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Case5:14-cv-01435-EJD Document1 Filed03/28/14 Page1 of 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA Case No.: of All Others Similarly Situated, CLASS ACTION Plaintiff, CLASS ACTION COMPLAINT FOR v. VIOLATIONS OF THE FEDERAL SECURITIES LAWS SOLARCITY CORPORATION, LYNDON R. RIVE, and ROBERT D. KELLY, DEMAND FOR JURY TRIAL Defendants. CLASS ACTION COMPLAINT 28

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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

Individually and On Behalf

Case No.: of All Others Similarly Situated,

CLASS ACTION Plaintiff,

CLASS ACTION COMPLAINT FOR v. VIOLATIONS OF THE FEDERAL

SECURITIES LAWS

SOLARCITY CORPORATION, LYNDON R. RIVE, and ROBERT D. KELLY,

DEMAND FOR JURY TRIAL

Defendants.

CLASS ACTION COMPLAINT

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Case5:14-cv-01435-EJD Document1 Filed03/28/14 Page2 of 23

1 Plaintiff (“Plaintiff”), individually and on behalf of all other persons similarly

2 situated, by his undersigned attorneys, for his complaint against defendants, alleges the following based

3 upon personal knowledge as to himself and his own acts, and information and belief as to all other

4 matters, based upon, inter alia, the investigation conducted by and through his attorneys, which

5 included, among other things, a review of the defendants’ public documents, conference calls and

6 7 announcements made by defendants, United States Securities and Exchange Commission (“SEC”)

8 filings, wire and press releases published by and regarding SolarCity Corporation, (“SolarCity” or the

9 “Company”), analysts’ reports and advisories about the Company, and information readily obtainable

10 on the Internet.

11 NATURE OF THE ACTION

12

13 1. This is a federal securities class action on behalf of a class consisting of all persons other

14 than defendants who purchased or otherwise acquired SolarCity securities between March 6, 2013 and

15 March 18, 2014, both dates inclusive (the “Class Period”), seeking to recover damages caused by

16 defendants’ violations of the federal securities laws and to pursue remedies under §§ 10(b) and 20(a) of

17 the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder 18

against the Company and certain of its top officials. 19

20 2. SolarCity purports to sell renewable energy to its customers at prices below utility rates,

21 primarily through the leasing or sale of solar energy systems. The Company claims that its long-term

22 agreements generate recurring customer payments and position SolarCity to provide a growing base of

23 customers with energy-related products and services that lower their energy costs. The Company 24

offered its shares to the public for the first time in December 2012, and commenced a secondary 25 26 offering in October 2013.

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3. The Company operates in two primary segments, Operating Leases (“Leasing”) and

28 Solar Energy Systems Sales (“Sales”). Both segments receive a significant amount of revenues over CLASS ACTION COMPLAINT

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Case5:14-cv-01435-EJD Document1 Filed03/28/14 Page3 of 23

1 recurring periods through customer payments, investment tax credits, accelerated tax depreciation and

2 other incentives.

3

4. SolarCity has established various financing methods to facilitate the Company’s growth

4 in the solar energy market, where high upfront costs associated with solar panel technology had

5 previously prohibited many customers from purchasing solar energy. The Company has historically

6 7 monetized its assets created by substantially all of its leases and purchase agreements via financing

8 funds formed with investors.

9

5. Throughout the relevant period, however, including at the time prior and subsequent to

10 the Company’s initial public offering, the defendants incorrectly accounted for expenses associated

11 with the Company’s larger Sales segment, and failed to properly allocate such expenses between the 12 13 Sales and Leasing segments. The Company, which was under pressure from investors to demonstrate

14 the strength of its solar energy operations, improperly allocated expenses between its two reporting

15 segments in order to hide the Sales segment’s ballooning expenses, thereby inflating the segment’s

16 reported gross margins.

17 6. Throughout the Class Period, defendants made materially false and misleading

18 statements regarding the Company’s business, operational and compliance policies. Specifically,

19 20 defendants made false and/or misleading statements and/or failed to disclose that: (i) the Company

21 lacked adequate controls over financial reporting; (ii) the Company misclassified its reported expenses;

22 (iii) the Company’s prior financial statements required restatement; and (iv) as a result of the above, the

23 Company’s financial statements were materially false and misleading at all relevant times. 24

7. On March 3, 2014, the Company announced that it had discovered an error in its 25 26 financial reporting, and discovered tens of millions in overhead expenses that it had incorrectly

27 classified. Specifically, the Company stated:

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SolarCity today announced that there will be a reallocation of overhead expenses from leased systems to system sales, which will affect the 2013

CLASS ACTION COMPLAINT 2

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and 2012 GAAP financial statements. The estimated changes are described below and final, audited statements will be filed on or before Tuesday, March 18, 2014.

During an internal review of fourth quarter financial statements, we discovered an error in the formula for allocating overhead expenses between Operating Lease assets and the cost of Solar Energy System Sales originating in Q1 2012. We reported this to our auditors, who agreed with our assessment that a correction needed to be made.

***

The GAAP impact is expected to be a downward adjustment on the balance sheet primarily in Solar Energy Systems, Leased and to Be Leased of approximately 2.5%-3.0% as of September 30, 2013. We also expect an increase in the cost of Solar Energy Systems Sales of approximately $16-$20 million on the statement of operations for the nine month period ended September 30, 2013 and an increase of approximately $20-$23 million to the same line item for the full-year 2012, while we are currently evaluating the materiality of the impact on 2011.

8. On this news, SolarCity securities declined $1.70 per share, or over 2%, to close at

$83.26 per share on March 3, 2014.

9. The severity of the Company’s financial manipulations became more apparent on March

18, 2014, when the Company issued a press release providing more information regarding its

restatement. The Company stated in relevant part:

We have finalized the overhead reallocation we had previously announced in a manner consistent with our expectations. The net impact was a reallocation of overhead expenses from Operating Leases to Solar Energy System Sales totaling $16.2 million for the first three quarters of 2013 and $20.4 million for the full year 2012. As noted previously, there was no impact to Net Cash Flow, Estimated Nominal Contracted Payments Remaining, or Retained Value.

We identified the allocation error as part of our own internal controls process and reported it to our auditors.

10. Also, that same day, the Company filed an 8-K report informing investors that its prior

financial statements for the annual periods ended December 31, 2010, 2011 and 2012 should no longer

CLASS ACTION COMPLAINT 3

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1 be relied upon, “as a result of (i) an error related to the presentation of non-cash stock based

2 compensation costs in the consolidated statement of cash flows for the portion of such costs that were

3 capitalized as part of the costs of solar energy systems leased and to be leased; and (ii) an error related

4 to the classification of certain of the noncontrolling interests in subsidiaries after the Company

5 concluded that certain noncontrolling interests with redemption rights should be presented in temporary

6 7 equity and not permanent equity as had previously been disclosed. These matters also impacted the

8 2013 interim and 2012 annual and interim consolidated financial statements referred to in our Form 8-

9 K filed on March 3, 2014.”

10 11. On this news, the Company’s shares fell $4.40, or almost 6%, to close on March 19,

11 2014 at $72.70 per share on unusually high trading volume. 12

13 12. As a result of defendants' wrongful acts and omissions, and the precipitous decline in the

14 market value of the Company's securities, Plaintiff and other Class members have suffered significant

15 losses and damages.

16 JURISDICTION AND VENUE

17 13. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the

18 Exchange Act (15 U.S.C. § 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder (17 C.F.R. §

19 20 240.10b-5).

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14. This Court has jurisdiction over the subject matter of this action pursuant to § 27 of the

22 Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331.

23 15. Venue is proper in this District pursuant to §27 of the Exchange Act, 15 U.S.C. §78aa 24

and 28 U.S.C. §1391(b), as the Company maintains corporate offices in this District. 25

26 16. In connection with the acts, conduct and other wrongs alleged in this Complaint,

27 defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

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CLASS ACTION COMPLAINT 4

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1 including but not limited to, the United States mail, interstate telephone communications and the

2 facilities of the national securities exchange.

3

PARTIES

4 17. Plaintiff, as set forth in the attached Certification, acquired SolarCity securities at

5 artificially inflated prices during the Class Period and was damaged upon the revelation of the alleged

6 corrective disclosures.

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8 18. Defendant SolarCity is a Delaware corporation with its principal executive offices

9 located at 3055 Clearview Way, San Mateo, California 94402. SolarCity’s common stock trades on the

10 NASDAQ under the ticker symbol “SCTY.”

11 19. Defendant Lyndon R. Rive (“Rive”) was, at all relevant times, the Company’s Chief

12 Executive Officer.

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14 20. Defendant Robert D. Kelly (“Kelly”) was, at all relevant times, the Company’s Chief

15 Financial Officer.

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21. The defendants referenced above in ¶¶ 20 - 21 are sometimes referred to herein as the

17 “Individual Defendants.” 18

SUBSTANTIVE ALLEGATIONS 19

20 Background

21

22. SolarCity sells renewable energy to its customers at prices below utility rates, primarily

22 through the leasing or sale of solar energy systems. The Company claims that its long-term agreements

23 generate recurring customer payments and position SolarCity to provide a growing base of customers 24

with energy-related products and services that lower their energy costs. The Company offered its shares 25 26 to the public for the first time in December 2012, and commenced a secondary offering in October

27 2013.

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CLASS ACTION COMPLAINT 5

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Case5:14-cv-01435-EJD Document1 Filed03/28/14 Page7 of 23

1 23. The Company operates in two primary segments, Operating Leases (“Leasing”) and

2 Solar Energy Systems Sales (“Sales”). Both segments receive a significant amount of revenues over

3 recurring periods through customer payments, investment tax credits, accelerated tax depreciation and

4 other incentives.

5

24. SolarCity has established various financing methods to facilitate the Company’s growth 6 7 in the solar energy market, where high upfront costs associated with solar panel technology had

8 previously prohibited many customers from purchasing solar energy. The Company has historically

9 monetized its assets created by substantially all of its leases and purchase agreements via financing

10 funds formed with investors. The Company contributes the solar panel assets to the financing fund and

11 receives upfront cash and retains a residual interest in the stream of future cash inflows to the fund. 12

13 25. Throughout the relevant period, however, including at the time prior and subsequent to

14 the Company’s initial public offering, the defendants misclassified expenses associated with the

15 Company’s larger Sales segment, and failed to properly allocate such expenses between the Sales and

16 Leasing segments.

17 26. On December 12, 2012, the Company filed with the SEC a prospectus in connection

18 with its initial public offering of SolarCity common stock. The offering raised $92 million and after

19 20 expenses, the Company received $85,305,010. In its prospectus, the Company reported operating lease

21 expenses of $1.9 million, $3.1 million, $5.7 million and $8.6 million for the annual periods ending

22 December 31, 2009, 2010, 2011 and nine months ending September 30, 2012 respectively. For the nine

23 months ended September 30, 2012, the Company reported a net loss of $61.1 million or $5.63 per 24

share. 25

26 Materially False And Misleading Statements Issued During the Class Period

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27. On March 6, 2013, the Company held a conference call with investors to discuss the

28 fourth quarter and full year results from 2012. Defendant Rive stated that the Company was

CLASS ACTION COMPLAINT 6

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experiencing a great year, adding, “we could not have asked for a better year. When we review the

business metrics, you’ll see that key business metrics had at least 100% growth, some as high as 300%

growth. We are clearly on our way to building the most compelling energy company in the 21 st

century.” Regarding its expenses, the Company represented, in relevant part:

The third and final area to look at for the GAAP statement analyzed is related to the operating expenses, the sales and marketing and the G&A. The sales and marketing are costs which are related – primarily associated with acquiring new customers. This is your growth capital. This is the money you invest to bring in new assets and new customers in the future. When the operating lease revenues build up over time and exceed your growth capital, you will achieve GAAP profitability as the volume increases on our books. In fact, the profitability – if we slow down our growth, the GAAP profitability would occur much faster, quicker.

28. On March 27, 2013, the Company filed with the SEC on Form 10-K its annual report for

the period ended December 31, 2012, which was signed by Defendants Rive and Kelly, and reiterated

the Company’s previously announced quarterly financial results and financial position. In addition, the

Form 10-K contained signed certifications pursuant to the Sarbanes-Oxley Act of 2002 (“SOX”) by

Defendants Rive and Kelly, stating that the financial information contained in the Form 10-K was

accurate and disclosed any material changes to the Company’s internal control over financial reporting.

29. In its 2012 annual report, the Company reported Leasing revenues of $47.6 million and

Sales revenues of $81 million, with Leasing costs of revenue of $13.3 million and Sales costs of

revenue of $62.4 million, resulting in a net loss of $91.5 million or $5.22 per diluted share. The

Company also represented the following regarding the allocation of expenses between the Leasing and

Sales segments:

Operating Leases Cost of Revenue . Operating leases cost of revenue is primarily comprised of the depreciation of the cost of the solar energy systems and the amortization of initial direct costs. The depreciation of the cost of the solar energy systems is reduced by the amortization of any U.S. Treasury Department grant payment in lieu of the energy investment tax credit associated with these systems. Initial direct costs include

CLASS ACTION COMPLAINT 7

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allocated contract administration costs, sales commissions and customer acquisition referral fees. Contract administration costs include personnel costs, such as salary, bonus, employee benefit costs and stock-based compensation costs. Operating leases cost of revenue also includes direct and allocated costs associated with monitoring services for these systems.

Solar Energy Systems Cost of Revenue . The substantial majority of solar energy systems cost of revenue consists of the costs of solar energy systems component acquisition and personnel costs associated with system installations. We acquire the significant component parts of the solar energy systems directly from foreign and domestic manufacturers or distributors. Our employees install our residential solar energy systems and our project managers and construction managers oversee the subcontractors that install commercial systems. To a lesser extent, solar energy systems cost of revenue also includes personnel costs associated with performing our energy efficiency services and related materials. Solar energy systems cost of revenue also includes engineering and design costs, estimated warranty costs, freight charges, allocated corporate overhead costs such as facilities costs, vehicle depreciation costs and personnel costs associated with supply chain, logistics, operations management, safety and quality control. Personnel costs include salary, bonus, employee benefit costs and stock-based compensation costs.

We allocate to solar energy systems cost of revenue certain corporate overhead costs that include rental and operating costs for our corporate facilities, information technology costs, travel expenses and certain professional services to cost of solar energy systems, work in process, cost of sales, sales and marketing and general and administrative expenses using the relative proportions of direct payroll costs in each of these functions.

30. On May 15, 2013, SolarCity filed its quarterly report with the SEC on Form 10-Q for the

period ended March 31, 2013. The Form 10-Q contained signed certifications pursuant to the Sarbanes-

Oxley Act of 2002 (“SOX”), by Defendants Rive and Kelly, stating that the financial information

contained in the Form 10-Q was accurate and disclosed any material changes to the Company’s internal

control over financial reporting. For the three months ended March 31, 2013, the Company reported

Leasing revenues of $15 million, Sales revenues of $14 million, and Leasing costs of revenues of $5

million and Sales costs of revenues of $11.7 million, resulting in a net loss of $28 million or $0.41 per

diluted share.

CLASS ACTION COMPLAINT 8

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1 31. On August 7, 2013, the Company held a conference call with investors to discuss the

2 second quarter 2013 results. During that conference call, the Company misled investors regarding its

3 margins for its Sales segment, stating in relevant part:

4 Moving down the bottom of the income statement, the sales and

5 marketing and the G&A, as you’re aware for SolarCity, this primarily

reflects the development expenses for the future megawatts. One thing I

6

forgot to mention, the solar system sales, the gross margin in that

7 business was 12% for the quarter compared to 9% for the last year.

8

32. On August 9, 2013, SolarCity filed its quarterly report with the SEC on Form 10-Q for 9

10 the period ended June 30, 2013. For the three months ended June 30, 2013, the Company reported

11 Leasing revenues of $20.6 million, Sales revenues of $17.3 million, and Leasing costs of revenues of

12 I $7.2 million and Sales costs of revenues of $15.2 million, resulting in a net loss of $32.6 million or

13 $0.31 per diluted share. Regarding costs of revenues for each segment, the Company stated in relevant

14 part:

15

16 the three months ended June 30, 2013 as compared to the three months Cost of operating leases revenue increased by $3.5 million, or 95%, for

ended June 30, 2012. This increase was primarily due to an increase in

17 the aggregate cost of solar energy systems placed under operating leases that were interconnected and being depreciated. 18

19

Cost of sales of solar energy systems decreased by $16.7 million, or 52%, for the three months ended June 30, 2013 as compared to the three

20 months ended June 30, 2012. This decrease was in line with the decline in sales of solar energy systems. In addition, estimated losses from long- 21 term solar energy system sales contracts decreased by $0.5 million for the

22 three months ended June 30, 2013 as compared to the three months ended June 30, 2012.

23

33. On or around October 16, 2013, the Company offered to the public approximately 3.91 24

25 million of SolarCity shares at the price of $46.54 per share. The Company filed a series of prospectuses

26 and registration statements, announcing SolarCity’s future goals and reported on the Company’s

27 financial and operational performance to date. Among other items, the Company announced total

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CLASS ACTION COMPLAINT 9

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revenues of over $67 million, Leasing cost of revenues of $12.7 million and Sales cost of revenues of

$27 million, resulting in a net loss of $60.8 million or $0.72 per diluted share.

34. On November 12, 2013, the Company filed a quarterly report for the quarter ended

September 30, 2013 on a Form 10-Q with the SEC, which was signed by Defendants Rive and Kelly.

The Form 10-Q contained signed certifications pursuant to the Sarbanes-Oxley Act of 2002 (“SOX”),

by Defendants Rive and Kelly, stating that the financial information contained in the Form 10-Q was

accurate and disclosed any material changes to the Company’s internal control over financial reporting.

For the three months ended September 30, 2013, the Company reported total revenues of $48.6 million,

and costs of revenues of $8.4 and $22.6 million for the Leasing and Sales segments respectively.

35. The statements referenced in ¶¶ 27-34 above were materially false and/or misleading

because they misrepresented and failed to disclose the following adverse facts, which were known to

defendants or recklessly disregarded by them, including that: (i) the Company lacked adequate controls

over financial reporting; (ii) the Company misclassified its segment expenses; (iii) the Company’s prior

financial statements required restatement; and (iv) as a result of the above, the Company’s financial

statements were materially false and misleading at all relevant times.

The Truth Begins to Emerge

36. On March 3, 2014, the Company announced that it had discovered an error in its

financial reporting, disclosing tens of millions in overhead expenses that it had incorrectly classified:

SolarCity today announced that there will be a reallocation of overhead expenses from leased systems to system sales, which will affect the 2013 and 2012 GAAP financial statements. The estimated changes are described below and final, audited statements will be filed on or before Tuesday, March 18, 2014.

During an internal review of fourth quarter financial statements, we discovered an error in the formula for allocating overhead expenses between Operating Lease assets and the cost of Solar Energy System Sales originating in Q1 2012. We reported this to our auditors, who agreed with our assessment that a correction needed to be made. It is important to note that overhead expenses in total will not be amended and

CLASS ACTION COMPLAINT 10

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that these changes do not affect the net cash flows or any forward financial guidance of the company.

The GAAP impact is expected to be a downward adjustment on the balance sheet primarily in Solar Energy Systems, Leased and to Be Leased of approximately 2.5%-3.0% as of September 30, 2013. We also expect an increase in the cost of Solar Energy Systems Sales of approximately $16-$20 million on the statement of operations for the nine month period ended September 30, 2013 and an increase of approximately $20-$23 million to the same line item for the full-year 2012, while we are currently evaluating the materiality of the impact on 2011.

37. On this news, SolarCity securities declined $1.70 per share, or over 2%, to close at

$83.26 per share on March 3, 2014.

38. The severity of the Company’s accounting manipulations became even more apparent on

I March 18, 2014, when the Company issued a press release announcing further information regarding its

financial restatement. The Company stated, in relevant part:

We have finalized the overhead reallocation we had previously announced in a manner consistent with our expectations. The net impact was a reallocation of overhead expenses from Operating Leases to Solar Energy System Sales totaling $16.2 million for the first three quarters of 2013 and $20.4 million for the full year 2012. As noted previously, there was no impact to Net Cash Flow, Estimated Nominal Contracted Payments Remaining, or Retained Value.

We identified the allocation error as part of our own internal controls process and reported it to our auditors.

39. Also, on March 18, 2014, the Company filed an 8-K report informing investors that its

prior financial statements for the annual periods ended December 31, 2010, 2011 and 2012 should no

longer be relied upon, “as a result of (i) an error related to the presentation of non-cash stock based

compensation costs in the consolidated statement of cash flows for the portion of such costs that were

capitalized as part of the costs of solar energy systems leased and to be leased; and (ii) an error related

to the classification of certain of the noncontrolling interests in subsidiaries after the Company

concluded that certain noncontrolling interests with redemption rights should be presented in temporary

CLASS ACTION COMPLAINT 11

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1 equity and not permanent equity as had previously been disclosed. These matters also impacted the

2 2013 interim and 2012 annual and interim consolidated financial statements referred to in our Form 8-

3 K filed on March 3, 2014.”

4 40. On this news, the Company’s shares fell $4.40, or almost 6%, to close on March 19,

5 2014 at $72.70 per share on unusually high trading volume.

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7 41. As a result of defendants' wrongful acts and omissions, and the precipitous decline in the

8 market value of the Company's securities, Plaintiff and other Class members have suffered significant

9 losses and damages.

10 PLAINTIFF’S CLASS ACTION ALLEGATIONS

11 42. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil Procedure

12 13 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or otherwise acquired

14 SolarCity securities during the Class Period (the “Class”); and were damaged upon the revelation of the

15 alleged corrective disclosures. Excluded from the Class are defendants herein, the officers and

16 directors of the Company, at all relevant times, members of their immediate families and their legal

17 representatives, heirs, successors or assigns and any entity in which defendants have or had a 18

controlling interest. 19

20 43. The members of the Class are so numerous that joinder of all members is impracticable.

21 Throughout the Class Period, SolarCity securities were actively traded on the NASDAQ. While the

22 exact number of Class members is unknown to Plaintiff at this time and can be ascertained only through

23 appropriate discovery, Plaintiff believes that there are hundreds or thousands of members in the 24

proposed Class. Record owners and other members of the Class may be identified from records 25 26 maintained by SolarCity or its transfer agent and may be notified of the pendency of this action by mail,

27 using the form of notice similar to that customarily used in securities class actions.

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CLASS ACTION COMPLAINT 12

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1 44. Plaintiff’s claims are typical of the claims of the members of the Class as all members of

2 the Class are similarly affected by defendants’ wrongful conduct in violation of federal law that is

3 complained of herein.

4 45. Plaintiff will fairly and adequately protect the interests of the members of the Class and

5 has retained counsel competent and experienced in class and securities litigation. Plaintiff has no

6 7 interests antagonistic to or in conflict with those of the Class.

8 46. Common questions of law and fact exist as to all members of the Class and predominate

9 over any questions solely affecting individual members of the Class. Among the questions of law and

10 fact common to the Class are:

11 • whether the federal securities laws were violated by defendants’ acts as alleged herein;

12

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• whether statements made by defendants to the investing public during the Class Period misrepresented material facts about the business, operations and management of SolarCity; 14

15 • whether the Individual Defendants caused SolarCity to issue false and misleading financial statements during the Class Period;

16

• whether defendants acted knowingly or recklessly in issuing false and misleading 17 financial statements;

18 • whether the prices of SolarCity securities during the Class Period were artificially

19 inflated because of the defendants’ conduct complained of herein; and

20 • whether the members of the Class have sustained damages and, if so, what is the

21 proper measure of damages.

22 47. A class action is superior to all other available methods for the fair and efficient

23 adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the

24 damages suffered by individual Class members may be relatively small, the expense and burden of

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I individual litigation make it impossible for members of the Class to individually redress the wrongs 26

27 done to them. There will be no difficulty in the management of this action as a class action.

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CLASS ACTION COMPLAINT 13

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Case5:14-cv-01435-EJD Document1 Filed03/28/14 Page15 of 23

1 48. Plaintiff will rely, in part, upon the presumption of reliance established by the fraud-on-

the-market doctrine in that:

• defendants made public misrepresentations or failed to disclose material facts during the Class Period;

• the omissions and misrepresentations were material;

• SolarCity securities are traded in an efficient market;

• the Company’s shares were liquid and traded with moderate to heavy volume during the Class Period;

• the Company traded on the NYSE and was covered by multiple analysts;

• the misrepresentations and omissions alleged would tend to induce a reasonable investor to misjudge the value of the Company’s securities; and

• Plaintiff and members of the Class purchased, acquired and/or sold SolarCity securities between the time the defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without knowledge of the omitted or misrepresented facts.

49. Based upon the foregoing, Plaintiff and the members of the Class are entitled to a

presumption of reliance upon the integrity of the market.

50. Alternatively, Plaintiff and the members of the Class are entitled to the presumption of

reliance established by the Supreme Court in Affiliated Ute Citizens of the State of Utah v. United

States , 406 U.S. 128, 92 S. Ct. 2430 (1972), as Defendants omitted material information in their Class

Period statements in violation of a duty to disclose such information, as detailed above.

COUNT I

(Against All Defendants For Violations of Section 10(b) And Rule 10b-5 Promulgated Thereunder)

51. Plaintiff repeats and realleges each and every allegation contained above as if fully set

forth herein.

52. This Count is asserted against defendants and is based upon Section 10(b) of the

Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder by the SEC.

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CLASS ACTION COMPLAINT 14

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1 53. During the Class Period, defendants engaged in a plan, scheme, conspiracy and course of

2 conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions, practices and

3 courses of business which operated as a fraud and deceit upon Plaintiff and the other members of the

4 Class; made various untrue statements of material facts and omitted to state material facts necessary in

5 order to make the statements made, in light of the circumstances under which they were made, not

6 7 misleading; and employed devices, schemes and artifices to defraud in connection with the purchase

8 and sale of securities. Such scheme was intended to, and, throughout the Class Period, did: (i) deceive

9 the investing public, including Plaintiff and other Class members, as alleged herein; (ii) artificially

10 inflate and maintain the market price of SolarCity securities; and (iii) cause Plaintiff and other members

11 of the Class to purchase or otherwise acquire SolarCity securities and options at artificially inflated 12 13 prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of

14 them, took the actions set forth herein.

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54. Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the

16 defendants participated directly or indirectly in the preparation and/or issuance of the quarterly and

17 annual reports, SEC filings, press releases and other statements and documents described above, 18

including statements made to securities analysts and the media that were designed to influence the 19 20 market for SolarCity securities. Such reports, filings, releases and statements were materially false and

21 misleading in that they failed to disclose material adverse information and misrepresented the truth

22 about SolarCity’s finances and business prospects.

23 55. By virtue of their positions at SolarCity, defendants had actual knowledge of the

24 materially false and misleading statements and material omissions alleged herein and intended thereby

25 26 to deceive Plaintiff and the other members of the Class, or, in the alternative, defendants acted with

27 reckless disregard for the truth in that they failed or refused to ascertain and disclose such facts as

28 would reveal the materially false and misleading nature of the statements made, although such facts

CLASS ACTION COMPLAINT 15

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1 were readily available to defendants. Said acts and omissions of defendants were committed willfully

2 or with reckless disregard for the truth. In addition, each defendant knew or recklessly disregarded that

3 material facts were being misrepresented or omitted as described above.

4 56. Defendants were personally motivated to make false statements and omit material

5 information necessary to make the statements not misleading in order to personally benefit from the

6 7 sale of SolarCity securities from their personal portfolios.

8 57. Information showing that defendants acted knowingly or with reckless disregard for the

9 truth is peculiarly within defendants’ knowledge and control. As the senior managers and/or directors

10 of SolarCity, the Individual Defendants had knowledge of the details of SolarCity’s internal affairs.

11 58. The Individual Defendants are liable both directly and indirectly for the wrongs

12 13 complained of herein. Because of their positions of control and authority, the Individual Defendants

14 were able to and did, directly or indirectly, control the content of the statements of SolarCity. As

15 officers and/or directors of a publicly-held company, the Individual Defendants had a duty to

16 disseminate timely, accurate, and truthful information with respect to SolarCity’s businesses,

17 operations, future financial condition and future prospects. As a result of the dissemination of the 18

aforementioned false and misleading reports, releases and public statements, the market price of 19 20 SolarCity securities was artificially inflated throughout the Class Period. In ignorance of the adverse

21 facts concerning SolarCity’s business and financial condition which were concealed by defendants,

22 Plaintiff and the other members of the Class purchased or otherwise acquired SolarCity securities at

23 artificially inflated prices and relied upon the price of the securities, the integrity of the market for the 24

securities and/or upon statements disseminated by defendants, and were damaged thereby. 25

26 59. During the Class Period, SolarCity securities were traded on an active and efficient

27 market. Plaintiff and the other members of the Class, relying on the materially false and misleading

28 statements described herein, which the defendants made, issued or caused to be disseminated, or relying

CLASS ACTION COMPLAINT 16

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1 upon the integrity of the market, purchased or otherwise acquired shares of SolarCity securities at

2 prices artificially inflated by defendants’ wrongful conduct. Had Plaintiff and the other members of the

3 Class known the truth, they would not have purchased or otherwise acquired said securities, or would

4 not have purchased or otherwise acquired them at the inflated prices that were paid. At the time of the

5 purchases and/or acquisitions by Plaintiff and the Class, the true value of SolarCity securities was

6 7 substantially lower than the prices paid by Plaintiff and the other members of the Class. The market

8 price of SolarCity securities declined sharply upon public disclosure of the facts alleged herein to the

9 injury of Plaintiff and Class members.

10 60. By reason of the conduct alleged herein, defendants knowingly or recklessly, directly or

11 indirectly, have violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. 12

13 61. As a direct and proximate result of defendants’ wrongful conduct, Plaintiff and the other

14 members of the Class suffered damages in connection with their respective purchases, acquisitions and

15 sales of the Company’s securities during the Class Period, upon the disclosure that the Company had

16 been disseminating misrepresented financial statements to the investing public.

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18 COUNT II

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(Violations of Section 20(a) of the Exchange Act Against The Individual Defendants)

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21 62. Plaintiff repeats and realleges each and every allegation contained in the foregoing

22 I paragraphs as if fully set forth herein.

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63. During the Class Period, the Individual Defendants participated in the operation and

24 management of SolarCity, and conducted and participated, directly and indirectly, in the conduct of 25

SolarCity’s business affairs. Because of their senior positions, they knew the adverse non-public 26 27 information about SolarCity’s misstatement of income and expenses and false financial statements.

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64. As officers and/or directors of a publicly owned company, the Individual Defendants had

a duty to disseminate accurate and truthful information with respect to SolarCity’s financial condition CLASS ACTION COMPLAINT

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1 and results of operations, and to correct promptly any public statements issued by SolarCity which had

2 become materially false or misleading.

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65. Because of their positions of control and authority as senior officers, the Individual

4 Defendants were able to, and did, control the contents of the various reports, press releases and public

5 filings which SolarCity disseminated in the marketplace during the Class Period concerning SolarCity’s

6 7 results of operations. Throughout the Class Period, the Individual Defendants exercised their power

8 and authority to cause SolarCity to engage in the wrongful acts complained of herein. The Individual

9 Defendants therefore, were “controlling persons” of SolarCity within the meaning of Section 20(a) of

10 the Exchange Act. In this capacity, they participated in the unlawful conduct alleged which artificially

11 inflated the market price of SolarCity securities. 12

13 66. Each of the Individual Defendants, therefore, acted as a controlling person of SolarCity.

14 By reason of their senior management positions and/or being directors of SolarCity, each of the

15 Individual Defendants had the power to direct the actions of, and exercised the same to cause, SolarCity

16 to engage in the unlawful acts and conduct complained of herein. Each of the Individual Defendants

17 exercised control over the general operations of SolarCity and possessed the power to control the 18

specific activities which comprise the primary violations about which Plaintiff and the other members 19 20 of the Class complain.

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67. By reason of the above conduct, the Individual Defendants are liable pursuant to Section

22 20(a) of the Exchange Act for the violations committed by SolarCity.

23 PRAYER FOR RELIEF 24

WHEREFORE , Plaintiff demand judgment against defendants as follows: 25

26 A. Determining that the instant action may be maintained as a class action under Rule 23 of

27 the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class representative;

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CLASS ACTION COMPLAINT 18

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B. Requiring defendants to pay damages sustained by Plaintiff and the Class by reason of

the acts and transactions alleged herein;

C. Awarding Plaintiff and the other members of the Class prejudgment and post-judgment

interest, as well as his reasonable attorneys’ fees, expert fees and other costs; and

D. Awarding such other and further relief as this Court may deem just and proper.

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DATED: March 28, 2014

Plaintiff hereby demands a trial by jury.

DEMAND FOR TRIAL BY JURY

CLASS ACTION COMPLAINT 19

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