By S. Douglas Bunch and Alice Buttrick
A basic premise of the federal securities laws is that investors are entitled to recover for harms caused by the revelation of a company’s false statements. But in First Solar Inc. v. Mineworks Pension Scheme, defendants argue that they cannot be held liable for losses caused by the revelation of the effects of their fraudulently concealed conduct until the fact of the fraud itself is also disclosed. After their arguments fell short at the trial and appeals court levels, they have petitioned the Supreme Court of the United States to consider their position. First Solar Inc., No. 18-164 (U.S.) (cert. petition pending).
During the class period alleged in the case, First Solar’s stock fell from nearly $300 per share to around $50. Plaintiffs allege that, during that period, defendants intentionally concealed the existence of serious defects in two of their products, and that, even after one of the defects was revealed, defendants continued to hide its full costs and impact. The market did not learn about the existence of the second defect during the class period. But defendants did incorporate the costs of the concealed defects into their earnings statements— albeit without explaining all the reasons for their poor performance to the public. Plaintiffs argue that their loss was caused, in part, by the market reaction to those statements. A trial court agreed that plaintiffs’ argument was sufficient to go to trial but permitted defendants to appeal that determination to the Ninth U.S. Circuit Court of Appeals.
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