Case 1:17-cv-04572-LTS-DCF Document 34 Filed 11/09/17 Page 1 of 104 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ANDREW BARILLI AND RONALD PEÑA, Individually and on Behalf of All Case No. 17-cv-4572-LTS-DCF Others Similarly Situated, Plaintiffs, JURY TRIAL DEMANDED vs. SKY SOLAR HOLDINGS, LTD., WEILI SU, JIANMIN WANG, YI ZHANG, XIAOGUANG DUAN, HAO WU, DONGLIANG LIN, ROTH CAPITAL PARTNERS, LLC, AND NORTHLAND SECURITIES, INC. Defendants. CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Case 1:17-cv-04572-LTS-DCF Document 34 Filed 11/09/17 Page 2 of 104 TABLE OF CONTENTS I.  NATURE OF THE ACTION ............................................................................................. 1  II.  PRELIMINARY STATEMENT ........................................................................................ 3  III.  JURISDICTION AND VENUE ......................................................................................... 5  IV.  PARTIES ............................................................................................................................ 6  V.  PLAINTIFFS’ CLASS ACTION ALLEGATIONS ........................................................... 9  VI.  SUBSTANTIVE ALLEGATIONS FOR THE SECURITIES ACT CLAIMS ................ 11  A.  Background Facts Prior to the IPO ....................................................................... 11  B.  Initial Public Offering ........................................................................................... 14  C.  The False and Misleading Prospectus ................................................................... 16  1.  The Prospectus Failed to Disclose Su’s History of Avoiding Payment of Civil Debt. Su’s Financial Background Was A Material Fact Since He Was Identified As “Essential to [Sky Solar’s] Continuing Success.” ................................................................................................... 16  2.  The Prospectus Further Misrepresented Sky Solar’s Corporate Governance and Internal Controls, which Were Inadequate to Catch Su’s Misconduct........................................................................................ 26  3.  The Prospectus Misrepresented Facts Concerning the Japanese Feed- in-Tariff Program and its Impact on Sky Solar’s Business ....................... 31  i.  The Changes in Japan’s Solar Energy Industry and FIT .............. 35  ii.  The Prospectus Ignored or Misleadingly Minimized Adverse Material Facts ................................................................................ 43  iii.  The Statements in the Prospectus Were Materially False and Misleading..................................................................................... 48  4.  The Prospectus Misrepresented Sky Solar’s Access to Financing ........... 50  5.  The Prospectus Misrepresented Sky Solar’s Ability to Expand Its Solar Assets ............................................................................................... 55  6.  The Prospectus Misrepresented Demand for Solar Capacity in Chile ...... 60  D.  Claims For Relief Under The Securities Act ........................................................ 61  1.  COUNT I .................................................................................................. 61  2.  COUNT II ................................................................................................. 65  VII.  EXCHANGE ACT CLAIMS ........................................................................................... 66 Case 1:17-cv-04572-LTS-DCF Document 34 Filed 11/09/17 Page 3 of 104 A.  Nature of the Action .............................................................................................. 66  B.  Substantive Allegations ........................................................................................ 68  1.  Weili Su’s Legal Problems ....................................................................... 68  C.  Materially False and Misleading False and Misleading Statements Issued .......... 70  1.  Sky Solar’s Non-Rigorous Corporate Governance Guidelines ............. 70  2.  Defendant Su’s Credentials ....................................................................... 74  3.  Sky Solar’s Push Into the Chinese Market With Its Flawed Corporate Governance Guidelines ............................................................................. 74  D.  The Truth Slowly Emerges ................................................................................... 78  E.  Post-Class Period Events ...................................................................................... 80  F.  Additional Scienter Allegations ............................................................................ 81  1.  Weili Su Acted with Scienter .................................................................... 84  2.  Jianmin Wang Acted with Scienter........................................................... 86  3.  Sky Solar ................................................................................................... 88  G.  Loss Causation ...................................................................................................... 89  H.  Presumption Of Reliance ...................................................................................... 94  I.  The Safe Harbor Provision Is Inapplicable ........................................................... 95  J.  Claims For Relief Under The Exchange Act ........................................................ 95  1.  COUNT III ................................................................................................ 95  2.  COUNT IV................................................................................................ 98  VIII.  PRAYER FOR RELIEF ................................................................................................. 100  IX.  DEMAND FOR TRIAL BY JURY ................................................................................ 101  ii Case 1:17-cv-04572-LTS-DCF Document 34 Filed 11/09/17 Page 4 of 104 Lead Plaintiff Ronald Peña (“Peña”) and additional named plaintiff Andrew Barilli (“Barilli”) (collectively, “Plaintiffs”), individually and on behalf of all other persons similarly situated, by their undersigned attorneys, hereby bring this Consolidated Amended Class Action Complaint (“Complaint”) against Sky Solar Holdings, Ltd. (“Sky Solar” or the “Company”), Weili Su (“Su”), Jianmin Wang (“Wang”), Yi Zhang (“Zhang”), Xiaoguang Duan (“Duan”), Hao Wu (“Wu”), Dongliang Lin (“Lin”), Roth Capital Partners, LLC (“Roth”), and Northland Securities, Inc. (“Northland”) (collectively, “Defendants”). Plaintiffs’ allegations are based on their personal knowledge as to their own acts, and on information and belief as to all other matters, such information and belief having been informed by the investigation conducted by and under the supervision of Lead Counsel, which includes review and analysis of publicly available information, including, among other things (a) regulatory filings made by Sky Solar, with the United States Securities and Exchange Commission (“SEC”); (b) press releases and investor presentations and conference calls issued or disseminated by Sky Solar; (c) analyses of news stories, articles, reports, internet postings and other publicly available information concerning Sky Solar; (d) interviews of former employees; (e) analysts’ reports and advisories about the Company; and (f) information readily obtainable on the Internet. Lead Counsel’s investigation into the matters alleged herein is continuing. Many relevant facts are known only to, or are exclusively within the custody or control of, the Defendants. Plaintiffs believe that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. I. NATURE OF THE ACTION 1. This is a federal securities class action on behalf of a class consisting of all 1 Case 1:17-cv-04572-LTS-DCF Document 34 Filed 11/09/17 Page 5 of 104 persons who purchased or otherwise acquired the American Depositary Shares (“ADSs”) of Sky Solar: (1) pursuant or traceable to Sky Solar’s false and misleading Registration Statement and Prospectus (collectively the “Prospectus”) issued in connection with the Company’s initial public offering on or about November 13, 2014 (the “IPO”) seeking to pursue remedies under §§ 11 and 15 of the Securities Act of 1933 (“Securities Act”); or (2) on the open market between November 13, 2014 and June 12, 2017, both dates inclusive, seeking to pursue remedies under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and SEC Rule 10b-5 promulgated thereunder (17 C.F.R. § 240.10b-5) (collectively referred to hereinafter as the “Class”). Excluded from the Class are those persons identified in ¶ 34. 2. Plaintiffs’ Securities Act claims allege strict liability, and other non-fraud based claims under the Securities Act. The Prospectus for the IPO contained one or more untrue statements of a material fact or omitted to state one or more material facts required to be stated therein or necessary to make the statements therein not misleading. These claims are brought against those defendants who are statutorily responsible for misstatements of material facts or omissions in the Prospectus. The Securities Act defendants include Sky Solar; members of the Company’s Board of Directors (“Board”) at the time of the IPO; and the underwriters of the IPO (“Underwriter Defendants”). Plaintiffs expressly disclaim any allegations of fraud or intentional misconduct in connection with these non-fraud claims, which are pleaded separately in this Complaint from Plaintiffs’ Exchange Act claims. 3. Plaintiffs’ Exchange Act claims allege both falsity and scienter against Sky Solar, and Su and Wang (the “Individual Defendants”). Plaintiffs allege that these defendants knowingly or with reckless disregard made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstance under 2 Case 1:17-cv-04572-LTS-DCF Document 34 Filed 11/09/17 Page 6 of 104 which they were made, not misleading, and that defendants’ materially false statements or omissions inflated the market prices of Sky Solar ADSs. II. PRELIMINARY STATEMENT 4. This securities class action relates to the November 13, 2014 initial public offering (the “IPO”) of 6,353,750 ADSs at $8.00 per ADS by defendant Sky Solar. The IPO was pursuant to a Registration Statement and Prospectus. Sky’s primary business is the development of solar fields and the sale of electricity generated therefrom. 5. The Prospectus was materially false and misleading in violation of § 11 of the Securities Act in six principal respects. First, the Prospectus identified defendant Weili Su, Sky Solar’s founder and executive chairman, as a key employee who was “essential” to Sky’s success. Yet, the Prospectus failed to disclose that Su had left behind a $43.5 million trail of unpaid debts. These debts caused Chinese authorities to suspend defendant Su’s right to spend money on “high-valued consumptions.” 6. Given defendant Su’s significance to the success of the offering, Defendants had an obligation to disclose the full truth with respect to defendant Su’s business practices, and not just his successes. In fact, with respect to defendant Su, past became prologue as he subsequently stole at least $15 million from the Company, forcing his termination from the Company for cause. 7. Second, the Prospectus was similarly misleading in that although Defendants recited the Company’s internal controls concerning related party transactions, those controls were known to be inadequate and defendant Su was able to circumvent those controls in stealing money from the Company. In addition to the $15 million in unauthorized transactions, Sky Solar had paid a former managing director a “service fee” of $4.2 million in October 2016 and in 3 Case 1:17-cv-04572-LTS-DCF Document 34 Filed 11/09/17 Page 7 of 104 exchange that (unnamed) managing director transferred to a company controlled by Su $800,000 of Sky Solar common stock (without consideration). 8. Plaintiffs’ claims also relate to the nature of Sky’s business itself. Defendant Su had started in the solar industry in 2007 and formed Sky in 2009 to manufacture and sell solar fields to Su in related party transactions. Initially the solar industry was a great success and benefitted heavily from government rate-marking. By 2014, however, the market (including the Japanese market) had become saturated with oversupply of electricity from alternative energies such as solar, and governments were in the process of reducing or eliminating price supports. 9. Rather than disclose the truth, the Prospectus for the IPO misrepresented that the stock offering was well-timed to take advantage of “highly attractive solar radiation, regulatory environments, power pricing, land availability, financial access and overall power market trends.” The Registration Statement and Prospectus for the IPO misrepresented (i) the current state of Japanese government price support and regulatory and market conditions in Chile, (ii) Sky Solar’s ability to raise financing to build out its Japanese solar network, (iii) Sky Solar’s ability to convert “shovel-ready” projects to actual solar capacity, and to convert “advanced” projects in the “pipeline” to “shovel-ready” projects, and (iv) the strength of the Chilean solar market. The truth, however, was the direct opposite of these representations. Sky Solar’s IPO had not been well-received by investors, raising $65.8 million less than anticipated, and Sky Solar was unable to make up the difference in financing from third parties, who were justifiably concerned with the regulatory environment and saturation of the market-place. 10. As the truth was slowly revealed beginning on June 6, 2017, both with regard to Su’s misconduct and the lack of internal controls, and the deficiencies in Sky Solar’s business plan, Sky Solar’s ADSs spiraled down from the $8 IPO price, to close on June 20, 2017, after 4 Case 1:17-cv-04572-LTS-DCF Document 34 Filed 11/09/17 Page 8 of 104 defendant Su’s theft was revealed, at $1.07 per ADS. 11. Under § 11 of the Securities Act, plaintiffs need only offer plausible allegations that the Prospectus was materially false and misleading. Plaintiffs are not required to plead defendants’ state of mind, nor are they required to plead reliance or loss causation. Rather, once plaintiffs plead (and, subsequently, prove falsity), the issuer (Sky Solar) is strictly liable, and the burden shifts to the non-issuer defendants to prove reasonable care. 12. Plaintiffs’ claims under § 10(b) of the Exchange Act with respect to the non- disclosure of Su’s debt-ridden history, Sky Solar’s misrepresentations with respect to its lack of internal controls to protect against related-party transactions, and Su’s eventual defalcations, are similarly well-pled. The Sky Solar Exchange Act management defendants had actual knowledge, given Su’s domination of the Company, of Sky Solar’s lack of internal controls, and by at least October 2016 knew of the $4.2 million transaction with the managing director and failed to take corrective action. III. JURISDICTION AND VENUE 13. The claims asserted herein arise under and pursuant to §§ 11 and 15 of the Securities Act (15 U.S.C. §§ 77k and 77o); or §§ 10(b) and 20(a) of the Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder by the SEC (17 C.F.R. § 240.10b- 5). 14. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §§ 1331, § 22 of the Securities Act (15 U.S.C. § 77), and § 27 of the Exchange Act (15 U.S.C. § 78aa). 15. Venue is proper in this Judicial District pursuant to § 27 of the Exchange Act (15 U.S.C. §78aa) and 28 U.S.C. §1391(b) because Sky Solar trades on the NASDAQ, located 5 Case 1:17-cv-04572-LTS-DCF Document 34 Filed 11/09/17 Page 9 of 104 within this Judicial District. 16. In connection with the acts, conduct and other wrongs alleged in this Complaint, Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including but not limited to, the United States mail, interstate telephone communications and the facilities of a national securities exchange. IV. PARTIES 17. As set forth in his certification previously filed with the Court (Dkt. No. 11-2), Lead Plaintiff purchased Sky Solar ADSs in reliance on defendants’ materially false and misleading statements and omissions of material facts, and on the integrity of the market for Sky Solar ADSs, at artificially inflated prices during the Class Period, and was damaged when the truth about Sky Solar was revealed to the market. Peña suffered losses of approximately $205,200 as a result of the federal securities law violations and false and misleading statements and material omissions alleged herein. 18. As set forth in his certification previously filed with the Court (Dkt. No. 1), named plaintiff Barelli purchased Sky Solar ADSs pursuant or traceable to the Company’s Registration Statement and Prospectus for the IPO, and suffered damages as a result of the federal securities law violations and false or misleading statements or material omissions alleged herein. 19. Defendant Sky Solar is incorporated in the Cayman Islands and headquartered in Hong Kong, with principal executive offices located at Unit 402, 4th Floor, Fairmont House, No. 8 Cotton Tree Drive, Admiralty, Hong Kong Special Administrative Region, People’s Republic of China. Sky Solar’s ADSs trade on the NASDAQ under the ticker symbol “SKYS.” 20. Defendant Su founded Sky Solar in 2009. Defendant Su served as the Chairman 6 Case 1 :17-cv-04572-LTS-DCF Document 34 Filed 11/09/17 Page 10 of 104 of Sky Solar’s Board of Directors from October 2009 through June 6, 2017; and served as the Company’s Chief Executive Officer from shortly after the IPO in December 2014 through June 6, 2017. On June 6, 2017, the Company issued a press release announcing that Defendant Wu had replaced Defendant Su as Chairman and CEO. Defendant Su remains a director of the Company. Defendant Su served as the Chairman of the Company’s Nominating and Corporate Governance Committee. Defendant Su signed or authorized the signing of the Registration Statement for the IPO and signed the Company’s Form 20-Fs for 2014, 2015 and 2016 (“Form 20-Fs”). Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (“SOX”), Defendant Su also signed certifications with respect to Sky Solar’s “internal control[s] over financial reporting” for years 2014, 2015, and 2016. 21. Defendant Jianmin Wang (“Wang”) has served at all relevant times as the Company’s Chief Financial Officer (“CFO”), and Secretary of the Board and director. Defendant Wang signed or authorized the signing of the Registration Statement for the IPO. Pursuant to SOX, defendant Wang also signed certifications with respect to Sky Solar’s “internal control[s] over financing reporting” for years 2014, 2015, and 2016. 22. Defendant Yi [Amy] Zhang (“Zhang”) served as Sky Solar’s Chief Executive Officer from May 2011 through December 2014. Defendant Zhang served as Vice Chairman of the Board and Chief Strategy Officer from December 2014 through August 2015, and a director from May 2011 through August 2015. Defendant Zhang signed or authorized the signing of the Registration Statement for the IPO. 23. Defendant Xiaoguang Duan (“Duan”) has been a director of the Company since May 2011, and a member of the Management Committee since June 2017. Defendant Duan signed or authorized the signing of the Registration Statement for the IPO. 7