Richard A. Dempsey , Et Al. V. David P. Vieau, Et Al. 13-CV-06883

Richard A. Dempsey , Et Al. V. David P. Vieau, Et Al. 13-CV-06883

Case 1:13cv068834TS Document 41 Filed 03/27/14 Page 1 of 113 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK x RICHARD A. DEMPSEY, Individually and on Civil Action No. L: 13-cv-06883-LTS Behalf of All Others Similarly Situated, CLASS ACTION Plaintiff. AMENDED COMPLAINT FOR vs. : VIOLATIONS OF THE FEDERAL SECURITIES LAWS DAVID P. VIEAU and DAVID J. PRY STASH. DEMAND FOR JURY TRIAL Defendants. x Case 1:13-cv-06883-LTS Document 41 Filed 03/27/14 Page 2 of 113 TABLE OF CONTENTS Page NATUREOF THE ACTION ..........................................................................................................1 JURISDICTIONAND VENUE ......................................................................................................4 PARTIES.........................................................................................................................................5 CLASS ACTION ALLEGATIONS ..............................................................................................IL CONFIDENTIAL SOURCES .......................................................................................................12 SUBSTANTIVE ALLEGATIONS ...............................................................................................13 The Proliferation of the Electric Vehicle Industry in the United States ........................................13 The DOE Loan Program Is Established to Support the Electric Vehicle Industry ........................14 TheCompany and Its Business......................................................................................................16 A 123 and Fisker Had Strong Business and Financial Ties ............................................................17 Fisker Made Questionable Representations to the DOE in Order to Obtain Its ATVM ProgramLoan.....................................................................................................................20 Defendants Knew the Consequences if Fisker Defaulted on the Terms of Its Loans from theDOE .............................................................................................................................24 Defendants Knew that Fisker Defaulted on the DOE Loan and Would Lose Its DOE Funding ..............................................................................................................................27 Defendants Knew that A 123's Batteries Were Flawed and Defectively Manufactured ...............33 Materially False and Misleading Statements Issued During the Class Period...............................42 A 123 Reduces Its Revenue Guidance but Defendants Misleadingly Assert that the Reduction Is "Unexpected" and Will Be "Temporary .. ....................... .............................. Fisker's Impaired Financial Condition Is Revealed and the Company Takes an Impairment Charge on Its Investment in Fisker as Defendants Continue to Claim that A123 Will Receive Significant Future Revenues from Battery Sales to Fisker and Attempt to Downplay Defects with the Company's Batteries ....................................64 A123 Voluntarily Replaces Its Flawed and Defective Batteries While Defendants Continue to Tout the Company's Relationship with Fisker ................. .............................. 70 A123Files for Bankruptcy.............................................................................................................79 Case 1:13-cv-06883-LTS Document 41 Filed 03/27/14 Page 3 of 113 Page PostClass Period Events ......... .. .... .. .... .. .......... .. ........................................................................... ..81 Defendants Were Required to Disclose Not Only that Fisker Was Unable to Purchase A123's Batteries and that the Company's Batteries Were Flawed, but Also the Impact of These Issues on the Company's Business .........................................................85 A 123's False and Misleading Financial Statements ......................................................................89 ADDITIONAL SCIENTER ALLEGATIONS ..............................................................................94 NOSAFE HARBOR ...................................................................................................................100 APPLICATION OF PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET ....... ..................... .. .................. ........................................... 101 LOSS CAUSATION/ECONOMIC LOSS ..................................................................................103 COUNTI .....................................................................................................................................104 For Violations of § 10(13) of the Exchange Act and Rule I Ob-5 Against All Defendants ...........104 COUNTII ....................................................................................................................................107 For Violations of §20(A) of the Exchange Act Against All Defendants.. ...... ......... 107 PRAYER FOR RELIEF ..............................................................................................................108 JURYDEMAND .........................................................................................................................109 H Case 1:13cv06883LTS Document 41 Filed 03/27/14 Page 4 of 113 Lead Plaintiff Hormuz Irani ("Lead Plaintiff") alleges the following based upon the investigation of Lead Plaintiff's counsel as detailed below, which included, among other things, a review of: (i) United States Securities and Exchange Commission ("SEC") filings byA123 Systems, Inc. ("A 123" or the "Company"); (ii) A 123 regulatory filings and reports; (iii) securities analysts' reports and advisories about the Company; (iv) press releases and other public statements issued by the Company; (v) media reports about the Company; (vi) approximately 12,000 pages of documents produced to Lead Plaintiff by the United States Department of Energy ("DOE") pursuant to a Freedom of Information Act (fOTA") request; (vii) a review of the facts in pleadings and declarations filed in the following actions: (a) In re A]23 Systems, Inc., es at., Case No. 12-12859- KJC (Bankr. D. Del.); and (b) In re FiskerAutomosive Holdings, Inc., ci aL. Case No. 13-13087-KG (Bankr. D. Del.); and (viii) a review of the allegations contained in pleadings filed in the following actions: (a) United States ex rel. Eric Weidner v. Fisker Automotive, Inc., C.A. No. 12-cv-7847 (KBF) (S.D.N.Y.); (h) In re 123 Systems, Inc. Securities Litigation. No. L: 12-cv- 10591 -RGS (D. Mass.); and (c) Atlas Cap hal Management, L.P. v. Henrik Fisker, et at. Case No. 13cv02 100 (D. DeL).Plaintiff believes that substantial evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. NATURE OF THE ACTION This is a securities class action on behalf of all purchasers of the securities of Al 23 between February 28, 2011 and October 16, 2012, inclusive (the "Class Period"), seeking to pursue remedies under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Rule lOb-5 promulgated thereunder. The action is brought against several executive officers and one director of A123. On October 16, 2012, A123 sought bankruptcy protection and, therefore, is not named as a defendant in this action. Case 1:13cv06883LTS Document 41 Filed 03/27/14 Page 5 of 113 2. This case is about A 123. the Company's rechargeable lithium-ion batteries and the Company's single largest customer, fisker Automotive. Inc. ("Fisker"). A123 was principally engaged in the manufacturing of advanced rechargeable lithium-ion batteries and battery systems for electric automobiles. During the Class Period. fisker represented approximately 26% of the Company's revenues. Fisker's first (and only) car model to be produced and sold was the fisker Karma. During the Class Period. Defendants made materially false and misleading statements about A123's financial condition, A123's projected financial results, the value of the Company's investment in fisker, and the safety and efficacy of the Company's batteries. 3. Unbeknownst to investors, by the start of the Class Period. Fisker was experiencing serious financial problems. had defaulted on its loan from the DOE. and was effectively insolvent. This meant that it was just a matter of time before Fisker stopped purchasing and/or paying for A 123 batteries. Defendants had access to the non-public problems that Fisker was experiencing as A123 Vice President and executive officer Defendant Jason M. forcier ("forcier") served as adirector on Fisker's Board of Directors (the Fisker Board") during the Class Period. Yet, during the Class Period. Defendants continued to highlight and make positive statements about the Company's relationship with Fisker even though they knew the relationship was doomed to end in failure. 4. At the same time Defendants were reporting growing battery sales. A 123's batteries were plagued with defects. As detailed herein, A123 failed to adhere to a proper validation plan in manufacturing batteries for Fisker. A validation plan is a series of tests, including safety tests, that are typically performed by suppliers before shipping production quality components to automotive manufacturers. Defendants knew, or recklessly disregarded. that A123 failed to properly conduct a validation plan, causing the Company to ship defective batteries to Fisker that began malfunctioning almost immediately. As detailed further herein,

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