Securities Fraud Court Matters

While a district court allowed the securities fraud claims brought under securities law against LightSpeed Environmental, Inc. & other defendants to go forward, the claims brought against the company under Section 12(a)(2) of the Securities Act were thrown out. The securities case is Wang v. LightSpeed Environmental, Inc.

The court said that while the plaintiff, Tonglin Wang, sufficiently alleged justifiable reliance, specific misrepresentations, and scienter, so that certain claims could proceed, he did not succeed in his claims that there was a prospectus or a public offering or that there was any verbal exchange made about the prospectus.

Wang is a Chinese businessman who wanted to invest in a US entity to obtain immigration status here via a federal program. In 2011, two individuals, who were LightSpeed agents (Wang did not know this), purportedly told him they would act as his translators and advisors. He then was introduced to David Tarrant, CEO of ASG. He had the majority of voting shares in LightSpeed.

The defendants marketed LightSpeed, which, along with ASG and Unicell, was supposedly developing “Quicksider,” an electronic, zero-emission delivery vehicle, as a viable investment to Wang. The businessman signed a subscription agreement in English, a language that he doesn’t understand. He then sent $1 million to LightSpeed for 120,000 shares.

After becoming suspicious of LightSpeed’s viability—Roger J. Martin, the CEO of Unicell, sent him a letter that made representations that Wang contends were not the same as what had been made to him. He then filed a securities fraud lawsuit.

While the court allowed certain claims to proceed, it found that the Sec. 12(a)(2) claim should be dismissed. Although Wang said the issue of whether not the offering was private or public was a factual matter, the court determined that the allegations made were not sufficient.

In other securities fraud court news, a district court has dismissed the complaint brought against Suntech Power Holdings Co. Ltd. because the factual allegations were not enough to support a claim. Bruce v. Suntech Power Holdings Co., Ltd. was filed after there was a drop in the solar energy company’s share price when it revealed that it might have been defrauded. Suntech filed a motion to dismiss, which the court granted leaving room to amend.

In 2010, Suntech had gone into guarantee of a loan that the China Development Bank had granted to an investee company. A third party gave Suntech a €560 pledge in German government bonds as security for the loan. The pledge let Suntech say that €2 million was the liability’s fair value for the loan guarantee. In July 2012, however, Suntech made known that it now thought that the bonds did not actually exist and that it had been defrauded. This caused its share price and convertible notes to go down significantly. After Suntech confirmed that the bonds were fraudulent it said it would have to substantially raise its loan liability valuation and take a net income reduction.

Plaintiffs said the company should have known (or did know) that the German government bonds never existed. They also accused Suntech of making misleading and false statements about the sufficiency of its financial and internal controls, as well as the liability and fair value involving the loan guarantee. They also believe that the company’s fair value assessment of the liability involving the loan guarantee was false.

The court said that plaintiffs did not offer facts to show that this was true or demonstrate any lack of due diligence. It also said that the plaintiffs did not succeed in adequately pleading that there was a strong inference of scienter and rejected a few of their other allegations, including a failure to plead lost causation.

If you are an institutional investor that has sustained investment losses that you believe were caused by financial fraud, contact our securities lawyers today.

Wang v. LightSpeed Environmental, Inc. (PDF)

Bruce v. Suntech Power Holdings Co., Ltd. (PDF)

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