P3068: CID - Charles Phillips (Oracle), Videotaped Deposition Transcript

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GOVERNMENT EXHIBIT P3068

00006
6		THE VIDEOGRAPHER: Would the court reporter
7	please swear in the witness.
8		(Whereupon the witness was sworn)
9		CHARLES PHILLIPS,
10	having been first duly sworn, testified as follows:
11
12		EXAMINATION
13	BY MR. SCOTT:
14		Q. All right, Mr. Phillips, could you state your
15	name for the record, please.
16		A. Charles Phillips.
Phillips 06-03-04 1 00007
16		Q. All right, sir, your current position with
17	Oracle I understand has changed since the last time your
18	deposition was taken.
19		A. Yes, current title is now president.
20		Q. All right, sir, how long have you held the title
21	of president of Oracle?
22		A. Since, I think, January of this year.
Phillips 06-03-04 2 00008
1		Q. All right, sir, and with the title change, did
2	you accumulate any additional duties and
3	responsibilities?
4		A. Yes.
5		Q. What are they?
6		A. I have the responsibility for field operations,
7	so global consulting, global sales, global marketing, and
8	alliances and channels.
Phillips 06-03-04 3 00139
21		Q. All right, sir.
22		MR. SCOTT: Let's get that marked.
Phillips 06-03-04 4 00140
1		(Marked Deposition Exhibit No. 895)
2		MR. SCOTT: Q. All right, sir, before you
3	joined Oracle, you worked at Morgan Stanley; correct?
4		A. That's correct.
5		Q. What was your position there?
6		A. I was an analyst.
7		Q. And were you ~ did you have any designation
8	beyond that? Were you a senior analyst, executive ~
9		A. Managing director.
10		Q. And what does managing director mean? What were
11	your duties and responsibilities as such?
12		A. Well, I was responsible for research coverage of
13	the enterprise software industry and also for training
14	some junior analysts and various other management
15	committees.
16		Q. Did you have an equity position with Morgan
17	Stanley?
18		A. Yes.
19		Q. Were you a partner with Morgan Stanley?
20		A. Well, it was a public company so you don't use
21	the term "partner" any longer. I guess the term really
22	didn't apply.
Phillips 06-03-04 5 00141
1		Q. But what was the nature of your equity position
2	at Morgan Stanley while you were there?
3		A. Just stock and options.
4		Q. All right, sir, how long were you a managing
5	director with Morgan Stanley, from when to when?
6		A. I think from ~ became a managing director in
7	'95 I believe through 2003.
8		Q. All right, sir, was there an equity research
9	group at Morgan Stanley?
10		A. Yes
11		Q. Were you a member of that group?
12		A. Yes.
13		Q. What was the ~ could you describe what the
14	equity research group consists of, consisted of while you
15	were there?
16		A. Okay. The research group consisted of analysts,
17	several hundred analysts around the world, following
18	various industries and companies.
19		Q. Now, when you use the term "analysts" in the
20	context of what you did at Morgan Stanley, what does that
21	involve? What type of activities were you involved in?
22		A. Provided investment advice to institutional
Phillips 06-03-04 6 00142
1	investors was the primary job, and based on research on
2	which companies were more attractive for investment.
3		Q. So you would track companies, watch companies'
4	performance, watch the companies ~ the markets those
5	companies were performing in and give research advice to
6	investors?
7		A. That's correct.
8		Q. Now, did that research advice include oral
9	advice as well as written advice?
10		A. Yes.
11		Q. So you might have investors call you up and ask
12	individualized questions about a company or a particular
13	industry as well as you issuing periodically written
14	advice about companies and markets; correct?
15		A. That's correct.
16		Q. Now, you have in front of you what's been marked
17	as Exhibit 895 to your deposition. It's a multi-page
18	document bearing identification numbers M.S. 00912
19	through M.S. 00920, and I'll ask you if this is one of
20	. the written pieces of information that was prepared at
21	Morgan Stanley and issued to investors?
22		A. This was prepared at Morgan Stanley and issued
Phillips 06-03-04 7 00143
1	to investors.
2		Q. Now, this particular one was issued under your
3	name; correct?
4		A. That's correct, as the supervisory analyst, yes.
5		Q. And Evan Bloomberg, who is also listed here
6	under you, was who?
7		A. He was a research associate and in many of the
8	routine reports like this one, which was just writing up
9	a quarter, the research associates would write those as
10	part of the training.
13		You said that you were the supervising analyst;
14	correct?
15		A. Yes.
16		Q. So Mr. Bloomberg would have been acting under
17	your direction and control with relation to the work he
18	did on Exhibit 895?
19		A. Yes, I would have been responsible for reviewing
20	anything that went out.
21		Q. And was it ~ does Morgan Stanley have any
22	internalized or did when you were there, any internalized
Phillips 06-03-04 8 00144
1	rules regarding being as accurate as possible when they
2	issue advice, either oral or written, to investors?
3		A. Yes.
4		Q. What did those rules consist of?
5		A. Should be accurate as much as possible and to
6	the best of your knowledge, and should have done research
7	to have a view.
8		Q. As a supervising analyst, did you follow those
9	guidelines while you were with Morgan Stanley?
10		A. Yes.
11		Q. Now, did Morgan Stanley also have any, to your
12	knowledge, responsibilities regarding, you know, the
13	accuracy of the information it issued to investors such
14	as exhibit 895 to any governmental agencies? For
15	example, did the SEC have any rules you had to follow
16	regarding analysts advice?
17		A. Well, yes. You'd have to ~ this came later. I
18	don't know if these rules were in place for this
19	report ~ but certify that to the best of your knowledge,
20	you know, the information was accurate. But it's the
21	future ~ and a lot of the things that are in these
22	reports are talking about future developments or opinions
Phillips 06-03-04 9 00145
1	and all you can do is reflect your opinion at that point
2	in time.
3		Q. Based on the research that you did as accurately
4	as you can do it?
5		A. Based partially on that, but a lot of its based
6	also on experience and extrapolation from that research
7	and analysis.
8		Q. Now, the reports such as Exhibit 895, to your
9	deposition, those would be issued to investors; correct?
10		A. Well, this -- make sure this is what I think it
11	is.
12		This particular report was issued to investors
13	but because it's an earnings report after the earnings
14	are already out and everyone's already seen the
15	information, very few people actually read these reports.
16		Q. How do you know who read it and who didn't? Is
17	there some way that they sent it back to you and
18	confirmed whether they read the report or not?
19		A. Because normally I've already talked to the
20	investors. They don't need to read it and they've heard
21	the same conference call I heard and so they get tons of
22	these from every research house, the same quarter, not
Phillips 06-03-04 10 00146
1	much differentiation, reporting what happened, so there's
2	no need to read them.
3		And I started in the business on the other side
4	of the fence in the buy side so I know that because I was
5	basically a client.
6		Q. Let me ask you this, how many investors would a
7	report such as Exhibit 895 have been sent to?
8		A. I don't have the exact number, but thousands ~
9	but electronically anyway.
10		Q. All right, sir, would they also have been sent
11	it in hard copies as well as electronic to some
12	customers?
13		A. I stopped sending them out in hard copy because
14	it's a waste of money, they weren't getting read and
15	nobody noticed.
16		Q. You still sent them to your investors by
17	electronic version?
18		A. They were available electronically and you
19	could - some investors subscribed to them and had all
20	reports automatically sent to them, other ones it was on
21	a demand basis. They would come get the reports if they
22	needed to see it.
Phillips 06-03-04 11 00148
7		Q. In issuing reports such as, and including
8	Exhibit 895, to the best of your ability, you followed
9	the guidelines of Morgan Stanley in determining that the
10	information that you were sending to investors was
11	accurate as possible?
12		A. Well, most of the interaction with the investors
13	wasn't by means of reports and so what they paid for was
14	not just a report, but access to the analysts and to have
15	discussions with them and the verbal advice was more
16	important than the written.
17		MR. ROSCH: The question is did you try to be
18	accurate in this report.
19		A. Oh, yes.
20		MR. SCOTT: Q. From your perspective, whether
21	you were giving the investors advice in written form,
22	such as Exhibit 895, or in oral form, you tried to be as
Phillips 06-03-04 12 00149
1	accurate and thorough as possible?
2		A. Yes.
5		MR. TOBEY: May I just for the say for the
6	record. You've been referring to Exhibit 15. Are there
7	two exhibits?
8		MR. SCOTT: I'm sorry. We've got it wrong. I'm
9	doing the one with the sticker that I had here. The
10	question's I have here, we can either do one of two
11	things. I can go through all of them again or we can
12	just have her reflect in the record that I'm talking
13	about Exhibit 895.
14		MR. ROSCH: As far as I'm concerned, it can
15	reflect Exhibit 895. The record should simply also
16	reflect that 15, which is also on the document means that
17	it was also an exhibit in his CID deposition.
18		MR. SCOTT: I have no problem reflecting that.
19	So go back and we'll just fix the questions and answers
20	so we're talking about Exhibit 895.
Phillips 06-03-04 13 00155
3		Q. Are you an economist?
4		A. No, I'm not.
5		Q. Have you ever purported in any of the reports of
6	that kind, that is to say, referring to Exhibit 895, have
7	you ever purported to give investors an economic analysis
8	of any market?
11		A. I've never purported to be an economist or
12	present this information as a formal economic analysis,
13	especially since it's a quarterly report and that's not
14	the place any one would do economic analysis for any
15	broad market. It's just a quarterly write-up.
16		Q. What did you mean then when you said ~ when you
17	used the word oligopoly in that sentence?
18		A. I used it as a colloquial term, the term
19	oligopoly, and to describe the leading companies with the
20	most recognized brand names and who were public.
21		So I was speaking to people who only cared about
22	public companies and at the time I only cared about
Phillips 06-03-04 14 00156
1	public companies, as well, since it's an investment
2	document. And it's more of a marketing term used to
3	describe the leading brand names in that particular area.
4		Q. Have you ever attempted to define a market in
5	the sense that that term, the term "market" is used by
6	economists?
8		A. No, I haven't attempted to do that.
9		MR. ROSCH: Q. Have you ever tried to determine
10	whether any firm or group of firms collectively had
11	market power, as that term is used by economists?
14		A. No, I've never tried to do that.
15		MR. ROSCH: Q. Have you ever tried to analyze
16	the barriers to entry into a market in the sense that
17	entry barriers are defined by economists?
19		A. No, I've never tried to do that.
20		MR. ROSCH: Q. Do you even know how economists
21	define entry barriers?
22		A. No, I don't.
Phillips 06-03-04 15 00157
1		Q. Do you know how economists define market power?
2		A. No, I don't. I understand the concept but I
3	don't know how they define it.
7		Q. Just a couple, Mr. Phillips.
8		Now, in the document here it says, "Stepping
9	back a bit, the back office applications market for
10	global companies is dominated by an oligopoly comprised
11	of SAP, PeopleSoft and Oracle. The market is down to
12	three viable suppliers who will help reautomate the back
13	office business processes for global enterprises for
14	years to come. These are critical functions, and while
15	most companies had begun implementing these products, few
16	have completely rolled out a suite across all locations
17	in countries on the latest version of technology."
18		Do you see that language?
19		A. Yes.
20		Q. That was issued by Morgan Stanley under your
21	name; correct?
22		A. That's correct.
Phillips 06-03-04 11 00148
1		Q. And under Morgan Stanley's practices, you
2	believe that to have been true and accurate as possible
3	when you issued it; correct?
4		A. I believed that it was accurate in the context
5	of how we used those words in the investment community
6	and how I was presenting it in the context of a short
7	quarterly earnings report and not an economic analysis.
8		Q. These reports such as Exhibit 895, you said were
9	issued on a quarterly basis by Morgan Stanley when you
10	were there?
11		A. Yeah, quarterly reports obviously are issued
12	quarterly for earnings reports which is a separate
13	category of reports. The ones I described are not widely
14	read, mostly written by associates because of that, and
15	are commoditized because they restate the quarter that
16	just came out so it's the least important of the reports
17	that were published.
18		Q. But even with these reports, though, you're now
19	referring to them as being the least important, you would
20	try to make them accurate under the guidelines of Morgan
21	Stanley because you were providing them to investors that
22	did business with Morgan Stanley?
Phillips 06-03-04 17 00159
1		A. Yes. Try to make all reports accurate, but the
2	terms used in the investment community differ from the
3	way those terms may be used in other circles.
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Updated August 14, 2015