UNITED STATES DISTRICT COURT
DISTRICT OF NEW MEXICO
) No.
JAY MUELLER, Individually and on Behalf of All )
Others Similarly Situated,
)) CLASS ACTION
Plaintiff,
V.
) COMPLAINT FOR VIOLATIONS
OF THE FEDERAL SECURITIES
) LAWS
EMCORE CORPORATION, ADAM GUSPIARD, )
HONG Q. HOU, REUBEN F. RICHARDS, JR.,
)
DAVID DANZILIO, AND THOMAS WERTHAN )
Defendants.
)
DEMAND FOR JURY TRIAL
Plaintiff Jay Mueller, by and through his attorneys, alleges the following upon information
and belief, except as to those allegations concerning Plaintiff, which are alleged upon personal
knowledge. Plaintiffs information and belief is based upon, among other things, his counsel's
investigation, which includes without limitation: (a) review and analysis ofregulatory filings made
by Emcore Corporation ("Emcore" or the "Company") with the United States Securities and
Exchange Commission ("SEC"); (b) review and analysis ofpress releases and media reports issued
by and disseminated by Emcore; and (c) review of other publicly available information concerning
Emcore.
NATURE OF THE ACTION AND OVERVIEW
1.
This is a federal class action on behalf ofpurchasers ofEmcore's securities between
June 12, 2007 and June 30, 2008, inclusive (the "Class Period"), seeking to pursue remedies under
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
the Securities Exchange Act of 1934 (the "Exchange Act").
2.
Emcore provides compound seiconducter-based components and subsystems for
the broadband, fiber optic, satellite, and terrestrial solar power markets, including concentrating
photovoltaic ("CPV") systems.
3.
Emcore' s terrestrial solar business was highlighted as a driver of the Company's
future growth. Throughout the Class Period, Emcore touted its order backlog to the market and
research analysts, investors, and other market participants relied on the Company's reported order
backlog as an indication of future profitability. During the Class Period, Emcore repeatedly
announced multiple purchase orders from a number of different customers.
4.
On March 18, 2008, a report by Citron Research (the "Citron Report") on the market
shocked investors by challenging the quality of Emcore's customers, the customers' ability to pay
for the orders placed with Emcore, and the overall quality of Emcore ' s reported backlog. In
particular, the Citron Report asserted that Emeore' s largest customer, Green and Gold Energy
("GGE"), which accounted for $78 million ofEmcore ' s $86 million order backlog interrestrial solar
technology, did not actually have the ability to pay for the orders that GGE had placed with Emcore,
Moreover, the Citron Report called into question the veracity of Emcore's claim that GGE was a
"world-leading CPV system provider" and GGE's ability to otherwise complete its transactions or
meet its agreements with Emcore.
5.
On this news, shares of Emcore declined $2.05 per share, more than 23%, to close
on March 18, 2008 at $6.78 per share, on unusually heavy volume.
6.
On June 30, 2008, a report on the market issued by research analysts from Canaccord
Adams shocked investors by revealing that, among otherthings, upon meeting with ES Systems, one
CLASS ACnON COMPLAINT POR VIOLATIONS OF THE FEDERAL SECUMIES LAWS
2
ofEmcore's customers in South Korea, and touring ES Systems' facilities, the analysts believed that
the "market expectations of 70MWs with ES Systems (based on Emcore] announcements) are
overstated."
7.
On this news, shares of Emcore declined $0.97 per share, or 13.42%, on Monday
June 30, 2008, and further declined an additional $0.68, or 10.86%, on July 1, 2008 to close on July
1, 2008 at $5.58 per share, on unusually heavy volume. Over this two day period, Emcore's shares
declined by $1.65 per share, or approximately 22.82%.
8.
The Complaint alleges that, throughout the Class Period, Defendants made false
and/or misleading statements , as well as failed to disclose material adverse facts about the
Company's business , operations, and prospects . Specifically, Defendants made false and/or
misleading statements and/or failed to disclose : (1) that the Company' s reported backlog was
overstated; (2) that the Company overstated the demand for its products ; (3) that the Company had
improperly recognized revenue from transactions with customers that did not have the ability to pay
the Company; (4) that, as a result of the above, the Company's financial results were overstated; (5)
that the Company's financial results were not prepared in accordance with Genera lly Accepted
Accounting Principles ("GAAP"); (6) that the Company lacked adequate internal and financial
controls; and (7) as a result of the above, the Company's financial statements were materially false
and misleading at all relevant times.
9.
As a result of Defendants' wrongful acts and omissions, and the precipitous decline
in the market value of the Company's securities, Plaintiff and other Class members have suffered
significant losses and damages.
CLASS ACTON COMPLAINT FOR VIOLATIONS OF ' frlE FEDERAL SECURITIES LAWS
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JURISDICTION AND VENUE
10.
The claims asserted herein arise under §§10(b) and 20(a) of the Exchange Act (15
U.S.C. §§78j and 78t(a)) and Rule 10b-5 (17 C.F.R. §240.10b - 5) promulgated thereunder by the
SEC (17 C.F.R. § 240.10b.5).
11.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §1331 , §27 of the Exchange Act (15 U.S.C. §78aa).
12.
Venue is proper in this Judicial District pursuant to §28 U.S.C. §1391(b), §27 of
the Exchange Act (15 U.S.C. §78aa(c)). Substantial acts in furtherance of the alleged fraud or the
effects of the fraud have occurred in this Judicial District. Many ofthe acts charged herein,
including the preparation and dissemination of materially false and/or misleading information,
occurred in substantial part in this District. Additionally, Emcore's principal executive offices are
located within this Judicial District.
13.
In connection with the acts, transactions, and conduct alleged herein, Defendants
directly and indirectly used the means and instrumentalities of interstate commerce, including the
United States mail, interstate telephone communications, and the facilities of a national securities
exchange.
PARTIES
14.
Plaintiff Jay Mueller, as set forth in the accompanying certification, incorporated by
reference herein, purchased Emcore common stock during the Class Period, and suffered damages
as a result of the federal securities law violations and false and/or misleading statements and/or
material omissions alleged herein.
15.
Defendant Emeore is a New Jersey corporation and maintains its principal executive
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
4
16.
Defendant Adam (nshard ("Gushard") was, at all relevant times, Interim Chief
Financial Officer and Vice President of Finance of Emeore.
17.
Defendant Hong Q. Idou ("Hou") was, at all relevant times, President, Chief
Operating Officer, and a member of the Board of Directors of Emcore until March 31, 2008, and
thereafter, at all relevant times, Chief Executive Officer ("CEO") and a member of the Board of
Directors of Emcore.
18.
Defendant Reuben F. Richards, Jr. ("Richards") was, at all relevant times, CEO and
a member of the Board of Directors of Emcore until March 31, 2008, and thereafter, at all relevant
times, Executive Chairman and Ch airman of the Board of Directors of Emcore.
19.
Defendant David Danzilio("Danzilio' )was,atvariousrelevanttimes, Vice President
and General Manager of Emcore's Photovoltaic Division.
20.
Defendant Thomas Werthan ("Werthar") was formerly Chief Financial Officer
of Emcore from 1992 through February 2007, and was, at all relevant times, a director of Emcore
until he resigned his seat on the Company's Board of Directors on April 1, 2008.
21.
Defendants Gushard, Hou, Richards, Danzilio, and Werthan, are collectively referred
to hereinafter as the "Individual. Defendants." The Individual Defendants, because oftheir positions
with the Company, possessed the power and authority to control the contents ofEmeore' reports to
the SEC, press releases and presentations to securities analysts, money and portfolio managers and
institutional investors, i.e., the market. Each defendant was provided with copies of the Company's
reports and press releases alleged herein to be misleading prior to, or shortly after, their issuance and
had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
5
their positions and access to material non-public information available to them, each of these
defendants knew that the adverse facts specified herein had not been disclosed to, and were being
concealed from, the public, and that the positive representations which were being made were then
materially false and/or misleading. The Individual Defendants are liable for the false statements
pleaded herein, as those statements were each "group-published" information, the result of the
collective actions of the Individual Defendants.
SUBSTANTIVE ALLEGATIONS
Background
22.
Emcore provides compound semiconducter-based components and subsystems for
the broadband, fiber optic, satellite, and terrestrial solar power markets, including concentrating
photovoltaic {"CPV") systems.
Materially False and Misleading
Statements Issued During the Class Period
23.
The Class Period begins on June 12, 2007. In a letter dated that day, Emcore
announced that the Company had entered into a "strategic supply agreement" with GGE to supply
solar cells for use in GGE's "sun cube" product. Therein, Defendant Danzilio, in relevant part,
stated:
EMCORE Photovoltaics Division has entered into a strategic supply agreement with
Green and Gold Energy of Adelaide, Australia to [sic] the uninterrupted supply of
multijunction solar cells designed for use in the Green and Gold Sun Cube solar
power system. As the largest manufacturer if [sic] multijunction solar cells to the
concentrating PV industry, EMCORE is given the opportunity to assess the various
CPV system approaches being developed worldwide and it is my assessment that the
design of GGE Sun Cube represents a true market advantage in terms of
manufacturing cost, performance and ultimately cost ofpower delivered to the grid.
It is my opinion that the Green and Gold Sun Cube is in the best position in the CPV
industry to enable large scale (10-50MW) solar farms. To that end, EMCORE has
CLASS ACTION COMPLAINT FOR VIO.LATTONS OF THE FEDERAL SECURITIES LAWS
6
entered into a multi-year strategic supply agreement and has initiated the capital
investment necessary to ensure present and future solar cell delivery commitments
to Green and Gold Energy.
I took forward to a long and rewarding business relationship with Green and Gold
Energy.
24.
On August 29, 2007 Emcore issued a press release entitled, "EMCORE Receives a
$24 Million Purchase Order for Concentrator Solar Cells from. Green and Gold Energy." Therein,
the Company, in relevant part, stated:
Award of the Industry's Largest Concentrator Solar Cell Order to Date A nns
EMCOPE`s Position as the Technology and Manufacturing Leader and Signals the
Maturation ofthe Concentrator Photovoltaics (CPT) Market
Albuquerque, NM, August 29, 2007 -- EMCORE Corporation (NASDAQ: EMKR),
a leading provider of compound semiconductor-based components and subsystems
for the broadband, fiber optic, satellite, and terrestrial solar power markets,
announced today that it has been awarded a follow-on production order from Green
and Gold Energy (GGE) for 3 million solar cells for use in GGE's SunCubeTM
terrestrial. concentrator system. This 105 MW purchase order represents the largest
procurement of concentrator solar cells in the industry to date and is a follow-on
order to an initial 5 MW order placed earlier this year. All hardware ordered under
this contract is to be shipped by the end of 2008.
EMCORE will ship its industry leading Concentrator Triple-Junction (CTJ) solar cell
products, which have b= designed and optimized for Green and Gold Energy's
1100x CPV system. EMCORE has demonstrated record conversion efficiency of
39% under these high concentration conditions and this performance will enable the
most cost effective CPV system on the market today. These ultra-high efficiency
CPV cells are presently in volume production for multiple customers in a variety of
cell sizes.
Based in Glynde, Australia, Green and Gold Energy is a world-leading CPV system
provider (www.greenandgoldenergy.com.au). With strong support from Australian
government, they plan to deploy solar power farms employing their SunCubeTM
low-cost CPV system. GGE is also entering into distribution agreements with several
partners, representing a potential for more than 500 MW of annual demand. The
SunCubeTM CPV has been designed to produce power at a cost lower than
traditional photovoltaic technologies.
CLASS ACTION COMPLAINT FOR VIOLATIONS OF TIE FEDERAL SECURITIES LAWS
Greg Watson, CEO of Green and Gold Energy, stated "EMCORE's solar cell serves
as the key enabling technology in our SunCubeTM CPV system. The patent pending
SunCube together with its supporting technologies and the EMCORE cell, are
receiving worldwide recognition as the CPV system capable ofdelivering truly fossil
fuel competitive energy."
As a part of the planned highvolume product roadmap , EMCORE's continuing
investment in technological innovation will enable the introduction ofCPV solar cell
products with conversion efficiencies ofgreater than 40% under highly concentrated
illumination operating conditions required for next generation, cost competitive CPV
systems.
"We are very pleased to receive this follow-on order from Green and Gold Energy,"
said David Danzilio, Vice President and General Manager of EMCORE's
Photovoltaics Division. "EMCOREs CPV solar cells are optimized for our
customers' systems to yield state-of-the-art performance with the lowest cost per
kW-hr. This 105 MW production contract confirms EMCORE's position as the leader
in concentrator cell technology and high volume manufacturing. EMCORF is
committed to continually investing in our concentrator cell technology and further
expansion ofour manufacturing capacity to meet the growing requirements ofpresent
and future customers," added Mr. Danzilio.
(Emphasis in original).
25.
Following the completion ofits voluntary review of historical stock option granting
practices, on November 1, 2007 Encore filed with the SEC the Company's Annual Report on
Form IO-K for the 2006 fiscal year ended September 30, 2006 and its Quarterly Reports on Form.
10-Q for the quarters ended December 31, 2006, March 31, 2007, and June 30, 2007.
The
Company's 10-K. was signed by Defendant Richards and the Company's 10-Qs were signed by
Defendants Richards and Gushard.
26.
The Company's 10-K and 10-Qs filed on November 1, 2007 also contained
Sarbanes-Oxley required certifications, signed by Defendants Richards and Gushard, who certified:
1.
I have reviewed this Annual Report on Form 10-K ofEMCORE Corporation
("Report");
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURTFIES LAWS
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2.
Based on my knowledge, this Report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this Report;
4.
The registrant's other certifying officers and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a 15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f)and 15d-15(f)) for the
registrant and have:
5.
a.
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this Report is being prepared;
b.
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c.
Evaluated the effectiveness ofthe registrant's disclosure controls and
procedures and presented in this Report our conclusions about the
effectiveness of the disclosure controls and procedures, as ofthe end
of the period covered by this Report based on such evaluation; and
d.
Disclosed in this Report any change inthe registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
The registrant's other certifying officer(s) and I have disclosed, based on our
CLASS ACTION COMPLAIW FOR VIOLATIONS OF TI-M FEDERAL SECURmES LAWS
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
27.
a.
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
On December 17, 2007 Encore issued a press release entitled , "EMCORE
Corporation Announces Preliminary Unaudited Results for its Fourth Quarter and Fiscal Year Ended
September 30, 2007." Therein, the Company, in relevant part, stated:
Photovoltaics revenue increased 116% for the fourth quarter of fiscal 2007 to $15.8
million when compared to $7.3 million reported last year, and decreased 7% from
$16.9 million reported from the prior quarter. For the year ended September 30,
2007, Photovoltaics revenue increased 54% to $59.7 million from $38.7 million, as
reported in the prior year. The decrease in sequential quarterly revenue in our
Photovoltaics segment was due to the timing of certain order shipments. On an
annual basis, revenue for our Photovoltaics segment exceeded expectations. The
annual increase in revenue was primarily due to increased demand of solar cells and
panels for commercial satellites, government engineering programs, and emerging
business of concentrator solar cells for terrestrial power applications. On a quarterly
basis, fiscal 2007 Photovoltaics revenue was $13.4 million, $13.6 million, $16.9
million and $15.8 million.
As of September 30, 2007, EMCORE had an order backlog of approximately $149
million as compared to a backlog of approximately $48 million from the prior year.
The September 30, 2007 order backlog is comprised of $127 million for our Solar
Power segment and $22 million for our Fiber Optics segment. Within our Solar
Power segment, $57 million relates to our satellite solar power business and $70
million relates to our terrestrial solar power business. The significant increase in
order backlog is attributable to the receipt of long-term photovoltaics-related sales
contracts, of which approximately $45 million is scheduled for shipment after
calendar year 2008.
CLASS ACTON COMPLAINT FOR VIOL.A71ONS OF THE FEDERAL SECURITIES LAWS
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Marra etnent Discussion and Outlook:
"Fiscal 2007 was a year of transition at EMCORE. We consolidated operations,
transferred product manufacturing to our new facility in China, extended our industry
leading satellite photovoltaics product line to serve the terrestrial solar power market
and experienced continued growth in our broadband CATV product line. Our
primary objective for the coming year is to achieve positive earnings per share in
2008. We are well positioned in each of our core product markets and foresee
continued improvement in our competitive position across all segments" stated
Reuben F. Richards, Jr., Chief Executive Officer.
(Emphasis in original).
28.
On December 19, 2007 analysts at Canaccord Adams issued a report raising the
target price for Emcore's stock to $16 per share. The analysts cited the "strong visibility and
growth" in Emeore's photovoltaics business, which the analysts stated, "warrant[s] a 5.Ox multiple
on forward sales . Applying this multiple on our C2008 sales estimates of $77M in space and $70M
in terrestrial applications results in a market value of $735M. Using these figures we derive a total
market value of $1.039M, which supports our $16.00 price target."
29.
On December 31, 2007, Emcore filed its Annual Report with the SEC on
Form 10-K. The Company's 10-K was signed by Defendant Richards, and reaffirmed the Company's
financial results previously announced onDecember 14, 2007. The Company' s 10-K also contained
Sarbanes-Oxley required certifications, signed by Defendants Richards and Gushard, substantially
similar to the certifications contained in ¶26, supra. Therein, the Company, in relevant part, stated:
Order Backlog
As of September 30, 2007, we had an, order backlog based on future billings of
approximately $149 million as compared to a backlog of approximately $48 million
from the prior year. The September 30, 2007 order backlog is comprised of $127
million for our Photovoltaics segment and $22 million for our Fiber Optics segment.
Within our Photovoltaics segment, $57 million relates to our satellite solar power
business and $70 million relates to our terrestrial solar power business. The
significant increase in order backlog is attributable to the receipt of long-term
CLASS ACTION COMPLAINT FOR VIOLATIONS OF TBE FEDERAL SEGURFI'IES LAWS
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photovoltaics-related sales contracts, of which approximately $45 million is
scheduled for shipment after calendar year 2008.
(Emphasis in original).
30.
On January 23, 2008 Eracore issued a press release entitled, "EMCORE Receives
Additional Orders To Supply Spanish Market With Its Concentrator Solar Photovoltaic Components
And Systems." Therein, the Company, in relevant part, stated:
Contract awards in Spain total approximately $18 million over the next 15 months
ALBUQUERQUE, New Mexico, January 23, 2008 - EMCORE Corporation
(Nasdaq: EMKR - News), a leading provider of compound semiconductor-based
components and subsystems for the broadband, fiber optic, satellite, and terrestrial
solar power markets, announced today that it will supply its world-leading solar
Concentrator Photovoltaic (CPV) components and systems to the Spanish market
through several agreements.
In November 2007, EMCORE was awarded a 300-kilowatt (kW) CPV system
contract by Spain's Institute of Concentrator Photovoltaics Systems (ISFOC).
Established in 2006, the ISFOC is to be the center of reference on the power,
reliability, and productivity of commercial CPV systems. EMCORE will have its
CPV systems installed in Castilla-La Mancha, Spain by December 2008.
In January 2008, EMCORE reached an agreement to construct an 850-kW solar
power park in Extremadura, Spain. EMCORE will be utilizing its CPV solar power
system and provide a turn-key solufion with a scope of work including engineering,
procurement, and construction (EPC). This project will be completed before July
2008 in order to take advantage ofthe current high feed-in tariff. The success ofthis
project will help EMCORE to build heritage as an EPC contractor in Spain.
Already recognized as a leading supplier of CPV solar cell and receiver components,
EMCORE recently received a purchase order for one million CPV components from
aprominent CPV system integrator. This order is expected to be completed by March
2009 with CPV products being deployed in projects within the Spanish market.
"These purchase orders from various customers mark the acceptance of our CPV
technology and product solutions as high-performance and low-cost solar power
system in the Spanish market, and represent a success for our business development
efforts in Spain. We expect additional and larger contracts from Spain once the new
feed-in tariff settles," said Dr. Hong Hou, President and Chief Operating Officer of
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
12
EMCORE. "The CPV solution is still in the early growth stages. As the world's
primary supplier of CPV components, we expect to grow our CPV business
dramatically as the market is more developed and deployed," added Dr. Hou.
EMCORE's CPV solar cells are designed with high-efficiency compound
semiconductor-based triple junction solar cells. EMCORE obtained a 39% peak
conversion efficiency under 1000x concentration in August 2007. EMCORE is
supplying CPV solar cells and receivers in volume to more than twenty different
customers worldwide, and as previously announced, ENCORE already has plans to
supply its CPV systems to Canadian and Korean markets as well. EMCORE
continues to invest in advancing the solar cell technology to a projected efficiency of
greater than 45% by 2010. EMCORE's CPV systems are powered by its industry
leading solar cells that operate with a 500x concentration to provide a lower
cost-per-watt than competing technologies.
(Emphasis in original).
31.
On January 24, 2008 analysts at Canaccord Adams reiterated a buy rating on
EYncore's stock and maintained the price target of $16 per share. The analysts stated that Emcore
"stand[s] out among its peers as a company with a growing backlog of wins."
32.
On February 6, 2008 Emcore issued a press release entitled, "EMCORE Corporation
Announces 2008 Revenue Guidance and Preliminary Unaudited Results For Its First Quarter Ended
December 31, 2007." Therein, the Company, in relevant part, stated:
-
Including our pending acquisition, fiscal 2008 annual revenue guidance is
estimated at $265 - $285 million, an increase of 25% from our previously
provided revenue guidance and a 60% increase when compared to prior year
annual revenue of $170 million
-
Including our pending acquisition, calendar year 2008 revenue guidance is
estimated at $340 million
-
Quarterly revenue increased 21% year-over-year to approximately $47
million
Quarterly gross margin increased from 14% to 21% year-over-year
-
Including our pending acquisition, 2nd quarter revenue guidance is estimated
at $56-57 million
CLASS ACTION COMPLAINT FOR VIOLATIONS OF TfV_ FEDERAL. SECURITIES LAWS
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... Photovoltaics revenue totaled approximately $13 million, which represents a
decrease of 3% from $13.3 million reported last year and a decrease of 18% from
$15.8 million reported from the prior quarter. Our Photovoltaics division experienced
delivery and installation delays on capital equipment purchased for its new
concentrator photovoltaics (CPV) solar cell and receiver manufacturing line. The
delayed equipment caused a shortfall of approximately $3.0 million in revenue
associated with scheduled CPV receiver shipments. All required capital equipment
is expected to be on line in the current quarter and shipment ofCPV receivers should
commence shortly. We expect to make up the revenue shortfall in the current fiscal
year with no impact to fiscal 2008 revenue guidance.
As ofDecember 31, 2007, the Company had an order backlog ofapproximately $156
million as compared to a backlog of approximately $149 million as of September 30,
2007. The December 31, 2007 order backlog is comprised of $142 million for our
Photovoltaics segment and $14 million for our Fiber Optics segment. Within our
Photovoltaics segment, $53 million relates to our satellite solar power business and
$89 million relates to our terrestrial solar power business.
Management Discussion and Outlook:
"Fiscal 2008 has started on a positive note with our recent success in developing
large CPV solar power system opportunities to be deployed in the Canadian, South
Korean and Spanish markets. We are also very excited about the opportunity to
supply up to 700 MW of solar power systems in the southwestern region of the
United States. Our order backlog for CPV components continues to increase. Our
Fiber Optics divisions continue to experience significant revenue growth both
year-over-year and quarterly and the recently announced acquisition of Intel's
telecom assets compliment our digital fiber optic product portfolio. We are pleased
with the improvement in operating margins and we remain confident that 2008 will
be a year of solid earnings improvement and profitability for the Company. Calendar
year 2008 revenue is expected to exceed $340 million, and the progress in each of
our business segments continues to point towards the path of separating EMCORE
into two separate companies," stated Reuben F. Richards, Jr., Chief Executive
Officer.
(Emphasis in original).
33.
On February 8, 2008 analysts at Canaccord Adams issued a report again reiterating
a buy rating for Emcore's stock and maintained a price target of$16 per share. Therein, the analysts,
CLASS ACTION COMPLAINT FOR VIOLATIONS OF TM FEDERAL SECURITIES LAWS
14
in relevant part, stated:
Backlog at December 31,2007 was $156M, $142M ofwhich was PV. Within the PV
backlog, $53M vas for satellite and $89M was in terrestrial. $39M is associated with
Green and Gold, and the total backlog does not include the recent MODs in Canada,
Spain, Korea or the SunPeak announcement. Guidance indicates around $112M in
December 2008, as many of these solar wins begin to ramp.
34.
On February 11, 2008, Emcore filed its Quarterly Report with the SEC on Form
10-Q. The Company's 10-Q was signed by Defendants Richards and Gushard, and reaffirmed the
Company's financial results previously announced on February 6, 2008. The Company's I O-Q also
contained Sarbanes-Oxley required certifications, signed by Defendants Richards and Gushard,
substantially similar to the certifications contained in ¶26, supra.
35.
On February 27, 2008 Emcore issued a press release entitled, "EMCORE Receives
$39 Million in New Orders for Concentrator Solar Cell Receiver Assemblies from Green and Gold
Energy." Therein, the Company, in relevant part, stated:
Worldwide deployment is driving a dramatic ramp-up of EMCORE's
concentrator photovoltaics (CPV) receiver products. EMCORE's receiver
assembly line commences high-volume production
Albuquerque, NA4, February 27, 2008 ""' EMCORE Corporation (NASDQ: EMKR),
a leading provider of semiconductor-based components and subsystems for the
broadband, fiber-optic, satellite and terrestrial solar power markets, announces today
that it has been awarded a follow-on production order of $39 million for additional
solar cell receiver assemblies. These receivers are to be deployed in Green and Gold
Energy's SunCube CPV systems through its world-wide licensees. Additionally,
EMCORE has received purchase orders from several other leading CPV system
integrators for CPV receiver assemblies. The current backlog for this product line has
increased to approximately $86 million. This backlog was reported inEMCORE's Q 1
release for fiscal year 2008. Production of CPV receiver assemblies has commenced
at EMCORE's high-volume manufacturing line located in Albuquerque, New
Mexico.
EMCORE has recently introduced a line of integrated solar cell receiver assemblies
optimized for operation at 500x to I000x concentration, which provide terrestrial
CLASS ACTION COMPLAINT FOR VIOLATIONS OF TR E FEDERAL SECURITIES LAWS
15
systems integrators a complete photovoltaics solution for their CPV systems.
EMCORE's unique CPV receiver assembly is easily integrated into existing
concentrating PV systems and has emerged as the most desirable form in the
industry. By choosing EMCORE's complete and highly reliable receiver solution,
CPV system developers are able to focus their full efforts on advancing their optical
design and optimizing the balance ofthe system, significantly reducing their time to
market.
David Danzilio, Vice President and General Manager of EMCORE's Photovoltaics
Division stated, We are delighted that Green and Gold Energy has recognized the
market advantage provided by EMCORE's CPV receiver solution. This product fits
seamlessly into GGE's existing optical design and eliminates the cost and time
required to internally develop this critical element of the system.. The conversion of
GGE's initial solar cell order to CPV receiver assemblies, as well as the new $39M
purchase order, demonstrates both the high confidence our customers have in
EMCORE and the realization that our cell receiver assembly provides the shortest
time to market for their system." Danzilio added, "This highly differentiated product
has gained broad industry acceptance and we see increasing demand from multiple
customers around the world. We are currently expanding our production capacity for
both solar cells and cell receiver assemblies at our Albuquerque factory, and we
entered 2008 with a record firm order backlog exceeding 300 MW. EMCORE's
continued investment will continue to provide our CPV customers assured supply of
the critical engine driving the deployment of economically viable terrestrial CPV
systems."
(Emphasis in original).
36.
The statements contained in 1123.27, 29-30, 32, and 34-35, were materially false
and/or misleading when made because defendants failed to disclose or indicate the following: (1)
that the Company's reported backlog was overstated; (2) that the Company overstated the demand
for its products;(3) that the Company had improperly recognized revenue from transactions with
customers that did not have the ability to pay the Company; (4) that, as a result of the above, the
Company's financial results were overstated; (5) that the Company's financial results were not
prepared in accordance with Generally Accepted Accounting Principles; (6) thatthe Company lacked
adequate internal and financial controls; and (7) as a result of the above, the Company's financial
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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statements were materially false and misleading at all relevant times.
The Truth Begins To Emerge
37.
On March 18, 2008 a report on the market entitled, "Citron Research shines some
daylight on Emcore's solar business " shocked investors when it called into question the quality of
Emcore's customers and the customers' ability to fulfil orders placed with Emcore. In particular,
the report challenged whether GGE actually had the ability to pay for the so-called "orders" that
GGE had placed with Emcore. Therein, the report, in relevant part, stated:
It is difficult to write any financial story this week without referring to the complete
debacle at Bear Steams. While there are many lessons here, the pre-eminent one is
the corruption ofj udgment induced by OPM (Other People's Money). With the huge
fees and cash bonuses generated by indis criminate Wall Street dealmaking, the most
fundamental principle has gone out the window: "When you make a loan, lend it out
as if you were risking your own money, and when you recommend a stock to the
public, act as if your mother was asking for investment advice."
Thinking about the sad state of OPM leads us to our newest entry to the Citron
biog... Emcore Corp. (NASDAQ:EMKR) which sports a market cap ofnearly $700
million, after one of the worst operating histories Citron can recall. Emcore has
racked up operational losses for 14 ofthe last 15 years - $340 million in losses offset
by Just $1 million in gains - in. 1995. With its low margin sales, gigantic SG&A
expenses and a history of overpromising and under-delivering, you have to wonder
if the company has forgotten all about the principle of making a profit - last year the
loss ballooned to $58 million - and the share count bloated to more than 70 million,
right in step. OPM baby.
As of last filing the company had approximately $30 mil in cash while they were
burning $15 million a quarter. Emcore has 3 units: Fiber optics, space solar, and solar
energy. The first two businesses are flat and sell technology commodities that have
proven consistently unprofitable, and wouldn't be worth more than $2 a share. This
leaves the company with their golden child: a Solar Energy business that Wall St.
deems worthy of a fat market cap.
But Emeore's solar business is built on a foundation of illusions. Citron will now
show that Emcore has deceived the public about the quality of their customers and
their customer's ability to fulfill these alleged orders.
CLASS ACTION COMPLAINT FOR VIOLATIONS OF TIE FEDERAL SECURITIE-S LAWS
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Shining the Light on Erncore's Solar Business
Emcore has been in the solar technology business for more than a decade. Its gallium
arsenide cells have always produced electricity more efficiently than polysilicon, and
it works with high concentrations of light. The drawbacks, however, doom it to a
narrow niche ---- irrelevant in the current push for high-volume, mass-scale, low cost
power production. The high cost of putting weight into orbit makes Gallium
Arsenide technology cost effective in space, but it's prohibitively expensive on earth
--- up to 100 times the cost of a polysilicon solar cell.
http://encyclopedia.stateuniversity.corn/pages/20920Isolar-celLhiml
It's also really toxic, and doesn't work at all under hazy conditions.
In contrast to the major polysilicon solar companies, who have earned market value
by racking up huge multi-year supply agreements with credible counterparties,
Emcore has strung together a group of sham deals to make it appear to be a player in
the terrestrial solar business. Citron is incredulous that Wall Street's analysts have
swallowed this story without doing any fact-checking whatsoever. Instead the
analysts have been fawning on the prospects ofErn.core's supposed backlog and deal
flow.
But what do you expect -- it's the same group of analysts whose consensus earnings
estimates underestimated EMKR's losses in the lasttwo quarters by 1000% - a miss
of over $28 million in six months - and yet wouldn't dream of a downgrade.
1) Green and Gold Energy
As you can see in Jefferies' analyst John Lau's notes last week, Encore is banking
heavily on Green and Gold Energy as a critical part of Emcore's backlog:
This order was restated in Emcore's 10-K in which it states it ended FY 2007 with
$142 million solar backlog of which "terrestrial" represents $89 million.
Then in February, the company announced an additional $39m order from Green and
Gold, and restated its $86m terrestrial solar backlogged orders.
So that's $65 million ($78in according to Green and Gold's PR), or appx 75% (or
86%) of Emeore's backlog for terrestrial solar products. The question: is whether
there is any prospect whatsoever of Green and Gold being able to pay for this order.
Citron has done considerable research on Green and Gold and believes the company
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
18
does not have the money or capacity to fulfill the purchase commitments reflected
in these press releases.
Consider the following:
The CEO and founder of Green and Gold Energy is Gregory Watson. Before Green
and Gold, Mr. Watson promoted perpetual motion machines.
But that turned out to be a bust
Mr. Watson then moved on to the "SunBall". He then abandoned those claims in
favor of the SunCube - promised for future sale to the public in 2007. But he
retreated from those claims, and now claims giant solar farms will be built with
SunCube's, built with Emcore's solar cells.... only one problem. His company states
that it doesn't have a yet have plant to produce its SunCube, and doesn't have the
financing for the plant, but it does have an "intention" to build it!
Beyond the lack of production capacity, the SunCube itself comes with a fair share
ofcontroversy. Observers at the much promoted unveiling ofthe SunCube prototype
at an Adelaide park last month commented that:
»
>>
The SunCube didn't have any heavy electrical wires running from the
unit
There was no electrical load attached, nor any meter to measure how
much electricity the unit was producing, if any.
The unit wobbled noticeably in a light breeze - enough to take it out
of solar alignment.
http://www.flickr.com/photos/8621502@NO4/2270388475/
Its "exclusive distributor", Zolar Distributors (see banner in above photo) has a
website but no address or phone number. http://www.zolardistiibutors.coml
Emcore has admitted that it has received only $500,000 from Green and Gold.
Citron believes that whatever it has received is the only money it will ever see from
this fantasy, and it is the height of corporate malfeasance to use any of the $65rn or
$78m claimed for future sales to Green and Gold as part of its revenue guidance.
CLASS ACTION COMPLAINT' FOR VIOLATIONS OF THE FEDERAL SECURJITES JAWS
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They' ve had over six months to do their own due diligence , but they persist in
insisting this customer is the anchor of their backlog. Analysts should wake up.
For some fun reading, here is some of the solar tech community's commentary on
Emcore's future largest customer.
http://www. mudcat. org/thread.cfm?tlireadid=102146&messages=8
SunPeak Energy
Emcore released PR for a "memorandum of understanding" regarding a multi-year
agreement to supply 200 to 700 MW of solar power components to SunPeak Energy
for unspecified future projects.
http://www. emcore.com/news-events/release?y--2008&news=1 80
Sounds promising, but SunPeak has no verifiable track record in the solar energy
generation business. Here are a few cute tidbits about Emcore's second largest solar
customer.
»
»
»
They were just incorporated --- April 2007.
http ://kepler.sos.ca.gov/corpdata/ShowLpllcA UList?QueryLpllcNu
tuber=200711810228
Their COO was fired from his last job for a $47 million natural gas
hedging "mistake"
httpJ/wen.atcheeworld.comlapps/pbcs.dll/article?AlD=/20070719/
NEW S 04/707190401/1001
According to Dun and Bradstreet, the company has 4 employees
and no verifiable credit history.
Citron believes that this press release was just that - a press release.
Spanish Contracts
In November, Emcore announced $18m component contract with ISFOC, the
'Institute of Concentration Photovoltaics Systems".
http://www.emcore .com/news-events/release',y--2008&n ews---177
This very small (850Kw) is a 'turnkey" project meaning most of Emcore's
-revenue will not come from solar cells, but rather systems integration work. This
CLASS AMON COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURrMS LAWS
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low margin systems integration work is not what Wall St. was promised.
Pod Corp . in Sault St. Marie , Canada
http://wwvv.emwre.com/news-events/Telease?y=2007&-news--172
It's a Memorandum ofUnderstanding only, not a finn contract and it contains this
strange language:
"EMCORE also has the right to substitute other solar technologies in portions of
the projects."
Why would Erncore not use its own products in the installation? How about
because in that location, cloudy more than 50% of the time, gallium arsenide isn't
effective. That would be as if Coke had a contract with McDonalds and said at
times we will supply Pepsi.
World Water & Solar Technologies (WWAT.ob)
This customer is our favorite. With less than $25 million in shareholder equity
and $36 million dollars of losses over the last 4 years, Emcore certainly seems to
be relying heavily on the future success of a flimsy OTC company. Emcore went
as far as to invest $18 million in World Water... and guess what happened World Water committed to a competing solar technology.
WWAT recently completed a purchase of proprietary solar systems developer
Entech. This is a direct competitor to Emcore's concentrating solar cells. There
is no explanation of why, if Emcore's technology is so promising, WWAT would
buy a competitor for cash and stock
http://www.worldwater.com/pages-newsfl NewsEntecbMerger-1-28-08.html
Citron notes that WWAT's CFO Larry Crawford was formerly EVP and CFO at
Escala (ESCL.p ), wrecked when it was exposed to be part of a notorious Ponzi
scheme fraud broken up by Spanish authorities ... first exposed by Citron..
Conclusion
CLASS ACUON COMPLAINT' FOR VIOLATIONS OF TBE FEDERAL. SECURIflES LAWS
21
After reading this report we expect the analysts will predictably defend the stock
as they always do -- hey, no doubt Emcore will need more money soon, and the
banking business is too good to pass up. The company might kick and scream and
add short sellers to their agenda in presentations. Citron will suggest a novel
approach to management: Instead of complaining about critics, make a profit for
a change! Sell your product to real customers, record more revenue than expenses
and let your numbers do your talking. As for the analysts, show some
accountability here. If and when Em.core misses your next quarterly estimates hold the company and yourselves accountable. But then again, you can just hold
to your normal course of business... after all it is only Other People's Money.
(Emphasis in original).
38.
On this news, shares of Emeore declined $2.05 per share, or 23.27%, to close on
March 18, 2008 at $6.78 per share, on unusually heavy volume.
39.
On March 18, 2008 Encore issued a press release entitled, "EMCORE
CORPORATION COMMENTS ON RECENT TRADING ACTIVITY." Therein, the Company,
in relevant part, stated:
EMCORE Corporation (NASDQ: EMKR), a leading provider of
semiconductor-based components and subsystems for the broadband, fiber-optic,
satellite and terrestrial solar power markets, responded today to a report about the
,
Company contained in a recent blog posting.
"We normally do not directly respond to reports about our Company, including those
from sources a great deal more reputable than a blog," stated Reuben Richards,
EMCORPs Chief Executive Officer. "We feel, however, that this particular posting
required a response because we believe that its conclusions are materially inaccurate
and seriously misleading. EMCORE is known worldwide as a technology leader and
innovator. We are well positioned in our core markets to continue substantial revenue
growth and to improve profitability, and we stand by our products, our customers and
our markets. Government securities regulators have been asked to investigate
whether improper relationships exist between this blog and recent short selling of our
stock.'t
40_
On March 25, 2008 a subsequent report on the market entitled, "Citron Research
Updates Emcore (NASDAQ :EMKR)" further called into question the legitimacy of Emcore's
CLASS AC ION COMPLAINT FOR VIOLATIONS OF THE FMERAL SECURITIES LAWS
22
clientel. Therein, the report, in relevant part, stated:
With its management and its analysts' actions displaying an increasing disconnect
from reality, Emcore (NASDAQ:EMKR) is becoming reminiscent of Home
Solutions of America (HSOA.pk). Emcore has cornered itself in a situation that
can only be solved by profitability . So instead of churning out yet another Press
Release to respond to a report or holding a conference call, we suggest Emcore try
a novel approach to answer its skeptics: turn a profit!
Green and Gold Energy
GGE is by far Emcore's largest single customer for its solar power division,
accounting for over $78 million of its alleged $86 million backlog in its terrestrial
solar technologies. What makes Green and Gold so important is that if it were a
real customer, it would provide persuasive validation of the value of Emcore's
technology and its business model. Yet, if Green and Gold is revealed to be an
empty shell, Emcore will badly miss its earnings targets. But worse, their recent
$100 million PIPE will have been transacted on a premise that misled investors.
Let us explore how credible Green and Gold really is. In our first report, we gave
readers numerous links that do everything from call GGE CEO Greg Watson a
con-man to others that document his history of failed dreams. For this report,
Watson fortunately posted on the Yahoo message boards himself, which can help
us out quite a bit. Yes, it is unusual for a customer to post on their vendor's
financial message boards.-but hey, this is Emcore....
Watson tells readers :
While the robotic line is being built GGE will, in parallel, build 200, 000
SunCube for our Australian distributor Zolar Distributors using more
traditional construction methods. GGE has startedproducing these
SunCubes"
OK, so we are supposed to believe that GGE has signed an agreement with a big
name third party distributor who can afford to buy 200,000 SunCubes to start.
This naturally led us to look at the Zolar website to learn more about this
distributor: www.zolardistributors.com
We examined a website that looked like nothing more than a promotional site for
GGE, rather than an authentic distributor of solar equipment. Checking the
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
23
domain registry, guess what we found! Not only was the site established barely
two months ago, specifically on Jan 22, 2008, but it is registered to none other
than George Zoumis, head of business development for Green and Gold.
Domain Name ........... zolardistributors. corn
Creation Date ........... 2008-01-22
Registration Date ..... . 2008-01-22
Expiry Date .............. 2013-01-22
Organisation Name.... ZOLAR D1STRIBUTORSPTYLTD
Organisation Address. 21 Bickford St
Organisation Address.
Organisation Address. Richmond
Organisation Address. 5033
Organisation Address. SA
Organisation Address. AUSTRALIA
Admin Name ._............ George Zoumis
Admin Address .......... 21 Bickford St
(Note the name on bottom of this release:
http: //www.greenandgoldenergy . com.au/Documents/GGEPressRelease20080208a
.pdf)
Citron then searched the internet for information on any of the GGE "customers".
These include: AC Gava of Spain, Eco-Office Ltd of Malta, Square Engineering
Pvt LTD of India, and ES Systems of Korea. All of these alleged customers have
one thing in common. None of the companies have any definitive presence on the
web except for their "deals" with GGE. This certainly justifes our increased
skepticism.
Emcore has had many opportunities to come clean about this. All Emeore
management needs to do is answer one simple question. "Does GGE have $78
million ?" This is a yes or no question that does not require any elaborate
explanation.
EMKR Response to Citron Report.
Press Release
Last week Emeore put out a press release attempting to discredit the Citron story;
http://biz. yahoo.com/pmews/080318/nytal 5l .html?.v=101
One line of their statement stands out in bold relief:
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURMEs LAWS
24
"We are well positioned in our core markets to continue substantial revenue
growth and to improve profitability and we stand by our products, our customers
and our markets."
Improve profitability ? What profitability are you referring to? Earth to Emcore:
You are NOT PROFITABLE ... NOT EVEN CLOSE . Moreover, Emcore seems
farther away from profitability now than they ever have in its rich history of losing
investors ' money. If Emcore stands by their customers, then answer the one
question; "Does Green and Gold have $78 million?"
What is wrong with Wall Street
One of the stock's most vocal cheerleaders has been the analyst at Jefferies & Co.
When Citron released its first report on Emcore, Jefferies was quick to call out a
"buying opportunity" and stated that the GGE contracts are "very real". Hold on
- this is from the same analyst who predicted Emcore would lose $5.6 million in
the December quarter - when they actually lost $14.41 million. This same
Jefferies analyst has been reassuring the public that profitability is right around the
coiner for over a year now ... during which time Emeore has lost a staggering
$58.7 million.
Is it to anyone's surprise that the lead underwriter of Emcore's recent $100
million PIPE was Jefferies and Co?
Citron also has an opinion about what is "very real": Emcore's cash operating
losses. Citron advises investors to be concerned about Emeore's "very real" cash
burn rate. Unless the company demonstrates a sudden and miraculous increase in
revenue and net income, it will soon be coming back to Wall Street with bowl in
hand for yet more OPM. Last month's PIPE plus debt conversion diluted the
stock from 52.3 to 73.5 million shares -- over 40%. Next time, the impacts on
investors will be even more crushingly dilutive.
For extra credit, calculate how many quarters Emcore's cash will last based on its
current burn rate.
Hint: You might first want to subtract the cash Emcore just disclosed is now
unavailable due to being stuck in long-tern. notes, a mishap of the failure of the
auction rate securities market.
But we're sure this looming problem will just look like another opportunity to
Jefferies & Co. After all, it's just OPM.
CLASS ACTION COMPLAINT FOR VIOLATIONS OF TIM FEDERAL SECURI
S LAWS
25
(Emphasis in original).
41.
On April 2, 2008 Emcore issued a press release entitled, "EMCORE Corporation
Receives $4.6 Million Follow-on Order for Concentrator Solar Cell Receiver Assemblies from
Concentration Solar la Mancha." Therein, the Company, in relevant part, stated:
Albuquerque, NM, April 2, 2008 -- EMCORE Corporation (NASDQ: EMKR) a
leading provider of semiconductor-based components and subsystems for the
broadband, fiber-optic, satellite and terrestrial solar power markets, announced
today that it has been awarded a $4.6 million follow-on production order for solar
cell receiver assemblies from Concentration Solar la Mancha of Manzanares
(Ciudad Real), Spain. The receivers will be incorporated into CS la Mancha.'s
500X concentrator photovoltaic (CPV) system and will be deployed throughout
Spain and other locations in fully licensed and funded projects. Shipments are
scheduled to commence in the September quarter and complete in early 2009. CS
la Mancha, part of Renovalia Energy, a renewable energy company in Spain, has
been developing the CPV system for nearly two years, and has recently started
production and volume deployment.
David Danzilio, Vice President and General Manager of EMCORE's
Photovoltaics Division stated, "We are pleased to be awarded this follow-on
production order from CS la Mancha. This order affirms EMCORE's position as
the supplier of choice for high performance CPV components that enable our
customers' systems to generate renewable energy at the lowest cost per kw-hr.
"David Danzilio added, "Our CPV receiver assembly continues to penetrate the
market and we see increasing global demand for this product line. This order
diversifies our customer base, a trend we expect will continue, as they transition
their CPV systems from development to full-scale production. We are currently
expanding our production capacity for both solar cells and receiver assemblies at
our Albuquerque facility and expect our second receiver production line to be
operational in the June quarter. EMCORE's continued technology and capacity
investments will provide customers with an assured supply of this critical PV
engine-"
Dr. Jeffrey Nelson, Manager of Concentrated Solar Power Group of Sandia
National Laboratories commented, "This demonstrates once again that CPV is
being established as a costcompetitive and commercially-viable technology for
solar power applications. EMCORE is a world leader of CPV technology and
products. They are well positioned to capture the rapid growth of the CPV market
as a viable alternative for grid-tied solar power utility applications."
CLASS ACflON COMPLAINT FOR VIOLATIONS OF TI-IF FEDERAL SECURITIES LAWS
26
EMCORE has introduced a line of integrated solar cell receiver assemblies
optimized for operation from 500X to 1000X concentration that provide terrestrial
systems integrators with a complete solution for the PV section oftheir system.
EMCORE's unique CPV receiver assembly is easily integrated into existing
concentrating PV systems and has emerged as an industry standard. By choosing
EMCORE's complete, high reliability receiver solution, CPS' system developers
are able to focus their full efforts on advancing their optical design and optimizing
the balance of the system, significantly reducing their time to market.
42.
On April 4, 2008 Emcore issued a press release entitled, "EMCORE Corporation
Elects New Chairman, Authorizes Planning for Corporate Separation." Therein, the Company,
in relevant part, stated:
ALBUQUERQUE, N.M., April 4, 2008 M- EMCORE Corporation (Nasdaq:
EMKR - News), a leading provider of semiconductor-based components and
subsystems for the broadband , fiber- optic, satellite and terrestrial solar power
markets, announced today that, following its annual shareholders ' meeting, its
Board of Directors had elected a new Chairman and Chief Executive Officer, and
also authorized planning for a separation of its two business lines.
Pursuant to a succession plan announced in 2006, Reuben Richards was elected to
the newly-created position of Executive Chairman. Dr. Thomas Russell, who
previously served as Chairman of the Board of Directors, will remain on the
Board as Chairman Emeritus. "Everyone at EMCORE is deeply grateful to Dr.
Russell for his many years of service to the Company as its Chairman and for his
vision, passion, and leadership over this period," noted Mr. Richards. "We look
forward to continuing to work with him and our other Board members to meet the
exciting opportunities and challenges currently facing the Company."
Also pursuant to the Company's previously announced succession plan, Dr. Hong
Hon, currently the Company's President and Chief Operating Officer, succeeded
Mr. Richards as Chief Executive Officer and will continue to report to Mr.
Richards. Each of Mr. Richards and Dr. Hou will be active in different aspects of
running the Company.
The Company also announced that Thomas Werthan, one ofthe members of its
Board of Directors, had tendered his resignation. Mr. Richards thanked Mr.
Werthan for his past service to the Company.
EMCORE also announced that its Board of Directors has authorized the
management of the Company to prepare a comprehensive operational and
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SFUURmES LAWS
27
strategic plan for the separation of the Company's Fiber Optics and Photovoltaic
businesses into separate corporations. Mr. Richards stated, "We are excited to be
taking the first steps in this process, which we believe allows us to maximize the
potential of both our business segments. We will be working closely with
investment, accounting and legal advisors over the coming months to develop a
structure for this separation that will maximize operating efficiencies as well as
maximizing shareholder value." .
43.
On May 5, 2008 Emcore issued a press release entitled, "EMCORE Receives $28
Million Order for Concentrator Solar Cell Receivers from ES System in Korea." Therein, the
Company, in relevant part, stated:
Accelerated deployment ofsolarfarms in Korea drives increased demandfor
EMCORE's Concentrating Photovoltaic (CPV) products
Albuquerque, NM, May 5, 2008-EMCORE Corporation (NASDQ: EMKR) a
leading provider of Semi-conductor-based components and subsystems for the
broadband, fiber-optic, satellite and terrestrial solar power markets, announced
today that it has entered into a $28 million definitive supply agreement with ES
System of Gwang-Ju, South Korea, for solar cell receivers to be fielded in fully
licensed and funded solar farms in South Korea. his agreement incorporates an
advance deposit to ensure production priority, and will enable the installation of
70 megawatts (MW) of solar farms. Production for this order has commenced and
shipments are scheduled to occur over the next 24 months with the provisions for
accelerated deliveries as well as future purchase options under the same terms.
We are delighted that ES System has elected to source CPV receivers directly
from EMCORE," stated David Danzilio, Vice President and General Manager of
EMCORE's Photovoltaics Division. We continue to see increased demand for this
enabling product from customers around the world and this purchase order further
diversifies our growing terrestrial component backlog, which now exceeds
$110M. Our second automated receiver assembly line has entered into volume
production and we expect to commence shipments from the third receiver line in
June. When combined with the recently completed CPV solar cell capacity
expansion, this assembly capability positions EMCORE as the only vertically
integrated CPV receiver manufacturer to the global concentrating photovoltaics
industry," added David Danzilio.
James Park, Chief Operating Officer of ES System stated, "ES System is proud to
be the leading provider of CPV systems in Korea. Our longstanding record of
low-cost manufacturing and deployment of complex PV systems, including our
CLASS ACTION COMPLAIN FOR VIOLATIONS OF TUE FEDERAL SECURITIES LAWS
28
previous success in the silicon solar power fields, assures our significant
contribution in meeting the growing need for affordable renewable energy. We are
convinced that the EMCORE cell receiver technology provides the best solution
for high concentration CPV systems both now and in the future."
The Korean Government has recently announced an increase of the total installed
capacity target from 100 to 500 MW while maintaining the solar power feed-in
tariff at 677 Korean won per kw-hr for systems deployed by September 30, 2008.
This policy has stimulated the acceleration of solar farm installation in Korea. ES
System is responding to robust sales of their solar CPV systems and currently is
also procuring EMCORE receivers under an existing supply agreement from
Green and Gold Energy (GGE) of Adelaide, Australia- All Euacore solar cell
receivers are being integrated into ES System CPV units at their manufacturing
facilities in Gwang-Ju City, Korea. Recently, GGE has been encouraging direct
supply relationships between their major licensees and EMCORE. We expect
more orders from GGE's licensees under similar terms in the near future.
EMCORE has introduced a line of integrated CPV solar cell products optimized
for operation from 500X to I000X concentration, which provide terrestrial
systems integrators with a complete photovoltaic solution for their CPV systems.
EMCORE's CPV receiver is easily integrated into existing CPV systems and has
emerged as the most desirable form in the industry. EMCORE is the first
company to provide its customers with 20 years of performance warranty. By
choosing EMCORE's complete and highly reliable receiver solution, CPV system
developers are able to focus their efforts on advancing their optical design and
optimizing the balance of the system, significantly reducing their time to market.
(Emphasis in original).
44.
On May 7, 2008 Emcore issued a press release entitled, "EMCORE Corporation
Announces Preliminary Unaudited Results for its Second Quarter Ended March 31, 2008."
Therein, the Company, in relevant part, stated:
-
-
2nd quarter revenue increased 42% year-over-year and 20% over prior
quarter to approximately $56.3 million
3rd quarter revenue guidance is estimated to increase over 75%
year-over-year to $77-80 million
Fiscal 2008 revenue guidance is increased to $280-$295 million
EMCORE completes acquisition of Intel's telecom, enterprise, storage and
fiber-optic connects cable businesses
EMCORE expects net profitability by the September quarter
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURCIIES LAWS
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Photovoltaics revenue for the three months ended March 31, 2008 increased $5.2
million or 39% to $18.6 million from $13.4 million as reported in the same period
last year. For the six months ended March 31, 2008, Photovoltaics revenue
increased $5.0 million or 19% to $31.6 million from $26.6 million, as reported in
the same period last year. Sequentially, Photovoltaics revenue increased over 44%
from $12.9 million. The significant increase in revenue was due to new product
and business introduction of concentrator photovoltaics (CPV) for solar power
applications. Total revenue from CPV components and systems was $4.4 million
for the three months ended March 31, 2008, which represents over a ten-fold
increase in revenues when compared quarter-over-quarter. CPV-related revenue is
expected to increase dramatically in the June quarter as production ramps on
multiple manufacturing lines. During the quarter, the Company also experienced
increased demand for its satellite solar cells and related products.
During the March quarter, the Company took one-time charges of approximately
$6.3 million in its Photovoltaics segment for inventory write-downs and start-up
costs in our solar cell receiver line and. CPV system business. Our Albuquerque
fab capacity increased by approximately 35% during the quarter. Excluding
stock-based compensation expense and these non recurring charges, Photovoltaics
gross margin were 22%, an increase from 17% in the previous quarter. On a
GAAP basis, Photovoltaics gross margins were negative 12% and 0% for the three
and six months ended March 31, 2008, respectively, adversely impacted by the
non-recurring charges.
As of March 31, 2008, the Company had an order backlog of approximately $158
million as compared to a backlog of approximately $156 million as of December
31, 2007. The March 31, 2008 order backlog is comprised of $133 million for our
Photovoltaics segment and $25 million for our Fiber Optics segment.
Management Discussion and Outlook:
We are pleased with our strategic achievements in the quarter. We successfully
negotiated and closed the transactions of the asset purchase from Intel in the areas
of Telecom, Enterprise, Storage, and Connects Cable fiber optics business. This
strengthened EMCOR.E"s position in Fiber Optics component and subsystem arena
CLASS ACTION COMPLAINT FOR VIOLA'T'IONS OF THE FEDERAL SECURrTIES LAWS
30
significantly. With the added and existing product portfolio, EMCORE is poised
as a major player in broadband, telecom, enterprise and high-performance
computing markets with leading products and technology for sustainable and
profitable growth in the future. The business development in the terrestrial solar
power area continues to be very successful. We continue to broaden our customer
base and book new orders. This quarter represents the first significant revenue
from this new line of business which we have invested in over the last couple of
years. Our debt conversion and equity financing activities strengthened our
balance sheet and provided enough capital to execute our current business plan,"
stated Dr. Hong Q. Hou, Chief Executive Officer. "We are happy to achieve the
aggressive top-line growth and meet our revenue guidance, and we are increasing
our revenue guidance going forward for this quarter and the rest of the year. The
business fundamentals remain strong for the continued growth. We remain
optimistic that we will achieve operational profitability in the second half of 2008.
The management team is intensely focusing on delivering that profitability,"
added Dr. Hou.
The Board of Directors has authorized the management of the Company to
prepare a comprehensive operational and strategic plan for the separation of the
Company's Fiber Optics and Photovoltaic businesses into separate corporations."
Reuben F. Richards, Jr., Executive Chairman stated, "We are excited to be taking
the first steps in this process, which we believe allows us to maximize the
potential of both our business segments. We will be working closely with
investment, accounting and legal advisors over the coming months to develop a
structure for this separation that will maximize operating efficiencies as well as
maximizing shareholder value."
(Emphasis in original).
45.
On May 12, 2008, Emcore filed its Quarterly Report with the SEC on Form 10-Q.
The Company's 10-Q was signed by Defendants Hou and Gushard, and reaffirmed the Company's
financial results previously announced on May 7, 2008. The Company's 10-Q also contained
Sarbanes--Oxley required certifications, signed by Defendants Hou and Gushard, substantially
similar to the certifications contained in 126, supra.
46.
The statements contained in IN39 and 41 -45, were materially false and/or
misleading when made because defendants failed to disclose or indicate the following : (1) that
CLASS ACTON COMPLAINT FOR VIOLATIONS OF TEE FEDERAL SBCIJRTMS LAWS
31
the Company's reported backlog was overstated; (2) that the Company overstated the demand for
its products; (3) that the Company had improperly recognized revenue from transactions with
customers that did not have the ability to pay the Company; (4) that, as a result of the above, the
Company's financial results were overstated; (5) that the Company's financial results were not
prepared in accordance with Generally Accepted Accounting Principles; (6) that the Company
lacked adequate internal and financial controls; and (7) as a result of the above, the Company's
financial statements were materially false and misleading at all relevant times.
Disclosures at the End of the Class Period
47.
On June 30, 2008 the market was shocked when analysts from Canaccord Adams
issued a report entitled, "DOWNGRADING TO HOLD ON MIXED KOREAN DATA POINTS."
Therein, the analysts, in relevant part, stated:
Event
Last weekwe had several meetings throughout Korea. In particular we dedicated one
day to ES Systems. a high-profile EMCORE Cry customer. Given the controversy
around ES Systems due to its relatively unknown status in the solar market. we
thought it important to tour the facility, visit a solar site, and meet with management.
We also attempted a follow-up meeting with EM Solar, another Korean solar partner
that we met with in March 2008.
Impact
Mixed. We believe market expectations of 70MWs with ES Systems (based on
company announcements) are overstated. Specifically, we identified plans for only
45.5MW, ofwhich only 900KWs is under construction and the remaining 44.6MW
weighted to one 30MW contract. While our meeting suggested confusion over what
was funded and won (possibly translation), several follow-up calls with EMCORE
suggest management is satisfied the full 70MWs will be recognized and completed
as well as being fully f .ded and permitted. Our meeting did not inspire the same
confidence. Separately, we attempted to schedule a follow-up meeting with EM
Solar. the EMCORE JV announced December 17.2007. which we first met with in
March '08 and had a positive take-away. Unfortunately, EM Solar appears to be
undergoing a corporate re-org with several moving parts, none of which bolster our
CLASS ACTION COMPLAINT FOR VJOTATIONS OF
FEDE1 AL SECURITIES LAWS
32
confidence in the previously announced 5.7MW of system'sales and 14.3MW annual
follow-on sales.
Action
We are downgrading EMKR to HOLD from Buy given what we see as an increased
risk profile in Korea, noting that we still believe that EMCORE is well positioned in
the Spanish and US cry markets. justifying our HOLD rating. We are lowering our
price target to $7 from $9. applying a blended EY/sales multiple of 1.3x to our
C2008 estimate.
ES SYSTEMS
We met with ES Systems last week in Owangju, Korea at the company's
headquarters. We were pleased to see the very professional building. Upon arrival,
ES Management provided a presentation that was designed for us to provide an
overview of the company's mission, technology and solar opportunities. After the
presentation, we toured the testing facility located at headquarters and then visited
two of the solar sites that will total 400kW.
While ES Systems appears to be a legitimate, aggressive Korean start-up, our sense
is the company is relatively new in the solar space. We were unimpressed by the
technology, noting a rudimentary tracking system. Ofthe four systems runnin g in the
test center, none were generating any electricity, making us question the real-world
data the ES has generated to secure these 45,5MW of projects, Continuous tracking
is critical at very high concentration (1100x suns in this case) in order to keep the
concentrated light focused exactly on the receiver cell. Should a system have a poor
tracking or exhibit unwanted movement, due to high wind load for instance, we
estimate that efficiencies can drop by up to 80%. Our analysis concludes this is a key
piece of data requested by project financiers.
After the meeting at headquarters, we toured two sites, roughly an hour away from
Gwangju. Upon arrival, we witnessed two fenced-in areas in between several rice
patties. One had two buildings likely to house inverters. ES plans to install 400KWs
by end of September in these two farms. We were able to view pictures of another
500KWs spread across two other projects. It is difficult to assess the value of these
systems without seeing a true farm,, and we look forward to our visit in late
September to monitor the execution.
EM SOLAR
We attempted to set up a follow-up meeting with EM Solar in Seoul, Korea. We had
first met with EM Solar back in March and came away quite positive. Therefore, we
were disappointed that the company is in the middle of a re-organization to the
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
33
sudden and unexpected departure of the CEO. We are not certain where this will
leave this proposed JV between EMCORE and EM Solar. It is worth noting that the
previously announced 5.7MW of system sales and 14.3MW in annual follow-on
contracts were never in our model.
FQ3 JUNE EXPECTATIONS
We expect EMCORE to post a relatively in-line quarter and speak positively about
upcoming solar contracts. We continue to believe that EMCORE - as one of two
major suppliers of CPV solar cells and receivers - should be well positioned when
this market ramps. Unfortunately, we feel that expectations have gotten ahead of
themselves, in spite ofthe sell-off. Further, failure to deliver on announced contracts
would be likely to perpetuate management's lack of credibility. a key overhang with
this stock. Given our recent two meetings in Korea, we question the ability of either
ES Systems or EM Solar to deliver on the 70MW and 5.7MWIl 4.3MW expectations.
respectively. As such, we are downgrading to HOLD, as we believe the stock
adequately reflects the risk.
48.
On this news, shares of Emcore declined $0.97 per share, or 13.42%, on Monday
June 30, 2008, and further declined an additional $0.68, or 10.86%, on July 1, 2008 to close on July
1, 2008 at $5.58 per share, on unusually heavy volume. Over the two-day period, Emeore's shares
declined a total of $1 .65 per share , or approximately 22.82%.
Disclosures After the Class Period
49.
On August 7, 2008 Emcore issued a press release entitled, "EMCORE Corporation
Announces Preliminary Unaudited Results for its Third Quarter Ended June 30,2009." Therein, the
Company conceded the truth about the Company's orders with GGE and revised downward
Emcore ' s reported backlog-by $79 million. The Company, in relevant part, stated:
As of June 30, 2008, the Company had an order backlog of approximately $109
million which compares with the March 31, 2008 order backlog of approximately
$158 million. In July 2008, the Companny was informed byits customer Green
& Gold Energy, which is based in Australia that it was ea a ed in ne otiations
relatin g to the sale of its business through an asset sale and, as a result, could
not commit to making any further purchases under its approximatel y $ 79
million of CPV-related purchase orders. The acquirer has indicated that they
CLASS ACF7ON COMPLAINT FOR VIOLATJONS OF THE FEDERAL SECUMMS LAWS
34
intend to negotiate a newpurchase agreementwith the Companyupon consummation
of the transaction. As a result, the Coin an has cancelled production slots
reserved for Green & Cold Energy to reflect this event and has adjusted the
quarter-end bacldogaccordingIy. As of June 30, 2008, total CPV-related
backlo g totaled $ 53 million.
(Emphasis added).
EMCORE'S VIOLATION OF GAAP RULES
IN ITS FINANCIAL STATEMENTS
FILED WITH THE SEC
50.
These financial statements and the statements about the Company's financial results
were false and misleading, as such financial information was not prepared in conformity with GAAP,
nor was the financial information a fair presentation of the Company's operations due to the
Company's improper accounting for, and disclosure about its revenues, in violation of GAAP rules.
51.
GAAP are those principles recognized by the accounting profession as the
conventions, rules and procedures necessary to define accepted accounting practice at a particular
time. Regulation S-X (17 C.F.R. § 210 .4 01(a) (1)) states that financial statements filed with the SEC
which are not prepared in compliance with GAAP are presumed to be misleading and inaccurate.
Regulation S-X requires that interim financial statements must also comply with GAAP, with the
exception that interim financial statements need not include disclosure which would be duplicative
of disclosures accompanying annual financial statements . 17 C.F.R. § 210.10-01.(a).
52.
Given these accounting irregularities, the Company announced financial results
that were in violation of GAAP and the following principles:
(a)
The principle that "interim financial reporting should be based upon the same
accounting principles and practices used to prepare annual financial statements" was violated (APB
No. 28, 10);
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECU1tiTIE.S LAWS
35
(b)
The principle that "financial reporting should provide information that is
useful to present to potential investors and creditors and other users in making rational investment,
credit, and similar decisions" was violated (FASB Statement of Concepts No. 1, 34);
(c)
The principle that "financial reporting should provide information about the
economic resources of an enterprise, the claims to those resources, and effects of transactions,
events, and circumstances that change resources and claims to those resources" was violated (FASB
Statement of Concepts No. 1, 40);
(d)
The principle that "financial reporting should provide information about an
enterprise's financial performance during a period" was violated (FASB Statement of Concepts No.
1, 42);
(e)
The principle that "financial reporting should provide information about how
management of an enterprise has discharged its stewardship responsibility to owners (stockholders)
for the use of enterprise resources entrusted to it" was violated (FASB Statement of Concepts No.
1, 50);
(f)
The principle that "financial reporting should be reliable in that it represents
what it purports to represent" was violated (FASB Statement of Concepts No. 2, 58-59);
(g)
The principle that "completeness, meaning that nothing is left out of the
information that may be necessary to insure that it validly represents underlying events and
conditions " was violated (FASB Statement of Concepts No. 2, 79); and
(b.)
The principle that "conservatism be used as a prudent reaction to uncertainty
to try to ensure that uncertainties and risks inherent in business situations are adequately considered"
was violated (FASB Statement of Concepts No. 2, 95).
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
36
53.
The adverse information concealed by Defendants during the Class Period and
detailed above was in violation of Item 303 of Regulation S-K under the federal securities law (17
C.F.R. §229.303).
CLASS ACTION ALLEGATIONS
54.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased Emcore'
securities between June 12, 2007 and June 30, 2008, inclusive (the "Class Period") and who were
damaged thereby.
Excluded from the Class are Defendants, the officers and directors of the
Company, at all relevant times, members oftheir immediate families and their legal representatives,
heirs, successors or assigns and any entity in which Defendants have or had a controlling interest.
55.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Emcore' securities were actively traded on National
Association of Securities Dealers Automated Quotations Market ("NASDAQ "). While the exact
number of Class members is unknown to Plaintiff at this time and can only be ascertained through
appropriate discovery, Plaintiff believes that there are hundreds or thousands of members in the
proposed Class. Millions of Enicore shares were traded publicly during the Class Period on the
NASDAQ and as of May 5, 2008, the Company had more than 77 million shares of common stock
outstanding. Record owners and other members of the Class may be identified from records
maintained by Emcore or its transfer agent and may be notified of the pendency of this action by
mail, using the form of notice similar to that customarily used in securities class actions.
56.
Plaintiffs claims are typical ofthe claims ofthe members ofthe Class as all members
of the Class are similarly affected by Defendants' wrongful conduct in violation of federal law that
CLASS ACTION COMPLAINT FOR VIOLATIONS OF TBE FEDERAL SECURITIES LAWS
37
is complained of herein.
57.
Plaintiff will fairly and adequately protect the interests of the members of the Class
and has retained counsel competent and experienced in class and securities litigation.
58.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a)
Whether the federal securities laws were violated by Defendants' acts as
(b)
Whether statements made by Defendants to the investing public during the
alleged herein;
Class Period omitted and/or misrepresented material facts about the business, operations, and
prospects of Emcore; and
(c)
To what extent the members of the Class have sustained damages and the
proper measure of damages.
59.
A class action is superior to all other available methods for the fair and efficient
adjudication ofthis controversy since j oinder of all members is impracticable. Furthermore, as the
damages suffered by individual Class members may be relatively small, the expense and burden of
individual litigation makes it impossible for members ofthe Class to individually redress the wrongs
done to them. There will be no difficulty in the management of this action as a class action.
UNDISCLOSED ADVERSE FACTS
60.
The market for Ezncore' securities was open, well-developed and efficient at all
relevant times. As a result ofthese materially false and/or misleading statements, and/or failures to
CLASS ACTON COMPLAINT FOR WWOLATfONS OF TBB FEDERAL SECURITIES LAWS
38
disclose, Emcore' securities traded at artificially inflated prices during the Class Period. Plaintiff
and other members of the Class purchased or otherwise acquired Emcore' securities relying upon
the integrity of the market price of the Company's securities and market information relating to
Emcore, and have been damaged thereby.
61.
During the Class Period, Defendants materially misled the investing public, thereby
inflating the price of Emcore' securities, by publicly issuing false and/or misleading statements
and/or omitting to disclose material facts necessary to make Defendants' statements, as set forth
herein, not false and/or misleading. Said statements and omissions were materially false and/or
misleading in that they failed to disclose material adverse information and/or misrepresented the
truth about Emcore' business, operations, and prospects as alleged herein.
62.
At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or misleading
statements about Emcore ' financial well-being and prospects . These material misstatements and/or
omissions had the cause and effect of creating in the market an unrealistically positive assessment
of the Company and its financial well-being and prospects, thus causing the Company's securities
to be overvalued and artificially inflated at all relevaat times. Defendants' mate ally false and/or
misleading statements during the Class Period resulted in Plaintiff and other members ofthe Class
purchasing the Company's securities at artificially inflated prices, thus causing the damages
complained of herein.
LOSS CAUSXHON
CLASS ACTION COMPLAINT FOR VIOLATIONS DF TM FEDERAL SECURMES LAWS
39
63.
Defendants wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
64.
During the Class Period, Plaintiff and the Class purchased Emcore' securities at
artificially inflated prices and were damaged thereby. The price of the Company's securities
significantly declined when the misrepresentations made to the market, and/or the information
alleged herein to have been concealed from the market, and/or the effects thereof, were revealed,
causing investors' losses.
SCIENTER ALLEGATIONS
65.
As alleged herein, Defendants acted with scienter in that Defendants knew that the
public documents and statements issued or disseminated in the name of the Company were
materially Use and/or misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced in
the issuance or dissemination of such statements or documents as primary violations ofthe federal
securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their receipt of
information reflecting the true facts regarding Emcore, his/her control over, and/or receipt and/or
modification of Emcore' allegedly materially misleading misstatements and/or their associations
with the Company which made them privy to confidential proprietary information concerning
Emcore, participated in the fraudulent scheme alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE
IFRAUD-ON-THE-MARKET DOCTRINE)
CLASS ACTION COMPLAINT FOR VIOLATIONS OF T
. FEDERAL SECUK13zES LAWS
40
66.
The market for Emcore' securities was open, well-developed and efficient at all
relevant times. As a result of the materially false and/or misleading statements and/or failures to
disclose, Emcore' securities traded at artificially inflated prices during the Class Period.
On
December 31, 2007 the price ofthe Company's common stock reached a Class Period high of$15.3 0
per share. Plaintiff and other members ofthe Class purchased or otherwise acquired the Company's
securities relying uponthe integrity ofthe market price ofEmcore' securities and market information
relating to Emcore, and have been damaged thereby.
67.
During the Class Period, the artificial inflation of Emcore' stock was caused by the
material misrepresentations and/or omissions particularized in this Complaint causing the damages
sustained by Plaintiff and other members ofthe Class. As described herein, during the Class Period,
Defendants made or caused to be made a series of materially false and/or misleading statements
about Emcore' business, prospects, and operations. These material misstatements and/or omissions
created an unrealistically positive assessment of Encore and its business, operations, and prospects,
thus causing the price ofthe Company's securities to be artificially inflated at all relevant tires, and
When disclosed, negatively affected the value of the Company stock. Defendants' materially false
and/or misleading statements during the Class Period resulted in Plaintiff and other members of the
Class purchasing the Company's securities at such artificially inflated prices, and each of them has
been damaged as a result.
68.
At all relevant times, the market for Emeore' securities was an efficient market for
the following reasons, among others:
(a)
Emcore stock met the requirements for listing, and was listed and actively
traded on the NASDAQ, a highly efficient and automated market;
CLASS AMON COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECU RITIES LAWS
41
the NASDAQ;
(c)
Emcore regularly communicated withpublic investors via established market
communication mechanisms, including through regular dissemination of press releases on the
national circuits ofmaj or newswire services and through other wide-ranging public disclosures, such
as communications with the financial press and other similar reporting services; and
(d)
Emcore was followed by securities analysts employed by major brokerage
firms who wrote reports about the Company, and these reports were distributed to the sales force and
certain customers of their respective brokerage firms. Each of these -reports was publicly available
and entered the public marketplace.
69.
As a result of the foregoing, the market for Emcore' securities promptly digested
current information regarding Emcore from all publicly available sources and reflected such
information in Emcore' stock price. Under these circumstances, all purchasers ofEmcore' securities
during the Class Period suffered similar injury through their purchase of Emcore' securities at
artificially inflated prices and a presumption of reliance applies.
NO SAFE HARBOR
70.
The statutory safe harbor provided for forward- looking statements under certain
circumstances does not apply to any ofthe allegedly false statements pleaded in this Complaint. The
statements alleged to be false and misleading herein all relate to then-existing facts and conditions.
In addition, to the extent certain of-the statements alleged to be false may be characterized as forward
looking, they were not identified as "forward-looking statements" when made and there were no
meaningful cautionary statements identifying important factors that could cause actual results to
CLASS ACTION COMPLAINT FOR YJOLA."nONS OF TM FEDERAL, SECURITIES LAWS
42
differ materially from those in the purportedly forward-looking statements . In the alternative, to the
extent that the statutory safe harbor is determined to apply to any forward-looking statements pleaded
herein, Defendants are liable for those false forward-looking statements because at the time each of
those forward-looking statements was made, the speaker had actual knowledge that the forwardlooking statement was materially false or misleading, and/or the forward-looking statement was
authorized or approved by an executive officer of Emcore who knew that the statement was false
when made.
FIRST CLAIM
Violation of Section 10(b) of
The Exchange Act and Rule, IOb-5
Promulgated Thereunder Against All Defendants
71.
Plaintiff repeats and realleges each and every allegation contained above as if fully
set forth herein.
72.
During the Class Period, Defendants carried out a plan, scheme and course of
conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing
public, including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and
other members of the Class to purchase Emcore' securities at artificially inflated prices. In
furtherance ofthis unlawful scheme, plan and course of conduct, defendants, and each ofthem, took
the actions set forth herein.
73.
Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made untrue
statements of material fact and/or omitted to state material facts necessary to make the statements
not misleading; and (iii) engaged in acts, practices, and a course of business which operated as a
fraud and deceit upon the purchasers ofthe Company's securities in an effort to maintain artificially
CLASS ACTION COMPLAINT POP, VIOLATIONS OF ME FEDERAL SECURITIES LAWS
43
high market prices for Emcore' securities in violation of Section 10(b) ofthe Exchange Act and Rule
I Ob-5. All Defendants are sued either as primary participants in the wrongful and illegal conduct
charged herein or as controlling persons as alleged below.
74.
Defendants, individually and in concert, directly and indirectly, by the use, means or
instrumentalities of interstate commerce and/or of the mails, engaged and participated in a
continuous course of conduct to conceal adverse material information about ETncore ' financial
well-being and prospects, as specified herein.
75.
These defendants employed devices , schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a course
of conduct as alleged herein in an effort to assure investors of Emcore' value and performance and
continued substantial growth, which included the making of, or the participation in the making of,
untrue statements ofmaterial facts and/or omitting to state material facts necessary in order to make
the statements made about Emeore and its business operations and future prospects in light of the
circumstances under which they were made, not misleading, as set forth more particularly herein.,
and engaged in transactions, practices and a course ofbusiness which operated as a fraud and deceit
upon the purchasers of the Company's securities during the Class Period.
76.
Each ofthe Individual Defendants' primary liability, and controlling person liability,
arises from the following facts: (i) the Individual Defendants were high-level executives and/or
directors at the Company during the Class Period and members ofthe Company's management team
or had control thereof; (ii) each ofthese defendants, by virtue oftheir responsibilities and activities
as a senior officer and/or director of the Company, was privy to and participated in the creation,
development and reporting ofthe Company's internal budgets, plans, projections and/or reports; (iii)
CLASS ACTION CO
LA]NT FOR VIOLATIONS OF THE FEDERAL SECURMES LAWS
44
each of these defendants enjoyed significant personal contact and familiarity with the other
defendants and was advised of, and had access to, other members of the Company's management
team, internal reports and other data and information about the Company's finances, operations, and
sales at all relevant times; and (iv) each of these defendants was aware of the Company's
dissemination of information to the investing public which they knew and/or recklessly disregarded
was materially false and misleading.
77.
The defendants had actual knowledge of the misrepresentations and/or omissions of
material facts set forth herein, or acted with reckless disregard for the truth in that they failed to
ascertain and to disclose such facts, even though such facts were available to them. Such defendants'
material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose
and effect of concealing Emcore' financial well-being and prospects from the investing public and
supporting the artificially inflated price of its securities .
As demonstrated by Defendants'
overstatements and/or misstatements of the Company's business, operations, financial well-being,
and prospects throughout the Class Period, Defendants, ifthey did not have actual knowledge ofthe
misrepresentations and/or omissions alleged, were reckless in failing to obtain such knowledge by
deliberately refraining from taking those steps necessary to discover whether those statements were
false or misleading.
78.
As a result ofthe dissemination ofthe materially false and/or misleading information
and/or failure to disclose material facts, as set forth above, the market price of Emcore' securities
was artificially inflated during the Class Period. In ignorance of the fact that market prices of the
Company's securities were artificially inflated, and relying directly or indirectly on the false and
misleading statements made by Defendants, or upon the integrity of the market in which the
CLASS ACTION COMPLAINT FOR VIOLATIONS OF TIDE FEDERAL SECURITIES LAWS
45
securities trades, and/or in the absence of material adverse information that was known to or
recklessly disregarded by Defendants, but not disclosed in public statements by Defendants during
the Class Period, Plaintiff and the other members of the Class acquired Emcore' securities during
the Class Period at artificially high prices and were damaged thereby.
79.
At the time of said misrepresentations and/or omissions, Plaintiff and other members
of the Class were ignorant oftheir falsity, and believed them to be true. Had Plaintiff and the other
members ofthe Class and the marketplace known the truth regarding the problems that Emcore was
experiencing, which were not disclosed by Defendants, Plaintiff and other members of the Class
would not have purchased or otherwise acquired their E.mcore securities, or, if they had acquired
such securities during the Class Period, they would not have done so at the artificially inflated prices
which they paid.
80.
By virtue of the foregoing, Defendants have violated Section 10(b) ofthe Exchange
Act and Rule 1 Ob-5 promulgated thereunder.
81.
As a direct and proximate result of Defendants' wrongful conduct, Plaintiff and the
other members ofthe Class suffered damages in connection with their respective purchases and sales
of the Company' s securities during the Class Period
SECOND CLAIM
Violation of Section 20(a) of
The Exchange Act Against the Individual Defendants
82.
Plaintiff repeats and realleges each and every allegation contained above as if fully
set forth herein.
83.
The Individual Defendants acted as controlling persons of Emcore within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECUAITiES LAWS
46
Company's operations and/or intimate knowledge of the false financial statements filed by the
Company with the SEC and disseminated to the investing public, the Individual Defendants had the
power to influence and control and did influence and control, directly or indirectly, the
decision-making ofthe Company, including the content and dissemination ofthe various statements
which Plaintiff contends are false and misleading. The Individual Defendants were provided with
or had unlimited access to copies of the Company's reports, press releases, public filings and other
statements alleged by Plaintiff to be misleading prior to and/or shortly after these statements were
issued and had the ability to prevent the issuance of the statements or cause the statements to be
corrected.
84.
In particular, each ofthese Defendants had direct and supervisory involvement in the
day-to-day operations ofthe Company and, therefore, is presumed to have had the power to control
or influence the particular transactions giving rise to the securities violations as alleged herein, and
exercised the same.
85.
As set forth above, Emcore and the Individual Defendants each violated Section
10(b) and Rule I Ob-5 by their acts and/or omissions as alleged in this Complaint. By virtue oftheir
positions as controlling persons, the Individual Defendants are liable pursuant to Section 20(a) of
the Exchange Act. As a direct and proximate result of Defendants' wrongful conduct, Plaintiff and
other members of the Class suffered damages in connection with their purchases of the Company's
securities during the Class Period.
PRAYER FOR RELIEF .
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURTL'IFS LAWS
47
(a)
Determining that this action is a proper class action under Rule 23 of the Federal
Rules of Civil Procedure;
(b)
Awarding compensatory damages in favor of Plaintiff and the other Class members
against all defendants, jointly and severally, for all damages sustained as a result of Defendants'
wrongdoing, in an amount to be proven at trial, including interest thereon;
(c)
Awarding Plaintiff and the Class their reasonable costs and expenses incurred in this
action, including counsel fees and expert fees; and
(d)
Such other and further relief as the Court may deem just and proper.
JURY TR
L DEMANDED
Plaintiff hereby demands a trial by jury.
CLASS ACTION COMP)AINT FOP, VIOLATIONS OF THE FEDERAL SECURITIES LAWS
48
DATED: February 11, 2009
SILVA, SAUCEDO & GONZALES, P.C.
By: 1sl Christopher T. Saucedo
Benjamin Silva, Jr.
[email protected]
Christopher T. Saucedo
Csaucedo silvalaw-firm.com
201 Third Street, N.W., Suite 1800
Post Office Box 100
Albuquerque, New Mexico 87103-0100
Telephone: (505) 246-8300
Facsimile: (505) 246-0707
GLANCY BINKOW & GOLDBERG LLP
Lionel Z. Glancy
[email protected]
Michael Goldberg
mmgoldberg(aig1anc. lcom
Richard A. Maniskas
Rmaniskas@&IMUlaw.com
1801 Avenue of the Stars, Suite 311
Los Angeles, California 90067
Telephone: (310) 201-9150
Facsimile. (310) 201-9160
LAW OFFICES OF HOWARD G. SNUTH
Howard G. Smith
howardsmith(_a,howardsmithlaw.com
3070 Bristol Pike, Suite 112
Bensalem, PA 19020
Telephone: (215) 638-4847
Facsimile : (215) 638-4867
Attorneysfor Plaintiff Jay Mueller
CLASS ACTION COMPLAINT FOR VIOLATIONS OF TIlE FEDERAL SECURITIES LAWS
49