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Case3:12-cv-04061-RS Document56 Filed02/05/13 Page1 of 66
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Lionel Z. Glancy (#134180) Michael Goldberg (#188669) Robert V. Prongay (#270796) Casey E. Sadler (#274241) GLANCY BINKOW & GOLDBERG LLP 1925 Century Park East, Suite 2100 Los Angeles, California 90067 Telephone: (310) 201-9150 Facsimile: (310) 201-9160 Email: [email protected]
Attorneys for Plaintiff Scott Bruce [Additional counsel on signature page]
v.
SUNTECH POWER HOLDINGS CO., LTD., ZHENGRONG SHI, DAVID KING and, AMY YI ZHANG,
Defendants.
SCOTT BRUCE, Individually and on Behalf of All Others Similarly Situated,
Plaintiff,
Civil No. CV 12-04061 RS
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
Hon. Richard Seeborg
JURY TRIAL DEMANDED
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
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Case3:12-cv-04061-RS Document56 Filed02/05/13 Page2 of 66
1
Lead Plaintiffs James Bachesta, Thanh Le, and Chen Weifeng (“Plaintiffs”), individually and on
2 behalf of all other persons similarly situated, by their undersigned attorneys, for their Consolidated
3 Amended Class Action Complaint against Defendants, allege upon personal knowledge as to
4 themselves and their own acts, and upon information and belief as to all other matters, based on, inter
5
6 alia, the investigation conducted by and through their attorneys, which included, among other things: a
7 review of wire and press releases published by and regarding Suntech Power Holdings Co. Ltd. (NYSE:
8 STP) (“Suntech” or the “Company”); Defendants’ public statements, documents, conference calls and
9 announcements; Securities and Exchange Commission (“SEC”) filings; securities analysts’ reports and
10 advisories about the Company; and other publicly-available information.
11 NATURE OF THE ACTION AND OVERVIEW
12
13 1. This is a securities fraud class action brought on behalf of all persons or entities who
14 purchased or otherwise acquired Suntech securities traded in the United States, including Suntech
15 American Depositary Shares (“ADS”) and Suntech 3.0% convertible bonds, between June 4, 2010 and
16 July 30, 2012 (“the Class Period”), inclusive, seeking to pursue remedies under §§10(b) and 20(a) of 17
the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5. This case arises from 18 19 the material misrepresentations that Defendant Suntech, its former Chief Executive Officer Zhengrong
20 Shi (“Shi”), its former Chief Financial Officer Amy Yi Zhang (“Zhang”), and its current Chief
21 Executive Officer and former Chief Financial Officer David King (“King”) made about Suntech’s
22 financial relationship with a related party, Global Solar Fund, S.C.A., Sicar (“GSF”).
23 2. Suntech is a leading solar energy company engaging in the design, development,
24 25 manufacture, marketing and sale of photovoltaic products used to provide electric power for residential,
26 commercial, industrial, and public utility applications, primarily in Germany, Italy, Spain, France,
27 Belgium, The Netherlands, Luxembourg, Greece, the United States, Canada, China, the Middle East,
28 Australia, and Japan.
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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Case3:12-cv-04061-RS Document56 Filed02/05/13 Page3 of 66
1 3
Suntech also participates through GSF and other investments and joint ventures in the
2 engineering, procurement and construction and operation of solar energy plants. GSF was – and still is
3 I – the Company’s most important investment vehicle, and was the subject of repeated
4 misrepresentations throughout the Class Period.
5
6 4. GSF is an investment fund formed in February 2008 under Luxembourg law. Defendant
7 Shi told financial analysts following Suntech that “the purpose of [GSF] is basically [to] try to generate
8 the market and provide for our customers.” In June 2008 and September 2008, Suntech signed
9 contracts committing to invest €258.0 million in return for 86% of the share equity of GSF. Defendant
10 Shi personally took a 10.67% stake in GSF, on terms that have not been disclosed, through his personal
11 12 investment vehicle, Best (Regent) Asia Group Ltd. The remaining 3.33% of GSF was retained by GSF
13 Capital Pte Ltd. (“GSF Capital”), the parent of Global Solar Fund Partners S.a.r.L. (“GP”), which
14 functioned as the general partner of the GSF investment fund.
15 5. GSF acquired, developed, invested in, and eventually operated seven European solar
16 17 projects, primarily in Southern Italy. These projects were held in a series of Luxembourg and Italian
18 holding companies and special-purpose vehicles (“SPVs”). Collectively, the projects, holding
19 companies and SPVs are referenced in Suntech’s SEC filings and herein as “GSF investees” or “GSF
20 investee companies.”
21
22 6. GP, and by extension GSF, were controlled by GP’s board of managers. GP’s board of
23 managers consisted of a Suntech outside sales representative named Javier Romero (“Romero”),
24 Defendant Shi, Suntech’s Chief Executive Officer, and Dr. Stuart Wenham, Suntech’s Chief
25 Technology Officer. Although two out of three managers of GP were Suntech executives, Romero was
26 entrusted with most management functions. As Suntech explained in its 2009 Annual Report filed on
27 28 Form 20-F:
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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The composition of the board of managers of the general partner is as follows: Category A managers include Mr. Javier Romero and Category B managers include Dr. Zhengrong Shi, our chairman and chief executive officer, and Dr. Stuart Wenham, our chief technology officer. Category A managers are entrusted with the day-to-day management of GSF, and any investment/divestment decision shall always include the favorable votes of the Category A manager and at least one Category B manager of the general partner.
7. This structure yielded Suntech significant accounting benefits, which directly boosted
Suntech’s bottom line during the Class Period. By at least nominally shifting the day-to-day control of
GSF investee companies to GP and Romero, Suntech did not have to consolidate their operations into
Suntech’s own financial statements, even though it owned the vast majority of GSF shares. This was
significant because the GSF investee companies sustained large operating losses during the permitting,
design, engineering and construction phases of the projects.
8. Instead, on the basis of this structure, Suntech used the highly-advantageous “equity”
method of accounting. See Paragraphs 43 to 45, infra. As a result, Suntech was able to book gains
whenever the “fair value” of GSF investee companies, which was conveniently determined by GSF
management, increased. In particular, Suntech used this accounting method to book $269.5 million in
gains during the third and fourth quarters of 2010. These gains were substantially more than Suntech’s
operating profits for the period, and even larger than Suntech’s operating profits for the entire year.
The gains flowed directly to Suntech’s bottom line, providing an enormous earnings boost that would
not have been available under conventional accounting.
9. Additionally, as intended, the GSF investee companies became huge customers of
Suntech’s photovoltaic products, purchasing over $300 million of solar modules from Suntech between
2009 and 2010 alone. Because Suntech was able to account for GSF as an equity investment rather
than a consolidated subsidiary, it was able to book revenues at the time of sale. This further boosted
Suntech’s operating results, especially in 2009 and 2010.
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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Case3:12-cv-04061-RS Document56 Filed02/05/13 Page5 of 66
1 10. Although GSF’s structure and its accounting methodology propelled Suntech’s profits, it
2 came with a major disadvantage. The shift of control to GP made Suntech highly dependent upon
3 Javier Romero, GP’s Category A manager. As a result, Suntech had few options when it learned that
4 Romero was not a trustworthy partner.
5
6 11. Suntech knew that Romero had falsely represented his relationship with the Company.
7 In at least one significant European industry conference, Romero falsely held himself out to be the
8 “President” of Suntech Spain. See, e.g., Agenda for the Business in Clean Energy Conference on
9 March 31, 2009 in Barcelona, available at http://agenda.acc10.cat/media/0000000500/0000000896.pdf.
10 According to Suntech, this was blatantly false. Suntech told the SEC that Romero was not the President
11 12 of Suntech Spain and, in fact, had never been an employee (let alone executive) of Suntech.
13
12. Suntech is believed to have learned of Romero’s misrepresentations when made, but
14 unquestionably gained knowledge of Romero’s fabrication no later than May 17, 2010, when an article
15 reiterating the false claim was published on a popular financial website called The Street Sweeper. See
16 17 http://thestreetsweeper.org/ undersurveillance.html?i=672. Shortly thereafter, in a letter to the SEC
18 signed by Defendant Zhang, Suntech conceded that it “has been informed that Mr. Javier Romero has
19 previously held himself out to be the president of Suntech Spain,” but that such representations were
20 not accurate or authorized.
21
22 13. At about the same time as the Street Sweeper article, Suntech vastly expanded its
23 financial exposure to Romero’s operations. In May 2010, Suntech entered into a €554.2 million ($683
24 million) 1 guarantee of a loan that the China Development Bank granted to GSF’s largest and most
25 important investee company, Solar Puglia II, S.a.r.L. Additionally, as further security to China
26 Development Bank, Suntech was required to maintain approximately €30.0 million in a cash collateral
27
28 1 As of May 17, 2010, the exchange rate between the Euro Currency and the U.S. Dollar was approximately 1.2325:1.
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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account with a commercial bank in Luxembourg. Collectively, the loan guarantee agreement and the
associated deposit of cash collateral are referenced herein as the “GSF Loan Guarantee.”
14. Although the GSF Loan Guarantee appears to have been the largest financial
commitment that the Company had ever provided to a third-party, and was in fact more than twice as
large as Suntech’s capital commitment to GSF, Defendants did not timely disclose it to investors. They
made no mention of the May 2010 guarantee in the earnings conference calls they held with investors
on June 3, 2010 and August 18, 2010, or in any of the four material update filings that Suntech filed
with the SEC on Form 6-K between June 2010 and September 2010.
15. Suntech likely would have kept the massive GSF Loan Guarantee hidden altogether had
the SEC’s Division of Corporate Finance not demanded specific disclosure. In a September 27, 2010
letter addressed to Defendant Shi, the SEC Division of Corporate Finance (which was then reviewing
Suntech’s 2009 Form 20-F filing) took issue with Suntech’s prior boilerplate reference that it “may
from time to time be required.... to provide guarantees” and “deposit monies in cash collateral
accounts” to facilitate financing arrangements that banks provide to Suntech’s related parties, like GSF.
The SEC pressed Suntech:
Please tell us, with a view towards disclosure, whether you have been required to provide any such guarantees or collateral. If so, please tell us the name of the related party for which you provided such guarantee or collateral and whether it is an investee company of Global Solar Fund or Gemini Solar.
16. In a response dated October 28, 2010 and signed by Defendant Zhang, Suntech disclosed
to the SEC that it had entered into the €554.2 million guarantee of GSF investee company debt, and had
additionally deposited the €30 million cash collateral to the Luxembourg bank account designated by
the lender, China Development Bank. This response was only later released to investors on the SEC’s
EDGAR system. While the filing does not indicate the public release date, Plaintiffs are informed and
believe, consistent with SEC rules and the procedures of the SEC’s Corporate Finance Division, the
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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release of these letters occurred on or about June 4, 2011, approximately forty-five (45) days after the
SEC notified Suntech that it had completed review of Suntech’s 2009 Form 20-F.
17. On November 30, 2010, the SEC served Suntech with another formal letter demanding,
inter alia, more information on the above-referenced guarantee. In response, on December 29, 2010,
Defendant Zhang, on behalf of Suntech, wrote the SEC a letter asserting that:
[I]n relation to the guarantee itself, the Company received a simultaneous pledge of Euro 560 million in German government bonds (the “ German Government Bonds ”) from GSF Capital Pte. Ltd., the parent of the general partner of GSF and an unrelated party, as a backstop for its guarantee, as further described in the Company’s response to comment 13 below. Given the Company has the ability to access the German Government Bonds without any restriction in the event of default of the investee companies, the Company believes that the likelihood that it will have to satisfy its guarantee, without being immediately compensated under the German Government Bonds, is remote. (emphasis in original)
18. On May 9, 2011, Suntech filed its Annual Report for the 2010 fiscal year on Form 20-F
with the SEC (“2010 Form 20-F”). In its 2010 Form 20-F, Suntech first publicly acknowledged the
€554.2 million GSF Loan Guarantee, but deceived investors regarding its true exposure by: (1) falsely
stating that the GSF Loan Guarantee was fully backstopped by €560 million ($690.2) in German
government bonds pledged by Romero’s personal investment vehicle, GSF Capital; (2) falsely stating
that Suntech had full, unrestricted access to the bonds which could cover any payments advanced under
the guarantee; (3) misrepresenting that the fair value of its exposure under the €554.2 million GSF Loan
Guarantee was only €2 million, due to the phantom bond backstop; and (4) recording only €2 million as
a liability on its balance sheet, when in fact the fair value of its liability under the GSF Loan Guarantee
was at least $60 to $80 million. Defendants reiterated similar misrepresentations in numerous SEC
filings, letters, and conference calls as is detailed in paragraphs 64 to 113 below.
19. On July 30, 2012, Suntech stunned investors by revealing that it had not confirmed the
existence of the €560 million ($690 million) worth of German government bonds it claimed as
collateral, and that the transactional documents contained irregularities indicating that the bonds likely CONSOLIDATED AMENDED CLASS ACTION COMPLAINT
Civil No. CV 12-04061 RS 6
Case3:12-cv-04061-RS Document56 Filed02/05/13 Page8 of 66
1 never even existed. On this news, shares of the Company declined $0.23 per share, or 14.65%, to close
2 on July 30, 2012, at $1.34 per share, on unusually heavy trading volume, and further declined another
3 $0.21, or 15.67%, to close on July 31, 2012, at $1.13 per share, also on unusually heavy trading
4 volume. Similarly, Suntech’s 3% convertible notes dropped from a pre-disclosure close of 69.00 to
5 close at 45.00 on July 31, 2012.
6
7 20. Throughout the Class Period, Defendants made false and/or misleading statements, as
8 well as failed to disclose materially adverse facts about the GSF Loan Guarantee and the Company’s
9 business, operations, and prospects. Specifically, Defendants made false and misleading statements,
10 and/or failed to disclose: (1) that Suntech had not been pledged €560.0 million in German government
11 bonds from GSF Capital, in connection with Suntech’s provision of the GSF Loan Guarantee to the 12 13 China Development Bank; (2) that the Company lacked internal and financial controls regarding the
14 verification, valuation and reporting of material liabilities; and (3) that, as a result, the Company’s
15 financial statements were materially false and misleading at all relevant times.
16 21. In a December 7, 2012 press release, Suntech admitted that its financial statements for
17 2010, 2011, and the first quarter of 2012 were unreliable because they falsely assumed that the GSF 18
Loan Guarantee was fully backstopped by German government bonds, when in fact those bonds did not 19 20 exist. The Company stated that fixing its accounting errors would likely reduce 2010 net income by
21 $60 million to $80 million.
22
22. After Suntech disclosed the non-existence of the German government bonds, several top
23 management officials resigned, including Chief Commercial Officer Andrew Beebe, CFO of Suntech 24
Europe Bert Van Kampen, President of Suntech Europe Jerry Stokes, and President of Suntech America 25 26 John Lefebvre. Additionally, on August 15, 2012 Defendant Shi stepped down from his position as
27 Chief Executive Officer and became the Chief Strategy Officer.
28
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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Case3:12-cv-04061-RS Document56 Filed02/05/13 Page9 of 66
1 23. As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in
2 the market value of the Company’s securities, Plaintiffs and other Class members have suffered
3 I significant losses and damages.
4 JURISDICTION AND VENUE
5 24. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange Act (15
6 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17 C.F.R. § 240.10b-
7
8 5).
9
25. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.
10 §1331 and Section 27 of the Exchange Act (15 U.S.C. §78aa).
11 26. Venue is proper in this Judicial District pursuant to 28 U.S.C. §1391(b) and Section 27 12
of the Exchange Act (15 U.S.C. §78aa(c)). Substantial acts in furtherance of the alleged fraud or the 13 14 effects of the fraud have occurred in this Judicial District. Many of the acts charged herein, including
15 the preparation and dissemination of materially false and/or misleading information, occurred in
16 substantial part in this Judicial District. Additionally, the Company maintains its United States
17 headquarters in this Judicial District, at 71 Stevenson Street, 10th Floor, San Francisco, California.
18
27. In connection with the acts, transactions, and conduct alleged herein, Defendants directly 19 20 and indirectly used the means and instrumentalities of interstate commerce, including the United States
21 mail, interstate telephone communications, and the facilities of a national securities exchange.
22
PARTIES
23 28. Lead Plaintiffs James Bachesta, Thanh V. Le, and Chen Weifeng, as set forth in the
24 previously-filed certifications (Dkt. No. 14-3), incorporated by reference herein, purchased Suntech 25
ADSs during the Class Period, and suffered damages as a result of the federal securities law violations 26 27 and false and/or misleading statements and/or material omissions alleged herein.
28
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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1 29. Defendant Suntech is a Cayman Islands corporation with its principal executive offices
2 located at 9 Xinhua Road, New District, Wuxi, Jiangsu Province 214028, People’s Republic of China.
3 Defendant Suntech also maintains operations in Europe and North America, including United States
4 offices in San Francisco, California and a manufacturing plant in Goodyear, Arizona.
5
30. Defendant Doctor Zhengrong Shi (“Shi”) founded Suntech in 2001. During the Class 6 7 Period he was Chairman of the Board of Directors and the Chief Executive Officer (“CEO”). Shi
8 resigned as CEO on August 15, 2012, and currently serves as Executive Chairman of the Board and the
9 Company’s Chief Strategy Officer. He owns approximately 30% of Suntech’s stock. Shi is an
10 extremely successful businessperson – in 2008, he was named one of the wealthiest people in China by
11 Forbes Magazine, with a personal net worth at the time of 2.9 billion dollars. Shi holds a master’s 12 13 degree in laser physics and a Ph.D. in electrical engineering. He has worked in the solar industry since
14 1992. He is the inventor of 15 patents in photovoltaic technologies and has published numerous articles
15 and papers in photovoltaic-related scientific magazines. During the Class Period, Shi discussed
16 Suntech’s investment in GSF at almost every investor conference call, where he made knowingly or
17 recklessly false and misleading statements. Shi also signed Suntech’s Form 20-Fs, which contained 18
false and misleading statements, as well as accompanying Sarbanes-Oxley certifications which falsely 19 20 certified the accuracy of Suntech’s financial statements and falsely certified that Suntech’s internal
21 controls were adequate and suffered from no material weaknesses.
22
31. Defendant David King (“King”) served as the Chief Financial Officer (“CFO”) of
23 Suntech from May 2011 through the end of the Class Period. Currently, King is Suntech’s Chief 24
Executive Officer. King is a certified public accountant who began his career at Price Waterhouse, 25 26 where he gained a decade of international and transactional experience. Prior to joining Suntech, King
27 was the CFO of Tetra Tech, the Vice President of Finance and Operations at Walt Disney Imagineering,
28 and Vice President and CFO of Asia Pacific region for Bechtel Group, Inc. During the Class Period,
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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1 King regularly discussed Suntech’s investment in GSF during investor conference calls. King also
2 made knowingly or recklessly false and misleading statements by signing a Sarbanes-Oxley
3 certification which falsely certified the accuracy of Suntech’s financial statements and falsely certified
4 that Suntech’s internal controls were adequate and suffered from no material weaknesses.
5 32. Defendant Amy Yi Zhang (“Zhang”) served as CFO of the Company from August 2005
6 7 through April 2011. Zhang was Suntech’s Principal Accounting Officer and Compliance Officer until
8 July 2010. Zhang also served as a Director of the Company from February 2007 to April 2011, when
9 she left Suntech to, as Suntech explained, “pursue other opportunities.” Prior to her employment at
10 Suntech, Zhang, who holds a master’s degree in business administration, was the CFO of Deloitte
11 Consulting China and the CFO of Atos Origin China. Currently, Zhang is the CEO of Sky Solar 12 13 Holdings, another Chinese solar company. During the Class Period, Zhang discussed Suntech’s
14 investment in GSF at every investor conference call that she attended. She made knowingly or
15 recklessly false and misleading statements during investor calls and in correspondence with the SEC.
16 Zhang also signed a Sarbanes-Oxley certification which falsely certified the accuracy of Suntech’s
17 financial statements and falsely certified that Suntech’s internal controls were adequate and suffered 18
from no material weaknesses. 19
20 33. Defendants Shi, King and Zhang are collectively referred to hereinafter as the
21 “Individual Defendants.” The Individual Defendants, because of their positions with the Company,
22 possessed the power and authority to control the contents of Suntech’s reports to the SEC, press
23 releases and presentations to securities analysts, money and portfolio managers and institutional 24
investors, i.e. , the market. Each defendant was provided with copies of the Company’s reports and 25 26 press releases alleged herein to be misleading prior to, or shortly after, their issuance and had the ability
27 and opportunity to prevent their issuance or cause them to be corrected. Because of their positions and
28 access to material non-public information available to them, each of these defendants knew that the
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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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,
or recklessly disregarded the truth.
SUBSTANTIVE ALLEGATIONS
I. Suntech Expands Into Solar Development With Large Investment In GSF
34. According to its own public statements, Suntech is one of the largest solar panel
manufacturing companies in the world. Suntech designs, develops, manufactures, and markets
photovoltaic products including solar modules. Its products are used to provide electric power for
residential, commercial, industrial, and public utility applications primarily in Germany, Italy, Spain,
France, Belgium, The Netherlands, Luxembourg, Greece, the United States, Canada, China, the Middle
East, Australia, and Japan. Suntech sells its products both to value-added resellers such as distributors
and systems integrators, and directly to large solar project developers.
35. The solar energy industry consists of upstream suppliers, who make the polysilicon
ingots and wafers from which solar modules are manufactured, the solar module manufacturers
themselves, and downstream resellers and project developers.
Upstream
Midstream
Downstream polysilicon ingot and
Suntech
Distributors, system integrators, wafer manufacturers other solar module and project developers
manufacturers
Suntech operates principally in the midstream of the solar energy industry as a manufacturer of
photovoltaic modules. However, it could not grow its business without a stable source of inputs from
upstream suppliers and growing demand from downstream resellers and end users.
36. As Suntech described in its 2008 annual report, filed with the SEC on Form 20-F on
May 8, 2009 (“2008 20-F”), the solar energy industry is driven in large part by government subsidies.
Although solar technology has become more efficient and less costly over the past decade, it has not
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CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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1 achieved “grid parity.” In other words, “the cost of solar power substantially exceeds the cost of
2 electricity generated from conventional fossil fuels such as coal and natural gas.” Id. In Europe, these
3 subsidies generally take the form of feed-in tariffs to solar plant operators. Feed-in tariffs are policies
4 that guarantee producers of approved renewable energy projects the right to “feed-in,” or connect and
5 sell the electricity they produce, to electric utilities at favorable rates, or “tariffs.”
6
7 37. Significantly, feed-in tariffs only subsidize the operation of a solar energy plant. They
8 do not finance the acquisition of land and permits, the design and engineering of the project,
9 procurement of solar modules and other parts, construction, and approval of the finished project. These
10 significant costs are borne by the project developer, and are typically funded through both equity
11 investment by the developer and third-party financing. As a result, a solar project developer generally 12 13 must incur substantial operating losses before generating its first dollar (or Euro) in revenue.
14 38. Between 2003 and 2008, the solar energy industry grew rapidly, in part due to the
15 I expansion of feed-in tariffs. With enormous demand for solar modules and an increasingly constrained
16 global supply of polysilicon, solar module manufacturers like Suntech were focused on locking up
17 long-term sources of polysilicon. To that end, Suntech made a number of strategic investments in ingot 18
and wafer manufacturers like Hoku Scientific, Nitol Solar and Glory Silicon. 19
20 39. By mid-2008, however, the global economic crisis had depressed demand for
21 photovoltaic products. In its 2008 20-F, Suntech stated that “[m]any of [its] customers have
22 experienced difficulty in obtaining credit in the current economic environment” and acknowledged that
23 financing difficulties “had, and may continue to have, a negative impact on the demand for PV 24
products.” With flagging end user demand and the likelihood that government subsidies would be cut 25 26 (or not renewed), imperiling future demand, solar module manufacturers found it increasingly difficult
27 to grow sales.
28
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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1 40. In response to this changing environment, and to expand the end market for its core
2 photovoltaic products, Suntech in 2008 undertook several strategic initiatives to expand its business
3 into the systems integration and project development. Suntech hoped to leverage its balance sheet and
4 industry recognition to finance projects that less-established companies could not. As the Company
5 noted in its 2008 20-F, it intended that “vertical integration into PV [photovoltaic, i.e., solar] system
6 7 integration and project development ... become an increasingly important part of [its] business.”
8 41. Suntech formed a series of investment entities in 2008 to accomplish its expansion into
9 project development. By far the largest and most significant of these was its €258 million capital
10 commitment to GSF. GSF, or Global Solar Fund, S.C.A., Sicar, was formed as a Luxembourg
11 corporation, or “société en commandite par actions,” in February 2008, and registered as an investment 12 13 fund, or “société d’investissement à capital à risqué.” Below is a diagram of GSF’s structure and
14 ownership as of November 12, 2012, according to Suntech:
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CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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103% SUnith Pi HOFdInn
GSF Cap1i
D. Sail (Cayman Imands)
100% 10%
11%
Ir1y I-IId
GSF PaArmNS CD8 Loan
U mmUrdt
18mm InvasMe Lha@& €493Mfl CUO Lease
C1 mrn Lonsint Lean Loon
SicIly S'.rn Pwsr SI. LV N.w Sr.l. SoIr Puglis I So4r Pugola IL S.r.L
GPOb3I ScIi Fund
GIob1 War Fund EngIneerIng
3SF Capitil l4fld 6.V. Enrwin Luxnbowu Sri. Comny Umd
-
In'e Cnlperiie?
Available at: http://www.sec.gov/Archives/edgar/data/1342803/0001104659120
I 77662/0001104659-12-077662-index.htm
42. According to Suntech’s letter to the SEC dated February 16, 2011, Javier Romero came
up with the concept for GSF, “including its investment strategy, target screening/due diligence process,
proposed team and fund structure.” Romero pitched the GSF concept to Suntech management in
January or February 2007. Prior to that time, Suntech had a limited relationship with Romero –
Suntech had entered into a sales agency contract weeks earlier with GDI Partners Consulting Ltd.
(“GDI”), a company Romero owned, covering a single Suntech customer. 2 Before that, Romero was a
corporate lawyer, director of a small publicly-traded company called LGL Group (current market
2 Shortly after the January or February 2007 GSF pitch, Suntech signed two additional representation contracts with GDI allowing Romero to present Suntech’s products to a broader range of Spanish customers. Id.
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1 capitalization: $13 million), and, through GDI, a sales representative for some of Suntech’s
2 competitors, including Solarfun, Yingli, and Ningno Solar.
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43. As Defendant Shi would later admit to the SEC, Suntech was interested in investing in
4 GSF in large part because GSF would become “a possible additional sales channel through which the
5 Company may be able to sell its products.” Id. Suntech also found the structure that Romero pitched to
6 7 be highly advantageous. Because it separated investment and control, the majority investor – Suntech –
8 could treat the entity as a deconsolidated equity investment on its financial statements. For Suntech,
9 this created three unique benefits: (1) sales of solar modules by Suntech to GSF could be booked
10 immediately as revenues by Suntech instead of deferred; (2) Suntech would not have to book the
11 substantial operating losses that solar projects generate during the development stage; and (3) as an 12 13 equity investment, Suntech could book substantial gains on its balance sheet whenever GSF
14 management determined that GSF’s value had increased.
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44. The structure of GSF, and its corresponding accounting treatment as a deconsolidated
16 equity investment, was so important to Suntech that it repeatedly emphasized the advantages to analysts
17 and investors. For example, Suntech included a chart of the structure’s advantages under Generally 18
Accepted Accounting Practices (“GAAP”) in its 2010 Investor and Analyst Day presentation: 19
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Global Solar Fund
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Entity: Equity JV, fully consolidated.
Module revenue recognition? Deferred.
Entity: Investment fund with independently operated irivestee power projects (not consolidated).
Module revenue recognition? At time of initial sale.
Operating income recognition?
Operating income recognition? Yes. No.
Equity gain: upon transfer (sale) of Equity gain: on change in fair value project, of investee companies.
Available at http://ir.suntech-power.com/phoenix.zhtml?c=192654&p=irol-Event
Details&EventId=3571053.
45. Similarly, in a January 12, 2010 investor conference sponsored by Needham &
I Company, Suntech Vice President of External Affairs Steven Chadima (“Chadima”) emphasized the
benefits of GSF’s accounting structure:
[PriceWaterhouseCoopers and Deloitte] have agreed that with these layers in place there is sufficient distance between us and the investee companies that we can recognize the revenue when we ship the modules to them. We don’t have to absorb the companies on our balance sheet. We don’t have to do a revenue recognition model on a percentage completion basis or anything like that.
46. Suntech expressed interest in the GSF concept pitched by Romero. In August 2007,
Romero delivered to the Company a preliminary private placement memorandum, including a draft
proposal that Defendant Shi and Suntech CTO Stuart Wenham serve on the board of managers of the
general partner of GSF. Romero formed the necessary entities between August 2007 and February
2008, and in March 2008, delivered to Suntech a final private placement memorandum. The final
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1 private placement memorandum contemplated an initial capitalization of €100 million, and a total
2 capitalization of €500 million.
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47. According to Suntech’s February 16, 2011 letter to the SEC, based on the final private
4 placement memorandum, Defendant Shi “considered recommending to the board of directors that the
5 Company initially invest between Euro50 million to Euro60 million in GSF, representing between a
6 7 10% to 12% interest of the total fund, but about a 50% to 60% interest of an initial Euro100 million first
8 round closing for the fund which Mr. Romero was contemplating.”
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48. Suntech accepted Defendant Shi’s recommendation. In June 2008, Suntech signed an
10 agreement committing to invest €58 million in GSF. On July 3, 2008, Suntech filed a Form 6-K
11 disclosing this investment, and that Defendant Shi had also made a personal investment. However, the 12 13 Company did not disclose the amount or nature of Defendant Shi’s investment. In September 2008,
14 Suntech signed and disclosed a second commitment agreement, more than quadrupling its commitment
15 to a total of €258 million. As of December 31, 2011, Suntech had contributed a total of €155.7 million
16 to GSF pursuant to these commitments.
17 49. On October 21, 2009, the SEC Division of Corporate Finance wrote Suntech a formal
18 letter, requesting that Suntech disclose, among other things, “the nature and extent of Dr. Shi’s
19 20 investment in GSF.” In response, by letter dated December 4, 2009, Suntech disclosed to SEC staff and
21 committed to subsequently disclose to Suntech investors that Defendant Shi had taken a 10.67% equity
22 interest in GSF through his personal investment entity, Best (Regent) Asia Group Ltd. Accordingly, as
23 of October 2008, GSF was owned as follows: 24
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1
GSF Ownership - Oct. 2008
2 3.33%
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12 This ownership structure remained constant throughout the Class Period with one exception: in
13 November 2011, Suntech transferred 6.7% of its shares to GSF Capital, leaving Suntech with a 79.3%
14 15 stake and expanding GSF Capital’s interest to 10.03%. According to the Company, the transfer was
16 made in recognition of Romero’s contribution to the Company. At all times relevant hereto, Romero
17 owned 100% of GSF Capital.
18 50. Management of GSF was entrusted to the GP, Global Solar Fund Partners, S.a.r.L.
19 From the time of Suntech’s initial investment through the end of the Class Period, GP was managed by 20 21 a dual category board of managers. Romero was appointed the sole Category A manager, and was
22 entrusted with the day-to-day management of GSF. Defendant Shi and Suntech CTO Wenham were
23 appointed Category B managers, entitled to vote on any GSF decision involving investment or
24 divestment.
25 51. Although Suntech and its CEO owned over 96% of GSF, and although two of the three
26 members of GP’s board of managers were Suntech executives, the Company asserted that it had
27 28 transferred enough control to Romero to treat GSF as a deconsolidated equity investment, or “variable
Ll 86.00%
- Zhengrong Shi, through Best (Regents) Asia Group Ltd.
Javier Romero, through GSF Capital
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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interest entity,” under GAAP. Specifically, when questioned by the SEC, Suntech asserted in a
December 4, 2009 letter that such treatment was appropriate because:
a. Day-to-day decisions were delegated exclusively to Romero as GP’s Category A Manager;
b. Investment/divestment decisions could not be made without Romero’s agreement, because they required approval of both Romero, the Category A manager, and at least one Category B manager;
c. No resolution could be made at the fund level creating rights or obligations of GSF with respect to third parties without approval of GP (and consequently, Romero’s agreement);
d. GSF’s articles of incorporation could not be amended without the consent of GP (and thus, Romero);
e. GP could not be replaced as general partner of GSF without its consent;
f. To the extent that GSF made distributions, all GSF shareholders were entitled to distributions and the shareholders as a group had the obligation to absorb expected losses and rights to the residual interests of GSF;
g. GP’s management fee did not significantly shield it from expected losses or give the GP a disproportionate amount of the residual returns;
h. GP was not obligated to operate GSF for the benefit of Suntech. Specifically: (a) GSF was not expressly required to purchase solar modules from Suntech (though in practice, GSF investee companies purchased most or all of their solar modules from Suntech); (b) GSF was not a reseller for Suntech and did not have a services agreement with Suntech; and
i. GSF anticipated bringing in additional outside investors.
52. Defendants understood that information regarding GSF was material to Suntech
I investors. Accordingly, Defendants repeatedly promised investors that they would be transparent and
forthcoming regarding the Company’s investment in GSF. For example, in a January 12, 2010 investor
conference, Suntech Vice President of External Affairs Chadima stated: “The GSF situation is enough
of interest to investors that we feel like when we’ve got something to say, we’re going to have to
announce it....” Similarly, in response to an analyst’s question regarding GSF receivables during a
November 19, 2009 earnings conference call, Defendant Shi boasted that with respect to disclosures
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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regarding GSF, the Company “ha[d] been quite transparent about it. So I think that there shouldn't be
any hidden issue here.”
53. By early 2010, it was clear that GSF had become very important to Suntech. In 2009,
Suntech had sold $115.8 million worth of solar modules to GSF Investee Companies – a figure that
would grow to $197.4 million for 2010. Suntech had not been harmed by the accountants’ requirement
that GSF investees allow competitive bidding for solar module contracts, before awarding such
contracts to Suntech. As Suntech Vice President Chadima noted on January 12, 2010 at the Needham
& Company Growth Conference: “we are not stupid. Obviously, we made this decision to get involved
[with GSF] because if we’re at least close [to competing bidders] we’ll probably get selected. So
far...we got them all.” More importantly, GSF’s first round of solar development projects were on
track to be completed and connected to the grid in the latter half of 2010, which would drive a
substantial upward revaluation of Suntech’s (and Defendant Shi’s) equity stakes in GSF.
II. Defendants Learn That Javier Romero Is Not Trustworthy
54. The hope of continued module sales to and equity gains from GSF caused Defendants to
turn a blind eye to the unethical dealings of its business partner, and ignore early warnings that Javier
Romero was not trustworthy. After committing to the GSF investment, Defendants came to learn that
Romero had publicly lied about his relationship with Suntech by falsely holding himself out to be the
President of Suntech Spain. According to Suntech’s October 28, 2010 letter to the SEC, Javier Romero
had never been an employee or executive of Suntech:
Mr. Javier Romero, the Category A manager of Global Solar Fund, previously acted as a non-executive representative and sales agent for the Company though he has never been a Suntech employee. He is no longer a sales agent for the Company and is an independent manager of GSF....[E]xcept for the relationship with the Company described above as a non-executive representative and sales agent for Suntech, the Category A manager of GSF does not have, nor did he have, any other relationship with the Company or any of its affiliates.
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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55. Nonetheless, as Defendants knew, Javier Romero was falsely portraying himself within
the solar energy industry as an employee and an executive of Suntech’s Spanish division. For example,
I at the March 31, 2009 Business in Clean Energy conference, an “International Summit” co-sponsored
by the American Chamber of Commerce in Spain and broadly involving key figures within Spain’s
renewable energy industry, Javier Romero portrayed himself as the “President” of “Suntech Spain,” and
gave a speech in that false capacity. Romero’s fabrication was recorded in the conference agenda:
paiall.l~esslnn 2A INI.JOVATICN FOR A CLEAN FUTURE - GENERATION & DISTRIBUTION
1720- 1 -- 13
-k Roland ]arisen - Founder arid
- -t Jatrcpha & challenges investing ri In ovatIciri cr1 bttp:Ijw.uwdipsndicate corm/
Keynote Speaker President
Mct rerlart i Investments Clean Energy Projects http j/.uw .v ifloph acongresiorgb1/pk4h1mI
Speaker Jan WiIIru Bode-CEO One Carbon Brogas Revolution htrn If wonrbonorn/ htth11vwewivscpn1f
Speaker Sjors Van Eirnel Ecotys - Group Encern The Potential for Algae littp:j/vnvw.econcem toni!
IFT Javier Ronlero - President, The future of solrtechnc1ogie in Spain. EU and
Speaker Suntech Power - iittpf/vnw.unteth-powerurri/ Sunle:h Spain worldwide
Moderator • - - httD:?lvn,waexsi.or/
Tech Male in Gemlany and will re-directthe que_cbans from the audience A ll Roundtable & Q&A - Pease, see the list be l ow
=zoter.com
See Conference Agenda, http://agenda.acc10.cat/media/0000000500/0000000896.pdf.
56. Defendants are believed to have learned of these misrepresentations at around the time
they were made, due to the public nature of the misrepresentations, the dissemination of the same at one
or more key industry events, and Defendants’ extensive contacts within the Spanish solar energy
industry. At the very latest, Defendants learned of Romero’s deception by May 17, 2010. On that date,
a negative article about Suntech was published in The Street Sweeper, an online financial site. See
http://thestreetsweeper.org/undersurveillance.html?i=672 stating:
Interestingly, in a conference bulletin for an industry trade show held last spring (around the same time that Suntech negotiated its big sales to GSF), one of the presenters – with the name Javier Romero – specifically identified himself as the president of Suntech Spain.
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57. Likewise, in a June 2010 article published by Euromoney Institutional Investor, Romero
admitted that he had “never been on the payroll of Suntech” but confirmed that he had appeared at the
conference as the supposed President of Suntech. Romero also stated that there had been “noise around
the issue” of his appearance, further confirming that Defendants had known about Romero’s
transgression.
58. Suntech avoided disclosure of Romero’s deception to the SEC until pressed by SEC
staff. The SEC’s September 27, 2010 letter to Suntech specifically asked “Tell us whether you are
aware of any situations in which the Category A manager has held himself out to be an employee or
representative of Suntech Power Holdings or any of its affiliates (other than GSF).” In response, by
letter dated October 28, 2010, Suntech admitted that “the Company has been informed that Mr. Javier
Romero has previously held himself out to be the president of Suntech Spain,” but that “the Company
has never authorized him to do so.”
III. Suntech Secretly Expands Its Financial Exposure To GSF From €258 Million To over €800 Million
59. In the latter part of May 2010, despite knowledge that Romero was not trustworthy,
Suntech massively expanded its financial exposure to GSF. At that time, in addition to its prior €258
million capital commitment to GSF, Suntech:
a. entered into a written agreement with China Development Bank whereby Suntech guaranteed the entire amount of a €554.2 million loan facility that China Development Bank provided to GSF’s largest investee company, Solar Puglia II, S.a.r.L.; and
b. deposited €30 million in a cash collateral account at a commercial bank in Luxembourg designated by China Development Bank to provide further security to China Development Bank in connection with the loan.
60. At €554.2 million, the GSF Loan Guarantee more than tripled Suntech’s total financial
I exposure to GSF and its investee companies. According to Suntech, the guarantee was structured as
I follows:
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Provided a pledge of €530 mlioo in
Loan guarantee German government bonds
01; owner ~ ,Manaes GSF
1O%owner1Glo b al ' iDO%owner
Fund 10
554 million loan/lease
Available at: http://ir.suntech-power.com/phoenix.zhtml?c=192654&p=RssLanding
&cat=events&id=4815367.
61. Notwithstanding Suntech’s commitment to be “transparent” about GSF and to make
announcements about material financial developments regarding the Company’s investment, Suntech
did not disclose at the time that it had entered into a €554.2 million loan guarantee to a GSF investee
company, or that it had on behalf of that company deposited €30 million in a cash collateral account at
a Luxembourg bank. To the contrary, as discussed below, Suntech made every attempt to avoid
disclosing the GSF Loan Guarantee altogether, and only disclosed the material liability when pressed
by the SEC.
62. Moreover, Suntech failed during the Class Period to properly account for the €554.2
million GSF Loan Guarantee under GAAP. GAAP clearly requires reporting companies to record
liability when guaranteeing the debt of another. Financial Interpretation No. 45 (“FIN 45”) states: “At
the inception of a guarantee, the guarantor shall recognize in its statement of financial position a
liability for that guarantee.” See FIN 45, ¶ 9, available at http://www.fasb.org . This liability shall be
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recorded even when the probability of loss is remote. Id. The liability shall be recorded in the amount
of the fair value of the guarantee at inception, unless the guarantor reasonably estimates that his
contingent loss under the guarantee will be higher than fair value, in which case the liability shall be
recorded in the amount of the guarantor’s loss estimate. See FIN 45, ¶¶ 8-10; Statement of Financial
Accounting Standards 5, ¶ 8, also available at http://www.fasb.org . During the Class Period, as
described in Paragraphs 130 to 132 below, Defendants violated GAAP by recording less than 5% of the
fair value of the GSF Loan Guarantee as a liability on Suntech’s balance sheet. Defendants knew or
recklessly disregarded that the fair value of the GSF Loan Guarantee was actually much higher than the
amount they reported because the GSF Loan Guarantee was not backstopped in any meaningful way.
63. In addition to recording the fair value of a loan guarantee, GAAP requires that
guarantors expressly disclose:
the following information about each guarantee, or each group of similar guarantees, even if the likelihood of the guarantor’s having to make any payments under the guarantee is remote...:
a. The nature of the guarantee, including the approximate term of the guarantee, how the guarantee arose, and the events or circumstances that would require the guarantor to perform under the guarantee.
b. The maximum potential amount of future payments (undiscounted) the guarantor could be required to make under the guarantee. That maximum potential amount of future payments shall not be reduced by the effect of any amounts that may possibly be recovered under recourse or collateralization provisions in the guarantee (which are addressed under (d) below). If the terms of the guarantee provide for no limitation to the maximum potential future payments under the guarantee, that fact shall be disclosed. If the guarantor is unable to develop an estimate of the maximum potential amount of future payments under its guarantee, the guarantor shall disclose the reasons why it cannot estimate the maximum potential amount....
c. The current carrying amount of the liability, if any, for the guarantor’s obligations under the guarantee (including the amount, if any, recognized under paragraph 8 of Statement 5), regardless of whether the guarantee is freestanding or embedded in another contract.
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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d. The nature of (1) any recourse provisions that would enable the guarantor to recover from third parties any of the amounts paid under the guarantee and (2) any assets held either as collateral or by third parties that, upon the occurrence of any triggering event or condition under the guarantee, the guarantor can obtain and liquidate to recover all or a portion of the amounts paid under the guarantee. The guarantor shall indicate, if estimable, the approximate extent to which the proceeds from liquidation of those assets would be expected to cover the maximum potential amount of future payments under the guarantee.
FIN 45, ¶ 13. As described below, Defendants did not fulfill these obligations, but instead
misrepresented Suntech’s exposure under the GSF Loan Guarantee and misrepresented the existence of
purported collateral that could be obtained and liquidated to recover amounts paid thereunder.
IV. Defendants’ False and Misleading Statements About Suntech’s Exposure To GSF And Liability Under The GSF Loan Guarantee During The Class Period
64. The Class Period begins on June 4, 2010, the first trading day after the Company
conducted a conference call with analysts and investors in which the Company concealed the existence
and impact of the GSF Loan Guarantee. In that conference call, analysts asked numerous questions
regarding the Company’s overall exposure to GSF and GSF’s difficulties obtaining financing.
65. For example, Morgan Stanley Analyst Sunil Gupta directly asked Defendant Zhang:
“[O]n your various investments in affiliates, can you help us understand what’s your total exposure to
two of the investments. Particularly GSF, because you said in your results that you have increased the
investment to GSF.” Defendant Zhang, on behalf of Suntech, responded, “Total investment up ‘til now
put in GSF is 125 million euro.”
66. The statements made by Defendant Zhang identified in Paragraph 65 above were
materially false when made, and/or omitted material information necessary to make the statements not
misleading under the circumstances in which they were made, because: (1) they omitted the largest part
of the Company’s “total exposure” to GSF — the €554.2 million GSF Loan Guarantee, which was not
backstopped in any meaningful way; and (2) as a result of the Company’s entry into the GSF Loan
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Guarantee and failure to backstop the Guarantee with actual collateral, the Company’s “total exposure”
to GSF was not €125 million but instead was over €800 million.
67. In that same conference call, Defendant Shi provided incomplete and misleading
information regarding financing arrangements for GSF investee companies:
I will give you a quick update on our investment in Global Solar Fund. After the fourth quarter earnings call, we announced that GSF had received signed commitments from all of the 6 banks involved in project financing for the first set of projects. As of today, GSF has signed the final facility agreement, met all the conditions precedent, and expects drawdown to occur within the coming weeks.... We will continue to update you on our GSF investment in coming quarters.
68. The statements identified in Paragraph 67 above were materially false when made,
and/or omitted material information necessary to make the statements not misleading under the
circumstances in which they were made, because: (1) they omitted the single most important aspect of
GSF financing for Suntech’s investors – Suntech’s entry into the secret GSF Loan Guarantee, which
was not backstopped in any meaningful way and exposed Suntech to as much as €554.2 million in
liabilities; and (2) by stating that the Company “will continue to update you” the Company falsely
implied that it had already updated investors as to then-current developments with regard to GSF as of
the time of the statements, when in fact it had not by reason of the omission described in (1) above.
69. On August 18, 2010, the Company issued a press release entitled, “Suntech Reports
Second Quarter 2010 Financial Results.” Therein, the Company reported that “other long-term
liabilities” had decreased by over $14.5 million from the end of the prior quarter to $124,215,000. With
respect to GSF, the Company failed to mention its second round of project financing, referenced in
paragraph 48, or the GSF Loan Guarantee, stating only that:
Accounts receivable due from investee companies of GSF was $94.2 million as of June 30, 2010, compared with $104.0 million as of March 31, 2010. The sequential decrease in the related accounts receivable was due to the depreciation of the Euro versus the USD. In the third quarter of 2010, Suntech has collected €27.7 million from GSF investee companies. A portion of this is to partially settle outstanding accounts receivable as of June 30, 2010, and the remainder is for recent shipments to
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Civil No. CV 12-04061 RS
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1 GSF investee companies.
2 The following day, the Company filed the press release with the SEC on Form 6-K.
3
70. The statements contained in Paragraph 69 above were materially false when made,
4 and/or omitted material information necessary to make the statements not misleading under the
5 circumstances in which they were made, because Defendants: (1) omitted from their calculation of
6 7 “other long-term liabilities” the fair value of the liability that Suntech assumed under the GSF Loan
8 Guarantee as required by GAAP, instead substituting a figure representing less than 5% of the fair value
9 of that liability; (2) omitted the qualitative disclosures about the GSF Loan Guarantee required by
10 GAAP regarding true maximum exposure and lack of recourse collateral; (3) omitted disclosure that,
11 as a result of (1) and (2), the Company’s financial statements, including its calculation of total liabilities 12 13 and balance sheet presentation, were materially false and misleading; (4) omitted disclosure that the
14 Company lacked the internal and financial reporting controls necessary to determine the Company’s
15 outstanding liabilities; and (5) omitted that Suntech’s overall financial exposure to GSF investee
16 companies had not decreased, but instead increased severalfold as a result of the actual exposure under
17 the GSF Loan Guarantee. 18
71. Also on August 18, 2010, the Company held a conference call with investors, analysts, 19 20 and other market participants, to discuss the Company’s financial results for the 2010 fiscal second
21 quarter. In that call, Defendants Shi and Zhang each omitted any mention of the €554.2 million GSF
22 Loan Guarantee, and instead emphasized select metrics designed to misleadingly imply that Suntech’s
23 financial exposure to GSF and its investee companies had decreased, when in fact the opposite had 24
occurred. Defendant Shi stated: 25
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Now, I would like to give a update on our investment in the Global Solar Fund. I'm pleased to say that GSF has made significant progress, both in terms of the project installation and in project financing. In the third quarter, we received two payments from GSF-invested companies totaling 27.7 million euros. The first payment of 1.7 million euros is going to the outstanding receivables from shipments made in 2009. The European financing for the first set of projects has been fully approved, and we expect to receive the remainder of the relayed outstanding receivables in the third quarter.
Defendant Shi further stated that, with respect to the Company’s commitment to GSF, “we expect the
rest of AR [accounts receivable] should be able to be collected in Q3.” In response to an analyst’s
question regarding whether “there are any other receivables out there,” Defendant Shi replied, “No, not
really.” Similarly, when an analyst asked whether the Company had made additional investments in
GSF, Defendant Zhang stated: “We don’t have any additional investment in GSF, and we are not
planning to further invest in GSF, either.”
72. The statements contained in Paragraph 71 above were materially false when made,
and/or omitted material information necessary to make the statements not misleading under the
circumstances in which they were made, because Defendants omitted disclosure that during the quarter,
the Company had massively increased its exposure to GSF by entering into the €554.2 million GSF
Loan Guarantee, and had not secured any meaningful backstop to limit the Company’s exposure under
the Guarantee.
73. In the August 18, 2010 conference call, with respect to GSF’s financings, Defendant Shi
stated:
Secondly, GSF has successfully secured and commenced draw-down from a second round of project financing from different banks for additional projects in its portfolio. With secured financing in place and stringent payment terms, Suntech agreed to make further shipments to GSF. To date we have already received approximately 20.6 million euros for recent shipments to GSF and we intend to continue to send shipments in the second half of the year. The associated revenue will be clearly disclosed our third quarter and fourth quarter earnings reports.
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74. The statements contained in Paragraph 73 above were materially false when made,
and/or omitted material information necessary to make the statements not misleading under the
I circumstances in which they were made, because Defendants omitted disclosure that to procure
financing for GSF investee companies, Suntech had to enter into the €554.2 million GSF Loan
Guarantee, and had not secured any meaningful backstop to limit the Company’s exposure under the
Guarantee.
75. On September 27, 2010, the SEC Division of Corporate Finance sent Suntech a letter
demanding, among other things, that Suntech disclose details regarding any guarantees or collateral it
had provided, especially with respect to GSF financings. See Paragraph 15 above. On October 28,
2010, in a response to the SEC inquiry on Suntech letterhead and signed by Defendant Zhang, the
Company stated in relevant part:
.... that in connection with the 2010 GSF Sales and Project Financing Transaction, and after the Company filed its 2009 Form 20-F on May 11, 2010, the Company consummated an arrangement in which it guaranteed payment obligations under finance facilities provided by China Development Bank to Solar Puglia II, S.ar.L, an investee company of GSF, amounting to approximately Euro554.2 million. In addition, as additional security to China Development Bank, the Company is required to maintain cash collateral accounts with a commercial banks in Luxembourg in an amount equal to one installment payment of amounts due under the finance facilities amounting to approximately Euro 30 million. Events of default under the finance facilities include failure to pay amounts due on any payment date, failure of the borrower to comply with its financial covenant, failure by the borrower to comply with other provisions of the agreement subject to a 10 day cure period, a cross default by the borrower on other financial indebtedness in excess of Euro1 million, bankruptcy or other events of insolvency, and a material adverse change in the business, property, liabilities, operations, prospects or financial condition of the borrower or the Company, or the ability of the borrower or the Company to perform its obligations under the agreement. In addition, in the event certain power plants to be developed are not connected to the power grid before December 30, 2010, China Development Bank has the right to declare a proportionate amount of the outstanding loans immediately due and payable representing the percentage of the power to be generated by the unconnected plants to the planned installed capacity of 123MW. As security for the Company’s obligations under the guarantee, the Company received a pledge of Euro 560 million in German government bonds from GSF Capital Pte Ltd., the parent of the general partner of Global Solar Fund . (emphasis added.)
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76. This letter was later released to investors on the SEC’s EDGAR system. While the filing
does not indicate the public release date, Plaintiffs are informed and believe, consistent with SEC rules
and the procedures of the SEC’s Corporate Finance Division, the release of these letters occurred on or
about June 4, 2011, approximately forty-five (45) days after the SEC notified Suntech that it had
completed review of Suntech’s 2009 Form 20-F.
77. The statements contained in Paragraph 76 above were materially false when made,
and/or omitted material information necessary to make the statements not misleading under the
circumstances in which they were made, because: (1) Suntech had not “received a pledge of Euro 560
million in German government bonds from GSF Capital Pte Ltd.”; (2) the statements omitted that
Suntech had not verified the existence of the bonds and had no reasonable basis to assume such bonds
actually existed; (3) the statements omitted Defendants’ understanding that the bonds in question, to the
extent they ever existed, did not belong to GSF Capital but instead were borrowed by GSF Capital from
other parties; and (4) the statements omitted that documentation provided by GSF Capital, on its face,
contained irregularities, but that Defendants either failed to meaningfully review such documentation or
ignored the irregularities.
78. On November 17, 2010, the Company issued a press release entitled, “Suntech Reports
Third Quarter 2010 Financial Results.” Therein, the Company reported “other long-term liabilities” of
$179,315,000, and stated:
Total net revenues for the third quarter of 2010 were $743.7 million, an increase of 19.0% from $625.1 million in the second quarter of 2010 and an increase of 57.2% from $473.1 million in the third quarter of 2009. Total net revenues to the investee companies of GSF were $143.8million in the third quarter of 2010. Revenue and profit related to the sales to investee companies of GSF during the third quarter of 2010 were fully recognized with accounts receivable fully collected during the same period . (emphasis added.)
The following day, the Company filed the above financial results with the SEC on Form 6-K.
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79. The statements contained in Paragraph 78 above were materially false when made,
and/or omitted material information necessary to make the statements not misleading under the
circumstances in which they were made, because Defendants: (1) omitted from their calculation of
“other long-term liabilities” the fair value of the liability that Suntech assumed under the GSF Loan
Guarantee, which was at least $60 to $80 million; (2) omitted the qualitative disclosures about the GSF
Loan Guarantee required by GAAP and which, at any rate, were material statements necessary to make
their discussion of financial arrangements with GSF not misleading in the circumstances under which
such discussion was presented to investors; (3) omitted disclosure that, as a result of (1) and (2), the
Company’s financial statements, including its calculation of total liabilities and balance sheet
presentation, were materially false and misleading; (4) omitted disclosure that the Company lacked the
internal and financial reporting controls necessary to determine the Company’s outstanding liabilities;
and (5) by touting the collection of receivables from GSF investee companies and recognition of profits
from GSF itself, without also disclosing the far larger GSF Loan Guarantee, falsely suggested that
Suntech’s overall financial exposure to GSF investee companies had decreased, when in fact it had
increased severalfold.
80. Also on November 17, 2010, the Company held a conference call with investors,
analysts, and other market participants, to discuss Suntech’s Third Quarter Earnings. During the
conference call, Defendant Shi stated, in relevant part, as follows:
Now, I will provide an update on our investment in the Global Solar Fund. In the third quarter, GSF successfully closed and received drawdown from the European financing. In total, we’ll receive €33 million towards the 2009 receivables in the third quarter. Secondly, we made a further shipment to GSF investee companies in the third quarter, resulting in revenues of $144 million. We have already received 100% of the payment for these sales made in the third quarter. Thirdly, GSF investee companies completed construction of 10 megawatts of projects in Italy in the third quarter, resulting in a non-cash gain to Suntech of 19.8 million.
****
The equity and earnings of affiliates in the third quarter of 2010 was primarily related to
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a 19.8 million increase in the fair value of GSF investments in 10 megawatts of projects which were completed in the third quarter of 2010 .... Accounts receivable due from investee companies in GSF was 59.7 million as of September 30, 2010, compared with 94.2 million as of June 30, 2010. The sequential decrease was due to the collection of approximately €33 million in the third quarter.
81. The statements contained in Paragraph 80 above were materially false when made,
and/or omitted material information necessary to make the statements not misleading under the
circumstances in which they were made, because Defendants: (1) omitted disclosure of Suntech’s
largest exposure to GSF, the €554.2 million GSF Loan Guarantee, which was not secured by any
meaningful backstop to limit the Company’s exposure under the Guarantee; (2) omitted disclosure that
whatever decrease in the Company’s exposure to GSF was accomplished by collecting receivables was
dwarfed by the far larger GSF Loan Guarantee.
82. On November 30, 2010, the SEC Division of Corporate Finance sent Suntech a letter,
addressed to Defendant Zhang, requesting further details regarding the GSF Loan Guarantee first
referenced in Suntech’s October 28, 2010 letter to the SEC. See Paragraph 75 above. In its November
30, 2010 letter, the SEC requested that Suntech “explain to us how [the GSF Loan Guarantee] has
impacted or could impact your evaluation of whether sales to this investee company meet the
collectability criteria.” In a response dated December 29, 2010, provided on Suntech letterhead and
signed by Defendant Zhang, the Company, in relevant part, stated:
.... that it recognized revenue in regard to its sales to the investee company of GSF in accordance with ASC 605-10-S99-1. The Company does not believe that the provision of the guarantee, and the associated accounting for the guarantee itself, precludes revenue recognition as the guarantee does not affect the evidence of an arrangement, the pricing in the arrangement, the timing of delivery or collectability. In regard to collectability, the Company considered two items. First, as discussed in the Company’s response to comment 7 above, the Company has deferred the revenue associated with this arrangement until cash has been received. In order for the GSF investee companies to draw down on the bank facilities, the investee companies must meet the conditions precedent by supplying invoices to the banks that evidence their progress. As such, the Company has deferred revenue up to the point where the condition precedent is met and payment is received and believes that the substantial progress made toward having viable revenue-generating capabilities (i.e. power purchase agreement after connecting to the grid), creates further certainty that the investee companies will be able to satisfy
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their financial obligations. Second, and in relation to the guarantee itself, the Company received a simultaneous pledge of Euro 560 million in German government bonds (the “German Government Bonds”) from GSF Capital Pte. Ltd., the parent of the general partner of GSF and an unrelated party, as a backstop for its guarantee ... Given the Company has the ability to access the German Government Bonds without any restriction in the event of default of the investee companies, the Company believes that the likelihood that it will have to satisfy its guarantee, without being immediately compensated under the German Government Bonds, is remote . (emphasis added.)
83. In its December 29, 2010 letter to the SEC, which on information and belief, was
released to the public on or about June 4, 2011, the Company falsely asserted “that the incremental risk
from the guarantee has been effectively removed by the German Government Bonds ....”
84. The statements identified in Paragraphs 82 to 83 above were materially false when
made, and/or omitted material information necessary to make the statements not misleading under the
circumstances in which they were made, because: (1) Suntech had not “received a simultaneous pledge
of Euro 560 million in German government bonds from GSF Capital Pte Ltd.”; (2) Suntech in fact was
not provided with any actual “backstop” for its guarantee; (3) the Company did not have “the ability to
access the German Government Bonds without any restriction in the event of default”; (4) the prospect
of the Company incurring liability in the event of default “without being immediately compensated
under the German Government Bonds” was not “remote”; (5) the statements omitted that Suntech had
not verified the existence of the bonds and had no reasonable basis to assume such bonds actually
existed; (6) the statements omitted Defendants’ understanding that the bonds in question, to the extent
they ever existed, did not belong to GSF Capital but instead were borrowed by GSF Capital from other
parties; and (7) the statements omitted that documentation provided by GSF Capital, on its face,
contained irregularities, but that Defendants either failed to meaningfully review such documentation or
ignored the irregularities.
85. Suntech’s December 29, 2010 letter also responded to an SEC question regarding why
Suntech provided the guarantee, rather than a GSF entity, stating:
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GSF started discussions with China Development Bank (“CDB”) in mid-2009 as a potential lender to a number of GSF investee companies in connection with additional project financing transactions being considering (the “2010 GSF Sales and Project Financing Transactions”).
CDB expressed an interest to lend to the 2010 Sales and Project Financing Transactions, and its proposed rates and other financial terms for such facility were more attractive to the GSF investee companies compared to those proposed by European-based lending institutions and with a perceived greater certainty of closing. However, as an institution, CDB (i) had not previously provided project financing to projects developed in Europe, (ii) was not very familiar or comfortable with taking security interests in assets located in Europe, and (iii) was not very familiar or comfortable with the concept of non-recourse financings which are quite typical in Western project finance transactions. As part of its lending policy, CDB required a creditor located in China with substantial property, plant, equipment and other assets located in China to backstop any facility agreement provided. It is a result of this specific CDB requirement to have a China based creditor that the Company provided the guarantee rather than GSF.
The GSF investee companies and the Company then entered into negotiations regarding this CDB requirement. The Company informed the GSF investee company that it would not proceed with providing a guarantee to the facility agreement unless it had security backstopping the guarantee. As a result, GSF Capital Pte Ltd., the parent of the general partner of GSF and an unrelated party, offered to pledge Euro560 million in German Government Bonds as security for the Company’s obligations under the guarantee.
The German Government Bonds that are pledged are registered in the name of, and held by, GSF Capital Pte Ltd. The Company has entered into a pledge agreement with GSF Capital Pte Ltd. with respect to the German Government Bonds pursuant to which the Company has the right (among other things), in the event any amounts owed under the project financing facility guaranteed by the Company are not paid by the GSF investee company, to exercise the power to sell or otherwise dispose of the German Government Bonds without further notice to GSF Capital Pte Ltd., and apply the proceeds thereof towards the satisfaction of the secured liabilities . (emphasis added.)
86. The statements contained in Paragraph 85 above were materially false when made,
and/or omitted material information necessary to make the statements not misleading under the
circumstances in which they were made, because: (1) contrary to its representation, Suntech did
proceed with the guarantee to the GSF investee facility agreement without receiving security
backstopping its obligations under the guarantee; (2) Suntech had not received a pledge of €560 million
in German government bonds from GSF Capital Pte Ltd.; (3) the Company did not have “the power to CONSOLIDATED AMENDED CLASS ACTION COMPLAINT
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1 sell or otherwise dispose of the German Government Bonds without further notice to GSF Capital Pte
2 Ltd., and apply the proceeds thereof towards secured liabilities;” (4) the statements omitted that
3 Suntech had not conducted meaningful due diligence with respect to the purported pledge agreement;
4 (5) the statements omitted Defendants’ understanding that the bonds in question, to the extent they ever
5 existed, did not belong to GSF Capital Pte Ltd. but instead were borrowed by GSF Capital Pte Ltd.
6 7 from other parties; and (6) the statements omitted that documentation provided by GSF Capital Pte Ltd.,
8 on its face, contained irregularities, but that Defendants either failed to meaningfully review such
9 documentation or ignored the irregularities.
10 87. Suntech’s December 29, 2010 letter to the SEC additionally responded to an SEC
11 inquiry requesting disclosure of “the fair value of the debt guarantee.” In relevant part, Defendants 12 13 stated “that the fair value of the debt guarantee was approximately Euro 2 million, which has been
14 recorded in the Company’s most recent balance sheets as of September 30, 2010.”
15
88. The statements contained in Paragraphs 87 above were materially false when made,
16 and/or omitted material information necessary to make the statements not misleading under the
17 circumstances in which they were made, because the fair value of the GSF Loan Guarantee was not €2 18
million, but rather $60 to $80 million as the Company admitted after the Class Period. 19
20 89. On March 8, 2011, the Company issued a press release entitled, “Suntech Announces
21 Fourth Quarter and Full Year 2010 Financial Results.” The release stated that the Company’s “other
22 long-term liabilities” had decreased in the fourth quarter of 2010 to $167,605,000, and further
23 highlighted progress with respect to GSF: 24
As GSF is an investment company, its net income or loss is affected by the changes in the fair 25 value of its investee companies. Due to the completion of projects, GSFs fair value substantially
26 increased and Suntech realized equity income of $250 million in the fourth quarter of 2010.
**** 27
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Total net revenues from investee companies of GSF were $53.6 million in the fourth quarter of 2010.
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The following day, the Company filed this press release with the SEC on a Form 6-K.
90. The statements contained in Paragraph 89 above were materially false when made,
and/or omitted material information necessary to make the statements not misleading under the
circumstances in which they were made, because Defendants: (1) omitted disclosure that Suntech had
entered into a financial guarantee of GSF investee company debt in the amount of €554.2 million,
which was not secured by any meaningful backstop to limit the Company’s exposure under the
Guarantee; (2) omitted disclosure that the GSF investee company debt guaranteed by the €554.2 million
GSF Loan Guarantee had defaulted due to the failure to connect the solar development projects to the
grid within the deadlines set forth in the loan agreement; and (3) omitted that the Company’s sales to
GSF investee companies were dwarfed by the far larger GSF Loan Guarantee and that, as a result, the
Company’s overall financial exposure to GSF had increased substantially.
91. Also on March 8, 2011, the Company held a conference call with investors, analysts, and
other market participants, to discuss Suntech’s Fourth Quarter and Full Year 2010 Earnings. During the
conference call, Defendant Shi stated, in relevant part:
In the fourth quarter, we recognized revenues of approximately $54 million related to shipment to GSF investee companies. We collected the majority of the related receivables during the quarter. In addition, I'm pleased to say that we have also collected all of the outstanding payments related to the 2009 receivables. We only had about $10 million of outstanding receivables from GSF investee companies, as of the end of fourth quarter. Secondly, GSF investee companies made excellent progress developing solar projects. They completed the construction of 95 megawatts of projects in the fourth quarter and the target to achieve grid connection before the end of June 2011 under the government decree.
92. The statements identified in Paragraph 91 above were materially false when made,
and/or omitted material information necessary to make the statements not misleading under the
circumstances in which they were made, because Defendants: (1) omitted disclosure that Suntech had
entered into a financial guarantee of GSF investee company debt in the amount of €554.2 million,
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which was not secured by any meaningful backstop to limit the Company’s exposure; (2) omitted
disclosure that the GSF investee company debt guaranteed by the €554.2 million GSF Loan Guarantee
had defaulted due to the failure to connect the solar development projects to the grid within the
deadlines set forth in the loan agreement; and (3) omitted that any decrease in the Company’s exposure
to GSF as a result of collecting receivables was dwarfed by the far larger GSF Loan Guarantee and that,
as a result, the Company’s overall financial exposure to GSF had increased substantially.
93. On May 9, 2011, Suntech filed its Annual Report for the 2010 fiscal year on Form 20-F
with the SEC (“2010 Form 20-F”). The Company’s 2010 Form 20-F was signed by Defendant Shi and
reaffirmed the Company’s financial results announced on March 8, 2011. The 2010 Form 20-F also
contained Sarbanes-Oxley required certifications signed by Defendants Shi and Zhang, who each
certified:
a. I have reviewed this annual report on Form 20-F of Suntech Power Holdings Co., Ltd.;
b. 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 company as of, and for, the periods presented in this report;
c. 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 present in this report;
d. The company’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 15d-15(f)) for the company and have:
1. 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 company, 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;
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2. 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;
3. Evaluated the effectiveness of the company’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
4. Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
e. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
1. 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 company’s ability to record, process, summarize and report financial information; and
2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
94. The 2010 Form 20-F further stated:
We believe the estimate of the fair value of the derivative instruments and financial investments is a critical accounting estimate due to the subjective nature of valuation models and inputs used. We have a well established accounting and financial reporting process for determining fair value measurements which includes proper controls over data, segregation of duties between those committing us to the underlying transactions and those responsible for undertaking the valuations, and utilizing personnel with expertise and experience in determining fair value measurements . We use pricing information received from counterparty banks in determining fair value of our derivative instruments. We conduct internal validation procedures, including comparing the prices to our independently calculated values using third party valuation models and a reasonableness corroborating review when reviewing the pricing data (such as, for example, forward exchange rates, interest rates, and volatilities) which normally would be available from other independent third party
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pricing sources (such as banks, Bloomberg, Reuters, and other similar sources). We may also engage or employ third party valuation specialists in determining fair value measurements and disclosures for certain investments, in which case the specialists’ work (including valuation methodologies and assumptions) is under management’s review and oversight, and we are involved in the valuation process. We maintain proper documentation to support our assumptions and conclusions . We also have a process to monitor changes in management’s assumptions (if any) at each reporting period to make sure those changes are reasonable, reliable, consistent with that of market participants, and properly approved. All of the validation and review processes are executed and completed before the fair value estimates are presented in the financial statements. (emphasis added.)
95. The Company’s 2010 Form 20-F further stated that “[o]ur consolidated financial
statements are prepared and presented in accordance with generally accepted accounting principles in
the United States, or U.S. GAAP.”
96. The statements identified in Paragraphs 93 to 95 above were materially false when
made, and/or omitted material information necessary to make the statements not misleading under the
circumstances in which they were made, because: (1) the financial statements did not fairly present the
financial condition of the Company, and were not prepared or presented in accordance with U.S.
GAAP, because they did not reflect in the Company’s statement of liabilities the fair value of the
Company’s €554.2 million GSF Loan Guarantee; and (2) the Company had not designed or
implemented effective disclosure or internal controls, and did not employ proper or “well-established”
documentation and fair valuation processes with respect to the assessment and disclosure of its €554.2
million GSF Loan Guarantee.
97. Apparently in response to the pressure applied by the SEC, the Company finally
incorporated in its 2010 Form 20-F reference to the €554.2 million GSF Loan Guarantee, stating:
In June 2008, we signed a commitment to invest in Global Solar Fund, S.C.A, Sicar. GSF is an investment fund created to make investments in private companies that own or develop projects in the solar energy sector. Our initial commitment to GSF was €58.0 million, and in September 2008 we increased the size of our commitment by an additional €200.0 million to an aggregate total of €258.0 million in return for 86% of the share equity in GSF. As of December 31, 2010, we had contributed a total of €155.7 million to GSF, representing all of our contribution obligations by such date. We have a 50% voting interest in GSF.
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The general partner of GSF is Global Solar Fund Partners S.à r.l., which is responsible for the management of GSF. The composition of the board of managers of the general partner is as follows: Category A managers include Mr. Javier Romero and Category B managers include Dr. Zhengrong Shi, our chairman and chief executive officer, and Dr. Stuart Wenham, our chief technology officer. Category A managers are entrusted with the day-to-day management of GSF, and any investment/divestment decision shall always include the favorable votes of Category A managers and at least one Category B manager of the general partner. Mr. Javier Romero has never served as an employee of the Company, but he has previously served as a non-executive representative and sales agent of the Company where he facilitated sales of our PV products in Spain until March 2008. In connection therewith, services he provided included collaborating in the identification of business opportunities, providing support in developing good relations between ourselves and customers, introducing our personnel before representatives of the customers, advising in the preparation and negotiation of offers and contracts, and collaborating with us in the development of price policies in Spain.
****
In May 2010, we consummated an arrangement in which we guaranteed payment obligations under finance facilities provided by China Development Bank to Solar Puglia II, S.ar.L, an investee company of GSF, amounting to approximately £554.2 million . In addition, as additional security to China Development Bank, we are required to maintain cash collateral accounts with a commercial bank in Luxembourg in an amount equal to one installment payment of amounts due under the finance facilities amounting to approximately €30.0 million. Events of default under the finance facilities include failure to pay amounts due on any payment date, failure of the borrower to comply with its financial covenant, failure by the borrower to comply with other provisions of the agreement subject to a 10 day cure period, a cross default by the borrower on other financial indebtedness in excess of €1.0 million, bankruptcy or other events of insolvency, and a material adverse change in the business, property, liabilities, operations, prospects or financial condition of the borrower or us, or the ability of the borrower or us to perform its obligations under the agreement. In addition, in the event certain power plants to be developed are not connected to the power grid before January 30, 2011, China Development Bank has the right to declare a proportionate amount of the outstanding loans immediately due and payable representing the percentage of the power to be generated by the unconnected plants to the planned installed capacity of 123 MW. None of the power plants developed were connected to the power grid by January 30, 2011, and as a result China Development Bank is entitled to demand immediate payment of the entire loan amount. GSF has received oral assurances from China Development Bank that it does not intend to demand payment of the loan amount in the event the power plants can be connected to the grid by June 30, 2011. As security for our obligations under the guarantee, we received a pledge of £560.0 million in German government bonds from GSF Capital Pte Ltd., the parent of the general partner of GSF. The fair value of the debt guarantee was approximately £2.0 million, which has been recorded in our balance sheet at the effective date of this guarantee . (emphasis added.)
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1 98. The statements contained in Paragraph 97 above were materially false when made,
2 and/or omitted material information necessary to make the statements not misleading under the
3 circumstances in which they were made, because: (1) the fair value of the liability created by the debt
4 guarantee obligation was not “approximately €2 million,” but instead was at least $60 to $80 million;
5 (2) Suntech had not received a pledge of €560 million in German government bonds from GSF Capital
6 7 Pte Ltd.; (3) the statements omitted that Suntech had not conducted meaningful due diligence with
8 respect to the purported pledge agreement; (4) the statements omitted Defendants’ understanding that
9 the bonds in question, to the extent they ever existed, did not belong to GSF Capital Pte Ltd. but instead
10 were borrowed by GSF Capital Pte Ltd. from other parties; and (5) the statements omitted that
11 documentation provided by GSF Capital Pte Ltd., on its face, contained irregularities, but that 12 13 Defendants either failed to meaningfully review such documentation or ignored the irregularities.
14 99. On May 25, 2011, the Company issued a press release entitled, “Suntech Reports First
15 I Quarter 2011 Financial Results,” which reported that “other long-term liabilities” had dropped to
16 $145,160,000. This statement was materially false and misleading because it did not incorporate the
17 fair value of the €554.2 million GSF Loan Guarantee, which was at least $60 to $80 million. 18
100. That same day, May 25, 2011, the Company held a conference call with investors, 19 20 analysts, and other market participants, to discuss Suntech’s First Quarter Earnings. During that call, in
21 response to a question from Macquarie analyst Kelly Dougherty, Defendant Shi confirmed that there
22 was “no risk of any kind of write-downs associated with GSF”:
23 <Q - Kelly A. Dougherty>: So there’s no risk of any kind of write-downs associated with GSF
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because they've completed everything that you've already accounted for.
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<A - Zhengrong Shi>: That’s true, yeah.
26 101. During the May 25, 2011 conference call, Wells Fargo analyst Sam Dubinsky directly
27 asked Defendant Shi if “GSF [was] currently compliant with the loan covenants from China
28 Development Bank.” Defendant Shi responded that GSF was compliant, and further stated that “GSF –
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1 they still have good relationship with CDB [ i.e. , China Development Bank] and everything is on track.”
2 102. The statements made by Defendant Shi contained in Paragraphs 99 to 101 above were
3 materially false when made, and/or omitted material information necessary to make the statements not
4 misleading under the circumstances in which they were made, because: (1) they omitted that Suntech
5 was at substantial risk of having to take a financial charge and/or restate its financial reports because it
6 7 had not recorded on its balance sheet the fair value of the liability created by the €554.2 million GSF
8 Loan Guarantee, which was at least $60 to $80 million; and (2) GSF and Solar Puglia II had not
9 complied with loan covenants, and in fact, had violated loan covenants by failing to connect projects to
10 the grid within warranted deadlines, thus increasing Suntech’s risk as guarantor of the debt. On August
11 22, 2011, the Company issued a press release entitled, “Suntech Reports Second Quarter 2011 Financial 12 13 Results,” which reported that “other long-term liabilities” of $155,400,000. This statement was
14 materially false and misleading because it did not incorporate the fair value of the €554.2 million GSF
15 Loan Guarantee, which was at least $60 to $80 million.
16 103. On November 22, 2011, the Company issued a press release entitled “Suntech Reports
17 Third Quarter 2011 Financial Results,” which reported “other long-term liabilities” of $177,900,000. 18
This statement was materially false and misleading because it did not incorporate the fair value of the 19 20 €554.2 million GSF Loan Guarantee, which was in fact at least $60 to $80 million.
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104. On March 8, 2012, the Company issued a press release entitled, “Suntech Reports Fourth
22 Quarter and Full Year 2011 Financial Results,” which reported “other long-term liabilities” of
23 $167,200,000. This statement was materially false and misleading because it did not incorporate the 24
fair value of the €554.2 million GSF Loan Guarantee, which was in fact at least $60 to $80 million. 25
26 105. On April 27, 2012, the Company filed a Form 6-K containing its Audited Consolidated
27 Financial Statements for the Year Ended December 31, 2011. The Form 6-K contained the following
28 disclosure with respect to the GSF Loan Guarantee:
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In May 2010, a third party financial institution granted a debt facility of approximately EUR554.2 million to the GSF investee companies for which the Company provided a guarantee. GSF Capital Pte Ltd., the parent of the general partner of GSF and an unrelated party, offered to pledge a total amount of EUR560.0 million in German Government Bonds as security for the Company’s obligations under the guarantee.
The German Government Bonds that are pledged are registered in the name of, and held by, GSF Capital Pte Ltd. The Company has entered into a pledge agreement with GSF Capital Pte Ltd. with respect to the German Government Bonds pursuant to which the Company has the right (among other things), in the event any amounts owed under the project financing facility guaranteed by the Company are not paid by the GSF investee company, to exercise the power to sell or otherwise dispose of the German Government Bonds without further notice to GSF Capital Pte Ltd., and apply the proceeds thereof towards the satisfaction of the secured liabilities. The fair value of the debt guarantee was approximately USD2 million as of the effective date of this guarantee . This debt guarantee is recorded as part of the investment in Global Solar Fund ... and will be amortized into equity in net earnings (loss) of affiliates through the term of the guarantee. The carrying amount of the guarantee was $1.8 million as of December 31, 2011. (emphasis added.)
106. The April 27, 2012 Form 6-K further stated:
In May 2010, we consummated an arrangement in which we guaranteed payment obligations under finance facilities provided by China Development Bank to Solar Puglia II, S.ar.L, an investee company of GSF, in the amount of approximately €554.2 million. In addition, as additional security to China Development Bank, we are required to maintain cash collateral accounts with a commercial bank in Luxembourg in an amount equal to one installment payment of amounts due under the finance facilities amounting to approximately €30.0 million. Events of default under the finance facilities include failure to pay amounts due on any payment date, failure of the borrower to comply with its financial covenant, failure by the borrower to comply with other provisions of the agreement subject to a 10 day cure period, any cross default by the borrower on other financial indebtedness in excess of €1.0 million, bankruptcy or other events of insolvency, and any material adverse change in the business, property, liabilities, operations, prospects or financial condition of the borrower or us, or the ability of the borrower or us to perform its obligations under the agreement. As of December 31, 2011, approximately 145MW of power plants have been completed, of which approximately 143MW have been connected to the grid. As security for our obligations under the guarantee, we received a pledge of €560.0 million in German government bonds from GSF Capital Pte Ltd., the parent of the general partner of GSF. Any repayment failure or default event of GSF investee companies under a financing or lease agreement could lead to a repayment obligation on our company and could have a material adverse affect [sic] on our business, financial condition, results of operations and prospects.
*****
In May 2010, we consummated an arrangement in which we guaranteed payment obligations under finance facilities provided by China Development Bank to Solar
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Puglia II, S.ar.L, an investee company of GSF, in the amount of approximately €554.2 million. In addition, as additional security to China Development Bank, we are required to maintain cash collateral accounts with a commercial bank in Luxembourg in an amount equal to one installment payment of amounts due under the finance facilities amounting to approximately €30.0 million. Events of default under the finance facilities include failure to pay amounts due on any payment date, failure of the borrower to comply with its financial covenant, failure by the borrower to comply with other provisions of the agreement subject to a 10 day cure period, any cross default by the borrower on other financial indebtedness in excess of €1.0 million, bankruptcy or other events of insolvency, and any material adverse change in the business, property, liabilities, operations, prospects or financial condition of the borrower or us, or the ability of the borrower or us to perform its obligations under the agreement. As of December 31, 2011, approximately 145 MW of power plants have been completed, of which approximately 143 MW have been connected to the grid. As security for our obligations under the guarantee, we received a pledge of €560.0 million in German government bonds from GSF Capital Pte Ltd., the parent of the general partner of GSF. The fair value of the debt guarantee was approximately $2.0 million, which was recorded in our balance sheet at the effective date of this guarantee . (emphasis added.)
107. The statements contained in Paragraphs 105-106 above were materially false when
made, and/or omitted material information necessary to make the statements not misleading under the
circumstances in which they were made, because: (1) Suntech had not received a pledge of €560
million in German government bonds from GSF Capital Pte Ltd.; (2) the Company did not have “the
power to sell or otherwise dispose of the German Government Bonds without further notice to GSF
Capital Pte Ltd., and apply the proceeds thereof towards secured liabilities;” (3) the statements omitted
that Suntech had not conducted meaningful due diligence with respect to the purported pledge
agreement; (4) the statements omitted Defendants’ understanding that the bonds in question, to the
extent they ever existed, did not belong to GSF Capital Pte Ltd. but instead were borrowed by GSF
Capital Pte Ltd. from other parties; (5) the statements omitted that documentation provided by GSF
Capital Pte Ltd., on its face, contained irregularities, but that Defendants either failed to meaningfully
review such documentation or ignored the irregularities; and (6) the fair value of the liability created by
the GSF Loan Guarantee at the time of inception was not $2 million, or even €2 million as asserted in
the Form 20-F filed the same day, but at least $60 to $80 million.
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108. On April 27, 2012, Suntech filed its Annual Report on Form 20-F with the SEC for the
2011 fiscal year (“2011 Form 20-F”). The Company’s 2011 Form 20-F was signed by Defendant Shi
and reaffirmed the Company’s financial results announced on March 8, 2012. The 2011 Form 20-F also
contained Sarbanes-Oxley certifications, signed by Defendants Shi and King, substantially similar to
the certifications made in 2010 Form 20-F and identified in Paragraph 93 above, which mere materially
false and/or misleading for the reasons set forth in Paragraph 96 above .
109. The 2011 Form 20-F also contained statements regarding estimation of the fair value of
the derivative instruments and financial investments substantially similar to those contained in
Paragraph 94 above, which were materially false and/or misleading for the reasons set forth in
Paragraph 96 above.
110. Additionally, the 2011 Form 20-F stated:
In June 2008, we entered into a commitment to invest in Global Solar Fund, S.C.A, Sicar. GSF is an investment fund created to make investments in private companies that own or develop projects in the solar energy sector. Our initial commitment to GSF was €58.0 million, and in September 2008 we increased the size of our commitment by an additional €200.0 million to an aggregate total of €258.0 million in return for 86% of the share equity in GSF. As of December 31, 2011, we had contributed a total of €155.7 million to GSF, fulfilling all of our contribution obligations by such date. We have a 50% voting interest in GSF. ****
In May 2010, we consummated an arrangement in which we guaranteed payment obligations under finance facilities provided by China Development Bank to Solar Puglia II, S.ar.L, an investee company of GSF, in the amount of approximately €554.2 million. In addition, as additional security to China Development Bank, we are required to maintain cash collateral accounts with a commercial bank in Luxembourg in an amount equal to one installment payment of amounts due under the finance facilities amounting to approximately €30.0 million. Events of default under the finance facilities include failure to pay amounts due on any payment date, failure of the borrower to comply with its financial covenant, failure by the borrower to comply with other provisions of the agreement subject to a 10 day cure period, any cross default by the borrower on other financial indebtedness in excess of €1.0 million, bankruptcy or other events of insolvency, and any material adverse change in the business, property, liabilities, operations, prospects or financial condition of the borrower or us, or the ability of the borrower or us to perform its obligations under the agreement. As of December 31, 2011, approximately 145 MW of power plants have been completed, of which approximately 143 MW have been connected to the grid. As security for our obligations under the
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guarantee, we received a pledge of (560.0 million in German government bonds from GSF Capital Pte Ltd., the parent of the general partner of GSF. The fair value of the debt guarantee was approximately (2.0 million, was been [sic] recorded in our balance sheet at the effective date of this guarantee. As of December 31, 2011, the carrying amount of such debt guarantee was $1.8 million . (emphasis added.)
111. The statements contained in Paragraph 110 above were materially false when made,
and/or omitted material information necessary to make the statements not misleading under the
circumstances in which they were made, because: (1) Suntech had not received a pledge of €560
million in German government bonds from GSF Capital Pte Ltd.; (2) the Company did not have “the
power to sell or otherwise dispose of the German Government Bonds without further notice to GSF
Capital Pte Ltd., and apply the proceeds thereof towards secured liabilities;” (3) the statements omitted
that Suntech had not conducted meaningful due diligence with respect to the purported pledge
agreement; (4) the statements omitted Defendants’ understanding that the bonds in question, to the
extent they ever existed, did not belong to GSF Capital Pte Ltd. but instead were borrowed by GSF
Capital Pte Ltd. from other parties; (5) the statements omitted that documentation provided by GSF
Capital Pte Ltd., on its face, contained irregularities, but that Defendants either failed to meaningfully
review such documentation or ignored the irregularities; and (6) the fair value of the liability created by
the GSF Loan Guarantee at the time of inception was not €2 million and the current carrying value was
not $1.8 million, but rather at least $60 to $80 million.
112. On May 23, 2012, the Company issued a press release entitled, “Suntech Reports First
Quarter 2012 Financial Results,” which reported “other long-term liabilities” of $193 million. This
statement was materially false and misleading because it did not incorporate the fair value of the €554.2
million GSF Loan Guarantee as required by GAAP, which was in fact at least $60 to $80 million.
Suntech Discloses Material Exposure Under The GSF Loan Guarantee, Causing The Price of Its Common Stock and Convertible Notes To Plummet
113. On July 30, 2012, the Company issued a press release entitled, “Suntech Investigates
Security Interest in Connection With GSF,” which disclosed:
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Suntech Power Holdings Co., Ltd. (NYSE: STP) (“Suntech” or the “Company”) today announced that the Company is conducting an investigation into a security interest Suntech received in connection with its investment in Global Solar Fund, S.C.A., Sicar (“GSF”). Based on recent review and inquiries, Suntech suspects that the collateral related to the security interest may not have existed and the Company may have been a victim of fraud.
In May 2010, Suntech guaranteed payment obligations related to finance facilities provided to an investee company of GSF in the amount of approximately €554.2 million. As security for the Company’s obligations under the guarantee, Suntech received a pledge of German government bonds (the “Bonds”) in the amount of €560.0 million from GSF Capital Pte Ltd., a third-party investor of GSF. The Company’s investment in GSF is discussed in the Company’s 2011 Annual Report on Form 20-F, including on pages 98 to 99 and F-29 to F-30. As part of Suntech’s initiative to monetize its investment in GSF, the Company engaged outside counsel to review and assist the process. As a result of these efforts, the Company’s outside counsel recently noted certain facts and circumstances suggesting that the Bonds may not have existed and Suntech may have been a victim of fraud. (emphasis added.)
114. On this news, shares of the Company declined $0.23 per share, or 14.65%, to close on
July 30, 2012, at $1.34 per share, on unusually heavy volume, and further declined another $0.21, or
15.67%, to close on July 31, 2012, at $1.13 per share, also on unusually heavy volume. Suntech’s
convertible notes dropped from $69.00 just prior to the disclosure to $45.00 at the close of trading on
July 31, 2012, a drop of nearly 35%, on heavy volume. Stock analysts also reduced their price targets
for Suntech securities as a result of the news. For example, on July 31, 2012, Aaron Chew at Maxim
Group lowered his price target to $0.00, meaning that he viewed the stock as worthless: “we foresee
zero value left for equity.” Chew explained: “While the fraud concerns the collateral backing the
project debt and not the project itself, where there is smoke there is usually fire. This not only
undermines [Suntech’s] efforts to refinance, in our view, but also the value of [Suntech’s] projects and
plans to monetize it.” Additionally, on August 2, 2012, Standard and Poor’s gave Suntech a “sell”
recommendation as a result of the news, citing Suntech’s “deteriorating financial position.”
115. Later on July 30, 2012, the Company held a conference call with investors, analysts, and
other market participants, to discuss the non-existent German government bonds. Defendants Shi and
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irregularities that when finally reviewed two years after the guarantee was provided, suggested that the
so-called backstop collateral never even existed:
Now I will provide a summary of how we discovered this suspected fraud. As we have previously stated, we have been looking to monetize our investment in GSF. We recently started to receive initial offers for GSF assets and that we hired external counsel to work on the transaction. As part of this process, external counsel uncovered inconsistencies in the documentation regarding the German government bonds, which we believe have been placed to Suntech as security by GSF Capital. GSF Capital is a third-party investor of GSF and the owner of the general partner of GSF. Full investigation made it apparent that these bonds may never have existed and that GSF Capital and its principal may have committed fraud. (emphasis added.)
116. In the July 30, 2012 conference call, Defendant King admitted that Suntech was not told
that GSF Capital owned the bonds they claim to have pledged. Instead, he conceded that Suntech was
informed in 2010 that “GSF Capital... have [sic] borrowed the bonds from a registered company in
Europe.” Thus, Suntech knew all along that even if the bonds existed, GSF Capital only had a
possessory rather than ownership interest in the purported backstop collateral.
117. On September 21, 2012, the Company issued a press release entitled “Suntech Receives
Continued Listing Standards Notice from the New York Stock Exchange,” stating:
Suntech Power Holdings Co., Ltd. (NYSE: STP) (“Suntech” or the “Company”), the world’s largest producer of solar panels, today announced that it has been notified by the New York Stock Exchange (the “NYSE”) that the Company did not meet the NYSE’s price criteria for continued listing standard because, as of September 10, 2012, the average closing price of the Company’s American Depositary Shares, or ADSs, was less than $1.00 per ADS over a consecutive 30-trading-day period.
Under NYSE rules, the Company has six months following receipt of the notification to regain compliance with the minimum share price requirement. The Company can regain compliance at any time during the six-month cure period if the Company’s ADSs have a closing share price of at least $1.00 on the last trading day of any calendar month during the period and also has an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month or on the last day of the cure period.
118. On December 7, 2012, the Company issued a press release entitled “Suntech Announces
Preliminary Financial Results for the Third Quarter of 2012 ... Announces Planned Restatement of
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Prior Years’ Financial Statements.” This press release conceded that the fair value of the guarantee
obligation was at least $60 to $80 million, more than twenty times greater than the amount that
I Defendants had recorded in their financial statements:
In July 2012, Suntech announced that it was conducting an investigation into a security interest it received from GSF Capital in connection with financing of Italian solar facilities related to its investment in GSF. Suntech has recently come to the conclusion that the security interest does not exist and that it has been the victim of a fraud by others. As a result, with respect to the guarantee that Suntech provided to lenders to a GSF project company in 2010, the Company is required to record a guarantee obligation in the range of $60 million to $80 million, which is an increase from the prior guarantee obligation of $3 million. The Company expects that this will result in a corresponding reduction in net income of $60 million to $80 million for the year ended December 31, 2010. The impact to net income for the years ended December 31, 2011 and December 31, 2012 is expected to be immaterial.
Accordingly, Suntech’s Audit Committee of the Board of Directors and the management team have concluded that Suntech’s interim condensed financial information for 2010, 2011 and first quarter 2012, and its annual consolidated financial statements for 2010 and 2011 together with the accompanying reports of Suntech’s independent registered accounting firm for 2010 and 2011 should not be relied upon by investors. The Company intends to file its restated consolidated financial statements once the assessment of the guarantee obligation and GSF’s financial audit are completed. Suntech currently expects that this will be in early 2013 and will continue to inform investors of any material developments in a timely manner. The Company cannot assure you that the ongoing assessment of the guarantee obligations and the results of GSF’s financial audit will not result in additional changes to the Company’s prior financial statements that will need to be reflected in its restated consolidated financial statements. (emphasis added.)
119
To date, Suntech has not filed any restated consolidated financial statements.
CLASS ACTION ALLEGATIONS
120
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 Suntech ADSs and Suntech
3.0% convertible notes between June 4, 2010, and July 30, 2012, 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, and members of their immediate families and their legal
representatives, heirs, successors or assigns and any entity in which Defendants have or had a CONSOLIDATED AMENDED CLASS ACTION COMPLAINT
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1 controlling interest.
2 121. The members of the Class are so numerous that joinder of all members is impracticable.
3 Throughout the Class Period, Suntech’s ADSs were actively traded on the NYSE, and its 3.0%
4 convertible notes were actively traded and reported on FINRA’s Trade Reporting And Compliance
5 Engine (“TRACE”). While the exact number of Class members is unknown to Plaintiffs at this time
6 7 and can only be ascertained through appropriate discovery, Plaintiffs believe that there are hundreds or
8 thousands of members in the proposed Class. Several million dollars’ worth of Suntech ADS shares
9 and 3.0% convertible notes traded weekly during the Class Period. According to Bloomberg, there are
10 currently 180.2 million outstanding ADS, and $541,000,000 (face value) outstanding 3.0% convertible
11 notes. Record owners and other members of the Class may be identified from records maintained by 12 13 Suntech or its transfer agent and may be notified of the pendency of this action by mail, using the form
14 of notice similar to that customarily used in securities class actions.
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122. The market for Suntech’s ADS securities and 3.0% convertible notes was open, well-
16 developed and efficient at all relevant times. As a result of these materially false and/or misleading
17 statements, and/or failures to disclose, Suntech’s securities traded at artificially inflated prices during 18
the Class Period. Plaintiffs and other members of the Class purchased or otherwise acquired Suntech’s 19 20 securities relying upon the integrity of the market price of the Company’s securities and market
21 information relating to Suntech, and have been damaged thereby.
22
123. Plaintiffs’ claims are typical of the claims of the members of the Class as all members of
23 the Class are similarly affected by Defendants’ wrongful conduct in violation of federal law that is 24
complained of herein. 25
26 124. Plaintiffs will fairly and adequately protect the interests of the members of the Class and
27 have retained counsel competent and experienced in class and securities litigation.
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125. Common questions of law and fact exist as to all members of the Class and predominate
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1 over any questions solely affecting individual members of the Class. Among the questions of law and
2 fact common to the Class are:
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(a) Whether the federal securities laws were violated by Defendants’ acts as alleged
4 herein;
5 (b) Whether statements made by Defendants to the investing public during the Class
6 7 Period omitted and/or misrepresented material facts about the business, operations, and prospects of
8 Suntech;
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(c) Specifically, whether Suntech’s statements regarding its financial exposure to
10 GSF and its guarantee of a loan for the benefit of a GSF investee company, including Suntech’s
11 misrepresentations regarding collateral backing such guarantee, were materially false and/or 12 13 misleading;
14 (d) Whether Defendants acted with scienter;
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(e) Whether the disclosure of Defendants’ misrepresentations and/or realization of
16 the risks concealed by Defendants’ misrepresentations caused the members of the Class to sustain
17 damages; and 18
(f) The proper measure of damages. 19
20 126. Underscoring the predominance of common questions of law and fact in this action,
21 reliance can be established on a classwide basis by application of the fraud-on-the-market presumption.
22 The market for Suntech’s securities was open, well-developed and efficient at all relevant times for the
23 following reasons, among others: 24
(a) Suntech’s ADS securities met the requirements for listing, and were listed and 25 26 actively traded on the NYSE, a highly efficient and automated market;
27
(b) Suntech’s 3.0% convertible notes met the requirements for trade reporting on
28 FINRA’s TRACE system, and were regularly traded;
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1 (c) As a regulated issuer, Suntech filed periodic public reports with the SEC and
2 regularly corresponded with the SEC, which reports and correspondence were published for investors
3 on the SEC’s EDGAR database and available to any member of the public via an internet connection;
4 (d) Suntech regularly communicated with public investors via established market
5 communication mechanisms, including presentations at investor conferences, conference calls,
6 7 dissemination of press releases on the national circuits of major newswire services, and other wide-
8 ranging public disclosures, such as communications with the financial press and other similar reporting
9 services;
10 (e) Suntech was followed by numerous securities analysts employed by brokerage
11 firms who wrote reports about the Company, the contents or summary of which were disseminated to 12 13 the investing public; and
14 (f) Suntech was widely followed by online websites focusing on solar energy and/or
15 renewable energy technologies.
16 127. As a result of the foregoing, the market for Suntech’s securities promptly digested and
17 reacted to current information regarding Suntech from publicly available sources. Under these 18
circumstances, all purchasers of Suntech’s ADSs and 3.0% convertible notes during the Class Period 19 20 suffered similar injury through their purchase of Suntech securities at artificially inflated prices. Thus,
21 a presumption of reliance applies.
22
128. A class action is superior to all other available methods for the fair and efficient
23 adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the 24
damages suffered by individual Class members may be relatively small, the expense and burden of 25 26 individual litigation makes it impossible for members of the Class to individually redress the wrongs
27 done to them. There will be no difficulty in the management of this action as a class action.
28
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ADDITIONAL SCIENTER ALLEGATIONS 1
2 129. Defendants had no reasonable basis to believe that they had accurately reported
3 Suntech’s liability under the GSF Loan Guarantee, that they had fully and truthfully described the
4 nature of that obligation to investors, or that they had candidly disclosed Suntech’s actual financial
5 exposure to GSF and GSF investee companies. Instead, at the time they made the statements alleged in 6
Paragraphs 64 to 113 above, Defendants were aware that the statements were materially false when 7 8 made, and/or acted with deliberate recklessness because they lacked material information necessary to
9 make the statements not misleading under the circumstances in which they were made, for the reasons
10 set forth above, and because Defendants had access to information contradicting their public statements
11 and reflecting the true value and nature of the GSF Loan Guarantee and Suntech’s actual financial 12
exposure to GSF and its investee companies. 13
14 130. Specifically, Defendants at all times understood their obligation to record the fair value
15 of Suntech’s liability under the GSF Loan Guarantee as reflected by: (1) their continued reference to
16 fair value in the statements alleged in Paragraphs 64 to 113 above; (2) the claim of all Individual
17 Defendants to have reviewed Suntech’s financial reporting and other internal controls, including the
18 controls governing the reporting of liabilities under GAAP; and (3) Defendant Zhang and Defendant
19 20 King’s training in accounting and familiarity with GAAP.
21 131. Defendants further understood that what they called a fair value of the GSF Loan
22 Guarantee could not be a number of their choosing, but rather had to reflect the premium that an
23 objective market participant would charge to provide a similar guarantee under the same circumstances.
24 Defendants’ understanding of this principle is reflected by their explanation to the SEC and to investors
25 26 that their reported valuation was fair and proper due to claimed (but not actual) circumstances which
27 might support a low market premium for a similar guarantee. Specifically, Defendants contended that
28 because the phantom €560 million German government bonds fully collateralized, or backstopped, the
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1 GSF Loan Guarantee Agreement, the guarantor did not face any meaningful risk of unreimbursed loss
2 thereunder.
3
132. Although Defendants knew that their reported valuation hinged on the purported €560
4 million in German government bonds, Defendants recklessly failed to even ascertain the existence of
5 such bonds or confirm that they would be available to backstop Suntech’s obligations under the GSF
6 7 Loan Guarantee. This failure is particularly shocking given that all of the Individual Defendants are
8 successful, experienced, and sophisticated business persons. Defendant Shi was previously named one
9 of the wealthiest individuals in China, King is a certified public accountant, and Zhang has a master’s
10 degree in business administration. Both King and Zhang had prior experience as CFOs.
11 133. Moreover, Jeff Shubert served as Suntech’s Director of Global Marketing from 2007 to
12 13 2012. Shubert worked directly with Suntech executives in China, including Defendant Shi. Shubert
14 stated that Suntech is run by one man with a huge ego, Defendant Shi, and that Shi micromanages the
15 affairs of the Company.
16 134. Defendants’ conduct is particularly reckless in light of the size of the GSF Loan
17 Guarantee and its importance to Suntech. The €554.2 million amount that Suntech guaranteed under 18
the GSF Loan Guarantee was larger than any other guarantee the Company had ever provided to any 19 20 customer or joint venture, was more than twice as large as the Company’s total equity commitment to
21 GSF, and exceeded Suntech’s reported earnings in every prior year. And as Defendant King explained
22 in a July 30, 2012 conference call with investors, the purpose of the German government bonds was “to
23 assure Suntech that the guarantee would not create material liability for Suntech[.]” Given the vast 24
potential for financial injury under this obligation, Defendants’ failure to verify the existence of the 25 26 claimed collateral was an extreme departure from any reasonable standard of care and demonstrated
27 deliberate recklessness to the truth of their statements. Moreover, numerous red flags indicated to
28 I Defendants that their claims to have access to €560 million in bonds were untrue:
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1 a. Defendants knew that the person who claimed to have pledged the bonds – Javier
2 Romero through his wholly-owned company GSF Capital Pte Ltd. – had not been
3
truthful in other business representations;
4 b. Defendants had not been delivered any bonds and had not verified the existence of the
5 bonds. It would have been exceedingly easy for Defendants to verify the existence of
6
7 the bonds. Roger Lui, a corporate lawyer at Allen & Overy in Hong Kong, told Reuters
8 journalists: “The company could have taken some pretty basic due diligence steps to
9 make sure the bonds are there.” Instead of confirming the existence of the bonds with
10 the custodian bank, Defendants relied on documentation from GSF Capital claiming
11 that the bonds had been deposited. Defendants had not even meaningfully reviewed the
12
13 documentation regarding the purported German government bonds, which contained
14 irregularities suggesting fraud as Suntech admitted after the Class Period;
15 c. Defendants understood or recklessly disregarded that the documentation regarding the
16 purported German government bonds stated that GSF Capital Pte Ltd. had borrowed the
17 bonds from a European Company and did not own them outright, thus drawing into
18 question how GSF Capital Pte Ltd. could assure Suntech that such bonds would be
19
20 available if needed. Moreover, the notion that a European company would allow GSF
21
Capital to borrow the bonds is highly suspicious and implausible, and has been
22 recognized as such by financial analysts. Daiwa Securities analyst Pranab Kumar
23 Sarmah, who covers Suntech, was reported in an August 6, 2012 Reuters article stating:
24 “We fail to understand why a European company would allow GSF Capital to borrow
25
26 560 million euros in bond paper as GSF Capital’s asset base is less than 10 percent of the
27 value of the bonds.”; and
28
d. Defendants had no reasonable basis to believe that GSF Capital Pte Ltd. or Romero
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personally had the assets to procure €560 million of German government bonds. If GSF
Capital did have the assets to procure €560 million in German government bonds, it
could have funded Solar Puglia II, S.a.r.L. without the need for external financing, or if
it had a business purpose for such external financing, could have itself posted any
collateral required by the lender without involving Suntech (especially because the
course of dealing with China Development Bank as alleged in Paragraph 97 above
indicates that China Development Bank was amenable to accepting collateral deposited
at a Luxembourg commercial bank).
135
Defendants also knew of or recklessly disregarded other red flags with respect to GSF
which put them on notice that financial transactions with GSF, especially large transactions
the GSF Loan Guarantee, required particular scrutiny:
a. GSF had fraudulently misrepresented the nature of its projects to obtain fast-track
permits from Italian authorities. At least some of GSF’s projects were illegally
permitted. As the Company conceded in its 2010 20-F, signed by Defendants Shi and
Zhang:
5 solar parks representing 2.83 MW . . . have been [the] object of an investigation by the Court of Brindisi in relation to some potential irregularities concerning the relevant permits.
The tribunal argues that the land has been divided in smaller portions to avoid the AU (Permit to construct the solar plant that needs all public institutions full approval), and apply for the DIA (Permit to construct the solar plant obtainable through a simpler procedure)
The Brindisi, Italy, public prosecutor has since charged five GSF subsidiaries and certain
individuals including Romero with illegal construction and fraud against the State for
unlawfully splitting five solar projects into smaller sub 1 megawatt schemes in order to
qualify for a less stringent 30-day permitting process only available for smaller projects.
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Suntech would have known of this misconduct at the time it was committed. As Suntech 1
2 described to the SEC in a letter dated October 28, 2010, Suntech as part of its own due
3
diligence reviewed “legal due diligence reports” describing the permitting status and the
4 “DIA permitting process required in Italy”; and
5 b. GSF’s projects did not make economic sense. As Alberto Forchielli, managing partner
6
7 of Sino-Italian private equity firm Mandarin Capital Partners, described after reviewing
8 GSF’s solar projects in southern Italy, GSF’s projects were “too large” to be viable and,
9 given the location, “carried the added risk of possible encounters with criminals.”
10 According to Forchielli, there are only three possibilities for launching big projects in
11 southern Italy “stupid, fraud, or mafia.” Forchielli, stated that “GSF smacked of a
12
13 scam,” in part because the “project value [was] too high, while the cost [was] too low.”
14 Additionally, when GSF approached Forchielli in 2008 to invest, GSF represented to
15
Forchielli that several prestigious companies and individuals were involved in the Fund.
16 However, when Forchielli contacted those companies and individuals to confirm their
17 involvement they had no knowledge of GSF. Defendants would have known of this
18 information from Suntech’s own due diligence, and the role of Defendant Shi and
19
20 Suntech CTO Wenham on the board of managers of GP, or in the alternative could have
21 obtained the same information with even a cursory investigation but recklessly failed to
22 undertake such investigation.
23 FIRST CLAIM 24
Violation of Section 10(b) of
25
The Exchange Act and Rule 10b-5
26 Promulgated Thereunder Against All Defendants
27 136. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
28 I forth herein.
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1 137. During the Class Period, as specified above each of the Defendants (i) deceived the
2 investing public, including Plaintiffs and other Class members, through their material Class Period
3 misrepresentations as alleged herein; and (ii) caused Plaintiffs and other members of the Class to
4 purchase Suntech’s securities at artificially inflated prices.
5 138. Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made untrue
6 7 statements of material fact and/or omitted to state material facts necessary to make the statements not
8 misleading; and (iii) engaged in acts, practices, and a course of business which operated as a fraud and
9 deceit upon the purchasers of the Company’s securities in an effort to maintain artificially high market
10 prices for Suntech’s securities in violation of Section 10(b) of the Exchange Act and Rule 10b-5. All
11 Defendants are sued as primary participants in the wrongful and illegal conduct charged herein. 12 13 Specifically, as is detailed above, Defendants: (a) omitted material adverse information regarding
14 Suntech’s enormous exposure under the €554.2 million GSF Loan Guarantee; (b) affirmatively
15 misrepresented that the GSF Loan Guarantee was backstopped by €560 million in German government
16 bonds, when it in fact was not; (c) in violation of GAAP, recorded less than 5% of the fair value of the
17 GSF Loan Guarantee as a liability on Suntech’s balance sheet; (d) in violation of GAAP, failed to 18
report required qualitative information regarding the GSF Loan Guarantee to investors; and (e) 19 20 materially misrepresented Suntech’s internal and financial reporting controls.
21
139. Defendants, individually and in concert, directly and indirectly, by the use, means or
22 instrumentalities of interstate commerce and/or of the mails, engaged and participated in a continuous
23 course of conduct to conceal adverse material information about Suntech’s financial well-being and 24
prospects, as specified herein. 25
26 140. Each of the Individual Defendants’ primary liability, arises from the following facts: (i)
27 the Individual Defendants were high-level executives and/or directors at the Company during the Class
28 Period and members of the Company’s management team or had control thereof; (ii) each of the
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1 Individual Defendants made or participated in the making or certification of statements which are
2 expressly attributed to them as specified herein; (iii) each of the Individual Defendants, by virtue of
3 their responsibilities and activities as Chief Executive Officer and/or Chief Financial Officer of Suntech
4 at the time of the statements referenced herein, had the authority to and did control the making of the
5 statements referenced herein that were attributed to Suntech; (iii) each of these Defendants enjoyed
6 7 significant personal contact and familiarity with the other Defendants and was advised of, and had
8 access to, other members of the Company’s management team, internal reports and other data and
9 information about the Company’s finances, operations, and sales at all relevant times; and (iv) each of
10 these Defendants was aware of the Company’s dissemination of information to the investing public
11 which they knew and/or recklessly disregarded was materially false and misleading. 12
13 141. All Defendants had actual knowledge of the misrepresentations and omissions of
14 material facts set forth herein, or acted with reckless disregard for the truth in that they failed to
15 ascertain and to disclose such facts, even though such facts were readily available to them and
16 numerous red flags put them on notice that scrutiny was necessary. Defendants’ material
17 misrepresentations and omissions were made knowingly or with deliberate recklessness to the truth, and 18
were made for the purpose and effect of concealing Suntech’s financial well-being and prospects from 19 20 the investing public and supporting the artificially inflated price of its securities.
21
142. As a result of the dissemination of the materially false and misleading information
22 and/or failure to disclose material facts, as set forth above, the market price of Suntech’s common stock
23 and convertible notes were artificially inflated during the Class Period. Without knowledge of the fact 24
that market prices of these securities were artificially inflated, and relying directly or indirectly on the 25 26 false and misleading statements made by Defendants, or upon the integrity of the markets in which
27 these securities trade, Plaintiffs and other Class members acquired Suntech’s securities during the Class
28 Period at artificially high prices and were damaged upon the disclosure that caused a precipitous decline
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1 in the price of Suntech securities on July 30-31, 2012.
2 143. At the time of their respective purchases, Plaintiffs and other Class members were not
3 aware of the true facts regarding the GSF Loan Guarantee, the phantom bond backstop, Suntech’s true
4 liabilities, and its lack of internal controls. Had Plaintiffs and the other Class members been informed
5 of the truth, they would not have purchased or otherwise acquired their Suntech securities, or, if they
6 7 had acquired such securities during the Class Period, they would not have done so at the artificially
8 inflated prices which they paid.
9
144. By virtue of the foregoing, Defendants have violated Section 10(b) of the Exchange Act
10 and Rule 10b-5 promulgated thereunder.
11 145. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiffs and the
12 13 other members of the Class suffered damages in connection with their purchases of the Company’s
14 securities during the Class Period.
15
SECOND CLAIM
16
Violation of Section 20(a) of
17 The Exchange Act Against the Individual Defendants
18 146. Plaintiffs repeat and reallege each and every allegation contained above as if fully set
19 I forth herein.
20 147. The Individual Defendants acted as controlling persons of Suntech within the meaning
21 of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions as Chief
22 23 Executive Officer and Chief Financial Officer, including both their individual certification of the
24 Company’s financial statements and the Company’s reliance upon them to convey the Company’s
25 financial status and developments to investors, each of the Individual Defendants had the power to
26 influence and control and did influence and control the content and dissemination of the statements
27 alleged above to be false and misleading. The Individual Defendants were provided with or had
28 unlimited access to copies of the Company’s reports, press releases, public filings and other statements
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1 alleged by Plaintiffs to be misleading prior to and/or shortly after these statements were issued and had
2 the ability to prevent the issuance of the statements or cause the statements to be corrected.
3
148. In particular, each of these Defendants had direct and supervisory involvement in the
4 day-to-day operations of the Company and, therefore, is presumed to have had the power to control or
5 influence the particular transactions giving rise to the securities violations as alleged herein, and
6 exercised the same.
7
8 149. By virtue of their positions as controlling persons, each of the Individual Defendants are
9 I secondarily liable for Suntech’s primary violations under Section 20(a) of the Exchange Act.
10 Moreover, as the Chief Executive Officer and Chairman of the Board of Directors, Defendant Shi
11 exercised control over the Chief Financial Officer (first Defendant Zhang then Defendant King), who 12 13 reported directly to him. Consequently, Defendant Shi is also secondarily liable for the primary
14 violations of Defendants Zhang and King under Section 20(a) of the Exchange Act. As a direct and
15 proximate result of these Defendants’ wrongful conduct, Plaintiffs and other Class members suffered
16 damages in connection with their purchases of the Company’s securities during the Class Period.
17 PRAYER FOR RELIEF
18 WHEREFORE, Plaintiffs pray for relief and judgment, as follows:
19
20 (a) Determining that this action is a proper class action under Rule 23 of the Federal Rules
21 of Civil Procedure;
22
(b) Awarding compensatory damages in favor of Plaintiffs and the other Class members
23 against all Defendants, jointly and severally, for all damages sustained as a result of Defendants’
24 wrongdoing, in an amount to be proven at trial, including interest thereon;
25
26 (c) Awarding Plaintiffs and the Class their reasonable costs and expenses incurred in this
27 action, including counsel fees and expert fees; and
28
(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 5, 2013
GLANCY BINKOW & GOLDBERG LLP
___/s Michael M. Goldberg____________ Michael M. Goldberg Lionel Z. Glancy 1925 Century Park East, Suite 2100 Los Angeles, California 90067 Telephone: (310) 201-9150 Facsimile: (310) 201-9160
Liaison Counsel for Lead Plaintiffs
COHEN MILSTEIN SELLERS & TOLL PLLC Steven J. Toll Daniel S. Sommers (admitted pro hac vice) Joshua M. Kolsky Elizabeth Aniskevich 1100 New York Avenue, N.W. West Tower, Suite 500 Washington, D.C. 20005 Telephone: (202) 408-4600 Fax: (202) 408-4699
POMERANTZ GROSSMAN HUFFORD DAHLSTROM & GROSS LLP
Patrick V. Dahlstrom (admitted pro hac vice) Joshua B. Silverman (admitted pro hac vice) Louis C. Ludwig (admitted pro hac vice) 10 South LaSalle St., Suite 3505 Chicago, Illinois 60603 Telephone: (312) 377-1181 Fax: (312) 377-1184
Co-Lead Counsel for Lead Plaintiffs
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PROOF OF SERVICE VIA ELECTRONIC POSTING PURSUANT TO NORTHEN
DISTRICT OF CALIFORNIA LOCAL RULES AND LOCAL CIVIL RULE 5-1
I, the undersigned, say:
I am a citizen of the United States and am employed in the office of a member of the Bar of
this Court. I am over the age of 18 and not a party to the within action. My business address is1925
Century Park East, Suite 2100, Los Angeles, California 90067.
On February 5, 2013, I caused to be served the following document:
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
By posting the document to the ECF Website of the United States District Court for the
Northern District of California, for receipt electronically by the parties as reflected on the attached
Court’s Service List.
And on any non-ECF registered party:
By Mail : By placing true and correct copies thereof in individual sealed envelopes, with
postage thereon fully prepaid, which I deposited with my employer for collection and mailing by the
United States Postal Service. I am readily familiar with my employer’s practice for the collection
and processing of correspondence for mailing with the United States Postal Service. In the ordinary
course of business, this correspondence would be deposited by my employer with the United States
Postal Service that same day.
I certify under penalty of perjury under the laws of the United States of America that the
foregoing is true and correct. Executed on February 5, 2013, at Los Angeles, California.
s/Michael Goldberg Michael Goldberg
CERTIFICATE OF SERVICE Page 1
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Mailing Information for a Case 3:12-cv-04061-RS
Electronic Mail Notice List
The following are those who are currently on the list to receive e-mail notices for this case.
• Brian Joseph Barry , Esq [email protected]
• Patrick V. Dahlstrom [email protected]
• H. Miriam Farber [email protected]
• Jerome Fortinsky [email protected]
• Lionel Zevi Glancy [email protected]
• Michael M. Goldberg [email protected] ,[email protected],[email protected],[email protected]
• Jeremy A Lieberman [email protected]
• Louis C. Ludwig [email protected]
• Robert Vincent Prongay [email protected] ,[email protected],[email protected]
• Brian J. Robbins [email protected]
• Laurence M. Rosen [email protected] ,[email protected]
• Casey Edwards Sadler [email protected]
• Joshua B. Silverman [email protected]
• Daniel S. Sommers [email protected] ,[email protected],[email protected] ,[email protected]
Manual Notice List
The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who therefore require manual
noticing). You may wish to use your mouse to select and copy this list into your word processing program in order to create
notices or labels for these recipients.
Elizabeth Aniskevibh Cohen Milstein Sellers & Toll PLLC 1100 New York Avenue, N.A. West Tower, Suite 500 Washington, DC 20005
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Marc I. Gross Pomerantz Grossman Hufford Dahlstrom & Gross LLP 600 Third Avenue 20th Floor New York, NY 10016
Joshua M. Kolsky Cohen Milstein Sellers & Toll PLLC 1100 New York Avenue, N.W. West Tower, Suite 500 Washington, DC 20005
Howard G. Smith Law Offices of Howard G. Smith 3070 Bristol Pike, Suite 112 Bensalem, PA 19020
Steven J. Toll Cohen Milstein Hausfeld & Toll, P.L.L.C. 1100 New York Avenue, N. W. West Tower, Suite 500 Washington, DC 20005-3964
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