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2012 04-30 Horowitz vs Green Mountain Coffee Roasters - Second Consolidated Class Action Complaint

2012 04-30 Horowitz vs Green Mountain Coffee Roasters - Second Consolidated Class Action Complaint

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Published by Sam E. Antar
Horowitz vs Green Mountain Coffee Roasters - Second Consolidated Class Action Complaint
Horowitz vs Green Mountain Coffee Roasters - Second Consolidated Class Action Complaint

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Published by: Sam E. Antar on Sep 27, 2012
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05/13/2014

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UNITED STATES DISTRICT COURTDISTRICT OF VERMONTDAN
M.
HOROWITZ, Individually and on )Behalf
of
All Others Similarly Situated, )Plaintiff,
)))
vs. )GREEN MOUNTAIN COFFEE ROASTERS,
~
INC., et al., )Defendants.
)
)
__________________________
)
No. 2:10-cv-00227-wks
(Consolidated)
CLASS ACTION
2fil2
APR
30
Ati
II:
48
SECOND CONSOLIDATED AMENDED CLASS ACTION COMPLAINT FORVIOLATIONS
OF
FEDERAL SECURITIES LAWS
Case 2:10-cv-00227-wks Document 72 Filed 04/30/12 Page 1 of 62
 
Lead Plaintiffs Jerry Warchol, Robert
M.
and Jennifer
M.
Nichols, Loren Marc Schmerlerand Mike Shanley ("Plaintiffs" or "Lead Plaintiffs"), have alleged the following based upon theinvestigation
of
Plaintiffs' counsel, which included information obtained from confidentialwitnesses, including former Green Mountain Coffee Roasters, Inc. ("GMCR" or the "Company")and M.Block
&
Sons, Inc. ("MBlock") employees, a review
of
United States Securities andExchange Commission ("SEC") filings
by
GMCR,
as
well
as
regulatory filings and reports,securities analysts' reports and advisories about the Company, and media reports, press releases andother public statements issued
by
or about the Company. Plaintiffs believe that substantial additionalevidentiary support will exist for the allegations set forth herein after a reasonable opportunity fordiscovery.
NATURE OF THE ACTION
1.
This is a federal securities class action on behalf
of
purchasers
of
the common stock
ofGMCR
between July 28, 2010 and September 28, 2010, inclusive (the "Class Period"), seeking
to
pursue remedies under the Securities Exchange Act
of
1934 (the "Exchange Act").
2.
Defendant GMCR is engaged in the specialty coffee and coffee maker business,selling a variety
of
whole bean and ground coffee, cocoa, and teas under more than a dozen brandnames. The Company's business is largely concentrated in the manufacture and marketing
of
gourmet single-cup coffee and tea brewing systems under the Keurig brand name. The Keurigbrewing system consists primarily ofK-Cups, or single-cup brewing packages, and K-Cup brewersand related accessories, which, during fiscal2010, respectively accounted for approximately 62%and 24%
of
the Company's total revenue.
3.
This case concerns deceptive accounting and financial reporting practices at GMCR.As detailed further herein, GMCR has admitted
to
certain improper accounting practices, which areprimarily associated with the Company's reporting
of
revenue, and has restated its previously issuedfinancial statements. In addition, the Company has also reported that the SEC has an on-going
Case 2:10-cv-00227-wks Document 72 Filed 04/30/12 Page 2 of 62
 
"inquiry" into GMCR's revenue recognition practices, the outcome
of
which "could require thefiling
of
additional restatements
of
our prior financial statements." GMCR's accounting practiceshave also garnered attention from the financial press. For example, in a February 13, 2011
SeekingAlpha
article entitled "Green Mountain Coffee: Only Thing Brewing
Is
Trouble," author JasonMerriam, noted "[t]he accounting practices at Green Mountain Coffee Roasters (GMCR) are notbaffling
...
they are downright ludicrous." Similarly, on February 15, 2011, Sam Antar began his
Seeking Alpha
article, entitled "More Mucky Disclosures For Green Mountain Coffee Roasters,"with the following sentence: "Just about every time I examine financial reports issued
by
GreenMountain Coffee Roasters (NASDAQ: GMCR), I find new troubling accounting practices andfinancial disclosures."
4.
Prior to and during the Class Period, Defendants issued numerous statements andfiled reports with the SEC regarding the Company's then-current financial performance and futureearnings. These statements were materially false and misleading because Defendants knew, butfailed to disclose that: (i) the Company had improperly recorded revenue on shipments
of
product toits primary fulfillment vendor, MBlock; (ii) the Company improperly overstated its royalty income;(iii) the Company improperly understated customer incentive and marketing related expenses; (iv)the Company improperly accounted for inter-company transactions causing inventory and earningsto be overstated; (v) the Company publicly disseminated materially misstated financial statementsthat were presented in violation
of
Generally Accepted Accounting Principles ("GAAP"); and (vi)despite Defendants' attestations
to
the contrary, GMCR operated with material weaknesses in itssystem
of
internal controls over financial reporting.
5.
On September 28, 2010, GMCR shocked the market
by
announcing both acumulative $7.6 million overstatement
of
pre-tax income over a multi-year period (net
of
tax, thecumulative error resulted in a $4.4 million overstatement
of
net income or an overstatement
of
-
2-
Case 2:10-cv-00227-wks Document 72 Filed 04/30/12 Page 3 of 62

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