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
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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
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