BONNETT FAIRBOURN FRIEDMAN & BALINT, P.C. Patricia N. Syverson (020191) [email protected] 2325 E. Camelback Road Suite 300 Phoenix, Arizona 85016 Telephone: 602/274-1100 Facsimile: 602/274-1199 Local Counsel for Plaintiff WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP FRANCIS M. GREGOREK BETSY C. MANIFOLD RACHELE R. RICKERT MARISA C. LIVESAY 750 B Street, Suite 2770 San Diego, CA 92101 Telephone: 619/239-4599 Facsimile: 619/234-4599 [email protected] [email protected] [email protected] [email protected] Counsel for Plaintiff [Additional Counsel Appear on Signature Page] UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Chad Monroe, Individually and On Behalf ) CASE NO. Of All Others Similarly Situated, ) ) CLASS ACTION COMPLAINT Plaintiff, ) FOR VIOLATION OF THE ) FEDERAL SECURITIES LAWS -against- ) ) DEMAND FOR TRIAL BY JURY Nuverra Environmental Solutions, Inc.; ) Richard J. Heckmann; Mark D. Johnsrud; ) Jay Parkinson; and W. Christopher Chisholm, ) ) Defendants. ) ______________________________________ By and through his undersigned counsel, Plaintiff Chad Monroe (“Plaintiff”) alleges the following against Nuverra Environmental Solutions, Inc. (“Nuverra” or the “Company”) and certain of the Company’s executive officers and directors (the “Individual Defendants”). Plaintiff makes these allegations upon personal knowledge as to those allegations concerning Plaintiff and, as to all other matters, upon the investigation of counsel, including, without limitation: (a) review and analysis of public filings made by Nuverra and other related parties and non-parties with the Securities and Exchange Commission (“SEC”); (b) review and analysis of press releases and other publications disseminated by certain of the defendants and other related non-parties; (c) review of news articles, shareholder communications, conference call transcripts, and postings on Nuverra’s website concerning the Company’s public statements; and (d) review of other publicly available information concerning Nuverra and the Individual Defendants. I. NATURE OF THE ACTION 1. This is a federal securities class action against Nuverra and certain of its officers and directors for engaging in a fraudulent scheme to artificially inflate the Company’s stock price by disseminating materially false and misleading statements, and failing to disclose material information regarding the Company’s true financial scorecard and operations, thereby damaging Plaintiff and other similarly situated investors. Plaintiff brings this action on behalf of all persons or entities who purchased or otherwise acquired shares of Nuverra common stock between November 11, 2011 and August 23, 2013, inclusive (the “Class Period”), and seeks to pursue remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). 2. Defendant Nuverra, one of the largest environmental solutions companies in the United States, provides services relating to the removal, treatment, recycling, transportation and disposal of restricted solids, fluids and hydrocarbons for major 1 exploration and production companies operating in the oil and gas basins. In addition, the Company offers, among other things, a one-stop shop for energy recovery, re- refining and recycling of used motor oil and oily wastewater. Nuverra operates approximately 70 locations across 26 states. 3. On July 30, 2013, the Company issued a press release announcing its preliminary financial results for the quarter ended June 30, 2013 and noting, in particular, that its earnings before interest, taxes, depreciation, and amortization (“EBITDA”) were, in fact, significantly lower than previously projected. The Company blamed the shortfall on, among other things, lower than expected activity levels in the Company’s shale solutions segment, unspecified operational issues in its Eagle Ford Shale area, and heavy demand in the Marcellus and Utica shales that required the Company to utilize subcontractors, resulting in lower overall margins. Accordingly, Nuverra revised its earnings and revenue downward, including adjustments to second quarter EBITDA of approximately $9.7 to $9.9 million. The adjustments included non-recurring integration and corporate rebranding expenses of approximately $2.3 million and a charge of approximately $4.8 to $5.0 million related to the restructuring of business operations and cost cutting initiatives in the legacy Heckmann Water Resources business segment. 4. On this news, Nuverra shares dropped precipitously from a closing of $3.49 per share on July 29, 2013 to a closing of $3.04 per share on July 30, 2013, for a sharp decrease of approximately 13%. Nuverra stock had traded as high as $4.91 on September 17, 2012. 5. Less than one month later, on August 23, 2013, seekingalpha.com published the article “Nuverra Environmental: A Sinking Ship With Default Risk,” which warned that investors “could lose 80+% of their investment over the next 12 2 months.”1 In addition, Sinking Ship claimed that, contrary to Nuverra’s public representations during the Class Period, the Company had “yet to generate a positive operating profit,” that it was misrepresenting itself as an environmental services company, that the Company’s book value was “extremely deceptive,” and that Nuverra was “over-leveraged with a liquidity crisis looming.” Id. On September 24th, the author of Sinking Ship corrected certain inaccuracies but, as detailed below, further alleged that the Company’s risk of default was even more immediate that initially predicted.2 6. Following the August 23, 2013 publication of the Seeking Alpha article, Nuverra shares dropped approximately 11.76% per share, from $2.72 per share during the prior trading session to close at $2.40 per share on August 26, 2013. The stock has continued to decline. As of morning trading on September 25, 2013, the price was $2.21 per share. 7. Defendants’ fraudulent misrepresentations and omissions concerning the Company’s true financial condition, operations and business prospects artificially inflated Nuverra’s stock price during the Class Period. Specifically, throughout the Class Period, Defendants made false and misleading statements and/or failed to disclose: (a) that the Company was overleveraged and experiencing a liquidity crisis; (b) that the Company was experiencing a significant decline in its operational results, particularly in the Eagle Ford Shale area; (c) that as a result of the Company’s poor financial performance, Nuverra’s default risk materially increased; and (d) Defendants 1 Nuverra Environmental: A Sinking Ship With Default Risk, seekingalpha.com (Aug. 23, 2013) http://seekingalpha.com/article/1653072-nuverra-environmental-a- sinking-ship-with-default-risk, last visited Sept. 25, 2013 (hereafter “Sinking Ship”). 2 Nuverra Environmental: Revisiting The Default Risk, seekingalpha.com (Sept. 24, 2013) http://seekingalpha.com/article/1709782-nuverra-update-revisiting-the- default-risk?source=yahoo, last visited Sept. 26, 2013 (hereafter “Revisiting The Default Risk”). 3 accordingly lacked a reasonable basis for their positive statements about the Company during the Class Period. 8. As a result of Defendants’ wrongful acts, false and misleading statements and omissions about the Company’s financial well-being and prospects, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages. II. JURISDICTION AND VENUE 9. This action arises under Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78t(a) and SEC Rule 10b-5, promulgated there under (hereafter “Rule 10b-5”). 10. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. § 1331 and section 27 of the Exchange Act, 15 U.S.C. § 78aa. 11. Venue is proper in this Judicial District pursuant to section 27 of the Exchange Act, 15 U.S.C. § 78t(a), and 28 U.S.C. § 1391(b). Many of the acts and conduct complained of herein, including the preparation and dissemination of materially false and misleading information to the investing public, occurred in substantial part in this Judicial District. 12. In connection with the acts and omissions alleged in this complaint, Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications, and the facilities of the national securities markets. III. PARTIES A. Plaintiff 13. Plaintiff Chad Monroe, as set forth in the accompanying certification incorporated by reference herein, purchased publicly traded Nuverra securities at artificially inflated prices during the Class Period and has been damaged thereby. 4 B. Defendants 1. The Company 14. Defendant Nuverra is an environmental solutions company incorporated under the laws of the state of Delaware with headquarters in Scottsdale, Arizona. During the Class Period, Nuverra maintained executive offices at 14646 N. Kierland Boulevard, Suite 260, Scottsdale, Arizona 85254. Nuverra common stock is traded on the NYSE under the ticker “NES.”3 2. The Individual Defendants 15. Defendant Richard J. Heckmann (“Heckmann”) founded the Heckmann Corporation (now known as Nuverra) in 2007. Heckmann served as the Chief Executive Officer (“CEO”) and Chairman of the Board of Directors of Nuverra from May 2007 until November 2012 and currently serves as Executive Chairman of Nuverra’s Board of Directors. 16. Defendant Mark D. Johnsrud (“Johnsrud”) has served as the Chief Executive Officer and Vice Chairman of the Board of Directors of Nuverra since November 2012. Previously, Johnsrud served as the Chief Executive Officer of Power Fuels until Heckmann Corporation merged with Power Fuels in November 2012. 17. Defendant Jay Parkinson (“Parkinson”) has served as the Executive Vice President and Chief Financial Officer (“CFO”) of Nuverra since September 2012. Prior to joining the Company, defendant Parkinson worked in the Energy Investment Banking group at Jefferies & Company, Inc. from January 2006 on, most recently as a managing director. Jeffries & Company, Inc. represented the purchasers in the Company’s $400 million November 2012 private debt placement used to finance the Power Fuels acquisition. 3 Prior to May 2013, Nuverra was known as Heckmann Corporation and traded on the NYSE under the ticker symbol “HEK.” Nuverra is comprised of Heckmann Corporation, Badlands Energy LLC (“Power Fuels”), Thermo Fluids, Inc. and Heckmann Water Resources. 5 18. Defendant W. Christopher Chisholm (“Chisholm”) served as Executive Vice President and Chief Financial Officer of Nuverra from November 2011 to September 2012. 19. Defendants Heckmann, Johnsrud, Parkinson and Chisholm are collectively referred to as the “Individual Defendants.” 20. The Company and the Individual Defendants are collectively referred to herein as the “Defendants.” 21. During the Class Period, the Individual Defendants, as senior executive officers and directors of Nuverra, were privy to confidential, proprietary and material adverse nonpublic information concerning Nuverra, its operations, finances, financial condition and present and future business prospects via access to internal corporate documents, conversations and connections with other corporate officers and employees, attendance at management and/or board of directors meetings and committees thereof, and via reports and other information provided to them in connection therewith. Because the Individual Defendants possessed such information, they knew, or recklessly disregarded, that the adverse facts specified herein had not been disclosed to, and were being concealed from, the investing public. 22. The Individual Defendants are liable as direct participants in the wrongs complained of herein. In addition, the Individual Defendants, by reason of their status as senior executive officers and/or directors, were “controlling persons” within the meaning of Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), and had the power and influence to cause the Company to engage in the unlawful conduct complained of herein. Because of their positions of control, the Individual Defendants were able to and did, directly or indirectly, control the conduct of Nuverra’s business. 23. The Individual Defendants, because of their positions with the Company, controlled and/or possessed the authority to control the contents of its reports, press releases and presentations to securities analysts and, through such analysts, to the investing public. The Individual Defendants were provided with copies of the 6 Company’s reports and publicly disseminated documents 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. Thus, the Individual Defendants had the opportunity to commit the fraudulent acts alleged herein. 24. As senior executive officers and/or directors and as controlling persons of a publicly traded company whose securities were, and are, registered with the SEC pursuant to the Exchange Act, and are traded on the NYSE and governed by the federal securities laws, the Individual Defendants had a duty to disseminate promptly accurate and truthful information with respect to Nuverra’s financial condition and performance, growth, operations, financial statements, business, products, markets, management, earnings, and present and future business prospects, to correct any previously issued statements that had become materially misleading or untrue, so the market price of Nuverra’s securities would be based on truthful and accurate information. The Individual Defendants’ misrepresentations and omissions during the Class Period violated these specific requirements and obligations. 25. The Individual Defendants are liable as participants in a fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of Nuverra’s publicly traded securities by disseminating materially false and misleading statements and/or concealing material adverse facts IV. SUBSTANTIVE ALLEGATIONS A. Background of Nuverra 26. Defendant Heckmann founded Nuverra in 2007 as Heckmann Corporation. The Company was started as a $500 million Special Purpose Acquisition Company, or blank check company, looking to purchase and “rollup” other revenue producing companies. It has since transformed itself, according to defendant Heckmann, “into a leading presence in the country’s massive push toward energy independence” via several acquisitions, and changed its name to Nuverra in May 2013. 7 27. Nuverra, one of the largest environmental solutions companies in the United States, provides full-cycle environmental services to customers in energy and industrial end-markets in connection with the delivery, collection, treatment, recycling and disposal of restricted solids, water, waste water, used motor oil, spent antifreeze, waste fluids and hydrocarbons. The Company offers its suite of environmentally compliant and sustainable solutions to a “national footprint” of customers in approximately 70 locations across 26 states. 28. At its core, though presenting itself as an environmental servicer, nearly all of Nuverra’s EBITDA comes from simple oilfield fluid services. The combination of hydraulic fracturing and horizontal drilling has unlocked massive amounts of shale oil and natural gas. While this process presents an alternative to dependence on foreign energy, induced hydraulic fracturing or hydrofracturing—commonly known as “fracking” in the industry— is a technique in which typically water is mixed with sand and chemicals, and the mixture is then injected at high pressure into a wellbore to create small fractures (typically less than 1 mm) along which fluids such as gas, petroleum, uranium-bearing solution, and brine water may migrate to the well.4 “Fracking” requires massive amounts of water, which can average around six million gallons per well, which is first laced with harmful chemicals before being pumped into the ground to fracture the shale in order to unlock oil and gas. This is a controversial process that many argue present environmental risks that outweigh those associated with relying on other nations to supply oil. As is the law of physics, water under pressure eventually makes its way back up the well and needs to be disposed of before it causes any harm. Nuverra is in the business of supplying and cleaning up after the use of this unsafe water. 4 Helman, Christopher, “Energy's Latest Battleground: Fracking For Uranium” Forbes. (Jan. 23, 2013), available at http://www.forbes.com/sites/christopherhelman/2013/ 01/23/fracking-for-uranium, last visited Sept. 26, 2013. 8 B. False and Misleading Statements 29. In regular press releases, conference calls and SEC filings, Nuverra and the Individual Defendants repeatedly made false and misleading statements and/or failed to disclose material adverse facts concerning Nuverra’s operations, business prospects, liquidity and finances. Defendants’ false and misleading statements artificially inflated the Company’s stock price during the Class Period. As set forth below, once the truth regarding the Company’s financial and business condition was revealed to the market, Nuverra’s stock price plummeted. 30. Specifically, the Company was experiencing significant negative business operations issues, including in the Eagle Ford Shale area — which Defendants had represented as one of the Company’s “key growth areas” — and an inability to meet customer demand in the Marcellus/Utica Shale area, all of which negatively impacted the Company’s margins and financial results. 31. On November 9, 2011, the Company issued a press release announcing its third quarter results for the period ended September 30, 2011. Commenting on the results, Mr. Heckmann stated as follows: “In the third quarter, we drove strong organic growth across our key financial metrics from our core water solutions business,” said Richard J. Heckmann, Chairman and CEO of Heckmann Corporation. “Our revenues, adjusted EBITDA and net income performance reflect our added capabilities to generate internal growth and additional capacity from our acquisitions in the second quarter. In addition, we divested China Water & Drinks to focus our efforts entirely on our growing domestic water business, and we are on track to meet our annual financial guidance of more than $150 million in revenue and adjusted EBITDA of $40 million.” 32. Further, Mr. Heckmann related information about the Company’s expansion plans in the Eagle Ford Area, acquisition of more wells and permits and other plans. The Company also disclosed its financial results for the quarter:  Revenues for the third quarter ended September 30, 2011 totaled $47.8 million, compared with $1.9 million for the same year-ago period. 9