ROBBINS GELLER RUDMAN & DOWD LLP CHRISTOPHER P. …

Case3:11-cv-02732-CRB Document68 Filed12/15/11 Page1 of 65

1 ROBBINS GELLER RUDMAN & DOWD LLP

2 CHRISTOPHER P. SEEFER (201197) Post Montgomery Center

3 One Montgomery Street, Suite 1800 San Francisco, CA 94104

4 Telephone: 415/288-4545 415/288-4534 (fax)

5 cseefer@

6 Lead Counsel for Plaintiffs

7

UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

9 In re YAHOO! INC. SECURITIES LITIGATION

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11 This Document Relates To:

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ALL ACTIONS.

) Master File No. 3:11-cv-02732-CRB

) ) CLASS ACTION

) ) CONSOLIDATED AMENDED ) COMPLAINT FOR VIOLATIONS OF THE ) FEDERAL SECURITIES LAWS

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VINCE BONATO, Individually and on Behalf )

14 of All Others Similarly Situated,

)

)

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Plaintiff,

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vs.

17 YAHOO! INC., CAROL A. BARTZ, JERRY YANG and TIMOTHY R. MORSE,

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Defendants. 19

DEMAND FOR JURY TRIAL

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TABLE OF CONTENTS

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Page

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4 II.

5 III.

6 IV.

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INTRODUCTION ...............................................................................................................1

JURISDICTION AND VENUE..........................................................................................9

THE PARTIES...................................................................................................................10

SUBSTANTIVE ALLEGATIONS ...................................................................................11

A. Yahoo Purchased 46% of the Alibaba Group in 2005 and Repeatedly Trumpeted the Importance of the Investment to Yahoo and that Management Closely Monitored the Investment and Chinese Regulations that Could Impact the Investment..........................................................................11

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B. On August 6, 2010, the Alibaba Group Transfers 100% of Alipay's Shares

to Zhejiang Alibaba E-commerce Company, a Chinese Company Majority

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Owned by Ma, so Alipay Can Receive a License from the People's Bank

of China; and on January 27, 2011, Ma Terminates the VIE Arrangement

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Between the Alibaba Group and Zhejiang.............................................................23

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C. August 9, 2010: Defendants Make Materially False and Misleading

Statements About Yahoo's Investment in the Alibaba Group by Failing to

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Disclose that 100% of Alipay's Shares Had Been Transferred to Zhejiang..........34

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D. October 19-20, 2010 and November 8, 2010: Defendants Make Materially

False and Misleading Statements about Yahoo's Investment in the Alibaba

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Group by Failing to Disclose that 100% of Alipay's Shares Had Been

Transferredto Zhejiang..........................................................................................36 17

E. January 25, 2011 and February 28, 2011: Defendants Make Materially

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False and Misleading Statements about Yahoo's Investment in the Alibaba

Group by Failing to Disclose that 100% of Alipay's Shares Had Been

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Transferred to Zhejiang and that the VIE Arrangement Had Been

Terminated.............................................................................................................39 20

F. February 16, 2011: At the Goldman Sachs Technology & Internet

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Conference, Morse Makes Misleading Statements About the Company's

Investment in Alibaba by Failing to Disclose that 100% of Alipay's Shares

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Had Been Transferred to Zhejiang and that the VIE Arrangement Had

BeenTerminated....................................................................................................41 23

G. April 19, 2011: Defendants Knowingly Make Materially False and

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Misleading Statements about Yahoo's 1Q11 Financial Results and the

Company's Investment in the Alibaba Group by Concealing that 100% of

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Alipay's Shares Had Been Transferred to Zhejiang and that the VIE

Arrangement Had Been Terminated......................................................................42 26

H. May 10, 2011: Defendants Reveal in Yahoo's 1Q11 Form 10-Q that

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Alipay's Shares Had Been Transferred to Another Company but Continue

to Mislead by Failing to Disclose the Termination of the VIE and Other

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Facts.......................................................................................................................43

670999_1 CONSOLIDATED AMENDED COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES

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I. May 25, 2011-July 19, 2011: Defendants Refuse to Address Statements by

theAlibaba Group and Ma.....................................................................................44

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J. July 29, 2011-November 2011: Yahoo Announces a Resolution to the

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Alipay Debacle, Bartz Is Fired and Shareholders Call for the Ouster of

AdditionalDirectors...............................................................................................48

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V. LOSS CAUSATION..........................................................................................................51

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VI. CLASS ACTION ALLEGATIONS ..................................................................................54

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VII. PRAYER FOR RELIEF ....................................................................................................60

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VIII. JURY DEMAND...............................................................................................................60

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1 I. INTRODUCTION

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1. This is a securities class action on behalf of all persons who purchased or otherwise

3 1 acquired the common stock of Yahoo! Inc. ("Yahoo" or the "Company") between April 19, 2011 4 1 and July 29, 2011, inclusive (the "Class Period"), against Yahoo, Jerry Yang ("Yang"), Yahoo's co-

5 founder, "Chief Yahoo" and director; Carol A. Bartz ("Bartz"), the Company's former Chief

6 Executive Officer ("CEO"), President and director; and Timothy R. Morse ("Morse"), Yahoo's

7 interim CEO and Chief Financial Officer ("CFO"). Plaintiffs allege that defendants violated the

8 Securities Exchange Act of 1934 (the "1934 Act") by making materially false and misleading

9 statements about the Company's investment in Alibaba Group Holdings Limited ("Alibaba" or

10 "Alibaba Group").

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2. Prior to and during the Class Period, defendants reported the value of the Alibaba

12 I Group investment and represented that it was an "important" and "great" investment that would

13 "grow in value and continue to greatly benefit [Yahoo's] investors over time." They assured

14 investors that Yahoo was "always evaluating" the Alibaba investment through Yang's position on

15 the Alibaba board and Yahoo's "team of very strong financial experts." They also emphasized the

16 importance of the investment by stating in every Form 10-Q and 10-K that Yahoo filed with the U.S.

17 Securities and Exchange Commission ("SEC") that the Company's stock price could fluctuate if

18 there were variations in the operating performance of the Alibaba Group.

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3. All of these statements ? and additional statements ? were materially false and

20 1 misleading because defendants failed to disclose that: (1) on August 6, 2010, 100% of the shares of

21 Alipay, a subsidiary of the Alibaba Group, had been transferred to Zhejiang Alibaba E-commerce

22 Company Ltd. ("Zhejiang"), a Chinese company majority owned by Jack Ma ("Ma"), the CEO of

23 the Alibaba Group; (2) the consideration received by the Alibaba Group for the share transfer was

24 approximately $46 million, billions of dollars less than the estimated value of Alipay; and (3) the

25 variable interest entity ("VIE") arrangement between the Alibaba Group and Zhejiang ? that allowed

26 the Alibaba Group to consolidate Alipay after the August 2010 share transfer ? was terminated on

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1 I January 27, 2011. 1 As a result of defendants' false statements and omissions, Yahoo's stock traded 2 1 at artificially inflated prices during the Class Period, reaching a high of $18.65 per share on May 6,

3 2011.

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4. In October 2005, Yahoo acquired 46% of the Alibaba Group, China's largest

5 e-commerce company, for $1 billion and the contribution of the Company's China-based businesses.

6 1 SoftBank Corporation ("SoftBank") owned 30% of the Alibaba Group, and Jack Ma owned 25%.

7 Ma was also the CEO of the Alibaba Group and a member of the board of directors. Yang and

8 Masayoshi Son ("Son"), the CEO of Softbank, were also members of the Alibaba Group board of

9 directors.

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5. The Alibaba Group owned 70% of after that company completed its

11 1 initial public offering in November 2007 and 100% of Taobao and Alipay. Taobao was the Chinese

12 equivalent of eBay and Alipay the Chinese equivalent of PayPal. Yahoo reported its investment in

13 the Alibaba Group at cost in "investments in equity interests," and the reported amount of the

14 investment was approximately $2.3 billion during the Class Period.

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6. Defendants represented, and analysts and investors agreed, that the value of Yahoo's

16 1 investment in the Alibaba Group was substantially higher than reported. The value of Yahoo's stake

17 in alone from January 2010 through June 2011 ranged between $2.3 billion and $3.0

18 billion based on the trading price of 's stock. Before and during the Class Period,

19 defendants represented that Taobao and Alipay provided "significant additional value," and investors

20 agreed. In April 2011, Greenlight Capital, Inc. hedge fund manager David Einhorn ("Einhorn")

21 invested in Yahoo and wrote, "we believe that Yahoo's most valuable asset is its 40% stake in

22 Alibaba Group's still-private holdings, which are separate and distinct from its ownership in the

23 publicly traded , which we are essentially getting for free." Other analysts estimated

24 Yahoo's interest in Alipay to be as much as $5 billion.

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VIEs are common arrangements that give non-Chinese investors financial control of

companies in industries that limit foreign ownership.

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