Example on how Credit Suisse can manipulate the markethttps://www.law360.com/articles/451635
Law360, Los Angeles (June 20, 2013, 6:41 PM ET) -- An Energy Conversion Devices Inc. shareholder on Monday filed a proposed class action against Credit Suisse International, accusing the Swiss bank of helping drive ECD into bankruptcy by manipulating the market for the solar energy company's stock through short-selling.
Plaintiff Mark Leevan says Credit Suisse conspired with a number of unknown defendants to manipulate the market for ECD stock through a scheme targeting the company's June 18, 2008, public offering, for which Credit Suisse was an underwriter. The scheme allegedly drove the price of ECD common stock from $72 on the date of that offering to less than $1 in February 2012, when ECD was forced to file for Chapter 11 bankruptcy protection, according to the complaint.
"Defendants removed the normal market breaks on short sale activity and permitted extraordinary short selling of ECD stock," the complaint says.
Leevan says Credit Suisse's alleged scheme was a primary cause of ECD's plunge into bankruptcy.
On June 18, 2008, ECD offered 4.7 million shares of common stock, along with a concurrent offering of convertible senior notes. More than 3.4 million of the shares on offer weren't sold by the company but rather were lent to Credit Suisse, according to the complaint. The bank then offered the shares for sale to buyers of the convertible notes to serve as a hedge on their investments in the notes, according to a prospectus of the offering.
The complaint alleges Credit Suisse gave the unnamed defendants, including numerous hedge funds, package offerings that included convertible bonds and a share lending agreement. Contrary to statements in the offering prospectus, the convertible bonds in reality were actually used as a hedge against the shorting of the common stock by the unnamed defendants, the complaint says.
"The packages manipulated the market for ECD stock by eliminating high borrowing costs that would normally deter massive short selling," the complaint claims. "The share lending agreement allowed defendants to borrow stock from ECD virtually for free."
Leevan says Credit Suisse deliberately included misleading statements in the offering prospectus to swindle "ordinary investors" into purchasing ECD common stock, knowing the stock was vulnerable to short attacks. After the public offering, short attacks gradually increased, eventually causing the price of stocks that had been trading at $72 a share to collapse completely, the complaint says.
"These [short] attacks eroded the price of ECD common stock and ultimately caused ECD to plunge into bankruptcy," the complaint claims.
Auburn Hills, Mich.-based ECD filed for Chapter 11 in a Michigan bankruptcy court on Feb. 14, 2012, in the face of $263 million in outstanding debt coming due in 2013. The company initiated a bidding process to sell off subsidiary United Solar Ovonic LLC, but subsequently canceled the auction in May 2012 for lack of bids. In July, the bankruptcy court approved a joint liquidation plan for ECD and United Solar, establishing a liquidation trust and warranty trust.
Leevan is seeking to represent a class of investors who purchased common stock in ECD on or after June 18, 2008. The suit seeks damages, attorneys' fees and court costs.
A Credit Suisse spokesman declined comment on the lawsuit Thursday.
Leevan is represented by Kassra Nassiri of Nassiri & Jung LLP.
Counsel information for the defendants was not immediately available.
The case is Mark Leevan v. Credit Suisse International et al., case number 4:13-cv-02783, in the U.S. District Court for the Northern District of California.
--Editing by Jeremy Barker.