In Re Ocean Power Technologies, Inc. Securities...

Case 3:14-cv-03799-FLW-LHG Document 61 Filed 10/09/15 of 117 PageID: 1918

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

IN RE OCEAN POWER TECHNOLOGIES, INC. SECURITIES LITIGATION

Civil Action No. 14-3799 (FLW) THIS DOCUMENT RELATES TO:

(LHG)

ALL ACTIONS CLASS ACTION

THIRD AMENDED CLASS ACTION COMPLAINT


TABLE OF CONTENTS

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

II. JURISDICTION AND VENUE......................................................................5

III. THE PARTIES ................................................................................................ 6

A. Lead Plaintiff ........................................................................................... 6

B. The Defendants ........................................................................................ 6

IV. FACTUAL BACKGROUND..........................................................................9

A. Ocean Power’s Background.....................................................................9

B. The PowerBuoy Technology ................................................................. 10

C. The Beginning of the Wave Project: The Funding Deed ...................... 14

D. The Wave Project...................................................................................17

E. Lockheed Martin Enters Into the Teaming Agreement ......................... 19

F. VWP Obtains a Variation to the Funding Deed .................................... 19

G. Ocean Power’s Follow-On Offering ...................................................... 22

H. Roth Capital’s, Ocean Power’s, and Dunleavy’s Offer to Sell Securities to Lead Plaintiff and the Other Purchasers in the Follow-On Offering..................................................................................................23

I. Dunleavy Is Fired, the Funding Deed Is Terminated, and the Truth Emerges..................................................................................................25

V. THE CONFIDENTIAL WITNESSES .......................................................... 29

A. Confidential Witness No. 1 .................................................................... 29

B. Confidential Witness No. 2 .................................................................... 33

C. Confidential Witness No. 3 .................................................................... 35

D. Confidential Witness No. 4 .................................................................... 38

E. Confidential Witness No. 5 .................................................................... 39

F. Confidential Witness No. 6 .................................................................... 41

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G. Confidential Witness No. 7 .................................................................... 41

VI. CLAIMS FOR RELIEF UNDER THE SECURITIES ACT ........................ 42

A. Introduction ............................................................................................ 42

B. The False and Misleading Statements in the Prospectus in Violation of theSecurities Act ................................................................................... 45

1. July 12, 2013—Form 10-K ....................................................... 45

2. September 13, 2013—Form 10-Q ............................................ 53

3. December 13, 2013—Form 10-Q ............................................. 58

4. March 14, 2014—Form 10-Q ................................................... 64

COUNTI ....................................................................................................... 69

COUNTII ...................................................................................................... 71

VII. CLAIMS FOR RELIEF UNDER THE EXCHANGE ACT ......................... 73

A. Introduction ............................................................................................ 73

B. Defendants’ False and Misleading Statements in Violation of the ExchangeAct ......................................................................................... 74

1. January 14, 2014—Press Release ............................................. 74

2. February 25, 2014—Wave Project Newsletter.........................79

3. March 14, 2014—Conference Call ........................................... 84

4. March 14, 2014—Form 10-Q ................................................... 87

C. The Truth Emerges ................................................................................ 92

1. June 10, 2014—Dunleavy Is Fired and Ocean Power Announces a Special Investigation ........................................... 92

2. July 14, 2014—Ocean Power Terminates the Wave Project .... 93

3. July 29, 2014—Ocean Power Admits Material Misrepresentations .................................................................... 95

4. July 29, 2014—Ocean Power Reveals Technology Failure ..... 96

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5. August 4, 2014—The PB500 Program is Discontinued ........... 99

D. Additional Allegations Demonstrating Defendants Dunleavy and Ocean Power Acted with Scienter ..................................................................100

E. Reliance Allegations in Support of Exchange Act Violations ............102

F. Loss Causation/Economic Loss...........................................................104

G. The PSLRA Safe Harbor Is Not Applicable ........................................105

COUNTIII ...................................................................................................106

COUNTIV ..................................................................................................108

VIII. CLASS ALLEGATIONS FOR EXCHANGE ACT COUNTS AND SECURITIES ACT COUNTS.....................................................................110

IX. PRAYER FOR RELIEF ..............................................................................112

X. JURY DEMAND .........................................................................................113

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Lead Plaintiff Five More Special Situations Fund Ltd. (“Lead Plaintiff”), by its

undersigned attorneys, alleges in this Third Amended Class Action Complaint (the

“Complaint”) the following upon personal knowledge with respect to its own acts,

and upon facts obtained through an investigation by its attorneys and review of

documents and materials including but not limited to: (a) relevant filings made by

Ocean Power Technologies, Inc. (“Ocean Power” or the “Company”) with the

United States Securities and Exchange Commission (the “SEC”); (b) public

documents, conference calls, and press releases; (c) research analysts’ reports

concerning the Company; and (d) interviews of confidential witnesses (“CWs”)

with personal knowledge of relevant facts. Lead Plaintiff believes that further

substantial evidentiary exists for the allegations set forth herein after a reasonable

opportunity for discovery. Certain facts supporting the allegations contained

herein are known only to the defendants or are exclusively within their control.

I. NATURE OF THE ACTION

1. Investors in Ocean Power sustained significant losses due to the

defendants’ misrepresentations and/or omissions in violation of the federal securities

laws. The defendants’ misrepresentations and/or omissions concerned the Company’s

core products—known as PowerBuoys—which were designed to generate and collect

electricity from the motion of waves in the ocean.

2. Between January 2014 and June 2014, Ocean Power and its former

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Chief Executive Officer and Chairman, Charles Dunleavy (“Dunleavy”), issued a

number of materially misleading statements concerning the capabilities of the

PowerBuoy. These statements falsely represented that the PowerBuoy was

developed, ready for deployment, and capable of producing specific amounts of

energy at competitive costs ( i.e. , 65 megawatts of electricity for up to 10,000 homes at

a cost of $0.10 per kilowatt hour).

3. These statements were materially misleading. In reality, the PowerBuoy

technology was not even close to being fully developed and in no way ready for

deployment. According to the Company’s former Chief Financial Officer (“CFO”),

the PowerBuoy “technology was not where it was supposed to be” considering the

statements being made by Dunleavy at the time—Ocean Power’s statements

concerning the PowerBuoy’s capabilities were a “hope” without any substantive

support. Ocean Power’s former Director of Engineering concurred, stating that the

amount of energy Ocean Power claimed it could produce at the quoted prices was

“fundamentally impossible.”

4. Indeed, in 2011 the Company launched its flagship Mark 3 PowerBuoy

(PB150) off the northern coast of Scotland (the “Scotland Project”). In a press release

dated May 9, 2011, Dunleavy and Ocean Power told investors that the Scotland

Project was expected to last up to three months and, to date, had produced power “as

planned, and [was] consistent with the test protocols and [Ocean Power’s] predictive

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models for the wave environment experienced.” According to Dunleavy and Ocean

Power, the Scotland Project “validate[d]” the Company’s PowerBuoy technology.

While the Company represented to investors that the PowerBuoy exceeded its

expectations, former employees of the Company confirm that the PowerBuoy was

virtually non-operational throughout the entire time it was in the water. Ocean

Power’s former Director of Engineering regarded the Scotland launch as a complete

“embarrassment.” The PowerBuoy was operational for approximately 2 weeks,

during which time it worked properly for only two hours.

5. Ocean Power was a company in dire need of financial assistance. The

Company’s only means of financing was through the success of its PowerBuoy

technology. Ocean Power’s main source of revenue was its highly publicized joint

venture agreement with the Australian government (the “Wave Project”). The Wave

Project provided Ocean Power with A$66.5 million in financing if Ocean Power

could satisfy certain development and financing milestone requirements. In other

words, without the outward appearance of a successful product, Ocean Power was

incapable of generating revenue.

6. Ocean Power’s Wave Project with the Australian government required

Ocean Power to construct a utility scale grid-connected PowerBuoy farm of forty-five

PowerBuoys. According to Ocean Power and Dunleavy, the Wave Project would

produce maximum power of approximately 65 megawatts which would produce

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power for up to 10,000 local residents. Ocean Power materially misled investors to

believe that it would be able to meet its milestone requirements and, in turn, earn

revenue from the A$66.5 million grant from the Australian government. Meanwhile,

the Wave Project was based squarely on the viability of the Mark 3 (PB 150)

PowerBuoy (which unbeknownst to investors had failed in epic proportions in

Scotland) and a larger scaled PowerBuoy known as the Mark 4 (PB 500) PowerBuoy

(which, according to Ocean Power’s former CFO, was “conceptual” at best and in no

way ready to be produced at commercial levels).

7. Ocean Power kept investors in the dark about the true state of the

PowerBuoy technology until June 2014, when the Company announced that its prior

statements should no longer be relied upon. At the same time, the Company

announced that its Board of Directors had decided to conduct a special internal

investigation into the factual basis for Dunleavy’s and the Company’s past statements.

This investigation resulted in the Company’s decision to terminate Dunleavy “for

cause,” cancel the Wave Project, repay A$5.6 million to the Australian government,

and abandon the PowerBuoy technology at issue in this lawsuit. Ocean Power’s stock

price in the interim dropped from a high of $5.45 per share on March 11, 2014 to

$1.23 per share on August 4, 2014. Ocean Power’s stock currently trades at

approximately $0.50 per share. Ocean Power investors have lost millions of dollars.

8. Lead Plaintiff brings this action to recover the millions of dollars of

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losses incurred by Ocean Power shareholders as a result of the defendants’ materially

false and misleading statements and/or omissions. This Complaint asserts claims

under Sections 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”)

and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange

Act”). Lead Plaintiff’s Securities Act claims assert allegations of negligence and strict

liability while the Exchange Act claims are premised in fraud, intentional

wrongdoing, and severe recklessness.

II. JURISDICTION AND VENUE

9. The claims asserted herein arise under and pursuant to Sections 12(a),

and 15 of the Securities Act (15 U.S.C. §§77l(a), and 77o(a)) and Sections 10(b)

and 20(a) of the Exchange Act (15 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5

promulgated thereunder by the SEC (17 C.F.R. §240.10b-5).

10. This Court has jurisdiction over the subject matter of this action

pursuant to 28 U.S.C. §1331, Section 22 of the Securities Act (15 U.S.C. § 77v),

and Section 27 of the Exchange Act (15 U.S.C. §78aa).

11. Venue is proper in this District pursuant to Section 22 of the

Securities Act, Section 27 of the Exchange Act, and 28 U.S.C. §1391(b) because

the Company’s headquarters are located in this District and certain of the acts

alleged in this Complaint occurred in this District.

12. In connection with the acts, conduct and other wrongs alleged in this

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Complaint, the defendants, directly or indirectly, used the means and

instrumentalities of interstate commerce, including but not limited to, the United

States mail, interstate telephone communications and the facilities of the national

securities exchange.

III. THE PARTIES

A. Lead Plaintiff

13. On March 17, 2015, this Court appointed FiveMore Special Situations

Fund Ltd. to serve as Lead Plaintiff for the Class in this consolidated class action

pursuant to the Private Securities Litigation Reform Act of 1995 (“PSLRA”). Lead

Plaintiff’s transactions in Ocean Power securities during the Class Period are set

forth in the PSLRA certification previously filed in this proceeding.

B. The Defendants

14. Defendant Ocean Power is a Delaware corporation with its

headquarters at 1590 Reed Road, Pennington, New Jersey 08534. The Company

develops and commercializes proprietary systems that generate electricity by

harnessing the renewable energy of ocean waves. It offers utility scale PowerBuoy

system to supply electricity to a local or regional electric power grid, and

autonomous PowerBuoy systems designed to generate power for use independent

of the power grid in remote locations. The company sells its products to public

utilities, independent power producers, and other governmental entities and

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agencies, as well as public and private entities that use electricity in and near the

ocean. Ocean Power was incorporated in 1984. The Company’s stock trades on

NASDAQ under the ticker symbol “OPTT”.

15. Defendant Charles F. Dunleavy (“Dunleavy”) served as the

Company’s Chairman of the Board from 2011, and as Chief Executive Officer

(“CEO”) from January 2010 until the Company’s Board of Directors terminated

his employment “for cause” effective June 9, 2014. Defendant Dunleavy served as

a member of the Company’s Board since 1990 until July 28, 2014, when he sent a

letter of resignation due to the Board’s termination of his employment for cause.

Prior to his appointment as CEO, he served as the Company’s CFO and Senior

Vice President since 2001 and as a director and as Treasurer and Secretary since

1990. From 1993 to 2001, Mr. Dunleavy served as the Company’s Vice President

of Finance.

16. Defendant Dunleavy signed or authorized the signing of the

Company’s Form S-3 Registration Statement filed with the SEC on January 24,

2013 and authorized the filing of the Prospectus with the SEC.

17. Specifically, Dunleavy:

a) directly participated in the management of the Company,

including participation in bi-weekly executive level meetings

and periodic one-on-one meetings with senior executives, and

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one-on-one meetings with senior engineers at the Company

involved with the technology utilized in the Project;

b) was directly involved in the day-to-day operations of the

Company at the highest levels;

c) was privy to confidential proprietary information concerning

the Company and its business and operations;

d) was directly or indirectly involved in drafting, producing,

reviewing and/or disseminating the false and misleading

statements and information alleged herein;

e) was directly or indirectly involved in the oversight or

implementation of the Company’s internal controls;

f) was aware of or deliberately and recklessly disregarded the fact

that false and misleading statements were being issued

concerning the Company; and/or

g) approved or ratified false and misleading statements in

violation of the federal securities laws.

18. Defendant Roth Capital Partners, LLC (“Roth Capital”) was the sole

manager, underwriter of the Follow-On Offering. Roth Capital was allocated the

full 3.8 million shares to be sold in the Follow-On Offering, and also granted a 30-

day option to acquire an additional 570,000 shares to cover allotments in

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connection with the Follow-On Offering. As underwriter to the Follow-On

Offering, Roth Capital purchased the shares to be sold in the offering from the

Company and then sold them to the public. Roth Capital assisted in the

preparation and dissemination of the Prospectus. As an underwriter of the Follow-

On Offering, Roth Capital was responsible for ensuring the truthfulness and

accuracy of the various statements contained in or incorporated by reference into

the Prospectus. Roth Capital maintains its principal executive offices in Newport

Beach, California.

19. Defendants Ocean Power, Dunleavy, and Roth Capital are collectively

referred to as “Defendants”.

IV. FACTUAL BACKGROUND

A. Ocean Power’s Background

20. Ocean Power was founded in 1984 by George W. Taylor and the late

Dr. Joseph R. Burns in Princeton, New Jersey. Since that time, the Company has

focused on cost effective and environmentally sound ocean wave based power

generation and management technology. The Company operated as a privately

held company until it completed its initial public offering in April 2007, issuing 5

million shares.

21. The Company markets and sells its products in the United States and

internationally. Ocean Power has been involved in projects utilizing PowerBuoys

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in the following areas: Oregon, Spain, Scotland, Hawaii, New Jersey, and

Australia.

B. The PowerBuoy Technology

22. The primary product of the Company is its development and

deployment of its PowerBuoy® technology.

23. The PowerBuoy is based on a modular, ocean-going buoy, where the

rising and the falling of the waves moves the buoy-like structure, harnessing the

mechanical energy that is converted into electricity by Ocean Power’s propriety

technologies.

24. The following illustration and the Company’s explanatory note

describes the function of the PowerBuoy:

How the PowerBuoy Works

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The PowerBuoy consists of a float, spar, and heave plate as shown in the schematic [above]. The float moves up and down the spar in response to the motion of the waves. The heave plate maintains the spar in a relatively stationary position. The relative motion of the float with respect to the spar drives a mechanical system contained in the spar that converts the linear motion of the float into a rotary one. The rotary motion drives electrical generators that produce electricity for the payload or for export to nearby marine applications using a submarine electrical cable. This high performance wave energy conversion system generates power even in moderate wave environments.

The PowerBuoy’s power conversion and control systems provide continuous power for these applications under the most challenging marine conditions. The spar contains space for additional battery capacity if required to ensure power is provided to a given application even under extended no wave conditions.

25. At all relevant times, the Company was focused on the development

of two separate product lines, autonomous PowerBuoy systems and utility

PowerBuoy systems. The autonomous PowerBuoy systems were designed to

generate power for uses independent of the power grid in remote locations. The

primary model of the PowerBuoy being developed for autonomous use is the APB-

350. The APB 350 incorporates a distinct power take off system and include an

onboard system for energy storage and management compared to the Company’s

larger utility PowerBuoys. The Company represented that it expects potential

applications potential uses for autonomous PowerBuoy systems in homeland

security, offshore oil and gas platforms, aquaculture, and ocean-based

communication and data gathering.

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26. The Company’s other product line is its utility PowerBuoy system.

Company filings with the SEC represented the utility PowerBuoy system as

“capable of supplying electricity to a local or regional electric power grid.” The

Company intended to sell its utility PowerBuoy system to utilities and other

electric power producers. The utility PowerBuoy system was to be deployed in the

Project.

27. The utility PowerBuoy system could be deployed as one stand-alone

PowerBuoy or an integrated array of PowerBuoys. An array of the utility

PowerBuoys was designed to be deployed in a wave farm whereby multiple utility

PowerBuoys would connect to Ocean Power’s proprietary “Undersea Substation

Pod” where the energy generated by these PowerBuoys would be aggregated. The

UnderSea Substation Pod would then deliver this energy to the shore-based grid

via an undersea transmission cable. The following is the Company’s rendition of a

utility PowerBuoy system:

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- 7

-I

-

Float ______

Cables from other Spar

PowerBuoys

Under Sea Sub Station

Heave Plate .1

Cable to Sea Floor Shore

28. The Company’s utility PowerBuoys were comprised of two separate

models, the PB150 and the PB500. The PB150, or the Mark 3 PowerBuoy, was

the Company’s 150kW-rated PowerBuoy which was represented to be able to drive

a peak-rated generator with a maximum output of 866 kilowatts. The PB150 was

also slated to be deployed in other of the Company’s projects, including the Wave

Project. Until the Company’s next-generation PowerBuoy the PB500 was

operational, the PB150 was the Company’s model for utility-grade installations.

29. The second utility-scale PowerBuoy was the Company’s PB500, or

the Mark 4 PowerBuoy. The PB500 was to be the Company’s next-generation

utility PowerBuoy designed to be a 500kw-rated PowerBuoy and was planned to

drive a peak-rated generation with a maximum output of 2,400kW. The Company

had been developing the PB500 since at least late 2010. However, unlike the

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PB150, the PB500 never left the design phase and was never deployed in a project.

The PB500 was to be the most prevalent PowerBuoy deployed as part of the Wave

Project.

30. Ultimately, neither the PB150 nor the PB500 would become fully

operational. On July 29, 2014 and again on August 4, 2014, the Company

announced that the PB500 was neither “technically feasible” nor “commercially

viable.” Furthermore, the Company announced that it was abandoning the

development and production of the PB150 and PB500 to focus on smaller scale

devices.

C. The Beginning of the Wave Project: The Funding Deed

31. In December 2008, Ocean Power announced that it entered into a

Joint Development Agreement with Leighton Contractors Pty Ltd. (“Leighton”), a

wholly owned subsidiary of Leighton Holding Limited, for the development of

wave-generated power projects off the coast of Australia.

32. Seeking to develop alternative energy sources for power generation in

Australia, Australia’s Department of Resources, Energy and Tourism (“DRET”)

designed the Renewable Energy Demonstration Program with the objective of

accelerating “the commercialization and deployment of new renewable energy

technologies for power generation in Australia by assisting the demonstration of

these technologies on a commercial scale . . . .”

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33. In 2009, Leighton formed Victoria Wave Partners Pty Ltd. (the

“Victoria Wave Partners” or “VWP”) for the purpose of developing the Wave

Project off the coast of Victoria, Australia.

34. On September 9, 2010, VWP was awarded the Project by DRET. On

this date, VWP and the Australian government signed the Renewable Energy

Demonstration Program Funding Deed (the “Funding Deed”), a copy of which was

attached to the Company’s Form 8-K dated July 14, 2014. At the time the Funding

Deed was entered into, VWP was jointly owned by Leighton and Ocean Power

Technologies Australasia Pty. Ltd. (“Ocean Power Australasia”). Ocean Power

Australasia is a subsidiary of Ocean Power and is a joint venture between Ocean

Power, with an eighty-eight percent (88%) ownership interest, and Woodside

Energy Ltd. with a twelve percent (12%) ownership interest. Subject to the terms

and certain milestones contained in the Funding Deed, VWP was awarded A$66.46

million to develop the project, which was to be constructed near the city of

Portland, Victoria, on the southeastern coast of Australia. This location was

chosen because it purportedly has the right conditions as a good wave power

generating site and is relatively close to a major population center where the

energy can be transmitted to the local grid.

35. The Funding Deed described each of the VWP’s partner’s roles,

describing Leighton as the “[e]ngineering, procurement and construction

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contractor” and Ocean Power Australasia as the “[t]ecnical provider.” Dunleavy,

during the Company’s March 14, 2011 earnings call with investors further

highlighted Leighton’s important role in the project discussing that the Funding

Deed was “conditional on the attainment of the balance of funding needed for the

project, the procurement of which is being undertaken by Leighton.”

36. More specifically, as stated on the website,

“http://victoriawaveproject.com/au/ ” created by Ocean Power, viewed as of July 1,

2014, “the [A$66.5 million for the Project] is subject to [the] Funding Deed, which

sets out terms of the grant including funding milestones that require significant

additional funding to enable receipt of grant funds and the completion of the

project.” Ocean Power at this time was not responsible for obtaining the funding

for the Wave Project, but rather was only responsible for the technical aspects of

the Project.

37. In March 2012, Ocean Power Australasia acquired 100% ownership

of VWP from Leighton via a share sale agreement dated March 30, 2012.

Although upon information and belief the purchase price was never publicly

disclosed, Leighton sold its ownership stake in VWP for a nominal fee.

38. After acquiring Leighton’s ownership stake in VWP, Ocean Power

now was entirely responsible for both the technical aspects of the Project as well as

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the procurement of the additional funding necessary to receive money under the

Funding Deed. The Project’s projected costs were estimated at A$232 million.

39. Thus, in order to raise the additional amount, Ocean Power would

have to demonstrate to investors and to the Australian government that the

technology of its PowerBuoy was economically viable and technologically capable

of producing the stated energy outputs.

D. The Wave Project

40. The Funding Deed stated that the Wave Project when complete would

generate an average of 19 megawatts of installed capacity.

41. Ocean Power publicly stated that, when finally operational, the

Project would generate a maximum of 62-megawatts of power, which would

provide power to 10,000 local residents. (September 13, 2013 Investor Conference

Call.)

42. According to the website, “http://victoriawaveproject.com/au/ ”

created by Ocean Power, viewed as of July 1, 2014, the Project was to operate as

follows:

Ocean Power Technologies’ PowerBuoy® wave generation system uses a "smart," ocean-going buoy to capture and convert wave energy into low-cost, clean electricity.

Because energy levels decrease exponentially with increasing depth below the surface, OPT's PowerBuoy® is designed to harvest the ocean's energy where it is at its maximum - at the surface. In addition, the PowerBuoy is a 'smart' system capable of dynamically responding,

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or tuning, to each wave thus enabling the harvest of maximum energy whilst its robust construction can weather large storms. The result is a leading edge, ocean-tested, proprietary system which generates reliable, clean, and environmentally-beneficial electricity.

The rising and falling of the waves offshore causes the buoy to move freely up and down. The resultant mechanical stroking is converted via a sophisticated power take-off to drive an electrical generator. The generated wave power is transmitted ashore via a subsea power cable.

The power station will have a very low "surface profile," and consequently, it will be barely visible from shore. Sensors on the PowerBuoy® continuously monitor the performance of the various subsystems and surrounding ocean environment.

Data is transmitted to shore in real time. In the event of very large (+6.0m) oncoming waves, the system automatically locks up and ceases power production.

When the wave heights return to normal, the system automatically unlocks and recommences energy conversion and transmission of the electrical power ashore.

43. As described by the Funding Deed, the Company, and Dunleavy, the

Project was to proceed in three stages. A presentation posted on the Wave

Project’s website and presented by VWP and Ocean Power Australasia to the

Portland, Australia community described the Project as totaling forty-five (45)

PowerBuoys deployed over three development stages. More specifically, the

presentation described the stages and timeframes for each of the stages as follows:

Stage 1 – 1.5 MW (10 PB150s) – 2013/2014 Stage 2 – 5.0MW (10 PB500s) – 2014/2015 Stage 3 – 12.5 MW (25 PB500s – December 2016

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E. Lockheed Martin Enters Into the Teaming Agreement

44. After the Company’s commencement of work pursuant to the Funding

Deed, Ocean Power sought the financial and technical assistance of Lockheed

Martin Missions Systems and Sensors (“Lockheed Martin”) for the performance

and delivery of certain aspects of the Project.

45. In July 2012, Ocean Power and Lockheed Martin executed a Teaming

Agreement to formalize the relationship between the parties and Lockheed

Martin’s involvement in the Project.

F. VWP Obtains a Variation to the Funding Deed

46. On July 1, 2012, due to legislation passed in Australia, the

administration of projects previously committed to by DRET became the

responsibility of the Australian Renewable Energy Agency (“ARENA”).

Accordingly, the Wave Project became subject to administration by ARENA.

47. On December 3, 2012, VWP contacted ARENA to request, among

other things, a variation to the Funding Deed to restructure aspects of the project,

the project delivery, and to reflect changes in VWP’s ownership structure.

48. Thereafter, on April 2, 2013, ARENA informed VWP that it agreed to

restructure the Wave Project, waive certain condition precedents contained in the

Funding Deed, and enter into a deed of variation (the “Deed of Variation”).

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49. On January 9, 2014, the Deed of Variation became effective. Signing

on behalf of the VWP was Defendant Dunleavy and non-party George Taylor. The

Deed of Variation’s Project Description described the Wave Project as “totalling

19MW (average) 62.5MW (peak) of installed capacity.”

50. On January 14, 2014, the Company announced through a press release

the signing of the Deed of Variation (“January 14, 2014 Press Release”). The

January 14, 2014 Press Release identified certain of the important changes and

perceived effects of the Deed of Variation, stating in relevant part:

Among the important changes included in the new agreement are the incorporation of milestones for each of the three stages of the project, acceleration of reimbursement of eligible expenses for stages one and two, and an increase in the number of milestones to better support project cash flow requirements . This agreement also recognizes the role of Lockheed Martin as the lead for systems integration of the PowerBuoys and overall program management .

Charles F. Dunleavy, Chief Executive Officer of OPT, said, "We are very grateful for the support of the Australian Government and ARENA during this process to make positive changes to the original Funding Deed. This new agreement significantly improves our ability to attract investors during the early stages of the project. We are also pleased to offer the prospect of manufacturing, engineering and maritime jobs in Victoria based on OPT's unique and game-changing technology, at a time when more traditional manufacturing jobs are experiencing enhanced competitive pressures. We have been impressed with the commercial and results-oriented way in which ARENA has worked with us after assuming responsibility for a wide range of projects and programs last year."

(Emphasis added).

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51. Furthermore, the January 14, 2014 Press Release announced that the

Wave Project would be employing “twenty-eight PowerBuoys connected to the

grid by an underwater substation and a submarine cable [that] plant would be

capable of providing power for up to 10,000 homes.” Thus, the Company

effectively confirmed that the Wave Project would employ only 28 PowerBuoys,

but that these 28 PowerBuoys would produce the same 19MW average (62.5 MW

peak) output as the 45 PowerBuoys planned to be deployed under the Funding

Deed.

52. The Deed of Variation contained a chart comparing the number of

PowerBuoys and their outputs pursuant to the deployment stages under the

Funding Deed to the deployment stages of the Deed of Variation. However, this

chart was heavily redacted as the company requested confidential treatment of this

information from the SEC. Nonetheless, the chart along with other information

contained within the Deed of Variation disclosed that the Wave Project would be

deploying three of the Mark 3.3 (PB150) PowerBuoys in the first stage, seven of

the Mark 4.1 (PB500) PowerBuoys in the second stage, and eighteen of the Mark

4.2 (PB500) PowerBuoys in the third stage.

53. Based on the original deployment stages under the Funding Deed and

the new deployment stages under the Deed of Variation, the Wave Project

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depended upon the ability of the Company to design, manufacture and deploy the

PB500 (Mark 4) to achieve the necessary outputs for the Wave Project.

54. The Company never described to the market, however, its reasoning

for decreasing the number of PowerBuoys to be deployed in the Project, or how

only 28 PowerBuoys could generate the same output as the initial 45 PowerBuoys.

55. In fact, the Company was sending conflicting signals into the market

regarding the number of PowerBuoys to be deployed, as Ocean Power’s website as

of August 17, 2014 (after the Class Period) still contained a description of the

Project describing the deployment of

forty-five PowerBuoys.

(www.oceanpowertechnolgies.com/portland.html).

56. Nonetheless, as a result of entering into the Deed of Variation, in

March 2014, the Company received the initial portion of a grant from ARENA in

the amount of A$5.6 million which the Company announced via a Form 8-K and a

press release issued on April 1, 2014.

G. Ocean Power’s Follow-On Offering

57. On January 24, 2013, the Company filed a Form S-3 with the SEC

(“Form S-3”). The Form S-3 registered the sale of up to $40,000,000 of debt,

equity and other securities of the Company. In February 2013, the Form S-3 was

declared effective by the SEC. The Company relied upon the Form S-3 “shelf”

registration to conduct the Follow-On Offering.

22


58. Just prior to the receipt of funding under the Deed of Variation, the

Follow-On Offering was conducted pursuant to the Registration Statement and

Prospectus filed with the SEC on April 4, 2014. The date of the Follow-On

Offering, April 4, 2014, was the “effective date” of the Registration Statement.

The Follow-On Offering offered to the public 3,800,000 shares of the Company’s

common stock at a price of $3.10 per share.

59. Roth Capital acted the sole manager and underwriter of the Follow-On

Offering. Roth Capital was allocated the full 3.8 million shares to be sold in the

Follow-On Offering, and also granted a 30-day option to acquire an additional

570,000 shares to cover allotments in connection with the Follow-On Offering.

60. On April 10, 2014, the Company filed a Form 8-K with the SEC

announcing that the Company completed its Follow-On Offering and received

approximately $10.8 million in net proceeds.

H. Roth Capital’s, Ocean Power’s, and Dunleavy’s Offer to Sell Securities to Lead Plaintiff and the Other Purchasers in the Follow-On Offering

61. Roth Capital approached Lead Plaintiff in or around March 2014 to

introduce Ocean Power to Lead Plaintiff as a new investment. At Roth Capital's

suggestion, Lead Plaintiff agreed to participate in an investor conference call with

Ocean Power and its senior executive management to discuss the possibility of

investing in the Company.

23


62. Ocean Power held an investor conference call with Lead Plaintiff on

March 31, 2014 in advance of the Follow-On Offering (the "Follow-On Offering

Conference Call"). The purpose of the Follow-On Offering Conference Call was

to educate Lead Plaintiff as to the Company's operations and technology as well as

influence Lead Plaintiff to participate in the Follow-On Offering through the

purchase of Ocean Power securities.

63. The Follow-On Offering Conference Call lasted approximately 45

minutes to one hour. Defendant Dunleavy and non-party Mark Featherstone

participated in the call on behalf of the Company. During the call, Dunleavy

discussed a number of matters relating to the Company. Specifically, Dunleavy

discussed the Company's wave power technology, expected energy output from the

wave power technology, and the economic competitiveness of the power produced

by the Company's wave power technology. In response to questioning from Lead

Plaintiff, Dunleavy also discussed the Company's strategic partnerships with

Woodside Energy and Mitsui. Ocean Power provided Lead Plaintiff with a slide

presentation during the Follow-On Offering Conference Call. The slide

presentation was distributed via Netroadshow (an online webcast tool designed to

prevent unauthorized dissemination of confidential corporate information).

64. Ocean Power and Dunleavy participated directly in the sale and

promotion of Ocean Power securities for the purpose of the Follow-On

24


Offering. Upon information and belief, Ocean Power, Dunleavy, and other

members of Ocean Power’s senior executive management held similar conference

calls in sum and substance to the Follow-On Offering Conference Call with all

participants in the Follow-On Offering.

65. As a result of Roth Capital’s, Ocean Power’s, and Dunleavy’s offer to

sell securities to Lead Plaintiff in the Follow-On Offering, Lead Plaintiff purchased

Ocean Power securities in the Follow-On Offering directly from Roth Capital and

received trade confirmations stating that “FOLLOW-ON OFFERING

PROSPECTUS AVAILABLE WWW.SEC.GOV AS CONFIRMED THRU THE

ID SYSTEM. WE ACTED AS PRINCIPAL.”

I. Dunleavy Is Fired, the Funding Deed Is Terminated, and the Truth Emerges

66. Within a matter of months of the Follow-On Offering, doubts

concerning the viability of the Wave Project began to emerge. On June 10, 2014,

Ocean Power filed a current report on Form 8-K with the SEC that revealed that

Defendant Dunleavy had been terminated “for cause” and that Ocean Power’s

Board had appointed a “Special Committee” to investigate the Company’s

agreement with ARENA concerning the Wave Project.

67. On July 14, 2014, Ocean Power filed a current report on Form 8-K

with the SEC announcing that “VWP’s Board of Directors concluded in July 2014

that the wave power demonstration project contemplated by the Funding Deed was

25


no longer commercially viable” and issued a termination notice that “had

informed ARENA that VWP (i) was stopping all work on the Project, (ii) would

not proceed with the Project, and (iii) would not claim further funding under the

Funding Deed.” (Emphasis added). Furthermore, Ocean Power disclosed that it

intended to repay ARENA the funding given to VWP to date with interest within

30 days of the termination notice.

68. In response to Ocean Power’s revelation, Ocean Power’s stock price

dropped precipitously. On July 14, 2014, Ocean Power’s stock closed at $1.53 per

share. The following day, in response to the above disclosure, Ocean Power’s

stock closed at $1.18 per share on unusually heavy volume.

69. Thereafter, on July 29, 2014, Ocean Power filed a current report on

Form 8-K with the SEC (the “July 2014 Form 8-K”). The July 2014 Form 8-K

advised investors that prior public statements concerning the Wave Project’s

expected energy output or cost competitiveness should not be relied upon. The

July 2014 Form 8-K stated, in pertinent part, as follows:

In consideration of the report from Reed Smith, and in consultation with management, the Special Committee has determined that investors should not rely on some prior public statements from the Company concerning the Project, including statements concerning the ability to provide the expected energy outputs described in the Project and associated statements concerning the economic competitiveness of the cost of electricity from the larger utility-scale PowerBuoys (PB150 and PB500) that were proposed for the project .

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70. Also, on July 29, 2014, Ocean Power also issued a press release (the

“July 2014 Press Release”). The July 2014 Press Release revealed that the

Company’s “basic technology” needed further advancement before OCEAN

POWER could commit to “large-scale utility projects” and, significantly, that it

was abandoning its core product line of the PB150 and PB500 PowerBuoys. The

July 2014 Press Release stated, in pertinent part, as follows:

"Over the last several months, we announced the termination of both the Reedsport, Oregon and Victoria Wave Partners projects. Additionally, we are deferring our WavePort deployment in the European Union into calendar 2015, due to a number of logistics factors, such as the readiness of the proposed deployment site. Furthermore, the summer 2013 deployment of our APB-350 Autonomous PowerBuoy led us to determine that several design modifications to address critical operation and reliability issues were required. Taken as a whole, these results indicate that our basic technology needs further advancement before we commit to large-scale utility projects with typical commercial risk-sharing, even when partially subsidized by government grants,” he noted.

* * *

Strategic Focus on Smaller Scale Devices

The Company has shifted its immediate focus to smaller-scale devices, such as the PB-40, intended to be deployed off the coast of Spain, and the utility scale PowerBuoy, under development with Mitsui Engineering and Shipbuilding, which are suitable for both autonomous and utility applications. OPT recognizes that deployments are critical to technology advancement in order to accumulate successful operating history that demonstrates durability and reliability at acceptable levels of commercial risk-taking. The Company has accumulated a significant body of knowledge through PowerBuoy deployments of varying capabilities

27


which is now an integral part of its engineering design and development processes.

Commenting on the strategic shift from large, utility-scale projects, Mr. Keller noted, "We believe that we can move faster to optimize our technology on smaller-scale power outputs which are more economical to manufacture and deploy than larger buoys."

(Emphasis added).

71. Additionally, on July 29, 2014, the Company filed its annual report on

Form 10-K for the fiscal year ended April 30, 2014 (“2013 Form 10-K”). Within

the 2013 Form 10-K the Company announced that:

In fiscal 2014, upon completion of the concept design and associated trade studies that included detailed mechanical analyses, manufacturability and overall projected performance, the study concluded that a PB500 would not be technically feasible or economically viable. Our development efforts since that time have focused on further optimization of our modular and optimized power takeoff technology.

72. By this point in time, Ocean Power’s stock price had reached an all-

time low of $1.23 per share as of July 29, 2014. The following day on July 30,

2014, Ocean Power’s stock price increased to $1.43 per share, which represented a

73% decline from the intra-class period high of $5.45 per share.

73. Finally, on August 4, 2014, Ocean Power held an investor conference

call to discuss the Company’s year-end financial and operational results for fiscal

2014 (the “August 2014 Conference Call”). During the August 2014 Conference

Call, Ocean Power’s then-interim CEO, David Keller, reiterated that “[f]ollowing

the completion of concept designs and feasibility studies for the PB500

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PowerBuoy, we determined that it was not technically feasible or economically

viable to continue progressing with this design. As a result, we have discontinued

the PB500 program and are focusing our development efforts on the further

optimization of our modular power takeoff technology.”

V. THE CONFIDENTIAL WITNESSES

A. Confidential Witness No. 1

74. Confidential Witness No. 1 (“CW1”) was a Director of Engineering for

Ocean Power from 2006 to September 2012. In this position, CW1 was responsible

for large marine structural designs, high precision mechanical power transmission

systems, and electrical-mechanic system integration. For the last two years of

employment, CW1 reported directly to Ocean Power’s Chief Technology Officer

(“CTO”), who reported directly to CEO Defendant Dunleavy. Additionally, CW1 led

the efforts of trade-off study, cost model development and DFM/DFA to convert the

prototype concepts to mass production design. Based on these positions, CW1 was

significantly and directly involved with the commercialization of the PowerBuoys

used in the Wave Project, was heavily and directly involved in scaling of the

PowerBuoys to be used in the Wave Project, and was directly involved in the

modeling to determine the cost of the energy generated by the Wave Project.

75. CW1 identified systemic problems with the technology. When asked

about the energy outputs and how the overall technology was supposed to work, CW1

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responded, “I fundamentally do not believe in this technology.” The amount of

energy Ocean Power claimed it could produce at the quoted prices was “impossible”

according to CW1.

76. CW1 flatly refuted claims by the Company in its February 2014

newsletter that Ocean Power could generate $0.10 to $0.20 per kilowatt hour of

energy using 400 PowerBuoys. According to CW1, this was “fundamentally

impossible, the power conversion efficiency is generally too low.”

77. During CW1’s tenure at the Company, one of the problems the

Company had revolved around the ability to successfully engineer the sharing of

cables/lines between each PowerBuoy to generate energy. When a wave hits the first

buoy in an oceanic buoy farm (a group of interconnected PowerBuoys), the first buoy

gets the greatest impact of energy from that first wave. As the wave continues its path

to reach the other buoys, the energy of the wave naturally declines as it hits each

PowerBuoy. Therefore, it is very difficult to know what that energy output will be

from one wave to the next. CW1 had a very hard time understanding how the

Company extrapolated numbers to accurately predict the output using 400

PowerBuoys. CW1 stated, “I think top management were not willing to face up to it,

they stretched way too much or were too naïve.”

78. Moreover, CW1 stated, “At the time I was there, they [Ocean Power]

didn't know how to position the buoys in the ocean.” When asked what the specific

30


challenge was to get two buoys working side by side, CW1 replied, “Two was too

many.” CW1 added that for each individual buoy, three lines were needed to anchor

the buoy in the right position and at that time, each buoy was supposed to share the

same line. He explained that for each line, the converted energy from the first line

would depreciate along the other lines to the remaining buoys in the farm. He said,

“To assume 400 buoys are going to function or produce energy is inaccurate.”

79. Emphasizing the difficulty of having many functioning buoys, CW1

states that on a project in Reedsport, Oregon, Ocean Power claimed that it would put

ten or fifteen buoys in the water, but at the time the Company had not even conducted

a feasibility study or any way to demonstrate that it would be successful. Instead,

Ocean Power merely attached a number of photos and tried to “create quite a

delusional picture.”

80. CW1 also confirmed that the power conversion ratios in kilowatt hours

were provided to management on numerous occasions, including Defendant

Dunleavy. CW1 believed that the output numbers provided to management were

consistent with what he knew, “The power conversion efficiency was generally low.”

CW1 also advised that he conveyed the concerns regarding energy outputs and overall

technology challenges to Defendant Dunleavy and CW1’s immediate supervisor,

Philip Hart, the Company’s former Chief Technology Officer and Senior Vice

President. “They didn’t take my message well . . . treated me like I didn’t know what

31


I was talking about.”

81. In addition to the technology itself, Ocean Power’s management was

also problematic. CW1, as Director of Engineering, worked on the Company’s

PowerBuoy project in Scotland in 2010 and 2011. After completing the hydraulic

power system for the PowerBuoy, the design was sent to Parker Hannifin, a

manufacturing company in the United Kingdom, for assembly. After Ocean Power

deployed the PowerBuoy in the North Sea, the PowerBuoy failed. CW1 recalled that

the PowerBuoy was only operational for two days at the most. CW1 said, “Maybe

less than one day [of] power was generated in the ocean.” CW1 added that Ocean

Power decided to keep the PowerBuoy in the ocean after it failed because they were

afraid of the resulting damage to the Company’s image if it had to remove the

PowerBuoy after such a short period of time. CW1 recalled that Ocean Power left the

PowerBuoy in the ocean for several weeks in Scotland. CW1 recalled that the

PowerBuoy failed because the hydraulic system failed due to the seal leaking.

According to CW1, “hydraulics leaked and have low efficiency.” CW1 told

Defendant Dunleavy in 2008 that hydraulic power systems were not a good choice of

technology for the Company. CW1 recalled specifically saying to Dunleavy that,

“You need to make a major change over to direct drive [power systems].”

82. CW1 recalled that Dunleavy disregarded CW1’s opinion until the

Scotland project failed. CW1 recalled that Ocean Power finally adopted the direct

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drive power system during the project in Reedsport, Oregon. The project in

Reedsport, Oregon, however, failed due to mechanical problems, including anchoring

problems.

83. CW1 regarded the Scotland project as a failure. “The only thing I can

say is it was a big failure, they spend I think 15 million and it only operated for one

day or two. It was an embarrassment.” CW1 stated that Ocean Power “never

collected long term data.” CW1 recalled that the PowerBuoy in Hawaii was a direct

drive and had the longest period of collected data, which was approximately three

months in 2010.

B. Confidential Witness No. 2

84. Confidential Witness No. 2 (“CW2”) was the CFO of Ocean Power

from June 2010 until he resigned from the Company on July 2013. CW2 resigned at

the Company because of the general perception of the Company’s future, and because

CW2 believed that Defendant Dunleavy was ill-equipped for the position of CEO.

CW2 reported directly to Defendant Dunleavy.

85. CW2 stated that Ocean Power paid only $1 or $2 to purchase ownership

of the Wave Project from Leighton Energy (“Leighton”). As to the PowerBuoys,

CW2 confirmed that the technology was incomplete: the Company had one PB150

deployed in Scotland (which never fully functioned according to the statements of

CW1 above and CW3 below); Ocean Power never successfully deployed a buoy in

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Reedsport, Oregon; and Ocean Power had never successfully completed an array of

buoys attached to substation pod and power grid. CW2 noted that the Wave Project

was based on products whose “technology was not where it was supposed to be.”

86. As to the cost projections, CW2’s statements corroborate the statements

of CW1, stating that the projections for the Wave Project were based on a product, the

PB150, that did not exist in commercially viable form but was still in an experimental

phase. Regarding the PB500, internally there was not even a consensus as to its

design (i.e. whether it would be a new buoy design or an upgrade on the PB150). At

the time of CW2’s resignation, the PB500 was still “conceptual.” Therefore, Ocean

Power’s statements concerning the Wave Project’s output were a “hope” but

otherwise unsubstantiated.

87. CW2 explained that Lockheed’s entrance into the joint venture gave the

Wave Project credibility and was the only feasible way for the Company to obtain

outside financing. However, CW2 states that Lockheed did not actually invest or put

any equity in the Project; rather, they performed certain tasks for free.

88. CW2 confirmed that Defendant Dunleavy was heavily and directly

involved in every aspect of the Wave Project. CW2 attended a variety of meetings

usually involving Defendant Dunleavy: weekly one-on-one meetings, quarterly audit

committee meetings, quarterly board meetings, and weekly staff meetings. CW2

explained that Defendant Dunleavy preferred to “silo” his employees, and even

34


attempted to prevent his employees from talking to one another. CW2 explained that

Defendant Dunleavy was a “micromanager” and “not a hands-off CEO,” so a one

hour meeting would often run to three hours. CW2 also confirmed that Defendant

Dunleavy had one-on-one meetings with Mike Mekhiche (Vice President,

Engineering), who would review with Defendant Dunleavy in detail all the

engineering that went into the PowerBuoy systems.

89. The audit committee meetings were held on a quarterly basis and were

attended by Defendant Dunleavy, CW2, Ocean Power’s controller, and the Audit

Committee members.

90. Ocean Power held Board of Directors meetings every quarter, which

were attended by Defendant Dunleavy, CW2 and Mr. Mekhiche. During the

meetings Mr. Mekhiche would provide technology updates to those present at the

meetings. Mekhiche’s technology updates discussed: problems deploying buoys;

LCOE (levelized cost of energy) data; testing of the PowerBuoys’ power take-off

(PTO) function; and the “very preliminary” status of the PB500 technology.

91. Additionally, Defendant Dunleavy held staff meetings every Friday,

which consisted of reviewing open items that needed to be dealt with by Defendant

Dunleavy, i.e. a “to-do list for Dunleavy.”

C. Confidential Witness No. 3

92. Confidential Witness No. 3 (“CW3”) was the managing director of a

35


consulting company hired by Ocean Power to manage business development for

Ocean Power from August 2012 to February 2013. CW3 oversaw marketing,

communications, public, government, regulatory and legal affairs departments at

Ocean Power.

93. In August 2012 Ocean Power was given a license by the U.S. Federal

Energy Regulatory Commission (“FERC”) for the Company’s project in Reedsport,

Oregon. The Company held a meeting in February 2013 to discuss the delay in

meeting certain requirements. During the meeting, George Taylor explained the

reason for the delay to FERC was due to “financial challenges, in 2012 we had to let

go of 20% of our workforce.” The reality, according to CW3, was that 11 employees

of Ocean Power left the Company voluntarily; they were not “let go.” CW3

approached Defendant Dunleavy about the comment to FERC and Defendant

Dunleavy appeared “to take affront to it,” and CW3 was terminated the following

week.

94. In September 2012, CW3 attended the Oregon Wave Energy

Conference (“OWEC”) in Oregon. CW3 recalled that Defendant Dunleavy declined

to appear at the conference himself, but instead sent former Senior Vice President and

Chief Technology Officer Phil Hart to speak in his place. According to CW3, the

Reedsport Oregon project was a follow-up project to the Scotland project. The

PowerBuoy in Oregon used a direct drive train mechanism for operation, whereas the

36


Scotland PowerBuoy used hydraulics. During the Oregon conference, Dunleavy

spoke with CW3 on the phone concerning the delay of the Oregon project. CW3

knew from an operational standpoint that the optimal weather window for PowerBuoy

deployment was diminishing which would push back deployment another 5-6 months,

until the Spring of 2013. CW3 explained that in order for data to be collected and

properly analyzed, a buoy needed to be deployed and operational for at least one year,

which would push back potential contracts to Spring of 2014. According to CW3,

companies use the collected data over that period of time to make contract decisions

for purchasing outputted energy from the PowerBuoy devices. CW3 also realized that

state and federal funding were in place for the PowerBuoy in Oregon and, if delays

were occurring, additional material costs were going be incurred for storage. CW3

described those costs as significant and recalled Dunleavy being hesitant about issuing

a press release about the delay.

95. After OWEC, CW3 went back to OPTT in September of 2012 and

recalled speaking with engineers about the issues in Oregon, which confirmed that

operational data would not be collected. CW3 also spoke with Mr. Hart regarding

certain statements made by Dunleavy to CW3 in which he claimed that the

PowerBuoy deployed in the Scotland Project had been successful and produced

approximately four months of operational data. CW3 asked Mr. Hart which specific

four months Dunleavy had been referring. CW3 inquired because if the period of four

37


months had straddled a course of different seasons, then perhaps the data would help

assess operations in lieu of not having the full 1-year course of collected data.

According to CW3, Mr. Hart told CW3 that the PowerBuoy in Scotland was not

actually operational for that period of time. CW3 said that Mr. Hart stated, “It didn’t

work for four months, that’s how long it took to put the buoy in the water.” CW3

stated that the PowerBuoy in Scotland was operational for approximately 2 weeks,

during which time it worked properly for only two hours. This information led CW3

to question the integrity of certain statements made by Defendant Dunleavy during

CW3’s time working for Ocean Power. CW3 stated that, “It [the PowerBuoy] was

technically off the coast in Scotland for four months.” However, simply put, the

Scotland project did not produce power or data for four months.

D. Confidential Witness No. 4

96. Confidential Witness No. 4 (“CW4”) was a member of the Board of

Directors for Ocean Power from 2007 to 2010. Before sitting on the Board, CW4

was a consultant for Ocean Power since 1998 and has a background in engineering.

CW4 left the Board in his words due to a conflict of interest with a small contract

between the Company owned by CW4 and Ocean Power.

97. CW4 describes the Ocean Power business as a “Greek tragedy.” CW4

noted that if you look at Ocean Power’s history, so many directors were changed

every year for the last 5 or 6 years, so “it doesn’t take a rocket scientist to figure out

38


that Chuck Dunleavy and George (Taylor, Ocean Power Co-Founder) were just

manipulating things.” CW4 also confirms that the Company did not have the

technological know-how to produce energy at the stated numbers. For example, CW4

mentioned the PowerBuoy in Scotland alluded to by CW3, stating that when put in

the water it only generated power for a day or two, perhaps 60 kilowatts at the most.

E. Confidential Witness No. 5

98. Confidential Witness No. 5 (“CW5”) was an Ocean Power’s Director of

Manufacturing from November 2007 to January 2013. In this position, CW5 was

responsible for engineering the PowerBuoy take-off or launch systems. CW5 worked

primarily in Pennington, New Jersey, but traveled England and Scotland to assist

and/or supervise the assembly of the PowerBuoy deployed off the coast of Scotland.

CW5 reported directly to Mike Kelly, Ocean Power’s Vice President of Operations

and Manufacturing.

99. CW5 recalled that the PowerBuoy used in Scotland relied on a hydraulic

power take-off system. CW5 had worked on the design of the hydraulic system in

Pennington, New Jersey, prior to it being shipped to England for assembly. Once the

PowerBuoy spar was completed, it was shipped to Scotland for additional assembly in

early-2011. In April 2011, the PowerBuoy was lifted by crane into the water on a

temporary mooring. The PowerBuoy was then taken out to sea off of Scotland’s

northern coast.

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100. CW5 recalled that the hydraulic power system was flawed because it

required a certain “sea state” in order for the system to power on. Without a certain

minimum state of activity, the PowerBuoy system would drain battery power before

activating. Without activating, the PowerBuoy system was not able to produce a

sufficient amount of electricity to sustain its own operation (let alone electricity for

applications).

101. CW5 recalled that the PowerBuoy in Scotland had difficulty operating

because of the “sea state” in the North Sea while it was in the water. The PowerBuoy

was removed from the water and placed in storage. According to CW5, the North Sea

is an extremely volatile water during certain months of the year and the Company did

not want to risk losing the PowerBuoy due to the elements.

102. CW5 recalled developing a non-hydraulic power system in 2011 and

2012 shortly after the Company launched the PowerBuoy in Scotland. CW5’s new

design, referred to as a rack and pinion electric system, avoided certain of the

problems associated with the hydraulic power system. Notwithstanding, the new

PowerBuoy design still suffered from mechanical issues, according to CW5.

Specifically, the PowerBuoy suffered from mechanical issues that were exacerbated

by the Company’s attempts at scaling the technology. For example, the PowerBuoy’s

brake system would fail and the input shaft seals on the spars would allow water into

electrical compartments. The PowerBuoy’s mechanical problems continued through

40


CW5’s tenure at the Company and, according to CW5, were a substantial reason why

the PowerBuoy project in Reedsport, Oregon, was never completed. According to

CW5, the mechanical issues in the PowerBuoy resulted in repeated and significant

delays.

103. With respect to Defendant Dunleavy, CW5 confirmed Dunleavy was

heavily involved in the Wave Project and travelled to Australia to work on the Project.

F. Confidential Witness No. 6

104. Confidential Witness No. 6 (“CW6”) was the Director of Business

Development at Ocean Power from September 2012 to September 2013.

CW6’s statements corroborate CW2’s statements that Defendant Dunleavy effectively

“siloed” off employees, explaining that most employees in New Jersey “were kept in

the dark” about the Wave Project, but that Defendant Dunleavy was actively and

directly involved in the Project.

G. Confidential Witness No. 7

105. Confidential Witness No. 7 (“CW7”) was the VP of Operations for

Ocean Power from May of 2010 until March of 2013. CW7 confirmed that

Defendant Dunleavy was heavily involved in operational discussions concerning

the Company’s PowerBuoys. According to CW7, “At minimum each of the

department heads had one-on-one meetings once a week” with Dunleavy. CW7

stated that Dunleavy was made aware of all progress and challenges in operations

41


because meetings were constantly being held, even on a day-to-day basis.

According to CW7, Dunleavy was significantly involved in many aspects of the

Company and, as a result, was aware of the commercial viability challenges the

Company faced with respect to its PowerBuoy products.

VI. CLAIMS FOR RELIEF UNDER THE SECURITIES ACT

A. Introduction

106. This is a federal securities class action brought pursuant to the Securities

Act on behalf of all persons or entities who purchased Ocean Power securities in

connection with the public secondary offering on April 4, 2014 (the “Follow-On

Offering”). The Follow-On Offering consisted of a public sale of 3,800,000 shares of

the Company’s common stock at $3.10 per share. Defendant Roth Capital was the

sole underwriter for the Follow-On Offering. Ocean Power provided Roth Capital

with a 30-day option to acquire an additional 570,000 shares to cover over-

allotments in connection with the Follow-On Offering.

107. The Follow-On Offering was made pursuant to a prospectus

supplement dated April 4, 2014 (together with Ocean Power’s prospectus dated

February 15, 2013, the “Prospectus”). Ocean Power registered the shares sold in

the Follow-On Offering pursuant to a Form S-3 registration statement on January

24, 2013, and amended on February 8, 2013 (together, the “Registration

Statement”).

42


108. Ocean Power’s Prospectus incorporated by reference the following

documents filed by Ocean Power with the SEC: (i) Annual Report on Form 10-K

for the year ended April 30, 2013, filed on July 12, 2013; (ii) Quarterly Reports on

Form 10-Q for the quarter ended July 31, 2013, filed on September 13, 2013; (iii)

Quarterly Report on Form 10-Q for the quarter ended October 31, 2013, filed on

December 13, 2013; (iv) Quarterly Report on Form 10-Q for the quarter ended

January 31, 2014, filed on March 14, 2014; (v) Current Report on Form 8-K filed

on June 7, 2013; (vi) Current Report on Form 8-K filed on July 26, 2013; (vii)

Current Report on Form 8-K filed on August 6, 2013; (viii) Current Report on

Form 8-K filed on October 7, 2013; (ix) Current Report on Form 8-K filed on

October 24, 2013; (x) Current Report on Form 8-K filed on March 24, 2014; and

(xi) Current Report on Form 8-K filed on April 1, 2014. The Prospectus told

investors to “rely only on the information contained in, or incorporated by

reference into, this prospectus supplement and the accompanying

prospectus .” Prospectus at S-1 (emphasis in original).

109. Defendant Ocean Power, Roth Capital, and Dunleavy actively

engaged in and solicited the sale of Ocean Power securities in the Follow-On

Offering. In advance of the Follow-On Offering, Ocean Power’s then-CEO

Defendant Dunleavy conducted a due diligence conference call with Lead Plaintiff

and, upon information and belief, other participants in the Follow-On Offering.

43


Lead Plaintiff’s due diligence conference call occurred on March 31, 2014. During

the call, Dunleavy promoted Ocean Power and regarded the Follow-On Offering as

a beneficial investment. In addition, Ocean Power conducted a Netroadshow

Presentation in advance of the Follow-On Offering. Similar to the due diligence

conference call, Ocean Power promoted its operations and regarded investment in

the Company as a favorable decision.

110. Ocean Power’s Prospectus, including the documents it incorporated

by reference, contained materially untrue and misleading statements and/or

omissions. Defendants negligently allowed the Prospectus to contain materially

untrue and misleading statements and/or omissions to the extent that they knew or

should have known that the Prospectus was materially misleading, but failed to act

in a reasonable manner to prevent the Prospectus from containing materially

misleading statements and/or preventing the materially misleading Prospectus from

being disseminated. These claims, brought under Sections 12(a)(2) and 15 of the

Securities Act, 15 U.S.C. §§ 77(l)(2) and 77o, are based solely on claims of strict

liability and/or the absence of any affirmative defense based on the reasonableness

of the pertinent Defendants’ investigation into the true facts. These claims are not

based on any allegation of fraud, intentional wrongdoing, or severe recklessness.

44


B. The False and Misleading Statements in the Prospectus in Violation of the Securities Act

1. July 12, 2013—Form 10-K

111. On July 12, 2013, Ocean Power filed the 2013 Form 10-K. Defendant

Dunleavy signed the 2013 Form 10-K.

112. The 2013 Form 10-K discussed the Company’s PowerBuoy

technology at length. The Company’s description of the PowerBuoy technology

included past successes and achievements, including a number of prior customer

relationships and projects. One project discussed in the 2013 Form 10-K in

particular was the Company’s Scotland Project. The Scotland Project was of

special significance to investors because the PowerBuoy deployed and tested in the

Scotland Project was the Mark 3 (PB 150) PowerBuoy, the same PowerBuoy to be

used in the Wave Project. The 2013 Form 10-K’s description of the Scotland

Project was materially misleading. The 2013 Form 10-K stated, in pertinent part,

as follows:

ITEM 1. BUSINESS

• Our utility PowerBuoy system is capable of supplying electricity to a local or regional electric power grid. Our wave power stations will be comprised of a single PowerBuoy system or an integrated array of PowerBuoy systems, plus the remaining components required to deliver electricity to a power grid. We intend to sell our utility PowerBuoy system to utilities and other electrical power producers seeking to add electricity

45


generated by wave energy to their existing electricity supply. In July 2007, our PowerBuoy interface with the electrical utility power grid was certified as compliant with international standards. Intertek, an independent laboratory, provided testing and evaluation services to certify that our grid connection systems comply with designated national and international standards. The PowerBuoy grid interface bears the Electrical Testing Laboratories (ETL) listing mark, and can be connected to the utility grid. In September 2010, working in conjunction with the US Navy and Hawaii Electric Company, our 40 kilowatt (kW)-rated PowerBuoy, located at Marine Corps Base Hawaii, became the first-ever grid connected wave energy device in the United States. In January 2011, our utility scale Mark 3 PowerBuoy (previously referred to as the 11 150kW PowerBuoy” or 11PB150”) structure and mooring system achieved independent certification from Lloyd’s Register. This certification confirms that the PB150 design complies with certain international standards promulgated for floating offshore installations. The Lloyd’s Register process included detailed design analysis and appraisals, addressing the Mark 3’s structure, hydrodynamics, mooring and anchoring. This PowerBuoy was deployed off the coast of Scotland from April 2011 through October 2011 .

[2013 Form 10-K at 1]

...

Status of Utility PowerBuoy System

Ocean trials of our first Mark 3 PowerBuoy were conducted in 2011. These ocean trials were conducted at a site approximately 33 nautical miles from Invergordon, off Scotland’s northeast coast. Our utility scale Mark 3 structure and mooring system achieved independent certification from Lloyd’s Register .

[2013 Form 10-K at 5]

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Our PowerBuoy system uses an ocean-tested technology to generate electricity.

We have been conducting ocean tests for over 15 years in order to demonstrate the viability of our technology. We initiated our first ocean installation in 1997 and have had several deployments of our systems for testing and operation since then. Our grid-connected Hawaii system was deployed from December 2009 to January 2012. During its period of operation in Hawaii, our 40kW-rated PowerBuoy produced power consistent with our predictive models for the incoming wave conditions. Ocean trials of our first Mark 3 PowerBuoy were conducted in 2011. These ocean trials were conducted at a site approximately 33 nautical miles from Invergordon, off Scotland’s northeast coast. The 2011 ocean test of the LEAP PowerBuoy further supported the use of our technology as a persistent power source for systems requiring remote power at sea. Our PowerBuoy systems have endured hurricanes, winter storms and tsunami-driven waves while installed in the ocean.

[2013 Form 10-K at 6]

Customers/Projects

Scotland Project

In 2007, we received a $1.8 million contract from the Scottish Executive toward the construction and testing of a Mark 3 grid-connected PowerBuoy system. Ocean trials of that PowerBuoy were conducted in 2011. These ocean trials were conducted at a site approximately 33 nautical miles from Invergordon, off Scotland’s northeast coast. Our utility scale Mark 3 structure and mooring system has achieved independent certification from Lloyd’s Register. This certification from Lloyd’s Register confirms that the Mark 3 design complies with the requirements of Lloyd’s 1999 Rules and Regulations for the Classification of Floating Offshore Installations at Fixed Locations. We are seeking a customer for

47


the commercial utilization of the buoy, including its deployment at various potential sites.

[2013 Form 10-K at 9]

...

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

...

Also, in 2011, ocean trials of our first Mark 3 PowerBuoy (previously referred to as “150kW PowerBuoy” or “PB150”) were conducted. These ocean trials were conducted at a site approximately 33 nautical miles from Invergordon, off Scotland’s northeast coast. During the ocean trials, our Mark 3 PowerBuoy produced power in excess of our expectations of performance. Our utility scale Mark 3 PowerBuoy structure and mooring system achieved independent certification from Lloyd’s Register in December 2010. This certification confirms that the Mark 3 PowerBuoy design complies with the requirements of Lloyd’s 1999 Rules and Regulations for the Classification of Floating Offshore Installations at Fixed Locations .

[2013 Form 10-K at 31]

113. Defendant Dunleavy’s and Ocean Power’s description of the Scotland

Project in the 2013 Form 10-K (as identified above in bold) was materially

misleading because it negligently created the impression that the Scotland Project

(and the Mark 3 PowerBuoy) was a success. In a press release dated May 9, 2011,

Dunleavy and Ocean Power discussed the Scotland Project, in pertinent part, as

follows:

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The ocean trials are being conducted at a site approximately 33 nautical miles from Invergordon, off Scotland's northeast coast, and are expected to last up to three months. A broad range of operations and functional tests are being performed, examining the response of the PowerBuoy's structure and mooring system to the waves and the power produced by the on-board generator. A wave data buoy located near the site provides detailed information regarding incoming waves. Data collected during the trials is being transmitted from the PowerBuoy in real-time for analysis by OPT's engineers in both the UK and the US.

The power produced to date in this commissioning phase has been as planned, and is consistent with the test protocols and OPT's predictive models for the wave environment experienced. On-board equipment duplicates grid-connection conditions to ensure the buoy's electrical systems are subject to full operational testing for utility applications. This power generation data further validates the Company's experience with its grid-connected Hawaii PowerBuoy system. It demonstrates the PowerBuoy's ability to produce the level of power expected to be generated in varying conditions, and to predict power accurately for different-sized PowerBuoys, at a range of sites.

The Company is seeking a customer for the commercial utilization of the buoy after the ocean trial phase is completed, including its possible deployment at various potential sites.

114. What actually occurred was a complete “embarrassment,” according

to CW1. The PowerBuoy tested in the Scotland Project did not function as

intended and did not “produce[] power in excess of [Ocean Power’s] expectations

of performance.” Rather, according to CW3, the PowerBuoy was operational for

approximately 2 weeks, during which time it worked properly for only two hours.

Significantly, after the Scotland Project, Ocean Power decided to reverse course

with respect to the PowerBuoy power take-off system and, instead of building a

hydraulic-based system, began exploring alternative systems (such as rack and

49


pinion systems). Further, according to CW5, the PowerBuoy deployed in Scotland

suffered from mechanical and engineering problems. Most significantly, the

PowerBuoy’s hydraulic power take-off system did not activate properly and the

PowerBuoy did not generate enough power to sustain its operation. Based on the

amount of time it was operational, Ocean Power’s and Dunleavy’s description of

the Scotland Project in the 2013 Form 10-K is materially misleading. Instead of

validating the PowerBuoy technology, the Scotland Project ruled-out the viability

of the PowerBuoy as it had been designed prior to that point in time.

115. Defendant Dunleavy and Ocean Power omitted material facts from the

2013 Form 10-K, which was incorporated by reference into the Prospectus issued

in connection with the Follow-On Offering. The omitted facts were material to

investors because investors would have considered the true status of the Scotland

Project when evaluating the viability of the Company’s technology in connection

with their decision to invest in Ocean Power.

116. The 2013 Form 10-K also discussed the Wave Project. However, the

2013 Form 10-K omitted material information concerning the status of the Wave

Project and, specifically, the PowerBuoy’s underlying technical and design

problems that existed as obstacles to the Wave Project’s successful execution. The

2013 Form 10-K stated, in pertinent part, as follows:

Our efforts continued toward deployment of the planned 19MW (62.5MW peak generation rating) wave power project off the

50


coast of Victoria, Australia . Funding for this project includes a grant of A$66.5 million (approximately US$62 million) awarded by the Commonwealth of Australia. The grant is subject to certain terms, including achievement of significant external funding milestones, in order to enable our receipt of the grant funds . We have engaged a financial advisor to lead efforts to structure power purchase agreements and secure appropriate financing for this project. The Board of Directors of the Australian Renewable Energy Agency, the Commonwealth agency, that manages the grant, is reviewing the status of the grant, including progress toward funding milestones and amendments to the grant as proposed by us.

2013 Form 10-K at 32.

117. The above statements in bold-faced text negligently omitted material

information concerning the commercial, technical, and economic viability of the

Company’s PowerBuoy technology, including the PowerBuoys to be deployed in

the Wave Project. Specifically, these statements failed to communicate to

investors that the Company was incapable of meeting the milestone development

requirements set forth under the terms of the Wave Project given the status of its

PowerBuoy technology. Further, as a result, the above statements negligently

omitted material information concerning the Company’s ability to receive revenue

under the terms of the A$66.5 million grant from the Australian government.

118. The Wave Project was intended to be a utility scale grid-connected

system initially involving forty-five PowerBuoys. The Wave Project was

estimated to be capable of producing 65 megawatts of electricity for up to 10,000

homes at a cost of $0.10 per kilowatt hour. Pursuant to the Deed of Variation, the

51


Wave Project was subsequently revised to consist of a utility scale grid-connected

system of only twenty-eight PowerBuoys. The PowerBuoys to be used in the Wave

Project were Mark 3 (PB150) and Mark 4 (PB500) PowerBuoys. As described in

detail above, the Mark 3 PowerBuoy had failed to meet expectations and/or work

properly during the Scotland Project. CW1, CW3, and CW5 explained that the

PowerBuoy deployed in Scotland suffered from mechanical and engineering

problems. Most significantly, the PowerBuoy’s hydraulic system did not activate

properly and the PowerBuoy did not generate enough power to sustain its

operation. The Mark 4 PowerBuoy was still being designed and was therefore

“conceptual” at best, according to CW2.

119. Ocean Power’s disclosures in July and August 2014 confirm the fact

that the Company’s PowerBuoy technology, specifically the PowerBuoys intended

for the Wave Project, was incapable of meeting the development milestones under

the Wave Project—the Company’s Board concluded that the Wave Project was “no

longer commercially viable” and, consequently, terminated the Wave Project

(Form 8-K, July 14, 2014); the Company’s “basic technology need[ed] further

advancement before [Ocean Power] committ[ed] to large-scale utility projects”

(Press Release, July 29, 2014); Ocean Power would be abandoning its large-scale

utility-scale projects in order to focus smaller-scale devices (Press Release, July

29, 2014); the Company discontinued development of its undersea substation

52


pod—a key component of Ocean Power’s wave station technology (Form 10-K,

July 29, 2014); (v) the Board’s Special Committee retracted statements concerning

the expected energy output of the Wave Project or its economic competitiveness;

and the Company decided to discontinue the PB500 (Mark 4) in light of the fact

that it was “not technically feasible or economically viable” (Conference Call,

Aug. 4, 2014).

120. Ocean Power’s and Dunleavy’s statements above negligently omitted

this information and, in so doing, allowed investors to believe that Ocean Power’s

PowerBuoy technology was poised to meet the various development milestones

under the terms of the Wave Project. This omission was material because it

allowed investors to believe (i) that the Company’s core technology was

operationally viable and (ii) that the Company would begin generating revenue in

the form of grant money from Australian government’s A$66.5 million partnership

deal in the Wave Project. Had investors been provided with the information that

Ocean Power and Dunleavy omitted, they would have considered it when

evaluating the Company and deciding whether to invest in Ocean Power stock

because the information would have altered the total mix of information available

to investors concerning the Company’s stock.

2. September 13, 2013—Form 10-Q

121. On September 13, 2013, Ocean Power filed its quarterly report for the

53


quarter ended July 31, 2013 (the “July 2013 Form 10-Q”). Defendant Dunleavy

signed the July 2013 Form 10-Q.

122. Similar to the 2013 Form 10-K, the July 2013 Form 10-Q provided

investors with a materially inaccurate description of the Scotland Project and, in

turn, the viability of its PowerBuoy technology. In pertinent part, the July 2013

Form 10-Q stated as follows:

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Also, in 2011, ocean trials of our first Mark 3 PowerBuoy were conducted. These ocean trials were conducted at a site approximately 33 nautical miles from Invergordon, off Scotland’s northeast coast. During the ocean trials, our Mark 3 PowerBuoy produced power in excess of our expectations of performance . Our utility scale Mark 3 PowerBuoy structure and mooring system achieved independent certification from Lloyd’s Register in December 2010. This certification confirms that the Mark 3 PowerBuoy design complies with the requirements of Lloyd’s 1999 Rules and Regulations for the Classification of Floating Offshore Installations at Fixed Locations.

July 2013 Form 10-Q at 18.

123. For the same reasons the 2013 Form 10-K was materially misleading,

so too was the July 2013 Form 10-Q. Specifically, as indicated in bold above,

Ocean Power negligently communicated to investors that the Mark 3 PowerBuoy

was a success during the Scotland Project. This was not the case. As indicated by

CW1, the Scotland Project was a failure and a complete “embarrassment.” The

PowerBuoy tested in the Scotland Project did not function as intended and did not

54


“produce[] power in excess of [Ocean Power’s] expectations of performance.”

Rather, according to CW3, the PowerBuoy was operational for approximately 2

weeks during which time it worked properly for only two hours. Significantly, after

the Scotland Project, Ocean Power decided to reverse course with respect to the

PowerBuoy internal systems and, instead of building hydraulic-based systems,

began exploring alternative systems. Instead of validating the PowerBuoy

technology, the Scotland Project ruled-out the viability of the PowerBuoy as it had

been designed prior to that point in time.


July 2013 Form 10-Q, which was incorporated by reference into the Prospectus

issued in connection with the Follow-On Offering. The omitted facts were

material to investors because investors would have considered the true status of the

Scotland Project when evaluating the viability of the Company’s technology in

connection with their decision to invest in Ocean Power.

125. The July 2013 Form 10-Q also discussed the Wave Project. However,

the July 2013 Form 10-Q omitted material information concerning the status of the

Wave Project and, specifically, the PowerBuoy’s underlying technical and design

problems that existed as obstacles to the Wave Project’s successful execution. The

July 2013 Form 10-Q stated, in pertinent part, as follows:

Our efforts continue toward deployment of the planned 19 megawatt (MW) (62.5MW peak generation rating) wave power

55


project off the coast of Victoria, Australia . Funding for this project includes a grant of A$66.5 million (approximately US$61 million) awarded by the Commonwealth of Australia. The grant is subject to certain terms, including achievement of significant external funding milestones, in order to enable our receipt of the grant funds . We have engaged a financial advisor to lead efforts to structure power purchase agreements and secure appropriate financing for this project. The Board of Directors of the Australian Renewable Energy Agency, the Commonwealth agency, that manages the grant, is reviewing the status of the grant, including progress toward funding milestones and amendments to the grant as proposed by us.

July 2013 Form 10-Q at 19.














56






















57







Aug. 4, 2014).













3. December 13, 2013—Form 10-Q

130. On December 13, 2013, Ocean Power filed its quarterly report for the

58


quarter ended October 31, 2013 (the “October 2013 Form 10-Q”). Defendant

Dunleavy signed the October 2013 Form 10-Q.

131. Similar to the July 2013 Form 10-Q, the October 2013 Form 10-Q

provided investors with a materially inaccurate description of the Scotland Project

and, in turn, the viability of its PowerBuoy technology. In pertinent part, the

October 2013 Form 10-Q stated as follows:


Also, in 2011, ocean trials of our first Mark 3 PowerBuoy were conducted. These ocean trials were conducted at a site approximately 33 nautical miles from Invergordon, off Scotland’s northeast coast. During the ocean trials, our Mark 3 PowerBuoy produced power in excess of our expectations of performance . Our utility scale Mark 3 PowerBuoy structure and mooring system achieved independent certification from Lloyd’s Register in December 2010. This certification confirms that the Mark 3 PowerBuoy design complies with the requirements of Lloyd’s 1999 Rules and Regulations for the Classification of Floating Offshore Installations at Fixed Locations.

October 2013 Form 10-Q at 18.

132. For the same reasons the July 2013 Form 10-Q was materially

misleading, so too was the October 2013 Form 10-Q. Specifically, as indicated in

bold above, Ocean Power negligently communicated to investors that the Mark 3

PowerBuoy was a success during the Scotland Project. This was not the case. As

indicated by CW1, the Scotland Project was a failure and a complete

“embarrassment.” The PowerBuoy tested in the Scotland Project did not function

59


as intended and did not “produce[] power in excess of [Ocean Power’s]

expectations of performance.” Rather, according to CW3, the PowerBuoy was

operational for approximately two weeks, during which time it worked properly for

only about two hours. Significantly, after the Scotland Project, Ocean Power

decided to reverse course with respect to the PowerBuoy internal systems and,

instead of building hydraulic-based systems, began exploring alternative systems.

Instead of validating the PowerBuoy technology, the Scotland Project ruled-out the

viability of the PowerBuoy as it had been designed prior to that point in time.


October 2013 Form 10-Q, which was incorporated by reference into the Prospectus





134. The October 2013 Form 10-Q also discussed the Wave Project.

However, the October 2013 Form 10-Q omitted material information concerning

the status of the Wave Project and, specifically, the PowerBuoy’s underlying

technical and design problems that existed as obstacles to the Wave Project’s

successful execution. The October 2013 Form 10-Q stated, in pertinent part, as

follows:

60


Our efforts continue toward development of the planned 19 megawatt (MW) (62.5MW peak generator rating) wave power project off the coast of Victoria, Australia . Funding for this project includes a grant of A$66.5 million (approximately US$61 million) awarded by the Commonwealth of Australia. The grant is subject to certain terms, including achievement of significant external funding milestones, in order to enable our receipt of the grant funds . We have engaged a financial advisor to lead efforts to structure power purchase agreements and assist us to secure appropriate financing for this project. The Board of Directors of the Australian Renewable Energy Agency, the Commonwealth agency, that manages the grant, is reviewing the status of the grant, including progress toward funding milestones and amendments to the grant as proposed by us.

October 2013 Form 10-Q at 19.













61






















62








Aug. 4, 2014).













63


4. March 14, 2014—Form 10-Q

139. On March 14, 2014, Ocean Power filed its quarterly report for the

quarter ended January 31, 2014 (the “March 2014 Form 10-Q”), incorporated by

reference into the Prospectus. Defendant Dunleavy signed the March 2014 Form

10-Q.

140. Similar to the October 2013 Form 10-Q, the March 2014 Form 10-Q

provided investors with a materially inaccurate description of the Scotland Project

and, in turn, the viability of its PowerBuoy technology. In pertinent part, the

March 2014 Form 10-Q stated as follows:


. . .

Also, in 2011, ocean trials of our first Mark 3 PowerBuoy were conducted. These ocean trials were conducted at a site approximately 33 nautical miles from Invergordon, off Scotland’s northeast coast. During the ocean trials, our Mark 3 PowerBuoy produced power in excess of our expectations of performance . Our utility-scale Mark 3 PowerBuoy structure and mooring system achieved independent certification from Lloyd’s Register in December 2010. This certification confirms that the Mark 3 PowerBuoy design complies with the requirements of Lloyd’s 1999 Rules and Regulations for the Classification of Floating Offshore Installations at Fixed Locations.

141. For the same reasons the October 2013 Form 10-Q was materially

misleading, so too was the March 2014 Form 10-Q. Specifically, as indicated in

bold above, Ocean Power negligently communicated to investors that the Mark 3

64


PowerBuoy was a success during the Scotland Project. This was not the case. As

indicated by CW1, the Scotland Project was a failure and a complete

“embarrassment.” The PowerBuoy tested in the Scotland Project did not function

as intended and did not “produce[] power in excess of [Ocean Power’s]

expectations of performance.” Rather, according to CW3, the PowerBuoy was

operational for approximately two weeks, during which time it worked properly for

only about two hours. Significantly, after the Scotland Project, Ocean Power

decided to reverse course with respect to the PowerBuoy internal systems and,

instead of building hydraulic-based systems, began exploring alternative systems.

Instead of validating the PowerBuoy technology, the Scotland Project ruled-out the

viability of the PowerBuoy as it had been designed prior to that point in time.


March 2014 Form 10-Q, which was incorporated by reference into the Prospectus





143. The March 2014 Form 10-Q also discussed the Wave Project at

length. However, the March 2014 Form 10-Q omitted material information

concerning the status of the Wave Project and, specifically, the PowerBuoy’s

65


underlying technical and design problems that existed as obstacles to the Wave

Project’s successful execution. The March 2014 Form 10-Q stated, in pertinent

part, as follows:

During the three months ended January 31, 2014, we announced that VWP, a project-specific operating entity wholly-owned by OPTA, has signed an agreement with the Australian Renewable Energy Agency ("ARENA"). This agreement is a Deed of Variation to the original Funding Deed through which an A$66.5 million grant was previously awarded by the Commonwealth of Australia. The grant is expected to be used towards the A$232 million proposed cost of building and deploying a 62.5MW estimated peak-rated wave power station off the coast of Australia (“VWP Project”). Among the important changes included in the new agreement are the incorporation of milestones for each of the three stages of the project, acceleration of reimbursement of eligible expenses for stages one and two, and an increase in the number of milestones to better support project cash flow requirements . This agreement also recognizes the role of Lockheed Martin as the lead for systems integration of the PowerBuoys and overall program management. The agreement defines the conditions for receiving grant funds including achievement of project milestones, obtaining of significant additional funding and other factors . We have engaged a financial advisor to lead efforts to structure power purchase agreements and assist us in securing appropriate financing for this project. We continued work on projects with the US Department of Energy, our WavePort project in Spain and our project with Mitsui Engineering & Shipbuilding. We also continued our efforts to increase the power output and reliability of our utility and autonomous PowerBuoy systems .





66





















67

















Aug. 4, 2014).





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COUNT I

Against Ocean Power, Roth Capital, and Dunleavy for Violation of Section 12(a)(2) of the Securities Act

148. Lead Plaintiff repeats and realleges the above allegations, as if fully

set forth herein. For purposes of this claim, Lead Plaintiff expressly excludes and

disclaims any allegation that could be construed as alleging or sounding in fraud or

intentional misconduct. Defendants’ liability under Section 12(a)(2) arises from

their negligent conduct.

149. Roth Capital was the sole underwriter for the Follow-On Offering.

150. Ocean Power, Roth Capital, and Dunleavy offered or sold Ocean

Power securities by the use of means or instruments of transportation or

communication in interstate commerce or the mails.

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151. Ocean Power, Roth Capital, and Dunleavy offered or sold Ocean

Power securities by means of a prospectus or oral communication.

152. The prospectus or oral communication by which Ocean Power, Roth

Capital, and Dunleavy offered or sold Ocean Power securities contained an untrue

statement of a material fact and omitted to state a material fact necessary in order

to make the statements not misleading.

153. Ocean Power, Roth Capital, and Dunleavy either knew or should have

known through the exercise of reasonable care of the untrue statements and

omissions in the Prospectus, but failed to take reasonable actions to prevent the

dissemination of an untrue statement of a material fact and omission of material

facts necessary in order to make the statements not misleading.

154. Lead Plaintiff and other participants in the Follow-On Offering

purchased Ocean Power securities directly from Ocean Power, Roth Capital, and

Dunleavy and received trade confirmations stating that “FOLLOW-ON

OFFERING PROSPECTUS AVAILABLE WWW.SEC.GOV AS CONFIRMED

THRU THE ID SYSTEM. WE ACTED AS PRINCIPAL.” The Trade

Confirmation indicated that the sale of securities was “through the courtesy of”

Roth Capital. Broadcort®, a division of Merrill Lynch, Pierce, Fenner & Smith

Inc., acted as Roth Capital’s clearing firm.

70


155. As set forth above, the Prospectus contained untrue statements of

material facts and omitted to state material facts necessary in order to make the

statements not misleading.

156. Lead Plaintiff and other members of the Class did not know that the

Prospectus contained untrue statements of material facts and omitted to state

material facts necessary in order to make the statements not misleading.

157. Lead Plaintiff and other members of the Class who purchased Ocean

Power securities in the Follow-On Offering from Roth Capital have sustained

damages as a result of the untrue statements of material facts and omissions in the

Prospectus, for which they hereby elect to rescind and tender their shares of Ocean

Power common stock in return for the consideration paid for Ocean Power

common stock with interest.

158. By virtue of the foregoing, Roth Capital and Ocean Power have

violated Section 12(a)(2) of the Securities Act.

COUNT II

Against Dunleavy for Violation of Section 15 of the Securities Act

159. Lead Plaintiff repeats and realleges the above allegations, as if fully

set forth herein.

160. Ocean Power’s conduct, as alleged herein, constitutes a violation of

Section 12(a)(2) of the Securities Act. Dunleavy is liable to Lead Plaintiff and the

71


other members of the Class, jointly and severally with and to the same extent as

Ocean Power, for violations under Section 15 of the Securities Act.

161. Dunleavy participated in the operation and management of Ocean

Power at the time of the Follow-On Offering and conducted and participated,

directly and indirectly, in the conduct of Ocean Power’s business affairs.

162. Dunleavy was involved in the day-to-day operations of the Company

at the highest levels.

163. Dunleavy possessed access to confidential proprietary information

concerning the Company and its business and operations and possessed authority

over the Company’s public statements.

164. Dunleavy was a senior officer and director of Ocean Power. Due to

his positions of control and authority, Dunleavy was able to, and did, control the

contents of the Prospectus that contained materially false and inaccurate

information.

165. Dunleavy signed, or caused to be signed on his behalf, the

Registration Statement.

166. Dunleavy authorized the filing of the Prospectus with the SEC and

signed caused to be signed on his behalf, the document incorporated into the

Prospectus.

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167. Dunleavy was a controlling person of Ocean Power under the

Securities Act.

VII. CLAIMS FOR RELIEF UNDER THE EXCHANGE ACT

A. Introduction

168. Lead Plaintiff also alleges violations of the Exchange Act on behalf of

all persons or entities who, between January 14, 2014 and July 29, 2014, inclusive

(the “Class Period”), purchased or otherwise acquired the securities of Ocean Power

on the Nasdaq Global Markets exchange.

169. In violating the Exchange Act, Defendants Dunleavy and Ocean

Power acted with scienter. Rather than concede that the Company’s PowerBuoy

technology was not (and would not be) viable, Defendant Dunleavy continued to

mislead investors. In so doing, Dunleavy artificially inflated the Company’s stock

price and secured additional funding for the Company through the Follow-On

Offering. Dunleavy was also able to secure favorable terms under the Wave

Project that would have allowed him to obtain revenue from the A$66.5 million

grant from the Australian government. Dunleavy, all the while, continued in his

position as CEO in exchange for significant compensation—in 2013 alone,

Dunleavy received total compensation of over $525,000.

170. When the fraud was ultimately exposed, Dunleavy was terminated

“for cause” and the Company cancelled its high-profile Wave Project venture. The

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Company also retracted a number of statements made by Dunleavy concerning the

expected energy output and energy costs regarding the Wave Project. Further, the

Company repaid the Australian government A$5.6 million. These remedial actions

give rise to a strong and compelling inference of scienter, as discussed in further

detail below.

B. Defendants’ False and Misleading Statements in Violation of the Exchange Act

1. January 14, 2014—Press Release

171. On January 14, 2014, before the market opened, the Company issued

a press release containing statements about the Wave Project (the “January 2014

Press Release”). The press release stated, in pertinent part, as follows:

PENNINGTON, N.J., Jan. 14, 2014 (GLOBE NEWSWIRE) -- Ocean Power Technologies, Inc. (Nasdaq:OPTT) ("OPT" or "the Company"), today announced that Victorian Wave Partners Pty Ltd ("VWP"), its project-specific operating entity wholly-owned by Ocean Power Technologies, Australasia (OPTA), has signed an agreement with the Australian Renewable Energy Agency ("ARENA"). This agreement is a Deed of Variation to the original Funding Deed through which a A$66.5 million grant was previously awarded by the Commonwealth. The grant will be used towards the cost of building and deploying a 62.5MW peak-rated wave power station off the coast of Portland, Victoria.

Among the important changes included in the new agreement are the incorporation of milestones for each of the three stages of the project, acceleration of reimbursement of eligible expenses for stages one and two, and an increase in the number of milestones to better support project cash flow requirements . This agreement also recognizes the role of Lockheed Martin as the lead for systems integration of the PowerBuoys and overall program management.

74


Charles F. Dunleavy, Chief Executive Officer of OPT, said, "We are very grateful for the support of the Australian Government and ARENA during this process to make positive changes to the original Funding Deed. This new agreement significantly improves our ability to attract investors during the early stages of the project. We are also pleased to offer the prospect of manufacturing, engineering and maritime jobs in Victoria based on OPT's unique and game-changing technology, at a time when more traditional manufacturing jobs are experiencing enhanced competitive pressures. We have been impressed with the commercial and results-oriented way in which ARENA has worked with us after assuming responsibility for a wide range of projects and programs last year."

Ivor Frischknecht, Chief Executive Officer of ARENA, added, "We are pleased to support development of the VWP demonstration project. It aligns with our vision of a society increasingly powered by competitive renewable energy as well as our commitment to sharing knowledge and information about our projects with the industry."

VWP was awarded the grant by the Commonwealth of Australia through a competitive process undertaken as part of the Renewable Energy Demonstration Program, which is administered by ARENA. The funding deed for the project sets out the terms of the grant including the requirement to obtain significant additional funding .

The planned Portland wave power station has a total project value of AU $232 million, and at completion would be the largest of its kind in the world. With twenty-eight PowerBuoys connected to the grid by an underwater substation and a submarine cable the plant would be capable of providing power for up to 10,000 homes . The project is being developed by VWP, a wholly owned subsidiary of Ocean Power Technologies Australasia Pty Ltd ("OPTA"), an Australian company owned by OPT (88%) and Woodside Energy Ltd (12%), Australia's largest independent oil and gas company. Since the original announcement of the grant, VWP has completed engineering milestones and conducted surveys and studies to meet the requirements for licenses and approvals. In addition, the Company is currently assessing power purchase agreements with local industry and utilities.

7i


Mr. Dan Tehan, Federal Member for Wannon in Victoria, stated that "Wave energy has enormous potential and it is fantastic that Portland has been chosen as the site for this renewable energy project."

...

172. The above statements in bold-faced text omitted material information

concerning the commercial, technical, and economic viability of the Company’s

PowerBuoy technology, including the PowerBuoys to be deployed in the Wave

Project. Specifically, these statements withheld from investors that the Company

was incapable of meeting the milestone development requirements set forth under

the terms of the Wave Project given the status of its PowerBuoy technology.

Further, as a result, the above statements materially misled investors with respect

to the Company’s ability to receive revenue under the terms of the A$66.5 million

grant from the Australian government.









76






















77



Aug. 4, 2014).

175. Ocean Power’s and Dunleavy’s statements above omitted this

information and, in so doing, materially misled investors to believe that Ocean

Power’s PowerBuoy technology was poised to meet the various development

milestones under the terms of the Wave Project. This omission was material

because it allowed investors to believe (i) that the Company’s core technology was








176. Investors received the January 2014 Press Release as good news.

From January 13, 2014 to January 14, 2014, Ocean Power’s stock increased from

$2.21 per share to $2.56 per share (an increase of over 15%) on unusually heavy

trading volume.

78


2. February 25, 2014—Wave Project Newsletter

177. On February 25, 2014, the Company published a “Newsletter”

discussing the status of the Wave Project (the “February 2014 Newsletter”). The

February 2014 Newsletter consisted of twenty pages touting the capabilities of the

Company and the Wave Project. Page 3 provided investors with a “PROJECT

OVERVIEW” stating that the “Maximum Generating Output” was “62.5

megawatts” :

62.5 MW Victorian Wave Power

Victorian Wave Partners Demonstration Project - Portland

February 2014 NEWSLETTER

PROJECT OVERVIb

Localion Portland, Victoria, AjgtraIi

Maximum Generating Output 625 megawatts

PowerBuoy@ Specilicton Mark 3.3 rk4.1

Mark 4.2

Application Grid connected

Major Components PowerBiioys Undersea Substalon Pods Submarine power cables Land-based substation

Supply Chain Using the AusIrlian supply thin, iLls anticipated that significant number of jobs will be created associated with fabrication, deployment and maintenance Operations over the life of the power station. The prqect wil be sufficient to fulfil the energy needs of approximately 10,000 homes.

178. Page 11 of the February 2014 Newsletter stated that the Wave Project

was “Scalabale to high capacity power stations (100MW+) ”:

79

Float

Spar p ('Smart Prt' InkM)

Heave Plate

CabW111111 111001111111111- other PowørBuoys

Undersea SubstatIon

IF


62.5 MW Victorian Wave Power

Victorian Wave Partners Demonstration Project - Portland

February 2014 NEWSLETTER

PowerBuoy Features

PowefBuoy@ technology based on ocean-going buoys

Environmentally benign & non-pdlulng

No exhaust gases, no noise, minimal visibility from shore, safe for sea le

Scalable to high apa* power stathns ( 100MW+)

Extensive in-ocean experience, including successfully withstanding hurricanes, winter storms and tsunamis

Sea Floor to

Shore

Schematic of PôwrBuoyI system

179. Page 13 of the February 2014 Newsletter provided a

“TECHNOLOGY COMPARISON” of the Wave Project’s “Cost Per Kilowatt

-

Hour – Utility Power” to other forms of power such as wind, solar, biomass, and

natural gas and coal. Ocean Power represented to investors that the

Company’s cost of power was between $0.10 and $0.20 per kilowatt hour

compared to wind ($0.5-$0.24), solar ($0.09-$0.19), biomass ($0.09-$0.14), and

natural gas and coal ($0.07-$0.15) :

80


OPT Po.rBuoy€ &r PV Wind Biomass Natural Gas mW Coi

i!i4 5-ff ONE* E: 2PPML 1000 X dmrAw thn MM Lcw– Modemia LOW VeLe Very 1`60

HI#i krecash 43y5 m mod" Low exoW m sonw Ytrs

b

CqacFatct I2%-2 20%-40% 85%

Mrn n

Posgialkss Lrd4,e Modwsle ExIanswe krA pm P eft E4.Id.&q

CF ttH– ( 0 -20 7-152i

UtiMy Poisr

ccwcvy l pimlevelsoF4QC

180. The above bold-faced statements in paragraphs 119-121 are materially

false and/or misleading because it provides investors with an expected energy

output from the Wave Project as well as the competiveness of the cost of power

produced by the Wave Project. Furthermore, these bold-faced statements are

materially false/and or misleading because there was no scientific or economic

basis for the cost estimates or expected energy outputs for the Wave Project.

Specifically, these statements created a false impression as to the Company’s

ability to design and build the PowerBuoys and, in particular, execute the Wave

Project as claimed. Ocean Power and Dunleavy touted the viability of the

PowerBuoy technology, notwithstanding the fact that it had not yet been

demonstrated. The misleading nature of these statements is confirmed by the

Company’s disclosures following the termination of Dunleavy, including that: (i)

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the Company’s Board had determined that the Wave Project was “no longer

commercially viable” and, consequently, terminated the Wave Project (Form 8-K,

July 14, 2014); (ii) the Company’s “basic technology needs further advancement

before [Ocean Power] commit[s] to large-scale utility projects” (Press Release,

July 29, 2014); (iii) Ocean Power would be abandoning its large-scale utility-scale

projects in order to focus smaller-scale devices (Press Release, July 29, 2014); (iv)

the Company decided to discontinue development of its undersea substation pod—

a key component of Ocean Power’s wave station technology (Form 10-K, July 29,

2014); (v) the Board’s Special Committee concluded that investors should not rely

on statements concerning the expected energy output of the Wave Project or its

economic competitiveness; and (vi) the Company decided to discontinue the

PB500 (Mark 4) because it was “not technically feasible or economically viable”

(Conference Call, Aug. 4, 2014). Moreover, CW1 confirmed that this cost per

kilowatt hour range was “fundamentally impossible, the power conversion

efficiency is generally too low. In order to power the PowerBuoys to run, CW1

stated it would be at least two to three times more expensive than the costs stated

by the Company.

181. On the same slide, the $0.10 to $0.20 cost per kilowatt hour has a

footnote, which states “Company targets costs on production levels of 400

PowerBuoys per year.”

82


182. This statement is materially false and/or misleading because it

provides investors with the expected number of PowerBuoys and concomitant

power levels at the Project. On July 29, 2014, Ocean Power told investors that

such statements should not be relied upon. Moreover, CW1 confirmed that this

400 PowerBuoy per year figure was “just a number” and that there was “no

scientific basis” for this estimate. CW1 also confirmed that the Company did not

have the technology when the statement was made, noting that Ocean Power could

not even make two PowerBuoys work side-by-side, let alone 400. According to

CW1, Ocean Power “never had a large buoy working for more than a week at a

time.” CW2 corroborated CW1’s evaluation of the Company’s technology, stating

that Dunleavy’s and Ocean Power’s statements concerning the PowerBuoy’s

capabilities were a “hope” without any substantive support.

183. Ocean Power’s and Dunleavy’s statements were material because they







83




184. Investors received the February 2014 Newsletter as good news. From

February 25, 2014 to February 26, 2014, Ocean Power’s stock increased from

$3.94 per share to $4.22 per share (an increase of over 7%) on unusually heavy

trading volume.

3. March 14, 2014—Conference Call

185. On March 14, 2014, following the dissemination of the Company’s

financial results for the quarter ended January 31, 2014, the Company hosted an

investor conference call. During the call, Defendant Dunleavy had the following

exchange with a financial analyst:

Q <Carter Driscoll, Ascendiant Capital>: We talk about the levelized cost of electricity maybe and what you have been able to demonstrate and where you stand in the pecking order, if you could put it in there and what types of cost reductions you are going to need to get that closer to some of the current baseload and intermittent resources?

A <Charles Dunleavy>: . . . In the case of our utility systems, we have, as a target approximately US$0.15 per kilowatt hour as to the levelized cost of energy and that would be in large production levels, of at least 400 PowerBuoys per year, so that’s our target. We've not demonstrated that yet but we have gone a long way towards demonstrating the technology that can be built in large quantities and that includes testing of our system off the coast of Scotland, that’s our Mark 3 PowerBuoy.

186. The above bold-faced statement is materially false and/or misleading

because it provides investors with an expected energy output from the Wave

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Project as well as the competiveness of the cost of power produced by the Wave

Project. Specifically, this statement failed to accurately describe the feasibility of

Ocean Power’s PowerBuoy technology and the Wave Project in particular.

Instead, the statement continues to tout the viability of the PowerBuoy technology,

notwithstanding the fact that it had not yet been demonstrated. The misleading

nature of these statements is confirmed by the Company’s disclosures following

the termination of Dunleavy, including that: (i) the Company’s Board had

determined that the Wave Project was “no longer commercially viable” and,

consequently, terminated the Wave Project (Form 8-K, July 14, 2014); (ii) the

Company’s “basic technology needs further advancement before [Ocean Power]

commit[s] to large-scale utility projects” (Press Release, July 29, 2014); (iii) Ocean

Power would be abandoning its large-scale utility-scale projects in order to focus

smaller-scale devices (Press Release, July 29, 2014); (iv) the Company decided to

discontinue development of its undersea substation pod—a key component of

Ocean Power’s wave station technology (Form 10-K, July 29, 2014); (v) the

Board’s Special Committee concluded that investors should not rely on statements

concerning the expected energy output of the Wave Project or its economic

competitiveness; and (vi) the Company decided to discontinue the PB500 (Mark 4)

because it was “not technically feasible or economically viable” (Conference Call,

Aug. 4, 2014). CW1 confirmed that this 400 PowerBuoy per year figure was “just

85


a number” and that there was “no scientific basis” for this estimate. CW1 also

confirmed that this cost per kilowatt hour range was “fundamentally impossible,

the power conversion efficiency is generally too low. In order to power the

PowerBuoys to run, CW1 stated it would be at least two to three times more

expensive than the costs stated by the Company.

187. Ocean Power’s and Dunleavy’s statements were material because they









188. Ocean Power’s and Dunleavy’s misleading statements mitigated the

decline in Ocean Power’s stock price that was occurring in response to the

Company’s financial results for the quarter ended January 31, 2014. Had Ocean

Power and Dunleavy not made the statements they did, the Company’s stock price

would have declined much further than it did.

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4. March 14, 2014—Form 10-Q

189. On March 14, 2014, Ocean Power filed the March 2014 Form 10-Q.

Defendant Dunleavy signed the March 2014 Form 10-Q.

190. The March 2014 Form 10-Q provided investors with a materially

inaccurate description of the Scotland Project and, in turn, the viability of its

PowerBuoy technology. In pertinent part, the March 2014 Form 10-Q stated as

follows:


. . .

Also, in 2011, ocean trials of our first Mark 3 PowerBuoy were conducted. These ocean trials were conducted at a site approximately 33 nautical miles from Invergordon, off Scotland’s northeast coast. During the ocean trials, our Mark 3 PowerBuoy produced power in excess of our expectations of performance . Our utility-scale Mark 3 PowerBuoy structure and mooring system achieved independent certification from Lloyd’s Register in December 2010. This certification confirms that the Mark 3 PowerBuoy design complies with the requirements of Lloyd’s 1999 Rules and Regulations for the Classification of Floating Offshore Installations at Fixed Locations.

191. The above bold-faced statement was materially false and/or

misleading because it created the impression that the Mark 3 PowerBuoy was a

success during the Scotland Project. This was not the case. As indicated by CW1,

the Scotland Project was a failure and a complete “embarrassment.” The

PowerBuoy tested in the Scotland Project did not function as intended and did not

87


“produce[] power in excess of [Ocean Power’s] expectations of performance.”

Rather, according to CW3, the PowerBuoy was operational for approximately two

weeks, during which time it worked properly for only about two hours.

Significantly, after the Scotland Project, Ocean Power decided to reverse course

with respect to the PowerBuoy internal systems and, instead of building hydraulic-

based systems, began exploring alternative systems. Instead of validating the

PowerBuoy technology, the Scotland Project ruled-out the viability of the

PowerBuoy as it had been designed prior to that point in time.

192. The omitted facts concerning the Scotland Project were material to

investors because investors would have considered the true status of the Scotland

Project and, in turn, the PowerBuoy technology, when deciding whether or not to

invest in Ocean Power.

193. The March 2014 Form 10-Q also discussed the Wave Project at

length. However, the March 2014 Form 10-Q omitted material information

concerning the status of the Wave Project and, specifically, the PowerBuoy’s

underlying technical and design problems that existed as obstacles to the Wave

Project’s successful execution. The March 2014 Form 10-Q stated, in pertinent

part, as follows:

During the three months ended January 31, 2014, we announced that VWP, a project-specific operating entity wholly-owned by OPTA, has signed an agreement with the Australian Renewable Energy Agency ("ARENA"). This agreement is a Deed of Variation to the original

88


Funding Deed through which an A$66.5 million grant was previously awarded by the Commonwealth of Australia. The grant is expected to be used towards the A$232 million proposed cost of building and deploying a 62.5MW estimated peak-rated wave power station off the coast of Australia (“VWP Project”). Among the important changes included in the new agreement are the incorporation of milestones for each of the three stages of the project, acceleration of reimbursement of eligible expenses for stages one and two, and an increase in the number of milestones to better support project cash flow requirements . This agreement also recognizes the role of Lockheed Martin as the lead for systems integration of the PowerBuoys and overall program management. The agreement defines the conditions for receiving grant funds including achievement of project milestones, obtaining of significant additional funding and other factors . We have engaged a financial advisor to lead efforts to structure power purchase agreements and assist us in securing appropriate financing for this project. We continued work on projects with the US Department of Energy, our WavePort project in Spain and our project with Mitsui Engineering & Shipbuilding. We also continued our efforts to increase the power output and reliability of our utility and autonomous PowerBuoy systems .

194. The above statements in bold-faced text omitted material information

concerning the commercial, technical, and economic viability of the Company’s

PowerBuoy technology, including the PowerBuoys to be deployed in the Wave

Project. Specifically, these statements withheld from investors that the Company

was incapable of meeting the milestone development requirements set forth under

the terms of the Wave Project given the status of its PowerBuoy technology.

Further, as a result, the above statements materially misled investors with respect

to the Company’s ability to receive revenue under the terms of the A$66.5 million

grant from the Australian government.

89






















90











Aug. 4, 2014).

197. Ocean Power’s and Dunleavy’s statements above omitted this

information and, in so doing, materially misled investors to believe that Ocean

Power’s PowerBuoy technology was poised to meet the various development

milestones under the terms of the Wave Project. This omission was material

because it allowed investors to believe (i) that the Company’s core technology was






91




198. Ocean Power’s and Dunleavy’s misleading statements mitigated the

decline in Ocean Power’s stock price that was occurring in response to the

Company’s financial results for the quarter ended January 31, 2014. Had Ocean

Power and Dunleavy not made the statements they did, the Company’s stock price

would have declined much further than it did.

C. The Truth Emerges

1. June 10, 2014—Dunleavy Is Fired and Ocean Power Announces a Special Investigation

199. On June 10, 2014, Ocean Power filed a current report on Form 8-K

(the “June 2014 Form 8-K”). The June 2014 Form 8-K revealed that Defendant

Dunleavy had been terminated “for cause” and that Ocean Power’s Board had

appointed a “Special Committee” to investigate the Company’s agreement with

ARENA concerning the Wave Project. The June 2014 Form 8-K stated, in

pertinent part, as follows:

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

(b) On June 9, 2014, Charles F. Dunleavy was terminated, effective immediately, as the Chief Executive Officer of Ocean Power Technologies, Inc. (the “Company”) and as an employee of the Company and its subsidiaries. His termination was for cause, and

92


Mr. Dunleavy will not receive any severance payments under his employment agreement with the Company .

Item 8.01. Other Events.

On June 9, 2014, the Board of Directors appointed a Special Committee, composed of all outside directors of the Company, to conduct an internal investigation into the agreement between Victorian Wave Partners Pty Ltd, a project-specific operating entity wholly-owned by the Company’s subsidiary Ocean Power Technologies (Australasia) Pty Ltd, and the Australian Renewable Energy Agency, and related public statements concerning the project . The Special Committee will retain outside counsel to assist in this investigation.

(Emphasis added).

2. July 14, 2014—Ocean Power Terminates the Wave Project

200. On July 14, 2014, Ocean Power filed a current report on Form 8-K

(the “July 2014 Termination Notice”). The July 2014 Termination Notice revealed

that Ocean Power had terminated the Wave Project because it was no longer

“commercially viable.” The July 2014 Termination Notice stated, in pertinent part,

as follows:

On July 8, 2014, Victorian Wave Partners Pty Ltd (“VWP”), an indirect consolidated subsidiary of Ocean Power Technologies, Inc. (the “Company”), tendered a notice (the “Termination Notice”) to the Australian Renewable Energy Agency (“ARENA”) of VWP’s intent to terminate the Renewable Energy Demonstration Program Funding Deed, dated as of September 9, 2010, entered into between VWP and the Commonwealth of Australia, as amended by a Deed of Variation dated January 9, 2014 ("the Funding Deed"). Unless agreed otherwise,

93


pursuant to the terms of the Funding Deed, it will terminate on October 8, 2014.

VWP’s Board of Directors concluded in July 2014 that the wave power demonstration project contemplated by the Funding Deed was no longer commercially viable. Exercising its termination rights under the Funding Deed, VWP delivered the Termination Notice, which informed ARENA that VWP (i) was stopping all work on the Project, (ii) would not proceed with the Project, and (iii) would not claim further funding under the Funding Deed. Furthermore, VWP advised ARENA of its intent to repay to ARENA the funding given to VWP to date (as described further below), including interest, within 30 days after the date of the Termination Notice. The parties are currently discussing how the repayment will be made. VWP will also observe other applicable termination provisions in the Funding Deed .

Under the Funding Deed, a A$66.5 million grant was awarded to VWP by the Commonwealth of Australia in 2010; however, receipt of funds under the grant was subject to certain terms, including achievement of future significant external funding milestones. The grant was expected to be used towards the A$232 million proposed cost of building and deploying a wave power station off the coast of Australia (the “Project”). In January 2014, the Company announced that VWP had signed a Deed of Variation with ARENA that amended the Funding Deed. Among the changes included in the Deed of Variation was the incorporation of stage gates for each of the three stages of the project, requiring certain conditions be met to progress to the proceeding stage. The Deed of Variation also shifted the funding profile across the three stages to better support project cash flow requirements. The Deed of Variation also recognized the role of Lockheed Martin as the lead for systems integration of the PowerBuoy technology and overall program management. During the three months ended April 30, 2014 and pursuant to the Deed of Variation, ARENA funded the initial portion of the grant to VWP in the amount of approximately A$5.6 million (approximately US$5.2 million) for the achievement of a number of project milestones, which funding included an amount required to be remitted to the Australian taxing authorities as goods and services tax (the “Initial Funding”).

94


The Initial Funding was subject to claw-back provisions if certain contractual requirements, including performance criteria, were not satisfied. In light of the claw-back provisions, the Company classified the Initial Funding as an advance payment, holds the funds as restricted cash and deferred recognition of the funds as revenue.

VWP does not expect to incur any early termination penalties as a result of the Termination Notice and does not expect that additional costs to close out the Project will be material. There are no material relationships between ARENA and VWP or the Company other than in respect of the Funding Deed.

(Emphasis added).

201. In response to Ocean Power’s revelation, Ocean Power’s stock price

dropped precipitously. On July 14, 2014, Ocean Power’s stock closed at $1.53 per

share. The following day, in response to the above disclosure, Ocean Power’s

stock closed at $1.18 per share on unusually heavy volume.

3. July 29, 2014—Ocean Power Admits Material Misrepresentations

202. On July 29, 2014, Ocean Power filed the July 2014 Form 8-K. The

July 2014 Form 8-K advised investors that prior public statements concerning the

Wave Project’s expected energy output or cost competitiveness should not be

relied upon. The July 2014 Form 8-K stated, in pertinent part, as follows:

On June 9, 2014, the Board of Directors of Ocean Power Technologies, Inc. (the “Company”), meeting in executive session, formed a Special Committee to conduct an internal investigation into the commercial agreement between Victorian Wave Partners Pty Ltd (“VWP”), an indirect consolidated subsidiary of the Company, and the Australian Renewable Energy Agency (“ARENA”) concerning a proposed wave power demonstration project off the coast of Victoria,

95


Australia (the “Project”) and related public statements regarding the Project. The Special Committee retained the law firm of Reed Smith LLP (“Reed Smith”) to assist in the investigation. The Special Committee has received a report from Reed Smith presenting some initial findings from the investigation to date.

In consideration of the report from Reed Smith, and in consultation with management, the Special Committee has determined that investors should not rely on some prior public statements from the Company concerning the Project, including statements concerning the ability to provide the expected energy outputs described in the Project and associated statements concerning the economic competitiveness of the cost of electricity from the larger utility-scale PowerBuoys (PB150 and PB500) that were proposed for the project.

The Company has determined that none of its historical audited financial statements needs to be restated as a result of the issues that are the subject of the Special Committee investigation.

(Emphasis added).

4. July 29, 2014—Ocean Power Reveals Technology Failure

203. On July 29, 2014, Ocean Power issued the July 2014 Press Release.

The July 2014 Press Release revealed that the Company’s “basic technology”

needed further advancement before Ocean Power could commit to “large-scale

utility projects” and, significantly, that it was abandoning its core product line of

the PB150 and PB500 PowerBuoys. The July 2014 Press Release stated, in

pertinent part, as follows:

PENNINGTON, N.J., July 29, 2014 (GLOBE NEWSWIRE) -- Ocean Power Technologies, Inc. (Nasdaq:OPTT) ("OPT" or "the Company") today announced financial results for its Fiscal 2014 fourth quarter and full-year ended April 30, 2014 ("fiscal 2014").

96


David L. Keller, Interim Chief Executive Officer of OPT, stated, "There have been several significant events and much change since the Company last reported financial results. We believe we have fully disclosed this information in our filings. These events have caused us to redirect the Company's strategy and advancement of our technological capabilities. We remain focused on bringing our developing technology to practical application."

"Over the last several months, we announced the termination of both the Reedsport, Oregon and Victoria Wave Partners projects. Additionally, we are deferring our WavePort deployment in the European Union into calendar 2015, due to a number of logistics factors, such as the readiness of the proposed deployment site. Furthermore, the summer 2013 deployment of our APB-350 Autonomous PowerBuoy led us to determine that several design modifications to address critical operation and reliability issues were required. Taken as a whole, these results indicate that our basic technology needs further advancement before we commit to large-scale utility projects with typical commercial risk-sharing, even when partially subsidized by government grants," he noted.

On July 8, 2014, Victorian Wave Partners Pty Ltd ("VWP"), an indirect consolidated subsidiary of Ocean Power Technologies, Inc. (the "Company"), tendered a notice (the "Termination Notice") to the Australian Renewable Energy Agency ("ARENA") of VWP's intent to terminate the Renewable Energy Demonstration Program Funding Deed, dated as of September 9, 2010, entered into between VWP and the Commonwealth of Australia, as amended by a Deed of Variation dated January 9, 2014 ("the Funding Deed"). Unless agreed otherwise, pursuant to the terms of the Funding Deed, it will terminate on October 8, 2014

Mr. Keller continued, "Looking ahead, many companies and funding agencies recognize that the nascent wave energy segment of the renewable energy market is worthy of research, development and continued advancement. We acknowledge that the inherent potential of wave power energy capture is accompanied by significant engineering challenges at both the component and system levels. Nonetheless, we are continuing to advance certain promising technologies that justify additional development. This includes

97


advanced controls that would enable an increase in electric power output and further optimization of our modular, direct-drive Power Take-Off (PTO) technology."

Strategic Focus on Smaller Scale Devices

The Company has shifted its immediate focus to smaller-scale devices, such as the PB-40, intended to be deployed off the coast of Spain, and the utility scale PowerBuoy, under development with Mitsui Engineering and Shipbuilding, which are suitable for both autonomous and utility applications. OPT recognizes that deployments are critical to technology advancement in order to accumulate successful operating history that demonstrates durability and reliability at acceptable levels of commercial risk-taking. The Company has accumulated a significant body of knowledge through PowerBuoy deployments of varying capabilities which is now an integral part of its engineering design and development processes.

Commenting on the strategic shift from large, utility-scale projects, Mr. Keller noted, "We believe that we can move faster to optimize our technology on smaller-scale power outputs which are more economical to manufacture and deploy than larger buoys."

(Emphasis added).

204. Additionally, on July 29, 2014, the Company filed its annual report on

Form 10-K for the fiscal year ended April 30, 2014 (the “2014 Form 10-K”).

Within the 2014 Form 10-K the Company revealed that the PB500 was neither

“technically feasible” nor “economically feasible”:

In fiscal 2014, upon completion of the concept design and associated trade studies that included detailed mechanical analyses, manufacturability and overall projected performance, the study concluded that a PB500 would not be technically feasible or economically viable. Our development efforts since that time have

98


focused on further optimization of our modular and optimized power takeoff technology.

205. By this point in time, Ocean Power’s stock price had reached an all-

time low of $1.23 per share as of July 29, 2014. The following day on July 30,

2014, Ocean Power’s stock price modestly increased to $1.43 per share, which

represented a 73% decline from the intra-class period high of $5.45 per share.

5. August 4, 2014—The PB500 Program is Discontinued

206. On August 4, 2014, Ocean Power held the August 2014 Conference

Call to discuss the Company’s year-end financial and operational results for fiscal

2014. During the August 2014 Conference Call, Ocean Power’s then-interim

CEO, David Keller, reiterated that the PB500 was neither “technically feasible”

nor “commercially viable” and revealed that the Company was discontinuing the

PB500 program. Mr. Keller stated as follows: “Following the completion of

concept designs and feasibility studies for the PB500 PowerBuoy, we determined

that it was not technically feasible or economically viable to continue progressing

with this design. As a result, we have discontinued the PB500 program and are

focusing our development efforts on the further optimization of our modular power

takeoff technology.”

207. The August 2014 Conference Call was held during market hours on

August 4, 2014. On August 1, 2014, the last full trading day before the August

2014 Conference Call, Ocean Power’s stock closed at $1.31 per share. On August

99


4, 2014, the Company’s stock closed at $1.23 per share in response to the

revelations made during the August 2014 Conference Call.

D. Additional Allegations Demonstrating Defendants Dunleavy and Ocean Power Acted with Scienter

208. Lead Plaintiff incorporates and realleges the CW statements made in

Section V as if fully stated herein. For the purposes of Lead Plaintiff’s claims under

the Exchange Act only, Lead Plaintiff alleges that Defendants Ocean Power and

Dunleavy (the “Exchange Act Defendants”) made the above material

misrepresentations and omissions either intentionally and/or severely reckless with

respect to the risk of misleading investors for the purposes of: (1) securing the

additional hundreds of millions of dollars of necessary to proceed with the Wave

Project, (2) raising capital in order to be able to fund additional engineering and

development efforts, (3) avoiding default under the Funding Deed and Deed of

Variation, and (4) artificially inflating market demand for Ocean Power shares.

209. According to interviews with several former employees of Ocean

Power, Defendant Dunleavy was directly involved with the Wave Project.

Defendant Dunleavy’s managerial style was, according to CW2, that of a

“micromanager” who was “not a hands-off CEO” in his approach. CW6 and CW7

corroborate the fact that Dunleavy was heavily involved in all aspects of the

Company’s operations and was aware of the commercial viability problems that

the Company faced with respected to its PoweBuoys.

100


210. As detailed above, CW2 confirmed that Defendant Dunleavy was

heavily involved in every aspect of the Wave Project, holding a variety of regular

meetings, including one-on-one meetings with senior officers at the Company.

CW2 stated that Defendant Dunleavy regularly had high level meetings with Mike

Mekhiche, Ocean Power’s Vice President of Engineering, where the two discussed

in depth the engineering and technical specifications of the PowerBuoys and the

Wave Project in general. Additionally, CW2 and Defendant Dunleavy attended

quarterly Board meetings where Mr. Mekhiche would review in detail the

engineering that went into the PowerBuoy systems,

211. CW1 raised his concerns regarding the Company’s reported energy

outputs directly to Defendant Dunleavy on at least one occasion, but his concerns

were ignored. Moreover, CW1 states that the Company would market so-called

buoy farms of interconnected buoys, when in fact the Company had never

successfully connected two. The February 2014 Newsletter states that the 10-20

cent cost per Kilowatt hour was based on 400 buoys, but according to CW1, “Two

was too many. To assume 400 buoys are going to function to produce energy is

inaccurate.”

212. Defendant Dunleavy’s sudden termination “for cause” provides

further evidence that he was intentionally misrepresenting information. In the

same press release announcing Defendant Dunleavy’s termination, the Company

101


announced it was commencing a special investigation into statements concerning

the Wave Project. This investigation led to the Company’s retraction of

Dunleavy’s statements concerning the PowerBuoy’s energy outputs and

commercial viability. The investigation also led to the Company’s decision to

terminate the Wave Project and refund the Australian government A$5.6 million.

213. Defendant Dunleavy’s actions, intentions, and deliberately reckless

conduct are imputed to the Company as a matter of law. Likewise, because of his

key role in the Company, Defendant Dunleavy caused Ocean Power to act in the

manner it did and perpetuate the material misrepresentations and omissions it made

throughout the Class Period. Ocean Power and the Defendant Dunleavy acted with

the requisite intent to establish liability under the Exchange Act. Due to his heavy

involvement in every aspect of the Wave Project, Defendant Dunleavy was aware

of the technical shortfalls of the Wave Project yet represented otherwise to

investors and the public in general.

E. Reliance Allegations in Support of Exchange Act Violations

214. At all relevant times, the market for Ocean Power’s common stock

was an efficient market for the following reasons, among others:

a) Ocean Power’s common stock met the requirements for listing

and was listed and actively traded on the Nasdaq Global Markets

exchange, a highly efficient and automated market;

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b) Ocean Power communicated with public investors via established

market communication mechanisms, including disseminations of

press releases on the national circuits of major newswire services

and other wide-ranging public disclosures, such as

communications with the financial press and other similar

reporting services;

c) Ocean Power was followed by several securities analysts

employed by major brokerage firms who wrote reports that were

distributed to the sales force and certain customers of their

respective brokerage firms during the Class Period. Each of these

reports was publicly available and entered the public marketplace;

and

d) Unexpected material news about Ocean Power was rapidly

reflected in and incorporated into the company’s stock price

during the class period.

215. As a result of the foregoing, the market for Ocean Power’s common

stock promptly digested current information regarding Ocean Power from all publicly

available sources and reflected such information in Ocean Power’s stock price. Under

these circumstances, all purchasers of Ocean Power’s common stock during the Class

Period suffered similar injury through their purchase of Ocean Power’s common stock

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at artificially inflated prices, and a presumption of reliance applies.

216. Alternatively, reliance need not be proven in this action because the

action involves omissions and deficient disclosures. Positive proof of reliance is not a

prerequisite to recovery pursuant to ruling of the United States Supreme Court in

Affiliated Ute Citizens of Utah v. United States , 406 U.S. 128 (1972). All that is

necessary is that the facts withheld be material in the sense that a reasonable investor

might have considered the omitted information important in deciding whether to buy

or sell the subject security. Here, the facts withheld were material because a

reasonable investor would have considered the truth about the status of the

Company’s PowerBuoy technology as material when deciding whether to purchase

and/or sell Ocean Power stock.

F. Loss Causation/Economic Loss

217. During the Class Period, as detailed herein, Defendants Ocean Power

and Dunleavy made false and misleading statements and engaged in a scheme to

deceive the market and a course of conduct that artificially inflated the price of

Ocean Power’s securities and operated as a fraud or deceit on Class Period

purchasers of Ocean Power securities by materially misleading the investing

public. Later, when Ocean Power’s and Dunleavy’s prior misrepresentations and

fraudulent conduct became apparent to the market, the price of Ocean Power’s

securities materially declined, as the prior artificial inflation came out of the price

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over time. As a result of their purchases of Ocean Power’s securities during the

Class Period, Lead Plaintiff and Ocean Power shareholders suffered economic loss,

i.e. , damages, under the federal securities laws.

218. On June 9, 2014, Ocean Power’s stock price closed at $2.47 per share.

On June 10, 2014, following the Company’s announcement that it was terminating

Defendant Dunleavy for cause and the announcement of the formation of the

Special Committee to conduct an investigation into the Wave Project, Ocean

Power’s stock declined by $0.84 per share, approximately 34% on heavier than

normal volume of approximately 2.8 million shares to close at $1.63 per share on

June 10, 2014.

219. On July 14, 2014, after the close of trading, the Company that

effective July 8, 2014, VWP was terminating the Project as contemplated by the

Funding Deed because the Project was “no longer commercially viable” and

returning the funding already provided by the Australian government. On this

news, the Company’s stock declined $0.35 per share, approximately 23% on

heavier than normal volume of approximately 2.2 million shares to close at $1.18

per share on July 15, 2014.

G. The PSLRA Safe Harbor Is Not Applicable

220. The statutory safe harbor under the Private Securities Litigation

Reform Act of 1995, which applies to forward-looking statements under certain

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circumstances, does not apply to any of the allegedly false and misleading

statements pleaded in this complaint. The statements alleged to be false and

misleading herein all relate to then-existing facts and conditions. In addition, to

the extent certain of the statements alleged to be false may be characterized as

forward-looking, they were not adequately identified as “forward-looking

statements” when made, and there were no meaningful cautionary statements

identifying important factors that could cause actual results to differ materially

from those in the purportedly forward-looking statements. Alternatively, to the

extent that the statutory safe harbor is intended to 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 was

made, the particular speaker had actual knowledge that the particular forward-

looking statement was materially false or misleading, and/or the forward-looking

statement was authorized and/or approved by an executive officer of Ocean Power

who knew that those statements were false, misleading or omitted necessary

information when they were made.

COUNT III

Against Ocean Power and Dunleavy For Violations of Section 10(b) and Rule 10b-5 of the Exchange Act

221. Lead Plaintiff repeats, realleges and incorporates the allegations

contained above as if set forth fully herein.

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222. Defendants Ocean Power and Dunleavy violated Sections 10(b) of the

Exchange Act and Rule 10b-5 promulgated thereunder in that they:

a) Employed devices, schemes, and artifices to defraud;

b) Made untrue statements of material facts or omitted to state

material facts necessary in order to make the statements made,

in light of the circumstances under which they were made, not

misleading; and/or

c) Engaged in acts, practices and a course of business that

operated as a fraud or deceit upon Lead Plaintiff and others

similarly situated in connection with their purchases of the

securities of Ocean Power during the Class Period.

223. Defendants Ocean Power’s and Dunleavy’s actions, intentions, and

deliberately reckless conduct are imputed to the Company as a matter of law.

Likewise, because of his key roles in the Company, Defendant Dunleavy caused

Ocean Power to act in the manner it did and perpetuate the material

misrepresentations and omissions it made in the Prospectus and throughout the

Class Period. Defendants Ocean Power and Dunleavy acted with the requisite

intent to establish liability under the Exchange Act.

224. Lead Plaintiff and other members of the Class have suffered damages

in that, in reliance on the integrity of the market, they paid artificially inflated

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prices for the securities of Ocean Power. Lead Plaintiff and other members of the

Class would not have purchased such securities at the prices they paid, or at all, if

they had been aware that the market prices of such securities had been artificially

and falsely inflated by the Exchange Act Defendants’ misleading statements.

225. By reason of the foregoing, Ocean Power and Dunleavy have violated

Section 10(b) of the Exchange Act and Rule 10b-5, and are liable to Lead Plaintiff and

the other members of the Class.

COUNT IV

Against Dunleavy For Violations of Section 20(a) of the Exchange Act

226. Lead Plaintiff repeats and realleges the allegations contained above as if

fully set forth herein.

227. During the Class Period, Defendant Dunleavy participated in the

operation and management of Ocean Power, and conducted and participated,

directly and indirectly, in the conduct of Ocean Power’s business affairs. Because

of his senior positions, he knew the adverse non-public information about Ocean

Power’s economic and technological problems related to the Wave Project.

228. As an officer and director of a publicly owned company, Defendant

Dunleavy had a duty to disseminate accurate and truthful information with respect

to Ocean Power’s financial condition and results of operations, and to correct

promptly any public statements issued by Ocean Power that had become materially

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false or misleading.

229. Because of his positions of control and authority as a senior officer,

Defendant Dunleavy was able to, and did, control the contents of the various

reports, press releases and public filings which Ocean Power disseminated in the

marketplace during the Class Period concerning Ocean Power’s results of

operations. Throughout the Class Period, Defendant Dunleavy exercised his power

and authority to cause Ocean Power to engage in the wrongful acts complained of

herein. Defendant Dunleavy therefore, was a “controlling person” of Ocean Power

within the meaning of Section 20(a) of the Exchange Act. In this capacity, they

participated in the unlawful conduct alleged which artificially inflated the market

price of Ocean Power securities.

230. Defendant Dunleavy, therefore, acted as a controlling person of Ocean

Power. By reason of his senior management position and being a director of

Ocean Power, Defendant Dunleavy had the power to direct the actions of, and

exercised the same to cause, Ocean Power to engage in the unlawful acts and

conduct complained of herein. Defendant Dunleavy exercised control over the

general operations of Ocean Power and possessed the power to control the specific

activities which comprise the primary violations about which Lead Plaintiff and the

other members of the Class complain.

231. By reason of the above conduct, Dunleavy is liable pursuant to

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Section 20(a) of the Exchange Act for the violations committed by Ocean Power.

VIII. CLASS ALLEGATIONS FOR EXCHANGE ACT COUNTS AND SECURITIES ACT COUNTS

232. Lead Plaintiff bring this action as a class action pursuant to Rule 23(a)

and 23(b)(3) of the Federal Rules of Civil Procedure on behalf of a class consisting

of all individuals and entities who purchased or otherwise acquired Ocean Power

securities (i) traded on the public market between January 14, 2014 and July 29,

2014, inclusive, and were damaged thereby (the “Exchange Act Class”), and/or (ii)

purchased or otherwise acquired Ocean Power securities directly from Roth

Capital through the Follow-On Offering (the “Securities Act Class”) (the

“Exchange Act Class” together with the “Securities Act Class”, the “Class”).

Excluded from the Class are Defendants and each of their immediate family

members, legal representatives, heirs, successors or assigns, and any entity in

which any Defendant has or had a controlling interest.

233. The members of the Class are so numerous that joinder of all

members is impracticable. As of August 31, 2014, the Company had

approximately 17.5 million shares outstanding. Between January 14, 2014 and July

29, 2014, inclusive, Ocean Power securities were actively traded on the Nasdaq

Global Markets exchange. While the exact number of Class members is unknown

to Lead Plaintiff at this time and can be ascertained only through appropriate

discovery, Lead Plaintiff believes that there are thousands of members in the

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proposed Class. Record owners and other members of the Class may be identified

from records maintained by Ocean Power or its transfer agent and may be notified

of the pendency of this action by mail, using the form of notice similar to that

customarily used in securities class actions.

234. Lead Plaintiff’s claims are typical of the claims of the members of the

Class as all members of the Class are similarly affected by Defendants’ respective

negligent and/or fraudulent conduct in violation of the federal laws complained of

herein.

235. Lead Plaintiff has and will continue to fairly and adequately protect

the interests of the members of the Class and has retained counsel competent and

experienced in class and securities litigation. Lead Plaintiff has no interests

antagonistic to or in conflict with those of the Class.

236. Common questions of law and fact exist as to all members of the

Class and predominate over any questions solely affecting individual members of

the Class. Among the questions of law and fact common to the Class are:

a) whether the federal securities laws were violated by

Defendants’ respective acts as alleged herein;

b) whether the price of Ocean Power securities during the Class

Period were artificially inflated because of Defendants’ conduct

complained of herein; and

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c) whether the members of the Class have sustained damages and,

if so, what is the proper measure of damages.

237. A class action is superior to all other available methods for the fair

and efficient adjudication of this controversy since joinder of all members is

impracticable. Furthermore, as the damages suffered by individual Class members

may be relatively small, the expense and burden of individual litigation make it

impossible for members of the Class to individually redress the wrongs done to

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

action.

IX. PRAYER FOR RELIEF

WHEREFORE, Lead Plaintiff prays for relief and judgment as follows:

(a) Determining that this action is a proper class action, certifying Lead

Plaintiff as class representative under Federal Rule of Civil Procedure

23 and Lead Plaintiff’s counsel as Class Counsel;

(b) With respect to the Securities Act claims, awarding rescissionary

damages in favor of Lead Plaintiff and the other members of the Class

against all the Securities Act Defendants, jointly and severally, for all

damages sustained as a result of the defendants’ wrongdoing, in an

amount to be proven at trial, including interest thereon, or rescission;

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(c) With respect to the Exchange Act claims, awarding compensatory

damages in favor of Lead Plaintiff and the other members of the Class

against all the Exchange Act Defendants for all damages sustained as

a result of the defendants’ wrongdoing, in an amount to be proven at

trial, including interest thereon;

(d) Awarding Lead Plaintiff and the Class their reasonable costs and

expenses incurred in this action, including counsel fees and expert

fees; and

(e) Such other and further relief as the Court may deem just and proper.

X. JURY DEMAND

Lead Plaintiff hereby demands a trial by jury.

Dated: October 9, 2015 LEVI & KORSINSKY LLP

s/ Eduard Korsinsky . Eduard Korsinsky 235 Main Street Hackensack, New Jersey 07601 T: (973) 265-1600 F: (866) 367-6510

-and-

Nicholas I. Porritt (admitted pro hac vice) Adam M. Apton (admitted pro hac vice) 1101 30th Street N.W., Suite 115 Washington, D.C. 20007 T: (202) 524-4290 F: (202) 333-2121

Counsel for FiveMore Special Situations Fund Ltd. and Lead Counsel for Class

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In Re Ocean Power Technologies, Inc. Securities...

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