IN RE SOLAREDGE TECHNOLOGIES, INC. SECURITIES LITIGATION

Background

Plaintiffs purchased SolarEdge securities during the alleged class period, February 13, 2023 through October 19, 2023. They claimed that SolarEdge and its executives violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 by making misleading statements and omitting information about revenue, inventory, demand in Europe, and sell-through rates. They also asserted control-person claims under Section 20(a) against the individual defendants.

Plaintiffs alleged that SolarEdge engaged in “channel stuffing”—forcing distributors to accept unneeded products near the end of financial quarters so the company could recognize revenue and meet targets. They also alleged that demand in Europe was weakening and that inventory at SolarEdge and its distributors was becoming saturated, while the company publicly described demand as strong and inventory as low.

Motion to Dismiss Standard

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. Because the claims involved alleged fraud, the plaintiffs had to plead the alleged misstatements, why they were misleading, and facts supporting a strong inference that the defendants acted with the required wrongful state of mind, known as scienter.

Court’s Analysis

The court concluded that the plaintiffs adequately alleged that statements attributing increased inventory to factors other than channel stuffing were misleading. It also relied on its earlier ruling that statements describing distributor inventory as “low” were materially misleading and that Lando and Faier had knowledge of, or recklessly disregarded, information showing that channel inventory was becoming saturated.

The court held that the plaintiffs plausibly alleged that statements describing European demand as strong were false or misleading. Confidential-witness allegations described concerns about Europe, slowing sales, distributors that were not buying products, and information provided to company leaders through meetings and inventory and sales reports. The court concluded that Lando, Faier, Danziger, and Lowe were sufficiently connected to information that contradicted the public statements, although the claim based on Danziger’s forward-looking prediction of a healthy and robust year failed because the plaintiffs did not adequately allege that he actually knew the prediction was false.

The plaintiffs did not adequately plead that the defendants’ statements about European sell-through rates were false. The allegations that one witness’s forecasts were considered too low and another witness was told to increase forecasts did not show that the challenged European forecasts were false when made or that the forecasts were used in the public statements. The court also found that statements merely reporting the amount and source of revenue were not adequately alleged to be false or misleading.

The court separately held that the plaintiffs did not adequately plead scienter for the alleged channel stuffing. Aggressive sales instructions, knowledge of discounts and payment terms, and statements that the whole company or board knew about the inventory situation did not sufficiently show that Lando or Faier knew about or recklessly disregarded deliberate channel stuffing.

Disposition

The defendants’ motion to dismiss was granted in part and denied in part. The court held that plaintiffs adequately stated Section 10(b) and Section 20(a) claims concerning statements that inventory levels in 2023 were low and that demand in Europe in 2023 was strong. Claims arising from the remaining statements were dismissed with leave to amend as described in the order.

The court granted plaintiffs leave to file a third amended complaint, limited to curing the identified deficiencies concerning the allegedly inflated sell-through forecasts and the individual defendants’ alleged awareness of channel stuffing, within 30 days of the order. The clerk was directed to terminate the motion at Docket Number 76.