3 Firms will lead suit over fuel cell maker’s inflated results.
Squitieri & Fearon LLP, Moore Kuehn PLLC and Rigrodsky Law PA will lead a consolidated stockholder derivative suit alleging fuel cell manufacturer Plug Power Inc. misstated its financial results, with certain officers unloading stock before the price plummeted when the inaccuracies went public.
In an order entered Chancellor Kathaleen St. Jude McCormick appointed the three firms as co- lead counsel and consolidated two suits filed by shareholder plaintiffs Abbas Khambati and Anne D. Graziano.
The order, which was stipulated by parties in the litigation, stays the consolidated suit pending action on a motion to dismiss filed in a federal securities fraud class action in the Southern District of New York.
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The New York case “alleges violations of law relating to and arising from circumstances substantially similar to those in the” Delaware Chancery Court suits that were consolidated, according to the order.
In late June, Khambati filed his derivative suit in the Chancery Court against Plug Power directors, alleging they “had been overstating the company’s financial results since at least 2018.”
Abbas Khambati said in his suit.
Although Plug Power has never turned a profit, it has vowed to become the world’s leading fuel cell maker and a leading manufacturer of so-called green hydrogen using electrolysis, a process that uses water instead of fossil fuels like methane to extract hydrogen molecule[s].
“The company’s survival depends upon its ability to raise capital because its operations drain cash and fail to generate meaningful profits.”
Plug Power raised more than “$3.5 billion from investors to support its capital-intensive business,” the suit said.
But the company’s directors and offices mislead investors about profits and financial results, Khambati alleged. Accounting issues “had been repeatedly brought to the attention of Plug Power by the [U.S.] Securities and Exchange Commission through over a dozen pieces of correspondence,” according to the suit.
“It was not until March 2, 2021, that the company admitted that material restatements of its previously reported financial results for FY2018, FY2019, and for quarterly periods in 2020 were necessary,” the suit said.
“The restatement of financial results was due to material errors and inaccuracies in Plug Power’s accounting for several items which were the subject of the SEC comment letters.”
One of the problems was Plug Power had misclassified fuel delivery expenses, the suit said. When issues were made public, the company’s “stock fell to just $36.36 per share on March 18, 2021, a drop of over 50% from its high less than two months earlier on January 26, 2021, erasing over $17.2 billion in market capitalization,” according to the suit.
The stock price continued to plummet, eventually dropping to $20 per share in May 2021, the suit said. Before the stock price fell, the suit alleged “twelve current directors and three executive officers took advantage of the inflated stock price by selling millions of dollars of Plug Power stock while in possession of material non-public information.”
Graziano, as trustee of the Anne D. Graziano Revocable Living Trust, filed suit last month, asserting similar claims. The plaintiffs agreed “the administration of justice would be best served by consolidating the actions” because the suits “contain substantially similar factual and legal contentions.”
They also agreed to the counsel leadership structure, while the defendants took no position on the appointment of co-lead counsel, the order said. Khambati’s suit had been paused per an order last month and Graziano has agreed “to be bound by the same stay provisions,” meaning the consolidated action will be stayed pending action on a motion to dismiss in the New York case.
The New York complaint was initially filed in March 2021, with an amended consolidated class action filed in October 2021 against the company, its president and CEO Andrew March, and its chief financial officer.
Lead plaintiff Manfred Schumacher seeks to recover damages for alleged securities law violations.
“As the company touted its growing profitability, the stock price of Plug Power’s common stock inflated to record highs,” the suit said. “The defendants took advantage of the inflated stock price by selling Plug Power stock for tens of millions of dollars of insider sales.”
Marsh “capitalized on the company’s inflated stock price by selling 43% of his holdings for approximately $37.7 million, when Plug Power’s common stock price was at its peak and just six weeks from announcing its need to restate years of financial statements,” according to the suit.
CFO Paul Middleton “profited by netting approximately $7.6 million from insider sales during the class period,” the suit alleged. The company “primarily provides fuel cells for forklifts operating in warehouses of some of the world’s largest retail-distribution and manufacturing businesses, including Amazon, Walmart and Home Depot,” according to the New York suit.
The Chancery Court suits that have now been consolidated seek damages and the establishment of corporate governance reforms to strengthen the company’s financial disclosure procedures. Counsel for the parties didn’t immediately respond Thursday to requests for comment.
The investors are represented by Seth D. Rigrodsky, Gina M. Serra and Herbert W. Mondros of Rigrodsky Law PA, Howard Longman of Longman Law PC, P. Bradford deLeeuw of deLeeuw Law LLC, Lee Squitieri of Squitieri & Fearon LLP, and Fletcher W. Moore and Justin A. Kuehn of Moore Kuehn PLLC.
Plug Power and its officers are represented by Rudolf Koch, Kyle H. Lachmund and Sandy J. Xu of Richards Layton & Finger PA.
The case is In Re Plug Power Inc. Stockholder Derivative Litigation, case 2022-0569, in the Court of
Chancery of the State of Delaware.
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3 Firms Will Lead Suit Over Fuel Cell Maker’s Inflated Results, August 11, 2022
