PHOENIX (CN) – Top bosses at First Solar, one of the world’s largest makers of thin film solar panels, sold $400 million of their own shares after “downplaying” the extent of production problems that would cost the company $254 million to fix, a shareholder says in a federal derivative complaint.
Britt Nederhood claims two CEOs and 10 other top officers of the solar energy company issued false and misleading statements that it would cost the company less than $30 million to replace defective modules between June 2008 and 2009.
“The company disclosed that only 4 percent of its products were affected and that the problem had been ‘addressed,'” the complaint states. “The company initiated a remediation program to remove and replace the defective solar modules. The estimated cost of the program was supposedly less than $30 million.”
However, the complaint continues: “In February 2012, First Solar revealed the true impact of the remediation program. The company had incurred nearly $254 million of warranty and related charges for certain underperforming solar panels, nearly 10 times more than originally disclosed to shareholders.
“First Solar’s management, however, knew the true impact of the remediation program on the company’s financial position and business prospects. While the company was downplaying the effect of the remediation program, First Solar’s management unloaded 2,774,892 of their personally held shares of First Solar stock for proceeds of nearly $400 million.
“During the relevant period, First Solar’s management caused the company to make false and misleading statements about the company’s business, operations, and prospects. Specifically, they made false and misleading statements and/or failed to disclose that: (1) the full impact of certain manufacturing flaws on the company’s earnings; (2) that the company was improperly recognizing revenue concerning certain products in its systems business; and (3) that the company lacked adequate internal and financial controls.
“Plaintiffs bring this derivative action to (i) recover damages against First Solar’s directors and officers for the benefit of the company and (ii) require the company to reform and improve its corporate governance and internal procedures to protect First Solar and its shareholders from a repeat of the damaging events described below.”
Defendants include founder, Chairman of the Board and former interim CEO Michael Ahearn; former CEO Robert Gillette; CFO Mark Widmar; former CFO Jens Meyerhoff; former Chief Accounting Officer James Zhu; and directors Craig Kennedy, James Nolan, William Post, J. Thomas Presby, Paul Stebbins, Michael Sweeney, and Jose Villarreal.
The “Insider Selling Allegations,” on page 22-23 of the complaint (click on icon on CNS home page) claim $399,551,901 in inside sales of stock, $372,1818,969 of which are attributed to defendants Meyerhoff, Sweeney, Nolan and Ahearn.
Nederhood seeks damages for breach of fiduciary duty, abuse of control, and gross mismanagement, and wants First Solar ordered to reform and improve its corporate governance.
Nederhood is represented by Hart Robinovitch with Zimmerman Reed, of Scottsdale.