DENVER – Vestas Wind Systems, one of Northern Colorado’s biggest employers with manufacturing facilities in Windsor and Brighton and another in Pueblo, is facing a lawsuit in U.S. District Court in Denver over accounting practices.
The suit alleges the company posted misleading information about its 2010 earnings that resulted in financial losses to pension fund investors and others who purchased Vestas stock based on the information.
The lawsuit was filed by the City of Sterling Heights (Mich.) General Employees’ Retirement System and accuses Vestas and some of its chief officers and directors with violations of the U.S. Securities Exchange Act of 1934.
The suit alleges that, during the “class period” between Oct. 27, 2009, and Oct. 25, 2010, the defendants issued materially false and misleading statements regarding the company’s financial revenues and earnings, as well as its fiscal year 2010 financial guidance.
As a result of those alleged actions, the lawsuit contends that Vestas’ American Depository Receipts and ordinary shares traded at artificially inflated prices throughout the time period.
The lawsuit seeks unspecified damages to be determined by the court. Attorneys for the plaintiffs are seeking other Vestas investors who purchased securities during the class period to join in the suit.
Those involved with filing the lawsuit, including Darren Robbins of San Diego-based Robbins Geller Rudman and Dowd LLP, did not return telephone calls for this story. Walt Hessel, pension fund administrator for the City of Sterling Heights, about 20 miles northeast of Detroit, also declined to comment.
“We have ongoing litigation so it’s not appropriate for us to comment at all,” Hessel said, although he did acknowledge that about 500 active and retired employees are included in the pension fund.
Chief officers singled out
The lawsuit, filed March 18, alleges that four of Vestas’ top officers – Bent Erik Carlsen, chairman of the board; Ditlev Engel, president and CEO; Henrik Norremark, executive vice president and CFO; and Martha Wyrsch, president of Vestas Americas – deliberately made false and misleading statements in press releases and financial reports.
“These claims are asserted against Vestas and its officers and chairman of the board who disseminated materially false and misleading statements during the class period in the company’s financial reports, press releases and analyst conference calls,” the lawsuit states.
“Because of their positions with the company, and their access to material non-public information available to them but not to the public, the individual defendants knew that the adverse facts alleged herein had not been disclosed to, and were being concealed from, market participants and that the positive representations being made were then materially false and misleading,” the suit further states.
According to the suit, Vestas failed to implement a new accounting policy that was to go into effect no later than Jan. 1, 2010. It would no longer allow the company to recognize revenues from wind projects that were contracted or under construction but instead must be deferred until the installation was complete.
The new policy, known as IFRIC 15, was not implemented by Vestas until Nov. 22, the suit alleges.
The suit states that on Aug. 17, Vestas issued its second quarter 2010 results and “downwardly revised its 2010 financial outlook for revenue and earnings, admitting that hundreds of millions of Euros of wind systems contracts expected to be recognized in 2010 – particularly in the United States – must be deferred.”
“As such, the company decreased its 2010 revenue guidelines from $7 billion Euros to $6 billion” Euros because “revenue associated with firm and unconditional orders could not be recognized during fiscal 2010,” according to the suit. It also noted that market reaction to the Aug. 17 disclosure was “swift and punitive,” with the value of both its ADRs and ordinary shares dropping by 22.5 percent in one day.
The lawsuit further alleges Vestas admitted on Oct. 26 that it had failed to implement IFRIC 15 and that its 2010 financial statement would require corrective action.
The suit says that “after defendants’ fraud was revealed and absorbed by the market, investors sold their Vestas securities in mass, reducing the price of the company’s securities by 57 percent from their class period high.”
The lawsuit contends that the actions by Vestas’ officers “allowed the top officers and director of Vestas to obtain millions of Euros in salary and incentive-based compensation during the class period.”
Vestas spokesman Peter Kruse issued a statement saying the company would fight the lawsuit. “The company has reviewed the complaint with its legal and other advisers and believes that the complaint is without merit. The company and the individual defendants intend to defend themselves vigorously.”
When called for a follow-up comment, Kruse said he had “nothing to add to the statement of March 21.”
As of May 2, Vestas had not filed a reply to the lawsuit.
Vestas reported in February that it had received a total of 15 North American orders for wind turbines in 2010, a record for the company that employs about 1,600 people in Colorado.
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