Securities Regulation Daily First Solar agrees to pay $350 million to settle fraud class action
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Tuesday, January 7, 2020

First Solar agrees to pay $350 million to settle fraud class action

By Rodney F. Tonkovic, J.D.

Subject to court approval, First Solar will settle claims that it artificially inflated its stock price by hiding problems with its solar panels.

First Solar, Inc. announced that it will settle an eight-year-old action alleging that it misrepresented the financial impact of manufacturing defects. The company agreed to pay $350 million to settle claims brought on behalf of purchasers of its shares between April 30, 2008 and February 28, 2012. The settlement is subject to court approval (Smilovits v. First Solar, Incorporated, January 6, 2020, Campbell, D.).

During a January 6, 2020 status conference, the parties informed the court that a settlement had been reached. The motion for preliminary approval is due on February 14, 2020, and the action will be dismissed with prejudice upon final approval. Mark Widmar, Chief Executive Officer of First Solar said: "While we are confident in the facts and the merits of our position, we believe it is prudent to end this protracted and uncertain class action litigation process, and focus on driving the business forward."

Two related actions remain pending. First, an action filed by putative stockholders that opted out of the settled action, Maverick Fund, L.D.C. v. First Solar, Inc., is underway in the District Court for Arizona. There is also a derivative lawsuit, Bargar v. Ahearn, filed in the Superior Court of Arizona (No. CV2013-009938).

Proximate cause. Investors in First Solar, Inc., a producer of solar panels, alleged that the company and its management concealed manufacturing defects and the financial impact of those defects. First Solar allegedly issued misleading public statements between 2008 and 2012 that distorted its share price until a series of disclosures over the course of two years partially corrected the misstatements; each disclosure was followed by a significant drop in share price.

The district court was tasked with weighing competing lines of Ninth Circuit case law on loss causation. The court opted to follow a line of cases stemming from In re Daou Systems, Inc. (9th Cir. 2005), in which loss causation is satisfied by drawing a causal connection between the misrepresented facts and the plaintiff's loss over a more restrictive line in which a market reaction to the fraud itself must be shown. Recognizing that the two lines of cases would lead to very different results, the court certified the loss causation issue for immediate interlocutory appeal to the Ninth Circuit, which affirmed, holding that the loss causation inquiry "requires no more than the familiar test for proximate cause."

Cert denied. First Solar then petitioned the Supreme Court for certiorari, challenging the Ninth Circuit's standard for loss causation. The petition asked whether a private securities-fraud plaintiff may establish loss causation based on a decline in the market price of a security where the event or disclosure that triggered the decline did not reveal the fraud on which the plaintiff’s claim is based. First Solar asserted that there was a three-way split in how the circuits require a plaintiff to show the market's reaction to information revealing the fraudulent nature of the defendant's conduct. The Ninth Circuit, the petition maintained, adopted a "dramatically less demanding" proximate cause standard, removing the established requirement that a plaintiff must prove that a price decline was the result of a revelation of a misrepresentation rather than some other intervening cause. Certiorari was denied in June 2019.

The case is No. 12-00555.

Attorneys: Daniel Drosman (Robbins Geller Rudman & Dowd LLP) for Mark Smilovits. Daniel Slifkin (Cravath, Swaine & Moore LLP) for First Solar Inc.

Companies: First Solar Inc.

MainStory: TopStory ArizonaNews FraudManipulation

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