Case 3:09-cv MAP Document 1 Filed 07/23/2009 Page 1 of 17 UNITED STATES DISTRICT COURT MASSACHUSETTS

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1 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 1 of 17 EDWARD J. LAVALLEE, UNITED STATES DISTRICT COURT MASSACHUSETTS Plantff, NO. V. VERIFIED COMPLAINT CROCS, INC., RONALD R. SNYDER, RUSS AND JURY DEMAND HAMMER, JOHN P. MCCARVEL, SCOTT CRUTCHFIELD, PETER S. CASE, RAYMOND CROGHAN, MICHAEL MARGOLIS, MICHAEL MARKS, RICHARD SHARP, THOMAS SMACH, and DELOITTE & TOUCHE LLP, Defendants. COMPLAINT I. INTRODUCTION 1. From July 18, 2007 through December 12, 2007, Edward J. Lavallee ("Plantff') purchased and sold stock n Crocs, Inc., ("Crocs"). See attached "EXHIBIT A." 2. Plantff traded stock n Crocs based on nformaton made avalable to the publc by Crocs through regulatory flngs, Crocs press releases, statements, reports, as well as statements ssued by ts offcers, drectors, and agents, or those actng on ts behalf ncludng, but not lmted to the followng: Ronald R. Snyder ("Snyder"), Russ Hammer ("Hammer"), John McCarvel ("McCarvel"), Scott Crutchfeld ("Crutchfeld"), Peter Case ("Case"), Raymond Croghan ("CroghaW% Mchael Margols ("Margols"), Mchael Marks ("Marks"), Rchard Sharp ("Sharp"), Thomas Smach ("Smach"), and ts audtors and accountng frm, Delotte & Touche LLP ("Delotte"), (herenafter collectvely "Defendants"). 3. As the result of Defendants' volatons of the Securtes Exchange Act of 1934, and rules and regulatons promulgated thereunder, as descrbed n "Neel Dhngra v. Crocs,

2 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 2 of 17 Snyder, and Case, Plantff's Class Acton Complant For Volatons of Federal Securtes Law" fled by Neel Dhngra, "Indvdually and On Behalf of All Others Smlarly Stuated" ("the Class Acton Complant"), as well as the "Corrected Consoldated Amended Class Acton Complant," ("the Amended Complant") fled n the "TN RE CROCS, INC. SECURITIES LITIGATION" Cvl Acton No. 07-cv REB-KLM (D. Colo. 2007)) (Consoldated wth 07-cv-02412; 07-cv ; 07-cv-02465; and 07-cv-2469) (D. Colo. 2007)) (herenafter collectvely "the Crocs Class Acton"), and as further descrbed heren, Plantff suffered $270,000 n damages.l 4. Plantff does not jon the Crocs Class Acton, but ncludes t by reference n hs Complant and by ths reference as though restated and alleged heren verbatm. 5. Plantff ntends to opt out of the Crocs Class Acton f and when approprate. 6. Allegatons n the Crocs Class Acton, except of course for the confdental evdence referenced theren to whch Plantff s not prvy, are used to support Plantff's allegatons. 7. In addton to the federal clams contaned n the Crocs Class Acton, Plantff alleges Massachusetts state law clams. 8. Plantff fles at ths tme n order to preserve all rghts and prvleges. TI. PAR'T'IES, 9. Plantff s a resdent of South Hadley, Massachusetts durng all tmes relevant. 10. Defendants n ths case are essentally the same Defendants named and dentfed n the Crocs Class Acton. 1 Upon nformaton and belef, each Defendant named n the Dhngra class acton and the "Corrected Consoldated Amended Class Acton Complant" has also been named as a Defendant n the nstant complant and therefore already possesses a copy of the Crocs Class Acton flngs. Accordngly, n order to present a "short and plan statement" Plantff merely references the Dhngra Class Acton Complant and the Amended Complant as "the Class Acton" wthout attachng the two complants and exhbts whch n total number over 750 pages. 2

3 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 3 of Defendant Crocs s a corporaton organzed and exstng under the laws of the State of Delaware. 12. Durng all relevant tmes, Crocs common stock traded on the Natonal Assocaton of Securtes Dealers Automated Quotaton system ("NASDAQ"). 13. Durng all tmes relevant, Defendant Snyder served as an offcer and drector of Crocs, ncludng ts CEO and Presdent from January 2005 through June Defendant Case served as Senor Vce Presdent, Retal Dvson snce January 2008, prevously servng as CFO and Treasurer from Aprl 2006 to January 2008, and from February 2006 Senor Vce-Presdent for Fnance. 15. Defendant Hammer served as Crocs CFO replacng Case n January Defendant McCarvel served as Crocs COO and executve vce presdent snce February 2007 before whch he served as Senor Vce-Presdent for Global Operatons from October Defendant Crutchfeld served as Crocs Vce-Presdent for Operatons n 2006 and 2007, reportng drectly to CEO Snyder. 18. Defendant Marks served on Crocs's Board of Drectors snce August Defendant Croghan served as a drector of Crocs snce Defendant Margols served as Crocs Vce Presdent of Sales & Marketng snce January 2005 and also led a Crocs sales group as an ndependent consultant from October 2003 to December Defendant Sharp served as Crocs Charman of the Board snce Aprl Defendant Smach served as a Crocs board member snce Aprl 2005, and member of the Board's Audt Commttee durng the relevant tme perod. 3

4 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 4 of Defendant Delotte s the well-known accountng frm that provded Crocs accountng servces, audtors, and audts durng the relevant tme perod. III. JURISDICTION AND VENUE 24. Ths Court has jursdcton over Defendants under the Securtes Exchange Act of 1934 (the "Exchange Act") for volatons of Sectons 10(b) and Secton 20 of the Exchange Act as well as SEC Rule 10b-5, codfed at 17 C.F.R b Ths Court also has subject-matter jursdcton pursuant to 15 U.S.C. 78aa, and 28 U.S.C and 1337 as well as supplemental jursdcton over the state law clams asserted heren pursuant to 28 U.S.C Venue s proper n ths Dstrct pursuant to 15 U.S.C. 78aa, 28 U.S.C. 1391(b) and 1367 because Plantff resdes n ths dstrct and because Defendants' conduct was drected to ths dstrct ether through the conduct of ts busness or through acts and practces complaned of heren ncludng the dssemnaton of nformaton upon whch Plantff reled. 27. In connecton wth the acts alleged n ths Complant, Defendants, drectly or ndrectly, used the means and nstrumentaltes of nterstate commerce, ncludng, the mal, and natonal securtes markets, as well as meda to make publc announcements n ths dstrct. IV. FACTS 28. In addton to the facts ncorporated by reference, Plantff also states that he acted at all tmes n relance on facts made publcly avalable by Defendants. 29. Plantff acted n the belef that the representatons made by or on behalf of Defendants were true and accurate, and that he reled on these facts justfably and reasonably durng the relevant tme perod July 18, 2007 through December 12, See attached "EXIHBIT A." 4

5 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 5 of Plantff actvely revewed publc statements and announcements made by Defendants as well as fnancal nformaton created for Defendants and released to the publc pertanng to Crocs. 31. As stated n the Crocs Class Acton, the nformaton provded was naccurate or delberately false causng an nflated stock prce n contradcton to the true prce of the stock had accurate nformaton been stated. 32. The market prce for the stock Plantff purchased was set by a market unaware of damagng nformaton whch Defendants knew to be omtted or mscharacterzed. 33. Defendants however, were n possesson of non-publc materal nfounaton that j accurately represented the true market prce and fnancal condton of Crocs. 34. Wth that non-publc materal nfouuaton, Defendants sold substantal holdng n Crocs before the nformaton was known by the publc, whch ncluded Plantff. 35. As a result, from July 18, 2007 through December 12, 2007, Plantff traded Crocs stock based on naccurate or delberately false nformaton that nflated ts prce to the beneft of Defendants. 36. Indvdually and collectvely, Defendants knew or should have known that the publcly avalable nformaton reled upon by Plantff to conduct hs transactons n the purchase of Crocs stock was naccurate or delberately false nformaton. 37. Had Plantff been permtted to know accurate, truthful nfonaton at or about the same tme that accurate and truthful nformaton was avalable or known to Defendants, and n tme to act along wth Defendants, Plantff would not have been damaged at all. 5

6 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 6 of Instead, Plantff lost $270,000 because Defendants were n possesson of accurate "non-publc" nformaton that they knew or should have known was dfferent from nformaton avalable to Plantff. 39. Whle Defendants could and dd act on ths "non-publc" nfonnaton by sellng substantal holdngs n Crocs stock whch caused the collapse of Crocs stock prce, Plantff had no non-publc nformaton, and was thereby trply damaged as follows: 40. Frst, Plantff was damaged by buyng stock nflated by false, naccurate or delberately msleadng or omtted nformaton presented by Defendants. 41. Second, Plantff was damaged by Defendants' sellng of substantal holdngs of Crocs stock based on "non-publc" nformaton known by these Defendants but unknown to Plantff. 42. Thrd, the nformaton was not released to the publc untl Defendants captalzed on ts "non-dsclosure" to the detrment of Plantff. 43. Actng on nfouaton dfferent from nformaton made avalable to Plantff, and n advance of ts released to the publc and Plantff, the followng Defendants conducted the followng sales of Crocs stock: 44. Defendant Snyder sold personal holdngs of Crocs stock valued at $88,566, Defendant Case sold $3,175,701 of stock. 46. Defendant Marks sold $56,346,602 of stock. 47. Defendant Croghan sold $14,050,120 of stock. 48. Defendant Margols sold $4,649,742 of stock. 49. Defendant Sharp sold $18,390,695 of stock. 50. Defendant Smach sold $3,954, of stock. 6

7 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 7 of Upon nformaton and belef, Defendants dsposed of ther stock armed wth "non-publc" nsder nformaton unavalable to Plantff. 52. No other concdence could explan Defendants' sales of Crocs stock for the prce Defendants collected followed so closely by the collapse of Crocs stock prces, market poston, and fnancal poston. 53. Indeed, Defendant Delotte was requred to audt Crocs's fnancal statements n accordance wth Generally Accepted Audtng Standards ("GAAS"), and to report audt results to the Board of Drectors, the Audt Commttee of the Board of Drector, and the members of the nvestng publc ncludng Plantff. 54. Delotte knew or should have known and was reckless n not knowng, f n fact t dd not know, that Crocs fnancal nformaton was naccurate and naccurately reported to the publc. 55. Under rules adopted by the Amercan Insttute of Certfed Publc Accountants ("AICPA"), the audts were requred to comply wth GAAS but faled to do so as the audts dd not comport wth facts known to the Defendants or statements properly reflectng nformaton avalable to the audtors. 56. Thus, materal facts that should have been dsclosed to the publc by Defendants and ts accountng frm, were nstead delberately, recklessly, or neglgently msrepresented or hdden from Plantff or delberately or recklessly or neglgently omtted or wthheld n order to advantage Defendants to the detrment of Plantff. 57. Because of Defendants' ndvdual and collectve conduct n volaton of federal laws, as well as Massachusetts statutes and common law, and alleged n the followng counts, Plantff has suffered $270,000 for whch he prays relef be granted by ths Honorable Court. 7

8 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 8 of 17 V. COUNT I - VIOLATION OF SECTION 10 OF THE EXCHANGE ACT MANIPULATIVE AND DECEPTIVE DEVICES, AND SEC RULE 1OB-5 BY ALL DEFENDANTS 58. Plantff ncorporates by reference all paragraphs above as though restated and realleged heren verbatm. 59. Throughout the tme perod July 18, 2007 through December 12, 2007, Defendants used or employed, n connecton wth the purchase or sale of securtes regstered on a natonal securtes exchange, manpulatve and/or deceptve devces or contrvances n contraventon of Secton l0b of the Securtes Exchange Act of Due to Defendants' conduct, Plantff was damaged by payng artfcally nflated prces whch Defendants knew or should have known dd not reasonably reflect the far market value of Crocs stock had materal nformaton known to Defendants and whch Defendants acted upon, been revealed to Plantff. 61. Wthout Defendants' delberate or reckless use or employment of manpulatve or deceptve devce or contrvances, Plantff would not have been damaged or damaged to the degree he suffered. VI. COUNT 11 VIOLATION OF SECTION 20 OF THE EXCHANGE ACT - LIABILITIES OF CONTROLLING PERSONS AND PERSONS WHO AID AND ABET VIOLATIONS AGAINST ALL DEFENDANTS 62. Plantff ncorporates by reference all paragraphs above as though restated and realleged heren verbatm. 63. Secton 20 allows a prvate rght of acton where "[a]ny person who volates any provson of ths ttle or the rules or regulatons thereunder by purchasng or sellng a securty whle n possesson of materal, nonpublc nformaton." 8

9 I Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 9 of In addton, any person who volates any provson of the ttle or the rules or regulatons thereunder by communcatng materal, nonpublc nformaton shall be jontly and severally lable under subsecton (a) of ths secton wth, and to the same extent as, any person or persons lable under subsecton (a) of ths secton to whom the communcaton was drected. 65. As stated n ths complant and references contaned heren, Defendants conducted transactons n Crocs stock whle n possesson of materal, nonpublc nformaton. 66. By so dong, Plantff was damaged because unlke Defendants, the market dd not have the beneft of nfounaton that Defendants possessed n order to accurately reflect the far market value of Crocs stock. VII. COUNT III VIOLATION OF MASSACHUSETTS UNIFORM SECURITIES ACT 67. Plantff ncorporates by reference all paragraphs above as though restated and realleged heren verbatm. 68. Chapter 110A: Secton 101 (" Sales and Purchases") makes t unlawful n the State of Massachusetts "for any person, n connecton wth the offer, sale, or purchase of any securty, drectly or ndrectly [ ] to employ any devce, scheme, or artfce to defraud, [ ] to make any untrue statement of a materal fact or to omt to state a materal fact necessary n order to make the statements made, n the lght of the crcumstances under whch they are made, not msleadng, or [ ] engage n any act, practce, or course of busness whch operates or would j operate as a fraud or decet upon any person." 69. To preval on a Massachusetts securtes law clam, Plantffs must demonstrate that a sale of a securty was affected through a materal msstatement or omsson and that the j Defendant was, at least, neglgent wth respect to the msstatement or omsson. I 9

10 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 10 of As stated n ths complant and references contaned heren, Plantff was affected by the materal msstatement or omsson of fact n order for the market to reflect the far prce of the stock and that the Defendant was, at least, neglgent wth respect to the msstatement or omssons to whch Plantff was not prvy. 71. Plantff dd not know, and n the exercse of reasonable care could not have known of Defendants' untruthful conduct or ther omsson of materal nformaton. VIII. COUNT IV - VIOLATION OF MASSACHUSETTS G.L.C. 93A, $ 9 - CONSUMER PROTECTION LAWS 72. Plantff ncorporates by reference all paragraphs above as though restated and realleged heren verbatm. 73. The Massachusetts consumer protecton statute states, n relevant part, "Any person,... who has been njured by another person's use or employment of any method, act or practce declared to be unlawful by ["any unfar method of competton or unfar or deceptve acts or practces n the conduct of trade or commerce... or"] any rule or regulaton ssued thereunder... may brng an acton... by way of orgnal complant, counterclam, cross-clam or thrd party acton, for damages under M.G.L.c. 93A. 74. These acts or practces can nclude volatons of the Securtes Act. 75. Plantff has been damaged by Defendants' ndvdual and/or collectve conduct n contraventon of 93A n a "trade or commerce drectly or ndrectly affectng the people of ths Commonwealth." 76. Plantff therefore seeks damages under the act ncludng treble damages. IX. COUNT V - BREACH OF FIDUCIARY DUTY 77. Plantff ncorporates by reference all paragraphs above as though restated and realleged heren verbatm. 10

11 I Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 11 of In ther ndvdual and collectve capacty as ether the corporate entty tself, or as an offcer, drector, and/or board members of a publcly traded company, the entty and ndvduals owed a fducary duty to Plantff. 79. As the audtor and certfed publc accountant for a publcly traded company Delotte owed a fducary duty to Plantff, knowng Plantff would conduct transactons n Crocs stock based on nformaton reported by Delotte. 80. Under Massachusetts law a fducary duty exsts where "confdence s reposed and accepted, the person [or entty] trusted s lable for expressng dshonest opnons upon whch the other party reles and acts to hs detrment, and she s also lable for concealng facts whch by reason of the relatonshp she should dsclose." 81. Fducares have a duty to dsclose materal nformaton, and conversely a duty not to hde materal nformaton. 82. Massachusetts law mposes a duty on one party to a busness transacton to exercse reasonable care to dsclose to the other, before the transacton s consummated, matters known to hm that he knows necessary to prevent hs partal or ambguous statement of facts from beng msleadng; and facts basc to the transacton, f he knows that the other s about to enter nto t under a mstake as to them, and because of the relatonshp between them, would reasonably expect a dsclosure of those facts. 83. Defendants ndvdually or collectvely, accepted the confdence reposed n them by Plantff and are therefore "lable for expressng dshonest opnons upon whch the other party reles and acts to hs detrment, and lable for concealng facts whch by reason of the relatonshp she should dsclose." I 11

12 I Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 12 of By drectly breachng the fducary duty owed to Plantff, these ndvduals and enttes ndvdually or collectvely caused Plantff damages, whch he would not have suffered, had any one of them acted n complance wth ther duty. X. COUNT VI - ABETTING BREACH OF FIDUCIARY DUTY 85. Plantff ncorporates by reference all paragraphs above as though restated and realleged heren verbatm. 86. Durng all tmes relevant, Defendants knew or should have known that a fducary relatonshp exsted between Plantff and Defendants. 87. Knowng that a fducary relatonshp exsted between Defendants and Plantff, the awareness by any of these fducares that another fducary breached that duty compelled acton by that alerted fducary. 88. The lack of acton on the part of the alerted fducary aware of breach of another fducary's duty consttutes adng and abettng breach of fducary duty, partcularly when the nformed fducary profts drectly or ndrectly from the breach. 89. Elements of adng and abettng a breach of fducary duty requre the exstence of a fducary duty, knowledge of the breach of fducary duty by the arer and abettor, and substantal assstance or encouragement by the ader and abettor n effectng that breach. 90. Defendants ndvdually and collectvely knew or should have known that there was a fducary duty owed to Plantff by Defendants by vrtue of Defendants' status as offcers, drectors, board member, or audtors or accountants of a publcly traded corporaton. 91. As contaned n ths complant and references to the class acton complant and amended complant, Defendants were aware of materal facts, whch the fducary should have dsclosed to Plantff. 12

13 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 13 of Defendants nevertheless, acted ndvdually or n colluson to breach the duty of dsclosure owed to Plantff, and profted from that breach. 93. By so dong, the elements of adng and abettng a breach of fducary duty are met. 94. As a drect and proxmate result of Defendants' adng and abettng the breach of fducary duty, Plantff has sustaned monetary damages n excess of $270,000 exclusve of nterest and costs. XI. COUNT VII - NEGLIGENT NIISREPRESENTATION. 95. Plantff ncorporates by reference all paragraphs above as though restated and realleged heren verbatm. 96. As descrbed n ths Complant as well as references ncluded theren, Defendants ndvdually and/or collectvely, made false statements and msrepresentatons n takng certan acton or falng to take certan acton, namely falng to tmely dsclosure non-publc nformaton, or by falng to dsclose truthful nformaton. 97. Just as any reasonable nvestor would, Plantff reled on the publc nformaton provded to hm by Defendants, expectng t to be truthful and accurate. 98. To the contrary, Defendants' publc dsclosures were delberately, recklessly, or neglgently false, or delberately, recklessly or neglgently omtted altogether. 99. Plantff justfably reled on ths nformaton, the only nformaton avalable to hm expectng t to be true gven ts source. XII. COUNT VIII NEGLIGENCE 100. Plantff ncorporates by reference all paragraphs above as though restated and realleged heren verbatm. 13

14 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 14 of Defendants ndvdually and collectvely owed a duty of care to Plantff to make reasonably sure that nformaton was truthful and accurate Defendants breached that duty by falng to meet the standard of care as offcers, drectors, members of the board, agents, and accountants Plantff of course reasonably and justfably reled upon Defendants to act n complance wth the standard of care of a reasonable offcer, drector, members of the board, agent, and accountants Because Defendants faled to act n accordance wth that standard of care, Plantff was actually and proxmately damaged n the amount of $270,000 exclusve of ncdental and consequental damages as well as nterest, attorney fees and costs Consequently, Defendants are jontly and severally lable for ther falure to act n accordance wth the standard of care. XIII. COUNT IX RESPONDEAT SUPERIOR AND VICARIOUS LIABILITY 106. Plantff ncorporates by reference all paragraphs above as though restated and realleged heren verbatm Defendants Snyder, Hammer, McCarvel, Crutchfeld, Case, Croghan, Margols, Marks, Sharp, and Smach, acted wth actual and apparent authorty as offcers, drectors, board members and/or agents of Crocs durng all tmes relevant As offcers, drectors, board members and/or agents of Crocs and actng wth actual and apparent authorty Crocs s vcarously lable, jontly and severally, under the theory of Respondeat Superor for the ndvdual and collectve wrongful actons, and the damages caused by these persons. 14

15 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 15 of As a drect and proxmate result of the conduct for whch Defendants are lable under Respondeat Superor and vcarous lablty, Plantff has sustaned monetary damages n the amount of $270,000. XIV. COUNT X - RESCISSION 110. Plantff ncorporates by reference all paragraphs above as though restated and realleged heren verbatm Plantff seeks rescsson of all purchases and sales of Crocs stock from July 18, 2007 through December 12, XV. PRAYER FOR RELIEF WHEREFORE, Plantff prays for relef and judgment as follows: a. Awardng money damages aganst all Defendants, jontly and severally, for all losses and damages suffered as a result of the acts and transactons complaned of heren, together wth pre judgment nterest; b. An award of puntve damages; C. Attorney fees and costs; d. Rescsson; e. The mposton of a constructve trust over Plantff's funds; f. Such further relef as the Court deems just and equtable. XV.. REQUEST FOR JURY TRIAL 112. Plantff Edward J. Lavallee hereby demands a tral by jury. DATED ths 23 rd day of July

16 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 16 of 17 /s/james P. Langan James P. Langan BBO# Pne Street Burlngton, VT jlangan@lsman.com /s/ Rchard J. Gerace Rchard J. Gerace Attorney Id. No (PA) 2 Penn Center Plaza Sute JFK Blvd. Phladelpha, PA rgeracel4@comcast.net

17 Case 3:09-cv MAP Document 1 Fled 07/23/2009 Page 17 of 17 VERIFICATION Pursuant to 28 U.S , Edward J. Lavallee, hereby declares under penalty of perjury that he has read the allegatons set forth n the above complant and that he beleves them to be accurate and true. Executed on ths / day of Edward J. Lava F e ^r