Mark Smilovits, Et Al. V. First Solar, Inc., Et Al. 12-CV-00555-First

Case 2:12-cv-00555-DGC Document 93 Filed 08/17/12 Page 1 of 141 1 ROBBINS GELLER RUDMAN & DOWD LLP 2 MICHAEL J. DOWD DANIEL S. DROSMAN 3 MARK SOLOMON JASON A. FORGE 4 655 West Broadway, Suite 1900 San Diego, CA 92101 5 Telephone: 619/231-1058 619/231-7423 (fax) 6 [email protected] [email protected] 7 [email protected] [email protected] 8 Lead Counsel for Plaintiffs 9 BONNETT FAIRBOURN FRIEDMAN 10 & BALINT, P.C. ANDREW S. FRIEDMAN (AZ005425) 11 KEVIN HANGER (AZ027346) 2901 N. Central Avenue, Suite 1000 12 Phoenix, AZ 85012 Telephone: 602/274-1100 13 602/274-1199 (fax) [email protected] 14 [email protected] 15 Liaison Counsel for Plaintiffs 16 [Additional counsel appear on signature page.] 17 UNITED STATES DISTRICT COURT 18 DISTRICT OF ARIZONA 19 MARK SMILOVITS, Individually and on No. 2:12-cv-00555-DGC Behalf of All Others Similarly Situated, 20 CLASS ACTION Plaintiff, 21 FIRST AMENDED COMPLAINT FOR vs. VIOLATION OF THE FEDERAL 22 SECURITIES LAWS FIRST SOLAR, INC.; MICHAEL J. 23 AHEARN; ROBERT J. GILLETTE; MARK R. WIDMAR; JENS 24 MEYERHOFF; JAMES ZHU; BRUCE SOHN; and DAVID EAGLESHAM, 25 Defendants. 26 DEMAND FOR JURY TRIAL 27 28 750217_1 Case 2:12-cv-00555-DGC Document 93 Filed 08/17/12 Page 2 of 141 1 TABLE OF CONTENTS 2 Page 3 I. INTRODUCTION.................................................................................................... 1 4 II. JURISDICTION AND VENUE............................................................................... 2 5 III. PARTIES.................................................................................................................. 2 6 IV. DEFENDANTS’ FRAUDULENT SCHEME ......................................................... 4 7 I V. CONFIDENTIAL WITNESSES............................................................................ 17 8 VI. DEFENDANTS’ FALSE AND MISLEADING STATEMENTS ISSUED DURING THE CLASS PERIOD........................................................................... 33 9 A. Sarbanes-Oxley (“SOX”) Certifications ..................................................... 33 10 B. April 30, 2008-May 1, 2009........................................................................ 34 11 C. July 30, 2009-April 29, 2010 ......................................................................43 12 D. July 29, 2010-December 14, 2011 ..............................................................52 13 VII. DEFENDANTS ISSUED FALSE FINANCIALS AND VIOLATED 14 GAAP.....................................................................................................................73 15 A. GAAP Violation: Understated Warranty Reserves.....................................77 16 B. GAAP Violation: Excursion and Heat Degradation Disclosures................87 17 C. GAAP Violations: Revenue Recognition and Related Disclosures............92 18 VIII. ADDITIONAL EVIDENCE OF SCIENTER...................................................... 104 19 A. The Fraud Infected First Solar’s Core Operations, Which Defendants CloselyMonitored..................................................................................... 104 20 B. Defendants’ Disclosures About Their Personal Involvement and 21 Awareness .................................................................................................106 22 C. Defendants Signed Sarbanes-Oxley Certifications Attesting that They Personally Supervised First Solar’s Controls and Procedures.........116 23 D. Defendants Engaged in Massive and Suspicious Insider Trading............116 24 E. Defendants Leave First Solar....................................................................118 25 F. Defendants’ Compensation Structure Incentivized Fraud........................119 26 G. The Accounting Manipulations Were Extensive and Systematic in 27 Nature ........................................................................................................119 28 IX. LOSS CAUSATION ............................................................................................ 121 - i - 750217_1 Case 2:12-cv-00555-DGC Document 93 Filed 08/17/12 Page 3 of 141 1 2 Page 3 X. NO SAFE HARBOR............................................................................................ 129 4 XI. APPLICABILITY OF THE PRESUMPTION OF RELIANCE: FRAUD ONTHE MARKET.............................................................................................. 130 5 XII. CLASS ACTION ALLEGATIONS..................................................................... 131 6 XIII. PRAYER FOR RELIEF....................................................................................... 133 7 XIV. JURY DEMAND .................................................................................................133 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - ii - 750217_1 Case 2:12-cv-00555-DGC Document 93 Filed 08/17/12 Page 4 of 141 1 I. INTRODUCTION 2 1. This is a securities class action on behalf of all persons who purchased or 3 otherwise acquired the publicly traded securities of First Solar, Inc. (“First Solar” or the 4 “Company”) between April 30, 2008 and February 28, 2012, inclusive (the “Class Period”), 5 against First Solar and certain of its officers and/or directors for violations of the Securities 6 Exchange Act of 1934 (the “1934 Act”) 7 2. As multi-billion-dollar fraud schemes go, defendants’ was fairly simple. 8 Seizing on the opportunity presented by government subsidies and public enthusiasm for 9 alternative energy, defendants spent years convincing investors that First Solar had a 10 winning formula for reducing manufacturing costs so rapidly and dramatically as to make 11 solar power competitive with fossil fuels. They perpetuated their fraudulent self-portrayal by 12 concealing and misrepresenting the nature and extent of major manufacturing and design 13 defects in their solar modules. Just weeks before the Class Period began, defendant Ahearn 14 set the example he and the other defendants would follow for years. In response to a direct 15 question about whether their modules were having performance problems in the field, 16 defendant Ahearn falsely responded, “[t]o our knowledge, we are not. We have checked 17 with a number of our customers and we have, as you know, pretty extensive internal quality 18 controls and external field testing data, so we are not aware of anything, Eric.” Defendants 19 proceeded down this path that Ahearn blazed through a series of false and misleading 20 statements on earnings calls and in certified financial statements. 21 3. Defendants have admitted that they concealed one of these manufacturing 22 defects for over a year. When growing customer complaints forced defendants to 23 acknowledge this defect, defendants shifted tactics, characterizing it as a mere “excursion” 24 that would cost under $30 million to remediate. Less than two years later, defendants would 25 admit that the true expenses for this so-called excursion were nearly 10 times greater than 26 they had represented. One of First Solar’s former sales directors said that the $260 million 27 “excursion” was overshadowed by the “3,000 pound boulder” of yet another concealed 28 defect – the heat degradation defect. - 1 - 750217_1 Case 2:12-cv-00555-DGC Document 93 Filed 08/17/12 Page 5 of 141 1 4. Long before the scheme’s exposure, however, it was working. It was working 2 so well, defendants drove up First Solar’s stock to a peak of over $310 per share. Realizing 3 that most of that price was attributable to the effectiveness, and ultimate hopelessness, of 4 their scheme, defendants sold nearly a half-billion dollars of First Solar stock during the 5 Class Period. Defendant Ahearn alone sold 97% of his shares for over $427 million. First 6 I Solar’s investors were not so fortunate. Soon after the sun had set on the Class Period, First 7 Solar’s stock had fallen from over $310 to under $30. 8 II. JURISDICTION AND VENUE 9 5. Jurisdiction is conferred by §27 of the 1934 Act. The claims asserted herein 10 arise under §§10(b) and 20(a) of the 1934 Act and SEC Rule 10b-5. 11 6. Venue is proper in this district pursuant to §27 of the 1934 Act. Many of the 12 false and misleading statements were made in or issued from this district. 13 7. First Solar is headquartered at 350 West Washington Street, Suite 600, Tempe, 14 Arizona 85281. Certain of the acts and conduct complained of herein, including the 15 dissemination of materially false and misleading information to the investing public, 16 occurred in this district. 17 8. In connection with the acts and conduct alleged in this complaint, defendants, 18 directly or indirectly, used the means and instrumentalities of interstate commerce, including, 19 but not limited to, the mails and interstate wire and telephone communications. 20 III. PARTIES 21 9. Plaintiffs Mineworkers’ Pension Scheme and British Coal Staff 22 Superannuation Scheme purchased the publicly traded securities of First Solar during the 23 Class Period and were damaged as the result of defendants’ wrongdoing as alleged in this 24 complaint. 25 10. Defendant First Solar is engaged in the manufacture and sale of solar modules 26 with an advanced thin film semiconductor technology, and it designs, constructs and sells 27 photovoltaic (“PV”) solar power systems. 28 - 2 - 750217_1 Case 2:12-cv-00555-DGC Document 93 Filed 08/17/12 Page 6 of 141 1 11. Defendant Michael J. Ahearn (“Ahearn”) founded First Solar. Defendant 2 Ahearn is, and at all relevant times was, the Company’s Chairman of the Board. On 3 October 25, 2011, defendant Ahearn

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