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North Carolina Lawyers Weekly Top Verdicts & Settlements (2008) - $6.75 Million: Investment Fraud Recovery

Settlement amount: 
$6.75 Million

The case referred to above concluded with a confidential settlement. Many financial cases in litigation result in confidential settlements. This means that we cannot publicly discuss the terms and conditions of those settlements, including what the settlement amounts were. We can, however, provide descriptions of the types of cases we are working on now – which are comparable to those we have worked on before. The following summary relates to a case that we are either actively litigating or that we have litigated in the past.

Market Manipulation Under the Federal Securities Act

See federal district court opinion at: Sharrette v. Credit Suisse Int’l, 2015 WL 5236571 (S.D.N.Y. 2015). In this case, we represent former shareholders of a solar power company named Energy Conversion Devices, Inc. ("ECD"). In 2008, ECD retained an investment bank, Credit Suisse, to help the young public company raise capital. Credit Suisse recommended that ECD issue $316 million in bonds that could be converted into the company’s stock (a "convertible bond"), and that ECD simultaneously issue about 3.5 million shares of the company’s stock to facilitate something called a "share lending agreement." Through the share lending agreement, ECD agreed to loan these newly issued shares to Credit Suisse at nominal cost. In turn, shareholders were told, Credit Suisse would employ the newly issued ECD shares, by making benefits derived from these shares available to the ECD convertible bond investors, in order to provide those investors with a "hedge" against downward movement in the value of the ECD bonds.

To create this "hedge," Credit Suisse borrowed the 3.5 million shares of ECD stock, sold most or all of those shares "short" on the public market, and then used these short transactions to purportedly create a hedge position for the ECD convertible bond investors. At the time of the ECD convertible bond offering, the short interest in ECD stock was about 6.7 million shares. So the additional shorting of more than 3 million shares represented an increase of roughly 45% in the existing short interest in ECD stock. As the volume of short sales of ECD stock rose sharply, the price of ECD stock dramatically plunged. In 2012, ECD declared bankruptcy, causing massive shareholder losses.

The ECD shareholder-plaintiffs have alleged that the rampant shorting of ECD stock after the offering, followed by ECD’s downward spiral, was not a legitimate form of hedging, and was part of a scheme orchestrated by Credit Suisse to reap enormous profits while sending ECD stock into a downward spiral.

The ECD shareholder-plaintiffs have alleged that Credit Suisse orchestrated a situation where it (or its cohorts) could place massive negative bets on ECD stock with very little risk, such that the short sales could not be considered part of a legitimate hedging strategy (in the manner suggested by the ECD stock and bond offering materials).

This case is presently pending in the United States District Court for the Southern District of New York. Jim Roberts was lead counsel in this case, along with attorneys from Scott+Scott, LLP.

Contact Us if you believe you have been a victim of investment fraud.