lead plaintiffs’ counsel plaintiffs’ local...

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JEFFREY S. ABRAHAM (Pro Hac Vice)[email protected] D. [email protected] FRUCHTER & TWERSKY, LLPOne Penn Plaza, Suite 2805New York, New York 10119-1910Telephone: (212) 279-5050Facsimile: (212) 279-3655

Lead Plaintiffs’ Counsel

LIONEL Z. GLANCY #[email protected] A. BINKOW #173848MICHAEL GOLDBERG #188669GLANCY BINKOW & GOLDBERG LLP1801 Avenue of the Stars, Suite 311Los Angeles, California 90067Telephone: (310) 201-9150Facsimile: (310) 201-9160

Plaintiffs’ Local Counsel

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

IN RE INVISION TECHNOLOGIES, INC.SECURITIES LITIGATION_____________________________________

This Document Relates To:All Actions.

Case No. C-04-3181 (MJJ)

SECOND AMENDED CONSOLIDATEDCOMPLAINT

Jury Trial Demanded

Case 3:04-cv-03181-MJJ Document 79 Filed 02/22/2006 of 24

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SECOND AMENDED CONSOLIDATED COMPLAINTCase No. C-04-3181 (MJJ) Page 1

Lead Plaintiffs Glazer Capital Management, LP and Glazer Offshore Fund, Ltd. (hereinafter

referred to as “Plaintiffs” or the “Glazer Funds”) for their Second Amended Consolidated Complaint,

allege upon personal knowledge as to themselves and their own acts, and on information and belief

as to all other matters:

NATURE OF THE ACTION

1. This action is being brought on behalf of a class (the “Class”) consisting of all

persons who purchased the securities of InVision Technologies, Inc. (“InVision” or the

“Company”) between March 15, 2004 and July 30, 2004, inclusive (the “Class Period”).

2. On the first day of the Class Period, March 15, 2004, InVision announced a

proposed merger (the “Merger”) whereby a wholly-owned subsidiary of General Electric

Company (“GE”) would acquire InVision through paying $50.00 for each share of InVision

common stock with the Merger expected to close in July, 2004. On the same day, InVision

disseminated a copy of the merger agreement with GE in which InVision specifically represented

that it was in compliance with all governing provisions of law applying to InVision’s operations.

This statement was materially false or misleading because: (a) InVision failed to maintain proper

books and records in violation of Section 13(b) of the Securities Exchange Act of 1934

(“Exchange Act”), 15 U.S.C. § 78m(b)(2)(A); and (b) in at least three instances, InVision’s sales

agents or distributors made or were in the process of making improper payments to foreign

government officials to obtain or retain business in violation of Section 30A of the Exchange

Act, 15 U.S.C. §78dd-1. InVision was aware of both the lack of necessary internal controls and

the existence of these unlawful payments, but allowed them to proceed. Indeed, InVision’s

senior executive officers signed sworn certifications that they had put in place controls and

procedures that would notify them of all material information relating to InVision, including,

without limitation, violations of the statutory requirements imposed by the Exchange Act on

InVision’s operations. Nonetheless, despite being aware of these statutory violations through

InVision’s controls and procedure, and despite a finding by the Securities and Exchange

Commission (“SEC”) that the Company was aware of the violations, information about the

bribes and lack of internal controls necessary to record such unlawful actions was not disclosed


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to the public until months after the Merger announcement.

3. In reaction to the announcement of the proposed Merger and the expectation that

the Merger would proceed smoothly based upon the representations made by InVision that it

conducted its operations in a lawful manner and maintained adequate internal controls to uncover

any wrongdoing touching upon the proper presentation of the Company’s publicly reported

financial results, the price of InVision common stock increased from its opening price of $41.22

per share to close at $49.35 per share, a gain of almost 20% in a single day’s trading.

4. These reassuring statements continued with Defendants issuing a proxy statement

seeking approval of the proposed Merger and continuing to certify in filings made with the SEC

that it maintained internal controls necessary to assure compliance with the governing legal

requirements.

5. Plaintiffs and other members of the Class purchased InVision securities at prices

which were artificially inflated due to these misrepresentations and the expectation that the

Merger would be promptly completed as scheduled.

6. On July 30, 2004, InVision disclosed that the Merger may not close by October 31,

2004, the date when either GE or InVision could terminate the Merger Agreement, and might or

might not proceed because transactions which likely violated the the Foreign Corrupt Practices

Act (“FCPA”) had been recently uncovered. In reaction to disclosure of these facts, InVision’s

stock dropped on the next trading day from its opening price of $49.66 per share to close at $

43.27 per share, a drop of more than 12%, causing members of the Class to suffer substantial

damages. This action seeks to recover the damages which Class Members suffered.

7. Many months later, the Merger did, in fact, proceed following settlements or

agreements in principle to settle with the Department of Justice and the SEC. However, in the

interim, Plaintiffs and the other members of the Class sustained substantial damage as they paid a

price for InVision stock which assured a near certainty of the Merger proceeding when, in fact,

there existed a substantial risk that the Merger would, in fact, not take place. Although the

Merger ultimately proceeded, the failure to reflect accurately this risk in the price of InVision

stock damaged Plaintiffs and the Class.


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JURISDICTION AND VENUE

8. The claims asserted in this action arise under and pursuant to 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 (17 C.F.R. §240.10b-5) by the SEC.

9. This Court has jurisdiction over this action pursuant to §27 of the Exchange Act

(15 U.S.C. §78aa) and 28 U.S.C. § 1331.

10. Venue is proper in this judicial District pursuant to §27 of the Exchange Act, 15

U.S.C. § 78aa and 28 U.S.C. § 1391(b). The Company maintained its principal executive offices

in this District and many of the acts alleged herein, including the preparation and dissemination

of materially false and misleading information, occurred in substantial part in this District.

11. In connection with the acts, conduct and other wrongs alleged in this complaint,

Defendants, directly or indirectly, used the United Stated mails, interstate telephone

communications and the facilities of a national securities exchange.

PARTIES

12. The Glazer Funds, by an order of this Court dated October 13, 2004, were

appointed lead Plaintiffs in this action pursuant to the provision of Section 21D of the Exchange

Act, 15 U.S.C. §78u-4. A certification previously filed with this Court reflects the Glazer Funds’

purchases of InVision securities during the Class Period. Those purchases took place at

artificially inflated prices and the Glazer Funds have, as a result, suffered damages through

purchasing those securities, and through realizing a substantial loss upon the sale of those

securities.

13. Defendant InVision was a Delaware Corporation with its principal executive

offices located at 7151 Gateway Boulevard, Newark, CA 94560. InVision, at all relevant times,

was a publicly traded company with securities registered pursuant to Section 12 of the Exchange

Act (15 U.S.C. §78l) whose shares traded on the NASDAQ National Market System (“NMS”)

under the symbol of INVN.

14. Defendant Sergio Magistri (“Magistri”) was, at all relevant times, the Company’s

President and Chief Executive Officer. Magstri owned 51,311 shares and options to acquire an


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additional 594,980 shares of InVision common stock, of which options to acquire 187,082 shares

were to vest once the Merger became effective. Magistri was expected to receive proceeds of

$2,565,550 from the sale of that stock on the Merger and also to receive net proceeds (i.e., the

proceeds of the sale less the cost of exercising the option necessary to buy the stock) of

$19,905,994 based upon the difference between the $50.00 price set in the Merger and the

exercise price of the options which Magistri owned.

15. Defendant Ross Mulholland (“Mulholland”) was, at all relevant times, the

Company’s Chief Financial Officer, and Senior Vice President. Mulholland owned options to

acquire 149,000 shares of InVision common stock, of which options to acquire 101,953 shares

were to vest once the Merger became effective. Mulholland was expected to receive net

proceeds of $2,738,240 based upon the difference between the $50.00 price set in the Merger and

the exercise price of the options which Mulholland owned.

16. Defendants Magistri and Mulholland are collectively referred to hereinafter as the

“Executive Defendants.”

PLAINTIFFS’ CLASS ACTION ALLEGATIONS

17. Plaintiffs bring 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 or

otherwise acquired the securities of InVision between March 15, 2004 and July 30, 2004,

inclusive (the “Class Period”), and who were damaged thereby. 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 the Defendants have or had a controlling interest.

18. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, InVision’s securities were actively traded on the

NASDAQ National Market System. While the exact number of Class members is unknown to

Plaintiffs at this time and can only be ascertained through appropriate discovery, Plaintiffs

believe there are hundreds or thousands of members in the proposed Class. Record owners and

other members of the Class may be identified from records maintained by InVision or its transfer


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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.

19. Plaintiffs’ claims are typical of the claims of the members of the Class as all

members of the Class were similarly affected by Defendants’ wrongful conduct in violation of

federal law that is complained of herein.

20. Plaintiffs will fairly and adequately protect the interests of the members of the

Class and have retained counsel competent and experienced in class and securities litigation.

21. Common questions of law and fact exist as to all members of the Class. Among

the questions of the law and fact common to the Class are:

(a) whether Defendants violated the federal securities laws by the acts alleged

herein;

(b) whether statements made by Defendants to the investing public during the

Class Period misrepresented or omitted to state material facts about the business, operations and

management of InVision; and

(c) whether members of the Class have sustained damages and the proper

measures of damages.

22. A class action is superior to all other available methods for the fair and efficient

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 make 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 case as a

class action.

SUBSTANTIVE ALLEGATIONS

InVision and its Operations

23. InVision is a manufacturer of computer tomography (“CT”)-based detection

products used by the aviation industry to screen baggage. The Company has three segments: (i)

explosives detection systems (“EDS”); (ii) non-destructive testing (“NDT”); and (iii) other

products. The EDS segment is engaged in the development, manufacturing, marketing and


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support of explosives detection systems based on advanced CT technology. In addition, the

Company’s revenues from its EDS products were derived from a very limited number of

customers. For example, in 2002, only 10 customers accounted for all of the EDS units sold. In

the second quarter of 2004, only 8 customers accounted for all the EDS units sold. The NDT

segment, comprised of the Yxlon International Holding GmbH (“Yxlon”) business unit, is

engaged in the development, manufacturing, marketing and support of non-destructive testing

systems for a range of industrial applications. InVision acquired Yxlon on March 31, 2003.

Other products include landmine detection systems, wood products and advanced personnel

checkpoints systems. A substantial portion of the Company’s operations are conducted overseas.

According to the Company’s publicly filed reports, approximately 20% of the EDS machines

were installed at airports outside the United States. In addition, the NDT unit made many of its

sales outside the United States. Because of its overseas sales, InVision retained local sales agents

and distributors who knew the local customs in the particular country. These agents and

distributors reported about the status of their dealings with customers to an InVision regional

sales manager who then reported to an InVision senior sales executive.

InVision Announces the Merger and Issues its 2003 Form 10-K

24. On March 15, 2004, InVision issued a press release announcing that, subject to

regulatory approval, GE had agreed to acquire InVision, in an all-cash transaction valued at

approximately $900 million, or $50 per share. The press release stated that the “acquisition is

subject to normal closing conditions including customary regulatory approval . . . . ” The press

release also quoted defendant Magistri as stating that:

We’re excited to become part of GE[.]…This transaction willimprove market reach of the merged companies and acceleratedevelopment of technology and products to protect the publicworldwide. I look forward to InVision’s scientists working withGE’s Global Research Center and GE’s CT medical imagingcapabilities.

25. On March 15, 2004, InVision also filed its Annual Report on Form 10-K (the “2003

Form 10-K”) with the SEC. The 2003 Form 10-K was signed by, among others, defendants Magistri

and Mulholand.


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26. Included as Exhibit 31.1 to the 2003 Form 10-K was a certification, as required by

the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), signed by defendant Magistri stating, in

relevant part that:

1. I have reviewed this Annual Report on Form 10-K of InVisionTechnologies, Inc.;

* * *

4. The registrant's other certifying officer and I are responsible forestablishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for theregistrant and have:

(a) Designed such disclosure controls and procedures, orcaused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period inwhich this report is being prepared;

(b) Evaluated the effectiveness of the registrant's disclosurecontrols and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, asof the end of the period covered by this report based on suchevaluation; and

(c) Disclosed in this report any change in the registrant'sinternal control over financial reporting that occurred during theregistrant's fourth fiscal quarter that has materially affected, or isreasonably likely to materially affect, the registrant's internal controlover financial reporting[.]

27. Included as Exhibit 31.2 to the 2003 Form 10-K was a Sarbanes-Oxley certification

signed by defendant Mulholland containing the identical representation about InVision’s internal

controls.

Materially False And Misleading Statements Issued During The Class Period

Statement No. 1

28. As part of the 2003 Form 10-K, included as Exhibit 2.2, was the operative merger

agreement between GE and InVision which was titled “AGREEMENT AND PLAN OF

MERGER Dated as of March 15, 2004 among GENERAL ELECTRIC COMPANY, JET

ACQUISITION SUB, INC. and INVISION TECHNOLOGIES, INC.” (referred to herein as the


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“Merger Agreement”). The Merger Agreement was signed by Defendant Magistri and Donald E.

Mattson, Senior Vice President and Chief Operating Officer, on behalf of InVision. Among the

representations and warranties made by InVision in the Merger Agreement, and disclosed to the

investing public by attaching the Merger Agreement as an exhibit to the 2003 Form 10-K, was, as

stated in relevant part (in section 3.8(a)), that:

The Company and its Subsidiaries are (and since January 1, 2002 have been)in compliance in all material respects with all laws (including common law),statutes, ordinances, codes, rules, regulations, decrees and orders ofGovernmental Authorities (collectively, "Laws") applicable to the Companyor any of its Subsidiaries, any of their properties or other assets or any of theirbusinesses or operations (including those Laws related to Export ControlRequirements and improper payments).

Reasons Why Statement No. 1 Was Materially False or Misleading

29. This statement was materially false or misleading because InVision was not in

compliance with all laws applicable to the Company. By the date of the Merger Agreement,

InVision had violated (or was in the process of violating) Section 30A of the Exchange Act (i.e., the

FCPA) on at least 3 separate occasions, as detailed below. In addition, InVision had failed to

maintain internal controls as required by Section 13(b) of the Exchange Act. As Robert Tashhjian,

an SEC enforcement lawyer who worked on the InVision case stated that: “InVision had an internal

controls problem . . . . InVision was skating on thin ice. They were competing vigorously for

overseas market share but they lacked even basic internal controls to make sure the company

complied [with the law].”

Statement No. 2

30. InVision also stated in the Merger Agreement (in section 3.5(d)), that: “The Company

is in compliance in all material respects with the provisions of Section 13(b) of the Exchange Act.”

Section 13(b)(2)(A) of the Exchange Act provides that a company such as InVision “make and keep

books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the

transactions and dispositions of the assets of the issuer.”


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31. The statement that InVision was in compliance with Section 13(b) was materially false

or misleading because its books and records did not accurately and fairly reflect its transactions and

the dispositions of its assets. Instead, in connection with its violations of the FCPA, it improperly

recorded the bribes it paid as Selling, General and Administrative (“SG&A”) expenses on the

Company’s books.

Statement No. 3

32. In addition, the Company stated in the Merger Agreement (in section 3.5(d)) that:

“Neither the Company nor any of its Subsidiaries nor, to the Knowledge of the Company, any

director, officer, agent, employee or other Person acting on behalf of the Company or any of its

Subsidiaries, has (i) used any corporate or other funds for unlawful contributions, payments, gifts

or entertainment, or made any unlawful expenditures relating to political activity to government

officials or others or established or maintained any unlawful or unrecorded funds in violation of

Section 30A of the Exchange Act [the FCPA] . . . . ”


33. The above statement by InVision in the Merger Agreement was materially false or

misleading because the Company at that time was in violation of the FCPA, as detailed below. By

the date of the Merger Agreement, at least 3 bribes in 3 separate countries had been paid or had been

submitted for InVision’s approval, all in violation of the FCPA.

Defendants’ Scienter

34. The Executive Defendants were aware of these FCPA violations by InVision. By their

own statements, the Executive Defendants acknowledged that they had designed or caused to be

designed controls and procedures that ensured that information such as the FCPA violations was

made known to them. See ¶¶ 26-27, supra. The Rules applicable to the requisite controls and

procedures (Exchange Act Rules 13a-15(e) and 15d-15(e)) are meant to ensure that information that

is required to be disclosed in reports that the Company files or submits “is accumulated and

communicated to the issuer’s management, including its principal executive and principal financial


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officers . . . .” Rule 13a-15(e).

35. Defendants Magistri and Mulholland also confirmed that they were being provided

with required information in InVision’s quarterly report for the fiscal quarter ended September 29,

2002 (the “Third Quarter 2002 10-Q”), which was signed by Magistri and Mulholland. The Third

Quarter 2002 10-Q included the following statement under the heading “Controls and Procedures”:

Within ninety days prior to the date of this Form 10-Q, we carried outan evaluation, under the supervision and with the participation ofSergio Magistri, our principal executive officer, and RossMulholland, our principal financial officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures. Basedon this evaluation, Messrs. Magistri and Mulholland concluded thatour disclosure controls and procedures are effective in timely alertingthem to material information required to be included in our periodicSEC reports.

* * *

In addition, we reviewed our internal controls, and there have been nosignificant changes in our internal controls or in other factors thatcould significantly affect those controls subsequent to the date of theirlast evaluation.

36. InVision’s FCPA violations were just the type of information that, according to the

certifications signed by Defendants Magistri and Mulholland, was provided to the Executive

Defendants. This information, that the Company was approving of bribes in violation of the FCPA,

was information that was required to be disclosed in the Company’s reports. It was plainly material,

as it involved criminal conduct. Moreover, the bribes involved the Company’s finances because they

resulted in the improper recording of the bribes as SG&A expenses on the Company’s books, as

detailed below.

37. The nature of InVision’s business also strongly supports a finding that Defendants

knew or recklessly disregarded the FCPA violations. InVision primarily sold very large and very

expensive equipment. At any one time, it had a limited number of customers. Given the size of its

sales and the number of customers involved, it is reasonable to conclude that the Defendants were

aware of the details of every transaction involving these customers. Thus, it was necessary for the

Company’s top executives to be knowledgeable about the sales and the sales process. Indeed, as

stated below, the Company and Magistri were well aware of InVision’s distributors and partners in


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connection with its international transactions.

38. Also indicative of Defendants’ knowledge that these statements were false or

misleading was that the international market was an increasingly important part of InVision’s

business. During a Company earnings conference call on February 11, 2004, Magistri stated that the

international market was performing well, and that its demand and backlog were increasing. Of the

$66 million in EDS backlog at that time (InVision’s most profitable segment), about 92% was from

international customers, a 27% increase compared to the prior quarter. (See Transcript of InVision’s

earnings conference call dated Feb. 11, 2004 at 4, 8, 11). Moreover, InVision, when announcing in

a press release on or about April 21, 2004, that it had received a sale order for a new airport in

Thailand, which was later revealed to involve an FCPA violation, was able to identify by name the

distributor in Thailand through which InVision operated (Patriot Business Consultants Co., Ltd.).

Magistri stated at the time that: “We believe this is a significant milestone in the international EDS

market, particularly in Asia.” In the Philippines airport sale, Defendant Magistri was able to identify

the Company’s project partners as Takenaka Corp. from Japan and PIATCO, the Philippines based

company responsible for the airport development.

39. In addition, the knowledge of the Executive Defendants stems from their roles and

responsibilities within InVision as the Chief Executive Officer and the Chief Financial Officer.

Individuals acting in that capacity for a company whose securities are publicly traded and registered

with the SEC have the duty and obligation to insure the adequacy of internal controls designed to

prevent unlawful conduct. To the extent such executives are unable to insure the adequacy of a

company’s internal controls or its compliance with lawful requirements, such individuals are charged

with knowledge as to such inadequacies as evidenced by the requirements of Sarbanes-Oxley that

they sign sworn certifications as to the integrity of a company’s systems of internal controls and

compliance with the requirements of the Exchange Act. If the Executive Defendants, in fact, lacked

such knowledge then they acted with scienter in making their certifications in the absence of

adequate knowledge of the facts.

40. The Executive Defendants also each had a motive for making the materially false or

misleading statements and/or omissions complained of in this action. The Merger would allow the


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Executive Defendants to sell all the InVision securities they owned and to accelerate the vesting of

options for the purchase of InVision common stock. Defendant Magistri was expected to receive

net proceeds of $22,562,564 and defendant Mulholland would receive proceeds of $2,738,240 when

the Merger closed and they were able to dispose of all of their InVision securities. Moreover, on

January 30, 2004, after the Company had been discussing a possible transaction with GE for several

months and while those discussions with GE and with the Company’s financial and legal advisors

were taking place, the Board of Directors, while approving that a transaction with GE would

continue to be pursued, granted options to purchase an aggregate of 440,000 shares of InVision stock

to the Company’s executive officers and directors, including an option to purchase 80,000 shares to

Defendant Magistri and an option to purchase 40,000 shares to Defendant Mulholland. Due to the

acceleration of the vesting of options contained in the Merger, these newly granted options would

collectively result in millions of dollars of profits when exercised in connection with the Merger.

Defendants Magistri and Mulholland together would realize more than $1.5 million in profit when

the Merger was consummated just from the granting of these additional options.

41. The Company was also aware of the violations of the FCPA at the time of the above

statements because, as detailed below, special authorization by the Company’s Finance Department

was required in each instance, and the Executive Defendants admittedly were provided with the

necessary information that bribes were being made. Moreover, the DOJ and SEC would conclude

that a high likelihood existed that the Company was aware that the bribes were occurring.

InVision’s Bribes of Foreign Officials

42. Since June 2002, InVision had been involved in at least three instances of improper

payments being made (or offered) to foreign government officials to obtain or retain business in

violation of the FCPA.

43. In one such situation, InVision sold two explosive detection machines in the

Philippines in November 2001 for use in an airport. Although InVision had a sales agent in the

Philippines, this sale was made directly to the subcontractor involved with this particular project

rather than through the sales agent.


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44. At about the same time as these sales, the sales agent in the Philippines made repeated

requests for a commission on the sales although the agent was not involved in the sales. The sales

agent informed the applicable regional sales manager and the senior executive that he was

negotiating additional sales of products, and was going to use part of the commission to make gifts

or pay cash to government officials to obtain approval of the sale of additional InVision products.

45. In December 2001, the senior executive involved approved of a commission payment

of approximately $108,000 to the sales agent for the November 2001 airport sales. Based on the

information provided by the regional sales manager and the senior executive, InVision’s finance

department authorized the payment, which was made in July 2002. Based on the information

provided, InVision was aware of the high probability that the sales agent intended to use part of the

commission to make gifts or pay cash to influence Filipino government officials to purchase

InVision products. InVision, however, improperly recorded the payment of $108,000 as a sales

commission on its books. No additional sales were completed by the sales agent in the Philippines

on behalf of InVision.

46. In a second incident, InVision in November 2002 agreed to sell two explosive detection

machines in Guangzhou, China for use at an airport, which was owned and controlled by the Chinese

government. InVision’s local distributor in China purchased the machines from InVision for

approximately $2.8 million and then negotiated the sale. This agent was InVision’s primary

representative to the airport and associated governmental agencies.

47. InVision was supposed to deliver the two machines by mid-2003, but because of

export license problems, they were not delivered until October 2003. While this delay was

occurring, the distributor in China informed the applicable regional sales manager and the senior

executive that the airport intended to impose a financial penalty on InVision. The distributor further

informed the regional sales manager, who then informed the senior executive, that to avoid this

penalty, the distributor would offer foreign travel and other benefits to airport officials.

48. The distributor in China requested financial compensation from InVision to pay for

these penalties and costs, including compensation for benefits that the distributor intended to offer


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to airport officials. In October 2003, the senior executive agreed to pay the distributor $95,000.

Based on information provided by the senior executive and the regional sales manager, InVision’s

finance department authorized the payment to the distributor, which was completed in April 2004.

Based on the information provided, InVision was aware of a high probability that the distributor

intended to use part of the funds it received from InVision to pay for foreign travel and other benefits

for airport officials. InVision then improperly recorded the payment of $95,000 as a cost of goods

sold on the Company’s books.

49. In a third incident, InVision retained a distributor in Thailand to lobby an airport

construction company controlled by the government of Thailand, which was building an airport in

Bangkok in 2002, to purchase explosive detection machines. The distributor, who was InVision’s

primary representative to the airport and associated governmental agencies, was to purchase the

machines from InVision and then resell them for a profit.

50. The distributor in Thailand informed the appropriate regional sales manager and the

senior executive that it offered to make gifts or payments to officials who had influence over the

airport corporation. Based on this information provided to the regional sales manager and the senior

executive from January 2003 through April 2004, InVision was aware of a high probability that the

distributor intended to fund any such gifts or offers out of the difference between the price the

distributor paid InVision to acquire the machines and the price for which the distributor was able to

resell them. Despite this awareness, InVision authorized the distributor to continue to pursue the

transaction.

51. In or about April 2004, the airport corporation agreed to purchase 26 of InVision’s

explosive detection machines from the InVision distributor in a sale InVision valued at

approximately $35.8 million. The transaction was deferred, however, because of the possible FCPA

violations.

Disclosure of Adverse Facts

52. On July 30, 2004, after the market closed, InVision announced that it had met with

the Department of Justice and the SEC concerning the disclosure of an internal investigation of


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certain possible offers of improper payments by distributors in connection with foreign sales

activities. The Company, in its press release, stated:

InVision has been informed that the Department of Justice and the Securitiesand Exchange Commission may commence an investigation of InVision withrespect to these matters, including with respect to possible violations of theForeign Corrupt Practices Act. InVision’s internal investigation has beenconducted in consultation with General Electric (NYSE:GE), which hasagreed to acquire InVision in a cash merger. InVision intends to cooperatefully with any governmental investigation of these matters.

The internal investigation and any related investigation by the Department ofJustice and/or the Securities and Exchange Commission may not becompleted by October 31, 2004. Completion of the acquisition of InVisionby GE remains subject to the closing conditions in the merger agreement,including regulatory approvals. If the acquisition is not completed byOctober 31, 2004, either InVision or GE may be entitled to terminate themerger agreement.

53. The existence of internal control problems and the FCPA violations were uncovered

by GE while conducting due diligence. The fact that GE was able to discover these problems in a

short period of time is indicative of the fact that the information was readily available to Defendants.

54. The news shocked the market and, although not canceling the Merger, materially

increased the risk of either a substantial delay in effectuating the Merger, a change in the terms of

the Merger or even potentially the Merger being cancelled. Since a situation of near certainty for

completion of the Merger had been transformed into one rife with uncertainty, the price of InVision

common stock fell $6.39 per share or more than 12% on August 2, 2004, the next trading day, to

close at $43.27 per share, reflecting the heightened risk which had previously gone undetected. The

facts relating to the violation of the FCPA were material facts that Defendants had a duty to disclose

but, nonetheless, failed to disclose.

Plaintiffs and the Class Were Damaged

55. Plaintiffs, other public investors and the securities markets relied on the truth of the

statements made by Defendants concerning InVision’s compliance with governing provisions of law

and the integrity of the Company’s systems of internal controls designed to detect such violations

of the law. Prior to the July 30, 2004 announcement, Plaintiffs did not know and had no way of


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knowing these material adverse facts. The disclosure of the materially adverse facts and the prior

misstatements of fact were a direct and proximate cause of the decline in InVision’s stock price on

August 2, 2004.

56. At all relevant times, the market for InVision securities was an efficient market for

the following reasons, among others:

(a) InVision stock met the requirements for listing, and was listed and actively traded

on the NASDAQ National Market System, a highly efficient and automated market;

(b) As a regulated issuer, InVision filed periodic public reports with the SEC and the

NASDAQ;

(c) InVision regularly communicated with public investors via established market

communication mechanisms, including through regular disseminations 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;

(d) InVision was followed by several securities analysts employed by major brokerage

firms who wrote reports which 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; and

(e) The price of InVision securities reacted rapidly to news announcements and other

developments affecting the value of InVision and its securities.

57. As a result, all purchasers of InVision securities during the Class Period suffered

similar injury through their purchase of InVision securities at artificially inflated prices and a

presumption of reliance applies.

Alternatively, Defendants’ Lied About Their Disclosure Controls

58. If Defendants claim, or it is determined, that they did not receive information about

the FCPA violations prior to the release of the above identified false or misleading statements, then,

the Executive Defendants knew or recklessly disregarded that, contrary to the Sarbanes-Oxley


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certifications contained in the 2003 Form 10-K, and other SEC filings, the Company did not, in fact,

maintain a system of internal controls adequate to uncover unlawful activities or to insure

compliance with the requirements of the Exchange Act and, in particular, the FCPA, which is a

provision of the Exchange Act.

59 Regarding its foreign sales, InVision did not have in place an adequate process to select

and train overseas sales agents and distributors, and conducted little, if any, investigation into the

backgrounds of the personnel InVision used. InVision provided no formal training or education

either to its employees or the sales agents and distributors it utilized concerning the requirements of

the FCPA.

60. In addition, InVision did not monitor its sales agents and distributors to determine if

they were complying with the FCPA. As indicated in the three examples described above, InVision

did not establish an internal system that was capable of preventing and detecting violations of the

FCPA.

InVision Settles With the DOJ and the SEC

61. On December 6, 2004, InVision announced that it had entered into a non-prosecution

agreement with the Criminal Division, Fraud Section, of the United States Department of Justice

(“DOJ”). Pursuant to the non-prosecution agreement, the DOJ agreed not to prosecute InVision

under the FCPA or specified other federal criminal statutes for conduct that potentially violates the

FCPA based on the transactions and events identified in the non-prosecution agreement. As part of

the agreement, InVision accepted the finding that through the conduct of certain employees it was

aware of a high probability that its agents or distributors in China, Thailand and the Philippines had

paid or offered to pay money to foreign officials or political parties in the sale of airport security

screening machines. The DOJ described InVision’s internal procedures as insufficient because it

“practiced insufficient, and in some countries, virtually no, due diligence on the retention of agents

or the entry into subcontractor or distributorship agreements.” InVision also agreed to:

(a) make a payment of $800,000 to the United States Treasury;


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(b) accept responsibility in a manner defined in the agreement for specified actions

or omissions of employees;

(c) negotiate in good faith a settlement with the SEC; and

(d) continue to cooperate with the DOJ and the SEC in their investigations of the

matters covered by the non-prosecution agreement.

62. In connection with announcing its agreement with the DOJ, InVision also announced

that GE had completed its acquisition of the Company. However, Plaintiffs and other members of

the Class had already been damaged through paying artificially inflated prices for InVision securities

which failed to reflect the risks that the Merger would not proceed or its closing would be delayed

because of the Company’s violation of the law, including the FCPA.

63. In February 2005, InVision agreed to settle a SEC proceeding relating to these

violations by paying a $500,000 penalty and disgorging $589,000 in profits and $28,700 in interest,

a total payment of more than $1.1 million. The SEC charged that the Company was aware of a high

probability that its foreign agents or distributors made or offered to make improper payments to

obtain or retain business, but allowed such actions to proceed. The SEC also charged that InVision

improperly accounted for these payments and failed to have an adequate system of internal controls.

The Company did not admit or deny any wrongdoing.

FIRST CLAIM FOR RELIEF

Violation of Section 10(b) of

The Exchange Act and Rule 10b-5

Promulgated Thereunder Against All Defendants

64. Plaintiffs repeat and reallege each and every allegation contained above as if fully

set forth herein.

65. During the Class Period, Defendants carried out a plan, scheme and course of

conduct which was intended to and, throughout the Class Period, did: (a) deceive the investing

public, including Plaintiffs and other Class members, as alleged herein; and (b) cause Plaintiffs

and other members of the Class to purchase InVision securities at artificially inflated prices. In


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furtherance of this unlawful scheme, plan and course of conduct, Defendants, and each of them,

took the actions set forth herein.

66. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made

untrue statements of material fact and/or omitted to state material facts necessary to make the

statements not misleading; and (c) 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 InVision securities in violation of Section 10(b) of the

Exchange Act and Rule 10b-5.

67. 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 the business,

operations and future prospects of InVision as specified herein.

68. 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 InVision 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 omitting to state material

facts necessary in order to make the statements made about InVision and its business operations

and future prospects in the 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 InVision

securities during the Class Period.

69. Each of the Executive Defendants by virtue of their responsibilities and activities

as a senior executive officers was aware of the Company’s dissemination of information to the

investing public which they knew or recklessly disregarded was materially false and misleading.

70. Defendants had actual knowledge of the misrepresentations and omissions of

material facts set forth herein, or acted with reckless disregard for the truth in that they failed to


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ascertain and to disclose such facts, even though such facts were available to them. Defendants’

material misrepresentations and/or omissions were done knowingly or recklessly and for the

purpose and effect of concealing InVision’s violations of the FCPA and InVision’s failure to

implement a system of internal controls adequate or sufficient to detect violations of the law,

including potential violations of the FCPA. Defendants, if they did not have actual knowledge of

the misrepresentations and 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.

71. The facts which Defendants misstated and/or failed to disclose and which are the

subject of this Complaint were material. This is demonstrated, in part, by the substantial decline

in the trading price of InVision common stock upon disclosure of the relevant facts. In ignorance

of the fact that market prices of InVision publicly-traded securities were artificially inflated, and

relying directly or indirectly on the false and misleading statements made by Defendants, or upon

the integrity of the market in which the securities trade, and/or on the absence of material adverse

information that was known to or recklessly disregarded by Defendants but not disclosed in

public statements by Defendants during the Class Period, Plaintiffs and the other members of the

Class acquired InVision securities during the Class Period at artificially high prices and were

damaged thereby.

72. At the time of Defendants’ misrepresentations and omissions, Plaintiffs and other

members of the Class were ignorant of the falsity of Defendants’ public statements, and believed

them to be true. Had Plaintiffs and the other members of the Class and the marketplace known

the truth about InVision, which was not disclosed by Defendants, Plaintiffs and other members of

the Class would not have purchased or otherwise acquired their InVision 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.

73. By virtue of the foregoing, Defendants have violated Section 10(b) of the

Exchange Act, and Rule 10b-5 promulgated thereunder by the SEC.


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74. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiffs 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 FOR RELIEF

Violation of Section 20(a) of

the Exchange Act Against the Executive Defendants

75. Plaintiffs repeat and reallege each and every allegation contained above as if fully

set forth herein.

76. The Executive Defendants acted as controlling persons of InVision within the

meaning of Section 20(a) of the Exchange Act. By virtue of their high-level positions, and their

ownership and contractual rights, participation in and/or awareness of the Company’s operations

and/or intimate knowledge of the false statements filed by the Company with the SEC and

disseminated to the investing public, the Executive 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 Plaintiffs contend are

false and misleading. The Executive Defendants were provided with or had unlimited access to

copies of the Company’s reports, press releases, public filings and other statements alleged by

Plaintiffs to be materially 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.

77. In particular, each of the Executive 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, statements and/or non-

disclosures giving rise to the securities violations as alleged herein, and exercised the same.

78. InVision violated Section 10(b) and Rule 10b-5 by its acts and omissions as alleged

in this Complaint. By virtue of their positions as controlling persons of Invision, the Executive

Defendants are liable as control persons pursuant to Section 20(a) of the Exchange Act.


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Basis for Information and Belief

79. Plaintiffs base their information and belief on: (a) filings made with the SEC

referenced in this Complaint as well as Forms 8-K filed by the Company with the SEC; (b) press

releases of InVision and news reports concerning the Company; (c) reports of securities analysts

concerning InVision; (d) a complaint filed by the SEC against InVision in connection with the

alleged violations of the FCPA; (e) a consent decree entered into between the DOJ and InVision;

(f) the settlement of the action brought by the SEC against InVision; and (g) a review of publicly

available information concerning allegations that the Company violated the FCPA and the

trading history of InVision common stock.

WHEREFORE, Plaintiffs pray for relief and judgment as follows:

(a) Determining that this action is a proper class action, and certifying Plaintiffs

as class representatives under Rule 23 of the Federal Rules of Civil Procedure;

(b) Awarding compensatory damages in favor of Plaintiffs and the other Class

members against 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 Plaintiffs 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.


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JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

Dated: February 22, 2006 GLANCY BINKOW & GOLDBERG LLP

__S/Lionel Z. Glancy__________________

LIONEL Z. GLANCY #134180

[email protected]

PETER A. BINKOW #173848

MICHAEL GOLDBERG #188669

GLANCY BINKOW & GOLDBERG LLP

1801 Avenue of the Stars, Suite 311

Los Angeles, California 90067

Telephone: (310) 201-9150

Facsimile: (310) 201-9160

Plaintiffs’ Local Counsel

JEFFREY S. ABRAHAM (Pro Hac Vice)

[email protected]

LAWRENCE D. LEVIT

[email protected]

ABRAHAM FRUCHTER & TWERSKY, LLP

One Penn Plaza, Suite 2805

New York, New York 10119-1910

Telephone: (212) 279-5050

Facsimile: (212) 279-3655

Lead Plaintiffs’ Counsel


lead plaintiffs’ counsel plaintiffs’ local...

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