By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Electricity Corporation’s (BEC) prospective manager has received a major boost after a US court dismissed a ‘class action’ lawsuit against it, finding that aggrieved investors “failed to adequately” prove their share price manipulation claims.

Chief district judge, James Dever, dismissed the action against PowerSecure and its chief executive, Sidney Hinton, in its entirety, finding that their actions “do not support a strong inference” of any intent to deceive investors.

While the judge did leave the door open to the class action plaintiffs filing an amended compliant by October 16, 2015, the decision will likely also be a relief to the Christie administration.

Tribune Business previously revealed that the lawsuit’s existence played a key role in delaying the Christie administration’s announcement of PowerSecure as the preferred bidder for the BEC management contract.

The allegations contained in the class action complaint drove Prime Minister Perry Christie to seek US government guarantees - from the likes of secretary of state, John Kerry, and commerce secretary, Penny Pritzker - vouching for PowerSecure’s integrity.

It delayed the process by several months, with the Prime Minister, in particular, wanting the selection of BEC’s management partner to be beyond reproach, and able to withstand all scrutiny and challenge.

The action was cited by PowerSecure’s rivals in the bidding process for the BEC contract as a reason not to hand the company the contract.

And it was also a concern for the trade unions. Clinton Minnis, the Bahamas Electrical Managers Union (BEMU) president, told Tribune Business previously that PowerSecure’s legal battle was one concern it had raised with Deputy Prime Minister Philip Davis.

“One of the concerns that we had was whether the company had put all of its legal issues behind it,” Mr Minnis said. “We know that there was a class action suit against them.”

All this now appears to largely be behind PowerSecure, amid hopes that the BEC management contract can now be finalised with the Government this month, once the Cabinet approves the contract terms and business plan.

The class action lawsuit had revolved around the 62 per cent “plunge” in PowerSecure’s share price that occurred on May 8 last year.

Maguire Financial, the investor who led the ‘class action’ complaint, claimed that PowerSecure and its top executives withheld material information that would have informed the market its financial performance was about to take a hit.

By allegedly touting strong financial results, Maguire Financial and other investors claim PowerSecure “artificially inflated” its share price starting in August 2013.

They allege that this occurred “just in time” for PowerSecure to place a stock issue with investors, raising $34 million from the sale of 2.3 million shares.

And, at the same time, the Maguire Financial class is alleging that Sidney Hinton, PowerSecure’s chief executive and president, raised $3.2 million by selling 30 per cent of the shares he held in the company.

All this occurred prior to May 7, 2014, when BEC’s potential manager unveiled first quarter results that led to one of the company’s analysts saying they had been “blindsided”.

PowerSecure unveiled a net $4.3 million loss for a period in which the market had expected a profit, and reduced its revenue and net income expectations for the remainder of 2014.

“In response to this shocking material adverse information, PowerSecure’s stock plunged by more than 62 per cent, erasing more than $250 million in market capitalisation, to close at just $7 on May 8, 2014, on unusually high trading volume,” the Maguire Financial class action complaint alleged.

It claimed that PowerSecure had been “encountering significant operational issues and inefficiencies” from the 2013 second quarter, but these had not been disclosed to investors and the capital markets.

PowerSecure dismissed these claims as “fraud by hindsight” allegations, and argued that the eastern district of North Carolina court needed to throw the lawsuit out for failing to state a claim.

Judge Dever agreed, finding that the aggrieved investors had failed to either prove “a material misrepresentation” had been made, or that there was any intent to defraud or deceive them.

He ruled that they had only “sufficiently” alleged one material misrepresentation - the public statement by Mr Hinton that PowerSecure had obtained a $49 million, three-year contract renewal when the deal was instead for a new area and required the hiring of new workers.

Judge Dever also found the investors had failed to “adequately plead” intent, and said there was nothing to show PowerSecure and its executives had acted with “severe recklessness”.

“The complaint essentially states that defendants must have known of or recklessly disregarded the operational inefficiencies, possible failure of a change in corporate strategy to pursue higher-margin projects, and the possibility of a new client delaying work, supported by the fact that PowerSecure and Hinton made public offerings of PowerSecure common stock nine days into the proposed class period,” Judge Dever ruled.

“This inference of scienter is not as compelling as the competing inference that defendants innocently or negligently failed to fully disclose to the market (and competitors) information about the change in corporate strategy to pursue higher-margin opportunities, and the extent of existing and potential operational inefficiencies driven by estimates of future work flow.

“Thus, looking at all allegations, plaintiffs have failed to adequately plead scienter.”