Delaware Court Dismisses Securities Fraud Action Against Power Plant Executives

The US District Court for the District of Delaware dismissed a class action for securities fraud against former officers and directors of a geothermal energy company, in which the plaintiffs alleged that the defendants had misrepresented the capacity of a prominent power plant and their ability to construct more plants. In 2008, the energy company completed construction of a geothermal plant and touted the plant in 2009 as an example of their “rapid deployment business model.” In late 2009, the company disclosed in public filings that it had encountered unexpected difficulties in developing the plant to full capacity and, in 2010, sought to recognize an impairment loss of $52.5 million to the value of the plant. The court dismissed the complaint for failure to plead scienter and loss causation, rejecting the argument that the energy company had committed securities fraud by waiting too long to record or report the loss incurred after learning of problems at the plant. The court also refused to adopt the “materialization of risk” test for loss causation, which would allow a plaintiff to plead loss causation by showing that the defendant exposed investors to an undisclosed risk which subsequently materialized. Instead, the court held that the absence of any allegation of a corrective disclosure automatically warranted dismissal.

Bartesch v. Cook, No. 11-1173-RGA (D. Del. Apr. 23, 2013).