Case 1:12-cv-01041-LAK Document 21 Filed 08/14/12 Page 1 ...securities.stanford.edu/.../2012814_r01c_12CV01041.pdfNo.: 7:12-CV-01041 (ER) J C' JURY TRIAL DEMANDED t) 1 C' CONSOLIDATED

Case 1:12-cv-01041-LAK Document 21 Filed 08/14/12 Page 1 of 21

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

In re: NEW ENERGY SYSTEMS GROUP SECURITIES LITIGATION

No.: 7:12-CV-01041 (ER) J

C'

JURY TRIAL DEMANDED

t) 1

C' L.) CONSOLIDATED CLASS ACTION COMPLAINT

Lead Plaintiffs Joseph M. Jason, Richard Watson, Charles W. Clark, Gloria J. Scott, and

Spencer Thompson (collectively, the "Jason Investor Group") and named plaintiff Pascal Van

Hove GCV (Jason Investor Group and Pascal Van Hove GCV, collectively the "Plaintiffs"),

individually and on behalf of all other persons similarly situated, by their undersigned counsel,

allege the following upon knowledge with respect to their own acts, and upon facts obtained

through an investigation conducted by their counsel, which included, inter alia: (a) review and

analysis of relevant filings made by New Energy Systems Group ("New Energy", "NEWN" or the

"Company") with the United States Securities and Exchange Commission (the "SEC"); (b) review

and analysis of Defendants' public documents, conference calls and press releases; (c) review and

analysis of securities analysts' reports and advisories concerning the Company; (d) regulatory

filings in the People's Republic of China; and (e) information readily obtainable on the Internet.

NATURE OF THE ACTION

1. This is a federal securities class action on behalf of a class consisting of all persons

other than defendants who purchased the publicly traded common stock of New Energy between

April 15, 2010, and November 14, 2011, inclusive (the "Class Period"), seeking to recover

damages caused by Defendants' violations of the Securities Exchange Act of 1934 (the "Exchange

Act").


2. Throughout the Class Period, Defendants made false and misleading statements

about the Company's true financial performance and condition.

3. New Energy overstated its revenue and net income for fiscal 2008 by 456% and

9,863%, respectively. The Company likewise overstated its 2009 revenue and net income by

1,185% and 9,662%, respectively.

4. Defendants kept two sets of books, one filed with the SEC and provided to U.S.

investors that paints a picture of a thriving company—reporting revenue and net income of $26.38

million and $5.84 million, respectively; and in 2009 reporting revenue and net income of $19.7

million and $4.45 million, respectively. Another set of books, filed with Chinese regulators, show

the Company barely keeping its head above water, with $2 million of revenue and $59,000 of net

income for 2009, and $3.5 million of revenue and $44,000 of net income for 2008.

5. Maintaining two materially different sets of financial records is the classic hallmark

of accounting fraud. New Energy's fraud was masterminded by notorious stock promoter and

consultant Jie Xu, alic/a Kit Tsui and Dr. Kit Tsui (all aliases collectively "Kit Tsui"), who has been

the driving force behind several well-known Chinese reverse merger companies that have bilked

U.S. investors of hundreds of millions of dollars.

6. New Energy became a public traded entity through a reverse merger facilitated by

Kit Tsui in 2004. The Chinese operating entity, Shenzhen E'Jenie Technology Development Co.,

Ltd ("E'Jenie"), that was reverse merged into New Energy was initially owned by Xuemei Fang,

a confederate of Kit Tsui. Xuemei Fang is the same person that New Energy later purportedly sold

E'Jenie and another subsidiary to in November of 2011.


7. Kit Tsui through his affiliates and confederates has helped numerous fraudulent

Chinese companies obtain a U.S. listing through a reverse merger ("Reverse Chinese Merger" or

"RCM"). Beginning in early to mid 2010 numerous RCMs, including those brought to market by

Kit Tsui, were being accused of fraud because the companies had maintained two sets of books.

8. Consequently, from 2010 to present, RCMs, like New Energy, have come under

increased scrutiny by the SEC and private litigants. In early 2011, as a result of a number of

high-profile People's Republic of China ("PRC") company frauds and private litigation activity,

the SEC established a task force to investigate investors' claims. SEC Commissioner Luis A.

Aguilar specifically stated the SEC had "systematic concerns with the quality of the auditing and

financial reporting" of RCMs.

9. Beginning in November 2010 New Energy began to receive letters from the SEC

asking it to explain a number of items in its annual reports filed with the SEC. At the same time,

certain of Kit Tsui's other RCM's had been accused of maintaining two set of books. To fend off

potential claims against Defendants and to avoid the increased scrutiny, in December 2010 New

Energy filed "amended" filings with the Chinese regulators that showed financial results that

comported with the Company's SEC filings during the Class Period. New Energy actually posted

these regulatory financial statements on its website on or before March 31, 2011.

10. The amended PRC regulatory filings that comport with New Energy's SEC filings

are fraudulent and are merely an attempt to cover-up fraud. For example, one of the audit reports

contained in the amended regulatory filing is dated before the date of the audit report it was

purporting to amend.

3


Ii. New Energy and Kit Tsui failed to cover all of their tracks. E'Jenie's alleged

largest customer during the Class Period, Shemzhen Hua Yin Tong Battery Tech. Co., Ltd.,

accounting for 74.8% or $14.75 million and 55.9% or $14.74 million of New Energy sales in 2008

and 2009, is a fraud. The customer is an entity controlled by Kit Tsui and his confederates. This

customer's financial statements filed with PRC regulators show that it earned no revenue from

2005 through 2008, and in 2009 the customer changed its business to that of an investment

company.

12. New Energy's supposed suppliers also demonstrate that New Energy overstated its

revenue and income during the Class Period. For example, New Energy's largest supplier in 2009,

Shenzhen Da Ke Battery Co. Ltd., ceased operations in 2008.

13. New Energy's second largest supplier, Shenzhen Tian Lu Battery Co., Ltd,

purportedly accounting for 26.9% and 26.6% of New Energy's manufacturing and raw material

purchases in 2008 and 2009, respectively, reported revenue of a little over $95,000 for 2008 and

2009 combined. For 2008 and 2009 New Energy's claimed cost of revenue was $14.1 million and

$18.3 million.

14. As it became increasingly difficult for the Company to maintain this fraud in light

of increased scrutiny by the SEC that had questioned numerous aspects of the Company's business

and financial results, including the Company's annual raw material plans, New Energy could not

continue to report year over year growth as it did throughout the Class Period and could not sustain

the fraud.

15. As a result, on November 15, 2011 the Company announced a 42% year over year

decline in revenue for the third quarter, which caused the price of New Energy stock to lose over

ru


half of its value.

16. On November 30, 2011 the Company attempted to wipe its hands of the fraud by

purporting to sell E'Jenie to another subsidiary, Shenzhen NewPower Technology Co., Ltd, to

Xuemei Fang—the initial owner of E'Jenie and a Kit Tsui confederate.

JURISDICTION AND VENUE

17. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of

the Exchange Act (15 U.S.C. § 78j(b) and 78t(a)) and Rule lOb-5 promulgated thereunder (17

C.F.R. § 240.10b-5).

18. This Court has jurisdiction over the subject matter of this action pursuant to Section

27 of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331.

19. Venue is proper in this Judicial District pursuant to Section 27 of the Exchange Act

(15 U.S.C. § 78aa) and 28 U.S.C. § 1391(b) as a substantial part of the conduct complained of

herein occurred in this District.

20. In connection with the acts, conduct and other wrongs alleged herein, Defendants

either directly or indirectly used the means and instrumentalities of interstate commerce, including

but not limited to the United States mails, interstate telephone communications and the facilities

of the national securities exchange.

PARTIES

21. Lead Plaintiff the Jason Investor Group and named plaintiff Pascal Van Hove GCV

purchased New Energy securities at artificially inflated prices during the Class Period and have

been damaged thereby. Plaintiffs' certifications have previously been filed with the Court and are

incorporated herein by reference.

5


22. Defendant New Energy (previously known as China Digital Communication

Group) is a Nevada Corporation with an office located at 116 West 23 d New York, NY.

The New York office is an office share mail drop location. The Company is headquartered in the

People's Republic of China.

23. On November 15, 2004, New Energy, through a reverse merger, acquired Billion

Electronic Co. Ltd. and its wholly-owned operating subsidiary, E'Jenie.

24. New Energy's structure in 2008 is demonstrated below:

New Energy Systems Group (a Nevada corporation)

Billion Electronic Co., Ltd. (a BVI corporation)

Shenzhen E'Jenie Technology Development Co., Ltd.

(a PRC corporation)

25. On December 7, 2009, the Company acquired Anytone International (HK.) Co.,

Ltd. ("Anytone International") and its wholly owned operating subsidiary Shenzben Anytone

Technology Co., Ltd. ("Anytone"). On December 11, 2009, the Company entered into a share

exchange agreement with Shenzhen NewPower Technology Co., Ltd. ("NewPower"), whereby

NewPower would merge with and into E'Jenie.




Anytone International (H.K.) Co., Ltd. Billion Electronic Co., Ltd. (a HK corporation)

(a BVI corporation)

Shenzhen Anytone Technology Co., Ltd. Shenzhen E'Jeme Technology Development (a PRC corporation)

Co., Ltd. (a PRC corporation)

Shenzhen NewPower Technology Co., Ltd. (a PRC corporation)

27. In November of 2010, the Company acquired its fourth subsidiary, Shenzhen Kim

Fai Solar Energy Technology Co., Ltd ("Kim Fai"). These subsidiaries are incorporated under the

laws of the People's Republic of China.




Anytone International (H.K.) Co., Ltd. Billion Electronic Co., Ltd. (a HK corporation)

(a BVI corporation)

Shenzhen Anytone Technology Co., Ltd. Shenzhen E'Jenie Technology (a PRC corporation)

Development Co., Ltd. (a PRC corporation)

Shenzhen Kim Fai Solar Energy Technology Co., Ltd. (a PRC corporation)

Shenzhen NewPower Technology Co., Ltd. (a PRC corporation)

29. Through E'Jenie, New Energy purports to manufacture and distribute lithium

battery shells and related products, primarily in China.

30. Through Anytone, the Company purports to engage in research, manufacturing and

sales of mobile backup power systems for mobile phones, laptops, solar, MP4, PMPs, PDAs, DC

and digital applications. Kim Fai purports to produce solar panels and solar-related products and

with its acquisition, the Company allegedly combined Kim Fai's solar technology with the

Company's original lithium ion battery technology.

31. Throughout the Class Period, the Company's common stock was listed under the

ticker symbol "NEWN" on the NYSE and AMEX.


32. Defendant Fushun Li ("Li") served as the Company's Chief Executive Officer

("CEO") from the beginning of the Class Period through May 14, 2010 and as a director from May

5, 2009 to March 18, 2011.

33. Defendant Nian Chen ("N. Chen") served as the Company's CEO during part of

the Class Period, from May 14, 2010 through August 19, 2011. Defendant N. Chen was a

co-founder of Anytone.

34. Defendant Junfeng Chen ("J. Chen") served as the Company's Chief Financial

Officer ("CFO") and Secretary at all relevant times since August 2009. Prior to his appointment

with New Energy, Defendant J. Chen served as CFO of E'Jenie.

35. Defendant Weihe Yu ("Yu") served as the Chairman of the Board of Directors (the

"Board") at all relevant times and was appointed the Company's Chief Executive Officer ("CEO")

on August 19, 2011. Throughout the Class Period, Defendant Yu variously owned 7.5% to over

9% of New Energy's stock. Defendant Yu had previously served as Anytone's CEO from July

2005 to December 2009.

36. Defendants Li, N. Chen, J. Chen, and Yu are collectively referred to hereinafter as

the "Individual Defendants."

37. Each of the Individual Defendants:

(a) was directly involved in the day-to-day operations of the Company at the

highest levels;

(b) was privy to confidential proprietary information concerning the Company

and its business and operations;

(c) was involved in drafting, producing, reviewing and/or disseminating the


false and misleading statements and information alleged herein;

(d) was aware of or recklessly disregarded the fact that the false and misleading

statements were being issued concerning the Company; and

(e) approved or ratified these statements in violation of the federal securities

laws.

38. Defendant New Energy is liable for the acts of the Individual Defendants and its

employees under the doctrine of respondeat superior and common law principles of agency as all

of the wrongful acts complained of herein were carried out within the scope of their employment

with authorization.

39. The scienter of the Individual Defendants and other employees and agents of the

Company is similarly imputed to New Energy under respondeat superior and agency principles.

SUBSTANTIVE ALLEGATIONS OF FRAUD

A. NEW ENERGY'S 2009 FORM 10-K IS FALSE AND MISLEADING

Defendants Misstate Revenue and Earnings

40. The Class Period begins on April 15, 2010, when New Energy filed with the SEC

its annual report on Form 10-K for the fiscal year ended December 31, 2009 ("2009 1 0-K")

41. The 2009 10-K was signed by Defendants Li, J. Chen, and Yu. Defendants Li and

Chen separately executed certifications pursuant to the Sarbanes-Oxley Act of 2002 ("SOX")

falsely attesting to the accuracy of the 2009 10-K.

42. The 2009 10-K falsely reported that New Energy earned revenue of $26.38 million

and net income of $5.84 million for the year ended December 31, 2009, and revenue of $19.72

million and net income of $4.45 million for the year ended December 31, 2008. These financial

10


statements were comprised entirely of the business and financial results of the Company's main

operating subsidiary at the time, E'Jenie; as E'Jenie represented nearly all of the Company's

revenue and income during fiscal 2008 and 2009.

43. The 2009 10-K was materially false and misleading because E'Jenie's filed

financial statements with PRC regulators showing that E'Jenie's true financial results were just a

fraction of what was represented in the 2009 10-K. E'Jenie's 2008 SAIC' filing and 2009 SAIC

inspection report showed the following revenue and net profit for E'Jenie. 2

FY 2008- E'Jenie

DISCREPANCY OVERSTATEMENT

SAIC SEC (SEC-SAX ) ((SEC-S AIC)/SAIC)

Revenue $3,548,028.39 $19,716,408.00 $16,168,379.61 456%

Net income $44,675.17 $4,451,072.00 $4,406,396.83 9863%

FY 2009- E'Jenie

S 4iC SEC DISCREPANCY OV JRSTATEMENT

SA IC ((SEC-SAIC)JSAIC)

Revenue $2,052,392.80 $26,375,890.00 $24,323,497.20 1185%

Net income $59,798.04 $5,837,395.00 $5,777,596.96 9662%

44. The 2009 10-K also included pro forma financial statements. These pro forma

financial statements incorporated New Energy's financial results with that of Ariytone and

The SAIC (State Administration for Industry and Commerce) is the Chinese government body that regulates industry and commerce in China. It is primarily responsible for business registrations, issuing and renewing business licenses and acts as the government supervisor of corporations. All Chinese companies are required to (1) file audited financial statements with the Chinese government annually or bi-annually; and (2) file amendment to its business registration records whenever there is a change to its owners, business address, legal representative and board of directors and etc. within 15 or 30 days of such changes depending on character of its business.

2 The exchange rates used in this complaint are: (a) 2008, USD $1=RMB 6.9511 and (b) 2009,

USD$l=RMB Y 6.833. 11


NewPower, as if the Company had obtained them in 2008. These financial statements falsely

reported total revenue of $67.2 million and net income of $9.3 million for the fiscal year ended

December 31, 2009, and total revenue of $42 million and net income of $3.8 million for fiscal year

ended December 31, 2008.

45. The SATC filings information for E'Jenie, Anytone, and NewPower reported the

following revenue and net income for 2008:

FY 2008- E'Jeuie, Anytone and NewPower (pro forma) 3

Total S&IC SEC (SEC SAIC) OVERSTATEMENT

E'Jenie Ajiytone NewPower (thousand (thousands) (thousands) ((SEC SAIC)/SAJC)

Revenue $3,548,028.39 $159,151.21 $4,893.28 $3,712 $42,028 1 $38,316 1032%

Net income $44,675.17 (K$ .3 1.2$) (176.34) ($5 $3,814 - -

FY 2009- E'Jenieg Anytone and NewPower (pro forma) 4

Total SAIC SEC (SEC-SAIC) OVERSTATEMENT

E'Jenle Anytone NewPewer (thousand (thousands) (thousands) (SEC-SA1C)/SA1c

Revenue $2,052,392.80 $320,137.57 $24,989.27 $2,398 $67,208 $64,810 2703%

Net income $59,798.04 .S1(922.44: 59S 3) $9,314 - -

46. The financial statements and inspection reports Anytone and NewPower filed with

the SAIC obtained by Plaintiffs' counsel's investigators demonstrate New Energy's true pro forma

E'Jenie's 2008 financial information was obtained from its audited financial statements included in the SAIC annual filing dated June 11, 2009. Anytone' s and NewPower' s financial information was obtained from each's financial statements included in the SAIC annual filing, filed during the SAIC annual reporting period between March to June 2009, respectively.

E'Jenie's 2009 financial information was obtained from the SAIC Annual Inspection Report dated July 22, 2010. Anytone's 2009 SAJC financial information was obtained from its SAIC Annual Inspection Report dated May 31, 2010. NewPower's 2009 SAIC financial information was obtained from the SAIC Annual Inspection Report, filed during the SAIC annual reporting period between March to June 2010.

12


financial performance, New Energy's 2009 10-K overstates revenue and net income.

47. Reflecting their importance, SA1C filings must be signed by the legal representative

of the entity submitting it. The legal representative must state "I confirm that the content of the

submitted company's annual inspection report is true."

48. As further evidence of SAIC filings' reliability, well-known auditing firm Deloitte

& Touche Tohmatsu LLP ("DTT") noisily resigned as registered independent auditor to

Chinese-based company ChinaMedia Express Holdings, Inc. ("CCME"), citing in part the fact that

CCME's subsidiary's SAIC filings did not match CCME's SEC filings.

49. The financial statements filed by certain of New Energy's subsidiaries in the PRC

with the SAIC are required to be audited by Chinese CPA firms in conformance with Chinese

GAAP. 5 Those SAIC filings that are not required to be audited are nonetheless filed with the SAIC

in conformance with Chinese GAAP.

50. Chinese GAAP is substantially the same as U.S. GAAP. In particular, for revenue

recognition for sales of goods, U.S. GAAP, Chinese GAAP and New Energy's stated revenue

recognitions policy are the same.

51. There are no significant differences between Chinese GAAP and U.S. GAAP with

respect to revenue recognition. Authoritative bodies have specifically noted that there are no

differences between U.S. GAAP and Chinese GAAP.

52. The Committee of European Securities Regulators, in a paper entitled CESR 's

advice on the equivalence of Chinese, Japanese and US GAAPs (2007), noted that there were no

For example, Chinese law requires that New Energy's subsidiary E'Jenie, which is a sino-foreign jointly owned company, must file audited financial reports with the SAIC. New Energy's other subsidiary financial statements were not required to be audited.

13


significant differences between U.S. GAAP and International Financial Reporting Standards

(1FRS)o p. 25, at 2nd entry on page.

53. There are no significant differences between 1FRS and Chinese GAAP on revenue

recognition. Id. at 35, 6th entry on page. Thus, transitively, there are no significant differences

between U.S. GAAP or Chinese GAAP on revenue recognition.

54. The law firm K & L Gates LLP has represented to the SEC in an October 27, 2010

letter that: "The basic accounting principles and practice of Chinese GAAP are similar to U.S.

GAAP. There are no substantial differences between Chinese GAAP and U.S. GAAP." 7

55. Thus, there are no significant differences between U.S. GAAP and Chinese GAAP

that can explain the differences in New Energy's SAIC financial statements and those it filed with

the SEC.

56. New Energy's 2009 10-K describes its revenue recognition policy as:

The Company manufactures and distributes battery shells and covers for cellular phones. The Company established a new division in 2008, through which the Company began selling batteries in PRC. The Company's revenue recognition policies are in compliance with Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104 (codified in FASB ASC Topic 480). Sales revenue is recognized when the significant risks and rewards of the ownership of goods have been transferred to the buyers. No revenue is recognized if there are significant uncertainties regarding the recovery of the consideration due, the possible return of goods, or when the amount of revenue and the costs incurred or to be incurred in respect of the transaction cannot be measured reliably.

Available at httpJwwwaspIuscom/en/bjnary/urQpe/07 I 2ceqj!çis,. Last checked on August 6, 2012.

See hm:i ::. Last checked on August Ii, 2012.

14


57, New Energy's 10-K for the fiscal year ended December 31, 2008 filed with the SEC

on April 15, 2009 describes the Company's revenue recognition policy as:

The Company manufacture and distribute battery shells and covers for cellular phone. The Company established a new division in 2008, through which the Company began selling batteries in Peoples Republic of China. The Company's revenue recognition policies are in compliance with Staff accounting bulletin (SAD) 104. Sales revenue is recognized when the significant risks and rewards of the ownership of goods have been transferred to the buyers. No revenue is recognized if there are significant uncertainties regarding the recovery of the consideration due, the possible return of goods, or when the amount of revenue and the costs incurred or to be incurred in respect of the transaction cannot be measured reliably.

58. The Chinese accounting standard governing revenue recognition for New Energy's

PRC subsidiaries, ASBE 14, is similar. It states:

Chapter II Revenue from Selling Goods

Article 4 No revenue from selling goods may be recognized unless the following conditions are met simultaneously:

(1) The significant risks and rewards of ownership of the goods have been transferred to the buyer by the enterprise;

(2) The enterprise retains neither continuing management involvement to the degree usually associated with ownership, nor effective control over the goods sold;

(3) The relevant amount of revenue can be measured in a reliable way;

(4) The relevant economic benefits associated with the transaction will flow to the enterprise; and

(5) The relevant costs incurred or to be incurred can be measured in a reliable way.

59. Accordingly, there are no significant differences between U.S. GAAP and Chinese

GAAP for recognizing revenue for the sale of goods in New Energy's case.

60. Differences between U.S. GAAP and Chinese GAAP are not the cause of the huge

15


differences in revenue and income between New Energy's SEC filed financial statements and its

SAIC financial statements. Fraud is the only plausible explanation for the differences.

61. In short in the 2009 10-K, New Energy:

Overstated revenue and net income by $16.1 million or 456% and $4.4 million or 9863% for 2008;

Overstated revenue and net income by $24.3 million or 1185% and $5.7 million or 9662% for 2009;

Overstatedproforma revenue by $38.3 million or 1032% for 2008, and

Overstated pro forma revenue by $64.8 million or 2703% for 2009.

62. New Energy's 10-K for the fiscal year ended December 31, 2010 filed with the SEC

on March 28, 2011 ("2010 10-K") repeated the Company's 2009 financial results set forth in the

2009 10-K. Thus, the 2010 10-K is materially false and misleading for the same reasons. The

2010 10-K was signed by Defendants N. Chen, J. Chen, and Yu.

B. DEFENDANTS ATTEMPT TO COVER-UP THE FRAUD

New Energy is Brought Public by a Notorious Fraudster

63 New Energy is a Reverse Chinese Merger Company. It accomplished this feat

through the efforts of a stock promoter and financial advisor Jie Xu who also goes by the names

Kit Tsui and Dr. Kit Tsui (all aliases collectively "Kit Tsui"). Kit Tsui operates through various

entities and affiliates including a Company called China U.S. Bridge Capital Limited ("China US

Bridge").

64. According to an August 31, 2010 article published in China by the 21 t Century

Business Herald —Kit Tsui was the mastermind and controller of China Finance, Inc. ("China

16


Finance"), a company behind a series of well-known stock frauds involving reverse mergers of

Chinese companies going public in the U.S. capital markets.

65. Through China Finance and China U.S Bridge, Kit Tsui brought numerous

fraudulent RCMs to U.S. Capital markets:

(a) Orient Paper, Inc. - an RCM that was accused of maintaining two sets of

financial statements in June 2010, an accurate set filed with the SAIC and a false set

reported in that company's SEC filings. This company's stock reached a high of

$15.15/share; as of August 9, 2012 Orient Paper's stock closed at $2.10/share.

(b) Gulf Resources, Inc. - an RCM likewise accused of maintaining two sets

of books with the SEC and SAIC. This company's stock price reached a high of nearly

$12/share; as of August 9, 2012 Gulf Resources stock closed at $1.09/share.

(c) Jada Art Group, Inc. - an RCM accused of fraud and delinquent in SEC

filings. The company' stock price reached a high of $5.25/share; as of August 9, 2012

Jada's stock closed at $0.03/share.

(d) Universal Travel Group, Inc. an RCM accused of fraud, SEC

investigation, trading halted, delisted from NYSE. The company's auditor resigned stating

that it had discovered issues relating to the authenticity of confirmations management

provided to auditors, and lack of competent evidence supporting the company's

representations to auditors. The company's stock reached a high of nearly $1 7.20/share; as

of August 9, 2012 Universal Travel's stock closed at $.60/share.

Regulators Scrutinize RCMs, Such as New Energy

66. Beginning in early to mid 2010, the SEC began scrutinizing RCMs, such as New

17


Energy, in the wake of media reports about the questionable pedigree of RCMs and accusations of

fraud levied against RCMs. The SEC's investigation of RCMs intensified after the public

disclosure of the Orient Paper securities fraud in mid 2010 and the RINO International fraud later

in 2010.

67. Consequently, on November 24, 2010, the SEC sent New Energy a letter asking the

Company to provide additional information relating to its operating subsidiaries. For example, the

SEC wanted additional disclosure about the amounts the Company spent on research and

development. The SEC also wanted specific disclosures about the nature of the Company's

subsidiaries, and the Company's annual purchase plan for raw materials.

68. The SEC and the Company exchanged further correspondence throughout early

2011, including a January 6, 2011 letter the SEC wrote to the Company about its 2009 10-K. In a

response to that letter, dated February 2, 2011, the Company falsely claimed that its revenue

recognition policy conformed with GAAP, that the Company's internal controls are effective, and

stated the Company's CFO reviews the subsidiaries' financial statements.

69. The SEC sent New Energy additional letters asking for clarification of the

Company's 2009 10-K and other filings: (a) a letter dated February 16, 2011, and (b) a letter dated

March 16, 2011.

70. The SEC's scrutiny of PRC-based companies listed in the U.S., like New Energy,

resulted from the number of fraudulent PRC-based companies brought to the U.S. markets through

a reverse merger.

71. In early 2011, as a result of the number of high-profile PRC-based company frauds,

the SEC established a task force to investigate investors' claims. SEC Commissioner Luis A.

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Aguilar (the "Commissioner") discussed Chinese reverse mergers and the process of "backdoor

registration," stating:

In the world of backdoor registrations to gain entry into the U.S. public market, the use by Chinese companies has raised some unique issues, even compared to mergers by U.S. companies. Two important ones are:

First, there appear to be systematic concerns with the quality of the auditing and financial reporting; and

Second, even though these companies are registered here in the U.S., there are limitations on the ability to enforce the securities laws, and for investors to recover their losses when disclosures are found to be untrue, or even fraudulent.

I am worried by the systematic concerns surrounding the quality of the financial reporting by these companies. In particular, according to a recent report by the staff of the Public Company Accounting Oversight Board (PCAOB), U.S. auditing firms may be issuing audit opinions on the financials, but not engaging in any of their own work. Instead, the U.S. firm may be issuing an opinion based almost entirely on work performed by Chinese audit firms. If this is true, it could appear that the U.S. audit firms are simply selling their name and PCAOB-registered status because they are not engaging in independent activity to confirm that the work they are relying on is of high quality. This is significant for a lot of reasons, including that the PCAOB has been prevented from inspecting audit firms in China.

72. On June 9, 2011, the SEC issued an Investor Bulletin warning investors about

investing in companies that enter U.S. markets through RCM ". . . there have been instances of

fraud and other abuses involving reverse merger companies." "Given the potential risks, investors

should be especially careful when considering investing in the stock of reverse merger companies,"

said Lori J. Schock, Director of the SEC's Office of Investor Education and Advocacy.

73. Additionally, beginning in mid 2010 and continuing through 2011, dozens of

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Chinese-based companies were being sued by investors for, among other things, issuing false

financial statements and keeping "two sets of books." One set filed with the SEC and another set

of books filed with the SAIC.

New Energy Changes Its SAIC Filings to Comport with its SEC Filings to Cover-Up Fraud

74. To head off the swell of regulatory scrutiny and shareholder litigation, beginning on

after December 13, 2010, New Energy's four subsidiaries filed so-called amended SAIC filings for

2008.

75, The 2008 amended SAIC filings included fraudulent financial statements that were

intended to mask the true revenue and income of New Energy's subsidiaries. Whereas, previously

its PRC subsidiaries financial statements reported revenue and income that was a tiny fraction of

that reported New Energy's 2009 10-K and 10-Q quarterly reports, its "amended" SAIC filings

included financial statements that matched the revenue and income reported in its SEC filings.

76. The "amendments" were made to each of the Company's four operating

subsidiaries, E'Jenie, Anytone, NewPower, and Kim Fai. 5 These amendments made the SAIC

filings revenue and income consistent with the Company's reported revenue and income for 2008

with the SEC.

77. As to the New Energy's subsidiaries' 2009 financial results, as part of the cover-up,

New Energy in the first instance filed financial statements with the SAIC that were consistent with

its SEC filings. However, it overlooked the subsidiaries' annual inspection report' ), which reported

Kim Fai was acquired by the New Energy in November 2010. Anytone and NewPower were acquired by the Company in 2009. However, as explained herein the 2009 10-K contained pro forma financial statements for 2008 and 2009 that included the financial results of Anytone and NewPower.

The SAIC annual filings usually consisted of two parts: (1) the annual inspection report in a 20


revenue and income a fraction of what the Company reported for fiscal 2009 in its SEC filings.

78. The stated rationale for each of the 2008 amendments accompanying the amended

SAIC filings were substantially the same. The Company provided the following explanation for

Anytone's 2008 SAIC Financial Statements:

Explanation for the Amendment to Partial Information in the Financial Statement of 2008

Honored Market Supervision Administration of Shenzhen Municipality:

Shenzben Anytone Science and Technology Company Ltd. was established in 2005, majoring in technology development, production and sales of electronic products and other domestic business and material supply and marketing. Recently our company decides to go to public in the U.S. market, but because of the differences between the U.S. and Chinese GAAP, audit method and accounting, part of the 2008 financial information we have reported to Market Supervision Administration of Shenzhen Municipality does not comply with the U.S. market's requirement. In order to make sure the disclosed financial information is in consistence with related U.S. audit requirement while it does not violate the Chinese GAAP, and also to decrease unnecessary misunderstanding from outside world, our company hereby report corrected true and complete 2008 financial statement after strict review and serious amendment. We also apply with the Market Supervision Administration of Shenzhen Municipality to correct the financial information we have disclosed to the public earlier. Hereby, as to our 2008 financial statement, the corrected one shall prevail. We hereby explain.

Your assistance and support will be highly appreciated.

With high respect,

Sheuzhen Anytone Science and Technology Co., Ltd. (seal)

template published by the national SAIC bureau and (2) financial statements of the company which should be audited if such company is a foreign-invested or foreign-sino joint venture company.

21

Case 1:12-cv-01041-LAK Document 21-1 Filed 08/14/12 Page 1 of 15

December 13, 2010

79. The purported amendments were bogus attempts to cover-up fraud and do not

demonstrate that the Company's SEC filings are accurate.

80. New Energy's explanation for the amendments makes no sense. It states that the

amended financial statements comply both with Chinese GAAP and U.S. GAAP -- and yet reports

hugely different revenue and income figures for the original and amended sets of financial

statements. This is a patently false statement. The huge disparities from the revenue and income

originally reported in SAIC filings and those reported in the amendments cannot be explained

through differences in U.S. and Chinese GAAP. As noted above, Chinese GAAP and U.S. GAAP

are essentially the same as to revenue recognition.

81. As part of the amendments filed on December 13, 2010, New Energy filed the

amended 2008 SAIC filing for E'Jenie which included an audit opinion of a Shenzhen Huatu CPA

Finn dated February 8, 2009. However, the original SAIC filing that this filing attempted to

amend had an audit opinion from Shenzhen Haihua CPA Firm dated June 23, 2009 - dated over

four months after the "amended" audit opinion was signed.

82. That New Energy attempted to pass off an audit opinion that was dated four months

before the audit opinion it was attempting to amend, shows that New Energy was engaged in a

coarse effort to cover up their fraud.

83. New Energy's purported amendments to its subsidiaries' SAIC filings merely

demonstrate an attempt to prevent its public shareholders of discovering that they maintained two

sets of books an accurate set reflected in SAIC filings and a fraudulent set filed with the SEC, as

such allegations had already been lodged at several RCMs, including several of Kit Tsui's listed

22


above.

Kit Tsui's Undisclosed Control of New Energy's Purported Largest Customer and Subsidiary Further Demonstrate That New Energy Fraudulently Misstated Revenue and Income

84. E'Jenie was New Energy's first major operating subsidiary. In 2004 when New

Power acquired E'Jenie through the reverse merger, the initial owner of E'Jenie was Xuemei

Fang—a Kit Tsui confederate. Xüemei Fang was a director of China Finance under Kit Tsui.

Xuemei Fang was also a manager of one of Kit Tsui's companies, Wondelai Communication

Technology Co. Ltd ("Wondelai"). Xuemei Fang is one the purchasers of NewPower and E'Jenie

in the purported sale announced by the Company on November 30, 2011.

85. E'Jenie and New Energy's purported largest customer was Shenzhen FIua Yin Tong

Battery Tech. Co., Ltd., alk/a Shenzhen Hua Yin Tong Electronic Tech., Co. Ltd. (collectively

"Hua Yin Tong")

86. According to the Company's 2009 10-K, customer Hua Yin Tong accounted for

74.8% or $14.75 million and 55.9% or $14.74 million of New Energy's revenue in 2008 and 2009,

respectively. These statements were false as Hua Yin Tong purchased little or no product from

E'Jenie and New Energy. Rather Hua Yin Tong was a Kit Tsui related corporate shell entity used

to fraudulently inflate New Energy's revenues.

87. Hua Yin Tong is an entity controlled by Kit Tsui. Hua Yin Tong was co-founded in

2001 by Weij iang Yu, Kit Tsui' s brother-in-law. Thereafter, Zuhong Xii became the general

manager, legal representative' 0 and 70% owner of Hua Yin Tong from December 28, 2001 through

0 In the PRC a legal representative of a company has significant power over the company. Among other things, a legal representative is authorized to perform all acts regarding the general operation and management of a company and in accordance with its corporate purpose. For example, the legal

23


September 24, 2009. Zuhong Xu was another Kit Tsui confederate as Zuhong Xu was also a

director of China Finance and a manger of Wondelai.

88. Xiyou Xu from September 25, 2009 to present is the 70% owner of Hua Yin Tong,

as well as being - another Kit Tsui confederate. Xiyou Xu is the legal representative of one Tsui' S

major operating companies in China, Shenzhen City Hua Yin Guarantee Investment Co., Ltd.

89. In the 2009 10-K, New Energy falsely stated that customer Hua Yin Tong

accounted for 74.8% or $14.75 million and 55.9% or $14.74 million of New Energy's revenue in

2008 and 2009 because Hua Yin Tong's SAIC filings obtained by Plaintiffs' Counsel's

investigators, indicate that for fiscal years 2005 through 2008, Hua Yin Tong reported zero revenue

in each of those four fiscal years for Hua Yin Tong. On November 24, 2009, Hua Yin Tong

changed its name to Shenzhen City Ruixin Yintong Investment Co., Ltd. and its registered

business scope with the Shenzhen SAIC was changed from "electrical and communications

products, and development and trading of home appliance" to "investment management and

consultation."

90. In China, businesses can only legally conduct business within their registered scope

of business. Conduct of business outside the registered business scope in China will result in fines

or the revocation of the entity's business license. See Article 71 of the Regulations of the PRC on

the Administration of Company Registrations (2005); Article 30 of the PRC Business Entity

Registration Administration (2011).

representative can execute any legal transactions that are within the nature and scope of that company's business; execute power of attorney on behalf of the company to conduct litigation; and execute the share certificate, the corporate bond and other legal documents on the company's behalf.

24


New Energy's Other Purported Suppliers Demonstrate a Much Smaller Company Than Indicated in the Company's SEC Fillings

New Energy's Largest Supplier Ceased Operations in 2008

91. According to the 2009 10-K, for 2009, Shenzhen Da Ke Battery Co. Ltd. ("Da Ke"),

was the Company's largest supplier accounting for 27.7% of the manufacturing and raw materials

New Energy purchased. In 2009, New Energy's cost of revenue Was $18.3 million or 70% of sales.

92. According to Plaintiffs' counsel's investigators, Da Ke has not filed with the SAIC

any annual filing since 2008. If a company does not file SAIC annual filings for several years, it

means that the company is either insolvent or no longer operating. Timely and regular filings with

the SAIC is required by PRC law, otherwise the business will lose its business license. Without a

business license, a company in the PRC cannot maintain a bank account or legally conduct

business. 1

93. Additionally, Plaintiffs' counsel investigators' located two former employees of Da

Ke and interviewed them.

(a) On or about August 7, 2012, Plaintiffs' counsel's investigators interviewed

Messrs. Liu Wang and Yac, former employees of Da Ke. Messrs. Liu Wang and Yao

confirmed that Da Ke ceased operations in the end of 2008.

(b) Mr. Yao also stated that the owner of Da Ke, Mr. Da Ke Lao, in 2008 closed

the factory and left town due to debts that he owed. Mr. Yao confirmed that in 2008 the

Da Ke factory was closed and the whatever plant and equipment in the factory was sold in

If an entity does not have a valid business license, the People's Bank of China (the Chinese central bank), requires the bank account of that entity to be closed. See "Measures for the Administration of RMB Bank Settlement Accounts" issued in April 2003 (No.5 [2003]), Article 49). Without a valid business

25


2008. Therefore, is impossible for Da Ke to have been a supplier to New Energy in 2009.

(c) On or about August 7, 2012, Plaintiffs' counsel's investigators also

interviewed an official of Gonghe Village where Da Ke's registered address and factory

was located, the official confirmed that Da Ke ceased all operation in 2008.

New Energy's Second Largest Supplier Had Combined Revenue of Only $95,000 For 2008 and 2009

94. According to the 2009 10-K, in 2009 New Energy purchased 26.6% of its raw

materials from Shenzhen Tian Lu Battery Co., Ltd ("Tian Lu"). In 2009, New Energy's cost of

revenue was $18.3 million or 70% of sales. Tian Lu's SAIC filings obtained by Plaintiffs'

Counsel's investigators show that for 2009 Tian Lu reported revenue of over $11,000 and net profit

of $434.

95. According to the 2008 10-K, in 2008 New Energy purchased 26.9% of its raw

material from Tian Lu. In 2008, New Energy's cost of revenue was $14.1 million, which was 71%

of net sales. Tian Lu's SAIC filings or fiscal 2008 obtained by Plaintiffs' Counsel's investigators

show that Tiari. Lu reported $84,044 in revenue and a $243 loss for fiscal year 2008.

96. Clearly New Energy falsely stated that in 2008 and 2009 it purchased such large

volumes of raw materials from Tian Lu. Tian Lu was most likely used by Defendants to siphon

money out of New Energy.

C. THE TRUTH BEGINS TO MATERIALIZE AND CAUSES INVESTORS' LOSSES

97. As it became increasingly more difficult for Defendants to hide the true financial

condition of the Company, New Energy could not continue its fraud based on the increasing

license an entity cannot legally conduct business in China. 26


scrutiny of the SEC of New Energy and other RCMs.

98. Thus, Defendants decided to "deflate New Energy's inflated revenue and income in

an arguably plausible manner in an effort to evade detection by the SEC and its shareholders.

99. On November 15, 2011, the Company issued a press release announcing a 42%

decline in year-over-year revenues for third quarter ended September 30, 2011. According the

announcement the decrease was "due primarily to lower sales in the Company's battery sales

division which include. . - E'Jenie battery components." The press release states in relevant part:

Revenues declined 42% year-over-year to $15.3 million for the quarter, due primarily to lower sales in the Company's battery sales divisions, which include Anytone® mobile power consumer products, NewPower battery packs and E'Jenie battery components. In addition to an overall slowdown in the battery market, the Company's deliberate focus on the higher margin businesses resulted in lower sales of battery shells and covers. During the third quarter of 2011, the Company lowered prices for certain products in order to remain competitive with pirated products in the market, which management is rigorously combating

100. The November 15, 2011 press release caused the Company's stock to fail

$0.88/share or 48.6% on November 15, 2011. The Company's stock fell an additional $. 125/share

or 13.4% on November 16, 2011 and an additional $.07/share of 9.3% on November 17, 2011.

101. New Energy's revenue did not fall 42%. Rather, New Energy never had revenue or

income in the large amounts previously reported. Instead, Defendants merely ratcheted down New

Energy's revenue in an effort to conceal their fraud.

102. To that end, on November 30, 2011, the Company filed an 8-K with the SEC

revealing that it was selling E'Jenie and NewPower subsidiaries. This announcement caused the

Company's stock to fall 9.1% on December 1, 2011.

27


PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE

103. At all relevant times, the market for New Energy's common stock was an efficient

market for the following reasons, among others:

(a) New Energy's stock met the requirements for listing, and was listed and

actively traded on the NYSE and the AMEX, highly efficient markets;

(b) As of March 4, 2011, there were 14,296,428 shares of the Company's

common stock issued and outstanding.

(c) During the Class Period, on average, 1,046,668 shares of New Energy

common stock were traded on a weekly basis. Approximately 7.32% of the of New

Energy's shares were bought and sold on a weekly basis, demonstrating a very strong

presumption of an efficient market;

(d) As a regulated issuer New Energy filed with the SEC periodic public reports

and was eligible (and did file) S-3 registration statements with the SEC during the Class

Period;

(e) New Energy regularly communicated with public investors via established

market communication mechanisms, including regular disseminations of press releases on

the national circuits of major newswire services and other wide-ranging public disclosures,

such as communications with the financial press and other similar reporting services;;

(f) New Energy was followed by several securities analysts employed by major

brokerage finns including Hudson Securities, and Rodman and Renshaw (among others),

who wrote reports that were distributed to the sales force and certain customers of their


respective brokerage firms during the Class Period; and;

(g) Unexpected material news about New Energy was rapidly reflected in and

incorporated into the Company's stock price during the Class Period.

104. As a result of the foregoing, the market for New Energy's common stock promptly

digested current information regarding New Energy from all publicly available sources and

reflected such information in New Energy's stock price. Under these circumstances, all purchasers

of New Energy's common stock during the Class Period suffered similar injury through their

purchase of New Energy's common stock at artificially inflated prices, and a presumption of

reliance applies.

PLAINTIFFS' CLASS ACTION ALLEGATIONS

105. Plaintiffs bring this action as a class action pursuant to Federal Rules of Civil

Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all persons who purchased common

stock of New Energy during the Class Period and who were damaged thereby. Excluded from the

Class are Defendants, the current and former officers and directors of the Company, members of

their immediate families and their legal representatives, heirs, successors or assigns and any entity

in which Defendants have or had a controlling interest.

106. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, New Energy's securities were actively traded on the

NYSE and the AMEX. While the exact number of Class members is unknown to Plaintiffs at this

time and can only be ascertained through appropriate discovery, Plaintiffs believe that there are at

least hundreds of members in the proposed Class. Members of the Class may be identified from


records maintained by New Energy or its transfer agent and may be notified of the pendency of this

action by mail, using a form of notice customarily used in securities class actions.

107. Plaintiffs' claims are typical of the claims of the members of the Class, as all

members of the Class are similarly affected by Defendants' wrongful conduct in violation of

federal law that is complained of herein.

108. Plaintiffs will fairly and adequately protect the interests of the members of the Class

and has retained counsel competent and experienced in class and securities litigation.

109. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

(a) whether the federal securities laws were violated by Defendants' acts as

alleged herein;

(b) whether the misstatements alleged herein were made with scienter;

(c) whether statements made by the Individual Defendants to the investing

public during the Class Period misrepresented material facts about the business, prospects,

sales, operations and management of New Energy; and

(d) to what extent the members of the Class have sustained damages and the

proper measure of damages.

110. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the

damages suffered by individual Class members may be relatively small, the expense and burden of

30


individual litigation make it impossible for members of the Class to redress individually the

wrongs done to them. There will be no difficulty in the management of this action as a class action.

FIRST CLAIM

Violation of Section 10(b) of The Exchange Act Against and Rule lOb-5

Promulgated Thereunder Against All Defendants

111. Plaintiffs repeat and reallege each and every allegation contained above as if fully

set forth herein.

112. During the Class Period, Defendants carried out a plan, scheme and course of

conduct which was intended to, and throughout the Class Period, did: (1) deceive the investing

public, including Plaintiffs and other Class members, as alleged herein; and (2) cause Plaintiffs and

other members of the Class to purchase and/or sell New Energy's securities at artificially inflated

and distorted prices. In furtherance of this unlawful scheme, plan and course of conduct,

Defendants, individually and as a group, took the actions set forth herein.

113. Defendants, individually and in concert, directly and indirectly, by the use, means

or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a

continuous course of conduct to conceal adverse material information about the business,

operations and future prospects of New Energy as specified herein.

114. These Defendants employed devices, schemes and artifices to defraud, while in

possession of material adverse non-public information and engaged in acts, practices, and a course

of conduct as alleged herein in an effort to assure investors of New Energy's value and

performance and continued substantial growth, which included the making of, or the participation

in the making of, untrue statements of material facts and omitting to state material facts necessary

31


in order to make the statements made about New Energy and its business operations and future

prospects in light of the circumstances under which they were made, not misleading, as set forth

more particularly herein, and engaged in transactions, practices and a course of business that

operated as a fraud and deceit upon the purchasers of New Energy's securities during the Class

Period.

115. Each of the Individual Defendants' primary liability, and control person liability,

arises from the following facts: (a) the Individual Defendants were high-level executives,

directors, and/or agents of the Company during the Class Period and members of the Company's

management team or had control thereof; (b) each of the Individual Defendants, by virtue of his

responsibilities and activities as a senior officer and/or director of the Company, was privy to and

participated in the creation, development and reporting of the Company's financial condition; (c)

each of the Individual Defendants enjoyed significant personal contact and familiarity with the

other Defendants and was advised of and had access to other members of the Company's

management team, internal reports, and other data and information about the Company's finances,

operations, and sales at all relevant times; (d) each of the Individual Defendants was aware of the

Company's dissemination of information to the investing public that they knew or recklessly

disregarded was materially false and misleading; and (e) each of the Individual Defendants

culpably participated in the wrongful conduct alleged herein.

116. Defendants had actual knowledge of the misrepresentations and omissions of

material facts set forth herein, or acted with reckless disregard for the truth in that they failed to

ascertain and to disclose such facts, even though such facts were available to them. Such

Defendants' material misrepresentations and/or omissions were done knowingly or recklessly and

32


for the purpose and effect of concealing New Energy's financial condition, customer relationships,

and future business prospects from the investing public and supporting the artificially inflated or

distorted price of its securities. As demonstrated by Defendants' overstatements and

misstatements of the Company's financial condition and business prospects throughout the Class

Period, Defendants, if they did not have actual knowledge of the misrepresentations and omissions

alleged, were reckless in failing to obtain such knowledge by deliberately refraining from taking

those steps necessary to discover whether those statements were false or misleading.

117. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price for New Energy's

securities was artificially inflated during the Class Period. In ignorance of the fact that market

prices of New Energy's publicly-traded securities were artificially inflated or distorted, and relying

directly or indirectly on the false and misleading statements made by Defendants, or upon the

integrity of the market in which the Company's securities trade, and/or on the absence of material

adverse information that was known to or recklessly disregarded by Defendants but not disclosed

in public statements by Defendants during the Class Period, Plaintiff and the other members of the

Class acquired and/or sold New Energy securities during the Class Period at artificially high prices

and were damaged thereby.

118. At the time of said misrepresentations and omissions, Plaintiffs and other members

of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiffs and the

other members of the Class and the marketplace known the truth regarding New Energy's financial

results, which were not disclosed by Defendants, Plaintiffs and other members of the Class would

not have purchased or otherwise acquired New Energy securities, or, if they had acquired such

33


securities during the Class Period, they would not have done so at the artificially inflated prices or

distorted prices at which they did.

119. By virtue of the foregoing, the Defendants have violated Section 10(b) of the

Exchange Act, and Rule 1 Ob-5 promulgated thereunder.

120. As a direct and proximate result of Defendants' wrongful conduct, Plaintiffs and

the other members of the Class suffered damages in connection with their respective purchases and

sales of the Company's securities during the Class Period.

121. This action was filed within two years of discovery of the fraud and within five

years of Plaintiffs' purchases of securities giving rise to the cause of action.

SECOND CLAIM

Violation Of Section 20(a) of The Exchange Act Against the Individual Defendants

122. Plaintiffs repeat and reallege each and every allegation contained above as if fully

set forth herein.

123. This Second Claim is asserted against each of the Individual Defendants.

124. The Individual Defendants acted as controlling persons of New Energy within the

meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level

positions, agency, and their ownership and contractual rights, participation in and/or awareness of

the Company's operations and/or intimate knowledge of aspects of the Company's revenues and

earnings and dissemination of information to the investing public, the Individual Defendants had

the power to influence and control, and did influence and control, directly or indirectly, the

decision-making of the Company, including the content and dissemination of the various

34


statements that Plaintiffs contend are false and misleading. The Individual Defendants were

provided with or had unlimited access to copies of the Company's reports, press releases, public

filings and other statements alleged by Plaintiff to be misleading prior to and/or shortly after these

statements were issued, and had the ability to prevent the issuance of the statements or to cause the

statements to be corrected.

125. In particular, each of these Defendants had direct and supervisory involvement in

the day-to-day operations of the Company and, therefore, is presumed to have had the power to

control or influence the particular transactions giving rise to the securities violations as alleged

herein, and exercised the same.

126. As set forth above, New Energy and the certain Individual Defendants each violated

Section 10(b) and Rule 1 Ob-5 by their acts and omissions as alleged in this Complaint.

127. By virtue of their positions as controlling persons, the Individual Defendants are

liable pursuant to Section 20(a) of the Exchange Act as they culpably participated in the fraud

alleged herein. As a direct and proximate result of Defendants' wrongful conduct, Plaintiffs and

other members of the Class suffered damages in connection with their purchases of the Company's

common stock during the Class Period.

128. This action was filed within two years of discovery of the fraud and within five

years of Plaintiffs' purchases of securities giving rise to the cause of action.

WHEREFORE, Plaintiffs pray for relief and judgment, as follows:

A. Determining that this action is a proper class action, designating Plaintiffs as class

representative under Rule 23 of the Federal Rules of Civil Procedure;

35


B. Awarding compensatory damages in favor of Plaintiffs and the other Class

members against all Defendants, jointly and severally, for all damages sustained as a result of

Defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;

C. Awarding Plaintiffs and the Class their reasonable costs and expenses incurred in

this action, including counsel fees and expert fees; and

D. Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

Dated: August 14, 2012

Respectfully submitted,

GAINEY & McKENNA

By:____________ Thomas J. Mcthtnna

440 Park Avenue South, 5th Floor New York, NY 10016 Telephone: (212) 983-1300 Facsimile: (212) 983-0380 Email: Email:

Lead Counsel for Lead Plaintiff

THE ROSEN LAW FIRM, P.A. Phillip Kim Laurence Rosen 275 Madison Avenue, 34th Floor New York, NY 10016

Documents

Case 1:12-cv-01041-LAK Document 21 Filed 08/14/12 Page 1 ...securities.stanford.edu/.../2012814_r01c_12CV01041.pdfNo.: 7:12-CV-01041 (ER) J C' JURY TRIAL DEMANDED t) 1 C' CONSOLIDATED