notice releasing the final Request for Proposal
for LNP database platforms and services in the United States, developed by the NAPM and
termed the "2015 LNPA RFP," and put the LNPA contracts up for public bid for the first time in
17 years. The deadline to submit proposals was April 5, 2013.
48. Securities analysts expected that Neustar would win renewal of the NPAC
Contracts and remain the sole LNPA. William Blair & Co. wrote on February 6, 2013 that "[w]e
continue to believe that NeuStar remains the heavy favorite as the incumbent vendor for the
NPAC service in the United States and based on the company's neutral standing (a key criteria,
as we have stated in prior notes), as well as the company's capability and support ratings. We
expect competitor Telcordia to be a bidder on the contract, but believe neutrality concerns
regarding Telcordia's parent company Ericsson could lead NeuStar to hold a significant
advantage." RBC Capital Markets wrote the same day that "we continue to see
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Telcordia/Ericsson as the most natural contender given its international experience, though it
does not have similar credentials to support NPAC-like scale and reliability as NeuStar has," and
concluded that "NeuStar remains the front runner given its incumbency and strong track record;
and although pricing/terms are yet to be determined, impact may be lower than prior rounds on
possible cost savings." Oppenheimer & Co. wrote that Neustar "remains well positioned in the
long term given its monopolistic presence in number management. With its highly predictable
business model driven by 90% recurring revenues, we believe FY13 looks positive."
C. The NAPM Unexpectedly Extends the Deadline for Competing Bidders to Submit Proposals, Putting Neustar's Competitive Standing at Siuificant Risk
49. On April 5, 2013, Neustar announced that it timely submitted its proposal to the
NAPM in response to the 2015 LNPA RFP. Consistent with governing procedure, the proposal
was submitted confidentially and remained nonpublic until a public version with pricing and
other information redacted was filed with the FCC after the Class Period.
50. On April 17, 2013, the NAPM unexpectedly announced that, with the approval of
the FCC, it was extending the deadline for the submission of proposals to April 22, 2013. The
NAPM stated that the extension was "[fln order to promote competition and ensure that all
potential offerors have a common understanding of proposal submission requirements and an
adequate opportunity to compete." This meant that Neustar was the sole, unchallenged bidder as
of the April 5 deadline, the 60-day period to submit proposals had made it difficult for non-
incumbents to submit competing bids, and the NAPM wanted to enable such non-incumbents to
participate.
51. From April 17, 2013 on, Defendants knew or recklessly disregarded that the
extension of the RFP submission deadline seriously prejudiced Neustar's competitive standing
and significantly increased the risk that Neustar would be replaced by Telcordia as LNPA, and
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that the Company's revenue and profits would be decimated as a result. In particular,
Defendants knew or recklessly disregarded that Neustar's pricing reflected its monopolistic and
incumbent position, that it was possible for the LNPA to earn a reasonable profit at significantly
lower prices, and that the extension of the submission deadline permitted Telcordia or other
potential competitors to structure a bid that was priced significantly lower than Neustar's
proposal. Defendants misrepresented and failed to disclose to the investing public what they
knew or recklessly disregarded as to the significantly enhanced nature of these risks.
52. Telcordia submitted its proposal on or about April 22, 2013. Like Neustar's bid,
and in accordance with governing procedure, Telcordia submitted its proposal confidentially and
it remained nonpublic until a public version with pricing and other information redacted was
filed with the FCC after the Class Period. No other bidders came forward.
53. Defendants knew long before April 17, 2013 that Telcordia, a significant player in
number portability administration, would bid for the NPAC Contracts. It was Telcordia that had
originally petitioned the FCC to put the NPAC Contracts up for public bid, and Telcordia,
together with Neustar, was involved in the pre-bid negotiations regarding the protocols for the
selection process and the language and requirements of the RFP procurement documents. In its
public comments on those RFP documents, filed in September 2012, Telcordia confirmed that it
"looks forward to competing in the upcoming procurement for NPAC Administrators."
54. Moreover, Neustar was closely monitoring Telcordia's activities in and around
the bid submission deadline and indeed throughout the RFP process. Neustar asserted in an
August 2014 FCC filing that on April 5, 2013, the original submission deadline, a Telcordia
employee posted on social media: "I'm exhausted and still have to write the Exec Summary for
this 85 page document. Coffee is failing. Been here 66 straight hours now. . .
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55. Defendants were deeply concerned about the impact of the deadline extension on
the fairness of the bidding process and the Company's prospects to continue as the LNPA. On
April 24, 2013, Neustar filed a letter with the FCC strenuously objecting to the extension of the
submission deadline. Neustar stated that extending the deadline after the Company submitted its
proposal "perversely favorFedi bidders unable to meet the deadline," and "raises the risk that
aspects of its confidential bid have been disclosed to other bidders prior to the extended deadline,
including potentially through inadvertent disclosure, which would seriously prejudice Neustar."
The Company reminded the FCC and NAPM that "[flhe RFP process is confidential, and the
disclosure of any aspect of Neustar's proposal . . . would violate the terms of the RFP and give
rise to potentially serious harm to Neustar." Neustar observed that such disclosure would
constitute "a federal crime," and reiterated that "the deadline extension increases the risk that
bidders would have received some sort of feedback on their failed initial submission prior to the
extended deadline—to the prejudice of Neustar and any other bidders who met the deadline."
56. Neustar complained further that the decision to extend the deadline "gives rise to
concerns about the ability of one or more bidders to obtain favorable action based on undisclosed
communications with the NAPM or with regulators," and demanded "an explanation for this
extraordinary departure" from established procedure. Neustar concluded that the extension
"must shake the confidence of those who are depending on NAPM and the [FCC] to run a
process that ensures even-handed competition, not special accommodations for favored private
interests."
57. Neither the FCC nor the NAPM responded directly to the April 24, 2013 letter or
gave an explanation for extending the submission deadline.
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D. The NAPM Unexpectedly Delays the Timeline for the Selection Process, Heightening Investor Concerns About Neustar's Competitive Standing
58. Then, on July 23, 2013, the NAPM delayed the timeline for FCC selection of the
next LNPA by four months, from September 20, 2013 to January 20, 2014. The NAPM gave no
explanation for the extension.
59. This delay heightened investors' concerns that Neustar was facing formidable and
lower-priced competition in the RFP. J.P. Morgan stated in an analyst report the same day that
"[t]his is the first time the contract is being put out for bid, and so the additional extension begs
questions about if/why there is more intense consideration on important topics like pricing and
competition."
E. The NAPM Initiates a Best and Final Offer Process for Neustar and Telcordia to Submit Their Most Competitive Proposals
60. The NAPM apparently was unsatisfied with Neustar's confidential proposal. On
August 15, 2013, the NAPM, acting through its advisory Future of the NPAC Subcommittee
("F0NPAC"), issued a Best and Final Offer ("BAFO") process for vendors to submit updated
and more competitive proposals.
61. Neustar and Telcordia each submitted confidential BAFOs on or about September
18, 2013, the deadline set by FoNPAC. As with their initial proposals, Neustar's and Telcordia's
September BAFOs each remained nonpublic until a public version with pricing and other
information redacted was filed with the FCC after the Class Period.
62. Unbeknownst to investors, Neustar's BAFO and initial proposal did not offer the
Company's most competitive price for the NPAC Contracts, and instead reflected Defendants'
effort to preserve the large premium associated with the Company's monopoly and incumbent
status. And, as they came to learn, Defendants' effort to perpetuate their monopoly profits
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resulted in submitting a BAFO that was priced so much higher than Telcordia's BAFO that it
seriously jeopardized Neustar's chances of being selected as the next LNPA.
F. Defendants, Knowing Neustar Has Been Outbid By Telcordia, Secretly Submit an Unsolicited Revised BAFO and Repeatedly Ask FoNPAC to Reopen the Biddiiw Process
63. Defendants became so certain that they were going to lose the coveted NPAC
Contracts that on October 21, 2013, in an attempt to underbid Telcordia, Neustar secretly
submitted an unsolicited, significantly reduced BAFO (the "October Revised BAFO") to
FoNPAC together with a request that FoNPAC entertain a further round of bids. This was only a
month after Neustar submitted its September BAFO in response to FoNPAC's invitation.
64. Defendants' unilateral submission of the October Revised BAFO was not a shot
in the dark or guesswork. Defendants knew exactly what price to offer in their October Revised
BAFO in order to underbid Telcordia, while not offering too low a price and potentially leaving
money on the table. As reported by The Capitol Forum on March 19, 2014, Telcordia, according
to "[a] source close to the Local Number Portability Administrator (LNPA) selection process,"
was "now likely to win the LNPA contract outright because its bid [BAFO] came in
significantly lower than Neustar's." The source added, in fact, that "the gap between bids is so
significant as to make it very diffi cult for Neustar to win the contract." 3
65. According to the same source, as reported further by The Capitol Forum on
March 26, 2014:
The Capitol Forum is a highly regarded subscription news service that provides comprehensive news coverage of competition policy as well as in-depth market and political analysis of specific transactions and investigations. The Capitol Forum delivers its news reports to subscribers by e-mail. The Capitol Forum's e-mail distribution list for its news reports numbered approximately 500 readers as of March 2014. Because subscribers generally are permitted to designate multiple individual users to receive the reports, the number of subscribers as of March 2014 likely was fewer than 500. Subscriptions cost $15,000 annually.
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[A]fter the conclusion of the BAFO (which was issued August 16, 2013), Telcordia had outbid Neustar. In October 2013, Neustar then submitted a request for another round of BAFO bids, along with another, lower BAFO bid, to which NAPM did not respond. Neustar 's unsolicited second BAFO was very different from its initial BAFO, and was low enough to come in "just under" Telcordia's bid. According to the source, there is awareness within the agency that this is how the rounds of bidding occurred and staff are more skeptical of Neustar's actions as a result. Neustar 's apparent detailed knowledge of Telcordia 's bid, according to our source, could complicate Neustar's legal challenge.
66. Thus, there was a "significant gap" separating Neustar's and Telcordia's
respective September BAFOs, Neustar's unilateral October Revised BAFO was "very different"
than its September BAFO, and it was low enough that it came in "just under" Telcordia's
BAFO. Defendants could not conceivably have priced their October Revised BAFO to come in
just under Telcordia's September BAFO without "detailed knowledge of Tel cordia's bid'
knowledge Defendants were not entitled to possess under the RFP protocols into which they had
had substantial input.
67. Defendants' doubts regarding their chances of winning the renewed contract
continued to grow. On November 4, 2013, after not receiving a sufficiently prompt response
from FoNPAC, Defendants secretly urged FoNPAC for a second time to re-open the bidding
process and submitted an additional copy of their October Revised BAFO.
G. Price Was the Determining Factor Separating the Neustar and Telcordia BAFOs, and the Price Difference Alone Justified Selectiiw Telcordia
68. Price, and not the myriad technical and management criteria also at issue, was
indeed the determining factor separating the Neustar and Telcordia proposals. The RFP
procurement documents advised vendors that "[t]he Technical and Management criteria when
combined are significantly more important than the Cost criterion alone," but made clear that
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"[iif Respondents' Technical and Management merits are not significantly disparate, the Cost
may become determinative." Telcordia argued in public comments filed with the FCC on July
25, 2014 that "Loin the issue of price . . . it was no contest," and characterized the difference in
price between its and Neustar's BAFOs as "astounding." Neustar's public comments filed the
same day were consistent with these assertions, arguing instead that the NANC's
recommendation of Telcordia over Neustar "Flout[ed] the RFP by Largely Ignoring Technical
and Management Criteria in Favor of Price."
69. The NAPM, in its own comments filed with the FCC in August 2014, confirmed
that pricing was the distinguishing and deciding factor:
[T]he content of the NANC Recommendation itself reflects the fact that the NAPM LLC found, and the SWG [Selection Working Group within the NANC] and NANC unanimously agreed, that both bidders met the technical qualifications and are equally capable of serving as the LNPA for each of the seven regional databases. And to be clear, the NAPM LLC thoroughly analyzed, debated, and scored bidders with respect to all relevant capabilities - including their ability to satisfy all national security, public safety, and other law enforcement requirements. The actual scoring of the bidders for these and all non-price points was very similar.
The NAPM LLC's evaluation process was extensive and fully vetted by all interested parties. But at the end of that process the only significant difference in scoring between the bidders was with respect to pricing which - in light of the bidders' parity on the other criteria - was determinative even under the weighted scoring formula. Consequently, the NANC was able to compile a concise report that focused on the factors that directly contributed to the recommendation of [Telcordia] over Neustar. [Footnotes omitted]
70. Although Neustar's and Telcordia's September BAFOs were submitted
confidentially, and pricing information is redacted from the public versions filed with the FCC,
certain information in post-Class Period FCC filings allows an estimation of the approximate
amounts of the competing bids. In particular, the public version of Neustar's September BAFO
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includes a section titled "Improved Pricing Terms" which states that its proposal "Felxtends year-
one savings to [redacted] reducing 2016 industry fees to pre-2012 levels." The term "pre-2012
levels" suggests that annual industry fees to Neustar would have been approximately $385-$410
million, with the final price determined after deduction of certain unspecified incentive credits
and rebates also noted in the September BAFO. Because Neustar has disclosed that its revenue
from the NPAC Contracts in 2011 was $374.4 million, the final price of Neustar's September
BAFO is likely in the range of $374-$385 million. This is in comparison to the $466 million
Neustar will earn from the NPAC Contracts in 2014.
71. CTIA—The Wireless Association and the United States Telecom Association
(together, "CTIAIUSTe1ecom") are telecommunications industry associations that are voting
members of the NANC. In comments filed jointly with the FCC in July and August 2014,
CTIAIUSTe1ecom observed that Neustar's current LNPA contract includes a price escalation
clause of 6.5 percent above a base amount of more than $440 million, meaning that any
extension of the current contract beyond its June 30, 2015 expiration will automatically trigger
that clause, bringing a windfall to Neustar of approximately $40 million per month.
CTIAIUSTe1ecom observed further that every day of delay in implementing a new contract
beyond July 1, 2015 would add more than $1 million in charges to telecommunications carriers
and ultimately their customers. Neustar has not publicly contradicted these assertions.
72. In other words, according to CTIA/USTelecom's review of the confidential
September BAFOs, having Neustar continue as LNPA on and after July 1, 2015 under an
extension to its current contract, versus having Telcordia take over as LNPA on that date under a
new contract priced consistent with its September BAFO, will cost an extra $1 million a day. if
extending Neustar's current contract will result in fees of approximately $40 million a month, or
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approximately $1,333,333 a day, and the selection of Telcordia would save $1 million a day,
then Telcordia's fees under its September BAFO would be approximately $333,333 a day, or
approximately $121.7 million a year.
73. This $121.7 million estimate for Telcordia's BAFO is 67percent less than $375
million, the low end of the range of Neustar's September BAFO as estimated above. This very
large difference is consistent with The Capitol Forum's reports and the public comments of
Telcordia, Neustar, and the NAPM as alleged above.
H. Defendant Hook Breaches Protocol and Appeals Directly to the Chairman of the FCC
74. Defendants' doubts that the Company would be awarded the new NPAC
Contracts became so severe in and after November 2013 that on January 21, 2014, Defendant
Hook called Tom Wheeler, Chairman of the FCC. Hook called Chairman Wheeler to urge that
Neustar's October Revised BAFO be considered. This call followed a letter Neustar delivered
privately to the FCC on January 15, 2014, in which Neustar complained that FoNPAC should
consider its unsolicited October Revised BAFO and respond to the Company's repeated requests
to reopen the bidding process. Contrary to FCC rules, the public version of the January 15 letter
was redacted in its entirety; the document was a blank sheet of paper with a redaction legend.
75. The fact of the exparte telephone conversation between Hook and Chairman
Wheeler was disclosed in a January 23, 2014 letter filed with the FCC that referenced the
January 15, 2014 letter. Contrary to FCC rules, the January 23 letter omitted a summary of the
substance of the telephone conversation.
76. In response, Telcordia filed a letter with the FCC the same day stating that
"Neustar's [January 15, 2014] filing is extremely irregular, given that the Commission is
currently conducting a procurement for one or more LNPA vendors, if what Neustar has done is
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to unilaterally seek to alter the terms of its Best and Final Offer, that would be improper and
should be disregarded entirely." Telcordia added that "if bidding is going to be re-opened, it is
the Commission (or its Bureaus acting on delegated authority) that should make that
determination; it would be highly improper were Neustar to attempt to force the Commission to
do so by unilaterally submitting amendments to its Best and Final Offer."
77. That is precisely what Neustar was attempting to do, and Neustar's sudden,
unsolicited, submission of the October Revised BAFO was entirely improper. Neustar had no
reasonable expectation that there would be more than one round of BAFOs. The RFP
emphasized, in fact, that a decision might be made based on initial proposals, and thus Neustar
had no basis to demand or expect even one BAFO, let alone two.
78. Indeed, Neustar's demand for a second round of BAFOs was a complete about-
face from its previous position that multiple BAFOs were unnecessary. In a November 6, 2012
letter to the FCC concerning procedures for the RFP, Neustar had argued that "[i]f the FoNPAC
is not satisfied with the form or substance of any potentially competitive bid, it has the ability to
seek improved proposals through the best-and-final-offer process. . . . As Neustar has explained
previously, in a confidential RFP process, there is no reason to mandate the solicitation of
multiple best-and-final offers." As the name "best and final offer" suggests, Neustar's
September BAFO could have and should have been its most competitive "best" and "final" offer.
79. To date, Neustar has not publicly provided any rational explanation for requesting
a second round of BAFOs. The only plausible explanation, in fact, is that Defendants knew that
their September BAFO was comparatively weak and would fail.
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I. Defendants Belatedly Reveal Part of Their Secret Efforts to Edge Out Telcordia
80. On January 24, 2014, the day after Defendant Hook appealed to Chairman
Wheeler, the NAPM advised Defendants that their October Revised BAFO would not be
considered. In FCC parlance, the October Revised BAFO was "returned unopened."
81. At this point, as alleged further below, Defendants finally recognized that they
had to start to come clean with investors, and disclosed on January 29, 2014 that the NAPM had
rejected the October Revised BAFO.
82. Also on January 29, 2014, Neustar, under pressure from Telcordia, filed with the
FCC a less-redacted version of its January 15, 2014 letter concerning the October Revised
BAFO. The filing, which was timed to coincide with the January 29 disclosure to investors,
makes clear that Defendant Hook called Chairman Wheeler to discuss Neustar's secret efforts to
pry open the bidding process and substitute its October Revised BAFO for the September BAFO.
J. Defendants Continue to Scramble to Avoid Losing the NPAC Contracts to Telcordia
83. No later than January 24, 2014, Defendants clearly knew that they would lose the
NPAC Contracts to Telcordia unless they could fundamentally shake up the dynamics of the
selection process, including by convincing the FCC itself to step in.
84. On February 3, 2014, Neustar filed a letter with the FCC arguing that "the process
utilized to date has been flawed" and declaring that "Lilt is time for the Commission to intervene"
and direct FoNPAC to consider the October Revised BAFO.
85. Telcordia responded in a letter filed with the FCC on February 6, 2014. Telcordia
objected to Neustar's requests for a second round of BAFOs, stating that the timing and the
Company's inability to provide any rational explanation for additional BAFOs strongly
suggested that Neustar has obtained confidential, nonpublic information about its competitive
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standing and price relative to other bidders. As Telcordia observed, Neustar clearly chose not to
offer its most competitive price in either its initial proposal or its September BAFO, and was
instead trying to preserve the premium associated with its monopoly and incumbent status.
86. On February 11, 2014, Julie A. Veach, the Chief of the FCC's Wireline
Competition Bureau, sent a letter to the Hon. Betty Ann Kane, Chairman of the NANC,
concerning the February 3 and 6 letters. Ms. Veach directed Chairman Kane to thoroughly
investigate "all claims of potential unfairness" including Telcordia's specific charge of receiving
nonpublic information, and to address whether they have been any attempts, outside of the
ordinary process contemplated by the RFP, to influence NANC or NAPM representatives
involved in the selection process. Ms. Veach further directed Chairman Kane to consider the
results of such investigations in issuing its recommendation for the selection of the next LNPA,
and to submit detailed findings to the FCC as to whether the process was conducted in a fair and
impartial manner. Ms. Veach also confirmed that Neustar's February 3 letter request to the FCC
to direct the FoNPAC to consider additional BAFOs was rejected.
87. The next day, February 12, 2014, Neustar filed a formal petition with the FCC
seeking a declaratory ruling directing the NAPM to consider its October Revised BAFO.
Neustar reiterated its assertion that the NAPM's extension of the April 5, 2013 bid submission
deadline was prejudicial to Neustar and put the Company at a competitive disadvantage. Neustar
also insisted in the petition, while attempting to sound neutral, that the process followed by the
NAPM will ultimately cause "the public and the industry [to] be deprived of the best and most
cost-effective proposals from all qualified offerors. This approach cannot result in the selection
of the most advantageous proposal."
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88. On March 7, 2014, Neustar piled on by initiating a formal dispute before the
NANC. Neustar once again challenged the NAPM's extension of the April 2013 bid submission
deadline and FoNPAC's refusal to consider Neustar's October Revised BAFO.
89. On March 13, 2014, the FCC announced that a closed meeting of the NANC on
March 26, 2014 would precede the NANC's regular meeting on March 27, 2014. The sole item
on the agenda for the closed meeting was discussion of Neustar and Telcordia bids and a vote on
submitting the NANC's recommendation to the FCC.
90. This announcement sent Defendants into full panic mode. On March 19, 2014,
Neustar followed-up on its formal dispute by sending an unusual letter to NANC Chairman
Kane, signed by Defendant Hook. Hook wrote to "express Neustar's concerns about the Local
Numbering Portability Administrator vendor selection process" and sought to appeal to the
NANC as effectively the final decision-maker and a body that, having a broader constituency
than the NAPM, could see the bigger picture and appreciate Neustar's predicament. Hook wrote
plaintively near the end of the letter: "Chairman Kane, it is not too late to fix this process."
91. This time, however, Neustar went further than to repeat its concerns about
FoNPAC's refusal to consider its October Revised BAFO. Neustar also begged the NANC to
delay its upcoming decision to recommend Neustar or Telcordia to the FCC, and stated that the
Company "is willing to extend the current contract by three months, if required, and to
demonstrate our commitment to 'get it right' for all interested parties, we will offer a credit of up
to $SOM, if necessary, and regardless of the outcome." Regardless of Neustar's attempt to
sound magnanimous, its willingness to forego $50 million in fees can only be interpreted to
mean that Defendants knew the writing was on the wall.
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K. The NANC Unanimously Recommends That the FCC Select Telcordia as Sole LNPA
92. Defendants' last-ditch efforts failed. On June 6, 2014, sometime before 4:00
p.m., the FCC inadvertently disclosed a confidential e-mail revealing that the NANC had
recommended Telcordia over Neustar to serve as the next and sole LNPA. The e-mail, sent by
the NANC to the FCC, was posted to the FCC's public docket and later removed.
93. Neustar confirmed this disclosure in a press release issued on June 9, 2014, before
the opening of trading, stating in part that "Loin Friday, June 6, a copy of a confidential email
dated April 28, 2014, sent by an aide to the chair of the [NANC] to the FCC was posted in the
FCC docket and made available to the public. . . . The email indicates the NANC recommends
that the FCC award the next LNPA contract to iconectiv, an operating unit of Ericsson."
94. On June 9, 2014, the FCC issued a Public Notice formally reporting that on April
24, 2014, the NANC submitted its recommendation to the FCC to select Telcordia as the next
LNPA. The Public Notice reported that the voting members of the NANC reached their
recommendation unanimously, with one abstention, during the NANC's closed meeting on
March 26, 2014.
95. Together with its recommendation, the NANC forwarded investigative reports
that responded to the FCC's February 11, 2014 directive to review and evaluate any and all
claims of potential unfairness in the RFP process, including Telcordia's claim that Neustar
obtained confidential, nonpublic information about its competitive standing and price relative to
other bidders. The several reports concerning the NANC's recommendation and associated
investigations were submitted to the FCC confidentially, and have not been made public.
96. The FCC generally defers to the NANC's decisions. In an April 11, 2014 article
about the NPAC contract issue, The Capitol Forum reported that "[a] former NANC member
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stated in an interview that in considering NANC's decision making, the FCC is 'pretty
deferential to the recommendations of the people they consider the experts' and that the agency
'wouldn't be terribly likely' to overturn a decision deliberated on by NANC."
97. The FCC's June 9, 2014 Public Notice sought comments from interested parties
and the public on the NANC's recommendation and the associated materials. Multiple
commenters, including Neustar, Telcordia, the NAPM, and CTIA/USTelecom as alleged above,
filed detailed comments beginning on July 25, 2014. Other than Neustar itself, not a single
commenter has asked the FCC to award the next NPAC Contracts to Neustar.
98. According to a source close to the selection process, as reported by The Capitol
Forum on August 4, 2014, Neustar's comments challenging the NANC's recommendation were
viewed "at the agency as 'nothing earth shattering and nothing new," and, according to the
source, "there were no signs that the agency would change its planned course of action in
accepting NANC's recommendation."
L. The NANC Recommendation Leads Neustar to Consider Selliiw Itself to a Private Equity Firm
99. On August 22, 2014, Reuters reported that Neustar was considering a potential
sale amid interest from private equity firms. In particular, according to this news report, Neustar
was working with the investment bank JPMorgan Chase & Co. on possible options following a
more than 40 percent drop in its share price since the beginning of 2014.
100. The article noted that potential sale process was motivated by "a major
government contract [Neustar] stands to lose to Ericsson AB subsidiary Telcordia
Technologies," and noted further that "[going private could allow Neustar to restructure its
operations, should it lose the government contract, without having to worry about its share price
performance."
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V. DEFENDANTS' MATERIALLY FALSE AND MISLEADING STATEMENTS AND OMISSIONS OF MATERIAL FACT
A. April 18, 2013 "Statement" on Extension of RFP Submission Deadline
101. On April 18, 2013, after the close of trading, Neustar issued a press release titled
"Neustar Statement on Extension of NPAC RFP Submission Deadline." The press release was
filed with the SEC the same day as an exhibit to a Form 8-K Current Report dated April 18,
2013, and signed by Defendant Lalljie.
102. Defendant Edwards was quoted in this Statement on behalf of Neustar:
Neustar successfully submitted its proposal on April 5, 2013, which was the deadline previously announced by the NAPM. The RFP process has been a matter of public record since May 2011, was subject to a robust public comment process, and the deadline for submission of responses was published 60 days in advance of the filing deadline. The process was designed to promote competition and provided interested parties with sufficient time to meet the submission requirements. Neustar filed its response in a timely manner and in accordance with the RFP submission requirements. We remain confident in the strength of our proposal and the value to be gained by the industry and consumers if we are awarded the contract to continue in July 2015 as the local number portability administrator.
103. The statements set forth in Paragraph 102 above were materially false and
misleading when made, and omitted material facts necessary to make the statements, in light of
the circumstances under which they were made, not misleading.
104. Defendants' April 18, 2013 Statement conveyed to investors that they were
unconcerned about the NAPM's decision to extend the 2015 LNPA RFP deadline from April 5
to 22, 2013, and that the Company, based on the strength of its timely April 5 bid, would once
again be awarded the NPAC Contracts. The Statement further conveyed to investors that
Neustar was not likely to face any competing bidders because 60 days was sufficient time for
qualified vendors to meet the submission requirements, and if no qualified vendor was able to
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meet those requirements within 60 days, then no qualified vendor was likely to meet those
requirements within 74 days.
105. As alleged in Paragraphs 50-54 above, Defendants knew or recklessly
disregarded, however, that the deadline extension seriously prejudiced Neustar's competitive
standing and increased the risk that Neustar would be replaced by Telcordia as sole LNPA, and
that the Company's revenue accordingly would be decimated. Further, Defendants knew or
recklessly disregarded that Neustar's pricing reflected its monopoly and incumbent position, that
it was possible for the LNPA to earn a reasonable profit at significantly lower prices, and that the
extension of the submission deadline permitted Telcordia or other potential competitors to
structure a bid that was priced significantly lower than Neustar's proposal.
106. This is reflected in Neustar's April 24, 2013 letter to the FCC, filed just four
business days after Defendants issued the April 18 Statement. In this letter, as alleged in
Paragraphs 55-56 above, Defendants strongly objected to the deadline extension, asserting that it
perversely favored bidders unable to meet the deadline, that it seriously prejudiced Neustar by
raising the risk that the Company's proposal had been disclosed to other bidders, and that it
suggested that certain bidders obtained the extension through improper, undisclosed
communications with the NAPM or the FCC. Given that Neustar has adduced no evidence of
such improper disclosure, these objections were the result of an effort by Neustar to get by the
original 60-day submission period with a high-priced, anticompetitive proposal that reflected
Neustar's monopoly and incumbent status, and Defendants' recognition that the extension of the
deadline was likely to thwart that effort.
107. Defendants' views expressed to the FCC on April 24, 2013 were contrary to their
expression of confidence to the investing public that the Company would once again be awarded
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the NPAC Contracts, and that Neustar was in fact not likely to face any competition for renewal
of the NPAC Contracts. Accordingly, regardless of how "strong" Neustar believed its April 5
proposal was, Defendants' April 18 Statement misled investors with respect to the potential risks
and consequences of the NAPM's unanticipated decision to extend the RFP submission deadline.
B. May 2, 2013 First Quarter Press Release and Conference Call
108. On May 2, 2013, Neustar issued a press release titled "Neustar Reports Results
for First Quarter 2013," announcing the Company's financial results for the first quarter of 2013.
The press release was filed with the SEC the same day as an exhibit to a Form 8-K Current
Report dated May 2, 2013 and signed by Defendant Lalljie.
109. Defendant Hook stated in this press release: "We submitted our proposal for the
NPAC contract in early April, and we remain confident in our ability to provide world class
service to the communications industry."
110. Neustar held a conference call with securities analysts the same day to discuss the
first quarter financial results and the status of the 2015 LNPA REP. Defendants Hook and
Lalljie, and Neustar's head of investor relations, participated in the call on behalf of Neustar.
111. In her opening remarks, Defendant Hook disclosed the existence of the April 24,
2013 letter to the FCC, describing it as "emphasizing our concern that extending the deadline
was inconsistent with the industry's and the FCC's commitment to manage a transparent and
timely RFP process." Hook then explained the status of the bidding process by emphasizing that
"we are confident in the strength of our proposal and it remained unchanged after the deadline
extension." Later in the conference call, Hook stated that Neustar "delivered a strong proposal to
renew the NPAC contract." She concluded the call by reiterating that the Company "submittLedi
a compelling proposal to renew the NPAC contract."
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112. The statements set forth in Paragraphs 109 and 111 above were materially false
and misleading when made, and omitted material facts necessary to make the statements, in light
of the circumstances under which they were made, not misleading.
113. Defendants Hook's statement in the May 2, 2013 press release and expressions
during the conference call of "confidence in the strength of our proposal," "a strong proposal,"
and "a compelling proposal," conveyed to investors that the Company was well-positioned to
win the NPAC Contract renewal and would continue to serve as the sole LNPA. These
assurances continued to misrepresent and conceal from investors and market participants the true
nature and extent of Defendants' concerns about the significantly increased risk to Neustar's
competitive standing in the LNPA selection process. Defendants knew or recklessly disregarded
that Neustar's pricing reflected its monopoly and incumbent position, that it was possible for the
LNPA to earn a reasonable profit at significantly lower prices, and that the extension of the
submission deadline permitted Telcordia or other potential competitors to structure a bid that was
priced significantly lower than Neustar's proposal. As alleged in Paragraphs 50-56 above, this
was reflected in the NAPM's unexpected decision about two weeks earlier to extend the bid
submission deadline to allow competitors to challenge Neustar, and Neustar's April 24, 2013
letter to the FCC, which had been filed just one week earlier.
114. Although Defendant Hook disclosed the existence of the April 24, 2013 letter
during the conference call, she strategically described it during the conference call in the context
of "the industry's and the FCC's commitment to manage a transparent and timely RFP process,"
and made no mention of the heightened risks and potentially serious prejudice to Neustar's
competitive standing versus Telcordia.
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115. Defendant Hook's sleight-of-hand with investors was successful. Oppenheimer &
Co. titled its May 3, 2013 research report on the Company's first quarter results "NeuStar Inc.:
So Reliant You Could Set A Watch By It," and repeated its bottom line from February 6, 2013
that Neustar "remains well positioned in the long term given its monopolistic presence in number
management." William Blair & Co. stated in its May 5, 2013 research report that Neustar "did
not have any new announcements related to the continuing RFP process for the NPAC contract.
Neustar has submitted its RFP and because of nondisclosure agreements did not have additional
details to disclose." In its May 3, 2013 research report, Deutsche Bank took note of the deadline
extension but found significant that Neustar "apparently did not use the extended window to
make any updates." Deutsche Bank concluded that "[w]e continue to believe that NSR's
chances of winning the re-bid are very good given their 15-year track record of delivering high
quality of service." None of these analyst reports referenced Neustar's April 24, 2013 letter to
the FCC or its contents.
C. July 30, 2013 Second Quarter Conference Call
116. On July 30, 2013, Neustar held a conference call with securities analysts to
discuss the Company's financial results for the second quarter of 2013 and the status of the 2015
LNPA RFP. Defendants Hook and Lalljie, and Neustar's head of investor relations, participated
in the call on behalf of Neustar.
117. Defendant Hook acknowledged the NAPM's July 23, 2013 decision, one week
earlier, to delay the timeline for FCC selection of the next LNPA by four months, but once again
reassured investors and the market that "[w]e remain confident that our NPAC proposal is
thorough, compelling and supported by the proven track record of value we provide to our clients
and consumers and businesses we serve." During the call, one analyst asked Hook, "given the
latest NPAC delay," for her views regarding "the benefits of having one NPAC provider versus
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theoretically splitting the contract, and some of the complexities that might involve." Hook
responded in part that "it's very difficult to imagine that any carrier would choose to put the
flawless working of the telecom infrastructure at risk."
118. Defendant Hook's statements set forth in Paragraph 117 above were materially
false and misleading when made, and omitted material facts necessary to make the statements, in
light of the circumstances under which they were made, not misleading.
119. Defendants Hook's continued expressions of confidence and statement that it was
"difficult to imagine" that more than one LNPA would be selected conveyed to investors that the
Company was well-positioned to win the NPAC Contract renewal outright and would continue
to serve as the sole LNPA, and downplayed the risks to Neustar's business presented by the RFP
process. These assurances continued to misrepresent and conceal from investors and market
participants the true nature and extent of Defendants' concerns about the significantly increased
risk to Neustar's competitive standing in the LNPA selection process. Defendants knew or
recklessly disregarded that Neustar's pricing reflected its monopoly and incumbent position, that
it was possible for the LNPA to earn a reasonable profit at significantly lower prices, and that the
extension of the submission deadline permitted Telcordia or other potential competitors to
structure a bid that was priced significantly lower than Neustar's proposal. As alleged in
Paragraphs 50-59 above, this was shown by the NAPM's extension of the April 2013 bid
deadline, the views expressed in the Company's April 24, 2013 letter to the FCC, and the
NAPM's decision one week earlier to delay the timeline for FCC selection of the next LNPA.
120. Analysts accepted Hook's continued reassurances. Deutsche Bank stated in its
July 31, 2013 research report that "NSR management continues to sound optimistic about re-
winning the bid. Given the company's performance record over the past 15 years, we continue
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to believe that NSR will be able to renew the contract, perhaps with some price concessions."
William Blair & Co. noted in a report the same day that "[t]he company's only update on the
RFP process for the NPAC contract was that the deadline for FCC approval of a vendor selection
is now January 20, 2014, extended from September 20, 2013. No explanation was provided for
the change by the NAPM." J.P. Morgan wrote in a report the same day that "[management
expectedly had no comment on why the NPAC RFP was delayed 3-4 months last week."
D. October 30, 2013 Third Quarter Press Release and Conference Call
121. On October 30, 2013, Neustar issued a press release titled "Neustar Reports
Results for Third Quarter 2013," announcing the Company's financial results for the third
quarter of 2013. The press release was filed with the SEC the same day as an exhibit to a Form
8-K Current Report dated October 30, 2013 and signed by Defendant Lalljie.
122. Defendant Hook stated in this press release: "We have continued to position
ourselves for a successful NPAC renewal."
123. Neustar held a conference call with securities analysts the same day to discuss the
third quarter financial results and the status of the 2015 LNPA REP. Defendants Hook and
Lalljie, and Neustar's head of investor relations, participated in the call on behalf of Neustar.
During the call, Defendant Hook stated that "[w]e continue to believe that our capabilities and
outstanding track record set us apart from other bidders for the next NPAC contract."
124. The statements set forth in Paragraphs 122 and 123 above were materially false
and misleading when made, and omitted material facts necessary to make the statements, in light
of the circumstances under which they were made, not misleading.
125. Defendants continued to misrepresent and conceal from investors and market
participants the true nature and extent of Defendants' concerns about the significantly increased
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risk to Neustar's competitive standing in the LNPA selection process. As alleged in Paragraphs
60-67 above, Neustar had submitted a BAFO on September 18, 2013 in response to the NAPM's
invitation and then, on October 21, 2013, based on "detailed knowledge" of Telcordia's BAFO,
secretly and unilaterally submitted its "very different" October Revised BAFO with a price "just
under" Telcordia's in an underhanded, unsanctioned effort to edge out the competition and retain
the NPAC Contracts. Together with the October Revised BAFO, Neustar asked FoNPAC to
reopen the bidding process. Neustar submitted the October Revised BAFO and request to reopen
bidding just nine days before the October 30, 2013 press release and conference call, but Hook
said nothing to investors about the October Revised BAFO and request to reopen bidding, or the
September BAFO, which itself raised doubt about Neustar's competitive position.
126. Rather, Hook touted Defendants' continued confidence in their original proposal,
the submission of which Neustar had publicly announced in April. Neustar's undisclosed
conduct surrounding its secret submission of the October Revised BAFO and request to
FoNPAC was entirely inconsistent with a 17-year incumbent bidder that was legitimately
confident in its competitive standing and well-positioned to continue as sole LNPA.
127. Indeed, Defendant Hook was notably tight-lipped regarding this subject during
the October 30 conference call. When asked by an analyst if she had an update as to the NPAC
renewal process, Hook confirmed that the current RFP timeline contemplated a decision by
January 20, 2014, but stopped there and said "I can't give you any greater updates than what's
publicly available on the industry's websites." Nothing about the submission of the September
BAFO, or the October Revised BAFO or Neustar's accompanying request to FoNPAC, was
publicly known at this time. Hook's statement in this Paragraph 127 was materially false and
misleading because she could have, and should have, disclosed these facts; her response
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conveyed a false impression that there were no material updates to report. Similarly, Hook
concealed the fact that Neustar had not submitted its most competitive price in response to the
REP or BAFO process and in fact was trying to preserve and perpetuate the premium associated
with its monopoly and incumbent status.
128. Neustar's assurances continued to mislead analysts into believing that Neustar
was confident in its competitive standing and was well-positioned to continue as sole LNPA.
William Blair & Co., in its October 31, 2013 report, based its "Outperform" rating in part on
"what we view to be the eventual continuation as sole NPAC database provider for the North
America telecommunications industry," and reiterated that "[w]e continue to believe there is a
high probability that Neustar will renew its current contract." Deutsche Bank stated similarly in
its October 31, 2013 report that "[management continues to sound confident about the NPAC
renewal," and "we believe the company will be able to renew the contract, with some markdown
on pricing."
VI. THE TRUTH BEGINS TO EMERGE
A. January 29, 2014 Partially Corrective "Update" and Conference Call
129. On January 29, 2014, after the close of trading, Neustar announced its financial
results for the fourth quarter of and full year 2013, and issued a separate press release titled
"Neustar Provides Update on Local Number Portability Administrator Selection Process." Both
press releases, together with a third press release announcing a share repurchase program, were
filed with the SEC the same day as exhibits to a Form 8-K Current Report dated January 29,
2014 and signed by Defendant Lalljie.
130. The "Update" press release disclosed that:
Throughout the NPAC administrator selection process, Neustar has fully responded to each deadline and request. In April 2013,
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Neustar submitted an initial proposal according to the process and subsequently responded to the North American Portability Management LLC's (NAPM) request for a revised submission. In October 2013, the company requested the opportunity for all bidders to submit additional revised proposals. Together with that request, the company also submitted a revised proposal. On January 24, 2014, the company was notified that its October 2013 proposal would not be considered.
131. Defendant Hook, however, continued to assure investors in this press release that
"[w]e believe that given our track record in innovating to meet the industry's needs, as well as
our exceptional stewardship of the NPAC, we are the logical choice to be the local number
portability administrator over the next contract period."
132. Neustar held a conference call with securities analysts the same day to discuss the
fourth quarter and year-end 2013 financial results and the status of the 2015 LNPA RFP.
Defendants Hook and Lalljie, and Neustar's head of investor relations, participated in the call on
behalf of Neustar. During the call, Defendants revealed for the first time that Neustar had
submitted the September BAFO in response to the NAPM's August 2013 solicitation of revised
bids, that in October 2013 and again in November 2013, the Company requested that the NAPM
consider the October Revised BAFO and re-open bidding, and that the October Revised BAFO
had been returned unopened.
133. Later during the call, an analyst with J.P. Morgan remarked that "I'm still not
completely clear as to what you needed to cover in the new proposal that was not in the original
proposal." Hook answered: "I think that we can all sharpen our pencils on overall value. As I
said in my prepared remarks, multiple rounds are always important in complex negotiations. We
think that there should be particular attention paid here to transition, costs and risk for all
members of the industry, as well as a focus on the transition to IP, which is becoming more and
more urgent. Any transition wouldn't necessarily disrupt that innovation."
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134. Although the disclosure in the "Update" press release set forth in Paragraph 130
above was partially corrective in nature, the follow-on statements by Defendant Hook set forth in
Paragraphs 131 and 133 above were materially false and misleading when made, and omitted
material facts necessary to make the statements, in light of the circumstances under which they
were made, not misleading.
135. Defendants Hook's "sharpen our pencils" response to the analyst's question
during the conference call obscured the fact, alleged in Paragraphs 63-74 above and further
shown by Hook's January 21, 2014 telephonic appeal to FCC Chairman Wheeler, that the
submission of the October Revised BAFO was a scrambling, irregular effort to bid 'just under"
Telcordia after Telcordia had outbid Neustar by a mile in the best and final offer process.
Similarly, as alleged in Paragraph 62 above, Hook concealed the fact that Neustar had not
submitted its most competitive price in BAFO process and in fact was trying to preserve and
perpetuate the large premium associated with Neustar's monopoly and incumbent status.
136. Moreover, Hook continued to conceal rapidly rising doubts within the Company
as to its chances of remaining the sole LNPA. As alleged in Paragraph 83 above, Defendants
clearly knew no later than January 24, 2014 that Neustar's bid was doomed unless they could
fundamentally shake up the dynamics of the selection process, including by convincing the FCC
itself to intervene and direct the NAPM to consider the October Revised BAFO.
137. Analysts were shocked by the January 29, 2014 "Update" and conference call.
J.P. Morgan issued a report on January 30, 2014 stating that "NSR's unsolicited new fall
submission caught everyone by surprise" and "is generating a lot of concern that NSR's position
was not as strong as first thought, pricing may be worse, and a number of other concerns."
William Blair & Co. stated similarly in its January 30, 2014 report that "we are concerned that
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the company may have been able to offer lower pricing that than amount stipulated in its best-
and-final-offer bid in September 2013. The NAPM's lack of a response and the FCC's delay in
approval also add to investor anxiety that the company's chances of renewing the contract may
not be as strong as anticipated."
138. A report the same day by RBC Capital Markets found the Company's NPAC
update "disappointing" but, however, accepted Neustar's "reiterated" assurances "that the
company is still in position to win the renewal." Wells Fargo wrote similarly on January 29,
2014 that returning the October Revised BAFO unopened "effectively creates a binary event that
could potentially eliminate half of the company's revenue. NSR is still very much in the running
for the contract and makes a strong case as to why they should win the renewal. However, until
the process is complete, we believe this uncertainty will create a meaningful overhang on NSR
shares."
139. The market reacted strongly to Neustar's partially corrective disclosures. The
price of Neustar stock dropped by 19. 75 percent, from $43.75 at the close of trading on January
29, 2014, to $35.11 per share at the close of trading on January 30, 2014, the next trading day.
This price decline was statistically significant. Trading volume on January 30, 2014 was
7,734,300 shares, more than 15 times the average daily volume of 489,685 shares during the
immediately preceding 12 months.
B. Continued Material Misstatements in the April 16, 2014 First Quarter Press Release and Conference Call
140. On April 16, 2014, Neustar issued a press release titled "Neustar Reports Results
for First Quarter 2014," announcing the Company's financial results for the first quarter of 2014.
The press release was filed with the SEC the same day as an exhibit to a Form 8-K Current
Report dated April 16, 2014 and signed by Defendant Lalljie.
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141. Defendant Hook stated in the release that "[w]e are competing vigorously in the
LNPA vendor selection process, and will continue to advocate strongly that we are the logical
choice to remain as administrator, which we believe is beneficial to the industry and consumers
alike."
142. Neustar held a conference call with securities analysts the same day to discuss the
first quarter financial results and the status of the 2015 LNPA RFP. Defendants Hook and
Lalljie, and Neustar's head of investor relations, participated in the call on behalf of Neustar.
During the call, Hook once again reassured investors that "[w]e have participated in the LNPA
vendor selection process, confident that an objective appraisal of our qualifications to continue
managing the NPAC and the value of our proposal should place us in a strong position for a
renewal of the contract. We continue to advocate that an additional round of bidding is
necessary to evaluate objectively qualified vendors, and to ensure that the NPAC Contract will
be awarded to the vendors that offers [sic] the best value proposition to the industry and to
American consumers."
143. Defendant Lalljie similarly reassured investors during the conference call that "we
have made it abundantly clear that we are the logical choice to provide this service. We've been
doing it with excellence for 17-plus years, and we fully expect that we will continue to do this
into the future."
144. The statements set forth in Paragraphs 141-143 above were materially false and
misleading when made, and omitted material facts necessary to make the statements, in light of
the circumstances under which they were made, not misleading.
145. As alleged in Paragraphs 83-91 above, Defendants knew at this point at the NPAC
Contract renewal was in serious jeopardy, and had engaged in a flurry of activity before the FCC
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in an effort to preserve their position. On February 3, 2014, as alleged above, Neustar asserted to
the FCC that the bidding process to date was flawed and that the FCC itself needed to intervene.
Soon thereafter, on February 12, Neustar filed a formal petition with the FCC seeking a
declaratory ruling directing the NAPM to consider the October Revised BAFO. Neustar
reiterated its concerns regarding the NAPM's unexpected two-week extension of the April 2013
bid submission deadline and asserted that the extension was prejudicial to Neustar and put the
Company at a competitive disadvantage relative to Telcordia. Neustar also insisted that the
current process followed by the NAPM would deprive the public and the industry of the best and
most cost-effective proposals from qualified bidders. On March 7, 2014, Neustar piled on by
initiating a formal dispute before the NANC, once again challenging the NAPM's extension of
the bid submission deadline and FoNPAC's refusal to consider the October Revised BAFO.
146. By March 13, 2014, Defendants were in full panic mode, and on March 19, 2014
Neustar send an extraordinary letter to the Chairperson of the NANC, signed by Defendant
Hook. Hook appealed to the NANC to "fix this process" and, beyond repeating its concerns
about FoNPAC's refusal to consider Neustar's October Revised BAFO, Hook begged the NANC
to delay its upcoming decision to recommend Neustar or Telcordia to the FCC, and offered a $50
million discount on Neustar's fees in consideration of the fact that the NPAC Contracts would
then extend beyond June 2015.
147. These efforts were inconsistent with Defendants Hook and Lalljie's positive
expressions of confidence as to Neustar's competitive standing. Defendants knew by this point
that Neustar was significantly underbid by Telcordia, to such an extent that unless Defendants
could fundamentally change the dynamics of the selection process, including by convincing the
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FCC to direct the NAPM to accept the October Revised BAFO and reopen bidding, Neustar was
going to lose the NPAC Contracts and, with them, half of the Company's revenue.
148. These efforts and surrounding facts were not disclosed to investors in the April
16, 2014 press release or conference call. Indeed, during the conference call, one analyst
pointedly asked Hook if "there are any other new disclosures that we need to know about" other
than her above-quoted introductory remarks about the NPAC Contracts and her reference to an
April 11, 2014 letter from FCC Chairman Wheeler to Congressman Frank Wolf. (In that letter,
Chairman Wheeler advised Congressman Wolf that the FCC awaits the NANC's
recommendation and assessment of the selection process.) Hook responded: "No. The only
thing that we saw that was again filed in the docket was the letter from Wheeler to Congress
indicating that as of the 11th, they had not received anything from the NANCH"
149. Analysts, as would be expected, were generally unsettled by the lack of clarity as
to Neustar's competitive standing for the NPAC Contract renewal. For example, RBC Capital
Markets noted in an April 17, 2014 report that "the company provided little new in terms of the
LNPA / NPAC renewal process except for reiterating that is still [sic] 'competing strongly' for
renewal." The report noted, however, that "we continue to view the announcement of the vendor
to be a binary event for the stock." In its April 16 report, William Blair & Co. reacted to the
April 16 news as "largely reiterating already publicly available knowledge regarding the
process." Oppenheimer & Co.'s report on April 17 noted the "continued lack of clarity"
concerning the NPAC Contract renewal.
C. The NANC's Recommendation of Telcordia Over Neustar Is Revealed, Fully Correcting the Market
150. As alleged in Paragraphs 92-94 above, the inadvertent posting of an e-mail on the
FCC public docket on June 6, 2014, Neustar's June 9, 2014 press release titled "Update on Local
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Number Portability Selection Process," and the FCC's Public Notice the same day revealed that
the NANC recommended to the FCC that Telcordia succeed Neustar as sole LNPA. Neustar
filed the "Update" press release, together with a screenshot of the e-mail, with the SEC on June
9, 2014 as attachments to a Form 8-K Current Report, signed by Defendant Lalljie.
151. This disclosure caused the price of Neustar common stock to drop by 8.4 percent,
from $26.67 at the close of trading on June 6, 2014, to $24.43 at the close of trading on June 9,
2014, the next trading day. This price decline was statistically significant. Trading volume in
Neustar shares on June 9, 2014 was 5,507,100 shares, more than six times the average daily
volume of 838,620 shares for the immediately preceding 12 months.
152. In all, shares of Neustar stock lost 42.6 percent of their value between the close of
trading on April 19, 2013, the first day of the Class Period ($42.57), and the close of trading on
June 9, 2014, the trading day immediately following the Class Period ($24.43). Neustar stock
lost 56.8 percent of its value between its Class Period high close on August 1, 2013 ($56.51) and
the close of trading on June 9, 2014.
VII. ADDITIONAL INDICIA OF SCIENTER
153. As alleged herein, during the Class Period, Defendants had actual knowledge of
the false and misleading nature of the statements they made or acted with reckless disregard of
the true information known to them. In so doing, Defendants committed acts, and practiced and
participated in a course of conduct that operated as a fraud or deceit on purchasers of Neustar
securities during the Class Period.
154. As more fully alleged above, Defendants acted with scienter in that they knew
that the public documents and statements issued or disseminated in the name of the Company
were materially false and misleading, knew that these documents or statements were issued or
disseminated to the investing public, and knowingly and substantially participated or acquiesced
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in the issuance or dissemination of such statements or documents as primary violations of the
federal securities laws. As set forth elsewhere herein in detail, Defendants participated in the
fraudulent scheme by virtue of their receipt of information reflecting the truth regarding Neustar,
their control over and receipt or dissemination of the Company's materially false and misleading
statements, and their associations with the Company that made them privy to material nonpublic
information concerning Neustar.
155. During the Class Period, Defendants undertook various efforts and conduct,
unbeknownst to the investing public, that (1) raise a strong inference that Defendants knew or
recklessly disregarded that Neustar's competitive standing in the 2015 LNPA RFP and selection
process was at substantial and increasing risk; and (2) were inconsistent with, Defendants'
statements to the investing public alleged herein to be materially false and misleading.
156. For example, as alleged in Paragraphs 51 and 53-54 above, Defendants knew or
recklessly disregarded that Neustar's pricing reflected its monopoly and incumbent position, that
it was possible for the LNPA to earn a reasonable profit at significantly lower prices, and that the
extension of the submission deadline permitted Telcordia or other potential competitors to
structure a bid that was priced significantly lower than Neustar's proposal. Moreover, as alleged
in Paragraphs 55-56 above, Neustar's April 24, 2013 letter filed with the FCC, objecting to the
NAPM's unexpected extension of the bid submission deadline after Neustar had submitted its
original proposal, set forth Defendants' view that the deadline extension put Neustar's
competitive standing at significant risk because Neustar was now likely to face a competitor for
the NPAC Contracts. Additionally, given that Neustar has presented no evidence to date that any
of the risks of serious prejudice set forth in the April 24, 2013 letter, such as disclosure of
Neustar's original proposal to other bidders, have actually occurred, Neustar's objections raise a
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strong inference that the Company's original proposal was not competitively priced but instead
was priced at a high level that reflected Neustar's monopoly and incumbent status.
157. Further, as alleged in Paragraphs 62-63 and 74-79 above, Neustar's secret and
unilateral submission of the October Revised BAFO and request for bidding to be reopened, only
one month after the Company submitted its September BAFO pursuant to an approved process,
raises a strong inference that Defendants knew that the Company's September BAFO would fail.
This is further supported by the report in The Capitol Forum, as alleged in Paragraph 64 above,
that Telcordia was "now likely to win the LNPA contract outright because its bid [BAFO] came
in significantly lower than Neustar's," and in fact "the gap between bids is so significant as to
make it very difficult for Neustar to win the contract." This is further supported by the report in
The Capitol Forum, as alleged in Paragraph 65 above, that "Neustar's unsolicited second BAFO
was very different from its initial BAFO, and was low enough to come in 'just under'
Telcordia's bid," and this indicated that Neustar had "detailed knowledge of Telcordia's bid.
158. This is also supported by the allegations in Paragraphs 68-73 above estimating the
relative pricing of Neustar's and Telcordia's BAFOs, and J.P. Morgan's January 30, 2014
analyst report advising that Neustar's disclosure that day of the October Revised BAFO "caught
everyone by surprise" and "is generating a lot of concern that NSR's position was not as strong
as first thought, pricing may be worse, and a number of other concerns." This is further
supported by Defendant Hook's January 21, 2014 exparte call to FCC Chairman Wheeler
pleading that the October Revised BAFO be considered, the substance of which Defendants
knowingly concealed, as alleged in Paragraphs 74-75 above.
159. Defendants would not have submitted the October Revised BAFO, and requested
that bidding be reopened, had Defendants not known that Telcordia's BAFO was priced far
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lower than Neustar's BAFO, to a degree that Neustar was in serious jeopardy of losing the
NPAC Contracts to Telcordia. The submission of the October Revised BAFO raises a further
strong inference that neither the original bid or September BAFO were competitively priced, but
were instead priced at a high, anticompetitive level that reflected Neustar's monopoly and
incumbent status.
160. Further, as alleged in Paragraphs 83-91 above, Defendants' multiple letters and
applications filed with the FCC in February and March 2014, culminating in Defendant Hook's
offer of a $50 million credit against its fees if the NANC would agree to delay making its
recommendation decision for several months, reflects Defendants' view, no later than January
24, 2014, that Neustar would lose the NPAC Contracts to Telcordia if they could not
fundamentally shake up the dynamics of the selection process, including by convincing the FCC
to intervene and direct the NAPM to consider the October BAFO. These efforts failed as of June
6, 2014, when the NANC's recommendation of Telcordia became public.
161. Each of the Individual Defendants was and continues to be closely involved in the
2015 LNPA RFP and selection process, including the preparation and approval of Neustar's
April 2013 proposal, September BAFO, and October Revised BAFO. As reported by The
Capitol Forum on December 10, 2013, Neustar's RFP responses were likely the responsibility of
"Neustar's Carrier Solutions group, headed up by Steve Edwards, VP for Data Solutions. .
Given the contract's importance to the company's overall revenues, C-level parties will be
involved as well, including Lisa Hook, CEO, and Len Kennedy, General Counsel."
162. Together with the Individual Defendants, Leonard J. Kennedy ("Kennedy"),
referenced in the article quoted immediately above, was one of Neustar's Executive Officers
during the Class Period. Kennedy has been Neustar's Senior Vice President and General
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Counsel since May 2013, and is also the Company's Corporate Secretary. As General Counsel,
Kennedy has been closely involved in the Company's efforts to secure renewal of the NPAC
Contracts and the proceedings before the FCC and other entities involved in the LNPA selection
process. In assessing Kennedy's performance for 2013 and awarding him a substantial bonus,
the Compensation Committee of Neustar's Board of Directors specifically noted his
"accomplishments in positioning the NPAC contract for renewal."
163. Neustar acted with "corporate" scienter such that the material misstatements about
the Company's competitive standing to secure the renewal of the critical NPAC Contracts were
so important to the Company's business and future prospects that they were approved by
corporate officials sufficiently knowledgeable about the Company to know that the statements
were false or misleading. At least one authorized agent of the Company authorized, requested,
commanded, furnished information for, prepared (including suggesting or contributing language
for inclusion therein or omission therefrom), reviewed or approved the statements in which the
misrepresentations were made before their utterance or issuance. Moreover, at least one
authorized agent of the Company ratified, recklessly disregarded, or tolerated the
misrepresentation after its utterance or issuance.
164. Providing NPAC Services pursuant to the NPAC Contracts was Neustar's core
business before and during the Class Period, and continues to be the Company's core business
today. As described in the Company's Form 10-Q Quarterly Reports for the first and second
quarters of 2014, filed with the SEC on April 16 and July 23, 2014, respectively, Neustar
currently provides four categories of services to its clients and customers: Marketing Services,
Security Services, Data Services, and NPAC Services. During 2013, according to the
Company's Form 10-K, Neustar's services also included a "Business Assurance Services"
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category, and NPAC Services fell under the Company's Data Registries Services category. Data
Registries Services comprised NPAC Services and the registration of .us and .biz Internet
domain names.
165. Neustar's annual revenue from the registration of .us and .biz Internet domain
names was relatively insignificant compared to its revenues from NPAC Services, which, as
alleged in greater detail above, accounted for approximately half of the Company's total
revenues in 2013 and will account for approximately half of the Company's total 2014 revenue.
Neustar's Form 10-Q reports for the first and second quarters of 2014 reported that revenues
from NPAC Services constituted 51.7 percent and 50 percent of the total revenues for those
quarters, respectively. Defendants Hook and Lalljie certified the accuracy and completeness of
these Form 10-Q quarterly reports under Section 302 of the Sarbanes-Oxley Act of 2002 and 18
U.S.C. § 1350.
166. During 2013, Neustar had no competition for its NPAC Services and other Data
Registries Services, but faced (and continues to face) substantial competition for its Marketing
Services, Business Assurance Services, Security Services, and Data Services. Telcordia, in fact,
is among Neustar's major competitors in the Data Services category.
167. Defendants, including Defendants Hook and Lalljie, consistently referred to the
Company's business results and revenues in earnings releases and conference calls during the
Class Period as "NPAC" versus the "Non-NPAC" revenue or operations, or simply "Revenue"
versus the "Non-NPAC Revenue." Neustar's "NPAC" revenue, segment, or operations were
consistently reported to or discussed with the market before the "non-NPAC" side of the
Company's business.
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168. Losing the NPAC Contracts to Telcordia or any other competitor would be a
disaster for Neustar and its investors. As Neustar acknowledged in its Form 10-K Annual Report
for 2013, which Defendants Hook and Lalljie signed:
If these contracts are terminated, expire without renewal, or are modified in a manner that is adverse to us, it would have a material adverse effect on our business, prospects, financial condition and results of operations. We may not be able to replace the revenue we will lose if we are not selected to continue to provide these services, or if we are selected to continue to provide these services under terms and conditions that are materially less favorable to us than the current terms and conditions.
VIII. THE STATUTORY SAFE HARBOR AND BESPEAKS CAUTION DOCTRINE ARE INAPPLICABLE
169. The statutory safe harbor and the bespeaks caution doctrine applicable to forward-
looking statements under the Private Securities Litigation Reform Act of 1995 do not apply to
the misrepresentations and omissions alleged in this Complaint.
170. None of Defendants' historic or present-tense statements alleged herein was a
forward-looking statement because none was an assumption underlying or relating to any plan,
projection, or statement of future economic performance, as they were not stated to be such
assumptions underlying or relating to any projection or statement of future economic
performance when made, nor were any of the projections or forecasts made by Defendants
expressly related to, or stated to be dependent on, those historic or present-tense statements when
made.
171. To the extent that any of the materially false or misleading statements alleged
herein, or any portions thereof, can be construed as forward-looking, these statements were not
accompanied by meaningful cautionary language identifying important facts that could cause
actual results to differ materially from those in the statements. As set forth above in detail, given
the then-existing facts contradicting Defendants' statements, the generalized risk disclosures
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made by Defendants were not sufficient to insulate Defendants from liability for their materially
false and misleading statements.
172. Defendants are also liable for any false or misleading forward-looking statement
alleged herein, or portion thereof, because at the time each forward-looking statement was made,
the speaker knew the forward-looking statement was false or misleading, or the forward-looking
statement was authorized and approved by an executive officer of Neustar who knew that the
forward-looking statement was false.
IX. LOSS CAUSATION
173. The market prices of Neustar's publicly traded securities were artificially inflated
by the material misstatements and omissions complained of herein, including the misstatements
and omissions about Neustar's competitive standing in the 2015 LNPA RFP and process for
selection of the next LNPA.
174. The artificial inflation in Neustar's securities prices was removed when the
conditions and risks misstated and omitted by Defendants were revealed to the market or the
concealed risks alleged herein materialized, causing investors' losses. The information was
disseminated through several partial disclosures that revealed the nature and extent of the risk
that Neustar would not be recommended or selected as the next LNPA. These disclosures, more
fully described above, reduced the prices of Neustar's publicly traded securities, causing
economic injury to Lead Plaintiff and other members of the Class.
175. None of the disclosures was sufficient on its own to fully remove the inflation
from the prices of Neustar's publicly traded securities, because each only partially revealed the
risks and conditions that had been concealed from investors.
176. The corrective impact of the disclosures alleged above was, however, tempered
by Defendants' continued misstatements and omissions about Neustar's competitive standing in
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the 2015 LNPA RFP and process for selection of the next LNPA. These continued
misrepresentations continued to maintain the prices of Neustar's publicly traded securities at
levels that were artificially inflated, inducing members of the Class to continue purchasing
Neustar securities even after the truth began to partially enter into the market or the concealed
risks began to materialize. Further price declines that caused additional injury to the Class
occurred upon the disclosure of additional information or the further materialization of concealed
risks regarding Neustar's competitive standing in the 2015 LNPA RFP and process for selection
of the next LNPA.
X. CONTROLLING PERSON ALLEGATIONS
177. By virtue of the Individual Defendants' positions of management and control
within the Company, they had access to undisclosed adverse information about Neustar and its
competitive standing in the 2015 LNPA RFP and process for selection of the next LNPA. The
Individual Defendants ascertained such information through Neustar's internal corporate
documents, conversations, and connections with each other and with corporate officers,
employees, attendance at Board of Directors' meetings, including committees thereof, and
through reports and other information provided to them in connection with their roles and duties
as Neustar officers and directors.
178. The Individual Defendants participated in the drafting, preparation, and/or
approval of the various public, shareholder and investor reports and other communications
complained of herein and knew, or recklessly disregarded, that there were material misstatements
and omissions contained therein. Because of their Board or executive and managerial positions
with Neustar. each of the Individual Defendants had access to the adverse undisclosed
information about Neustar's financial condition and performance as particularized herein and
knew (or recklessly disregarded) that these adverse facts rendered the positive representations
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made by or about Neustar and its business or adopted by the Company materially false and
misleading.
179. The Individual Defendants, because of their positions of control and authority as
officers or directors of the Company, were able to and did control the content of the various SEC
filings, press releases and other public statements pertaining to the Company during the Class
Period. Each Individual Defendant was provided with copies of the documents alleged herein to
be misleading before or shortly after their issuance and had the ability and opportunity to prevent
their issuance or cause them to be corrected. Accordingly, each of the Individual Defendants is
responsible for the accuracy of the public reports and releases detailed herein and is therefore
primarily liable for the representations contained therein.
180. As officers, directors, and controlling persons of a publicly held company whose
common stock is registered with the SEC pursuant to the Exchange Act, and is traded on the
NYSE, and governed by the provisions of the federal securities laws, the Individual Defendants
each had a duty to promptly disseminate accurate and truthful information with respect to the
Company's operations and position with regard to the 2015 LNPA RFP, and to correct any
previously issued statements that had become materially misleading or untrue, so that the market
price of the Company's publicly traded securities would be based upon truthful and accurate
information. The Individual Defendants' material misrepresentations and omissions during the
Class Period violated these specific requirements and obligations.
XI. CLASS ACTION ALLEGATIONS
181. Lead Plaintiff brings this action on behalf of itself and as a class action, pursuant
to Rule 23 of the Federal Rules of Civil Procedure, on behalf of a Class consisting of all persons
and entities that purchased or otherwise acquired the publicly traded securities of Neustar during
the Class Period and were damaged thereby. Excluded from the Class are Defendants; present
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and former executive officers of Neustar, members of Neustar's Board of Directors, and
members of their immediate families (as defined in 17 C.F.R. § 229.404, Instructions (1)(a)(iii)
and (1)(b)(ii)); the legal representatives, heirs, successors or assigns of any of these individuals
and entities; any entity in which Defendants have or had a controlling interest; and any affiliate
of Neustar.
182. The members of the Class are so numerous that joinder of all members is
impracticable. The disposition of their claims in a class action will provide substantial benefits
to the parties and the Court. Throughout the Class Period, Neustar common stock was actively
traded on the NYSE. While the exact number of Class members is unknown to Lead Plaintiff at
this time and can only be ascertained through appropriate discovery, Lead Plaintiff believes that
there are at least thousands of members of the proposed Class. As of April 11, 2014, Neustar
had 60,234,847 shares of common stock issued and outstanding, owned by thousands of persons.
Record owners and other members of the Class may be identified from records maintained by
Neustar or its transfer agent and may be notified of the pendency of this action by mail, using the
form of notice similar to that customarily used in securities class actions.
183. There is a well-defined commonality of interest in the questions of law and fact
involved in this case. Questions of law and fact common to the members of the Class that
predominate over questions that may affect individual Class members include:
(a) whether Defendants violated the Exchange Act;
(b) whether Defendants' statements to the investing public during the
Class Period misrepresented or omitted material facts;
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(c) whether Defendants' statements omitted material facts necessary in
order to make the statements made, in light of the circumstances under which they
were made, not misleading;
(d) whether Defendants knew or recklessly disregarded that their
statements were false and misleading;
(e) whether the prices of Neustar's publicly traded securities were
artificially inflated due to the misrepresentations and omissions of material fact
alleged herein; and
(f) whether and to what extent Class members sustained damages as a
result of the conduct alleged herein, and the appropriate measure of damages.
184. Lead Plaintiff's claims are typical of the claims of the other members of the Class,
as all members of the Class purchased or otherwise acquired Neustar publicly traded securities
during the Class Period and similarly sustained damages as a result of Defendants' wrongful
conduct alleged herein.
185. Lead Plaintiff will fairly and adequately protect the interests of the members of
the Class and has retained counsel competent and experienced in class action securities litigation.
Lead Plaintiff has no interests that are adverse or antagonistic to those of the Class.
186. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. Because the damages suffered by each individual member of
the Class may be relatively small, the expense and burden of individual litigation make it
impracticable for Class members individually to seek redress for the wrongful conduct alleged
herein.
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XII. LEAD PLAINTIFF AND CLASS MEMBERS ARE ENTITLED TO A PRESUMPTION OF RELIANCE
187. Lead Plaintiff and members of the Class are entitled to rely upon the presumption
of reliance established by the fraud-on-the-market doctrine in that, among other things:
(a) Defendants made public misrepresentations or failed to disclose
material facts during the Class Period;
(b) the omissions and misrepresentations were material;
(c) Neustar common stock traded in efficient markets;
(d) the misrepresentations alleged would tend to induce a reasonable
investor to misjudge the value of Neustar common stock and other publicly traded
securities; and
(e) Lead Plaintiff and other members of the Class purchased Neustar
common stock and other publicly traded securities between the time Defendants
misrepresented or failed to disclose material facts and the time the true facts were
disclosed or the concealed risks materialized, without knowledge of the
misrepresented or omitted facts.
188. At all relevant times, the markets for Neustar's publicly traded securities were
efficient for the following reasons, among others:
(a) as a registered issuer, Neustar filed periodic public reports with the
SEC;
(b) Neustar regularly communicated with public investors via
established market communication mechanisms, including through regular
disseminations of press releases on the major newswire services and through other
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wide-ranging public disclosures, such as communications with the financial press,
securities analysts, and other similar reporting services;
(c) Neustar was followed by numerous securities analysts employed
by major brokerage firms who wrote reports that were distributed to the sales
force and certain customers of their respective brokerage firms and that were
publicly available and entered the public marketplace; and
(d) Neustar's securities were actively traded in efficient markets,
including the NYSE, where the Company's common stock trades under the ticker
symbol "NSR."
189. As a result of the foregoing, the markets for Neustar publicly traded securities
promptly digested new material information regarding Neustar from all publicly available
sources and reflected such information in the price of those securities.
190. Under these circumstances, all purchasers of Neustar publicly traded securities
during the Class Period suffered similar injury through their purchase of Neustar securities at
artificially inflated prices, and the presumption of reliance applies.
191. Further, to the extent that Defendants concealed or improperly failed to disclose
material facts with regard to the Company and its business, Lead Plaintiff is entitled to a
presumption of reliance in accordance with Affiliated Ute Citizens of Utah v. United States, 406
U.S. 128, 153 (1972).
192. Accordingly, Lead Plaintiff and other members of the Class did rely and are
entitled to have relied upon the integrity of the market prices for Neustar publicly traded
securities and to a presumption of reliance on Defendants' material misstatements and omissions
during the Class Period.
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XIII. CAUSES OF ACTION
COUNT I
Asserted Against Defendant Neustar for Violations of Section 10(b) of the Securities Exchange
Act of 1934 and SEC Rule lOb-S Promulgated Thereunder
193. Lead Plaintiff repeats and realleges each and every allegation contained above as
if fully set forth herein. This Count is brought pursuant to Section 10(b) of the Exchange Act, 15
U.S.C. § 78j(b), and Rule lob-S promulgated thereunder by the SEC, 17 C.F.R. § 240. lOb-5, on
behalf of Lead Plaintiff and all other members of the Class against Neustar.
194. During the Class Period, officers, management, and agents of Neustar carried out
a plan, scheme and course of conduct which was intended to and, throughout the Class Period,
did: (i) deceive the investing public, including Lead Plaintiff and other Class members, regarding
Neustar's competitive standing in the 2015 LNPA RFP and process for selection of the next
LNPA, and the intrinsic value of Neustar securities, as alleged herein; (ii) enable Neustar to
artificially inflate the price of Neustar securities; and (iii) cause Lead Plaintiff and other
members of the Class to purchase Neustar securities at artificially inflated prices. In furtherance
of this unlawful scheme, plan and course of conduct, Neustar took the actions set forth herein.
195. Officers, management, and agents of Neustar directly and indirectly, by the use of
means and instrumentalities of interstate commerce, the mails, and/or the facilities of a national
securities exchange: (i) employed devices, schemes, and artifices to defraud; (H) made untrue
statements of material fact and/or omitted material facts necessary to make the statements not
misleading; and (Hi) engaged in acts, practices, and a course of business that operated as a fraud
and deceit upon the purchasers of the Company's securities in an effort to maintain Neustar's
artificially inflated securities prices in violation of Section 10(b) of the Exchange Act, and Rule
lob-S promulgated thereunder.
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196. Officers, management, and agents of Neustar employed devices, schemes, and
artifices to defraud while in possession of material adverse nonpublic information and engaged
in acts, practices, and a course of conduct as alleged herein in an effort to assure investors of
Neustar's value and performance, which included the making of untrue statements of material
facts and omitting material facts necessary in order to make the statements made about Neustar's
competitive standing in the 2015 LNPA REP and process for selection of the next LNPA in light
of the circumstances under which they were made, not misleading, as set forth more particularly
herein. Officers, management, and agents of Neustar did not have a reasonable basis for their
alleged false statements and engaged in transactions, practices, and a course of business which
operated as a fraud and deceit upon the purchasers of Neustar securities during the Class Period.
197. Neustar is liable for all materially false and misleading statements and omissions
made during the Class Period, as alleged above, including the false and misleading statements
and omissions included in press releases, conference calls and SEC filings.
198. Neustar is further liable for the false and misleading statements made by
Neustar's officers, management, and agents in press releases and during conference calls and at
conferences with investors and analysts, as alleged above, as the maker of such statements and
under the principle of respondeat superior.
199. In addition to the duties of full disclosure imposed on Neustar as a result of the
affirmative statements and reports made by its officers, management, and agents, or participation
in the making of their affirmative statements and reports to the investing public Neustar had a
duty to promptly disseminate truthful information that would be material to investors, in
compliance with the integrated disclosure provisions of the SEC as embodied in SEC
Regulations S-X(17 C.F.R. §§ 210.1-01 et seq.) and S-K(17 C.F.R. §§ 229.10 et seq.) and other
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SEC regulations, including truthful, complete and accurate information with respect to Neustar's
competitive standing in the 2015 LNPA RFP and process for selection of the next LNPA, and the
intrinsic value of Neustar securities so that the Company's securities prices would be based on
truthful, complete and accurate information.
200. The allegations above establish a strong inference that Neustar, as an entity, acted
with corporate scienter throughout the Class Period, as its officers, management, and agents had
actual knowledge of the misrepresentations and omissions of material facts set forth herein, or
acted with reckless disregard for the truth because they failed to ascertain and to disclose such
facts, even though such facts were available to them. Such material misrepresentations and/or
omissions were done knowingly or with recklessness, and without a reasonable basis, for the
purpose and effect of concealing from the investing public Neustar's true competitive standing in
the 2015 LNPA RFP and process for selection of the next LNPA, and misstating the intrinsic
value of Neustar securities. By concealing these material facts from investors, Neustar
maintained its artificially inflated securities prices throughout the Class Period.
201. In ignorance of the fact that Neustar's securities prices were artificially inflated,
and relying directly or indirectly on the false and misleading statements and omissions made by
Neustar, or upon the integrity of the markets in which the securities trade, and/or on the absence
of material adverse information that was known to or recklessly disregarded by Neustar but not
disclosed in public statements by Neustar during the Class Period, Lead Plaintiff and the other
members of the Class purchased or acquired Neustar securities during the Class Period at
artificially high prices and were damaged when that artificial inflation was removed from the
price of Neustar securities as the true, current competitive standing of the Company in the 2015
LNPA RFP and process for selection of the next LNPA was revealed.
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202. At the time of said misrepresentations and omissions, Lead Plaintiff and other
members of the Class were ignorant of their falsity, and believed them to be true. Had Lead
Plaintiff, the other members of the Class, and the marketplace known of the truth concerning
Neustar's competitive standing in the 2015 LNPA RFP and process for selection of the next
LNPA, and intrinsic value of Neustar securities, Lead Plaintiff and other members of the Class
would not have purchased or acquired their Neustar securities, or, if they had purchased or
acquired such securities during the Class Period, they would not have done so at the artificially
inflated prices they paid.
203. By virtue of the foregoing, Neustar has violated Section 10(b) of the Exchange
Act and Rule lob-S promulgated thereunder.
204. As a direct and proximate result of Neustar's wrongful conduct, Lead Plaintiff
and the other members of the Class suffered damages in connection with their respective
purchases and/or acquisitions of Neustar securities during the Class Period.
COUNT II
Asserted Against the Individual Defendants for Violations of Section 10(b) of the Securities Exchange
Act of 1934 and SEC Rule lOb-S Promulgated Thereunder
205. Lead Plaintiff repeats and realleges each and every allegation contained above as
if fully set forth herein. This Count is brought pursuant to Section 10(b) of the Exchange Act, 15
U.S.C. § 78j(b), and Rule lob-S promulgated thereunder, 17 C.F.R. § 240. lOb-5, on behalf of
Lead Plaintiff and all other members of the Class against the Individual Defendants.
206. During the Class Period, the Individual Defendants carried out a plan, scheme and
course of conduct which was intended to and, throughout the Class Period, did: (i) deceive the
investing public, including Lead Plaintiff and other Class members, regarding Neustar's
competitive standing in the 2015 LNPA RFP and process for selection of the next LNPA, and the
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intrinsic value of Neustar securities, as alleged herein; (ii) enable Neustar to artificially inflate
the price of Neustar securities; and (iii) cause Lead Plaintiff and other members of the Class to
purchase Neustar securities at artificially inflated prices. In furtherance of this unlawful scheme,
plan and course of conduct, the Individual Defendants took the actions set forth herein.
207. The Individual Defendants: (i) employed devices, schemes, and artifices to
defraud; (H) made untrue statements of material fact and/or omitted material facts necessary to
make the statements not misleading; and (Hi) engaged in acts, practices, and a course of business
that operated as a fraud and deceit upon the purchasers of the Company's common stock and
other publicly traded securities in an effort to maintain Neustar's artificially inflated securities
prices in violation of Section 10(b) of the Exchange Act, and Rule lOb-5 promulgated
thereunder. The Individual Defendants are each sued as primary participants in the wrongful and
illegal conduct charged herein. The Individual Defendants are also sued as controlling persons
of Neustar as alleged below.
208. In addition to the duties of full disclosure imposed on the Individual Defendants
as a result of their affirmative statements, the Individual Defendants had a duty to promptly
disseminate truthful information that would be material to investors, in compliance with the
integrated disclosure provisions of the SEC as embodied in SEC Regulations S-X (17 C.F.R. §
210.1-01 et seq.) and S-K (17 C.F.R. §§ 229.10 et seq.) and other SEC regulations, including
truthful, complete and accurate information with respect to Neustar's competitive standing in the
2015 LNPA REP and process for selection of the next LNPA, and the intrinsic value of Neustar
securities so that the Company's share prices would be based on truthful, complete and accurate
information.
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209. The Individual Defendants, individually and in concert, directly and indirectly, by
the use, means or instrumentalities of interstate commerce and/or of the mails, engaged and
participated in a continuous course of conduct to conceal adverse material information about
Neustar's competitive standing in the 2015 LNPA RFP and process for selection of the next
LNPA, and the intrinsic value of Neustar securities, as specified herein.
210. The Individual Defendants employed devices, schemes, and artifices to defraud,
while in possession of material adverse nonpublic information, and engaged in acts, practices,
and a course of conduct as alleged herein in an effort to assure investors of Neustar's value and
performance, which included the making of untrue statements of material facts and omitting
material facts necessary in order to make the statements made about Neustar's competitive
standing in the 2015 LNPA RFP and process for selection of the next LNPA, and the intrinsic
value of Neustar securities, in light of the circumstances under which they were made, not
misleading, as set forth more particularly herein. The Individual Defendants additionally
engaged in transactions, practices, and a course of business which operated as a fraud and deceit
upon the purchasers of Neustar securities during the Class Period.
211. The Individual Defendants' primary liability, and controlling person liability, also
arises from the following facts: (i) the Individual Defendants were high-level executives and/or
directors at Neustar during the Class Period and members of Neustar's management team or had
control thereof; (ii) each of the Individual Defendants enjoyed significant personal contact and
familiarity with the other Individual Defendants and was advised of and had access to other
members of Neustar's management team, internal reports, and other data and information about
Neustar's competitive standing in the 2015 LNPA RFP and process for selection of the next
LNPA, and the intrinsic value of Neustar securities at all relevant times; and (iii) each of the
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Individual Defendants was aware of Neustar's dissemination of information to the investing
public that he knew or recklessly disregarded was materially false and misleading.
212. The Individual Defendants had actual knowledge of the misrepresentations and
omissions of material facts set forth herein, or acted with reckless disregard for the truth in that
they failed to ascertain and to disclose such facts, even though such facts were available to them.
The Individual Defendants' material misrepresentations and/or omissions were made knowingly
or recklessly and without a reasonable basis for the purpose and effect of concealing Neustar's
competitive standing in the 2015 LNPA RFP and process for selection of the next LNPA, and the
intrinsic value of Neustar securities. By concealing these material facts from investors, Neustar
maintained their artificially inflated securities prices throughout the Class Period.
213. In ignorance of the fact that market prices of Neustar's publicly traded securities
were artificially inflated, and relying directly or indirectly on the false and misleading statements
made by the Individual Defendants, or upon the integrity of the market in which the securities
trade, and/or on the absence of material adverse information that was known to or recklessly
disregarded by the Individual Defendants but not disclosed in public statements by the Individual
Defendants during the Class Period, Lead Plaintiff and the other members of the Class purchased
or acquired Neustar securities during the Class Period at artificially high prices and were
damaged when that artificial inflation was removed from the price of Neustar securities as the
Company's true, current competitive standing in the 2015 LNPA RFP and process for selection
of the next LNPA was revealed.
214. At the time of said misrepresentations and omissions, Lead Plaintiff and other
members of the Class were ignorant of their falsity, and believed them to be true. Had Lead
Plaintiff, the other members of the Class, and the marketplace known of the truth concerning
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Neustar's competitive standing in the 2015 LNPA REP and process for selection of the next
LNPA, and the intrinsic value of Neustar securities, which were not disclosed by the Individual
Defendants, Lead Plaintiff and other members of the Class would not have purchased or acquired
their Neustar common stock and other publicly traded securities, or, if they had purchased or
acquired such securities during the Class Period, they would not have done so at the artificially
inflated prices they paid.
215. By virtue of the foregoing, the Individual Defendants have violated Section 10(b)
of the Exchange Act, and Rule lob-S promulgated thereunder.
216. As a direct and proximate result of the Individual Defendants' wrongful conduct,
Lead Plaintiff and the other members of the Class suffered damages in connection with their
respective purchases and/or acquisitions of Neustar securities during the Class Period.
COUNT III
Asserted Against the Individual Defendants for Violations of Section 20(a) of the Securities Exchange Act of 1934
217. Lead Plaintiff repeats and realleges each and every allegation contained above as
if fully set forth herein. This Count is brought pursuant to Section 20(a) of the Exchange Act, 15
U.S.C. § 78t(a), on behalf of Lead Plaintiff and all other members of the Class against the
Individual Defendants.
218. The Individual Defendants acted as controlling persons of Neustar within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
positions, and their ownership and contractual rights, participation in and/or awareness of
Neustar's competitive standing in the 2015 LNPA REP and process for selection of the next
LNPA, and the intrinsic value of Neustar securities, the Individual Defendants had the power to
influence and control, and did influence and control, directly or indirectly, the decision-making
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of the Company, including the content and dissemination of the various statements that Lead
Plaintiff contends are false and misleading. The Individual Defendants were provided with or
had unlimited access to copies of the Company's reports, press releases, public filings and other
statements alleged by Lead Plaintiff to be misleading prior to and/or shortly after these
statements were issued and had the ability to prevent the issuance of the statements or cause the
statements to be corrected.
219. In particular, each of these Individual Defendants had direct and supervisory
involvement in the day-to-day operations of the Company and, therefore, is presumed to have
had the power to control or influence the particular transactions giving rise to the securities
violations as alleged herein, and exercised the same. As set forth above, Neustar and the
Individual Defendants each violated Section 10(b) and Rule lOb-5 by their acts and omissions as
alleged in this Complaint. By virtue of their positions as controlling persons, the Individual
Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate
result of Defendants' wrongful conduct, Lead Plaintiff and other members of the Class suffered
damages in connection with their purchases of Neustar securities during the Class Period.
XIV. PRAYER FOR RELIEF
WHEREFORE, Lead Plaintiff prays forjudgment as follows:
A. Declaring this action to be a proper class action pursuant to Rule 23 of the Federal
Rules of Civil Procedure;
B. Awarding Lead Plaintiff and the members of the Class damages and interest;
C. Awarding Lead Plaintiff's reasonable costs, including attorneys' fees; and
D. Awarding such equitable, injunctive or other relief that the Court may deem just
and proper.
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XV. JURY DEMAND
Lead Plaintiff demands a trial by jury of all issues so triable.
Dated: November 6, 2014
Respectfully submitted,
/s/ El izabeth Aniskevich Steven J. Toll (Va. Bar No. 15300) Daniel S. Sommers Elizabeth Aniskevich(Va. Bar No. 81809) COHEN MILSTEIN SELLERS
& TOLL PLLC 1100 New York Avenue N.W. Suite 500, East Tower Washington, D.C. 20005 Tel.: (202) 408-4600 Fax: (202) 408-4699
[email protected] [email protected] [email protected]
Liaison Counsel for Lead Plaintiff Indiana Public Retirement System
Joel H. Bernstein (pro hac vice) David J. Goldsmith (pro hac vice) Michael L. Woolley (pro hac vice) LABATON SUCHAROW LLP 140 Broadway New York, New York 10005 Tel.: (212) 907-0700 Fax: (212) 818-0477
[email protected] dgoldsmithlabaton.com mwoolleylabaton.com
Attorneys for Lead Plaintiff Indiana Public Retirement System and Lead Counsel for the Class
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