Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-05182/USCOURTS-cand-3_07-cv-05182-64/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

IN RE LDK SOLAR SECURITIES 

LITIGATION.

 /

This Document Relates to:

All Actions. /

No. C 07-05182 WHA

ORDER GRANTING MOTION

FOR PRELIMINARY APPROVAL

OF SETTLEMENT AGREEMENT 

INTRODUCTION

In this securities fraud class action alleging inventory and accounting irregularities at

defendant LDK Solar Co., Ltd., the parties move for preliminary approval of a proposed class

settlement agreement. Although the proposed settlement is a low percentage of the estimated

damages (even before fees and costs), plaintiff’s counsel have recommended settlement because

of problems of proof relating primarily to the unavailability at trial of Mr. Charlie Situ, LDK’s

former financial controller, whose allegations in a Barron’s article provoked this lawsuit. 

Plaintiff’s counsel additionally believe that LDK has limited assets available for a larger class

recovery and that they will have difficulty enforcing any eventual judgment against LDK’s assets

in China. As stated at the hearing held on February 16, 2010, the joint motion for preliminary

approval of the proposed settlement is GRANTED, reserving on final approval later.

STATEMENT

Defendants in this matter include LDK Solar Co., a manufacturer of multicrystalline solar

wafers (a component of solar cells), LDK Solar USA, Inc., its U.S. subsidiary, Jiangxi LDK

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Solar, a Chinese subsidiary, and several of LDK’s officers and directors. Plaintiff contends that

defendants doctored LDK’s IPO prospectus and financial statements and made other false or

misleading public statements regarding the company’s financial health. The allegations center

around LDK’s internal controls and accounting for its key input, polysilicon. Plaintiff avers that

defendants significantly overstated the value of its inventory of polysilicon, an important material

used in wafer manufacturing which constitutes some 80% of LDK’s production costs, thus

significantly overstating the company’s financial performance and prospectus. When these

circumstances came to light in October 2007, LDK’s stock fell by nearly 50%.

Several putative class actions were filed on behalf of investors who purchased LDK

securities. These were consolidated in the present action. Investor Shahpour Javidzad was

appointed lead plaintiff and filed a consolidated class complaint on March 10, 2008, asserting

claims against all defendants under Sections 10(b) of the Securities and Exchange Act of 1934

and Rule 10b-5, and claims against the individual defendants under Section 20(a) of the Exchange

Act. Motions to dismiss filed by defendants were denied. A class was subsequently certified

comprised of:

all persons who (a) purchased LDK Solar Co., Ltd. (“LDK” or the

“Company”) American Depository Shares (“ADSs”); (b) purchased

call options for LDK ADSs; or (c) sold put options for LDK ADSs

during the Class Period defined below, and were damaged thereby. 

Excluded from the Class are the Defendants and the other current

and former officers and directors of the Company, their immediate

families, their heirs, successors, or assigns and any entity controlled

by any such person. The Class Period is June 1, 2007 through

October 7, 2007.

Defendants moved for summary judgment and plaintiff moved for partial summary

judgment. The summary judgment motions were fully briefed when the stipulation of settlement

and motion for preliminary approval of the settlement were filed.

ANALYSIS

1. COST/BENEFIT TO ABSENT CLASS MEMBERS.

The proposed settlement provides that defendants or their insurer will pay $16 million in

cash into an interest-bearing escrow account within ten working days of the entry of this

preliminary approval order. No undistributed funds remaining after distribution to the class will

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revert to defendants. Attorney’s fees, litigation expenses and administrative costs will all be

deducted from this amount before any payout to class members. The damages study by plaintiff’s

expert estimated damages to be worth as much as $293 million. The proposed settlement amount

is therefore only about five percent of the estimated damages before fees and costs.

Nevertheless, plaintiff’s proposal offers sufficient justification for the low return to class

members relative to the merits of the action. This lawsuit was instigated after LDK’s former

controller, Charlie Situ, made public allegations that substantial portions of LDK’s inventory was

missing or unusable and that there were irregularities in LDK’s accounting for inventory. 

However, Charlie Situ has not cooperated with plaintiff in this action, is unavailable as a witness

at trial, and cannot be found by plaintiff’s counsel. Plaintiff has faced additional hurdles building

his case because many of the important events, players, and documents are in China. As a result

of counsel’s inability to substantiate many of Charlie Situ’s allegations, plaintiff has had to

modify his theory of the case, raising problems of proof. Additionally, plaintiff asserts that

defendant LDK has a weak financial condition and most of its assets are in China where a

judgment might be difficult to collect.

Plaintiff estimates that there are less than 30,000 class members and that the average

recovery of each class member will be between $500 and $1000. This will at least outweigh the

costs of mailing and administration. The reasons stated are sufficient to justify preliminary

approval of settlement, at least for purposes of putting the proposal out for comment.

2. SCOPE OF RELEASE.

The scope of release is sufficiently narrow. Class members who do not opt out of the

settlement will release only securities fraud claims arising during the class period. Claims

asserted in the shareholder derivative action entitled Coonerty v. Xiaofeng Peng, et al., Superior

Court of California, County of Santa Clara, 108 CV 103758, are specifically carved out of the

proposed settlement.

3. INCENTIVE PAYMENTS.

At the hearing, plaintiff’s counsel stated that lead plaintiff would apply for an incentive

payment to compensate him for time and expenses. Generally, additional benefits to named

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plaintiffs beyond those received by the rest of the class are disfavored. If a settlement is not good

enough for named plaintiffs, it is usually not good enough for the class. Nevertheless, this issue

need not be resolved at this stage of preliminary approval although the notice should describe the

item.

4. NOTICE AND HEARING ON FINAL APPROVAL.

For the foregoing reasons, preliminary approval of the settlement between the parties, as

set forth in the stipulation and the proposed plan of allocation described in the notice, is

GRANTED. The proposed form of notice is hereby approved with the following addition. The

Court wants the class members to have a fair opportunity to comment on the proposed settlement

before final approval. The notice shall be required to include the following paragraph to begin on

the first page, to be bolded as follows:

SUMMARY OF PROPOSED SETTLEMENT

You are a class member whose rights will be extinguished by a proposed settlement and

your views as to its fairness are requested by the federal court. It would settle all

shareholder claims for ADS securities of LDK Solar Co., Ltd. purchased between June 1,

2007, and October 7, 2007. The lead plaintiff claims the class should recover up to $293

million if the case is tried but proposes to settle for $16 million due to problems of proof and

collectibility. From this, class counsel would seek up to $2.4 million in attorney’s fees, $3.1

million in expenses and $250,000 in administrative costs, for a total deduction of $5.75

million, leaving $10.25 million to be divided among class members. The average check per

investor would be in the range of $500, although some checks would be less and some more. 

The release would bar all future claims by class members of the type asserted but would not

bar a derivative action still pending in state court, described below. The Court invites the

views of all class members on the fairness of the proposed settlement. If you wish, you may

opt out of the settlement and bring your own suit, all as described below.

Counsel may propose edits to the foregoing to improve its accuracy, all to be submitted to

the Court for its approval by NOON ON FEBRUARY 22, 2010.

Lead counsel is authorized to act on behalf of the class with respect to all acts required by,

or which may be given pursuant to, the stipulation of settlement or such other acts that are

reasonably necessary to consummate the proposed settlement set forth in the stipulation. Lead

counsel is authorized to retain and supervise the firm of A.B. Data as claims administrator, to

administer the notice and claims procedures.

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A settlement fairness hearing shall be held on JUNE 17, 2010, AT 8 A.M., in the United

States District Court for the Northern District of California in Courtroom 9, 19th Floor, 450

Golden Gate Ave., San Francisco, CA 94102 to:

1. determine whether the settlement should be approved as fair, reasonable, adequate,

and in the best interests of the class,

2. determine whether judgment should be entered pursuant to the stipulation, inter

alia, dismissing the action with prejudice and extinguishing and releasing all

released claims and settled defendants’ claims as defined in the proposed

settlement agreement,

3. determine whether the plan of allocation should be approved,

4. rule on lead counsel's application for an award of attorneys' fees and the

reimbursement of expenses and lead plaintiff’s application for an incentive fee,

5. hear the objections and comments of absent class members, if any, and

6. rule on such other matters as the Court may deem appropriate.

The claims administrator shall make reasonable efforts to identify all persons and entities

who are members of the class, including beneficial owners of LDK securities held by banks,

brokerage firms, or other nominees. LDK shall use best efforts to provide or cause to be provided

to lead plaintiff within ten business days of the execution of this order any additional information

from LDK’s transfer records reasonably required by the claims administrator to send copies of the

notice to the persons and entities who can be identified through reasonable efforts from the stock

transfer records of LDK. 

Within thirty days after the entry of this order, the claims administrator shall cause a copy

of the notice substantially in the form of Exhibit 1 (with the addition of the summary paragraph as

described above) and the proof of claim substantially in the form of Exhibit 2 to be mailed by

United States mail, postage pre-paid, to all members of the class, at their last known address

appearing in the stock transfer records maintained by or on behalf of LDK, and to identifiable

nominees for class members. The thirtieth day after the entry of this order shall be termed the

“notice date.” 

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Pursuant to the notice, each nominee shall either (1) send the notice and proof of claim to

class members for which they act as nominee by first class mail within ten days after the nominee

receives the notice and proof of claim or (2) send a list of the names and addresses of such

beneficial owners to the claims administrator within ten days after the nominee receives the notice

and proof of claim. In the event of the latter, the claims administrator shall send by first class

mail the notice and proof of claim to all class members named on the list received from the

nominee. The claims administrator shall, if requested, reimburse banks, brokerage houses, or

other nominees for their reasonable out-of-pocket expenses incurred in providing notice to

beneficial owners who are class members, which expenses would not have been incurred except

for the sending of such notice, subject to further order of this Court with respect to any dispute

concerning such compensation. Lead counsel shall file with the Court and serve upon

defendants’ counsel no later than thirty-five days prior to the settlement fairness hearing a

declaration describing the efforts taken to comply with this order and stating that the mailings

have been completed in accordance with the terms of this order.

Within ten days of the notice date, lead counsel shall issue the summary notice as a press

release, substantially in the form of Exhibit 3, and take reasonable steps to ensure that the press

release is widely disseminated on the internet, and shall post the press release and full notice and

any other appropriate documents on a website concerning the settlement. Lead counsel shall file

with the Court and serve upon defendants’ counsel no later than thirty-five days prior to the

settlement fairness hearing a declaration stating that the summary notice has been disseminated in

accordance with the terms of this order.

The form and method of notice specified herein is the best notice practicable and shall

constitute due and sufficient notice to all persons and entities entitled to receive such notice and

fully satisfies the requirements of due process and of Rule 23. 

Any member of the class who objects to the settlement, the plan of allocation, and/or the

application for attorneys’ fees and reimbursement of expenses, or who otherwise wishes to be

heard, may: 

1. file a brief or other writing setting forth the person’s views, provided that no brief

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or other writing other than those submitted by the parties and their counsel shall be

considered by the Court unless at least fourteen days prior to the settlement

fairness hearing such brief or other writing shall have been filed with the Court and

delivered to counsel listed below, accompanied by documents sufficient to show

that the person is a class member; and/or

2. appear in person or by the person’s attorney at the settlement fairness hearing and

present evidence or argument that may be proper or relevant; provided that no such

argument shall be permitted by the Court unless at least fourteen days prior to the

settlement fairness hearing such person files with the Court and delivers to counsel

listed below: (i) a written notice of the person's intention to appear, (ii) a

statement of the person's objection(s) to any matters before the Court, (iii) all

documents or writings the person desires the Court to consider, and (iv) documents

evidencing that the person is a class member. 

In addition to being filed with the Court, the documents discussed in this paragraph shall

be served on the following:

Lead counsel for lead plaintiff and the class:

Herbert E. Milstein, Esq. 

COHEN MILSTEIN SELLERS & TOLL PLLC

1100 New York Avenue, N.W. 

West Tower, Suite 500

Washington, D.C. 20005

Counsel for defendants:

James J. Farrell, Esq.

LATHAM & WATKINS LLP

355 South Grand Avenue

Los Angeles, CA 90071

Any person falling within the definition of the class may, upon request, be excluded from

the settlement. Any such person must submit to the claims administrator a request for exclusion. 

A request for exclusion must be received by the claims administrator at least forty-two days

before the settlement fairness hearing and state in writing: (i) the name, address, and telephone

number of the person requesting exclusion, (ii) the person’s transactions in LDK securities during

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the class period, including the dates, the number of shares of securities, and price paid or received

per share for each such purchase, acquisition or sale, and (iii) that the person wishes to be

excluded from the class. Any person who submits a valid and timely request for exclusion —

whether in response to the notice to be distributed to class members to inform them of the

proposed settlement, or whether in response to the initial notice, dated May 21, 2009, which was

distributed to the class after the Court certified the class — shall have no rights under the

stipulation and shall not share in the distribution of the settlement, unless such person validly

retracts the person’s request for exclusion. Plaintiff shall provide defendant with all relevant

information about all persons who have opted out of the class as soon as is practicable, and, in all

events, not less than six days after the deadline for opting out of the class.

Any person who has excluded himself, herself or itself from the settlement — whether in

response to the notice to be distributed to the class members to inform them of the proposed

settlement, or whether in response to the initial notice, dated May 21, 2009, which was distributed

to the class after the Court certified the class — may retract such exclusion in the manner set out

in the notice, provided that the notice must be received by three days prior to the settlement

fairness hearing.

Any class member who wishes to participate in the settlement fund must submit a valid

proof of claim to the claims administrator, at the address indicated in the notice, postmarked not

later than one hundred and fifty days following the notice date. Such deadline may be further

extended by Court order. Proofs of claim shall be deemed to have been submitted when legibly

postmarked, if mailed by first class, or registered or certified mail, postage prepaid, addressed in

accordance with the instructions given in the proof of claim. All other proofs of claim shall be

deemed to have been submitted at the time they are actually received by the claims administrator. 

To be valid, a proof of claim must: (i) be completed in accordance with the instructions in the

notice and be accompanied by any required documents, (ii) include the release by the claimant of

all released parties as set forth in the stipulation, and (iii) be signed with an affirmation

(notarization not required) that the information is true and correct. All class members who do not

submit valid and timely proofs of claim shall be forever barred from receiving any payments from

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the settlement fund, but will in all other respects be subject to and bound by the provisions of the

stipulation and the order and final judgment, if entered.

If this settlement is not approved by the Court or does not become effective for any reason

whatsoever, the settlement (including any modification thereof) made with the consent of the

parties as provided for in the stipulation and any actions taken or to be taken in connection

therewith (including this order and any judgment entered herein), shall be terminated and shall

become void and of no further force and effect except for lead plaintiff’s obligations to pay for

any expense incurred in connection with the notice and administration provided for by this order.

All proceedings in the action, other than such proceedings as may be necessary to carry

out the terms and conditions of the settlement, are hereby stayed until further order of this Court. 

Pending final determination whether the settlement should be approved, plaintiff and all members

of the class are barred and enjoined from commencing or prosecuting any action asserting any

claims that are or relate in any way to the released claims as defined in the stipulation.

Neither the stipulation nor any provisions contained in the stipulation, nor any

negotiations, statements, or proceedings in connection therewith, nor any action undertaken

pursuant thereto shall be construed as, or deemed to be evidence of, an admission or concession

on the part of plaintiff, defendants, any member of the class, or any other person or entity, of any

liability or wrongdoing by them, or any of them, or as to the strength or weakness of any claim or

defense, and shall not be offered or received in evidence in any action or proceeding (except an

action to enforce the stipulation and settlement contemplated hereby), or be used in any way as an

admission, concession, or evidence of any liability or wrongdoing of any nature, and shall not be

construed as, or deemed to be evidence of, an admission or concession that plaintiff, any member

of the class, any present or former holder of LDK securities, or any other person or entity, has or

has not suffered any damage.

No later than 60 days before the settlement fairness hearing, the parties shall file a motion

for final approval of the settlement, a motion for approval of their proposed plan of allocation of

net settlement proceeds to the class, and their final application for attorneys’ fees and expenses. 

Any response to any timely filed objection to the settlement, plan of allocation or application for 

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an award of attorney’s fees and reimbursement of expenses shall be filed no later than seven days

before the date scheduled for the settlement fairness hearing. 

IT IS SO ORDERED.

Dated: February 17, 2010. WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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