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Sunrun Concealed Cancellations to Boost Growth Figures for IPO, Says Securities Class Action

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Installation of Solar Panels

Sunrun, Inc. artificially inflated its stock price, claims the complaint for this class action, simply by delaying the reporting of order cancellations. Because the company hid these actions, the complaint alleges that it violated the Securities Exchange Act of 1934 and is responsible for stock losses suffered by investors the actions were revealed.

The class for this action is all persons who acquired Sunrun securities between September 16, 2015 and May 21, 2017.

Sunrun sells and maintains home solar energy systems, and also provides power through solar system leasing and customer agreements. Before installing a system, Sunrun does a site audit, designs the installation, and gets permits. At any time during this pre-installation process, the customer can cancel the order; and Sunrun may also cancel it, for example, if the roof cannot properly support the panels, or if there is too much shade.

One of Sunrun’s key metrics is Megawatts Booked, which it defines as “the aggregate megawatt production capacity of our solar energy systems … net of cancellations.” The complaint claims that analysts often quoted the Megawatts Booked figure during the class period to judge the financial condition of the company.

According to the complaint, before its initial public offering (IPO), Sunrun ordered its employees not to report cancellations, or to delay reporting them, in order to artificially boost the Megawatts Booked figure and give the impression of faster growth. The complaint quotes a confidential witness, regional managers, and other employees as confirming this. For example, one said that Hawaii did not process about 200 cancellations, which were equal to about 40% of Hawaii’s total orders. Another said that orders from the East Coast sector were not cancelled or not reported as cancelled, sometimes for “hundreds of days.”

In 2016, with its IPO past, the complaint says, Sunrun began incorporating the backlog of cancellations into its figures. For example, in March 2016, it disclosed a lower growth rate for Megawatts Booked, and then necessarily projected lower figures for another metric, Megawatts Deployed, of 285 MW. That figure was about 20% below analysts’ expectations of 345-363 MW, the complaint says, but the company still did not disclose that it had previously falsified the Megawatts Booked figure. At the news, the company’s stock price fell by more than 11%.

According to the complaint, the full revelation of Sunrun’s inflationary actions only came in May 2017, in two articles in the Wall Street Journal. The first announced that the Securities and Exchange Commission (SEC) was investigating whether the company had properly disclosed cancellations; the second quoted four managers who had been asked to delay reporting or underreport cancellations. At each of these revelations, the stock price fell again, causing losses for investors. 

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