Judge Paul Engelmayer
Wang founded SmartHeat Inc. and was its chief executive until May 2012. He remains chairman and CEO of SmartHeat’s principal subsidiary. Putative class action lead plaintiff Stream SICAV (Stream) charged SmartHeat and Wang with securities fraud. It alleged that despite announcing that a “lock-up” agreement barred its senior management from selling shares until 2012, SmartHeat and Wang failed to disclose a secret amendment thereto allowing insiders to sell SmartHeat shares effective Jan. 1, 2010. They also allegedly did not disclose pre-2012 sales of 380,000 of the purportedly locked-up shares. District court denied dismissal of Stream’s lawsuit, finding that Stream had alleged a material misrepresentation. Further Wang’s alleged failure to correct his and SmartHeat’s public statements about the existence of a lock-up agrement did not operate as a fraud on the corporation—implicating the “adverse interest” exception to imputation because Wang allegedly acted contrary to SmartHeat’s interests—but rather defrauded the investing public. As a result, the SAC fairly alleged that by concealing its repudiation of the lock-up agreement, SmartHeat continued to survive—”to attract investors and customers and raise funds for corporate purposes.”
