UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
________________, Individually and On
Behalf of All Others Similarly Situated,
Plaintiff,
v.
CHECKPOINT
SYSTEMS
INC.,
GEORGE BABICH, JR., JEFFREY O.
RICHARD, and JAMES M. LUCANIA,
Case No.: DRAFT
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
Defendants.
CLASS ACTION COMPLAINT
Plaintiff _________ (“Plaintiff”), by and through his attorneys, alleges the following
upon information and belief, except as to those allegations concerning Plaintiff, which are
alleged upon personal knowledge. Plaintiff’s information and belief is based upon, among other
things, his counsel’s investigation, which includes without limitation: (a) review and analysis of
regulatory filings made by Checkpoint Systems Inc. (“Checkpoint” or the “Company”), with the
United States (“U.S.”) Securities and Exchange Commission (“SEC”); (b) review and analysis of
press releases and media reports issued by and disseminated by Checkpoint; and (c) review of
other publicly available information concerning Checkpoint.
NATURE OF THE ACTION AND OVERVIEW
1.
This is a class action on behalf of purchasers of Checkpoint securities between
March 5, 2015 and November 3, 2015, inclusive (the “Class Period”), seeking to pursue
remedies under the Securities Exchange Act of 1934 (the “Exchange Act”).
2.
Checkpoint manufactures and sells loss prevention, inventory management, and
labeling solutions to the retail and apparel industries. Checkpoint’s loss prevention solutions
purportedly enable retailers to safely display merchandise in an open environment.
The
Company also provides inventory management solutions in the form of Radio Frequency
Identification products and services, principally for closed-loop apparel retailers and department
stores. The Company’s products purportedly give customers precise details on merchandise
location and quantity as it travels from the manufacturing source through to the retail store.
3.
On November 3, 2015, after the market closed, the Company filed a Current
Report on Form 8-K with the SEC. The Current report disclosed that Checkpoint “discovered
financial statement errors attributable to the accounting for its quarterly income tax provision.”
As a result, the Company further disclosed that “the unaudited financial statements for the
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quarterly period ended March 29, 2015, the quarterly period ended June 28, 2015 and the yearto-date period ended June 28, 2015 contained in the Company’s Quarterly Reports on Form 10-Q
for the quarterly period ended March 29, 2015 and the quarterly period ended June 28, 2015
should no longer be relied upon.” The Company stated that, based on its current assessment, the
changes will be as follows “Quarter ended March 29, 2015: increase in tax expense of $1.8
million, increase in net loss of $1.8 million, and decrease in diluted earnings per share of $0.04;
Quarter ended June 28, 2015: increase in tax expense of $4.1 million, increase in net loss of $4.1
million, and decrease in diluted earnings per share of $0.10; and Year-to-date ended June 28,
2015: increase in tax expense of $5.9 million, increase in net loss of $5.9 million, and decrease in
diluted earnings per share of $0.14.” The Company also disclosed that it “intends to amend its
Annual Report on Form 10-K for the year ended December 28, 2014 to reflect the conclusion by
management that the Company’s internal control over financial reporting and disclosure controls
and procedures were not effective as of December 28, 2014.”
4.
On this news, shares of Checkpoint fell $1.73, or 22.4%, to close at $5.97 on
October 29, 2015, on unusually high trading volume.
5.
Throughout the Class Period, Defendants made false and/or misleading
statements, as well as failed to disclose material adverse facts about the Company’s business,
operations, and prospects. Specifically, Defendants made false and/or misleading statements
and/or failed to disclose: (1) that the Company lacked adequate internal controls over
accounting; (2) that the Company understated its tax expense and misstated other key financial
data in financial reports filed with the SEC in violation of Generally Accepted Accounting
Principles (“GAAP”); and (3) that, as a result of the foregoing, the Company’s financial
statements and Defendants’ statements about Checkpoint’s business, operations, and prospects,
CLASS ACTION COMPLAINT
2
were false and misleading and/or lacked a reasonable basis.
6.
As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s securities, Plaintiff and other Class members have
suffered significant losses and damages.
JURISDICTION AND VENUE
7.
The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
Act (15 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17
C.F.R. § 240.10b-5).
8.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §1331 and Section 27 of the Exchange Act (15 U.S.C. §78aa).
9.
Venue is proper in this Judicial District pursuant to 28 U.S.C. §1391(b) and
Section 27 of the Exchange Act (15 U.S.C. §78aa(c)). Substantial acts in furtherance of the
alleged fraud or the effects of the fraud have occurred in this Judicial District. Many of the acts
charged herein, including the dissemination of materially false and/or misleading information,
occurred in substantial part in this Judicial District.
In addition, the Company’s principal
executive offices are located within this Judicial District.
10.
In connection with the acts, transactions, and conduct alleged herein, Defendants
directly and indirectly used the means and instrumentalities of interstate commerce, including the
United States mail, interstate telephone communications, and the facilities of a national securities
exchange.
PARTIES
11.
Plaintiff, as set forth in the accompanying certification, incorporated by reference
herein, purchased Checkpoint common stock during the Class Period, and suffered damages as a
CLASS ACTION COMPLAINT
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result of the federal securities law violations and false and/or misleading statements and/or
material omissions alleged herein.
12.
Defendant Checkpoint is a Pensylvania corporation with its principal executive
offices located at 101 Wolf Drive, PO Box 188, Thorofare, New Jersey 08086.
13.
Defendant George Babich, Jr. (“Babich”) was, at all relevant times, President and
Chief Executive Officer (“CEO”) of Checkpoint.
14.
Defendant Jeffrey O. Richard (“Richard”) was, at all relevant times, Chief
Financial Officer (“CFO”) of Checkpoint until March 23, 2015.
15.
Defendant James M. Lucania (“Lucania”) was, at all relevant times, Acting CFO
and Treasurer of Checkpoint beginning March 23, 2015.
16.
Defendants Babich, Richard, and Lucania are collectively referred to hereinafter
as the “Individual Defendants.” The Individual Defendants, because of their positions with the
Company, possessed the power and authority to control the contents of Checkpoint’s reports to
the SEC, press releases and presentations to securities analysts, money and portfolio managers
and institutional investors, i.e., the market. Each defendant was provided with copies of the
Company’s reports and press releases alleged herein to be misleading prior to, or shortly after,
their issuance and had the ability and opportunity to prevent their issuance or cause them to be
corrected. Because of their positions and access to material non-public information available to
them, each of these defendants knew that the adverse facts specified herein had not been
disclosed to, and were being concealed from, the public, and that the positive representations
which were being made were then materially false and/or misleading.
The Individual
Defendants are liable for the false statements pleaded herein, as those statements were each
“group-published” information, the result of the collective actions of the Individual Defendants.
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SUBSTANTIVE ALLEGATIONS
Background
17.
Checkpoint manufactures and sells loss prevention, inventory management, and
labeling solutions to the retail and apparel industries. Checkpoint’s loss prevention solutions
purportedly enable retailers to safely display merchandise in an open environment.
The
Company also provides inventory management solutions in the form of Radio Frequency
Identification products and services, principally for closed-loop apparel retailers and department
stores. The Company’s products purportedly give customers precise details on merchandise
location and quantity as it travels from the manufacturing source through to the retail store.
Materially False and Misleading
Statements Issued During the Class Period
18.
The Class Period begins on March 5, 2015. On that day, Checkpoint issued a
press release entitled, “Checkpoint Systems, Inc. Announces Fourth Quarter and Full Year 2014
Results.” Therein, the Company, in relevant part, stated:
Fourth Quarter Adjusted EBITDA Increased 10.9%
Full Year 2014 Adjusted EBITDA Increased 17.7% to $79 million
Full Year 2014 Adjusted EPS up 83.1% to $0.76 per share
Board of Directors Declares Special Cash Dividend of $0.50 per Share
Company Issues 2015 Guidance
THOROFARE, N.J.--(BUSINESS WIRE)--Mar. 5, 2015-- Checkpoint Systems,
Inc. (NYSE:CKP) today reported financial results for the fourth quarter and
fiscal year ended December 28, 2014.
Fourth Quarter GAAP Results
Net revenues from continuing operations in the fourth quarter of 2014 decreased
5.8%, to $183.1 million from $194.4 million in the fourth quarter of 2013.
Foreign currency translation effects resulted in $7.4 million or 3.8% of the
decrease in net revenues. During the quarter, gross profit margins were 43.3%
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compared with 38.8% in the fourth quarter of 2013.
Selling, general, and administrative (SG&A) expenses in the fourth quarter of
2014 increased $1.7 million, or 3.1%, to $56.4 million from $54.7 million in the
fourth quarter of 2013.
Operating income in the fourth quarter of 2014 was $12.8 million, $7.3 million, or
132.1%, higher than $5.5 million in the same period last year.
Net income from continuing operations in the fourth quarter of 2014
was $0.12 per diluted share, versus a loss of $0.12 per diluted share in the same
period last year.
Fourth Quarter Adjusted Non-GAAP Operating Income, EBITDA and
Earnings per Share
Adjusted Non-GAAP operating income from continuing operations was $19.3
million in the fourth quarter of 2014, $2.4 million greater than $16.9 million in
the same period last year. Adjusted EBITDA was $27.1 million in the fourth
quarter of 2014, $2.7 million higher than $24.4 million in the fourth quarter of
2013. Adjusted Non-GAAP net earnings from continuing operations in the fourth
quarter of 2014 was $0.26 per diluted share compared to $0.30 per diluted share
in the same period last year. (See accompanying Reconciliation of GAAP to NonGAAP Financial Measures).
Checkpoint Systems' President and Chief Executive Officer, George Babich, said,
“I am pleased to announce another strong quarter of profitability despite
significant industry and foreign currency translation headwinds. We delivered
revenue and EBITDA at the high end of our expectations while net earnings
exceeded our expectations. Our process improvement initiatives continue to
deliver outstanding year over year results. Gross profit margins increased more
than 450 basis points in the fourth quarter, and by more than 400 basis points for
the full year. Gross profit margins were again higher across nearly all product
lines, driven by continued manufacturing cost reductions, the benefits of our
restructuring and profit improvement initiatives and manufacturing and supply
chain efficiencies. Gross margins were favorably impacted by the mix of revenues
toward EAS consumables, reflecting the continuing mix of our business to a more
recurring revenue stream.”
Jeff Richard, Executive Vice President and Chief Financial Officer, said,
“Checkpoint has delivered $47.6 million of free cash flow in 2014 vs. $12.1
million in 2013. This result reflects a year of hard work and outstanding execution
on many of our Lean Six Sigma and other projects around the globe. Our balance
sheet remains at its strongest level in several years, with cash exceeding total debt
by $70 million.”
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Selected Discussion and Analysis of Fourth Quarter 2014 Results



Net revenues decreased 5.8% to $183.1 million compared with $194.4
million for the fourth quarter of 2013. Foreign currency effects resulted in
a 3.8% decrease to net revenues.

Merchandise Availability Solutions (MAS) revenues decreased
4.7% to $126.4 million versus the fourth quarter of 2013,
principally driven by foreign currency effects of 4.2%. Reductions
in EAS Systems and RFID installation revenue, reflecting the
sunset of multiple chain-wide projects which occurred in the fourth
quarter 2013, were nearly offset by a significant increase in EAS
Consumables and Alpha® sales, reflecting the recurring revenue
component of those projects.

Apparel Labeling Solutions (ALS) revenues decreased 9.3%
to $43.1 million, reflecting a decrease in the legacy labeling
business and partially offset by continued growth in sales of RFID
labels. Foreign currency effects resulted in a 2.0% decrease to ALS
net revenues.

Retail Merchandising Solutions (RMS) revenues decreased 4.5%
to $13.6 million, reflecting the impact of the weakening Euro.
RMS revenue increased 1.8% on a constant currency basis,
primarily attributable to stronger sales volumes in the hand-held
labeling business.
Gross profit margin was 43.3% compared with 38.8% for the fourth
quarter of 2013.

MAS gross profit margin was 47.2% compared with 42.1% in the
fourth quarter of 2013. The increase was principally due to
manufacturing cost savings, margin enhancement initiatives, and a
favorable mix of sales toward higher margin products, partially
offset by under-absorbed professional services.

ALS gross profit margin was 33.8% compared with 30.3% in the
fourth quarter of 2013. The increase was principally due to Project
LEAN initiatives and improved manufacturing efficiencies.

RMS gross profit margin was 37.1% compared with 36.3% in the
fourth quarter of 2013. The increase was primarily due to margin
improvement initiatives and better overhead absorption.
SG&A expenses were $56.4 million compared with $54.7 million in the
fourth quarter of 2013. The increase is due to higher employee-related
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expenses in 2014 primarily driven by higher incentive-based
compensation accruals. Cost reductions totaling approximately $1.7
million from the expanded Global Restructuring Plan, including Project
LEAN, as well as a continuous focus on streamlining SG&A helped
minimize the increase in SG&A.

Operating income was $12.8 million compared with $5.5 million in the
fourth quarter of 2013.

Non-GAAP operating income was $19.3 million, compared with $16.9
million in the fourth quarter of 2013. (See accompanying Reconciliation
of GAAP to Non-GAAP Financial Measures).

Restructuring expense was $4.0 million relating to the implementation of
the Profit Enhancement Plan, partially offset by the wind-down of the
Global Restructuring Plan, including Project LEAN. Total restructuring
expense incurred from all plans since the inception of the Global
Restructuring Plan totals $83.5 million ($15.7 million non-cash).

Adjusted EBITDA was $27.1 million, compared with $24.4 million in the
fourth quarter of 2013. (See accompanying Reconciliation of GAAP to
Non-GAAP Financial Measures).

Cash flow provided by operating activities was $23.6 million compared
with $25.3 million in the fourth quarter of 2013. Capital expenditures
were $5.1 million in the fourth quarter of 2014.
Special Dividend
Earlier today, the Board of Directors declared a special cash dividend of $0.50 per
share. The dividend will be paid on April 10, 2015 to all stockholders of record
on March 20, 2015.
“The authorization of this special dividend by our Board reflects our commitment
to building stockholder value through the execution of our strategic plan and
disciplined approach to capital allocation,” said Mr. Babich. “With our solid free
cash flow and our strongest balance sheet in years, we are pleased to return
approximately $21 million to stockholders while investing in our businesses and
ensuring adequate liquidity to act quickly on any acquisition opportunities.”
2015 Outlook
Based on an assessment of market conditions, current customers' orders and
commitments, and assuming continuation of current foreign exchange rates,
Checkpoint is initiating guidance for 2015. This guidance does not include the
impact of acquisitions, divestitures, restructuring and one-time or unusual charges
CLASS ACTION COMPLAINT
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resulting from debt refinancing, litigation fees or settlements and gains or losses
generated by non-routine operating matters which we may record during the year.
Projected income taxes for the year can be impacted by changes in the mix of pretax income and losses in the countries in which we operate. The valuation
allowance on U.S. deferred tax assets results in a GAAP tax rate on U.S. pre-tax
income or losses of essentially 0%. When the mix of income or losses shifts from
the U.S. to a country where the income tax rate is in the normal range, our
effective tax rate will increase. Additionally, we continue to monitor our
profitability in the U.S. to determine whether there is sufficient evidence that may
result in a full or partial release of the U.S. valuation allowance. Should this
occur, the 0% GAAP tax rate in the U.S. will revert to its normal range of nearly
40%, including state income taxes. The combination of these factors can have a
significant impact on the amount of reported income tax expense, and therefore
our earnings per share, when compared with the projections that are the basis of
our outlook.
Mr. Babich added, “Our business is significantly impacted by large-scale capital
projects, the timing of which can be difficult to forecast. The roll-on and roll-off
of these projects can generate large swings in revenue and profitability. While we
continue to execute a number of EAS and RFID pilots and tests, retailers remain
cautious about their in-store capital expenditures. While it is certainly possible
that some of these tests will transition into chain-wide rollouts, our guidance
assumes that none will occur during fiscal 2015. Our guidance also assumes an
incremental $7-10 million total investment in R&D and SG&A to fund our
growth initiatives, with primary benefits beginning in 2016.”
Mr. Richard added, “Like many other multinational companies, we will face
tremendous currency headwinds in 2015 due to the strengthening US dollar. Over
two-thirds of our revenues are denominated in foreign currencies with particular
exposure to the Euro, the Japanese Yen, the British Pound and the Australian
Dollar. We expect fiscal 2015 total capital expenditures in the range of $20 to $25
million. We expect our continuous working capital improvement projects will
help offset the free cash flow impact of our increased capital spending.”
19.

Net revenues are expected to be in the range of $575 million to $625
million.

Adjusted EBITDA is expected to be in the range of $55 million to $68
million.

Non-GAAP diluted net earnings per share attributable to Checkpoint
Systems, Inc. is expected to be in the range of $0.40 to $0.50, assuming an
effective tax rate of approximately 35%.
On the same day, Checkpoint filed its Annual Report with the SEC on Form 10-K
CLASS ACTION COMPLAINT
9
for the fiscal year ended December 28, 2015. The Company’s Form 10-K was signed by
Defendant Babich, and reaffirmed the Company’s financial statements previously announced the
same day.
20.
The Company’s Form 10-K contained certifications pursuant to the Sarbanes-
Oxley Act of 2002 (“SOX”), signed by Defendants Babich and Richard, who certified:
1. I have reviewed this Form 10-K of Checkpoint Systems, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
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d) Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
21.
On May 6, 2015, Checkpoint issued a press release entitled, “Checkpoint
Systems, Inc. Announces First Quarter 2015 Results.” Therein, the Company, in relevant part,
stated:
Company Reports Highest First Quarter Gross Profit Margin in 21 Years
Organic Merchandise Visibility™ Revenue Growth of 41%
Company Reaffirms 2015 Guidance
THOROFARE, N.J.--(BUSINESS WIRE)--May 6, 2015-- Checkpoint Systems,
Inc. (NYSE: CKP) today reported financial results for the fiscal first quarter
ended March 29, 2015. For more details on the Company’s results, please see the
supplemental presentation materials, “First Quarter 2015 Financial Review,”
posted to the Company’s website at http://ir.checkpointsystems.com and furnished
to the SEC on Form 8-K.
First Quarter GAAP Results
Net revenues in the first quarter of 2015 decreased 12.8%, to $128.5
million from $147.4 million in the first quarter of 2014. Foreign currency
translation effects resulted in an $11.5 million or 7.8% decrease in net revenues.
During the quarter, gross profit margins were 44.0%, an increase of more than
170 basis points compared to the same period last year.
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Selling, general, and administrative (SG&A) expenses in the first quarter of 2015
decreased $3.0 million, or 5.6%, to $51.3 million from $54.3 million in the first
quarter of 2014.
Operating loss in the first quarter of 2015 was $0.3 million, $2.5 million below
the $2.2 million of income in the same period last year.
Net loss in the first quarter of 2015 was $0.02 per diluted share, versus nil per
diluted share in the same period last year.
First Quarter Adjusted Non-GAAP Operating Income, EBITDA and
Earnings per Share
Adjusted Non-GAAP operating income was $1.9 million in the first quarter of
2015, $2.2 million lower than $4.1 million in the same period last year. Adjusted
EBITDA was $10.0 million in the first quarter of 2015, $1.8 million lower
than $11.8 million in the first quarter of 2014. Adjusted Non-GAAP net earnings
per diluted share was $0.04 in the first quarter of 2015, flat compared to the same
period last year. (See accompanying Reconciliation of GAAP to Non-GAAP
Financial Measures.)
Checkpoint Systems' President and Chief Executive Officer, George Babich, said,
“Despite lower revenue driven by continued foreign currency headwinds and the
sunset of our significant 2014 EAS hardware rollouts, I am pleased that we were
able to report our highest first quarter gross profit margin in 21 years.”
Mr. Babich added, “As we previously outlined, 2015 will be a challenging year as
we work to secure our next significant rollout and begin to drive organic revenue
growth through our investment spending on strategic growth initiatives. We are
making good progress on both fronts, and I am gaining confidence that we will
secure at least one signed contract for an additional new hardware rollout
beginning later this year. I am also encouraged that our spending on certain
strategic initiatives will begin to take root in 2016. In the first quarter alone, we
have significantly increased our rate of investment year-over-year in both R&D
and capital expenditures, up $0.7 million and $2.5 million, respectively. SG&A
spending in constant dollar terms is up nearly $1 million as well, although masked
by the $4 million SG&A benefit from foreign currency translation effects. We
have added strategic headcounts in sales and product management to target
underserved vertical markets. We have engaged consultants to complement our
in-house expertise to focus on our supply chain optimization project. We have
invested in new equipment and IT systems to enhance our capabilities and
increase automation in our Apparel Labeling business. These investments reflect
our commitment to organic growth despite the challenging market conditions.”
Mr. Babich concluded, “In addition, we remain committed to exploring strategic
CLASS ACTION COMPLAINT
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acquisitions and partnerships to round out our portfolio of products that will help
drive topline growth and improved operating margins.”
Selected Discussion and Analysis of First Quarter 2015 Results


Net revenues decreased 12.8% to $128.5 million compared with $147.4
million for the first quarter of 2014, due to an organic decrease of 5.0%
and foreign currency effects of 7.8%.

Merchandise Availability Solutions (MAS) revenues decreased
12.8% to $81.5 million versus the first quarter of 2014, principally
driven by foreign currency translation effects of $8.0 million or
8.6%. The organic decline of 4.2% was attributable to EAS
Systems, Alpha® and EAS Consumables, reflecting the sunset of
North American and European chain-wide projects which occurred
in the first quarter of 2014, partially offset by an increase in RFID
solution sales in both North America and Europe.

Apparel Labeling Solutions (ALS) revenues decreased 11.6%
to $37.2 million, reflecting a decrease in the legacy labeling
business due to lower tag volumes at certain key North American
and European retailers, certain market share losses
in Europe and Asia and the timing of Chinese New Year. Foreign
currency effects led to a $1.5 million, or 3.6%, decline in segment
revenues.

Retail Merchandising Solutions (RMS) revenues decreased 17.1%
to $9.8 million, nearly all related to foreign currency translation
effects. Organic revenues declined just $0.1 million, reflecting the
sunset of a major project in North America, nearly offset by strong
retail display sales volumes in Europe.
Gross profit margin was 44.0%, more than 170 basis points higher than the
first quarter of 2014.

MAS gross profit margin was 50.6%, more than 360 basis points
higher than the 47.0% recorded in the first quarter of 2014. The
increase was principally due to the mix of revenue toward higher
margin products and services. Better professional service
absorption more than offset the weaker factory overhead
absorption generated by lower production volumes. This gross
profit margin is not sustainable, as the Euro-based profit in our
supply chain in the first quarter of 2015 was locked-in at
significantly higher rates than exist today. We estimate that MAS
gross profit would have been approximately $2 million lower in
the first quarter of 2015 if the current rates had existed when our
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supply chain earned this profit.

ALS gross profit margin was 31.1% compared with 33.5% in the
first quarter of 2014. The decrease was principally due to
accelerated depreciation for certain machinery in Asia that will be
removed from production, overhead under-absorption in our
factories due to lower sales volumes and the impact of a
later Chinese New Year. ALS margins will continue to suffer yearover-year from the strengthening U.S. Dollar.

RMS gross profit margin was 37.7%, nearly 180 basis points better
than 35.9% in the first quarter of 2014. The increase was primarily
due to our margin improvement initiatives and better factory
overhead absorption.

SG&A expenses were $51.3 million compared with $54.3 million in the
first quarter of 2014. The decrease is related to foreign currency
translation effects of just under $4 million. The benefits of our cost
reduction initiatives were offset by incremental spending related to our
strategic initiatives and management transition costs.

Operating loss was $0.3 million compared with $2.2 million of income in
the first quarter of 2014.

Non-GAAP operating income was $1.9 million compared with $4.1
million in the first quarter of 2014. (See accompanying Reconciliation of
GAAP to Non-GAAP Financial Measures.)

Adjusted EBITDA was $10.0 million, compared with $11.8 million in the
first quarter of 2014. (See accompanying Reconciliation of GAAP to NonGAAP Financial Measures.)

Cash used in operating activities was $0.4 million compared with $8.6
million provided by operating activities in the first quarter of 2014. Capital
expenditures were $5.8 million in the first quarter of 2015 compared
to $3.3 million in the first quarter of 2014.
Outlook for 2015
Based on an assessment of market conditions, current customers' orders and
commitments, and assuming continuation of current foreign exchange rates,
Checkpoint is reaffirming its guidance for 2015. This guidance does not include
the impact of acquisitions, divestitures, restructuring and one-time or unusual
charges resulting from litigation fees or settlements and gains or losses generated
by non-routine operating matters which we may record during the year.
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Projected income taxes for the year can be impacted by changes in the mix of pretax income and losses in the countries in which we operate. The valuation
allowance on U.S. deferred tax assets results in a GAAP tax rate on U.S. pre-tax
income or losses of essentially 0%. When the mix of income or losses shifts from
the U.S. to a country where the income tax rate is in the normal range, our
effective tax rate will increase. Additionally, we continue to monitor our
profitability in the U.S. to determine whether there is sufficient evidence that may
result in a full or partial release of the U.S. valuation allowance. Should this
occur, the current GAAP tax rate in the U.S. will be significantly impacted. The
combination of these factors can have a material effect on the amount of reported
income tax expense, and therefore our earnings per share, when compared with
the projections that are the basis of our outlook.
James Lucania, Acting Chief Financial Officer and Treasurer, said, “Like so many
other U.S. multinational corporations, Checkpoint’s reported top and bottom line
results will continue to be impacted negatively by the strong U.S. Dollar. Though
several of our selling currencies have weakened since we presented our initial
guidance, we believe anticipated new business will offset the lost revenue from
currency translation. Therefore we continue to expect 2015 results within our
prior guidance range.”

Net revenues are expected to be in the range of $575 million to $625
million, unchanged from prior guidance.

Adjusted EBITDA is expected to be in the range of $55 million to $68
million, unchanged from prior guidance.

Non-GAAP diluted net earnings per share is expected to be in the range
of $0.40 to $0.50, assuming an effective tax rate of approximately 35%,
unchanged from prior guidance.
22.
On the same day, Checkpoint filed its Quarterly Report with the SEC on Form 10-
Q for the fiscal quarter ended March 29, 2015. The Company’s Form 10-Q was signed by
Defendant Lucania, and reaffirmed the Company’s financial statements previously announced
the same day. The Form 10-Q contained certifications pursuant to SOX, signed by Defendants
Babich and Lucania, substantially similar to the certifications described in ¶20, supra.
23.
On August 3, 2015, Checkpoint issued a press release entitled, “Checkpoint
Systems, Inc. Announces Second Quarter 2015 Results.” Therein, the Company, in relevant
part, stated:
CLASS ACTION COMPLAINT
15
Organic Merchandise Visibility™ Revenue Growth of 29%
Company Secures Major New EAS Customer
Company Reaffirms 2015 Guidance
Board of Directors Authorizes $30 Million Share Repurchase Plan
THOROFARE, N.J.--(BUSINESS WIRE)--Aug. 3, 2015-- Checkpoint Systems,
Inc. (NYSE: CKP) today reported financial results for the fiscal second quarter
ended June 28, 2015. For more details on the Company’s financial results, please
see the supplemental presentation materials, “Second Quarter 2015 Financial
Review,” posted to the Company’s website at http://ir.checkpointsystems.com and
furnished to the SEC on Form 8-K.
“I am pleased to report second quarter performance in-line with management's
expectations,” said George Babich, Checkpoint Systems’ President and Chief
Executive Officer. “While we continue to face a number of challenges in our
business, including enormous year-over-year foreign currency headwinds, the
sunset of our significant 2014 EAS hardware rollouts and challenging market
dynamics in ALS, we are executing on our operational and strategic plans and our
2015 investments in topline growth initiatives are beginning to gain traction.”
Mr. Babich added, “I have the great pleasure to announce that we recently secured
a contract for a new EAS hardware rollout with a major Asian retailer. While the
details of this project remain confidential, we are displacing a competitor’s
systems with a suite of Checkpoint products, adding to our long list of
competitive market share wins over the past decade without any major customer
attrition. We have just begun the installation work and expect to recognize
revenue related to the project in the second half of 2015 and into 2016.”
“We also reached an agreement with one of our largest North American
customers. Beginning in the second half of 2015, this customer will upgrade their
existing Checkpoint RF EAS antennas with our next generation of dual RF/RFIDready antennas as they prepare to use RFID tags both for EAS loss prevention as
well as for inventory visibility.”
“Finally, later in 2015 and into 2016, we expect one of our largest European
customers will begin to deploy our Merchandise Visibility solutions in
approximately 150 stores and distribution centers in France. This represents the
next step forward with this retailer who we expect to deploy our end-to-end
Merchandise Visibility solutions worldwide, beginning in the DC, then into the
back-of-store, then in-store.”
“We are now in discussion, proof of concept, pilot, or partial deployment phases
of our Merchandise Visibility solutions in more than 30 retailers across the globe.
CLASS ACTION COMPLAINT
16
Checkpoint is the thought leader for these retailers as they explore the myriad of
benefits RFID technology has to offer in their stores and distribution centers and
we are confident that we will convert many of these projects to full deployments
in the years to come.”
“While we continue to face a number of challenges in our businesses, we also
continue to gain share in EAS as we transition and transform our legacy
businesses by expanding our RFID capabilities and gaining share in the fastgrowing market.”
Share Repurchase Program
The Board of Directors has authorized the repurchase of up to $30 million of
common shares over the next two years. Mr. Babich added, “This share
repurchase authorization reflects our confidence in Checkpoint’s financial
strength and our long-term growth prospects, including the broader adoption of
RFID technology by our retail customers. Share repurchases are a key element of
our capital allocation strategy which aims to maximize stockholder value while
maintaining the financial flexibility to pursue organic investments and strategic
acquisitions as opportunities arise.”
Selected Discussion and Analysis of Second Quarter 2015 Results

Net revenues decreased 13.7% to $147.6 million compared with $170.9
million for the second quarter of 2014, due to an organic decrease of 5.2%
and foreign currency effects of 8.5%.

Merchandise Availability Solutions (MAS) revenues decreased
18.1% to $91.3 million versus the second quarter of 2014, partially
driven by foreign currency translation effects of $10.0 million or
9.0%. The organic decline of 9.1% was attributable to EAS
Systems, Alpha® and EAS Consumables, reflecting the sunset of
North American and European chain-wide projects which occurred
in the second quarter of 2014, partially offset by an increase in
RFID solution sales in Europe.

Apparel Labeling Solutions (ALS) revenues decreased 1.5%
to $47.0 million, as foreign currency translation effects of $2.5
million, or 5.3%, offset a 3.8% organic revenue increase. RFID
label revenues grew more than 20% year-over-year, while our
legacy ticket and tag business was effectively flat despite
significant competitive pricing pressures in certain geographies.

Retail Merchandising Solutions (RMS) revenues decreased 21.3%
to $9.3 million, nearly all related to the year-over-year decline in
the Euro. Organic revenues declined 3.5%, reflecting the sunset of
CLASS ACTION COMPLAINT
17
a major project in North America and softer retail display sales
in Asia.

Gross profit margin was 41.7%, just under 70 basis points lower than the
second quarter of 2014.

MAS gross profit margin was 47.2%, more than 120 basis points
higher than the 46.0% recorded in the second quarter of 2014. The
increase was principally due to significant margin improvements in
EAS Systems, Alpha and RFID Solutions as we realize the benefits
of our operational initiatives in field service, professional services,
pricing and supply chain optimization. The margin improvement
was partially offset by the stronger US Dollar eroding overall
supply chain margins, as well as unfavorable manufacturing
variances in our EAS Consumables factories from lower
production volumes and higher input costs.

ALS gross profit margin was 31.6% compared with 36.2% in the
second quarter of 2014. The decrease was due to the weaker Euro,
accelerated depreciation for certain machinery in Asia that has
been removed from production, under-absorption due to lower
production volumes and competitive pricing pressures in certain
geographies due to market oversupply.

RMS gross profit margin was 38.1%, 420 basis points better than
33.9% in the second quarter of 2014. The increase was primarily
due to our margin improvement initiatives.

SG&A expenses were $51.9 million compared with $55.4 million in the
second quarter of 2014. The decrease is primarily related to foreign
currency translation effects of $4.8 million. The benefits of our cost
reduction initiatives were offset by incremental spending increases related
to our strategic initiatives.

Operating loss was $4.5 million compared with $13.0 million of income in
the second quarter of 2014. The 2015 operating loss includes a $9.0
million one-time litigation settlement expense.

Net loss was $0.13 per diluted share versus income of $0.23 per diluted
share in the second quarter of 2014.

Non-GAAP operating income was $4.8 million compared with $13.3
million in the second quarter of 2014. (See accompanying Reconciliation
of GAAP to Non-GAAP Financial Measures.)

Non-GAAP earnings per diluted share was $0.10 compared with $0.25 in
CLASS ACTION COMPLAINT
18
the same period last year. (See accompanying Reconciliation of GAAP to
Non-GAAP Financial Measures.)

Adjusted EBITDA was $12.9 million, compared with $21.0 million in the
second quarter of 2014. (See accompanying Reconciliation of GAAP to
Non-GAAP Financial Measures.)

Cash provided by operating activities was $0.1 million compared
with $12.7 million in the second quarter of 2014. The 2015 figure includes
the effect of a $9.0 million one-time litigation settlement payment. Capital
expenditures were $4.7 million in the second quarter of 2015 compared
to $3.5 million in the second quarter of 2014.
Outlook for 2015
Based on an assessment of market conditions, current customers' orders and
commitments, and assuming continuation of current foreign exchange rates,
Checkpoint is reaffirming its guidance for 2015. This guidance does not include
the impact of acquisitions, divestitures, restructuring and one-time or unusual
charges resulting from litigation fees or settlements and gains or losses generated
by non-routine operating matters which we may record during the year.
Projected income taxes for the year can be impacted by changes in the mix of pretax income and losses in the countries in which we operate. The valuation
allowance on U.S. deferred tax assets results in a GAAP tax rate on U.S. pre-tax
income or losses of essentially 0%. When the mix of income or losses shifts from
the U.S. to a country where the income tax rate is in the normal range, our
effective tax rate will increase. Additionally, we continue to monitor our
profitability in the U.S. to determine whether there is sufficient evidence that may
result in a full or partial release of the U.S. valuation allowance. Should this
occur, the current GAAP tax rate in the U.S. will be significantly impacted. The
combination of these factors can have a material effect on the amount of reported
income tax expense, and therefore our earnings per share, when compared with
the projections that are the basis of our outlook.
James Lucania, Acting Chief Financial Officer and Treasurer, said, “We will
continue to face some margin pressures for the remainder of 2015, especially in
EAS Consumables where lower production volumes are driving under absorption,
exacerbated by rising material and direct labor costs in the factories. In our ALS
businesses, market overcapacity in certain geographies is generating some
significant pricing pressures which we expect will continue. However, we expect
that the incremental income from our new EAS contract will help to offset these
pressures and we continue to expect 2015 results within our prior guidance
range.”

Net revenues are expected to be in the range of $575 million to $625
CLASS ACTION COMPLAINT
19
million, unchanged from prior guidance.
24.

Adjusted EBITDA is expected to be in the range of $55 million to $68
million, unchanged from prior guidance.

Non-GAAP diluted net earnings per share is expected to be in the range
of $0.40 to $0.50, assuming an effective tax rate of approximately 35%,
unchanged from prior guidance.
On the same day, Checkpoint filed its Quarterly Report with the SEC on Form 10-
Q for the fiscal quarter ended June 28, 2015. The Company’s Form 10-Q was signed by
Defendant Lucania, and reaffirmed the Company’s financial statements previously announced
the same day. The Form 10-Q contained certifications pursuant to SOX, signed by Defendants
Babich and Lucania, substantially similar to the certifications described in ¶20, supra.
25.
The above statements contained in ¶¶18-24 were false and/or misleading, as well
as failed to disclose material adverse facts about the Company’s business, operations, and
prospects. Specifically, these statements were false and/or misleading statements and/or failed to
disclose: (1) that the Company lacked adequate internal controls over accounting; (2) that the
Company understated its tax expense and misstated other key financial data in financial reports
filed with the SEC in violation of GAAP; and (3) that, as a result of the foregoing, the
Company’s financial statements and Defendants’ statements about Checkpoint’s business,
operations, and prospects, were false and misleading and/or lacked a reasonable basis.
Disclosures at the End of the Class Period
26.
On November 3, 2015, after the market closed, the Company filed a Current
Report on Form 8-K with the SEC disclosing that the Company had inadequate internal controls
over accounting and that the Company filed false financial statements. The Current report, in
relevant part, disclosed:
During the preparation of the third quarter financial statements, the Company
CLASS ACTION COMPLAINT
20
discovered financial statement errors attributable to the accounting for its
quarterly income tax provision. As a result of these errors, on November 2, 2015,
the Audit Committee of the Board of Directors (the “Audit Committee”) of
Checkpoint Systems, Inc. (the “Company”) concluded that the unaudited financial
statements for the quarterly period ended March 29, 2015, the quarterly period
ended June 28, 2015 and the year-to-date period ended June 28, 2015 contained in
the Company’s Quarterly Reports on Form 10-Q for the quarterly period ended
March 29, 2015 and the quarterly period ended June 28, 2015 should no longer be
relied upon due to the effect of financial statement errors that are attributable to an
error in the accounting for the Company’s quarterly income tax provision.
Accordingly, investors should no longer rely upon the Company’s previouslyissued financial statements for these periods and any earnings releases or other
Company communications relating to these periods. The Company intends to
restate its previously-issued financial statements for the quarterly periods ended
March 29, 2015 and June 28, 2015 and the six month period ended June 28, 2015
through the filing of amended Quarterly Reports on Form 10-Q/A for the
quarterly periods ended March 29, 2015 and June 28, 2015. These amended
Quarterly Reports on Form 10-Q/A will be filed with the Securities and Exchange
Commission (“SEC”) as soon as possible.
Based on our assessment to date, we expect the key impacts on our previously
reported results for the first and second quarters of fiscal 2015 to be as follows:



Quarter ended March 29, 2015: increase in tax expense of $1.8 million,
increase in net loss of $1.8 million, and decrease in diluted earnings per
share of $0.04;
Quarter ended June 28, 2015: increase in tax expense of $4.1 million,
increase in net loss of $4.1 million, and decrease in diluted earnings per
share of $0.10; and
Year-to-date ended June 28, 2015: increase in tax expense of $5.9 million,
increase in net loss of $5.9 million, and decrease in diluted earnings per
share of $0.14.
*
*
*
As a result of the determination to restate these previously-issued financial
statements, management re-evaluated the effectiveness of the design and
operation of the Company’s internal control over financial reporting and
disclosure controls and procedures and has concluded that the Company did not
maintain effective controls over the period end financial reporting process for the
quarterly periods ended March 29, 2015 and June 28, 2015. Specifically, effective
controls were not maintained over the accounting for our quarterly income tax
calculation surrounding the inclusion or exclusion of entities with valuation
allowances. Additionally, the Company incorrectly calculated the valuation
allowance related to a non U.S. entity with a deferred tax liability related to an
indefinite lived intangible. Because of this material weakness, management,
CLASS ACTION COMPLAINT
21
including the Chief Executive Officer and Acting Chief Financial Officer,
concluded that the Company’s disclosure controls and procedures were not
effective as of March 29, 2015 and June 28, 2015.
The control deficiency constituted a material weakness, but did not result in a
material misstatement to the Company’s audited consolidated financial statements
for the year ended December 28, 2014, or any of the interim unaudited
consolidated financial statements for the quarters included therein. However, the
control deficiency could have resulted in a material misstatement to the annual or
interim consolidated financial statements that would not have been prevented or
detected. The Company intends to amend its Annual Report on Form 10-K for the
year ended December 28, 2014 to reflect the conclusion by management that the
Company’s internal control over financial reporting and disclosure controls and
procedures were not effective as of December 28, 2014. The amended Annual
Report on Form 10-K will be filed with the SEC as soon as possible.
27.
On this news, shares of Checkpoint fell $1.73, or 22.4%, to close at $5.97 on
October 29, 2015, on unusually high trading volume.
CHECKPOINT’S VIOLATION OF GAAP RULES
IN ITS FINANCIAL STATEMENTS
FILED WITH THE SEC
28.
These financial statements and the statements about the Company’s financial
results were false and misleading, as such financial information was not prepared in conformity
with GAAP, nor was the financial information a fair presentation of the Company’s operations
due to the Company’s improper recording of tax expense, in violation of GAAP rules.
29.
GAAP are those principles recognized by the accounting profession as the
conventions, rules and procedures necessary to define accepted accounting practice at a
particular time. Regulation S-X (17 C.F.R. § 210.4-01(a)(1)) states that financial statements
filed with the SEC which are not prepared in compliance with GAAP are presumed to be
misleading and inaccurate. Regulation S-X requires that interim financial statements must also
comply with GAAP, with the exception that interim financial statements need not include
disclosure which would be duplicative of disclosures accompanying annual financial statements.
17 C.F.R. § 210.10-01(a).
CLASS ACTION COMPLAINT
22
30.
The fact that Checkpoint announced that it intends to restate certain of its
financial statements, and informed investors that these financial statements should not be relied
upon is an admission that they were false and misleading when originally issued (APB No.20, 713; SFAS No. 154, 25).
31.
Given these accounting irregularities, the Company announced financial results
that were in violation of GAAP and the following principles:
(a)
The principle that “interim financial reporting should be based upon the
same accounting principles and practices used to prepare annual financial statements” was
violated (APB No. 28, 10);
(b)
The principle that “financial reporting should provide information that is
useful to present to potential investors and creditors and other users in making rational
investment, credit, and similar decisions” was violated (FASB Statement of Concepts No. 1, 34);
(c)
The principle that “financial reporting should provide information about
the economic resources of Checkpoint, the claims to those resources, and effects of transactions,
events, and circumstances that change resources and claims to those resources” was violated
(FASB Statement of Concepts No. 1, 40);
(d)
The principle that “financial reporting should provide information about
Checkpoint’s financial performance during a period” was violated (FASB Statement of Concepts
No. 1, 42);
(e)
The principle that “financial reporting should provide information about
how management of Checkpoint has discharged its stewardship responsibility to owners
(stockholders) for the use of Checkpoint resources entrusted to it” was violated (FASB Statement
of Concepts No. 1, 50);
CLASS ACTION COMPLAINT
23
(f)
The principle that “financial reporting should be reliable in that it
represents what it purports to represent” was violated (FASB Statement of Concepts No. 2, 5859);
(g)
The principle that “completeness, meaning that nothing is left out of the
information that may be necessary to insure that it validly represents underlying events and
conditions” was violated (FASB Statement of Concepts No. 2, 79); and
(h)
The principle that “conservatism be used as a prudent reaction to
uncertainty to try to ensure that uncertainties and risks inherent in business situations are
adequately considered” was violated (FASB Statement of Concepts No. 2, 95).
32.
The adverse information concealed by Defendants during the Class Period and
detailed above was in violation of Item 303 of Regulation S-K under the federal securities law
(17 C.F.R. §229.303).
CLASS ACTION ALLEGATIONS
33.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class, consisting of all those who purchased
Checkpoint’s securities between March 5, 2015 and November 3, 2015, inclusive (the “Class
Period”) and who were damaged thereby (the “Class”). Excluded from the Class are Defendants,
the officers and directors of the Company, at all relevant times, members of their immediate
families and their legal representatives, heirs, successors or assigns and any entity in which
Defendants have or had a controlling interest.
34.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Checkpoint’s securities were actively traded on the
New York Stock Exchange (the “NYSE”).
While the exact number of Class members is
CLASS ACTION COMPLAINT
24
unknown to Plaintiff at this time and can only be ascertained through appropriate discovery,
Plaintiff believes that there are hundreds or thousands of members in the proposed Class.
Millions of Checkpoint shares were traded publicly during the Class Period on the NYSE. As of
March 2, 2015, Checkpoint had 41,830,156 shares of common stock outstanding.
Record
owners and other members of the Class may be identified from records maintained by
Checkpoint 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.
35.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
36.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
37.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a)
whether the federal securities laws were violated by Defendants’ acts as
(b)
whether statements made by Defendants to the investing public during the
alleged herein;
Class Period omitted and/or misrepresented material facts about the business, operations, and
prospects of Checkpoint; and
(c)
to what extent the members of the Class have sustained damages and the
proper measure of damages.
38.
A class action is superior to all other available methods for the fair and efficient
CLASS ACTION COMPLAINT
25
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation makes it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
UNDISCLOSED ADVERSE FACTS
39.
The market for Checkpoint’s securities was open, well-developed and efficient at
all relevant times. As a result of these materially false and/or misleading statements, and/or
failures to disclose, Checkpoint’s securities traded at artificially inflated prices during the Class
Period. Plaintiff and other members of the Class purchased or otherwise acquired Checkpoint’s
securities relying upon the integrity of the market price of the Company’s securities and market
information relating to Checkpoint, and have been damaged thereby.
40.
During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of Checkpoint’s securities, by publicly issuing false and/or misleading
statements and/or omitting to disclose material facts necessary to make Defendants’ statements,
as set forth herein, not false and/or misleading. Said statements and omissions were materially
false and/or misleading in that they failed to disclose material adverse information and/or
misrepresented the truth about Checkpoint’s business, operations, and prospects as alleged
herein.
41.
At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
CLASS ACTION COMPLAINT
26
misleading statements about Checkpoint’s financial well-being and prospects. These material
misstatements and/or omissions had the cause and effect of creating in the market an
unrealistically positive assessment of the Company and its financial well-being and prospects,
thus causing the Company’s securities to be overvalued and artificially inflated at all relevant
times.
Defendants’ materially false and/or misleading statements during the Class Period
resulted in Plaintiff and other members of the Class purchasing the Company’s securities at
artificially inflated prices, thus causing the damages complained of herein.
LOSS CAUSATION
42.
Defendants’ wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
43.
During the Class Period, Plaintiff and the Class purchased Checkpoint’s securities
at artificially inflated prices and were damaged thereby. The price of the Company’s securities
significantly declined when the misrepresentations made to the market, and/or the information
alleged herein to have been concealed from the market, and/or the effects thereof, were revealed,
causing investors’ losses.
SCIENTER ALLEGATIONS
44.
As alleged herein, Defendants acted with scienter in that Defendants knew that
the public documents and statements issued or disseminated in the name of the Company were
materially false and/or misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced
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, by virtue of their
receipt of information reflecting the true facts regarding Checkpoint, his/her control over, and/or
CLASS ACTION COMPLAINT
27
receipt and/or modification of Checkpoint’s allegedly materially misleading misstatements
and/or their associations with the Company which made them privy to confidential proprietary
information concerning Checkpoint, participated in the fraudulent scheme alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE
(FRAUD-ON-THE-MARKET DOCTRINE)
45.
The market for Checkpoint’s securities was open, well-developed and efficient at
all relevant times. As a result of the materially false and/or misleading statements and/or failures
to disclose, Checkpoint’s securities traded at artificially inflated prices during the Class Period.
On March 5, 2015, the Company’s stock closed at a Class Period high of $13.43 per share.
Plaintiff and other members of the Class purchased or otherwise acquired the Company’s
securities relying upon the integrity of the market price of Checkpoint’s securities and market
information relating to Checkpoint, and have been damaged thereby.
46.
During the Class Period, the artificial inflation of Checkpoint’s stock was caused
by the material misrepresentations and/or omissions particularized in this Complaint causing the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about Checkpoint’s business, prospects, and operations. These material
misstatements and/or omissions created an unrealistically positive assessment of Checkpoint and
its business, operations, and prospects, thus causing the price of the Company’s securities to be
artificially inflated at all relevant times, and when disclosed, negatively affected the value of the
Company stock. Defendants’ materially false and/or misleading statements during the Class
Period resulted in Plaintiff and other members of the Class purchasing the Company’s securities
at such artificially inflated prices, and each of them has been damaged as a result.
47.
At all relevant times, the market for Checkpoint’s securities was an efficient
CLASS ACTION COMPLAINT
28
market for the following reasons, among others:
(a)
Checkpoint stock met the requirements for listing, and was listed and
actively traded on the NYSE, a highly efficient and automated market;
(b)
As a regulated issuer, Checkpoint filed periodic public reports with the
SEC and/or the NYSE;
(c)
Checkpoint regularly communicated with public investors via established
market communication mechanisms, including through regular dissemination of press releases
on the national circuits of major newswire services and through other wide-ranging public
disclosures, such as communications with the financial press and other similar reporting services;
and/or
(d)
Checkpoint was followed by securities analysts employed by brokerage
firms who wrote reports about the Company, and these reports were distributed to the sales force
and certain customers of their respective brokerage firms. Each of these reports was publicly
available and entered the public marketplace.
48.
As a result of the foregoing, the market for Checkpoint’s securities promptly
digested current information regarding Checkpoint from all publicly available sources and
reflected such information in Checkpoint’s stock price. Under these circumstances, all
purchasers of Checkpoint’s securities during the Class Period suffered similar injury through
their purchase of Checkpoint’s securities at artificially inflated prices and a presumption of
reliance applies.
NO SAFE HARBOR
49.
The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
CLASS ACTION COMPLAINT
29
The statements alleged to be false and misleading herein all relate to then-existing facts and
conditions. In addition, to the extent certain of the statements alleged to be false may be
characterized as forward looking, they were not identified as “forward-looking statements” when
made and there were no meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those in the purportedly forward-looking
statements. In the alternative, to the extent that the statutory safe harbor is determined to apply to
any forward-looking statements pleaded herein, Defendants are liable for those false forwardlooking statements because at the time each of those forward-looking statements was made, the
speaker had actual knowledge that the forward-looking statement was materially false or
misleading, and/or the forward-looking statement was authorized or approved by an executive
officer of Checkpoint who knew that the statement was false when made.
FIRST CLAIM
Violation of Section 10(b) of
The Exchange Act and Rule 10b-5
Promulgated Thereunder Against All Defendants
50.
Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
51.
During the Class Period, 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 Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and
other members of the Class to purchase Checkpoint’s securities at artificially inflated prices. In
furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them,
took the actions set forth herein.
52.
Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made
untrue statements of material fact and/or omitted to state material facts necessary to make the
CLASS ACTION COMPLAINT
30
statements not misleading; and (iii) engaged in acts, practices, and a course of business which
operated as a fraud and deceit upon the purchasers of the Company’s securities in an effort to
maintain artificially high market prices for Checkpoint’s securities in violation of Section 10(b)
of the Exchange Act and Rule 10b-5. All Defendants are sued either as primary participants in
the wrongful and illegal conduct charged herein or as controlling persons as alleged below.
53.
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 Checkpoint’s
financial well-being and prospects, as specified herein.
54.
These defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of Checkpoint’s value and
performance and continued substantial growth, which included the making of, or the
participation in the making of, untrue statements of material facts and/or omitting to state
material facts necessary in order to make the statements made about Checkpoint and its business
operations and future prospects in light of the circumstances under which they were made, not
misleading, as set forth more particularly herein, and engaged in transactions, practices and a
course of business which operated as a fraud and deceit upon the purchasers of the Company’s
securities during the Class Period.
55.
Each of the Individual Defendants’ primary liability, and controlling person
liability, arises from the following facts: (i) the Individual Defendants were high-level executives
and/or directors at the Company during the Class Period and members of the Company’s
management team or had control thereof; (ii) each of these defendants, by virtue of their
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responsibilities and activities as a senior officer and/or director of the Company, was privy to and
participated in the creation, development and reporting of the Company’s internal budgets, plans,
projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and
familiarity with the other defendants and was advised of, and had access to, other members of the
Company’s management team, internal reports and other data and information about the
Company’s finances, operations, and sales at all relevant times; and (iv) each of these defendants
was aware of the Company’s dissemination of information to the investing public which they
knew and/or recklessly disregarded was materially false and misleading.
56.
The defendants had actual knowledge of the misrepresentations and/or 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. Such
defendants’ material misrepresentations and/or omissions were done knowingly or recklessly and
for the purpose and effect of concealing Checkpoint’s financial well-being and prospects from
the investing public and supporting the artificially inflated price of its securities.
As
demonstrated by Defendants’ overstatements and/or misstatements of the Company’s business,
operations, financial well-being, and prospects throughout the Class Period, Defendants, if they
did not have actual knowledge of the misrepresentations and/or omissions alleged, were reckless
in failing to obtain such knowledge by deliberately refraining from taking those steps necessary
to discover whether those statements were false or misleading.
57.
As a result of the dissemination of the materially false and/or misleading
information and/or failure to disclose material facts, as set forth above, the market price of
Checkpoint’s securities was artificially inflated during the Class Period. In ignorance of the fact
that market prices of the Company’s securities were artificially inflated, and relying directly or
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indirectly on the false and misleading statements made by Defendants, or upon the integrity of
the market in which the securities trades, and/or in the absence of material adverse information
that was known to or recklessly disregarded by Defendants, but not disclosed in public
statements by Defendants during the Class Period, Plaintiff and the other members of the Class
acquired Checkpoint’s securities during the Class Period at artificially high prices and were
damaged thereby.
58.
At the time of said misrepresentations and/or omissions, Plaintiff and other
members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff
and the other members of the Class and the marketplace known the truth regarding the problems
that Checkpoint was experiencing, which were not disclosed by Defendants, Plaintiff and other
members of the Class would not have purchased or otherwise acquired their Checkpoint
securities, or, if they had acquired such securities during the Class Period, they would not have
done so at the artificially inflated prices which they paid.
59.
By virtue of the foregoing, Defendants have violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder.
60.
As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their respective purchases
and sales of the Company’s securities during the Class Period.
SECOND CLAIM
Violation of Section 20(a) of
The Exchange Act Against the Individual Defendants
61.
Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
62.
The Individual Defendants acted as controlling persons of Checkpoint within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
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positions, and their ownership and contractual rights, participation in and/or awareness of the
Company’s operations and/or intimate knowledge of the false financial statements filed by the
Company with the SEC and disseminated to the investing public, the Individual Defendants had
the power to influence and control and did influence and control, directly or indirectly, the
decision-making of the Company, including the content and dissemination of the various
statements which 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 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.
63.
In particular, each of these 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.
64.
As set forth above, Checkpoint and the Individual Defendants each violated
Section 10(b) and Rule 10b-5 by their acts and/or 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, Plaintiff and other members of the Class suffered damages in connection with their
purchases of the Company’s securities during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a)
Determining that this action is a proper class action under Rule 23 of the Federal
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Rules of Civil Procedure;
(b)
Awarding compensatory damages in favor of Plaintiff and the other Class
members against all defendants, jointly and severally, for all damages sustained as a result of
Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
(c)
Awarding Plaintiff and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees; and
(d)
Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated:
GLANCY PRONGAY & MURRAY LLP
By:_____________________
Lionel Z. Glancy
Robert V. Prongay
Lesley F. Portnoy
1925 Century Park East, Suite 2100
Los Angeles, CA 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
LAW OFFICES OF HOWARD G. SMITH
Howard G. Smith
3070 Bristol Pike, Suite 112
Bensalem, PA 19020
Telephone: (215) 638-4847
Facsimile: (215) 638-4867
Attorneys for Plaintiff _____________
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