Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 1 of 24 Civil Action No. IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO KAREN BARNWELL, Individually and on Behalf of All Others Similarly Situated, v. Plaintiff, ADVANCED EMISSIONS SOLUTIONS, INC., MICHAEL D. DURHAM, MARK H. MCKINNIES, C. JEAN BUSTARD, SHARON M. SJOSTROM, and CHRISTINE B. AMRHEIN, Defendants. CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS AND JURY DEMAND Plaintiff Karen Barnwell ( Plaintiff ), individually and on behalf of all other persons similarly situated, by Plaintiff s undersigned attorneys, for Plaintiff s complaint against defendants, alleges the following based upon personal knowledge as to Plaintiff and Plaintiff s own acts, and upon information and belief as to all other matters based on the investigation conducted by and through Plaintiff s attorneys, which included, among other things, a review of Securities and Exchange Commission ( SEC ) filings by Advanced Emissions Solutions, Inc. ( Advanced Emissions or the Company ), as well as regulatory filings and reports, securities analysts reports and advisories about the Company, press releases and other public statements issued by the Company, and media reports about the Company.
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 2 of 24 NATURE OF THE ACTION 1. This is a securities class action on behalf of all purchasers of the common stock of Advanced Emissions between March 14, 2013 and March 12, 2014, inclusive (the Class Period ). Plaintiff seeks to pursue remedies against Advanced Emissions and several of its current and former senior executives and directors under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the Exchange Act ), and Rule l0b-5 promulgated thereunder. 2. Advanced Emissions Solutions, Inc., together with its subsidiaries, provides environmental technologies and specialty chemicals to the coal-burning electric power generation industry, primarily in the United States. It operates through three segments: Refined Coal, Emission Control, and CO2 Capture. 3. The Company develops and markets refined coal technologies, including the leasing of refined coal facilities for control of nitrous oxides and mercury. It also engages in the development and sale of systems, field testing, chemicals, and services primarily related to control of emissions of mercury, acid gases, sulfur dioxide, and particulate matter for coal and solid fuel fired boilers used in electric generation. In addition, the Company is involved in the research and development of carbon dioxide capture technology through contracts supported by the Department of Energy and industry participants; and development of a technology that allows coal to be burned with lower mercury emissions. 4. Advanced Emissions Solutions, Inc. was founded in 1996 and is headquartered in Highlands Ranch, Colorado. 2
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 3 of 24 5. Throughout the Class Period, Defendants made false and/or misleading statements, and failed to disclose material adverse facts about the Company's business, operations, prospects and performance. Specifically, during the Class Period, Defendants made false and/or misleading statements and/or failed to disclose that: (i) the Company was employing improper accounting practices, particularly with respect to its method for recognizing revenue for its Emission Control business segment contracts; (ii) the Company was experiencing increased operating losses, primarily driven by a reduction of revenues and margins for its Emission Control segment with a corresponding increase in backlog; (iii) the improper accounting practices would require the Company to restate its reported financial statements, and (iv) as a result of the above, the Company s financial statements were materially false and misleading at all relevant times. 6. On March 13, 2014, Advanced Emissions issued a press release announcing that it would postpone its 2013 fourth quarter and year end news release and conference call. In the press release, the Company stated the following: Beginning with the fiscal year ended December 31, 2013, the Company engaged KPMG LLP as its new independent registered public accounting firm. The Company is currently reviewing its accounting practices, particularly its methods of recognizing revenue for its Emission Control business segment contracts. The Company expects the result of this review will likely result in increased operating losses, primarily driven by a reduction of revenues and margins for its emission control segment with a corresponding increase in backlog for the same period. The Company expects to file a Form 12b-25 with the Securities Exchange Commission requesting an automatic extension of 15 calendar days to file its Annual Report on Form 10-K for 2013 on or before the deadline for such filing. 7. On this news, Advanced Emissions stock fell $1.66, or over 6%, to close at $25.17 (adjusted) on heavy volume. 3
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 4 of 24 8. As a result of defendants' wrongful acts and omissions, and the precipitous decline in the market value of the Company's securities, Plaintiff and other Class members have suffered significant losses and damages. JURISDICTION AND VENUE 9. Jurisdiction is conferred by 27 of the Exchange Act. The claims asserted herein arise under 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. This Court has jurisdiction over the subject matter of this action under 28 U.S.C. 1331 and 27 of the Exchange Act. 10. Venue is proper in this District pursuant to 27 of the Exchange Act and 28 U.S.C. 1391(b) as the Company is headquartered and conducts business in this District and the alleged misconduct was transacted in and emanated from this District. 11. In connection with the acts alleged in this Complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the national securities markets. PARTIES 12. Plaintiff, as set forth in the accompanying Certification, which is incorporated by reference herein, purchased the common stock of Advanced Emissions during the Class Period and has been damaged upon the revelation of the alleged corrective disclosures. 13. Defendant Advanced Emissions is a Highlands Ranch, Colorado-based company that provides environmental technologies and specialty chemicals to the coal-burning electric 4
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 5 of 24 power generation industry in the United States. The Company s common stock is listed on the NASDAQ, an efficient market, under the ticker symbol ADES. 14. Defendant Michael D. Durham ( Durham ) served throughout the Class Period as the Company s Chief Executive Officer ( CEO ), Director, and President. 15. Defendant Mark H. McKinnies ( McKinnies ) served throughout the Class Period as the Company s Chief Financial Officer ( CFO ), Principal Accounting Officer, Senior Vice President, Treasurer, Director, and Secretary. 16. Defendant C. Jean Bustard ( Bustard ) served throughout the Class Period as the Company s Chief Operating Officer. 17. Defendant Sharon M. Sjostrom ( Sjostrom ) served throughout the Class Period as the Company s Chief Technology Officer. 18. Defendant Christine B. Amrhein ( Amrhein ) servd throughout the Class Period as the Company s Vice President, and General Counsel. 19. The defendants referenced above in 14-18 are referred to herein as the Individual Defendants. Advanced Emissions and the Individual Defendants are referred to herein, collectively, as Defendants. SUBSTANTIVE ALLEGATIONS 20. Defendant Advanced Emissions is a Highlands Ranch, Colorado-based company that provides environmental technologies and specialty chemicals to the coal-burning electric power generation industry primarily in the United States. The Company s common stock is listed on the NASDAQ, under the ticker symbol ADES. 5
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 6 of 24 MATERIALLY FALSE AND MISLEADING STATEMENTS 21. On March 14, 2013, the Company issued a press release and filed a Form 8-K with the SEC announcing its financial results for the quarter and year ended December 31, 2012. For the fourth quarter, the Company announced a net loss of $5.4 million or $0.54 per diluted share, as compared to net income of $17.2 million or $1.90 per diluted share for same period in 2011. For the year, the Company s net loss was $13.1 million, or $1.31 per diluted share, as compared to a net loss of $22.8 million, or $2.85 per diluted share, for same period in 2011. 22. In the press release, the Company stated that they had a 40% increase in Emission Control ( EC ) revenues. EC backlog as of December 31, 2012 increased to $25.3 million, up from $4.5 million at June 30, 2012 and $736,000 at December 31, 2011. 23. On March 18, 2013, the Company filed its annual financial report on Form 10-K with the SEC, which was signed by Defendants Durham and McKinnies, and reiterated the Company s previously announced quarterly financial results and financial position. In addition, the 10-K included certifications pursuant to the Sarbanes-Oxley Act of 2002 ( SOX ) signed by Defendants Durham and McKinnies, stating that the financial information contained in the Form 10-K was accurate, and disclosed any material changes to the Company s internal control over financial reporting. 24. In the 10-K, the Company stated: Revenues in our EC segment totaled $10 million in 2011 compared to $9.8 million in 2010, representing an increase of 1%. The amounts reported for 2011 and 2010 excludes the work ADA has conducted for Clean Coal, as further described below, which was eliminated in our consolidation. Revenues from the EC segment for 2011 were comprised of sales of ACI systems and services (42%), flue gas chemicals and services (9%) and other services (49%), compared to 56%, 6%, and 38%, respectively, in 2010. 6
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 7 of 24 25. On the May 8, 2013, the Company issued a press release and filed a Form 8-K with the SEC, announcing its financial and operating results for the quarter ended March 31, 2013. For the first quarter of 2013, the Company announced a net loss of $2.2 million, or $0.22 per diluted share, as compared to a net loss of $2.4 million or $0.24 per diluted share for first quarter of 2012. 26. In the press release, the Company stated that Emission Control ( EC ) revenues were up more than threefold from the first quarter of 2012 and double the amount from the fourth quarter of 2012. EC backlog as of March 31, 2013 increased to $32.7 million, up from $25.3 million at December 31, 2012 and $4.6 million at March 31, 2012. 27. On May 10, 2013, the Company filed its quarterly financial report on Form 10-Q with the SEC, which was signed by Defendants Durham and McKinnies, and reiterated the Company s previously announced quarterly financial results and financial position. In addition, the 10-Q included certifications pursuant to the Sarbanes-Oxley Act of 2002 ( SOX ), signed by Defendants Durham and McKinnies, stating that the financial information contained in the Form 10-Q was accurate and disclosed any material changes to the Company s internal control over financial reporting. 28. In the 10-Q, the Company stated: Revenues in our EC segment totaled $8.8 million for the quarter ended March 31, 2013 compared to $2.8 million for the same period in 2012, representing an increase of 217%, primarily due to increased sales of ACI and DSI systems and the recognition of revenues for previously awarded sales contracts as well as revenues resulting from our acquisition of the assets of Bulk Conveyor. Revenues from the EC segment for the quarter ended March 31, 2013 were comprised of sales of ACI and DSI systems and services (86%), consulting and demonstration services (11%) and flue gas chemicals and services (3%) compared to 51%, 41%, and 8%, respectively, for the same period in 2012. We expect our EC segment revenues related to ACI and DSI systems to continue to grow significantly in 7
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 8 of 24 2013 as we expect utilities, cement plants and industrial boilers to continue placing orders in response to the MATS and other MACT regulations. We expect our gross margin percentage for our EC segment for 2013 will approximate 20% to 25%. 29. On August 7, 2013, the Company issued a press release and filed a Form 8-K with the SEC, announcing its financial and operating results for the quarter ended June 30, 2013. For the second quarter of 2013, the Company announced a net loss of $3.2 million, or $0.32 per diluted share, as compared to a net loss of $1.3 million, or $0.13 per diluted share, for second quarter of 2012. 30. In the press release, the Company stated that Emission Control ( EC ) revenues more than doubled from the second quarter of 2012 and were up 37% from the first quarter of 2013. EC backlog as of June 30, 2013 was $33.2 million, up from $4.5 million at June 30, 2012 and from $32.7 million at March 31, 2013. 31. On August 9, 2013, the Company filed its quarterly financial report on Form 10- Q with the SEC, which was signed by Defendants Durham and McKinnies, and reiterated the Company s previously announced quarterly financial results and financial position. In addition, the 10-Q included certifications pursuant to the Sarbanes-Oxley Act of 2002 ( SOX ) signed by Defendants Durham and McKinnies, stating that the financial information contained in the Form 10-Q was accurate, and disclosed any material changes to the Company s internal control over financial reporting. 32. In the 10-Q, the Company stated: Revenues in our EC segment totaled $12 million and $20.8 million for the three and six months ended June 30, 2013, respectively, compared to $4.0 million and $6.7 million for the same periods in 2012, representing an increase of 203% and 209% for the quarter and year to date primarily due to increased sales of ACI and DSI systems and the recognition of revenues for previously awarded sales 8
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 9 of 24 contracts as well as additional equipment sales revenues resulting from our acquisition of the assets of Bulk Conveyor in August 2012. Revenues from the EC segment for the six months ended June 30, 2013 were comprised of sales of ACI and DSI systems and services (84%), consulting and demonstration services (15%) and flue gas chemicals and services (1%) compared to 62%, 32%, and 6%, respectively, for the same periods in 2012. We expect our EC segment revenues related to ACI and DSI systems to continue to grow significantly in 2013 as we expect utilities, cement plants and industrial boilers to continue placing orders in response to the MATS and other MACT regulations. We expect our gross margin percentage for our EC segment for 2013 will approximate 20%. On the November 7, 2013, the Company issued a press release and filed a Form 8-K with the SEC, announcing its financial and operating results for the quarter ended September 30, 2013. Total net service revenues for the third quarter of 2013 were $67.3 million, a 10.0% increase compared to $61.2 million in the prior year quarter attributable to a 12.1% increase in average census in the quarter and a slight decline in average billable hours per client. Net income from continuing operations for the third quarter was $2.8 million, or $0.25 per diluted share, a 25.7% increase when compared to $2.2 million, or $0.20 per diluted share, in the prior year quarter. Net income, including a loss from discontinued operations, was $2.6 million, or $0.23 per diluted share. 33. On the November 7, 2013, the Company issued a press release and filed a Form 8-K with the SEC, announcing its financial and operating results for the quarter ended June 30, 2013. Third quarter earnings were $1.6 million, or $0.16 per diluted share, compared to a net loss of $3.9 million or $0.39 per diluted share, for third quarter of 2012. 34. In the press release, the Company reported for the Emission Control segment, a Backlog of $56.6 million up from $33.2 million at June 30, 2013 and that Revenues of $14.5 million more than tripled from the third quarter of 2012 and were up more than 20% from the second quarter of 2013. 35. On November 12, 2013, the Company filed its quarterly financial report on Form 10-Q with the SEC which was signed by Defendants Durham and McKinnies, and reiterated the Company s previously announced quarterly financial results and financial position. In addition, the 10-Q included certifications pursuant to the Sarbanes-Oxley Act of 2002 ( SOX ), signed by 9
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 10 of 24 Defendants Durham and McKinnies, stating that the financial information contained in the Form 10-Q was accurate and disclosed any material changes to the Company s internal control over financial reporting. segment: 36. In the 10-Q, the Company stated the following regarding its Emission Control Revenues increased in the current periods shown compared to the same periods in 2012 primarily due to increased sales of ACI and DSI systems, the recognition of revenues for previously awarded sales contracts as well as additional equipment sales revenues resulting from our acquisition of the assets of Bulk Conveyor in August 2012. We expect our EC segment revenues related to ACI and DSI systems to continue to grow significantly as we expect utilities, cement plants and industrial boilers to continue placing orders in response to the MATS and other MACT regulations. As of September 30, 2013, we had contracts in progress for work related to our EC segment totaling $56.6 million, which we expect to recognize as revenue starting in the last three months of 2013 and the remainder in 2014 and 2015. Cost of revenues increased for the periods shown compared to the same periods in 2012 primarily as a result of the increased revenue-generating activities from our ACI and DSI system sales. Gross margins decreased for the periods shown compared to the same periods in 2012 due primarily to competitive pricing we have employed to maintain our market share goals and product mix. We expect the gross margin percentage for our EC segment for 2013 and into 2014 will approximate 20%. EC segment profits increased for the current periods shown compared to the same periods in 2012 primarily due to the increased levels of business from recent contract awards. 37. On November 20, 2013, The Company issued a press release and filed a Form 8- K with the SEC, announcing the completion of its underwritten public offering of 690,000 shares of common stock. The net proceeds from the sale of the shares, after deducting underwriters discounts and other estimated offering expenses payable by the Company, were approximately $29 million. A shelf registration statement relating to the above-described securities was 10
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 11 of 24 previously filed by the Company and declared effective by the Securities and Exchange Commission. A final prospectus supplement related to the offering was filed with the Securities and Exchange Commission on November 19, 2013. 38. The statements referenced in 21-37 above, were materially false and/or misleading because they misrepresented and failed to disclose the following adverse facts, which were known to defendants or recklessly disregarded by them, including that: (i) the Company was employing improper accounting practices, particularly with respect to its method for recognizing revenues for its Emission Control business segment contracts; (ii) the Company was experiencing increased operating losses, primarily driven by a reduction of revenues and margins for its Emission Control segment with a corresponding increase in backlog; (iii) the improper accounting practices would require the Company to restate its financial statements, and (iv) as a result of the above, the Company s financial statements were materially false and misleading at all relevant times. The Truth Begins to Emerge 39. On March 13, 2014, Advanced Emissions issued a press release announcing that it would postpone its 2013 fourth quarter and year end news release and conference call. In the press release, the Company stated the following: Beginning with the fiscal year ended December 31, 2013, the Company engaged KPMG LLP as its new independent registered public accounting firm. The Company is currently reviewing its accounting practices, particularly its methods of recognizing revenue for its Emission Control business segment contracts. The Company expects the result of this review will likely result in increased operating losses, primarily driven by a reduction of revenues and margins for its emission control segment with a corresponding increase in backlog for the same period. 11
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 12 of 24 The Company expects to file a Form 12b-25 with the Securities Exchange Commission requesting an automatic extension of 15 calendar days to file its Annual Report on Form 10-K for 2013 on or before the deadline for such filing. 40. On this news, the Company s stock fell $1.66, or over 6%, to close at $25.17 (adjusted) on heavy volume. 41. As a result of defendants' wrongful acts and omissions, and the precipitous decline in the market value of the Company's securities, Plaintiff and other Class members have suffered significant losses and damages. PLAINTIFF S CLASS ACTION ALLEGATIONS 42. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or otherwise acquired Advanced securities during the Class Period (the Class ); and were damaged upon the revelation of the alleged corrective disclosures. Excluded from the Class are defendants herein, the officers and directors of the Company, at all relevant times, 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. 43. The members of the Class are so numerous that joinder of all members is impracticable. Throughout the Class Period, Advanced Emissions securities were actively traded on the NASDAQ. While the exact number of Class members is unknown to Plaintiff at this time and can be ascertained only through appropriate discovery, Plaintiff believes that there are hundreds or thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by the Company or its transfer agent and 12
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 13 of 24 may be notified of the pendency of this action by mail, using the form of notice similar to that customarily used in securities class actions. 44. Plaintiff s 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. 45. Plaintiff 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. Plaintiff has no interests antagonistic to or in conflict with those of the Class. 46. 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: whether the federal securities laws were violated by defendants acts as alleged herein; whether statements made by defendants to the investing public during the Class Period misrepresented material facts about the business, operations and management of Advanced Emissions; whether the Individual Defendants caused Advanced Emissions to issue false and misleading financial statements during the Class Period; whether defendants acted knowingly or recklessly in issuing false and misleading financial statements; whether the prices of Advanced Emissions securities during the Class Period were artificially inflated because of the defendants conduct complained of herein; and whether the members of the Class have sustained damages and, if so, what is the proper measure of damages. 13
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 14 of 24 47. 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 individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action. 48. Plaintiff will rely, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine in that: defendants made public misrepresentations or failed to disclose material facts during the Class Period; the omissions and misrepresentations were material; Advanced Emissions securities are traded in an efficient market; the Company s shares were liquid and traded with moderate to heavy volume during the Class Period; the Company traded on the NASDAQ and was covered by multiple analysts; the misrepresentations and omissions alleged would tend to induce a reasonable investor to misjudge the value of the Company s securities; and Plaintiff and members of the Class purchased, acquired and/or sold Advanced securities between the time the defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without knowledge of the omitted or misrepresented facts. 49. Based upon the foregoing, Plaintiff and the members of the Class are entitled to a presumption of reliance upon the integrity of the market. 50. Alternatively, Plaintiff and the members of the Class are entitled to the presumption of reliance established by the Supreme Court in Affiliated Ute Citizens of the State 14
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 15 of 24 of Utah v. United States, 406 U.S. 128, 92 S. Ct. 2430 (1972), as Defendants omitted material information in their Class Period statements in violation of a duty to disclose such information, as detailed above. COUNT I For Violations of 10(b) of the Exchange Act and Rule 10b-5 Against All Defendants 51. Plaintiff repeats and realleges each and every allegation contained above as if fully set forth herein. 52. This Count is asserted against defendants and is based upon Section 10(b) of the Exchange Act, 15 U.S.C. 78j(b), and Rule 10b-5 promulgated thereunder by the SEC. 53. During the Class Period, defendants engaged in a plan, scheme, conspiracy and course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions, practices and courses of business which operated as a fraud and deceit upon Plaintiff and the other members of the Class; made various untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and employed devices, schemes and artifices to defraud in connection with the purchase and sale of securities. Such scheme was intended to, and, throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of Advanced Emissions securities; and (iii) cause Plaintiff and other members of the Class to purchase or otherwise acquire Advanced Emissions securities and options at artificially inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions set forth herein. 15
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 16 of 24 54. Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the defendants participated directly or indirectly in the preparation and/or issuance of the quarterly and annual reports, SEC filings, press releases and other statements and documents described above, including statements made to securities analysts and the media that were designed to influence the market for Advanced Emissions securities. Such reports, filings, releases and statements were materially false and misleading in that they failed to disclose material adverse information and misrepresented the truth about Advanced Emissions finances and business prospects. 55. By virtue of their positions at Advanced Emissions, defendants had actual knowledge of the materially false and misleading statements and material omissions alleged herein and intended thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, defendants acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose such facts as would reveal the materially false and misleading nature of the statements made, although such facts were readily available to defendants. Said acts and omissions of defendants were committed willfully or with reckless disregard for the truth. In addition, each defendant knew or recklessly disregarded that material facts were being misrepresented or omitted as described above. 56. Defendants were personally motivated to make false statements and omit material information necessary to make the statements not misleading in order to personally benefit from the sale of Advanced Emissions securities from their personal portfolios. 57. Information showing that defendants acted knowingly or with reckless disregard for the truth is peculiarly within defendants knowledge and control. As the senior managers 16
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 17 of 24 and/or directors of Advanced Emissions, the Individual Defendants had knowledge of the details of Advanced Emissions internal affairs. 58. The Individual Defendants are liable both directly and indirectly for the wrongs complained of herein. Because of their positions of control and authority, the Individual Defendants were able to and did, directly or indirectly, control the content of the statements of Advanced Emissions. As officers and/or directors of a publicly-held company, the Individual Defendants had a duty to disseminate timely, accurate, and truthful information with respect to Advanced Emissions businesses, operations, future financial condition and future prospects. As a result of the dissemination of the aforementioned false and misleading reports, releases and public statements, the market price of Advanced Emissions securities was artificially inflated throughout the Class Period. In ignorance of the adverse facts concerning Advanced Emissions business and financial condition which were concealed by defendants, Plaintiff and the other members of the Class purchased or otherwise acquired Advanced Emissions securities at artificially inflated prices and relied upon the price of the securities, the integrity of the market for the securities and/or upon statements disseminated by defendants, and were damaged thereby. 59. During the Class Period, Advanced Emissions securities were traded on an active and efficient market. Plaintiff and the other members of the Class, relying on the materially false and misleading statements described herein, which the defendants made, issued or caused to be disseminated, or relying upon the integrity of the market, purchased or otherwise acquired shares of Advanced Emissions securities at prices artificially inflated by defendants wrongful conduct. Had Plaintiff and the other members of the Class known the truth, they would not have purchased or otherwise acquired said securities, or would not have purchased or otherwise 17
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 18 of 24 acquired them at the inflated prices that were paid. At the time of the purchases and/or acquisitions by Plaintiff and the Class, the true value of Advanced Emissions securities was substantially lower than the prices paid by Plaintiff and the other members of the Class. The market price of Advanced Emissions securities declined sharply upon public disclosure of the facts alleged herein to the injury of Plaintiff and Class members. 60. By reason of the conduct alleged herein, defendants knowingly or recklessly, directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. 61. As a direct and proximate result of defendants wrongful conduct, Plaintiff and the other members of the Class suffered damages in connection with their respective purchases, acquisitions and sales of the Company s securities during the Class Period, upon the disclosure that the Company had been disseminating misrepresented financial statements to the investing public. COUNT II (Violations of Section 20(a) of the Exchange Act Against The Individual Defendants) 62. Plaintiff repeats and realleges each and every allegation contained in the foregoing paragraphs as if fully set forth herein. 63. During the Class Period, the Individual Defendants participated in the operation and management of Advanced Emissions, and conducted and participated, directly and indirectly, in the conduct of Advanced Emissions business affairs. Because of their senior positions, they knew the adverse non-public information about Advanced Emissions misstatement of income and expenses and false financial statements. 18
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 19 of 24 64. As officers and/or directors of a publicly owned company, the Individual Defendants had a duty to disseminate accurate and truthful information with respect to Advanced Emissions financial condition and results of operations, and to correct promptly any public statements issued by Advanced Emissions which had become materially false or misleading. 65. Because of their positions of control and authority as senior officers, the Individual Defendants were able to, and did, control the contents of the various reports, press releases and public filings which Advanced Emissions disseminated in the marketplace during the Class Period concerning Advanced Emissions results of operations. Throughout the Class Period, the Individual Defendants exercised their power and authority to cause Advanced Emissions to engage in the wrongful acts complained of herein. The Individual Defendants, therefore, were controlling persons of Advanced Emissions within the meaning of Section 20(a) of the Exchange Act. In this capacity, they participated in the unlawful conduct alleged which artificially inflated the market price of Advanced Emissions securities. 66. Each of the Individual Defendants, therefore, acted as a controlling person of Advanced Emissions. By reason of their senior management positions and/or being directors of Advanced Emissions, each of the Individual Defendants had the power to direct the actions of, and exercised the same to cause, Advanced Emissions to engage in the unlawful acts and conduct complained of herein. Each of the Individual Defendants exercised control over the general operations of Advanced Emissions and possessed the power to control the specific activities which comprise the primary violations about which Plaintiff and the other members of the Class complain. 19
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 20 of 24 67. By reason of the above conduct, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act for the violations committed by Advanced Emissions. PRAYER FOR RELIEF WHEREFORE, Plaintiff prays for relief and judgment, as follows: A. Determining that this action is a proper class action, designating plaintiff as Lead Plaintiff and certifying Plaintiff as a Class representative under Rule 23 of the Federal Rules of Civil Procedure and Plaintiff s counsel as Lead Counsel; B. Awarding compensatory damages in favor of Plaintiff 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 Plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; D. Awarding rescission or a rescissory measure of damages; and E. Awarding such equitable/injunctive or other relief as deemed appropriate by the Court. JURY DEMAND Plaintiff demands a trial by jury. 20
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 21 of 24 Dated: May 1, 2014 DYER & BERENS LLP s/ Jeffrey A. Berens Robert J. Dyer III Jeffrey A. Berens 303 East 17th Avenue, Suite 810 Denver, CO 80203 Telephone: (303) 861-1764 Facsimile: (303) 395-0393 Email: bob@dyerberens.com Email: jeff@dyerberens.com Jeremy A. Lieberman Lesley F. Portnoy POMERANTZ LLP 600 Third Avenue, 20th Floor New York, New York 10016 Telephone: (212) 661-1100 Facsimile: (212) 661-8665 Email: jalieberman@pomlaw.com Email: lfportnoy@pomlaw.com Patrick V. Dahlstrom POMERANTZ LLP 10 South La Salle Street, Suite 3505 Chicago, Illinois 60603 Telephone: (312) 377-1181 Facsimile: (312) 377-1184 Email: pdahlstrom@pomlaw.com Attorneys for Plaintiff 21
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 22 of 24 CERTIFICATION PURSUANT TO FEDERAL SE,cJJ.WYIES LAWS j, Zj/ 3 1 1.- make this declaration pursuant to Section 27(a)(2) of the Securities Act of 1933 ('Securities Act") and/or Section 21 D(a)(2) of the Securities Exchange Act of 1934 ("Exchange Act") as amended by the Private Securities Litigation Reform. Act of 1995. 2. 1 have reviewed a Complaint against Advanced Emissions Solutions, Inc. (Advanced Emissions" or the Company") and authorize the filing of a comparable complaint on my behalf- 3. I did not purchase or acquire Advanced Emissions securities at the direction of plaintilts counsel or in order to participate in any private action arising under the Securities Act or Exchange Act. 4. I am willing to serve as a representative party on behalf of a Class of investors who purchased or acquired Advanced Emissions securities during the class period, including providing testimony at deposition and trial, if necessary. I understand that the Court has the authority to select the most adequate lead plaintiff in this action - 5. To the best of my current knowledge, the attached sheet lists all of my transactions in Advanced Emissions securities during the Class Period as specified in the Complaint. 6. During the three-year period preceding the date on which this Certification is signed, I have not sought to serve as a representative party on behalf of a class under the federal securities laws. 7. I agree not to accept any payment for serving as a representative party or. behalf of the class asset forth in the Complaint, beyond my pro rata share of any recovery, except such reasonable costs and expenses directly relating to the representation of the class as ordered or approved by the Court.
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 23 of 24 8. J declare under penalty of peijury that the foregoing is true and correct Executed_A1.ftU- O) (Date) (Signarire) (Type or Print Name)
Case 1:14-cv-01243-KMT Document 1 Filed 05/01/14 USDC Colorado Page 24 of 24 SUMMARY OF PURCHASES AND S/LF DATE PURCHASE OR NUMBER OF PRICE PER SHARE SALE SHARES oo