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Judge denies ABAT Dismissal, Grants Auditor Dismissal

Judge denies ABAT Dismissal, Grants Auditor Dismissal

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Published by abatevents
Judge Colleen McMahon partial dismissal of ABAT class action. On page 23, she comments on the possiblilty that other factors may have contributed to ABAT's decline in share price, such as the falsity of the VVR report.
Judge Colleen McMahon partial dismissal of ABAT class action. On page 23, she comments on the possiblilty that other factors may have contributed to ABAT's decline in share price, such as the falsity of the VVR report.

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Categories:Types, Business/Law
Published by: abatevents on Jan 02, 2013
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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT
OF
NEW YORK
-In_r_e
_A_D_V_A_N-:C-=E
.....
D - B : : - A - : - : T = T = E = R - = Y : - : T = E : : - : C : : H N : = - : : O ~ L : - : O : : : : G : : ; ; I - ; : ; - E ; ; - S , - : ; : I N ~ C - . 
XSECURITIES LITIGATIONTHIS DOCUMENT RELATES
TO:
X
--------------------------------------
No.
11
Civ. 2279 (CM)CLASS ACTION
ALL
ACTIONS
DECISION AND ORDER DENYING THE ABAT DEFENDANTS' MOTION TODISMISS AND GRANTING THE AUDITOR DEFENDANTS'MOTIONS TO DISMISS
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McMahon,
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I. INTRODUCTION
Lead Plaintiffs Ruble Sanderson
and
Arnold Cohen; thrbu·glnheir attorneys at PomerantzHaudek Grossman
&
Gross
LLP,
bring this action on behalf
of
the class
of
people who boughtshares
of
Defendant Advanced Battery Technologies ("ABAT") between the dates
of
May 15,
2007,
and
March
29,
2011, inclusive (the "Class Period"). (Compl.
~
1.)
Plaintiffs allege that
ABA
T
and
two
of
its officers -Defendant Zhiguo
Fu, ABA
T's Chairman
and CEO
during therelevant time period,
and
Defendant Guohua
Wan,
its
CFO
(Fu and
Wan,
together with ABAT,are referred
to
as
the "ABAT Defendants" herein)-made false or misleading statements thatinduced Plaintiffs
and
others similarly situated to purchase
ABA
T shares; when the truth becameknown,
the
price
of
ABAT shares dropped precipitously, causing Plaintiffs to suffer economicdamage.
See
Securities Exchange Act
of
1934,
§
lO(b),
15
U.S.C.
§
78j(b);
17
C.F.R.
§
240.10b-5.Plaintiffs also assert claims against
ABA
T's outside auditors. The first
of
these,Defendant Bagell, Josephs Levine
&
Co., was
ABA
T's auditor
from
2006
to
201
0;
although
the
1
Case 1:11-cv-02279-CM Document 90 Filed 08/29/12 Page 1 of 40
 
firm merged into another entity, Friedman LLP in 2010, I refer to this Defendant as "BagellJosephs" whether
we
are talking about the period before
or
after the merger. Defendant EFPRotenberg ("EFP") replaced Bagell Josephs as ABAT's auditor at the end
of
2010. I refer toBagell Josephs andEFP together as the "Auditor Defendants." Plaintiffs allege that the AuditorDefendants made false and misleading statements in their annual certifications
of
ABAT'sfinancial reports, and that Plaintiffs and others similarly situated relied on thosemisrepresentations to their detriment.The ABAT Defendants, Joseph Bagells, and EFP have made separate motions to dismiss.For the reasons discussed below, the ABAT Defendants' motion is DENIED. The AuditorDefendants' motions are GRANTED, and the claims against them are DISMISSED.
II. BACKGROUND
The following facts are alleged in Plaintiffs' "Corrected First Amended ConsolidatedClass Action Complaint" (the "Complaint" herein).ABAT is a Delaware corporation. It is in the business
of
selling polymer lithium-ionbatteries for use in light vehicles, such as motor scooters. (Compl.
,-r
15.) ABAT was foundedand began operations in China; in 2004 it was "acquired," via reverse merger, by a publiclytraded shell corporation in the United States. (Id.
,-r
17.) Companies that gain access to theUnited States capital markets through these transactions have recently come under increasedscrutiny, in part because the reverse merger allows a company to become listed on a stockexchange with less regulatory attention than it would face through an initial public offering.(Compl.
,,
25-33.)2
Case 1:11-cv-02279-CM Document 90 Filed 08/29/12 Page 2 of 40
 
A.
Allegations pertinent to the ABAT Defendants' motion to dismissPlaintiffs allege that Fu, with the help
of
Wan and the Auditor Defendants, used ABAT toenrich himself by artificially inflating the company's value through false earnings reports andthen diverting money to himself through a series
of
related party transactions.While the allegations
of
the Complaint are diffuse, it appears that plaintiffs included intheir pleading many facts that are merely evidentiary; I say this because, in their opposition tothe ABA T Defendants' motion to dismiss, Plaintiffs address only four specificmisrepresentations made in the course
of
this alleged scheme to support their securities fraudclaims. As I can sustain the Complaint against a motion to dismiss by discussing only two
of
those four purported misrepresentations, I need not reach, and do not discuss, whether the othermisrepresentations are adequately pleaded. No one should assume that, by not reaching them, Ihave thrown them out
of
the case; I have not.
I.
Inflated earning
Plaintiffs allege that ABAT grossly overstated its revenue and operating margins in aseries
of
publicly filed documents. (See Compl.
~
34.)In particular, the Complaint details ABAT's reported financial results as reflected in eachquarterly 10-Q, and each annual I 0-K, issued during the Class Period, many
of
which weresigned by Defendants Fu and Wan, and several press releases that trumpeted these earnings toinvestors.
(14,_
~~
34-61.) For example, the annual SEC reports indicated revenues increasingfrom $31M in 2007, to
$61
Min
2009, with net income increasing from $11M to $25M over thesame period. (Id.
~
64.)Plaintiffs allege that these statements were false and misleading because they grosslyoverstated the actual revenue and profits ABAT earned during the Class Period. (Id.
~
62.)
3
Case 1:11-cv-02279-CM Document 90 Filed 08/29/12 Page 3 of 40

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