Case Study
Louisdor Jean
Strayer University
Case Study
An Italian court has filed criminal charges against an investment fund controlled by China's Suntech Power Holdings, the world's largest maker of solar panels, accusing it of illegally building solar farms to milk state subsidies.
The charges, together with other legal actions still being prepared against the fund, could eventually result in 80 million euros' ($100 million) worth of subsidy-backed solar farms being dismantled, an Italian prosecutor said, extending the problems of Suntech's Global Solar Fund (GSF), which invests in European solar power projects.
The charges and pending litigation have not been disclosed by U.S.-listed Suntech (STP.N), whose problems in Italy appear to go well beyond the limited statements it has so far made in official filings.
Suntech has lost more than 40 percent of its market value since July 30, and is being sued by several U.S. law firms on behalf of shareholders, after revealing that a GSF shareholder and executive, Javier Romero, had used $700 million in fake German bonds to help guarantee some of the fund's financing.
The class-action lawsuits say Suntech, which owns 80 percent of the fund, failed to properly disclose the financial workings of GSF and to monitor its business practices.
The Italian charges add to questions over the Luxembourg-based fund's affairs, the extent to which Suntech supervised it, and how much shareholders were told about the scale of its troubles in Italy.
Suntech is also scrambling to find new financing to cover a convertible bond due early next year at a time when the entire solar industry is in the middle of a slump.
"Suntech management had the opportunity to disclose all potential problems associated with GSF when they announced the suspected fraud with the German bonds," said Mark Bachman, a solar technologies analyst for Avian Securities in Boston.
"If there are now additional potential liabilities related to GSF activities in Italy that were
Undisclosed, then what little investor interest remained in the stock will be eroded."
A prosecutor in the southern Italian city of Brindisi has formally charged five of the fund's subsidiaries with illegal construction of solar power plants, accusing them of sidestepping the approval process in order to exploit Italy's generous renewable-energy subsidies.
The charges are that GSF subsidiaries failed to obtain the correct permit to build solar plants of more than 1 MW by splitting each park up into several smaller units that qualified for a less rigorous and faster permitting process.
In some cases, the GSF subsidiaries prematurely announced completion of construction on the plants in order to meet a deadline needed to qualify for incentives, court documents show.
The trial involving these five solar plants is set to begin on December 6.
Another 11 of the companies controlled by the fund are under investigation, and charges will be sought against them, said Nicolangelo Ghizzardi, the prosecutor handling the cases.
Suntech's chief technology officer, Stuart Wenham, who was appointed by Suntech to help oversee the work of the fund, declined to comment for this story and referred questions to Suntech's executive chairman, Zhengrong Shi, who also has an individual 10.7 percent stake in the Global Solar Fund (Steve S and Stephen J 2012).

References
Steve Scherer and Stephen Jewkes
BRINDISI, Italy ( Wed Aug 29, 2012 )