Investors filed a class action lawsuit against a stimulus-backed green energy company on Thursday alleging that company executives misled them about the financial health of the firm, which last week laid off part of its workforce.
The company, ECOtality, announced last week that it might file for bankruptcy. The Department of Energy (DOE), which awarded ECOtality nearly $100 million to build electric vehicle chargers, suspended stimulus payments to the company.
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ECOtality’s business is insufficiently diversified to remain viable without continued DOE support or alternative means of financing, the company said in an announcement last week.
ECOtality laid off most of the company’s staff after the announcement, the company confirmed in an emailed statement.
One ECOtality executive, who spoke on the condition of anonymity, said about two thirds of the company’s staff had been laid off. Company spokesperson Kimberly Setliff said they had undergone "a downsizing of personnel" but declined to elaborate.
The announcement last week of a potential bankruptcy filing appears to contradict assurances from company executives as late as April that ECOtality had "a stable, diversified, and expanding revenue base," as CEO H. Ravi Brar said in a press release accompanying a Q4 2012 financial report.
Last week’s announcement made clear that that was not in fact the case, according to a class action suit filed by law firm Zeldes Haeggquist & Eck, LLP.
ECOtality, through Brar and chief financial officer Susie Herrmann, "made false and misleading statements and engaged in a scheme to deceive the market and a course of conduct that artificially inflated the price of ECOtality common stock and operated as a fraud or deceit" against the company’s investors, the complaint alleges.
The company’s statements regarding its financial health produced significant stock gains, the complaint notes. Following ECOtality’s announcement last week, stock "plummeted more than 87 percent … erasing more than $53 million in market capitalization."
A second law firm, Brower Piven, announced that it has also filed a complaint against ECOtality for allegedly misleading investors. That suit was not publicly available, and the firm did not return requests for additional details.
Holzer Holzer & Fistel is conducting an investigation that could lead to a third class action suit against the company.
Setliff declined to comment on existing or pending lawsuits against the company.
Those suits are the latest in a line of mishaps that critics say demonstrate the folly of the millions of dollars the federal government doled out to ECOtality though the EV Project, a stimulus-funded electric vehicle program, and other initiatives.
Even employees of the company say its underlying business model, which relies heavily on continued government support, is unsustainable.
"It was inevitable, sadly so," the ECOtality executive said of the company’s financial troubles and potential bankruptcy. "We’ve known for a year that there’s no chance they survive."
"They have no business model," he added. "They have no income beyond the EV Project. They knew it. They were touting the fact that they were going to increase business beyond the EV Project, but they had no sales."
The executive pinned blame on former CEO Jonathan Read, who left the company last year. "The guy was lining his pockets even before the DOE announcement and continued to do so at the expense of investors and the federal government," he said.
Read received millions of dollars in compensation through company stock, giving him a stake in the continued rise in share prices.
"Ravi [Brar] is a sharp guy, but there was no chance it was going to survive when he took over," the company executive said. "It was a foregone conclusion."
By the time Read left the company, it was already facing scrutiny from Congress over an insider trading investigation by the Securities and Exchange Commission.
ECOtality also revealed last week that it is under investigation by the Labor Department for alleged violations of the Fair Labor Standards Act and the Davis-Bacon Act.