In re: GLG Life Tech Corporation Securities Litigation 11...

Case 1:11-cv-09150-KBF Document 73 Filed 03/15/13 of 74 la

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

C.A. No. ii-CV-09150 (KBF) (GWG)

ECF CASE In re: GLG LIFE TECH CORPORATION SECURITIES LITIGATION : JURY TRIAL DEMANDED

-------------------------------------x This Document Relates To: All Actions

AMENDED CONSOLIDATED SECURITIES CLASS ACTION COMPLAINT

5 rn3 , N.

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Case 1:11-cv-09150-KBF Document 73 Filed 03/15/13 of 74

TABLE OF CONTENTS

I. NATURE OF THE ACTION ............................................................................................. 1

II. JURISDICTION AND VENUE ......................................................................................... 4

III. THE PARTIES.................................................................................................................... 5

A. Lead Plaintiffs ..........................................................................................................5

B. GLG Life Tech Corporation ....................................................................................5

C. The Individual Defendants .......................................................................................7

1. Luke Zhang ................................................................................................. 7

2. Brian R. Meadows ...................................................................................... 7

D. Duties of Individual Defendants ..............................................................................8

IV. THE COMPANY AND ITS BUSINESS SEGMENTS ..................................................... 9

A. The February 2011 Offering ..................................................................................10

B. The Company’s Stevia Extract Division ................................................................11

C. GLG’s Deteriorating Contractual Relationship With Cargill, Its Largest Customer................................................................................................................12

D. The Company’s Consumer Products Launch and Growth Strategy ......................16

V. CLASS PERIOD EVENTS AND FALSE AND MISLEADING STATEMENTS BYBUSINESSS SEGMENT ........................................................................................... 20

A. Class Period False and Misleading Statements Pertaining to the Stevia BusinessSegment ..................................................................................................20

1. February 1, 2011 – March 31, 2011 Events and Statements .................... 21

2. April 1, 2011 – June 30, 2011 Events and Statements .............................. 25

3. July 1, 2011 – October 5, 2011 Events and Statements ............................ 26

4. The Truth Is Revealed – Without Cargill, GLG’s Stevia Business Was A Total Disaster .................................................................................28

B. Class Period False and Misleading Statements Pertaining to the Consumer Products Business Segment ...................................................................................31

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1. February 1, 2011 – March 31, 2011 Events and Statements .................... 31

2. April 1, 2011 – June 30, 2011 Events and Statements .............................. 32

3. July 1, 2011 – October 5, 2011 Events and Statements ............................ 34

4. The Truth Is Revealed – AN0C Was A Complete Failure ........................40

VI. POST CLASS PERIOD EVENTS ................................................................................... 43

VII. ADDITIONAL SCIENTER ALLEGATIONS ................................................................. 46

A. Access To Sales Data .............................................................................................46

B. Internal Controls ....................................................................................................50

C. Motive....................................................................................................................52

VIII. CLASS ACTION ALLEGATIONS ................................................................................. 54

IX. GROUP PLEADING ........................................................................................................ 56

X. LOSS CAUSATION ......................................................................................................... 57

XI. CONTROL PERSON LIABILITY................................................................................... 58

XII. FRAUD-ON-THE-MARKET PRESUMPTION .............................................................. 59

XIII. THE AFFILIATED UTE PRESUMPTION ..................................................................... 60

XIV. NO STATUTORY SAFE HARBOR................................................................................ 61

XV. CAUSES OF ACTION ..................................................................................................... 62

COUNTI ...........................................................................................................................62

COUNTII ..........................................................................................................................66

XVI. PRAYER FOR RELIEF ................................................................................................... 69

XVII. JURY TRIAL DEMANDED ............................................................................................ 70

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Lead Plaintiffs Joseph Lardy, Dwight Wolfe, and Steve Postich (collectively, “Lead

Plaintiffs” or “Plaintiffs”) allege the following, individually and on behalf of all Class Members,

as defined herein, based upon personal knowledge as to Lead Plaintiffs’ own acts and based upon

information and belief as to other acts. Lead Plaintiffs’ information and belief is based upon the

investigation by Lead Plaintiffs’ counsel into the facts and circumstances alleged herein,

including, without limitation: (i) review and analysis of public filings by GLG Life Tech

Corporation (“GLG” or the “Company”) with the United States Securities and Exchange

Commission (“SEC”) and Canadian securities regulatory authorities; (ii) review and analysis of

press releases, analyst reports, public statements, news articles and other publications

disseminated by or concerning GLG and the other defendants named herein (together with GLG,

the “Defendants”); and (iii) review and analysis of the Company’s conference calls, press

conferences, corporate website, and related statements and materials. Many additional facts

supporting the allegations herein are known only to the Defendants and/or are within their

exclusive custody or control. Plaintiffs believe that additional evidentiary support for the

allegations herein will emerge after a reasonable opportunity to conduct discovery.

I. NATURE OF THE ACTION

This is a federal class action on behalf of investors who purchased or otherwise

acquired GLG common stock on the NASDAQ Stock Market between February 1, 2011 and

November 13, 2011, inclusive (the “Class Period”), seeking to pursue remedies under the

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

2. This case arises out of a fraud committed by Defendants, who knowingly and/or

recklessly made materially false and misleading statements and omitted critical information

about the growth, progress and sales potential pertaining to GLG’s two main revenue-generating


business segments, a stevia extract segment and a consumer products segment, in order to

materially inflate the Company’s share price.

3. The fiscal year 2011 (“FY 2011”) was critical for GLG. As the year opened, the

Company was undertaking an expensive marketing and advertising-heavy product launch in its

newly-established consumer products division. The plan was for GLG to rollout a series of all-

natural zero calorie food and beverages to be sold throughout the People’s Republic of China

(“PRC” or “China”) under the Dr. Zhang’s All Natural and Zero Calorie Beverage and Foods

(“AN0C”) moniker. The Company aspired to be the “number one” naturally sweetened zero

calorie beverage and food brand in China.

4. In order to fund such an expensive project, the Company conducted a securities

offering in February 2011, raising total gross proceeds of $58,190,000 (the “February 2011

Offering”). 1 At the time of the February 2011 Offering, the Company had but $23.8 million in

cash and cash equivalents on its balance sheet. Thus, maintaining an inflated stock price was

central to GLG’s ability to raise the capital needed to roll out the AN0C product lines and

ultimately sell their consumer products throughout China, as well as expand their stevia extract

segment to new customers. After raising $58,190,000 in the February 2011 Offering, GLG

tripled the cash that was then on its balance sheet, and allowed the Company to fund the

expansive AN0C product rollout, as described herein.

5. In order to attract investors in the February 2011 Offering, the Company first

issued revenue guidance on February 1, 2011, forecasting $90 to $100 million in revenue from

the stevia extract business segment for FY 2011 (the “Stevia Guidance”) and $70 to $100 million

in revenue from the AN0C consumer products business segment for FY 2011 (the “AN0C

1 Except where otherwise indicated, all references to currency are denominated in Canadian dollars.

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Guidance”) (collectively, the “February 2011 Revenue Guidance”). On the strength of these

unrealistic and unsupportable revenue projections, the Company’s stock price was artificially

inflated to a Class Period high of USD $12.45 per share on February 1, 2011.

6. With respect to GLG’s stevia extract division and GLG’s Stevia Guidance,

Defendants repeatedly misrepresented and/or omitted material information about the breakdown

in the Company’s contract with its primary customer, Cargill, Incorporated (“Cargill”)

Defendants were keenly aware that GLG’s relationship with Cargill was critical to the

Company’s success based on GLG’s historical stevia sales to Cargill – over $65.7 million

through December 31, 2010 – and Cargill’s guaranteed minimum purchase obligations that ran

annually through 2013, starting on October 1 of each year.

7. By March 31, 2011, and perhaps earlier, GLG determined that the strategic

alliance and long-term renewable supply agreement with Cargill (the “Strategic Alliance and

Supply Agreement”) no longer materially affected its operating results. Without Cargill

supporting GLG’s stevia business segment with guaranteed minimum offtake purchases under

the exclusivity provision of the Strategic Alliance and Supply Agreement, the Company sold

virtually no stevia extract, generating less than $1 million in revenue from the Company’s stevia

extract segment in the second half of 2011.

8. Nonetheless, as the strategic relationship with Cargill broke down during the

Class Period, Defendants repeatedly misled investors by failing to disclose the true nature of the

current status and future prospects with Cargill, GLG’s self-proclaimed “largest customer.”

9. With respect to GLG’s consumer products division, Defendants lacked a

reasonable basis to provide the AN0C Guidance from the very beginning. As the Class Period

wore on, and achieving the AN0C Guidance grew nearly impossible, Defendants failed to correct


and/or update the market on the impossibility of achieving the AN0C Guidance, notwithstanding

possession of sales data contradicting their public statements and projections. Instead,

Defendants repeatedly assured GLG’s investors throughout the Class Period that “we are very

confident” that the Company would ultimately achieve the February 2011 Revenue Guidance.

10. Despite their knowledge of, or reckless disregard for, the problems within both

business segments, Defendants concealed the issues from investors. Disclosing these facts

would have interfered with GLG’s efforts to present itself to the market as a growth-oriented

company actively expanding through its successful stevia extract and consumer products

business segments.

11. Instead, during the Class Period, Defendants aggressively touted the Company’s

ability to achieve the February 2011 Revenue Guidance nearly every step of the way. As

described in detail below, Defendants refused to admit their failure until the day after the Class

Period ended. Defendants only now acknowledge that (i) GLG was no longer serving Cargill in

an exclusive capacity under the Strategic Alliance and Supply Agreement, and (ii) the Company

was overly aggressive in setting revenue targets during the Class Period.

12. Lead Plaintiffs hereby bring claims against each of the Defendants named in this

action for the losses caused by their respective misconduct.

II. JURISDICTION AND VENUE

13. This action arises under Sections 10(b) and 20(a) of the Exchange Act, as

amended, 15 U.S.C. §§ 78j(b) and 78(t), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5,

promulgated thereunder.

14. This Court has jurisdiction over the action pursuant to 28 U.S.C. § 1331 and

Section 27 of the Exchange Act, 15 U.S.C. § 78aa.

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15. Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) and Section 27 of

the Exchange Act, 15 U.S.C. § 78aa.

16. In connection with the acts 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. THE PARTIES

A. Lead Plaintiffs

17. Plaintiff, Joseph Lardy, as set forth in his shareholder certification and

incorporated by reference herein (Dkt. No. 10-2), purchased GLG common stock at artificially

inflated prices during the Class Period and has been damaged thereby.

18. Plaintiff, Dwight Wolfe, as set forth in his shareholder certification and


inflated prices during the Class Period and has been damaged thereby.

19. Plaintiff, Steve Postich, as set forth in his shareholder certification and


inflated prices during the Class Period and has been damaged thereby

B. GLG Life Tech Corporation

20. Defendant GLG Life Tech Corporation is headquartered in Vancouver, Canada

and conducts its business through various subsidiaries located throughout China. GLG trades on

both the NASDAQ Stock Market and the Toronto Stock Exchange (the “TSX”). Accordingly,

GLG files regular and periodic reports with the SEC through the EDGAR system and the

Canadian securities regulatory authorities through the SEDAR system, and the Company’s


Common Shares (defined herein) are listed and posted for trading on the TSX under the symbol

“GLG” and on the NASDAQ under the symbol “GLGL.”

21. GLG is a vertically integrated producer of high-grade stevia extract, an all-natural

sweetener extracted from the stevia plant. The Company purports to specialize in the research

and development, growing, refining and production of high-grade stevia extract for distribution

to the global food and beverage industry. GLG’s “vertically integrated operations cover each

step in the stevia supply chain including . . . stevia seed breeding, natural propagation, stevia leaf

growth and harvest, proprietary extraction and refining, marketing and distribution of the

finished product.” GLG’s “mission is to become the world’s leading producer of high-grade

stevia extract by developing and securing our own stevia leaf supply, establishing leaf refining

facilities in key locations, and providing a consistent supply of high-grade stevia extract.”

22. As a Canadian issuer, GLG is subject to the Canada-U.S. Multijurisdictional

Disclosure System (“MJDS”). The MJDS was adopted in 1991 by the SEC and is a system of

rules, forms and schedules permitting the use of Canadian disclosure documents and procedures

to satisfy U.S. as well as Canadian registration, reporting and tender offer obligations. Under the

MJDS mechanism, GLG was required to include a discussion of “known trends , demands,

commitments, events or uncertainties that are reasonably likely to have an effect on [the]

company’s business” in the management’s discussion and analysis (“MD&A”) section of GLG’s

annual and interim filings 2 submitted to SEDAR and in turn the SEC. 3

2 National Instrument 51-102: Continuous Disclosure Obligations, Ontario Securities Commission Bulletin (Canada) (Oct. 1, 2011), Form 51-102F1, Item 1.2 (requiring discussion of known trends, events and uncertainties in the Company’s annual MD&A); id. , Item 2.2 (requiring that interim MD&As “must update your company’s annual MD&A for all disclosure required by [annual filings]”). All emphasis is added unless otherwise noted. 3 Since GLG is organized under the laws of Canada, it has elected to provide its annual report on Form 40-F. See 17 C.F.R. 249.240f. Additionally, as a foreign issuer, GLG is not

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23. Under the rules and regulations promulgated by the SEC under the Exchange Act,

specifically Item 303 of Regulation S-K, a registrant also has a duty to describe in the MD&A

section of annual and interim filings any known trends or uncertainties that have had or that the

registrant reasonably expects will have a material favorable or unfavorable impact on:

(i) revenues; (ii) expenses; and (iii) previously reported financial information such that they

would be indicative of future operating results. The Canadian requirement is virtually identical

to Item 303 of Regulation S-K—if not more expansive in terms of the obligations it creates. As

set forth more fully below, the representations of the Company during the Class Period violated

these requirements and obligations, among others.

C. The Individual Defendants

1. Luke Zhang

24. Defendant Luke Zhang (“Zhang”) is and was, at all relevant times, the Company’s

Chief Executive Officer and Chairman of the Board. Defendant Zhang also serves as the

Chairman and CEO of AN0C Co. Defendant Zhang knowingly and/or recklessly made many of

the materially false and misleading statements and/or omissions of material facts alleged herein.

2. Brian R. Meadows

25. Defendant Brian R. Meadows (“Meadows”) is and was, at all relevant times, the

Company’s Chief Financial Officer and Corporate Secretary. Defendant Meadows knowingly

and/or recklessly made many of the materially false and misleading statements and/or omissions

of material facts alleged herein.

26. Defendants Zhang and Meadows are referred to herein as the “Individual

Defendants.”

required to file reports on Form 8-K and 10-Q, and instead has elected to utilize Form 6-K. See 17 C.F.R. § 240.13a-3.

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D. Duties of Individual Defendants

27. The Individual Defendants, because of their position with the Company, had the

authority to control, correct and update the contents of GLG’s public disclosures to the market.

Each of the Individual Defendants had the duty to exercise due care and diligence and the duty of

full and candid disclosure of all material facts relating to the financial reporting and results of

operations of GLG. To discharge their duties, the Individual Defendants were required to

exercise reasonable and prudent supervision over the dissemination of information concerning

the business, operations, and financial reporting of GLG. By virtue of such duties, these officers

and directors were required, inter alia, to:

a. conduct and supervise the business of GLG in accordance with federal laws;

b. supervise the preparation of the Company’s SEC filings and to approve any reports concerning the financial reporting and results of GLG; and

c. ensure that GLG established and followed adequate internal controls.

28. As officers and/or controlling persons of a publicly-held company which is

registered with the SEC under the federal securities laws and the securities of which are traded

on the NASDAQ and governed by the provisions of the federal securities laws, the Individual

Defendants each had a duty to: (i) promptly disseminate accurate and truthful information with

respect to GLG’s financial condition and performance, growth, operations, financial statements,

business, products, markets, management, earnings, and present and future business prospects;

(ii) correct any previously issued statements that had become materially misleading or untrue so

that the market could accurately price the Company’s publicly traded securities based upon

truthful, accurate, and complete information; and (iii) update any previously issued statements

that had become materially misleading or untrue so that the market could accurately price the

Company’s publicly traded securities based upon truthful, accurate, and complete information.

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29. The Individual Defendants are each primarily liable for the misrepresentations

and misleading statements alleged and are also liable as controlling persons of GLG. The

scheme deceived the investing public regarding GLG’s financial and operational condition and

the ability to generate revenue in the two main revenue-generating business segments and caused

Lead Plaintiffs and other members of the Class to purchase GLG common stock at artificially

inflated prices during the Class Period and suffer damages as a result.

IV. THE COMPANY AND ITS BUSINESS SEGMENTS

30. The Company is divided into two main revenue-generating business segments:

(i) the stevia extract segment and (ii) the consumer products segment.

31. With respect to the stevia extract segment, GLG conducts its stevia development,

refining, processing and manufacturing operations through five wholly-owned subsidiaries in

China, including four processing factories, stevia growing areas across eight provinces, and four

research and development centers engaged in the development of high-yielding stevia seeds and

seedlings. Cargill had been GLG’s largest customer, receiving aggregate purchase orders of

USD $65.7 million of stevia extract under the Strategic Alliance and Supply Agreement in 2009

and 2010.

32. With respect to the consumer products segment, the Company entered into a joint-

venture agreement with China Agriculture and Healthy Foods Company Limited (“CAHFC”) in

December 2010 for the sale and marketing of an all-natural zero calorie food and beverage

product line called AN0C, to be sold and distributed in China. Dr. Zhang’s All Natural and Zero

Calorie Beverage & Foods Company (“AN0C Co.”) manufactures the AN0C products. AN0C is

sweetened with the Company’s “BlendSure” products, a zero-calorie natural sweetener the

Company launched in July 2010. GLG holds an 80% controlling stake in AN0C with CAHFC

holding the remaining 20%. GLG officially launched the AN0C products into the Chinese

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market in March 2011. With AN0C, GLG’s strategy was focused on the sales and distribution of

consumer food and beverage products in China. These consumer products are sweetened with

the Company’s stevia.

A. The February 2011 Offering

33. On the strength of the artificial inflation of GLG’s share price caused by

Defendants’ issuance of unrealistic and unsupportable revenue guidance, the Company

completed a securities offering in February 2011, during the time in which GLG’s publicly

traded share price was near its peak. On February 1, 2011, the first day of the Class Period, GLG

announced the February 2011 Offering, which consisted of an agreement with a syndicate of

underwriters, which agreed to purchase 4,000,000 units (the “Units”) of the Company at a price

of $11.00 per Unit, for aggregate gross proceeds of $44,000,000. At the time of the February

2011 Offering, the Company had roughly $23.8 million in cash and cash equivalents.

34. The Company later announced the closing of the February 2011 Offering on

February 23, 2011, at a price of $11.00 per Unit for total gross proceeds of $58,190,000.

35. Maintaining an inflated stock price was central to GLG’s ability to attract the

capital needed to rollout the AN0C product lines as it allowed the Company to maximize this

capital-raising opportunity. The Company stated its intention to use the net proceeds from the

February 2011 Offering to advance the AN0C joint venture, including marketing and

administration, as well as for working capital and other general corporate purposes. The

February 2011 Offering therefore provided the Company with more than triple the cash that was

then on its balance sheet, and allowed the Company to obtain the necessary cash to fund the

expansive AN0C product rollout, as described below.

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B. The Company’s Stevia Extract Division

36. The stevia plant is indigenous to the rain forests of Paraguay and Brazil, and has

been used as a sweetener in its raw, unprocessed form for hundreds of years. The majority of

global commercial stevia production occurs in China where, according to GLG, growing

conditions are “highly favorable” and labor costs support what has historically been a labor-

intensive activity.

37. GLG conducts its stevia development, refining, processing and manufacturing

operations through the five wholly-owned subsidiaries in China, which include: (i) Anhui

Bengbu HN Stevia High Tech Development Company Limited (“Bengbu”), which was

established in November 2007 as a seed base and for research and development operations in

China; (ii) Chuzhou Runhai Stevia High Tech Company Limited (“Chuzhou Runhai”), which

was established in September 2007 for the purpose of processing stevia leaf grown and harvested

in the Mingguang region of China; (iii) Dongtai Runyang Stevia High Tech Company Limited

(“Runyang”), which was established in November 2007 for the purpose of processing stevia leaf

grown and harvested in Dongtai, China; (iv) Qingdao Runde Biotechnology Company Limited

(“Runde”), which was acquired in December 2006 and primarily serves as the processing plant

of stevia leaf into different grades of stevia extract for sale to customers worldwide; and (v)

Qingdao Runhao Stevia High Tech Company Limited (“Runhao”), which was established in

May 2009 for the purpose of processing intermediate stevia extract into rebiana and other high

grade stevia extract products.

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C. GLG’s Deteriorating Contractual Relationship With Cargill, Its Largest Customer

38. GLG has had a significant economic relationship with its strategic partner Cargill

for the year’s 2009 and 2010. During those years, GLG relied on Cargill as its primary

customer, deriving the majority of its revenues from stevia extract sales to Cargill.

39. On May 1, 2008, GLG announced the signing of the Strategic Alliance and

Supply Agreement with Cargill, an international provider of food, agricultural and risk

management products and services with 142,000 employees in 65 countries. Cargill further

refines the high-grade stevia extract for use as an ingredient in its natural, zero-calorie sweetener

brand called TRUVIA, which launched in December 2008. Since the December 2008, several of

the largest global beverage companies have launched new natural, zero-calorie brand extension

products containing Cargill’s TRUVIA, including The Coca Cola Company’s Sprite, Odwalla

and Vitaminwater. In fact, by the end of 2011, TRUVIA had overtaken aspartame and saccharin

in the United States table-top sweetener market and was in second place behind sucralose.

40. The Strategic Alliance and Supply Agreement was amended May 4, 2009 in

connection with Cargill’s purchase order announced May 5, 2009. The key terms of the

Strategic Alliance and Supply Agreement, as amended, included:

a. minimum annual quantities of stevia extract that GLG would supply and Cargill would purchase over the term of the agreement . Cargill had a rolling twelve month commitment. For each of years two and three, once volume and price have been agreed (done on an annual basis), Cargill was required to either take the committed volume or pay the agreed price;

b. Cargill agreed to purchase a minimum of 80% of its global stevia extract requirements from GLG for the first five years of the agreement commencing October 1, 2008 ;

c. GLG served as Cargill’s exclusive Chinese supplier of stevia extract for the term of the Strategic Alliance and Supply Agreement and Cargill’s agent in China for any additional stevia extract sourcing opportunities that arise ;

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d. GLG took the lead role in arranging working capital financing for stevia leaf purchasers each year beyond 2008, though Cargill could assist or participate in the financing of stevia leaf as it has done previously;

e. new product opportunities from GLG were be offered to Cargill on a right of first refusal basis;

f. Cargill had the ability to terminate the agreement in certain circumstances, including during the first five years if Defendant Zhang is no longer employed by GLG; and

g. Cargill had the right to terminate the agreement early, on three years notice.

41. As of December 31, 2010, GLG received purchase orders from Cargill of USD

$65.7 million under the Strategic Alliance and Supply Agreement. For the year ended December

31, 2009 and for the year ended December 31, 2010, Cargill accounted for 90% and 47% of the

Company’s revenue, respectively. Thus, GLG’s relationship with Cargill and the Strategic

Alliance and Supply Agreement were critical to GLG’s success.

42. In fact, the Company often referred to Cargill as “ our largest customer .” The

February 14, 2011 Short Form Prospectus qualifying the February 2011 Offering (the

“Prospectus”) warned under the heading “ The loss of our main customer would materially

reduce our revenue ” that:

We have derived, and we believe that we will continue to derive, a significant portion of our revenue from Cargill, Incorporated (“Cargill”) our largest customer . For the year ended December 31, 2008 and for the year ended December 31, 2009, Cargill accounted for 77% and 90%, respectively, of our revenue. For the nine months ended September 30, 2010 Cargill accounted for 62% of revenues compared to 95% in the nine month period ending September 30, 2009. We expect that a significant portion of our revenues over the next several years will continue to be derived from sales to Cargill pursuant to the SASA. Moreover, we cannot provide any assurances that a material proportion of our revenue will be derived from other customers in the future .

Under the SASA with Cargill, we will provide at least 80% of Cargill’s global stevia extract requirements for the first five years of the agreement commencing October 1, 2008. These commitments are subject to renegotiation at certain times throughout the term of the SASA.

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If Cargill were to terminate its relationship with us, there would be a material adverse effect on our business operations and financial condition .

43. Similarly, the “Company Overview” portion of the Prospectus stated that “[u]nder

our strategic alliance and supply agreement with Cargill (“SASA”), we will provide at least 80%

of Cargill’s global stevia extract requirements for the first five years of the agreement

commencing October 1, 2008, and we will serve as Cargill’s exclusive Chinese supplier of

stevia.”

44. According to the Annual Information Form For The Fiscal Year Ended December

31, 2010 (the “2010 Annual Form”), filed as an exhibit to the Form 40-F filed with the SEC on

March 31, 2011 covering Q4 and fiscal year 2010 results (the “2010 40-F”), the “Strategic

Alliance Agreement dated April 30, 2008, as amended on August 8, 2008 and May 4, 2009,

between the Company and Cargill” was listed under “ Material Contracts .”

45. At some point during the Class Period, however, Cargill stopped purchasing the

minimum annual stevia extract required under the Strategic Alliance and Supply Agreement

from GLG as evidenced, inter alia, by declining overall revenue GLG received on a percentage

and dollar basis from Cargill, and the overall decline in stevia revenue generation.

46. Indeed, on August 5, 2011, the SEC Division of Corporate Finance sent

Defendant Meadows and GLG a letter (the “August 5 SEC Letter”) requesting the Company

promptly file the following agreements with the SEC: (i) the Strategic Alliance Agreement with

Cargill on June 9, 2008; (ii) the amendment to the Strategic Alliance Agreement with Cargill on

September 23, 2008; and (iii) the Joint Venture Agreement with CAHFC on December 23, 2010.

47. In response to the August 5 SEC Letter, the Company advised the SEC in a letter

signed by Defendant Meadows dated August 22, 2011 (the “August 22 Meadows Letter”) that

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the Company would not submit a copy of the Strategic Alliance Agreement between GLG and

Cargill, as the SEC specifically requested, “because the Company does not believe the Strategic

Alliance Agreement constitutes information material to an investment decision that the Company

has made or is required to make public pursuant to Canadian law.” The Company further stated

in the August 22 Meadows Letter:

The Company no longer derives a substantial portion of its revenue from Cargill. For the quarter ended June 30, 2011, this customer accountedfor approximately 21.7% of the Company’s revenue, and for the year ending December 31, 2011, this customer is expected to account for less than 7% of the Company’s revenue. The Company does not believe its operating results are materially affected by the Strategic Alliance Agreement and has not included material disclosure with respect to the Strategic Alliance Agreement or the Company’s relationship with Cargill in its Management’s Discussion and Analysis (“MD&A”) for the three month period ended March 31, 2011 , which was filed as Exhibit 99.1 to the Company’s Form 6-K dated May 16, 2011 (File No. 11848814), or in its MD&A for the six month period ended June 30, 2011, which was filed as Exhibit 99.1 to the Company’s Form 6-K dated August 15, 2011 (File No. 111036175) . As a result, the Company does not believe the Strategic Alliance Agreement constitutes information material to an investment decision that the Company has made or is required to make public pursuant to Canadian law for the fiscal year ending December 31, 2011, and does not anticipate incorporating by reference the Strategic Alliance Agreement into the Company’s next annual report on Form 40-F.

48. GLG ultimately announced on November 14, 2011 that “[t]he parties have agreed

that the exclusivity obligations of both parties and the parties’ product supply, sourcing and

purchase obligations will not continue beyond September 30, 2011. As a result, GLG is now

free to offer all its high-purity extract products to multinational food and beverage companies

headquartered in the US and EU, and is no longer required to offer the right of first refusal on

new products developed to Cargill.”

49. The breakdown in relations with Cargill foretold GLG’s lousy stevia sales in Q3

and Q4 of 2011, as the Company announced stevia sales of only $0.7 million for Q3 and only

$0.2 million for Q4. Because Cargill accounted for such a large portion of GLG’s prior stevia

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extract sales, without Cargill in the second half of 2011, GLG generated less than $1 million in

revenue from the Company’s stevia extract segment.

50. GLG’s deteriorating relationship with Cargill was further confirmed when Guilin

Layn Natural Ingredients Corp. (“Guilin Layn”) and its California-based subsidiary signed a

long-term exclusive processing and supply agreement with the Heal Nutrition Business unit of

Cargill. Under the terms of the agreement, announced on November 3, 2011, Guilin Layn

replaced GLG and became Cargill’s exclusive manufacturer for stevia extract products in

China . Cargill committed to purchase not less than USD $5 million-worth of stevia from Guilin

Layn in 2012, and not less than USD $10 million in 2013.

D. The Company’s Consumer Products Launch and Growth Strategy

51. In December 2010, the parent company of Fengyang Xiaogangcun Yongkang

Foods High Tech Co. Ltd. (“FXY”), CAHFC, entered into a joint venture agreement with GLG

for the sales and marketing of the AN0C consumer product lines, pursuant to which GLG holds

an 80% controlling stake.

52. On February 1, 2011, GLG projected $70 to $100 million in 2011 AN0C sales,

which assumed the launch of 12 beverage products including six iced tea drinks, three juice

drinks and three dairy drinks in 2011, with the initial product launch occurring in late first

quarter or early second quarter. According to the Company, there are two major sales seasons in

China for the beverage market, which have historically been January through March and July

through September.

53. Subsequently on March 11, 2011, GLG announced that AN0C’s first six beverage

products had been finalized, market tested and approved by all required government departments

for sale nationwide in China. The Company announced that it would release the following

ready-to-drink (“RTD”) flavored teas during the last week of March 2011: (i) RTD Iced Black

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Tea – Zero Calories; (ii) RTD Iced Black Tea – Low Calorie; (iii) RTD Iced Green Tea – Zero

Calories; (iv) RTD Iced Green Tea – Low Calorie; (v) RTD Iced Jasmine Tea – Zero Calories;

and (vi) RTD Iced Jasmine Tea – Low Calorie.

54. According to GLG’s 2010 Annual Form, GLG’s business objectives for the

consumer products business was to “achieve a successful launch of the AN0C brand in China,”

and continue to develop “new beverage and food products that support the AN0C brand promise

of great tasting, naturally sweetened and low and zero calorie products.” To accomplish these

goals, GLG embarked on an aggressive national advertising campaign in China to promote the

AN0C product line.

55. The Company continued its national marketing and sales blitz for the AN0C

product line by announcing the completion of 13 regional AN0C offices for national marketing

and sales in China on March 24, 2011. In addition to GLG’s existing national distribution

channel partners such as Wal-Mart, Tesco, RT Mart, regional offices were created to focus on

the regional distribution market in China. The 13 regional offices cover all parts of China,

specifically located in Beijing, Shijiazhuang, Qingdao, Shenyang, Wuxi, Hangzhou, Xiamen,

Shenzhen, Guangzhou, Wuhan, Nanchang, Lanzhou, and Chengdu. According to the Company,

as of March 24, 2011, the regional offices were already signing distribution agreements with new

distributors and receiving deposits for AN0C.

56. On March 30, 2011, the Company issued a press release (the “March 30, 2011

Press Release”) 4, entitled “GLG Life Tech Corporation Announces First Shipment of AN0C

Beverage Products in China” formally announcing the launch of the first six SKU tea products in

All press releases were simultaneously filed with the SEC as exhibits to Form 6-K.

17


production to local distributors and supermarkets throughout China. The March 30, 2011 Press

Release stated that the full national launch of AN0C products would start in early April.

57. On April 19, 2011, GLG introduced “Project STORM” as the formal name of

AN0C’s national sales campaign. The Company reported that for the first three weeks of the

STORM campaign, AN0C shipped six million bottles of RTD tea to 157 distributors throughout

China and received all payments in connection therewith.

58. As the spring and summer of 2011 progressed, GLG continued to sign-up large

regional (“Tier I”) distributors to purportedly enhance the growth potential for local retail

distribution and sales of the AN0C beverage lines in time to target “the July to September peak

season for beverage sales within China.” As of May 16, 2011, AN0C had signed with 300 Tier I

distributors. By June 10, 2011, AN0C had increased the number of distributors from 300 to over

400 partners. This growth resulted in a three-fold expansion in AN0C’s distribution reach to

over 65,000 stores, consisting of approximately 6,000 national grocery stores and 59,000 local

retail outlets.

59. On July 20, 2011, the Company issued a press release entitled “GLG Life Tech

Corporation Announces Six New Zero Calorie Vitamin Enriched Waters Are Now Ready for

Launch in China Into Busy Summer Season,” which formally introduced AN0C’s next six

beverage products.

60. While GLG originally intended to develop, market and sell 12 separate stock

keeping units (hereinafter “SKU’s” or products) across two beverage categories, on July 27,

2011, the Company announced a massive overhaul of that plan, introducing 32 SKU’s to be

launched in 2011 across six traditional beverage categories and two in the functional beverage

category (anti-aging and detoxification). GLG believed that this expanded product line across

18


six major categories in the mainstream and functional health beverage markets dramatically

increased AN0C’s market potential in 2011 because the size of the combined 32 SKU’s could

exceed $21 billion compared to approximately $6 billion with AN0C’s original product rollout

strategy. The following table provides a summary of the original and revised beverage

categories that GLG announced to launch in 2011, along with the planned SKU’s for the AN0C

product line and the approximate market size of each:

Vitamin Carbonate Herbal Children's

RTD Teas Enriched d Soft Juice Milk Drink Drinks

Waters Drinks

Functional (Health)

Total Beverage & Foods

Market Size (USD) $5.3 Billion $0.6 Billion $6.5 Billion $3.1 Billion $2.8 Billion $2.9 Billion N/A >$21 B

Original Planned SKU's 6 6 12

Revised Planned SKU's 3 6 6 3 1 9 4 32

61. On August 4, 2011, GLG announced that AN0C’s next beverage products – zero-

calorie carbonated soft drinks (“CSDs”) – had been finalized and approved for sale nationwide in

China. The Company also announced that original equipment manufacturer (“OEM”)

production for the zero-calorie CSDs would commence at the end of August 2011, with

distribution throughout AN0C’s existing distribution network to follow shortly thereafter.

62. Finally, on August 31, 2011, the Company announced in a press release (the

“August 31, 2011 Press Release”) that, with previously released beverages, the Company

expected AN0C to launch a total of 39 SKU’s by the end of 2011. The August 31, 2011 Press

Release also stated that AN0C had increased its distributors from 400 in July to over 600

partners, resulting in an expansion in the distribution reach of AN0C’s products to over 100,000

stores, allegedly ahead of the original schedule. The Company also announced that AN0C

expanded its regional infrastructure to major offices established in 68 core cities.

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63. Despite GLG’s massive overhaul in its product mix and expansion of its

distribution network, GLG’s AN0C Guidance did not change down to the penny .

V. CLASS PERIOD EVENTS AND FALSE AND MISLEADING STATEMENTS BY BUSINESSS SEGMENT

64. During the Class Period, Defendants knowingly and/or recklessly issued a series

of materially false and misleading statements and failed to disclose material facts to the investing

public concerning the true nature and sales progress of the stevia and consumer products

business segments. In this regard, the public statements issued by the Defendants regularly

touted the strong sales potential in China and internationally for the Company’s stevia extract,

the marketplace acceptance and growth potential for AN0C beverage lines, and most

importantly, the confidence that the Company would meet the previously provided February

2011 Revenue Guidance. In fact, the Defendants misrepresented and failed to adequately

disclose the adverse trends regarding the deterioration of the strategic alliance with Cargill and

the overall failure to sell enough AN0C products to achieve the AN0C Guidance.

A. Class Period False and Misleading Statements Pertaining to the Stevia Business Segment

65. The Class Period begins on February 1, 2011, when the Company issued a press

release entitled “GLG Life Tech Announces 2011 Guidance” (the “February 1, 2011 Press

Release”), which forecasted between $90 to $100 million in revenue from the Company’s stevia

business segment sales for 2011. As investors learned at the end of the Class Period and

thereafter, the Company would only generate $16.9 million in revenue from the stevia business

segment through the first three quarters of 2011, with stevia sales of only $0.7 million for Q3 of

2011, a shocking decrease of 97% from the same period in the prior year. And, for the twelve

months ending December 31, 2011, GLG generated $17.1 million in stevia revenues, with only

$178,000 in sales in Q4 of 2011.

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66. The Company’s failure to generate sufficient revenue to achieve the Stevia

Guidance was substantially caused by the deterioration in the strategic alliance with Cargill,

GLG’s “largest customer ” which had accounted for 90% and 47% of the Company’s revenue in

the prior two fiscal years, respectively, and GLG’s failure to derive revenue from alternative

stevia customers.

1. February 1, 2011 – March 31, 2011 Events and Statements

67. In the February 1, 2011 Press Release, the Company forecasted between $90 to

$100 million in stevia sales. The Company reiterated the Stevia Guidance on March 31, 2011,

again forecasting between $90 million and $100 million in revenue from its stevia business

segment, with growth of 53% to 70% from 2010.

68. The Stevia Guidance was premised, in part, on the Company’s projected revenue

from Cargill. In fact, Cargill served as the Company’s “ largest customer ” in prior fiscal years,

and the Strategic Alliance and Supply Agreement was critically important to Cargill’s ability to

generate revenue in the stevia business segment. The February 14, 2011 Short Form Prospectus

qualifying the February 2011 Offering (the “Prospectus”) warned of the following “Risk

Relating to GLG” and its business:

We have derived, and we believe that we will continue to derive, a significant portion of our revenue from Cargill, Incorporated (“Cargill”) our largest customer . For the year ended December 31, 2008 and for the year ended December 31, 2009, Cargill accounted for 77% and 90%, respectively, of our revenue. For the nine months ended September 30, 2010 Cargill accounted for 62% of revenues compared to 95% in the nine month period ending September 30, 2009. We expect that a significant portion of our revenues over the next several years will continue to be derived from sales to Cargill pursuant to the SASA . Moreover, we cannot provide any assurances that a material proportion of our revenue will be derived from other customers in the future.

Under the SASA with Cargill, we will provide at least 80% of Cargill’s global stevia extract requirements for the first five years of the agreement commencing October 1, 2008 . These commitments are subject to renegotiation at certain times throughout the term of the SASA.

21


If Cargill were to terminate its relationship with us, there would be a material adverse effect on our business operations and financial condition .

69. Similarly, the “Company Overview” portion of the Prospectus stated that “[u]nder

our strategic alliance and supply agreement with Cargill (“SASA”), we will provide at least 80%

of Cargill’s global stevia extract requirements for the first five years of the agreement

commencing October 1, 2008, and we will serve as Cargill’s exclusive Chinese supplier of

stevia .”

70. The 2010 Annual Form released on March 31, 2011, covering Q4 and fiscal year

2010 results, also stressed the importance of the strategic alliance with Cargill, stating in a

section titled “Economic Dependence ” that “[t]he Company has had a significant economic

relationship with its strategic partner Cargill for the year’s 2009 and 2010.” Furthermore,

according to the 2010 Annual Form, the “Strategic Alliance Agreement dated April 30, 2008, as

amended on August 8, 2008 and May 4, 2009, between the Company and Cargill” were listed as

“Material Contracts .”

71. Moreover, the “Risk Factors” section of the 2010 Annual Form contained the

header “Our main customer has accounted for a significant portion of our revenues ”, which

warned:

We have derived a significant portion of our revenue from Cargill, Incorporated (“Cargill”) our largest customer . The economic dependence on this customer has been materially reduced from 90% of the Company’s revenues in 2009 to 47% of the revenues in 2010 and we further expect revenues from this customer to decrease in 2011 and beyond driven by the new distributor and customer relationships that the Company secured in 2010 as well as the expected development of revenues from its AN0C consumer business in China.

However, if Cargill were to terminate its relationship with us, this could adversely effect on our business operations and financial condition .

72. Similarly, the “Company Overview” portion of the 2010 Annual Form further

stated that “[u]nder our strategic alliance and supply agreement with Cargill (“SASA”), we will

22


provide at least 80% of Cargill’s global stevia extract requirements for the first five years of the

agreement commencing October 1, 2008, and we will serve as Cargill’s exclusive Chinese

supplier of stevia .”

73. The Management Discussion and Analysis for the three and twelve months ended

December 31, 2010 (“2010 MD&A”), filed as an exhibit to the 2010 40-F, contained similar

language pertaining to the critical importance of the Company’s largest customer. According to

the “Factors Affecting the Company’s Results of Operations” section of the 2010 MD&A:

Relationship with Primary Customer . The Company derived the majority of its revenue from Cargill in the current period, its largest customer. The Company currently has a Strategic Alliance Agreement with Cargill pursuant to which it will provide at least 80% of Cargill’s global stevia extract requirements for the ten year period beginning October 1, 2008. For the twelve month period ended December 31, 2010, this customer accounted for 47% of the Company’s revenue. For the years ended December 31, 2009 and 2008, this customer accounted for 90% and 77%, respectively, of the Company’s revenue. (Emphasis in original).

74. Lastly, on the conference call the Company held for analysts, investors and media

representatives to discuss GLG’s Q4 and fiscal 2010 earnings results the same day (the “March

31, 2011 Conference Call”), Defendants Meadows and Zhang also made the following

statements regarding the continuing strategic alliance with Cargill:

[LUKE ZHANG, CHAIRMAN AND CEO, GLG LIFE TECH.]: And also by GLG’s industrial team’s efforts. And we resolve the additional initial request from Cargill and they are very heavy . And so GLG is also happy to meet our customer’s continuing request . So both party are happy now and we are in a good relationship now .

[BRIAN MEADOWS, CFO, GLG LIFE TECH.]: We’ve only, to say, assumed where we’ve got contract with [Cargill] at this point, which is probably the third of what we did with them last year . ... And we were in constant discussions with them. We know that they have told us, they’ve got sufficient inventories probably for the rest of this year. But their business continues to grow which is really the catalyst for more product from GLG .

23


75. The foregoing statements in ¶¶68–74 pertaining to Cargill’s critical importance to

GLG’s future subjected Defendants’ to an ongoing duty to update and/or correct if and when

those statements became materially false and/or misleading in light of later developments. By

March 31, 2011, and perhaps earlier, GLG determined that the Strategic Alliance and Supply

Agreement with Cargill no longer materially affected its operating results. Without Cargill

supporting GLG’s stevia business segment with minimum offtake purchases under the

exclusivity provision of the Strategic Alliance and Supply Agreement, the Company sold

virtually no stevia, with sales of only $0.7 million for Q3 2011, a shocking decrease of 97% from

the same period in the prior year, and $178,000 in sales in Q4 2011. As such, the foregoing

statements in ¶¶68–74 pertaining to Cargill, GLG’s self-proclaimed “largest customer,” were

rendered materially false and/or misleading by Defendants’ failure to correct and/or update the

market on the state of its deteriorating relationship with Cargill.

76. Moreover, the breakdown in relations with Cargill adversely impacted GLG’s

revenues and previously reported financial information such that they were no longer indicative

of future operating results. However, as discussed herein, the MD&A sections filed as exhibits

to the Company’s Form 6-Ks dated (i) May 16, 2011 (reporting quarterly financial results for the

three months ended March 31, 2011) (the “Q1 MD&A”); (ii) August 15, 2011 (reporting

quarterly financial results for the three and six months ended June 30, 2011) (the “Q2 MD&A”);

and (iii) November 14, 2011 (reporting quarterly financial results for the three and nine months

ended September 30, 2011) (the “Q3 MD&A”), intentionally omitted any discussion with

respect to the Company’s relationship with Cargill or the Strategic Alliance and Supply

Agreement, despite GLG’s obligation to (i) disclose known trends , events , or uncertainties

pertaining to Cargill that were reasonably likely to have an effect on the Company’s business,

24


and/or (ii) update prior statements regarding Cargill, pursuant to the Canadian National

Instrument 51-102, Item 1.2 and Item 2.2.

2. April 1, 2011 – June 30, 2011 Events and Statements

77. On May 16, 2011, GLG issued a press release reporting revenues of $5.8 million

in stevia extract sales, a decrease of 28% from the same period in the prior year, for Q1 ended

March 31, 2011. Nevertheless, the Company once again reiterated its Stevia Guidance of

between $90 million and $100 million in revenue. The Stevia Guidance was materially

misleading because GLG had determined but omitted that the Strategic Alliance and Supply

Agreement with Cargill no longer materially affected its operating results. Without Cargill

supporting GLG’s stevia business segment with minimum offtake purchases under the

exclusivity provision of the Strategic Alliance and Supply Agreement, the Company did not sell

enough stevia to maintain such inflated guidance.

78. Despite GLG’s assertion in the August 22 Meadows Letter that the Company did

not believe “its operating results [we]re materially affected by the Strategic Alliance Agreement”

with Cargill during “for the three month period ended March 31, 2011,” Defendant Meadows

stated on the Q1 conference call held on May 16, 2011 that “ [s]omewhere in the range probably

80% of, probably 75% of ” the $5.8 million Q1 stevia extract revenue recorded was from Cargill,

in response to an analyst question about the quantity of stevia sales to Cargill.

79. The Company also filed the Q1 MD&A on May 16, 2011 reporting quarterly

financial results for the three months ended March 31, 2011. By this date, and perhaps much

earlier, GLG determined that the Strategic Alliance and Supply Agreement with Cargill no

longer materially affected its operating results. Without Cargill supporting GLG’s stevia

business segment with minimum offtake purchases under the exclusivity provision of the

Strategic Alliance and Supply Agreement, the Company sold virtually no stevia, with sales of

25


only $0.7 million for Q3 2011, and $178,000 in sales in Q4 2011. However, the Q1 MD&A

section intentionally omitted any discussion with respect to the Company’s relationship with

Cargill or the Strategic Alliance and Supply Agreement, despite GLG’s obligation to (i) disclose

known trends , events , or uncertainties pertaining to Cargill that were reasonably likely to have

an effect on the Company’s business, and/or (ii) update prior statements regarding Cargill,

pursuant to the Canadian National Instrument 51-102, Item 1.2 and Item 2.2.

3. July 1, 2011 – October 5, 2011 Events and Statements

80. According to the press release issued on August 15, 2011 announcing Q2 earnings

results, GLG recorded $15.2 million in total revenue for the quarter, with $10.4 million in stevia

revenue, $7.1 million of which from sales made in China to GLG’s strategic partner FXY, and

$3.3 million from “customers outside of China.” The Company revised its Stevia Guidance from

between $90 million and $100 million to between $60 million and $70 million “because

distributors [we]re taking longer to work through product inventories delivered in the fourth

quarter of 2010.”

81. However, the revised Stevia Guidance remained materially misleading because

GLG had determined but omitted that the Strategic Alliance and Supply Agreement with Cargill

no longer materially affected its operating results. Without Cargill supporting GLG’s stevia


Strategic Alliance and Supply Agreement, the Company did not sell enough stevia to maintain

such inflated guidance.

82. The Company also filed the Q2 MD&A on August 15, 2011 reporting quarterly

financial results for the three and six months ended June 30, 2011. By March 31, 2011, and

perhaps earlier, GLG determined that the Strategic Alliance and Supply Agreement with Cargill

no longer materially affected its operating results. Without Cargill supporting GLG’s stevia

26



Strategic Alliance and Supply Agreement, the Company sold virtually no stevia, with sales of

only $0.7 million for Q3 2011, and $178,000 in sales in Q4 2011. However, the Q2 MD&A

section intentionally omitted any discussion with respect to the Company’s relationship with

Cargill or the Strategic Alliance and Supply Agreement, despite GLG’s obligation to (i) disclose

known trends , events , or uncertainties pertaining to Cargill that were reasonably likely to have

an effect on the Company’s business, and/or (ii) update prior statements regarding Cargill,

pursuant to the Canadian National Instrument 51-102, Item 1.2 and Item 2.2.

83. During an August 15, 2011 conference call held to discuss Q2 earnings results

(the “August 15, 2011 Conference Call”), Defendant Meadows again misled the market

describing the importance of Cargill to the Company’s overall stevia extract sales, stating:

[POOYA HEMAMI, ANALYST, DESJARDINS CAPITAL]: And in terms of the sales, the internationally, outside of China, can you say how much of the 2Q sales were to Cargill?

[BRIAN MEADOWS, CFO, GLG LIFE TECH.]: Majority of them were to Cargill . . . . We have stated not to expect anything [in the remainder of 2011], that we expect we’ll be working on a new order sometime in 2012.

84. As disclosed in the August 22 Meadows Letter, Cargill accounted for 21.7% of

GLG’s “total revenue” of $15.2 million during Q2 ended June 30, 2011. Because 21.7% of

$15.2 million is $3.3 million, and GLG reported $3.3 million in revenue from “customers outside

of China,” all of GLG’s stevia extract revenue outside of China was from Cargill for Q2 , not

just a “majority.” As a result, investors were misled as to the Company’s ability to achieve the

Stevia Guidance and the nature of GLG’s stevia extract customer base.

27


4. The Truth Is Revealed – Without Cargill, GLG’s Stevia Business Was A Total Disaster

85. On October 3, 2011, the research firm GeoInvesting noted on its blog that the firm

shorted GLG common stock based on weak on-the-ground due diligence field notes that

indicated GLG faced operational obstacles.

86. Three days later, on October 6, 2011, the Company shocked the market when it

issued a press release entitled “GLG Life Tech Corporation Provides Business Update” (the

“October 6, 2011 Press Release”), which disclosed several factors materially impacting GLG

revenues in both business segments. With respect to the stevia business segment specifically, the

October 6, 2011 Press Release also disclosed that “GLG’s existing distributors did not place any

new substantial orders during the third quarter and as a result stevia revenues in the third quarter

will be low compared to previous quarterly results in 2011.”

87. On this news, the Company’s common stock declined USD $1.47 per share, or

approximately 42%, to close on October 6, 2011 at USD $1.99 per share, on unusually heavy

trading volume.

88. The next day, on October 7, 2011, the research firm GeoInvesting published a

report (the “ GeoInvesting Report”) concluding that “[GLG’s] SEC financials may have been

misrepresented and that [GLG] has had significant undisclosed operational issues for most of

2011 .” The GeoInvesting Report published several “investigator observations” resulting from

“on-the-ground due diligence.” With regard to the stevia business segment, the GeoInvesting

Report reported that the five stevia processing facilities had only been in operation for about

three months thus far in 2011, as a result of “ a shrinking business not able to sustain multiple

facets of its operations .”

28


89. Between the five facilities, the GeoInvesting Report’s investigator visited each

site to glean information related to production volumes and processing activities. According to

local farmers, the Bengbu research and development center significantly lacked stevia volume

during 2011 comparable to the size in 2010. Additionally, according to local farmers and one

former worker of GLG, the Chuzhou Runhao processing facility stopped production of stevia

extract at the beginning of August 2011 and only produced from June to August (three months)

in 2011, due to reduced sales. The investigator observed an abundance of purchased stevia

leaves still stocked in the facility without any production. Further, based on the information

from employees at the Dongtai Runyang processing facility, only one production line produced

from June to August in 2011. During ten months in 2010, one line operated at full capacity

while the other line operated at part capacity. This company at one point had 200 workers and as

of October 2011 only had around 150 workers. Moreover, according to one employee at the

facility, the Qingdao Runde processing facility used to have around 50-60 employees, but by

2011, the business turned sour and subsequently had less than 10 workers and there were not

even enough products for a full day’s expected output in any given week. Finally, according to

employees at the Qingdao Runhao processing facility, that site only had periodic business

activity in 2011 and halted stevia production activities altogether in August 2011 due to shortage

of stevia extract sales. Furthermore, this location reportedly went from 120 workers in 2010 to

only 20 workers in August of 2011.

90. On November 14, 2011, GLG issued a press release entitled “GLG Life Tech

Corporation Announces Third Quarter 2011 Results” (the “November 14, 2011 Press Release”)

reporting $1.7 million in revenue for the three months ended September 30, 2011, which was

derived from stevia sales ($0.7 million ) and consumer beverage product sales ( $1 million ), a

29


decrease of a shocking 92% from the same period in the previous year. The stevia sales of $0.7

million for Q3 represented a decrease of 97% from the same period in the prior year.

91. The November 14, 2011 Press Release finally admitted that GLG was no longer

serving Cargill in an exclusive capacity under the Strategic Alliance and Supply Agreement,

stating:

Under the terms of the Company’s Strategic Alliance Agreement with Cargill, the parties agreed to negotiate certain provisions of the agreement during 2011. The parties have agreed that the exclusivity obligations of both parties and the parties’ product supply, sourcing and purchase obligations will not continue beyond September 30, 2011 . As a result, GLG is now free to offer all its high-purity extract products to multinational food and beverage companies headquartered in the US and EU, and is no longer required to offer the right of first refusal on new products developed to Cargill.

92. Finally learning the truth about the declining relations between GLG and its

“largest customer,” the market reacted quickly. One article published on the Financial Post

website on November 14, 2011, entitled “GLG Plummets On Weak Earnings, Amended Cargill

Contract,” cited Pooya Hemami, a financial analyst at Desjardins Securities, who was

disappointed that GLG’s supply agreement with Cargill no longer required Cargill to purchase

80% of its global stevia extract requirements from GLG. The analyst commented that “Cargill

accounted for a majority of GLG’s non-China extract sales, . . . [t]he significant decline (>90%

sequentially and annually) in GLG’s extract sales in 3Q11 is largely explained by the completion

of the company’s outstanding order with Cargill in 2Q11.”

93. Following the issuance of the November 14, 2011 Press Release announcing Q3

results and the amended Strategic Alliance and Supply Agreement with Cargill, the Company’s

common stock fell an additional USD $0.29 from a closing price of USD $2.01 per share on

November 14, 2011, to close at USD $1.72 per share on November 15, 2011.

30


94. In sum, for the twelve months ending December 31, 2011, GLG generated $17.1

million in revenue from the stevia business segment, with only $178,000 in Q4 of 2011.

Without Cargill supporting GLG’s stevia business segment with minimum offtake purchases

under the exclusivity provision of the Strategic Alliance and Supply Agreement, the Company

sold virtually no stevia, with sales of only $0.7 million for Q3 2011, a shocking decrease of 97%

from the same period in the prior year, and $178,000 in sales in Q4 2011.

B. Class Period False and Misleading Statements Pertaining to the Consumer Products Business Segment

95. The February 1, 2011 Press Release forecasted between $70 to $100 million in

revenue from AN0C sales for the 2011 fiscal year. Despite the projected confidence in AN0C’s

prospects and ability to achieve the AN0C Guidance, GLG only generated $7.7 million from

sales of AN0C products during the twelve months ended December 31, 2011. Despite the

disappointing AN0C sales throughout the Class Period, the Company never revised its AN0C

Guidance, choosing instead to reaffirm it.

1. February 1, 2011 – March 31, 2011 Events and Statements

96. In the February 1, 2011 Press Release, entitled “GLG Life Tech Announces 2011

Guidance”, the Company forecasted between $70 to $100 million in revenue from the AN0C

consumer products business segment. The AN0C Guidance lacked a reasonable basis when

made as evidenced by GLG’s massive overhaul in its product mix from the initial 12 SKU’s

originally launched to the combined 39 SKU’s launched during 2011 across six traditional

beverage categories, see ¶¶60–63, which did not change the AN0C Guidance by even a penny .

97. The March 31, 2011 press release, reporting Q4 and fiscal 2010 results, once

again reiterated the AN0C Guidance, forecasting between $70 million and $100 million in 2011.

31


On the same day, GLG filed its 2010 40-F and exhibits with the SEC, reiterating revenue

forecasts of $70 million to $100 million from the AN0C segment in 2011.

98. During the March 31, 2011 Conference Call, the Defendants continued to speak

deceptively about AN0C’s ability to command significant revenue in 2011 and beyond, stating,

in relevant part:

[LUKE ZHANG, CHAIRMAN AND CEO, GLG LIFE TECH.]: And so the revenue has been generated already starting September... I’m sorry, March, a few days immediately after we launched the product. We have already generated the revenue already. So we are confident this year AN0C will be major and major business for GLG in addition to AN0C the beverage and food and so we’re also talking... Brian also talked about the China sugar business and international stevia sales too.

However, nevertheless I would like to emphasize AN0C business will be the major business for GLG starting from 2011 . So we look forward, our expectations and $570 million on the year three which is on the 2013, from AN0C.

[BRIAN MEADOWS, CFO, GLG LIFE TECH.]: Turning to our outlook for 2011 ... AN0C is 70 to 100 from zero. So that is, as Dr. Zhang said, looking to be in terms of dominant business unit generating revenue for the company. Based on the feedback so far, we’re quite satisfied with not only the beverage opportunities that we’re facing but food opportunities as well.

99. The foregoing statements in ¶¶97–98 were materially false and/or misleading

when made because Defendants knew or recklessly disregarded the fact that consumers had

rejected AN0C products and that, as a result, AN0C sales were woefully insufficient to justify

the AN0C Guidance.

2. April 1, 2011 – June 30, 2011 Events and Statements

100. On May 16, 2011, the Company issued a press release reporting Q1 2011 AN0C

sales of $1.6 million, with 6 million bottles of AN0C RTD tea shipped to over 150 Tier I

32


distributors throughout China. The Company once again reiterated its AN0C Guidance of

between $70 million and $100 million, asserting that:

With the positive consumer reaction to our first six beverage products and approximately 300 large distributors contracted as of May 16th, 2011 to purchase volumes from AN0C through December 31, 2011 and the expectation to sign additional distributors prior to the start of the third quarter, we are maintaining our guidance for the AN0C business, however we are increasing the revenue expected to be generated in the first 6 months of 2011 from 20 to 25%. We are also expecting that by the end of the third quarter we will have 75% of the full year revenue achieved.

101. Additionally, the May 16, 2011 investor powerpoint presentation, presented

during the May 16, 2011 Q1 earnings call conducted by Defendants Zhang and Meadows (the

“May 16, 2011 Presentation”), reiterated that the “AN0C Business [is] on track to achieve its

key objective as leading brand in China for all natural zero & low calorie beverages .” The

May 16, 2011 Presentation also asserted that “[b]ased on success with distribution strategy and

consumer acceptance of healthy product concept and AN0C products [,] Management expects

revenues to be delivered sooner than original forecast in January. ”

102. On May 16, 2011, the Company held a conference call for analysts, investors and

media representatives to discuss GLG’s Q1 earnings results. During the call, the Company

continued to speak deceptively about AN0C’s ability to command significant revenue in 2011

and beyond, stating, in relevant part:

[BRIAN MEADOWS, CFO, GLG LIFE TECH.]: In terms of the AN0C revenues, really just the start of it. And as we talk about the outlook, it only represents the $1.6 million represents about a weeks-worth of shipments and when you look at 25% by the end of the second quarter, our expectations are year-to-date probably end of the second quarter, we’re going to be around $16-17 million. ... [A]gain the success with the consumers, distributors to-date, have allowed us to-date as where we expect now 25% of that $70 million to come in by the end of June and by the end of September, we expect 75% of the full year to be realized.

33


[MARTIN LANDRY, ANALYST, GMP SECURITIES]: With regards to your AN0C revenue, you’re mentioning that you will reach 75% of your targeted revenues by Q3. Does that mean that things are going better than expected or it’s mainly driven by a seasonal, strong season during the summer?

[BRIAN MEADOWS, CFO, GLG LIFE TECH.]: It’s better than expected , but I’ll and Dr. Luke if you want to add to the response?

[LUKE ZHANG, CHAIRMAN AND CEO, GLG LIFE TECH.]: Our quarter is better than what we expected . ... [O]n AN0C, the team set out the minimum is $70 million for this year. This is also only from because of the Q1 ...

103. Similarly, in the June 2011 investor presentation (the “June 2011 Investor

Presentation”), GLG reiterated its previous financial forecast for both stevia and AN0C business

segments. GLG predicted AN0C would derive “sustained revenue growth in 2011 and beyond,”

further stating that the “AN0C Business [was] on track to achieve its key objective as leading

brand in China for all natural zero & low calorie beverages .”




the AN0C Guidance.

3. July 1, 2011 – October 5, 2011 Events and Statements

105. On July 27, 2011, GLG released a detailed sales update covering all aspects of

AN0C’s sales, development and progress for the first three months of sales activity (end of

March through June 30, 2011). In a press release entitled “GLG Life Tech Corporation

Announces AN0C Business Update: 27 Million Bottles Sold in First Three Months in China”

(the “July 27, 2011 Press Release”), GLG announced that AN0C sold approximately 27 million

bottles of its RTD teas – 12.6 million in June alone – which purportedly amounts to

approximately $40 million in product sales on an annualized basis.

34


106. Despite GLG’s announced sales and orders, the Company confirmed in the July

27, 2011 Press Release that AN0C’s first three months failed to achieve original expectation of

bottles sold by June 30, 2011. The Company identified three major factors impacting sales

through June 30, which “contributed to a delay in the number of bottles sold”, including (i)

insufficient product supply from GLG’s OEM, (ii) competition in RTD tea marketplace and (iii)

mild weather. With regard to the product supply from GLG’s OEM bottler, the Company

asserted that “[t]his issue was present earlier in the second quarter and has since been resolved.”

Additionally, GLG management did not expect these “major factors” to further impact AN0C’s

business for the remainder of 2011 and beyond. The July 27, 2011 Press Release also announced

that AN0C was re-introducing its RTD teas in a new custom branded bottle, in order to

differentiate AN0C’s product from competitors. The custom branded bottle was “expected to

lead to higher levels of sales than we have achieved to date ... We expect to return to increased

sales levels in August when the transition of the new bottle is complete .”

107. Additionally, despite the confirmed failure to achieve GLG’s original expectation

of AN0C bottles sold by June 30, 2011, the July 27, 2011 Press Release further confirmed the

AN0C Guidance, stating, in relevant part:

With the success of our RTD tea products following only three months of sales, we will be rolling out 32 SKU’s across six major beverage categories plus functional (health) products. We will be expanding the addressable markets that we originally planned to enter with 12 SKU’s with an estimated market value of $6 Billion to 32 SKU’s with an estimated market value of over $21 Billion. Management expects to see increased sales of our RTD products in the remaining two quarters of 2011 and expects our new product launches will perform as well as our RTD teas have, to date. Management also expects that the revenue opportunity to still be in the original range that we communicated in January of 2011 ($70 to $100 million) . We will provide further information on the AN0C business outlook when we publish our second quarter financials on August 15th.

35





the AN0C Guidance.

109. On July 27, 2011, the Company held a conference call for analysts, investors and

media representatives to update AN0C’s sales progress. During the call, Defendants Zhang and

Meadows continued to speak dishonestly about AN0C’s growth prospects, and once again

reiterated their confidence in the AN0C Guidance:

[BRIAN MEADOWS, CFO, GLG LIFE TECH.]: So roughly up to 3 months of the sales activity we’re very pleased with what our distributors are doing and how the consumers have gone purchased our products. We think there is clear evidence that consumers like the products and as you are going to see with our expansion plan there is a good opportunity to capitalize on the acceptance of the products.

[MARTIN LANDRY, ANALYST, GMP SECURITIES]: Okay. And if I read correctly in your press release, you mentioned that July, there is going to be a transition in terms of bottle design. Does that mean that you expected July sales to be lower than the June sales?

[LUKE ZHANG, CHAIRMAN AND CEO, GLG LIFE TECH.]: Yeah. Any pattern reduced the July sales. First of all, the key is our first product. To catch the summer sales, we don’t have our post and our OEM partner, we don’t have a ready I mean we’re not used milk from our OEM partner together to launch.

[T]hree to four month, even now we still don’t have the new completed results for the national so these will lose the to four month so, we try to go to in the bottle. And why water, we see what market response market has all bottle we got this new bottle.

[WJe got all kind of data have from first launch, the ... kind of drinks -- zero calorie and the low calorie . So, we got 90% people likes most of them, they don’t like with older in this year, we are using the new bottle. Would you see what older bottle launching as we started the new launch made already.

36


[MARTIN LANDRY, ANALYST, GMP SECURITIES]: And lastly Brian, I mean in terms of your guidance that you had put out I think it was mid May. At that point you seem quite positive with the trend of AN0C. Can you tell us what has changed in the last six weeks for – can you give us more color on what has changed in this last six weeks of the quarter for you to now not be able to meet the guidance?

[BRIAN MEADOWS, CFO, GLG LIFE TECH.]: I think Mark we’ve already covered the points of when weather has been something that we're dealing with. That in fact the industry across the Board. That wasn’t expected at the time. We also the speed of build out of ourselves, office and teams. We had originally anticipated that to be completed earlier. But I think what’s important here is as I say focusing on the second quarter but what we’ve achieved in the terms of our sales already, we’re in the top 12 of the national players and with our further plans for additional products, this is what’s going to drive towards the overall sales objective for the year .

[SCOTT VAN WINKLE, ANALYST, CANACCORD GENUITY]: And just last question I want to go back to began to recognize, you reporting in a few weeks, but 7 million is a pretty big 17. But I am wondering as you stand here today where do you stand relative to what you’d budgeted for the number of distributors, the number of retail doors, the number I guess that’s it. I’m thinking of the inputs to drive guidance beside the distribution and sell-through per door. I am wondering which one of those metrics is not where you [thought] would be at this stage.

[LUKE ZHANG, CHAIRMAN AND CEO, GLG LIFE TECH.]: Well, first of all, I am totally confident for this year projection . As I explain to you, we’re always selling key product of I have now this year, we are going to meet our guidance , because in middle will be in the fall winter, very slow moving sales.

We are confident there are so many how we can move this . We are the number one food and beverage company because I don’t have a confidence to release this rapidly but of course that have could before we deal. Now we have orange food guys are talking to us. So we see not related to our impacts target. We see by record working relationship for international. So, while it works with China business opportunity, yeah we know we cannot do every year that have applied in seven years.

110. The foregoing statements were materially false and/or misleading when made

because Defendants knew or recklessly disregarded the fact that consumers had rejected AN0C

37


products and that, as a result, AN0C sales were woefully insufficient to justify the AN0C

Guidance.

111. On August 15, 2011, the Company issued a press release reporting revenue of

$4.8 million in Q2 of 2011 from the AN0C consumer product segment, with 12.6 million bottles

sold in June alone. For the six months ended June 30, 2011, the Company had generated $6.4

million from AN0C consumer products sales. Even though Defendants had previously projected

25% of the $70 million AN0C 2011 projection to be achieved by the end of Q2 (which would

have required $17.5 million in sales by the end of June 2011) the Company once again reiterated

its previous AN0C Guidance forecast of between $70 million and $100 million for 2011,

asserting:

Management expects to see increased sales of our RTD tea products in the remaining two quarters of 2011 and expects our new product launches will perform as well as our RTD teas have, to date. Management also expects that the revenue opportunity to still be in the original range that we communicated in January of 2011 ($70 to $100 million) .

112. During the August 15, 2011 Conference Call, the Company continued to speak

deceptively about AN0C’s ability to command significant revenue in FY 2011 and beyond,

stating, in relevant part:

[BRIAN MEADOWS, CFO, GLG LIFE TECH.]: Firstly on AN0C, we have maintained our revenue forecast of $70 to 100 million as we mentionedfew weeks ago on another call, and that is driven again by revised plans to roll 32 SKU’s across six major beverage categories and two functional beverage categories in comparison with the originally flow SKU’s plan, driving a major acceleration in the new products through existing distribution channels to capitalize on the momentum gained with ready-to-drink teas .

With that roll out that we showed earlier getting majority of these product launched before the end of September, this is going to be the key to achieving the revenue .

* * * * *

38


[SCOTT VAN WINKLE, ANALYST, CANACCORD GENUITY]: Okay. And that Dr. Luke, if we look to that end of August meeting that’s going to happen in Beijing. What comes out of that meeting that gives us more or less confidence in a fourth quarter filling ... ?

[LUKE ZHANG, CHAIRMAN AND CEO, GLG LIFE TECH.]: Well, and the China and that meeting mainly focused on AN0C average. ... I assure you, you will have a lot more information about the AN0C business, mainly our beverage. You take the all of over 36 SKU in AN0C sugarcane beverage, including tea, vitamin water, -- and so on . J am promising you, you will like the product . So to expand -- but achieve, major talks with -- and they -- I really only have the right, our meeting there. So there we will give you more information, I can assure you, you will have a much better details on our AN0C beverage business, which is I mean, $94 billion of GP, for our shareholders. ...

[SCOTT VAN WINKLE, ANALYST, CANACCORD GENUITY]: Okay. And then last question is the guidance question related to AN0C side, I guess I’ll direct it to Brian. So with July sales being been impacted by the bottle change and coming out of the month of June where you were doing a little over $3 million in revenue. It looks like – with just kind of August and September to really contribute in this quarter that the fourth quarter is going to be probably more than half of your full year guidance. I mean does that sound right and are you confident in that being able to be back end loaded like that?

[BRIAN MEADOWS, CFO, GLG LIFE TECH.]: That sound right and – go ahead Dr. Luke.

[LUKE ZHANG, CHAIRMAN AND CEO, GLG LIFE TECH.]: We are confident, thank you, we are confident like you said Scott . We are not like a mature or bigger sized beverage company, already the – general ceiling, the Q2 would be and that Q1 would be sort of down, because of the winter. So for this year, we are very confident the years we announce Q3 will bigger than Q2 and Q4 will be bigger than Q3, because we are at a very early stage development, you are right .




the AN0C Guidance.

39


4. The Truth Is Revealed – AN0C Was A Complete Failure

114. On October 6, 2011, the Company shocked the market when it issued a press

release entitled “GLG Life Tech Corporation Provides Business Update” (the “October 6, 2011

Press Release”), which disclosed several factors materially impacting the consumer products

business segment, including, among other things: (i) the overall China beverage industry had

been materially weaker than expected by most industry analysts, in part due to an unusually cool

summer; (ii) introduction of the Company’s new bottles, designed to differentiate them from

competitors, had been delayed by slower “sell-through” of the products packaged in the old

bottles, in part due to the slow-down of sales resulting from the unusually cool summer; (iii)

GLG’s OEMs were experiencing production issues which adversely affected product packaging

and product appearance quality, which impacted revenues for Q3 of 2011; and (iv) the

production issues experienced by the Company’s OEM would delay the launches of 72% of the

Company’s products expected to be launched in 2011, and would therefore impact the

Company’s expected revenue for 2011. Commenting on the issues reported in the October 6,

2011 Press Release, Defendant Zhang maintained that “[t]his situation remains a bump along the

road to the building a successful consumer brand in China and the AN0C team has or network.”

115. The October 6, 2011 Press Release addressed GLG’s inability to adequately sell-

through the RTD AN0C tea products, stating in relevant part:

As the unusually cooler weather in China continued through the summer and overall inventory for the industry remained high, the sell through of AN0C’s RTD teas in the old bottles has taken longer to sell in the KA stores than originally anticipated. As these KA channels have been slower to switch over to the new bottles, shipments of the new RTD teas in August have also been lower than expected .

116. Similarly, according to the October 6, 2011 Press Release, as a result of the OEM

production issues, “no new production orders were issued in time for additional product

shipment within the third quarter ” and, as stated in the presentation released in tandem with the

40


October 6, 2011 Press Release (the “October 6, 2011 Business Update”), September sales were

“very limited .”

117. Despite the obvious production issues, and admittedly lower sales, the Company

never revised the AN0C Guidance. In fact, the October 6, 2011 Press Release only reiterated

that GLG’s confidence in the AN0C brand, stating in relevant part:

Given the background of softer industry demand and high competition for the RTD Tea market in China, AN0C’s products have still made a strong impact on the market and Management remains confident that their products and brand are well received by the market . For example, in a consumer survey conducted in 20 target cities from June 25–July 3, about half of the over 1,300 participants connects the AN0C brand to the key messages of zero-calorie and non-fattening.

118. Additionally, the October 6, 2011 Business Update disclosing factors impacting

AN0C sales only reiterated that the Company “expect[ed] to resume normal operations now that

settlement has been reached with OEM Bottler.” The foregoing October 6, 2011 disclosures,

like all other prior statements discussing AN0C sales progress, failed to accurately and truthfully

discuss the Company’s inevitable failure to achieve the AN0C Guidance. GLG ultimately

garnered only $1.0 million from AN0C sales in Q3, compared with $4.8 million Q2. And yet,

GLG and the Individual Defendants failed to update and/or correct their prior statements needed

to make Defendants’ statements concerning AN0C’s sales progress not misleading.

119. Moreover, the excuse that the “unusually cool summer in 2011,” in turn causing

lower than expected AN0C sales, is materially false and misleading. According to the National

Climatic Data Center, State Of The Climate Global Analysis Annual 2011 , “[s]ummer was warm

across China. June 2011 was the second warmest June for the country since records began in

1951, July was the seventh warmest, and August was the fourth warmest on record.” In addition,

according to an article published on China.org.cn on July 29, 2011 entitled “Hot Summer Leads

To Record Power Generation,” stated, in relevant part:

41


Hot weather in many parts of China caused power companies to generate record amounts of electricity in July to meet demand, the country’s top economic planner said Friday.

On July 26, power plants in China generated a record 15.1 billion kilowatt-hours (kwh) of electricity, an increase of 8.2 percent year-on-year, the National Development and Reform Commission (NDRC) said in a statement on its website.

In mid-July, the plants’ electrical output averaged around 14 billion kwh daily, said the statement.

The rise in power output has mainly been attributed to the increased usage of air conditioners and industrial demands, the statement said.

120. Defendants were now woefully behind the pace necessary to achieve the AN0C

Guidance. Defendants had three months (October – December) to sell $62.6 million in AN0C

products to meet their initial $70 million AN0C Guidance (factoring in the $1 million AN0C

revenue GLG generated in the Q3).

121. On this news, the Company’s common stock declined USD $1.47 per share, or

approximately 42%, to close on October 6, 2011 at USD $1.99 per share, on unusually heavy

trading volume.

122. Subsequently, on October 7, 2011, the GeoInvesting Report released information

regarding the AN0C business segment. According to the GeoInvesting Report’s investigator,

employees at a bottling production facility observed that the small number of delivery trucks per

day was insufficient to fulfill the production line’s capacity of 15,000 bottles per hour (24-hour

round-the-clock production capacity). Several sales agents for the AN0C beverage products

indicated that that the sales volume for AN0C was very low for the following reasons: (i) poor

beverage palatability; (ii) high price compared to other famous brand beverages; (iii) low

advertisement and endorsement for the beverage; and (iv) newly introduced products without

apparent advantages (the Chinese do not care about calorie content as much as other countries).

42


123. The November 14, 2011 Press Release reported $1.7 million in revenue for the

three months ended September 30, 2011, which was composed of $1 million in consumer

beverage product sales. The total revenue for consumer products division for the nine months

ended September 30, 2011 was $7.4 million .

124. The Company attributed the decrease in AN0C sales for Q3 to: (i) the unusually

cool summer in China; (ii) the production issues experienced by the Company’s OEM bottler;

and (iii) delay in the introduction of the Company’s new bottles, due to slower “sell-through” of

the products packaged in the old bottles.

125. In the November 14, 2011 Press Release, the Company also announced that it had

modified its guidance policy. In order to “better address a longer-term perspective on GLG and

AN0C’s performance”, the Company announced that it would “temporarily discontinue

providing formal financial guidance on revenues, EBITDA and capital expenditures.”

126. Following the issuance of the November 14, 2011 Press Release announcing Q3

results and the amended Strategic Alliance and Supply Agreement with Cargill, the Company’s

common stock fell an additional USD $0.29 from a closing price of USD $2.01 per share on

November 14, 2011, to close at USD $1.72 per share on November 15, 2011.

127. GLG generated $7.7 million in total revenue from the sale of AN0C products

during 2011, with only $295,000 in Q4 of 2011, as reported by GLG on August 14, 2012, nearly

five months after GLG was expected to release its 2011 annual financial results.

VI. POST CLASS PERIOD EVENTS

128. On March 30, 2012, and after this action had been initiated, the Company issued a

press release announcing that it would “delay the filing of its annual financial statements, its

management discussion and analysis relating to its annual financial statements, its Annual

Information Form (and related Form 40-F in the United States) and the CEO and CFO

43


certifications ... for the period ended December 31, 2011, beyond the prescribed deadline of

March 30, 2012.” The delay was purportedly caused by the need for GLG to “to obtain further

audit evidence, primarily from third parties, required by its auditors in order to complete the

audit.”

129. On April 13, 2012, the Company issued a press release announcing the progress

of the filing of its annual statement. The press release stated, in relevant part, the following:

The Company continues to actively work with its auditors to complete the audit of its financial statements. The Company has obtained and provided to its auditors additional third party information identified by its auditors in the past two weeks, however the process is continuing. The Company's management, together with its audit committee continue to cooperate with its auditors to provide the information as soon as possible, and continues to work diligently towards filing the Required Documents on or before April 30, 2012 .

130. However, on April 30, 2012, the Company once again failed to file its annual

report. Instead, the Company issued a press release announcing the following:

GLG Life Tech Corporation (Nasdaq: GLGL) (TSX:GLG) (“GLG” or the “Company”) announced today that it continues to work towards finalizing its annual financial statements, its management discussion and analysis relating to its annual financial statements, its Annual Information Form (and related Form 40-F in the United States) and the CEO and CFO certifications (collectively, the “Required Documents”) for the period ended December 31, 2011.

The Company continues to work to obtain further audit evidence from third parties as required by its auditors. The Company’s auditors have required that the Company’s Audit Committee engage a third-party audit firm in order to assist with third party audit evidence in order to properly conclude on certain third party transactions. The Company’s Audit Committee has engaged KPMG LLP in order to assist in the process. The Company’s auditors have communicated to the Company that it has not uncovered any wrongdoing by the Company.

The Company’s management, together with its Audit Committee, will continue to cooperate with its auditors and KPMG LLP to provide any remaining information as soon as possible. Although the Company cannot provide a definitive date of completion of the audit, it anticipates completion of the audit process outlined above by the end of May, 2012.

The Company has been granted a management cease trade order (“MCTO”) from applicable Canadian securities regulatory authorities. However, the applicable

44


Canadian securities regulatory authorities may issue a general cease trade order against the Company for failure to file the Required Documents.

There are no insolvency proceedings that GLG is subject to and there is no other material information concerning the affairs of the Company that has not been generally disclosed.

131. On May 3, 2012, the Company announced that a “full cease trade order” was

imposed on the securities of the GLG by the British Columbia Securities Commission.

132. On May 4, 2012, GLG announced that it received a notice from the NASDAQ

regarding noncompliance with NASDAQ Listing Rule 5250(c)(1) as a result of not timely filing

its Form 40-F for the period ending December 31, 2011. While the Company indicated its

intention to submit a plan to regain compliance, on May 22, 2012, following the initial filing of

this action, Defendants’ public auditor, PricewaterhouseCoopers LLP (“PwC”), refused to issue

an audit opinion with respect to the Company’s consolidated financial statements and internal

controls over financial reporting for fiscal year 2011 because GLG refused to provide PwC with

information concerning certain related party transactions, and thereafter resigned as the

Company’s auditor effective May 22, 2012.

133. According to the PwC resignation letter, dated May 22, 2012 (“PwC Resignation

Letter”), GLG refused to provide PwC with specific information concerning certain related party

transaction, including: (1) the identification of the Company’s counterparties; (2) an assessment

of the related party status of such counterparties; and (3) an understanding of the economic

substance of the counterparties and the transactions. While the Company announced on April

30, 2012 that the Audit Committee had engaged KPMG LLP (“KPMG”) to assist in the audit

review process, by the May 22, 2012 PwC Resignation Letter, GLG had apparently “decided not

to pursue” KPMG’s investigation. Because GLG refused to provide PwC with the necessary

information concerning the related party transactions, PwC officially resigned as GLG’s auditor

45


on May 22, 2012. Thereafter, GLG delisted its shares from the NASDAQ on May 31, 2012, and

has not traded on the exchange since. Following the delisting from NASDAQ, the Company

terminated its public reporting obligations under the Exchange Act.

134. Finally, on August 14, 2012, nearly five months after GLG was expected to

release its financial results, the Company announced Q4 and fiscal year 2011 financial results, as

well as Q1 and Q2 2012 financial highlights. Revenue for the three months ended December 31,

2011 was approximately $473,000, with $295,000 derived from the consumer products business

segment and $178,000 from the stevia extract segment. Revenue of the twelve months ended

December 31, 2011 was $24.8 million combined between both segments, compared to $58.9

million for the same period in 2010, derived solely from the stevia extract business segment, a

decrease of 58% compared to overall revenue for the same period in 2010. The total revenue

was comprised of $17.1 million for stevia extract sales and $7.7 million for AN0C sales.

VII. ADDITIONAL SCIENTER ALLEGATIONS

A. Access To Sales Data

135. As alleged herein, Defendants acted with scienter because at the time that they

issued public documents and made other public statements in GLG’s name, they knew or

recklessly disregarded the fact that such statements were materially false and misleading and/or

omitted material facts concerning, among other things, the Company’s inability to achieve the

February 2011 Revenue Guidance. Moreover, Defendants: (i) knew that such documents and

statements would be issued or disseminated to the investing public; (ii) knew that persons were

likely to rely upon those misrepresentations and omissions; and (iii) knowingly and/or recklessly

participated in the issuance and/or dissemination of such statements and/or documents as primary

violators of the federal securities laws. Defendants’ materially false and misleading statements

and omissions of material fact artificially inflated GLG’s stock price during the Class Period.

46


136. Although the February 2011 Revenue Guidance was issued as financial

projections, Defendants were well aware that these figures were unreasonably high and

unattainable, and only set at such high levels in order to maintain the Company’s inflated stock

price to maximize the net proceeds in the February 2011 Offering. As the contractual

relationship with Cargill deteriorated during the Class Period, Defendants intentionally omitted

any discussion on the Company’s true standing with Cargill, and failed to undertake reasonable

efforts to correct and/or update the market. Moreover, as Defendants were simultaneously

unable to sell enough AN0C to achieve the AN0C Guidance, Defendants similarly failed to

undertake reasonable efforts to correct and/or update the market on their inadequate revenue

generation, despite their oversight and possession of financial sales data. Instead, Defendants

continued to speak confidently about the Company’s ability to meet the February 2011 Revenue

Guidance. In fact, it was not until the day after the Class Period ended before the Defendants

actually admitted that GLG was no longer serving Cargill in an exclusive capacity under the

Strategic Alliance and Supply Agreement, or that GLG would not achieve the $70-100 million

AN0C Guidance for fiscal 2011.

137. GLG management was keenly aware of the distribution rate and AN0C sales

progress at all times throughout the Class Period. As part of the AN0C distribution strategy, as

revealed in the Company’s June 2011 Investor Presentation, GLG signed contracts with Tier I

distributors for “ committed monthly volumes through December 31, 2011 .” At that time, GLG

had approximately 400 Tier I distributors.

138. The Individual Defendants’ access to sales data is further demonstrated by the

Independent Auditor’s Report dated March 31, 2011, conducted by PricewaterhouseCoopers

47


LLP, for the fiscal years ended December 31, 2010 and 2009, which states the following

regarding GLG’s “Revenue Recognition” policy:

Revenue from product sales is recognized when products are shipped to customers and ownership is transferred to customers, when the price is fixed or determinable and when the ultimate collection is reasonably assured. Customer prepayments are recorded as advances from customers and revenue is not recognized until the shipment of goods occurs.

139. Moreover, as GLG explained in the 2010 MD&A, filed as an exhibit to the 2010

40-F:

The Company’s disclosure controls and procedures are designed to provide reasonable assurance that relevant information relating to the Company, including its consolidated subsidiaries, is made known to senior management in a timely manner so that information required to be disclosed by the Company under securities legislation is recorded, processed, summarized and reported within the time periods specified in applicable securities legislation . As of the end of the period covered by this report, the Company’s management evaluated, under the direction and supervision of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

140. Moreover, the Q1 MD&A, Q2 MD&A, and Q3 MD&A, filed as exhibits to the

Company’s Form 6-Ks dated May 16, 2011 (reporting quarterly financial results for the three

months ended March 31, 2011), August 15, 2011 (reporting quarterly financial results for the

three and six months ended June 30, 2011) and November 14, 2011 (reporting quarterly financial

results for the three and nine months ended September 30, 2011), respectively, contain identical

“Disclosure Controls and Internal Controls over Financial Reporting” language, stating:

The Company’s disclosure controls and procedures are designed to provide reasonable assurance that relevant information relating to the Company, including its consolidated subsidiaries, is made known to senior management in a timely manner so that information required to be disclosed by the Company under securities legislation is recorded, processed, summarized and reported within the time periods specified in applicable securities legislation.

48


141. Similarly, in response to question about promotional expenses and working

capital limitations during the August 15, 2011 conference call held for analysts, investors and

media representatives to discuss GLG’s Q2 earnings results, Meadows stated:

[O]n AN0C. The beauty of this business is, we take, before we ship, we collect money from our distributors . And versus longer periods of time, we have a TV business. So that certainly helps the working capital. And as we mentioned with the RMB 1 billion line of credit. We’re feeding our capital requirements for the business for the next few years.

142. From the outset, the Company had no rational basis to project $70 to $100 million

in 2011 AN0C sales. GLG’s initial AN0C Guidance assumed the launch of 12 beverage

products in 2011 and a limited distribution network. However, by the end of August 2011,

Defendants introduced a total of 39 SKU’s, purportedly expanding the potential marketplace

from $6 billion to $21 billion and enlarging the distribution network from 400 partners in July to

over 600, resulting in a distribution reach for AN0C’s products to over 100,000 stores. Despite

the massive overhaul, the AN0C Guidance did not change.

143. Defendants knew all along that GLG needed to sell between 262,172,285 bottles

(to achieve $70 million) and 374,531,836 bottles (to achieve $100 million) of AN0C beverages

to hit its AN0C Guidance. 5 Beginning in the spring/summer 2011 time frame, the sales for

AN0C were not promising. As early as July 27, 2011, with more than three months of sales data

accounted for, GLG had only sold approximately 27 million bottles of its RTD teas – 12.6

million in June – which amounted to $6.4 million in AN0C products for the first two quarters of

2011.

144. If the Company had honestly been on pace for the AN0C Guidance by the end of

July 2011, that would have meant it was averaging approximately $7.8 million of revenue per

5 Calculations are based on $0.267 in revenue per bottle. The Company announced 6,000,000 bottles sold in Q1 equated to $1,600,000.00 in sales ($1,600,000 / 6,000,000 bottles = $0.267 per bottle).

49


month from AN0C sales, which would total $70 million sold over nine months (since AN0C

sales began in late March 2011). Yet, the Company ended up with (i) no new production orders

issued for additional AN0C product shipment within Q3, and (ii) “ very limited ” September 2011

AN0C sales. GLG ultimately garnered only $1.0 million from AN0C sales in Q3, and even less

in Q4. Despite the sluggish sales pace, at no time did the Company update or correct prior sales

guidance.

B. Internal Controls

145. The Individual Defendants’ scienter is further demonstrated by their senior level

positions at the Company and access to material, non-public information concerning the actual

financial performance and conditions of the Company. Defendant Meadows, as CFO, was

responsible for financial reporting and communications with the market. Both Defendants

Meadows and Zhang, as CFO and CEO respectively, are responsible for the financial results and

press releases issued by the Company. These financial reports, in turn, were based, in part, on

information prepared by Defendants Meadows and Zhang. Each Individual Defendant sought to

demonstrate that he could lead the Company successfully and generate the growth expected by

the market. Each Individual Defendant also owed a duty to the Company and its shareholders

not to trade on inside information.

146. In fact, Defendants Zhang and Meadows as CEO and CFO, respectively, each

signed and submitted as exhibits to the 2010 40-F certifications under the Sarbanes-Oxley Act of

2002 certifying that the information contained in 2010 40-F fairly presented, in all material

respects, the financial condition and results of operations of the Company (the “2010 40-F SOX

Certifications”). The Individual Defendants also certified the following in the 2010 40-F SOX

Certifications regarding the internal controls over financial reporting for the Company:

a. The Individual Defendants designed such disclosure controls and

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procedures, or caused such disclosure controls and procedures to be designed under their supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, was made known to the Individual Defendants by others within those entities, particularly during the period in which the 2010 40-F was being prepared;

b. The Individual Defendants designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. The Individual Defendants evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in the 2010 40-F their conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by the 2010 40-F based on such evaluation; and

d. The Individual Defendants disclosed in the 2010 40-F any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that materially affected, or was reasonably likely to materially affect, the Company’s internal control over financial reporting.

147. Moreover, the 2010 MD&A filed as an exhibit to the 2010 40-F acknowledged

that:

The Company’s management, under the direction and supervision of the Chief Executive Officer and Chief Financial Officer, is also responsible for establishing and maintaining internal control over financial reporting . These controls are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in Canada and the requirements of the Securities and Exchange Commission in the United States, as applicable.

148. Each Individual Defendant also reviewed and certified the interim financial

statements and interim MD&A for GLG on Form 52-109F2, filed as exhibits to the Company’s

Form 6-Ks dated May 16, 2011 (reporting quarterly financial results for the three months ended

March 31, 2011), August 15, 2011 (reporting quarterly financial results for the three and six

51


months ended June 30, 2011) and November 14, 2011 (reporting quarterly financial results for

the three and nine months ended September 30, 2011).

149. As set forth in detail throughout this Amended Complaint, the Individual

Defendants, by virtue of their receipt of information reflecting the true facts regarding GLG,

their control over, and/or receipt and/or modification of GLG’s allegedly materially misleading

misstatements and omissions and/or their associations with the Company that made them privy

to confidential proprietary information concerning GLG, participated in the fraudulent scheme

alleged herein, including but not limited to artificially inflating GLG’s stock price.

C. Motive

150. In addition, the Company desperately needed cash to fund the expensive rollout of

its new consumer products division, and the inflated February 2011 Revenue Guidance sufficed

to generate the desired amount of capital from the Offering. On the strength of the overstated

projections, the Company tripled the cash on its balance sheet.

151. The Individual Defendants were further motivated to conceal GLG’s persistent

failure to satisfy the revenue forecasts and the true extent of the difficulties that GLG was

experiencing in gaining AN0C market acceptance because the Company was planning and

thereafter executing the February 2011 Offering to finance the expensive production, marketing

and advertising costs related to the AN0C joint venture, and for working capital and other

general corporate purposes. The February 2011 Offering would have been negatively impacted

if the truth about the Company’s realistic prospects to sell stevia and AN0C were actually

disclosed. In the February 2011 Offering, the Company sold a total of 5,290,000 Units

(consisting of one common share and one half of one common share purchase Warrant) at a price

of $11.00 per Unit with each whole Warrant entitling the holder to acquire one common share of

the Company at the exercise price of $15.00 per common share for a period of 36 months

52


following the closing of the offering. GLG realized gross proceeds of $58,190,000. Therefore,

maintaining an inflated stock price at the time of the February 2011 Offering was essential to

GLG’s ability to maximize the ability to raise the capital it needed to fund AN0C rollout and

cover general working capital expenses.

152. Moreover, according to GLG’s Consolidated Financial Statements for the years

ended December 31, 2009 and 2010, on December 31, 2009, the Company obtained USD

$6,892,000 non-secured loans from Defendant Zhang, bearing interest at the US dollar prime rate

posted by the Bank of Canada plus 3% per annum. During the year ended December 31, 2010,

the Company also obtained two new loans from Defendant Zhang in the amounts of USD

$1,500,000 and $700,000 respectively, bearing interest at the US dollar prime rate posted by the

Bank of Canada plus 4% per annum. During the three months ended September 30, 2012, the

Company obtained additional loans of $1,046,821 from Defendant Zhang, and as of September

30, 2012, GLG owed a total amount of $6,767,372 to Defendant Zhang. These loans bore

interest at China’s 10-year benchmark government bond rate plus 11% per annum.

153. Subsequent to September 30, 2012, the Company borrowed an additional

$592,320 under the same terms and conditions. Similarly, subsequent to September 30, 2012,

the British Columbia Securities Commission granted a partial revocation of the Cease Trade

Order imposed May 2, 2012 in order to complete a loan to the Company Defendant Zhang in the

amount of USD $1,000,000 with an interest rate of 14.37% per annum.

154. According to GLG’s Condensed Interim Consolidated Financial Statements for

the three and nine months ended September 30, 2012, the loan proceeds were used for corporate

working capital purposes to fund the operations of the Company.

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VIII. CLASS ACTION ALLEGATIONS

155. Lead Plaintiffs bring this action pursuant to Rule 23(a) and 23(b)(3) of the Federal

Rules of Civil Procedure on behalf of themselves and a class (the “Class”) consisting of all

persons and entities that purchased or otherwise acquired GLG common stock in the United

States or on the NASDAQ Stock Market during the Class Period at artificially inflated prices and

who suffered damages as a result. Excluded from the Class are the Defendants named herein,

members of their immediate families, any firm, trust, partnership, corporation, officer, director or

other individual or entity in which a Defendant has a controlling interest or which is related to or

affiliated with any of the Defendants, and the legal representatives, heirs, successors-in-interest

or assigns of such excluded persons.

156. Members of the Class are so numerous and geographically dispersed that joinder

of all members is impracticable. As of September 30, 2012, GLG had more than 33 million

shares of common stock outstanding, owned by hundreds, if not thousands, of persons.

Throughout the Class Period, GLG common shares were actively traded on the NASDAQ stock

market. While the exact number of Class members remains unknown to the Lead Plaintiffs at

this time, and can only be ascertained through appropriate discovery, Lead Plaintiffs believe that

there are hundreds or thousands of members in the proposed Class. Additionally, record owners

and Class Members may be identified from records maintained by GLG, or its transfer agent, and

may be notified of the pendency of this action by mail and publication, using forms of notice

similar to those customarily used in securities class actions.

157. Lead Plaintiffs’ claims are typical of the other members of the Class because

Plaintiffs and all of the Class members sustained damages that arose out of the Defendants’

unlawful conduct complained of herein.

54


158. Lead Plaintiffs will fairly and adequately protect the interests of the members of

the Class, and Lead Plaintiffs have no interests that are contrary to, or in conflict with, the

interests of the Class members that they seek to represent. Lead Plaintiffs have retained

competent counsel experienced in class action litigation under the federal securities laws to

ensure such protection and intends to prosecute this action vigorously.

159. The prosecution of separate actions by individual Class members would create a

risk of inconsistent and varying adjudications, which could establish incompatible standards of

conduct for Defendants. Questions of law and fact common to members of the Class

predominate over any questions that may affect only individual members, in that Defendants

have acted on grounds generally applicable to the entire Class. The questions of law and fact

common to the Class include, but are not limited to, the following:

a. whether Defendants’ acts violated the federal securities laws as alleged herein;

a. whether Defendants’ publicly disseminated statements during the Class Period omitted and/or misrepresented material facts;

b. whether Defendants acted with scienter in omitting and/or misrepresenting material facts;

c. whether the price of GLG common stock was artificially inflated during the Class Period as a result of the material misrepresentations and omissions complained of herein;

d. whether the Individual Defendants were controlling person as alleged herein; and

e. whether members of the Class have sustained damages and, if so, the proper measure of such damages.

160. A class action is superior to other methods for the fair and efficient adjudication

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

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

55


and burden of individual litigation make it impossible for members of the Class to individually

seek redress for wrongs done to them. There will be no difficulty in the management of this

action as a class action.

IX. GROUP PLEADING

161. The Individual Defendants are also liable for the materially false and misleading

statements and omissions of material fact in GLG’s SEC filings, press releases and other public

statements, as such statements represent “group-published” information disseminated to the

public as a result of the collective actions of the Individual Defendants. It is appropriate to treat

the Individual Defendants as a group and to presume that the false and misleading information

conveyed in the public filings, press releases and other publications, as alleged herein, are the

collective actions of the narrowly defined group of Individual Defendants identified herein. The

Individual Defendants, by virtue of their high level positions within GLG, directly participated in

the management of the Company, were directly involved with the day-to-day operations and

were privy to confidential non-public information concerning GLG’s business operations,

including the breakdown in GLG’s relationship with Cargill and the Company’s inability to

satisfy the projected revenue set forth in the February 2011 Revenue Guidance, as alleged herein.

The Individual Defendants were involved in drafting, reviewing and/or disseminating the

materially false and misleading statements and omissions of material fact that were issued by

GLG, approved or ratified these statements and, therefore, adopted them as their own.

162. During the Class Period, the Individual Defendants, as senior executive officers

and/or directors of GLG, were privy to confidential and proprietary information concerning

GLG, its operations, finances, financial condition, and present and future business prospects.

The Individual Defendants also had access to material adverse non-public information

concerning GLG’s business, finances, products, markets, and present and future business

56


prospects via access to internal corporate documents, conversations and connections with other

corporate officers and employees, attendance at management and board of directors meetings

and committees thereof, and via reports and other information provided to them in connection

therewith. Because of their possession of such information, and their direct involvement in the

everyday business of GLG, the Individual Defendants knew or recklessly disregarded the fact

that adverse facts specified herein had not been disclosed to, and were being concealed from, the

investing public.

X. LOSS CAUSATION

163. During the Class Period, as detailed herein, Defendants engaged in a scheme to

deceive the market and a course of conduct that artificially inflated GLG’s stock price and

operated as a fraud or deceit on Class Period purchasers of GLG stock by misrepresenting the

Company’s business and prospects. During the Class Period, Defendants concealed the

breakdown in relations with Cargill and the Company’s overall inability to satisfy the projected

revenue set forth in the February 2011 Revenue Guidance. Later, however, as Defendants’ prior

misrepresentations and omissions were disclosed and became apparent to the market, the price of

GLG stock fell precipitously. As a result of their purchases of GLG stock during the Class

Period at artificially inflated prices, Lead Plaintiffs and other Class Members suffered damages

as the truth regarding GLG’s inability to satisfy the projected revenue set forth in the February

2011 Revenue Guidance was revealed to the public.

164. Defendants’ wrongful conduct, as alleged herein, directly and proximately caused

the damages suffered by Lead Plaintiffs and the Class.

165. Defendants’ false and misleading statements and omissions in their SEC filings

and other public statements during the Class Period directly caused losses to Lead Plaintiffs and

the Class. On the strength of these false statements, the Company’s stock price was artificially

57


inflated to a Class Period high of USD $12.45 per share on February 1, 2011. Those

misrepresentations and omissions that were not immediately followed by an upward movement

in the Company’s stock price served to maintain the share price at artificially inflated levels by

maintaining and supporting a false positive perception of GLG’s business, operations,

performance and prospects.

166. As the truth began to emerge regarding the true financial condition of GLG, the

price of GLG stock declined as the market processed each set of previously undisclosed facts.

Each such disclosure removed a portion of the artificial inflation in the price of GLG’s common

stock and directly and proximately caused Lead Plaintiffs and other Class members to suffer

damages. For example, on May 16, 2011, GLG’s common stock declined approximately 6% on

high trading volume due to the Company’s disappointing Q1 2011 earnings. Similarly,

following the release of GLG’s Q2 2011 earnings, GLG common stock dropped approximately

28% by August 19, 2011. Further, GLG’s common stock declined approximately 42% on heavy

trading volume after the Company issued the October 6, 2011 Press Release. Finally, when the

Company announced its Q3 2011 earnings on November 14, 2011, GLG’s common stock

declined approximately 14% further to a close of USD $2.01 per share – a total decline of

approximately 84% per share from its Class Period high.

167. Until shortly before Lead Plaintiffs filed this action, they were unaware of the

facts alleged herein and could not have reasonably discovered Defendants’ misrepresentations

and omissions by the exercise of reasonable diligence.

XI. CONTROL PERSON LIABILITY

168. The Individual Defendants are liable as direct participants with respect to 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

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Section 20(a) of the Exchange Act, and each 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

GLG’s business.

169. Specifically, because of their position within the Company, the Individual

Defendants possessed the power and authority to control the contents of GLG’s annual and

quarterly reports, press releases, and presentations to securities analysts, money and portfolio

managers and institutional investors, i.e. , the market, including those containing the materially

false and misleading statements and omissions of material fact alleged herein. Each of the

Individual Defendants, by reason of his respective management or board position, had the ability

and opportunity to review copies of the Company’s SEC filings, reports and press releases

alleged herein to be misleading, prior to, or shortly after their issuance or to cause them to be

corrected.

170. By virtue of their positions, the Individual Defendants had access to material non-

public information. Each of the Individual Defendants knew or recklessly disregarded the fact

that the adverse facts specified herein had not been disclosed and were being concealed from the

public, and that the positive representations which were being made were then materially false

and misleading.

XII. FRAUD-ON-THE-MARKET PRESUMPTION

171. At all relevant times, the market for GLG’s publicly traded securities was an

efficient market for the following reasons, among others:

a. GLG’s common stock was listed and actively traded on the NASDAQ (symbol GLGL), a highly efficient national market;

b. As a registered and regulated issuer of securities, GLG filed periodic reports with the SEC, in addition to the frequent voluntary dissemination

59


of information;

c. GLG regularly communicated with public investors through established market communication mechanisms, including through regular dissemination of press releases on the national circuits of major newswire services and through other wide-ranging public disclosures such as communications with the financial press and other similar reporting services;

d. The market reacted to public information disseminated by GLG;

e. GLG was followed by multiple analysts, which followed GLG’s business and wrote reports which were publicly available and affected the public marketplace;

f. The material misrepresentations and omissions alleged herein would tend to induce a reasonable investor to misjudge the value of GLG’s stock; and

g. Without knowledge of the misrepresented or omitted facts, Plaintiffs and other members of the Class purchased or otherwise acquired GLG stock between the time the Defendants made the material misrepresentations and omissions and the time that the truth was revealed, during which time the price of GLG stock was artificially inflated by Defendants’ misrepresentations and omissions.

172. As a result of the above, the market for GLG common stock promptly digested

current information with respect to the Company from all publicly available sources and

reflected such information in the security’s price. Under these circumstances, all purchasers of

GLG common stock during the Class Period suffered similar injuries through their purchases of

shares at prices which were artificially inflated by the Defendants’ misrepresentations and

omissions. Thus, a presumption of reliance applies.

XIII. THE AFFILIATED UTE PRESUMPTION

173. At all relevant times, Lead Plaintiffs and the Class reasonably relied upon

Defendants to disclose material information as required by law and in the Company’s SEC

filings. Lead Plaintiffs and the Class would not have purchased or otherwise acquired GLG

common stock at artificially inflated prices if Defendants had disclosed all material information

60


as required. Thus, to the extent Defendants wrongfully failed to disclose material information

concerning to the Company’s relationship with Cargill or the Strategic Alliance and Supply

Agreement, or otherwise, Lead Plaintiffs are presumed to rely on Defendants’ omissions as

established by the Supreme Court in Affiliated Ute Citizens v. U.S. , 406 U.S. 128 (1972).

XIV. NO STATUTORY SAFE HARBOR

174. As alleged herein, Defendants acted with scienter because, at the time that they

issued public documents and other statements in GLG’s name, they knew or recklessly

disregarded the fact that such statements were materially false and misleading or omitted

material fact. Moreover, the Defendants knew that such documents and statements would be

issued or disseminated to the investing public; knew that persons were likely to rely upon those

misrepresentations and omissions; and knowingly and/or recklessly participated in the issuance

and/or dissemination of such statements and/or documents as primary violators of the federal

securities laws.

175. As set forth in detail in the Amended Complaint, the Individual Defendants, by

virtue of their control over, and/or receipt of GLG’s materially misleading statements and/or

their association with the Company which made them privy to confidential proprietary

information concerning GLG which was used to artificially inflate financial results and which

Individual Defendants caused or were informed of, participated in and knew of the fraudulent

scheme alleged herein. With respect to non-forward looking statements and/or omissions, the

Individual Defendants knew and/or recklessly disregarded the falsity and misleading nature of

that information, which they caused to be disseminated to the investing public.

176. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this Amended

Complaint. Many of the specific statements pleaded herein were not identified as “forward-

61


looking statements” when made and/or were statements of historical fact. Rather, the statements

alleged herein to be false and misleading all relate to facts and conditions existing at the time the

statements were made. Moreover, meaningful statements did not identify important factors that

could cause actual results to differ materially from those in any putative forward-looking

statement.

177. Alternatively, to the extent that the statutory safe harbor does apply to any

forward-looking statements pleaded herein, Defendants are liable for those false forward-looking

statements because at the time each of those forward-looking statements were made, the

particular speaker knew that the particular forward-looking statement was false, and/or the

forward-looking statement was authorized and/or approved by an executive officer of GLG who

knew that those statements were false when made. None of the historic or present tense

statements made by Defendants was an assumption underlying or relating to any plan, projection,

or statement of future economic performance, as they were not stated to be such an assumption

underlying or relating to any projection or statement of future economic performance when made

nor were any of the projections or forecasts made by Defendants expressly related to or stated to

be dependent on those historic or present tense statements when made.

XV. CAUSES OF ACTION

COUNT I

For Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Against All Defendants

178. Lead Plaintiffs re-allege each allegation above as if fully set forth herein.

179. This claim is brought under Section 10(b) of the Exchange Act, 15 U.S.C.

§ 78j(b) and Rule 10b-5 promulgated thereunder by the SEC, 17 C.F.R. § 240.10b-5, against

GLG and the Individual Defendants (the “Section 10(b) Defendants”).

62


180. During the Class Period, the Section 10(b) Defendants disseminated or approved

the false statements specified herein, which they knew or recklessly disregarded were misleading

in that they failed to disclose material facts necessary to make the statements made, in light of

the circumstances under which they were made, not misleading, and they contained material

misrepresentations.

181. The Section 10(b) Defendants violated Section 10(b) of the Exchange Act and

Rule 10b-5 thereunder in that they: (1) employed devices, schemes and artifices to defraud; (2)

made untrue statements of material fact and/or omitted material facts necessary to make the

statements made not misleading; and (3) engaged in acts, practices and a course of business

which operated as a fraud and deceit upon Lead Plaintiffs and others similarly situated in

connection with their purchases of GLG common stock during the Class Period, in violation of

Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. As detailed herein,

the misrepresentations contained in, or the material facts omitted from, these Section 10(b)

Defendants’ public statements, including SEC filings, concerned, amount others, the profitability

of the Company’s stevia extract and the consumer products business segments.

182. The Section 10(b) Defendants, individually and in concert, directly and indirectly,

by the use, means or instrumentalities of interstate commerce and/or the mails, engaged and

participated in a continuous course of conduct that operated as a fraud and deceit upon Lead

Plaintiffs and the Class; made various false and/or misleading statements of material facts and

omitted to state material facts necessary to make the statements made, in light of the

circumstances under which they were made, not misleading; made the above statements with a

severely reckless disregard for the truth; and employed devices and artifices to defraud in

connection with the purchase or sale of securities, which were intended to, and did: (i) deceive

63


the investing public, including Lead Plaintiffs and the Class, regarding, among other things, the

profitability of GLG’s stevia extract and consumer products business segments; (ii) artificially

inflate and maintain the market price of GLG common stock; and (iii) cause Lead Plaintiffs and

other members of the Class to purchase GLG common stock at artificially inflated prices.

183. Defendant GLG is liable for all materially false and misleading statements made

during the Class Period, as alleged above.

184. GLG is also liable for false and misleading statements made in its filings with the

SEC, including but not limited to filings on Forms 40-F and 6-K and exhibits attached thereto.

185. GLG is further liable for the false and misleading statements made by GLG

officers in press releases, during conference calls and at conferences with investors and analysts,

as alleged above, as the makers of such statements and under the principle of respondent

superior.

186. The Individual Defendants, as top executive officers of the Company, are liable as

direct participants in the wrongs complained of herein. Through their positions of control and

authority as officers of the Company, each of the Individual Defendants was able to and did

control the content of the public statements disseminated by GLG. The Individual Defendants

had direct involvement in the daily business of the Company and participated in the preparation

and dissemination of GLG’s false and misleading statements, as set forth above.

187. As described above, the Section 10(b) Defendants acted with scienter throughout

the Class Period, in that they either had actual knowledge of the misrepresentations and

omissions of material facts set forth herein or acted with reckless disregard for the truth in that

they failed to ascertain and to disclose the true facts, even though such facts were available to

them. Specifically, the above allegations establish a strong inference that the Section 10(b)

64


Defendants knew or should have known that GLG’s reported financial results and other SEC

filings, as filed with the SEC during the Class Period, and disseminated to the investing public,

were materially misstated.

188. The allegations set forth above establish a strong inference that these Defendants

acted with scienter in misrepresenting the profitability of the Company’s stevia extract and the

consumer products business segment and, consequently, the financial condition and growth

prospects of the Company during the Class Period.

189. Lead Plaintiffs and the Class purchased GLG common stock without knowing

that the Section 10(b) Defendants had misstated or omitted material facts about the Company’s

financial performance and prospects. Lead Plaintiffs and the Class would not have purchased

GLG common stock at the prices they paid, or at all, if they had been aware that the market price

had been artificially and falsely inflated by Section 10(b) Defendants’ false and misleading

statements. In purchasing the stock, Lead Plaintiffs and the Class relied directly or indirectly on

false and misleading statements made by the Section 10(b) Defendants, and/or an absence of

material adverse information that was known to the Section 10(b) Defendants or recklessly

disregarded by them but not disclosed in the Section 10(b) Defendants’ public statements. Lead

Plaintiffs and the Class were damaged as a result of their reliance on the Section 10(b)

Defendants’ false statements and misrepresentations and omissions of material facts.

190. At the time of the Section 10(b) Defendants’ false statements, misrepresentations

and omissions, Lead Plaintiffs and the Class were ignorant of their falsity and believed them to

be true.

191. Lead Plaintiffs and the Class are filing this action within two years after discovery

of the facts constituting the violation, including facts establishing scienter and other elements of

65


Plaintiff’s claim, and within five years after the violations with respect to the investments of the

Lead Plaintiffs and the Class.

192. By virtue of the foregoing, the Section 10(b) Defendants have violated § 10(b) of

the Exchange Act and Rule 10b-5 promulgated thereunder.

193. As a direct and proximate result of the Section 10(b) Defendants’ wrongful

conduct, Lead Plaintiffs and the other members of the Class suffered damages in connection with

their purchases of GLG common stock during the Class Period.

COUNT II

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

194. Lead Plaintiffs re-allege each allegation above as if fully set forth herein.

195. This Count is asserted against Defendants Zhang and Meadows (the “Section

20(a) Defendants”) for violations of Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), on

behalf of all members of the Class.

196. As alleged in detail above, GLG committed a primary violation of Section 10(b)

of the Exchange Act by knowingly and/or recklessly disseminating materially false and

misleading statements and/or omissions throughout the Class Period.

197. During their tenures as officers and/or directors of GLG, each of the Section 20(a)

Defendants was a controlling person of GLG within the meaning of Section 20(a) of the

Exchange Act. By reason of their positions of control and authority as officers and/or directors

of GLG, these Defendants had the power and authority to cause GLG to engage in the wrongful

conduct complained of herein. As set forth in detail above, the Section 20(a) Defendants named

in this Count were able to and did control, directly and indirectly, and exert control over GLG,

including the content of the public statements made by GLG during the Class Period, thereby

66


causing the dissemination of the false and misleading statements and omissions of material facts

as alleged herein. Therefore, the Section 20(a) Defendants are jointly and severally liable for the

Company’s fraud, as alleged herein.

198. In their capacities as senior corporate officers of GLG, and as more fully

described above, the Section 20(a) Defendants had direct involvement in the day-to-day

operations of the Company and in its financial reporting functions. Each of the Section 20(a)

Defendants was also directly involved in providing false information and signing and/or

approving the false statements disseminated by GLG during the Class Period. Further, as

described above, the Section 20(a) Defendants had direct involvement in the presentation and/or

manipulation of false reports included within the Company’s press releases and filings with the

SEC. Thus, the Section 20(a) Defendants knew or recklessly disregarded the fact that GLG’s

representations were materially false and misleading and/or omitted material facts when made.

In so doing, the Section 20(a) Defendants did not act in good faith.

199. Defendant Zhang served as GLG’s Chief Executive Officer and Chairman of the

Board throughout the Class Period. In this dual capacity as the senior manager of the Company

and the commander of the Board, Defendant Zhang – together with Defendant Meadows – had

ultimate control over the actions of GLG.

200. Defendant Meadows served as Chief Financial Officer and Corporate Secretary

throughout the Class Period. In this capacity as a senior manager in charge of the Company’s

financials, Defendant Meadows – together with Defendant Zhang – had ultimate control over the

actions of GLG.

201. As alleged in detail above, the Section 20(a) Defendants controlled and managed

GLG’s overall business and controlled and/or possessed the authority to control the contents of

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the Company’s reports, press releases and presentations to securities analysts and, through them,

to the investing public. Furthermore, the Section 20(a) Defendants all received various written

and oral reports from different divisions of the Company on a routine basis.

202. By reason of their positions as officers of GLG, and more specifically as

controlling officers – as can be seen by their corresponding ability to influence and control GLG

– each of the Section 20(a) Defendants is a “controlling person” within the meaning of Section

20(a) of the Exchange Act and had the power and influence to direct the management and

activities of the Company and its employees, and to cause the Company to engage in the

unlawful conduct complained of herein. Because of their positions, the Section 20(a) Defendants

had access to adverse nonpublic financial information about the Company and acted to conceal

the same, or knowingly or recklessly authorized and approved the concealment of the same.

Moreover, each of the Section 20(a) Defendants was also involved in providing false information

and certifying and/or approving the false statements disseminated by GLG during the Class

Period. Each of the Section 20(a) Defendants was provided with or had access to copies of

GLG’s reports, press releases, public filings, and other statements alleged by Lead Plaintiffs and

the Class to be misleading prior to and/or shortly after these statements were issued and the

ability to prevent the issuance of the statements or cause the statements to be corrected.

203. By virtue of their positions as controlling persons of GLG and as a result of their

own aforementioned conduct, the Section 20(a) Defendants named in this Count are liable

pursuant to Section 20(a) of the Exchange Act, jointly and severally with, and to the same extent

as the Company is liable under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated

thereunder, to Lead Plaintiffs and the other members of the Class who purchased or otherwise

acquired GLG common stock. Moreover, as detailed above, during the Class Period the Section

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20(a) Defendants served as officers of GLG and each of these Defendants is culpable for the

material misstatements and omissions made by GLG, including such misstatements in the

Company’s press releases, Forms 40-F, and Forms 6-K and exhibits attached thereto.

204. As a direct and proximate result of the Section 20(a) Defendants’ conduct, Lead

Plaintiffs and the other members of the Class suffered damages in connection with their purchase

or acquisition of GLG securities.

XVI. PRAYER FOR RELIEF

WHEREFORE, Lead Plaintiffs on behalf of themselves and the Class, pray for relief and

judgment including:

A. Determining that Counts I and II of this action is a proper class action under

Federal Rules of Civil Procedure 23, certifying Lead Plaintiffs as Class representatives under

Rule 23 of the Federal Rules of Civil Procedure, and certifying Lead Plaintiffs’ counsel as Lead

Counsel;

B. Awarding compensatory damages in favor of Lead Plaintiffs and the other Class

members against all Defendants, jointly and severally, for all damages sustained as a result of

Defendants’ wrongdoing, in an amount to be determined at trial, including pre-judgment and

post-judgment interest, as allowed by law;

C. Awarding extraordinary, equitable and/or injunctive relief as permitted by law

(including, but not limited to, rescission);

D. Awarding Lead Plaintiffs and the Class their costs and expenses incurred in this

action, including reasonable counsel fees and expert fees; and

E. Awarding such other and further relief as may be just and proper.

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XVII. JURY TRIAL DEMANDED

Lead Plaintiffs hereby demand a trial by jury on all triable claims.

Dated: New York, New York March 15, 2013

FARUQI & FARUQI, LLP

Richard W. Gonnello Francis P. McConville Steven Bentsianov 369 Lexington Avenue, 10th Floor New York, NY 10017 Tel: (212) 983-9330 Fax: (212) 983-9331 E-mail: [email protected]

[email protected]

Counsel For Lead Plaintiffs

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CERTIFICATE OF SERVICE

I hereby certify that on March 15, 2013, I caused a true and correct copy of the foregoing

AMENDED CONSOLIDATED SECURITIES CLASS ACTION COMPLAINT to be served

upon all defense counsel listed below via First Class Mail, postage pre-paid and via Electronic

Mail:

Andrew Ramiro Escobar DLA Piper LLP 701 Fifth Avenue, Suite 7000 Seattle, WA 98104

Steliman Keehnel DLA Piper LLP 701 Fifth Avenue, Suite 7000 Seattle, WA 98104

Tyson K. Harper DLA Piper LLP 701 Fifth Avenue, Suite 7000 Seattle, WA 98104

Timothy H. Birnbaum DLA Piper LLP 1251 Avenue of The Americas New York, NY 10020

Keara M. Gordon DLA Piper LU' 1251 Avenue of The Americas New York, NY 10020

By: ~f &---

In re: GLG Life Tech Corporation Securities Litigation 11...

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