A number of U.S. law firms have announced investigations of potential securities claims against Vivint Solar in connection with the company’s initial public offering (IPO) in October and its subsequent third-quarter results.
The Rosen Law Firm and Faruqi & Faruqi in New York, Holzer & Holzer in Atlanta, Kahn Swick & Foti in New Orleans and Johnson & Weaver in San Diego have all announced investigations of potential securities fraud at the company.
The Rosen Law Firm said last week that it was investigating potential securities claims against Vivint Solar resulting from allegations that the company may have issued materially misleading business information to the investing public in connection with its initial public offering on September 30, 2014.
The firm noted that on November 10, Vivint Solar reported a much wider than expected loss in the third quarter of 2014. Vivint lost 66 cents a share in the quarter excluding various items, compared with loss estimates of 20 cents a share average loss estimate of four analysts compiled by Bloomberg. On this news, shares of Vivint Solar Research fell sharply during intraday trading on November 11, 2014, damaging investors.
The law firm said it was preparing a class action lawsuit to recover losses suffered by Vivint shareholders as a result of what it described as adverse information.
Likewise, Holzer & Holzer said it was investigating whether Vivint and/or its officers and directors complied with applicable laws when issuing public statements in connection with the companys IPO, likewise citing the Bloomberg report that said Vivints recent quarterly results significantly missed analysts expectations. The price of VSLR stock fell significantly on the news, which came less than two months after its IPO.
Legal action by investors spreads distrust in solar industry
While Vivint has yet to respond to the investigations, industry watchers say the negative buzz could hurt other solar companies considering an IPO.
According to former analyst Goetz Fischbeck, who today leads solar industry consultancy firm Smart Solar Consulting, such legal action by investors could spread distrust in the solar industry and set the sector back by up to year and a half regarding their ability to raise equity in the capital market.
At the same time, Fischbeck is quick to point out that analysts did not appear to be concerned during the companys November 10 earnings call.
Nevertheless, Fischbeck added, When you go public, you have to make sure that you establish a positive track record in terms of reliability regarding your projections your share price should not collapse by 25% in the first six weeks of trading if you deliver on your promises.
Vivint reported an installed 49 MW in the third quarter of the year, up from 20 MW in Q3 of 2013, and the company is expecting between 45 and 47 MW installed in the fourth quarter.
It remains to be seen whether investors had overly eager expectations regarding the companys forecast or whether executives presented overly optimistic figures during the companys roadshow prior to its IPO, Fischbeck added. A seasonal slowdown in installations, especially in winter, is normal and could explain the flat installation guidance for the fourth quarter of 2014. In 2013, Vivint Solar had the same seasonal growth pattern in terms of MWp installed.
From its initial September 30 offering at $16 a share, Vivint shares have fallen 27% to their current $11.68. Company shares fell 22% following publication of its first quarterly results as a public company.
Noting that Vivint has become the second-largest residential solar company in the U.S. in just three years, Vivint CEO Gregory Butterfield told investors during the November 10 conference call, This level of growth requires significant investment in the business.