(August 18, 2015) Investors in Suntech Power Holdings, once the world’s largest maker of solar panels, have reached a $5 million settlement with the company’s founder to resolve a securities fraud lawsuit over a loan deal backed by allegedly bogus German bonds.
The preliminary settlement, disclosed in a filing on Tuesday in a Northern California federal court, is subject to court approval. Lawyers at Pomerantz and Cohen Milstein Sellers & Toll served as lead counsel in the consolidated class action. Glancy Prongay & Murray served as liaison counsel.
Suntech, based in Wuxi, China, was one of dozens of Chinese companies caught up in allegations of financial frauds after selling shares on U.S. exchanges. The lawsuit said Suntech artificially inflated the price of its shares by not disclosing its true exposure under a $683 million guarantee it wrote on a China Development Bank loan in 2010.
The loan guarantee was ostensibly backed by about $690 million in German government bonds, but Suntech later discovered that the bonds did not exist, the lawsuit said.
The lawsuit said Suntech “recklessly chose not to conduct any meaningful due diligence” on the bond pledge.
The lawsuit’s claims against Suntech were halted when the company’s creditors petitioned to force it into bankruptcy in October 2013. Suntech’s founder and former Chief Executive Zhengrong Shi was the only defendant facing active claims.
Lawyers for Shi and Suntech did not respond to requests for comment.
Suntech’s shares fell 28 percent in two days of heavy trading in July 2012 after Shi disclosed on a conference call that its German bond collateral was apparently bogus.
The sham collateral left Suntech with “a massive but undisclosed liability,” the lawsuit said.
Defendants knew the bonds did not exist by February 2012 but did not disclose that until July 2012, the lawsuit said.
Once nicknamed China’s “Sun King,” Shi stepped down as Suntech’s chief executive in 2012 and was ousted as chairman in 2013, the lawsuit said.
A Suntech investment fund also faced criminal charges in Italy for allegedly illegal practices in obtaining energy subsidies.
In a motion to dismiss the lawsuit last year, lawyers for Shi said investors’ theory of fraud was implausible. As the Suntech’s largest shareholder, Shi stood to lose a large part of his personal fortune if the company had to honor its loan guarantee without any collateral.
The settlement covers investors who bought Suntech shares or convertible bonds between August 2010 and July 2012.
The case is Bruce v. Suntech Power Holdings Co., U.S. District Court California Northern District, No. 12-cv-4061.
For the plaintiffs: Lionel Glancy at Glancy Prongay & Murray,Daniel Sommers at Cohen Milstein Sellers & Toll and Patrick Dahlstrom at Pomerantz
For the defendants: Jerome Fortinsky, Stephen Hibbard and H. Miriam Farber at Shearman & Sterling.